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netTALK Announces 269% Increase in Revenues for Fiscal 2011
[December 22, 2011]

netTALK Announces 269% Increase in Revenues for Fiscal 2011


MIAMI --(Business Wire)--

netTALK.com, Inc. ("netTALK") (OTCBB: NTLK), a public company engaged in the design, distribution and sale of consumer electronics products and low-cost Voice over Internet Protocol (VoIP) services, today announced record financial results for the fourth fiscal quarter and full-year period ended September 30, 2011. The Company is in the process of shifting its fiscal year end to December 31, and as such, will file a second Form 10-K with the Securities and Exchange Commission for the period ended December 31, 2011, and will report the quarter ended December 31, 2011 as its fourth fiscal quarter.

Operational Highlights:

  • netTALK significantly expanded the retail distribution of its patent-pending netTALK DUO device across North America, introducing the product to large number of large retailers across the United States as well as online ecommerce distribution. In aggregate, the netTALK DUO is now available in 23 retail channels and at 2,348 brick and mortar locations across North America.
  • netTALK announced the addition of Enhanced Call Plans (low cost and flat rate international calling) for the netTALK DUO telephone device and VoIP service, building upon the basic rate of $29.95 per year for calls throughout the United States and Canada. The new North America Add-On is $70 per year (plus taxes) for calls to the US, Canada, Mexico and Puerto Rico. The International Add-On is $120 per year (plus taxes) for calls to 60 countries. It is an offering unmatched by netTALK's competitors, such as Vonage (News - Alert) or Skype.
  • The Company announced an expanded list of Canadian area codes for the netTALK DUO telephone device and digital phone service, enabling more Canadians to use the service.
  • netTALK.com mobile "app" continues to be among most popular downloads throughout Canada

"This was an important year of progress, as we steadily increased the retail distribution of our innovative lead product, the netTALK DUO," said Anastasios 'Takis' Kyriakides, netTALK's President and CEO. "The proliferation of our retail network which now includes more than 2,300 locations throughout 23 retail chains and multiple high-traffic websites throughout North America is a testament to the quality and value that our innovative and affordable telephony services bring to the consumer, and we're seeing explosive growth in our installed subscriber base. This growth was well-documented in our financials, which reveal a doubling in our monthly run-rate revenues when you compare our last month to our first month of this fiscal year. We are currently shipping product to every 'big box' retailer in North America, and believe netTALK is well-positioned to benefit in the coming quarters from a growing base of recurring revenue."

Fourth Quarter Financial Results

For the fourth quarter ended September 30, 2011, revenues increased 711.0% to a record $1 million, compared to $139,849 in the prior year fourth quarter. The majority of the revenues resulted from initial sales of the netTALK DUO, with additional revenue resulting from international traffic and telecommunications revenue and service renewals in the fourth quarter. Purchase of a netTALK DUO device includes a period of unlimited calling to any phone in the United States and Canada. During the sign-up process, customers have the option of upgrading to one of the new plans the Company offers, and after that initial period, customers must renew for an additional year to continue using the device. In future periods, management expects an additional layer of revenue to come from renewals as devices sold during 2011 come up for renewal, creating higher-margin service revenue for netTALK.

Deferred revenue, a leading indicator of future revenue, was $1.0 million as of September 30, 2011, compared to $92,906 as of September 30, 2010.

Gross profit was $279,261, or 26.62% gross profit margin, compared to negative gross profit of $290,779 in the fourth quarter last year. During the third and fourth fiscal quarters of 2011, the Company reclassified certain expenses, including customer service expenses, from cost of goods sold to operating expense, which is in-line with other comparable companies in the industry. Prior periods do not reflect this change.

Total operating expenses were $2.3 million, an increase of 186.8% compared to $811,020 in the prior-year fourth quarter. Higher advertising and marketing expenses to support the netTALK DUO rollout throughout the United States and Canada, a 293% increase in compensation and benefit expenses, and a 218.9% increase in general and administrative expenses, were partially offset by a reduction in professional fees and depreciation and amortization. Management believes G&A expenses will remain relatively flat in future periods.

The loss from operations was $2.0 million, an increase of 78.0% compared to a loss from operations of $1.1 million last year. The net loss was $2.9 million, or $(0.08) per basic and diluted share, compared to a net loss of $1.4 million, or $(0.12) per basic and diluted share last year. The prior-year included a $446,927 expense related to the change in fair value of liability-classified warrants.

