Private Placement Memorandum
Global Integration Platform for Consumers and Business Telephony
PRIVATE PLACEMENT MEMORANDUM TELCENTRIS, INC. (dba Voxox) Up to $6,000,000 A Private Offering of up to 1,714,285 Shares of Common Stock
Telcentris, Inc. (“Telcentris” or the “Company”), a Delaware corporation, is hereby privately offering (“the Offering”) up to One Million Seven Hundred Fourteen Thousand Two Hundred Eighty Five (1,714,285) shares (“the Shares”) of its Common Stock at $3.50 per Share to be sold in minimum units of Fifteen Thousand (15,000) Shares (rounded up to the nearest whole share) (individually a “Unit” and collectively the “Units”) to be sold at Fifty Two Thousand Five Hundred Dollars ($52,500) per Unit (the “Minimum Purchase”) to a limited number of accredited investors (the “Subscribers”). In addition, the Company reserves the right to offer and sell up to an additional 342,857 Shares. (See “PLAN OF DISTRIBUTION” and “DESCRIPTION OF SECURITIES.”) Subscribers may purchase less than the minimum at the sole discretion of Telcentris. (See “USE OF PROCEEDS.”) Offers and sales of the Units will be made only to accredited investors who are deemed acceptable to Telcentris. (See “INVESTOR SUITABILITY STANDARDS.”) Price to Selling Proceeds to Investors1 Commissions2 Company3 ------Price Per Share: $ 3.50 $ 0.352 $ 3.153 Minimum Purchase (One Unit or 15,000 Shares) $ 52,500.001 $ 5,250.002 $ 47,250.003 Total Maximum Offering (1,714,285 Shares) $ 6,000,000.001 $ 600,000.002 $5,400,000.003 ------Telcentris is an innovator in cloud-based unified communications and VoIP solutions for consumer, business and wholesale markets. The foundation of the company's offerings is its award-winning and proprietary unified communications platform that enables the Company and its customers to build powerful, scalable applications and services. For consumers, Telcentris delivers Voxox, a “freemium” (free with paid options) service that offers users a free phone number that is voice, text, and fax enabled, and integrates instant messaging, social networking, file sharing, real time language translation and other communication modalities together to help alleviate communication overload. Voxox is available on desktop and mobile platforms and also runs as a “cloud based service”. For businesses, Telcentris provides Voxox for business – a complete suite of VoIP business phone solutions, such as Cloud Phone, Hosted IP PBX, and SIP Trunking, that are often more cost effective, efficient and easier to manage than traditional options. Telcentris also sells wholesale calling, texting to high volume enterprise customers such as call centers and other phone companies. Founded in 2006, Telcentris is headquartered in San Diego. For more information, please visit www.voxox.com.
These securities involve a high degree of risk. Subscribers are urged to review information regarding Telcentris’ lack of operating income, capital needs, and other risk factors to be considered by investors prior to subscribing for Shares. (See “RISK FACTORS.”)
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 4(a)(2) OF THE ACT, RULE 506 OF REGULATION D OF THE GENERAL RULES AND REGULATIONS PROMULGATED THEREUNDER BY THE SECURITIES AND EXCHANGE COMMISSION. ACCORDINGLY, DISTRIBUTION OF THIS PRIVATE PLACEMENT MEMORANDUM IS LIMITED TO PERSONS WHO MEET CERTAIN MINIMUM FINANCIAL QUALIFICATIONS AND THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY WITH RESPECT TO ANY PERSON WHOM DOES NOT MEET SUCH FINANCIAL QUALIFICATIONS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR THE ACCURACY OR ADEQUACY OF THIS PRIVATE PLACEMENT MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TELCENTRIS – Private Placement Memorandum September 1, 2014
Nicholas Hodge 0000006737 The date of this Private Placement Memorandum is September 1, 2014,
The Offering will terminate no later than December 31, 2014 unless extended at the sole discretion of Telcentris (the “Offering Termination Date”). Management reserves the right to terminate the Offering at any time and to consider any subscriptions which have been tendered to Telcentris on or before the Offering Termination Date. (See “SALE AND DISTRIBUTION OF SHARES”)
FOOTNOTES FROM COVER PAGE 1. The entire purchase price per Unit for the Shares (the “Subscription Price”) is due and payable in cash upon a subscription. (See “SALE AND DISTRIBUTION OF SHARES” and “DESCRIPTION OF COMMON STOCK”). The Company reserves the right to expand the offering in its discretion to offer and sell up to an additional $1,200,000 in Shares.
2. Telcentris may pay commissions and finder’s fees of up to ten percent (10%) or more to agents and finders. In addition, we may elect or be required to utilize a combination of brokers and/or finders in which case the aggregate of commissions or finder’s fees could reach twenty percent (20%) or more. Telcentris also reserves the right to utilize the services of its officers, directors, and employees to assist in securing investors or to use more than one placement agent and/or pay finder's fees to licensed individuals. Officers, and directors, and employees of Telcentris will not be paid a finder’s fee or commission.
3. These amounts are before deducting costs and expenses other than commissions and finder's fees, and do not include other expenses incurred in connection with this Offering. (See “USE OF PROCEEDS.”)
SUBSCRIPTION INSTRUCTIONS In order to subscribe for Units an investor must deliver to Telcentris, Inc., at 9276 Scranton Road, Suite 300, San Diego, California, 92121, Telephone: (858) 952-0696, Fax: (858) 400-0400 each of the following:
1. The Subscription Agreement and Subscriber Questionnaire, attached as Exhibit 1, completed and signed by the investor. 2. A check (cashier’s or certified funds preferred) for the Shares subscribed for payable to Telcentris, Inc., or a Wire Transfer to Telcentris’ corporate bank account (please inquire for wire instructions).
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TELCENTRIS – Private Placement Memorandum September 1, 2014
TABLE OF CONTENTS
SUBSCRIPTION INSTRUCTIONS 2 TERMS OF OFFERING 6 BUSINESS OVERVIEW 7 RISK FACTORS 1 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 17 USE OF PROCEEDS 19 CAPITALIZATION 20 THE BUSINESS OF THE COMPANY 21 PRODUCTS AND SERVICES 25 ENABLING TECHNOLOGIES 30 COMPETITIVE LANDSCAPE 38 MARKETING 41 REVENUE GENERATION / SALES 46 MANAGEMENT TEAM 48 ADVISORY BOARD 54 DILUTION 57 PRINCIPAL SHAREHOLDERS 58 DESCRIPTION OF SECURITIES 59 CERTAIN TRANSATIONS 61 PLAN OF DISTRIBUTION 63 INVESTOR SUITABILITY STANDARDS 64 ADDITIONAL INFORMATION 66 APPENDIX A – FINANCIAL STATEMENTS 67 EXHIBIT 1 – TELCENTRIS, INC. SUBSCRIPTION AGREEMENT AND ACCREDITED INVESTOR QUESTIONNAIRE 80
TELCENTRIS – Private Placement Memorandum September 1, 2014
CONFIDENTIALITY ACCEPTING THIS PRIVATE PLACEMENT MEMORANDUM (HEREINAFTER SOMETIMES THE “MEMORANDUM”) CONSTITUTES THE OFFEREE’S AGREEMENT, AND THAT OF HIS OR HER REPRESENTATIVE, IF ANY, TO MAINTAIN THE CONFIDENTIALITY OF THE INFORMATION IN THIS MEMORANDUM. THIS MEMORANDUM MAY NOT BE REPRODUCED IN WHOLE OR IN PART. COPIES OF THIS MEMORANDUM WILL BE PROVIDED TO AN OFFEREE’S REPRESENTATIVE UPON REQUEST. USE OF THE INFORMATION IN THIS MEMORANDUM FOR ANY OTHER PURPOSE THAN EVALUATING A PURCHASE OF THE SHARES DESCRIBED HEREIN IS PROHIBITED.
NOTICES
THIS PRIVATE PLACEMENT MEMORANDUM HAS BEEN PREPARED BY TELCENTRIS AND IS SUBMITTED SOLELY FOR THE PURPOSE OF EVALUATING THE INVESTMENT OFFERED HEREBY. NOTHING CONTAINED IN THIS PRIVATE PLACEMENT MEMORANDUM IS OR SHOULD BE RELIED UPON AS A GUARANTEE OR REPRESENTATION AS TO FUTURE EVENTS. MUCH OF THE INFORMATION CONTAINED HEREIN IS CONFIDENTIAL AND HAS NOT, AND WILL NOT BE PUBLICLY DISCLOSED. BY ACCEPTING THIS PRIVATE PLACEMENT MEMORANDUM, THE RECIPIENT AGREES NOT TO REPRODUCE THIS PRIVATE PLACEMENT MEMORANDUM, EITHER IN PART OR IN WHOLE, AND ITS USE IS PERMITTED ONLY BY THE PARTY IDENTIFIED ON THE COVER PAGE HEREOF FOR THE SOLE PURPOSE OF EVALUATING THE INVESTMENT OFFERED HEREBY. IF THE PARTY IDENTIFIED ON THE COVER PAGE HEREOF DECIDES NOT TO SUBSCRIBE FOR SHARES, THIS PRIVATE PLACEMENT MEMORANDUM MUST BE RETURNED TO TELCENTRIS OR DESTROYED UPON TELCENTRIS’S REQUEST.
Neither we, nor the placement agents have authorized anyone to provide you with information that is different from that contained in this Memorandumor with any other information, and neither we, nor the placement agents can assure you that information extrinsic to this Private Placement Memorandum is reliable. The information contained in this Private Placement Memorandum is accurate only as of the date on the front cover of this Private Placement Memorandum, or other date stated herein, regardless of the time of delivery of this Private Placement Memorandum or of any sale of our Common Stock.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS (THE “ACT”), IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION PROVIDED BY SECTION 4(A)(2) OF THE ACT, RULE 506 OF REGULATION D PROMULGATED THEREUNDER AND SUCH OTHER EXEMPTIONS AS MAY BE AVAILABLE TO TELCENTRIS. FURTHER, THE SECURITIES HAVE NOT BEEN QUALIFIED OR REGISTERED UNDER THE LAWS OF ANY STATE OR JURISDICTION.
DISTRIBUTION OF THIS PRIVATE PLACEMENT MEMORANDUM IS LIMITED TO PERSONS WHO MEET CERTAIN MINIMUM FINANCIAL QUALIFICATIONS. THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY WITH RESPECT TO ANY PERSON WHO DOES NOT MEET SUCH MINIMUM FINANCIAL QUALIFICATIONS.
PROJECTIONS ARE CONTAINED IN THIS PRIVATE PLACEMENT MEMORANDUM. PROJECTIONS CAN BE INHERENTLY UNRELIABLE. SEE, “RISK FACTORS.” ANY ASSUMPTIONS OR PREDICTIONS, WHETHER WRITTEN OR ORAL, WHICH DO NOT CONFORM TO THOSE IN THIS PRIVATE PLACEMENT MEMORANDUM SHOULD BE DISREGARDED .
THE COMMON STOCK HAS NOT BEEN QUALIFIED UNDER CERTAIN STATE SECURITIES LAWS IN RELIANCE UPON THE APPLICABLE EXEMPTIONS FROM REGISTRATION FOR PRIVATE OFFERS AND SALES OF SECURITIES. NO SHARES OF COMMON STOCK MAY BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS TELCENTRIS AND ITS LEGAL COUNSEL HAVE RECEIVED EVIDENCE SATISFACTORY TO BOTH THAT SUCH TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING QUALIFICATION UNDER SAID STATE SECURITIES LAWS AND IS IN COMPLIANCE WITH SUCH LAW.
TELCENTRIS – Private Placement Memorandum September 1, 2014
THE INFORMATION CONTAINED HEREIN IS A SUMMARY ONLY AND DOES NOT PURPORT TO BE COMPLETE. ACCORDINGLY, REFERENCE SHOULD BE MADE TO THE SUBSCRIPTION AGREEMENT AND OTHER AGREEMENTS AND DOCUMENTS, COPIES OF WHICH ARE ATTACHED HERETO OR WILL BE SUPPLIED UPON REQUEST, FOR THE EXACT TERMS OF SUCH AGREEMENTS AND DOCUMENTS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION (OTHER THAN THAT CONTAINED IN ADDITIONAL DOCUMENTATION REFERRED TO HEREIN), OR TO MAKE ANY REPRESENTATIONS CONCERNING TELCENTRIS OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM OR OF ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM TELCENTRIS OR ANY OF ITS EMPLOYEES OR PARTNERS, AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT HIS/HER OWN COUNSEL, ACCOUNTANT AND OTHER PROFESSIONAL ADVISORS AS TO LEGAL, TAX AND OTHER RELATED MATTERS CONCERNING HIS/HER INVESTMENT.
THE OFFEREE, BY ACCEPTING DELIVERY OF THIS MEMORANDUM, AGREES TO PROMPTLY RETURN THIS MEMORANDUM, AND ANY OTHER DOCUMENTS OR INFORMATION FURNISHED BY TELCENTRIS IF THE OFFEREE DOES NOT PURCHASE ANY OF TELCENTRIS COMMON STOCK OFFERED HEREBY.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND THE RISKS INVOLVED. THE INVESTMENT DESCRIBED IN THIS MEMORANDUM INVOLVES A VERY HIGH DEGREE OF RISK, AND THE PURCHASE OF COMMON STOCK SHOULD ONLY BE CONSIDERED BY PERSONS WHO CAN AFFORD THE TOTAL LOSS OF THEIR INVESTMENT. SEE “RISK FACTORS.”
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TELCENTRIS – Private Placement Memorandum September 1, 2014
TERMS OF OFFERING
Shares offered ...... Up to ...... 1,714,285 Shares of common stock of Telcentris, Inc. (the “Company” reserving, however, the right to expand the offering in its discretion to offer and sell up to an additional $1,200,000 in Shares.
Purchase Price Per The minimum investment is 15,000 Shares or $52,500. Unit ......
Use of Proceeds ...... The proceeds...... from capitalization efforts of the Offering by Telcentris will be primarily utilized to finance (1) engineering expenses (2) marketing expenses, and (3) working capital. The proceeds of this Offering will not be placed in escrow. Telcentris will utilize the proceeds from the Offering as they are received. (See “USE OF PROCEEDS,” “SALE AND DISTRIBUTION OF SHARES” and “THE BUSINESS OF THE COMPANY.”) Risk Factors ...... The...... securities offered hereby involve a high degree of risk and should not be purchased by investors who cannot afford the loss of their investment. See “RISK FACTORS”. Plan of Distribution ...... The Units Shares... will be offered and sold by the Company Placement Agent on a best efforts basis. Sales commission not to exceed 10 % may be paid to registered broker-dealerss. See “Plan of Distribution.”
Investor Suitability ...... The Shares..... are being offered and sold solely to “Accredited Investors” as defined pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Act”), pursuant to an exemption from registration under Regulation D. See “INVESTOR SUITABILITY STANDARDS – ACCREDITED INVESTORS”.
Limited Transferability ...... The Units, including the Common Stock and Warrants together with the Shares issuable upon exercise of the Warrants (collectively the “Securities”) Shares will not be registered with the Securities and Exchange Commission or qualified under the securities laws of any state, but will be offered and sold pursuant to an exemption there from. Therefore, the Shares Securities may not be resold or otherwise distributed in the public markets without registration or qualification under the Act and/or any other applicable securities laws or the availability of an exemption there from. See “RISK FACTORS.”
Auditors ...... Contact Kagan & Associates, CPAs 10763 Woodside Ave, Suite B Santee, CA 92071 Phone: (619) 878-5779
Corporate Offices ...... Telcentris,...... Inc. 9276 Scranton Road, Suite 300, San Diego, California 92121 Tel. (858) 952-0696 Fax (858) 400-0400 http://www.voxox.com
TELCENTRIS – Private Placement Memorandum September 1, 2014
BUSINESS OVERVIEW This summary highlights information contained elsewhere in this Memorandum and does not contain all of the information you should consider in making your investment decision. You should read this summary together with the more detailed information, including our historical consolidated financial statements and the related notes, elsewhere in this Private Placement Memorandum. You should carefully consider, among other things, the matters discussed in “Risk Factors.” As used in this Private Placement Memorandum, Voxox,” “Company,” “we,” “our,”or “us” refer to Telcentris and its subsidiaries on a consolidated basis.
Our Company Founded in 2006, Voxox is headquartered in San Diego, California with approximately 83 employees, and has received approximately $50 million of capital from selected institutional and angel investors. Voxox has over 600 business customers and its consumer app has been downloaded over two million times. The Company generated $2.3 million, $5.5 million and $6.7 million of revenue in 2011, 2012 and 2013, respectively. Voxox expects to generate approximately $11 million of revenue in 2014, including $16 million in annualized monthly recurring revenue (“AMRR”) by year-end 2014, $52 million of revenue in 2015 and $69 million in AMRR by year end 2015, and $181 million in revenue in 2016 and $215 million in AMRR by year end 2016.
Telcentris (DBA “Voxox”) is a global reaching technology company that owns and operates a proprietary Cloud-based unified communications (“UC”) platform serving businesses, mobile carriers, and consumers, integrating today’s most important media types across a variety of networks and geographic locations. With span from consumer to business a sales path is created whereby users of Voxox consumer applications can upgrade easily to Voxox business products providing a continuity of service and a superior, familiar user experience. In addition, Voxox is significantly more than an app company. Voxox has developed a proprietary telephony platform that is shared as the underlying infrastructure for all of its applications and business services. Telcentris’ revenues are projected at approximately $11M for 2014.
The foundation of the Company's offerings is its award-winning and proprietary unified communications platform that enables the Company and its customers to build powerful, scalable applications, features, and services. For consumers, Telcentris delivers Voxox, a “freemium” (free with paid options) service that offers users a free phone number that is voice, text, and fax enabled, and integrates instant messaging, social networking, file sharing, real time language translation into over 60 languages, and other communication modalities together to help alleviate communication overload. Voxox is available on desktop and mobile platforms and also runs as a “cloud based service”. For businesses, Telcentris provides Voxox for business – a complete suite of VoIP business phone solutions, such as Cloud Phone Virtual PBX, Hosted IP PBX, and SIP Trunking, that are often more cost effective, efficient and easier to manage than traditional options. Telcentris sells wholesale calling, texting to high volume enterprise customers such as call centers and other phone companies. For larger enterprise-sized businesses, the Company delivers high volume SMS and non-mobile SMS enabled numbers as well as call termination and origination.
Voxox provides cutting-edge mobile and desktop apps that integrate high quality peer-to-peer voice and video, discount VoIP calling, rich messaging (photo, video, location and other media sharing), group communications, fax, visual voicemail, real-time translation of chat conversations into over 60 languages, and much more. These services are offered on a co-branded or white label basis as an over-the-top (“OTT”) solution for mobile carriers to offer to their customers and to compete with disruptive players like Skype, WhatsApp and Viber, who are severely eroding carrier voice and messaging revenues. Voxox, a licensed telecommunications carrier, has already successfully partnered with two carriers in Africa and one in Malaysia that are poised to roll out its turnkey solution to millions of end users. The Company has a strong pipeline and is in active discussions with a large number of additional mobile carriers. Voxox believes there is a significant international opportunity in rapidly growing markets, and has qualified
TELCENTRIS – Private Placement Memorandum September 1, 2014 several opportunities in North America, Latin America, EMEA and Asia, with a total end customer opportunity of over 1.4B users and an active pipeline of over 60 carriers.
The Company has partnered with a number of brand name Original Equipment Manufacturers (“OEMs”) of laptops, tablets and smartphones, including Lenovo, Medion and Datawind, to pre-install the Voxox apps on millions of devices in 2014. The Company distributes its SMB services through an independent sales channel of over 120 agents and master agents with more than 4,000 authorized sub agents in North America. Ø Voxox delivers the following benefits to its customers, disrupting enterprise and consumer legacy communications applications: § Cost-effective, scalable UC platform: Provides SMBs with a VoIP system, SIP trunking, and hosted PBX capabilities to easily manage communications for offices of any size without expensive investments or implementation costs § Modernized office communications with easy-to-use, comprehensive functionality: Enables auto attendant functionality, multiple phone number capability per extension, online account management with real-time call logs, follow me forwarding, SMS callback, web and email enabled calls, and backup storage for voicemails § Excellent partner for mobile carriers: Delivers a market proven solution that enables carriers to provide an effective OTT communications solution to its end customers while maintaining revenue share vs. other OTT disruptors § Carrier grade, powerful and reliable infrastructure: Voxox’s platform carries billions of calls and messages per month and maintains high availability with geographic redundancies ensuring global quality § A broad consumer UC solution: One convenient application, on any device, that allows users to communicate with everyone in their address book regardless of whether or not they use Voxox using all of the rich features available within the Voxox app.
Products and Services Built upon the Telcentris Service Delivery Platform (or “SDP”), the Voxox product line addresses multiple segments of the communications industry including consumer, small to medium enterprise (or “SME”) and wholesale. Voxox desktop applications are freely downloadable unified communications software for Mac and PC allowing users to call, text, chat, fax and share files. Voxox mobile applications extend the reach of the value proposition to allow access to VoIP service on mobile phones. Voxox for business brings VoIP into the SME market, allowing a single unified account between the office phone system, desktop and mobile communications devices.
Many of these services are available from Voxox wholesale through our Carrier Service offerings. These offerings allow other communication companies to deliver services to their customers under their own brand name.
Enabling Technologies The Voxox technology portfolio consists of four major categories, the Service Delivery Platform, the Voxox desktop and mobile applications, the B2B cloud telephony suite, and the wholesale VoIP and messaging platform. Each of these technologies was carefully architected from the ground up to be highly scalable and extremely cost effective to deploy.
Network Architecture Voxox maintains its own private cloud, which is designed to be highly redundant and scalable, and to easily integrate with 3rd-party carriers. Voxox currently maintains three dedicated network operation centers (Los Angeles, New York, and Albania) as well as a direct interconnection into the Amazon Web Services (“AWS”) public cloud infrastructure. The integration with AWS allows for rapid and dynamic scaling, as well as near instantaneous expansion into virtually any geographic region.
TELCENTRIS – Private Placement Memorandum September 1, 2014
System Architecture The Voxox system is deployed in a modular architecture providing the highest levels of extensibility, redundancy, and scalability. Individual modules can be enabled, disabled, customized, or created from scratch to support integration into varying network operator environments and business models.
Service Delivery Platform The Voxox Service Delivery Platform (“SDP”) is the central, cloud-based infrastructure on which all Voxox products operate. Its purpose is to facilitate the rapid development of unified communication applications on virtually any platform, and to do so while avoiding third party licensing fees. It supports every major modality of communication in a highly-available, fully redundant environment, which is extremely cost effective to scale. In order to accomplish these goals, the Voxox team invested significant time and resources into architecting this platform from the ground up. The SDP exposes an extensive set of Application Programming Interfaces (“APIs”) which are used by Voxox and its customers to create all of the consumer, SME, and wholesale communication products.
Competition While operating in five highly competitive markets, to the best of management’s knowledge Telcentris is alone in possessing the unique combination of its universal communications service Voxox and the powerful back-end telco- grade infrastructure that powers it. As a result, unlike many of its competitors Telcentris/Voxox does not need to rent a third-party platform to power its service offerings and thus is able to successfully deliver what others struggle to achieve - a profitable multi-market unified communications service offering.
Telcentris is also a registered Competitive Local Exchange Carrier (“CLEC”) in California, Texas, Florida, Illinois and New York. In the opinion of management, this fact represents considerable competitive advantage and barrier to entry.
Telcentris is subject to significant competition in each of the five market segments in which it provides services: consumer, SME, OEM, Operator, and Wholesale.
