As filed with the Securities and Exchange Commission on February 11, 2003
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DELAWARE IVOICE, INC. 52-1750786
(State or Other (Name of (I.R.S. Employer
Jurisdiction of Registrant in Identification No.)
Incorporation Our Charter)
or Organization)
750 HIGHWAY 34 7373 JEROME R. MAHONEY
MATAWAN, NEW JERSEY 07747 (Primary Standard 750 HIGHWAY 34
(732) 441-7700 Industrial MATAWAN, NEW JERSEY 07747
(Address and telephone Classification (732) 441-7700
number of Principal Code Number) (Name, address and
Executive Offices telephone number
and Principal of agent for service)
Place of Business)
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 PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE 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 5,000,000,000 shares $0.001 $5,000,000 $460.00
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TOTAL 5,000,000,000 shares $0.001 $5,000,000 $460.00
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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 February 10, 2003.
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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 February 11, 2003
IVOICE, INC.
5,000,000,000 SHARES OF CLASS A COMMON STOCK
This prospectus relates to the sale of up to 5,000,000,000 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. On January 15, 2003, the last
reported sale price of our Class A common stock was $0.0011 per share.
The selling stockholder consists of Cornell Capital Partners, who
intends to sell up to 5,000,000,000 shares of Class A common stock.
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 Partner, L.P. will pay a net
purchase price of 86% of iVoice's market price as calculated in the Equity Line
of Credit Agreement.
iVoice has engaged Westrock Advisors, Inc., an unaffiliated 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.
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.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 4.
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 ___________ ___, 2003.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................1
THE OFFERING...................................................................2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION.....................................3
RISK FACTORS...................................................................4
FORWARD-LOOKING STATEMENTS.....................................................9
USE OF PROCEEDS...............................................................12
DILUTION......................................................................13
EQUITY LINE OF CREDIT.........................................................14
PLAN OF DISTRIBUTION..........................................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.....................18
DESCRIPTION OF BUSINESS.......................................................25
MANAGEMENT....................................................................31
DESCRIPTION OF PROPERTY.......................................................35
LEGAL PROCEEDINGS.............................................................35
PRINCIPAL STOCKHOLDERS........................................................36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................37
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS........................................38
DESCRIPTION OF SECURITIES.....................................................43
EXPERTS.......................................................................46
LEGAL MATTERS.................................................................46
HOW TO GET MORE INFORMATION...................................................46
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.
1
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 stockholder
consists of Cornell Capital Partners, who intends to sell up to 5,000,000,000
shares of Class A common stock.
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. Cornell
Capital Partners intends to sell any shares purchased under the Equity Line of
Credit at the then prevailing market price. 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., an unaffiliated 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.
CLASS A COMMON STOCK OFFERED 5,000,000,000 shares by selling
stockholders
OFFERING PRICE Market price
CLASS A COMMON STOCK OUTSTANDING 573,590,263 shares of Class A common
BEFORE THE OFFERING(1) stock
CLASS B COMMON STOCK OUTSTANDING 2,406,801 shares of Class B common
BEFORE THE OFFERING stock (which are convertible into
4,813,602,000 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 the Class A 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 13,449,343 shares of Class A
common stock, Class B common stock convertible into 4,813,602,000 shares of
Class A common stock, debentures convertible into 366,212,814 shares of Class A
common stock (at an assumed conversion price of $0.00065 per share) and up to
5,000,000,000 shares of Class A common stock to be issued under the Equity Line
of Credit.
2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
FOR THE NINE FOR THE NINE FOR THE YEAR
MONTHS ENDED MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2002 2001 2001
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STATEMENT OF OPERATION DATA:
Sales, net $ 458,353 $ 303,948 $ 425,948
Cost of sales 139,774 130,279 167,229
Gross profit 318,579 173,669 258,719
Selling, general and administrative expenses 1,621,298 2,256,278 3,035,992
Loss from operations (1,302,719) (2,082,609) (2,777,273)
Net loss $(1,660,638) $(2,542,906) $(3,447,434)
Loss per share - basic and diluted $ (0.01) $ (0.02) $ (0.03)
SEPTEMBER 30, DECEMBER 31,
2002 2001
BALANCE SHEET DATA:
Cash and cash equivalents $ 316,982 $ 85,543
Accounts receivable, net 55,087 37,284
Inventory 12,463 20,586
Prepaid expenses and other current assets 6,182 331,361
Total current assets 390,714 474,774
Property and equipment, net 79,409 106,585
Other receivable 67,650 67,650
Software license costs, net 190,400 272,000
Intangible assets, net 263,016 306,726
Deposits and other assets 11,724 13,900
Total assets
$ 1,002,915 $ 1,241,635
Accounts payable and accrued expenses 275,469 1,454,055
Capital leases payable - current 23,390 35,018
Due to related parties 2,009,822 806,419
Convertible debentures 314,317 359,800
Billings in excess of estimated costs of
uncompleted contracts 24,313 43,617
Total current liabilities 2,803,858 2,698,909
Long-term debt - 13,928
Total liabilities 2,803,858 2,712,837
Common stock 1,252,014 1,175,314
Additional paid-in capital 11,067,350 10,568,103
Subscriptions receivable - (783,750)
Treasury stock (28,800) --
Accumulated deficit (14,091,507) (12,430,869)
Total stockholders' deficiency (1,800,943 (1,471,202)
Total liabilities and stockholders' deficiency $ 1,002,915 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 nine months ended September 30,
2002 and the year ended December 31, 2001, we had net losses of $(1,660,638) 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
SEPTEMBER 30, 2002 WERE NOT SUFFICIENT TO SATISFY OUR CURRENT LIABILITIES ON
THAT DATE
We had a working capital deficit of $2,413,144 at September 30, 2002,
which means that our current liabilities exceeded our current assets on
September 30, 2002 by $2,413,144. 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 September 30, 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;
4
o competition from larger and more established companies;
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 January 15, 2003, Jerome R. Mahoney, our President, Chief
Executive Officer and sole director, owned approximately 89.4% of our
outstanding shares of shares of our Class A common stock (assuming the
conversion of outstanding shares of Class B common stock and debt into shares of
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.
6
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 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 573,590,263 shares of Class A common stock outstanding as of January 15,
2003, 543,713,999 shares are, or will be, freely tradable without restriction,
unless held by our "affiliates." The remaining 29,876,264 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
13,449,343 shares of our Class A common stock, Class B common stock convertible
into 4,813,602,000 shares of Class A common stock and debentures convertible
into 366,212,814 shares of Class A common stock.
Upon issuance of the maximum number of shares being registered under the
Equity Line of Credit, there will be an additional 5,000,000,000 shares of Class
A common stock outstanding. All of these shares of Class A common stock may be
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 EQUITY 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
5,000,000,000 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.
7
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.
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 5,000,000,000 shares of Class A common stock in this
offering. These shares represent 89.7% 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.
ON OCTOBER 15, 2002, STOCKHOLDERS APPROVED A CHANGE IN THIS CONVERSION
PRICE OF OUR CLASS B COMMON STOCK HELD BY MR. MAHONEY, OUR PRESIDENT AND CHIEF
EXECUTIVE OFFICER. PURSUANT TO THIS CHANGE, THE NUMBER OF SHARES OF CLASS A
COMMON STOCK TO BE RECEIVED BY MR. MAHONEY UPON CONVERSION OF CLASS B COMMON
STOCK WILL BE GREATER AS THE PRICE OF OUR CLASS A COMMON STOCK DECLINES. THIS
WILL RESULT IN GREATER DILUTION TO OUR EXISTING AND FUTURE SHAREHOLDERS
(EXCLUDING MR. MAHONEY, WHO WILL NOT EXPERIENCE DILUTION WITH RESPECT TO HIS
CLASS B COMMON STOCK DUE TO THE CHANGE IN CONVERSION PRICE).
On October 15, 2002, our stockholders approved a Change in This
Conversion Price of Our Class B Common Stock held by Mr. Mahoney, our President
and Chief Executive Officer. As a result of this change, the Class B common
stock in convertible into the number of shares of Class A common stock
determined by dividing the number of Class B common stock being converted by 50%
of the lowest price that iVoice had previously issued its Class A common stock.
Previously, each share of Class B common stock was convertible in to 100 shares
of class A common stock. Accordingly, the number of shares of Class A common
stock to be received by Mr. Mahoney upon the conversion of the Class B common
stock will be greater as the price of the Class A common stock declines. This
will result in greater dilution to our existing and future stockholders because
iVoice will be obligated to issue a greater number of shares of Class A common
stock upon conversion of the Class B common stock than under the prior
conversion price. Mr. Mahoney will not experience such dilution with respect to
his Class B common stock because the conversion price will decline as the price
of the Class A common stock declines.
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
stockholder. The selling stockholder has not 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 and has outstanding loans to iVoice in the aggregate
amount of $179,671 as of January 15, 2003, which is evidenced by
promissory notes. 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. A brief
description of the Equity Line of Credit and the promissory notes
is set forth below:
Pursuant to the Equity Line of Credit, dated as of February 2003,
iVoice may, at its 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. Cornell Capital
Partners intends to sell any shares purchased under the Equity Line
of Credit at the then prevailing market price. This prospectus
relates to the shares of Class A common stock to be issued under
the Equity Line of Credit.
