NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`
`As filed with the Securities and Exchange Commission on May 18, 1999
`Registration No. 333-
`
`Washington, D.C. 20549
`
`REGISTRATION STATEMENT
`UNDER
`THE SECURITIES ACT OF 1933
`
`(Exact name of registrant as specified in its charter)
`
` Delaware 4813 22-3559037
`(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
` incorporation or organization) Classification Code Number) Identification No.)
`
`171 Main Street
`Hackensack, New Jersey 07601
`(201) 928-2990
`(Address, including zip code, and telephone number,
`including area code, of registrant's principal executive offices)
`
`Howard S. Balter
`Chief Executive Officer
`Net2Phone, Inc.
`171 Main Street
`Hackensack, New Jersey 07601
`(201) 928-2990
`(Name, address, including zip code, and telephone number, including area code,
`of agent for service)
`
`Copies to:
`
` Ira A. Greenstein, Esq. Alexander D. Lynch, Esq.
` Morrison & Foerster LLP Kenneth R. McVay, Esq.
` 1290 Avenue of the Americas Brobeck, Phleger & Harrison LLP
`New York, New York 10104-0012 1633 Broadway, 47th Floor
` (212) 468-8000 New York, New York 10019
` (212) 581-1600
`
`Approximate date of commencement of the proposed sale to the public:
`As soon as practicable after this registration statement becomes effective.
`
`If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
`1933, check the following box. [_]
`If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and
`list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a
`post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration
`statement number of the earlier effective registration statement for the same offering. [_]
`If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act
`registration statement number of the earlier effective registration statement for the same offering. [_]
`If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_]
`
`------------------------------------------------------------------------------------------------------
`
`CALCULATION OF REGISTRATION FEE
`
`1 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 1
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`------------------------------------------------------------------------------------------------------
` Proposed Maximum
` Aggregate Offering Amount of Registration
` Title of Each Class of Securities to be Registered Price(1) Fee
`------------------------------------------------------------------------------------------------------
`Common Stock, $.01 par value....................... $50,000,000 $13,900
`------------------------------------------------------------------------------------------------------
`------------------------------------------------------------------------------------------------------
`
`(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
`
`We hereby amend the registration statement on such date or dates as may be necessary to delay its effective date until we shall file a further amendment
`which specifically states that the registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933
`or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a),
`may determine.
`
`2 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 2
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
`+The information in this prospectus is not complete and may be changed. We may +
`+not sell these securities until the registration statement filed with the +
`+Securities and Exchange Commission is effective. This prospectus is not an +
`+offer to sell these securities and it is not soliciting an offer to buy these +
`+securities in any state where the offer or sale is not permitted. +
`++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
`
`PROSPECTUS
`
`SUBJECT TO COMPLETION, DATED MAY 18, 1999
`
`Shares
`
`[LOGO]
`
`Common Stock
`
`This is an initial public offering of common stock by Net2Phone, Inc. Net2Phone is selling shares of common stock. The estimated initial public
`offering price is between $ and $ per share.
`
`Upon completion of this offering, IDT will own approximately % of our outstanding capital stock. IDT owns Class A stock that has twice the voting
`power of our common stock. As a result, IDT will control % of the vote with respect to Net2Phone.
`
`Prior to this offering, there has been no public market for the common stock. The shares of common stock have been proposed to be listed for quotation
`on the Nasdaq National Market under the symbol NTOP.
`
` Per Share Total
` --------- -----
`Initial public offering price................................... $ $
`Underwriting discounts and commissions.......................... $ $
`Proceeds to Net2Phone, before expenses.......................... $ $
`
`Net2Phone has granted the underwriters an option for a period of 30 days to purchase up to additional shares of our common stock.
`
`Investing in the common stock involves a high degree of risk.
`
`See "Risk Factors" beginning on page 5.
`
`Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon
`the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
`
`Hambrecht & Quist BT Alex. Brown
` --------
` Bear, Stearns & Co. Inc.
