As filed with the Securities and Exchange Commission on July 2, 2002
Registration No. ___________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DELAWARE IVOICE, INC. 52-1750786
(State or Other Jurisdiction of Incorporation (Name of Registrant in Our (I.R.S. Employer Identification No.)
or Organization) Charter)
750 HIGHWAY 34 7373 JEROME R. MAHONEY
MATAWAN, NEW JERSEY 07747 (Primary Standard Industrial 750 HIGHWAY 34
(732) 441-7700 Classification Code Number) MATAWAN, NEW JERSEY 07747
(Address and telephone number of Principal (732) 441-7700
Executive Offices and Principal Place of (Name, address and telephone number of agent
Business) for service)
Copies to:
Clayton E. Parker, Esq. Troy J. Rillo, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP
201 S. Biscayne Boulevard, Suite 2000 201 S. Biscayne Boulevard, Suite 2000
Miami, Florida 33131 Miami, Florida 33131
(305) 539-3300 (305) 539-3300
Telecopier No.: (305) 358-7095 Telecopier No.: (305) 358-7095
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement
becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) PRICE (1) FEE
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Class A common stock, par value $0.001 per share 402,650,000 shares $0.013 $5,234,450 $481.57
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TOTAL 402,650,000 shares $0.013 $5,234,450 $481.57
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(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act
of 1933. For the purposes of this table, we have used the average of the closing bid and asked prices as of June 28, 2002.
______________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER
BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
Subject to completion, dated July 2, 2002
iVOICE, INC.
402,650,000 SHARES OF CLASS A COMMON STOCK
This prospectus relates to the sale of up to 402,650,000 shares of
iVoice's Class A common stock by certain persons who are, or will become,
stockholders of iVoice. Please refer to "Selling Stockholders" beginning on page
10. iVoice is not selling any shares of Class A common stock in this offering
and therefore will not receive any proceeds from this offering. iVoice will,
however, receive proceeds from the sale of Class A common stock under the Equity
Line of Credit. All costs associated with this registration will be borne by us.
iVoice has agreed to allow Cornell Capital Partners, L.P. to retain 5% of the
proceeds raised by us under the Equity Line of Credit.
The shares of Class A common stock are being offered for sale by the
selling stockholders at prices established on the Over-the-Counter Bulletin
Board during the term of this offering. These prices will fluctuate based on the
demand for the shares of Class A common stock.
The selling stockholders consist of:
o Cornell Capital Partners and holders of convertible debentures that
intend to sell up to 399,500,000 shares of Class A common stock.
o Other selling stockholders, who intend to sell up to 3,150,000 shares
of Class A common stock purchased in private offerings.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of
the Securities Act of 1933 in connection with the sale of Class A common stock
under the Equity Line of Credit Agreement. Cornell Capital Partners, L.P. will
pay iVoice 91% of the lowest closing bid price of our Class A common stock for
the 5 days immediately following the notice date, plus a retainage of 5% of the
amount of each advance. In addition, iVoice has agreed to pay Cornell Capital
Partners a one-time commitment fee of 5,500,000 shares of Class A common stock.
The 9% discount, the 5% retainage and the one-time commitment fee are
underwriting discounts.
iVoice has engaged Westrock Advisors, Inc., a registered broker-dealer, to
advise it in connection with the Equity Line of Credit. Westrock Advisors, Inc.
was paid a fee of 500,000 shares of iVoice's Class A common stock. Westrock
Advisors, Inc. is not an underwriter in this offering.
Brokers or dealers effecting transactions in these shares should confirm
that the shares are registered under applicable state law or that an exemption
from registration is available.
Our Class A common stock is quoted on the Over-the-Counter Bulletin Board
maintained by the NASD under the symbol "IVOC." On June 28, 2002, the last
reported sale price of our Class A common stock was $0.013 per share.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 4.
PRICE TO PUBLIC PROCEEDS TO SELLING STOCKHOLDERS
Per share $0.013 $0.013
TOTAL $0.013 $5,234,450
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With the exception of Cornell Capital Partners, L.P., which is an
"underwriter" within the meaning of the Securities Act of 1933, no other
underwriter or person has been engaged to facilitate the sale of shares of Class
A common stock in this offering. This offering will terminate 24 months after
the accompanying registration statement is declared effective by the Securities
and Exchange Commission. None of the proceeds from the sale of stock by the
selling stockholders will be placed in escrow, trust or any similar account.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ___________ ___, 2002.
TABLE OF CONTENTS
PROSPECTUS SUMMARY............................................................1
The Offering..................................................................2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION....................................3
RISK FACTORS..................................................................4
FORWARD-LOOKING STATEMENTS....................................................9
SELLING STOCKHOLDERS.........................................................10
USE OF PROCEEDS..............................................................12
DILUTION.....................................................................13
EQUITY LINE OF CREDIT........................................................14
PLAN OF DISTRIBUTION.........................................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....................17
description of business......................................................22
management...................................................................28
description of property......................................................31
LEGAL PROCEEDINGS............................................................31
PRINCIPAL STOCKHOLDERS.......................................................32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................33
Market Price of and Dividends on the Registrant's Common Equity and
Other Stockholder Matters...................................................34
Description of Securities....................................................39
EXPERTS......................................................................42
LEGAL MATTERS................................................................42
HOW TO GET MORE INFORMATION..................................................42
FINANCIAL STATEMENTS........................................................F-1
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Our audited financial statements for the fiscal year December 31, 2001,
were contained in our Annual Report on Form 10-KSB.
i
PROSPECTUS SUMMARY
OVERVIEW
iVoice, Inc. designs, manufactures, and markets innovative computerized
telephony communications systems and software incorporating speech recognition
technology that streamlines the call handling process. Our speech recognition
software products enables users to communicate more effectively and efficiently
through the integration of speech recognition into their traditional office
telephone systems with call handling applications such as automated attendant,
voice mail, unified messaging, and interactive voice response, or "IVR,". Our
products are designed to be "people oriented," with features that can be readily
used without special training or manuals. Our principal speech recognition
applications, Speech-enabled Auto Attendant, iVoiceMail, Unified Messaging, and
iVoice IVR, incorporate this philosophy. Except for iVoice IVR, which is
generally sold directly to end users due to required customization, iVoice
markets and promotes its speech enabled products through telephony reseller
channels and telephone equipment manufacturer distributor networks. This allows
iVoice to leverage those resellers' existing customer bases. We may, however,
sell direct to end users in geographic locations where an existing dealer
relationship does not exist.
We recently announced commercial availability of digital connectivity for
our Speech Enabled Auto Attendant, VoiceMail and Unified Messaging applications.
The migration to a digital platform should enable us to distribute our speech
recognition solutions to mid and larger sized entities that support and prefer
digital connectivity, which we feel could greatly expand our potential customer
base. The Private Branch Exchanges or "PBX" already supporting digital
technology include Avaya(R) Difinity(R), Nortel(R) NorStar(R) and Meridian(R),
NEC(R), and Siemens(R) HICOM(R), representing a significant portion of PBX
market share. Compared to other integration methods, digital integration offers
more features and greater reliability.
About Us
Our principal office is located at 750 Highway 34, Matawan, New Jersey
07747. Our telephone number is (732) 441-7700.
The Offering
This offering relates to the sale of Class A common stock by certain
persons who are, or will become, stockholders of iVoice. The selling
stockholders consist of:
o Cornell Capital Partners and holders of convertible debentures that
intend to sell up to 399,500,000 shares of Class A common stock.
o Other selling stockholders, who intend to sell up to 3,150,000 shares
of Class A common stock purchased in private offerings.
Pursuant to the Equity Line of Credit, we may, at our discretion,
periodically issue and sell to Cornell Capital Partners, L.P. shares of Class A
common stock for a total purchase price of $5.0 million. The amount of each
advance is subject to an aggregate maximum advance amount of $225,000 in any
thirty-day period, provided that each of the initial four advances may not
exceed $150,000 and thereafter may not exceed $75,000. Cornell Capital Partners,
L.P. will purchase the shares of Class A common stock for a 9% discount to the
prevailing market price of our common stock. In addition, Cornell Capital
Partners will retain 5% of each advance under the Equity Line of Credit, and
received a one-time commitment fee of 5,500,000 shares of Class A common stock.
Cornell Capital Partners intends to sell any shares purchased under the Equity
Line of Credit at the then prevailing market price. Among other things, this
prospectus relates to the shares of Class A common stock to be issued under the
Equity Line of Credit.
iVoice has engaged Westrock Advisors, Inc., a registered broker-dealer, to
advise it in connection with the Equity Line of Credit. Westrock Advisors, Inc.
was paid a fee of 500,000 shares of iVoice's Class A common stock. Westrock
Advisors, Inc. is not an underwriter in this offering.
CLASS A COMMON STOCK OFFERED 402,650,000 shares by selling stockholders
OFFERING PRICE Market price
CLASS A COMMON STOCK OUTSTANDING
BEFORE THE OFFERING(1) 168,995,285 shares of Class A common stock
CLASS B COMMON STOCK OUTSTANDING 2,316,675 shares of Class B common stock
BEFORE THE OFFERING (which are convertible into 231,667,500
shares of Class A common stock)
USE OF PROCEEDS We will not receive any proceeds of the
shares offered by the selling
stockholders. Any proceeds we receive from
the sale of common stock under the Equity
Line of Credit will be used for sales and
marketing, research and development and
general working capital purposes. See "Use
of Proceeds."
RISK FACTORS The securities offered hereby involve a
high degree of risk and immediate
substantial dilution. See "Risk Factors"
and "Dilution."
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(1) Excludes options and warrants to purchase 8,474,343 shares of Class A common
stock, Class B common stock convertible into 231,667,500 shares of Class A
common stock, debentures convertible into 34,487,895 shares of Class A common
stock (at an assumed conversion price of $0.0152 per share) and up to
377,552,630 shares of Class A common stock to be issued under the Equity Line of
Credit, which amount may be higher or lower if more or less shares are required
upon the conversion of the debentures).
2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
For the Year
For the Three For the Three Ended
Months Ended Months Ended December 31,
March 31, 2002 March 31, 2001 2001
-------------- -------------- ------------
STATEMENT OF OPERATION DATA:
Sales, net $ 135,663 $ 82,340 $ 425,948
Cost of sales 38,148 45,686 167,229
Gross profit 97,515 36,654 258,719
Selling, general and
administrative expenses 894,159 761,288 3,035,992
Loss from operations (796,644) (724,634) (2,777,273)
Net loss $ (841,172) $ (765,178) $ (3,447,434)
Loss per share - basic
and diluted $ (0.01) $ (0.01) $ (0.03)
DECEMBER 31,
MARCH 31, 2002 2001
-------------- ------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 172,185 $ 85,543
Accounts receivable, net 85,143 37,284
Inventory 13,717 20,586
Prepaid expenses and other current
assets 72,436 331,361
Total current assets 343,481 474,774
Property and equipment, net 99,101 106,585
Other receivable 67,650 67,650
Software license costs, net 244,800 306,726
Intangible assets, net 269,578 271,299
Deposits and other assets 13,900 13,900
Total assets $ 1,038,510 $ 1,241,635
Accounts payable and accrued expenses 1,465,237 1,454,055
Capital leases payable - current 36,920 35,018
Due to related parties 776,419 806,419
Convertible debentures 194,800 359,800
Billings in excess of estimated costs of
uncompleted contracts 49,343 43,617
Total current liabilities 2,522,719 2,698,909
Long-term debt 3,593 13,928
Total liabilities 2,526,672 2,712,837
Common stock 1,180,195 1,175,314
Additional paid-in capital 10,674,440 10,568,103
Subscriptions receivable (41,956) (783,750)
Treasury stock (28,800) --
Accumulated deficit (13,272,041) 12,430,869)
Total stockholders' deficiency (1,488,162) (1,471,202)
Total liabilities and stockholders' deficiency $ 1,038,510 $ 1,241,635
3
RISK FACTORS
iVoice is subject to various risks that may materially harm its business,
financial condition and results of operations. YOU SHOULD CAREFULLY CONSIDER THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS FILING
BEFORE DECIDING TO PURCHASE OUR CLASS A COMMON STOCK. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR CLASS
A COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
We have historically lost money. In the quarter ended March 31, 2002 and
the year ended December 31, 2001, we had net losses of $(841,172) and
$(3,447,434), respectively, and $(0.01) or $(0.03) per share, respectively.
Future losses are likely to occur. Accordingly, we may experience significant
liquidity and cash flow problems because our operations are not profitable. No
assurances can be given that we will be successful in reaching or maintaining
profitable operations.
WE WILL NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS
We have relied on significant external financing to fund our operations.
Such financing has historically come from a combination of borrowings and sale
of securities from third parties and funds provided by certain officers and
directors. We cannot assure you that financing whether from external sources or
related parties will be available if needed or on favorable terms. Our inability
to obtain adequate financing will result in the need to curtail business
operations. Any of these events would be materially harmful to our business and
may result in a lower stock price. We will need to raise additional capital to
fund our anticipated operating expenses and future expansion. Among other
things, external financing may be required to cover our operating costs.
WE HAVE BEEN THE SUBJECT OF A GOING CONCERN OPINION FROM OUR INDEPENDENT
AUDITORS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS
Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with the year ended December 31, 2001
financial statements, which states that iVoice had losses and negative cash
flows from operations for the years ended December 31, 2001 and 2000 and as of
those dates had negative working capital which raises substantial doubt about
its ability to continue as a going concern. Our financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
We expect to be able to continue operations for six months with the cash
currently on hand.
WE HAVE A WORKING CAPITAL DEFICIT, WHICH MEANS THAT OUR CURRENT ASSETS ON MARCH
31, 2002 WERE NOT SUFFICIENT TO SATISFY OUR CURRENT LIABILITIES ON THAT DATE
We had a working capital deficit of $2,179,238 at March 31, 2002, which
means that our current liabilities exceeded our current assets on March 31, 2002
by $2,179,238. Current assets are assets that are expected to be converted into
cash within one year and, therefore, may be used to pay current liabilities as
they become due. Our working capital deficit means that our current assets on
March 31, 2002 were not sufficient to satisfy all of our current liabilities on
that date.
THE VOICE-RECOGNITION BUSINESS IS IN ITS INFANCY
Our prospects are subject to the difficulties frequently encountered by
companies in the early stage of development in new and evolving markets. These
difficulties include the following:
o substantial delays and expenses related to testing and developing of
our new products;
o marketing and distribution problems encountered in connection with our
new and existing products and technologies;
o competition from larger and more established companies;
4
o delays in reaching our marketing goals;
o difficulty in recruiting qualified employees for management and other
positions;
o lack of sufficient customers, revenues and cash flow; and
o limited financial resources.
We may continue to face these and other difficulties in the future, some
of which may be beyond our control. If we are unable to successfully address
these problems, our business will suffer and our stock price could decline.
THE PRICE OF OUR STOCK MAY BE AFFECTED BY A LIMITED TRADING VOLUME AND MAY
FLUCTUATE SIGNIFICANTLY
Prior to this offering, there has been a limited public market for our
Class A common stock and there can be no assurance that an active trading market
for our stock will develop. An absence of an active trading market could
adversely affect our stockholders' ability to sell our Class A common stock in
short time periods, or possibly at all. Our Class A common stock has
experienced, and is likely to experience in the future, significant price and
volume fluctuations which could adversely affect the market price of our stock
without regard to our operating performance. In addition, we believe that
factors such as quarterly fluctuations in our financial results and changes in
the overall economy or the condition of the financial markets could cause the
price of our Class A common stock to fluctuate substantially.
OUR TECHNOLOGIES AND PRODUCTS COULD CONTAIN DEFECTS OR OTHERWISE NOT WORK AS
EXPECTED. WE MAY INCUR SIGNIFICANT EXPENSES IN ATTEMPTING TO CORRECT THESE
DEFECTS OR IN DEFENDING LAWSUITS OVER ANY SUCH DEFECTS
Voice-recognition products are not currently accurate in every instance,
and may never be. Furthermore, we could inadvertently release products and
technologies that contain defects. In addition, third-party technology that we
include in our products could contain defects. We may incur significant expenses
to correct such defects. Clients who are not satisfied with our products or
services could bring claims against us for substantial damages. Such claims
could cause us to incur significant legal expenses and, if successful, could
result in the plaintiffs being awarded significant damages.
OUR SUCCESS IS HIGHLY DEPENDANT UPON OUR ABILITY TO COMPETE AGAINST COMPETITORS
THAT HAVE SIGNIFICANTLY GREATER RESOURCES THAN WE DO
The call-processing and voice-recognition industries are highly
competitive, and we believe that this competition will intensify. The segment of
the voice-recognition industry that supplies call-processing systems to
businesses is also extremely competitive. Many of our competitors have longer
operating histories, significantly greater financial, technical, product
development, and marketing resources, greater name recognition or larger client
bases than we do. For example, industry analysts recognize Nuance
Communications, Inc. and SpeechWorks International, Inc. as the market leaders.
Customers of Nuance include American Airlines, Bell Atlantic, Charles Schwab,
Sears and UPS. Nuance offers products through industry partners, platform
providers, and value-added resellers around the world. Corporate investors in
Nuance include Cisco Systems, Intel, Motorola, SAIC, Siebel Systems, SRI
International, Sun Microsystems, and Visa International. SpeechWorks customers
include America Online, First Union National Bank, Microsoft, Thrifty Car Rental
and United Airlines.
OUR SUCCESS IS HIGHLY DEPENDANT UPON OUR ABILITY TO PROTECT OUR TRADEMARKS AND
PROPRIETARY RIGHTS
To succeed, we will need to protect our intellectual property rights. To
date, we have filed ten patent applications for internally developed
applications. No assurances can be given that these patent applications will be
approved. To maintain the confidentiality of our trade secrets, we require our
employees, consultants, and distributors to enter into confidentiality
agreements, but these agreements afford us only limited protection and can be
time-consuming and expensive to obtain and maintain. Monitoring for unauthorized
use of our intellectual property is difficult, and we cannot be certain that the
steps we have taken will be effective to prevent unauthorized use. We may have
to litigate to enforce our trade secrets. Such lawsuits, regardless of their
merits, would likely be time consuming and expensive and would divert
managements' time and attention away from our business.
5
OUR SOLE DIRECTOR CONTROLS A SIGNIFICANT PERCENTAGE OF STOCK
As of June 30, 2002, Jerome R. Mahoney, our President, Chief Executive
Officer and sole director, owned approximately 67.3% shares of our Class A
common stock. Mr. Mahoney is able to influence all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership, which is not subject to
any voting restrictions, could limit the price that investors might be willing
to pay for our Class A common stock. In addition, Mr. Mahoney is in a position
to impede transactions that may be desirable for other stockholders. He could,
for example, make it more difficult for anyone to take control of us.
WE ARE IN BREACH OF OBLIGATIONS RELATING TO OUR 12% SENIOR CONVERTIBLE
DEBENTURES
Holders of our 12% senior convertible debentures have told us that we have
breached a number of the terms of the debentures and the related registration
rights agreement and security agreement. Breach of the terms of the debentures
could result in the following: (i) a 20% increase in the principal amount of the
debentures; (ii) an increase in the debentures' annual interest rate to 15%
commencing seven days after the date of default through the date that the
debentures are converted or repaid; and (iii) the debentures immediately
becoming due in full. Additionally, we have not registered the shares issuable
upon conversion of the debentures. This could result in our being required to
pay liquidated damages of 2.5% per month of the principal amount of the
debentures from November 7, 1999, the date on which we were required to register
the shares. These increased interest amounts and liquidating damages have not
been accrued and do not appear on our financial statements. We anticipate having
to issue additional shares to settle the debenture holders claims arising from
the default on the 12% senior convertible debentures.
We have settled with one previous holder of debentures regarding the
interest and penalties demanded by this former holder. As part of this
settlement, we issued 450,000 shares of our Class A common stock to this former
holder in full satisfaction of its claims.
We are endeavoring to settle with the remaining debenture holders. If we
are unable to do so, we may be forced to pay the debenture holders amounts
substantially in excess of our original obligations under the debentures.
OUR CLASS A COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS
Our Class A common stock is deemed to be "penny stock" as that term is
defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934.
These requirements may reduce the potential market for our Class A common stock
by reducing the number of potential investors. This may make it more difficult
for investors in our Class A common stock to sell shares to third parties or to
otherwise dispose of them. This could cause our stock price to decline. Penny
stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00
per share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last three
years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor.
WE COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL
Our success largely depends on the efforts and abilities of key executives
and consultants, including Jerome R. Mahoney, our Chief Executive Officer and
President, and Kevin Whalen, our Chief Financial Officer. The loss of the
services of either Mr. Mahoney or Mr. Whalen could materially harm our business
because of the cost and time necessary to replace and train a replacement. Such
6
a loss would also divert management attention away from operational issues. We
presently maintain a $5,000,000 key-man term life insurance policy on Mr.
Mahoney.
RISKS RELATED TO THIS OFFERING
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS
Sales of our common stock in the public market following this offering
could lower the market price of our Class A common stock. Sales may also make it
more difficult for us to sell equity securities or equity-related securities in
the future at a time and price that our management deems acceptable or at all.
Of the 168,995,285 shares of Class A common stock outstanding as of June 30,
2002, 119,697,371 shares are, or will be, freely tradable without restriction,
unless held by our "affiliates." The remaining 42,297,914 shares of Class A
common stock held by existing stockholders are "restricted securities" and may
be resold in the public market only if registered or pursuant to an exemption
from registration. Some of these shares may be resold under Rule 144.
In addition, we have outstanding options and warrants to purchase up to
8,474,343 shares of our common stock, Class B common stock convertible into
231,667,500 shares of Class A common stock, and debentures convertible into
34,487,895 shares of Class A common stock (assuming a conversion price of $0.019
per share).
Upon issuance of the maximum number of shares being registered under the
Equity Line of Credit, there will be an additional 394,000,000 shares of Class A
common stock outstanding (including the shares available for issuance upon
conversion of the debentures). All of these shares of Class A common stock may
be immediately resold in the public market upon effectiveness of the
accompanying registration statement and the sale to the investor under the terms
of the Equity Line of Credit agreement.
EXISTING STOCKHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION FROM OUR SALE OF
SHARES UNDER THE EQUITY LINE OF CREDIT
The sale of shares pursuant to the Equity Line of Credit will have a
dilutive impact on our stockholders. As a result, our net income per share could
decrease in future periods, and the market price of our common stock could
decline. In addition, for a given advance, we will need to issue a greater
number of shares of Class A common stock under the Equity Line of Credit as our
stock price declines. If our stock price is lower, then our existing
stockholders would experience greater dilution.
THE INVESTOR UNDER THE LINE OF CREDIT WILL PAY LESS THAN THE THEN-PREVAILING
MARKET PRICE OF OUR COMMON STOCK
The common stock to be issued under the Equity Line of Credit will be
issued at a 9% discount to the lowest closing bid price for the 5 days
immediately following the notice date of an advance. These discounted sales
could cause the price of our common stock to decline.
THE SELLING STOCKHOLDERS INTEND TO SELL THEIR SHARES OF COMMON STOCK IN THE
PUBLIC MARKET, WHICH SALES MAY CAUSE OUR STOCK PRICE TO
DECLINE
The selling stockholders intend to sell the shares of common stock being
registered in this offering in the public market. That means that up to
402,650,000 shares of Class A common stock, the number of shares being
registered in this offering, may be sold. Such sales may cause our stock price
to decline.
THE SALE OF OUR STOCK UNDER OUR EQUITY LINE OF CREDIT COULD ENCOURAGE SHORT
SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE TO THE FURTHER DECLINE OF OUR
STOCK PRICE
The significant downward pressure on the price of our Class A common stock
caused by the sale of material amounts of Class A common stock under the Equity
Line of Credit could encourage short sales by third parties. Such an event could
place further downward pressure on the price of our common stock.
7
OUR CLASS A COMMON STOCK HAS BEEN RELATIVELY THINLY TRADED AND WE CANNOT PREDICT
THE EXTENT TO WHICH A TRADING MARKET WILL DEVELOP
Before this offering, our Class A common stock has traded on the
Over-the-Counter Bulletin Board. Our Class A common stock is thinly traded
compared to larger more widely known companies. Thinly traded Class A common
stock can be more volatile than common stock trading in an active public market.
We cannot predict the extent to which an active public market for the Class A
common stock will develop or be sustained after this offering.
THE PRICE YOU PAY IN THIS OFFERING WILL FLUCTUATE AND MAY BE HIGHER OR LOWER
THAN THE PRICES PAID BY OTHER PEOPLE PARTICIPATING IN THIS OFFERING
The price in this offering will fluctuate based on the prevailing market
price of the Class A common stock on the Over-the-Counter Bulletin Board.
Accordingly, the price you pay in this offering may be higher or lower than the
prices paid by other people participating in this offering.
WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS UNDER THE EQUITY LINE OF CREDIT
WHEN NEEDED
We are dependent on external financing to fund our operations. Our
financing needs are expected to be provided from the Equity Line of Credit, in
large part. No assurances can be given that such financing will be available in
sufficient amounts or at all when needed.
THE ISSUANCE OF SHARES OF CLASS A COMMON STOCK UNDER THIS OFFERING COULD RESULT
IN A CHANGE OF CONTROL
We are registering 402,650,000 shares of Class A common stock in this
offering. These shares represent 71% of our outstanding Class A common stock,
and we anticipate all such shares will be sold in this offering. If all or a
significant block of these shares are held by one or more stockholders working
together, then such stockholder or stockholders would have enough shares to
assume control of iVoice by electing its or their own directors.
8
FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus may
contain forward-looking statements. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology.
This prospectus contains forward-looking statements, including statements
regarding, among other things, (a) our projected sales and profitability, (b)
our growth strategies, (c) anticipated trends in our industry, (d) our future
financing plans and (e) our anticipated needs for working capital. These
statements may be found under "Management's Discussion and Analysis or Plan of
Operations" and "Business," as well as in this prospectus generally. Actual
events or results may differ materially from those discussed in forward-looking
statements as a result of various factors, including, without limitation, the
risks outlined under "Risk Factors" and matters described in this prospectus
generally. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this prospectus will in fact
occur.