In August and November 2002, iVoice borrowed a total of $470,000
from Cornell Capital partners, which amounts are evidenced by two
promissory notes. One note was issued in August 2002 in the
principal amount of $250,000. This note is due 120 days after
issuance. This note bears interest at 8% per year if not paid by
the maturity date. The second note was issued in November 2002 in
the principal amount of $220,000. This note is due 150 days after
issuance. This note bears interest at 12% per year if not paid by
the maturity date. As of January 15, 2003, iVoice owed Cornell
Capital Partners an aggregate of $179,671 under these two
promissory notes. The proceeds under these notes represent advances
under the Equity Line of Credit that will be repaid through the
issuance of Class A common stock pursuant the terms of the Equity
Line of Credit agreement.
The table follows:
PERCENTAGE
OF
PERCENTAGE OUTSTANDING PERCENTAGE
OF SHARES OF
OUTSTANDING SHARES TO TO BE OUTSTANDING
SHARES SHARES BE ACQUIRED SHARES SHARES
BENEFICIALLY BENEFICIALLY ACQUIRED UNDER TO BE BENEFICIALLY
OWNED OWNED UNDER THE THE LINE SOLD IN OWNED
SELLING BEFORE BEFORE LINE OF OF THE AFTER
STOCKHOLDER OFFERING OFFERING CREDIT CREDIT (1) OFFERING OFFERING
- ---------------- -------------- ------------ ----------- ------------ ---------- ------------
Cornell Capital
Partners, L.P. -- 0.0% 5,000,000,000 89.7% 5,000,000,000 0.0%
---- ------------- ----- ------------- ----
Total -- 0.0% 5,000,000,000 89.7% 5,000,000,000 0.0%
==== ============= ===== ============= ====
- ----------
* Less than 1%.
(1) Applicable percentage of ownership is based on 573,590,263 shares of
Class A common stock outstanding as of January 15, 2003, together with
securities exercisable or convertible into shares of Class A common
stock within 60 days of January 15, 2003 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 January 15, 2003 are deemed to be beneficially owned
by the person holding such securities 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.
10
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 also 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
$15,000, plus the 5% retainage.
GROSS PROCEEDS $2,500,000 $5,000,000
NET PROCEEDS $2,360,000 $4,735,000
USE OF PROCEEDS: AMOUNT AMOUNT
------------------------------------------------------------------
Sales and marketing $800,000 $1,550,000
Research and development $580,000 $1,100,000
General Working Capital $980,000 $2,085,000
------------- -------------
TOTAL $2,360,000 $4,735,000
============= =============
11
DILUTION
The net tangible book value of iVoice as of September 30, 2002 was
($2,254,359) or ($0.0098) 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 $0.001 per
share.
If we assume that iVoice had issued 5,000,000,000 shares of Class A
common stock under the Equity Line of Credit at an assumed offering price of
$0.001 per share (I.E., the maximum number of shares being registered in this
offering, less a retention fee of $250,000 and offering expenses of $15,000, our
net tangible book value as of September 30, 2002 would have been $2,480,641 or
$0.0005 per share. Such an offering would represent an immediate increase in net
tangible book value to existing stockholders of $0.01 per share and an immediate
dilution to new stockholders of $0.0005 per share. The following table
illustrates the per share dilution:
Assumed public offering price per share $0.0010
Net tangible book value per share before this offering ($0.0098)
Increase attributable to new investors $0.0100
----------
Net tangible book value per share after this offering $0.0005
----------
Dilution per share to new stockholders $0.0005
==========
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:
DILUTION PER
ASSUMED NO. OF SHARES TO SHARE TO NEW
OFFERING PRICE BE ISSUED INVESTORS
-------------- ---------------- ------------
$0.0010 5,000,000,000(1) $0.0005
$0.0008 5,000,000,000(1) $0.0005
$0.0005 5,000,000,000(1) $0.0005
$0.0003 5,000,000,000(1) $0.0005
_____________________
(1) This represents the maximum number of shares of Class A common stock
that will be registered under the Equity Line of Credit.
12
EQUITY LINE OF CREDIT
SUMMARY. In February 2003, 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 issuance of these
shares is conditioned upon iVoice registering these shares with the Securities
and Exchange Commission.
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. Cornell Capital Partners may not own more
than 9.9% of our outstanding common stock at any time. Because Cornell Capital
Partners can repeatedly acquired and sell shares, this limitation does not limit
the potential dilutive effect or the total number of shares that Cornell Capital
Partners may receive under the Equity Line of Credit.
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, iVoice would
need to issue 4,226,542,688 shares of Class A common stock in order to raise the
maximum amount under the Equity Line of Credit at a purchase price of $0.001183
(i.e., 91% of a recent stock price of $0.0013).
iVoice is registering a total of 5,000,000,000 shares of Class A common
stock for the sale under the Equity Line of Credit. The issuance of shares under
the Equity Line of Credit may result in a change of control. That is, up to
5,000,000,000 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). 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. This could
happen, for example, if Cornell Capital Partners sold the shares purchased under
the Equity Line of Credit to the same purchaser.
13
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 $15,000 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. The 9% discount is an
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 $15,000, 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 $506, printing expenses of $1,500, accounting fees
of $1,000, legal fees of $10,000 and miscellaneous expenses of $1,994. 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.
iVoice 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.
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. For
the nine months ending September 30, 2002, research and development expenditures
consisted of $165,806 in salaries and wages to technical staff and $5,013 in
technical hardware supplies, software tool-kits and technical publications. 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. 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 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.
17
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. Management
anticipates increasing the number of employees to approximately 15 over the next
12 months, primarily in sales.
RECENT DEVELOPMENTS
In October 2002, iVoice formed two wholly-owned subsidiaries in Delaware
in order to facilitate future potential acquisition transactions. No definitive
purchase or merger agreements have been entered into as of the date of this
filing, we are reviewing and negotiating with several potential candidates for
the possibility of a transaction.
In October 2002, iVoice signed a Letter of Intent to purchase of
substantially all of the assets of a leading food equipment maintenance
contractor located in New Jersey. Subsequently, the parties terminated the
Letter of Intent and released each other from any obligations arising under the
Letter of Intent.
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.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO SEPTEMBER 30, 2001
Revenues are derived primarily from the sale of voice and computer
technology communication systems for small-to-medium sized businesses and
corporate departments. Total revenues for the three and nine months ended
September 30, 2002 were $140,614 and $458,353, respectively, as compared to
$87,043 and $303,948 for the three and nine months ended September 30, 2001, an
increase of $53,571 or 61.5% and $154,405 or 50.8%, respectively. The increase
in sales for the three and nine month period are largely attributable to weak
economic conditions resulting in weak demand for iVoice's products in the prior
year period. Management feels that the demand for iVoice's Speech Enabled Auto
Attendant and Speech Enabled Interactive Voice Response (IVR) applications is
stabilizing and perhaps firming, as overall economic conditions in the business
environment appear to be improving.
iVoice continues to market and promote its products to telephony
reseller networks in order to leverage those resellers' existing customer bases.
iVoice has met interoperability standards with the leading PC-based Private
Branch Exchange (or PBX) manufacturers for its Speech-enabled Auto Attendant
product. 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.
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.
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 recognizes its revenue using the
percentage of completion method. 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
18
hardware items, iVoice recognizes revenue upon shipment of those items to the
customer. iVoice accepts company checks or Visa/MasterCard.
Gross margin for the three and nine months ended September 30, 2002 was
$102,277 and $318,579 or 72.7% and 69.5%, respectively, as compared to $55,882
and $173,669 or 64.2% and 57.1% for the three and nine months ended September
30, 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
Company technology personnel to efficiently configure and install iVoice's
communications products. The increase in gross profit is a result of increased
revenues as well as an increase in the sale of software only which result in
significantly higher profit margins than turnkey systems, which require costly
hardware.
Total operating expenses decreased, from $511,588 for the three months
ended September 30, 2001 to $348,113 for the three months ended September 30,
2002 a decrease of $163,475 or 32.0%. Specific line items that reflect the
reduction in total operating expenses for the three months ending September 30,
2002, include reduced consulting expenses of $96,333; reduced payroll and
benefit costs of $41,672 and lower rent of $16,970. iVoice has over the past
year and a half effectively reduced its working capital requirements to preserve
its cash resources. As a result, total operating expenses for the nine months
ending September 30, 2002 have been reduced to $1,621,298 from $2,256,278 for
the nine months ending September 30, 2001, a reduction of $634,980 or 28.1%.
As of September 30, 2002, iVoice had 10 full-time employees, and 2
part-time employees for a total of 12 individuals. iVoice is actively pursuing
additions to its sales and technical staff, which will increase operating
expenditures for payroll, and related benefit costs in future quarters.
The loss from operations for the three and nine months ended September
30, 2002 was $245,836 and $1,302,719 compared to $455,706 and $2,082,609 for the
three and nine months ended September 30, 2001, a decrease of $209,870 and
$779,890 in the three and nine month comparative periods.