"While we're pleased to be reporting another solid quarter of revenue growth, it is important to additionally note that the September quarter and full year periods did not include any contribution from certain key retailers who signed on only subsequently to the end of the fiscal year as well as some which delayed their buying decisions until early 2012," continued Kyriakides. "Thus, we expect to see even steeper acceleration of our sales in coming periods. We have also only begun to see renewals from netTALK DUOs placed in the last 12 months, and in the early days of annual renewals, the renewal rate has been approximately 80%, demonstrating strong customer satisfaction as consumers recognize the value our service provides. This will drive significant recurring revenue and increase the lifetime value of each customer. We have several new initiatives and service enhancements underway for launches planned in 2012, including line number porting, which we expect to increase our renewal rate, as well as increase our revenue per subscriber."

"Additionally, we expect to launch two new versions of our netTALK DUO product in the first half of calendar 2012, bringing added features and wireless connectivity to our innovative and already popular DUO service," Mr. Kyriakides added. "Coupled with our netTALK TV solution, which started early beta testing for a web-based offering in mid-December, we have a number of initiatives which should contribute to accelerated growth in the year to come. In addition, we have built an infrastructure which can support significantly higher revenue levels, so we expect general and administrative expenses to remain flat as we accelerate our top line growth, moving the company towards economies of scale."

Full-Year Financial Results:

For the year ended September 30, 2011, revenues increased 268.9% to a record $2.7 million, compared to $737,498 in the prior year. Gross profit was a negative $377,901 compared to a negative $715,834 last year. Cost of sales increased at less than half the rate (113.2%) as revenues (268.9%).

Total operating expenses were $5.9 million, an increase of 150.2% compared to $2.4 million in the prior-year. The major component of the increase in operating expenses were a 376.1% increase in advertising and marketing expense, as the Company invested $1.7 million to promote the netTALK DUO solution throughout the United States and Canada to support the retail rollout. In addition, the Company saw a 164.5% increase in compensation and benefit expenses, and a 171.4% increase in general and administrative expenses, partially offset by a reduction in professional fees and depreciation and amortization.

The loss from operations was $6.3 million, an increase of 104.5% compared to a loss from operations of $3.1 million last year. The net loss, inclusive of a $17.3 million expense related to the change in fair value of liability-classified warrants, was $26.2 million, or $(1.40) per basic and diluted share, compared to a net loss of $6.4 million, or $(0.60) per basic and diluted share last year. The prior-year's results included a $1.4 million gain on the change in fair value of liability-classified warrants.

netTALK completed the year with $3.6 million in cash and cash equivalents, compared to $1.0 million as of the end of fiscal 2010. Working capital as of September 30, 2011 was $1.8 million.

About the netTALK DUO

A recent winner of PCMag's coveted Editors' Choice award, the netTALK DUO is a revolutionary voice over internet protocol (VoIP) portable device and digital phone service that works as a landline offering unbeatable flat-rate calling plans. No computer is necessary as the device simply plugs directly into a router or modem (or computer), and can also be set up over wi-fi. The different setup options allow users to make and receive calls, no matter where they go. The voicemail system is delivered electronically as a .wav file to the users' e-mail, which can be saved, forwarded or re-played at their convenience.

The netTALK DUO is available via netTALK's website; at over 1,000 Walmart Supercenters nationwide; at Walmart.com, Target.com, Amazon.com, Dell.com, Buy.com, NewEgg.com, TigerDirect.com, CompUSA.com, CircuitCity.com, PCRichard.com, Frys.com, Amazon.ca, Dell.ca, BestBuy.ca, Sears.ca, TigerDirect.ca, Staples.ca, all P.C. Richard & Son, CompUSA, and TigerDirect stores, and all Canadian Best Buy, Sears, TigerDirect, and Zellers stores.

About netTALK.com, Inc.

netTALK.com, Inc. is a public company engaged in the design, distribution and sale of consumer electronics products and low-cost Voice over Internet Protocol (VoIP) services. More information is at www.netTALK.com.

Forward-Looking Statements

This news release may contain forward-looking statements made pursuant to the "safe harbor" provisions of the private securities litigation reform act of 1995. While these statements are meant to convey to the public the company's progress, business opportunities and growth prospects, readers are cautioned that such forward-looking statements represent management's opinion. While management believes such representation to be true and accurate based on the information available to the company, actual results may differ materially from those described. The company's operations and business prospects are always subject to risks and uncertainties.