9
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. The table identifies the selling stockholders. None of the selling
stockholders have held a position or office, or had any other material
relationship, with iVoice, except as follows:
o Cornell Capital Partners, L.P. is the investor under the Equity Line
of Credit. All investment decisions of Cornell Capital Partners are
made by its general partner, Yorkville Advisors, LLC. Mark Angelo, the
managing member of Yorkville Advisors, makes the investment decisions
on behalf of Yorkville Advisors.
o Westrock Advisors, Inc. is a registered broker-dealer that has been
retained by iVoice. It has provided advice to iVoice in connection
with the Equity Line of Credit. For its services, Westrock Advisors,
Inc. received 500,000 shares of Class A common stock, which shares are
being registered in this offering. Greg Martino, President of Westrock
Advisors, Inc., makes the investment decisions on behalf of Westrock
Advisors.
o Lawrence A. Muenz provides legal services to iVoice. Mr. Muenz
received 3,150,000 shares of Class A common stock for services
provided to iVoice. These services were not provided in connection
with the Equity Line of Credit or this offering.
The table follows:
Percentage Percentage
of of Percentage
Outstanding Outstanding of
Shares Shares Shares To Outstanding
Beneficially Beneficially Shares to be Be Acquired Shares
Owned Owned Acquired under the Shares to Beneficially
Selling Before Before under the Line of be Sold in Owned After
Stockholder Offering Offering Line of Credit Credit(1) the Offering Offering
- ------------------------- ---------------- --------------- ----------------- -------------- ---------------- ---------------
Cornell Capital Partners,
L.P. 15,368,421(2) 8.6% 377,552,630(3) 69.1% 392,921,051 0.0%
Michael Dahlquist 657,895(4) * -- -- 657,895 0.0%
Ronald Horner 657,895(4) * -- -- 657,895 0.0%
Jon Cummings 657,895(4) * -- -- 657,895 0.0%
Kenneth and Janice Rogers 657,895(4) * -- -- 657,895 0.0%
Kenneth Rogers, Keogh 1,315,789(4) * -- -- 1,315,789 0.0%
Irwin L. Rogers 657,895(4) * -- -- 657,895 0.0%
Samuel Henderson 657,895(4) * -- -- 657,895 0.0%
Elmer Foin 657,895(4) * -- -- 657,895 0.0%
Steven LeMott 657,895(4) * -- -- 657,895 0.0%
Westrock Advisors, Inc. 500,000(5) * -- -- 500,000 0.0%
Lawrence A. Muenz 3,150,000(5) 1.9% -- -- 2,650,000 *
Total 25,597,370 13.8% 377,552,630 69.1% 402,650,000 0.0%
_________________________________________
* Less than 1%.
(1) Applicable percentage of ownership is based on 168,995,285 shares of Class
A common stock outstanding as of June 30, 2002, together with securities
exercisable or convertible into shares of Class A common stock within 60
days of June 30, 2002 for each stockholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities. Shares of Class A common stock subject to securities
exercisable or convertible into shares of Class A common stock that are
currently exercisable or exercisable within 60 days of June 30, 2002 are
deemed to be beneficially owned by the person holding such securities for
10
the purpose of computing the percentage of ownership of such person, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) This consists of 5,500,000 shares of Class A common stock and debentures
convertible into 9,868,421 shares of Class A common stock. The number of
shares of Class A common stock underlying debentures may be increased by
the number of shares of Class A common stock being registered for the
Equity Line of Credit.
(3) The number of shares of Class A common stock available under the Equity
Line of Credit may be increased to a maximum of 394,000,000 shares of Class
A common stock if none of the outstanding debentures are converted into
shares of Class A common stock.
(4) Represents shares of Class A common stock underlying Convertible
Debentures. The number of shares of Class A common stock underlying
debentures may be increased by the number of shares of Class A common stock
being registered for the Equity Line of Credit.
(5) Represents shares of Class A common stock.
11
USE OF PROCEEDS
This prospectus relates to shares of our Class A common stock that may be
offered and sold from time to time by certain selling stockholders. There will
be no proceeds to us from the sale of shares of Class A common stock in this
offering. However, we will receive the proceeds from the sale of shares of Class
A common stock to Cornell Capital Partners, L.P. under the Equity Line of
Credit. The purchase price of the shares purchased under the Equity Line of
Credit will be equal to 91% of the lowest closing bid price of our common stock
on the Over-the-Counter Bulletin Board for the 5 days immediately following the
notice date. Cornell Capital will retain 5% of each advance.
For illustrative purposes, iVoice has set forth below its intended use of
proceeds for the range of net proceeds indicated below to be received under the
Equity Line of Credit. The table assumes estimated offering expenses of $85,000,
plus the 5% retainage.
GROSS PROCEEDS $2,500,000 $5,000,000
NET PROCEEDS $2,290,000 $4,665,000
USE OF PROCEEDS: AMOUNT AMOUNT
---------------------------------------------------------------
Sales and marketing $800,000 $1,550,000
Research and development $580,000 $1,100,000
General Working Capital $910,000 $2,015,000
---------- ----------
TOTAL $2,290,000 $4,665,000
========== ==========
12
DILUTION
The net tangible book value of iVoice as of March 31, 2002 was
($2,002,540) or ($0.0126) per share of Class A common stock. Net tangible book
value per share is determined by dividing the tangible book value of iVoice
(total tangible assets less total liabilities) by the number of outstanding
shares of our common stock. Since this offering is being made solely by the
selling stockholders and none of the proceeds will be paid to iVoice, our net
tangible book value will be unaffected by this offering. Our net tangible book
value, however, will be impacted by the common stock to be issued under the
Equity Line of Credit. The amount of dilution will depend on the offering price
and number of shares to be issued under the Equity Line of Credit. The following
example shows the dilution to new investors at an offering price of $0.02 per
share.
If we assume that iVoice had issued 250,000,000 shares of Class A common
stock under the Equity Line of Credit at an assumed offering price of $0.02 per
share (i.e., the maximum number of shares needed in order to raise a total of
$5.0 million under the equity line of credit), less a retention fee of $250,000
and offering expenses of $85,000, our net tangible book value as of March 31,
2002 would have been $2,662,460 or $0.0065 per share. Such an offering would
represent an immediate increase in net tangible book value to existing
stockholders of $0.0191 per share and an immediate dilution to new stockholders
of $0.0135 per share, or 67.5%. The following table illustrates the per share
dilution:
Assumed public offering price per share $0.02
Net tangible book value per share before
this offering $(0.0126)
Increase attributable to new investors $0.0191
---------
Net tangible book value per share after
this offering $0.0065
-------
Dilution per share to new stockholders $0.0135
=======
The offering price of our Class A common stock is based on the
then-existing market price. In order to give prospective investors an idea of
the dilution per share they may experience, we have prepared the following table
showing the dilution per share at various assumed offering prices:
ASSUMED NO. OF SHARES TO BE DILUTION PER SHARE TO
OFFERING PRICE ISSUED NEW INVESTORS
-------------- ------------------- ---------------------
$0.0200 250,000,000 $0.0135
$0.0150 333,333,333 $0.0096
$0.0100 394,000,000(1) $0.0070
$0.0050 394,000,000(1) $0.0054
_____________________
(1) This represents the maximum number of shares of Class A common stock that
will be registered under the Equity Line of Credit.
13
EQUITY LINE OF CREDIT
SUMMARY. In June 2002, we entered into an Equity Line of Credit with
Cornell Capital Partners, L.P. Pursuant to the Equity Line of Credit, we may, at
our discretion, periodically sell to Cornell Capital Partners shares of Class A
common stock for a total purchase price of up to $5.0 million. For each share of
Class A common stock purchased under the Equity Line of Credit, Cornell Capital
Partners will pay 91% of the lowest closing bid price on the Over-the-Counter
Bulletin Board or other principal market on which our common stock is traded for
the 5 days immediately following the notice date. Cornell Capital Partners is a
private limited partnership whose business operations are conducted through its
general partner, Yorkville Advisors, LLC. Further, Cornell Capital Partners will
retain 5% of each advance under the Equity Line of Credit. In addition, iVoice
engaged Westrock Advisors, Inc., a registered broker-dealer, to advise it in
connection with the Equity Line of Credit. For its services, Westrock Advisors
received 500,000 shares of iVoice's Class A common stock. The effectiveness of
the sale of the shares under the Equity Line of Credit is conditioned upon us
registering the shares of Class A common stock with the Securities and Exchange
Commission. The costs associated with this registration will be borne by us.
EQUITY LINE OF CREDIT EXPLAINED. Pursuant to the Equity Line of Credit, we
may periodically sell shares of Class A common stock to Cornell Capital
Partners, L.P. to raise capital to fund our working capital needs. The periodic
sale of shares is known as an advance. We may request an advance every 7 trading
days. A closing will be held 6 trading days after such written notice at which
time we will deliver shares of Class A common stock and Cornell Capital
Partners, L.P. will pay the advance amount.
We may request advances under the Equity Line of Credit once the
underlying shares are registered with the Securities and Exchange Commission.
Thereafter, we may continue to request advances until Cornell Capital Partners
has advanced $5.0 million or two years after the effective date of the
accompanying registration statement, whichever occurs first.
The amount of each advance is subject to an aggregate maximum advance
amount of $250,000 in any thirty-day period, provided, that each of the initial
four advances may not exceed $150,000 and thereafter may not exceed $75,000. The
amount available under the Equity Line of Credit is not dependent on the price
or volume of our Class A common stock.
We cannot predict the actual number of shares of Class A common stock that
will be issued pursuant to the Equity Line of Credit, in part, because the
purchase price of the shares will fluctuate based on prevailing market
conditions and we have not determined the total amount of advances we intend to
draw. Nonetheless, we can estimate the number of shares of our Class A common
stock that will be issued using certain assumptions. For example, if iVoice
issued 250,000,000 shares of Class A common stock to Cornell Capital Partners,
L.P. (i.e. the number of shares needed to raise the maximum amount available
under the Equity Line of Credit at a price of $0.02 per share) for gross
proceeds of $5,000,000. These shares would represent 59.7% of our outstanding
Class A common stock upon issuance.
iVoice is registering a total of 394,000,000 shares of Class A common
stock for the sale under the Equity Line of Credit and the conversion of
debentures. The issuance of shares under the Equity Line of Credit may result in
a change of control. That is, up to 394,000,000 shares of Class A common stock
could be issued under the Equity Line of Credit (i.e., the maximum number of
shares being registered in the accompanying registration statement for the
Equity Line of Credit and Debentures). If all or a significant block of these
shares are held by one or more stockholders working together, then such
stockholder or stockholders would have enough shares to assume control of iVoice
by electing its or their own directors.
Proceeds used under the Equity Line of Credit will be used in the manner
set forth in the "Use of Proceeds" section of this prospectus. We cannot predict
the total amount of proceeds to be raised in this transaction because we have
not determined the total amount of the advances we intend to draw.
We expect to incur expenses of approximately $85,000 consisting primarily
of professional fees incurred in connection with this registration. In addition,
Cornell Capital Partners will retain 5% of each advance. In connection with the
Equity Line of Credit, iVoice also paid Cornell Capital Partners a one-time
Commitment fee of 5,500,000 shares of Class A common stock. In addition, iVoice
issued 500,000 shares of common stock to Westrock Advisors, Inc., a registered
broker-dealer, as a placement agent fee.
14
PLAN OF DISTRIBUTION
The selling stockholders have advised us that the sale or distribution of
iVoice's Class A common stock owned by the selling stockholders may be effected
directly to purchasers by the selling stockholders or by pledgees, donees,
transferees or other successors in interest, as principals or through one or
more underwriters, brokers, dealers or agents from time to time in one or more
transactions (which may involve crosses or block transactions) (i) on the
over-the-counter market or in any other market on which the price of iVoice's
shares of Class A common stock are quoted or (ii) in transactions otherwise than
on the over-the-counter market or in any other market on which the price of
iVoice's shares of Class A common stock are quoted. Any of such transactions may
be effected at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, at varying prices determined at the time of
sale or at negotiated or fixed prices, in each case as determined by the selling
stockholders or by agreement between the selling stockholders and underwriters,
brokers, dealers or agents, or purchasers. If the selling stockholders effect
such transactions by selling their shares of iVoice's Class A common stock to or
through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers or agents may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders or commissions from purchasers of
Class A common stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The selling stockholders and any brokers, dealers or agents that
participate in the distribution of the Class A common stock may be deemed to be
underwriters, and any profit on the sale of Class A common stock by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of
the Securities Act of 1933 in connection with the sale of Class A common stock
under the Equity Line of Credit. Cornell Capital Partners, L.P. will pay iVoice
91% of the lowest closing bid price of iVoice's Class A common stock on the
Over-the-Counter Bulletin Board or other principal trading market on which our
Class A common stock is traded for the 5 days immediately following the advance
date. In addition, Cornell Capital Partners will retain 5% of the proceeds
received by iVoice under the Equity Line of Credit, plus a one-time commitment
fee of 5,500,000 shares of Class A common stock. The 9% discount, the 5%
retainage and the commitment fee are underwriting discounts. In addition, iVoice
engaged Westrock Advisors, Inc., a registered broker-dealer, to advise it in
connection with the Equity Line of Credit. For its services, Westrock Advisors,
Inc. received 500,000 shares of iVoice's common stock.
Cornell Capital Partners, L.P. was formed in February 2000 as a Delaware
limited partnership. Cornell Capital Partners is a domestic hedge fund in the
business of investing in and financing public companies. Cornell Capital
Partners does not intend to make a market in iVoice's stock or to otherwise
engage in stabilizing or other transactions intended to help support the stock
price. Prospective investors should take these factors into consideration before
purchasing iVoice's common stock.
Under the securities laws of certain states, the shares of Class A common
stock may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all fifty states. In addition,
in certain states the shares of Class A common stock may not be sold unless the
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
We will pay all the expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
have agreed to indemnify Cornell Capital Partners and its controlling persons
against certain liabilities, including liabilities under the Securities Act. We
estimate that the expenses of the offering to be borne by us will be
approximately $85,000, as well as retention of 5% of the gross proceeds received
under the Equity Line of Credit. In addition, iVoice engaged Westrock Advisors,
Inc., a registered broker-dealer, to advise it in connection with the Equity
Line of Credit. For its services, Westrock Advisors, Inc. received 500,000
shares of iVoice's Class A common stock. The estimated offering expenses consist
of: a SEC registration fee of $482, printing expenses of $2,500, accounting fees
of $5,000, legal fees of $57,500 and miscellaneous expenses of $19,518. We will
not receive any proceeds from the sale of any of the shares of common stock by
the selling stockholders. We will, however, receive proceeds from the sale of
Class A common stock under the Equity Line of Credit.
15
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Exchange Act will apply to purchases and
sales of shares of Class A common stock by the selling stockholders, and that
there are restrictions on market-making activities by persons engaged in the
distribution of the shares. Under Registration M, the selling stockholders or
their agents may not bid for, purchase, or attempt to induce any person to bid
for or purchase, shares of Class A common stock of iVoice while such selling
stockholders are distributing shares covered by this prospectus. Accordingly,
except as noted below, the selling stockholders are not permitted to cover short
sales by purchasing shares while the distribution is taking place. Cornell
Capital Partners can cover any short positions only with shares received from
iVoice under the Equity Line of Credit. The selling stockholders are advised
that if a particular offer of Class A common stock is to be made on terms
constituting a material change from the information set forth above with respect
to the Plan of Distribution, then, to the extent required, a post-effective
amendment to the accompanying registration statement must be filed with the
Securities and Exchange Commission.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF IVOICE AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS FILING. STATEMENTS IN THIS MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION AND ELSEWHERE IN THIS PROSPECTUS THAT ARE NOT
STATEMENTS OF HISTORICAL OR CURRENT FACT CONSTITUTE "FORWARD-LOOKING
STATEMENTS."
OVERVIEW
To date, iVoice has incurred substantial losses, does not produce enough
cash from operations to cover its operating cash requirements and will require
additional financing in the next twelve months. This financing may include the
issuance of common stock or instruments that are convertible into common stock,
which have a dilutive effect on current shareholders. We are unsure whether we
will be able to secure sufficient financing to meet our current operating
requirements. Other than the Equity Line of Credit, we have no commitments for
capital.
Recently, iVoice has announced that it has met interoperability standards
with several leading PC-based Private Branch Exchange (or PBX) manufacturers for
its award winning product, iVoice Speech-enabled Auto Attendant. To date,
rigorous testing and compatibility studies have developed into co-marketing
arrangements with 3Com, for its NBX(R) platform, Artisoft for its TeleVantage(R)
Communication server, and AltiGen's AltiServ(R) phone systems. These recent
platform integrations add to several others previously completed including a
Siemens Ready(TM) certification, NEC Fusion Strategic Alliance and Sprint North
Supply. Through these co-marketing arrangements and strategic alliances, iVoice
will attempt to capture significant market share in the business communication
solution market by expanding distribution through these manufacturers'
authorized reseller networks.
iVoice is currently focused on developing its dealer and reseller
channels. Management believes it can leverage already existing equipment
manufacturers reseller channels by integrating its speech recognition software
directly into their established revenue producing product lines. Each
manufacturer has an estimated 150-600 authorized dealers and resellers
throughout North America. The recent introduction of an entirely TAPI (Telephone
Application Program Interface) based Speech-enabled Auto Attendant and Name
Dialer, allows integration into different PBX systems without the need for
additional hardware devices. These integration changes should provide for
greater appeal to telephony re-sellers allowing for more economical customer
installations with no change in software pricing iVoice charges for its
software.
Beginning in January 2002, in order to promote the iVoice Speech-enabled
Auto Attendant, iVoice began a promotional program whereby it would sell to
authorized dealers and resellers of 3Com, Artisoft and AltiGen a demonstration
copy of Speech-enabled Auto Attendant software.
Unless special arrangements are made, iVoice generally receives 50% of the
contract as a down payment on any product purchased with the balance due upon
completion of the installation. iVoice recognizes its revenue using the
percentage of completion method for turnkey systems that require custom
configuration by the customer. iVoice determines the expected costs on a
particular installation by estimating the hardware costs and anticipated labor
hours to configure and install a system. Revenues are then recognized in
proportion to the amount of costs incurred as of the reporting date over the
total estimated costs anticipated. For orders comprised only of software or
hardware items, iVoice recognizes revenue upon shipment of those items to the
customer. iVoice accepts company checks or Visa/Mastercard.
RESEARCH AND DEVELOPMENT
Our research and development efforts focus on enhancing our existing
product line and the development of new products that integrate with our
existing products. We continually seek to improve our core speech recognition
technology through ease of use, broader application and increased accuracy.
iVoice employs qualified technical personnel to strengthen its product line. In
2001, research and development expenditures consisted of $380,692 in salaries
and wages to iVoice's technical staff and $6,771 for technical hardware
supplies, software tool-kits and technical publications. In the year 2000,
iVoice spent $406,106 in technical salaries and wages and $17,361 for related
supplies, tools and publications. In 2002, iVoice anticipates that expending on
research and development will continue on technical staffing. Our current
research and development efforts have allowed us to recently release our Speech
Enabled Auto Attendant, VoiceMail and Unified Messaging applications on digital
platforms. Compared to other integration methods, the use of digital
connectivity to an organizations telephone system offers more features and
greater reliability. In order to remain competitive, iVoice must continue to
17
fund research and development efforts and will use some of the funds raised in
this offering to further develop iVoice's current technologies and develop new
voice recognition applications and technologies.
PLANT AND EQUIPMENT
iVoice does not anticipate incurring any significant expenses for the
purchase of plant or equipment over the next 12 months.
EMPLOYEES
iVoice has 10 full time employees and 2 part-time employees.. iVoice
anticipates increasing the number of employees to approximately 15 over the next
12 months, primarily in sales.
RECENT DEVELOPMENTS
In June 2002, we announced commercial availability of digital connectivity
for our Speech Enabled Auto Attendant, VoiceMail and Unified Messaging
applications. The migration to a digital platform should enable us to distribute
our speech recognition solutions to mid and larger sized entities that support
and prefer digital connectivity, which we feel could greatly expand our
potential customer base. The Private Branch Exchanges or "PBX" already
supporting digital technology include Avaya(R) Difinity(R), Nortel(R) NorStar(R)
and Meridian(R), NEC(R), and Siemens(R) HICOM(R), representing a significant
portion of PBX market share. Compared to other integration methods, digital
integration offers more features and greater reliability.
In April 2002, iVoice received a purchase order from one of the largest
retail chains in North America for the development and installation of a
prototype speech enabled item locator. The item locator is part of a feasibility
study to test customer response and effectiveness. The item locator will allow
consumers to pick up a telephone handset located in the store and speak the name
of the item they wish to find. The system will respond with the correct location
of the item within the store. Future orders of the item locator are contingent
upon acceptance of the prototype and are at the discretion of the retailer.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO MARCH 31, 2001
Revenues are derived primarily from the sale of voice and computerized
telephone systems for small-to-medium sized businesses and corporate
departments. Total revenues for the three months ended March 31, 2002 were
$135,663, as compared to $82,340 for the three months ended March 31, 2001, an
increase of $53,323 or 64.8%.
The increase in revenues can be attributable to more demand for iVoice's
Speech Enabled Auto Attendant and Speech Enabled Interactive Voice Response
(IVR) applications. Commencing in January 2002, iVoice began a promotional
program for authorized re-sellers of the 3Com NBX(R) platform, Artisoft
TeleVantage(R) Communication server, and AltiGen's AltiServ(R) phone systems.
Through the promotional program, authorized dealers and resellers of these
manufacturers, can purchase a demonstration copy of Speech-enabled Auto
Attendant software at discounted pricing to demonstrate the product.
Co-marketing agreements with these manufacturers has also contributed to the
success of the promotional programs. For quarter ending March 31, 2002, iVoice
shipped over 70 copies to prospective dealers that have expressed interest in
promoting the Speech Enabled Auto Attendant to their customer base.
Unless special arrangements are made, iVoice generally receives 50% of the
contract as a down payment on any product purchased with the balance due upon
shipment or installation, if included in the contract. iVoice recognizes its
revenue using the percentage of completion method for turnkey systems that
require custom configuration by the customer. iVoice determines the expected
costs on a particular configuration by estimating the hardware costs and
anticipated labor hours to configure and install a system. Revenues are then
recognized in proportion to the amount of costs incurred as of the reporting
date over the total estimated costs anticipated. For orders comprised only of
software or hardware items, iVoice recognizes revenue upon shipment of those
items to the customer.
Gross margin for the three months ended March 31, 2002 was $97,515 or
71.8%, as compared to $36,654 or 44.5% for the three months ended March 31,
2001. The gross margin is dependent, in part, on product mix, which fluctuates
from time to time; complexity of a communication system installation which
determines necessary hardware requirements and may not have a proportionate
relationship with the system selling price; and the ability of iVoice's
technical personnel to efficiently configure and install its communications'
18
products. The increase of $60,861 or 166.0% reflects increased sales volume
particularly in software only, which has significantly higher margins than
developed turnkey systems requiring costly hardware components.
Total operating expenses increased $132,871 or 17.5% from $761,288 for the
three months ended March 31, 2001 to $894,159 for the three months ended March
31, 2002, The increase in operating expenses for the current quarter was
principally a result of the amortization of prepaid consulting fees totaling
$257,917 and a charge of $299,794 for a reduction in the strike price on
warrants previously issued by iVoice. This increase was offset by a reduction in
payroll and employee benefits totaling $283,000; a reduction in legal and
accounting fees of $51,977; a reduction in rent expense of $17,910 and a
reduction in nearly all other operating expense items totaling $71,953,
reflecting management's efforts to reduce its operating budget and conserve
iVoice's cash resources.
The loss from operations for the three months ended March 31, 2002 was
$796,644 compared to $724,634 for the three months ended March 31, 2001, an
increase of $26,405 or 9.9%
Other income reflects income of $28,800 for the retention of 600,000
shares previously issued to an employee and charged to compensation expense in a
prior period. These shares were deemed as not having been vested with the
terminated employee and were recorded as treasury stock purchase at a value of
$28,800.
Interest expense of $73,328 was incurred for the three-month period ending
March 31, 2002 versus $40,544 in the three months ending March 31, 2001, an
increase of $32,784. The three months ending March 31, 2002 reflects an increase
in financing costs of $24,023 related to the termination of a subscription and
registration rights agreement with Beacon Capital, LLC, and a charge for $10,570
in penalty interest charged by the holders of our outstanding 12% convertible
debentures for defaulting on the registration rights agreement with them.
Net loss for the three-month period ending March 31, 2002 was $841,172 as
compared to 765,178 for the first three months of 2001. The increase in net loss
of $75,994 was a result of the factors discussed above.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000
Sales for the year ended December 31, 2001 were $425,948, a decrease of
$297,098 or 41.1% over the prior years sales of $723,046. The decrease was
largely attributable to weak economic conditions resulting in weak demand for
iVoice's products, coupled with iVoice's lack of sufficient capital resources to
effectively develop a successful sales campaign. For the three months ending
December 31, 2001, iVoice recorded sales of $122,000 as compared to $45,984 for
the three months ending December 31, 2000, an increase of $76,016 or 165.3%.
iVoice's gross profit for the year ended December 31, 2001 was $258,719, a
decrease of $161,432 or 38.4% compared to $420,151 for the year ending December
31, 2000. iVoice's gross margin percentage for the twelve months ended December
31, 2001 was 60.7% versus 58.1% for the prior year. This represents a 2.6%
increase over the gross profit percentage recorded for the same prior year
period. The gross margin is dependent, in part, on product mix, which fluctuates
from time to time; complexity of a communication system installation which
determines necessary hardware requirements and may not have a proportionate
relationship with the system selling price; and the ability of iVoice technology
personnel to efficiently configure and install its communications products. The
dollar amount of gross profit has decreased due to reduced revenues for the
comparative periods however margin percentages are consistent with prior periods
with variances due only to product mix.
