MagicJack Gets its ‘IPO’ — by Merging with VocalTec

I’ll leave it to those who have more time to spend with SEC documents than I do right now to sort out all the details, but the initial public offering hinted at by MagicJack founder Dan Borislow last summer has sort-of come to pass, with the announcement of a merger between MagicJack’s parent company and VoIP gear supplier VocalTec, which trades on the public markets.

As befits a Borislow operation, there’s a whole lot of murkiness and mess involved — gotta love the line from the SEC filing that flashes a big red light over any and all proceedings, mainly to do with the fact that VocalTec isn’t a U.S.-based company so doesn’t necessarily have to play by NASDAQ rules. From the merger SEC filing, we quote:

We are a “foreign private issuer” and you will receive less information than you would about us from a domestic U.S. corporation. In addition, we have opted out of certain Nasdaq Marketplace listing requirements.

With the caveats out of the way, what else is interesting about MagicJack? According to the fiscal numbers, MagicJack did indeed have a $100 million revenue year in 2009 as Borislow predicted when we talked to him last — it was actually $117.8 million in revenue according to the document — but the company also incurred a loss of $22 million for the year, mainly due to huge costs like those of the MagicJack devices sold ($23.4 million), advertising ($32.1 million), network and carrier charges ($25.6 million) and $41.8 million in “General and administrative” charges, which seem quite high for a smallish startup of MagicJack’s nature.

If MagicJack and parent company YMax was somewhat vague on its user numbers (”YMax has been able to rapidly establish a large and growing customer base of approximately six million”), we did find some more-discrete numbers to indicate that at the very least, MagicJack has been a bit of a gold mine for Mr. Borislow. In addition to a stock-related bonus of almost $8 million for 2009, Mr. Borislow also pocketed an additional $1.1 million for investment advice that helped MagicJack earn about $4 million on its investments. So at the very least if MagicJack doesn’t pan out, maybe Mr. Borislow can eke out a living on Wall Street:

Realized gain on marketable securities in the fiscal year ended December 31, 2009 was $4.3 million, as compared to a realized loss on marketable securities of $1.4 million in twelve months ended December 31, 2008. We were adversely affected by the deteriorating capital markets in fiscal year 2008, and as a result, realized significant losses in our investments. During the twelve months ended December 31, 2009, our investments were closely monitored and managed by our Chief Executive Officer, Mr. Borislow, which contributed to significant realized gains. We incurred a one-time investment advisory fee of $1.1 million during fiscal year 2009, which was paid to Mr. Borislow for his investment advisory services.

Of course there are also some juicy new product hints in the filing — along with the MagicJack femtocell and the standalone MagicJack that Borislow talked about last year, there are hints of a MagicJack software product for smartphones along with an E911 product that MagicJack proudly expects to become an FCC standard for the industry:

YMax has patent pending and proprietary hardware and software that overcomes problems associated with making emergency (911) calls on a nomadic or portable broadband telephone service device. It has demonstrated this technology to the FCC and to public safety officials and believe that our 911 technology should become the standard for the nomadic broadband telephone service industry

But it’s not all VoIP and roses — MagicJack also says that it has been contacted by third parties who may have some patenting issues with the company’s technologies, issues that have yet to be decided in anything resembling a court of law. While we wait for Mr. Borislow to reply and perhaps clarify, you can busy yourself with the SEC filings for more fun reading, MagicJack style.


Comments are closed.