` , 1999
`
`3 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 3
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
` ----------------
`
`[Insert Cover Art Work]
`
`4 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 4
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`TABLE OF CONTENTS
`
` Page
` ----
`Prospectus Summary................................................... 1
`Risk Factors......................................................... 5
`Forward-Looking Statements........................................... 13
`Use of Proceeds...................................................... 14
`Dividend Policy...................................................... 14
`Capitalization....................................................... 15
`Dilution............................................................. 16
`Selected Financial Data.............................................. 17
`Management's Discussion and Analysis of
` Financial Condition and Results of Operations....................... 18
`Business............................................................. 27
`Management........................................................... 44
`Principal Stockholders............................................... 52
`Certain Transactions................................................. 54
`Description of Capital Stock......................................... 60
`Shares Eligible for Future Sale...................................... 63
`Underwriting......................................................... 65
`Legal Matters........................................................ 67
`Experts.............................................................. 67
`Additional Information............................................... 67
`Index to Financial Statements ....................................... F-1
`
`We maintain Web sites at www.net2phone.com and www.ezsurf.com. Information contained on Net2Phone's Web sites does not constitute part of this
`prospectus.
`
`"Net2Phone" and "Net2Fax" are our registered marks. Applications to register the service marks "Phone2Phone", "Click2Talk", "N2P", "Net2Phone
`Pro" and "Fax2Fax" have been filed with the United States Patent and Trademark Office. This prospectus also includes references to registered service
`marks and trademarks of other entities.
`
`5 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 5
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`PROSPECTUS SUMMARY
`
`This summary highlights selected information contained elsewhere in this prospectus. This summary may not contain all of the information that you
`should consider before investing in our common stock. You should read the entire prospectus carefully, including "Risk Factors" and the financial
`statements, before making an investment decision.
`
`Net2Phone
`
`Net2Phone is a leading provider of voice-enhanced Internet communication services to individuals and businesses worldwide. Our services enable our
`customers to make low-cost, high-quality phone calls over the Internet using their personal computers or traditional telephones. According to Frost &
`Sullivan, a leading market research firm, we were the largest provider of Internet telephony services in the world in 1997 with a 30% market share. As
`of March 31, 1999, we were serving approximately 250,000 active customers and handling over 20 million minutes of use per month. Our revenue has
`grown substantially, increasing from approximately $2.7 million in the fiscal year ended July 31, 1997 to approximately $12.0 million in the fiscal year
`ended July 31, 1998. In addition, we had revenue of approximately $13.2 million for the six months ended January 31, 1999.
`
`In August 1996, we introduced our first service, "PC2Phone." According to Probe Research, a market research firm, PC2Phone was the first
`commercial telephone service to connect calls between personal computers and telephones over the Internet. In September 1997, we introduced
`"Phone2Phone," a service that enables international and domestic calls to be made over the Internet using traditional telephones. Long distance calls
`made using our services are often substantially less expensive than long distance calls routed over traditional voice networks.
`
`We are leveraging our Internet telephony expertise to integrate real-time voice communication capabilities into the Web. Our simple, easy to use
`software operates on a user's personal computer and allows individuals and businesses to:
`
`. speak with sales or customer service representatives of online retailers and other Web-based businesses while visiting their Web sites;
`
`. speak with individuals or businesses listed on various online directories, such as Yahoo! People Search; and
`
`. call almost any telephone number in the world.
`
`Netscape Communications agreed in January 1999 to embed our PC2Phone software into future versions of its Internet browser released during the
`term of our agreement, including Netscape Navigator and Netscape Communicator. Netscape will also include a Net2Phone icon on the Netscape
`Navigator Personal Toolbar and integrate our services into Netscape Netcenter, allowing Netscape users to access our services from anywhere on the
`Web. According to International Data Corporation, a leading market research firm, Netscape had 41.5% of the browser market in mid-1998.
`
`Our services are also integrated into several leading Web portals, including Yahoo!, Excite, GeoCities, InfoSpace.com and ZDNet. Additionally, we
`have entered into distribution and software-bundling arrangements with leading computer equipment and software companies, including IBM, Packard
`Bell-NEC Europe and Creative Labs.
`
`We plan to introduce new products and services, including PC2PC, which will allow high-quality Internet telephony from one personal computer to
`another, and anonymous chat, which will enable two parties to engage in an online chat room discussion and establish direct voice communication with
`each other while maintaining anonymity.
`
`1
`
`6 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 6
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`Our strategy for building on our leadership position in the Internet telephony market and making our communications services ubiquitous on the
`Internet includes the following key elements:
`
`. marketing our services through multiple channels;
`
`. pursuing multiple sources of revenue;
`
`. enhancing brand recognition;
`
`. making our software ubiquitous; and
`
`. expanding and enhancing our products and services.