Marketing The Telcentris Marketing Plan entails marketing Voxox along three tracks: a social media solution for consumers; a unified communication solution for businesses; and a cloud communications leader.
Our marketing strategies target a global market of 2.4B people with a forecasted growth of 60%+ over the next five years to nearly 4B individuals.1 A significant component of Voxox’s success is measured by growth in free users feeding a virally propagating base of paying users. This base is monetized through continuous contact with various product offerings and promotions. We forecast that 1-3% of the Voxox user base will be paying users.2 Voxox is also being co-branded and white-labeled for other service providers and companies with an existing base of users, and therefore will have the opportunity to be distributed by third-parties and grow virally from there. Original Equipment Manufacturers (OEMs) such as Lenovo distribute and market Voxox products on their hardware under revenue-sharing partnerships.
Goals The primary goal of the marketing team’s activities is short and long-term revenue generation achieved through:
• User growth: new acquisition, retention and referrals • Revenue, up-sell and cross-sell tactics
1 See http://www.radicati.com/wp/wp-content/uploads/2011/03/Social-Networking-Market-2011-2015-Brochure.pdf for a report compiled by the international technology market research firm, The Radicati Group. 2 This is a conservative range. See http://www.wired.co.uk/news/archive/2011-03/08/spotify-one-million which quotes 3.6 percent and http://www.channelpartnersonline.com/news/2011/01/Telcentris[IS THIS CORRECT?]-s-plans-to-go-public-delayed.aspx which states that during the three-moth period ending June 30, 2010, paying Telcentris users represented roughly seven percent of the company’s connected members, according to a filing with the Securities and Exchange Commission. TELCENTRIS – Private Placement Memorandum September 1, 2014
• Growth in brand awareness, interaction and image building
Revenue Generation As of Q4’13, Telcentris had nearly 200 wholesale customers, 600 SME customers, and approximately 1.2 million registered Voxox consumer users. This customer and user base generates a growing recurring annual revenues base approaching ten million dollars.
Available Subscribers by Geography (M) N. America 12 Qualified Agreement 10% Africa 200 Requested S. America 250 21% Asia 272 Trial 3% Middle East 434 Proposal 42% Available Subscribers by Geography (M) Workshop 24% N. America 12
Africa 200
S. America 250 Asia 272 Middle East 434
Consumer: Voxox generates consumer revenues by up-selling initially free users to various paid services. For instance, although all Voxox services are free for users communicating Voxox-to-Voxox, in order to communicate with non- Voxox users, subscribers must top up their accounts or sign up for paid calling and texting plans or purchase virtual phone numbers (similar to Skype’s business model). Calling, faxing and texting to non-Voxox users consumes top up credit or is covered by a subscription plan. Users can sign up and pay for top up credit or subscription plans from the Voxox website or from directly within the mobile applications.
There are other pay-online revenue streams associated with Voxox that require no human intervention or sales process but that rather rely on targeted marketing strategies (described in detail in the Marketing section). For example, users can also purchase custom phone numbers called “Virtual Numbers.”
SME: Although distribution of this product line also takes place via direct sales efforts, the Telcentris Channel Partner Program, is pivotal to the revenue growth of this business unit. Revenue sources include Cloud Phone, Hosted IP PBX, SIP Trunks, Conference Calling, equipment, and bandwidth.
Wholesale: Distribution of these offerings is achieved both through the Telcentris Sales force and the Telcentris Channel Partner Program. Revenue sources include VoIP origination and termination to carriers and call centers as well as wholesale SMS and Conferencing
Operators: Voxox services are offered on a co-branded or re-branded basis as an over-the-top (“OTT”) solution for mobile carriers to offer to their customers and to compete with disruptive players like Voxox, WhatsApp, and Viber, who are severely eroding carrier voice and messaging revenues.
OEM: Voxox has partnered with a number of brand name Original Equipment Manufacturers (“OEMs”) of laptops, tablets and smartphones, including HP, Lenovo, Medion, and Datawind, to pre-install the Voxox apps on millions of devices.
TELCENTRIS – Private Placement Memorandum September 1, 2014
RISK FACTORS
A PURCHASE OF SHARES OF COMMON STOCK IN TELCENTRIS INVOLVES A HIGH DEGREE OF FINANCIAL RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER ALL OF THE RISK FACTORS DESCRIBED BELOW. THIS OFFERING IS INTENDED ONLY FOR PERSONS WHO CAN AFFORD TO LOSE ALL OF THEIR INVESTMENT IN THE SHARES. THE FOLLOWING RISK FACTORS SHOULD NOT BE CONSIDERED AS AN EXHAUSTIVE LIST OF ALL RISK FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF TELCENTRIS AND THIS OFFERING, BUT RATHER A PARTIAL LIST OF SOME OF THE RISKS ASSOCIATED WITH THE COMPANY’S BUSINESS AND THIS OFFERING. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND OTHER FACTORS PRIOR TO MAKING AN INVESTMENT DECISION.
Risks Related to Our Business
We may not maintain recent rates of net revenue growth.
Although our net revenues have increased substantially over the last few years, we may not be able to maintain historical rates of net revenue growth. We believe that our continued growth will depend, among other factors, on our ability to: • attract new users, convert connected users into paying users, keep existing paying users actively using our paid products • develop new sources of revenue from our users and other customers, such as business users; • react to changes in consumer access to and use of the Internet; • expand into new market segments and integrate new devices, platforms and operating systems; • increase the awareness of our brand across geographies; • provide our customers with a superior user experience, customer support and payment experiences; and • maintain effective and integrated payment processing capabilities. However, we cannot assure you that we will successfully implement any of these steps.
There can be no assurance that demand for our products will continue or that the Company will achieve profitable operations.
Although Telcentris has had some success in generating demand for its products, its investment in engineering and infrastructure and has resulted in substantial losses to date. There can be no assurance that such demand will continue or that Telcentris will be successful in obtaining a sufficient market share to sustain the business of Telcentris or to achieve profitable operations. Telcentris is subject to the general risks of the marketplace, which exist in the communications and technology industry. Additionally, if either the demand for the particular products produced or the Internet industry generally suffers a decline, or if future regulations adversely affect the telecommunications or Internet marketplace, the business of Telcentris could be impacted to a substantial degree resulting continued losses.
Rapid technological change could render Telcentris’ existing and future proprietary and purchased technology obsolete.
The Internet and Telephony, and now VoIP industries, are characterized by rapid technological change, changes in user and customer requirements, frequent new service or product introductions embodying new technologies and the emergence of new industry standards and practices that could render Telcentris’ existing and future proprietary and purchased technology obsolete. Telcentris’ performance will depend, in
part, on its ability to apply leading edge technologies, enhance its existing service, develop new proprietary technology that addresses the increasingly sophisticated and varied needs of its prospective customers, and respond to technological advances and emerging industry standards and practices on a timely and cost- effective basis. The development of unified communication software and other proprietary technology entails significant technical and business risks. There can be no assurance that Telcentris will be successful in using new technologies effectively or adapting its unified communication software and proprietary technology to customer requirements or emerging industry standards. If Telcentris is unable, for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing market conditions or customer requirements, or if Telcentris’ products do not achieve market acceptance, Telcentris’ business, results of operation and financial condition would be materially adversely affected. The success of Telcentris’ services will depend in large part upon the continuing development of an infrastructure for providing Internet access and service.
Our financial statements in this Memorandum are audited but may not be comparable to audited financial statements by companies subject to SEC reporting obligations.
Although the financial statements in this Memorandum have been audited and our management believes that the financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”, we have not yet implemented Financial Accounting Standards Accounting Standards Codification Topic 718, Compensation – Stock Compensation (“ASC 718”). In addition, our audit firm is not qualified under the Public Company Accounting Oversight Board (“the PCAOB”) nor are we subject to the audit requirements which may be imposed by the PCAOB and the Securities Exchange Commission (“SEC”) for public reporting companies. These factors may mean that our financial results may not be comparable to public companies, may differ substantially following adoption of the stated standards and requirements of the PCAOB and the SEC. Investors should consider these factors in reviewing our audited financial statements.
There are potential weaknesses in our financial reporting. Because we are a small company with limited resources, there may be material weaknesses in our financial reporting. These weaknesses may affect the accuracy of our financial reports.
While we intend to increase staff as we have available resources to do so, we do not currently maintain a sufficient complement of personnel with the appropriate skills, training and company-specific experience to identify and address the application of generally accepted accounting principles in complex or non-routine transactions. This deficiency could result in a misstatement of accounts and disclosures that would result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.
The existence of one or more material weaknesses in our financial reporting could result in errors in our financial statements, and substantial costs and resources may be required to rectify these or other internal control deficiencies. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, the value of our securities could decline significantly, we may be unable to obtain additional financing to operate and expand our business, and our business and financial condition could be harmed. We cannot assure you that we will be able to remediate these material weaknesses in a timely manner.
We have not implemented Financial Accounting Standards Accounting Standards Codification Topic 718, Compensation – Stock Compensation (“ASC 718”).
While we plan to account for stock based compensation exchanged for employee services in accordance with Financial Accounting Standards Accounting Standards Codification Topic 718, Compensation – Stock
Compensation (“ASC 718”), which applies to all stock-based compensation when a company acquires employee services by issuing its stock, stock options, or other equity instruments, except those held by employee stock ownership plans (ESOPs), and the Company incurs liabilities whose amounts are based on the price of the company’s stock, we have not yet implemented ASC 718, and our financial statements therefore do not reflect any compensation expense associated with any share based payments. At the time we implement ASC 718 we may be required to restate our financial statements for prior periods, including periods prior to the date of this Memorandum. As a result of those restatements, our restated financial statements may reflect increased net losses (for periods in which we had already recorded net losses). These reductions in net profits or reductions in net income may interfere with our ability to obtain future financing and/or investment and may prevent us from successfully achieving a transaction that we may find desirable.
There can be no assurances that the analysis or the financial projections are accurate.
Any financial projections set forth in this Private Placement Memorandum or provided by Management are for discussion purposes only and based on an analysis performed by Telcentris. Although Management believes that the analysis and underlying assumptions contained in any financial projections are well founded, there can be no assurances that the analysis or the financial projections are accurate. Additionally, if the assumptions and conclusions contained in financial projections are incorrect no longer remain applicable for any reason, then the ability of Telcentris to realize its projections or to achieve profitable operations will be adversely affected. Projections are not guarantees of future financial performance, nor should they be understood as such by subscribers. Subscribers should be aware of the inherent challenges of forecasting. Accordingly, subscribers should not rely on such forecasts and may wish to consult independent market professionals about Telcentris’ future performance.
Telcentris faces competitors worldwide who may possess competitive advantages.
The business of Telcentris is and will be subject to competition from a variety of sources, some or all of which may possess particular competitive advantages. The telecommunications industry is highly competitive and evolving rapidly.
Telcentris faces intense competition worldwide from traditional telephone companies, wireless companies, cable companies and alternative voice communication providers. As an example, in the United States of America alone, our principal competitors are the traditional telephone service providers, such as AT&T and Verizon which provide telephone service based on the public switched telephone network. These traditional providers have added world leading mobile and VoIP services to their existing telephone and broadband offerings. Voxox also faces competition from cable companies, Comcast and Time Warner Cable which have added VoIP services to their existing cable television, voice and broadband offerings. These media and communication giants continue to grow their presence across unified communication services in all modes of delivery to end users. As industry leading, brand name service providers in telecom, these companies are uniquely positioned to grow into the increasingly mobile and software driven segments of communication and social media, leveraging their communications expertise.
Telcentris also competes internationally against what were once considered alternative voice communication providers, such as Vonage. Companies such as Skype, WhatsApp, RingCentral, Viber, Jajah, Ribbit, Grand Central are now mainstream brand names that grew large user bases with free services, and have gone public or in many cases been acquired by well-capitalized technology giants such as Microsoft, Google and Facebook. This created another class of competition from profoundly large and well positioned software and social media companies that can leverage their development success and expertise to set market direction and standards in future communication services.
As described above, these competitors are substantially larger and better capitalized than Telcentris, they have the advantage of a larger existing customer base, and in some cases more experience in Telcentris’s core business. As most of our target customers for our paid VoIP service are already purchasing communications services from one or more of these providers, our success is dependent upon our ability to attract target customers away from their existing providers. Attracting customers away from their existing providers will become more difficult as Telcentris’s competitors focus their substantial financial resources to broad reaching brand awareness marketing campaigns, and developing competing technology that may be more attractive to potential customers than what Telcentris can innovate and offer. Telcentris’s competitors' financial resources may allow them to offer services at prices below cost or even for free in order to maintain and gain market share or otherwise improve their competitive positions. Telcentris’s competitors could also use their greater financial resources to offer VoIP services with more attractive service packages with on-site services, standardized or customized hardware and unique solutions to specific operators or large enterprises.
In addition, because of the other services our competitors provide, Telcentris’s competition offers VoIP services as part of bundles that includes other products, such as video, high speed Internet access and wireless telephone service, which Telcentris does not offer. Bundling may enable our competitors to offer VoIP service at prices with which Telcentris may not be able to compete. It may also offer functionality that integrates VoIP service with their other offerings Telcentris does not provide. This may be more desirable to consumers. Any of these competitive factors could make it more difficult for Telcentris to attract and retain customers, cause Telcentris to lower prices in order to compete and potentially lose market share and revenues.
Telcentris has a relatively short operating history compared to its competitors in an emerging and rapidly evolving market. This makes it difficult to evaluate Telcentris’s future prospects, may increase the risk that the Company will not continue to be successful in gaining market share and increases the risk for investors.
Telcentris has a relatively short operating history with its communications services products. As a result, Telcentris has significantly less operating history for an investor to evaluate in assessing our future prospects compared to its competitors. Also, Telcentris derives a significant portion of our revenues from Internet communications, which is a relatively young industry that has undergone rapid and dramatic changes in its short history and is subject to significant challenges. The Company has expanded its headcount, facilities and infrastructure. This expansion has placed, and is expected to continue to place, a significant strain on our management, operational and financial resources. Telcentris’s business and prospects must be considered in light of the risks and difficulties the Company will encounter as an early-stage company in a new and rapidly evolving market. Telcentris may not be able to address successfully these risks and difficulties, which could materially harm Telcentris’s business and operating results and reduce the value of our products and services.
Telcentris faces strong competition in identification, hiring and retention of employees which could limit some of Telcentris’s revenue growth.
Telcentris’s success is substantially dependent upon the efforts of hiring, and retaining key staff and management. Telcentris competes in a highly technical industry and the identification, hiring and retention of employees in this business can be difficult and slow, potentially limiting some of Telcentris’s revenue growth.
Over time, as Telcentris successfully grows revenue and raises capital, Telcentris must retain dedicated, competent and highly motivated individuals to fill additional management and staff positions with competitive compensation packages. With limited financial resources in a start-up environment, the
recruiting and management of retaining critical personnel is a key success criteria for Telcentris. The Company does not currently have long-term employment arrangements with its key personnel including its current management. The loss of key personnel could have an adverse impact on the Company. (See “MANAGEMENT AND KEY STAFF.”)
If Telcentris enters into borrowing arrangements that require certain assets to be pledged as security and is unable to make timely payments, creditors may foreclose the security interest thereby acquiring legal title to the assets.
Telcentris may enter into borrowing arrangements from time to time, which require that certain assets of Telcentris be pledged to secure repayment of such borrowing. To the extent Telcentris is not able to make timely payments of principal and interest called for by the terms of such borrowing, said failure may constitute a default, in which case the creditor may foreclose the security interest which such creditor possesses in said assets or items of property, thereby acquiring legal title thereto. The levy or foreclosure by a creditor upon substantial equipment or tangible assets of Telcentris could have a materially adverse and significant impact upon Telcentris’ ability to conduct its business and operations.
There can be no assurance that trademarks claimed under common law will be upheld, and that patent rights for provisional patents or unfiled patents are enforceable.
Telcentris has registered trademarks for certain intellectual property, including the word mark Telcentris, the word mark Voxox, and some, but not all graphical elements currently in use by the company. For any unregistered trademarks, although we may rely on common law trademark rights because we believe we are the first entity to use our trade names in the stream of commerce, there can be no assurance our common law trademark claims would be upheld. Also, although Telcentris has filed provisional patents on a broad set of technology, final patent applications have not yet been filed, and patents have not yet been issued. Until such patents are issued or if such patents are denied, we will have no enforceable patent rights. This could adversely impact Telcentris ability to protect its market share and future prospects.
Because of the large number of patents in our industry there can be no assurance that patent infringements will not arise.
The telecom and other markets that Telcentris is involved in are covered by a large number of patents. Although Telcentris is not aware of any infringements, it is possible, as in many emerging technology oriented businesses that patent infringement claims could arise. Patent violation issues in our industry, or that involve Telcentris directly, could have a material adverse effect on Telcentris.
Strategic partnerships could not materialize to the extent projected, and strategic partnerships could result in loss of autonomy and deplete time of key staff and financial resources.
The strategy to generate revenue from strategic partnerships depends to a large extent on Voxox’s ability to partner with companies that are able to effectively market to consumers and businesses across the globe, which may not necessarily occur to the extent that is envisaged in the Company’s business plan. Also, Voxox has not yet had the opportunity to comprehensively test its partnership business models, which, accordingly, may prove to be unsustainable. Collecting and repatriating the revenue generated by the strategic partnerships may also prove to be difficult and will be subject to country, currency exchange, credit and accounts receivable risk.
The cost of partnering can be high, due to the time needed to explore, establish and manage the partner relationships. The risk of implementing features that are unique to the partnership may lead to a loss of autonomy due to the shared decision-making process, need for building consensus and potential conflicts of
interest. Implementing unique features that are not incorporated into Telcentris’s direct to consumer applications and business services may deplete the time and energy of key staff, as well as financial resources or other resource contributions. There are also implementation challenges due to the day-to-day demand of delivering a service as part of a collaborative partnership, with all the additional management, tracking, reporting and configuration control requirements that it entails. Additionally, it is difficult to forecast the level of revenues, if any, that will be able to be generated through such partnerships. And lastly, if a partnership does not succeed it may cause a negative reputation impact.
Advances in computer capabilities could result in a compromise of our protection of customer transaction data.
A significant barrier to electronic commerce and communications is the secure transmission of confidential information over public networks. Telcentris will rely on encryption and authentication technology to be developed internally and licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information. There can be no assurances that advances in computer capabilities, new discoveries in the field of cryptography or other events or developments will not result in a compromise or breach on the algorithms used by Telcentris to protect customer transaction data. If any such compromise of Telcentris’ security were to occur, it could have a material adverse effect on Telcentris’ business, result of operations and financial condition.
Failure to apply new technologies and develop our own new technologies could have a material advers effect on our operations.
The market for Internet services is characterized by rapidly changing technology, evolving industry standards, changes in customer needs and frequent new service and product introductions. Telcentris’ future success will depend, in part, on its ability to use leading technologies effectively, to continue to develop its technical expertise, to enhance its existing services and to develop new services that meet changing customer needs on a timely and cost-effective basis and obtain market acceptance. Any failure on the part of Telcentris to apply new technologies effectively, to develop its technical expertise and new services or to enhance existing services on a timely basis, either internally or through arrangements with third parties, could have a material adverse effect on Telcentris.
Downward pressure on telecommunications prices could eliminate our competitive advantage over many competitors and delay or prevent future profitability.
Decreasing telecommunications prices may cause us to lower our prices to remain competitive, which could delay or prevent our future profitability. We plan to offer prices lower than those of many of our competitors for comparable services. However, domestic and international telecommunications prices have decreased significantly over the last few years, and we anticipate that prices will continue to decrease. Users who select our service offerings to take advantage of our prices may switch to another service provider as the difference between prices diminishes or disappears, and we may be unable to use our price as a distinguishing feature to attract new customers in the future. Such competition or continued price decreases may require us to lower our prices to remain competitive, may result in reduced revenue, a loss of customers or a decrease in our subscriber line growth and may delay or prevent our future profitability.
Lack of mainstream VoIP technology acceptance could limit our growth and profitability.
If VoIP technology fails to gain acceptance among mainstream consumers, our ability to grow our business will be limited. The market for VoIP services has only recently begun to develop and is rapidly evolving. We anticipate most of our revenue from the sale of VoIP services and related products, and Internet advertising, to residential and small office or home office customers. In order for our business to grow and to become
profitable, VoIP technology must gain acceptance among mainstream consumers, who tend to be less technically knowledgeable and more resistant to new technology or unfamiliar services.
Differences in our service from traditional telephone service may limit acceptance of our services and impede growth.
Certain aspects of our service are not the same as traditional telephone service, which may limit the acceptance of our services by mainstream consumers and our potential for growth. Our continued growth is dependent on the adoption of our services by mainstream customers, so these differences are becoming increasingly important. For example:
• Our E-911 emergency calling service is different in significant respects from the 911 service associated with traditional wireline and wireless telephone providers and may not be available at all in certain areas. • Our customers may experience lower call quality than they are used to from traditional wireline telephone companies, including static, echoes and delays in transmissions. • Our customers may experience higher dropped-call rates than they are used to from traditional wireline telephone companies. • In the event of a power loss or Internet access interruption experienced by a customer, our service is interrupted. Unlike some of our competitors, we have not installed batteries at customer premises to provide emergency power for our customers' equipment if they lose power, although we do have backup power systems for our network equipment and service platform.
If customers do not accept the differences between our service and traditional telephone service, they may choose to remain with their current telephone service provider or may choose to return to service provided by traditional telephone companies.
Limited E-911 and emergency calling services compared to those offered by traditional telephone companies may result in significant liability if our services cause delays or failure in callers’receipt of emergency services.
Our emergency E-911 calling services are more limited than those offered by traditional wireline telephone companies and may expose us to significant liability. Those differences may cause significant delays, or even failures, in callers' receipt of the emergency assistance they need.
Traditional wireline telephone companies route emergency calls over a dedicated infrastructure directly to an emergency services dispatcher at the public safety answering point, or PSAP, in the caller's area. Generally, the dispatcher automatically receives the caller's phone number and actual location information. While the E-911 service that we have deployed in the United States, is designed to route calls in a fashion similar to traditional wireline services, these capabilities are not yet available in all locations. In addition, the only location information that our E-911 service transmits to a dispatcher at a PSAP is the information that our customers have registered with us. A customer's registered location may be different from the customer's actual location at the time of the call because customers can use their Analog Telephone Adaptors and laptops or other computers to make calls almost anywhere an Internet connection is available. In such cases, as described below, we offer customers alternative access to emergency services.
In some cases, even in the event that Telcentris deploys advanced E-911 service, emergency calls may be routed to a local PSAP, designated statewide default answering point or appropriate local emergency authority that is not capable of receiving our transmission of the caller's registered location information and, in some cases, the caller's phone number. Where the emergency call center is unable to process the information, the caller may be provided a service that is similar to the basic 911 services offered to some
wireline telephone customers. In these instances, the emergency caller may be required to verbally advise the operator of their location at the time of the call and, in some cases, a call back number so that the call can be handled or forwarded to an appropriate emergency dispatcher. We are continuing our efforts to deploy our E-911 service such that all relevant information is displayed and will be routed to the appropriate PSAP in the first instance.
Customers who are located in areas where we are currently unable to provide either E-911 or the basic 911 described above, as well as WiFi phone and SoftPhone users, may be supported by a national call center that is run by a third-party provider and operates 24 hours a day, seven days a week. When reaching the call center, a caller must provide his or her physical location and call back number after which an operator will coordinate connecting the caller to the appropriate PSAP or emergency services provider.
If one of our customers experiences a broadband or power outage, or if a network failure were to occur, the customer will not be able to reach an emergency services provider.
