As filed with the Securities and Exchange Commission of July 25, 2001
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
IVOICE.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 7373 52-1750786
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Identification
organization) Number) No.)
750 Highway 34
Matawan, New Jersey 07747
(732) 441-7700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------
JERome R. MAHONEY
750 Highway 34
Matawan, New Jersey 07747
(732) 441-7700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
COPIES TO:
LAWRENCE A. MUENZ, ESQ. SCOTT S. ROSENBLUM, ESQ.
Meritz & Muenz LLP Kramer Levin Naftalis & Frankel LLP
Three Hughes Place 919 Third Avenue
Dix Hills, New York 11746 New York, New York 10022
(631) 242-7384 (212) 715-9100
Approximate date of commencement of proposed sale to the public: At such
time or times as may be determined by the selling stockholders after this
registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, as amended (the "Securities Act"), 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 the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- ------------------------------- ------------------ -------------- ----------------- -------------
Proposed
Maximum
Number of Shares Offering Proposed Maximum Amount of
Title of Shares to be Price Aggregate Registration
to be Registered Registered Per Share (1) Offering Price Fee
- ------------------------------- ------------------ -------------- ----------------- -------------
Class A common stock, par 110,000,000 (2) $0.07 $7,700,000.00 $1,925.00
value $.01 per share
- ------------------------------- ------------------ -------------- ----------------- -------------
Class A common stock, par 35,000,000 (3) $0.07 $2,450,000.00 $612.50
value $.01 per share
- ------------------------------- ------------------ -------------- ----------------- -------------
Class A common stock, par 19,650,000 (4) $0.07 $1,375,500.00 $348.87
value $.01 per share
- ------------------------------- ------------------ -------------- ----------------- -------------
Class A common stock, par 450,000 (5) $0.07 $31,500.00 $7.87
value $.01 per share
- ------------------------------- ------------------ -------------- ----------------- -------------
Class A common stock, par 250,000 (6) $0.07 $17,500.00 $4.37
value $.01 per share
- ------------------------------- ------------------ -------------- ----------------- -------------
Class A common stock, par 171,875 (7) $0.07 $12,031.25 $3.00
value $.01 per share
- ------------------------------- ------------------ -------------- ----------------- -------------
Class A common stock, par 171,875 (8) $0.07 $12,031.25 $3.00
value $.01 per share
- ------------------------------- ------------------ -------------- ----------------- -------------
Class A common stock, par 200,000 (9) $0.07 $14,000.00 $3.50
value $.01 per share
- ------------------------------- ------------------ -------------- ----------------- -------------
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
on the average of the high and low sales prices for our Class A common stock
reported on the Over-the-Counter Bulletin Board on July 20, 2001.
(2) Represents the shares of our Class A common stock that, in good faith, we
anticipate we would be required to issue to Maple Avenue, LLC if we were to
draw down the entire $5,000,000 of financing available to us pursuant to the
equity-line investment agreement we entered into with Maple Avenue, LLC.
(3) Represents the shares of our Class A common stock that in good faith, we
anticipate we will be required to issue to Meridian Equities International,
Inc., upon conversion of $150,000 of our 8% convertible debentures issued to
Meridian Equities International, Inc.
(4) Represents the shares of our Class A common stock that, in good faith, we
anticipate we will be required to issue to certain purchasers upon
conversion of an aggregate of $275,000 of our 8% convertible debentures
issued to those purchasers.
(5) Represents shares of our Class A common stock that are issuable upon
exercise of a five year signing warrant issued to Maple Avenue, LLC as an
initial commitment fee for entering into the $5,000,000 equity-line
investment agreement.
(6) Represents shares of our Class A common stock that are issuable upon
exercise of a five-year signing warrant issued to Meridian Equities
International, Inc. as an initial commitment fee for entering into a
subscription agreement for the purchase of $150,000 of our 8% convertible
debentures.
(7) Represents shares of our Class A common stock that are issuable upon
exercise of a five-year signing warrant issued to Michael Jacobs of The May
Davis Group, Inc. as consideration for the placement of $275,000 of our 8%
convertible debentures to certain purchasers.
(8) Represents shares of our Class A common stock that are issuable upon
exercise of a five year signing warrant issued to Owen May of The May Davis
Group, Inc. as consideration for the placement of $275,000 of our 8%
convertible debentures to certain purchasers.
(9) Represents shares of our Class A common stock that were issued to Finnegan
USA in consideration for consulting services rendered to us by Finnegan USA.
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 or until this Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
PROSPECTUS
165,893,750 SHARES
COMMON STOCK
iVOICE.COM, INC.
The selling stockholders named on page 28 are offering to sell up to
165,893,750 shares of our Class A common stock.
Our Class A common stock is traded on the NASD Over-the-Counter Bulletin
Board under the symbol "IVOC."
Investing in our common stock involves certain risks. See "Risk Factors"
beginning on page 2.
Maple Avenue, LLC, a selling stockholder, is an "underwriter" within the
meaning of the Securities Act of 1933, as amended. iVoice will be issuing to
Maple Avenue, LLC pursuant to an equity-line agreement up to 110,450,000 of the
shares of Class A common stock offered in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has 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 information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this prospectus is ____, 2001.
TABLE OF CONTENTS
Prospectus Summary.............................................................2
Risk Factors...................................................................3
Use of Proceeds................................................................8
Market for Common Equity.......................................................9
Management's Discussion and Analysis or Plan of Operation.....................10
Description of Business.......................................................13
Management and Executive Compensation.........................................18
Certain Relationship and Related Transactions.................................19
Description of Property.......................................................19
Security Ownership of Certain Beneficial Owners...............................19
Description of Securities.....................................................20
Transaction with Selling Stockholders.........................................22
Selling Stockholders..........................................................27
Plan of Distribution..........................................................29
Legal Proceedings.............................................................30
Interests of Named Experts and Counsel........................................30
Disclosure of Commission Position on Indemnification for
Securities Act Liabilities..................................................30
Where You Can Find More Information...........................................31
Index to Financial Statements.................................................32
PROSPECTUS SUMMARY
This summary highlights the information we present more fully in the
rest of this prospectus. We encourage you to read the entire prospectus
carefully.
iVoice.com, Inc.
We are a communication company primarily engaged in developing,
manufacturing, and marketing voice recognition and computer technology
communication systems for businesses and corporate departments with between two
and 20,000 telephones. This technology allows businesses to communicate more
effectively by integrating their traditional office telephone systems with
voicemail, automated attendant, and interactive voice response functions. These
products allow information in PC databases to be accessed from a standard
touch-tone telephone.
Our offices are located at 750 Highway 34, Matawan, New Jersey 07747 and
our telephone number is (732) 441-7700.
The Offering
In accordance with our obligations under the subscription agreements we
entered into with Meridian Equities International, Inc. and certain other
purchasers of our 8% convertible debentures and the equity-line investment
agreement we entered into with Maple Avenue, LLC, we are registering the
following 165,893,750 shares of our Class A common stock for resale by the
selling stockholders listed in this prospectus. See "Selling Stockholders" on
page 27.
Class A common stock offered Up to 19,650,000 shares of our Class A common
by the selling stockholders stock that we will be required to issue upon
conversion by certain purchasers of $275,000 of
our 8% convertible debentures.
Up to 35,000,000 shares of our Class A common
stock that we will be required to issue upon
conversion by Meridian Equities International,
Inc. of $150,000 of our 8% convertible debentures
issued to Meridian Equities International, Inc.
Up to 110,000,000 shares of our Class A common
stock that we may issue pursuant to the
$5,000,000 equity-line investment agreement we
entered into with Maple Avenue, LLC.
Up to 171,875 shares of our Class A common stock
that we will be required to issue upon exercise
of a warrant issued to Michael Jacobs of The May
Davis Group, Inc. in consideration for the
placement of $275,000 of our 8% convertible
debentures to certain purchasers.
Up to 171,875 shares of our Class A common stock
that we may issue upon exercise of a warrant
issued to Owen May of The May Davis Group, Inc.
in consideration for the placement of $275,000 of
our 8% convertible debentures to certain
purchasers.
Up to 250,000 shares of our Class A common stock
that we will be required to issue upon exercise
of a warrant issued to Meridian Equities
International, Inc. as a commitment for entering
into a subscription agreement for the purchase of
$150,000 of our 8% convertible debentures.
Up to 450,000 shares of our common stock that we
will be required to issue upon exercise of a
warrant issued to Maple Avenue, LLC, as a
commitment fee for their entering into the
$5,000,000 equity-line investment agreement.
2
200,000 shares of our Class A common stock that
we issued to Finnegan USA as consideration for
consulting services rendered to us by Finnegan
USA.
Use of Proceeds We will not receive any of the proceeds from sale
by the selling stockholders of shares of our
Class A common stock. However, upon exercising a
put right under our equity-line investment
agreement with Maple Avenue, LLC and upon
exercise of the warrants we issued to the selling
stockholders, we will receive cash in
consideration for issuing our Class A common
stock. We intend to use these proceeds to repay
short-term debt and for working capital and
general corporate purposes.
RISK FACTORS
Investing in our Class A common stock involves a high degree of risk,
and you should be able to bear losing your entire investment. You should
consider carefully the following risks, in addition to the other information
contained in this prospectus.
Our Financial Condition and Need for Additional Funding
We may need additional financing sooner than anticipated.
Based on our potential rate of cash operating expenditures and our
current plans, the proceeds of the 8% convertible debentures being issued under
the subscription agreements and underlying certain of the shares of our Class A
common stock included in this offering and the proceeds of the $5,000,000
equity-line investment agreement with Maple Avenue, LLC may constitute our
principal source of financing for the foreseeable future. Additionally, our
ability to draw down funds under the equity-line investment agreement is subject
to certain conditions. These include the continuing effectiveness of a
registration statement covering the resale of the shares of Class A common stock
issued and sold to Maple Avenue, LLC under the equity-line investment agreement
and a limitation on the number of shares of our Class A common stock that we may
issue based on the volume of trading in the Class A common stock. We may be
unable to satisfy one or more of these conditions.
We have a history of losses, expect to encounter future losses and may not
achieve or sustain profitability.
To date, we have incurred significant losses. As of June 30, 2001, our
accumulated deficit was $11,033,853. For the year ending December 31, 2000, we
incurred a net loss of $2,891,379, and for the previous fiscal year ending
December 31, 1999, we incurred a net loss of $6,054,364. We will incur operating
losses in the future until sales of our voice-recognition systems exceed our
administrative, selling, and research-and-development costs. This may never
happen.
Our accountants have expressed substantial doubt about our ability to continue
as an operating concern.
