Filed Pursuant to Rule 424(b)(3)
Registration No. 333-47880
PROSPECTUS SUPPLEMENT NO. 3
(To the Prospectus dated November 17, 2000)
IVOICE.COM, INC.
----------------------------
STICKER SUPPLEMENT TO
PROSPECTUS
This prospectus supplement relates to the resale of shares of our Class
A common stock by Swartz Private Equity, LLC. You should read this prospectus
supplement in conjunction with the prospectus dated November 17, 2000, along
with any other prospectus supplements. This prospectus supplement is
incorporated by reference into the prospectus and all terms used herein shall
have the meaning assigned to them in the prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITY COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS STICKER IS PART OF THE PROSPECTUS AND MUST ACCOMPANY THE PROSPECTUS
TO SATISFY PROSPECTUS DELIVERY REQUIREMENTS UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
The information in the prospectus appearing under the headings "Market
for Common Equity" and "Management's Discussion and Analysis or Plan of
Operation" and the Financial Statements of the Company in the prospectus are
replaced by adding the information appearing in the table below:
The date of this prospectus supplement is April 30, 2001
Market For Common Equity
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
---- ---
1999
First Quarter (1) -- --
Second Quarter (1) $0.6875 $0.3200
Third Quarter $0.3300 $0.1250
Fourth Quarter $0.3400 $0.1250
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
(1) Trading prices are only available for the period commencing May 28,
1999.
As of December 31, 2000, the number of record holders of our common
shares was approximately 344. All of the issued and outstanding shares of our
common stock were issued in accordance with an exemption from registration
afforded by Section 4(2) of the Securities Act of 1933, as amended.
To date, we have 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.
Management's Discussion and Analysis or Plan of Operation
This discussion and analysis of our financial condition and results of
operations includes "forward-looking" statements that reflect our current views
with respect to future events and financial performance. We use words such as we
"expect," "anticipate," "believe," and "intend" and similar expressions to
identify forward-looking statements. You should be aware that actual results may
differ materially from our expressed expectations because of risks and
uncertainties inherent in future events, and you should not rely unduly on these
forward looking statements. We will not necessarily update the information
inthis discussion if any forward-looking statement later turns out to be
inaccurate.
This discussion and analysis of financial condition and results of
operations should be read in conjunction with our Financial Statements included
in this prospectus.
2
Plan of Operation.
In the next twelve months, the Company expects to experience an increase
in sales volume based upon its efforts in developing agreements with telephony
dealers, distributors and OEM manufactures, and an increase in demand for
speech-enabled telephony products. The Company also anticipates an improved
profit margin resulting from an 8% drop in the overall hardware cost of a basic
turnkey Auto Attendant system.
The Company expects its Research & Development efforts will produce
better product reliability and added features to existing products available for
sale and complete current development projects in the next several months.
The Company intends to hire additional personnel in the next twelve
months particularly in the sales department subject to budgetary permissibility.
December 31, 2000 compared to December 31, 1999
Sales for the year ended December 31, 2000 were $723,046, a decrease of
$53,727 or 6.9% over the prior year's sales of $776,773. The decrease was a
result of $128,150 in unrecognized revenues on the installation of an Integrated
Voice Response system, at a single customers location, which was expected to be
completed in 2000 but remains deferred due to the customer's refusal to accept
the balance of their installation contract. Additionally, in the fourth quarter
of 2000, the Company focused its efforts on developing distribution
relationships with telephony dealers and OEM manufacturers with intentions of
promoting and reselling the Company's Speech-enabled Auto Attendant. Under the
non-binding agreements, these dealers may use and install the Auto Attendant,
for their own internal use as demonstration of the product, free of iVoice
licensing fees, provided the introductory greeting clearly states that the
caller is being answered by an iVoice product. For a period of one (1) year from
date of the agreement, if the dealer sells at least one iVoice product, the
dealer can continue to use the Auto Attendant free of charge, otherwise the
dealer will purchase the product license to continue to use the Auto Attendant
or return the product. We feel confident the evaluation and acceptance of iVoice
products by these telephony dealers will enable the Company to leverage existing
telephony distribution channels and produce desired revenue results in the near
future.
The Company's gross profit for the year ended December 31, 2000
decreased $76,305 or 15.4% compared to December 31, 1999, to $420,151 from
$496,456 in 1999. The Company's gross margin percentage for the twelve months
ended December 31, 2000 was 58.1% versus 63.9% for the prior year. This
represents a 9% decrease over the gross profit percentage recorded for the same
prior year period. This decrease is a result of constant labor costs allocated
to cost of goods sold relative to lower revenues in the current year.
Operating expenses decreased from $6,514,361 for the year ended December
31, 1999 to $2,678,310 for the year ended December 31, 2000 or an decrease of
$3,836,051 or 58.9%. The prior year included non-recurring expenses totaling
$5,028,000, which consisted of a $4,800,000 legal settlement charge and $228,000
in merger costs which were not incurred in the current year. Excluding the
non-recurring expenses of the prior year, operating expenses reflects an
increase of $1,191,949 or 80.2% versus the same period of the prior year. This
increase was the result of $423,467 in research & development costs not incurred
in 1999 and an increase in general & administrative expenses of
3
$484,412 and an increase in selling expenses of $202,565. The predominant
increase in each of these categories overall was an increase in payroll and
employee benefit costs.
The net loss from operations for the year ending December 31, 2000 was
$2,258,159 compared to $6,017,905 for the year ended December 31, 1999. This
decrease of $3,836,051 was a result of the factors discussed above.
Other expense, comprised only of interest expense, increased $596,761 to
$633,220 in the year ended December 31, 2000 compared to $36,459 in 1999. The
year ended December 31, 2000 reflects interest and discount amortization on the
Company's 12% convertible debentures which were outstanding for most of the year
2000 and were only partially outstanding in the fourth quarter if the prior
year.
Liquidity and Capital Resources
On August 17, 2000, we entered into an investment agreement with Swartz
Private Equity, LLC. The investment agreement entitles us to issue and sell our
Class A common stock from time to time for up to an aggregate of $20 million.