Operating expenses increased from $2,678,310 for the year ended December
31, 2000 to $3,035,992 for the year ended December 31, 2001, an increase of
$357,684 or 13.3%. Material changes in specific line items of operating expenses
include an increase in payroll costs of $559,543 which includes accruals for
reimbursement to iVoice's principal shareholder, Jerome R. Mahoney, for a
charitable donation of his personal holdings of iVoice Class A common stock for
a total value of $350,000 and reimbursement for income tax incurred by Mr.
Mahoney for sales of Class A common stock which were sold in order to provide
working capital to iVoice totalling $95,100. Also contributing to the increase
in operating expense was a charge of $56,250 for a reduction in the strike price
on warrants previously issued by iVoice. This amount was not incurred in the
previous period. Rent expense also increased by $30,835 due to the reflection of
a full years rent for iVoice's headquarters in Matawan where the prior year
included only eight months. Offsetting the increases in the specific operating
expense items described above were a reduction in employee recruiting fees
amounting to $153,143, bad debt expense of $50,387 and a reduction in
advertising and promotional expense totalling $46,875.
19
The net loss from operations for the year ending December 31, 2001 was
$2,777,273 compared to $2,258,159 for the year ended December 31, 2000. This
decrease of $519,116 was a result of the decrease in net revenues and gross
profit from year to year combined with an increase in current year operating
expenses as described above.
Other expense, comprised only of interest expense, increased $36,941 to
$670,161 in the year ended December 31, 2001 compared to $633,220 in 2000.
Interest expense reflects interest and discount amortization on iVoice's
outstanding convertible debentures which were outstanding for most of the year
2001 and 2000.
LIQUIDITY AND CAPITAL RESOURCES
We are funding our current operations principally from the collection of
proceeds from exercised warrants and from loans from Jerome Mahoney, our
President and Chief Executive Officer, that in the aggregate, totaled $1,911,852
at March 31, 2002. Through increased revenues and the reduction of iVoice's
operating budget, cash used in operations has been reduced by $59,105 in the
three months ending March 31, 2002 compared the same three months of 2001.
Management believes it can achieve its profitability goals through the increased
sales of its products, but will continue to minimize its operating budget in an
attempt to weather current economic conditions in the telecommunications
industry. We continue to operate on a negative cash flow basis and anticipate
that we will require financing within the next six months.
At March 31, 2002, iVoice had cash and cash equivalents of $172,185. Since
March 31, 2002, iVoice has raised an additional $250,000 from the sale of
debentures convertible into shares of Class A common stock. iVoice anticipates
that its current cash will finance operations for six months. Thereafter, iVoice
will need to raise additional capital in order to continue operations.
We are seeking financing sufficient to continue operating through the
fiscal year. Other than the Equity Line of Credit, no financing agreement has
been finalized and there can be no assurances that the financing transaction
will be completed. Additionally, there is no assurance that if finalized, these
financing arrangements will enable us to raise the requisite capital needed to
implement our long-term growth strategy or that alternative forms of financing
will be available should iVoice fail to consummate a new financing transaction.
Current economic and market conditions have made it very difficult to raise
required capital for iVoice to implement its business plan.
In June 2002, iVoice entered into an Equity Line of Credit Agreement.
Under this agreement, iVoice may issue and sell to Cornell Capital Partners
common stock for a total purchase price of up to $5.0 million. Subject to
certain conditions, iVoice will be entitled to commence drawing down on the
Equity Line of Credit when the common stock under the Equity Line of Credit is
registered with the Securities and Exchange Commission and will continue for two
years thereafter. The purchase price for the shares will be equal to 91% of the
market price, which is defined as the lowest closing bid price of the common
stock during the five trading days following the notice date. The amount of each
advance is subject to an aggregate maximum advance amount of $250,000 in any
thirty-day period, provided that each of the initial four advances may not
exceed $150,000 and thereafter may not exceed $75,000. iVoice paid Cornell a
one-time commitment fee of 5,500,000 shares of Class A common stock. Cornell
Capital Partners will also retain 5% of each advance. In addition, iVoice will
entered into a placement agent agreement with Westrock Advisors, Inc., a
registered broker-dealer. Pursuant to the placement agent agreement, iVoice paid
a one-time placement agent fee of 500,000 shares of Class A common stock.
In June 2002, iVoice raised $255,000 from the sale of convertible
debentures. These debentures are convertible into shares of Class A common stock
at a price equal to either (a) an amount equal to one hundred twenty percent
(120%) of the closing bid price of the common stock as of the closing date or
(b) an amount equal to eighty percent (80%) of the average closing bid price of
the common stock for the four trading days immediately preceding the conversion
date. If such conversion had taken place at $0.0152 (i.e., 80% of the recent
price of $0.019), then the holders of the convertible debentures would have
received 16,776,316 shares of Class A common stock. These convertible debentures
accrue interest at a rate of 5% per year and are convertible at the holder's
option. These convertible debentures have a term of two years. At our option,
these debentures may be paid in cash or redeemed at a 20% premium prior to June
2004. In the event iVoice exercises a redemption of either all or a portion the
convertible debentures, the holder will receive a warrant to purchase 10,000
shares of Class A common stock for every $100,000 redeemed. The Warrant will be
exercisable on a "cash basis" and have an exercise price equal to 120% of the
closing bid price of the Class A common stock. The Warrant will have
"piggy-back" and demand registration rights and will terminate two years after
issuance.
In relation to iVoice's outstanding 12% Convertible Debentures which are
currently in default, iVoice has reached settlement terms with one previous
holder of debentures regarding the interest and penalties demanded by this
former holder whereby iVoice has issued 450,000 shares to this former holder in
full settlement of the former debenture holder's claim.
20
iVoice continues its discussions with the remaining debenture holders
attempting to resolve the default issues in a mutually favorable manner.
However, it is uncertain whether iVoice will be able to reach an agreement under
terms favorable to iVoice.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information" requires that a public company report financial and descriptive
information about its reportable operating segments. It also requires that an
enterprise report certain information about its products and services, the
geographic areas in which they operate and their major customers. In determining
the requirements of this pronouncement, Management currently believes that there
is no materially reportable segment information with respect to iVoice's
operations and does not provide any segment information regarding products and
services, major customers, and the material countries in which iVoice holds
assets and reports revenue.
SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities" requires that certain derivative instruments be recognized in
balance sheets at fair value and for changes in fair value to be recognized in
operations. Additional guidance is also provided to determine when hedge
accounting treatment is appropriate whereby hedging gains and losses are offset
by losses and gains related directly to the hedged item. While the standard, as
amended, must be adopted in the fiscal year beginning after June 15, 2000, its
impact on iVoice's financial statements is not expected to be material as iVoice
has not historically used derivative and hedge instruments.
SFAS No. 142, "Goodwill and Other Intangible Assets" requires goodwill to
be tested for impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards require. It is
effective for fiscal years beginning after December 15, 2001. Early application
is permitted for entities with fiscal years beginning after March 15, 2001
provided the first interim period financial statements have not been previously
issued. iVoice is currently assessing the impact of this pronouncement on its
operating results and financial condition.
Statement of Position ("SOP") No. 98-1 specifies the appropriate
accounting for costs incurred to develop or obtain computer software for
internal use. The new pronouncement provides guidance on which costs should be
capitalized, and over what period such costs should be amortized and what
disclosures should be made regarding such costs. This pronouncement is effective
for fiscal years beginning after December 15, 1998, but earlier application is
acceptable. Previously capitalized costs will not be adjusted. iVoice believes
that it is already in substantial compliance with the accounting requirements as
set forth in this new pronouncement and therefore believes that adoption will
not have a material effect on its financial condition or operating results.
SOP No. 98-5 requires that companies write-off defined previously
capitalized start-up costs including organization costs and expense future
start-up costs as incurred. iVoice believes that it is already in substantial
compliance with the accounting requirements as set forth in this new
pronouncement and therefore believes that adoption will not have a material
effect on its financial condition or operating results.
21
DESCRIPTION OF BUSINESS
Our current corporate configuration is the result of a number of separate
transactions over the past several years.
On February 26, 1996, Select Resources, Inc., a publicly held Delaware
company, and three of its principal stockholders entered into a stock exchange
agreement with Visual Telephone of New Jersey, Inc., a privately held New Jersey
corporation, and its two stockholders pursuant to which Select Resources
acquired all of the outstanding shares of Visual Telephone and spun-off Select
Housing Associates, Inc., its wholly owned subsidiary. The aim of this agreement
was to provide for a more profitable business direction for Select Resources.
Pursuant to the agreement, Select Resources agreed to issue 5,611,000 shares of
its capital stock to one of the two stockholders of Visual Telephone and to
transfer one-half of the shares of Select Housing Associates to the other
stockholder of Visual Telephone, namely Joel Beagelman, in return for all of the
outstanding shares of Visual Telephone. In addition, Select Resources
transferred the other half of the shares of Select Housing Associates to Gary W.
Pomeroy and Brad W. Pomeroy, two of Select Resources' three principal
stockholders, in return for the cancellation of 1,111,000 shares of common stock
of Select Resources owned by them. At the time of the stock exchange agreement,
Mr. Beagelman, Gary W. Pomeroy and Brad W. Pomeroy were directors of Select
Resources. On February 26, 1996, the stock exchange agreement was approved by
the consent of stockholders a majority of the outstanding shares of common stock
of Select Resources. Visual Telephone then merged into Select Resources, which
changed its name to that of the subsidiary.
In July 1996, Visual Telephone acquired 100% of the outstanding common
shares of Communications Research Inc., or "CRI," for $50,000 in cash, $150,000
in notes and 1,000,000 shares of Visual Telephone. CRI designs, develops, sells,
and supports PC-based communication systems that transmit data, voice and
full-motion video.
On May 21, 1999, International Voice Technologies, Corp., a Delaware
corporation, merged with and into Visual Telephone (which in the interim had
changed its name to Visual Telephone International, Inc.), with Visual Telephone
surviving. Simultaneous with the merger, Visual Telephone changed its name to
iVoice.com, Inc., and it was planned that Visual Telephone would spin off CRI
prior to the merger with International Voice Technologies. Our current business
is essentially that of International Voice Technologies, and this merger was
aimed at giving that business better access to the capital markets by merging it
into a public company. In addition, we changed our OTC Bulletin Board trading
symbol to "IVOC."
In consideration for the merger with International Voice Technologies,
Jerome R. Mahoney, the sole stockholder of International Voice Technologies,
received 10,000,000 shares of our Class A common stock and 700,000 shares of our
Class B common stock. In addition, the two controlling stockholders of Visual
Telephone sold 300,000 shares of Class B common stock to Mr. Mahoney and
concurrently canceled a total of 2,000,000 shares of their Class A common stock.
The consulting firm of Toby Investments was awarded 2,000,000 shares of common
stock for consulting services on the transaction. The agreement also provided
that certain of the assets of Visual Telephone would be transferred to Visual
Telephone's wholly owned subsidiary, CRI. The merger was accounted for in its
financial statements as a public shell merger. In a public shell merger the
stockholders of the operating company, in this case International Voice
Technologies, become the majority owners of the shell company, in this case
Visual Telephone, and the stockholders of Visual Telephone, the public shell
company, become minority stockholders in International Voice Technologies, the
operating company.
As for the CRI spin-off, on September 18, 2000, CRI filed a registration
statement to provide for the distribution of its shares to Visual Telephone's
stockholders as of May 21, 1999. Visual Telephone's stockholders received one
CRI share for every four shares owned in Visual Telephone. The principal
stockholders, officers and directors of Visual Telephone were Carl Ceragno and
Joel Beagelman. Mr. Ceragno remained with CRI as its President and Mr. Beagelman
entered into a consulting agreement with us.
On April 24, 2000, we entered into an agreement and plan of reorganization
with all the stockholders and ThirdCAI, another shell company that was a
reporting company under the Securities Exchange Act of 1934. In this
transaction, which took place by means of a short-form merger, with ThirdCAI's
name being changed to iVoice, we acquired all the issued and outstanding shares
of ThirdCAI in exchange for $150,000, and a finder's fee paid to Corporate
Architect, Inc., consisting of 50,000 shares of our Class A voting common stock.
The purpose of this transaction was to enable our business to be conducted by a
reporting company, as pursuant to the "eligibility rule" adopted by the National
Association of Securities Dealers, Inc., or "NASD," as only reporting companies
may continue to have stock quoted on the OTC Bulletin Board.
22
Our principal offices and facilities are located at 750 Highway 34,
Matawan, NJ 07747 and our telephone number is (732) 441-7700. Our common stock
is quoted on the OTC Bulletin Board under the trading symbol "IVOC."
OUR BUSINESS
We design, manufacture, and market innovative voice and computer telephony
communications systems for businesses and corporate departments with as many as
20,000 telephones. Our speech recognition software products enable our customers
to communicate more effectively by integrating their traditional office
telephone systems with automated attendant, voice mail, unified messaging, and
interactive voice response, or "IVR," functions. Our products are designed to be
"people oriented," with features that can be readily used without special
training or manuals. Our principal products, Speech-enabled Auto Attendant,
iVoiceMail, Unified Messaging, and iVoice IVR, incorporate this philosophy. We
also design, market, and support voice recognition products. Except for iVoice
IVR, which is generally sold directly to end users due to required
customization, iVoice markets and promotes its speech enabled products through
telephony reseller channels and telephone equipment manufacturer distributor
networks. This allows iVoice to leverage those resellers' existing customer
bases. We may, however, sell direct to end users in geographic locations where
an existing dealer relationship does not exist. On direct sales orders, iVoice
is able to achieve greater profit margins through higher direct selling prices.
PRODUCTS AND SERVICES
Our products use standard open-architecture personal computer platforms
and Microsoft Windows 2000, NT Server and NT Workstation operating systems,
thereby facilitating the rapid adoption of new PC-based technologies while
reducing overall product costs. We concentrate our development efforts on
software rather than hardware because we believe that the most efficient way to
create product value is to emphasize software solutions that meet customers'
needs. We have traditionally used standard PC-related hardware components in our
products, in part, to limit our need to manufacture components. However, we have
recently developed our software for use with Telephony Application Program
Interface or TAPI. The use of TAPI allows iVoice to integrate into different
telephone private branch exchange systems or PBX's, eliminating the need for
additional external hardware. iVoice's manufacturing operations consist only of
the installation of its proprietary software and a voiceboard, if required, into
a fully assembled PC system. iVoice obtains from suppliers components such as
PCs, circuit boards, application cards, faxboards, and voiceboards.
Our products include the iVoice Speech Enabled Auto Attendant allowing
businesses to incorporate speech recognition into their telephone systems
without duplicating their current voicemail applications. The Speech Enabled
Auto Attendant uses a customized dictionary of names and extension numbers that
enables callers to contact their party using their spoken voice. Also one our
principal products is iVoice IVR (interactive voice response). Except for iVoice
IVR that is generally sold direct due to requested customization, iVoice markets
and promotes its products to telephony reseller and distributor networks. This
allows iVoice to leverage those resellers' existing customer bases. Our flagship
product is iVoice IVR, an application generator that allows full connectivity to
the most popular databases, including Microsoft Access, Microsoft Excel,
Microsoft Fox Pro, DBase, Btrieve, and Paradox, or to standard text files.
iVoice IVR can be used to read information from, and write information to,
databases, as well as query databases and return information. iVoice IVR
performs over 40 different customizable commands. Properties can be set up for
each command, as if the commands were being executed manually. iVoice IVR links
a phone system to a database to provide customers with 24-hour immediate access
to account information, via telephone. With iVoice IVR, polished IVR
applications are quick and easy to install. No knowledge of computer programming
and minimal database knowledge is needed. iVoice IVR will execute any created
application when a caller dials in. Using DTMF (touch-tone telephones) or speech
activation allows callers to interact with the system. Advanced database
technology permits reading, writing, appending, searching and seeking database
information. A user can record product inventory, set up games, keep a record of
patients or customers, and perform other applications. The advanced, innovative
technology, backed by a simple, easy-to-use drag-and-drop interface, makes
writing applications simple.
The iVoice IVR also incorporates an Internet access tool, which can be
either connected to the IVR system or run as a standalone. This IVR system also
has a graphical user interface and provides for Internet access to the system.
Once logged onto the Internet, a user can gain access to the IVR system by
clicking on a hypertext link for the user's browser. Upon entering the IVR
system, the response prompts are in text form rather than voice form. The user
can enter selections and get information by clicking on icons or choosing items
from menus. Some of the Internet applications available are order processing and
transactions, database integration, questions and queries, account status,
delivery information, funds transfer, and claims information.
23
The following is a list of Speech-enabled applications which iVoice has
developed and are available for sale:
IVOICE IVR (INTERACTIVE VOICE RESPONSE). Enables a caller to
obtain requested information in voice form from a local or
non-local database. Examples of IVR range from simply
selecting announcements from a list of options stored in the
computer (also know as Audio Text) to more complex
interactive exchanges such as querying a database for
information. iVoice IVR allows information in PC databases
to be accessed from a standard touch-tone telephone using a
telephone keypad or voice commands. iVoice IVR is sold as a
customized turnkey system or as an Application Generator
giving the end user the ability to develop their own
customized IVR application.
SPEECH ENABLED AUTO ATTENDANT. Any business can improve and
speed up service for its customers by enabling them to reach
the desired contact person or department by simply saying
the appropriate name. Our speech recognition system is
accurate and reliable. Callers no longer need to punch in
letters on a telephone keypad.
UNIFIED MESSAGING. With Unified Messaging, e-mail, voice
mail and faxes can be handled through a desktop PC or the
telephone. All messages can be viewed and acted upon in
order of importance via Microsoft Outlook or a Web Browser.
E-mail can also be retrieved over the phone, using
text-to-speech, and responded to with a voice message
including directed to a fax machine.
IVOICEMAIL. This allows a caller to store voice messages and
reply via the computer. This method allows the caller to
conduct a dialogue with another person without having to be
on the same line at the same time. As with most voice mail
systems, the caller can record, store and delete messages
and direct messages to multiple subscribers.
IVOICE NAME DIALER is an automatic phone dialing system. The
system imports the necessary contact information for dialing
(names and phone numbers) from a variety of sources
including, but not limited to, Microsoft Outlook, ACT, and
Gold Mine. The imported names are then transcribed, through
software, into a set of phonemes to be used for voice
recognition. When the end user picks up the handset, the
call is automatically transferred through the PBX, to the
Name Dialer software running on a server machine. The user
simply says the name of the person (whose name came from the
contact list) and the Name Dialer places the call.
IVOICE SPEECH DIRECTORY allows employees to pick up their
phone, say the name of a co-worker they wish to speak to,
and the Speech Directory will transfer the call. Just by
speaking the person's name, the Speech Directory can also
return an internal pager number, cell numbers and email
listings through a voice activated telephony directory.
INTERACTIVE VOICE RESPONSE/WEB APPLICATIONS. Using the
Internet to access the IVR system, you "DIAL" the system by
clicking on a hypertext link from your browser. The system
responds the same way, except in text form, and not the
normal voice prompt. You may enter selections and get
information by clicking on icons or choosing items from
menus.
We are currently working on upgrading and enhancing existing products,
with the aim of adding to some products, a full toolkit that would enable
natural language recognition allowing the systems to understand spoken sentences
rather than just single words.
MARKETING AND DISTRIBUTION
iVoice is currently focused on developing its dealer and reseller
channels. Management believes it can leverage already existing equipment
manufacturers reseller channels by integrating its speech recognition software
directly into their established revenue producing product lines. We estimate
that each major telephony equipment manufacturer has an estimated 150-600
authorized dealers and resellers throughout North America. The recent
introduction of an entirely TAPI (Telephone Application Program Interface) based
Speech-enabled Auto Attendant and Name Dialer, allows integration into different
PBX systems without the need for additional hardware devices. Although
concentration on resellers is the predominate and preferred sales channel,
24
iVoice also sells directly to end-users via its direct sales force providing
management with information on market trends and customer needs. The direct
channel also provides an avenue more suitable for iVoice IVR applications that
often require customized development, which is usually difficult to provide
through the reseller network.
Our marketing strategy emphasizes our user-friendly PC-based processing
applications that offer integrated access to a broad range of communication
avenues with other people and information sources. Our strategy is built around
the following basic elements:
EMPHASIZE SOFTWARE, NOT HARDWARE. We concentrate our
developing software that meets our clients' needs, rather
than on designing or modifying hardware. This allows us to
create the most value from our products.
USE OF STANDARD, MICROSOFT WINDOWS-BASED ARCHITECTURE, OPEN
SYSTEMS AND HARDWARE. Our products use standard,
open-architecture PC platforms and operating systems rather
than proprietary computer hardware and operating systems. As
a result, we can quickly adapt to new PC-based technologies,
leveraging the substantial investments made by third parties
in developing these new technologies for the PC environment.
In addition, using available hardware components and
software minimizes our manufacturing activity and thereby
reduces the overall cost of our products.
FOCUS ON BUSINESSES AND CORPORATE DEPARTMENTS HAVING AS MANY
AS 20,000 TELEPHONES. Our products are designed for use by
businesses and corporate departments having as many 20,000
telephones in a wide range of markets, including
manufacturing, retail, service, healthcare, and government.
Our products offer these organizations, features offered by
large, proprietary call processing systems, but at a more
affordable price.
DEVELOP USER-FRIENDLY PRODUCTS. We aim to make our products
as easy as possible to install, maintain, and use. We
accomplish this by incorporating product features that can
be used without special training or manuals. One example of
this user-oriented philosophy is exhibited in our voicemail
product. iVoiceMail has user prompts that encourage
conversation between callers and subscriber and uses
simplified screens and menus for ease of installation.
MINIMIZE DISTRIBUTION OVERHEAD. We are able to achieve broad
market coverage in the U.S. via a nationwide network of
independent telephone system dealers, and
original-equipment-manufacturers, or "OEMs." This structure
both minimizes our selling overhead and maximizes our
product exposure, and allows us to focus our resources on
product development.
NEW PRODUCTS
In June 2002, we announced commercial availability of digital connectivity
for our Speech Enabled Auto Attendant, VoiceMail and Unified Messaging
applications. The migration to a digital platform should enable us to distribute
our speech recognition solutions to mid and larger sized entities that support
and prefer digital connectivity, which we feel could greatly expand our
potential customer base. The Private Branch Exchanges or "PBX" already
supporting digital technology include Avaya(R) Difinity(R), Nortel(R) NorStar(R)
and Meridian(R), NEC(R), and Siemens(R) HICOM(R), representing a significant
portion of PBX market share. Compared to other integration methods, digital
integration offers more features and greater reliability.
In December 2001, we introduced the iVoice Name Dialer that uses Telephony
Application Program Interface or ("TAPI"). The use of TAPI, allows iVoice to
integrate into different telephone private branch exchange systems ("PBX"),
eliminating the need for additional component hardware. Each phone system
hardware provider provides a specific software driver that interfaces directly
with the iVoice Name Dialer. TAPI provides a high-level interface for dialing
and disconnecting. The Name Dialer is an automatic phone dialing system. The
system imports the necessary contact information for dialing (names and phone
numbers) from a users' contact management software such as Microsoft Outlook,
ACT, and Gold Mine. The imported names are then transcribed, through our
software, into a set of phonemes to be used for voice recognition. When the user
picks up the handset, the call is automatically transferred through the PBX, to
the Name Dialer software running on a server machine. The user simply says the
name of the person (whose name came from the contact list) and the Name Dialer
places the call.
25
iVoice is currently distributing demonstration copies of the Name Dialer
to resellers and distributors to determine customer interest and marketability.
COMPETITION
The voice-recognition industry is highly competitive, and we believe that
this competition will intensify. The segment of the industry that supplies
call-processing systems to businesses is also extremely competitive. Many of our
competitors have longer operating histories, significantly greater financial,
technical, product development, and marketing resources, greater name
recognition or larger client bases than we do.
For example, industry analysts recognize Nuance Communications, Inc. and
SpeechWorks International, Inc. as the market leaders in voice recognition
software. Customers of Nuance include American Airlines, Bell Atlantic, Charles
Schwab, Sears and UPS. Nuance offers products through industry partners,
platform providers, and value-added resellers around the world. Corporate
investors in Nuance include Cisco Systems, Intel, Motorola, SAIC, Siebel
Systems, SRI International, Sun Microsystems, and Visa International.
SpeechWorks customers include America Online, First Union National Bank,
Microsoft, Thrifty Car Rental and United Airlines.
On a more directly competitive scale, other companies that produce
computerized telephony systems that incorporate speech recognition into their
products such as the iVoice Speech-enabled Auto Attendant include companies like
Locus Dialogue, Phonetic Systems and Sound Advantage. Management believes that
the iVoice Speech-enabled Auto Attendant has competitive advantages based upon
product features, the accuracy of the speech recognition and product pricing.
SUPPLIERS
Our suppliers include Dialogic Corporation (an Intel company) that
distributes through a network of resellers for voiceboards, and iTox, Inc.,
Amer.com, Inc. and Ingram-Micro, Inc. for computer components. Since our
products are based and run on standard PC architecture and as result of iVoice's
recent integration with TAPI, iVoice does not rely on any one specific supplier
for its system components. We have not experienced any supply shortages with
respect to the components used in systems or developed applications.
CUSTOMERS
Direct customers are comprised of businesses, organization and corporate
departments that use telephones as a principal means of communications.
Specifically, the end users of our products seek to automate the call process
for incoming callers in order to improve customer service and increase
productivity. The iVoice Speech-enabled Auto Attendant and iVoice IVR seek to
fulfill these customer needs. Customers who seek to automate the call process
for outbound calling are primary targets for the iVoice Name Dialer and iVoice
Patient Reminder.
Wholesale customers include value added resellers and distributors of
telephony equipment throughout North America.
For the year ended December 31, 2001, no one customer represented more
than 10% of our total revenues. iVoice does not rely on any one specific
customer for any significant portion of its revenue base.