In connection with the reports on our consolidated financial statements
for the year ending December 31, 2000 and 1999, our independent certified public
accountants expressed substantial doubt about our ability to continue operating
as a going concern. Their doubt was based on our low levels of cash, our
negative working capital, and our failure to establish a source of revenues
sufficient to cover our operating costs. We may receive a similar opinion in
connection with the next audit of our financial statements.
Our Operations
We have a limited operating history.
We did not begin our voice-recognition business until December 1997.
Accordingly, we have a limited operating history on which to base your
evaluation of our business and prospects.
3
The voice-recognition business is in its infancy.
Our prospects are subject to the difficulties frequently encountered by
companies in the early stage of development in new and evolving markets. These
difficulties include the following:
o Substantial delays and expenses related to testing and developing
of our new products;
o Marketing and distribution problems encountered in connection
with our new and existing products and technologies;
o Competition from larger and more established companies;
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.
We cannot accurately forecast our future revenues and operating results, which
may fluctuate.
Our short operating history and the rapidly changing nature of the
markets in which we compete make it difficult to accurately forecast our
revenues and operating results. Furthermore, we expect our revenues and
operating results to fluctuate in the future due to a number of factors,
including the following:
o The timing of sales of our products and services, particularly
given that we depend on a relatively small number of large
orders;
o The timing of product implementation, particularly large design
projects;
o Unexpected delays in introducing new products and services;
o Increased expenses, whether related to sales and marketing,
product development, or administration;
o Deferral in the recognition of revenue in accordance with
applicable accounting principles, due to the time required to
complete projects;
o The mix of product license and services revenue; and
o Costs related to possible acquisitions of technology or
businesses.
We may fail to develop new products, or may incur unexpected expenses or delays.
Although we currently have fully developed products available for sale,
we are also developing various products and technologies and will rely on them
to remain competitive. Due to the risks inherent in developing new products and
technologies--limited financing, competition, obsolescence, loss of key
personnel, and other factors--we may fail to develop these technologies and
products, or may experience lengthy and costly delays in doing so. Although we
may be able to license some of our technologies in their current stage of
development, we cannot assure that we will be able to do so.
4
Our technologies and products could contain 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. 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.
We face significant competition.
The call-processing and voice-recognition industries are 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. 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.
We may be unable to protect our trademarks and proprietary rights.
To succeed, we will need to protect our intellectual property rights. In
August 2000, we filed three patent applications, and in January 2001 we filed
another patent application. In September 2000 we filed two trademark
applications. Each of the foregoing applications may not 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
management's time and attention away from our business.
We may unintentionally infringe on the proprietary rights of others.
Many lawsuits currently are being brought in the software industry
alleging violation of intellectual property rights. In addition, a large number
of patents have been awarded in the voice-recognition area. Although we do not
believe that we are infringing on any patent rights, patent holders may claim
that we are doing so. Any such claim would likely be time-consuming and
expensive to defend, particularly if we are unsuccessful, and could prevent us
from selling our products or services. In addition, we may also be forced to
enter into costly and burdensome royalty and licensing agreements.
We may be unable to obtain component products from our vendors.
We purchase major components of our products from outside suppliers. At
any given time we may find ourselves unable to obtain those components, which
could prevent us from meeting customer demand.
We may be unable to attract and retain qualified employees, and we depend upon
key employees.
Our future success depends on our finding, hiring, training, motivating,
and retaining highly qualified technical, managerial, and other personnel, but
we may not be able to meet our needs in this regard, given the considerable
competition for qualified employees. If we lose the services of any of our
executive officers or other key employees, our business could suffer.
5
We may be unable to manage our significant growth.
We intend to continue to expand our business operations significantly.
Such growth would require us to expand our management, operational, financial,
and human resources systems and could strain the capacity of our current
management team.
Our Securities
We do not expect to pay dividends in the foreseeable future.
We intend to retain any future earnings to finance the growth and
development of our business. Therefore, we do not expect to pay any cash
dividends in the foreseeable future. Any future dividends will depend on our
earnings, if any, and our financial requirements.
Our stock price is volatile.
The market price of our common stock has been and is likely to continue
to be volatile and could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by us or our competitors, changes in financial
estimates by securities analysts, overall equity market conditions, or other
events or factors. Because our stock is more volatile than the market as a
whole, our stock is likely to be disproportionately harmed by factors that
significantly harm the market, such as economic turmoil or political
uncertainty, even if those factors do not relate to our business. In the past,
securities class action litigation has often been brought against companies
following periods of volatility in the market price of their securities. If
securities class action litigation is brought against us, such litigation could
result in substantial costs and would divert management's attention and
resources.
Trading in our common stock may be limited.
Our common stock is quoted on the OTC Bulletin Board. The OTC Bulletin
Board is not, however, an exchange, and trading in securities on the OTC
Bulletin Board is often more sporadic than trading in securities listed on an
exchange or NASDAQ. Consequently, you may have difficulty reselling any shares
of our Class A common stock that you purchase from the selling stockholders.
Because "penny stock" rules apply to trading in our Class A common stock, you
may find it difficult to sell the shares you purchase in this offering.
Our Class A common stock is a "penny stock," as it is not listed on an
exchange and trades at less than $5.00 a share. Broker-dealers who sell penny
stocks must provide purchasers of these stocks with a standardized
risk-disclosure document prepared by the SEC. This document provides information
about penny stocks and the nature and level of risks involved in investing in
the penny-stock market. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a
suitable investment for the purchaser, and obtain the purchaser's written
agreement to the purchase. Consequently, the penny stock rules may make it
difficult for you to sell your shares of our Class A common stock.
One of our officers and directors controls a significant percentage of our Class
A common stock.
As of June 30, 2001, Jerome R. Mahoney, our President and Chief
Executive Officer, owned approximately 50.1% of our outstanding Class A common
stock on a fully-diluted basis. Mr. Mahoney is able to influence all matters
requiring stockholder approval, including 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.
6
Future sales of our Class A common stock could cause our stock price to decline.
The sale of a large number of our shares, or the perception that such a
sale may occur, could lower our stock price. Such sales could make it more
difficult for us to sell equity securities in the future at a time and price
that we consider appropriate. As of June 30, 2001, 61,118,114 shares of our
Class A common stock could be considered "restricted securities" and saleable
only upon registration under the Securities Act of 1933, upon compliance with
Rule 144 of the Securities Act, or pursuant to another exemption from
registration. Many of these shares will be eligible for sale in the public
market in 2001.
Issuance of our reserved shares of Class A common stock may significantly dilute
the equity interest of existing stockholders.
We have reserved for issuance shares of our Class A common stock upon
exercise or conversion of stock options, warrants, or other convertible
securities that are presently outstanding. Issuance of these shares will have
the effect of diluting the equity interest of our existing stockholders and
could have an adverse effect on the market price for our Class A common stock.
Including the shares of our Class A common stock reserved for issuance under the
registration statement, as of June 30, 2001, we had approximately 376,000,000
shares of Class A common stock reserved for possible future issuance.
Under our subscription and equity-line investment agreements, the number
of shares of Class A common stock issued to the holders of our 8% convertible
debentures upon conversion and the number of shares of Class A common stock
issued to for any put notices we give to Maple Avenue, LLC is based on a formula
tied to the market price of our Class A common stock prior to:
o a put notice given to Maple Avenue, LLC for sale of our Class A
common stock as a draw down under the equity-line investment
agreement;
o conversion of $275,000 in convertible debentures plus interest at
8% issued to certain purchasers at the onset of the equity-line
investment agreement; and
o conversion of $150,000 in convertible debentures plus interest at
8% issued to Meridian Equities International, Inc. under the
equity-line investment agreement with them.
The lower the average trading price of our common stock at the time of a
draw down or conversion, the greater the number of shares of our Class A common
stock that will be issued. Accordingly, this causes a greater risk of dilution.
The perceived risk of dilution may cause the purchasers of our debentures, as
well as other stockholders, to sell their shares, which could have a depressive
effect on the price of our Class A common stock.
We issued warrants under a previous financing agreement that may significantly
dilute your ownership interest.
On August 17, 2000, we entered into an equity-line investment agreement
with Swartz Private Equity, LLC. As part of that agreement, we were required to
issue warrants to purchase our Class A common stock to Swartz at certain prices
that reset every six months. As a result of that equity-line investment
agreement, we issued warrants to purchase a total of 5,894,510 shares of our
Class A common shares at a current average strike price of $0.139.
Notwithstanding the termination of the financing agreement with Swartz, these
warrants will remain outstanding and will expire five years from the date of
issue.
7
We issued 12% senior convertible debentures on terms that may significantly
dilute your ownership interest.
During the fourth quarter of 1999 and the first quarter of 2000, we
issued an aggregate principal amount of $500,000 of 12% senior convertible
debentures. These debentures are convertible into shares of our Class A common
stock at any time, in whole or in part, at the election of the holder, at a
conversion price equal to 50% of the average of the bid price during the 20
trading days immediately preceding a conversion date, which period may be
extended upon the occurrence of certain events. As of June 30, 2001 the
debenture holders have converted $273,000 of the principal amount of the
debenture and $6,559 of interest into 2,905,048 shares of our Class A common
stock. At June 30, 2001, the remaining outstanding principal balance and unpaid
interest amounted to $227,000 and $69,860 respectively. As a result, the lower
the stock price at the time the remaining holders convert, the more shares of
our Class A common stock the holders will receive upon conversion. If the
holders of the debenture were to fully convert the 12% senior convertible
debentures plus unpaid interest into Class A common stock on June 30, 2001,
approximately 7,695,658 additional shares of common stock would be issued.
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: (1) a 20% increase in the principal
amount of the debentures; (2) 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 (3) 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
our 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
attempting to resolve the default issues in a mutually favorable manner. 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.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale by selling
stockholders of the shares offered under this prospectus. We will, however
receive funds under the agreement as follows:
o $275,000 from the issuance and sale of 8% convertible debentures
to certain purchasers pursuant to a subscription agreement with
The May Davis Group, Inc..
o $150,000 from the issuance and sale of 8% convertible debentures
to certain purchasers pursuant to a subscription agreement with
Meridian Equities International, Inc.
o We will receive the sale price of any Class A common stock we
sell to Maple Avenue, LLC under our equity-line investment
agreement with them. We expect to sell to Maple Avenue, LLC,
subject to effective registration and applicable volume and other
limitations, $5,000,000 of our Class A common stock.
o Any additional amounts we may receive if the warrants we issued
to purchase shares of our Class A common stock are exercised.
