J2 Global Communications, Inc. Business Information, Profile, and History

Company Perspectives:

j2 is the result of a marriage of a revolutionary patented suite of s ervices and a financially strong and disciplined organization. This s uccess benefits our customers, who are looking for a stable service p rovider for their advanced messaging needs; our shareholders, who loo k for increasing financial growth and value; and our employees, who w ork in a creative, positive and success-driven environment.

History of J2 Global Communications, Inc.

j2 Global Communications, Inc. is a Hollywood, California-based provi der of messaging and communications services to both individuals and companies around the world. Originally designed as a computerized sys tem to allow travelers to access their faxes and voice messages by ph one, j2 Global now offers a range of value-added web-based unified me ssaging services, including message retrieval by either phone or emai l, web-initiated conference calls, complete fax sending and retrievin g capabilities, fax broadcasting, email marketing campaign services, and document transfer and archiving services. All told, j2 Global has 400,000 paying subscribers and about 8.5 million users of its advert ising-supported services. j2 Global is a public company listed on the NASDAQ.

Company's Genesis Dating to the Early 1990s

The man who spawned the idea for j2 Global was a musician born in Eas t Germany named Jaye Muller. Growing up in East Berlin before the Com munist system crumbled, Muller wanted to pursue a career in rock and roll but was required by the state to take night career training cour ses. He studied electronics, another area of interest and one that wo uld pay dividends later in life. By the time he was 18 and the Berlin Wall had been toppled in dramatic fashion, Muller moved to Paris, wh ere he furthered his musical career. He found a producer and manager in Jack Rieley, a former producer of the Beach Boys, and signed a rec ord deal with A&M records. In January 1993, under the name J., he released his first album, We Are the Majority. Fortune described it as "a hip-hop rant about the supposedly Gestapo-like ta keover of J.'s native East Germany by the West German government, wit h lyrics that got the album banned in Bonn." Despite the ban, the alb um did well in Europe, selling 350,000 copies. He toured widely to su pport the album, and it was during a swing through colleges in Englan d that Muller received the inspiration that led to the birth of j2 Gl obal. Because he was changing hotels every day, his faxes and voice m essages were always a day or two behind. Not only were messages getti ng lost, Muller was disturbed that the hotel staff was reading his co nfidential faxes. A technophile, Muller had a laptop with Internet ca pabilities and was always able to keep up with his email messages. He thought that voice mail and faxes should be equally portable. When h e realized that there was no such commercial service available, he an d Rieley decided to start a business to fill that need.

In downtime during the rest of the tour Muller began sketching out an idea for an email-based retrieval system for voice mail and faxes, d rawing heavily on his technical training. He then put his music caree r on hold, postponing work on his second album to turn his concept in to a business, working closely with an Australian telecommunications software development company to develop a prototype. Muller relocated to New York City and in December 1995 he and Rieley incorporated JFa x.com Inc. The need for $2 million in seed money, according to th e Scottish newspaper, the Scotsman, pitched "Muller headlong i nto a maelstrom of accountants and meetings at a point when the 23-ye ar-old musician knew virtually nothing about the ways of business. He coped with the situation, he says, by relying on a blend of instinct and 'how to' books. 'I literally picked things up as I went along. A lot of big numbers were being talked about, but for much of the time they were only on paper and didn't matter that much. I just mentally removed the zeroes from every figure they threw at me and didn't tak e anything too seriously.'"

Launching Operations in 1996

Muller and Rieley raised the necessary $2 million from a pair of "industrialists" (according to Global Finance), and commenced operations in April 1996. Within a matter of months JFax caught the a ttention of The New York Times, which in September 1996 publis hed a lengthy profile on the start-up. The service at the time cost & #36;12.50 a month plus a $15 setup fee. Already the company was o ffering local telephone numbers for New York, Los Angeles, San Franci sco, Atlanta, Silicon Valley, and London. The rest of the United Stat es could also use the service through toll-free numbers. A number of other messaging companies also were cropping up, but JFax's product a nd business model gave it a decided edge, even though the company was still months away from being able to answer voice messages through e mail or "reading" email over the phone. The technology was robust eno ugh to support business customers, and unlike the competition, JFax d id not give away its service and began to build a base of paying cust omers. Moreover, by carving out a significant share of the market in the early days, the company was gaining an edge that would make it di fficult to be dislodged later.