This amount will be increased to $40 million if our shares are quoted on the
Nasdaq SmallCap Market or National Market and if the lowest closing price of our
common stock for the 15 trading days immediately preceding listing is at least
$2.50. The investment agreement is effective for a maximum of three years from
the effective date of the registration statement filed on Form SB-2.
This financing allows us to issue common stock at our discretion as
often as monthly as funds are needed in amounts based upon certain market
conditions, and subject to an effective registration statement. The pricing of
each common stock sale is based upon current market prices at the time of each
draw down, and iVoice may set a floor price for the shares at our discretion.
Additionally, we also fund our operations from time to time from loans
from our principal stockholder that in the aggregate, amounted to $648,078 at
December 31, 2000.
We are operating on a negative cash flow basis and anticipate that we
will require ongoing financing using the Swartz financing, alternative financing
and/or loans from our principal shareholder. There is no assurance that either
of these financing arrangements will enable us to meet our operating funding
requirements. Accordingly, our sources of financing are uncertain if the desired
proceeds from the Swartz equity financing arrangement is not obtained, or if our
principal shareholder does not loan any additional funds to the Company to meet
our obligations.
4
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
December 31, 2000
Item Page
- ---- ----
Independent Auditors' Report............................................. F-1
Balance Sheets as of December 31, 2000 and 1999.......................... F-2
Statements of Operations for the years ended December 31, 2000 and 1999.. F-3
Statements of Stockholders' Deficiency for the years ended December 31,
2000 and 1999 ......................................................... F-4-7
Statements of Cash Flows for the years ended December 31, 2000
and 1999.............................................................. F-8-10
Notes to Financial Statements.......................................... F-11-28
5
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.COM, INC.
Matawan, New Jersey
We have audited the accompanying balance sheet of iVoice.com, Inc. as of
December 31, 2000, and the related statements of operations, stockholders'
deficiency and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of iVoice.com, Inc. as of December 31, 1999, were audited
by other auditors whose report dated April 24, 2000, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of iVoice.com, Inc. as of December
31, 2000, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1(a), the Company
had a loss and a negative cash flow from operations along with 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
March 2, 2001
F-1
iVOICE.COM, INC.
BALANCE SHEETS
December 31,
2000 1999
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 55,349 $ 195,861
Accounts receivable, net of allowance for
doubtful accounts of $31,025 and $50,000 292,554 599,026
Inventory 20,228 10,140
Prepaid expenses and other current assets 164,711 52,100
Debt issue costs -- 362,541
----------- -----------
Total current assets 532,842 1,219,668
----------- -----------
PROPERTY AND EQUIPMENT, net 140,921 55,408
----------- -----------
OTHER ASSETS
Software license costs, net of accumulated amortization of $163,200 and $54,400 380,800 489,600
Financing costs, net of accumulated amortization of $1,297 118,370 --
Intangible assets, net of accumulated amortization of $7,917 254,584 --
Deposits and other assets 13,900 --
----------- -----------
Total other assets 767,654 489,600
----------- -----------
TOTAL ASSETS $ 1,441,417 $ 1,764,676
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Obligations under capital leases - current $ 28,339 $ --
Accounts payable and accrued expenses 566,337 181,754
Legal settlement payable -- 4,800,000
Due to related parties 648,078 21,000
Convertible debentures 337,000 350,000
Billings in excess of estimated costs on uncompleted contracts 170,227 567,300
----------- -----------
Total current liabilities 1,749,991 5,920,054
LONG-TERM DEBT
Obligations under capital leases - non-current 48,945 --
----------- -----------
Total liabilities 1,798,936 5,920,054
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock, Class A - par value $.01; authorized 150,000,000 and 75,000,000
shares, 103,969,715 and 54,093,663 shares issued and outstanding 1,039,697 540,937
Common stock, Class B - no par value; authorized 700,000
shares, 364,000 and 700,000 shares issued and outstanding 37 70
Additional paid in capital 7,586,182 1,395,671
Accumulated deficit (8,983,435) (6,092,056)
----------- -----------
Total stockholders' deficiency (357,519) (4,155,378)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,441,417 $ 1,764,676
=========== ===========
The accompanying notes are an integral part of the financial statement.
F-2
iVOICE.COM, INC.
STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
2000 1999
----------- -----------
SALES, net $ 723,046 $ 776,773
COST OF SALES 302,895 280,317
----------- -----------
GROSS PROFIT 420,151 496,456
----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 371,272 168,707
General and administrative expenses 1,662,142 1,177,730
Research and development 423,467 --
Bad debt expense 75,195 39,874
Provision for obsolescence -- 31,000
Non-recurring expenses (see Note 12) -- 5,028,000
Depreciation and amortization 146,234 69,050
----------- -----------
Total selling, general and administrative expenses 2,678,310 6,514,361
----------- -----------
LOSS FROM OPERATIONS (2,258,159) (6,017,905)
OTHER EXPENSE
Interest expense (633,220) (36,459)
----------- -----------
LOSS BEFORE INCOME TAXES (2,891,379) (6,054,364)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $(2,891,379) $(6,054,364)
=========== ===========
NET LOSS PER COMMON SHARE
Basic $ (.03) $ (.20)
=========== ===========
Diluted $ (.03) $ (.20)
=========== ===========
F-3
iVOICE.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Common Stock Class A Common Stock Class B
Shares Amount Shares Amount
------ ------ ------ ------
Balance at January 1, 2000 54,093,663 $ 540,937 700,000 $ 70
Issuance of common stock for legal settlement 2,000,000 20,000 -- --
Issuance of common stock for services 848,718 8,487 -- --
Issuance of common stock for exercise of stock options 9,100,000 91,000 -- --
Issuance of common stock for cash 3,240,047 32,400 -- --