8
We intend to use the net proceeds received in accordance with the foregoing in
the following order of priority:
Expenses of financing (registration, issuance, and $313,000
distribution)
Sales and marketing $2,500,000
Research and development $1,500,000
Working capital and general corporate purposes
(includes salaries not included above, cost of
additional personnel, support and management
systems, legal and professional costs, occupancy
costs and capital costs for computers and related
equipment) $1,112,000
----------
Total proceeds $5,425,000
==========
The amount and timing of actual expenditures will depend on numerous
factors, including;
o market acceptance of our call-processing and voice-recognition
products and services;
o the amount of cash generated by our operations; and
o products and services introduced by our competitors.
We may also use a portion of the net proceeds to acquire or invest in
businesses or technologies that are complimentary to our business.
Market For Common Equity
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
2001
First Quarter $0.4000 $0.0950
Second Quarter $0.1700 $0.0500
(1) Trading prices are only available for the period commencing May 28,
1999.
9
Our Class A common stock is quoted on the OTC Bulletin Board under the
symbol "IVOC." As of June 30, 2001, there were 396 record holders of our Class A
common stock. All of the issued and outstanding shares of our Class A common
stock were issued in accordance with an exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended.
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, particularly those risks identified in
the "Risk Factors" section of this prospectus, and you should not rely unduly on
these forward looking statements. We will not necessarily update the information
in this 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 the prospectus.
Recent Developments
On April 30, 2001, we communicated our intentions to terminate the
equity-line investment agreement we entered into with Swartz Private Equity, LLC
in August 2000. The equity-line investment agreement entitled us to issue and
sell to Swartz shares of our Class A common stock from time to time at our
discretion as often as monthly as funds were needed in amounts based upon
certain market conditions, and subject to an effective registration statement.
In consideration of our terminating our equity-line investment agreement
with Swartz, on May 4, 2001, we issued a put notice for 828,000 shares of our
Class A common stock allowing Swartz to retain the proceeds from the sale of the
shares. In addition, we issued 850,000 shares of our Class A common stock, which
shares are restricted for resale under Rule 144 of the Securities and Exchange
Act of 1934.
We have agreed to continue to keep effective the registration statement
we have on file to register the shares of our Class A common stock underlying
the warrants we issued to Swartz in accordance with the equity-line investment
agreement.
Plan of Operation.
In the next twelve months, we envision increasing our sales volume by
developing agreements with telephony dealers, distributors and OEM manufactures
whom we are targeting to re-sell our products. In addition, we also expect an
increase in demand for speech-enabled telephony products.
Through our research-and-development efforts, we hope increase product
reliability and add features to existing products already available for sale.
We intend to hire additional personnel in the next twelve months
particularly in the sales department subject to budgetary permissibility.
Currently, however, we are endeavoring to preserve cash and reduce expenses in
order to remain in operation, which in turn has delayed our goal of hiring more
personnel.
10
March 31, 2001 compared to March 31, 2000
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 months ended March 31, 2001
were $82,340, as compared to $397,348 for the three months ended March 31, 2000,
a decrease of $315,008 or 79.3%. This decrease in revenues was a result of the
completion of previously incomplete system installations in the prior year for
which the revenue was recognized in that period, not present in the current
period, as well as a general slowdown in business telecommunications spending.
Beginning in December 2000 and lasting throughout the first quarter of
2001, in order to establish relationships between us and telephony dealers and
resellers throughout the United States, we provided the software for its Speech
Enabled Auto Attendant free of charge for evaluation purposes. In some
instances, these dealers and resellers required certain hardware which was sold
to them at reduced margins.
Unless special arrangements are made, we receive 50% of the contract as
a down payment on any product purchased with the balance due upon completion of
the installation. We recognize our revenue using the percentage of completion
method. We determine 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.
Gross margin for the three months ended March 31, 2001 was $36,654 or
44.5%, as compared to $295,671 or 74.4% for the three months ended March 31,
2000. A decrease of $259,017 or 87.6%. 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 our technology personnel to efficiently
configure and install our communications products. As discussed in the above
paragraph with respect to sales to telephony dealers and resellers, the gross
margin in the current quarter ending March 31, 2001, reflects sales of certain
necessary hardware at reduced margins to establish sales channels and increase
product exposure to the industry.
Total operating expenses increased $174,651 or 29.8% from $586,637 for
the three months ended March 31, 2000 to $761,288 for the three months ended
March 31,2001, A significant portion of the increase in operating expenses for
the current quarter was a result of an increase in wages and salaries classified
as research and development costs of $118,711, to $128,331 in the three months
ending March 31, 2001 from $9,620 in the three months ended March 31, 2000.
These costs were incurred to develop new products and enhance existing products.
General and administrative costs also increased a total of $110,779 from
$425,627, in the three months ending March 31, 2000, to $536,406 in the three
months ended March 31, 2001, also an increase is payroll costs. These increases
were offset by a reduction in selling expenses of $66,675 from $112,987 in the
three months ended March 31, 2000 to $46,312 in the three months ended March 31,
2001. The reduction in selling expenses in the current year reflects fewer
salespeople as well as a reduction in promotion costs paid in the prior year
three month sending March 31, 2000 and not incurred in the current period.
As of March 31, 2001, we had 15 full-time employees, and 4 part-time
employees for a total of 19 individuals. We are 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 months ended March 31, 2001 was
$724,634 compared to $290,966 for the three months ended March 31, 2001, an
increase of $433,668 or 149.0%
Interest expense of $40,544 was incurred for the three month period
ending March 31, 2001 versus $144,250 in the three months ending March 31, 2000
or a reduction of $103,706. The three months ending March 31, 2000 reflects
amortization of debt discount and financing costs which were not incurred in the
current period.
Net loss for the three month period ending March 31, 2001 was $765,178
as compared to $435,216 for the first three months of 2000. The increase in net
loss of $329,962 was a result of the factors discussed above.
11
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 the current year but remains deferred due to the customer's refusal
to accept the balance of their installation contract. Currently, we have focused
its efforts on developing distribution relationships with telephony dealers and
OEM manufacturers with intentions of promoting and reselling our products. We
feel confident that the evaluation and acceptance of iVoice products by these
telephony dealers will enable us to leverage existing telephony distribution
channels and produce desired revenue results in the near future.
Our 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. Our
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, a 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 $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 same 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 our
12% convertible debentures which were outstanding for most of the year 2000 and
were only partially outstanding in the fourth quarter of the prior year.
Liquidity and Capital Resources
On July 18, we entered into a subscription agreement with Meridian
Equities International, Inc. and certain other purchasers for our 8% convertible
debentures, as well as an equity-line investment agreement with Maple Avenue,
LLC. Under these agreements, we are required to:
(i) sell to certain purchasers a series of convertible debentures in
the aggregate amount of $275,000, plus interest at 8%, which
debentures are convertible into shares of our Class A common
stock at the lesser of (a) 140% of the closing bid price of the
our Class A common stock on the date we receive the funds or (b)
80% of the market price (as defined in the subscription
agreement);
(ii) sell to Meridian Equities International, Inc. an 8% Convertible
Debenture for $150,000 plus 8% cumulative interest which
debenture is convertible into shares of our Class A common stock
at the lesser of (a) 140% of the closing bid price of our common
stock on the date we receive the funds or (b) 80% of the market
price as defined in the subscription agreement; and
(iii) sell to Maple Avenue, LLC, shares of our Class A common stock,
from time to time (as often as once a month), for an aggregate
purchase price of up to $5 million, at our discretion as funds
are needed, in amounts based upon certain market conditions, and
subject to there being an
12
effective registration statement. The pricing of each sale of
our Class A common stock is based upon current market prices at
the time of each drawdown.
The equity-line investment agreement with Maple Avenue, LLC will be
effective for a maximum of 18 months following the effective date of the
registration statement.
Additionally, we also fund our operations from time to time from loans
from our principal stockholder that in the aggregate amounted to $1,574,658 as
of June 30, 2001. We are operating on a negative-cash-flow basis and anticipate
that we will require ongoing financing and/or loans from our principal
stockholder. There is no assurance that any future financing arrangements will
provide us with the necessary capital required to meet our operating funding
requirements. Accordingly, our sources of financing are uncertain if the desired
proceeds from the current financing arrangement are not obtained, or if our
principal shareholder does not loan any additional funds to us to meet our
obligations.
There is no assurance that any future financing arrangement will enable
us to raise the requisite capital needed to implement our business plan and
long-term growth strategy or that alternative forms of financing will be
available to us. Accordingly, our sources of financing are uncertain if the
desired proceeds from these financing arrangements being registered in this
statement are not obtained.
Description of Business
Background
Our current corporate configuration is the result of a number of
separate transactions over the past three 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 this 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."
13
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; the stockholders of Visual Telephone, the public shell
company, became 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 are to receive
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 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 of 50,000 shares of our
voting Class A common stock paid to Corporate Architect, Inc. The fee was
negotiated between us and ThirdCAI. 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," only reporting companies may continue to have stock quoted on
the OTC Bulletin Board.
Our Business
We design, manufacture, and market voice and computer communications
systems for businesses and corporate departments. Among our products are
interactive voice response products that allow information in PC databases to be
accessed from a standard touch-tone telephone using a telephone keypad or voice
commands. We sell our products directly to end-users, through dealer and
reseller channels, as well as through original equipment manufacture, or "OEM,"
agreements with telecommunication and networking companies.
Our principal offices and facilities are located at 750 Highway 34,
Matawan, NJ 07747 and our telephone number is (732) 441-7000. Our common stock
is quoted on the OTC Bulleting Board under the trading symbol "IVOC."
Products and Services
Our software products enable our customers to communicate more
effectively by integrating speech recognition into their traditional office
telephone systems, voice mail, automated attendant, and interactive voice
response, or "IVR," functions. We provide IVR products that allow information in
PC databases to be accessed from a standard touch-tone telephone using speech or
the telephone keypad. Our products are designed to be "people oriented," with
features that can be readily used without special training or manuals. Our
principal products, Unified Messaging, iVoice Voice Mail and iVoice IVR,
incorporate this philosophy. We also design, market, and support voice
recognition products. We sell our products directly to end-users via our direct
sales force and through dealer and reseller channels, as well as through
agreements with original-equipment manufacturers, or "OEMs," who incorporate our
products into a final assembled product or system.
Our products use standard open-architecture PC platforms and Microsoft
Windows NT Server and Workstation operating systems, thereby facilitating the
rapid adoption of new PC-based technologies while reducing overall product
costs. Due to market demands, the platform will be changing to Windows NT. 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. Furthermore, we use standard
PC-
14
related hardware components in our products, in part to limit our need to
manufacture components. Our manufacturing operations consist of final assembly
and quality-control testing of materials, subassemblies, and systems. We obtain
from suppliers components such as PCs, circuit boards, application cards,
faxboards, and voiceboards.
iVoice IVR is 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 are 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 limitless other applications. The advanced, innovative
technology, backed by a simple, easy-to-use drag-and-drop interface, makes
writing applications simple.