Interest expense of $47,461 and $377,476 was incurred for the three and
nine-month period ending September 30, 2002 as compared to $36,782 and $107,591
for the three and nine-month period ending September 30, 2001, respectively an
increase of $10,679 and $269,885 for the three and nine-month comparative
periods. The current year figures reflect $171,300 in financing costs comprised
of commissions and legal fees and $63,750 in debt issue costs related to the
financing agreement with Cornell Capital, LP. Debt issue costs represent the
estimated cost of the beneficial conversion discount feature applicable to the
$255,000 in 5% Convertible Debentures issued during the quarter and are charged
to expense in accordance with Emerging Issues Task Force (EITF) Issue 98-5.
These items were not incurred in the prior nine-month period ending September
30, 2001.
Other expenses for the nine-month period ending September 30, 2001
include non-recurring charges of $352,706 recorded in the second quarter of
2001. This amount represents a $141,626 write-off of capitalized financing costs
incurred in connection with the agreement with Swartz Private Equity and
$154,830 in charges related to the termination of the Swartz agreement, along
with $56,250 in settlement charges incurred with respect to a former debenture
holder's claim for damages incurred in default of iVoice's 12% convertible
debentures. These items were not incurred in the current nine-month period
ending September 30, 2002.
Net loss for the three and nine month period ending September 30, 2002
was $302,540 and $1,660,638 as compared to $492,488 and $2,542,906 for the three
and nine months of 2001. The respective changes in net loss for the comparative
periods were 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
19
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 totaling $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 totaling $46,875.
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
During the nine months ended September 30, 2002 and the year ended
December 31, 2001, iVoice generated sales of $458,353 and $425,948, incurred net
losses of $1,660,638 and $3,447,434 and had cash flow deficiencies from
operating activities of $483,047 and $872,481, respectively. As a result, as of
September 30, 2002, iVoice had a cash balance of $316,982, a working capital
deficit of $2,413,144 and an accumulated deficit of $14,091,507.
The primary source of financing for iVoice has been through the issuance
of common stock and debt. iVoice had cash balances on hand of $316,982 as of
September 30, 2002. In addition, on September 30, 2002, iVoice had total
liabilities of $2,803,858, consisting of accounts payable and accrued expenses
of $275,469, obligations under capital leases of 23,390, notes payable of
$156,547, billings in excess of estimated costs on uncompleted projects of
$24,313, convertible debentures of $314,317 and amounts due to related parties
of $2,009,822. Of the total liabilities, the $2,009,822 due to related parties
consists of amounts owed to Mr. Mahoney and on October 14, 2002, $1,504,875 of
that amount was satisfied by the issuance of shares of 1,504,875 shares of Class
B stock. It is anticipated that the remaining balance owed to Mr. Mahoney will
be satisfied by the issuance of shares of capital stock. Additionally, of the
$314,317 of convertible debentures, $201,517 has been satisfied by the issuance
of shares of capital stock and $70,000 in cash through December 31, 2002. It is
anticipated that the remaining balance owed on the remaining outstanding balance
of convertible debentures will be satisfied by the issuance of shares of capital
stock. iVoice also expects to satisfy $156,547 of notes payable by the issuance
of shares of capital stock. The remaining liabilities of $323,172, consisting
primarily of trade accounts payable, are current liabilities that are required
to be paid in cash within the first six months of 2003.
iVoice's primary need for cash is to fund its ongoing operations until
such time that the sale of products generates enough revenue to fund operations.
There can be no assurance as to the receipt or timing of revenues from
operations. iVoice anticipates that its operations will require at least $89,000
per month. These monthly expenses are anticipated to consist of the following:
payroll and benefits of $50,000, debt payments of $17,800, rent of $8,000, sales
and marketing expenses of $4,600, insurance of $1,500, and miscellaneous
administrative expenses of $7,100. These monthly obligations are expected to be
funded from the proceeds anticipated to be received from the Equity Line of
Credit, from current operations or otherwise from the sale of equity or debt
securities. In addition, the Company's need for cash includes satisfying total
liabilities of another $323,172 as described above. All of these amounts are due
in less than one year. iVoice believes that it has sufficient funds on-hand to
fund its operations for six months. Thereafter, iVoice will need to raise
additional capital from the sale of equity or debt securities.
20
During the nine months ended September 30, 2002, iVoice had a net
increase in cash of $231,439. iVoice's sources and uses of funds in the current
nine months were as follows:
CASH USED BY OPERATING ACTIVITIES. iVoice had cash used by operating
activities of $483,047 in the nine months ended September 30, 2002. Cash
provided by operating activities consisted of non-cash expenses (consisting of
depreciation and amortization of $448,467 and common stock issued for services
of $55,735), an increase in accounts payable and accrued expenses of $196,760,
discounts on stock options of $316,750 and debt issue costs of $216,977. These
items were offset by a net loss of $1,660,638 and an increase in accounts
receivable of $20,803.
CASH USED IN FINANCING ACTIVITIES. iVoice had cash provided by financing
activities of $718,687, consisting primarily of the issuance of common stock of
$102,696, collections of stock subscriptions of $317,000 and the sale of
convertible debentures of $255,000. These amounts were partially offset by the
repayment of obligations of $209,009.
Below is a description of iVoice's principal sources of funding since
June 2002:
In August and November 2002, iVoice borrowed a total of $470,000 from
Cornell Capital partners, which amounts are evidenced by two promissory notes.
One note was issued in August 2002 in the principal amount of $250,000. This
note is due 120 days after issuance. This note bears interest at 8% per year if
not paid by the maturity date. The second note was issued in November 2002 in
the principal amount of $220,000. This note is due 150 days after issuance. This
note bears interest at 12% per year if not paid by the maturity date. As of
January 15, 2003, iVoice owed Cornell Capital Partners an aggregate of $179,671
under these two promissory notes. The proceeds under these notes represent
advances under the Equity Line of Credit that will be repaid through the
issuance of Class A common stock pursuant the terms of the Equity Line of Credit
agreement.
In February 2003, 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 issuance of these
shares is conditioned upon iVoice registering these shares with the Securities
and Exchange Commission.
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. 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. All amounts outstanding under these convertible debentures have
been redeemed. iVoice paid $70,000 in cash and issued 129,645,133 shares of
Class A common stock upon conversion of $185,000 in principal and $4,725 in
interest, due under the debentures.
Other than the Equity Line of Credit, no other financing agreement is
currently available to us. In light of this, it should be noted that there is no
assurance that the Equity Line of Credit 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. Current economic and market conditions
have made it very difficult to raise required capital for iVoice to implement
its business plan.
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. 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
21
iVoice will be able to reach an agreement under terms favorable to iVoice.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
iVoice 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.
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.
CRITICAL ACCOUNTING POLICIES
Below is a description of those accounting policies that iVoice views as
most critical in the preparation of its financial statements.
GOING CONCERN. The accompanying financial statements have been prepared
assuming that iVoice will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. iVoice has incurred accumulated net losses totaling $14,091,507 as of
September 30, 2002, and has had periodic cash flow difficulties, which raise
substantial doubt of iVoice's ability to continue as a going concern.
To date, iVoice 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 iVoice's Class A common stock.
22
iVoice 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 iVoice.
iVoice recently entered into financing agreement with Cornell Capital,
LP that will require the issuance of additional equity as described in Note 4 of
these financial statements. Management believes that appropriate funding will be
generated by the financing agreement with Cornell enabling iVoice to continue
operations through the current fiscal year. Management is also confident that
future product sales will generate necessary cash flow, reducing iVoice'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.
REVENUE RECOGNITION. iVoice 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. iVoice recognizes revenue from support services
at the time the service is performed or over the period of the contract for
maintenance/support.
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, iVoice has adopted SFAS No. 121. The carrying value
of software license costs are regularly reviewed by iVoice and a loss would be
recognized if the value of the estimated un-discounted cash flow benefit related
to the asset falls below the unamortized cost. No impairment loss was recognized
as of December 31, 2001.
DEBT ISSUE COSTS. Debt issue costs represent the estimated cost of the
conversion discount feature relating to the issuance of iVoice'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, iVoice 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 iVoice's financial statements.
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. iVoice has adopted this statement and determined that an impairment
loss should not be recognized for applicable assets of continuing operations.
23
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.
24
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.
25
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,
26
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
27
Dialer places the call. 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., and
Amer.com, Inc. for computer hardware 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 years ended December 31, 2002 and 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
28
"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. For
the nine months ending September 31, 2002, research and development expenditures
consisted of $165,806 in salaries and wages to technical staff and $5,013 in
technical hardware supplies, software tool-kits and technical publications. 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 January 15, 2003, 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.
29
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 39 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 iVoice's independent audits, and assisting in the
registration of an $85 million public bond offering. From 1986 to 1996, Mr.
Whalen was the Tax Supervisor for Curchin and Company, P.A., where he was
responsible for compilation and review engagements, as well as developing
tax-planning strategies for business and individual clientele. Mr. Whalen
received a B.S. in Commerce from Rider College, Lawrenceville, N.J. in 1986 and
is a member of the American Institute of Certified Public Accountants.