Issuance of common stock for compensation 80,000 800 -- --
Issuance of convertible debentures -- -- -- --
Issuance of stock on conversion of Class B shares 33,600,000 336,000 (336,000) (33)
Issuance of stock on debenture conversion 1,007,287 10,073 -- --
Net loss for the year ended December 31, 2000 -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 2000 103,969,715 $ 1,039,697 364,000 $ 37
=========== =========== =========== ===========
F-4
iVOICE.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND1999
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)
=========== =========== ===========
F-5
iVOICE.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Common Stock Class A Common Stock Class B
Shares Amount Shares Amount
------ ------ ------ ------
Balance at January 1, 1999 10,000,000 $ 100,000 400,000 $ 40
Acquisition of net asset of Visual 36,932,364 369,324 300,000 30
Issuance of common stock for
software license costs 3,200,000 32,000 -- --
Issuance of common stock for services 2,630,000 26,300 -- --
Issuance of common stock for exercise
of stock options 100,000 1,000 -- --
Issuance of common stock for cash 981,299 9,813 -- --
Issuance of common stock for compensation 250,000 2,500 -- --
Issuance of stock options as compensation -- -- -- --
Issuance of convertible debentures -- -- -- --
Net loss for the year ended December 31, 1999 -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31,1999 54,093,663 $ 540,937 700,000 $ 70
========== ========== ========== ==========
F-6
iVOICE.COM, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND1999
Additional Total
Paid in Accumulated Stockholders'
Capital Deficit Deficiency
------- ------- ----------
Balance at January 1, 1999 $ (85,289) $ (37,692) $ (22,941)
Acquisition of net asset of Visual (231,354) -- 138,000
Issuance of common stock for
software license costs 512,000 -- 544,000
Issuance of common stock for services 264,500 -- 290,800
Issuance of common stock for exercise
of stock options 13,000 -- 14,000
Issuance of common stock for cash 231,314 -- 241,127
Issuance of common stock for compensation 85,000 -- 87,500
Issuance of stock options as compensation 256,500 -- 256,500
Issuance of convertible debentures 350,000 -- 350,000
Net loss for the year ended December 31, 1999 -- (6,054,364) (6,054,364)
----------- ----------- -----------
Balance at December 31, 1999 $ 1,395,671 $(6,092,056) $(4,155,378)
=========== =========== ===========
F-7
iVOICE.COM, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2000 1999
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(2,891,379) $(6,054,364)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities
Depreciation and amortization 147,531 69,050
Bad debt expense 75,195 42,500
Provision for obsolescence -- 31,000
Legal settlement -- 4,500,000
Debt issue costs 544,041 32,959
Common stock issued for services 518,155 290,800
Common stock issued for compensation 69,938 56,500
Stock options issued as compensation -- 256,500
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable 231,277 (594,661)
(Increase) decrease in inventory (10,088) 81,191
Decrease in other assets 23,489 --
Increase in accounts payable and accrued expenses 384,583 49,638
Increase (decrease) in legal settlement payable (300,000) 300,000
Increase (decrease) in billings in excess of costs
on uncompleted contracts (397,063) 567,300
----------- -----------
Total cash used in operating activities (1,604,321) (371,587)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (22,135) (1,189)
Purchase of goodwill & intangibles (382,168) --
----------- -----------
Total cash used in investing activities (404,303) (1,189)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 818,979 255,127
Proceeds from stock option exercise 319,166 --
Proceeds from related party loans 627,078 --
Prepaid offering and debt issue costs (31,500) (95,500)
Repayment of notes payable -- (12,318)
Repayment of capital leases payable (15,611) --
Sale of convertible debentures 150,000 350,000
----------- -----------
Total cash provided by financing activities 1,868,112 497,309
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (140,512) 124,533
CASH AND CASH EQUIVALENTS - beginning 195,861 71,328
----------- -----------
CASH AND CASH EQUIVALENTS - end $ 55,349 $ 195,861
=========== ===========
CASH PAID DURING THE YEAR FOR:
Interest expense $ 7,590 $ 41,708
=========== ===========
Income taxes $ -- $ --
=========== ===========
F-8
iVOICE.COM, INC.
STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2000 AND 1999
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
For the Year Ended December 31, 2000
------------------------------------
a) On February 10, 2000, the Company converted a $4,500,000 legal
settlement payable into 2,000,000 shares of its restricted Class A
common stock.
b) On January 10 and February 2, 2000, the Company issued $100,000 and
$50,000 respectively, of its 12% convertible debentures exercisable
at a 50% conversion price. The 50% conversion discount totaling
$150,000 was recorded as a prepaid debt issue cost and will be
amortized over the life of the debt.
c) During the year ended December 31, 2000, the Company issued 848,718
shares of its restricted Class A common stock for services valued at
$518,155.
d) On April 24, 2000, the Company issued 50,000 shares of its
restricted Class A common stock to Corporate Architects, Inc. with a
value of $46,875 as a referral fee for the purchase of ThirdCAI,
Inc. ("ThirdCAI").
e) During the year ended December 31, 2000, the Company issued 80,000
shares of its restricted Class A common stock as compensation valued
at $69,938.
f) During the year ended December 31, 2000, the Company purchased
equipment under capital leases totaling $92,895.
For the Year Ended December 31, 1999
------------------------------------
a) On May 21, 1999, the Company executed a Reorganization Agreement
that provided that the Company and International Voice Technologies,
Corp. ("IVT") would be merged and the Company would be the surviving
entity. In connection with the merger transaction, the sole
stockholder of IVT, received the following:
i) 10,000,000 shares of the Company's Class A common stock and
ii)400,000 shares of the Company's Class B common stock.
b) On May 14, 1999, the Company issued 9,000,000 stock options to
purchase the Company's class A common stock for $.033 per share.
c) On June 15, 1999, the Company issued 250,000 shares of Class A
common stock ($87,500 value) in relation to an employee agreement.
F-9
iVOICE.COM, INC.