We have updated the IVR to incorporate an Internet access tool, which
can be either connected to the IVR system or run as a standalone. This 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 IRV 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. The following
call-processing features can be used independently or in conjunction with the
above IVR platforms:
o 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.
o Speech Recognition. This is the process by which the PC translates
spoken words into commands. You may now speak to all of your Voice
Mail or IVR applications.
o Unified Messaging. This is a unified inbox application for Windows NT
auto attendant/voice mail system and Windows NT IVR system. 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.
o Interactive Voice Response/Web Applications. Using the Internet to
access the IVR system, you access 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 can enter
selections and get information by clicking on icons or choosing items
from menus.
o Voice Mail. This allows a caller to store voice messages and reply via
the computer. This method permits 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.
o 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 extremely accurate and reliable.
Callers no longer need to punch in letters on a telephone keypad.
15
We are currently focusing on upgrading and enhancing existing products,
with the aim of adding to some products a full toolkit that would enable a
product to be based on natural language and capable of handling spoken sentences
rather than just single words.
In addition to enhancing our existing products, we are currently
developing the following new products:
o iVoice ACD (Automatic Call Distribution) call-center applications
provide advanced automatic distribution of incoming calls and other
interactions for contact centers and e-businesses. In addition to
telephone calls, iVoice ACD can also queue and distribute text chats,
e-mails, and other Web-based interactions using the same routing
procedure used for telephone calls.
o iVoice Speech SDK (Software Developers Kit) is a unique tool for
application developers that will convert common command and control
functions to speech commands. The SDK will allow software developers
to write applications that can treat the voice as an input device,
just like a mouse, keyboard, or joystick.
Marketing
Our marketing strategy is to emphasize to our potential customers that
our products are 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:
o 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.
o Use standard, Microsoft NT-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.
o Focus on businesses and corporate departments having between two and
20,000 telephones. Our products are designed for use by businesses and
corporate departments with between two and 20,000 telephones in a wide
range of markets, including manufacturing, retail, service,
healthcare, and government. These businesses desire features offered
by large, proprietary call processing systems, but at a more
affordable price. This is what our products offer.
o 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. which has user prompts that
encourage conversation between callers and subscriber and uses
simplified screens and menus for ease of installation.
o Minimize distribution overhead. We are able to achieve broad market
coverage in the U.S. via a direct sales force, 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.
We employ two sales people, four telemarketers, and several independent
sales representatives to bring our products directly to our target market.
Currently we make 80% of our sales through direct sales and 20% through our
dealer channel. We have historically been top-heavy in research and development
personnel. Once we secure sufficient financing, however, we intend to focus on
increasing our sales force and establishing more satellite locations to better
serve clients.
To date, our telemarketing efforts have been focused on selling
discounted demonstration systems to various telephony and communication product
dealers throughout the United States.
16
In addition, we intend to expand product awareness by displaying our
products at shows and conventions and in industry literature. We are, however,
as yet unsure of the extent to which, and when, we will need to increase our
marketing efforts in order to become profitable.
Fee Structure
We generally require customers to pay 50% down on any product purchased,
with the balance due when installation has been completed. We accept company
checks or Visa/Mastercard.
Sales by Geographic Area
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.
Competition
The call-processing industry is highly competitive. Given added
competition in the form of businesses that have recently entered this market and
strengthened competition in the form of merged competitors, we believe that the
competitive pressures we face will only intensify. Competition means pressure to
lower prices and profit margins.
Currently, our principal competitors fall into two categories:
o Telephone equipment and independent call-processing system
manufacturers that offer their own call-processing systems or offer
their systems as private labels and whose products integrate with
multiple telephone systems and are based on PC-based products like
ours. These competitors include Lucent Technologies, Inc., Nortel
Networks Corp., and Toshiba America Information Systems, Inc., Applied
Voice Technologies Inc., Microlog Corporation, and Active Voice
Corporation.
o Speech recognition software providers that enable enterprises and
communications carriers to offer automated, speech-activated services
over any telephone. These competitors include companies such as Nuance
Communications, Speechworks Intl. Inc., Philps Electronics, N.V., and
Sound Advantage, LLC.
Suppliers
Our suppliers include Dialogic Corporation, Catalyst Telecom, Inc. and
Bicom, Inc., for voiceboards, and iTox, Inc. and Ingram-Micro, Inc., for
computer components.
Research and Development
Our research-and-development efforts focus on enhancing our existing
product line and our development of new products to be integrated with our
existing product line. We are concentrating on improving the technology through
ease of use and increased reliability. Prior to 2000, we conducted no research
and development. During the first and second quarter of 2000, we began hiring
qualified technical personnel to strengthen our product line and maintain a
competitive edge. We intend to increase our research-and-development program
once we gain access to financing.
Licenses
We have a licensing agreement with Nuance Communications, Inc. to resell
their natural language toolkit. Natural language software allows a system to
understand spoken language rather than just simple words, and incorporating this
toolkit in an iVoice IVR allows users to engage in a question-and-response
dialog by telephone, which shortens the time it takes to process calls. This
license includes the right to grant sublicenses to end users. We also have a
worldwide, non-exclusive, irrevocable, royalty-free, fully paid license with
Entropic, Inc., a Microsoft company, to incorporate their speech engine into
customized software applications for our customers.
17
Thirdly, a license with Fonix Corporation enables us to incorporate their
text-to-speech software into our applications so clients can listen to e-mail
messages from any telephone.
Employees
As of June 30, 2001, we employed 18 individuals, consisting of 12
full-time employees and 6 part-time employees. None of our employees are
represented by a labor organization and we are not a party to any collective
bargaining agreements.
MANAGEMENT
Summary Compensation Table
The following table sets forth compensation information for services
rendered by certain of our executive officers in all capacities during the 2000
and 1999 fiscal years. The following information includes the dollar value of
base salaries, bonus awards, the number of stock options granted, and certain
other compensation, if any, whether paid or deferred.
Securities
Other Restricted Underlying LTIP All Other
Annual Stock Options/SARs Payouts Compensation
Name and Position(s) Year Salary($) Bonus Compensation
Jerome R. Mahoney 2000 $226,000 0 0 0 0 0 0
Chief Executive 1999 $120,000 0 0 0 0 0 0
Officer and President
Joel G. Beagelman (1) 2000 $44,000 0 0 0 0 0 0
Former CFO, 1999 $104,000
Secretary and
Treasurer
(1) Effective May 16, 2000, Mr. Beagelman resigned as our Chief Financial
Officer, Secretary, and Treasurer.
Employment Contracts
On May 1, 1999, we entered into a five-year employment agreement with
Jerome R. Mahoney, our majority stockholder. Mr. Mahoney will serve as Chairman
of the Board and Chief Executive Officer if iVoice for a term of five years. As
consideration, we agreed to pay Mr. Mahoney a salary of $180,000 the first year
with a 10% increase every year thereafter.
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information known to us with
respect to the beneficial ownership of our Class A common stock and our Class B
common stock as of June 30, 2001 by (1) all persons who are beneficial owners of
5% or more of our common stock, (2) each director and nominee, (3) the executive
officers named in the "Summary Compensation Table," and (4) all directors and
executive officers as a group.
The number of shares beneficially owned is determined under rules
promulgated by the SEC, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under those rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual has
the right to acquire within 60 days of June 30, 2001, through the exercise or
conversion of any stock option, convertible security, warrant or other right.
Including those shares in the tables does not, however, constitute an admission
that the named stockholder is a direct or indirect beneficial owner of those
shares. Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares that power with that person's
spouse) with respect to all shares of capital stock listed as
18
owned by that person or entity. The shares of our Class A common stock
represented here include the shares of our Class A common stock that the
beneficial holders would directly possess if they converted all shares of our
Class B common stock held by them into Class A common stock.
Name and Address of Amount and Nature of Percentage of
Beneficial Owner Title of Class Beneficial Owner Class (1)
---------------- -------------- ---------------- ---------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Joel Beagelman Class A common stock 8,703,184 (2) 5.8%
750 Highway 34
Matawan, NJ 07747
SECURITY OWNERSHIP OF MANAGEMENT
Jerome R. Mahoney Class A common stock 38,652,856 (3) 50.1%
c/o iVoice.com, Inc. Class B common stock 364,000 (4) 100%
750 Highway 34
Matawan, New Jersey
07747
(1) Based on 113,421,548 outstanding shares of our Class A common stock and
364,000 shares of our Class B common stock, which Class B shares are
convertible into 36,400,000 shares of Class A common stock.
(2) Includes 300,000 shares held by Mr. Beagelman's three children and 3,184
shares held by his wife.
(3) Includes 450,000 shares of our Class A common stock held by Mr. Mahoney's
minor children and 364,000 shares of Class B common stock held by Mr.
Mahoney that have the voting power of, and may be converted into 36,400,000
shares of Class A common stock.
(4) The shares of Class B common stock held by Mr. Mahoney have the voting
power of, and may be converted into 36,400,000 shares of Class A common
stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the period from June 2000 to June 2001, Jerome R. Mahoney, our
President and Chief Executive Officer, sold shares of our Class A common stock
and has loaned proceeds of these sales to us to fund our working capital
requirements. We have executed a promissory note and security agreement in favor
of Mr. Mahoney. As of June 30, 2001, the outstanding loan balance, including
monies loaned from the proceeds of stock sales, unpaid compensation, income
taxes incurred from the sale of stock, and unreimbursed expenses, totaled
$1,574,658.
Under the terms of our loan agreements with Mr. Maloney, we may elect to
prepay the principal and interest owed pursuant to the promissory note by
issuing Mr. Mahoney, or his assigns, one share of our Class B common stock for
each dollar owed.
Description of Property
We do not own any real property for use in our operations or otherwise.
On March 15, 2000, we entered into a lease for approximately 8,000
square feet of office space to house our corporate headquarters and research
facilities. The office is located at 750 Highway 34, Matawan, New Jersey 07747.
The term of the lease is for two years with a monthly rent of $11,000.
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On May 21, 1999, we entered into a lease for 1,500 square feet in South
Hackensack, New Jersey, for one and one half years from Mejor Angora, L.L.C, at
an annual rental of $19,800, subject to certain escalations. We vacated this
space on December 28, 2000, and continue to pay for our share of the remaining
lease through October 2001 in the amount of $1,990 per month.
In order to reduce our overhead expenses, we are negotiating with the
landlord of our corporate headquarters to reduce our monthly rent for the
8-month balance of our lease term.