We generally require customers to pay 50% down on any turnkey applications
purchased, with the balance due when installation has been completed. Software
only sales require cash-on-delivery or prepayment before shipping except for
dealers and resellers, which subject to credit approval are given 30 day payment
terms. iVoice accepts checks or Visa/Mastercard.
Approximately 70% of our revenues are derived from customers located in
the northeast U.S. The remaining 30% are from customers located elsewhere in the
continental U.S.
PATENTS AND TRADEMARKS
iVoice currently has ten patent applications pending with the United
States Patent and Trademark Office for speech enabled applications that it has
developed internally. These applications include various versions of the "iVoice
Speech Enabled Name Dialer", the "Voice Activated Voice Operated Copier", the
26
"Voice Activated Voice Operational Universal Remote Control", and the "Voice
Activated, Voice Responsive Product Locator."
In February 2002, iVoice filed a Trademark application for its `iVoice'
logo and approval is pending.
GOVERNMENT REGULATION
iVoice is subject to licensing and regulation by a number of authorities
in its state or municipality. These may include health, safety, and fire
regulations. iVoice's operations are also subject to federal and state minimum
wage laws governing such matters as working conditions and overtime.
iVoice is not subject to any necessary government approval or license
requirement in order to market, distribute or sell its principal or related
products other than ordinary federal, state, and local laws which governs the
conduct of business in general. iVoice is unaware of any pending or probable
government regulations that would have any material impact on the conduct of
business.
RESEARCH AND DEVELOPMENT
Our research and development efforts focus on enhancing our existing
product line and the development of new products that integrate with our
existing products. We continually seek to improve our core speech recognition
technology through ease of use, broader application and increased accuracy.
iVoice employs qualified technical personnel to strengthen its product line. In
2001, research and development expenditures consisted of $380,692 in salaries
and wages to iVoice's technical staff and $6,773 for technical hardware
supplies, software tool-kits and technical publications. In the year 2000,
iVoice spent $406,106 in technical salaries and wages and $17,361 for related
supplies, tools and publications. Reductions in amounts expended were deemed
necessary for the conservation of capital resources.
LICENSES
We have purchased a worldwide, non-exclusive, irrevocable, royalty-free,
fully paid license from Entropic, Inc., a Microsoft company, to incorporate
their speech engine into customized software applications for our customers. We
also have non-exclusive license agreements with Lernout & Hauspie Speech
Products and Fonix Corporation, each of which allows us to incorporate their
text-to-speech software into our applications so clients can listen to e-mail
messages from any telephone.
EMPLOYEES
As of June 30, 2002, we had 10 full time employees and 2 part-time
employees. None of our employees are represented by a labor organization and we
are not a party to any collective bargaining agreements.
27
MANAGEMENT
iVoice's present director and executive officers are as follows:
NAME AGE POSITION
------------------ --- --------------------------------------
Jerome R. Mahoney 41 President, Chief Executive Officer and
Director
Kevin Whalen 38 Chief Financial Officer
The following is a brief description of the background of the sole
director and executive officers of iVoice.
JEROME R. MAHONEY (PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR)
Mr. Mahoney has been our Chief Executive Officer and our sole director
since May 21, 1999. Mr. Mahoney started at Executone Information Systems, a
telephone systems manufacturer, and was Director of National Accounts from 1988
to 1989. In 1989, Mr. Mahoney founded Voice Express, Inc., a New York company
that sold voicemail systems and telephone system service contracts and installed
these systems. Mr. Mahoney sold Voice Express Systems in 1993. From 1993 to
1997, Mr. Mahoney was President of IVS Corp., and on December 17, 1997, he
established International Voice Technologies, which we merged with on May 21,
1999. Mr. Mahoney received a B.A. in finance and marketing from Fairleigh
Dickinson University, Rutherford, N.J. in 1983.
KEVIN WHALEN (CHIEF FINANCIAL OFFICER)
Mr. Whalen has been a Certified Public Accountant since 1988 and has over
10 years experience in public accounting and 6 years experience in industry.
From 1996 to 2000, he served as the Corporate Controller for Willcox and Gibbs,
Inc., a $160 million international sales and distribution company, where he was
responsible for preparing consolidated analytical statements and SEC filings,
managing the company's independent audits, and assisting in the registration of
an $85 million public bond offering. From 1986 to 1996, Mr. Whalen was the Tax
Supervisor for Curchin and Company, P.A., where he was responsible for
compilation and review engagements, as well as developing tax-planning
strategies for business and individual clientele. Mr. Whalen received a B.S. in
Commerce from Rider College, Lawrenceville, N.J. in 1986 and is a member of the
American Institute of Certified Public Accountants.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid by iVoice, as
well as certain other compensation paid or accrued, during the fiscal years
ended December 31, 2001, 2000 and 1999 to iVoice's named executive officers. No
restricted stock awards, long-term incentive plan payouts or other types of
compensation, other than the compensation identified in the chart below, were
paid to this executive officer during these fiscal years.
28
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------------- --------------------------------
AWARDS PAYOUTS
--------------------- ---------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------- ---- -------- -------- -------------- ------------- --------- -------- -------------
Jerome R. Mahoney 2001 $211,200 $75,000 $95,000(3) $0 0 0 $354,416(7)
President and Chief 2000 $192,000 $0 $34,000(4) $0 0 0 $4,416(7)
Executive Officer 1999 $180,000 $0 $0 $0 0 0 $578(7)
Kevin Whalen(2) 2001 $93,333 $34,000 $0 $115,000(5) 1,200,000(6) 0 $0
Chief Financial Officer 2000 $53,333 $0 $0 $20,950(5) 200,000(6) 0 $0
1999 $0 $0 $0 $0 0 0 $0
Joel G. Beagelman(1) 2001 $0 $0 $0 $0 0 0 $0
Former Chief Financial 2000 $39,000 $0 $0 $0 0 0 $0
Officer, Secretary and 1999 $108,000 $0 $0 $0 0 0 $0
Treasurer
_______________________
(1) Effective May 16, 2000, Mr. Beagelman resigned as our Chief Financial
Officer, Secretary, and Treasurer.
(2) Effective May 16, 2000, Mr. Whalen was promoted to Chief Financial Officer
and is not subject to any employment contract with iVoice, Inc.
(3) Represents amounts accrued for reimbursement of income taxes paid by Mr.
Mahoney on sales of personal holdings of iVoice Class A common shares, the
proceeds of which have been loaned to iVoice.
(4) Represents accrued and unpaid sales commissions due to Mr. Mahoney.
(5) Represents 1,000,000 Class A common shares granted on March 20, 2001 and
50,000 Class A common shares granted on September 20, 2000 and 5,000 Class
A common shares granted on June 30, 2000. All shares granted vest with Mr.
Whalen three years from the date granted. Total restricted shares held by
Mr. Whalen total 1,055,000 valued at $58,025 as of December 31, 2001.
(6) Represents options to purchase 1,000,000 Class A common shares at $.06
granted on June 27, 2001; options to purchase 200,000 Class A common
shares at $.10 granted on March 12, 2001; options to purchase 100,000
Class A common shares at $.50 granted on June 30, 2000; options to
purchase 50,000 Class A common shares at $.60 granted on May 17, 2000; and
options to purchase 50,000 Class A common shares at $.75 granted on May 2,
2000. All options vest 25% per year and expire 5 years from the date of
issue. To date, none of these options have been exercised.
(7) Represents $350,000 as reimbursement for the donation of personal holdings
of iVoice Class A Common shares donated to charity and $4,416 in life
insurance premiums paid on behalf of Mr. Mahoney for the year ending
December 31, 2001; $4,416 in life insurance premiums paid on behalf of Mr.
Mahoney for the year ending December 31, 2000; and $578 in life insurance
premiums paid on behalf of Mr. Mahoney for the year ending December 31,
1999.
29
The following table contains information regarding options granted during
the year ended December 31, 2001 to iVoice's named executive officer.
OPTION/SAR GRANTS TABLE
% TOTAL
NO. OF SECURITIES OPTIONS/SAR'S
UNDERLYING GRANTED TO
OPTIONS/SAR'S EMPLOYEES IN 2000 EXERCISE OR BASE PRICE
NAME GRANTED (#) (%) ($ PER SHARE) EXPIRATION DATE
- ------------------------ --------------------- ------------------- ------------------------ -----------------
Kevin Whalen, CFO 1,000,000(1) 55.7% $0.06 June 26, 2006
Kevin Whalen, CFO 200,000(1) 11.1% $0.10 March 11, 2006
_________________________
(1) All options granted are subject to 25% per year vesting schedule and expire 5 years from the date of grant. To date, no
options have been exercised.
The following table contains information regarding options exercised in
the year ended December 31, 2001, and the number of shares of common stock
underlying options held as of December 31, 2001, by iVoice's named executive
officer.
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES(1)
Value of Unexercised
Number of Securities Underlying In-the-Money Options/SARs
Unexercised Options/SARs at FY-End at FY-End
---------------------------------- -------------------------
Shares Acquired Value
on Exercise Realized (#) ($)
---------------- -------- -------------------------------- ----------------------------
Name (#) ($) Exercisable Unexcersiable Exercisable Unexercsiable
- ---------------------- ---------------- -------- ------------- ------------- ------------ -------------
Kevin Whalen, CFO 0 0 50,000 1,350,000 0 0
________________________________
(1) These grants represent options to purchase common stock. No SAR's have been granted.
(2) The value of the unexercised in-the-money options were calculated by determining the difference between the fair market value
of the common stock underlying the options and the exercise price of the options as of December 30, 2001.
EMPLOYMENT AGREEMENT
On May 1, 1999, iVoice entered into a five-year employment agreement with
Mr. Mahoney. Mr. Mahoney will serve as iVoice's President and Chief Executive
Officer for a term of five years. As consideration, iVoice agreed to pay Mr.
Mahoney the sum of $180,000 the first year with a 10% increase every year
thereafter. The employment agreement with Mr. Mahoney provides for a severance
payment to him of three hundred percent (300%), less $100, of his gross income
for services rendered to iVoice in each of the five prior calendar years (or
shorter period during which Mr. Mahoney shall have been employed by iVoice)
should his employment be terminated following a Change in Control, as defined in
the agreement.
STOCK OPTION PLAN
During the year ended December 31, 1999, iVoice adopted the Employee Stock
Option Plan in order to attract and retain qualified personnel. Under the Plan,
the Board of Directors, in its discretion may grant stock options (either
incentive or non-qualified stock options) to officers and employees to purchase
iVoice's common stock at no less than 85% of the market price on the date the
option is granted. Options generally vest over four years and have a maximum
term of five years. During 1999, 20,000,000 shares were reserved for future
issuance under the plan. As of June 30, 2002, 11,559,000 options to purchase
shares were granted. A total of 9,000,000 of these granted options were
exercised. A total of 1,946,083 options to purchase Class A common shares were
outstanding and held by company employees. The exercise prices range from $0.06
to $3.75 per share. All options issued to employees vest at 25% per year and
expire in 5 years.
30
DESCRIPTION OF PROPERTY
iVoice does not own any real property for use in its operations or
otherwise.
iVoice leases its headquarters located at 750 Highway 34, Matawan, New
Jersey. On December 5, 2001 iVoice renegotiated the former lease for these
premises reducing the square footage occupied by iVoice from approximately 8,000
to approximately 4,200 square feet of space. The new lease is for a period of
eight months at a cost of $7,000 per month. Upon expiration of the lease term,
iVoice can opt to enter a new lease for its current premises.
iVoice maintains a good relationship with its landlord and believes that
its current facilities will be adequate for the foreseeable future.
LEGAL PROCEEDINGS
iVoice is aware of the following actual and threatened legal proceedings:
We were named a defendant in a lawsuit brought about by Communication
Research, Inc. In this lawsuit, CRI makes claims against us of constructive
eviction, trespass, breach of contract, conversion, interference with economic
relations, and quantum merit. On March 4, 2002, in the Superior Court of New
Jersey in Bergen County, the plaintiff was awarded a judgment in the amount of
$31,978. In an agreement to vacate the judgment against iVoice, the parties have
agreed to settle the claim for $15,000 payable in 5 monthly installments.
We were named defendant in a lawsuit brought by Lighthouse Technical
Consulting, Inc. filed March 14, 2001. In this lawsuit, the plaintiff makes
claim for non-payment of $15,000 for placement services performed by Lighthouse.
Upon filing a Motion to Dismiss the Complaint, the complaint was dismissed
without prejudice on December 21, 2001. On April 16, 2002, iVoice filed a motion
to dismiss the complaint with prejudice.
We were named defendant in a lawsuit brought by Business Staffing, Inc.
filed April 12, 2001. In this lawsuit, the plaintiff makes claim for non-payment
of $37,250 for placement services performed by Business Staffing. In non-binding
arbitration, the arbitrator determined an amount of $19,250 to be owing to the
plaintiff for services performed. This entire amount has previously accrued and
presents no impact to the financial position of iVoice. Management has filed a
motion for the case to be heard at trial and intends to vigorously defend itself
in this suit.
iVoice has filed suit against PanAm Wireless, Inc. the parent company of
Celpage, Inc. for breach of contract amounting to $245,375, related to the
installation of a 196-port Integrated Voice Response System at the customer's
Guaynabo, Puerto Rico location. PanAm has refused to accept the remaining ports
citing a shortfall in their projected subscriber base. Subsequent to the filing
and in response to our claim, PanAm Wireless has entered a counterclaim in the
amount of $5,418,438 for lost profits and additional costs incurred by PanAm
Wireless alleging iVoice failed to supply the required equipment and that the
system did not provide the specified services specified in their purchase order.
iVoice refutes the claims made by PanAm wireless and will vigorously defend
itself against this counterclaim. iVoice and Celpage are currently negotiating
to complete a significant portion of the remaining installation.
31
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 30, 2002, information with
respect to the beneficial ownership of our common stock by (i) persons known by
us to beneficially own more than five percent of the outstanding shares, (ii)
the director, (iii) each executive officer and (iv) all directors and executive
officers as a group.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK
BENEFICIALLY OWNED
----------------------------
NAME/ADDRESS TITLE OF CLASS NUMBER PERCENt(1)
- --------------------------------------- ------------------------ --------------- ------------
Jerome R. Mahoney Class A common stock 270,252,656(3) 67.3%
750 Highway 34 Class B common stock 2,316,675(4)(5) 100.0%
Matawan, New Jersey 07747
Kevin Whalen Class A common stock 1,055,000 *
750 Highway 34
Matawan, New Jersey 07747
Sole Director and All Officers as a Group Class A common stock 271,307,656 67.7%
750 Highway 34 Class B common stock 2,316,675 100.0%
Matawan, New Jersey 07747
Joel Beagelman Class A common stock 6,777,052(2) 40.0%
750 Highway 34
Matawan, New Jersey 07747
Cornell Capital Partners, LP Class A common stock 15,368,421(6) 8.6%
101 Hudson Street, Suite 3606
Jersey City, New Jersey 07302
____________________________________
(1) Applicable percentage of ownership is based on 168,995,285 shares of Class
A common stock outstanding as of June 30, 2002, together with securities
exercisable or convertible into shares of Class A common stock within 60
days of June 30, 2002 for each stockholder. Beneficial ownership is
determined in accordance with the rules of the Commission and generally
includes voting or investment power with respect to securities. Shares of
Class A common stock subject to securities exercisable or convertible into
shares of Class A common stock that are currently exercisable or
exercisable within 60 days of June 30, 2002 are deemed to be beneficially
owned by the person holding such options for the purpose of computing the
percentage of ownership of such person, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person.
(2) Includes 600,000 shares held by Mr. Beagelman's three children.
(3) Includes 450,000 shares of our Class A common stock held by Mr. Mahoney's
minor children and the right to receive 2,316,675 shares of Class B common
stock upon conversion of outstanding indebtedness that have the voting
power of, and may be converted into 231,667,500 shares of Class A common
stock.
(4) The shares of Class B common stock held by Mr. Mahoney have the voting
power of, and may be converted into 231,667,500 shares of Class A common
stock. iVoice does not have a sufficient number of authorized shares of
Class A common stock in order to honor the exercise or conversion of all
outstanding options, warrants, debentures and Class B common stock.
Accordingly, Mr. Mahoney, iVoice's President and Chief Executive Officer,
has agreed not to convert any of his shares of Class B common stock until
such time as the accompanying registration statement is no longer effective
or until iVoice has increased the number of authorized shares of Class A
common stock.
(5) Pursuant to the Promissory Note and Security Agreement executed by Mr.
Mahoney and iVoice, Inc. on March 20, 2001, Mr. Mahoney may at his option
convert amounts owed to him for monies loaned to iVoice from the proceeds
of stock sales, unpaid compensation, income taxes incurred from the sale of
stock unreimbursed expenses and interest on the unpaid balance at an amount
equal to one Class B share for each dollar owed. At June 30,2002, the total
balance equaled $1,962,675 representing 1,962,675 Class B common shares and
subsequently convertible into 196,267,500 Class A common shares.
(6) This consists of 5,500,000 shares of Class A common stock and debentures
convertible into 9,868,421 shares of Class A common stock.
32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period from June 2000 to date, Jerome R. Mahoney, President and
Chief Executive Officer of iVoice has sold personal holdings of iVoice's Class A
common shares and has loaned the proceeds of these sales to iVoice to fund its
working capital requirements. iVoice has executed a promissory note and Security
Agreement in favor of Mr. Mahoney.
As of June 30, 2002, the outstanding loan balance including interest,
monies loaned from the proceeds of stock sales, unpaid compensation, income
taxes incurred from the sale of stock and unreimbursed expenses, totaled
$1,962,675.
Under the terms of the loan agreements, the note holder may elect
prepayment of the principal and interest owed pursuant to this note by issuing
Jerome Mahoney, or his assigns, one Class B common share of iVoice, Inc., no par
value, for each dollar owed. As of June 30, 2002, Mr. Mahoney had the ability to
convert the amounts owed to him into 1,962,675 shares of Class B common stock.
iVoice does not have a sufficient number of authorized shares of Class A common
stock in order to honor the exercise or conversion of all outstanding options,
warrants, debentures and Class B common stock. Accordingly, Mr. Mahoney,
iVoice's President and Chief Executive Officer, has agreed not to convert any of
his shares of Class B common stock until such time as the accompanying
registration statement is no longer effective or until iVoice has increased the
number of authorized shares of Class A common stock.
In May 1999, iVoice entered into a five-year employment agreement with Mr.
Mahoney. He will serve as President and Chief Executive Officer for a term of
five years. As consideration, iVoice agreed to pay the Executive a sum of
$180,000 the first year with a 10% increase every year thereafter.
iVoice's assets are subject to a Security Agreement with Mr. Mahoney.
33
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol
"IVOC." The following table shows the high and low closing prices for the
periods indicated.
HIGH LOW
2000
----
First Quarter $5.9375 $0.2900
Second Quarter $2.2812 $0.3438
Third Quarter $0.7031 $0.3281
Fourth Quarter $0.4900 $0.0950
2001
----
First Quarter $0.4000 $0.0950
Second Quarter $0.1700 $0.0500
Third Quarter $0.0820 $0.0430
Fourth Quarter $0.0900 $0.0400
2002
----
First Quarter $0.0590 $0.0270
HOLDERS OF COMMON EQUITY
As of June 21, 2002, the number of record holders of our common shares was
approximately 506.
DIVIDEND INFORMATION
To date, iVoice has never paid a dividend. We have no plans to pay any
dividends in the near future. We intend to retain all earnings, if any, for the
foreseeable future, for use in our business operations.
SALES OF UNREGISTERED SECURITIES
SIX MONTHS ENDED JUNE 30, 2002. In June 2002, iVoice entered into an
Equity Line of Credit Agreement. Under this agreement, iVoice may issue and sell
to Cornell Capital Partners common stock for a total purchase price of up to
$5.0 million. Subject to certain conditions, iVoice will be entitled to commence
drawing down on the equity line of credit when the common stock under the Equity
Line of Credit is registered with the Securities and Exchange Commission and
will continue for two years thereafter. The purchase price for the shares will
be equal to 91% of the market price, which is defined as the lowest closing bid
price of the common stock during the five trading days following the notice
date. The amount of each advance is subject to an aggregate maximum advance
amount of $250,000 in any thirty-day period, provided that each of the initial
four advances may not exceed $150,000 and thereafter may not exceed $75,000.
iVoice paid Cornell a one-time commitment fee of 5,500,000 shares of Class A
common stock. Cornell Capital Partners will also retain 5% of each advance. In
addition, iVoice will entered into a placement agent agreement with Westrock
Advisors, Inc., a registered broker-dealer. Pursuant to the placement agent
agreement, iVoice paid a one-time placement agent fee of 500,000 shares of Class
A common stock.
In June 2002, iVoice raised $255,000 from the sale of convertible
debentures. These debentures are convertible into shares of Class A common stock
at a price equal to either (a) an amount equal to one hundred twenty percent
(120%) of the closing bid price of the common stock as of the closing date or
(b) an amount equal to eighty percent (80%) of the average closing bid price of
the common stock for the four trading days immediately preceding the conversion
date. If such conversion had taken place at $0.0152 (i.e., 80% of the recent
price of $0.019), then the holders of the convertible debentures would have
received 16,776,316 shares of Class A common stock. These convertible debentures
accrue interest at a rate of 5% per year and are convertible at the holder's
option. These convertible debentures have a term of two years. At our option,
these debentures may be paid in cash or redeemed at a 20% premium prior to June
2004. In the event iVoice exercises a redemption of either all or a portion the
convertible debentures, the holder will receive a warrant to purchase 10,000
shares of Class A common stock for every $100,000 redeemed. The Warrant will be
34
exercisable on a "cash basis" and have an exercise price equal to 120% of the
closing bid price of the Class A common stock. The Warrant will have
"piggy-back" and demand registration rights and will terminate two years after
issuance.
In June 2002, iVoice issued 5,500,000 shares of Class A common stock to
Cornell Capital Partners, L.P., 500,000 shares of Class A common stock to
Westrock Advisors and 200,000 shares of Class A common stock to Seth A Farbman,
all in connection with the Equity Line of Credit. These shares were valued at
$110,000, $10,000 and $4,000, respectively.
In May 2002, iVoice issued 2,250,000 shares of Class A common stock to
Lawrence A. Muenz for legal services rendered. These legal services were valued
at $45,000.
In April and May 2002, iVoice issued 2,741,331 shares of Class A common
stock for the conversion of $29,823.64 of convertible debentures.
For the three months ended March 31, 2002, iVoice had the following
transactions in its Class A common stock:
o iVoice issued 10,000 shares of its Class A common stock to J & D
Communications for services rendered valued at $540.
o iVoice issued 505,921 shares of Class A common stock for the
conversion of $15,000 in debenture principal and 84,766 shares for
$2,594 in accrued interest.
o iVoice issued 4,364,516 shares of Class A common stock for the
conversion of $95,679 in accrued interest on its outstanding 12%
convertible debentures.
YEAR ENDED DECEMBER 31, 2001. In the year ending December 31, 2001, iVoice
issued the following unregistered securities pursuant to various exemptions from
registration under the Securities Act of 1933:
We issued 15,194,287 shares of Class A common stock for services valued at
$918,905.
We issued 9,829,204 shares of Class A common stock for the conversion of
$402,201 in debenture principal and 317,576 shares of Class A common stock for
$13,885 in accrued interest.
We issued 2,128,000 shares of Class A common stock valued at $211,080 to
settle disputes arising from financing agreements.
We issued 1,172,000 shares of Class A common stock to Swartz Private
Equity, LLC under the terms of a financing agreement for net proceeds of
$129,931.
We issued $425,000 of 8% Convertible Debentures exercisable at an 80%
conversion price. The 20% conversion discount totaling $106,250 was recorded as
interest expense.
We issued 2,183,834 shares of our Class A common stock at various times
during the year as compensation to employees valued at $234,432.
35
On January 30, 2001, we issued 328,951 shares of our Class A common stock
as repayment of amounts owed to related parties valued at $75,659.
On November 20, 2001, we issued 1,000,000 shares of our Class A common
stock for the conversion of 10,000 shares of our Class B common stock.
During 2001, we issued the following options and warrants:
o Options to purchase 1,655,000 shares of Class A common stock to
employees at an average price of $0.076 per share. Of these options,
255,000 were cancelled due to employee terminations in 2001. The
remaining options vest at 25% per year and have a five-year expiration
from date of issue.
o Warrants to purchase 404,510 shares of Class A common stock with an
average exercise price of $0.1220, to Swartz Private Equity, LLC as
draw-down fees under a financing agreement. The warrants expire five
years from the date of issue.
o Warrants to purchase a total of 343,750 shares of Class A common stock
with an exercise price of $0.1323 to Owen May and Michael Jacobs of
the May Davis Group as a fee for the placement of 8% convertible
debentures, pursuant to a subscription agreement. The warrants expire
five years from the date of issue.
o Warrants to purchase 18,000,000 shares of Class A common stock with an
exercise price of $0.055 to the EMCO\Hanover Group, Inc. pursuant to a
consulting agreement with them. We issued 18,000,000 shares of Class A
common stock for the exercise of this warrant.
o Warrants to purchase a total of 250,000 shares of Class A common stock
at $0.047 per share to Beacon Capital LLC in consideration for the
placement of $150,000 of 8% convertible debentures pursuant to an
subscription agreement. The warrants are exercisable at any time prior
to their five year expiration and carry a cash or cashless exercise at
the option of the holders.
YEAR ENDED DECEMBER 31, 2000. On February 10, 2000, iVoice settled a
$4,500,000 lawsuit by issuing 2,000,000 shares of Class A common stock. These
shares were valued at $300,000 on the date of issuance.