STATEMENTS OF CASH FLOWS (Continued)
DECEMBER 31, 2000 AND 1999
d) On June 25, 1999, the Company issued 3,200,000 shares of Class A
common stock valued at .17 per share or $544,000 in connection with
the purchase of pre-developed software codes.
e) In connection with the Reorganization Agreement, the stock price was
calculated using an average of the share price before the merger
when the agreement was accepted. A consulting company received
2,000,000 shares of the Company's Class A common stock, valued at
.114 per share or $228,000 for services performed during April and
May 1999.
f) The Company issued 230,000 shares of its Class A common stock valued
at $30,800 for services performed relating to the merger during May
1999.
g) The Company issued 400,000 shares of its Class A common stock for
legal services valued at $32,000 for services performed relating to
the merger during April and May 1999.
h) The Company incurred non-cash debt issue costs totaling $350,000 in
relation to their 50% discount on the issuance of the 12%
convertible bonds (see Note 7).
i) As described in Note 12, the Company issued 2,000,000 shares of its
Class A common stock valued at $4,500,000 in relation to a legal
settlement.
F-10
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
a) Basis of Presentation
---------------------
Certain amounts in the financial statements for 1999 have been
reclassified to conform to the presentation in 2000
The accompanying financial statements include the accounts of
iVoice.com, Inc. (the "Company" or "iVoice"), formerly known as
Visual Telephone International, Inc. ("Visual") which was
incorporated under the laws of Utah on December 2, 1995,
subsequently changed to Delaware.
Effective May 21, 1999, Visual and International Voice Technologies,
Corp. ("IVT") entered into a merger agreement whereby the Company
would be 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.
The 1999 financial statements presented include only the accounts of
IVT through May 21, 1999, and that of iVoice (Visual and IVT merged)
from May 22, 1999 through December 31, 1999.
The Company is publicly traded and is currently traded on the Over
The Counter Bulletin Board ("OTCBB") under the symbol "IVOC".
As reflected in the accompanying financial statements, the Company
had a loss and a negative cash flow from operations as well as a
negative working capital as of December 31, 2000 and 1999. These
matters raise substantial doubt about the Company's ability to
continue as a going concern.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheets is dependent upon continued
operations of the Company, which in turn, is dependent upon the
Company's ability to continue to raise capital and generate positive
cash flows from operations. The financial statements do not include
any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classifications of liabilities
that might be necessary should the Company be unable to continue its
existence.
Management plans to take the following steps that it believes will
be sufficient to provide the Company with the ability to continue in
existence:
F-11
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
o On August 17, 2000, the Company entered into an
investment agreement with Swartz Private Equity, LLC.
The investment agreement entitles the Company to issue
and sell its Class A common stock from time to time for
up to an aggregate of $20,000,000. The investment
agreement will be effective for a maximum of three years
commencing November 17, 2000, the effective date of the
registration statement filed to register the stock under
the agreement. This financing will allow iVoice to issue
common stock and warrants at the Company's discretion as
often as monthly as funds are needed in amounts based
upon certain market conditions, and subject to an
effective registration statement. The pricing of each
common stock sale is based upon current market prices at
the time of each drawdown, and iVoice may set a floor
price for the shares at the Company's discretion. There
is no assurance that this financing arrangement will
enable the Company to implement their long-term growth
strategy. Accordingly, the sources of financing are
uncertain if the desired proceeds from the Swartz equity
financing arrangement is not obtained.
o Re-negotiate the penalty terms relating to their 12%
convertible debentures (see Note 7).
o Structure arrangements for the provision of services by
outside consultants and third party providers in a
manner which reserves the cash flow of the Company, such
as through agreements which require those consultants or
service providers to take a portion of any agreed-upon
fee in stock or stock options.
o Expand the technical staff which will enable the Company
to develop and integrate new technology with their
existing technology.
o Expand the sales force to help increase sales through
direct sales to customers as well as reseller channels.
b) Line of Business
----------------
The Company is a communication company primarily engaged in the
development, manufacturing and marketing of voice recognition and
computer technology communication systems for small-to-medium
sized businesses and corporate departments. The technology allows
these businesses to communicate more effectively by integrating
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. The Company
sells its products directly to business customers, through Dealer
and Reseller channels as well
F-12
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
as through OEM agreements with certain telecommunications and
networking companies throughout the United States.
c) Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
d) Revenue Recognition
-------------------
The Company obtains its income primarily from the sale of its
voice recognition and computer technology communication systems.
Revenue for systems which require customization to meet a
customer's specific needs or technical requirements, is
recognized by the contract method of accounting, using percentage
of completion. Progress toward completion is measured by costs
incurred to date as a percentage of total estimated costs for
each contract. Under the percentage of completion method, the
liability "Billings in excess of costs and estimated earnings",
represents billings in excess of revenues earned. The completed
contract method is used for systems, which do not require
customization or installation. The Company recognizes revenue
from support services at the time the service is performed or
over the period of the contract for maintenance/support.
e) Advertising Costs
-----------------
Advertising costs are expensed as incurred and are included in
selling expenses. For the years ended December 31, 2000 and 1999,
advertising expense amounted to $88,881 and $42,136,
respectively.
f) Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash
equivalents.
g) Concentration of Credit Risk
----------------------------
The Company places its cash in what it believes to be
credit-worthy financial institutions. However, cash balances
exceeded FDIC insured levels at various times during the year.
h) Inventory
---------
Inventory, consisting primarily of system components such as
computer components, voice cards, and monitors, is valued at the
lower of cost or market. Cost is determined on a first-in,
first-out basis.
F-13
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
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 the lower of cost or fair
market value as of the date of purchase. These costs represent
the purchase of various exploitation rights to certain software,
pre-developed codes and systems patented by Parwan Electronics,
Corp. ("Parwan"), a non-related third party. These costs are
capitalized pursuant to Statement of Financial Accounting
Standards ("SFAS") 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed", and are being
amortized using the straight-line method over a period of five
years. As described later in Note 1, the Company has adopted SFAS
No. 121. The carrying value of software license costs are
regularly reviewed by the Company and a loss would be recognized
if the value of the estimated un-discounted cash flow benefit
related to the asset falls below the unamortizated cost. No
impairment loss was recognized as of December 31, 2000.
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) Offering Costs
--------------
Offering costs consist primarily of professional fees. These
costs are charged against the proceeds of the sale of common
stock in the periods in which they occur. As of December 31, 2000
and 1999 the Company had prepaid offering costs totaling $-0- and
$50,000, respectively.
m) Debt Issue Costs
----------------
Debt issue costs represent various commissions paid and the
estimated cost of the 50% conversion discount feature relating to
the issuance of the Company's convertible debentures. These costs
were being amortized over the life of the debt and is included in
interest expense (see Note 7).
n) Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash and cash equivalents, accounts
receivable, inventory, accounts payable and accrued expenses and
deferred revenue approximates fair value due to the relatively
short maturity of these instruments.