Delays our customers encounter when making E-911 or basic 911 calls and any inability of the answering point to automatically recognize the caller's location or telephone number can have devastating consequences. Customers may attempt to hold us responsible for any loss, damage, personal injury or death suffered as a result. Some traditional phone companies also may be unable to provide the precise location or the caller's telephone number when their customers place emergency calls. However, while we are not covered by legislation exempting us from liability for failures of our emergency calling services, traditional phone companies are covered. This liability could be significant. In addition we may in the future lose, existing and prospective customers because of the limitations inherent in our emergency calling services. Any of these factors could cause us to lose revenues, incur greater expenses or cause our reputation or financial results to suffer.
Our ability to provide our service is dependent upon third-party facilities and equipment, the failure of which could cause delays or interruptions of our service, damage our reputation, cause us to lose customers and limit our growth.
Telcentris’ operations are largely dependent upon various technology license and strategic relationships with Internet technology and service providers, and the communication and computer hardware and software of those companies. Any interruption in service from those companies will adversely affect Telcentris’ operations. Further, these systems may be vulnerable to damage from fire, floods, power loss, telecommunications failures, break-ins and similar events. Telcentris does not presently have a formal disaster recovery plan although certain contingency plans are in place. A substantial interruption in these systems would have a material adverse effect on Telcentris’ business, results of operations and financial condition. Despite the future implementation of network security measures, servers will also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptive problems. Computer viruses, break- ins or other problems caused by third parties could lead to interruptions, delays, and loss of data or cessation in service to users of Telcentris’ services or products.
The failure of third party facilities and equipment upon which our service is dependent could cause delays or interruptions of our service, damage our reputation, cause us to lose customers and limit our growth. Our success depends on our ability to provide quality and reliable service, which is in part dependent upon the proper functioning of facilities and equipment owned and operated by third parties and is, therefore, beyond our control. Unlike traditional wireline telephone service or wireless service, our service requires our customers to have an operative broadband Internet connection and an electrical power supply, which are provided by the customer's Internet service provider and electric utility company, respectively, and not by us. The quality of some broadband Internet connections may be too poor for customers to use our services
properly. In addition, if there is any interruption to a customer's broadband Internet service or electrical power supply, that customer will be unable to make or receive calls, including emergency calls, using our service. We also outsource several of our network functions to third-party providers. For example, we outsource the maintenance of our regional data connection points, which are the facilities at which our network interconnects with the public switched telephone network. If our third-party service providers fail to maintain these facilities properly, or fail to respond quickly to problems, our customers may experience service interruptions. Our customers have experienced such interruptions in the past and will experience interruptions in the future. In addition, our E-911 service is currently dependent upon several third-party providers. Interruptions in service from these vendors could cause failures in our customers' access to E-911 services. Interruptions in our service caused by third-party facilities may in the future cause us to lose customers, or cause us to offer substantial customer credits, which could adversely affect our revenue and profitability. If interruptions adversely affect the perceived reliability of our service, we may have difficulty attracting new customers and our brand, reputation and growth will be negatively impacted.
Some of our software components use third-party and open-source technology which could prove unreliable and we can provide no assurance that we can remedy problems that may arise.
Some of the software components used to create Voxox and the Telcentris infrastructure are provided by third parties, including some open-source components. Open-source means technologies whose source code is published and can then be continuously updated by a community of developers who can add new features to enhance its functionality. Telcentris management has leveraged some now industry standard open-source technology to create a product offering that is innovative and unique, with an open-systems architecture that allows future enhancements to be developed and deployed much like adding building blocks to the existing system. However, since Telcentris did not invent all of the technology upon which it relies, it can provide no assurance that such open-source technology is reliable. Further, should a problem arise with the functionality of the technology, Telcentris can offer no assurance that it would be able to remedy the problem. Any failure of performance of the Telcentris technology could seriously impact operations.
Our services are dependent on the availability of telephone numbers, and the lack of ability to obtain phone numbers or to obtain CLEC authority in any state could limit our growth and impact our services.
Currently Telcentris contracts with existing CLECs and other established telephone companies to provide the telephone numbers to its Voxox subscribers. Telcentris also is a registered CLEC with the Public Utilities Commissions in several states as well as interconnecting directly with the ILECS (Incumbent Telephone Companies) and has its own phone numbers as a result. One of Telcentris primary values to consumers is the offer of a Free Telephone Number. Telcentris is dependent on a combination of existing telephone companies to provide telephone numbers for Voxox subscribers, and is dependent on CLEC status and ability to receive an adequate amount of telephone numbers from all sources in order to offer the Free telephone number and fax number service as contemplated in the Telcentris business plan. If for any reason, including regulatory or business environment changes, contractual changes among Telcentris suppliers, lack of ability to locate enough telephone numbers to keep up with the growth, inability to obtain CLEC authority in any state, or general inability to provide telephone numbers to customers, the Voxox service and its success could be negatively impacted.
Slowing down of adoption of broadband services will limit the market growth for our services.
Our VoIP service requires an operative broadband connection, and if the adoption of broadband does not progress as expected, the market for our services will not grow and we may not be able to grow our business and increase our revenue. Use of our VoIP service requires that the user be a subscriber to an existing broadband Internet service, most typically provided through a cable or digital subscriber line, or DSL,
connection. Although the number of broadband subscribers worldwide has grown significantly over the last five years, this service has not yet been provided to or adopted by a majority of consumers. If the availability and adoption of broadband services does not continue to grow, the market for our services may not grow. As a result, we may not be able to increase our revenue and become profitable.
Development of future disruptive technologies that deliver competing services better and cheaper than those offered by the Company could have a material adverse effect on our business and financial condition.
Future disruptive new technologies could have a negative effect on our business. VoIP technology, which our business is based upon, did not exist and was not commercially viable until relatively recently. While VoIP technology is having a disruptive effect on traditional telephone companies, whose businesses are based on other technologies, we also are subject to the risk of future disruptive technologies. If new technologies develop that are able to deliver competing voice services at lower prices, better or more conveniently than those offered by Telcentris, it could have a material adverse effect onour business and financial condition.
Future government legislation and regulation that restricts the growth and adoption of VoIP services could limit our growth and expose us to significant liability and regulation.
Regulation of VoIP services is developing and therefore uncertain, and future legislative, regulatory or judicial actions could adversely impact our business and expose us to liability. VoIP business has developed in an environment largely free from government regulation. However, the United States and other countries have begun to assert regulatory authority over VoIP and are continuing to evaluate how VoIP will be regulated in the future. Both the application of existing rules to us and our competitors and the effects of future regulatory developments are uncertain.
Future legislative, judicial or other regulatory actions could have a negative effect on our business. If we become subject to the rules and regulations applicable to telecommunications providers in individual states, we may incur significant litigation and compliance costs, and we may have to restructure our service offerings, exit certain markets or raise the price of our services, any of which could cause our services to be less attractive to customers. In addition, future regulatory developments could increase our cost of doing business and limit our growth.
International operations are also subject to regulatory risks, including the risk that regulations in some jurisdictions will prohibit us from providing our services cost-effectively or at all, which could limit our growth. Currently, there are several countries where regulations prohibit us from offering service. In addition, because customers can use our services almost anywhere that a broadband Internet connection is available, including countries where providing VoIP services is illegal, the governments of those countries may attempt to assert jurisdiction over us, which could expose us to significant liability and regulation.
Broadband service providers may block or impede our services, which could adversely affect our revenue and growth.
Our business relies on customers' continued and unimpeded access to broadband service. Providers of broadband services may be able to block our services, which could adversely affect our revenue and growth. Our customers must have broadband access to the Internet in order to use our service. Some providers of broadband access may take measures that affect their customers' ability to use our service, such as degrading the quality of the data packets we transmit over their lines, giving those packets low priority, giving other packets higher priority than ours, blocking our packets entirely or attempting to charge their customers more for also using our services. It is not clear whether suppliers of broadband access services have a legal obligation to allow their customers to access and use our service without interference. As a result of recent
decisions by the U.S. Supreme Court and the Federal Communications Commission, or FCC, providers of broadband services are subject to relatively light regulation by the FCC. Consequently, federal and state regulators might not prohibit broadband providers from limiting their customers' access to VoIP or otherwise discriminating against VoIP providers. Interference with our service or higher charges for using our service could cause us to lose customers, impair our ability to attract new customers and harm our revenue and growth.
Imposition of fees and taxes may increase the cost of services to customers as we recoupe the cost of compliance, reducing our competitive price advantage.
Various fees and taxes will increase our costs and our customers' cost of using our services. There are numerous fees and taxes assessed on traditional telephone services that we believe are not applicable to VoIP services. However, we may begin to collect and remit some of these fees and taxes in the future if they are imposed on us. To the extent we increase the cost of services to our customers to recoup some of the costs of compliance, this may lower any price advantage we have over competition.
The number of our registered users overstates the number of unique individuals who register to use our products.
We calculate registered users as the cumulative number of user accounts at the end of the relevant period. The actual number of registered users however is likely to be lower, potentially significantly, for two primary reasons. First, some legitimate users may register more than once and therefore have more than one account. For example, a user who has lost his or her original Voxox username or password may simply register again and create an additional account, or a user may create separate accounts for business and personal use. Second, we experience irregular registration activities, some of which we believe are the result of fraudulent activities that involve the creation of a significant number of spurious user accounts. The actual number of registered users includes users who we actively block from using our services due to our concerns of those users engaging in fraudulent activities. We attempt to validate information provided during the registration process and prohibit registration where suspicion exists of fraudulent activities, but cannot prevent all fraudulent account creations.
Our connected users metric is subject to uncertainties and may overstate the number of users who actively use our products.
The number of connected users in a given period includes the creation and use of spurious user accounts, because we count a new registered user as a connected user in the month of registration. While we have taken and will seek to continue to take steps, such as by requiring additional authentication steps, to reduce the ability of fictitious users to connect to the different versions of the Voxox software client, and to prevent users from connecting to our system more than once, we cannot assure you that these measures will be effective in reducing the number of fictitious users or users who have connected more than once. Our connected user metric is also subject to uncertainties because, in some cases, it can underestimate the number of users actively using our products during a given period. For example, users accessing Voxox from behind a firewall may not be captured in our systems as connected users. As a result, there is a degree of uncertainty in this metric because it can be influenced by different factors in the same period, sometimes with opposite effects.
Our paying user and communications services products billing minutes metrics are subject to a degree of inaccuracy due to fraudulent transactions and our method of calculating these metrics.
We calculate paying users as the number of unique user accounts, averaged over a three month period, who make a successful out of network Voxox call using Voxox credit on a pay-as-you-go basis in a given calendar
month or who had an active subscription at any time during such calendar month. We calculate communications services billing minutes as the cumulative number of minutes that Voxox users were connected to our communications services products, which mainly comprise billing minutes related to Voxox calls to traditional fixed-line or mobile telephones during a relevant period. A user need not be logged into the Voxox software client to be considered as having made a successful Voxox call or to register a billing minute; for example, the user may make use Call Forwarding, which does not require users to log into the Voxox software client themselves. With respect to both the number of paying users and the number of communications services billing minutes, these metrics include users paying for our products and the billing minutes generated through fraudulent activities, such as stolen credit cards. Therefore, for any given month, in particular if we have been subject to a particular spike in fraudulent activity during that period, our paying user and communications services billing minutes may not accurately reflect the genuine number of paying users and communications services billing minutes during that period. These metrics are also subject to a degree of inaccuracy for other reasons. These metrics are derived from our operational systems, not our financial systems, and we have identified certain instances in the past whereby these systems have not always accurately captured the number of paying users and communications services billing minutes. With respect to paying users, we seek to eliminate from our number of paying users any users who only made off network Voxox calls utilizing promotional, free Voxox credit or promotional subscriptions services. With respect to communications services billing minutes, we seek to eliminate from this number minutes attributable to off network Voxox calls made utilizing promotional, free Voxox credit or promotional subscriptions services, or other free calls. In both cases, our operational systems may fail to classify properly these users and minutes, and accordingly these metrics are subject to potential inaccuracies.
Quarterly results may fluctuate significantly due to a large variety of external factors including those beyond our control.
Telcentris’ operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are beyond Telcentris’ control. These factors include the rates of, and costs associated with, new technology, customer retention, capital expenditures and other costs relating to the expansion of operations, including upgrading Telcentris’ systems and infrastructure, the timing and market acceptance of new and upgraded service introductions, changes in the pricing policies of Telcentris and its competitors, changes in operating expenses (including telecommunications costs), personnel changes, the introduction of alternative technologies, the effect of potential acquisitions, increased competition in Telcentris’ markets and other general economic factors. In addition, a significant portion of Telcentris’ expenses are fixed; therefore, Telcentris’ operating margins are particularly sensitive to fluctuations in revenues.
Exposure of confidential customer information due to security breaches or malfunctions may deter customers from using our services or result in claims of liability against us.
Inappropriate use of the Internet by third parties could also potentially jeopardize the security of confidential information stored in the computer systems of Telcentris or those of its customers, which may cause losses to Telcentris or its customers, or deter certain persons from using Telcentris’ services. Telcentris expects that its customers may increasingly use the Internet for commercial transactions in the future. Any network malfunction or security breach could cause these transactions to be delayed, not completed or completed with compromised security. Alleviating problems caused by computer viruses or other inappropriate uses or security breaches may cause interruptions, delays or cessation in service to Telcentris’ customers, which could have a material adverse effect on Telcentris. In addition, there can be no assurance that customers or others will not assert claims of liability against Telcentris as a result of these events. Any accident, incident
or system failure that causes interruptions in Telcentris’ operations could have a material adverse effect on Telcentris’ ability to provide Internet services to its customers and, in turn, on Telcentris.
We may be required to comply with emergency calling regulations in certain jurisdictions. Compliance with emergency calling regulations may be costly and technically difficult.
In many jurisdictions, traditional and replacement telephony service providers and some other forms of communications service providers are required to provide customers with emergency calling services (such as dialing 911 in the United States or 112 in the European Union) that route calls directly to an emergency services dispatcher in the caller’s area. In some jurisdictions, for example, the United States, these emergency calling services obligations also include a requirement that the telecommunications provider provide the location of the person making the emergency call. Our products generally do not offer emergency calling services.
At the end of 2009, for example, the European Parliament adopted amendments to the E.U. telecommunications regulatory framework that will require changes to be made to communications laws of the 27 E.U. Member States by May 2011. Under the E.U. directive, home country legislation must provide that any electronic communications service designed for originating calls must provide “reliable and accurate” access to emergency services through emergency numbers. Although it is currently uncertain how each Member State will implement these amendments and whether these amendments will apply to our operations, we may be required to comply as and when implementing legislation is introduced in the E.U. Member States. We have voluntarily begun to provide a basic level of emergency calling functionality without location information in the United Kingdom. In late 2010 and in 2011, we intend to implement a similar voluntary basic level of emergency calling functionality in Australia and certain Nordic countries, and we may voluntarily offer certain emergency calling services in other jurisdictions in the future.
Unlike landline phones, where the telephone is located at a fixed address, or mobile phones, which can be located using triangulation of cell towers or GPS technology in the handset, we are unable to determine the exact location of a caller who uses our products to make a call over the Internet. Our customers have the ability to use our products nomadically, meaning that they can log in and use our products from virtually any Internet connection worldwide. They can also log in on up to five devices simultaneously at a variety of locations. Although we have the limited ability to identify the registered user using our products to make a call (based on information voluntarily provided to us when the user first registered with us), we cannot determine the actual location from which a call is originated. Additionally, due to the inherent nature of transmission via the Internet, we are unable to guarantee completion of any call, including a call to emergency services. The E.U. telecommunications framework amendments also include a provision that, once internationally recognized standards ensuring accurate and reliable routing and connection to the emergency services are in place, “network-independent” providers, such as Voxox, should also fulfill the obligations related to caller location information at a level comparable to that required of other providers. To date, in places where we have enabled and will enable this functionality, we are still unable to identify reliably the geographic location of the user beyond the country level or to provide detailed caller information, and the user location information is not being provided to our carrier partners or emergency call centers in connection with the call.
If we were required to comply fully with all emergency calling service requirements, which vary from jurisdiction to jurisdiction, it would be costly and technically and administratively difficult or impossible. Compliance with these regulations may require us to alter or limit our products in certain jurisdictions or otherwise change the way we do business in those jurisdictions.
Compliance with requests from law enforcement agencies and compliance with data disclosure and lawful interception laws is costly and difficult and might subject us to conflicting obligations and result in improper interpretation and application of complex laws.
Communications companies are subject to various regulations that require them to assist law enforcement and intelligence agencies with access to personal and traffic data and lawful interception of certain of their services and products. The scope of applicability and level of sophistication of such regulations vary greatly from country to country. We have been and may in the future be asked to disclose historic personal and traffic data to various law enforcement agencies. In addition, various authorities could consider that we are subject to lawful interception laws, and we have been contacted from time to time by a number of authorities in relation to our ability to intercept, trace or identify our users’ communications. To the extent that our products and operations are or were found to be or would become subject to lawful interception laws in any jurisdiction, we would need to adapt our systems and processes to comply with a variety of requirements on a jurisdiction-by-jurisdiction basis, which can be very costly and technically difficult. Furthermore, such requests by law enforcement and other authorities can make us subject to potentially conflicting obligations across jurisdictions. In addition, determining whether compliance is legally appropriate in any particular case could require us to exercise judgment and result in improper interpretation and application of complex laws. Compliance with data disclosure and legal interception orders may also conflict with certain local laws, including laws governing privacy.
Compliance with data retention laws is difficult and costly.
Many countries, such as the E.U. Member States via the 2006 E.U. Data Retention Directive, are introducing, or have already introduced, into local law some form of traffic and user data retention requirements, which are generally applicable to providers of electronic communications services. Retention periods and data types vary from country to country, and the various local data protection and other authorities may determine their jurisdiction with respect to certain data in different and potentially overlapping manners. We may be subject to data retention obligations in one or more jurisdictions, and we could become further subject to these obligations through changes to our product offerings or as result of modifications to our products or changes to the technological infrastructure on which our products are based or otherwise. Compliance with those laws can be difficult and costly to our activities from a legal, operational and technical perspective.
Rapidly evolving technologies could cause demand for our products to decline or could cause our products to become obsolete.
Current or future competitors may develop technological or product innovations that address Internet communications in a manner that is, or is perceived to be, equivalent or superior to our products. In the technology market in particular, innovative products have been introduced which have the effect of revolutionizing a product category and rendering many existing products obsolete. If competitors introduce new products or services that compete with or surpass the quality or the price/performance of our products, we may be unable to attract and retain users or to maintain or increase revenues from our users. We may not anticipate such developments and may be unable to adequately compete with these potential solutions. As a result of these or similar potential developments, in the future it is possible that competitive dynamics in our market may require us to reduce prices for our paid for products, which could harm our net revenues, gross margin and operating results or cause us to incur losses.
Errors in our products could harm our business.
Our software, products and website could contain undetected errors or “bugs” that could adversely affect
their performance. We regularly update and enhance our software and website and introduce new versions of our software, which often results in errors. The prevalence of software bugs is typically higher in the context of releases of new generations of software than in the releases of more modest version upgrades. The occurrence of errors in our software, products or website may cause us to lose users, damage our reputation and brand name, and materially and adversely affect our business. In addition, as our users increase their use of our paid for products, they may have higher expectations for these products than for free products. Also, as we increasingly introduce products particularly targeted at business users, we may find that business users have more demanding expectations than individual users, and even minor errors in our software could deter business users.
System failures could harm our business.
Although we seek to reduce the possibility of disruptions or other outages, our service may be disrupted by problems with our technology and systems, such as malfunctions in our software or other facilities and overloading of our network. We have experienced system failures from time to time, and any interruption in the ability of users to use our products would reduce our current net revenues, could harm our future net revenues, and could subject us to regulatory scrutiny. System failures can result from errors in our software. As we increasingly introduce products particularly targeted at business customers, any system failures could have a significant impact on our ability to attract or maintain our relationships with business customers. Any scheduled or unscheduled interruption in the ability of customers to use our products could result in an immediate, and possibly substantial, loss of revenues. Our systems may be vulnerable to damage or interruption from telecommunications failures, computer denial-of-service attacks, power loss, computer viruses, earthquakes, floods, fires, terrorist attacks and similar events. Some of our systems are not fully redundant, and our disaster recovery planning is not sufficient for all eventualities. Our systems are also subject to break-ins, sabotage, and acts of vandalism. Despite any precautions we may take, the occurrence of a natural disaster, a decision by any of our third-party hosting providers or telecommunications reseller partners to close a facility we use without adequate notice for financial or other reasons, or other unanticipated problems at our hosting facilities could result in lengthy interruptions in the availability of our products. We do not carry business interruption insurance sufficient to compensate us for losses that may result from interruptions in the availability of our products as a result of system failures.
Risks Related to the Offering
The founding shareholders through their ownership of all of the outstanding shares of Series B Preferred Stock control the business and affairs of the Company and subscribers will have limited ability to affect the composition of our board of directors.
Our founding shareholders own all of the outstanding shares of Series B Preferred Stock which provides for super voting rights and our officers and directors own a substantial portion of the outstanding common stock. As a result, the founding shareholders and our current officers and directors will be in a position to elect all of the directors and subscribers in this Offering will have limited ability to affect the composition of our board of directors or the outcome of votes on fundamental transactions. See “Principal Shareholders” and “Description of Securities.”
The "best efforts" nature of the offering means that the Company may not be able to raise the funds it expects to raise which would have an adverse impact on our prospects.
The Shares are being offered hereby on a "best efforts” basis and not on a "firm commitment" basis. As a result, there can be no assurance as to the amount that will be raised in this Offering. In the event that the
Company does not sell the entirety of the Shares, it may be required to reallocate the proceeds of the Offering or delay research and development or marketing which may adversely affect the ability of the Company to develop its business and achieve profitability.
The Company anticipates that it will require additional financing in the future which it may not be able to obtain on satisfactory terms. Any sale of additional equity securities will dilute the ownership interest of our then existing shareholders.
The Company’s business is capital intensive and it anticipates that it will require additional financing in the future even if the entirety of the Shares are sold in this Offering. There can be no assurance that additional financing will be available to the Company on satisfactory terms or the timing thereof. Any sale of additional equity securities or debt securities convertible to equity securities will dilute the ownership interest of our then existing shareholders.
There is no minimum which must be raised and none of the subscriber funds will be held in escrow pending closing, making an investment in the Offering more risky and speculative than if a minimum amount were required to close the Offering.
None of the subscriber funds from this Offering will be held in an escrow account pending a closing. The Company intends to utilize any and all Offering proceeds immediately upon acceptance of a subscriber’s subscription. Because there can be no assurance as to the amount of funds which will be raised in the Offering, an investment in the Shares may be more risky and speculative than if a minimum amount were required to closing the Offering.
The offering price for the Shares was arbitrarily determined and may not be indicative of the actual value of the Shares.
The offering price for the Shares was determined arbitrarily by the Company and does not necessarily bear any relationship to the Company’s anticipated assets, earnings or other generally accepted valuation criteria. In determining the offering price, the Company did not employ an outside organization to make an independent appraisal or evaluation of its securities. Accordingly, the offering price should not be considered to be indicative of the actual value of the Shares.
The Company has not paid any cash dividends and does not anticipate doing so in the foreseeable future.
The Company has not and does not anticipate paying cash dividends for the foreseeable future. The board of directors presently intends to retain future earnings, if any, to fund operations.
An investment in our common stock may not be suitable for certain investors.