DESCRIPTION OF SECURITIES
Pursuant to our certificate of incorporation, we are authorized to issue
150,000,000 shares of Class A common stock, par value $0.01 per share, and
700,000 shares of Class B common stock, no par value. On July 18, 2001, our
stockholders, with a majority of shares being held by one single individual,
voted to amend our certificate of incorporation to:
o change our name to iVoice, Inc.;
o increase the authorized number of shares of our Class A common
stock to a total of 600,000,000 shares;
o increase the authorized number of shares of our Class B common
stock to a total of 3,000,000 shares;
o change the stated par value of the shares of Class A common stock
from the $0.01 per share to $.001 per share; and
o authorize iVoice to issue up to 1,000,000 shares of preferred
stock with a stated par value of $1.00 per share.
We anticipate that within the 30 days following the filing of this
registration statement we will file with the Secretary of State of the State of
Delaware a certificate of amendment affecting these changes to our certificate
of incorporation.
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.
A total of 113,421,548 shares of Class A common stock were issued and
outstanding as of June 30, 2001.
Class B Common Stock
Each holder of Class B common stock has voting rights equal to 100
shares of Class A common stock. Holders of Class B common stock are not entitled
to receive dividends. Jerome R. Mahoney is the sole owner of our Class B common
stock, of which there are 700,000 shares authorized and 364,000 shares issued
and outstanding as of June 30, 2001. A holder of Class B common stock has the
right to convert each share of Class B common stock into 100 shares of Class A
common stock. Upon our liquidation, dissolution, or winding-up, holders of Class
B common stock will not be entitled to receive any distributions.
There are no cumulative voting rights with respect to election of
directors, so holders of more than 50% of the outstanding shares of Class A
common stock can elect all of the directors if they choose to do so.
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Options and Warrants
As of June 30, 2001, our employees held options to purchase 2,559,000
shares of our Class A common stock. These options were granted to our employees
under our 1999 Stock Option Plan. One of these options vests in increments of
33% per year and all other options vest 25% annually. All options expire five
years from the date of grant. The exercise price of the options ranges between
$0.06 and $3.75 per share. As of June 30, 2001, 210,740 of the options were
exercisable.
As of June 30, 2001, we had outstanding, to persons other than
employees, warrants to purchase 6,308,260 shares of our Class A common stock.
These warrants have exercise prices ranging from $0.0583 per share to $2.00 per
share. These warrants will expire at various times between January 1, 2001 and
May 1, 2006.
Debt
As of June 30, 2001, we had outstanding convertible debentures with an
aggregate principal amount of $227,000 and $69,861 in interest. These debentures
bear interest at 12% per year, and are convertible into shares of our Class A
common stock at the option of the holder by dividing the outstanding principal
and interest by the conversion price. The conversion price equals 50% of the
average bid price during the 20 trading days before the conversion date. We are
in default of several provisions of the agreements pursuant to which we issued
the debentures, in particular the requirement that we register the shares
issuable upon conversion of the debentures within 150 days of October 18, 1999
(the effective date of the debentures).
Statutory Provisions Under Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law provides, in
general, that a stockholder acquiring more than 15% of the outstanding voting
shares of a publicly-held Delaware corporation subject to the statute (an
"interested stockholder") may not engage in certain "business combinations" with
the corporation for a period of three years, subsequent to the date on which the
stockholder became an interested stockholder unless (i) prior to such date the
corporation's board of directors approved either the business combination or the
transaction in which the stockholder became an interested stockholder, or (ii)
upon consummation of the business combination, the interested stockholder owns
85% or more of the outstanding voting stock of the corporation (excluding shares
owned by directors who are also officers of the corporation or shares held by
employee stock option plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer), or (iii) the business combination is
approved by the corporation's board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder.
Section 203 defines the term "business combination" to encompass a wide
variety of transactions with or caused by an interested stockholder in which the
interested stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the interested stockholder or
transactions in which the interested stockholder receives certain other
benefits.
These provisions could have the effect of delaying, deferring or
preventing a change of control. Our stockholders, by adopting an amendment to
our certificate of incorporation or bylaws, may elect not to be governed by
Section 203, effective twelve months after adoption. Neither our certificate of
incorporation nor our bylaws currently exclude us from the restrictions imposed
by Section 203.
The Delaware General Corporation Law permits a corporation, through its
certificate of incorporation, to eliminate the personal liability of its
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty of loyalty and care as a director with certain exceptions. The
exceptions include a breach of the director's duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, and improper personal benefit. Our certificate of incorporation
exonerates our directors from monetary liability to the fullest extent permitted
by this statutory provision.
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Transfer Agent and Registrar
Our transfer agent and registrar is Fidelity Transfer Company, 1800
South West Temple, Suite 301, Salt Lake City, UT 84115.
TRANSACTIONS WITH SELLING STOCKHOLDERS
The shares of our Class A common stock to be registered pursuant to this
registration statement and this prospectus have been, or will be, issued in
private transactions exempted pursuant to Section 4(2) of the Securities Act of
1933, as amended. The offering of the shares of our Class A common stock was
made to "accredited investors" as defined in Rule 501 of Regulation D, and as a
result, each offering qualifies as exempt from registration in accordance with
Rule 506 of Regulation D promulgated thereunder.
The following pages generally describe the agreements and transactions
we entered into with each of the selling stockholders with respect to the shares
of our Class A common stock registered under this prospectus. The following
discussion provides an understanding of the material terms of each transaction
referenced below. The descriptions are not intended to be complete and the
discussions in this prospectus are qualified in their entirety by reference to
the documents included or referenced in the exhibits to the registration
statement.
SALE OF $275,000 OF OUR 8% CONVERTIBLE DEBENTURES
On May 1, 2001, we entered into a subscription agreement with certain
purchasers to purchase convertible debentures having an aggregate principal
amount of $275,000, which debentures will pay cumulative interest at the rate of
8% per year. See "Selling Stockholders" on page 27. The debentures are set to
mature on the fifth anniversary of the date of issuance.
Of the $275,000 purchase price of the debentures purchased, the first
$150,000 has been released to us upon, among other events as set forth below,
the termination of our equity-line financing with Swartz Private Equity, LLC. As
for the remaining $125,000, being held in escrow, that amount will be released
to us upon, among other events as set forth below, our filing of a registration
statement registering the resale of the shares of our Class A common stock into
which the convertible debentures may be converted. In addition to the foregoing,
it is a condition to the release from escrow to us of any portion of the
$275,000 that (1) the daily average trading volume of the Class A common stock
multiplied by the volume weighted average closing price for the thirty trading
days preceding funding equal or exceed $25,000, which condition precedent may be
waived by the holders of the convertible debentures and (2) we have executed
documentation for a $5,000,000 equity-line financing with an investor.
The holders of the debentures have the right to convert all or part of
the principal amount of their debentures into shares of Class A common stock at
any time following the closing date, except that if less than all the principal
amount is converted, such converted portion must be $5,000 or a whole multiple
of $5,000. Any unconverted portion of the convertible debentures that remains
outstanding at the end of five years from the date of issuance will be
automatically converted into shares of Class A common stock.
Upon conversion, the conversion rate will be the lesser of (1) 140% of
the closing bid price for the Class A common stock on the Closing Date (the date
funds are received by us), or (2) 80% of the Market Price (defined as the
average of the three lowest closing bid prices for the Class A common stock as
reported by Bloomberg, L.P. during the 22 trading days immediately preceding the
conversation date).
22
We are required to pay accrued interest either in cash or in shares of
our Class A common stock, at our sole discretion. If we decide to pay accrued
interest in shares of Class A common stock, the number of shares of Class A
common stock to be delivered to the holders of the convertible debentures will
be determined by dividing the dollar amount of the interest by the lesser of:
(1) 140% of the closing bid price for the Class A common stock on the Closing
Date (the date we receive the funds), or (2) 80% of the Market Price (defined as
the average of the three lowest closing bid prices for the Class A common stock
as reported by Bloomberg, L.P. during the 22 trading days immediately preceding
the conversation date).
We must pay accrued interest, whether in cash or shares of Class A
common stock, to the purchaser, within five business days of the date of
conversion. If we do not delivery the Class A common stock within the five
business days of the date of conversion, we will be obligated to pay to the
holder of the debentures, in cash, a late payment fee as stated in the
debenture.
If there is an event of default by virtue of (a) our failure to make
payment of principal of the debenture when it becomes due and payable at
maturity, upon redemptions or otherwise, (b) our failure to make a payment,
other than a principal payment, for a period of five business days thereafter,
(c) any of our representations and warranties contained in the subscription
agreement or debenture were false when made or we fail to comply with any of the
other agreements referred to in the subscription agreement or debentures and
that failure continues after notice is provided (as set forth in the debenture
(provided, however, that this shall not be a default until the holders of at
least 25% of the aggregate principal amount of the debentures outstanding
notifies us of a default and it is not cured by us within 30 business days after
we receive that notice), (d) we file for bankruptcy or (e) our Class A common
stock is suspended or no longer is listed on a recognized exchange, including
the OTC Bulletin Board, for in excess of five consecutive trading days, then by
notice the holder may declare the remaining principal amount of the debenture,
together with all accrued interest and any liquidated damages, to be due and
payable.
If at the time we receive a notice of conversion from a holder, we do
not have available enough authorized but unissued shares of Class A common stock
necessary to effect the conversion in full, we will be required to issue to that
holder the number of shares of Class A common stock that are then available for
issuance upon conversion as well as make an additional payment for a conversion
default in the amount of (N/365) multiplied by (.24) multiplied by the initial
issuance price of the outstanding and/or tendered but unconverted debentures
held by each holder, with N equaling the number of days from the date the
conversion default occurs to the date we authorize a sufficient number of shares
of Class A common stock to effect the conversion in full. Any payments made as a
result of a conversion default must be paid, at the option of the holder, in
cash or converted into shares of Class A common stock at the conversion rate
(set forth above).
If, by the fifth business day after the date we receive notice of
conversion from a holder, the transfer agent fails for any reason to deliver the
shares of Class A common stock to the holder and the holder purchases, in an
open market transaction or otherwise, shares of Class A common stock solely in
order to make delivery in satisfaction of a sale of shares of Class A common
stock by the holder, we will be required to pay the holder, in addition to any
other amounts due to the holder, a buy-in adjustment amount, equal to the
excess, if any, of (x) the holder's total purchase price (including brokerage
commissions, if any) for the shares so purchased by the holder over (y) the net
proceeds (after brokerage commissions, if any) received by the holder from the
sale of such shares of Class A common stock.
We have the right, at our sole option, to redeem any percentage of the
balance of a convertible debenture by providing advance written notice to a
holder. Upon exercise of this redemption right, we are required to pay 125% of
the balance remaining on the debenture, plus accrued but unpaid interest and
outstanding liquidated damages. Notwithstanding the foregoing, the holder is
entitled to convert the debenture anytime up to the date we intend to redeem. If
we provide notice of our intention to redeem and then fail to do so, we will be
precluded from effecting any further redemption.