F-14
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
o) Long-Lived Assets
-----------------
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of", requires that
long-lived assets and certain identifiable intangibles to be held
and used or disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company
has adopted this statement and determined that an impairment loss
should not be recognized for applicable assets of continuing
operations.
p) Earnings Per Share
------------------
SFAS No. 128, "Earnings Per Share" requires presentation of basic
earnings per share ("basic EPS") and diluted earnings per share
("diluted EPS").
The computation of basic EPS is computed by dividing income
available to common stockholders by the weighted average number
of outstanding common shares during the period. Diluted earnings
per share gives effect to all dilutive potential common shares
outstanding during the period. The computation of diluted EPS
does not assume conversion, exercise or contingent exercise of
securities that would have an anti-dilutive effect on earnings.
The shares used in the computations are as follows:
As of December 31,
2000 1999
---- ----
Basic and Diluted EPS 87,034,303 30,500,000
========== ==========
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,
2000 and 1999, the Company has no items that represent
comprehensive income, and thus, has not included a statement of
comprehensive income.
r) Recent Accounting Pronouncements
--------------------------------
SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information" changes the way public companies report
information about segments. SFAS No. 131, which is based on the
selected segment information quarterly and entity-wide
disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports
revenue. This statement is effective for the Company's 2000 and
1999 fiscal year. The Company is in the process of evaluating the
disclosure requirements under this standard.
F-15
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
SFAS No. 133, "Accounting for Derivative Instruments and for
Hedging Activities" requires that certain derivative instruments
be recognized in balance sheets at fair value and for changes in
fair value to be recognized in operations. Additional guidance is
also provided to determine when hedge accounting treatment is
appropriate whereby hedging gains and losses are offset by losses
and gains related directly to the hedged item. While the
standard, as amended, must be adopted in the fiscal year
beginning after June 15, 2000, its impact on the Company's
financial statements is not expected to be material as the
Company has not historically used derivative and hedge
instruments.
Statement of Position ("SOP") No. 98-1 specifies the appropriate
accounting for costs incurred to develop or obtain computer
software for internal use. The new pronouncement provides
guidance on which costs should be capitalized, and over what
period such costs should be amortized and what disclosures should
be made regarding such costs. This pronouncement is effective for
fiscal years beginning after December 15, 1998, but earlier
application is acceptable. Previously capitalized costs will not
be adjusted. The Company believes that it is already in
substantial compliance with the accounting requirements as set
forth in this new pronouncement and therefore believes that
adoption will not have a material effect on financial condition
or operating results.
SOP No. 98-5 requires that companies write-off defined previously
capitalized start-up costs including organization costs and
expense future start-up costs as incurred. The Company believes
that it is already in substantial compliance with the accounting
requirements as set forth in this new pronouncement and therefore
believes that adoption will not have a material effect on
financial condition or operating results.
NOTE 2 - CORPORATE REORGANIZATION AND MERGER
- --------------------------------------------
On May 21, 1999, the Company executed a Reorganization Agreement
(the "Agreement") that provided that the Company and
International Voice Technologies, Corp. ("IVT") would be merged
and the Company would be the surviving entity. On May 25, 1999, a
certificate of merger was filed with the State of Delaware. In
connection with the merger transaction, the sole stockholder of
IVT, received the following:
i) 10,000,000 shares of the Company's Class A common stock;
and
ii) 400,000 shares of the Company's Class B common stock.
In addition, the two controlling stockholders of Visual sold
300,000 shares of the Company's Class B common stock to IVT's
sole stockholder and concurrently canceled a total of 2,000,000
shares of their Class A common stock.
A finder's fee of 2,000,000 shares was issued on August 30, 1999,
in connection with the reorganization.
F-16
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
The Agreement also provided that certain assets of the Company
would be transferred to Communications Research, Inc., ("CRI"), a
wholly owned subsidiary of Visual, and that shares of CRI would
be distributed pro rata to the Class A stockholders of the
Company before the issuance of the 10,000,000 shares to the sole
stockholder of IVT. The stock of CRI was distributed at the rate
of one share of CRI for four shares of the Company's Class A
common stock. On September 18, 2000, CRI filed a registration
statement with the U.S. Securities and Exchange commission to
provide for the distribution of its shares to former Visual
stockholders.
This merger transaction has been accounted for in the financial
statements as a public shell merger. As a result of this
transaction the former stockholders of IVT acquired or exercised
control over a majority of the shares of Visual. Accordingly, the
transaction has been treated for accounting purposes as a
recapitalization of IVT and, therefore, these financial
statements represent a continuation of the legal entity, IVT, not
Visual, the legal survivor. Consequently, the comparative figures
are those of iVoice.com, Inc. Because the historical financial
statements are presented in this manner, proforma financial
statements are not required.
In accounting for this transaction:
i) IVT is deemed to be the purchaser and surviving company
for accounting purposes. Accordingly, its net 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
========
F-17
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
On April 24, 2000, the Company entered into an agreement and plan
of reorganization with all the stockholders of ThirdCAI, another
shell company that was a reporting company under the Securities
Exchange Act of 1934. In this transaction, which took place by
means of a short-form merger, with ThirdCAI's name being changed
to iVoice, the Company acquired all the issued and outstanding
shares of ThirdCAI in exchange for $150,000, and a finder's fee
paid to Corporate Architect, Inc., consisting of 50,000 shares of
Class A voting common stock. The fee was negotiated between the
Company and ThirdCAI. The purpose of this transaction was to
enable the Company's business to be conducted by a reporting
company, as pursuant to the "eligibility rule" adopted by the
National Association of Securities Dealers, Inc., or "NASD," as
only reporting companies may continue to have stock quoted on the
OTC Bulletin Board.