Tables to Follow



       

NetTalk.com, Inc.

Statement of Operations

 
Three Months Ended Full Year Ended

September 30,

September 30, September 30, September 30,
2011 2011 2011 2010
Revenues $ 1,049,055 $ 139,849 $ 2,720,465 $ 737,498
Cost of sales   769,794     430,628     3,098,366     1,453,332  
Gross margin   279,261     (290,779 )   (377,901 )   (715,834 )
Gross margin %
Advertising 605,746 134,224 1,701,489 357,413
Compensation and benefits 727,531 184,992 1,262,994 477,576
Professional fees 6,551 68,432 235,756 255,471
Depreciation and amortization 83,950 91,180 356,688 363,335
Research and development 348,560 158,680 903,370 375,197
General and administrative expenses   553,314     173,512     1,484,971     547,075  
Total operating expenses   2,325,652     811,020     5,945,269     2,376,067  
 
Loss from operations (2,046,391 ) (1,101,799 ) (6,323,170 ) (3,091,901 )
 
Other income (expenses):
Interest expense (528,428 ) 126,000 (1,070,522 ) (1,058,363 )
Derivative expense - (446,927 ) (17,280,018 ) 1,445,632
Debt extinguished (101,116 ) - (1,293,538 ) (3,617,983 )
Interest income 693 4,087 4,161 15,652
Gain (loss) on sale of assets   (213,478 )   -     (213,478 )   -  
Total other income (expense)   (842,330 )   (316,840 )   (19,853,396 )   (3,215,062 )
 
Net loss (2,888,721 ) (1,418,639 ) (26,176,565 ) (6,306,963 )
 
Reconciliation of net loss to loss applicable to common stockholders:
Preferred stock dividends in arrears (297,000 ) 33,000 (586,667 ) (93,000 )
Accretion of preferred stock   1,518,908     94,868     (923,778 )   -  
  1,221,908     127,868     (1,510,445 )   (93,000 )
Loss applicable to common stockholders $ (1,666,813 ) $ (1,290,771 ) $ (27,687,010 ) $ (6,399,963 )
 
Loss per common shares:
Basic and diluted earnings per common share $   (0.08 ) $   (0.12 ) $   (1.40 ) $   (0.60 )
Diluted (if applicable)
 
Weighted average shares:
Basic and diluted   19,792,214     10,654,797     19,792,214     10,654,797  
 

     

Net Talk.com, Inc.

Balance Sheets
 
September 30, September 30,
2011 2010
Assets
Current assets:
Cash and cash equivalents $ 3,583,449 $ 1,021,684
Restricted cash 140,420 2,017,655
Accounts receivable, net of allowance for bad debts of $0 and $22,749, respectively 696,341 39
Inventory 1,911,648 568,560
Prepaid expenses 4,820 238,651
Note receivable   52,000     -  
Total current assets   6,388,678     3,846,589  
 
Building, telecommunications equipment, land and other property, net 2,995,223 578,618
Intangible assets, net 149,137 366,361
Other assets 39,754 23,000
   
Total assets $ 9,572,792   $ 4,814,568  
 
Liabilities, redeemable preferred stock and stockholders' deficit
Current liabilities:
Accounts payable $ 1,201,331 $ 534,725
Accrued dividends 554,767 93,000
Accrued expenses 304,263 58,515
Deferred revenue 1,022,890 92,906
Short term debt 1,695,404 -
Current portion of senior secured convertible debentures - 4,998,773
Current portion of derivative liabilities   -     5,905,622  
Total current liabilities 4,778,655 11,683,541
 
Senior debenture   3,367,020     -  
Total liabilities   8,145,675     11,683,541  
 

Redeemable preferred stock, $.001 par value, 10,000,000 shares authrorized, 500
and 300 issued and outstanding as of September 30, 2011 and 2010, respectively

11,727,701 224,968
 
Stockholders' deficit:
Common stock, $.001 par value, 300,000,000 authorized, 39,464,892 and 13,429,300
issued and outstanding as of September 30, 2011 and 2010, respectively 		39,465 13,430
Preferred stock to be issued at future dates - 2,000,000
Additional paid in capital 28,258,375 3,314,488
Accumulated deficit   (38,598,424 )   (12,421,859 )
Total stockholders' deficit   (10,300,584 )   (7,093,941 )
 
Total liabilities, redeemable preferred stock and stockholders' deficit $ 9,572,792   $ 4,814,568  
 


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