JFax continued to successfully raise necessary funds. In April 1997 t he company received venture funding from Orchard Capital Corporation, a firm run by Richard Ressler, who now took the reins of the start-u p. According to Barron's, Ressler was "a former Drexel Burnham banker who had spent a number of years running companies controlled by corporate raider Bennett Lebow." Muller was able to back away and return to music, although he would remain as the company's co-chairma n along with Rieley. In 2000 he would resign from that post as well, although he remained a major stockholder and continued to play a role , using his charismatic personality in making presentations for the c ompany.

Ressler raised more money for JFax in 1998, arranging with Donaldson, Lufkin & Jenrette for a private placement of stock, which accord ing to Fortune amounted to $100 million. By now JFax had i ntroduced its Telephone Access option, which allowed subscribers to a ccess messages by way of a regular or cellular phone. Using text-to-s peech software, email messages could be read aloud, and by using the telephone keypad subscribers could redirect faxes to a fax machine cl ose at hand. The company also offered local phone numbers in some 60 cities around the world, especially attractive to companies looking t o establish a foreign presence and a local identity. Customers in tha t market could use the local phone number and their messages would be instantly sent to the company wherever it was located.

Public in 1999

In 1999 Ressler was ready to take JFax public. With Donaldson, Lufkin & Jenrette, BancBoston Robertson Stephens, CIBC World Markets, a nd DLJdirect Inc. serving as underwriters, JFax sold 8.5 million shar es of common stock at $9.50 per share in July 1999. The offering netted the company $73.9 million, earmarked to pay down debt, exp and its international network, and fund advertising and marketing eff orts. Unlike other initial offerings of the late 1990s, JFax did not enjoy an immediate surge, ending the first day of trading unchanged a t $9.50. As a result a number of investors ignored the stock and it began to languish. Moreover, dot-coms were losing favor and the en tire e-commerce market was on the verge of a major collapse. Unlike o ther companies with dot-com in their names, however, JFax had paying customers and was not pursuing a business model dependent on advertis ing revenues that might or might not develop over time. Nevertheless, JFax was lumped in with the rest of the dot-com companies, leading m anagement to begin thinking about a name change.

In 2000 JFax began to use some of its stock to fuel growth through ac quisitions. It also changed CEOs. The company traded $12 million in common stock in January 2000 to acquire Carlsbad, California-based SureTalk.Com, Inc., another Internet-based messaging and communicati ons company. SureTalk's CEO, Steven J. Hamerslag, then took over as J Fax's CEO, while Ressler stayed on as chairman. Hamerslag was a seaso ned chief executive, the founder and head of MIT Technologies, a glob al provider of data storage management products and services, before joining SureTalk in July 1999. JFax completed another acquisition in March 2000, paying $1.1 million in common stock for TimeShift, In c., a San Francisco company that brought with it web-based technology that allowed JFax subscribers to create impromptu conference calls, as point-to-point calls could be expanded on the flow. Finally, in No vember 2000, JFax used another $8.2 million in stock to acquire o ne of its chief rivals, eFax, a free Internet faxing service. The ori ginal deal, announced in April, called for JFax to pay $74 millio n, a far cry from the $787 million a comparable competitor, Onebo x.com, had fetched in February 2000. But the carnage that took place on the NASDAQ in April changed everything, and eFax, running low on c ash, had no options but to take what JFax had to offer. In fact, whil e the deal was being worked out, eFax had to borrow $5 million fr om its suitor in order to keep the doors open. eFax had built up a si zable base of users, nearly three million, for its free receive-only service. Since advertising revenues were eroding in the wake of the d ot-com meltdown, and had never been high enough to make eFax commerci ally viable, the challenge for JFax was to convert as many of those p eople as possible to paying customers. JFax closed the year by droppi ng the dot-com from its name, becoming j2 Global Communications, Inc. For the year 2000, the company recorded sales of $13.9 million, resulting in a net loss of $22.2 million.