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment is summarized as follows:
December 31,
2000 1999
-------------- ------------
Equipment $ 56,196 $ 8,932
Leasehold improvements 8,684 -
Furniture and fixtures 123,394 64,312
------------- ------------
188,274 73,244
Less: Accumulated depreciation 47,353 17,836
------------- ------------
Property and equipment, net $ 140,921 $ 55,408
============= ============
Depreciation expense for the years ended December 31, 2000 and
1999 was $29,517 and $14,650, 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, 2000 and 1999 consists of the following:
December 31,
2000 1999
----------- -----------
Costs incurred on uncompleted contracts $ 91,735 $ -
Estimated earnings 117,488 -
----------- -----------
209,223 -
Less billings to date 379,450 567,300
----------- -----------
$ (170,227) $ (567,300)
=========== ===========
F-18
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 5 - INCOME TAXES
- ---------------------
The components of the provision for income taxes are as follows:
December 31,
2000 1999
--------- -------
Current Tax Expense
U.S. Federal $ - $ -
State and Local - -
--------- -------
Total Current - -
--------- -------
Deferred Tax Expense
U.S. Federal - -
State and Local - -
-------- -------
Total Deferred - -
-------- -------
Total Tax Provision from Continuing $ - $ -
Operations ======== =======
The reconciliation of the effective income tax rate to the
Federal statutory rate is as follows:
Federal Income Tax Rate (34.0)%
Deferred Tax Charge (Credit) -
Effect on Valuation Allowance 34.0%
State Income Tax, Net of Federal Benefit -
---------
Effective Income Tax Rate 0.0%
=========
As of December 31, 2000 and 1999, the Company had net
carryforward losses of approximately $3,500,000 and $1,700,000
that can be utilized to offset future taxable income through
2014. Utilization of these net carryforward losses is subject to
the limitations of Internal Revenue Code Section 382. Because of
the current uncertainty of realizing the benefit of the tax
carryforward, a valuation allowance equal to the tax benefit for
deferred taxes has been established. The full realization of the
tax benefit associated with the carryforward depends
predominantly upon the Company's ability to generate taxable
income during the carryforward period.
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. Significant components of the Company's
deferred tax assets and liabilities are summarized as follows:
December 31
-----------
2000 1999
----------- ------------
Net Operating Loss Carryforwards $ 1,190,000 $ 578,000
Less: Valuation Allowance (1,190,000) (578,000)
----------- ------------
Net Deferred Tax Assets $ - $ -
=========== ============
F-19
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
Net operating loss carryforwards expire starting in 2007 through
2015.
NOTE 6 - DUE TO RELATED PARTY
- -----------------------------
During the period June 1 through June 8, 2000, Jerome R. Mahoney,
President and Chief Executive Officer, sold 971,000 shares of the
Company's common stock under Rule 144 of the Securities Act of
1933, as amended, realizing $396,798 of aggregate proceeds from
these sales. On July 24, 2000, Mr. Mahoney loaned the Company
these proceeds pursuant to a loan agreement in order to fund
working capital requirements.
During the period August 24 through September 29, 2000, Mr.
Mahoney sold a further 537,000 shares of common stock under Rule
144 realizing $239,118 of aggregate proceeds from these sales. On
November 7, 2000, Mr. Mahoney loaned to the Company these
proceeds pursuant to a second loan agreement to fund working
capital requirements
Under the terms of the loan agreements, the Company will repay
Mr. Mahoney with a number of shares of Class B common stock equal
to the number of shares that he sold, plus additional Class B
common stock shares to reimburse him for the income tax he paid
upon the sale of his shares, plus additional shares with a value
equal to interest calculated at the prime rate.
As of December 31, 2000 the total outstanding principal balance
related to amounts loaned to the Company from sales of the
Company's common stock, under Rule 144, to Mr. Mahoney amounted
to $648,078.
Also due to Mr. Mahoney and reflected in accrued expenses at
December 31, 2000, was unpaid salary of $143,756, unpaid
commissions of $34,000 and unpaid expense reimbursements of
$7,200, totaling $184,956.
As of December 31, 1999, due to related parties represented a
non-interest bearing advance of $21,000 from Mr. Mahoney.
F-20
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 7 - CONVERTIBLE DEBENTURES
- -------------------------------
From October 1999 through February 2000, the Company 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
the Company's Class A Common Stock at the option of the holder by
dividing the outstanding principal and interest by the conversion
price which shall equal 50% of the average bid price during the
20 trading days before the conversion date. As of December 31,
2000, $163,000 in principal had been converted into 1,007,287
shares of the Company's Class A common stock leaving an
outstanding balance of $337,000. Notes payable totaling $350,000
were outstanding as of December 31, 1999.
The Company has been advised by several of the debenture holders
that the Company has breached the following terms of the
debentures: (a) Failure to register, on a timely basis, under the
Securities Act of 1933, the shares issuable upon the conversion
of the debentures, (b) Registering additional shares other than
the shares issuable upon the conversion of the debentures, and
(c) Failure to provide the debenture holders a perfected security
interest in certain assets of the Company pursuant to a Security
Agreement that was part of the debenture documentation. The
Company is currently in negotiations with the debenture holders
to reach settlement terms regarding the penalties for default
under the debenture agreements.
NOTE 8 - CAPITAL LEASE OBLIGATIONS
- ----------------------------------
During the year ended December 31, 2000, the Company incurred two
capital lease obligations totaling $92,895 in connection with the
acquisition of computers and office furniture.
The future minimum lease payments due under the capital leases at
December 31, 2000 are follows:
Lease payable for computer equipment, payable
at $1,367 per month, including interest at 22.31%.