30
ITEM 10. EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid by iVoice, as
well as certain other compensation paid or accrued, during the fiscal years
ended December 31, 2002, 2001 and 2000 to iVoice's named executive officers. No
restricted stock awards, long-term incentive plan payouts or other types of
compensation, other than the compensation identified in the chart below, were
paid to these executive officers during these fiscal years.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ---------------------------------
AWARDS PAYOUTS
--------------------- -------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SAR'S PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ------------------ ---- --- --- --- --- --- --- ---
Jerome R. Mahoney 2002 $232,320 $0(8) $45,605(3) $0 0 0 $4,729(7)
President and Chief 2001 $211,200 $75,000 $95,000(3) $0 0 0 $354,416(7)
Executive Officer 2000 $192,000 $0 $34,000(4) $0 0 0 $4,416(7)
Kevin Whalen(2) 2002 $100,000 $0(8) $0 $0 0 $0
Chief Financial 2001 $93,333 $34,000 $0 $115,000(5) 1,200,000(6) 0 $0
Officer 2000 $53,333 $0 $0 $20,950(5) 200,000(6) 0 $0
Joel G. Beagelman(1) 2002 N/A N/A N/A N/A N/A N/A N/A
Former Chief
Financial 2001 $0 $0 $0 $0 0 0 $0
Officer, Secretary
and Treasurer 2000 $39,000 $0 $0 $0 0 0 $0
- ----------------------
(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 of $45,605
in 2002 and $95,000 in 2001, 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 $1,910 as of
December 31, 2002.
(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 $4,729 in life insurance premiums paid on behalf of Mr.
Mahoney for the year ending December 31, 2002; $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 and $4,416 in life
insurance premiums paid on behalf of Mr. Mahoney for the year ending
December 31, 2000.
(8) iVoice has not yet determined whether it will pay bonuses for the year
ended December 31, 2002 and, if so, in what amounts.
31
OPTIONS
IVoice did not grant any options to any of the named executive officers
during the year ended December 31, 2002. The following table contains
information regarding options exercised in the year ended December 31, 2002, and
the number of shares of common stock underlying options held as of December 31,
2002, by iVoice's named executive officer.
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES (1)
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SAR'S
OPTIONS/SAR'S AT FY-END AT FY-END
---------------------------- --------------------------
SHARES ACQUIRED VALUE
ON EXERCISE REALIZED (#) ($)
----------------- -------- ---------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXCERSISABLE EXERCISABLE UNEXERCSISABLE
- ----------------- ----------------- -------- ------------ -------------- ----------- --------------
Kevin Whalen, CFO 0 0 400,000 1,000,000 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 31, 2002.
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 January 15, 2003, 16,559,000 options to purchase
shares were granted. A total of 9,000,000 of these granted options were
exercised. A total of 6,891,083 options to purchase Class A common shares were
outstanding and held by employees, of which a total of 2,704,415 are vested. The
weighted average exercise price of all outstanding options is $0.077 per share.
The weighted average exercise price of all vested options is $0.576 per share.
All options issued to employees vest at 25% per year and expire in 5 years.
32
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. The lease is presently a month-to-month obligation of $8,000 per month.
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:
On August 2, 2002 we reached a settlement agreement with Business
Staffing, Inc. who filed a lawsuit against iVoice in the amount of $37,250 for
non-payment of placement services provided in the year 2000. The settlement
agreement requires iVoice to pay Business Staffing, Inc. $13,500 payable in 10
monthly installments.
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.
The case has presently been dismissed in court and the parties are preparing to
enter into mutual releases from any further obligations of performance under the
original contract.
33
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of January 15, 2003, 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.
[UPDATE]
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 4,848,494,530(2) 89.4%
750 Highway 34 Class B common stock 2,406,801(3)(4) 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 4,849,549,530 89.4%
750 Highway 34 Class B common stock 2,406,801 100.0%
Matawan, New Jersey 07747
Cornell Capital Partners, LP Class A common stock 151,877,430(5) 20.9%
101 Hudson Street, Suite 3606
Jersey City, New Jersey 07302
- ----------
(1) Applicable percentage of ownership is based on 573,590,263 shares of
Class A common stock outstanding as of January 15, 2003, together with
securities exercisable or convertible into shares of Class A common
stock within 60 days of January 15, 2003 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
January 15, 2003 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 450,000 shares of our Class A common stock held by Mr.
Mahoney's minor children; 1,858,875 shares of Class B common stock
indebtedness that have the voting power of, and may be converted into
3,717,750,000 shares of Class A common stock; and the right to receive
547,926 shares of Class B common stock upon conversion of outstanding
indebtedness that may be converted into 1,095,852,000 shares of Class A
common stock.
(3) The shares of Class B common stock held by Mr. Mahoney have the voting
power of, and may be converted into 4,813,602,000 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 75% 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.
(4) 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 (i) one Class B share for each dollar owed
or (ii) the number of Class A common stock shares of iVoice, Inc.
calculated by dividing (x) the sum of the principal and interest that
Mr. Mahoney has decided to prepay by (y) fifty percent (50%) of the
lowest issue price of Series A common stock since the first advance of
funds under the notes due to Mr. Mahoney, whichever the he chooses. At
January 15, 2003, the total note balance equaled $547,926 representing
547,926 Class B common shares and subsequently convertible into
1,095,852,000 Class A common shares.
34
(5) This consists of promissory notes that are convertible into 151,877,430
shares of Class A common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 15, 2002, our stockholders approved a change in this
conversion price of our Class B common stock held by Mr. Mahoney, our President
and Chief Executive Officer. On January 13, 2003, we amended our certificate of
incorporation with the State of Delaware and as a result of this change, the
Class B common stock is convertible into the number of shares of Class A common
stock determined by dividing the number of Class B common stock being converted
by 50% of the lowest price that iVoice had previously issued its Class A common
stock. Previously, each share of Class B common stock was convertible in to 100
shares of class A common stock. Accordingly, the number of shares of Class A
common stock to be received by Mr. Mahoney upon the conversion of the Class B
common stock will be greater as the price of the Class A common stock declines.
This will result in greater dilution to our existing and future stockholders
because iVoice will be obligated to issue a greater number of shares of Class A
common stock conversion of the Class B common stock than order the prior
conversion price. Mr. Mahoney will not experience such dilution with respect to
his Class B common stock because the conversion price will decline as the price
of the Class A common stock declines.
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 January 15, 2003, 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 $547,629.
On August 13, 2002, the board of directors approved amendments to the
Promissory Note payable to Jerome Mahoney, iVoice President and Chief Executive
Officer, for monies loaned to iVoice from the proceeds of stock sales of
personal holdings of iVoice Class A common stock, unpaid compensation, income
taxes incurred from the sale of Company stock and unreimbursed expenses. The
change allows for the conversion of amounts due under the Promissory Note into
either (i) one Class B common stock share of iVoice, Inc., no par value, for
each dollar owed, or (ii) the number of Class A common stock shares of iVoice,
Inc. calculated by dividing (x) the sum of the principal and interest that the
Note holder has decided to prepay by (y) fifty percent (50%) of the lowest issue
price of Series A common stock since the first advance of funds under this Note,
whichever the Note holder chooses, or (iii) payment of the principal of this
Note, before any repayment of interest.
As of September 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
$2,009,822. On October 14, 2002 Mr. Mahoney converted $1,504,875 of the amounts
owed to him under the promissory note into 1,504,875 shares of Class B common
stock. On January 15, 2003, Mr. Mahoney had the ability to convert the remaining
amounts owed to him under the promissory note into 547,629 shares of Class B
common stock that may subsequently converted into 1,095,852,000 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.
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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
Second Quarter $0.0380 $0.0120
Third Quarter $0.0170 $0.0013
Fourth Quarter $0.0031 $0.0009
HOLDERS OF COMMON EQUITY
As of January 15, 2003, the number of record holders of our common
shares was approximately 559.
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
YEAR ENDED DECEMBER 31, 2002. iVoice issued the following unregistered
securities pursuant to various exemptions from registration under the Securities
Act of 1933:
In August and November 2002, iVoice borrowed a total of $470,000 from
Cornell Capital partners, which amounts are evidenced by two promissory notes.
One note was issued in August 2002 in the principal amount of $250,000. This
note is due 120 days after issuance. This note bears interest at 8% per year if
not paid by the maturity date. The second note was issued in November 2002 in
the principal amount of $220,000. This note is due 150 days after issuance. This
note bears interest at 12% per year if not paid by the maturity date. As of
January 15, 2003, iVoice owed Cornell Capital Partners an aggregate of $179,671
under these two promissory notes. The proceeds under these notes represent
advances under the Equity Line of Credit that will be repaid through the
issuance of Class A common stock pursuant the terms of the Equity Line of Credit
agreement.
iVoice issued 10,000 shares of its Class A common stock for partial
payment of leasehold improvements valued at $540.
iVoice issued 2,250,000 shares of Class A common stock for legal services
valued at $45,000.
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 on its 8% Convertible Debentures.