`
`We were formed as a Delaware subsidiary of IDT Corporation in October 1997. From inception in January 1996 to October 1997, our business was
`conducted as a division of IDT. In May 1999, we entered into a number of agreements with IDT relating to our business. IDT will continue to provide
`us with administrative services, including accounting and payroll services, and will continue to cover our employees under IDT's group health
`insurance policies. Our Internet and telecommunications network will be comprised of the right to use or access circuits leased by IDT.
`
`Upon completion of this offering, IDT will own approximately % of our outstanding capital stock. IDT owns Class A stock that has twice the voting
`power of our common stock. As a result, IDT will control % of our vote.
`
`Our principal executive offices are located at 171 Main Street, Hackensack, New Jersey 07601, and our telephone number at that address is (201)
`928-2990.
`
`2
`
`7 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 7
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`
`The Offering
`
`Common stock offered by Net2Phone............ shares
`Capital stock to be outstanding after this
` offering.................................... shares
` Common stock................................ shares
` Class A stock............................... shares
`Use of proceeds.............................. $7.0 million of the net
` proceeds from this offering
` will be used to repay a portion
` of a note outstanding to IDT.
` The balance of the proceeds
` will be used for the
` development of strategic
` Internet relationships, for
` advertising and promotion, for
` research and development, for
` upgrading and expanding our
` network and for general
` corporate purposes, including
` working capital. See "Use of
` Proceeds."
`Nasdaq National Market symbol................ NTOP
`
`Unless otherwise noted, the information in this prospectus takes into account a 10,320-for-one stock split, which took place in April 1999, and a three-
`for-one stock split, which is expected to occur prior to the consummation of this offering. This information assumes 4,683,129 shares of common stock
`and 37,042,090 shares of Class A stock outstanding on May 17, 1999. These numbers give effect to the exercise of options to purchase 1,345,219
`shares of our common stock and the conversion of all outstanding shares of our Series A preferred stock into 9,420,000 shares of Class A stock upon
`the consummation of this offering. Each share of Class A stock entitles the holder to two votes, while holders of our common stock are entitled to only
`one vote. This information excludes:
`
`. 3,671,399 shares subject to options outstanding as of May 17, 1999 at a weighted average exercise price of $3.33 per share; and
`
`. Warrants to purchase 272,400 shares of our common stock at a price of $3.33 per share.
`
`Our fiscal year ends on July 31 of each calendar year. All references to fiscal years in this prospectus refer to the fiscal years ending in the indicated
`calendar years. For example, "fiscal 1998" refers to the fiscal year ended July 31, 1998.
`
`3
`
`8 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 8
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`The table below sets forth summary financial information for the periods indicated. This information is not necessarily indicative of the results of
`operations or financial position which would have resulted had we operated as an independent entity during the periods indicated. It is important that
`you read this information together with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations"
`and our financial statements and the notes thereto included elsewhere in this prospectus.
`
`Summary Financial Information
`
` Period from Year Ended Six Months Ended
` January 2, 1996 July 31, January 31,
` (inception) to ------------------------ ----------------------
` July 31, 1996 1997 1998 1998 1999
` --------------- ----------- ----------- ---------- -----------
`Statement of Operations:
` Revenue............... $ -- $ 2,652,303 $12,005,972 $5,014,922 $13,165,886
` (Loss) income from
` operations........... (507,758) (1,697,647) (3,544,689) 896,306 (2,075,635)
` Net (loss) income..... $(507,758) $(1,697,647) $(3,544,689) $ 896,306 $(2,075,635)
` Net (loss) income per
` share--basic and
` diluted.............. $ (0.02) $ (0.05) $ (0.11) $ 0.03 $ (0.07)
` Shares used in
` calculation of basic
` and diluted (loss)
` income per share..... 30,960,000 30,960,000 30,960,000 30,960,000 30,960,000
`
`The pro forma balance sheet data summarized below gives effect to:
`
`. the sale of 9,420,000 shares of Series A preferred stock and associated warrants to purchase our common stock in May 1999 for net proceeds of $29.9
`million and the conversion of the Series A preferred stock into Class A stock; and
`
`. the exercise of stock options to purchase 1,345,219 shares of common stock by our officers and employees in May 1999 for $3.1 million in
`promissory notes and $1.3 million in cash.
`
`The pro forma as adjusted balance sheet summarized below reflects the sale of shares of common stock in this offering and the application of $7.0
`million of the estimated net proceeds from this offering to pay a portion of the amounts due to IDT.