Prospective investors are encouraged to meet with and obtain more information regarding the Shares from representatives of the Company, who will make available such information for prospective investors. In addition, prospective investors should consult with their own financial, legal and tax advisors prior to investing in the Company. Each investor will be required to represent to the Company as to such investor’s qualifications to invest in the Shares and to acknowledge that such investor is an “accredited investor” (as such term is defined in the Securities Act and its regulations) and has had the opportunity to ask questions and receive information sufficient to support its investment decision. Each investor also will be required to represent that it is able to bear the risk of loss of all or a significant portion of its investment. The Company will rely upon the truth and accuracy of these representations and may reject subscriptions in its sole discretion.
There is no public market for the Shares and there are significant restrictions on the transfer of the Shares.
The Shares have not been registered under the Securities Act or any other applicable securities law. Accordingly, under the Securities Act and state securities laws, the Shares will be subject to restrictions on transfer and may be sold, assigned, transferred or otherwise disposed of by a holder only if subsequently registered, or if federal and other exemptions from registration are available. The Company is under no obligation to register the Shares for resale under the Securities Act. Because these securities are not readily transferable, a subscriber’s ability to pledge such securities as collateral for loans may be limited, and the restrictions on transfer could reduce the price of any of the securities in any permitted sale. An investment in the Shares offered hereby is suitable only for persons who have adequate means of providing for their current needs and personal contingencies and have no need for liquidity with respect to their investment. All subscribers must be “accredited investors” under the Securities Act. Further, the Shares may not be transferred or resold except (i) under an exception to the registration requirements of the federal and state securities laws and (ii) under the limited circumstances permitted by the Subscription Agreement.
Our board of directors has the authority to issue “blank check” preferred stock, the issuance of which could adversely affect the voting power of holders of our common stock.
Pursuant to the Company’s certificate of incorporation, subject to the rights of the outstanding series of preferred stock, the Company’s board of directors has the authority, without further action by the stockholders, to issue any undesignated shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of any shares of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by stockholders. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control of the Company. See “Description of Securities.”
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Private Placement Memorandum contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance and include statements about our plans, objectives, products and services as well as our expectations and intentions. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors,” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by any forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Private Placement Memorandum to conform these statements to actual results.
This Private Placement Memorandum includes forward-looking statements, including statements that involve expectations, plans or intentions (such as those relating to future business or financial results, new features or products, or management strategies). You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other
similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in these forward-looking statements. These risks and uncertainties include, among others, those described under “Risk Factors” and elsewhere in this prospectus, including in our financial statements and related notes appearing in this prospectus, and the following: • our ability to maintain or improve our operating and financial performance, and fluctuations in our financial performance; • uncertainties and limitations of our user metrics; our ability to expand our products, strategic relationships and services; • intense competition from companies in a number of industries, including Internet product and software companies, telecommunication companies and hardware-based VoIP providers and, potentially, small and medium-sized enterprise telecommunications services providers; • intellectual property litigation and our ability to protect our intellectual property, technology and brand; • regulation of our current or future products and services and the risk that compliance with regulatory requirements may be costly and may require that we change the products we offer or the way we do business in particular states, countries or other regions, or that we may be unable to comply with regulatory requirements; • challenges managing a global business and our reliance on local partners and third-party vendors; • the growth and availability of broadband Internet access and the risk that some countries may block use of our products; • our dependence on key personnel; • the impact of new technologies on demand for our products; • product errors, system failures and the reliability of Internet infrastructure; • fraudulent activities, use of our products for illegal purposes, and real or perceived security or privacy risks; • risks associated with acquisitions, minority investments and other strategic transactions; • increased taxation of our products or increased income tax expense, and our ability to use our net operating losses; • our substantial indebtedness; and • our ability to obtain additional financing on acceptable terms.
We do not intend, and undertake no obligation, to update any of our forward-looking statements to reflect actual results, changes in circumstances, assumptions or beliefs, or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
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USE OF PROCEEDS
The net proceeds to Telcentris from this Offering, after deducting any commissions, will be approximately $5,400,000 .
The following represents Telcentris’ best current estimate of the allocation of the net proceeds of this Offering based on the current status of its business, and its current expectations. Telcentris’ estimates and current expectations are subject to significant change, based on numerous factors, including certain factors beyond Telcentris’ control. If Telcentris does not utilize the net proceeds of the offering as set forth above, or utilizes different amounts than presently contemplated, Telcentris could use any remaining cash to fund other development projects or acquisitions or for general corporate purposes, including working capital. See “Risk Factors.” If less than the maximum offering is achieved, Telcentris intends to allocate the net proceeds as management, in their sole discretion, determines.
Maximum Offering Percent1 A. Gross Offering Proceeds $6,000,000 100.00%
Sales Commission2 $600,000 10.00% Professional Expense $30,000 0.50% Total Offering Expense $630,000 10.50%
B. Net Offering Proceeds $5,370,000 89.50%
APPLICATION OF NET OFFERING PROCEEDS Engineering $2,370,000 39.50% Marketing $2,000,000 33.33% Operating Capital $1,000,000 16.67% Total Application of Net Offering Proceeds $5,370,000 89.50%
C. Offering Expense $630,000 10.50% Total Application of Offering Proceeds $6,000,000 100.00%
1. Percentages are rounded to the nearest 1/100ths. 2. Exclusive of placement agent non-accountable expense allowance, and warrants to purchase common stock which may be issuable to registered broker-dealers, if any. To the extent no commissions are payable, the additional net proceeds will be allocated among engineering and operating capital in the discretion of the Company.
The application of the net proceeds of the Offering set forth above is estimated and cannot be precisely calculated at the present time. Consequently, the actual allocation of proceeds of the Offering may vary substantially from that described above. If additional net proceeds are raised they will be applied to engineering and marketing efforts.
CAPITALIZATION
The pro forma unaudited capitalization of Telcentris as of July 31, 2014, the date of the most recent month-end unaudited financial statement, and as adjusted for the sale of 1,428,571 shares of Common Stock offered hereby but without taking into account any other transactions, is as follows.
At July 31, 2014
Actual Adjusted Short term debt $325,000 $325,000
Long term debt $3,759,589 $3,759,589
Stockholders’ equity: Common Stock, par value $0.0001 per share, 100,000,000 shares authorized; 40,483,396 shares issued and outstanding3 and 42,197,681as adjusted. $44,480,008 $50,480,008
Preferred Stock par value $0.0001 per share, 40,000,000 shares authorized: 5,773,214 shares issued and outstanding3 and 5,773,214 as adjusted $489,731 $489,731
Retained deficit <$48,338,737> <$48,338,737>
Total stockholders’ equity (deficit) <$3,368,998> $2,631,002
TOTAL CAPITALIZATION $715,591 $6,715,591
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THE BUSINESS OF THE COMPANY
The following narrative describes the plan for the business of Telcentris by management. However it should be recognized that management has broad discretion with respect to the conduct of the business and affairs of Telcentris. Accordingly, management is under no obligation to follow the plan of action outlined below. Management may modify the following plan to the extent that management believes that modification or alteration are necessary, and in the best interests of Telcentris and its shareholders.
Additionally, unless otherwise indicated, all figures and percentages herein set forth with regard to competitors, markets, market share, financial projections, and with regard to industry volumes, not otherwise supported by reference to third party sources, are and should only be construed as educated estimates by management, which result from the inability of management to obtain specific data. Accordingly, the investor is cautioned to refrain from applying any other significance to such figures and percentages except as otherwise specifically indicated. See, “Risk Factors.” Overview Telcentris is an innovator in cloud-based unified communications and VoIP solutions for consumer, business and wholesale markets. The foundation of the company's offerings is its award-winning and proprietary unified communications platform that enables the Company and its customers to build powerful, scalable applications and services. For consumers, Telcentris delivers Voxox, a “freemium” (free with paid options) service that offers users a free phone number that is voice, text, and fax enabled, and integrates instant messaging, social networking, file sharing, real time language translation and other communication modalities together to help alleviate communication overload. Voxox is available on desktop and mobile platforms and also runs as a “cloud based service”. For businesses, Telcentris provides Voxox for business – a complete suite of VoIP business phone solutions, such as Cloud Phone Virtual PBX, Hosted IP PBX, and SIP Trunking, that are often more cost effective, efficient and easier to manage than traditional options. Telcentris also sells wholesale calling, texting to high volume enterprise customers such as call centers and other phone companies. Founded in 2006, Telcentris is headquartered in San Diego. The Company’s website address is www.voxox.com. The information on the Company’s website is not incorporated herein.
Products and Services Built upon the Telcentris Service Delivery Platform (or “SDP”), the Voxox product line addresses multiple segments of the communications industry including consumer, small to medium enterprise (or “SME”) and wholesale. Voxox desktop applications are freely downloadable unified communications software for Mac and PC allowing users to call, text, chat, fax and share files. Voxox mobile applications extend the reach of the value proposition to allow access to VoIP service on mobile phones. Voxox for business brings VoIP into the SME market, allowing a single unified account between the office phone system, desktop and mobile communications devices.
Many of these services are available from Voxox wholesale through our Carrier Service offerings. These offerings allow other communication companies to deliver services to their customers under their own brand name.
Enabling Technologies The Voxox technology portfolio consists of four major categories, the Service Delivery Platform, the Voxox desktop and mobile applications, the B2B cloud telephony suite, and the wholesale VoIP and messaging platform. Each of these technologies was carefully architected from the ground up to be highly scalable and extremely cost effective to deploy.
Network Architecture Voxox maintains its own private cloud, which is designed to be highly redundant and scalable, and to easily integrate with 3rd-party carriers. Voxox currently maintains three dedicated network operation centers (Los Angeles, New York, and Albania) as well as a direct interconnection into the Amazon Web Services (“AWS”) public cloud infrastructure. The integration with AWS allows for rapid and dynamic scaling, as well as near instantaneous expansion into virtually any geographic region.
System Architecture The Voxox system is deployed in a modular architecture providing the highest levels of extensibility, redundancy, and scalability. Individual modules can be enabled, disabled, customized, or created from scratch to support integration into varying network operator environments and business models.
Service Delivery Platform The Voxox Service Delivery Platform (“SDP”) is the central, cloud-based infrastructure on which all Voxox products operate. Its purpose is to facilitate the rapid development of unified communication applications on virtually any platform, and to do so while avoiding third party licensing fees. It supports every major modality of communication in a highly-available, fully redundant environment, which is extremely cost effective to scale. In order to accomplish these goals, the Voxox team invested significant time and resources into architecting this platform from the ground up. The SDP exposes an extensive set of Application Programming Interfaces (“APIs”) which are used by Voxox and its customers to create all of the consumer, SME, and wholesale communication products.
Competition While operating in five highly competitive markets, to the best of management’s knowledge Telcentris is alone in possessing the unique combination of its universal communications service Voxox and the powerful back-end telco-grade infrastructure that powers it. As a result, unlike many of its competitors Telcentris/Voxox does not need to rent a third-party platform to power its service offerings and thus is able to successfully deliver what others struggle to achieve - a profitable multi-market unified communications service offering.
Telcentris is also a registered Competitive Local Exchange Carrier (“CLEC”) in California, Texas, Florida, Illinois and New York. In the opinion of management, this fact represents considerable competitive advantage and barrier to entry.
Telcentris is subject to significant competition in each of the five market segments in which it provides services: consumer, SME, OEM, Operator, and Wholesale.
Marketing The Telcentris Marketing Plan entails marketing Voxox along three tracks: a social media solution for consumers; a unified communication solution for businesses; and a cloud communications leader.
Our marketing strategies target a global market of 2.4B people with a forecasted growth of 60%+ over the next five years to nearly 4B individuals.3 A significant component of Voxox’s success is measured by growth in free users feeding a virally propagating base of paying users. This base is monetized through continuous
3 See http://www.radicati.com/wp/wp-content/uploads/2011/03/Social-Networking-Market-2011-2015-Brochure.pdf for a report compiled by the international technology market research firm, The Radicati Group.
contact with various product offerings and promotions. We forecast that 1-3% of the Voxox user base will be paying users.4 Voxox is also being co-branded and white-labeled for other service providers and companies with an existing base of users, and therefore will have the opportunity to be distributed by third-parties and grow virally from there. Original Equipment Manufacturers (OEMs) such as Lenovo distribute and market Voxox products on their hardware under revenue-sharing partnerships.
Marketing Strategy The marketing team’s strategy to achieve short and long-term revenue generation includes:
• User growth: new acquisition, retention and referrals Up-sell and cross-sell strategies • Growth in brand awareness, interaction and image building
Revenue Generation As of this offering, Telcentris has over 220 wholesale customers, over 650 SME customers, and over 2 million registered Voxox consumer users. This customer and user base generates a growing recurring annual revenues base approaching ten million dollars.
Consumer: Voxox generates consumer revenues by up-selling initially free users to various paid services. For instance, although all Voxox services are free for users communicating Voxox-to-Voxox, in order to communicate with non-Voxox users, subscribers must top up their accounts or sign up for paid calling and texting plans or purchase virtual phone numbers (similar to Telcentris’ business model). Calling, faxing and texting to non-Voxox users consumes top up credit or is covered by a subscription plan. Users can sign up and pay for top up credit or subscription plans from the Voxox website or from directly within the mobile applications.
There are other pay-online revenue streams associated with Voxox that require no human intervention or sales process but that rather rely on targeted marketing strategies (described in detail in the Marketing section). For example, users can also purchase custom phone numbers called “Virtual Numbers.”
SME: Although distribution of this product line also takes place via direct sales efforts, the Telcentris Channel Partner Program, is pivotal to the revenue growth of this business unit. Revenue sources include Cloud Phone, Hosted IP PBX, SIP Trunks, Conference Calling, equipment, and bandwidth.
Wholesale: Distribution of these offerings is achieved both through the Telcentris Sales force and the Telcentris Channel Partner Program. Revenue sources include VoIP origination and termination to carriers and call centers as well as wholesale SMS and Conferencing
Operators: Voxox services are offered on a co-branded or re-branded basis as an over-the-top (“OTT”) solution for mobile carriers to offer to their customers and to compete with disruptive players like Skype, WhatsApp, and Viber, who are severely eroding carrier voice and messaging revenues.
4 This is a conservative range. See http://www.wired.co.uk/news/archive/2011-03/08/spotify-one-million which quotes 3.6 percent and http://www.channelpartnersonline.com/news/2011/01/Telcentris-s-plans-to-go-public-delayed.aspx which states that during the three-moth period ending June 30, 2010, paying Telcentris users represented roughly seven percent of the company’s connected members, according to a filing with the Securities and Exchange Commission. Confirm.Should not cross reference to a generic SEC filing as you don’t know whether its accurate and there’s no way for an investor to check it.
OEM: Voxox has partnered with a number of brand name Original Equipment Manufacturers (“OEMs”) of laptops, tablets and smartphones, including Lenovo, Medion, and Datawind, to pre-install the Voxox apps on millions of devices.
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PRODUCTS AND SERVICES
Overview Built upon the Telcentris Service Delivery Platform (“SDP”), the Voxox product line addresses multiple segments of the communications industry including consumer, small to medium enterprise and wholesale. Voxox desktop applications are freely downloadable unified communications applications for Mac and PC allowing users to call, text, chat, fax and share files. Voxox mobile applications extend the reach of the value proposition to allow access to VoIP services on mobile phones. Voxox for business brings VoIP into the SME market, allowing a single unified account between the office phone system, desktop and mobile communications devices.
Many of these services are available from Voxox wholesale through our Carrier Services and White Label offerings. These offerings allow other communication companies to deliver services to their customers under their own brand name.
Consumer
Voxox is a free consumer software (available on PC and Mac) and service that enables consumers to make free or inexpensive calls anywhere in the world, as well as text, chat, fax, share files and more. Voxox offers many powerful features to help manage conversations and contacts from one place.
Consumers use their free Voxox phone number (provided by a Telcentris’ CLEC) to forward calls to any of their other phones, send and receive faxes and text messages — and even route calls in different ways depending on who is calling. Custom phone numbers are also available for a small fee. Voicemail comes with the free number and one can call from any phone to check voicemail or have transcribed voicemails sent to either email or a mobile phone.
Voxox-to-Voxox calls and video-calls are free Worldwide. All inbound calls, texts and faxes to the Voxox phone number are also free. Calls to a landline or mobile phone are provided at very inexpensive rates – starting at a penny per minute or per text.
Users can also activate a free global number for family, friends or colleagues overseas — thus enabling them to call from any telephone line at a local rate. Utilizing this feature, even though it’s an international call that the caller pays for, as if it were a local call.
Voxox mobile applications are available on iPhone and Anrdoid devices allowing users to make VoIP calls directly from the mobile device. It also allows the user to check voice mail, send and receive SMS messages and receive faxes.
Business
SME Services Voxox meets the needs of traditional SME customers by delivering on the VoIP value proposition. Voxox is a comprehensive, enterprise-class VoIP service allowing businesses to save money on their telephony services including Cloud Phone, Hosted IP-PBX and SIP Trunks and conferencing services.
Cloud Phone The Voxox Cloud Phone service enables businesses large and small to quickly, easily and affordably set up a business phone solution without having to purchase hardware. The enterprise-grade VoIP service has powerful telephony features and can be accessed via mobile, tablet or web.
Entrepreneurs need a small business phone system that can handle rapid growth but most aren’t telecom experts, nor do they want to be. Voxox Cloud Phone is virtual, easy to setup and manage, and completely web-based. Cloud Phone comes with a business phone number, allowing the small business to look more professional, especially since that number is automatically configured to be answered by a company greeting that can route calls to any phone — even a mobile phone. Cloud Phone is an ideal solution for companies with 10 employees or fewer, and no physical office location is required.
Hosted IP-PBX Hosted solutions offer businesses an affordable and easy-to-manage business phone solution that is packed with powerful features to make employees more productive and improve the customer experience. With a hosted solution only the desktop phones are located in the office. The costs and responsibility of powering, maintaining and supporting the phone system are managed by Voxox remotely leaving businesses free to focus on revenue driving activities for their business. These are just some of the benefits of hosted solutions:
• Low upfront costs, no expensive systems to buy • Low usage rates • Unlimited domestic calling option • One bill for all of office locations • Easy to use • Web-based Management Portal • Easily add or remove extensions • Extension dialing throughout the company • Free calls to your various locations, such as remote offices • Auto attendants to give you a large company presence and route phone calls • Predictable monthly expenses with per user pricing, no expensive systems to buy • Never miss a phone call with Find Me
SIP Trunks Voxox offers Session Initiation Protocol (SIP) Trunking and trunk replacement services (SIP, PRI, CAS, and Analog) that can provide a cost saving solution for companies, even if they have an investment in traditional premise-based phone system equipment. Voxox’s SIP Trunk offering is a powerful, scalable and highly flexible solution enabling SMEs to streamline costs and resources, while retaining quality of service standards for business communications.
SIP Trunk Lines represent the number of simultaneous calls to the public telephone network that can be made at the same time. SIP Trunk Lines are the virtual equivalent of lines coming in from a phone company or channels on a T1 circuit.
Usage Voxox provides both unlimited and metered per minute plans to its business customers.
Equipment Voxox provides equipment for purchase or rent (managed) in the US and Canada from well-known brands like Polycom, Plantronics, Panasonic, Cisco and AdT.
Broadband Voxox resells circuits from Megapath and XO for both Internet and QOS.
Wholesale
Voxox’s wholesale voice solutions include IP termination and origination with offerings such as DIDs, toll free numbers, and phone number porting. Voxox is also one of a few wholesale providers to offer SMS- enabled non-mobile phone numbers coupled with service delivery to address needs of businesses looking to SMS-enable their customer communications. The company’s robust network infrastructure along with long- standing partnerships with leading carriers worldwide enables Voxox to provide superior quality of service and reliability as well as highly competitive rates.
Wholesale VoIP Solution Telcentris Service Delivery Platform is a Managed Wholesale VoIP Enablement Platform for service providers. It is ideal for ILECs, CLECs, MSOs, ITSPs, entrepreneurial ventures or any VoIP service provider endeavor that demands state of the art functionality, reliability, scalability and VoIP optimized network architecture. Voxox’s SDP is a completely turnkey environment for service providers.
Carrier Services Voxox offers a complete selection of wholesale services for Carriers and Enterprises. It is designed to provide a complete product suite for launching a new VoIP company or reducing the costs of existing telecom services.
Termination Services Worldwide termination available through a host of Tier 1 and CLEC carriers.
DID Origination Services Hosted through Tier 1 partners providing Voxox with one of the most reliable and extensive footprints in the industry. Origination services also include:
▪ DIDs – offered in excess of 7,000 U.S. / Canada Rate Centers and over 60 countries worldwide. ▪ Local Number Porting (LNP) – providing the ability to transfer phone services from the existing service provider to Voxox in the U.S., Canada and 25 countries worldwide. ▪ Enhanced 911 (E911) – FCC approved emergency service for VoIP providers. ▪ 411 – Nationwide directory assistance and directory listing.
Toll Free Origination Services Toll free phone numbers with the ability to restrict or allow access anywhere in the U.S., Canada and over 70 countries worldwide. Voxox also provides toll free number porting services (RESPORG), enabling transfers from the existing provider of toll free services to Voxox.
SMS Solutions One–way SMS notifications worldwide and two–way with SMS–enabled DIDs (long codes) in the U.S. and Canada. SMS services are delivered through Voxox’s Web–service API. Minimum monthly usage is 10,000 texts.
Strategic Partnerships To expand its businesses, Voxox leverages strategic partnerships with large institutions capable of generating increased sales through their brand recognition, robust sales channels and market power. With minimal upfront investment and little to no CAPEX, Voxox’s consumer and Cloud Phone services are offered to key strategic partners on a co-branded revenue-share or white labeled partnership basis so they can differentiate themselves, generate incremental revenue and compete with disruptive OTT players like Skype, WhatsApp and Google Hangouts. These partnerships include original equipment manufacturers, service providers, distributors and other types of strategic partners that will help Voxox further penetrate the global market such as system integrators, financial transaction or mobile wallet companies.
Original Equipment Manufacturers Voxox has partnered with several brand name Original Equipment Manufacturers (“OEMs”) of laptops, tablets and smartphones, including HP, Lenovo, Medion and Hewlett Packard, to pre-install Voxox’s consumer apps on millions of devices. Through its acquisition of PokeTALK, an international calling service, from E Mobile, Inc., Voxox expanded its global footprint and yielded new OEM partnerships with Datawind, Digital Delivery Networks, Inc. (DDNI), Expansys, Hewlett-Packard (HP), Lenovo, Medion, and Samsung Electronics. The ensuing relationships with these and other OEMs enables Voxox to become a de facto communication service for new and existing users from the moment they turn on their new device, whether it be a notebook, tablet or desktop computer. The OEMs view Voxox’s apps and Cloud Phone services a strategically important value added service to help them differentiate themselves amongst their competition and penetrate new market segments.
Service Providers Voxox offers its consumer apps and Cloud Phone virtual PBX service to a variety of service providers around the world, including mobile network operators (MNOs), mobile virtual network providers (MVNOs), Internet service providers (ISPs), cable operators, multi-system operators (MSOs), and satellite service providers. These service providers offer their re-branded version of the Voxox service to their customers to generate additional revenue and/or to compete with other disruptive players like Skype, WhatsApp and Google Hangouts, who are severely eroding their voice, video and messaging revenues.
Voxox has successfully partnered with two carriers in Africa, one in Malaysia, one in the United States and another in Vietnam that are poised to roll out its turnkey solution to millions of end users. The Company has a strong pipeline of more than 70 prospective service providers and is in active discussions with more than twenty of the largest MNOs, MVNOs and MSOs in the world. Voxox believes there is a significant international opportunity in rapidly growing markets, and has qualified several opportunities in North America, Latin America, EMEA and Asia, with a total end customer opportunity of over 1.4B users.
