Flora Wood, Investor Relations

Rocco DiCarlo, President

James Sturgess, Director of Marketing

First Speaker - James Sturgess, Director of Marketing:

The market for VoIP is very broad. There are many different players offering different products serving different needs. TEK’s product is a Customer Premise Equipment (CPE), or access device. It is a piece of hardware that is installed at the customer’s site, to deliver a service. Essentially, this piece of hardware allows phone-to-phone long distance over the Internet at greatly reduced rates, or even free. The typical TEK customer is a service provider like an ISP or Internet Telephony Service Provider offering low-cost long distance to their subscribers and using the TEK V-Server product as the on site device. The ISP or ITSP welcomes this offering, because long distance allows them to generate significantly more revenue than pure Internet connectivity. The typical ITSP that TEK will target will be those focusing on small to medium size businesses.

One VoIP Company that is well known to investors is Net2Phone. Net2Phone offers services, generating revenue by offering low cost phone calls. They are focused on residential PC to Phone calls, where the person making the call does so through their PC. Unlike Net2Phone, TEK is not PC-dependent, so does not have to rely on PC availability. Also, phone-to-phone VoIP is known to be of much better voice quality than PC-to-phone. Nett2Phone may be a potential partner down the line when they decide to begin to address the SOHO market and need a product to deploy these services. For these reasons Net2Phone is not seen as a competitor but as a possible customer.

James notes that another part of the TEK’s strategy focuses on Original Equipment Manufacturer (OEM) or licensing business. This is where partners such as Loop and Franklin, produce TEK products to compliment their own offering. These companies do not have the technology or engineering resources to put together the type of product TEK has. Vendors who provide enterprise VoIP solutions are discovering they need lower cost smaller scale solutions to compliment their product offering. This provides licensing or OEM opportunities for TEK.

TEK’s focus is wider then just VoIP. They are committed to addressing all communications requirements of SOHO business. They believe that while long distance expenses are a very real concern, other issues like PBX functionality are also areas of concern for SOHO businesses. Further, there is a large market for PBX full-featured solutions. TEK’s relationship with Centrepoint has allowed them to offer these features in their next level of products, the Elite. James notes that the TEK system will integrate all the features of PBX and VoIP while providing lower priced solutions to the end user. These solutions can be integrated into an offering that service providers deliver for a fixed monthly charge, eliminating the need of a small business expending the large up front fee for this type of advanced system.

One useful comparison is to an offering of Hewlett Packard’s. HP developed the all in one fax-copier-printer-scanner to address they needs of a small company that wouldn’t want to carry the expense of purchasing these products individually.

The Telephony service market is going through the standard market phases, starting with the early believes adopter stage. This stage sees a small group of people experiment with the technology. In order to get to the next stage of the early majority, service providers must make the service easy for the mass use and thus focus on the customer.

Current VoIP calling requires users to undertake a two step dialing process. TEK’s goal is to make VoIP calling totally transparent to the customer, therefore hiding the complexity of IP Telephony. The SOHO market demands simple long-distance call dialing and service providers want installation simplicity. The iGATE meets both these demands and significantly reduces "truckroll", the cost to the service provider to send people out to install the products.

The most recently announced offering, the Dual Ethernet iGATE, focuses on DSL or cable subscribers. Forecasts estimate that this subscriber base will reach 3.5million users by the year-end. making it an attractive and viable market to address.

Another VoIP comparison is to 8X8. 8 x 8 may represent a competitor to a certain degree in the OEM market, the difference being that TEK’s OEMs take the TEK product and put their name on it while 8X8 offers the component technology for the OEMs to incorporate in their own products. This model loses out to TEK when time to market is taken into account, as 8X8 OEM’s must spend extra time engineering the technology into their solutions.

Second Speaker - Rocco DiCarlo, President

The IP Telephony market was not really seen as commercially viable over the standard Internet a year ago. Based on quality of the calls and the reliability, experts felt there was no market for the services as they stood. The last 3-4 months, however, have shown that voice over the standard IP can be a commercially viable business. Testing has shown that TEK products can produce cell phone quality calls over the standard Internet throughout the world. This level of quality is distinctly better then PC to phone and PC to PC. Recently, PC to Phone calling over the Internet has also begun to take off, as evidenced by Net2Phone. Sprint has also announced plans to use the standard Internet as a medium to route long distance calls.

Currently 40% of all ISPs worldwide have announced intentions of deploying some type of VoIP service by the end of the year 2000 and 60%-70% are forecasted to be offering these services by the end of 2001, all of which will use the standard Internet to a large degree.

Phone quality is a problem with phone to PC VoIP calling. Net2Phone’s typical subscriber spends only 2 minutes per day on VoIP long distance. TEK customers are forecasted to make VoIP calls in excess of one hour per day. Therefore TEK customers require the better quality of call that phone to phone VoIP from TEK can provide.

TEK has currently negotiated 2 agreements with ITSPs which account for a forecasted 100,000 units over the next 18 months. Another 20,000 license fees are forecasted from the 2 OEM agreement signed, also due over the next 18 months.

Late stage negotiations are ongoing with 5 potential private label arrangements each forecasting 10,000 to 15,000 units, with 3 additional OEM candidates forecasting 10,000 to 15,000 units and with 1 ITSP that forecasts 20,000 units all over the next 18 months. In addition many DSL and cable operators want to deploy IP Telephony and TEK is in early stage discussions with some of them.

Current evaluation units are found all over the world with 15-20 in Asia, 50 in Europe and 40-50 in North America.

TEK has been looking for a financing of $5M to $6M from a private placement. Talks with strategic investors are taking longer then anticipated which has lead to TEK’s investigating other options for a short -term financing of $500 to $2M. This could be in the form of an equity placement with institutions or in the form of debt. For example, TEK has applied for a Purchase Order loan from their local bank as well as a government loan from the state of Maryland.

Up until now, TEK has been financing themselves through revenue in the form of prepayments and up front licensing fees as well as the initial $1M raised by the original venture capitalists.

The forecasted uses of the financing once secured will include increasing the marketing and PR campaigns. Building brand awareness is a top priority for TEK given the speed at which the VoIP market is predicted to be expanding.

Part of the original investment is now freely trading (through exercise of warrants) and part is allocated as convertible preferred shares, with one preferred convertible to six new common shares. Most of the preferred shares are held by the founders of the company and key employees in the Maryland development office, and the shares are held in escrow until performance criteria is met. Criteria include product acceptance and booked revenue, and the shares will become exercisable in tranches of 25% at a time.

In this period where we’re seeking a financing, we have cash reserves of roughly one month.

We have not yet closed off our options as to structure, but one commonly used structure is a Reg. D issue which places a hold period of roughly one year on shares that are sold at a discount to market.

13.

The first 500 are being manufactured by Glocom, which is capable of low volume orders, but will not have the capacity to deliver the kind of multiple orders we’ve had so far for the iGATE. As a result, we contracted with Loop Telecom for volume shipments.

They are reliant on our technology to build their business case. As one of our first ITSPs, they helped set the strategic direction for TEK i.e. ease of use and instalability. ePHONE has placed orders and provided some prepayment financing as well.

We are in discussions with WaveRider as a potential customer, as they are looking at offering a CPE device for VoIP. However, these discussions are very preliminary at this point.