36
iVoice issued 7,229,230 shares of Class A common stock for the conversion
of $64,000 in debenture principal and 4,279,750 shares of Class A Common Stock
for the conversion of $93,085 in accrued interest on its outstanding 12%
Convertible Debentures.
iVoice issued 6,200,000 shares of its Class A common stock for fees and
services associated with the financing iVoice issued 19,464,744 shares of its
Class A common stock for the conversion of $71,483 in debenture principal on its
5% Convertible Debentures.
iVoice issued 36,675,000 shares for repayment of $93,453 in principal on
a $250,000 note payable issued for an advance on the equity line financing with
Cornell Capital Partners, LP.
During the nine months ending September 30, 2002, we issued the following
options and warrants:
o On August 23, 2002, iVoice issued, to an employee, an option to
purchase 5,000,000 shares of iVoice Class A common stock at a price
of $.009 per share. The options vest at 25% per year and have a
five-year expiration from date of issue.
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.
In February 2003, 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 issuance of these
shares is conditioned upon iVoice registering these shares with the Securities
and Exchange Commission.
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. 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. All amounts outstanding under these convertible debentures have
been redeemed. iVoice issued 129,645,133 shares of Class A common stock upon
conversion of $185,000 in principal and $4,725 in interest due under the
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.
37
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.
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 iVoice'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, iVoice 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 iVoice'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.
38
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.
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.
39
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 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.
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 iVoice'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, iVoice 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 iVoice'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.
40
DESCRIPTION OF SECURITIES
Pursuant to our certificate of incorporation, as amended, we are
authorized to issue 10,000,000,000 shares of Class A common stock, par value
$0.0001 per share, 50,000,000 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 75% 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.
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 January 15, 2003, iVoice had 573,590,263 shares of Class A common
stock outstanding.
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 entitled to
receive dividends in the same proportion as the Class B Common Stock conversion
and voting rights have to Class A common stock. Jerome R. Mahoney is the sole
owner of the Class B common stock, of which there are 50,000,000 shares
authorized and 354,000 shares issued and outstanding as of January 15, 2003. A
holder of Class B common stock has the right to convert each share of Class B
common stock into the number of shares of Class A common stock determined by
dividing the number of Class B common stock being converted by 50% of the lowest
price that iVoice had previously issued its Class A common stock. On January 15,
2003, these shares of Class B common stock were convertible into 4,813,602,000
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 an 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 January 15, 2003, 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;
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;
41
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 January 15, 2003, our employees held options and warrants to
purchase 6,891,083 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 $0.009 to $3.75 per share. All options issued to employees vest at
25% per year and expire in 5 years. Of that total, 705,333 of the options were
exercisable, at a weighted average exercise price of $0.576 per share.
As of January 15, 2003, we had outstanding, to persons other than
employees, options and 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, with a weighted average exercise price of $0.135 per share.
These warrants will expire at various times until May 1, 2006.
DEBT
As of January 15, 2003, we had outstanding convertible debentures that
are convertible into iVoice's Class A common stock at the option of the holder.
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 iVoice'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, iVoice 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 iVoice's financial statements. All
amounts outstanding under these debentures have been satisfied by the issuance
of shares of capital stock.
In June 2002, iVoice raised $255,000 from the sale of 5% convertible
debentures. These debentures were 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. We issued a total of 129,645,133 Class A common shares upon
conversion of $189,725 in outstanding principal and interest. The balance of
$70,000 was repaid in cash. As a result, all of the 5% convertible debentures
have been repaid in full.
In August and November 2002, iVoice borrowed a total of $470,000 from
Cornell Capital partners, which amounts are evidenced by two promissory notes.
One note was issued in August 2002 in the principal amount of $250,000. This
note is due 120 days after issuance. This note bears interest at 8% per year if
not paid by the maturity date. The second note was issued in November 2002 in
the principal amount of $220,000. This note is due 150 days after issuance. This
note bears interest at 12% per year if not paid by the maturity date. As of
January 15, 2003, iVoice owed Cornell Capital Partners an aggregate of $179,671
under these two promissory notes. The proceeds under these notes represent
advances under the Equity Line of Credit that will be repaid through the
issuance of Class A common stock pursuant the terms of the Equity Line of Credit
agreement.
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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.
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.
43
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.
44
IVOICE, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
-----------------
Financial Statements as of September 30, 2002
Balance Sheet - September 30, 2002 (Unaudited) F-1
Statements of Operation -
For the three months ended September 30, 2002 and 2001 F-2
Statements of Cash Flows -
For the three months ended September 30, 2002 and 2001 F-3
Notes to the financial statements F-4
Financial Statements as of December 31, 2001 and 2001
Independent Auditors' Report F-10
Balance Sheets as of 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 the financial statements F-20
IVOICE, INC.
BALANCE SHEETS
SEPTEMBER 30, 2002
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $316,982
Accounts receivable, net of allowance for doubtful accounts of $7,000 55,087
Inventory 12,463
Prepaid expenses and other current assets 6,182
-------------
Total current assets 390,714
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $76,628 79,409
OTHER ASSETS
Other Receivable 67,650
Software license costs, net of accumulated amortization of $353,600 190,400
Intangible assets, net of accumulated amortization of $30,885 263,016
Deposits and other assets 11,726
-------------
Total other assets 532,792
-------------
TOTAL ASSETS $1,002,915
=============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $275,469
Obligations under capital leases - current 23,390
Notes Payable - Note 3 156,547
Billings in excess of estimated costs on uncompleted jobs 24,313
Due to related parties - Note 4 2,009,822
12% Convertible debentures - Note 2 130,800
5% Convertible debentures - Note 2 183,517
-------------
Total current liabilities 2,803,858
-------------
LONG-TERM DEBT -
Total liabilities 2,803,858
-------------
COMMITMENTS AND CONTINGENCIES - Note 5 -
-------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, par value $1.00; authorized 1,000,000
shares, no shares issued or outstanding -
Common stock, Class A - par value $.001; authorized 600,000,000
shares, 230,822,928 issued and 230,222,928 shares outstanding 1,251,978
Common stock, Class B - no par value; authorized 3,000,000
shares; 700,000 shares issued; 354,000 shares outstanding 36
Treasury stock, 600,000 Class A shares, at cost (28,800)
Additional paid in capital 11,067,350
Accumulated deficit (14,091,507)
-------------
Total stockholders' deficiency (1,800,943)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $1,002,915
=============
The accompanying notes are an integral part of the financial statement.
F-1
IVOICE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
SALES, net $ 140,614 $ 87,043 $ 458,353 $ 303,948
COST OF SALES 38,337 31,161 139,774 130,279
------------ ---------- ------------- ------------
GROSS PROFIT 102,277 55,882 318,579 173,669
------------ ---------- ------------- ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 35,341 31,171 93,270 138,470
General and administrative expenses 213,890 349,489 1,232,108 1,653,307
Research and development 57,682 90,389 170,819 320,475
Bad debt expense - - 3,000 23,308
Depreciation and amortization 41,200 40,539 122,101 120,718
------------ ---------- ------------- ------------
Total selling, general and
administrative expenses 348,113 511,588 1,621,298 2,256,278
------------ ---------- ------------- ------------
LOSS FROM OPERATIONS (245,836) (455,706) (1,302,719) (2,082,609)
OTHER INCOME (EXPENSE)
Non-recurring expense (9,243) - (9,243) (352,706)
Other Income - - 28,800 -
Interest expense (47,461) (36,782) (377,476) (107,591)
------------ ---------- ------------- ------------
Total other income (expense) (56,704) (36,782) (357,919) (460,297)
------------ ---------- ------------- ------------
LOSS BEFORE INCOME TAXES (302,540) (492,488) (1,660,638) (2,542,906)
PROVISION FOR INCOME TAXES - - - -
------------ ---------- ------------- ------------
NET LOSS $ (302,540) $(492,488) $ (1,660,638) $(2,542,906)
============ ========== ============= ============
NET LOSS PER COMMON SHARE
Basic $ (0.00) $ (0.00) $ (0.01) $ (0.02)
============ ========== ============= ============
Diluted $ (0.00) $ (0.00) $ (0.01) $ (0.02)
============ ========== ============= ============
The accompanying notes are an integral part of the financial statement.
F-2
IVOICE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2002 2001
---------------- --------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (1,660,638) $ (2,542,906)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 30,357 29,274
Amortization of prepaid expense 326,667 -
Amortization of intangibles 9,843 9,843
Amortization of software license 81,600 81,600
Bad debt expense 3,000 23,308
Forfeited employee stock compensation (28,800) -
Discounts on stock options 316,750 -
Debt issue costs 216,977 157,697
Common stock issued for consulting services 45,000 300,138
Common stock issued for compensation - 224,000
Common stock issued for settlements - 211,080
Common stock issued for interest 10,735 6,559
Changes in certain assets and liabilities:
Accounts receivable (20,803) 17,560
Inventory 8,123 537
Accounts payable and accrued liabilities 196,760 680,199
Deferred revenue (19,304) 28,294
Other assets 686 87,658
------------- -------------
Total cash used in operating activities (483,047) (685,159)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,641) (1,872)
Purchase of goodwill and other intangibles (1,560) (3,390)
Total cash used in investing activities (4,201) (5,262)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 102,696 129,931
Collections on stock subscriptions 317,000 -
Proceeds from related party loans 3,000 264,000
Repayment of related party loans (90,000) -
Proceeds from note payable 250,000 -
Repayment of notes payable (93,453) -
Repayment of capital lease obligations (25,556) (20,682)
Sale of convertible debentures 255,000 275,000
------------- -------------
Total cash provided by financing activities 718,687 648,249
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 231,439 (42,172)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 85,543 55,349
------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 316,982 $ 13,177
============= =============
The accompanying notes are an integral part of the financial statement.
