Form 8-K ELEPHANT TALK COMMUNICAT For: Nov 18

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

�

FORM 8-K

�

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

�

Date of Report (Date of earliest event reported):�November 18, 2014

�

Elephant Talk Communications Corp.

(Exact name of registrant as specified in its charter)

�

Delaware	000-030061	95-4557538
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

�

3600 NW 138TH�St. STE 102 Oklahoma City, OK 73134

(Address of Principal Executive Offices) (Zip Code)

�

(405) 301-6774

(Registrant’s telephone number, including area code)

�

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

�

�	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

�

�	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

�

�	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

�

�	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

�

�

Item 2.02. Results of Operations and Financial Condition.

�

On November 18, 2014, Elephant Talk Communications Corp. (the “Company”), issued a press release disclosing certain information regarding its results of operations for the fiscal quarter ended September 30, 2014. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

�

The information being furnished pursuant to Item 2.02, Item 7.01 and Exhibit 99.1 of this Current Report on Form 8-K shall not be deemed “filed” for the purposes of, or otherwise subject to, the liabilities under Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Unless expressly incorporated into a filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act made after the date hereof, the information contained under Item 2.02, Item 7.01 and Exhibit 99.1 shall not be incorporated by reference into any filing of the Company whether made before or after the date hereof, regardless of any general incorporation language in such filing.

��

Item 7.01. Regulation FD Disclosure.

�

See “Item 2.02 Results of Operations and Financial Condition” above.

�

Item 9.01. Financial Statements and Exhibits.

�

(d) Exhibits.

�

99.1	Press Release issued by Elephant Talk Communications Corp., dated November 18, 2014.

�

�

SIGNATURES

�

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

�

�	ELEPHANT TALK COMMUNICATIONS CORP.
�	�	�
Date: November 18, 2014	�By:��	/s/ Alex Vermeulen
�	�	Alex Vermeulen
�	�	General Counsel

��

�

��

EXHIBIT INDEX

�

Exhibit No.	�	Description
�	�	�
99.1	�	Press Release issued by Elephant Talk Communications Corp., dated November 18, 2014.

�

�

�

Exhibit 99.1

�

Elephant Talk Reports Third Quarter Financial Results

�

- Company Enters into $12 Million Debt Facility Agreement -

�

OKLAHOMA CITY, OK — November 18, 2014 - Elephant Talk Communications Corp. (NYSE MKT: ETAK) (“Elephant Talk” or the “Company”), a global provider of Software Defined Network Architecture (ET Software DNA� 2.0) platforms and cyber security solutions, today announced total revenue of approximately $7.3 million for the third quarter of 2014. Net Loss for the quarter was approximately $2.4 million, down approximately $0.8 million from a net loss of $3.2 million reported in the third quarter of 2013. EBITDA* was approximately $0.2 million for the third quarter of 2014 versus a loss of $1.3 million in the same quarter of the prior year, marking the first quarter that the Company has recorded positive EBITDA.

�

Mr. Steven van der Velden, Chairman and CEO of Elephant Talk, stated, "We are pleased with the results reported for the third quarter of 2014, clearly demonstrating the ability of our business model to leverage the growth of SIMs on our ET Software DNA� virtualized platform to produce high-margin, recurring subscription-based revenue. As we move ahead provisioning and migrating additional customer SIMs on to the platform from Vodafone, Zain and Iusacell over the next few months, we expect to see continued positive sequential growth in our revenue, margins and EBITDA.”

�

Recent Company Highlights:

�

The Company entered into a $12 million term loan credit agreement.

�

There are now over 3.5m subscribers provisioned on the Company’s ET Software DNA� 2.0 platforms as MNOs and MVNOs continue to seek cost-effective solutions to modernize their core network and IT operations.

�

Elephant Talk North America has been awarded three MVNO contracts that will begin to see modest revenues in the first quarter of 2015.

�

Mr. Jaime Bustillo and Dr. Francisco Ros were elected to the Company’s Board of Directors. Both new directors bring extensive telecom business experience to the company; Mr. Bustillo having held senior management positions at Vodafone Group and Dr. Ros who has held senior management positions at Telef�nica and is currently a board member at Qualcomm.

�

ValidSoft was recently awarded two new patents by the Russian Federation as part of the Company’s ongoing global IP application process. These relate to the Company’s core “Device Trust” products. The first patent, “Card false-positive prevention system,” covers ValidSoft’s “International Location Correlation” process and the second, “Card present security system,” allows for the anonymous location correlation of a card present transaction with a mobile cell location.