`
` January 31, 1999
` --------------------------------------
` Pro Forma
` Actual Pro Forma As Adjusted
` ------------ ----------- ------------
`Balance Sheet Data:
` Cash and cash equivalents.............. $ 10,074 $31,244,144
` Working capital........................ (19,969,475) 17,560,032
` Total assets........................... 12,446,271 43,680,341
` Due to IDT............................. 13,862,833 13,862,833
` Total stockholders' (deficit) equity... (7,725,629) 23,508,441
`
`4
`
`9 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 9
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`
`RISK FACTORS
`
`You should carefully consider the risks described below before making an investment decision. If any of the following risks actually occur, our
`business, financial condition or results of operations could be materially adversely affected. In that event, the trading price of our shares could decline,
`and you may lose part or all of your investment.
`
`We have a limited operating history on which to evaluate our potential for future success.
`
`Risks Related to Our Business
`
`We were formed as a subsidiary of IDT in October 1997. Prior to our inception in January 1996, our business was conducted as a division of IDT.
`Therefore, we have only a limited operating history. As an early stage company in the new and rapidly evolving Internet telephony market, we face
`numerous risks and uncertainties. We cannot assure you that our business strategy will be successful or that we will successfully address these risks.
`
`We have a history of operating losses and anticipate losses for the foreseeable future.
`
`We incurred net losses of approximately $3.5 million during fiscal 1998 and approximately $2.1 million for the six months ended January 31, 1999. As
`of January 31, 1999 we had an accumulated deficit of approximately $7.8 million. We have not achieved profitability to date and expect to continue to
`incur operating losses for the forseeable future. We expect that operating and marketing expenses will increase significantly during the next several
`years. In order to achieve and maintain profitability we will need to generate significant revenue and we cannot assure you that we will generate
`sufficient revenue for profitability. Even if we do achieve profitability, we cannot assure you that we will be able to sustain or increase profitability on a
`quarterly or annual basis in the future. If revenue grows more slowly than we anticipate or if operating and marketing expenses exceed our expectations
`or cannot be adjusted accordingly, our business, results of operations and financial condition will be materially adversely affected. See "Selected
`Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for detailed information on our history
`of losses and anticipation of continued losses.
`
`We intend to pursue multiple streams of revenue, many of which are unproven.
`
`To date, we have generated revenue from routing minutes of use of our services over the Internet. In the future, we intend to pursue new revenue
`streams by leveraging our Internet telephony expertise to integrate real-time voice communication capabilities into the Web. For example, we intend to
`pursue new Web-based revenue opportunities from banner and audio advertising, as well as from sponsorship opportunities on our user interface and
`our EZSurf.com shopping portal. We intend to explore the availability of transaction-based revenue opportunities. We have not generated this type of
`revenue before. We intend to devote significant capital and resources to create these new revenue streams and we cannot ensure that our investments
`will be profitable. To be successful, we must, among other things, develop and market products and services that achieve broad market acceptance by
`individuals, businesses, online retailers and advertisers. We cannot assure you that the market for our new products and services will develop or that
`demand for our new products and services will emerge or grow.
`
`We may have difficulties managing our expanding operations, which may reduce our chances of achieving profitability.
`
`Our rapid growth has placed a significant strain on our managerial, operating, financial and other resources. We expect this rapid growth to continue
`and expect these strains to continue over time. Our future performance will depend, in part, on our ability to manage this growth effectively. To that
`end, we will have to undertake the following tasks, among others:
`
`. develop our operating, administrative and financial and accounting systems and controls;
`
`. improve coordination among our engineering, accounting, finance, marketing and operations personnel;
`
`5
`
`10 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 10
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`. enhance our management information systems capabilities; and
`. hire and train additional qualified personnel.
`
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`
`We cannot assure you that we will be able to accomplish these tasks, and if we are unable to accomplish any of them, our business would be materially
`adversely affected.
`
`A failure to establish and maintain strategic relationships could limit our ability to increase our sales.
`
`We believe that our success depends, in part, on our ability to develop and maintain strategic relationships with leading Internet companies and
`computer hardware and software companies as well as key marketing distribution partners. If any of our strategic relationships are discontinued, sales
`of our products and services and our ability to maintain or increase our customer base may be substantially diminished. We currently have strategic
`relationships with Netscape, Yahoo!, Excite and others. We depend on these relationships to:
`
`. distribute our products to potential customers;
`
`. increase usage of our services;
`
`. build brand awareness; and
`
`. cooperatively market our products and services.
`
`We depend on resellers to market and distribute our products and services internationally and to provide local customer support.