Final payment is due June 2003. $ 31,216
Lease payable for furniture, payable at $2,151 per
month, including interest at 20.79%. Final payment
due April 2003. 46,068
---------
Present value of net minimum lease payments $ 77,284
==========
F-21
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
The future minimum lease payments $ 99,075
Less amount representing interest 21,791
----------
Present value of net minimum lease payments 77,284
Less current portion 28,339
----------
Long term capital lease obligations $ 48,945
===========
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
a) The Company's future net minimum annual aggregate rental
payments required under operating leases that have initial
or remaining non-cancelable lease terms in excess of one
year are as follows:
December 31,
------------
2001 $ 175,513
2002 56,223
---------
Total $ 231,736
=========
Rent expense under operating leases for the year ended
December 31, 2000 and 1999 was $153,175 and $70,185,
respectively.
b) In April 2000, the Company entered into a two-year lease
agreement for their office currently utilized as the
corporate headquarters. Monthly lease payments total
$11,000.
c) On May 1, 1999, the Company entered into a five-year
employment agreement with its majority stockholder (the
"Executive"). He will serve as the Company's Chairman of the
Board and Chief Executive Officer for a term of five years.
As consideration, the Company agrees to pay the Executive a
sum of $180,000 the first year with a 10% increase every
year thereafter.
d) In connection with the Reorganization Agreement, the Company
entered into a five-year consulting agreement with one of
Visual's Directors (the "Director"). The agreement provided
that the Director would receive a fee of $104,000. This
agreement was terminated with the Director's resignation on
May 16, 2000.
e) On June 2, 1999, subsequently amended January 11, 2000, the
Company entered into a three-year employment agreement,
expiring on May 31, 2002, with an employee. As compensation,
such employee will receive a base salary of $80,000, 250,000
shares of the Company's Class A common stock and options to
purchase 140,000 shares of the Company's Class A common
stock.
f) The Company's revenues for the year ending December 31, 2000
include $140,950 from Celpage, Inc. The amount of the
contract dated February 9, 2000 totaled $288,175 for the
installation of a 196 port Integrated Voice Response System
at the customer's Guaynabo, Puerto Rico location. To date,
the Company has received $42,800 for the installation of 24
ports which include all database development costs necessary
for the entire installation. Celpage has refused to accept
the remaining ports
F-22
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
citing a shortfall in their projected subscriber base. The
Company's balance sheet at December 31, 2000 reflects
accounts receivable of $245,375 and deferred revenues of
$147,225 related to this installation. The Company has made
attempts to complete the remaining installation by offering
incentives in the form of price reductions however, the
customer has refused. The matter has been forwarded to the
Company's attorneys and believe a lawsuit to be pending to
attempt to recover the balance of the contract.
g) The Company is involved with two law suits in which it is
the defendant. One is from an employment agency for
placement fees in connection with the hiring of an employee.
The Company believes the suit will be dismissed, however, if
not, the amount of the claim will not have a material affect
on the financial statements. The second is a claim by a
sub-leasee of the Company with respect to certain property
rights and expenses relating to the tenancy between the
Company and this sub-tenant. Management believes the suit
will also be dismissed, however, if not, the amount of the
claim will not materially affect the financial statements.
NOTE 10 - COMMON STOCK
- ----------------------
The company has two classes of common stock:
a) Class A Common Stock
--------------------
Class A common stock consists of 150,000,000 shares at
December 31, 2000 and 75,000,000 shares at December 31,
1999, of authorized common stock with a par value of $.01.
Class A stock has voting rights of 1 to 100 with respect
to Class B stock and as of December 31, 2000 and 1999,
103,969,715 and 54,093,663 were issued and outstanding,
respectively.
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. As of December 31, 2000, the Company
has not paid any dividends on its common stock and do not
contemplate doing so in the foreseeable future. The
Company anticipates that any earnings generated from
operations will be used to finance the growth objectives.
b) Class B Common Stock
--------------------
Class B common stock consists of 700,000 shares of
authorized common stock with no intrinsic value. Class B
stock has voting rights of 100 to 1 with respect to Class
A common stock. As of December 31, 2000 and 1999, 700,000
were authorized with 364,000 and 700,000 issued and
outstanding, respectively. Class B common stockholders are
not entitled to receive dividends.
F-23
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
On April 24, 2000, the Company amended its Articles of
Incorporation to state that Class B common stock is
convertible into its Class A common stock at a conversion
rate of one share of Class B for one hundred shares of
Class A common stock. The conversion ratio is in relation
to the voting ratio.
On December 6, 2000, the Company filed Form DEF-14C with
the U.S. Securities and Exchange Commission indicating its
intention of increasing the authorization of Class A
shares to 300,000,000 and Class B shares to 3,000,000.
NOTE 11 - STOCK OPTIONS
- -----------------------
During 1999, the Company issued various options as follows:
a) On January 5, 1999, issued options to purchase 10,000 share
of Class A common stock at $.12 per share expiring in five
years.
b) On January 21, 1999, issued options to purchase 10,000
shares of Class A common stock at $.107 per share expiring
in five years.
c) On February 5, 1999, issued options to purchase 10,000
shares of Class A common stock at $.107 per share expiring
in five years.
d) On March 17, 1999, issued options to purchase 10,000 shares
of Class A common stock at $.107 per share expiring in five
years.
e) On April 6, 1999, issued options to purchase 10,000 shares
of Class A common stock at $.107 per share expiring in five
years.
f) On May 14, 1999, the Company issued an option to purchase
9,000,000 shares of Class A common stock at $.033 per share
expiring in five years. (This option was exercised during
2000)
During 2000, the Company issued various options as follows:
g) On August 17, 2000, in connection with a financing agreement
with Swartz Private Equity, LLC, the Company issued a
warrant to purchase 5,490,000 shares of Class A common stock
at $.484 per share The warrant expires in five years on
August 16, 2005 and contains strike price reset provisions.
Options outstanding, except options under employee stock option
plan, are as follows as of December 31, 2000:
F-24
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
Expiration Date Exercise Price Shares
---------------- --------------- ----------
January 1, 2001 .3100 100,000
January 1, 2001 1.0000 100,000
January 1, 2001 2.0000 200,000
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
--------
470,000
h) Employee Stock Option Plan
--------------------------
During the year ended December 31, 1999, the Company
adopted the Employee Stock Option Plan (the "Plan") in
order to attract and retain qualified personnel. Under the
Plan, the Board of Directors (the "Board"), in its
discretion may grant stock options (either incentive or
non-qualified stock options) to officers and employees to
purchase the company's common stock at no less than 85% of
the market price on the date the option is granted.