On January 10 and February 2, 2000, we issued $100,000 and $50,000,
respectively, of 12% Convertible Debentures exercisable at a 50% conversion
price. The 50% conversion discount totaling $150,000 was recorded as a prepaid
debt issue cost and was amortized over the life of the debt. Debt issue costs
represent the estimated cost of the conversion discount feature relating to the
issuance of the Company's convertible debentures. In previous years, these costs
were amortized and charged to interest expense over the life of the debt. During
the year ended December 31, 2001, the Company charged to expense the fair value
of the beneficial conversion features of the convertible debt as measured at the
date of issuance in accordance with EITF Issue 98-5. The switch to this method
of accounting did not have a material affect on the Company's financial
statements.
During the year ended December 31, 2000, iVoice issued 848,718 shares of
Class A common stock for services valued at $518,155.
On April 24, 2000, iVoice issued 50,000 shares of Class A common stock to
Corporate Architects, Inc. with a value of $46,875 as a referral fee for the
purchase of ThirdCAI, Inc.
During the year ended December 31, 2000, iVoice issued 80,000 shares of
Class A common stock as compensation to employees valued at $69,938.
During the year ended December 31, 2000, iVoice issued 9,000,000 shares of
Class A common stock upon the exercise of options at $0.033 per share for a
total of $297,000.
36
During the year ended December 31, 2000, iVoice issued 33,600,000 shares
of Class A common stock for the conversion of 336,000 shares of Class B common
stock.
During the year ended December 31, 2000, iVoice issued 1,007,287 shares of
Class A common stock for the conversion of $163,000 in principal on its
outstanding 12% convertible debentures.
During the year ended December 31, 2000, iVoice issued 1,240,047 shares of
Class A common stock for cash totaling $746,000.
On August 17, 2000, in connection with a financing agreement with Swartz
Private Equity, LLC, we issued a warrant to purchase 5,490,000 shares of Class A
common stock at $0.484 per share. The warrant expires on August 16, 2005 and
contains strike price reset provisions.
TRANSACTIONS FROM MAY 21, 1999 (THE DATE OF THE MERGER). On May 21, 1999,
International Voice Technologies, Corp., a Delaware corporation, merged with and
into the predecessor of iVoice, Visual Telephone International, Inc., with
Visual Telephone surviving. Simultaneous with the merger, Visual Telephone
changed its name to iVoice.com, Inc. and later to iVoice, Inc. In connection
with the merger, iVoice issued 36,932,364 shares of Class A common stock to the
shareholders of International Voice Technologies. On the date of issuance, these
shares were valued at $138,000.
In consideration for the merger with International Voice Technologies,
Jerome R. Mahoney, the sole stockholder of International Voice Technologies,
received 10,000,000 shares of Class A common stock and 700,000 shares of Class B
common stock. In addition, the two controlling stockholders of Visual Telephone
sold 300,000 shares of Class B common stock to Mr. Mahoney and concurrently
canceled a total of 2,000,000 shares of their Class A common stock. The
consulting firm of Toby Investments received 2,000,000 shares of common stock
for consulting services on the transaction. The agreement also provided that
certain of the assets of Visual Telephone would be transferred to Visual
Telephone's wholly owned subsidiary, CRI. The merger was accounted for in its
financial statements as a public shell merger. In a public shell merger the
stockholders of the operating company, in this case International Voice
Technologies, become the majority owners of the shell company, in this case
Visual Telephone, and the stockholders of Visual Telephone, the public shell
company, become minority stockholders in International Voice Technologies, the
operating company.
On May 22, 1999, iVoice issued 400,000 shares of Class A common stock to
Lawrence A. Muenz for legal services. These shares were valued at $32,000 on the
date of issuance.
On May 22, 1999, iVoice issued 10,000 shares of Class A common stock to
Ron Vance for consulting services. These shares were valued at $800 on the date
of issuance.
On June 15, 1999, iVoice issued 3,200,000 shares of Class A common stock
to Suraj Tschand for the purchase of software codes. These shares were valued at
$544,000 on the date of issuance.
On June 22, 1999, iVoice issued 418,799 shares of Class A common stock to
DOTCOM Funding for cash. These shares were valued at $87,949 on the date of
issuance.
On July 12, 1999, iVoice issued 445,655 shares of Class A common stock to
DOTCOM Funding for cash. These shares were valued at $93,589 on the date of
issuance.
On August 16, 1999, iVoice issued 116,845 shares of Class A common stock
to DOTCOM Funding for cash. These shares were valued at $59,591 on the date of
issuance.
On August 27, 1999, iVoice issued 50,000 shares of Class A common stock to
John Mahoney for services. These shares were valued at $7,000 on the date of
issuance. John Mahoney is the father of Jerry Mahoney, iVoice's President, Chief
Executive and sole director.
On August 27, 1999, iVoice issued 50,000 shares of Class A common stock to
Daniel Timpone for services. These shares were valued at $7,000 on the date of
issuance.
On August 31, 1999, iVoice issued 100,000 shares of Class A common stock
to RFG, Inc. for services. These shares were valued at $14,000 on the date of
issuance.
37
In October 1999, iVoice issued 12% debentures that were convertible into
shares of iVoice's Class A common stock at the option of the holder by dividing
the outstanding principal and interest by the conversion price which shall equal
50% of the average bid price during the 20 trading days before the conversion
date. As of June 30, 2002, $345,200 in principal of the 12% debentures and
$99,644 in accrued interest had been converted into 10,017,819 shares of
iVoice's Class A common stock. Total outstanding principal balance of the 12%
convertible debentures at June 30, 2002 was $154,800, plus accrued interest of
$13,460. Debt issue costs represent the estimated cost of the conversion
discount feature relating to the issuance of the Company's convertible
debentures. In previous years, these costs were amortized and charged to
interest expense over the life of the debt. During the year ended December 31,
2001, the Company charged to expense the fair value of the beneficial conversion
features of the convertible debt as measured at the date of issuance in
accordance with EITF Issue 98-5. The switch to this method of accounting did not
have a material affect on the Company's financial statements.
On November 1, 1999, iVoice issued 250,000 shares of Class A common stock
to Leo Pudlo as employee compensation. These shares were valued at $87,500 on
the date of issuance.
On November 23, 1999, iVoice issued 20,000 shares of Class A common stock
to Jason Christman for services. These shares were valued at $2,800 on the date
of issuance.
On November 23, 1999, iVoice issued 100,000 shares of Class A common stock
to Merle Katz upon the exercise of options. These shares were valued at $14,000
on the date of issuance.
We relied upon the exemption provided in Section 4(2) of the Securities
Act and/or Rule 506 thereunder, which cover "transactions by an issuer not
involving any public offering," to issue securities discussed above without
registration under the Securities Act of 1933. iVoice made a determination in
each case that the person to whom the securities were issued did not need the
protections that registration would afford. The certificates representing the
securities issued displayed a restrictive legend to prevent transfer except in
compliance with applicable laws, and our transfer agent was instructed not to
permit transfers unless directed to do so by iVoice, after approval by our legal
counsel. iVoice believes that the investors to whom securities were issued had
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of the prospective investment. iVoice also
believes that the investors had access to the same type of information as would
be contained in a registration statement.
38
DESCRIPTION OF SECURITIES
Pursuant to our certificate of incorporation, as amended on August 24,
2001, we are authorized to issue 600,000,000 shares of Class A common stock, par
value $0.001 per share, 3,000,000 shares of Class B common stock, no par value
and 1,000,000 shares of preferred stock, par value of $1.00 per share. Below is
a description of iVoice's outstanding securities, including Class A common
stock, Class B common stock, options, warrants and debt.
iVoice does not have a sufficient number of authorized shares of Class A
common stock in order to honor the exercise or conversion of all outstanding
options, warrants, debentures and Class B common stock. Accordingly, Mr.
Mahoney, iVoice's President and Chief Executive Officer, has agreed not to
convert any of his shares of Class B common stock until such time the
accompanying registration statement is no longer effective or until iVoice has
increased the number of authorized shares of Class A common stock.
CLASS A COMMON STOCK
Each holder of our Class A common stock is entitled to one vote for each
share held of record. Holders of our Class A common stock have no preemptive,
subscription, conversion, or redemption rights. Upon liquidation, dissolution or
winding-up, the holders of Class A common stock are entitled to receive our net
assets pro rata. Each holder of Class A common stock is entitled to receive
ratably any dividends declared by our board of directors out of funds legally
available for the payment of dividends. We have not paid any dividends on our
common stock and do not contemplate doing so in the foreseeable future. We
anticipate that any earnings generated from operations will be used to finance
our growth.
As of June 30, 2002, iVoice had 168,995,285 shares of Class A common stock
outstanding. In addition, iVoice had outstanding shares of Class B common stock
that are convertible into 231,667,500 shares of Class A common stock.
CLASS B COMMON STOCK
Each holder of Class B common stock has voting rights equal to 100 shares
of Class A common stock. Holders of Class B common stock are not entitled to
receive dividends. Jerome R. Mahoney is the sole owner of the Class B common
stock, of which there are 3,000,000 shares authorized and 2,316,675 shares
issued and outstanding as of June 30, 2002. A holder of Class B common stock has
the right to convert each share of Class B common stock into 100 shares of Class
A common stock. These shares of Class B common stock are convertible into
231,667,500 shares of Class A common stock. Upon our liquidation, dissolution,
or winding-up, holders of Class B common stock will not be entitled to receive
any distributions.
PREFERRED STOCK
On August 24, 2001, we filed a certificate of amendment to our certificate
of incorporation, authorizing us to issue 1,000,000 shares of preferred stock,
par value $1.00 per share. As of March 5, 2002, we have not issued any shares of
preferred stock.
Our board of directors is authorized (by resolution and by filing an
amendment to our certificate of incorporation and subject to limitations
prescribed by the General Corporation Law of the State of Delaware) to issue,
from to time, shares of preferred stock in one or more series, to establish from
time to time the number of shares to be included in each series, and to fix the
designation, powers, preferences and other rights of the shares of each such
series and to fix the qualifications, limitations and restrictions thereon,
including, but without limiting the generality of the foregoing, the following:
o the number of shares constituting that series and the distinctive
designation of that series;
o the dividend rate on the shares of that series, whether dividends are
cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
o whether that series has voting rights, in addition to voting rights
provided by law, and, if so, the terms of those voting rights;
o whether that series has conversion privileges, and, if so, the terms
and conditions of conversion, including provisions for adjusting the
conversion rate in such events as our board of directors determines;
39
o whether or not the shares of that series are redeemable, and, if so,
the terms and conditions of redemption, including the dates upon or
after which they are redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions
and at different redemption dates;
o whether that series has a sinking fund for the redemption or purchase
of shares of that series, and, if so, the terms and amount of that
sinking fund;
o the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of iVoice, and the
relative rights of priority, if any, of payment of shares of that
series; and
o any other relative powers, preferences and rights of that series, and
qualifications, limitations or restrictions on that series.
If we liquidate, dissolve or wind up our affairs, whether voluntarily or
involuntarily, the holders of preferred stock of each series will be entitled to
receive only that amount or those amounts as are fixed by the certificate of
designations or by resolution of the board of directors providing for the
issuance of that series.
OPTIONS AND WARRANTS
As of June 30,2002, our employees held options and warrants to purchase
1,916,083 shares of our Class A common stock. These options were granted to our
employees under our 1999 Stock Option Plan. The exercise prices ranged from
$0.06 to $3.75 per share. All options issued to employees vest at 25% per year
and expire in 5 years. As of June 30, 2002, 265,583 of the options were
exercisable.
As of June 30, 2002, we had outstanding, to persons other than employees,
warrants to purchase 6,558,260 shares of our Class A common stock. These
warrants have exercise prices ranging from $0.047 per share to $2.00 per share.
These warrants will expire at various times until May 1, 2006.
DEBT
As of June 30, 2002, we had outstanding two series of convertible
debentures that are convertible into iVoice's Class A common stock at the option
of the holder.
Our 12% debentures are convertible into shares of iVoice's Class A common
stock at the option of the holder by dividing the outstanding principal and
interest by the conversion price which shall equal 50% of the average bid price
during the 20 trading days before the conversion date. As of June 30, 2002,
$345,200 in principal of the 12% debentures and $99,644 in accrued interest had
been converted into 10,017,819 shares of iVoice's Class A common stock. Total
outstanding principal balance of the 12% convertible debentures at June 30, 2002
was $154,800, plus accrued interest of $13,460. At a conversion price of $0.0095
(i.e., 50% of the recent price of $0.019), then the holders of the convertible
debentures would have received 17,711,579 shares of Class A common stock.
In June 2002, iVoice raised $255,000 from the sale of convertible
debentures. These debentures are convertible into shares of Class A common stock
at a price equal to either (a) an amount equal to one hundred twenty percent
(120%) of the closing bid price of the common stock as of the closing date or
(b) an amount equal to eighty percent (80%) of the average closing bid price of
the common stock for the four trading days immediately preceding the conversion
date. If such conversion had taken place at $0.0152 (i.e., 80% of the recent
price of $0.019), then the holders of the convertible debentures would have
received 16,776,316 shares of Class A common stock. These convertible debentures
accrue interest at a rate of 5% per year and are convertible at the holder's
option. These convertible debentures have a term of two years. At our option,
these debentures may be paid in cash or redeemed at a 20% premium prior to June
2004. In the event iVoice exercises a redemption of either all or a portion the
convertible debentures, the holder will receive a warrant to purchase 10,000
shares of Class A common stock for every $100,000 redeemed. The Warrant will be
exercisable on a "cash basis" and have an exercise price equal to 120% of the
closing bid price of the Class A common stock. The Warrant will have
"piggy-back" and demand registration rights and will terminate two years after
issuance.
TRANSFER AGENT
iVoice's transfer agent is Fidelity Transfer Company. Its address is 1800
South West Temple, Suite 301, Salt Lake City, Utah 84115. Its telephone number
is (801) 484 - 7222.
40
LIMITATION OF LIABILITY: INDEMNIFICATION
Our Bylaws include an indemnification provision under which we have agreed
to indemnify directors and officers of iVoice to fullest extent possible from
and against any and all claims of any type arising from or related to future
acts or omissions as a director or officer of iVoice.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
iVoice pursuant to the foregoing, or otherwise, iVoice has been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION
Authorized and unissued stock. The authorized but unissued shares of our
capital stock are available for future issuance without our stockholders'
approval. These additional shares may be utilized for a variety of corporate
purposes including but not limited to future public or direct offerings to raise
additional capital, corporate acquisitions and employee incentive plans. The
issuance of such shares may also be used to deter a potential takeover of iVoice
that may otherwise be beneficial to stockholders by diluting the shares held by
a potential suitor or issuing shares to a stockholder that will vote in
accordance with iVoice's Board of Directors' desires. A takeover may be
beneficial to stockholders because, among other reasons, a potential suitor may
offer stockholders a premium for their shares of stock compared to the
then-existing market price.
41
EXPERTS
The financial statements for the year ended December 31, 2001 included in
the Prospectus have been audited by Mendlowitz Weitsen, LLP, independent
certified public accountants to the extent and for the periods set forth in
their report (which contains an explanatory paragraph regarding iVoice's ability
to continue as a going concern) appearing elsewhere herein and are included in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
On February 9, 2001, iVoice dismissed Merdinger, Fruchter, Rosen & Corso
("MFR&C") as its independent accountants. The dismissal was approved by iVoice's
Board of Directors. The reports of MFR&C on iVoice's financial statements for
past two fiscal years contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles, except that the reports contained an explanatory paragraph
expressing substantial doubt regarding iVoice's ability to continue as a going
concern.
On February 9, 2001, iVoice retained the firm of Mendlowitz Weitsen, LLP
as its new independent accountants. Prior to engaging Mendlowitz Weitsen, LLP,
iVoice did not consult with Mendlowitz Weitsen, LLP, on any accounting,
auditing, financial reporting or any other matters.
LEGAL MATTERS
Kirkpatrick & Lockhart LLP, Miami, Florida, will pass upon the validity of
the shares of common stock offered hereby for us.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all the information set forth in the
registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
42
IVOICE, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
-----------------
Financial Statements as of March 31, 2002
Balance Sheet - March 31, 2002 (Unaudited).......................... F-2
Statements of Operation -
For the three months ended March 31, 2002 and 2001.................. F-3
Statements of Cash Flows -
For the three months ended March 31, 2002 and 2001.................. F-4
Notes to the financial statements................................... F-6
Financial statements as of December 31, 2001 and 2000
Auditors' Report.................................................... F-10
Balance sheets - December 31, 2001 and 2000......................... F-11
Statements of Operations for the years
ended December 31, 2001 and 2000.................................. F-12
Statements of Stockholders' Deficiency for
the years ended December 31, 2001 and 2000........................ F-13
Statements of Cash Flows - for the
years ended December 31, 2001 and 2000............................ F-17
Notes to Financial Statements...................................... F-20
IVOICE, INC.
BALANCE SHEETS
MARCH 31,
2002
-----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 172,185
Accounts receivable, net of allowance for doubtful accounts of $7,000 85,143
Inventory 13,717
Prepaid expenses and other current assets 72,436
-------------
Total current assets 343,481
-------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $96,636 99,101
-------------
OTHER ASSETS
Other receivable 67,650
Software license costs, net of accumulated amortization of $299,200 244,800
Intangible assets, net of accumulated amortization of $24,323 269,578
Deposits and other assets 13,900
-------------
Total other assets 595,928
-------------
$ 1,038,510
=============
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Obligations under capital leases - current $ 36,920
Accounts payable and accrued expenses 1,465,237
Due to related parties 776,419
Convertible debentures 194,800
Billings in excess of estimated costs on uncompleted contracts 49,343
-------------
Total current liabilities 2,522,719
-------------
LONG-TERM DEBT
Obligation under capital leases - non-current 3,953
-------------
Total liabilities 2,526,672
-------------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' DEFICIENCY
Preferred stock, $1 par value; authorized 1,000,000 shares; no shares issued
and outstanding - Common stock, Class A - par value $.001; authorized
600,000,000 shares, 159,003,954 issued;
158,403,954 outstanding 1,180,159
Common stock, Class B - no par value; authorized 3,000,000 shares; 700,000 shares issued; 354,000
shares outstanding 36
Subscription receivable (41,956)
Treasury stock, 600,000 Class A shares, at cost (28,800)
Additional paid in capital 10,674,440
Accumulated deficit (13,272,041)
-------------
Total stockholders' deficiency (1,488,162)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,038,510
=============
The accompanying notes are an integral part of the financial statement.
F-2
IVOICE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
2002 2001
------------- -------------
SALES, net $ 135,663 $ 82,340
COST OF SALES 38,148 45,686
------------- -------------
GROSS PROFIT 97,515 36,654
------------- -------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses 24,561 46,312
General and administrative expenses 769,070 536,406
Research and development 56,928 128,331
Bad debt expense 3,000 10,000
Depreciation and amortization 40,600 40,239
------------- -------------
Total selling, general and administrative expenses 894,159 761,288
------------- -------------
LOSS FROM OPERATIONS (796,644) (724,634)
------------- -------------
OTHER INCOME\(EXPENSE)
Other income 28,800 -
Interest expense (73,328) (40,544)
------------- -------------
Total other income\(expense) (44,528) (40,544)
------------- -------------
LOSS BEFORE INCOME TAXES (841,172) (765,178)
PROVISION FOR INCOME TAXES - -
------------- -------------
NET LOSS $ (841,172) $ (765,178)
============= =============
NET LOSS PER COMMON SHARE
Basic $ ( 0.01) $ ( 0.01)
============= =============
Diluted $ ( 0.01) $ ( 0.01)
============= =============
The accompanying notes are an integral part of the financial statement.
F-3
IVOICE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------
2002 2001
------------- --------------
CASH FLOW USED IN OPERATING ACTIVITIES
Net loss $ (841,172) $ (765,178)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation 10,119 9,758
Amortization of prepaid expense 257,917 3,975
Amortization if intangibles 3,281 3,281
Amortization of software license 27,200 27,200
Amortization of debt issue costs 35,427 11,904
Forfeited employee stock compensation (28,800) -
Bad debt expense 3,000 10,000
Option discounts 299,794 -
Common stock issued for consulting services - 80,055
Common stock issued for compensation - 224,000
Common stock issued for interest 10,735 6,559
Changes in certain assets and liabilities:
Accounts receivable (50,859) 11,847
Inventory 6,869 124
Accounts payable and accrued liabilities 96,125 21,503
Deferred revenue 5,726 (12,513)
Other assets 1,008 144,750
------------- --------------
Total cash used in operating activities (163,630) (222,735)
------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment (2,095) -
Purchase of goodwill (1,560) (3,090)
------------- --------------
Total cash used in investing activities (3,655) (3,090)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock - 129,931
Proceeds from related party loans - 229,000
Repayments of related party loans (30,000) (30,000)
Collections on stock subscriptions 292,000 -
Payment of capital lease obligations (8,073) (6,533)
------------- --------------
Total cash provided by financing activities 253,927 322,398
------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 86,642 96,573
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 85,543 55,349
------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 172,185 $ 151,922
============= ==============
CASH PAID DURING THE PERIOD FOR:
Interest expense $ 2,480 $ 4,020
============= ==============
Income taxes $ - $ -
============= ==============
The accompanying notes are an integral part of the financial statement.
F-4
IVOICE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2002
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
MARCH 31, 2002:
a) During the three months ended March 31, 2002, the Company issued 10,000
shares as partial payment for leasehold improvements valued at $540.
b) During the three months ended March 31, 2002, the Company retained 600,000
shares previously issued to an employee as compensation. These shares were
deemed as not having been vested with the terminated employee and were recorded
as treasury stock at a value of $28,800.
c) During the three months ended March 31, 2002, the Company issued 4,364,516
shares of its Class A common stock for interest on its outstanding Convertible
Debentures valued at $95,679. Of this amount $10,735 reflects interest incurred
in the current period and $84,944 represents amounts accrued in prior periods.
d) During the three months ended March 31, 2002, the Company issued 505,921
shares of its Class A common stock for the repayment of $15,000 in principal on
its 8% Convertible Debentures
MARCH 31, 2001:
a) During the three months ended March 31, 2001, the Company issued 705,000
restricted shares of its Class A common stock for services valued at $80,055.
b) During the three months ended March 31, 2001, the Company issued 2,020,834
restricted shares of its Class A common stock as compensation valued at
$224,000.
c) During the three months ended March 31, 2001, the Company issued 104,110
restricted shares of its Class A common stock as interest on its 12% Convertible
Debentures valued at $6,559.
The accompanying notes are an integral part of the financial statement.
F-5
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for
interim financial information and with the instructions to Form 10-QSB
and Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been
included.
For further information, refer to the financial statements and
footnotes included in Form 10-KSB for the year ended December 31, 2001.
The result of operations for the three-month periods ended March 31,
2002 and 2001 are not necessarily indicative of the results to be
expected for the full year.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. The Company has incurred accumulated net losses
totaling $13,272,041 as of March 31, 2002, and has had periodic cash
flow difficulties, which raise substantial doubt of the Company's
ability to continue as a going concern.
To date, the Company has funded its operations through the issuances of
convertible debt, proceeds from exercised warrants, sales of its Class
A common stock, collections from the sale of company products and loans
from its principal stockholder, the proceeds of which are derived from
sales of this principal stockholder's personal holdings of the
Company's Class A common stock.
The Company operates in an industry segment having inherent risks
generally associated with small technology companies. Such risks
include, but are not limited to, the ability to: a) generate sales of
its product at levels sufficient to cover its costs and provide a
return for investors, b) attract additional capital in order to finance
growth, c) further develop and successfully market and distribute
commercial products and d) successfully compete with other technology
companies having financial, production and marketing resources
significantly greater than those of the Company.
The Company will require additional working capital in the next three
months. In order to raise the necessary working capital, the Company
may enter into financing agreements that will require the issuance of
additional equity. Management believes that appropriate funding will be
generated enabling the Company to continue operations through the
current fiscal year. Management is also confident that future product
sales will generate necessary cash flow, reducing the Company's need
for additional financing. It should be noted however, that no assurance
can be given that these future sales will materialize or that
additional necessary funding can be raised.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts
and classification of liabilities that might be necessary in the event
the Company cannot continue in existence.
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share" requires presentation of basic
earnings per share ("Basic EPS") and diluted earnings per share
("Diluted EPS").
F-6
The computation of basic earnings per share is computed by dividing
income available to common stockholders by the weighted average number
of outstanding common shares during the period. Diluted earnings per
share gives effect to all dilutive potential common shares outstanding
during the period. The computation of diluted EPS does not assume
conversion, exercise or contingent exercise of securities that would
have an anti-dilutive effect on earnings.
The shares used in the computations are as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2001
----------------------------
Basic and Diluted 157,324,754 107,476,215
NOTE 2 - CONVERTIBLE DEBENTURES
The Company has previously issued two series of convertible debentures
consisting of ten notes payable totaling $500,000 bearing interest at
12% per annum and payable on December 1, 2000 and fifteen notes payable
totaling $425,000 bearing interest at 8% and maturing 5 years from the
date of issue.
The 12% debentures are convertible into shares of the Company's Class A
Common Stock at the option of the holder by dividing the outstanding
principal and interest by the conversion price which shall equal 50% of
the average bid price during the 20 trading days before the conversion
date. As of March 31, 2002, $305,200 in principal of the 12% debentures
and $99,644 in accrued interest had been converted into 7,276,488
shares of the Company's Class A Common Stock. Total outstanding
principal balance of the 12% convertible debentures at March 31, 2002
was $194,800 plus accrued interest of $7,305.
The 8% debentures are convertible into Class A common shares at the
lesser of (i) 140% of the closing bid price for the Common Stock on the
Closing Date, or (ii) 80% of the average of the three lowest closing
bid for the 22 trading days immediately preceding the date of
conversion. As of March 31, 2002, all outstanding principal of the 8%
debentures and $9,918 in accrued interest had been converted into
7,740,679 shares of the Company's Class A Common Stock.
NOTE 3 - DUE TO RELATED PARTY
During the period from June 2000 to date, Jerome R. Mahoney, President
and Chief Executive Officer of the Company has sold personal holdings
of the Company's Class A common shares and has loaned the proceeds of
these sales to the Company to fund its working capital requirements.