F-3
IVOICE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2002 2001
--------------- --------------
CASH PAID DURING THE PERIOD FOR:
Interest expense $ 6,104 $ 10,976
=============== ==============
Income taxes $ - $ -
=============== ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
SEPTEMBER 30, 2002
- ------------------
a.) During the nine months ended September 30, 2002, iVoice issued 10,000
shares as partial payment for leasehold improvements valued at $540.
b.) During the nine months ended September 30, 2002, iVoice issued 2,250,000
shares of Class A common stock for legal services valued at $45,000.
c.) During the nine months ended September 30, 2002, iVoice issued 6,200,000
shares of its Class A common stock for fees and services associated with
the financing agreement with Cornell Capital, LP, valued at $117,800.
d.) During the nine months ended September 30, 2002, iVoice 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.
e.) During the nine months ended September 30, 2002, iVoice 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.
f.) During the nine months ended September 30, 2002, iVoice issued 505,921
shares of its Class A common stock for the repayment of $15,000 in
principal on its 8% Convertible Debentures.
g.) During the nine months ended September 30, 2002, iVoice issued 7,229,230
shares of its Class A common stock for the repayment of $64,000 in
principal on its 12% Convertible Debentures.
h.) During the nine months ended September 30, 2002, iVoice issued
19,464,744 shares of its Class A common stock for the repayment of
$71,483 in principal on its 5% Convertible Debentures.
The accompanying notes are an integral part of the financial statement.
F-4
IVOICE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES - Continued
SEPTEMBER 30, 2001:
- -------------------
a.) During the nine months ended September 30, 2001, iVoice issued
12,194,287 shares of its Class A common stock for services valued at
$897,055. iVoice has registered for resale with the SEC, 10,600,000 of
these issued shares during this nine-month period.
b.) During the nine months ended September 30, 2001, iVoice issued 2,020,834
restricted shares of its Class A common stock as compensation valued at
$224,000.
c.) During the nine months ended September 30, 2001, iVoice 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.) During the nine months ended September 30, 2001, iVoice 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.) During the nine months ended September 30, 2001, iVoice issued 328,951
restricted shares of its Class A common stock as repayment of amounts
owed to related parties valued at $75,659.
f.) During the nine months ended September 30, 2001, iVoice issued 2,892,628
restricted shares of its Class A common stock for the repayment of
$142,200 in principal on its 12% Convertible Debentures.
g.) During the nine months ended September 30, 2001, iVoice issued 104,110
restricted shares of its Class A common stock for interest on its 12%
Convertible Debentures valued at $6,559.
h.) During the nine months ended September 30, 2001, iVoice issued $275,000
of its 8% convertible debentures exercisable at an 80% conversion price.
The 20% conversion discount totaling $68,750 was recorded as a prepaid
debt issue cost and will be amortized over the life of the debt.
The accompanying notes are an integral part of the financial statement.
F-5
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
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 nine-month periods ended September 30,
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
iVoice will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. iVoice has incurred accumulated net losses totaling
$14,091,507 as of September 30, 2002, and has had periodic cash flow
difficulties, which raise substantial doubt of iVoice's ability to
continue as a going concern.
To date, iVoice 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 iVoice's
Class A common stock.
iVoice 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 iVoice.
iVoice recently entered into financing agreement with Cornell Capital,
LP that will require the issuance of additional equity as described in
Note 4 of these financial statements. Management believes that
appropriate funding will be generated by the financing agreement with
Cornell enabling iVoice to continue operations through the current
fiscal year. Management is also confident that future product sales will
generate necessary cash flow, reducing iVoice'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.
F-6
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Basic and Diluted 196,507,632 132,577,874 172,613,099 117,196,212
NOTE 2 - CONVERTIBLE DEBENTURES
iVoice has previously issued convertible debentures consisting of ten
notes payable totaling $500,000 bearing interest at 12% per annum and
payable on December 1, 2000. These 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 September 30, 2002, $396,200 in
principal of the 12% debentures and $99,644 in accrued interest had been
converted into 14,505,718 shares of iVoice's Class A common stock. Total
outstanding principal balance of the 12% convertible debentures at
September 30, 2002 was $130,800, plus accrued interest of $18,814.
iVoice has reached settlement terms with one previous holder of
debentures regarding the interest and penalties demanded under default
by this former holder whereby iVoice has issued 450,000 shares to this
former holder in full settlement of their claim.
On June 11, 2002, iVoice entered into a subscription agreement with
certain purchasers to issue $255,000 in convertible debentures, with
interest payable at 5% per annum. The notes are convertible into
iVoice's 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 for
the Common Stock on the Closing Date, or (b) an amount equal to eighty
percent (80%) of the average of the four (4) lowest Closing Bid Prices
of the Common Stock for the five (5) trading days immediately preceding
the Conversion Date.
F-7
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
NOTE 2 - CONVERTIBLE DEBENTURES - CONTINUED
As of September 30, 2002, $71,483 in principal of the 5% debentures had
been converted into 19,464,744 shares of iVoice's Class A common stock.
Total outstanding principal balance of the 5% convertible debentures at
September 30, 2002 was $183,517, plus accrued interest of $3,481.
NOTE 3 - NOTE PAYABLE
On August 20, 2002 iVoice issued a promissory note payable to Cornell
Capital Partners, LP in the amount of $250,000 for an advance on the
equity-line financing agreement entered into with Cornell in June, 2002.
The note matures 120 days from the date of issue with interest accruing
at 8% per annum on any balance left unpaid after the 120-day maturity
date. It is anticipated that the note will be fully repaid with Class A
common stock issuable under the equity-line financing agreement with
Cornell Capital. At September 30, 2002, a total of $93,453 has been
repaid through the issuance of 36,675,000 Class A common shares of
iVoice's stock leaving an unpaid balance of $156,547.
NOTE 4 - DUE TO RELATED PARTY
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 September 30, 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
$2,009,822.
On August 13, 2002, the board of directors approved amendments to the
Promissory Note payable to Jerome Mahoney, iVoice President and Chief
Executive Officer, for monies loaned to iVoice from the proceeds of
stock sales of personal holdings of iVoice Class A common stock, unpaid
compensation, income taxes incurred from the sale of Company stock and
unreimbursed expenses. The change allows for the conversion of amounts
due under the Promissory Note into either (i) one Class B common stock
share of iVoice, Inc., no par value, for each dollar owed, or (ii) the
number of Class A common stock shares of iVoice, Inc. calculated by
dividing (x) the sum of the principal and interest that the Note holder
has decided to prepay by (y) fifty percent (50%) of the lowest issue
price of Series A common stock since the first advance of funds under
this Note, whichever the Note holder chooses, or (iii) payment of the
principal of this Note, before any repayment of interest.
F-8
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
NOTE 5 - COMMITMENTS AND CONTINGENCIES
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 to
raise capital to fund our working capital needs. For each share of Class
A common stock purchased under the Equity Line of Credit, Cornell
Capital Partners will pay 91% of the 5 lowest closing bid prices 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. Pursuant to the agreement with Cornell Capital Partners, LP, we
registered for resale on Form SB-2, shares of Class A common stock with
the Securities and Exchange Commission which was filed on July 2, 2002
and later amended on August 8, 2002. On August 14, 2002, the Securities
and Exchange Commission declared the Form SB-2 filed effective. The
offering will terminate 24 months after the Securities and Exchange
Commission declares the registration statement effective. On August 20,
2002 we issued a $250,000 promissory note for an advance on the
equity-line of credit with Cornell as described in Note 3 of these
financial statements.
In May 1999, iVoice entered into a five-year employment agreement with
its majority stockholder (the "Executive"). He will serve as iVoice's
Chairman of the Board and Chief Executive Officer for a term of five
years. As consideration, iVoice agrees to pay the Executive a sum of
$180,000 the first year with a 10% increase every year thereafter.
On August 2, 2002 we reached a settlement agreement with Business
Staffing, Inc. who filed a lawsuit against iVoice in the amount of
$37,250 for non-payment of placement services provided in the year 2000.
The settlement agreement requires iVoice to pay Business Staffing, Inc.
$13,500 payable in 10 monthly instalments.
iVoice 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.
F-9
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
NOTE 6 - CAPITAL LEASE OBLIGATIONS
During the year ended December 31, 2000, iVoice 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
September 30, 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. $ 11,233
Lease payable for furniture, payable at $2,151 per
month, including interest at 20.79%. Final payment
due April 2003. 12,157
-------------
Present value of net minimum lease payments $ 23,390
=============
The future minimum lease payments $ 25,206
Less amount representing interest 1,816
-------------
Present value of net minimum lease payments 23,390
Less current portion 23,390
-------------
Long term capital lease obligations $ -
=============
NOTE 7 - COMMON STOCK
In August 2001, iVoice 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 iVoice 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
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 September 30, 2002:
600,000,000 shares of authorized common stock with a par value of $.001.