As consideration for finding the purchasers of the convertible
debentures, The May Davis Group, Inc., as placement agent, received a placement
fee, in cash, amounting to 10% of the aggregate principal amount of the
convertible debentures plus 2% for non-accountable expenses. In addition,
Michael Jacobs and Owen May of The May Davis Group, Inc. were issued warrants to
purchase an aggregate of 343,750 shares of our Class A common stock. These
warrants may be exercised at any time before the five-year anniversary of the
date on which they were issued.
23
Also, the shares of Class A common stock into which these warrants may be
exercised shall carry piggy-back registration rights under the registration
rights agreement entered into simultaneously with the execution of the
subscription agreement. The warrants are exercisable, in whole, or in part, at
115% of the closing bid price of our Class A common stock on the day of funding,
and the holder is entitled to chose between a cash or cashless exercise.
SALE OF $150,000 of OUR 8% CONVERTIBLE DEBENTURES
On July 18, 2001, we entered into a subscription agreement with Meridian
Equities International, Inc, to purchase $150,000 of convertible debentures,
which convertible debentures pay cumulative interest at rate of 8% per annum.
The convertible debentures are set to mature on the fifth anniversary of the
date of issuance.
The purchase price will be placed in escrow, to be released to us when
the following events occur: (1) an investor has signed documentation with us for
a $5,000,000 equity credit line financing; (2) the daily average trading volume
of our Class A common stock, multiplied by the volume weighted average closing
price ("VWAP") for the 30 trading days preceding funding, is a minimum of
$25,000, subject to waiver by the purchaser of the debenture; (3) we have
canceled and terminated our equity-line of credit financing with Swartz Private
Equity, LLC; (4) there is 600% of the number of shares of our Class A common
stock registered to cover the conversions at the time of the funding for the
amount being funding; (5) the par value of our Class A common stock has been
changed to $.001; and (6) the VWAP for the 30 trading days prior to receipt by
the purchaser of the debentures' of a written request from us for funding is not
less than $.05. Upon effectiveness of the registration statement covering the
resale of the shares of Class A common stock into which the debentures may be
converted, we may request up to $150,000 from those purchasers by sending
written notice them, via facsimile transmission, ten calendar days in advance of
the date the funding is to be provided to us and forwarding to the escrow agent
at least that number of free trading shares of our Class A common stock equal to
$1,000,000 (the "Cushion Shares"), based on the five-day average closing bid
price for our Class A common stock on the day we send out the facsimile notice.
The Cushion Shares, while held in escrow, will be voted in the manner as decided
by our board of directors.
In consideration for commitments by the purchasers of the debentures,
Meridian Equities International, Inc. will receive a placement fee of 10% of the
principal amount of the convertible debentures plus 2% for non-accountable
expenses. In addition, Meridian Equities International, Inc. will receive a
warrant to purchase 250,000 shares of our Class A common stock. The warrant is
exercisable at any time after issuance and up to five years thereafter. The
shares of Class A common stock underlying the warrant will have piggyback
registration rights requiring registration in accordance with the terms and
conditions of the registration rights agreement executed simultaneously with the
subscription agreement. The warrant will be exercisable, in whole or in part, at
115% of the closing bid price of our Class A common stock on the day of funding
and shall contain a provision for a cash or cashless exercise, at the option of
Meridian Equities International, Inc..
Meridian Equities International, Inc. has the right to convert all or
part of the debenture into shares of our Class A common stock at any time
following the closing date except that if less than all the principal amount is
converted, the converted portion must be $5,000 or a whole multiple of $5,000.
Notwithstanding the foregoing, any unconverted portion of the convertible
debentures that remains outstanding at the end of five years from the date of
issuance will be automatically converted into shares of Class A common stock.
Upon conversion, the conversion rate shall be the lesser of (1) 140% of
the closing bid price for the Class A common stock on the Closing Date (the date
we receive the funds), or (2) 80% of the Market Price (defined as the average of
the three lowest closing bid prices for the Class A common stock as reported by
Bloomberg, L.P. during the 22 trading days immediately preceding the
conversation date).
We are required to pay accrued interest on the unpaid principal amount
in cash or in shares of our Class A common stock, at our sole discretion. If we
decide to pay accrued interest in shares of Class A common stock, the number of
shares of Class A common stock to be delivered to Meridian Equities
International, Inc. shall be determined by dividing the dollar amount of the
interest by the lesser of: (1) 140% of the closing bid price for the Class A
common stock on the Closing Date (the date we receive the funds), or (2) 80% of
the Market Price (defined as the average of the three lowest closing bid prices
for the Class A common stock as reported by Bloomberg, L.P. during the 22
trading days immediately preceding the conversation date).
24
We must pay accrued interest, whether in cash or shares of Class A
common stock, to Meridian Equities International, Inc., within five business
days of the date of conversion. If we do not delivery the Class A common stock
within the five business days of the date of conversion, we will be obligated to
pay to the holder of the debentures, in cash, a late payment fee as stated in
the debenture.
If there is an event of default by virtue of (a) our failure to make
payment of principal of the debenture when it becomes due and payable at
maturity, upon redemptions or otherwise, (b) our failure to make a payment,
other than a principal payment, for a period of five business days thereafter,
(c) any of our representations and warranties contained in the subscription
agreement or debenture were false when made or we fail to comply with any of the
other agreements referred to in the subscription agreement or debentures and
that failure continues after notice is provided (as set forth in the debenture
(provided, however, that this shall not be a default until the holders of at
least 25% of the aggregate principal amount of the debentures outstanding
notifies us of a default and it is not cured by us within 30 business days after
we receive that notice), (d) we file for bankruptcy or (e) our Class A common
stock is suspended or no longer is listed on a recognized exchange, including
the OTC Bulletin Board, for in excess of five consecutive trading days, then by
notice the holder may declare the remaining principal amount of the debenture,
together with all accrued interest and any liquidated damages, to be due and
payable.
If at the time we receive a notice of conversion from Meridian Equities
International, Inc., we do not have available enough authorized but unissued
shares of Class A common stock necessary to effect the conversion in full, we
will be required to issue to that holder the number of shares of Class A common
stock that are then available for issuance upon conversion as well as make an
additional payment for a conversion default in the amount of (N/365) multiplied
by (.24) multiplied by the initial issuance price of the outstanding and/or
tendered but unconverted debentures held by each holder, with N equaling the
number of days from the date the conversion default occurs to the date we
authorize a sufficient number of shares of Class A common stock to effect the
conversion in full. Any payments made as a result of a conversion default must
be paid, at the option of the holder, in cash or converted into shares of Class
A common stock at the conversion rate (set forth above).
If, by the fifth business day after the date we receive notice of
conversion from Meridian Equities International, Inc., the transfer agent fails
for any reason to deliver the shares of Class A common stock to Meridian
Equities International, Inc. and Meridian Equities International, Inc.
purchases, in an open market transaction or otherwise, shares of Class A common
stock solely in order to make delivery in satisfaction of a sale of shares of
Class A common stock by Meridian Equities International, Inc., we will be
required to pay Meridian Equities International, Inc., in addition to any other
amounts due to Meridian Equities International, Inc., a buy-in adjustment
amount, equal to the excess, if any, of (x) Meridian Equities International,
Inc.'s total purchase price (including brokerage commissions, if any) for the
shares so purchased by the holder over (y) the net proceeds (after brokerage
commissions, if any) received by Meridian Equities International, Inc. from the
sale of such shares of Class A common stock.
We have the right, at our sole option, to redeem any percentage of the
balance of a convertible debenture by providing advance written notice to
Meridian Equities International, Inc.. Upon exercise of this redemption right,
we are required to pay 125% of the balance remaining on the debenture, plus
accrued but unpaid interest and outstanding liquidated damages. Notwithstanding
the foregoing, the holder is entitled to convert the debenture anytime up to the
date we intend to redeem. If we provide notice of our intention to redeem and
then fail to do so, we will be precluded from effecting any further redemption.
EQUITY-LINE INVESTMENT AGREEMENT witH Maple Avenue, LLC
On July 18, 2001, we entered into an equity-line investment agreement
with Maple Avenue, LLC. The equity-line investment agreement entitles us sell
shares of from time to time, up to aggregate of $5 million of our Class A common
stock, to Maple Avenue, LLC, for up to a maximum of 18 months following the
effective date of the registration statement of which this prospectus forms a
part, on the condition that we meet certain listing and pricing requirements
described in the equity-line investment agreement. This right is referred to as
a "put right."
25
In order to invoke a put right, we must have an effective registration
statement on file with the SEC registering the resale of the shares of our Class
A common stock that we issue as a result of our invoking a put right.
Registration of these shares is governed by the registration rights agreement
that we entered into with Maple Avenue, LLC at the same time as we entered into
the equity-line investment agreement.
We may, at our discretion, deliver a put notice to Maple Avenue, LLC
stating the dollar amount of shares of our Class A common stock that we intend
to sell to Maple Avenue, LLC during a purchase period (defined as the ten day
trading period beginning on the day immediately following the day Maple Avenue,
LLC receives a put notice from us). The dollar amount we designate in a put
notice must be in increments of not less than $50,000 and not more than
$2,000,000, subject to a waiver of those minimum and maximum amounts by us and
the investor. Once Maple Avenue, LLC receives the put notice, we may not
terminate, withdrawn or otherwise revoked the put notice. We are not permitted
to submit a new put notice until the completion of an earlier put closing.
The purchase price at which Maple Avenue, LLC purchases the shares of
our Class A common stock equals be 92% of the average of the lowest three
closing bid prices of the Class A common stock during purchase period. There is
no floor to the purchase price.
If we issue a put notice, Maple Avenue, LLC may purchase the number of
shares required to raise the amount requested in our put notice. Depending on
the price of our stock at the time, this could negatively affect the price of
our stock price.
The number of shares of our Class A common stock that we sell to Maple
Avenue, LLC may not exceed the lesser of (1) the dollar amount set forth in the
put notice given to Maple Avenue, LLC, (2) 15% of the total volume weighted
average price during the applicable purchase period, and (3) a number of shares
that, when added to the number of shares beneficially owned by Maple Avenue,
LLC, would exceed 4.99% of our total number of shares of Class A common stock
outstanding (as calculated under Section 13(d) of the Securities Exchange Act of
1934).