Within these synergistic partnerships, Voxox and the partner collectively define the network connectivity, rates, revenue share (or license fee), and a go-to-market plan. Voxox offers the service delivery platform and client software for the IP-based unified communication service, marketing know-how (i.e., acquisition, activation, retention, referral and revenue conversion), and requisite customer care support structure to enable the partner to deliver a world-class solution to their new and existing customer base. The partner offers their brand recognition, payment collection capability, and sales and marketing presence.
Distributors The Company also distributes its SME services through North American master distributors or agents. These professional master agents, which include Microcorp, Sandler Partners, TBI and WTG, sell Voxox’s services through some of the largest distribution channels in North America with more than 4,000 authorized sub agents and value added resellers. They rely on the fact that Voxox’s SIP Trunks and Hosted PBX solutions are certified by the leading PBX vendors in the industry, including 3CX, Avaya, Cisco, Digium, Fonality, NEC, Polycom, and Zultys.
Other Strategic Partners Voxox also relies on financial transaction and value transfer partnerships to extend its market presence into the unbanked and underbanked communities, who don’t own a credit card, which represents more than 93 percent of the world’s population. These partnerships enable Voxox’s customers the ability to top-up their user account with cash at a point of sale (retail location) or by securely transferring currency from a personal banking account via a mobile wallet. The partnerships will also enable the ability to remit funds across foreign borders by emigrants, foreign residents, students, travelers, and foreign and migrant workers also known as Overseas Foreign Workers (OFWs).
Voxox has a strategic partnership with Emida and Maxie Mobile in North America and Oxigen in India to service the world’s unbanked and underbanked communities.
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ENABLING TECHNOLOGIES
Network Architecture Voxox maintains its own private cloud, which is designed to be highly redundant and scalable, and to easily integrate with 3rd-party carriers. Voxox currently maintains three dedicated network operation centers (Los Angeles, New York, and Albania) as well as a direct interconnection into the Amazon Web Services (“AWS”) public cloud infrastructure. The integration with AWS allows for rapid and dynamic scaling, as well as near instantaneous expansion into virtually any geographic region .
Voxox uses Equinix as its data center partner because of the extremely high quality environment they provide. Equinix consistently exhibits 99.9999% (“six nines”) uptime with full UPS power and N+1 redundancy. It also has datacenters dispersed globally and facilitates direct data interconnections between Network Operation Centers (“NOCs”), allowing for a geographically dispersed network to be created at a relatively low cost. Because Equinix is home to most major carriers, Voxox has the capability to quickly build a direct interconnection and expand into remote corners of the globe.
As illustrated in Figure 1 and mentioned previously, the Voxox network is directly connected to the Amazon Web Services public cloud. This is an extremely useful tool for scaling the network on
demand. When system utilization increases due to peak calling hours, marketing events, or unexpected influxes of traffic, the system will automatically scale itself up by turning on additional virtual machines. Alternatively, when the traffic subsides during off peak hours or otherwise, those virtual machines automatically hibernate, thereby saving cost.
AWS operates Points of Presence (“PoPs”) in dozens of diverse geographic locations, enabling Voxox to deploy virtual infrastructure almost anywhere in the world in a matter of minutes. Systems Architecture The Voxox system is deployed in a modular architecture providing the highest levels of extensibility, redundancy, and scalability. Individual modules can be enabled, disabled, customized, or created from scratch to support integration into varying network operator environments and business models.
Figure 2 below depicts the high level architecture of the system and its interfaces.
Figure 3 below depicts the modular architecture of the Voxox platform. The OAM and Billing layer is responsible for provisioning, system monitoring, billing/charging and reporting. The Application layer is home to many of the core services such as voice, video, image sharing, lawful interception, and emergency calling. The protocol interface layer is responsible for handling interconnections with various 3rd-party operator networks, and as such supports a wide array of commonly used protocols such as SOAP, Diameter, Radius, SIP, XMPP, and SMPP.
Service Delivery Platform
The Voxox Service Delivery Platform (“SDP”) is the central, cloud-based infrastructure on which all Voxox products operate. Its purpose is to facilitate the rapid development of unified communication applications on virtually any platform, and to do so while avoiding third party licensing fees. It supports every major modality of communication in a highly-available, fully redundant environment, which is extremely cost effective to scale. In order to accomplish these goals, the Voxox team invested significant time and resources into architecting this platform from the ground up. The SDP exposes an extensive set of Application Programming Interfaces (“APIs”) which are used by Voxox and its customers to create all of the consumer, SME, and wholesale communication products.
SDP Architecture To understand how the system functions, please refer to figure 2 (below). Starting from the bottom of the diagram, you can see that the platform supports base protocols such as SS7 (traditional telephone network), SIP (VoIP, video and fax), XMPP (IM/Chat), SMPP (SMS/Text), SMTP (Email), and more.
Moving up in the diagram, the Voxox internal API layer then abstracts the individual protocols and provides a common interface for developers to build business applications, without having to understand the minute details of each base protocol.
Above that, the Voxox Business Applications are a series of classes and libraries built on top of the internal API, which facilitate common functions in order to speed deployment time for new applications.
The External API is a development interface, designed to allow external developers full access into the power of the SDP. These developers can use the protocol of their choice (REST, SOAP, XML-RPC, or JSON- RPC) while building applications, resulting in the system being extremely extensible, and versatile enough to accommodate virtually any development environment.
Every market we serve (Consumer, Residential, SME, and Wholesale) and every end-user product deployed by Voxox is built on top of the external API. These include the suite of mobile and desktop applications, CloudPhone, Hosted IP PBX, SIP Trunking, as well as White Label and Carrier Services.
Figure 1 - SDP Technology Layers
VBOSS The Voxox Business and Operational Support System (VBOSS) is the central management system for all voxox operations. It is responsible for Product Catalog, Provisioning, Rating, Billing, Fraud Prevention, Inventory Management, and much more.
Product Catalog The product catalog is a flexible tool that allows the system administrator to build products that can be sold to customers. Example products include unlimited USA/Canada calling plan, or a text messaging service that
provides 300 free SMS messages to China before starting to bill $0.07 each. The administrator can also define special promotions, such as 30% off first month’s bill or 1000 free calling minutes to Brazil.
Rating Engine The rating engine is a high speed processing system capable of generating individual billing records (”CDRs”) for any type of communication that the system facilitates. For example, when a text message is sent by a consumer, the rating engine looks up the tariff for this particular service and destination and creates a line item that later appears on the consumer’s bill. At the same time, the rating engine keeps track of the price being charged by the vendor. It can then provide real-time cost versus revenue reporting to ensure a profitable service all the time.
Billing Engine The billing engine allows administrators to create classes of customers with independent configurations. Configurations include billing model, customized invoice templates, account suspension and termination rules and payment terms. The billing engine supports real time credit card processing and remittance, and is integrated with many popular 3rd party systems, such as iTunes and Google Play. It automates recurring billing, allowing the administrator to create complex promotions such as free or discounted billing periods or monthly unlimited calling packages.
Fraud Prevention Tools Voxox uses two types of fraud prevention tools, active and passive. The active tools, prevent fraud by proactively filtering out users based on heuristics such as known proxy IP address, previously used fraudulent credit card number, address verification service, device fingerprinting and much more. Active filters also include tools such as SMS verification service, whereby a user has to receive a code via SMS and enter it into a web form to prove they are a unique human. Passive filters work by analyzing traffic such as call logs, username and password combinations, and even the rate of traffic from specific geographic regions. Passive filters can alarm or block users based on increased utilization and even profit degradation. All systems have adjustable thresholds, and can be set individually for different service types.
SDP Management Tools
The Telcentris SDP provides several end user portals, or GUIs, which enable each user to manage their respective services. There is a portal for administration, network monitoring and management, customer service, and an end user portal that dynamically changes form based on the role or product of the user who is logged in.
Change Management Database (CMDB) The CMDB is a central repository for all hardware and software systems. It catalogs each item and maintains inventory for everything from physical devices to IP addresses.
RFC and incident Management System The RFC system tracks platform maintenance and changes. It relates services to specific network elements, and ensures that technicians have full approval before engaging in maintenance efforts. It also can alert a technician if the system they are working on is in use by another person or service. The Incident Management System tracks all service impacting incidents, logs downtime, and facilitates communication between resources who are engaged in solving the problem at hand. Both systems were built internally at Voxox to address a need for which there was no commercially available system in the market.
System Monitoring Portal Voxox has an extensive system monitoring utility with several thousand independent sensors. It keeps track of everything from individual server hard disk utilization to call volume in specific regions to inventory of DIDs remaining in a particular LATA. It logs and graphs all data that is collected, and can alert and alarm by email and SMS message if predefined thresholds are reached.
Customer Service Portal This portal provides access for customer service agents to look up and maintain customer accounts, issue refunds, activate or deactivate accounts and even investigate service issues.
End user Portal This portal allows customers to administer their personal or business accounts. A user can perform functions such as viewing call history, checking voicemail, updating find-me, setting up auto attendants and anything else needed to manage their communication account. The portal dynamically reconfigures based on the role and product of the user who is logged in.
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COMPETITIVE LANDSCAPE
To the best of management’s knowledge Telcentris is alone in possessing the unique combination of its highly scalable Service Delivery Platform, award winning product suite including its Voxox app and Cloudphone product, comprehensive SME product suite, and the powerful back-end telco-grade infrastructure to powers it. As a result, unlike its competitors, Telcentris does not rely on a third party platform to power its service offerings, and is able to deliver, scale and continuously enhance telephony services where others struggle in a manner that is a tremendous competitive advantage for Telcentris,a profitable multi-market unified communications service offering.
Voxox is a telephone company, registered by the appropriate state Public Utilities Commissions as a Competitive Local Exchange Carrier (“CLEC”) in California, Texas, Florida, Illinois and New York. In the opinion of management, this fact represents considerable competitive advantage and barrier to entry. For more than seven years, Voxox hasdelivered carrier and enterprise-grade consumer and business communication services on a global basis. The company’s fully developed, highly flexible, highly scalable and award-winning service delivery platform based on open APIs, which the company calls its “Innovation Engine”, enables it to quickly develop and manage a full-suite of services and features for its customers and partners worldwide.
The rapid pace in which new and innovative services and features are being introduced through the cloud makes Voxox a disruptive service. The company invests approximately 33 percent of its annual revenue into research and development (R&D) efforts, primarily invested in discovering new methods for improving the end user experience either through enhanced capabilities, performance or affordability. This aggressive investment in leading cloud based services has resulted in Telentris being able to quickly deliver industry leading products, such as Cloudphone, in a very short period, and further enhance those products rapidly, adding features and plans for revenue generation on a weekly to daily basis if needed.Telcentris knows, understands and listens to its customers. The Company is a leader in tying into its SDP and API very sophisticated and extensive data analytics tools. Telecentris has extraordinary competitive strengths in understanding customer behavior, by product, by geography and can then pushing discrete message to encourage purchases in a pleasant and welcoming manner. This could include all types of purchases from more phone minutes, toservice upgrades,up through converting individual users to highly profitable business users.
While Tecentris is a competitive leader in telephone services, application development, customer conversion for revenue, it is subject to significant competition in each of the five market segments in which it provides services: Consumer, SME, Operator, OEM, and Wholesale.
Consumer Telcentris is a leading innovator of worldwide unified communications for individual user. Voxox is a free of charge calling, video, photo, faxing individual and group messaging service provided as an Over-The-Top (OTT) app to users anywhere in the world using IP-enabled devices. These include, but are not limited to, laptops, smartphones, desktop computers, and tablets. The app offers a user all they need to communicate and remain connected in one elegant and easy to use application. An intuitive, singler user interface provides access to the entire suite of services and features presenting information within a single communication thread for every contact or defined group.
The solution delivers high definition calling (HD VoIP), rich messaging, SMS, group messaging, social networking, faxing, and many other popular cloud telephony features such as intelligent call routing (Reach
Me Anywhere), call screening, call recording, call transfer, language translation, visual voicemail, voice-to- email transcription, instant group calling and business communication through Cloudphone virtual IP-PBX. This comprehensive set of services and features are delivered from a single platform to most any type of IP- enabled device enabling users to communicate in most every way possible with anyone, anywhere in the world, and it comes with a US phone number currently free of charge.
Telcentris’ SMS and call termination rates are significantly lower than that of its competition. The cost of delivering these services will be further reduced as more users join the Voxox network increasing its popularity. The more popular the service, the more the network effect takes hold and the application spreads, growing the user base.
The combination of valuable cost competitive unified communication services with a US phone number sets the Voxox consumer offering apart from its competitors.
Voxox is in a highly competitive and visible industry. Voxox is often compared to existing Internet calling (VoIP) and messaging services that have headlined the news such as, WhatsApp, Grand Central, Viber, Skype, and RingCentral. Each of these having Initial Public Offereings or recently being bought as strategic acquisitions by enormous, worldwide brand name industry leading powerhouses like Google, Facebook and Microsoft. Leading companies innovating in this segement are key components to staying relevant in a rapidly transforming mobile communications revolution. Common attributes among these companies is they had large user bases largely acquired through free services, invested in substantial infrastructure, and offered a specific user feature. The acquisitions were made to acquire large user populations, but often without clear paths to monetize those users. Voxox, while having similiarities, is distinguished by already havnig a strong revenue engine in SME, a higher conversion rate of its free consumer user base to a paying user base because of the ownership of a US phone number and access to anyone else in the world on any service, with the ability to allow users to communicate in the best mode for their specific need through a single product.
Beyond the larger competitors mentioned above, another class of multi-channel messengers has emerged in recent years, attempting to integrate varying combinations of instant messaging and social networking with limited, outbound-only Internet calling (examples include Fring, Nimbuzz, and Trillian). Without substantial investment into a comprehensive VOIP infrastructure, like that of the Voxox’s SDP, these services cannot provide true bi-directional calling, texting, and faxing, and, as a result, many of these companies have failed and closed their doors.
Operator Telcentris because of its breadth and depth of technical infrastructure can compete for worldwide operator partnerships. Telcentris is actively seeking relationships with worldwide operators as a solution provider to where they are losing revenues due to OTT applications. When it comes to establishing strategic partnerships with service providers, Telcentris sees less competition. Management believe most OTT apps do not have the willingness, resources or capabilities to interconnect with services providers, share their revenue or license their technology. This is a function of Telcentris being both a full licensed telephone company, successful SME service provider and application developer. We can deliver turnkey solutions to Operators enetering the competitive VoIP verticals. There are few competitors in this space that are capable of customizing their solutions to adapt to the needs of the service provider such as Acision, Genband, Infinite Convergence Solutions, Jibe Mobile, Line2, Nimbuzz, Vitelity and WhatsApp. The number of competitors in the space may increase due to existing players reinventing themselves and new players attempting to enter the marketplace by introducing newly standardized HTML5 and WebRTC web-based communication solutions. When a service provider desires a Rich Communication Service (RCS) or compatibility with such as service, Voxox may compete with cellular network infrastructure and value-added service vendors such as Ericsson, Huawei, NSN and Mavenir.
The cutting edge technology of the Voxox app is a tremendous value to individuals, enterprises and international service providers. Due to the strength and scalability of the platform, the app is highly monetizable and customizable. It offers revenue-generating capabilities that exceed those offered by the competition, and the capacity to share these business opportunities with sector leading partners.
Business Voxox’s business offerings, including SIP tunking, Hosted PBX, Virtual PBX and Conferencing solutions provide comprehensive solutions for small and large businesses alike. Ease of deployment along with reduced opex and capex requirements make are solutions attractive to a wide variety of companies.
Wholesale Voxox services Carriers and call centers all over the world by providing low cost high quality VoIP origination, termination, features and SMS. These services enable them to enter the telecommunications industry with minimal effort.
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MARKETING
Overview The following defines the marketing strategies and tactics behind the introduction of the Voxox product suite. The Telcentris Marketing plan entails marketing Voxox along three tracks: a social media solution for consumers; a unified communication solution for businesses; and a cloud communications leader.
Our marketing strategies target a global market of 2.4B people with a forecasted sales growth of 60%+ over the next five years to nearly 4 billion individuals.5 Success is measured by growth in free subscriptions feeding a virally propagating base of paying users. This base is monetized through continuous contact with various product offerings and promotions. We forecast that 1-3% of the Voxox user base will be paying users.6
Goals The primary goal of the marketing team’s activities is short and long-term revenue generation achieved through:
1. User growth: new acquisition, retention and referrals 2. Revenue, up-sell and cross-sell tactics 3. Growth in brand awareness, interaction and image building
Situational Analysis Initially introduced in late 2008, the Voxox consumer offering has remained in beta throughout its development. During that development period, the promotion of Voxox has primarily consisted of dollar- conscious public relations and targeted marketing micro-campaigns. It is planned that Voxox will be released from beta in 2014, delivering the greatest opportunity for rapid subscription growth to date. To realize this important growth potential, future marketing efforts will reflect creatively-differentiated, virally-active campaigns.
Up until 2013, Voxox has relied almost exclusively on traditional marketing tactics - trade show marketing, channel partner development, PR, etc.) - executed to support the more conventional telecom "feet-on-the- street" sales model for business sales of Hosted PBX, SIP Trunks and wholesale services. With the advent of our viral growth potential in late 2013, these efforts are now being integrated into our expanded marketing strategies and tactics, initially as feeder end-points and later as fully developed cross-sell channels.
Our viral growth model entails: ▪ Concentrating tactics at the widest demographic and psychographic group possible, consumers aged18-34 ▪ Collecting detailed behavioral and situational analytics that can be mined to constantly refine marketing actions
5 See http://www.radicati.com/wp/wp-content/uploads/2011/03/Social-Networking-Market-2011-2015-Brochure.pdf for a report compiled by the international technology market research firm, The Radicati Group. 6 This is a conservative range. See http://www.wired.co.uk/news/archive/2011-03/08/spotify-one-million which quotes 3.6 percent and http://www.channelpartnersonline.com/news/2011/01/Telcentris-s-plans-to-go-public-delayed.aspx which states that during the three-moth period ending June 30, 2010, paying Telcentris users represented roughly seven percent of the company’s connected members, according to a filing with the Securities and Exchange Commission
▪ Consistently exposing them to highly relevant targeted messaging through traditional, digital, mobile advertising media, and social media channels ▪ Providing unprecedented value ▪ Delivering an engaging, relevant user experience ▪ Creating product and marketing differentiation
The Voxox service architecture, by its unified nature, lives for users in both their consumer and business worlds, matching the fundamental way social media is merging these two worlds. Growing a strong consumer base of customers — while establishing a strong business migratory path — is a point of important competitive differentiation.
Initial Target Markets Our initial primary target market consists of socially-active, early-adopter, mobile, portable, and desktop communications software users, 18-to-24 years old. In the English-speaking countries, these are mostly college and university students. These students made up the fastest-growing segment of users on Facebook in 2010 (74%),7 as well as one of the fastest-growing segments across all top social media sites.
The secondary target market consists of socially-active, mobile, portable, and desktop communications software users; young working professionals ages 25-34. This segment is globally dispersed and is being targeted based on our ability to deliver a localized experience and our ability to monetize and/or virally grow the user base. Additional segments will be addressed for business related offerings.
All of our primary and secondary markets share a variety of attributes, including a high level of intercommunication and sharing of habits via social media. Mirroring top-tier social media site subscription trends, we focus our social marketing efforts primarily on the users of group texting, chatting, and calling applications. These users spend a significant portion of their day using computers, tablets, and smart phones and include early technology adopters. We also focus our PR efforts on the influential bloggers and key media outlets that speak to these groups.
The needs of our consumer audience are functional, the need to make calls or chat, for example. But there is also a deep emotional current to their psychology: they want to be a part of the conversation. Also important to our entire audience of consumers (and businesses) is the growing need to create simplicity in their communications, both outbound and inbound. Through carefully planned product innovations and matching marketing, Voxox is positioned around communication and lifestyle simplification that offers consumers a way to communicate with the outside world through a single interface.
Target Market Size and Growth Potential The size of the social media and digitally connected market is approximately 83 million “data-centric” consumers/prosumers in the US and over two billion worldwide, with predicted double-digit growth for the immediate future.8 The recent explosive growth of mobile technology and social media has been and continues to be, heavily influenced by this group. Microsoft recently released data stating that of the world’s 4 billion mobile phones, 1.08 billion are smart phones and 3.05 billion are SMS-enabled.9 Additionally, according to recent market research by Engage Media, 96% of 18 to 35 year olds are on a social network and
7 See Scribd, referencing a stat from Digitalbuzz, http://www.scribd.com/doc/51862868/Facebook-in-Higher-Education 8 RBC Capital Markets at http://www.scribd.com/doc/17361921/Global-Smartphone-Market-Sizing 9 Microsoft Tag, via Mashable - March 2011
1 in 5 Americans 18-35 use Twitter.10 In the U.S., nearly one-third (31%) of all mobile users owned smart phones at the end of 2010, according to Nielsen.11
Consumer to Business Migration One thing is certain: our social behaviors today define our business behaviors tomorrow. Current consumer behaviors are marked by mass migration to, and daily use of, social utilities. These social utilities enjoy mass migration because they foster growth of networks with shared interests, allow freedom of communication, feature simplicity of information retrieval and elegantly organize the rich information available from those same shared networks — the business trends of tomorrow.
Unlike some of our better-known competitors, we built our platform with these business trends in mind. Indeed, by closely watching consumer behavior and product use case scenarios, it becomes clear the role that our communication technologies play for our consumer social media product is the identical role necessary for the communications technologies predicted for businesses.12 This symmetry defines a path for our success: Acquiring a large base of consumer users today across multiple market segments and geographies equates to a captive audience available to monetize, cross-sell and up-sell in the business space. Thus, the proposed model of consumer-to-business use is a migratory pathway necessitating careful marketing exploitation for our success.
We expect that 5-10% of our monetized user base will be business-users.13 Therefore, the mass-adoption behaviors inherent in the consumer social media space can geometrically increase our overall revenues by creating a readily available demographic for migration to the higher-margin business products.
Marketing Strategy A leader in the communication space cannot talk solely about technology. Instead, Voxox needs to speak on a more emotive, lifestyle level to our audience. Voxox is a lifestyle-product with social media, mass adoption appeal. With this knowledge, Voxox must connect with its market in a culture-changing manner. Thus, culture-defining events, such as SXSW, Sundance Festival, and Comic-Con are targeted. Voxox uses culturally-influential language, such as “Love Your Phone" in its marketing messages. Voxox employs a systematic, message-reinforcing network of social media sites for text and video — Twitter, Facebook, YouTube, and more. A content marketing strategy is deployed to speak comprehensively to our target market through various mechanisms like our own product, micro-websites, event participation, and social media, while still supporting strong business initiatives.
A subtle element of our marketing strategy to drive viral growth is the need to appeal entertainingly and honestly to our audience, building our brand and image. Building earned media in this way spawns word-of- mouth proliferation in a complex spider web of our own communication channels, social media and relevant in-person events. We are ready to deploy a content marketing campaign for mass influence in the social media market. The bottom line: we need to be the most innovative, most relevant company in the game to differentiate from the competition. Our brand image needs to be culture-forward — while keeping a strong hold on our business base — or the viral activities will not gain the necessary self-propagating momentum.
10 KissMetrics http://blog.kissmetrics.com/social-media-statistics/ 11 Neilsen Wire http://blog.nielsen.com/nielsenwire/consumer/smartphones-to-overtake-feature-phones-in-u-s-by-2011/ 12 There are countless studies supporting these trends. Here is a good overview: http://www.readwriteweb.com/archives/social_media_for_business_who_is_doing_it.php 13 According to Skype’s recent S1 filing, they saw use by business users of up to 35% of their user base: http://techcrunch.com/2011/03/07/"Telcentris-revenue-up-20-percent-to-860m-in-2010-paid-users-up-19-percent.