Class A stock has voting rights of 1:1 and as of September 30, 2002,
230,822,928 shares were issued and 230,222,928 shares were outstanding.
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. iVoice has never
paid any dividends on its Common Stock.
F-10
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
NOTE 7 - COMMON STOCK - CONTINUED
For the nine months ended September 30, 2002, iVoice had the following
transactions:
1.) iVoice issued 10,000 shares of its Class A Common Stock for
partial payment of leasehold improvements valued at $540.
2.) iVoice issued 2,250,000 shares of Class A Common Stock for legal
services valued at $45,000.
3.) 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 on its 8% Convertible Debentures.
4.) iVoice issued 7,229,230 shares of Class A Common Stock for the
conversion of $64,000 in debenture principal and 4,279,750 shares
of Class A Common Stock for the conversion of $93,085 in accrued
interest on its outstanding 12% Convertible Debentures.
5.) iVoice issued 6,200,000 shares of its Class A common stock for
fees and services associated with the financing agreement with
Cornell Capital, LP, valued at $117,800.
6.) iVoice issued 19,464,744 shares of its Class A common stock for
the conversion of $71,483 in debenture principal on its 5%
Convertible Debentures
7.) iVoice issued 36,675,000 shares for repayment of $93,453 in
principal on a $250,000 note payable issued for an advance on the
equity line financing with Cornell Capital Partners, LP
B) CLASS B COMMON STOCK
Class B Common Stock consists of 3,000,000 shares of authorized common
stock with no par value. Class B stock has voting rights of 100 to 1
with respect to Class A Common Stock. As of September 30, 2002, 700,000
shares were issued; and 354,000 shares were outstanding. Class B common
stockholders are not entitled to receive dividends.
C) PREFERRED STOCK
Preferred Stock consists of 1,000,000 shares of authorized preferred
stock with $1.00 par value. As of September 30, 2002, no shares were
issued or outstanding.
F-11
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
NOTE 8 - OPTIONS & WARRANTS
For the nine-month period ending September 30, 2002, the following
options were issued:
a.) iVoice issued, to an employee, an option to purchase 5,000,000
shares of iVoice Class A Common Stock at a price of $.009 per
share. The options vest at 25% per year and have a five-year
expiration from date of issue
iVoice 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.
F-12
IVOICE, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2001
F-13
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 iVoice'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 iVoice
will continue as a going concern. As discussed in Note 1(a), iVoice 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-14
IVOICE, INC.
BALANCE SHEETS
DECEMBER 31,
-------------------------
ASSETS 2001 2000
------ ----------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 85,543 $ 55,349
Accounts receivable, net of allowance for doubtful accounts of $4,000 37,284 292,554
and $31,025
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 -
Software license costs, net of accumulated amortization of $272,000 272,000 380,800
and $163,200
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 271,299 254,584
$7,917
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 1,175,278 1,039,697
in 2000
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-15
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-16
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 18,000,000 18,000 - -
options
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 328,951 3,290 - -
related parties
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-17
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 - 189,800 - 211,080
settlements
Issuance of common stock for services - 886,212 - 918,905
Issuance of common stock for exercise (990,000) 972,000 - -
of stock options
Subscriptions received 206,250 - 206,250
Issuance of common stock for cash - 153,370 - 165,090
Issuance of common stock for - 214,060 - 234,431
compensation
Issuance of convertible debentures - 106,250 - 106,250
Issuance of stock on conversion of - (999) - -
Class B shares
Issuance of stock for repayment of - 72,369 75,659
amounts due to related parties
Issuance of stock on debenture - 376,229 - 402,201
conversion
Issuance of stock on interest - 12,630 - 13,885
conversion
Net loss for the year ended December - - (3,447,434) (3,447,434)
31, 2001 ---------- ----------- ------------- ------------
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-18
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 9,100,000 91,000 - -
options
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-19
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-20
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-21
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) iVoice issued 15,194,287 shares of its Class A Common Stock for
services valued at $1,062,055. Of these shares, iVoice has
registered for resale with the U.S. Securities and Exchange
Commission, 10,600,000 shares during the year ended December 31,
2001.
b) iVoice issued 2,183,834 restricted shares of its Class A Common
Stock as compensation to Company employees valued at $234,431.
c) iVoice 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) iVoice 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) iVoice issued 328,951 restricted shares of its Class A Common Stock
as repayment of amounts owed to related parties valued at $75,659.
f) iVoice 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) iVoice 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) iVoice issued 317,526 shares of its Class A Common Stock for
interest on its 8% and 12% Convertible Debentures valued at $13,883.
i) iVoice 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-22
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, iVoice 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, iVoice 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, iVoice issued 848,718
shares of its restricted Class A Common Stock for services valued at
$518,155.
d) On April 24, 2000, iVoice 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 iVoice issued 80,000 shares of its restricted Class
A Common Stock as compensation valued at $69,938.
f) During the year iVoice purchased equipment under capital leases
totaling $92,895.
The accompanying notes are an integral part of the financial statement.
F-23
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 iVoice 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, iVoice amended its certificate of incorporation to
change its name to iVoice, Inc. from iVoice.com, Inc.
iVoice 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, iVoice 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 iVoice'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
iVoice, which in turn, is dependent upon iVoice's ability to continue to
raise capital and/or generate positive cash flows from operations.
To date, iVoice 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 iVoice's Class A Common
Stock. iVoice 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 iVoice's ability to
continue operations.
iVoice 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 technology companies having financial, production and
marketing resources significantly greater than those of iVoice.
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 iVoice
cannot continue in existence.
Throughout the 2001 fiscal year, iVoice 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, iVoice is working on
increasing its revenue and profit margins through the establishment of
its own dealer and reseller channel. Management believes that leveraging
F-24
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, iVoice 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,
iVoice 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 iVoice 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
----------------
iVoice 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 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. iVoice 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
-------------------
iVoice 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.
iVoice 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
-------------------------
iVoice considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
F-25
g) Concentration of Credit Risk
----------------------------
iVoice 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.
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, iVoice
has adopted SFAS No. 121. The carrying value of software license costs
are regularly reviewed by iVoice 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 iVoice'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 iVoice'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, iVoice 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 iVoice's financial
statements.
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
F-26
circumstances indicate that the carrying amount of an asset may not be
recoverable. iVoice 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, iVoice 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 pronouncement,
Management 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
F-27
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 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 financial condition or operating results.
NOTE 2 - CORPORATE REORGANIZATION AND MERGER
On May 21, 1999, iVoice executed a Reorganization Agreement (the
"Agreement") that provided that iVoice and International Voice
Technologies, Corp. ("IVT") would be merged and iVoice 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 iVoice's Class A Common Stock; and
ii) 400,000 shares of iVoice's Class B Common Stock.
In addition, the two controlling stockholders of Visual sold 300,000
shares of iVoice'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 iVoice 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 iVoice 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 iVoice'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 assets are 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 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, iVoice 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, iVoice acquired all
F-28
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 iVoice and ThirdCAI. The purpose of this transaction was to
enable iVoice'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:
December 31,
-------------------------
2001 2000
---------- ----------
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 $ - $ -
====== ======
F-29
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, iVoice 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
iVoice's ability to generate taxable income during the carryforward
period.
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 iVoice'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 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 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
iVoice 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 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
December 31, 2001, $305,200 in principal of the 12% debentures and $6,559
in accrued interest had been converted into 2,996,738 shares of iVoice'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.
F-30
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
iVoice'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.
iVoice has been advised by the holders of the 12% debentures that iVoice
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 iVoice pursuant to a
Security Agreement that was part of the debenture documentation. iVoice
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 iVoice has issued 450,000 shares to this
former holder in full settlement of their claim. iVoice has not accrued
any amounts with respect to iVoice's default on the 12% debentures that
may be due to the remaining holders. iVoice 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, iVoice 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
---------
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) In April 2000, iVoice 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, iVoice
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, iVoice 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.
F-31
iVoice'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, iVoice entered into a five-year employment agreement
with its majority stockholder (the "Executive"). He will serve as
iVoice's Chairman of the Board and Chief Executive Officer for a
term of five years. As consideration, iVoice 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, iVoice 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, iVoice
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 iVoice's Class A Common
Stock and options to purchase 140,000 shares of iVoice'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) iVoice'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, iVoice 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 iVoice'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. iVoice has
made attempts to complete the remaining installation by offering
incentives in the form of price reductions however, the customer has
refused. iVoice 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 counterclaim allegations and intends to vigorously
defend itself in this lawsuit.
f) iVoice 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. iVoice 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 iVoice with respect
to certain property rights and expenses relating to the tenancy
between iVoice 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) iVoice's assets are subject to a Security Agreement with the
majority stockholder. See Note 6.
NOTE 10 - COMMON STOCK
In August 2001, iVoice 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 iVoice 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 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.