�

Recent Financial Highlights:

�

Revenue for the third quarter of 2014 increased to approximately $7.3 million compared to $5.2 million for the same quarter of 2013.

�

EBITDA* was approximately $0.2 million for the third quarter of 2014, marking the first quarter that the Company has recorded positive EBITDA.

�

�

�

�

Adjusted EBITDA* increased to approximately $1.1 million for the third quarter of 2014 versus a negative $0.1 million for the same quarter of the prior year and a 83% sequential increase over $0.6 million reported for the second quarter of 2014.

�

Net Cash provided by operations for the third quarter of 2014 increased to approximately $1.7 million from a negative $1.2 million in the second quarter of 2014.

�

Margin (excluding depreciation and amortization) in the Mobile & Security Solutions segment for the third quarter of 2014 was 88% versus 79% in the same quarter of the prior year.

�

Net Loss for the third quarter of 2014 was reduced by approximately $0.8 million, resulting in net loss of approximately $2.4 million for the third quarter of 2014 versus net loss of approximately $3.2 million in the same quarter of the prior year.

�

�

Mobile and Security (Unaudited) Reported Revenue
Quarter	($ in millions)	(%) of Total Company Revenue
2Q12	2.8	39.3
3Q12	2.9	43.9
4Q12	3.6	52.1
1Q13	3.9	58.5
2Q13	4.5	89.5
3Q13	5.0	95.9
4Q13	5.9	97.6
1Q14	6.4	98.5
2Q14	6.9	99.4
3Q14	7.3	99.9

�

* Non-GAAP financial measures

To supplement the consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, Elephant Talk uses measures of non-GAAP: EBITDA, Adjusted EBITDA and margin. Margin is derived from the statement of operations and comprehensive loss by subtracting cost of service from revenues. These adjustments to the Company's GAAP results are made with the intent of providing both management and stockholders with a more complete understanding of the Company's underlying operational results, trends and performance.

�

Non-GAAP EBITDA, is defined as earnings before income and expenses from derivative accounting, such as warrant liabilities and conversion feature expensing, changes in deferred revenue, interest income and expense, income taxes, depreciation and amortization, amortization of deferred financing cost, impairments and non-operating income and expenses. Adjusted EBITDA further eliminates stock-based compensation. The Company uses EBITDA and Adjusted EBITDA to, among other things, show a measure of the Company’s operating performance.

�

�

�

Management uses these non-GAAP measures to evaluate the Company's financial results, develop budgets, manage expenditures and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for, or superior to, net income (loss) or net income (loss) per share determined in accordance with GAAP.

�

The table at the end of this press release includes a reconciliation of net loss to non-GAAP EBITDA and Adjusted EBITDA for the three and nine months ended September 30th 2013 and 2014, respectively.

�

Conference Call Reminder: Elephant Talk will host its 2014 Third Quarter results conference call on Tuesday, November 18, 2014 at 11:00 a.m. ET.

�

Conference Call Information:	�
Date:	Tuesday, November 18, 2014
Time:	11:00 a.m. ET
Domestic Dial-in number:	1-913-312-9323
Live webcast:�	http://public.viavid.com/index.php?id=111917

�

All interested in participating should dial in approximately 5 to 10 minutes prior to the 11:00 a.m. ET conference call. Participants should ask for the Elephant Talk 2014 Third Quarter Conference Call.�

�

About Elephant Talk Communications Corp.:

Elephant Talk Communications Corp. (NYSE MKT: ETAK), is a global provider of mobile proprietary Software Defined Network Architecture (ET Software DNA� 2.0) platforms for the telecommunications industry. The Company empowers Mobile Network Operators (MNOs), Mobile Virtual Network Operators (MVNOs), Enablers (MVNEs) and Aggregators (MVNAs) with a full suite of applications, superior industry expertise and high quality customer service without the need for substantial upfront investment. Elephant Talk counts several of the world's leading Mobile Network Operators amongst its customers, including Vodafone, T-Mobile, Zain and Iusacell. Visit: www.elephanttalk.com.

�

About ValidSoft UK Limited:

ValidSoft, a subsidiary of Elephant Talk Communications Corp., secures transactions using personal authentication and device assurance. We help our customers to reduce fraud losses and improve customers’ experience. As part of our multi-factor authentication, ValidSoft integrates its leading Voice Biometric engine into multivendor solutions or as a standalone system. ValidSoft serves multiple clients in the financial, government and business automation sectors and is the only company to have been granted four European Privacy Seals, reflecting its commitment to promoting strong data privacy. Visit: www.validsoft.com.