Simultaneously with the execution of the equity-line investment
agreement, we issued to Maple Avenue, LLC, as consideration for entering into
the equity-line investment agreement, a warrant to purchase 450,000 shares of
our Class A common stock. The warrant has a five-year term and is exercisable at
a price equal to the lesser of (a) 115% of the average closing bid price for the
30 trading days immediately preceding the date of execution, (b) the closing bid
price on the 180th calendar day following the date of execution (or the next
trading day if that date is not a trading day) or (c) the closing bid price on
the 360th calendar day following the date of execution (or the next trading day
if that date is not a trading day). The warrant is immediately exercisable on a
cash or cashless basis, at the option of the holder.
If we do not draw down a minimum of $500,000 within 180 calendar days of
the date we entered into the equity-line investment agreement, we must pay Maple
Avenue, LLC, in cash or free-trading shares of our Class A common stock, at our
option, an amount equal to 5% of the undrawn minimum amount and Maple Avenue,
LLC will have the option to terminate the equity-line investment agreement.
If at any time we sell shares of our Class A common stock or securities
convertible into shares of our Class A common stock at a price below the
exercise price of the signing warrant we issued to Maple Avenue, LLC, the
exercise price will be adjusted downward accordingly.
Maple Avenue, LLC is not required to acquire and pay for any shares of
our Class A common stock with respect to any particular put for which:
o we have issued shares of our Class A common stock that have been
paid for by Maple Avenue, LLC and is equal to the maximum
offering amount;
o we have announced or implemented a stock split or combination of
our Class A common stock;
o we have paid a dividend on shares of our Class A common stock;
26
o we issue options, other rights to subscribe for or purchase
shares of our Class A common stock, or securities convertible
into shares of our Class A common stock whereby the price per
share for which the Class A common stock is issued or issuable is
less than the bid price in effect immediately prior to such
issuance;
o we have made a distribution of our Class A common stock or of all
or any portion of our assets between the put notice date and the
date the particular put closes; or
o we have consummated a major transaction (including a transaction,
which constitutes a change of control) between the advance put
notice date and the date the particular put closes.
o Additionally, we shall not be entitled to deliver a put notice
and require Maple Avenue, LLC to purchase any shares of our Class
A common stock unless each of the following conditions are
satisfied:
o a registration statement shall have been declared effective by
the Securities and Exchange Commission and shall remain effective
and available for the resale of the share of our Class A common
stock reserved for the equity-line investment agreement with
Maple Avenue, LLC at all times during the purchase period; and
o our Class A common stock must be listed on a principal market or
the National Association of Securities Dealer's, Inc. OTC
electronic bulletin board and shall not have been suspended from
trading thereon for a period of five (5) consecutive trading
days.
If we become listed on the Nasdaq Small Cap Market or the Nasdaq
National Market, we must get stockholder approval to issue more than 19.99% of
our outstanding shares of Class A common stock . Since we are currently quoted
on the OTC Bulletin Board, we will not need this stockholder approval.
The equity-line investment agreement may be terminated at any time by
the mutual written consent of either party; however, any transactions
consummated under the agreement with Maple Avenue, LLC prior to termination
shall survive its termination and any unused credit line fee will be due and
payable.
We are obligated to indemnify Maple Avenue, LLC (including their
stockholders, officers, directors, employees and agents) from and against any
and all liability and losses resulting from any misrepresentations or breaches
we made in connection with the equity-line investment agreement, our
registration rights agreement, other related agreements, or the registration
statement.
CONSULTING AGREEMENT WITH FINNEGAN USA
On March 15, 2001, we entered into a 90-day consulting agreement with
Finnegan USA. Under the terms of that agreement, Finnegan USA will, at our
request, provide us with consulting services. Finnegan USA agreed to use its
best efforts to perform the services in a manner satisfactory to us. As
consideration for the consulting services, we issued 200,000 shares of our Class
A common stock to Finnegan USA, and we agreed to register those shares for
re-sale.
Finnegan USA's relationship with us is that of an independent contractor
and not that of an employee. Finnegan USA will have no authority to enter into
contracts that bind us or create obligations on the part of iVoice without our
prior written authorization.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
selling stockholders as of July 24, 2001. Except as set forth below, no selling
stockholder is an affiliate of ours or has had a material relationship with us
during the past three years. The selling stockholders are not affiliated with
registered broker-dealers.
Because (i) the number of shares of Class A common stock issuable upon
the closing of a put notice in accordance with the equity-line investment
agreement and (ii) the conversion of the debentures and as payment of interest
thereon is dependent in part upon the market price of the Class A common stock
prior to a conversion and is subject to certain conversion limitations described
elsewhere in this prospectus, the actual number of shares of Class A common
stock that will then be issued in respect of such draw downs, conversions or
interest payments and,
27
consequently, offered for sale under this registration statement, cannot be
determined at this time. We have contractually agreed to include herein
165,893,750 shares of Class A common stock issuable upon a draw down under the
equity-line investment agreement, conversion of the debentures, payment of
interest thereunder and exercise of the warrants issued to the selling
stockholders and have disregarded the conversion limitations for purposes of the
table below.
Number of shares Maximum number of Amount and percentage
of Class A common shares of Class A of Class A common stock
stock owned common stock that beneficially owned
prior to this may be offered under after the offering (1)
Name of Selling Stockholder offering this prospectus Amount Percentage
- --------------------------- -------- --------------- ------ ----------
Maple Avenue, LLC 0 110,450,000(2) 0 *
Meridian Equities 0 35,250,000 (3) 0 *
International, Inc.
Michael Jacobs. 0 171,875 (4) 0 *
Owen May 0 171,875 (5) 0 *
Jon Cummings 0 714,515 (6) 0 *
Eric Doggett 0 1,071,818 (6) 0 *
Rance Merkel 0 4,287,273 (6) 0 *
Kenneth E. Rogers 0 1,071,818 (6) 0 *
John Bollinger 0 1,429,091 (6) 0 *
Michael Dahquist 0 1,071,818 (6) 0 *
Michael Siese 0 714,545 (6) 0 *
George Anderson, Sr. 0 714,545 (6) 0 *
Jeff Bond 0 714,545 (6) 0 *
Paul Dowdan 0 2,858,182 (6) 0 *
John McNeil 0 1,429,091 (6) 0 *
Stephen Vedo 0 2,858,182 (6) 0 *
Samuel Henderson 0 714,545 (6) 0 *
Finnegan USA 200,000 200,000 (7) 0 *
* Less than 1%.
(1) Assumes that the selling stockholder will sell all of its shares of our
Class A common stock offered in this prospectus. We cannot assure you
that the selling stockholder will sell all or any of its shares of Class
A common stock.
(2) Includes (solely for purposes of this prospectus) the sum of: (a) up to
an aggregate of 110,000,000 shares of our Class A common stock that we
may issue and sell to Maple Avenue, LLC, pursuant to an equity-line
investment agreement and (b) 450,000 shares of our Class A common stock
issuable upon exercise of an outstanding warrant issued to Maple Avenue,
LLC. as a commitment fee for entering in the equity-line investment
agreement
(3) Includes the sum of (a) 35,000,000 shares of our Class A common stock
issuable upon conversion by of $150,000 of our 8% convertible
debentures; and (b) 250,000 shares of our Class A common stock issuable
upon exercise of an outstanding warrant issued as a commitment fee for
entering into the subscription agreement.
(4) Includes 171,875 shares of our Class A common stock issuable upon
exercise of an outstanding warrant issued as a placement fee for finding
the purchasers of our 8% convertible debentures.
(5) Includes 171,875 shares of our Class A common stock issuable upon
exercise of an outstanding warrant issued as a placement fee for finding
the purchasers of our 8% convertible debentures.
(6) Includes (solely for purposes of this prospectus) the shares of our
Class A common stock that we may issue upon conversion of our 8%
convertible debentures.
(7) Represents 200,000 shares of our Class A common stock issued to Finnegan
USA in lieu of cash payment for consulting services rendered to us.
28
PLAN OF DISTRIBUTION
We are registering the resale of our Class A common stock on behalf of
the selling stockholders listed on page 28. A selling stockholder includes
donees, transferees and pledges selling shares of Class A common stock received
from a named selling stockholder after the date of this prospectus. This
prospectus may also be used by transferees of the selling stockholders or by
other persons acquiring shares, including brokers who borrow the shares to
settle short sales of our Class A common stock. If any of the selling
stockholders transfer any of their shares, each transferee must be bound to the
same restrictions and limitations that apply to the selling stockholders
described in this prospectus. We will bear all costs, expenses and fees in
connection with the registration of the shares offered in this prospectus. The
selling stockholders will bear all brokerage commissions and similar selling
expenses associated with the sale of the shares.
The selling stockholders may offer their shares of our Class A common
stock at various times in one or more of the following transactions:
o on any stock exchange, market or trading facility on which our Class A
common stock is traded;
o in privately negotiated transactions or otherwise, including an
underwritten offering;
o in connection with short sales of the shares of our Class A common stock;
o in ordinary brokerage transactions and transactions in which a broker
solicits purchasers;
o in connection with the writing of non-traded and exchange-traded call or
put options, in hedge transactions and in settlement of other transactions
in standardized or over-the-counter options;
o in a block trade in which a broker-dealer, as agent, may resell a portion
of the block, as principal, in order to facilitate the transaction;
o in a purchase by a broker-dealer, as principal, and resale by the
broker-dealer for its account;
o in a combination of any of the above transactions; or
o any other method permitted pursuant to applicable law.
The selling stockholders may sell their shares of Class A common stock
at market prices prevailing at the time of sale, at prices related to the
prevailing market prices, at negotiated prices or at fixed prices. Each of the
selling stockholders reserves the right to accept, and together with their
agents from time to time, to reject, in whole or in part, any proposed purchase
of the Class A common stock to be made directly or through agents.
The selling stockholders may use broker-dealers to sell their shares of
Class A common stock in which case broker-dealers will either receive discounts,
commissions or concessions from purchasers of shares of Class A common stock for
whom they act as agents. Broker-dealers engaged by the selling stockholders may
allow other broker-dealers to participate in resales.
Maple Avenue, LLC. is an underwriter within the meaning of Section 2(11)
of the Securities Act of 1933 with respect to any shares of Class A common stock
that it sells. The other selling stockholder and any broker-dealers or agents
that act in connection with the sale of shares of Class A common stock might be
deemed to be underwriters and any commissions received by such broker-dealers
and any profit on the resale of the shares of Class A common stock of Class A
common stock sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act. Because Maple
Avenue, LLC is an underwriter within the meaning of Section 2(11) of the
Securities Act and because the other selling stockholder might be deemed to be
an underwriter, they will be subject to the prospectus delivery requirements of
the Securities Act. We have informed the selling stockholders that the
anti-manipulative provisions of Regulation M promulgated under the Securities
Exchange Act of 1934 may apply to their sales of our Class A common stock in the
market.