F-32
As of December 31, 2000, iVoice 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. iVoice has never paid any
dividends on its Common Stock and does not contemplate doing so in the
foreseeable future. iVoice anticipates that any earnings generated from
operations will be used to finance the growth objectives.
For the year ended December 31, 2001, iVoice had the following
transactions in its Class A Common Stock:
1. iVoice issued 15,194,287 shares of its Class A Common Stock for
services rendered valued at $1,062,055.
2. iVoice issued 2,183,834 shares of its Class A Common Stock for
compensation to Company employees valued at $234,431.
3. iVoice 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. iVoice 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. iVoice 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. iVoice 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 iVoice.
7. iVoice issued 1,000,000 shares of its Class A Common Stock for
conversion of 10,000 shares of Class B Common Stock.
8. iVoice 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, iVoice was authorized to issue 700,000 shares of
Class B Common Stock with no par value. As of December 31, 2000, 700,00
shares were issued; and 364,000 were outstanding.
On April 24, 2000, iVoice 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, iVoice 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.
F-33
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, iVoice was not authorized
to issue preferred shares.
NOTE 11 - STOCK OPTIONS
During 2001, iVoice issued various options as follows:
a) iVoice 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.
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
iVoice'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, iVoice 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
iVoice'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, iVoice issued various options as follows:
a) On August 17, 2000, in connection with a financing agreement with
Swartz Private Equity, LLC, iVoice 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.
F-34
Options outstanding, except options under employee stock option plan, are
as follows as of December 31, 2001:
Exercise
Expiration Date 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
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, iVoice 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 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 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
iVoice 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
iVoice 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, iVoice'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-35
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 iVoice'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:
Employee Weighted Other Weighted
Stock Average Options and Average
Options Exercise Warrants Exercise
Outstanding Price 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
=========== ======= ============ ========
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, iVoice cancelled its
subscription agreement for the purchase of $300,000 of iVoice's 8%
convertible debentures with Beacon Capital, LLC. As compensation,
iVoice issued to Beacon, 2,000,000 restricted shares of its Class A
Common Stock.
b) On February 14, 2002, iVoice received a notice of conversion of
$93,085 in interest from the holders of its 12% convertible
debentures. In accordance with the debenture agreements, iVoice
issued 4,279,750 of its Class A Common Stock for the conversion of
the interest.
F-36
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 PROSPECTUS
securities: -------------
[ ] except the common stock offered by this
prospectus;
5,000,000,000 SHARES OF COMMON STOCK
[ ] in any jurisdiction in which the offer or
solicitation is not authorized;
[ ] in any jurisdiction where the dealer or other iVOICE, INC.
salesperson is not qualified to make the
offer or solicitation;
[ ] to any person to whom it is unlawful to make
the offer or solicitation; or 2003
------------ ---,
[ ] 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:
[ ] 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 __________, 2003, 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 $ 506
Printing and Engraving Expenses $ 1,500
Accounting Fees and Expenses $ 1,000
Legal Fees and Expenses $ 10,000
Miscellaneous $ 1,994
---------
TOTAL $ 15,000
=========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
YEAR ENDED DECEMBER 31, 2002. iVoice issued the following unregistered
securities pursuant to various exemptions from registration under the Securities
Act of 1933:
In August and November 2002, iVoice borrowed a total of $470,000 from
Cornell Capital partners, which amounts are evidenced by two promissory notes.
One note was issued in August 2002 in the principal amount of $250,000. This
note is due 120 days after issuance. This note bears interest at 8% per year if
not paid by the maturity date. The second note was issued in November 2002 in
the principal amount of $220,000. This note is due 150 days after issuance. This
note bears interest at 12% per year if not paid by the maturity date. As of
January 15, 2003, iVoice owed Cornell Capital Partners an aggregate of $179,671
under these two promissory notes. The proceeds under these notes represent
advances under the Equity Line of Credit that will be repaid through the
issuance of Class A common stock pursuant the terms of the Equity Line of Credit
agreement.
iVoice issued 10,000 shares of its Class A common stock for partial
payment of leasehold improvements valued at $540.
iVoice issued 2,250,000 shares of Class A common stock for legal services
valued at $45,000.
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 on its 8% Convertible Debentures.
iVoice issued 7,229,230 shares of Class A common stock for the conversion
of $64,000 in debenture principal and 4,279,750 shares of Class A Common Stock
for the conversion of $93,085 in accrued interest on its outstanding 12%
Convertible Debentures.
iVoice issued 6,200,000 shares of its Class A common stock for fees and
services associated with the financing iVoice issued 19,464,744 shares of its
Class A common stock for the conversion of $71,483 in debenture principal on its
5% Convertible Debentures.
iVoice issued 36,675,000 shares for repayment of $93,453 in principal on
a $250,000 note payable issued for an advance on the equity line financing with
Cornell Capital Partners, LP.
II-1
During the nine months ending September 30, 2002, we issued the following
options and warrants:
o On August 23, 2002, iVoice issued, to an employee, an option to
purchase 5,000,000 shares of iVoice Class A common stock at a price
of $.009 per share. The options vest at 25% per year and have a
five-year expiration from date of issue.
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.
In February 2003, 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 issuance of these
shares is conditioned upon iVoice registering these shares with the Securities
and Exchange Commission.
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. 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. All amounts outstanding under these convertible debentures have
been redeemed. iVoice issued 129,645,133 shares of Class A common stock upon
conversion of $189,725, the outstanding balance due under the 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.
II-2
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.
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 EMCOGroup, 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 iVoice'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, iVoice 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 iVoice'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.
II-3
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 Officer 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.
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
II-4
$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 iVoice'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, iVoice 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 iVoice'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.
ITEM 27. 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).
II-5
- --------------------------------------------------------------------------------
NO. DESCRIPTION
- ------- --------------------------------------------------------------------
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).
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
II-6
- --------------------------------------------------------------------------------
NO. DESCRIPTION
- ------- --------------------------------------------------------------------
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).
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).
II-7
- --------------------------------------------------------------------------------
NO. DESCRIPTION
- ------- --------------------------------------------------------------------
10.15* Equity Line of Credit Agreement dated as of February 11, 2003
between iVoice, Inc. and Cornell Capital Partners, L.P.
10.16* Registration Rights Agreement dated as of February 11, 2003 between
iVoice, Inc. and Cornell Capital Partners, L.P.
10.17* Escrow Agreement dated as of February 11, 2003 among iVoice, Inc.,
Cornell Capital Partners, L.P., Butler Gonzalez LLP and Wachovia,
N.A.
10.18* Placement Agent Agreement dated February 11, 2003 between iVoice,
Inc. and Westrock Advisors, Inc.
10.19 Securities Purchase Agreement dated June 2002 between iVoice, Inc.
and the buyers identified therein (incorporated herein by reference
to Exhibit 10.19 to the Registration Statement on Form SB-2 filed on
July 2, 2002).
10.20 Registration Rights Agreement dated June 2002 between iVoice, Inc.
and the buyers identified therein (incorporated herein by reference
to Exhibit 10.20 to the Registration Statement on Form SB-2 filed on
July 2, 2002).
10.21 Form of Debenture (incorporated herein by reference to Exhibit 10.21
to the Registration Statement on Form SB-2 filed on July 2, 2002).
10.22 Escrow Agreement dated June 2002 between iVoice, Inc., the buyers
identified therein and Wachovia, N.A. (incorporated herein by
reference to Exhibit 10.22 to the Registration Statement on Form
SB-2 filed on July 2, 2002).
10.23 Transfer Agent Instructions dated June 2002 between iVoice, Inc.,
Cornell Capital Partners, L.P. and Fidelity Transfer Co.
(incorporated herein by reference to Exhibit 10.23 to the
Registration Statement on Form SB-2 filed on July 2, 2002).
10.24 Letter Agreement dated June 28, 2002 (incorporated herein by
reference to Exhibit 10.24 to the Registration Statement on Form
SB-2 filed on July 2, 2002).
10.25 Promissory Note dated as of August 16, 2002 given by iVoice, Inc. to
Cornell Capital Partners, L.P. (incorporated by reference to Exhibit
10.25 to the Registration Statement on Form SB-2 filed on January
24, 2003).
10.26 Promissory Note dated as of November 27, 2002 given by iVoice, Inc.
to Cornell Capital Partners, L.P. (incorporated by reference to
Exhibit 10.26 to the Registration Statement on Form SB-2 filed on
January 24, 2003).
10.27 Letter Agreement dated January 24, 2003 between iVoice, Inc. and Mr.
Jerome Mahoney (incorporated by reference to Exhibit 10.27 to the
Registration Statement on Form SB-2 filed on January 24, 2003).
23.1* Consent of Mendlowitz Weitsen LLP.
23.2 Consent of Kirkpatrick & Lockhart LLP (incorporated by reference to
Exhibit 5.1).
- -----------------
* Filed herewith.
II-8
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 February 11, 2003.
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 (Principal Executive February 11, 2003
Jerome R. Mahoney Officer), Chief Executive Officer
and Director
/s/ Kevin Whalen
- ------------------------ Chief Financial Officer February 11, 2003
Kevin Whalen (Principal Accounting Officer and
Controller)
II-10