�

�

�

Forward-Looking Statements:

Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, statements with respect to Elephant Talk's plans and objectives, projections, expectations and intentions. These forward-looking statements are based on current expectations, estimates and projections about Elephant Talk's industry, management's beliefs and certain assumptions made by management. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict, including, without limitation, the ability of the Company to regain compliance with the listing standards of the NYSE MKT LLC. Because such statements involve risks and uncertainties, the actual results and performance of Elephant Talk may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, Elephant Talk also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from those projected or suggested in Elephant Talk's filings with the Securities and Exchange Commission (the "SEC"), copies of which are available from the SEC or may be obtained upon request from Elephant Talk.

�

Contacts:

�

Investor Relations:

Steve Gersten

Capital Markets Group

813-926-8920

[email protected]

�

Public Relations:

Michael Glickman

MWG CO.

917-596-1883

[email protected]

�

�

�

ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

�

�	�	September 30,		�	�	December 31,		�
�	�	2014		�	�	2013		�
�	�	(UNAUDITED)		�	�	�		�
ASSETS	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
CURRENT ASSETS	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Cash and cash equivalents	�	$	1,176,650	�	�	$	1,252,315	�
Restricted cash	�	�	169,536	�	�	�	191,600	�
Accounts receivable, net of an allowance for doubtful accounts of $0 and $7,693 at September 30, 2014 and December 31, 2013 respectively	�	�	6,754,447	�	�	�	5,976,879	�
Prepaid expenses and other current assets	�	�	2,319,310	�	�	�	2,254,213	�
Total current assets	�	�	10,419,943	�	�	�	9,675,007	�
�	�	�	�	�	�	�	�	�
NON-CURRENT ASSETS	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
OTHER ASSETS	�	�	1,093,977	�	�	�	1,412,408	�
�	�	�	�	�	�	�	�	�
PROPERTY AND EQUIPMENT, NET	�	�	19,603,707	�	�	�	19,786,122	�
�	�	�	�	�	�	�	�	�
INTANGIBLE ASSETS, NET	�	�	6,000,884	�	�	�	8,670,677	�
�	�	�	�	�	�	�	�	�
GOODWILL	�	�	3,490,242	�	�	�	3,773,226	�
�	�	�	�	�	�	�	�	�
TOTAL ASSETS	�	$	40,608,753	�	�	$	43,317,440	�
�	�	�	�	�	�	�	�	�
LIABILITIES AND STOCKHOLDERS' EQUITY	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
CURRENT LIABILITIES	�	�	�	�	�	�	�	�
Overdraft	�	$	425,144	�	�	$	391,436	�
Accounts payable and customer deposits	�	�	2,063,304	�	�	�	2,586,662	�
Obligations under capital leases (current portion)	�	�	1,828,083	�	�	�	1,302,838	�
Deferred Revenue	�	�	127,456	�	�	�	142,731	�
Accrued expenses and other payables	�	�	5,804,999	�	�	�	4,961,303	�
Loans payable	�	�	961,550	�	�	�	962,654	�
2013 10% Related Party Convertible Note (net of Debt Discount of $1,719,585 at December 31, 2013)	�	�	-	�	�	�	1,033,719	�
Total current liabilities	�	�	11,210,536	�	�	�	11,381,343	�
�	�	�	�	�	�	�	�	�
LONG TERM LIABILITIES	�	�	�	�	�	�	�	�
2013 10% 3rd Party Loan (net of Debt Discount of $410,853 and $726,695 at September 30, 2014 and December 31, 2013 respectively)	�	�	4,663,227	�	�	�	4,779,913	�
Warrant liabilities	�	�	2,248,169	�	�	�	1,973,534	�
Non-current portion of obligation under capital leases	�	�	261,912	�	�	�	845,529	�
Loan from joint venture partner	�	�	-	�	�	�	602,047	�
Total long term liabilities	�	�	7,173,308	�	�	�	8,201,023	�
�	�	�	�	�	�	�	�	�
Total liabilities	�	�	18,383,844	�	�	�	19,582,366	�
�	�	�	�	�	�	�	�	�
STOCKHOLDERS' EQUITY	�	�	�	�	�	�	�	�
Preferred Stock $0.00001 par value, 50,000,000 shares authorized, 0 issued and outstanding	�	�	-	�	�	�	-	�
Common Stock $0.00001 par value, 250,000,000 shares authorized, 151,312,189��issued and outstanding��as of September 30, 2014 and 140,466,801 shares issued and outstanding as of December 31, 2013	�	�	260,616,570	�	�	�	248,712,321	�
Accumulated other comprehensive income (loss)	�	�	(2,003,871	)	�	�	269,869	�
Accumulated deficit	�	�	(236,521,852	)	�	�	(225,391,922	)
Elephant Talk Communications, Corp. stockholders' equity	�	�	22,090,847	�	�	�	23,590,268	�
�	�	�	�	�	�	�	�	�
NON-CONTROLLING INTEREST	�	�	134,062	�	�	�	144,806	�
Total stockholders' equity	�	�	22,224,909	�	�	�	23,735,074	�
�	�	�	�	�	�	�	�	�
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	�	$	40,608,753	�	�	$	43,317,440	�

�

�

�

ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

�

�

�

For the three month

�

�

For the nine month

�

�

�

period ended September 30,

�

�

period ended September 30,

�

�

�

2014

�

�

2013

�

�

2014

�

�

2013

�

�

�

�

�

�

�

�

�

�

�

�

�

�

REVENUES

�

$

7,298,988

�

�

$

5,204,982

�

�

$

20,690,609

�

�

$

16,795,627

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

COST AND OPERATING EXPENSES

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Cost of service (exclusive of depreciation and amortization shown separately below)

�

�

848,771

�

�

�

1,080,174

�

�

�

2,660,816

�

�

�

6,093,968

�

Selling, general and administrative expenses

�

�

6,227,147

�

�

�

5,442,869

�

�

�

19,636,038

�

�

�

18,823,615

�

Depreciation and amortization of intangibles assets

�

�

1,900,251

�

�

�

1,543,687

�

�

�

5,836,857

�

�

�

4,699,906

�

Total cost and operating expenses

�

�

8,976,169

�

�

�

8,066,730

�

�

�

28,133,711

�

�

�

29,617,489

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

LOSS FROM OPERATIONS

�

�

(1,677,181

)

�

�

(2,861,748

)

�

�

(7,443,102

)

�

�

(12,821,862

)

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

OTHER INCOME (EXPENSE)

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Interest income

�

�

36,684

�

�

�

33,773

�

�

�

93,840

�

�

�

89,020

�

Interest expense

�

�

(260,295

)

�

�

(181,074

)

�

�

(895,453

)

�

�

(612,970

)

Interest expense��related to debt discount and conversion feature

�

�

(1,287,717

)

�

�

(259,795

)

�

�

(3,197,749

)

�

�

(1,320,795

)

Change in fair value of conversion feature

�

�

-

�

�

�

-

�

�

�

-

�

�

�

232,267

�

Changes in fair value of warrant liabilities

�

�

(103,311

)

�

�

173,333

�

�

�

(274,635

)

�

�

519,349

�

Gain / (Loss) on Extinguishment of Debt

�

�

626,534

�

�

�

(44,506

)

�

�

626,108

�

�

�

(1,983,103

)

Other income & (expense), net

�

�

301,199

�

�

�

-

�

�

�

372,597

�

�

�

-

�

Amortization of deferred financing costs

�

�

(73,789

)

�

�

(44,076

)

�

�

(323,246

)

�

�

(116,482

)

Total other income (expense)

�

�

(760,695

)

�

�

(322,345

)

�

�

(3,598,538

)

�

�

(3,192,714

)

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

LOSS BEFORE (BENEFIT) PROVISION FOR INCOME TAXES

�

�

(2,437,876

)

�

�

(3,184,093

)

�

�

(11,041,640

)

�

�

(16,014,576

)

(Benefit) / provision for income taxes

�

�

(44,938

)

�

�

41,500

�

�

�

88,290

�

�

�

41,500

�

NET LOSS

�

�

(2,392,938

)

�

�

(3,225,593

)

�

�

(11,129,930

)

�

�

(16,056,076

)

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

OTHER COMPREHENSIVE (LOSS) INCOME

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Foreign currency translation gain (loss)

�

�

(2,273,740

)

�

�

489,443

�

�

�

(2,424,192

)

�

�

(807,208

)

COMPREHENSIVE LOSS

�

$

(4,666,678

)

�

$

(2,736,150

)

�

$

(13,554,122

)