Marketing Tactics Growth of the Voxox user base is achieved through a combination of owned, bought and earned media for the most effective integrated campaigns to reach the target demographic. Bought media consists of paid efforts such as advertising and mobile advertisements; owned media is content produced by the brand; and earned media is the word-of-mouth generated in response to owned media, bought media, and through maintaining relationships with key press and social influencers.
Owned media asset creation and dissemination will dominate our marketing efforts, with bought media being a primary effort as well. Our viral momentum will be built upon this foundation of owned media assets, developed internally around the value proposition inherent in Voxox. These content assets will be a combination of messaging that supports the product value proposition:
▪ Product messaging (an umbrella focusing on price-saving and lifestyle superlatives) ▪ Feature-specific messaging (a breadth-to-depth differentiator) ▪ Entertaining messaging (a culture-connection differentiator) and ▪ Socially conscious messaging (a thought-leader differentiator)
This large and growing base of owned media content will be utilized across a variety of social media domains to strategically support and build Voxox awareness.
A broad variety of different content sources and assets will enable us to phase in a substantial, unrelenting stream of content across various domains without the normal risks of oversaturation. The predominant supply of content will be entertaining and engaging, offering a much broader audience exposure to Voxox in a culturally-forward, interesting, non-sales manner.
Also notable to the success of future campaigns will be the plan for internal marketing and product departments to develop congruent initiatives and timelines to drive Voxox viral growth. This will be reinforced with carefully planned product features and release timelines, as well as product integration of marketing campaigns and customer messaging. By creating a rich consumer experience, the consumer audience itself will be a primary driver for marketing efforts targeting the business demographic. Specific mediums to be employed will include:
Social media tactics through our owned media Our strategy is evolving an aggressive propagation of the social media universe with fun, edgy and meaningful content to targeted audiences in a strategy to fuel interaction. Some content will be product- specific, some will be about our other initiatives, and some about our entertainment content.
Events As part of our integrated mix we will participate in our own events, as well as relevant culture-defining events such as SXSW, Sundance, and Comic-con. Rather than looking at our consumer audience as passive receivers of messages, our event marketing will ensure that they are active participants in the events, thus developing a relationship with the Voxox brand. In short, the brand and the "brand experience" will be taken directly to consumers through shared live events that are meaningful to our audience, triggering a resonance on a personal level.
Public Relations In order to reach wider audiences and fuel social media buzz, it is important to initiate catalyst events that not only trigger new conversations on a grand scale, but also help steer those conversations through careful positioning and media engagement. Key influencer and media coverage plays a critical role in the success of
Voxox, and we have established an excellent foundation with our PR efforts throughout the Voxox beta period. Voxox is known to a wide array of influencers, ranging from USA Today, to Mashable, to the Clark Howard show, to top analyst firms, such as IDC, and many other third-party outlets that will continue to bring visibility and credibility to the brand through an active PR program. Voxox has also received numerous editorial and organizational awards for the uniqueness of its concept, and will continue to maintain such efforts. PR tactics will also be employed in any integrated marketing launches, events, stunts, content marketing, user stories, as well as thought leadership activities, such as CEO brand-building, speaking engagements, social cause involvement, publication of contributed content, and more. Some PR focus will also be applied to the business channel marketing strategy in order to facilitate sales.
Advertising Advertising efforts will be focused primarily on online media. Specific media may include: pay-per-click, pay- per-download, and other online paid mediums. Our bought media efforts will also be balanced against other online marketing programs such as SEO (search engine optimization) and app store optimization to encourage organic growth.
Customer Engagement / Customer Experience A simple, extrinsic focus on conversions can actually decrease the likelihood of engagement. Instead, collecting extensive analytics data allows us to market in a highly specific way to each and every user so that messaging is more engaging, specific and thus, welcome. This may take the form of timed, targeted messages that are extremely relevant for that specific user. Examples include sending a push notification to their mobile phone describing a new lower price for calling to India to a user that had been making daily phone calls to India, but has not made one in 5 days; or sending a link to top up an account that is low on credit when the balance drops below twenty cents.
Our experience marketing will leverage and enhance existing customer relationships for growth and referrals and retention — placing a higher value on long-term engagement, meaningful connection and word-of- mouth advocacy. Customer retention and referrals will greatly be affected by continual product growth and added value, as well as proactive customer communication strategy that includes email campaigns, push notifications, and in-app messages.
Promotions Voxox growth can be accelerated through compelling, valuable promotions that encourage any of the most critical metrics for success- user acquisition, retention, conversion from a free to a paid account, and recommendation of the Voxox applications and services to others. Promotions may include offering discounts, free credit, and rewarding desired behavior, such as inviting friends to sign up for Voxox.
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REVENUE GENERATION / SALES
Revenues are generated via multiple revenue streams spanning our five target sales channels: consumer, business, wholesale, operator, and OEM Partnerships.
Voxox products and services are delivered to consumers in a variety of form factors, including our full- featured Voxox desktop software application, mobile apps and applets, and a service only version, which is largely based on the powerful Voxox phone number. All form factors require a Voxox account subscription, which is free of charge. All Voxox services synchronize in the cloud, enabling users to manage any of the above services through any of our user interfaces from a single account.
What a user gets for free: Voice, text and fax enabled personal phone number, voice mail, Voxox-to-Voxox calls, texts and faxes, conference calling, global access number (local international numbers), chat across IM and social networks, translation in 50 languages, file sharing (up to 100MB) across via IM, text or email.
Revenues are generated via up-selling initially free users to our multiple paid services. For instance, although all services are free for users communicating “Voxox-to-Voxox,” in order to communicate with non- Voxox users free subscribers must sign up for paid calling and texting plans. Faxing to non-Voxox users is charged by consuming paid calling minutes. These revenues are generated via our e-commerce website where users can go sign-up, and pay, for calling and texting plans by providing their credit card numbers directly on the website.
There are other pay-online revenue streams associated with Voxox that require no human activity or sales process but that rather rely on targeted marketing strategies described in the Marketing section (above). For example, users can also purchase custom phone numbers called “Virtual Numbers.”
The following additional products are complimentary with and promoted (i.e., sold) via the Voxox offerings:
Business provides branded small and medium size business offerings. This division consists of business phone systems and related solutions, including SIP trunking, hosted IP-PBX, data services and more. These offerings enable SMEs to leverage low VoIP rates along with other productivity- and efficiency- enhancing features and benefits. As all Telcentris offerings share the same underlying technology and network architecture. Although distribution of this product line also takes place via direct sales efforts, Telcentris operates an award-winning Channel Partner Sales Network (“Channel Partner Program”) described in more detail below. This program is pivotal to the growth of revenue from this business unit.
The Wholesale division offers a number of bulk services that are maintained as an instrumental aspect of Voxox operations, leveraging the underlying technology platform and network infrastructure. This division includes carrier services and wholesale SMS solutions that enable entrepreneurs to sell VoIP services under their own private branding. Distribution of these offerings is achieved primarily through the Telcentris Channel Partner Program.
Telcentris B2B Channel Partners Program The Telcentris Channel Partner Program consists of:
Interconnect/Phone Vendors – Traditional premise based phone system providers utilizing a partner to sell voice services like SIP Trunking or want to augment their product set by adding Hosted IP PBX products for competing in the marketplace.
Outsourced IT/MSPs – IT companies seeking to advance their customer’s technology in the realm of telecommunications equipment/service, increase their bandwidth for data or offer cost savings via Telcentris VoIP products and services.
Master Agents – Large volume telecommunications products sales companies who aggregate the sales of hundreds of smaller contributors (sub-Agents) that otherwise would not be able to meet the minimum sales requirements of many carriers. Their sub-Agents are a combination of Interconnects, Outsourced IT/MSP’s, telecommunications consultants and entrepreneurs.
Internal Sales Staffing Voxox employs Channel Managers to recruit and train outside Agents. The company also employs Account Managers to assist with proactive customer care, up-sell and retention.
Strategic Partnerships The Voxox services that are co-branded or re-branded under a revenue-share or white-labeled basis with strategic partners are expected to generate a substantial amount of revenue over time. Voxox employs the services of more than a dozen employees, master distributors and agents across the globe to influence the marketplace and enter into partnership agreements with OEMs, service providers and other strategy partners. Collectively, Voxox’s strategic partnership sales force has long-term business relationships with many of the key decision makers within the largest service providers in the world, and has sold billions of dollars worth of equipment and software to them. The business development team has met with more than 100 strategic partners from around the globe, qualified more than 70 of them as being prospective clients, is in active dialog with more than 20 of them and has responded to several formal requests for information which were initiated by Voxox’s market development efforts. Many of the prospective partnerships are with MNOs who are searching for a partner who can help them counter-disrupt the OTT players that are rapidly eroding their voice and SMS revenue. Voxox is aggressively pursuing the opportunity to partner with these MNOs by leveraging existing business relationships and submitting strong value propositions that involve minimal risk and substantial reward. Voxox believes it competes favorably with the other OTT players that are capable of partnering with service providers, most specifically MNOs and MVNOs. New service provider partnerships are expected to contribute approximately $4.8M of AMRR by year end 2014. Based on aggressive business development efforts, continue product improvements and the establishment of strong reference accounts with large and respectable service providers, Voxox intends to become the de facto OTT solution for hundreds of millions of consumers worldwide. Based on this, Voxox expects to generate more than $111 million of cumulative revenue from strategic partnerships over the next five years.
MANAGEMENT TEAM
Name Age Position Bryan Hertz 40 Chief Executive Officer and Chairman Kevin Hertz 34 Chief Technical Officer and Director Robert Hertz 64 Chief Information Officer and Director Cliff Rees 63 President Tristan Barnum 36 Chief Marketing Officer Kyle Lee 43 Chief Operating Officer Joe Lawrence 55 Executive Vice President & Chief Business Development Officer Jim Krupiarz 56 Executive Vice President, Finance Pertti Johansson 67 Executive Vice President, Global Business Development Mark Meyers 46 Executive Vice President, Products
Bryan Hertz - Chief Executive Officer and Chairman Bryan brings over 20 years experience in operational management, research & development, technology innovation and software design with a variety of established, as well as start-up, ventures. Combining his experience in technology start-ups with his passion for creating innovative technologies, Bryan co-founded Telcentris to bring a new wave of communication capabilities to the masses.
Bryan's entrepreneurial and technology experience includes management of a high-tech robotics retail chain in Southern California, R&D; for a service bureau for Fortune 500 banks, insurance companies and broker- dealers, designing complex data processing facilities and systems for the legal industry, production of complex, high-speed automated mailing facilities for some of the largest US financial institutions, designing large scale e-commerce technologies implemented by numerous Fortune 500 companies, architecting and designing complex Multi-Level Marketing genealogy tracking software system for the MLM industry, and building call centers and BPO centers in India, and Costa Rica.
Bryan is an avid student of technology and technological innovation, particularly pertaining to communication technologies,, and has an intense thirst for knowledge in a variety of fields including alternative health practices and naturopathic medicine, which he satisfies by reading and attending continuing education courses. Bryan is an extensive traveler and enjoys Mixed Martial Arts, including boxing and Krav Maga. Bryan is married and the proud father of two sons and a daughter.
Bryan holds a certificate in Computer Science from Coleman College and a certification in Network Administration from Novell Networks. In addition to his involvement in the alternative health field, he is an avid traveler, a student of Asian culture as well as Eastern medicine, and enjoys boxing and a working out at the gym. Bryan, born in New York and raised in Southern California, is married and is the proud father of two young sons and a daughter.
Kevin Hertz - Chief Technical Officer and Director Kevin brings over 11 years experience in technology development, systems automation, and deployment of advanced network architectures. He is an innovator in bridging the technical gap between IP communications and the PSTN (Public Switched Telephone Network) and an expert in VoIP technology. Kevin co-founded Telcentris with the intent of using his talents to bring innovation to the fast paced VoIP market.
Kevin’s recent technology experience includes administration and maintenance of diverse networks and software systems for outsourcing and web hosting firms. Among other advanced technology, he designed and implemented a proprietary, high load, redundant network infrastructure, for use in an ultra high availability data transaction environment. Making use of multiple bandwidth sources and geographically redundant hardware he was able to create a system that perpetually maintained a 99.999% uptime. While in college, Kevin developed and deployed an online retail storefront for the music industry supporting disc jockeys and music enthusiasts, which was first to market in streaming audio samples of vinyl media.
Kevin is an avid techno-sports enthusiast. In the time that isn’t spent in the office or working with new gadgets, Kevin enjoys action sports including snowboarding, skiing, skateboarding, bungee jumping and skydiving, and is currently on his way to earning a private pilot’s license. Kevin holds a BS from USC (the University of Southern California), where he studied computer engineering, business, and economics. He also holds certificates in computer animation, graphics processing, and video editing.
Robert Hertz, CDP - Chief Information Officer and Director Bob brings 36 years experience in computer technology innovation, operations automation, operating management and managerial accounting predominantly with Fortune 500 corporations. Most recently, Bob directed the software development of a “cradle-to-grave” automation environment for large and medium- sized businesses. Bob’s entrepreneurial activities have also included building several high tech retail and travel businesses as well as software development companies.
Bob’s experience includes creation of several industry specific “total automations,” including Children’s Hospital Pediatric Cardiology, Cush Travel, Paul Ecke Ranch and Sentra Securities, all in San Diego. Bob has also developed military systems at Naval Ocean Systems Center for SAIC and Syscon, two major US Government contractors. Bob delivered source code and training programs for Venda Ltd (London, England) on his e-commerce automation software, which is still today the basis for all 100 of Venda’s e-commerce customers online stores, including; Virgin Mega Stores, Xerox, BT, Panasonic, Austin Reed, Lands’ End, Sharp, Wickes, and Danskin.
In 1991, American Express (TSSG) purchased exclusive rights to CAESAR which Bob created to automate over 80 major bank and insurance company owned brokerage houses including: Trans America, (Griffith) Home Savings, Home Life, AIG, Great Western, Fortis and The Phoenix. Bob worked with IBM to develop their web automation software “Net.Commerce” which subsequently morphed into their current WebSphere product and founded Financial Database Systems in San Diego, which is still operating profitably today.
Bob maintains an avid and active interest in robotics, high tech devices, subtle energy and alternative healing. Bob grew up in New York, moved to California permanently in 1975 and enjoys being close to his family, sons and grand children. Bob holds a Bachelor’s degree in Computer Science from Coleman College and is a life member of the Association for Certification of Computer Professionals holding their highest designation, Certified Data Processor.
Cliff Rees - President Cliff has more than 25 years of experience as an executive and entrepreneur in the telecommunications industry. His expertise is rooted in building new businesses and rapidly growing existing ones. Cliff has held executive leadership roles with a number of global VoIP providers, including Leading Edge Communications, which offers SIP Trunking solutions. He was the Founder, President and COO of GlobalTouch Telecom, Inc., a switched-based carrier with its own proprietary Voice over Internet technology. He then founded and was CEO of XCast Labs, Inc., a developer of Software as a Service VoIP applications that sells residential, SIP Trunking and hosted IP-PBX services.
Cliff also served as President of Convergia, Inc., where he managed all aspects of the business in implementing a pan-American VoIP network in Canada, U.S., Mexico, Venezuela, Brazil, Peru, Ecuador, Argentina and Chile. With Cliff’s leadership, the company grew from $0 in sales in October 2001 to $4M in December, 2002, with a gross profit margin in excess of 30%.
He is well-known for his work in executive positions at World Access, Inc., a key player in the bandwidth market. There, he was responsible for dedicated bandwidth agreements, operating licenses and other strategic relationships with incumbent carriers and new telecom entrants in key European, Asia-Pacific, African and Latin American markets. He was also responsible for all aspects of North American sales, marketing and operations, which included 400+ employees and an annual revenue stream of $450 million. During his tenure, World Access closed 8 acquisitions totaling over $1 billion in annual revenue. In addition, Cliff played a critical role in the success of Telegroup, where he spent 10 years as Founder, President and CEO, growing the business from concept to a NASDAQ-listed company with $330 million in sales and over 1,000 employees globally.
Tristan Barnum – Chief Marketing Officer No stranger to the start-up lifestyle, Tristan co-founded Switchvox in 2003, which was acquired by Digium, the Asterisk Company, in 2007, to serve the rapidly growing SME market for VoIP phone systems. Prior to Switchvox, Tristan pioneered the online delivery of digital media at MP3.com, which Vivendi Universal acquired. Her work included the design of new web services, handheld mp3 players, tablets and interactive TV. While at Vivendi, she was awarded a patent for a system that provides access to electronic works over a network.
Kyle V. Lee - Chief Operating Officer Kyle brings more than 20 years of experience in the finance and technology industries. Previously, Kyle, as CEO, co-founded Enevor Inc., an innovative clean tech company revolutionizing advanced material mixing. He has also held operations and financial management leadership roles with a number of technology companies, including his experience as COO of MIOX Corporation and a senior member of the FAB 11 operations management team at Intel Corporation. He led the transformation of his organizations from end to end to hit the strategic vision through solid management systems. Additionally, he was a central player in the renegotiation of bank credit, acquiring of strategic investment capital with such companies as Schlumberger and TEL Semiconductor, and the raising of a significant C-round investment with leading Sand Hill Road venture capital groups.
Early in his professional career, Kyle worked in the United States Senate budget committee. From there, he went to Alex. Brown and Sons in investment banking as a financial analyst for the insurance business division. In his time at Alex. Brown, the team successfully completed over $3 billion in financial transactions.
Kyle holds an MBA from the University of New Mexico, a Bachelor of Arts degree from Stanford in Quantitative Economics, as well as certifications from the Project Management Institute and MIT. His teams’ numerous awards and recognitions include the Artemis Project Top 50 Water Company (2009 – 2011) and Frost & Sullivan’s North American Product Line Strategy of the Year Award in 2010.
Joe Lawrence - Executive Vice President & Chief Business Development Officer Joe is an acknowledged wireless industry expert with an entrepreneurial spirit. As a 30-year veteran, he is proficient in assessing the challenges of today’s mobile communications industry and in the intricacies of starting new businesses. At Voxox, Joe leads global marketing, public relations and mobile network operator product development. Previously, Joe spearheaded Qualcomm’s international consumer product and technology marketing efforts during its rise to industry dominance. With three operating partners, he also directed the commercialization of DIRECTV in Brazil and 12 other countries in Latin America. Joe is a
Certified Professional Engineer, a naval academy and MBA graduate, and a retired U.S. Navy Submarine Captain who served his country for more than 25 years.
Jim Krupiarz – Executive Vice President, Finance Jim brings 30 years of financial management experience to Telcentris. He began his career with the former Ernst & Whinney in Michigan, managing tax and audit engagements. Jim moved to San Diego in 1987 to join IVAC Corporation as a strategic planning analyst. With IVAC, Jim evaluated new business opportunities that employed IVAC’s core intravenous infusion technologies. Subsequent roles in accounting and finance management with San Diego firms led to a position as CFO with Controlled Contamination Services, Inc., a clean-tech firm serving the biotech industry. Jim managed the transition from family to private equity ownership after a Texas-based group purchased the company. Jim also served as CFO at sporting goods maker CoopSport, an international brand whose products are sold at major chains and specialty realtors. Coop’s products were manufactured in China and Jim oversaw the financial aspects of manufacturing in China, including letter of credit financing and foreign currency transaction management. Jim also oversaw the founders’ sale of the company to a competitor. Jim was also CFO at social media startup Booya! Media and biotech startups Alure Medical and Epicardial Technologies.
A Michigan native, Jim received his BS in Accounting from Central Michigan University where he was a collegiate swimmer, and he earned his MBA in finance from the University of Michigan.
Pertti Johansson, Executive Vice President, Global Business Development In his more than 35 years of leadership experience in the technology field, Pertti has generated billions in sales, leading geographically diverse organizations throughout the U.S., Europe, Asia, Middle East, Africa and Latin America. He has held senior leadership roles at Qualcomm Incorporated and Motorola Corporation, having served for more than a decade at the latter.
Most recently, Pertti held senior management positions at Powerwave Technologies Inc., a global supplier of cellular coverage, where he was responsible for Latin America sales, and Monitise Group, a leading mobile banking services provider, where he oversaw wireless activity to develop new services, solutions and partnerships. Previously, Pertti served as president, Europe/MEA at Qualcomm. In this position, Pertti was the chief executive, strategist and main driver for Qualcomm penetration into the European, Middle East and Africa markets. There he led strategy, business development and operations for the region, overseeing early expansion of Qualcomm’s WCDMA (UMTS) networks.
Earlier in his career, Pertti spent more than 15 years at Motorola Corporation, where he pioneered and led Motorola’s international cellular network success in global strategy, sales, marketing, implementation and operations throughout the world. During the first 12 years, he built Motorola’s international cellular network business from 4 customers to 120, growing annual revenues from 50 million to five billion dollars. He also initiated the company’s cellular business in China, developing strong local partnerships and growing operation to 400 people and revenue to one billion dollars per year. He also negotiated and sold the first wireless network contracts in Europe, Japan, Southeast Asia, Latin America, Middle East and Africa, as well as lobbied for deregulation and privatization of cellular in India on behalf of the company. Before Motorola, he spent more than a decade at ITT Corporation, a $40 billion conglomerate, in various engineering, marketing and management positions for fixed line switching and transmission solutions.
Pertti graduated from the Helsinki Institute of Technology with a Bachelor of Science in electrical engineering, specializing in telecommunication. He has served on more than a dozen boards of directors globally between 1999 and the present, and still maintains his position on four of these boards, including an
active position on the Africa Broadband Forum, which promotes broadband development in Africa and assists new and established operators to gain knowledge about best practices and solutions.
Mark Meyers – Executive Vice President, Product Management Prior to joining Telcentris, Mark held the position of Director, Global Voice Services at J2 Global, where he created and grew eVoice.com and its sister products, an entirely new product suite, to over $40 million in annual revenues across US and UK markets. His extensive product management and leadership experience prior to j2 includes various roles with DIRECTV, EarthLink, and several others, including 18+ years of product strategy, planning, development, and launch execution across 7 major brands worldwide. He holds a BSEE from University of Michigan, Ann Arbor with en emphasis in Signal Processing and Communication Systems.
Indemnification of Officers and Directors
Under its By-laws, the Company may indemnify officers and directors against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlements and reasonably incurred in connection with legal, administrative or investigative proceedings any person who is or was a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, an officer or liquidator of the Company, or is or was, at the request of the Company serving as an officer, director or liquidator of, or in any other capacity is, or was acting for, another company or partnership, joint venture, trust or other enterprise. The Company may only indemnify a person if the person acted honestly and in good faith with a view to the best interests of the Company, and in the case of criminal proceedings, the persona had no reasonable cause to believe that his or her conduct was unlawful. This indemnification may be available for liabilities arising in connection with this offering. The Articles of Incorporation also provide that the Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability.
The Company has executed or intends to enter into Indemnification Agreements with its officers and directors, so as to provide them with the maximum protection permitted by law. Pursuant to the agreements, the Company has agreed or will agree to indemnify its officers and directors against third party proceedings, proceedings by or in the right of the Company, expenses of a successful party, indemnification upon or advance of application, and partial indemnification of expenses, judgments, fines or penalties.