The Company has executed a promissory note and Security Agreement in
favor of Mr. Mahoney.
As of March 31, 2002, the outstanding loan balance including monies
loaned from the proceeds of stock sales, unpaid compensation, income
taxes incurred from the sale of stock and unreimbursed expenses,
totaled $1,911,852, of this amount, $1,135,433 is reflected in accrued
expenses.
Under the terms of the loan agreements, the note holder may elect
prepayment of the principal and interest owed pursuant to this note by
issuing Jerome Mahoney, or his assigns, one Class B common share of
iVoice, Inc., no par value, for each dollar owed.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
a) In April 2000, the Company entered into a two-year lease agreement
for their office currently utilized as the corporate headquarters.
Monthly lease payments total $11,000. On December 5, 2001, the Company
renegotiated this lease and reduced the space it occupies. The new
lease has an eight-month term requiring monthly payments of $7,000.
F-7
b) In May 1999, the Company entered into a five-year employment
agreement with its majority stockholder (the "Executive"). He will
serve as the Company's Chairman of the Board and Chief Executive
Officer for a term of five years. As consideration, the Company agrees
to pay the Executive a sum of $180,000 the first year with a 10%
increase every year thereafter.
c) The Company has filed suit against PanAm Wireless, Inc. the parent
company of Celpage, Inc. for breach of contract related to the
installation of a 196-port Integrated Voice Response System at the
customer's Guaynabo, Puerto Rico location. PanAm has refused to accept
the remaining ports citing a shortfall in their projected subscriber
base. Subsequent to the filing and in response to our claim, PanAm
Wireless has entered a counterclaim against iVoice alleging iVoice's
failure to supply PanAm Wireless with the required equipment and that
the system did not provide the specified services specified in their
purchase order. iVoice denies PanAm Wireless' counterclaim allegations
and intends to vigorously defend itself in this suit. Currently, the
parties are negotiating a settlement, which include terms that
generally provide for the substantial completion of the original
installation.
d) We have been named as a defendant in a lawsuit brought by Business
Staffing, Inc. filed April 12, 2001. In this lawsuit, the plaintiff
claims non-payment of $37,250 for placement services performed by
Business Staffing. In non-binding arbitration, the arbitrator
determined an amount of $19,250 to be owing to the plaintiff for
services performed. This entire amount has previously accrued and
presents no impact to the financial position of iVoice. Management has
requested a trial hearing and intends to vigorously defend itself
against this claim.
e) The Company's assets are subject to a Security Agreement with the
majority stockholder. See Note 3.
NOTE 5 - CAPITAL LEASE OBLIGATIONS
During the year ended December 31, 2000, the Company incurred two
capital lease obligations totaling $92,895 in connection with the
acquisition of computers and office furniture.
The future minimum lease payments due under the capital leases at March
31, 2002 are follows:
Lease payable for computer equipment, payable at $1,367
per month, including interest at 22.31%. Final
payment is due June 2003. $ 17,750
Lease payable for furniture, payable at $2,151 per month,
including interest at 20.79%. Final payment due April 2003. 23,123
---------
Present value of net minimum lease payments $ 40,873
=========
The future minimum lease payments $ 46,317
Less amount representing interest 5,444
---------
Present value of net minimum lease payments 40,873
Less current portion 36,920
---------
Long term capital lease obligations $ 3,953
=========
NOTE 6 - COMMON STOCK
In August 2001, the Company amended its Certificate of Incorporation to
change the par value of its Class A Common Stock from $.01 to $.001 and
to increase the number of shares the Company is authorized to issue of
its Class A Common Stock from 150,000,000 to 600,000,000 and its Class
B Common Stock from 700,000 to 3,000,000. The amendment also granted
F-8
the board of directors the rights to prescribe and authorize the
issuance of 1,000,000 preferred shares, $1.00 par value.
A) CLASS A COMMON STOCK
Class A Common Stock consists of the following as of March 31, 2002:
600,000,000 shares of authorized common stock with a par value of
$.001, 159,003,954, shares were issued and 158,403,954 shares were
outstanding.
Class A Common Stock has voting rights of 1:1. Each holder of Class A
Common Stock is entitled to receive ratably dividends, if any, as may
be declared by the Board of Directors out of funds legally available
for the payment of dividends. The Company has never paid any dividends
on its Common Stock and does not contemplate doing so in the
foreseeable future. The Company anticipates that any earnings generated
from operations will be used to finance the Company's growth
objectives.
For the three months ended March 31, 2002, the Company had the
following transactions in its Class A Common Stock:
1. The Company issued 10,000 shares of its Class A Common Stock for
services rendered valued at $540.
2. The Company issued 505,921 shares of Class A Common Stock for the
conversion of $15,000 in debenture principal and 317,576 shares
for $13,885 in accrued interest.
3. The Company issued 4,364,516 shares of Class A Common Stock for
the conversion of $95,679 in accrued interest on its outstanding
convertible debentures.
B) CLASS B COMMON STOCK
Class B Common Stock consists of the following as of March 31, 2002:
3,000,000 shares of authorized common stock with no par value of which,
700,000 shares were issued; and 354,000 shares were outstanding. To
date, a total of 346,000 Class B shares have been converted into
34,600,000 Class A shares. Class B Common Stock has voting rights of
100 to 1 with respect to Class A Common Stock. Class B common
stockholders are not entitled to receive dividends.
There were no transactions involving Class B Common stock in the three
months ended March 31, 2002.
C) PREFERRED STOCK
Preferred Stock consists of 1,000,000 shares of authorized preferred stock with
$1.00 par value. As of March 31, 2002, no shares were issued or outstanding.
F-9
[LOGO]
MENDLOWITZ WEITSEN, LLP, CPAS
K2 BRIER HILL COURT, EAST BRUNSWICK, NJ 08816-3341
TEL: 732.613.9700 FAX: 732.613.9705 E-MAIL: MW@MWLLP.COM
INDEPENDENT AUDITOR'S REPORT
----------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS' OF
IVOICE, INC.
Matawan, New Jersey
We have audited the accompanying balance sheets of IVOICE, INC. as of December
31, 2001 and 2000, and the related statements of operations, stockholders'
deficiency and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IVOICE, INC. as of December 31,
2001 and 2000, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1(a), the Company
had net losses and negative cash flows from operations for the years ended
December 31, 2001 and 2000, and as of those dates had negative working capital,
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 1(a).
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
MENDLOWITZ WEITSEN, LLP
East Brunswick, New Jersey
February 11, 2002
F-10
IVOICE, INC.
BALANCE SHEETS
ASSETS December 31,
------ ------------
2001 2000
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 85,543 $ 55,349
Accounts receivable, net of allowance for
doubtful accounts of $4,000 and $31,025 37,284 292,554
Inventory 20,586 20,228
Prepaid expenses and other current assets 331,361 164,711
---------- -----------
Total current assets 474,774 532,842
---------- -----------
PROPERTY AND EQUIPMENT, NET 106,585 140,921
---------- -----------
OTHER ASSETS
Other receivable 67,650 67,650
Software license costs, net of accumulated amortization of $272,000 and $163,200 272,000 380,800
Financing costs, net of accumulated amortization of $0 and $1,297 35,427 118,370
Intangible assets, net of accumulated amortization of $21,041 and $7,917 271,299 254,584
Deposits and other assets 13,900 13,900
------------ ------------
Total other assets 660,276 767,654
------------ ------------
TOTAL ASSETS $ 1,241,635 $ 1,441,417
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Obligations under capital leases - current $ 35,018 $ 28,339
Accounts payable and accrued expenses 1,454,055 566,337
Due to related parties 806,419 648,078
Convertible debentures 359,800 337,000
Billings in excess of costs and estimated earnings 43,617 170,237
------------ ------------
Total current liabilities 2,698,909 1,749,991
LONG-TERM DEBT
Obligations under capital leases - non-current 13,928 48,945
------------ ------------
Total liabilities 2,712,837 1,798,936
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock, $1 par value; Authorized shares - 1,000,000 in 2001; none
in 2000 Issued and outstanding shares - none in 2001 and 2000
Common stock, Class A - par value $.001 in 2001 and $.01 in 2000 Authorized
shares - 600,000,000 shares in 2001 and 150,000,000 in 2000
Issued and outstanding shares - 154,123,517 in 2001 and 103,969,715 in 2000 1,175,278 1,039,697
Common stock, Class B - no par value
Authorized shares - 3,000,000 in 2001 and 700,000 in 2000 Issued shares -
700, 000
Outstanding shares - 354,000 in 2001 and 364,000 in 2000. 36 37
Subscription receivable (783,750) -
Additional paid in capital 10,568,103 7,586,182
Accumulated deficit (12,430,869) (8,983,435)
------------ ------------
Total stockholders' deficiency (1,471,202) (357,519)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,241,635 $ 1,441,417
============= =============
The accompanying notes are an integral part of the financial statement.
F-11
IVOICE, INC.
STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
------------
2001 2000
------------- ------------
SALES, NET $ 425,948 $ 723,046
COST OF SALES 167,229 302,895
------------- ------------
GROSS PROFIT 258,719 420,151
------------- ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 165,617 371,272
General and administrative expenses 2,297,015 1,662,142
Research and development 387,463 423,467
Bad debt expense 24,808 75,195
Depreciation and amortization 161,089 146,234
------------- ------------
Total selling, general and administrative expenses 3,035,992 2,678,310
------------- ------------
LOSS FROM OPERATIONS (2,777,273) (2,258,159)
OTHER EXPENSE
Interest expense (670,161) (633,220)
-------------- ------------
LOSS BEFORE INCOME TAXES (3,447,434) (2,891,379)
PROVISION FOR INCOME TAXES - -
------------- -------------
NET LOSS $ (3,447,434) $ (2,891,379)
============= ============
NET LOSS PER COMMON SHARE
Basic $ (.03) $ (.03)
============= ============
Diluted $ (.03) $ (.03)
============= ============
The accompanying notes are an integral part of the financial statement.
F-12
IVOICE, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Common Stock Class A Common Stock Class B
Shares Amount Shares Amount
------ ------ ------ ------
Balance at January 1, 2001 103,969,715 $ 1,039,697 364,000 $ 37
Issuance of common stock for settlements 2,128,000 21,280 - -
Issuance of common stock for services 15,194,287 32,693 - -
Issuance of common stock for exercise
of stock options 18,000,000 18,000 - -
Subscriptions received - - - -
Issuance of common stock for cash 1,172,000 11,720 - -
Issuance of common stock for compensation 2,183,834 20,371 - -
Issuance of convertible debentures - - - -
Issuance of stock on conversion of Class B shares 1,000,000 1,000 (10,000) (1)
Issuance of stock for repayment of amounts
due to related parties 328,951 3,290 - -
Issuance of stock on debenture conversion 9,829,204 25,972 - -
Issuance of stock on interest conversion 317,526 1,255 - -
Net loss for the year ended December 31, 2001 - - - -
--------- -------- -------- -----
Balance at December 31, 2001 154,123,517 $1,175,278 354,000 $ 36
=========== ========== ========= =====
The accompanying notes are an integral part of the financial statement.
F-13
IVOICE, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Stock Additional Total
Subscriptions Paid in Accumulated Stockholders'
Receivable Capital Deficit Deficiency
---------- ------- ------- ----------
Balance at January 1, 2001 $ - $7,586,182 $(8,983,435) $ (357,519)
Issuance of common stock for settlements - 189,800 - 211,080
Issuance of common stock for services - 886,212 - 918,905
Issuance of common stock for exercise
of stock options (990,000) 972,000 - -
Subscriptions received 206,250 - 206,250
Issuance of common stock for cash - 153,370 - 165,090
Issuance of common stock for compensation - 214,060 - 234,431
Issuance of convertible debentures - 106,250 - 106,250
Issuance of stock on conversion of Class B -
shares (999) - -
Issuance of stock for repayment of amounts
due to related parties - 72,369 75,659
Issuance of stock on debenture conversion - 376,229 - 402,201
Issuance of stock on interest conversion - 12,630 - 13,885
Net loss for the year ended December 31, 2001 - - (3,447,434) (3,447,434)
------------ ---------- ------------ -----------
Balance at December 31, 2001 $ (783,750) $10,568,103 $(12,430,869) $ (1,471,202)
============ =========== ============= =============
The accompanying notes are an integral part of the financial statement.
F-14
IVOICE, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Common Stock Class A Common Stock Class B
Shares Amount Shares Amount
------ ------ ------ ------
Balance at January 1, 2000 54,093,663 $ 540,937 700,000 $ 70
Issuance of common stock for legal settlement 2,000,000 20,000 - -
Issuance of common stock for services 848,718 8,487 - -
Issuance of common stock for exercise
of stock options 9,100,000 91,000 - -
Issuance of common stock for cash 3,240,047 32,400 - -
Issuance of common stock for compensation 80,000 800 - -
Issuance of convertible debentures - - - -
Issuance of stock on conversion of Class B shares 33,600,000 336,000 (336,000) (33)
Issuance of stock on debenture conversion 1,007,287 10,073 - -
Net loss for the year ended December 31, 2000 - - - -
--------- -------- --------- ------
Balance at December 31, 2000 103,969,715 $1,039,697 364,000 $ 37
=========== ========== ========= ======
The accompanying notes are an integral part of the financial statement.
F-15
IVOICE, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Additional Total
Paid in Accumulated Stockholders'
Capital Deficit Deficiency
------- ------- ----------
Balance at January 1, 2000 $1,395,671 $(6,092,056) $(4,155,378)
Issuance of common stock for legal settlement 4,480,000 - 4,500,000
Issuance of common stock for services 509,668 - 518,155
Issuance of common stock for exercise
of stock options 228,166 - 319,166
Issuance of common stock for cash 936,579 - 968,979
Issuance of common stock for compensation 69,138 - 69,938
Issuance of convertible debentures 150,000 - 150,000
Issuance of stock on conversion of Class B shares (335,967) - -
Issuance of stock on debenture conversion 152,927 - 163,000
Net loss for the year ended December 31, 2000 - (2,891,379) (2,891,379)
- ------------ -----------
Balance at December 31, 2000 $7,586,182 $(8,983,435) $ (357,519)
========== ============ ===========
The accompanying notes are an integral part of the financial statement.
F-16
IVOICE, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
------------
2001 2000
------------ -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (3,447,434) $(2,891,379)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities
Depreciation and amortization 161,089 147,531
Bad debt expense 24,808 75,195
Stock option discounts 56,250 -
- - -
Debt issue costs 259,780 544,041
Common stock issued for services 536,989 518,155
Common stock issued for compensation 234,431 69,938
Common stock issued for settlements 211,080 -
Common stock issued for interest 13,883 -
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable 15,587 231,277
(Increase) decrease in inventory (358) (10,088)
Decrease in other assets 124,589 23,489
Increase in accounts payable and accrued expenses 916,220 384,583
Increase (decrease) in legal settlement payable - (300,000)
Increase (decrease) in billings in excess of costs
on uncompleted contracts 20,605 (397,063)
------------ -----------
Total cash used in operating activities (872,481) (1,604,321)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,828) ( 22,135)
Purchase of intangibles (3,090) (382,168)
------------ -----------
Total cash used in investing activities (7,918) (404,303)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 129,931 818,979
Proceeds from stock option exercise - 319,166
Proceeds from related party loans 354,000 627,078
Repayments of related party loans (120,000) -
Prepaid offering and debt issue costs - (31,500)
Collections of stock subscriptions 150,000 -
Repayment of capital leases payable (28,338) (15,611)
Sale of convertible debentures 425,000 150,000
------------ -----------
Total cash provided by financing activities 910,593 1,868,112
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,194 (140,512)
CASH AND CASH EQUIVALENTS - BEGINNING 55,349 195,861
------------ -----------
CASH AND CASH EQUIVALENTS - END $ 85,543 $ 55,349
============ ===========
CASH PAID DURING THE YEAR FOR:
Interest expense $ 13,872 $ 7,590
============ ===========
Income taxes $ - $ -
============ ===========
The accompanying notes are an integral part of the financial statement.
F-17
IVOICE, INC.
STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2001 AND 2000
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
For the Year Ended December 31, 2001
------------------------------------
a) The Company issued 15,194,287 shares of its Class A Common
Stock for services valued at $1,062,055. Of these shares, the
company has registered for resale with the U.S. Securities and
Exchange Commission, 10,600,000 shares during the year ended
December 31, 2001.
b) The Company issued 2,183,834 restricted shares of its Class A
Common Stock as compensation to Company employees valued at
$234,431.
c) The Company issued 828,000 registered shares and 850,000
restricted shares of its Class A Common Stock as payment for
termination of the Swartz Financing Agreement valued at
$154,830.
d) The Company issued 450,000 restricted shares of its Class A
Common Stock to a holder of its 12% convertible debentures as
settlement for failure to register shares under the
registration rights agreement related to the 12% Convertible
Debentures valued at $56,250.
e) The Company issued 328,951 restricted shares of its Class A
Common Stock as repayment of amounts owed to related parties
valued at $75,659.
f) The Company issued 2,892,628 shares of its Class A Common
Stock for the repayment of $142,200 in principal on its 12%
Convertible Debentures.
g) The Company issued 6,936,576 shares of its Class A Common
Stock for the repayment of $260,000 in principal on its 8%
Convertible Debentures
h) The Company issued 317,526 shares of its Class A Common Stock
for interest on its 8% and 12% Convertible Debentures valued
at $13,883.
i) The Company issued $425,000 of its 8% Convertible Debentures
exercisable at an 80% conversion price. The 20% conversion
discount totaling $106,250 was recorded as interest expense.
The accompanying notes are an integral part of the financial statement.
F-18
IVOICE, INC.
STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2001 AND 2000
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES - CONTINUED
For the Year Ended December 31, 2000
- ------------------------------------
a) On February 10, 2000, the Company converted a $4,500,000 legal
settlement payable into 2,000,000 shares of its restricted Class A
Common Stock.
b) On January 10 and February 2, 2000, the Company issued $100,000
and $50,000 respectively, of its 12% Convertible Debentures
exercisable at a 50% conversion price. The 50% conversion discount
totaling $150,000 was recorded as a prepaid debt issue cost and
will be amortized over the life of the debt.
c) During the year ended December 31, 2000, the Company issued
848,718 shares of its restricted Class A Common Stock for services
valued at $518,155.
d) On April 24, 2000, the Company issued 50,000 shares of its
restricted Class A Common Stock to Corporate Architects, Inc. with
a value of $46,875 as a referral fee for the purchase of ThirdCAI,
Inc. ("ThirdCAI")
e) During the year the Company issued 80,000 shares of its restricted
Class A Common Stock as compensation valued at $69,938.
f) During the year the Company purchased equipment under capital
leases totaling $92,895.
The accompanying notes are an integral part of the financial statement.
F-19
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION The accompanying financial statements
include the accounts of iVoice, Inc. (the "Company" or "iVoice"),
formerly known as Visual Telephone International, Inc. ("Visual")
which was incorporated under the laws of Utah on December 2, 1995,
subsequently changed to Delaware.
Effective May 21, 1999, Visual and International Voice
Technologies, Corp. ("IVT") entered into a merger agreement
whereby the Company was the surviving entity (see Note 2 for
Reorganization). As a result, IVT's former stockholder obtained
control of Visual. For accounting purposes, this acquisition has
been treated as a re-capitalization of IVT.
On August 24, 2001, the Company amended its certificate of
incorporation to change its name to iVoice, Inc. from iVoice.com,
Inc.
The Company is publicly traded and is currently traded on the Over
The Counter Bulletin Board ("OTCBB") under the symbol "IVOC".
As reflected in the accompanying financial statements, the Company
had a loss and a negative cash flow from operations as well as a
negative working capital as of December 31, 2001 and 2000. These
matters raise substantial doubt about the Company's ability to
continue as a going concern.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheets is dependent upon
continued operations of the Company, which in turn, is dependent
upon the Company's ability to continue to raise capital and/or
generate positive cash flows from operations.
To date, the Company has funded its operations through the
issuance of convertible debt, sales of its Class A Common Stock
and loans from its principal stockholder, the proceeds of which
are derived from sales of this principal stockholder's personal
holdings of the Company's Class A Common Stock. The Company has
incurred accumulated net losses totaling $12,430,869 through the
year ended December 31, 2001, and had a cash balance of $85,543 as
of that date. Considering expected cash requirements for the up
coming year, there is substantial doubt as to the Company's
ability to continue operations.
The Company believes that its' condition resulted from the
inherent risks associated with small technology companies. Such
risks include, but are not limited to, the ability to: a) generate
sales of its product at levels sufficient to cover its costs and
provide a return for investors, b) attract additional capital in
order to finance growth, c) further develop and successfully
market commercial products and d) successfully compete with other
F-20
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
technology companies having financial, production and marketing
resources significantly greater than those of the Company.
The financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets, or
the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
Throughout the 2001 fiscal year, the Company has reduced its
operating budget to conserve its cash resources. These reductions
include renegotiating the lease for its corporate headquarters,
staff reductions through consolidation of job functions,
consolidation of telecommunication contracts for voice and data
service as well as careful analysis of other recurring monthly
expense items.
In an effort to reach profitability and become less dependent on
its requirement to finance continuing operations, the Company is
working on increasing its revenue and profit margins through the
establishment of its own dealer and reseller channel. Management
believes that leveraging already existing equipment manufacturers
reseller channels will provide an avenue to distribute software
only, which produce greater profit margins as opposed to turnkey
systems which involve purchasing and sub-assembly of hardware
components. The recent introduction of an entirely TAPI (Telephone
Application Program Interface) based Speech-enabled Auto Attendant
and Name Dialer, allows integration into different PBX systems
without the need for additional hardware devices. These
integration changes should provide for greater appeal to telephony
re-sellers allowing for more economical customer installations
with no reduction in the prices iVoice charges for its own
software.
Furthermore, the Company intends to add sales personnel in the
upcoming fiscal year to increase its efforts in establishing
relationships with original equipment manufacturers. Management
considers good working relationships with manufacturers will
assist in the promotion of iVoice products to the manufacturers
authorized re-seller networks.
In order to provide necessary working capital in the current
fiscal year, the Company will seek to raise cash through issuances
of additional equity, and/or convertible debt arrangements.
Management believes that appropriate funding will be generated and
future product sales will result from its increased marketing
efforts and that the Company will continue operations through the
next fiscal year; however, no assurance can be given that sales
will be generated or that additional necessary funding will be
raised.
b) Line of Business
----------------
The Company is a communication company primarily engaged in the
development, manufacturing and marketing of voice recognition and
computerized communication systems for small-to-medium sized
businesses and corporate departments. The technology allows these
businesses to communicate more effectively by integrating speech
recognition into their traditional office telephone systems with
F-21
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
voicemail, automated attendant and interactive voice response
("IVR") functions. IVR products allow information in PC databases
to be accessed from a standard touch-tone telephone system. The
Company sells its products directly to business customers, through
Dealer and Reseller channels as well as through OEM agreements
with certain telecommunications and networking companies
throughout the United States.
c) USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
d) REVENUE RECOGNITION The Company obtains its income primarily from
the sale of its voice recognition and computer technology
communication systems. Revenue for systems which require
customization to meet a customer's specific needs or technical
requirements, is recognized by the contract method of accounting,
using percentage of completion. Progress toward completion is
measured by costs incurred to date as a percentage of total
estimated costs for each contract. Under the percentage of
completion method, the liability "Billings in excess of costs and
estimated earnings" represents billings in excess of revenues
earned. The completed contract method is used for systems, which
do not require customization or installation. The Company
recognizes revenue from support services at the time the service
is performed or over the period of the contract for
maintenance/support.
e) ADVERTISING COSTS Advertising costs are expensed as incurred and
are included in selling expenses. For the years ended December 31,
2001 and 2000, advertising expense amounted to $42,006 and
$88,881, respectively.
f) CASH AND CASH EQUIVALENTS The Company considers all highly liquid
investments purchased with original maturities of three months or
less to be cash equivalents.
g) CONCENTRATION OF CREDIT RISK The Company places its cash in what
it believes to be credit-worthy financial institutions. However,
cash balances exceeded FDIC insured levels at various times during
the year.
h) INVENTORY Inventory, consisting primarily of system components
such as computer components, voice cards, and monitors, is valued
at the lower of cost or market. Cost is determined on a first-in,
first-out basis.
F-22
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
i) PROPERTY AND EQUIPMENT Property and equipment is stated at cost.
Depreciation is computed using the straight-line method based upon
the estimated useful lives of the assets, generally five to seven
years. Maintenance and repairs are charged to expense as incurred.
j) SOFTWARE LICENSE COST Software license costs are recorded at cost,
which approximates fair market value as of the date of purchase.
These costs represent the purchase of various exploitation rights
to certain software, pre-developed codes and systems patented by
Parwan Electronics, Corp. ("Parwan"), a non-related third party.
These costs are capitalized pursuant to Statement of Financial
Accounting Standards ("SFAS") 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", and
are being amortized using the straight-line method over a period
of five years. As described later in Note 1, the Company has
adopted SFAS No. 121. The carrying value of software license costs
are regularly reviewed by the Company and a loss would be
recognized if the value of the estimated un-discounted cash flow
benefit related to the asset falls below the unamortizated cost.
No impairment loss was recognized as of December 31, 2001.
k) INCOME TAXES Income taxes are provided for based on the liability
method of accounting pursuant to SFAS No. 109, "Accounting for
Income Taxes." The liability method requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the reported amount
of assets and liabilities and their tax basis.
l) FINANCING COSTS Financing costs consist primarily of professional
fees and various commissions paid relating to the issuance of the
Company's convertible debentures. These costs are deferred and
amortized over the term of the issues to which they relate.
m) DEBT ISSUE COSTS Debt issue costs represent the estimated cost of
the conversion discount feature relating to the issuance of the
Company's convertible debentures. In previous years, these costs
were amortized and charged to interest expense over the life of
the debt. During the year ended December 31, 2001, the Company
charged to expense the fair value of the beneficial conversion
features of the convertible debt as measured at the date of
issuance in accordance with EITF Issue 98-5. The switch to this
method of accounting did not have a material affect on the
Company's financial statements.