`
`We must forge relationships with resellers in markets where our products and services are not adequately marketed and maintain relationships in those
`markets we are seeking to penetrate further. Resellers also typically provide local customers with front-line support. If we hire a reseller who fails to
`market our products and services effectively, we could lose market share. Additionally, if a reseller provides poor customer service, we could lose
`brand equity. Therefore, we must maintain and hire additional resellers throughout the world that are capable of providing high-quality sales and
`service efforts. The loss of a reseller in a key market, or the failure of a current or future reseller to adequately provide customer support could
`materially adversely affect our business, results of operations and financial condition.
`
`Competition could reduce our market share and decrease our revenue.
`
`The market for our services has been extremely competitive, and is expected to be so for the foreseeable future. Many companies offer Internet
`telephony products and services, and many of these companies have a substantial presence in this market. Most of the current Internet telephony
`products permit voice communications over the Internet between two parties that are both connected to the Internet with sound-equipped personal
`computers and where both parties are using identical Internet telephony software products. Current product offerings include VocalTec
`Communications' Internet Phone, QuarterDeck's WebPhone and Microsoft's NetMeeting.
`
`In addition, a number of large telecommunications providers and equipment manufacturers, such as Cisco, Lucent, Northern Telecom and Dialogic,
`have announced that they intend to offer server-based products. These products are expected to allow voice communications over the Internet between
`parties using a personal computer and a telephone and between two parties using telephones. Cisco Systems has also taken a further step by recently
`acquiring two companies that produce devices that help Internet service providers transition voice and data traffic to cell and packet networks while
`maintaining traditional phone usage and infrastructure. Internet telephony service providers, such as ICG Communications, IPVoice.com, ITXC, RSL
`Communications (through its Delta Three subsidiary) and VIP Calling, route Internet telephony traffic to destinations on a worldwide basis. In
`addition, major long distance providers, such as AT&T, Deutsche Telekom, Frontier, MCI WorldCom, and Qwest Communications, as well as other
`major companies such as Motorola and Intel, have all entered or plan to enter the Internet telephony market. Many of our competitors are larger than
`and have substantially greater financial, distribution and marketing resources than we do. We cannot be certain that we will be able to compete
`successfully in the developing Internet telephony market.
`
`6
`
`11 of 371
`
`6/16/2016 5:26 PM
`
`Bright House Networks - Ex. 1046, Page 11
`
`

`
`NET2PHONE INC (Form: S-1, Received: 05/18/1999 16:41:57)
`We face pricing pressures, which may lessen our competitive pricing advantage.
`
`http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=921974
`
`The success of our current product and service offerings is based on our ability to provide discounted voice communications by taking advantage of
`cost savings achieved through Internet telephony. In recent years, the price of traditional domestic and international long distance calls has been
`declining. In response to these declines, we have lowered the price of our service offerings. Should prices of traditional long distance calls decline to a
`point where we no longer have a price advantage over our competitors, we would lose a significant competitive advantage and would have to rely on
`factors other than price to differentiate our product and service offerings. If we fail to do so, our business could be materially adversely affected.
`
`We need to hire and retain personnel to sustain our business.
`
`Our performance is highly dependent on the continued services of our executive officers and other key personnel, the loss of any of whom could
`materially adversely affect our business, results of operations and financial condition. We have an employment agreement with only one of our
`executive officers, Clifford M. Sobel, our Chairman and President.
`
`We need to attract and retain other highly-skilled technical and managerial personnel for whom there is intense competition. We cannot assure you that
`we will be able to attract and retain the personnel necessary for the development of our business. The inability to attract and retain qualified technical
`and managerial personnel would materially adversely affect our business, results of operations and financial condition.
`
`We may not succeed in maintaining our brand and name recognition.
`
`We believe that establishing and maintaining a brand and name recognition is critical for attracting and expanding our targeted client base and that the
`importance of reputation and name recognition will increase as competition in the Internet telephony market increases. Promotion and enhancement of
`our name will depend on the effectiveness of our marketing and advertising efforts and on our success in continuing to provide high-quality products
`and services, neither of which can be assured. If our customers do not perceive our service to be effective or of high quality, our brand and name
`recognition would be materially adversely affected.
`
`We are subject to risks associated with our international operations.
`
`As of January 31, 1999, approximately 60% of our customers were based outside of the United States, generating approximately 58% of our revenues
`during the six months ended on that date. A significant component of our strategy is to continue to expand internationally. We cannot as