MIAMI, FL--(Marketwire -08/22/12)- Alternet Systems, Inc. (ALYI) today released a letter to shareholders from CEO and founder Henryk Dabrowski. The letter outlines Alternet's corporate investment and operational strategies and describes recent advancements made in both of its operating subsidiaries, Utiba Americas and International Mobile Security (IMS). The letter is included in its entirety below.
Dear Fellow Shareholders,
This letter is a follow up to our second quarter filings which were recently posted with the SEC on August 14th.
As Alternet's CEO and a major shareholder, and acting CEO of our mobile payments subsidiary, I can assure you that financial performance is a primary concern of our executive team and mine. The numbers, however, do not tell the whole story of what is occurring at Alternet and its operating subsidiaries, Utiba Americas and IMS, which is why I am prompted to write this letter.
Alternet's Investment Philosophy
Alternet's investments are in two high growth, emerging markets of mobile financial services (mobile payments) and cyber security. Both industries are evolving rapidly with the continued and unabated growth and adoption of mobile phones worldwide.
At the end of 2011 the world had 7 Billion people, and 5.9 Billion mobile phone subscriptions
The mobile phone has surpassed all technologies in numbers of adoption and sales. It brings inexpensive voice and text communications to almost every corner of the globe and to all levels of society. Increasingly, through growing access to data services, it is bringing internet access to the world. Most of these new internet users will never have used a PC. This new and ubiquitous platform is changing the way the world does business, and Alternet has made important investments to be a part of that change.
Utiba Americas' Software as a Service (SaaS) Offering & Revenue Implications
Currently, all of Alternet's revenues come from our mobile payments subsidiary Utiba Americas, a joint venture with Utiba Pte., Singapore-based developer of mobile financial services software. Utiba is a global leader in the industry. In eleven years it has deployed mobile payment platforms in more than thirty countries for leading mobile network operators and financial institutions.
Utiba Americas offers two types of mobile financial service solution -- the traditional one-time license sale, which includes annual maintenance fees, and the use of the Utiba platform on a "pay as you go" basis, also known as SaaS (Software as a Service). A typical SaaS contract has a three to five year term, and we make money incrementally, on a per user or per transaction basis. License sales have been largely responsible for the company's revenue to date but are expected to diminish in the near term. SaaS (Software as a Service), on the other hand, is experiencing significant demand primarily due to the increased entry of financial institutions, which are enjoying favorable regulatory treatment across the Americas region. Financial institutions are accustomed to long-term service agreements based on transactional fees, a fact that plays into Utiba Americas' product strategy and market position for two reasons; transactional revenue is historically more stable (think Visa, MasterCard, American Express) and engender long term relationships that are difficult to replace. SaaS permits Utiba Americas to become a long-term integral partner and to have a piece of the action.
The SaaS offering is an important innovation for our customers. It gives them access to a robust, proven and comprehensive mobile financial services platform on which to launch services with a smaller capital expenditure and lowered operating costs. This not only lowers their barriers to entry but also allows them to focus on marketing, sales, and customer service.
We strongly believe in the Software as a Service model. Similar, cloud based software offerings are taking hold worldwide. Software as a Service contracts however do not get booked in the same way as a traditional license sale, as the chart below demonstrates.
---------------------------------------------------------------------------- Software License Sale Software as a Service Sale ---------------------------------------------------------------------------- Contract Value Fixed* Contract Value Fixed (Professional Fees) & Variable (based on users or transactions) Fees Booked & Collected within 1 Year Professional Service Fees Collected within 1st year Payments based upon deployment milestones Payments (above minimums) based on usage ----------------------------------------------------------------------------
*Utiba collects software maintenance and support fees, typically 15% of the initial contract value per year, as it is the software developer and bears the R&D responsibility. Utiba Americas does not share in that revenue.
Hopefully this comparison illustrates why our booked revenues may be lower than expected. As we encounter success in selling the Utiba Americas' SaaS product, we will realize lower revenues upfront but will benefit from recurring revenues over a three to five year period.
Since our last shareholders letter of April 20th, in which we published a chart of customer accounts, we have advanced in negotiations with several other regional accounts that we hope to announce in the coming months. Until we have permission to do so, we cannot release customers' names or project scopes.