Sales continued to grow in 2001 while the company's net loss decrease d significantly, and j2 Global also received a patent on its core tec hnology (accepting incoming messages over a circuit-switched network and transmitting them over a packet-switched network), but the invest ment climate was such that none of this mattered much. The price of t he company's stock dipped into penny stock status, prompting j2 Globa l to buy back shares to support the price and to eventually engineer a 1-for-4 reverse split to decrease the number of outstanding shares and boost the price over the $1 hurdle for listing requirements. However, many of its rivals were in far worse shape, going out of bus iness to the benefit of j2 Global.

In July 2001 Hamerslag left the company, replaced as CEO by Scott M. Jarus. A former executive at Metromedia Communications, Jarus also ha d held senior positions at RCN Telecom and OnSite Access, Inc. before joining j2 Global. Jarus took over a company that was on the verge o f a significant rebound. j2 Global posted sales of $33.2 million in 2001, an increase of almost 300 percent. The company's net loss al so was cut by nearly two-thirds at $7.8 million. Sales continued to grow at a strong clip so that in the early months of 2002 j2 Globa l turned in the first profitable quarter in its history. Wall Street took notice and by the middle of the year the price of j2 Global stoc k, which stood at $5 at the start of the year, approached $17 a share, and in November topped the $27 mark. When the numbers f or 2002 were tallied, revenues had increased to $48.2 million (du e in no small measure to the company's ability to convert eFax's free subscribers into paying customers) and instead of a loss j2 Global p osted net income of $14.3 million.

To take advantage of its position in the marketplace, j2 Global resum ed its acquisition strategy, completing a pair of deals. Early in the year it bought Cyberbox, a Hong Kong-based message management compan y, gaining 40,000 local telephone numbers in Hong Kong, which j2 Glob al considered the gateway to the coveted market of mainland China. La ter in the year j2 Global acquired San Mateo-based M4Internet, provid er of corporate high-volume, personalized, permission-based email mar keting campaigns. The addition of new territory and new services help ed j2 Global to continue its upward financial trend. Sales increased to $71.6 million and net income climbed to $35.8 million.

More acquisitions followed in 2004. The Electric Mail, a Canadian-bas ed provider of outsourced email and value-added messaging services, w as purchased in March 2004. Its acquisition gave j2 Global an advance d email platform on which to build additional service offerings. The company added other technologies by acquiring the Onebox unified comm unications assets of Call Sciences, Ltd. These included full-featured unified communications software, and a "find me/follow me" feature t hat j2 Global hoped to incorporate into future product offerings. In addition, j2 Global also picked up a new group of customers. Sales im proved to $106.3 million in 2004 and the company continued to rea lize a healthy net profit, which totaled $31.6 million for the ye ar.

j2 Global completed yet another acquisition in July 2005, picking up the UniFax brand of Data on Call, LLC, and its subscriber base, as we ll as the technology for features such as dynamic delivery options vi a FTP, web-post with XML, and barcode data capture. The company would carry on without Jarus, who decided in 2005 to move on to "pursue ot her challenges," but stayed to help in a transition. In August 2005 t he company named co-presidents: Hemi Zucker, who also served as chief operating officer, and Scott Turicchi, who also held the title of ch ief financial officer. They took over a company with $100 million in cash and stock approaching $40 per share. More than likely j2 Global would remain in the mood to entertain further acquisitions.

Principal Subsidiaries: SureTalk.com, Inc.; The Electric Mail Company; Call Science, Inc.

Principal Competitors: CommTouch Software Ltd.; Critical Path, Inc.; Multi-Link Telecommunications, Inc.

Chronology

• Key Dates:
• 1995: The company is incorporated as JFax.com Inc.
• 1996: The company begins operations.
• 1999: An initial public offering of stock is made.
• 2000: The name is changed to j2 Global Communications, Inc.
• 2002: The company turns its first profit.
• 2005: CEO Scott Jarus resigns.