F-23
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
n) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of cash and
cash equivalents, accounts receivable, inventory, accounts
payable, accrued expenses and deferred revenue approximates fair
value due to the relatively short maturity of these instruments.
o) LONG-LIVED ASSETS SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
requires that long-lived assets and certain identifiable
intangibles to be held and used or disposed of by an entity be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company has adopted this statement and
determined that an impairment loss should not be recognized for
applicable assets of continuing operations.
p) EARNINGS PER SHARE SFAS No. 128, "Earnings Per Share" requires
presentation of basic earnings per share ("basic EPS") and diluted
earnings per share ("diluted EPS").
The computation of basic EPS is computed by dividing income
available to common stockholders by the weighted average number of
outstanding Common shares during the period. Diluted earnings per
share gives effect to all dilutive potential Common shares
outstanding during the period. The computation of diluted EPS does
not assume conversion, exercise or contingent exercise of
securities that would have an anti-dilutive effect on earnings.
The shares used in the computations are as follows:
AS OF December 31,
2001 2000
---- ----
Basic and Diluted EPS 125,732,776 87,034,303
=========== ==========
q) COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive
Income", establishes standards for the reporting and display of
comprehensive income and its components in the financial
statements. The items of other comprehensive income that are
typically required to be displayed are foreign currency items,
minimum pension liability adjustments, and unrealized gains and
losses on certain investments in debt and equity securities. As of
December 31, 2001 and 2000, the Company has no items that
represent comprehensive income, and thus, has not included a
statement of comprehensive income.
r) RECENT ACCOUNTING PRONOUNCEMENTS SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information" requires that a
public company report financial and descriptive information about
its reportable operating segments. It also requires that an
enterprise report certain information about its products and
services, the geographic areas in which they operate and their
major customers. In determining the requirements of this
F-24
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
pronouncement, Management believes that there is no materially
reportable segment information with respect to the Company's
operations and does not provide any segment information regarding
products and services, major customers, and the material countries
in which the Company holds assets and reports revenue.
SFAS No. 133, "Accounting for Derivative Instruments and for
Hedging Activities" requires that certain derivative instruments
be recognized in balance sheets at fair value and for changes in
fair value to be recognized in operations. Additional guidance is
also provided to determine when hedge accounting treatment is
appropriate whereby hedging gains and losses are offset by losses
and gains related directly to the hedged item. While the standard,
as amended, must be adopted in the fiscal year beginning after
June 15, 2000, its impact on the Company's financial statements is
not expected to be material as the Company has not historically
used derivative and hedge instruments.
SFAS No. 142, "Goodwill and Other Intangible Assets" requires
goodwill to be tested for impairment under certain circumstances,
and written off when impaired, rather than being amortized as
previous standards require. It is effective for fiscal years
beginning after December 15, 2001. Early application is permitted
for entities with fiscal years beginning after March 15, 2001
provided the first interim period financial statements have not
been previously issued. The Company is currently assessing the
impact of this pronouncement on its operating results and
financial condition.
Statement of Position ("SOP") No. 98-1 specifies the appropriate
accounting for costs incurred to develop or obtain computer
software for internal use. The new pronouncement provides guidance
on which costs should be capitalized, and over what period such
costs should be amortized and what disclosures should be made
regarding such costs. This pronouncement is effective for fiscal
years beginning after December 15, 1998, but earlier application
is acceptable. Previously capitalized costs will not be adjusted.
The Company believes that it is already in substantial compliance
with the accounting requirements as set forth in this new
pronouncement and therefore believes that adoption will not have a
material effect on financial condition or operating results.
SOP No. 98-5 requires that companies write-off defined previously
capitalized start-up costs including organization costs and
expense future start-up costs as incurred. The Company believes
that it is already in substantial compliance with the accounting
requirements as set forth in this new pronouncement and therefore
believes that adoption will not have a material effect on
financial condition or operating results.
NOTE 2 - CORPORATE REORGANIZATION AND MERGER
On May 21, 1999, the Company executed a Reorganization Agreement
(the "Agreement") that provided that the Company and International
F-25
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
Voice Technologies, Corp. ("IVT") would be merged and the Company
would be the surviving entity. On May 25, 1999, a certificate of
merger was filed with the State of Delaware. In connection with
the merger transaction, the sole stockholder of IVT, received the
following:
i) 10,000,000 shares of the Company's Class A Common Stock;
and
ii) 400,000 shares of the Company's Class B Common Stock.
In addition, the two controlling stockholders of Visual sold
300,000 shares of the Company's Class B Common Stock to IVT's sole
stockholder and concurrently canceled a total of 2,000,000 shares
of their Class A Common Stock.
A finder's fee of 2,000,000 shares was issued on August 30, 1999,
in connection with the reorganization.
The Agreement also provided that certain assets of the Company
would be transferred to Communications Research, Inc., ("CRI"), a
wholly owned subsidiary of Visual, and that shares of CRI would be
distributed pro rata to the Class A stockholders of the Company
before the issuance of the 10,000,000 shares to the sole
stockholder of IVT. The stock of CRI was distributed at the rate
of one share of CRI for four shares of the Company's Class A
Common Stock. On September 18, 2000, CRI filed a registration
statement with the U.S. Securities and Exchange commission to
provide for the distribution of its shares to former Visual
stockholders.
This merger transaction has been accounted for in the financial
statements as a public shell merger. As a result of this
transaction the former stockholders of IVT acquired or exercised
control over a majority of the shares of Visual. Accordingly, the
transaction has been treated for accounting purposes as a
recapitalization of IVT and, therefore, these financial statements
represent a continuation of the legal entity, IVT, not Visual, the
legal survivor. Consequently, the comparative figures are those of
iVoice.com, Inc. Because the historical financial statements are
presented in this manner, proforma financial statements are not
required.
In accounting for this transaction:
i) IVT is deemed to be the purchaser and surviving company
for accounting purposes. Accordingly, its net assetsare
included in the balance sheet at their historical book
values;
ii) Control of the net assets and business of Visual was
acquired effective May 21, 1999 (the "Effective Date").
This transaction has been accounted for as a purchase of
the assets and liabilities of Visual by IVT at the fair
F-26
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
value of $138,000. The historical cost of the net assets
acquired was $90,780. A summary of the assigned values of
the net assets acquired is as follows:
Cash and cash equivalents $ 191
Property and equipment 138,809
Accrued expenses (1,000)
---------
Net assets acquired $ 138,000
=========
On April 24, 2000, the Company entered into an agreement and plan
of reorganization with all the stockholders of ThirdCAI, another
shell company that was a reporting company under the Securities
Exchange Act of 1934. In this transaction, which took place by
means of a short-form merger, with ThirdCAI's name being changed
to iVoice, the Company acquired all the issued and outstanding
shares of ThirdCAI in exchange for $150,000, and a finder's fee
paid to Corporate Architect, Inc., consisting of 50,000 shares of
Class A voting Common Stock. The fee was negotiated between the
Company and ThirdCAI. The purpose of this transaction was to
enable the Company's business to be conducted by a reporting
company, as pursuant to the "eligibility rule" adopted by the
National Association of Securities Dealers, Inc., or "NASD," as
only reporting companies may continue to have stock quoted on the
OTC Bulletin Board.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
December 31,
------------
2001 2000
------------- ------------
Equipment $ 59,524 $ 56,196
Leasehold improvements 10,184 8,684
Furniture and fixtures 123,394 123,394
------------- ------------
193,102 188,274
Less: Accumulated depreciation 86,517 47,353
------------- ------------
Property and equipment, net $ 106,585 $ 140,921
============= ============
Depreciation expense for the years ended December 31, 2001 and 2000 was
$39,164 and $29,517, respectively.
NOTE 4 - BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS
Billings in excess of costs and estimated earnings on uncompleted
contracts as of December 31, 2001 and 2000 consists of the following:
F-27
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
December 31,
------------
2001 2000
1999 -------------- ------------
- ----
Costs incurred on uncompleted contracts $ 56,385 $ 91,745
Estimated earnings 53,763 117,488
------------- -----------
110,148 209,233
Less billings to date 153,765 379,450
------------- -----------
$ (43,617) $ (170,237)
============== ============
NOTE 5 - INCOME TAXES
The components of the provision for income taxes are as follows:
December 31,
------------
2001 2000
-------------- ------------
Current Tax Expense
U.S. Federal $ - $ -
State and Local - -
------------- -----------
Total Current - -
------------- -----------
Deferred Tax Expense
U.S. Federal - -
State and Local - -
------------- -----------
Total Deferred - -
------------- -----------
Total Tax Provision from Continuing Operations $ - $ -
============= ===========
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
Federal Income Tax Rate (34.0)%
Deferred Tax Charge (Credit) -
Effect on Valuation Allowance 38.7%
State Income Tax, Net of Federal Benefit (4.1)%
----------
Effective Income Tax Rate 0.0%
==========
As of December 31, 2001 and 2000, the Company had net carryforward
losses of approximately $6,900,000 and $3,500,000 that can be utilized
to offset future taxable income through 2014. Utilization of these net
carryforward losses is subject to the limitations of Internal Revenue
Code Section 382. Because of the current uncertainty of realizing the
benefit of the tax carryforward, a valuation allowance equal to the tax
benefit for deferred taxes has been established. The full realization
of the tax benefit associated with the carryforward depends
predominantly upon the Company's ability to generate taxable income
during the carryforward period.
F-28
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. Significant components of the Company's deferred
tax assets and liabilities are summarized as follows:
December 31
-----------
2001 2000
------------ -------------
Net Operating Loss Carryforwards $ 2,630,000 $ 1,190,000
Less: Valuation Allowance (2,630,000) (1,190,000)
------------ -------------
Net Deferred Tax Assets $ - $ -
============ =============
Net operating loss carryforwards expire starting in 2007 through 2016.
NOTE 6 - DUE TO RELATED PARTY
During the period from June 2000 to date, Jerome R. Mahoney, President
and Chief Executive Officer of the Company has sold personal holdings
of the Company's Class A common shares and has loaned the proceeds of
these sales to the Company to fund its working capital requirements.
The Company has executed a promissory note and Security Agreement in
favor of Mr. Mahoney.
As of December 31, 2001, the outstanding loan balance including monies
loaned from the proceeds of stock sales, unpaid compensation, income
taxes incurred from the sale of stock unreimbursed expenses and
interest on the unpaid balance at 9.5% totaled $1,746,610, of this
amount, $940,191 is reflected in accrued expenses.
Under the terms of the loan agreements, the note holder may elect
prepayment of the principal and interest owed pursuant to this note by
issuing Jerome Mahoney, or his assigns, one Class B common share of
iVoice, Inc., no par value, for each dollar owed.
NOTE 7 - CONVERTIBLE DEBENTURES
The Company has previously issued two series of convertible debentures
consisting of ten notes payable totaling $500,000 bearing interest at
12% per annum and payable on December 1, 2000 and fifteen notes payable
totaling $425,000 bearing interest at 8% and maturing 5 years from the
date of issue.
The 12% debentures are convertible into shares of the Company's Class A
Common Stock at the option of the holder by dividing the outstanding
principal and interest by the conversion price which shall equal 50% of
the average bid price during the 20 trading days before the conversion
date. As of December 31, 2001, $305,200 in principal of the 12%
debentures and $6,559 in accrued interest had been converted into
F-29
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
2,996,738 shares of the Company's Class A Common Stock. Total
outstanding principal balance of the 12% convertible debentures at
December 31, 2001 was $194,800 plus accrued interest of $82,514.
The 8% debentures are convertible into Class A common shares at the
lesser of (i) 140% of the closing bid price for the Common Stock on the
Closing Date, or (ii) 80% of the average of the three lowest closing
bid for the 22 trading days immediately preceding the date of
conversion. As of December 31, 2001, $260,000 in principal of the 8%
debentures and $7,324 in accrued interest had been converted into
7,149,992 shares of the Company's Class A Common Stock. Total
outstanding principal balance of the 8% convertible debentures at
December 31, 2001 was $165,000 plus accrued interest of $3,936.
The Company has been advised by the holders of the 12% debentures that
the Company has breached the following terms of the debentures: (a)
Failure to register, on a timely basis, under the Securities Act of
1933, the shares issuable upon the conversion of the debentures, (b)
Registering additional shares other than the shares issuable upon the
conversion of the debentures, and (c) Failure to provide the debenture
holders a perfected security interest in certain assets of the Company
pursuant to a Security Agreement that was part of the debenture
documentation. The Company has reached settlement terms with one
previous holder of the 12% debentures regarding the interest and
penalties demanded under default by this former holder whereby the
Company has issued 450,000 shares to this former holder in full
settlement of their claim. The Company has not accrued any amounts with
respect to the Company's default on the 12% debentures that may be due
to the remaining holders. The Company anticipates issuing additional
shares to settle the debenture holders, claims arising from our default
the amount of which is undeterminable at this time.
NOTE 8 - CAPITAL LEASE OBLIGATIONS
During the year ended December 31, 2000, the Company incurred two
capital lease obligations totaling $92,895 in connection with the
acquisition of computers and office furniture.
The future minimum lease payments due under the capital leases at
December 31, 2001 are follows:
Lease payable for computer equipment, payable
at $1,367 per month, including interest at 22.31%.
Final payment is due June 2003. $ 20,749
Lease payable for furniture, payable at $2,151 per
month, including interest at 20.79%. Final payment
due April 2003. 28,197
----------
F-30
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
Present value of net minimum lease payments $ 48,946
==========
The future minimum lease payments $ 56,864
Less amount representing interest 7,918
---------
Present value of net minimum lease payments 48,946
Less current portion 35,018
----------
Long term capital lease obligations $ 13,928
===========
NOTE 9 - COMMITMENTS AND CONTINGENCIES
a) a) In April 2000, the Company entered into a two-year lease
agreement for their office currently utilized as the corporate
headquarters. Monthly lease payments total $11,000. On December 5,
2001, the Company renegotiated this lease and reduced the space it
occupies. The new lease has an eight-month term with monthly
payments of $7,000. At December 31, 2001, the Company was in
arrears on rents due under the original lease for a total of
$9,000. Under the renegotiated lease, this arrearage is being paid
in monthly amounts of $2,000 along with amounts currently due.
Rent expense under operating leases for the year ended December
31, 2001 and 2000 was $176,560 and $153,175, respectively.
The Company's future net minimum annual aggregate rental payments
required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year are as follows:
DECEMBER 31,
2002 $ 65,000
=========
b) On May 1, 1999, the Company entered into a five-year employment
agreement with its majority stockholder (the "Executive"). He will
serve as the Company's Chairman of the Board and Chief Executive
Officer for a term of five years. As consideration, the Company
agrees to pay the Executive a sum of $180,000 the first year with
a 10% increase every year thereafter.
c) In connection with the Reorganization Agreement, the Company
entered into a five-year consulting agreement with one of Visual's
Directors (the "Director"). The agreement provided that the
Director would receive a fee of $104,000. This agreement was
terminated with the Director's resignation on May 16, 2000.
d) On June 2, 1999, subsequently amended January 11, 2000, the
Company entered into a three-year employment agreement, expiring
on May 31, 2002, with an employee. As compensation, such employee
will receive a base salary of $80,000, 250,000 shares of the
F-31
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
Company's Class A Common Stock and options to purchase 140,000
shares of the Company's Class A Common Stock. On August 23, 2001
this employee was terminated. All unvested options to purchase
Company shares were subsequently canceled at the employee's
termination date.
e) The Company's revenues for the year ending December 31, 2000
include $140,950 from Celpage, Inc. The amount of the contract
dated February 9, 2000 totaled $288,175 for the installation of a
196-port Integrated Voice Response System at the customer's
Guaynabo, Puerto Rico location. To date, the Company has received
$42,800 for the installation of 24-ports, which include all
database development costs necessary for the entire installation.
Celpage has refused to accept the remaining ports citing a
shortfall in their projected subscriber base. Other assets of the
Company's balance sheet at December 31, 2001 reflects a receivable
of $67,650 representing total amounts due under the contract
related to this installation of $245,375 less deferred revenues of
$147,225 and a reserve of $30,500. The Company has made attempts
to complete the remaining installation by offering incentives in
the form of price reductions however, the customer has refused.
The Company has filed suit against PanAm Wireless, Inc., the
parent company of Celpage, Inc., to attempt to recover the balance
of the contract. PanAm Wireless, Inc. has subsequently filed a
counterclaim against iVoice alleging iVoice's failure to supply
PanAm with the required equipment and that the system did not
provide the services as specified in the purchase order. iVoice
denies PanAm's counterclaime) allegations and intends to
vigorously defend itself in this lawsuit.
f) The Company is currently involved with three lawsuits in which it
is the defendant. Two of these suits were served by employment
agencies for non-payment of placement fees in connection with the
hiring of employees, one of which has been dismissed without
prejudice by the presiding judge. The Company believes that the
amount of the claims will not have a material affect on the
financial statements. The third is a claim by a sub-leasee and
former subsidiary of the Company with respect to certain property
rights and expenses relating to the tenancy between the Company
and this sub-tenant. Management believes the suit will be
dismissed, however, if not, the amount of the claim will not
materially affect the financial statements.
g) The Company's assets are subject to a Security Agreement with the
majority stockholder. See Note 6.
NOTE 10 - COMMON STOCK
In August 2001, the Company amended its Certificate of Incorporation to
change the par value of its Class A Common Stock from $.01 to $.001 and
to increase the number of shares the Company is authorized to issue of
its Class A Common Stock from 150,000,000 to 600,000,000 and its Class
B Common Stock from 700,000 to 3,000,000. The amendment also granted
the
F-32
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
board of directors the rights to prescribe and authorize the issuance
of 1,000,000 preferred shares, $1.00 par value.
a) CLASS A COMMON STOCK Class A Common Stock consists of the
following as of December 31, 2001: 600,000,000 shares of
authorized common stock with a par value of $.001, 154,123,517,
shares were issued and outstanding.
As of December 31, 2000, the Company was authorized to issue
150,000,000 shares of Class A Common Stock with a $.01 par value,
103,969,715 shares were issued and outstanding.
Class A Common Stock has voting rights of 1:1. Class A Common
Stock has voting rights of 1 to 100 with respect to Class B Common
Stock. Each holder of Class A Common Stock is entitled to receive
ratably dividends, if any, as may be declared by the Board of
Directors out of funds legally available for the payment of
dividends. The Company has never paid any dividends on its Common
Stock and does not contemplate doing so in the foreseeable future.
The Company anticipates that any earnings generated from
operations will be used to finance the growth objectives.
For the year ended December 31, 2001, the Company had the
following transactions in its Class A Common Stock:
1. The Company issued 15,194,287 shares of its Class A
Common Stock for services rendered valued at $1,062,055.
2. The Company issued 2,183,834 shares of its Class A Common
Stock for compensation to Company employees valued at
$234,431.
3. The Company issued 1,172,000 shares of its Class A common
to Swartz Private Equity, LLC under the terms of their
financing agreement with Swartz for net proceeds of
$129,931.
4. The Company issued 328,951 shares of its Class A Common
Stock as repayment of loans to related parties for a
total value of $75,659.
5. The Company issued 9,829,204 shares of Class A Common
Stock for the conversion of $402,201 in debenture
principal and 317,576 shares for $13,885 in accrued
interest.
6. The Company issued 2,128,000 shares of its Class A Common
Stock valued at $211,080 to settle disputes arising from
financing agreements entered into by the Company.
F-33
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
7. The Company issued 1,000,000 shares of its Class A Common
Stock for conversion of 10,000 shares of Class B Common
Stock.
8. The Company issued 18,000,000 shares of its Class A
Common Stock for the exercise of a warrant issued to
EMCO\Hanover Group, Inc. issued pursuant to a consulting
agreement with them.
b) CLASS B COMMON STOCK Class B Common Stock consists of the
following as of December 31, 2001: 3,000,000 shares of authorized
common stock with no par value. As of December 31, 2001, 700,000
shares were issued; and 354,000 shares were outstanding with a
total of 346,000 Class B shares converted into 34,600,000 Class A
shares. Class B common stockholders are not entitled to receive
dividends.
As of December 31, 2000, the Company was authorized to issue
700,000 shares of Class B Common Stock with no par value. As of
December 31, 2000, 700,000 shares were issued; and 364,000 were
outstanding.
On April 24, 2000, the Company amended its Articles of
Incorporation to state that Class B Common Stock is convertible
into its Class A Common Stock at a conversion rate of one share of
Class B for one hundred shares of Class A Common Stock. The
conversion ratio is in relation to the voting ratio.
For the year ended December 31, 2001, the Company had the
following transactions in its Class B Common Stock:
On November 11, 2001, 10,000 shares of Class B Common Stock were
converted into 1,000,000 shares of Class A Common Stock.
c) PREFERRED STOCK Preferred Stock consists of 1,000,000 shares of
authorized preferred stock with $1.00 par value. As of December
31, 2001, no shares were issued or outstanding. As of December 31,
2000, the Company was not authorized to issue preferred shares.
NOTE 11 - STOCK OPTIONS
During 2001, the Company issued various options as follows:
a) The Company issued to its employees, options to purchase 1,655,000
shares of iVoice Class A Common Stock at an average price of $.076
per share. Of these options, 255,000 were cancelled due to
employee terminations in 2001. The remaining options vest at 25%
per year and have a five-year expiration from date of issue.
F-34
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
b) Warrants to purchase 404,510 shares of iVoice Class A Common Stock
with an average exercise price of $.1220, to Swartz Private
Equity, LLC as drawdown fees under the financing agreement with
them. The warrants expire five years from the date of issue.
c) Warrants to purchase a total of 343,750 shares of iVoice Class A
Common Stock with an exercise price of $.1323 to Owen May and
Michael Jacobs of the May Davis Group as a fee for the placement
of the Company's 8% convertible debentures, pursuant to a
subscription agreement with them. The warrants expire five years
from the date of issue.
d) Warrants to purchase 18,000,000 shares of iVoice Class A Common
Stock with an exercise price of $.055 to the EMCO\Hanover Group,
Inc. pursuant to a consulting agreement with them. The warrants
were exercised and are reflected as a subscription receivable. See
Note 10 regarding shares issued for exercise of this warrant.
e) On November 15, 2001, the Company issued warrants to purchase a
total of 250,000 shares of iVoice Class A Common Stock at $.047
per share to Beacon Capital LLC in consideration for the placement
of $150,000 of the Company's 8% convertible debentures pursuant to
an subscription agreement with them. The warrants are exercisable
at any time prior to their five (5) year expiration and carry a
cash or cashless exercise at the option of the holders.
During 2000, the Company issued various options as follows:
a) On August 17, 2000, in connection with a financing agreement with
Swartz Private Equity, LLC, the Company issued a warrant to
purchase 5,490,000 shares of Class A Common Stock at $.484 per
share The warrant expires in five years on August 16, 2005 and
contains strike price reset provisions.
Options outstanding, except options under employee stock option plan,
are as follows as of December 31, 2001:
EXPIRATION DATE EXERCISE PRICE SHARES
---------------- -------------- -------
December 22, 2003 .1000 10,000
January 5, 2004 .1200 10,000
January 21, 2004 .1177 10,000
February 5, 2004 .1430 10,000
March 17, 2004 .0869 15,000
April 6, 2004 .0583 15,000
August 17, 2005 .1406 5,490,000
January 9, 2006 .1045 200,000
F-35
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
February 27, 2006 .1406 87,310
February 28, 2006 .1458 78,000
March 13, 2006 .1221 39,200
April 30, 2006 .1323 343,750
November 14, 2006 .0470 250,000
----------
6,558,260
EMPLOYEE STOCK OPTION PLAN
During the year ended December 31, 1999, the Company adopted the
Employee Stock Option Plan (the "Plan") in order to attract and retain
qualified personnel. Under the Plan, the Board of Directors (the
"Board"), in its discretion may grant stock options (either incentive
or non-qualified stock options) to officers and employees to purchase
the Company's common stock at no less than 85% of the market price on
the date the option is granted. Options generally vest over four years
and have a maximum term of five years. During 1999, 20,000,000 shares
were reserved for future issuance under the plan. As of December 31,
2001, 11,559,000 options to purchase shares were granted. A total of
9,000,000 of these granted options were exercised. A total of 1,946,083
options to purchase Class A common shares were outstanding and held by
company employees. The exercise prices range from $0.06 to $3.75 per
share. All options issued to employees vest at 25% per year and expire
in 5 years.
As of December 31, 2000, employee stock options exercised are as
follows:
OPTIONEE EXERCISED # SHARES PRICE
--------------- ------------- -------- -----
Joel Beagleman 03/20/00 9,000,000 0.033
The Company has adopted only the disclosure provisions of SFAS
No. 123. It applies Accounting Principles Bulletin ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees",
and its related interpretations in accounting for its plan. It
does not recognize compensation expense for its stock-based
compensation plan other than for restricted stock and
options/warrants issued to outside third parties. If the
Company had elected to recognize compensation expense based
upon the fair value at the grant date for awards under its
plan consistent with the methodology prescribed by SFAS No.