Two such imminent accounts are mentioned in the "subsequent events" section of the second quarter filing, the first is an important financial institution in South America which will use our hosted (SaaS) platform and with whom we are signing a three year contract, with a two year automatic renewal. The second event mentioned is a license sale with a third party payment provider in Central America, which has successfully completed a paid pilot and is currently in the final stage of contract negotiations.
We continue to make inroads with other regional and local clients throughout the Americas and Caribbean and are confident in our ability to reach our goal of live deployments in 14 countries in the Americas including the United States and Canada by the end of 2013, serving a potential market of over 600 million mobile and internet users and a population of over 900 million people.
Consolidation in Mobile Financial Service Software Providers
In 2010, French digital security company Gemalto, best known in telecommunications as a leading provider of SIM cards, acquired Trivnet, an Israeli developer of mobile financial service software, for US$40 million. This acquisition kicked off a slow wave of market consolidation which has slowly changed the competitive landscape for Utiba and Utiba Americas. In 2011, global card franchise Visa purchased South African platform developer Fundamo, for US$110 million and in 2012, Oberthur Technologies acquired Boston based MoreMagic, an electronic recharge (topup) developer that was increasingly making incursions into mobile financial services.
These acquisitions demonstrate the interest of global multinationals in securing their foothold in mobile payments and financial services, and are changing the playing field for us and our partner Utiba. We are increasingly finding ourselves as the only platform developer and solution provider exclusively focused on mobile financial services. This is an advantage as our competitors may be distracted by other corporate directives and slower decision making processes.
International Mobile Security - Cyber Security Subsidiary
International Mobile Security's (IMS) strategic partnership and reseller agreement with UK based Delma Technologies has amplified the company's international sales force and resulted in ongoing product demonstrations in several continents. These demonstrations are indicative of the interest in IMS' unique products for law enforcement, which we believe will translate into sales as we gain exposure through our relationship with Delma and others.
IMS has experienced delays closing proposals with prospective international law enforcement clients. In some instances the setbacks were due to national electoral cycles, in others simply because of the lengthy sales cycle common in government contracting.
IMS' software development team has continued to improve and increase the features of all the law enforcement products, which include lawful mobile interception; digital evidence collection, analysis and archiving; secure communications and document management and tracking. Other products targeting the location based services sector have been field tested and will be commercially available in the third quarter of 2012.
Additionally, IMS' development team has created a new customer demonstration portal which reduces the customization efforts to meet the requirements of every individual customer and expedites deployment time.
Alternet's management team continues to pour themselves enthusiastically into furthering the company's objectives through its subsidiaries. In addition to our roles at Alternet, each of us assumes an active role in all of our subsidiaries, as acting CEO, CFO, Vice Presidents of Marketing and Business Development.
As we head into the fall I look forward to sharing news of contract signings and project launches. These events will improve our operational cash flows, decrease our dependence on external financing, and further increase the value of our investments. We believe strongly in the opportunity and vision of enabling secure mobile commerce and communications and hope you will join us as we make it reality.
About Alternet Systems Inc.
Alternet Systems Inc. (ALYI), a US corporation headquartered in Miami, Florida, is an investment holding company focused on the complimentary, high-growth markets of cyber-security and mobile financial services. Through its subsidiaries, Alternet captures and converts the extraordinary growth and opportunities surrounding the explosion of mobile phones worldwide. Its cyber-security subsidiary, International Mobile Security (IMS), provides mobile and digital security solutions to law enforcement agencies. Alternet's mobile financial services subsidiary, Utiba Americas, is a joint venture with Utiba Pte, the leading developer of mobile payment software solutions. Utiba Americas is deploying mobile financial services solutions for mobile network operators, financial institutions and third party payment service providers throughout the Americas region. More information about Alternet and its subsidiaries can be found at www.alternetsystems.com and by following the company on Twitter www.twitter.com/alternetsystems.
"SAFE HARBOR STATEMENT" UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this news release may contain forward-looking information within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. All statements, other than statements of fact, included in this release, including, without limitation, statements regarding potential future plans and objectives of the Company, are forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.