Compensation
Names Position Monthly Cash Compensation* Bryan Hertz Chief Executive Officer and Chairman $18,000 Kevin Hertz Chief Technical Officer and Director $18,000 Robert Hertz Chief Information Officer and Director $18,000 Cliff Rees President $12,500 Tristan Barnum Chief Marketing Officer $14,167 Kyle V. Lee Chief Operating Officer $14,583 Joe Lawrence Executive VP/Chief Business Development Officer $15,417 Jim Krupiarz Executive Vice President, Finance $11,667 Pertti Johansson Executive VP, Global Business Development $7,500 Mark Meyers Executive VP, Product Management $14,583
*Does not include stock option issuances. Bryan Hertz, Kevin Hertz and Robert Hertz have each acquired 2,500,000 options to purchase common stock and may earn additional options in the future. (See “PRINCIPAL SHAREHOLDERS” and “CERTAIN TRANSACTIONS.”)
Telcentris’ bylaws currently authorize a minimum of one and a maximum of five directors. Officers and directors of Telcentris will control approximately 22% of Telcentris’ voting capital stock at the close of this Offering. (See “PRINCIPAL SHAREHOLDERS” and “CERTAIN TRANSACTIONS.”) Management anticipates searching for suitable candidates for additional officers and directors and anticipates that additional officers and directors with appropriate business and financial expertise will be hired in the future. It cannot be foreseen at this time what amounts of capital stock, if any, these additional officers and directors may be issued.
Incentive Stock Option Compensation
As an incentive to employees, contractors, consultants, advisors and insiders to assist us with realizing our business plan goals, Telcentris has adopted the Telcentris, Inc. 2006 Non-Qualified Stock Option Plan (the “Plan”). The stock subject to the options are shares of authorized but unissued or acquired or reacquired Common Stock. The aggregate sales price or amount of options issued during any consecutive 12-month period must not exceed the greater of the following, subject to certain adjustments more fully set forth in the plan, (i) $1,000,000; (ii) 15% of the total assets of Telcentris, Inc. (including a wholly-owned subsidiary and the options represent obligations that Telcentris, Inc. fully and unconditionally guarantees), measured at the corporation's most recent annual balance sheet date (if no older than its last fiscal year end); or (iii) 15% of the outstanding amount of Common Stock measured at the corporation’s most recent annual balance sheet date (if no older than its last fiscal year end).
Pursuant to the Plan, our founding shareholders, Bryan Hertz, Kevin Hertz and Robert Hertz, have each been issued 2,500,000 options to purchase shares of common stock. Also, each of these individuals, plus certain other executives, may be compensated from time to time with additional stock options as a performance incentive. There are currently 3,637,067 options outstanding to employees and contractors with 2,060,091 of these options currently vested; 250,000 options outstanding and vested to advisory board members; and 893,750 options outstanding and vested to former employee and former board member Michael Faught.
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ADVISORY BOARD Members of the Company’s Advisory Board are as follows:
Dean Harris Dean Harris is CEO of Piggyback Publishing, an online content syndication company in New York City. Prior to launching Piggyback in 2006, Dean held various senior marketing positions including Chief Marketing Officer ("CMO") and Chief Brand Officer at Vonage, CMO at Kayak; CMO at CarDay and SVP-Marketing at HotJobs.
In 2005 Dean was named Brandweek Marketer of the Year and in 2006 won an EFFIE Award for advertising effectiveness with Vonage.
Dean holds an MBA in Marketing and International Business as well as a Masters of International and Public Affairs, both from Columbia University. While earning his BA from Carleton College, Dean studied abroad at Deccan College, in Pune, India. Dean is also a graduate of the Horace Mann School in New York City.
Dean, an accomplished speaker, has lectured at Columbia, The Sloan School at MIT, The Kellogg School at Northwestern, the IAB, AdTech, iMedia, The Conference Board, The Conference On Marketing, The International Advertising Festival at Cannes, The CMO Council, The Ad Club of New York, The CMO Club of New York and The Harvard Business School Club of New York.
Paul Kouroupas Paul Kouroupas is Chief Regulatory Officer and Security Officer for Global Crossing. Global Crossing, a $2.1 billion public telecommunications company, operates one of the world's most extensive fiber optic IP backbone networks, offering a full range of telecommunications and IP-based services in more than 500 cities in 50 countries around the world. Mr. Kouroupas is responsible for obtaining and maintaining operating licenses in each country and representing Global Crossing before national regulatory authorities. Mr. Kouroupas also supports the establishment of interconnection agreements with incumbent and competitive carriers around the world. As Global Crossing's Security Officer, Paul is also responsible for ensuring company compliance with the requirements of the company's Network Security Agreement with the U.S. Departments of Homeland Security, Defense, Justice, and the Federal Bureau of Investigation. The Network Security Agreement establishes a set of requirements designed to protect the critical infrastructure operated by Global Crossing and to support law enforcement efforts.
Prior to joining Global Crossing, Paul served as Vice President- Regulatory & External Affairs at Teleport Communications Group Inc. ("TCG") where he represented TCG before state regulatory and legislative authorities in 16 eastern region states. While at TCG, Paul negotiated the first modern interconnection agreement between an incumbent carrier and a competitive carrier in 1994, a full two years before the passage of the Telecommunications Act of 1996. Paul also represented TCG at numerous industry forums and co-chaired the Central Office Code Guideline forum, which established for the first time national standards for the assignment of central office codes to competitive carriers. TCG was acquired by AT&T in 1998 for $12 billion.
Paul graduated from Catholic University's Columbus School of Law and its Communications Law Institute in 1992 and is a member of the Pennsylvania Bar.
Bruce Silverman Bruce Silverman is one of America's best known and well respected marketing-communication executives. As President and CEO of the principal U.S. unit of Initiative, the world's largest ($22 billion in annual billings) media planning and buying agency, his clients included The Walt Disney Company, Unilever, The Home Depot, Carl's Jr., Taco Bell, American Honda, Bally's Health & Fitness, Six Flags, America Online, the United States Navy and Yahoo! A broad-view strategist, creative innovator and media guru, his 38-year advertising agency career also included "C-level" positions at Ogilvy & Mather, Bozell, BBDO/West Asher/Gould and WongDoody. He was the creative mind behind "Don't Leave Home Without It" for American Express, "Bullish on America" (Merrill Lynch), "Something Special in the Air" (American Airlines), "Not made in 'Nooo Yawk Ciddy" (Pace Picante), "The Shell Answer Man" and a dozen other award winning campaigns for such clients as IBM, Hershey's, Baskin-Robbins, Autodesk, Coldwell Banker, the California Department of Health Services, SunAmerica, Suzuki, Sanyo, Mattel, Greyhound, Armour and Post.
After retiring from the agency business in 2005 he co-founded Pocket Billboards¨, which successfully pioneered the concept of interactive in-call telephone advertising. In addition, he provides consulting services to a select group of global marketers, major advertising and public relations agencies and large media properties.
A graduate of Adelphi University in New York, Bruce is an active member of the Academy of Television Arts & Sciences and the Dean's Advisory Board of UCLA Extension
J.D. Vaughn J.D. Vaughn is Vice President of Sales, The Americas, for Trapeze Networks a Pleasanton, California wireless networking company. Prior to Trapeze, JD was Vice President of Worldwide Sales for Bay Packets and Accord Networks and Vice President of Sales, for the Americas, with Polycom.
J.D. brings over 25 years of business, telecom and technology experience in the voice and data network and communications market place, and is experienced in building very successful direct and indirect sales teams focused on the enterprise and carriers as well. An accomplished manager and leader of direct, indirect and channel sales teams, J.D.is experienced in targeting sales resources so as to achieve the greatest leverage and immediate sales velocity.
While at Accord Networks, JD built sales teams from the startup stage to an IPO and acquisition by Polycom. During this phase, he led sales growth from 0-$60 MM in 28 months. At Polycom J.D. led the vertical business solutions applications sales initiatives and was responsible for $180 million in revenue. Prior to joining Accord Networks J.D. held a number of senior sales executive positions with AT&T, PictureTel, and Genesis Electronics.
J.D. did his undergraduate work at Cal Poly, San Luis Obispo, and has published articles and case studies for The Harvard School of Business.
Roger Valdovinos Mr. Valdovinos is the Founder and a Managing Director of Blue Beacon Capital. He has been representing clients in mergers, acquisitions, restructurings, exclusive sales and capital raising transactions since 1995. Mr. Valdovinos has originated, executed and closed more than 60 transactions totaling over $12 billion of transaction value.
Mr. Valdovinos' advisory expertise is rooted with a deep understanding of the telecommunications, Internet infrastructure, and new media sectors. He has served as an advisor to leading domestic and international TMT companies including Bell Canada, PSINet, Teleglobe, The Providence Journal Company, Adelphia Communications, Savvis, Colt Telecom, Intermedia Communications, XM Satellite Radio, Digital Island, TRICOM, Focal Communications, Mpower Communications, AppliedTheory, Teligent, Speakeasy, New Global Telecom, NextWeb, Skyriver Communications, Redwire, CommPartners and Columbia Communications, among others.
Prior to founding Blue Beacon Capital, Mr. Valdovinos co-led the Emerging Telecommunications Group of Credit Suisse First Boston in New York. Previous to CSFB, Mr. Valdovinos was a Vice President in the Telecommunications Group of Bear Stearns in New York where he contributed to building one of the top investment banking franchises on Wall Street focused on the emerging telecommunications and technology sectors. Prior to Bear Stearns, Mr. Valdovinos held positions of increasing responsibility in the Corporate Finance Group of The Walt Disney Company.
Mr. Valdovinos received an MBA from the Kellogg School of Management at Northwestern University, and a Bachelor of Arts degree in Economics from Stanford University.
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DILUTION
The net book value per share of Telcentris’ capital stock as of the date of Telcentris’ most recent month-end unaudited financial statement, July 31, 2014, is approximately <$0.07> per share based upon 40,483,396 shares of Common Stock, 217,658 shares of Series A Convertible Preferred Stock, and 5,555,556 shares of Series B Preferred Stock issued and outstanding as of that date. Net book value per share is equal to the total assets of Telcentris at December 31, 2013 of $2,425,264 less total liabilities at July 31, 2014 of $5,794,263 which equals <$3,368,999>, divided by 46,256,610, the number of common and preferred shares outstanding.
Without taking into account any other changes in net tangible book value other than to give effect to the issuance of 1,714,285 shares of Common Stock hereby at an offering price of $3.50 per share (See, “Certain Transactions”), resulting in an aggregate of 42,197,681 shares of common stock outstanding, 217,658 shares of Series A Convertible Preferred Stock, and 5,555,556 shares of Series B Preferred Stock outstanding and the receipt and application of $6,000,000 in anticipated gross proceeds, the pro forma net book value of Telcentris capital stock (Common Stock plus Series A Convertible Preferred Stock) would be $0.05 per share, including adjustments for 1,714,285 shares of Common Stock issued in connection with this Offering. This represents an immediate increase in pro forma net book value of $0.34 per share to existing shareholders and an immediate dilution in net tangible book value of $3.22 per share to investors. The following table illustrates this per share dilution.
Per Share Dilution Table ______
Assumed offering price $3.50
Net book value per share prior to offering <$0.07>
Increase attributable to new investors $0.12
Net tangible book value after offering $0.05
Dilution per share to new investors $3.45
______
All figures are rounded to the nearest one thousandth.
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PRINCIPAL SHAREHOLDERS The following table sets forth as of July 31, 2014, the date of our most recent unaudited monthly financial statement, the number of shares of equity securities of Telcentris owned before and after the Offering by (1) each beneficial owner of 5% of such securities , (2) each officer and director who owns shares in Telcentris and (3) all officers and directors as a group.
Common Stock: % After to Name No. of Shares.14 % Prior to Offering Offering Bryan Hertz 1,235,642 3.05% 2.93% Kevin Hertz 1,165,078 2.88% 2.76% Robert Hertz 966,305 2.39% 2.29% Charles Darter and related parties 4,018,346 9.93% 9.52% SBD Global Fund spc 10,286,792 25.41% 24.38% Subscribing Shareholders 1,714,285 0.00% 4.06% All Other Shareholders 22,811,233 56.35% 54.06% Total 42,197,681 100.00% 100.00% All Officers and Directors as a Group 7,385,371 18.24% 17.50% Series A Preferred Stock: % After to Name No. of Shares % Prior to Offering Offering Bryan Hertz 0 0.00% 0.00% Kevin Hertz 0 0.00% 0.00% Robert Hertz 0 0.00% 0.00% Charles Darter and related parties 0 0.00% 0.00% SBD Global Fund spc 0 0.00% 0.00% Subscribing Shareholders 0 0.00% 0.00% All Other Shareholders 217,658 100.00% 100.00% Total 217,658 100.00% 100.00% All Officers and Directors as a Group 0 0.00% 0.00% Series B Preferred Stock: % After to Name No. of Shares % Prior to Offering Offering Bryan Hertz 1,851,852 33.33% 33.33% Kevin Hertz 1,851,852 33.33% 33.33% Robert Hertz 1,851,852 33.33% 33.33% Charles Darter and related parties 0 0.00% 0.00% SBD Global Fund spc 0 0.00% 0.00% Subscribing Shareholders 0 0.00% 0.00% All Other Shareholders 0 0.00% 0.00% Total 5,555,556 100.00% 100.00% All Officers and Directors as a Group 5,555,556 100.00% 100.00% All Stock: % After to Name No. of Shares % Prior to Offering Offering Bryan Hertz 3,087,494 6.67% 6.44% Kevin Hertz 3,016,930 6.52% 6.29% Robert Hertz 2,818,157 6.09% 5.87% Charles Darter and related parties 4,018,346 8.69% 8.38% SBD Global Fund spc 10,286,792 22.24% 21.44% Subscribing Shareholders 1,714,285 0.00% 3.57% All Other Shareholders 23,028,891 49.79% 48.01% Total 47,970,895 100.00% 100.00% All Officers and Directors as a Group 12,940,927 27.98% 26.98%
14 Shares don’t include shares from exericise of options.
DESCRIPTION OF SECURITIES
Telcentris is authorized to issue 100,000,000 shares of Common Stock, $0.0001 par value, and 40,000,000 shares of blank check Preferred Stock, $0.0001 par value. As of the date of this Memorandum, there are 5,773,214 shares of Preferred Stock issued and outstanding.
Common Stock
The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The holders of common stock are not entitled to cumulative voting rights with respect to the election of directors. Subject to preferences that may be applicable to any then outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available for dividends. In the event of the Company’s liquidation, dissolution or winding up, holders of the common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of the preferred stock, if any, then outstanding. Holders of common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
The Company’s board of directors has the authority, without further action by the stockholders, to issue any undesignated shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of any shares of preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by stockholders. The issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control of the Company.
Series A Convertible Preferred Stock
As of the date of this Memorandum,there are 217,658 shares of Series A Convertible Preferred Stock (the “Series A Stock”) outstanding. The shares of Series A Stock are convertible at any time at the option of the holder into shares of Common Stock of the Company on a one-for-one basis, adjusted for future share splits. When and if declared by the Board, the Series A Stock is entitled to an annual per share dividend of $0.09 (4%) prior to any payment on Common Stock; dividends are not cumulative and will be “paid in kind” in the form of Telcentris Common Stock at the then current stock price. For any other dividends or distributions, the Series A Stock participates with Common Stock on an as-converted basis. In the event of any liquidation or winding up of the Company, the holders of the Series A Stock shall be entitled to receive, prior to any payments to the holders of the Common Stock, an amount equal to $2.25 per share plus any declared but unpaid dividends on such shares. After the payment of such initial preferential amounts on the Series A Stock, the balance of the proceeds shall be shared pro rata among the holders of the Preferred Stock and Common Stock. Holders of the Series A Stock have the right to vote with the Common Stock on an as-if- converted basis of one vote per share. In addition, the holders of the Series A Stock have the right to participate in future equity financings of the Company based on their pro rata as-if-converted ownership of the Company.
Series B Preferred Stock
As of the date of this Memorandum there are 5,555,556 shares of Series B Preferred Stock (the “Series B Stock”) outstanding. The shares of the Series B Stock are convertible at any time at the option of the holder into Common Stock of the Company on a one-for-one basis, adjusted for future share splits. For any other dividends or distributions, the Series B Stock participates with Common Stock on an as-converted basis. The holders of the Series B Stock shall have the right to vote with the Common Stock on an as-if-converted basis of ten (10) votes per share.
Dividend Policy
The Company has never declared or paid any cash dividends on its common stock and do not anticipate paying cash dividends on such shares in the foreseeable future. The right of holders of common stock to dividends are subject to preferences that may be applicable to any then outstanding shares of preferred stock. We currently intend to retain any future earnings to finance the operation and expansion of our business. See “Preferred Stock” above.
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CERTAIN TRANSATIONS
Common Stock Authorizations and Issuance Telcentris was organized as a Delaware Corporation on March 27, 2006 with an initial authorization of 25,000,000 shares of common stock at $0.0001 par value. On October 20th, 2006, the Delaware Secretary of State approved an amendment to the Telcentris Articles of Incorporation, initially filed on July 3, 2006, in which the number of authorized shares of Common stock at $0.0001 was increased to 100,000,000.
On December 30, 2011, Telcentris entered into an agreement with board member Charles Darter and related parties to sell $3,000,000 of newly issued common stock at a price of $.88 per share to be funded in tranches during 2012. While the stock sale was considered fully executed as of December 31, 2011 and reflected accordingly as equity, the funds were recorded as an escrow deposit as of December 31, 2011 and transferred to cash as tranches were released during 2012.
On December 14, 2012, Telcentris sold $5,000,000 of newly issued common stock at a price of $1.25 per share to SBD Global spc. The company also sold a stock purchase warrant for $326,275 to SBD Global spc to purchase an additional 2,537,479 shares of common stock at $.01 exercise price.
On August 6, 2013, Telcentris sold $5,500,000 of newly issued common stock at a price of $1.25 per share to SBD Global spc. and issued a stock purchase warrant for an additional 501,143 shares of common stock at a $.01 exercise price. On November 19, 2013 this transaction was revised when a stock purchase warrant was issued for an additional 1,730,000 shares of common stock at a $.01 exercise to SBD Global spc in exchange for an additional $1,000,000 cash investment.
As of December 31, 2013, Telcentris had issued or was committed to issue in the form of options and warrants no less than 20,614,612 shares of common stock including the above described transactions to various founders, employees, insiders and agents in exchange for various consideration in addition to previous subscribers in our private securities offerings. (See “FINANCIAL STATEMENTS” and “PRINCIPAL SHAREHOLDERS.”)
Series A Convertible Preferred Stock Authorizations and Issuance On October 20th, 2006, the Company filed with the Delaware Secretary of State an amendment to the Telcentris Articles of Incorporation, initially filed on July 3, 2006, in which 10,000,000 shares of Blank Check Preferred Stock were authorized. As of December 31, 2013, Telcentris had designated and issued or was committed to issue no less than 493,210 shares of Series A Convertible Preferred Stock to subscribers in our private securities offerings. (See “FINANCIAL STATEMENTS” , “PRINCIPAL SHAREHOLDERS” and “DESCRIPTION OF SECURITIES.”
Series B Convertible Preferred Stock Authorizations and Issuance In November 2012 a majority of the outstanding voting shares authorized the designation of Series B Preferred Shares with voting rights of 10 votes per share (each share will have the voting rights of 10 common shares). Founders Bryan Hertz, Kevin Hertz, and Robert Hertz each exchanged 5,555,556 shares of their common shares one for one for the Series B Preferred Shares resulting in the Hertz’s maintaining shareholder control of the Company for the foreseeable future. Concurrently the board approved an amendment to the Telcentris Certificate of Incorporation in which an additional 30,000,000 shares of blank
check preferred stock were authorized in part so that there would be a sufficient number of Series B Preferred shares to accommodate the one for one common share exchange with the founders.
Convertible Notes The Company has $3,000,000 of long-term convertible notes payable due on December 30, 2016, which are convertible to 1,333,333 shares of common stock prior to maturity.
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PLAN OF DISTRIBUTION
The Company is offering up to 1,714,285 Shares. The Company reserves the right to expand the offering in its discretion to offer and sell up to an additional $1,200,000 in Shares. Each investor must subscribe to purchase at least one Unit consisting of 15,000 Shares.In the discretion of the Company, the terms and duration of the Offering may be modified by the Company in its discretion, including acceptance of an investment for less than one Unit. The Company and its affiliates and any broker-dealer for this Offering and its affiliates may also invest in the Shares.
The Offering is limited to “accredited investors” as defined under Regulation D promulgated under the Securities Act. See “Investor Suitability Standards” below.
The Shares are being offered on a “best efforts” basis by the Company. The Company is not required to sell any minimum number of Shares. The Company may utilize the services of one or more broker-dealers that are registered with the Financial Industry Regulatory Authority who may be engaged by the Company from time to time in its discretion.
The offer and sale of the Shares is being made in reliance on an exemption from the registration requirements of the Securities Act. Accordingly, distribution of this Private Placement Memorandum has been strictly limited to persons who the Company believes meet the suitability requirements set forth in “Investor Suitability Standards”. The Company reserves the right to declare any prospective investor ineligible to purchase the Shares based on any information that may become known or available to the Company concerning the suitability of such prospective investor or for any other reason.
An investment in the Shares involves a high degree of risk and may only be purchased by persons of substantial financial means who have no need for liquidity in this investment. The Company is offering the Shares to individuals or entities that meet the definition of an “accredited investor” as set forth in Regulation D promulgated under the Securities Act. The Shares will be sold only to investors who represent in writing that they satisfy the suitability requirements set forth in the Subscription Agreement.
Other Materials
No person has been authorized by the Company to make any representations or furnish any information with respect to the Company or the Shares other than as set forth in this Private Placement Memorandum or other documents or information furnished by the Company upon request as described herein. However, authorized representatives of the Company shall provide, upon request from a prospective investor within a reasonable time prior to his purchase, the opportunity to ask questions and receive answers concerning the terms and conditions of the Offering and to obtain any additional information which the Company possesses, or can acquire without unreasonable effort or expense, that is necessary to verify the accuracy of information previously furnished to such prospective investor.
This Private Placement Memorandum has been prepared solely for the benefit of accredited persons interested in the proposed private placement of the Shares offered hereby. Any reproduction or distribution of this Private Placement Memorandum, in whole or in part, or the disclosure of any of their contents without the prior written consent of the Company is expressly prohibited. The recipient, by accepting delivery of this Private Placement Memorandum, agrees to return this Private Placement Memorandum and all documents furnished herewith to the Company or its representatives immediately upon request if the recipient does not purchase any of the Shares, or if the Offering of the Shares is withdrawn or terminated.
INVESTOR SUITABILITY STANDARDS
Due to the high risk and speculative nature of Telcentris’ business, an investment in Telcentris is suitable only for certain investors. On that basis, Telcentris has established certain minimum standards that each prospective investor must satisfy.
The offer and sale of the Shares is being made in reliance on an exemption from the registration requirements of the Securities Act. Accordingly, distribution of this Private Placement Memorandum has been strictly limited to persons who the Company believes meet the requirements set forth below. The Company reserves the right to declare any prospective investor ineligible to purchase the Shares based on any information that may become known or available to the Company concerning the suitability of such prospective investor or for any other reason.
An investment in the Shares involves a high degree of risk and may only be purchased by persons of substantial financial means who have no need for liquidity in this investment. The Company is offering the Shares to individuals or entities that meet the definition of an “accredited investor” as set forth in Regulation D promulgated under the Securities Act. The Shares will be sold only to investors who represent in writing that they satisfy the suitability requirements set forth in the Subscription Agreement.