�

�

(16,863,284

)

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Net loss per common share and equivalents - basic and diluted

�

$

(0.02

)

�

$

(0.02

)

�

$

(0.08

)

�

$

(0.13

)

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Weighted average shares outstanding during the period - basic and diluted

�

�

149,468,618

�

�

�

134,440,221

�

�

�

145,929,455

�

�

�

122,038,045

�

�

�

�

ELEPHANT TALK COMMUNICATIONS CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

�

�	�	For the nine month period ended						�
�	�	September 30, 2014		�	�	September 30, 2013		�
�	�	�		�	�	�		�
CASH FLOWS FROM OPERATING ACTIVITIES:	�	�		�	�	�		�
Net loss	�	$	(11,129,930	)	�	$	(16,056,076	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:	�	�	�	�	�	�	�	�
Depreciation and amortization	�	�	5,836,857	�	�	�	4,699,906	�
Provision for doubtful accounts	�	�	(10,661	)	�	�	22,131	�
Provision for income taxes	�	�	-	�	�	�	41,500	�
Stock based compensation	�	�	3,536,680	�	�	�	5,639,124	�
Change in fair value of conversion feature	�	�	-	�	�	�	(232,267	)
Change in fair value of warrant liability	�	�	274,635	�	�	�	(519,349	)
Amortization of deferred financing costs	�	�	323,246	�	�	�	116,482	�
Interest expense relating to debt discount and conversion feature	�	�	3,197,749	�	�	�	1,320,795	�
Unrealized foreign currency translation gain (loss)	�	�	(501,571	)	�	�	-	�
Extinguishment of Debt	�	�	(626,534	)	�	�	1,983,103	�
Changes in operating assets and liabilities:	�	�	�	�	�	�	�	�
Decrease (increase) in accounts receivable	�	�	(1,366,947	)	�	�	1,054,452	�
Decrease (increase)��in prepaid expenses, deposits and other assets	�	�	(101,971	)	�	�	(666,991	)
Increase (decrease) in accounts payable and customer deposits	�	�	362,685	�	�	�	(2,030,393	)
Increase (decrease) in deferred revenue	�	�	(11,931	)	�	�	177,635	�
Increase (decrease) in accrued expenses and other payables	�	�	1,493,594	�	�	�	1,859,634	�
Increase (decrease) in non-cash accrued expenses related to extinguishment of Debt	�	�	-	�	�	�	(890,997	)
Net cash provided by (used in) operating activities	�	�	1,275,901	�	�	�	(3,481,311	)
�	�	�	�	�	�	�	�	�
CASH FLOWS FROM INVESTING ACTIVITIES:	�	�	�	�	�	�	�	�
Purchases of property and equipment	�	�	(5,611,023	)	�	�	(4,108,507	)
Loan to third party	�	�	-	�	�	�	(125,000	)
Net cash used in investing activities	�	�	(5,611,023	)	�	�	(4,233,507	)
�	�	�	�	�	�	�	�	�
CASH FLOWS FROM FINANCING ACTIVITIES:	�	�	�	�	�	�	�	�
Proceeds from 12% Unsecured Loan from Related Party	�	�	-	�	�	�	1,290,790	�
Proceeds from Securities Purchase Agreement – Unregistered securities	�	�	-	�	�	�	225,000	�
Proceeds from��Securities Purchase Agreement - Registered direct	�	�	-	�	�	�	7,500,000	�
Proceeds from��Securities Purchase Agreement Related Party	�	�	-	�	�	�	4,500,000	�
Proceeds from 2013 10% Related Party Convertible Note	�	�	-	�	�	�	2,652,600	�
Proceeds from 2013 10% 3rd Party Convertible Note	�	�	-	�	�	�	5,305,200	�
Financing related fees	�	�	(125,793	)	�	�	(1,362,124	)
Payments on��8% Senior Secured Convertible Note installment payments and interest	�	�	-	�	�	�	(8,490,360	)
Exercise of warrants and options	�	�	4,286,576	�	�	�	78,971	�
Cash from Escrow account for principal and interest payments on 8% Senior Secured Convertible Notes	�	�	-	�	�	�	742,427	�
Interest paid for property and equipment acquired under capital leases	�	�	(57,079	)	�	�	-	�
Net cash provided by financing activities	�	�	4,103,704	�	�	�	12,442,504	�
�	�	�	�	�	�	�	�	�
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS	�	�	155,753	�	�	�	124,261	�
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	�	�	(75,665	)	�	�	4,851,947	�
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD	�	�	1,252,315	�	�	�	1,233,268	�
CASH AND CASH EQUIVALENTS, END OF THE PERIOD	�	$	1,176,650	�	�	$	6,085,215	�
�	�	�	�	�	�	�	�	�
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�
Cash paid during the period for interest	�	$	174,592	�	�	$	409,331	�
Cash paid during the period for income taxes	�	�	56,881	�	�	�	-	�
Purchases of property and equipment (delivered, not invoiced yet)	�	�	-	�	�	�	(1,238,046	)
Trade note payable	�	�	-	�	�	�	593,903	�
Increase in Share Capital due to Telnicity Acquisition	�	�	-	�	�	�	1,180,000	�
Increase in Share Capital for third party settlement	�	�	-	�	�	�	468,000	�

�

�

�

Reconciliation of Net Loss to Non-GAAP EBITDA and Adjusted EBITDA

In order to provide investors additional information regarding our financial results, the Company is disclosing EBITDA and Adjusted EBITDA, non-GAAP financial measures. The Company employs EBITDA, defined as earnings before income and expenses from derivative accounting, such as warrant liabilities and conversion feature expensing, changes in deferred revenue, interest income and expense, income taxes, depreciation and amortization, amortization of deferred financing cost, impairments and non-operating income and expenses. Adjusted EBITDA further eliminates stock-based compensation. EBITDA and Adjusted EBITDA are designed to show a measure of the Company’s operating performance. The Company uses EBITDA and Adjusted EBITDA because it removes the impact of items not directly resulting from the Company’s core operations, allowing the Company to better assess whether the elements of the Company’s growth strategy are yielding the desired results. Accordingly, the Company believes that EBITDA and Adjusted EBITDA provide useful information for investors and others which allows them to better understand and evaluate the Company’s operating results.

�

Reconciliation of Net Loss to Non-GAAP EBITDA and Adjusted EBITDA

�

�	�	Three months ended September 30,						�
EBITDA	�	2014		�	�	2013		�
Net loss – US GAAP	�	$	(2,392,938	)	�	$	(3,225,593	)
Provision for income taxes	�	�	(44,938	)	�	�	41,500
Depreciation and amortization	�	�	1,900,251	�	�	�	1,543,687	�
Interest income and expenses	�	�	223,611	�	�	�	147,301	�
Interest expense related to debt discount and conversion feature	�	�	1,287,717	�	�	�	259,795	�
Changes in fair value of warrant liabilities	�	�	103,311	�	�	�	(173,333	)
Change in fair value of conversion feature	�	�	-	�	�	�	-	�
Loss on extinguishment of debt	�	�	(626,534	)	�	�	44,506	�
Other (income) and expense	�	�	(301,199	)	�	�	-	�
Amortization of deferred financing costs	�	�	73,789	�	�	�	44,076	�
EBITDA	�	$	223,070	�	�	$	(1,318,061	)
�	�	�	�	�	�	�	�	�
Stock-based compensation	�	�	862,419	�	�	�	1,233,165	�
Adjusted EBITDA	�	$	1,085,489	�	�	$	(84,896	)

�

�	�	Nine months ended September 30,						�
EBITDA	�	2014		�	�	2013		�
Net loss – US GAAP	�	$	(11,129,930	)	�	$	(16,056,076	)
Provision for income taxes	�	�	88,290	�	�	�	41,500
Depreciation and amortization	�	�	5,836,857	�	�	�	4,699,906	�
Interest income and expenses	�	�	801,613	�	�	�	523,950	�
Interest expense related to debt discount and conversion feature	�	�	3,197,749	�	�	�	1,320,795	�
Changes in fair value of warrant liabilities	�	�	274,635	�	�	�	(519,349	)
Change in fair value of conversion feature	�	�	-	�	�	�	(232,267	)
Loss on extinguishment of debt	�	�	(626,108	)	�	�	1,983,103	�
Other (income) and expense	�	�	(372,597	)	�	�	�	�
Amortization of deferred financing costs	�	�	323,246	�	�	�	116,482	�
EBITDA	�	$	(1,606,245	)	�	$	(8,121,956	)
�	�	�	�	�	�	�	�	�
Stock-based compensation	�	�	3,536,680	�	�	�	5,639,124	�
Adjusted EBITDA	�	$	1,930,435	�	�	$	(2,482,832	)

�

�

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