123, the Company's net loss and loss per share would be
increased to the proforma amounts indicated below:
For The Year Ended,
December 31,
------------
2001 2000
------------- -----------
Net Loss
As Reported $(3,447,434) $(2,891,379)
=========== ===========
Proforma $(3,848,540) $(3,296,417)
=========== ============
Basic Loss Per Share
As Reported $ (.03) $ (.03)
============ ============
Proforma $ (.03) $ (.04)
============ ============
F-36
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
The fair value of these options were estimated at the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 2001 and
2000: dividend yield of 0%; expected volatility of 320%; risk-free
interest rates of 5.50% and 5.56% respectively; and expected life of
4.05 and 4.1 years, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The following summarizes the stock option and warrant transactions:
Weighted Other Weighted
Employee Average Options Average
Stock Options Exercise and Exercise
Outstanding Price Warrants Price
----------- ------- ----------- -----------
Balance, January 1, 2000 9,510,000 $ .033 665,185 $ 0.120
Granted 544,000 $ .806 5,490,000 $ 0.484
Exercised (9,000,000) $ .033 (195,185) $ 0.104
Canceled (290,000) $ .191 - $ 0.110
------------ ------- ------------- -----------
Balance, December 31, 2000 764,000 $ .670 5,960,000 $ 0.456
Granted 1,795,000 $ .078 18,998,260 $ 0.058
Exercised - $ .000 (18,000,000) $ 0.040
Canceled (612,917) $ .246 (400,000) $ 1.328
------------ ------- ------------- -----------
Balance, December 31, 2001 1,946,083 $ .257 6,558,260 $ 0.135
============ ======= ============= ===========
Outstanding and Exercisable,
December 31, 2000 66,620 $ .333 5,960,000 $ 0.456
============ ======= ============= ===========
Outstanding and Exercisable,
December 31, 2001 265,583 $ .587 6,558,260 $ 0.135
============= ======== ============= ===========
F-36
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
The weighted average remaining contractual lives of the employee stock
options is 4.05 years at December 31, 2001.
NOTE 12 - SUBSEQUENT EVENTS
a) On February 14, 2002, through mutual agreement, the Company
cancelled its subscription agreement for the purchase of $300,000
of the Company's 8% convertible debentures with Beacon Capital,
LLC. As compensation, the Company issued to Beacon, 2,000,000
restricted shares of its Class A Common Stock.
b) On February 14, 2002, the Company received a notice of conversion
of $93,085 in interest from the holders of its 12% convertible
debentures. In accordance with the debenture agreements, the
Company issued 4,279,750 of its Class A Common Stock for the
conversion of the interest.
F-37
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER
PERSON TO PROVIDE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
ABOUT IVOICE, INC. EXCEPT THE INFORMATION OR REPRESENTATIONS
CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY
ADDITIONAL INFORMATION OR REPRESENTATIONS IF MADE.
-----------------------
This prospectus does not constitute an offer to sell, or a ----------------------
solicitation of an offer to buy any securities:
PROSPECTUS
/ / except the common stock offered by this prospectus;
---------------------
/ / in any jurisdiction in which the offer or
solicitation is not authorized;
/ / in any jurisdiction where the dealer or other
salesperson is not qualified to make the offer or 402,650,000 SHARES OF COMMON STOCK
solicitation;
/ / to any person to whom it is unlawful to make the
offer or solicitation; or IVOICE, INC.
/ / to any person who is not a United States resident or
who is outside the jurisdiction of the United States.
The delivery of this prospectus or any accompanying sale does
not imply that:
___________ __, 2002
/ / there have been no changes in the affairs of iVoice,
Inc. after the date of this prospectus; or
/ / the information contained in this prospectus is
correct after the date of this prospectus.
-----------------------
Until __________, 2002, all dealers effecting transactions in
the registered securities, whether or not participating in
this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
iVoice's bylaws provide that it has the power to indemnify any officer or
director against damages if such person acted in good faith and in a manner the
person reasonably believed to be in the best interests of iVoice. No
indemnification may be made (i) if a person is adjudged liable unless a Court
determines that such person is entitled to such indemnification, (ii) with
respect to amounts paid in settlement without court approval or (iii) expenses
incurred in defending any action without court approval.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be incurred
in connection with the issuance and distribution of the securities being
registered. iVoice will pay all expenses in connection with this offering.
Securities and Exchange Commission Registration Fee $ 482
Printing and Engraving Expenses $ 2,500
Accounting Fees and Expenses $ 5,000
Legal Fees and Expenses $ 50,000
Blue Sky Qualification Fees and Expenses $ 2,500
Miscellaneous $ 19,518
----------------
TOTAL $ 85,000
================
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
SIX MONTHS ENDED JUNE 30, 2002. In June 2002, iVoice entered into an
Equity Line of Credit Agreement. Under this agreement, iVoice may issue and sell
to Cornell Capital Partners common stock for a total purchase price of up to
$5.0 million. Subject to certain conditions, iVoice will be entitled to commence
drawing down on the equity line of credit when the common stock under the Equity
Line of Credit is registered with the Securities and Exchange Commission and
will continue for two years thereafter. The purchase price for the shares will
be equal to 91% of the market price, which is defined as the lowest closing bid
price of the common stock during the five trading days following the notice
date. The amount of each advance is subject to an aggregate maximum advance
amount of $250,000 in any thirty-day period, provided that each of the initial
four advances may not exceed $150,000 and thereafter may not exceed $75,000.
iVoice paid Cornell a one-time commitment fee of 5,500,000 shares of Class A
common stock. Cornell Capital Partners will also retain 5% of each advance. In
addition, iVoice will entered into a placement agent agreement with Westrock
Advisors, Inc., a registered broker-dealer. Pursuant to the placement agent
agreement, iVoice paid a one-time placement agent fee of 500,000 shares of Class
A common stock.
In June 2002, iVoice raised $255,000 from the sale of convertible
debentures. These debentures are convertible into shares of Class A common stock
at a price equal to either (a) an amount equal to one hundred twenty percent
(120%) of the closing bid price of the common stock as of the closing date or
(b) an amount equal to eighty percent (80%) of the average closing bid price of
the common stock for the four trading days immediately preceding the conversion
date. If such conversion had taken place at $0.0152 (i.e., 80% of the recent
price of $0.019), then the holders of the convertible debentures would have
received 16,776,316 shares of Class A common stock. These convertible debentures
accrue interest at a rate of 5% per year and are convertible at the holder's
option. These convertible debentures have a term of two years. At our option,
these debentures may be paid in cash or redeemed at a 20% premium prior to June
2004. In the event iVoice exercises a redemption of either all or a portion the
convertible debentures, the holder will receive a warrant to purchase 10,000
shares of Class A common stock for every $100,000 redeemed. The Warrant will be
exercisable on a "cash basis" and have an exercise price equal to 120% of the
closing bid price of the Class A common stock. The Warrant will have
"piggy-back" and demand registration rights and will terminate two years after
issuance.
In June 2002, iVoice issued 5,500,000 shares of Class A common stock to
Cornell Capital Partners, L.P., 500,000 shares of Class A common stock to
Westrock Advisors and 200,000 shares of Class A common stock to Seth A Farbman,
all in connection with the Equity Line of Credit. These shares were valued at
$110,000, $10,000 and $4,000, respectively.
II-1
In May 2002, iVoice issued 2,250,000 shares of Class A common stock to
Lawrence A. Muenz for legal services rendered. These legal services were valued
at $45,000.
In April and May 2002, iVoice issued 2,741,331 shares of Class A common
stock for the conversion of $29,823.64 of convertible debentures.
For the three months ended March 31, 2002, iVoice had the following
transactions in its Class A common stock:
o iVoice issued 10,000 shares of its Class A common stock to J & D
Communications for services rendered valued at $540.
o iVoice issued 505,921 shares of Class A common stock for the
conversion of $15,000 in debenture principal and 84,766 shares for
$2,594 in accrued interest.
o iVoice issued 4,364,516 shares of Class A common stock for the
conversion of $95,679 in accrued interest on its outstanding 12%
convertible debentures.
YEAR ENDED DECEMBER 31, 2001. In the year ending December 31, 2001, iVoice
issued the following unregistered securities pursuant to various exemptions from
registration under the Securities Act of 1933:
We issued 15,194,287 shares of Class A common stock for services valued at
$918,905.
We issued 9,829,204 shares of Class A common stock for the conversion of
$402,201 in debenture principal and 317,576 shares of Class A common stock for
$13,885 in accrued interest.
We issued 2,128,000 shares of Class A common stock valued at $211,080 to
settle disputes arising from financing agreements.
We issued 1,172,000 shares of Class A common stock to Swartz Private
Equity, LLC under the terms of a financing agreement for net proceeds of
$129,931.
We issued $425,000 of 8% Convertible Debentures exercisable at an 80%
conversion price. The 20% conversion discount totaling $106,250 was recorded as
interest expense.
We issued 2,183,834 shares of our Class A common stock at various times
during the year as compensation to employees valued at $234,432.
On January 30, 2001, we issued 328,951 shares of our Class A common stock
as repayment of amounts owed to related parties valued at $75,659.
II-2
On November 20, 2001, we issued 1,000,000 shares of our Class A common
stock for the conversion of 10,000 shares of our Class B common stock.
During 2001, we issued the following options and warrants:
o Options to purchase 1,655,000 shares of Class A common stock to
employees at an average price of $0.076 per share. Of these options,
255,000 were cancelled due to employee terminations in 2001. The
remaining options vest at 25% per year and have a five-year expiration
from date of issue.
o Warrants to purchase 404,510 shares of Class A common stock with an
average exercise price of $0.1220, to Swartz Private Equity, LLC as
draw-down fees under a financing agreement. The warrants expire five
years from the date of issue.
o Warrants to purchase a total of 343,750 shares of Class A common stock
with an exercise price of $0.1323 to Owen May and Michael Jacobs of
the May Davis Group as a fee for the placement of 8% convertible
debentures, pursuant to a subscription agreement. The warrants expire
five years from the date of issue.
o Warrants to purchase 18,000,000 shares of Class A common stock with an
exercise price of $0.055 to the EMCO\Hanover Group, Inc. pursuant to a
consulting agreement with them. We issued 18,000,000 shares of Class A
common stock for the exercise of this warrant.
o Warrants to purchase a total of 250,000 shares of Class A common stock
at $0.047 per share to Beacon Capital LLC in consideration for the
placement of $150,000 of 8% convertible debentures pursuant to an
subscription agreement. The warrants are exercisable at any time prior
to their five year expiration and carry a cash or cashless exercise at
the option of the holders.
YEAR ENDED DECEMBER 31, 2000. On February 10, 2000, iVoice settled a
$4,500,000 lawsuit by issuing 2,000,000 shares of Class A common stock. These
shares were valued at $300,000 on the date of issuance.
On January 10 and February 2, 2000, we issued $100,000 and $50,000,
respectively, of 12% Convertible Debentures exercisable at a 50% conversion
price. The 50% conversion discount totaling $150,000 was recorded as a prepaid
debt issue cost and was amortized over the life of the debt. Debt issue costs
represent the estimated cost of the conversion discount feature relating to the
issuance of the Company's convertible debentures. In previous years, these costs
were amortized and charged to interest expense over the life of the debt. During
the year ended December 31, 2001, the Company charged to expense the fair value
of the beneficial conversion features of the convertible debt as measured at the
date of issuance in accordance with EITF Issue 98-5. The switch to this method
of accounting did not have a material affect on the Company's financial
statements.
During the year ended December 31, 2000, iVoice issued 848,718 shares of
Class A common stock for services valued at $518,155.
On April 24, 2000, iVoice issued 50,000 shares of Class A common stock to
Corporate Architects, Inc. with a value of $46,875 as a referral fee for the
purchase of ThirdCAI, Inc.
During the year ended December 31, 2000, iVoice issued 80,000 shares of
Class A common stock as compensation to employees valued at $69,938.
During the year ended December 31, 2000, iVoice issued 9,000,000 shares of
Class A common stock upon the exercise of options at $0.033 per share for a
total of $297,000.
During the year ended December 31, 2000, iVoice issued 33,600,000 shares
of Class A common stock for the conversion of 336,000 shares of Class B common
stock.
During the year ended December 31, 2000, iVoice issued 1,007,287 shares of
Class A common stock for the conversion of $163,000 in principal on its
outstanding 12% convertible debentures.
During the year ended December 31, 2000, iVoice issued 1,240,047 shares of
Class A common stock for cash totaling $746,000.
II-3
On August 17, 2000, in connection with a financing agreement with Swartz
Private Equity, LLC, we issued a warrant to purchase 5,490,000 shares of Class A
common stock at $0.484 per share. The warrant expires on August 16, 2005 and
contains strike price reset provisions.
TRANSACTIONS FROM MAY 21, 1999 (THE DATE OF THE MERGER). On May 21, 1999,
International Voice Technologies, Corp., a Delaware corporation, merged with and
into the predecessor of iVoice, Visual Telephone International, Inc., with
Visual Telephone surviving. Simultaneous with the merger, Visual Telephone
changed its name to iVoice.com, Inc. and later to iVoice, Inc. In connection
with the merger, iVoice issued 36,932,364 shares of Class A common stock to the
shareholders of International Voice Technologies. On the date of issuance, these
shares were valued at $138,000.
In consideration for the merger with International Voice Technologies,
Jerome R. Mahoney, the sole stockholder of International Voice Technologies,
received 10,000,000 shares of Class A common stock and 700,000 shares of Class B
common stock. In addition, the two controlling stockholders of Visual Telephone
sold 300,000 shares of Class B common stock to Mr. Mahoney and concurrently
canceled a total of 2,000,000 shares of their Class A common stock. The
consulting firm of Toby Investments received 2,000,000 shares of common stock
for consulting services on the transaction. The agreement also provided that
certain of the assets of Visual Telephone would be transferred to Visual
Telephone's wholly owned subsidiary, CRI. The merger was accounted for in its
financial statements as a public shell merger. In a public shell merger the
stockholders of the operating company, in this case International Voice
Technologies, become the majority owners of the shell company, in this case
Visual Telephone, and the stockholders of Visual Telephone, the public shell
company, become minority stockholders in International Voice Technologies, the
operating company.
On May 22, 1999, iVoice issued 400,000 shares of Class A common stock to
Lawrence A. Muenz for legal services. These shares were valued at $32,000 on the
date of issuance.
On May 22, 1999, iVoice issued 10,000 shares of Class A common stock to
Ron Vance for consulting services. These shares were valued at $800 on the date
of issuance.
On June 15, 1999, iVoice issued 3,200,000 shares of Class A common stock
to Suraj Tschand for the purchase of software codes. These shares were valued at
$544,000 on the date of issuance.
On June 22, 1999, iVoice issued 418,799 shares of Class A common stock to
DOTCOM Funding for cash. These shares were valued at $87,949 on the date of
issuance.
On July 12, 1999, iVoice issued 445,655 shares of Class A common stock to
DOTCOM Funding for cash. These shares were valued at $93,589 on the date of
issuance.
On August 16, 1999, iVoice issued 116,845 shares of Class A common stock
to DOTCOM Funding for cash. These shares were valued at $59,591 on the date of
issuance.
On August 27, 1999, iVoice issued 50,000 shares of Class A common stock to
John Mahoney for services. These shares were valued at $7,000 on the date of
issuance. John Mahoney is the father of Jerry Mahoney, iVoice's President, Chief
Executive Officer and sold director.
On August 27, 1999, iVoice issued 50,000 shares of Class A common stock to
Daniel Timpone for services. These shares were valued at $7,000 on the date of
issuance.
On August 31, 1999, iVoice issued 100,000 shares of Class A common stock
to RFG, Inc. for services. These shares were valued at $14,000 on the date of
issuance.
In October 1999, iVoice issued 12% debentures that were convertible into
shares of iVoice's Class A common stock at the option of the holder by dividing
the outstanding principal and interest by the conversion price which shall equal
50% of the average bid price during the 20 trading days before the conversion
date. As of June 30, 2002, $345,200 in principal of the 12% debentures and
$99,644 in accrued interest had been converted into 10,017,819 shares of
iVoice's Class A common stock. Total outstanding principal balance of the 12%
convertible debentures at June 30, 2002 was $154,800, plus accrued interest of
$13,460.
On November 1, 1999, iVoice issued 250,000 shares of Class A common stock
to Leo Pudlo as employee compensation. These shares were valued at $87,500 on
the date of issuance.
II-4
On November 23, 1999, iVoice issued 20,000 shares of Class A common stock
to Jason Christman for services. These shares were valued at $2,800 on the date
of issuance.
On November 23, 1999, iVoice issued 100,000 shares of Class A common stock
to Merle Katz upon the exercise of options. These shares were valued at $14,000
on the date of issuance.
We relied upon the exemption provided in Section 4(2) of the Securities
Act and/or Rule 506 thereunder, which cover "transactions by an issuer not
involving any public offering," to issue securities discussed above without
registration under the Securities Act of 1933. iVoice made a determination in
each case that the person to whom the securities were issued did not need the
protections that registration would afford. The certificates representing the
securities issued displayed a restrictive legend to prevent transfer except in
compliance with applicable laws, and our transfer agent was instructed not to
permit transfers unless directed to do so by iVoice, after approval by our legal
counsel. iVoice believes that the investors to whom securities were issued had
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of the prospective investment. iVoice also
believes that the investors had access to the same type of information as would
be contained in a registration statement.
ITEM 27. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
No. Description
- ------------ --------------------------------------------------------------
3.1 Certificate of incorporation of Del Enterprises, Inc., filed
October 20, 1989 (incorporated herein by reference to Exhibit
3.1 of the registration statement on Form SB-2, filed with the
SEC on November 17, 2000).
3.2 Certificate of amendment to the certificate of incorporation
of Del Enterprises, Inc., filed March 14, 2000 (incorporated
herein by reference to Exhibit 3.2 of the registration
statement on Form SB-2, filed with the SEC on November 17,
2000).
3.3 Certificate of merger of International Voice Technologies,
Inc. into Visual Telephone International, Inc., filed May 21,
1999 (incorporated herein by reference to Exhibit 3.3 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
3.4 Certificate of amendment to the certificate of incorporation
of iVoice.com, Inc., filed April 27, 2000 (incorporated herein
by reference to Exhibit 3.4 of the registration statement on
Form SB-2, filed with the SEC on November 17, 2000).
3.5 Certificate of amendment to the certificate of incorporation
of iVoice.com, Inc., filed August 24, 2001 (incorporated
herein by reference to Exhibit 3.5 of the registration
statement on Form SB-2, filed with the SEC on September 7,
2001).
3.6 Bylaws of Del Enterprises, Inc (incorporated herein by
reference to Exhibit 3.5 of the registration statement on Form
SB-2, filed with the SEC on November 17, 2000).
4.1 Debenture No issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to AJW
Partners, LLC on October 29, 1999 (incorporated herein by
reference to Exhibit 4.1 of the registration statement on Form
SB-2, filed with the SEC on November 17, 2000).
4.2 Debenture No. 2 issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to New
Millenium Capital Partners, LLC on October 29, 1999
(incorporated herein by reference to Exhibit 4.2 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
4.3 Debenture No. 3 issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to AJW
Partners, LLC on October 29, 1999 (incorporated herein by
reference to Exhibit 4.3 of the registration statement on Form
SB-2, filed with the SEC on November 17, 2000).
II-5
4.4 Debenture No. 4 issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to AJW
Partners, LLC on October 29, 1999 (incorporated herein by
reference to Exhibit 4.4 of the registration statement on Form
SB-2, filed with the SEC on November 17, 2000).
4.5 Debenture No. 5 issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to Bank
Insinger de Beaufort, N.V. on October 29, 1999 (incorporated
herein by reference to Exhibit 4.5 of the registration
statement on Form SB-2, filed with the SEC on November 17,
2000).
4.6 Debenture No. 6 issued by iVoice.com, Inc. for $100,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to New
Millenium Capital Partners, LLC on October 29, 1999
(incorporated herein by reference to Exhibit 4.6 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
4.7 Debenture No. 7 issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to New
Millenium Capital Partners II, LLC on October 29, 1999
(incorporated herein by reference to Exhibit 4.7 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
4.8 Debenture No. 8 issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to AJW
Partners, LLC on October 29, 1999 (incorporated herein by
reference to Exhibit 4.8 of the registration statement on Form
SB-2, filed with the SEC on November 17, 2000).
4.9 Debenture No. 9 issued by iVoice.com, Inc. for $25,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to New
Millenium Capital Partners II, LLC on October 29, 1999
(incorporated herein by reference to Exhibit 4.9 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
4.10 Debenture No. 10 issued by iVoice.com, Inc. for $25,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to AJW
Partners, LLC, on October 29, 1999 (incorporated herein by
reference to Exhibit 4.10 of the registration statement on
Form SB-2, filed with the SEC on November 17, 2000).
4.11 Form 8% Convertible Debentures issued by iVoice.com, Inc. for
$150,000 due April 30, 2006 to the purchasers thereof on April
30, 2001(incorporated herein by reference to Exhibit 4.11 of
the registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
4.12 Form 8% Convertible Debentures issued by iVoice.com, Inc. to
certain purchasers thereof for an aggregate of $125,000
(incorporated herein by reference to Exhibit 4.12 of the
registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
4.13 Form 8% Convertible Debentures to be issued by iVoice.com,
Inc. to Beacon Capital, LLC in the amount of $150,000.
(incorporated herein by reference to Exhibit 4.12 of the
registration statement on Form SB-2, filed with the SEC on
December 21, 2001).
5.1 Opinion re: Legality*.
10.1 iVoice.com, Inc. 1999 Option Stock Plan (incorporated herein
by reference to Exhibit 10.1 of the registration statement on
Form SB-2, filed with the SEC on November 17, 2000).
10.2 Investment agreement dated August 17, 2000, between
iVoice.com, Inc. and Swartz Private Equity, LLC with exhibits
(incorporated herein by reference to Exhibit 10.2 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
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10.3 Registration rights agreement dated August 17, 2000, between
iVoice.com, Inc. and Swartz Private Equity, LLC (incorporated
herein by reference to Exhibit 10.3 of the registration
statement on Form SB-2, filed with the SEC on November 17,
2000).
10.4 Registration rights agreement by and among iVoice.com, Inc.
and the investors' signatories thereto dated as of October 28,
1999 (incorporated herein by reference to Exhibit 10.4 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
10.5 Warrant to purchase 5,490,000 shares of iVoice.com, Inc.
issued to Swartz Private Equity, LLC, dated August 17, 2000
(incorporated herein by reference to Exhibit 10.5 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
10.6 Subscription agreement between iVoice.com, Inc. and Beacon
Capital, LLC, November 20, 2001, for the purchase of an
aggregate of $150,000 of 8% Convertible Debentures.
(incorporated herein by reference to Exhibit 4.12 of the
registration statement on Form SB-2, filed with the SEC on
December 21, 2001).
10.7 Registration rights agreement between iVoice.com, Inc. and
Beacon Capital, LLC, dated as of November 20, 2001.
(incorporated herein by reference to Exhibit 4.12 of the
registration statement on Form SB-2, filed with the SEC on
December 21, 2001).
10.8 Form of warrant to purchase 250,000 shares of iVoice.com, Inc.
to be issued to Beacon Capital, LLC (incorporated herein by
reference to Exhibit 4.12 of the registration statement on
Form SB-2, filed with the SEC on December 21, 2001).
10.9 Subscription agreement between iVoice.com, Inc. and the
purchaser signatories thereof, dated April 30, 2001, for the
purchase of an aggregate of $275,000 of 8% Convertible
Debentures due April 30, 2001 (incorporated herein by
reference to Exhibit 10.9 of the registration statement on
Form SB-2, filed with the SEC on September 7, 2001).
10.10 Registration rights agreement by and among iVoice.com, Inc.
and the investor signatories thereto dated as of April 30,
2001 (incorporated herein by reference to Exhibit 10.10 of the
registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
10.11 Warrant to purchase 171,875 shares of iVoice.com, Inc. issued
to Michael Jacobs of The May Davis Group, Inc., dated April
30, 2001 (incorporated herein by reference to Exhibit 10.11 of
the registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
10.12 Warrant to purchase 171,875 shares of iVoice.com, Inc. issued
to Owen May of The May Davis Group, Inc., dated April 30, 2001
(incorporated herein by reference to Exhibit 10.12 of the
registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
10.13 Consulting agreement entered into on March 15, 2001 by and
between iVoice.com, Inc. and Finnigan USA (incorporated herein
by reference to Exhibit 10.13 of the registration statement on
Form SB-2, filed with the SEC on September 7, 2001).
10.14 Real Property Lease Agreement dated December 5, 2001 between
iVoice.com, Inc. and B&R Holding Company (incorporated herein
by reference to Exhibit 10.14 to the Form 10-KSB for the year
ended December 31, 2001 filed with the SEC on March 27, 2002).
10.15* Equity Line of Credit Agreement dated as of June 2002 between
iVoice, Inc. and Cornell Capital Partners, L.P.
10.16* Registration Rights Agreement dated as of June 2002 between
iVoice, Inc. and Cornell Capital Partners, L.P.
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10.17* Escrow Agreement dated as of June 2002 among iVoice, Inc.,
Cornell Capital Partners, L.P., Butler Gonzalez LLP and
Wachovia, N.A.
10.18* Placement Agent Agreement dated June 2002 between iVoice, Inc.
and Westrock Advisors, Inc.
10.19* Securities Purchase Agreement dated June 2002 between iVoice,
Inc. and the buyers identified therein.
10.20* Registration Rights Agreement dated June 2002 between iVoice,
Inc. and the buyers identified therein.
10.21* Form of Debenture
10.22* Escrow Agreement dated June 2002 between iVoice, Inc., the
buyers identified therein and Wachovia, N.A.
10.23* Transfer Agent Instructions dated June 2002 between iVoice,
Inc., Cornell Capital Partners, L.P. and Fidelity Transfer Co.
10.24* Letter Agreement dated June 28, 2002.
23.1* Consent of Mendlowitz Weitsen LLP.
23.2 Consent of Kirkpatrick & Lockhart LLP (incorporated by
reference to Exhibit 5.1).
_______________
* Filed herewith.
(B) REPORTS ON FORM 8-K.
None.
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ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a)(3) of the
Securities Act of 1933 (the "ACT");
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information on
the plan of distribution;
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, on July 2, 2002.
IVOICE, INC.
By: /s/ Jerome R. Mahoney
---------------------------------------
Name: Jerome R. Mahoney
Title: President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Jerome R. Mahoney
- ---------------------- President, Chief Executive July 2, 2002
Jerome R. Mahoney Officer and Director
/s/ Kevin Whalen
- ---------------------- Chief Financial Officer July 2, 2002
Kevin Whalen (Principal Accounting Officer)
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