Options generally vest over four years and have a maximum
term of five to ten years. During the year ended December
31, 1999, 20,000,000 shares were reserved for future
issuance under the plan of which 9,510,000 shares were
granted in 1999 and 254,000 in 2000, for total of
9,764,000 shares. At December 31, 2000, a total of 764,000
options were to purchase Class A common shares were
outstanding and held by company employees. The exercise
prices ranged from $0.29 to $3.75 per share. All options
issued to employees vest at 25% per year and expire in 5
years.
As of December 31, 2000, employee stock options exercised are as
follows:
Optionee Exercised # Shares Price
-------------- --------------- -------- -----
Joel Beagleman 03/20/00 9,000,000 0.033
The Company has adopted only the disclosure provisions of SFAS
No. 123. It applies Accounting Principles Bulletin ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and
its related interpretations in accounting for its plan. It does
not recognize compensation expense for its stock-based
compensation plan other than for restricted stock and
options/warrants issued to outside third parties. If the Company
had elected to recognize compensation expense based upon the fair
value at the grant date for awards under its plan consistent with
the methodology prescribed by SFAS No. 123, the Company's net
loss and loss per share would be increased to the proforma
amounts indicated below:
F-25
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
For The Year Ended,
December 31,
-------------------------
2000 1999
----------- -----------
Net Loss
As Reported $(2,891,379) $(6,054,364)
=========== ===========
Proforma $(3,296,417) $(6,336,785)
=========== ===========
Basic Loss Per Share
As Reported $ (.03) $ (.20)
=========== ===========
Proforma $ (.04) $ (.21)
=========== ===========
These proforma amounts may not be representative of future
disclosures because they do not take into effect proforma
compensation expense related to grants made before 1997. 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,
2000 and 1999: dividend yield of 0%; expected volatility of 320%;
risk-free interest rates of 5.56%; and expected life of 4.1 and
3.0 years, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
The following summarizes the stock option and warrant transactions:
Weighted Other Weighted
Employee Average Options Average
Stock Options Exercise and Exercise
Outstanding Price Warrants Price
----------- ----------- ------------ ------------
Balance, January 1, 1999 - $ - 731,051 $ 0.120
Granted 9,510,000 $ .033 60,000 $ 0.110
Exercised - $ - - $ -
Canceled - $ - (125,866) $ 0.110
----------- ----------- ------------ ------------
Balance, December 31, 1999 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
----------- ----------- ------------ ------------
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iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
Weighted Other Weighted
Employee Average Options Average
Stock Options Exercise and Exercise
Outstanding Price Warrants Price
----------- ----------- ------------ ------------
Balance, December 31, 2000 764,000 $ .670 5,960,000 $ 0.456
============ =========== =========== ==========
Outstanding and Exercisable,
December 31, 1999 9,000,000 $ .033 665,185 $ 0.120
============ =========== =========== ==========
Outstanding and Exercisable,
December 31, 2000 66,620 $ .333 5,960,000 $ 0.456
============ =========== =========== ==========
The weighted average remaining contractual lives of the employee stock
options is 4.15 years at December 31, 2000.
NOTE 12 - NON-RECURRING EXPENSES
- --------------------------------
Non-recurring expenses consisted of the following for the year
ended December 31, 1999:
Legal Settlements (a) $ 4,800,000
Merger Costs (b) 228,000
-----------
Total non-recurring expenses $ 5,028,000
===========
a) The Company recognized $4,800,000 of expenses relating to
legal settlements. During February 2000, the Company settled
a lawsuit and agreed to pay $300,000 in cash and issue
2,000,000 shares of its restricted Class A common stock
valued at $4,500,000.
b) In connection with the Reorganization Agreement, a
consulting company received 2,000,000 shares of the
Company's Class A common stock, valued at .114 per share or
$228,000 for services performed. These shares were for
services performed during the merger (see Note 2).
NOTE 13 - SUBSEQUENT EVENTS
- -----------------------------
a) On January 9, 2001 The Company received $150,000 in proceeds
from a put to sell 2,000,000 Class A common stock in
accordance with the investment agreement with Swartz Private
Equity, LLC, dated August 17, 2000. Also in conjunction with
this put, the Company issued Swartz a warrant to purchase
200,000 shares of the Company's Class A common stock at
$.1045 per share.
b) On January 10, 2001 the holders of the 12% convertible
debentures converted $50,000 in debenture principal and
$6,559 in interest into 897,761 Class A common stock at
$.063 per share in accordance with the conversion terms of
the debenture agreement.
F-27
c) On January 30, the Company issued 328,951 shares of its
Class A common stock to Jerome Mahoney as partial repayment
of amounts loaned to the Company by Mr. Mahoney.
d) In January 2001, the Company filed a patent application for
the iVoice Speech Enabled Name Dialer with the U.S. Patent &
Trademark Office. The Name Dialer is an automatic phone
dialing system. The system imports the necessary contact
information for dialing (names and phone numbers) from
almost any PIM or contact manager, including, 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.
e) On February 9, 2001, the Company dismissed Merdinger,
Fruchter, Rosen & Corso, P.C., as its independent
accountants and engaged Mendlowitz Weitsen, LLP, as its new
independent accountants. During the Company's two most
recent fiscal years and through February 9, 2001, the
Company did not consult with Mendlowitz Weitsen, LLP on any
accounting, auditing, financial reporting or any other
matters.
f) On February 17, 2001 in accordance with the investment
agreement with Swartz Private Equity, LLC, dated August 17,
2000, the commitment warrant issued on August 17, 2000, to
purchase 5,490,000 shares of the Company's Class A common
stock at $.484 per share was reset to $.1406.
g) On February 20, 2001, the lawsuit brought about by Fisher
Scientific International, Inc., seeking compensatory damages
of $17,999 plus reasonable internal costs associated with
the assistance of a voicemail installation and punitive
damages of $20,000 was dismissed in arbitration with no
amount being awarded.
h) On March 12, 2001, the Company issued to all of its
employees options to purchase the Company's Class A common
stock at $0.10 per share. A total of 795,000 options were
issued, each option contract vests with the employee at 25%
per year and expire in 5 years.
F-28