In addition to representing that he is accredited, each prospective investor must represent in writing that he or she meets, among others, ALL of the following requirements:
(a) The investor has received, read, and fully understands this Private Placement Memorandum and all exhibits hereto; is basing the decision to invest on this Private Placement Memorandum and all exhibits hereto; and has relied on the information contained in said materials and has not relied upon any representations made by any other person; and
(b) The investor understands that an investment in the Shares involves substantial risks and he is fully cognizant of and understands all of the risk factors relating to a purchase of the Shares, including, without limitation, those risks set forth below in the sections entitled “Risk Factors”; and
(c) The investor has adequate means of providing for his or her financial requirements, both current and anticipated, and has no need for liquidity in this investment; and
(d) The investor can bear and is willing to accept the economic risk of losing the entire investment in the Shares; and
(e) The investor is acquiring the Shares for his or her own account for investment purposes only and has no present intention, agreement or arrangement for the distribution, transfer, assignment, resale or subdivision of the Shares.
In addition to certain institutional investors, an investor who meets one of the following tests will qualify as an “accredited investor”:
(i) The investor is a natural person who had individual income in excess of $200,000 in each of the two most recent years, or joint income with that person’s spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year; or
(ii) The investor is a natural person whose individual net worth or joint net worth with subscriber’s spouse, at the time of this purchase exceeds $1,000,000 (PLEASE NOTE: In calculating net worth, you include all of your assets (other than your primary residence), whether liquid or illiquid, such as cash, stock, securities, personal property and real estate based on the fair market value of such property MINUS all debts and liabilities (other than a mortgage or other debt secured by your primary residence unless such borrowing occurred in the 60 days preceding the date of purchase of the Shares and was not in connection with the acquisition of the primary residence). In the event any incremental mortgage or other indebtedness secured by your primary residence occurs in the 60 days preceding the date of the purchase of the Shares, the additional mortgage or other indebtedness secured by your primary residence must be treated as a liability and deducted from your net worth even though the value of your primary residence will not be included as an asset. Further, the amount of any mortgage or other indebtedness secured by your primary residence that exceeds the fair market value of the residence should also be deducted from your net worth);
(iii) The investor is an organization described under Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust or a company, not formed for the specific purpose of acquiring the Shares, with total assets in excess of $5,000,000; or
(iv) The investor is an entity (including an Individual Retirement Account trust) in which all of the equity owners are an accredited investor as defined above in subparagraphs (i) or (ii) above; or
(v) The investor is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Shares, whose purchase is directed by a “sophisticated person” as defined in Rule 506(b)(2)(ii) of Regulation D under the Securities Act; or
(vi) The investor is an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 in which the investment decision is made by a plan fiduciary (as defined in Section 3(21) of such Act) which is either a bank, savings and loan association, insurance company, or registered investment adviser; or the employee benefit plan has total assets in excess of $5,000,000; or it is a self-directed plan in which investment decisions are made solely by persons who are accredited investors.
The investor suitability requirements stated above represent minimum suitability requirements, as established by the Company from time to time. The satisfaction of such requirements by an investor will not necessarily mean that the Shares are a suitable investment for such investor, or that the Company will accept the investor as a subscriber. Furthermore, the Company, as appropriate, may modify such requirements, at its sole discretion from time to time, and any such modification may increase the suitability requirements for certain investors.
Prospective investors who are unable or unwilling to make the foregoing representations may not purchase the Shares.
THE COMPANY RESERVES THE RIGHT TO REJECT SUBSCRIPTIONS FOR THE SHARES FOR ANY REASON WHATSOEVER OR FOR NO REASON
ADDITIONAL INFORMATION
Copies of all agreements and documents, the contents of which are described or identified in the Private Placement Memorandum, will be furnished to any prospective investor upon request.
Representatives of Telcentris are available at the principal executive offices of Telcentris, Inc., 9276 Scranton Road, Suite 300, San Diego, California, 92121, (858) 952-0696, Fax (858)400-0400, to answer any questions regarding the terms and conditions of this Offering. Any prospective investor (or representative) who wishes to discuss this Offering or to obtain any additional information to verify the accuracy of the information contained in this Memorandum should contact Telcentris.
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APPENDIX A – FINANCIAL STATEMENTS
Audited Financial Statements for 12 Months Ended December 31, 2012 and December 31, 2013.
EXHIBIT 1 – TELCENTRIS, INC. SUBSCRIPTION AGREEMENT AND ACCREDITED INVESTOR QUESTIONNAIRE
Each subscriber for shares of Common Stock offered are requested to do the following:
1. Complete and sign the Subscription Agreement included herein as Exhibit A.
2. Complete and sign the Accredited Investor Questionnaire included in this Subscription Booklet as Exhibit B
3. Deliver the completed subscription documents described above directly to Telcentris, Inc. at the following address:
Telcentris, Inc.
9276 Scranton Road, Suite 300
San Diego, CA 92121
Attn: Chief Executive Officer
4. Deliver payment for the shares of Common Stock subscribed for in accordance with the wire transfer instructions to be provided by the Company following receipt of the above subscription documents in proper form.
The Company may accept or reject subscriptions in its sole discretion. The Offering is available only to “Accredited Investors” as defined under Regulation D under the Securities Act. In the event that a subscription is not accepted by the Company, the subscription funds shall be returned to the subscriber, without interest or deduction thereon.
THE SECURITIES OFFERED INVOLVE A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING THE PURCHASE OF THESE SECURITIES SHOULD CONSULT WITH HIS, HER OR ITS LEGAL, TAX AND FINANCIAL ADVISORS PRIOR TO MAKING AN INVESTMENT IN THE SECURITIES. THE SECURITIES ARE ONLY OFFERED TO “ACCREDITED INVESTORS” AND SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN AFFORD TO LOSE ALL OF THEIR INVESTMENT. SUBSCRIPTION AGREEMENT
This Subscription Agreement (the “Agreement”), is entered into by and between the undersigned subscriber, (the “Subscriber”) and Telcentris, Inc., a Delaware corporation (the “Company”) as of the date of the Company’s acceptance.
WHEREAS, the Company is conducting, on a “best efforts” basis, an offering (the “Offering”) pursuant to Regulation D under the Securities Act of 1933, as amended (the “Securities Act”) of up to 4,300,000 shares of common stock (the “Shares”);
WHEREAS, Subscriber desires to purchase the Shares for the Purchase Price (as defined below), and the Company desires to sell the Shares to the Subscriber for the Purchase Price.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, Subscriber and the Company agree as follows:
1. Purchase and Sale of the Securities.
(a) The Company hereby agrees to issue and to sell to Subscriber, and Subscriber hereby agrees to purchase from the Company, the Shares as indicated hereinbelow.
(b) Subscriber by executing and delivering this agreement, agrees to pay the aggregate purchase price set forth on the signature page hereof in an amount required to purchase and pay for the Shares subscribed for $3.50 per share (the “Purchase Price”), which amount shall be paid in U.S. Dollars by wire transfer to the order of Telcentris, Inc.
2. Representations and Warranties of Subscriber. Subscriber represents and warrants to the Company as follows:
(a) Subscriber is an “accredited investor” as defined by Rule 501 under the Securities Act and Subscriber is capable of evaluating the merits and risks of Subscriber’s investment in the Securities and has the ability and capacity to protect Subscriber’s interests.
(b) Subscriber understands that the Securities have not been registered. Subscriber understands that the sale of Securities to Subscriber will not be registered under the Securities Act on the ground that the issuance thereof is exempt under Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving any public offering and that, in the view of the Securities and Exchange Commission (the “SEC”), the statutory basis for the exception claimed would not be present if any of the representations and warranties of Subscriber contained in this Subscription Agreement are untrue or, notwithstanding the Subscriber’s representations and warranties, the Subscriber currently has in mind acquiring any of the Securities for distribution or resale upon the occurrence or non-occurrence of some predetermined event.
(c) Subscriber acknowledges and understands that the Securities are being purchased for investment purposes and not with a view to distribution or resale, nor with the intention of selling, transferring or otherwise disposing of all or any part thereof for any particular price, or at any particular time, or upon the happening of any particular event or circumstances, except selling, transferring, or disposing the
Securities made in full compliance with all applicable provisions of the Securities Act, the rules and regulations promulgated by the SEC thereunder, and applicable state securities laws; and that an investment in the Securities is not a liquid investment.
(d) Subscriber acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. Subscriber is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the securities and the availability of certain current public information about the Company. In the event that the Company determines to register any of the Securities under the Securities Act, Subscriber agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a registration statement, unless such Subscriber notifies the Company in writing of Subscriber’s election to exclude all of Subscriber’s Securities from the registration statement. Upon effectiveness of the registration statement, Subscriber further agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Securities pursuant to such registration statement.
(e) Subscriber acknowledges that Subscriber has had the opportunity to ask questions of, and receive answers from the Company or any person acting on its behalf concerning the Company and its business and to obtain any additional information, to the extent possessed by the Company (or to the extent it could have been acquired by the Company without unreasonable effort or expense) necessary to verify the accuracy of the information received by Subscriber. In connection therewith, Subscriber acknowledges that Subscriber has had the opportunity to discuss the Company’s business, management and financial affairs with the Company’s management or any person acting on its behalf. In determining whether to make this investment, Subscriber has relied solely on Subscriber’s own knowledge and understanding of the Company and its business based upon Subscriber’s own due diligence investigations and the information furnished pursuant to this paragraph. Subscriber understands that no person has been authorized to give any information or to make any representations which were not furnished pursuant to this paragraph and Subscriber has not relied on any other representations or information.
(f) Subscriber has all requisite legal and other power and authority to execute and deliver this Subscription Agreement and to carry out and perform Subscriber’s obligations under the terms of this Subscription Agreement. This Subscription Agreement constitutes a valid and legally binding obligation of Subscriber, enforceable in accordance with its terms, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other general principles of equity, whether such enforcement is considered in a proceeding in equity or law.
(g) Subscriber has carefully considered and has discussed with Subscriber’s professional legal, tax, accounting and financial advisors, to the extent Subscriber has deemed necessary, the suitability of this investment and the transactions contemplated by this Subscription Agreement for Subscriber’s particular federal, state, local and foreign tax and financial situation and has determined that this investment and the transactions contemplated by this Subscription Agreement are a suitable investment for Subscriber. Subscriber relies solely on such advisors and not on any statements or representations of the Company or any of its agents. Subscriber understands that Subscriber (and not the Company) shall be responsible for Subscriber’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Subscription Agreement.
(h) This Subscription Agreement, including the Accredited Investor Questionnaire, does not contain any untrue statement of a material fact concerning Subscriber.
(i) There are no actions, suits, proceedings or investigations pending against Subscriber or Subscriber’s properties before any court or governmental agency (nor, to Subscriber’s knowledge, is there any threat thereof) which would impair in any way Subscriber’s ability to enter into and fully perform Subscriber’s commitments and obligations under this Subscription Agreement or the transactions contemplated hereby.
(j) The execution, delivery and performance of and compliance with this Subscription Agreement, and the issuance of the Securities will not result in any material violation of, or conflict with, or constitute a material default under, any of Subscriber’s articles of incorporation or bylaws, if applicable, or any of Subscriber’s material agreements nor result in the creation of any mortgage, pledge, lien, encumbrance or charge against any of the assets or properties of Subscriber or the Shares.
(k) Subscriber acknowledges that an investment in the Shares is speculative and involves a high degree of risk and that Subscriber can bear the economic risk of the purchase of the Shares, including a total loss of its investment.
(l) Subscriber fully understands that the proceeds from this Offering will be used, among other things, for general working capital of the Company in the discretion of the Company.
(m) Subscriber recognizes that no federal, state or foreign agency has recommended or endorsed the purchase of the Shares.
(n) Subscriber is aware that the Shares are and will be, when issued, “restricted securities” as that term is defined in Rule 144 of the general rules and regulations under the Securities Act.
(o) Subscriber understands that any and all certificates representing the Shares and any and all securities issued in replacement thereof or in exchange therefor shall bear the following legend or one substantially similar thereto, which Subscriber has read and understands:
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THIS CORPORATION, IS AVAILABLE.”
(p) In addition, the certificates representing the Shares, and any and all securities issued in replacement thereof or in exchange therefor, shall bear such legend as may be required by the securities laws of the jurisdiction in which Subscriber resides.
(q) Because of the restrictions imposed on resale, Subscriber understands that the Company shall have the right to note stop-transfer instructions in its stock transfer records, and Subscriber has been informed of the Company’s intention to do so. Any sales, transfers, or any other dispositions of the Shares by Subscriber, if any, will be in compliance with the Securities Act.
(r) Subscriber acknowledges that Subscriber has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Shares and of making an informed investment decision.
(s) Subscriber represents that (i) Subscriber is able to bear the economic risks of an investment in the Shares and to afford the complete loss of the investment; and (ii) (A) Subscriber could be reasonably assumed to have the capacity to protect its own interests in connection with this subscription; or (B) Subscriber has a pre-existing personal or business relationship with either the Company or any affiliate thereof of such duration and nature as would enable a reasonably prudent purchaser to be aware of the character, business acumen and general business and financial circumstances of the Company or such affiliate and is otherwise personally qualified to evaluate and assess the risks, nature and other aspects of this subscription.
(t) Subscriber further represents that the address set forth below is his/her principal residence (or, if Subscriber is a company, partnership or other entity, the address of its principal place of business); that Subscriber is purchasing the Shares for Subscriber’s own account and not, in whole or in part, for the account of any other person; Subscriber is purchasing the Securities for investment and not with a view to resale or distribution; and that Subscriber has not formed any entity for the purpose of purchasing the Securities.
(u) Subscriber understands that the Company shall have the unconditional right to accept or reject this subscription, in whole or in part, for any reason or without a specific reason, in the sole and absolute discretion of the Company (even after receipt and clearance of Subscriber’s funds). This Subscription Agreement is not binding upon the Company until accepted by an authorized officer of the Company. In the event that the subscription is rejected, then Subscriber’s subscription funds will be returned without interest thereon or deduction therefrom.
(v) Subscriber has not been furnished with any oral representation or oral information in connection with the Offering of the Shares.
(w) No representations or warranties have been made to Subscriber by the Company, or any officer, employee, agent, affiliate or subsidiary of the Company, other than the representations of the Company contained herein, and in subscribing for the Shares, Subscriber is not relying upon any representations other than those contained in this Subscription Agreement.
(x) Subscriber represents and warrants, to the best of its knowledge, unless previously disclosed to the Company or its counsel, that no finder, broker, agent, financial advisor or other intermediary, nor any purchaser representative or any broker-dealer acting as a broker, is entitled to any compensation in connection with the transactions contemplated by this Subscription Agreement.
(y) Subscriber understands that there is no minimum amount which must be raised before the Company accepts the subscription of the Subscriber and there can be no assurance that the Company will be able to sell the entirety of the Shares pursuant to the Offering, which may adversely affect the Company’s working capital position.
3. Representations, Warranties and Covenants of the Company. The Company represents, warrants and covenants to Subscriber as follows:
(a) The Company has been duly organized and validly exists as a corporation in good standing under the laws of Delaware.
(b) The Company has all such corporate power and authority to enter into, deliver and perform this Subscription Agreement.
(c) All necessary corporate action has been duly and validly taken by the Company to authorize the execution, delivery and performance of this Subscription Agreement by the Company, and the issuance and sale of the Securities to be sold by the Company pursuant to this Subscription Agreement. This Subscription Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.
4. Indemnification. Subscriber agrees to indemnify and hold harmless the Company, its shareholders, officers, directors, employees and affiliates, and any person acting on behalf of the Company, from and against any and all damage, loss, liability, cost and expense (including reasonable attorneys’ fees and court costs) which any of them may incur by reason of the failure by Subscriber to fulfill any of the terms and conditions of this Subscription Agreement, or by reason of any breach of the representations and warranties made by Subscriber herein, or in any other document provided by Subscriber to the Company. All representations, warranties and covenants of each of Subscriber and the Company contained herein shall survive the acceptance of this subscription.
5. Miscellaneous.
(a) Subscriber agrees not to transfer or assign this Subscription Agreement or any of Subscriber’s interest herein and further agrees that the transfer or assignment of the Securities acquired pursuant hereto shall be made only in accordance with all applicable laws.
(b) Subscriber agrees that Subscriber cannot cancel, terminate, or revoke this Subscription Agreement or any agreement of Subscriber made hereunder, and this Subscription Agreement shall survive the death or legal disability of Subscriber and shall be binding upon Subscriber’s heirs, executors, administrators, successors, and permitted assigns.
(c) Subscriber has read and has accurately completed this entire Subscription Agreement.
(d) This Subscription Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and may be amended only by a written agreement executed by all parties hereto and thereto.
(e) Subscriber acknowledges that it has been advised to consult with its own attorney regarding this subscription and Subscriber has done so to the extent that Subscriber deems appropriate.
(f) Any notice or other document required or permitted to be given or delivered to Subscriber shall be in writing and sent (i) by fax if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid) or (c) by a recognized overnight delivery service (with charges prepaid).
If to the Company, at:
Telcentris, Inc.
9276 Scranton Road, Suite 300
San Diego, CA 92121
Attn: Chief Executive Officer
(g) Failure of the Company to exercise any right or remedy under this Subscription Agreement or any other agreement between the Company and Subscriber, or otherwise, or delay by the Company in exercising such right or remedy, will not operate as a waiver thereof. No waiver by the Company will be effective unless and until it is in writing and signed by the Company.
(h) This Subscription Agreement shall be enforced, governed and construed in all respects in accordance with the laws of the State of Delaware, as such laws are applied by the Delaware courts to agreements entered into and to be performed in Delaware by and between residents of Delaware, and shall be binding upon Subscriber, Subscriber’s heirs, estate, legal representatives, successors and assigns and shall inure to the benefit of the Company, its successors and assigns.
(i) If any provision of this Subscription Agreement is held to be invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed modified to conform with such statute or rule of law. Any provision hereof that may prove invalid or unenforceable under any law shall not affect the valIdity or enforceability of any other provisions hereof.
(j) The parties understand and agree that money damages would not be a sufficient remedy for any breach of the Subscription Agreement by the Company or Subscriber and that the party against which such breach is committed shall be entitled to equitable relief, including injunction and specific performance, as a remedy for any such breach. Such remedies shall not be deemed to be the exclusive remedies for a breach by either party of the Subscription Agreement but shall be in addition to all other remedies available at law or equity to the party against which such breach is committed.
(k) All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, singular or plural, as identity of the person or persons may require.
(l) This Subscription Agreement may be executed in counterparts and by facsimile, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Subscription Agreement as of the ______day of ______, 20___.
______$______$______
Number of Shares subscribed for Purchase Price ($3.50/share) Aggregate Purchase Price
Manner in which Title is to be held (Please Check One):
1. ___ Individual 7. ___ Trust/Estate/Pension or Profit Sharing Plan Date Opened:______
2. ___ Joint Tenants with Right of 8. ___ As a Custodian for ______Survivorship ______Under the Uniform Gift to Minors Act of the State of______
3. ___ Community Property 9. ___ Married with Separate Property
4. ___ Tenants in Common 10. ___ Keogh
5. ___ Corporation/Partnership/ Limited 11. ___ Tenants by the Entirety Liability Company
6. ___ IRA 12. ___ Foundation described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended.
IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN: • INDIVIDUAL SUBSCRIBERS MUST COMPLETE PAGE 9 • SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 10
EXECUTION BY NATURAL PERSONS
______Exact Name in Which Securities are to be Held
Name (Please Print) Name of Additional Subscriber
Residence: Number and Street Address of Additional Subscriber
City, State and Zip Code City, State and Zip Code
Social Security Number Social Security Number
Telephone Number Telephone Number
Fax Number (if available) Fax Number (if available)
E-Mail (if available) E-Mail (if available)
(Signature) (Signature of Additional Subscriber)
*If Subscriber is a Registered Representative with a FINRA member firm, have the following acknowledgement signed by the appropriate party:
The undersigned FINRA member firm acknowledges receipt of the notice required by Rule 3050 of the FINRA Conduct Rules
ACCEPTED this ____ day of ______20___, on behalf of Telcentris, Inc. Name of FINRA Firm
By: By: Name: Name: Title: Title:
EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY (Corporation, Partnership, Trust, Etc.) ______Name of Entity (Please Print)
Date of Incorporation or Organization: ______
State of Principal Office: ______
Federal Taxpayer Identification Number:
______Office Address ______City, State and Zip Code ______Telephone Number ______Fax Number (if available) ______E-Mail (if available)
[seal] By: Name: Attest: Title: (If Entity is a Corporation)
*If Subscriber is a Registered Representative with a FINRA member firm, have the following acknowledgement signed by the appropriate party:
The undersigned FINRA member firm acknowledges receipt of the notice required by Rule 3050 of the FINRA Conduct Rules
ACCEPTED this ____ day of ______20__, on behalf of Telcentris, Inc. Name of FINRA Firm
By: By: Name: Name: Title: Title:
ACCREDITED INVESTOR QUESTIONNAIRE
Please complete and deliver the executed Accredited Investor Questionnaire.
Once completed, please return to:
Telcentris, Inc.
9276 Scranton Road, Suite 300
San Diego, CA 92121
Attn: Chief Executive Officer
ACCREDITED INVESTOR DEFINITIONS RULE 501 OF REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED
Subscriber hereby represents and warrants and certifies, under penalties of perjury, that Subscriber is an Accredited Investor as defined under Regulation D (“Regulation D”) of the Securities Act of 1933, as amended (the “Securities Act”), because Subscriber is: [check all applicable sections]
(a) A bank as defined in Section 3(a)(2) of the Securities Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity;
(b) A broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934 (the “1934 Act”). Subscriber’s brokerage license number is ______;
(c) An insurance company as defined in Section 2(a)(13) of the Securities Act. Attached is a copy of Subscriber’s current license for the State of ______;
(d) An investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act. Subscriber’s SEC file number is ______;
(e) A Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958. Attached is a copy of Subscriber’s license from the Small Business Administration evidencing that Subscriber is a Small Business Investment Company;
(f) A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000. Attached is a copy of the plan and evidence that total assets of the plan are in excess $5,000,000;
(g) An employee benefit plan within the meaning of ERISA (i) if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or (ii) if the employee benefit plan has total assets in excess of $5,000,000, or (iii) if a self-directed plan, with investment decisions made solely by persons that are accredited investors. If Subscriber is relying on (g)(i) or (g)(ii), attached is a copy of the plan and evidence that the investment decisions are made by a plan fiduciary (as defined above) or that the place has total assets in excess of $5,000,000;
(h) A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940. Attached is evidence that Subscriber is a private business development company;
(i) An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of making this investment, with total assets in excess of $5,000,000. Attached is a copy of Subscriber’s organizational documents and confirmation that total assets of the organization is in excess of $5,000,000;
(j) A director, executive officer, manager or general partner of the Company or any director, officer, manager or general partner of the manager of the Company. Subscriber’s current position at the Company is ______;
(k) A natural person whose individual net worth or joint net worth with Subscriber’s spouse, at the time of this purchase exceeds $1,000,000 (PLEASE NOTE: In calculating net worth, you include all of your assets (other than your primary residence), whether liquid or illiquid, such as cash, stock, securities, personal property and real estate based on the fair market value of such property MINUS all debts and liabilities (other than a mortgage or other debt secured by your primary residence unless such borrowing occurred in the 60 days preceding the date of purchase of the Securities and was not in connection with the acquisition of the primary residence). In the event any incremental mortgage or other indebtedness secured by your primary residence occurs in the 60 days preceding the date of the purchase of the Securities, the additional mortgage or other indebtedness secured by your primary residence must be treated as a liability and deducted from your net worth even though the value of your primary residence will not be included as an asset. Further, the amount of any mortgage or other indebtedness secured by your primary residence that exceeds the fair market value of the residence should also be deducted from your net worth);
(l) A natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with Subscriber’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; (m) A trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D. Attached are the last two financial statements of the trust evidencing that total assets are in excess of $5,000,000 and confirmation that a sophisticated person is directing purchases in the trust; or
(n) An entity in which all of the equity owners are accredited investors.