29
In addition to selling shares of our Class A common stock under this
prospectus, the selling stockholders may resell all or a portion of their shares
of our Class A common stock in open market transactions in reliance upon Rule
144 under the Securities Act, provided that they meet the criteria and conform
to the requirements of Rule 144.
We will file, during any period during which we are required to do so
under our registration rights agreement with Maple avenue, LLC, one or more
post-effective amendments to the registration statement of which this prospectus
is a part to describe any material information with respect to the plan of
distribution not previously disclosed in this prospectus or any material change
to such information in this prospectus.
Legal Proceedings
We have been named as a defendant in a lawsuit brought about by
Communication Research, Inc., or "CRI." In this lawsuit, CRI makes claims of
constructive eviction, trespass, breach of contract, conversion, interference
with economic relations, and quantum merit. We believe that we will prevail in
the case, and in any event does not believe that unfavorable the outcome will
have a material adverse effect on its business.
We have been named as a defendant in a lawsuit brought by Lighthouse
Technical Consulting, Inc. filed July 9, 2001. In this lawsuit, the plaintiff
makes claim for non-payment of $15,000 for placement services performed by
Lighthouse. We are currently in discussions with the plaintiff's attorney to
reach payment terms favorable to each party however we cannot guarantee a
favorable outcome. This amount has been accrued and we are currently paying $500
per month until we have sufficient funds to repay the remaining balance owed.
We have been named as a defendant in a lawsuit brought by Business
Staffing, Inc. filed April 12, 2001. In this lawsuit, the plaintiff makes claim
for non-payment of $37,250 for placement services performed by Business
Staffing. We have accrued $21,250 of this claim. We dispute that we owe the
$16,000 balance of the claimed amount and intend to vigorously defend the suit.
We have been named as a defendant in a lawsuit brought by Lorelei
Personnel, Inc. filed November 28, 2000. In this lawsuit, the plaintiff makes
claim for non-payment of $6,000 for placement services performed by Lorelei
Personnel, Inc. We dispute the amount owed and intend to vigorously defend the
suit. We have not accrued any of the claimed amount and do not believe that we
owe the amount claimed.
LEGAL MATTERS
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New
York 10022, has passed on the validity of the Class A common stock being offered
in this prospectus.
EXPERTS
The audited consolidated financial statements for the year ended
December 31, 2000 included in this prospectus, have been examined by Mendlowitz
Weitsen, LLP, independent certified public accountants, and are included herein
in reliance upon the report of said firm given upon their authority as experts
in accounting and auditing.
Disclosure of Commission Position on
Indemnification For Securities Act Liabilities
Insofar as indemnification for liabilities arising under the Securities
Act of paragraph 33, as amended (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant 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 Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
30
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant 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 Securities Act and will be governed by the final adjudication
of such issue.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the Securities
and Exchange Commission relating to the Class A common stock offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules to the registration
statement. Statements contained in this prospectus concerning the contents of
any contract or other document referred to are not necessarily complete and in
each instance we refer you to the copy of the contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference.
For further information with respect to us and the common stock we are
offering, please refer to the registration statement. A copy of the registration
statement can be inspected by anyone without charge at the public reference room
of the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices located at 7 World Trade Center, Suite
1300, New York, New York 10048, and 500 West Madison Street, Chicago, Illinois
60601. Please call the Commission at 1-800-SEC-0330 for further information on
the operation of the public reference room. Copies of these materials can be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a website (http://www.sec.gov) that contains information regarding
registrants that file electronically with the Commission.
31
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 Changes in Shareholders' Equity for the years ended
December 31, 2000 and 1999............................................... F-4
Statements of Cash Flows for the years ended December 31, 2000 and 1999.... F-8
Notes to Financial Statements.............................................. F-11
FINANCIAL STATEMENTS
March 31, 2001
Item Page
- ---- ----
Balance Sheets as of March 31, 2001 and 2000............................... F-29
Statements of Operations for the quarters ended March 31, 2001 and 2000.... F-30
Statements of Cash Flows for the quarters ended March 31, 2001 and 2000.... F-31
Notes to Financial Statements.............................................. F-33
32
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
----------- ----------- ------------ ------------
F-26
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
iVOICE.COM, INC.
BALANCE SHEETS
March 31, 2001
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 151,922
Accounts receivable, net of allowance for
doubtful accounts of $31,025 270,707
Inventory 20,104
Prepaid expenses and other current assets 10,986
-----------
Total current assets 453,719
-----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$57,111 131,163
-----------
OTHER ASSETS
Software license costs, net of accumulated
amortization of $190,400 353,600
Financing costs, net of accumulated amortization of $13,201 146,626
Intangible assets, net of accumulated amortization of $11,198 281,143
Deposits and other assets 13,900
-----------
Total other assets 795,269
-----------
TOTAL ASSETS $ 1,380,151
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Obligations under capital leases - current $ 29,878
Accounts payable and accrued expenses 559,340
Due to related parties 771,419
Convertible debentures 287,000
Billings in excess of estimated costs on uncompleted contracts 157,724
-------------
Total current liabilities 1,805,361
------------
LONG-TERM DEBT
Obligation under Capital leases - non-current 40,873
-----------
Total liabilities 1,846,234
-----------
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' DEFICIENCY
Common stock, series A - par value $.01; authorized
150,000,000 shares, 109,408,548 issued and outstanding 1,094,087
Common stock, series B - no par value; authorized 700,000
shares; 700,000 shares issued; 364,000 shares outstanding 37
Additional paid in capital 8,188,406
Accumulated deficit (9,748,613)
-----------
Total stockholders' deficiency (466,083)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,380,151
===========
The accompanying notes are an integral part of the financial statement.
F-29
iVOICE.COM, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended
March 31,
--------------------------
2001 2000
--------------------------
SALES, net $ 82,340 $ 397,348
COST OF SALES 45,686 101,677
--------- ---------
GROSS PROFIT 36,654 295,671
--------- ---------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 46,312 112,987
General and administrative expenses 536,406 425,627
Research and development 128,331 9,620
Bad debt expense 10,000 7,500
Depreciation and amortization 40,239 30,903
--------- ---------
Total selling, general and administrative expenses 761,288 586,637
--------- ---------
LOSS FROM OPERATIONS (724,634) (290,966)
--------- ---------
OTHER EXPENSE
Interest expense 40,544 144,250
--------- ---------
Total other expenses 40,544 144,250
--------- ---------
LOSS BEFORE INCOME TAXES (765,178) (435,216)
PROVISION FOR INCOME TAXES -- --
--------- ---------
NET LOSS $(765,178) $(435,216)
========= =========
NET LOSS PER COMMON SHARE
Basic $( 0.01) $( 0.01)
========= =========
Diluted $( 0.01) $( 0.01)
========= =========
The accompanying notes are an integral part of the financial statement.
F-30
iVOICE.COM, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended
March 31,
--------------------------
2001 2000
--------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(765,178) $(435,216)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 52,143 30,903
Bad debt expense 10,000 7,500
Amortization of debt issue costs -- 144,250
Common stock issued for consulting services 80,055 252,619
Common stock issued for compensation 224,000 --
Common stock issued for interest 6,559 --
Changes in certain assets and liabilities:
Accounts receivable 11,847 (243,324)
Inventory 124 1,270
Accounts payable and accrued liabilities 21,503 17,759
Legal settlement payable -- (300,000)
Accounts payable and accrued liabilities 21,503 17,759
Legal settlement payable -- (300,000)
Deferred revenue (12,513) --
Other assets 148,725 (9,000)
--------- ---------
Total cash used in operating activities (222,735) (533,239)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -- (10,159)
Purchase of goodwill (3,090) --
--------- ---------
Total cash used in investing activities (3,090) (10,159)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 129,931 --
Proceeds from exercise of options on common stock -- 300,000
Proceeds from related party loans 229,000 --
Repayments of related party loans (30,000) --
Prepaid offering and debt issue costs -- (31,500)
Sale of convertible debentures -- 150,000
Payment of capital lease obligations (6,533) --
--------- ---------
Total cash provided by financing activities 322,398 418,500
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS 96,573
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 55,349 195,861
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 151,922 $ 70,963
--------- ---------
CASH PAID DURING THE PERIOD FOR:
Interest expense $ 4,020 $ --
========= =========
Income taxes $ -- $ --
========= =========
The accompanying notes are an integral part of the financial statement.
F-31
iVOICE.COM, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2001
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
March 31, 2001:
a) During the three months ended March 31, 2001, the Company issued 705,000
restricted shares of its Class A common stock for services valued at
$80,055.
b) During the three months ended March 31, 2001, the Company issued 2,020,834
restricted shares of its Class A common stock as compensation valued at
$224,000.
c) During the three months ended March 31, 2001, the Company issued 104,110
restricted shares of its Class A common stock as interest on its 12%
Convertible Debentures valued at $6,559.
March 31, 2000:
a) During the three months ended March 31, 2000, the Company converted a
$4,500,000 legal settlement payable into 2,000,000 restricted shares of its
Class A common stock.
b) During the three months ended March 31, 2000, the Company issued $150,000 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 three months ended March 31, 2000, the Company issued 100,000
restricted shares of its Class A common stock for services valued at
$234,000.
d) During the three months ended March 31, 2000, 179,898 of options were
exercised at the strike price of $0.1035 per share. These shares were
exercised for $18,619 of services performed by the option holder.
The accompanying notes are an integral part of the financial statement.
F-32
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information. 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 of normal recurring adjustments) considered necessary
for a fair presentation have been included. These financial
statements should be read in conjunction with the Company's
annual financial statements as reported in the Form 10-KSB for
the fiscal year ended December 31, 2000. Operating results for
the three-month period ended March 31, 2001, are not necessarily
indicative of the results that may be expected for the fiscal
year ending December 31, 2001.
For further information, refer to the Company's financial
statements for the fiscal year ended December 31, 2000, included
in its Form 10-KSB for such fiscal period.
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
March 31,
------------------------
2001 2000
---------- -----------
Basic and Diluted 107,476,215 58,553,629
F-33
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
NOTE 2 - 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 March 31, 2001,
$213,000 in principal and $6,559 in accrued interest had been
converted into 1,905,048 shares of the Company's Class A common
stock leaving an outstanding principal balance of $287,000 and
$62,257 in unpaid interest.
The Company has been advised by one of the debenture holders that
the Company was in breach of some of the terms of the debentures.
The Company has reached settlement terms with this previous
holder whereby the Company will issue 450,000 shares to this
former holder in full settlement of the former debenture holder's
claim.
NOTE 3 - DUE TO RELATED PARTY
During the period from June 2000 to date, Jerome R. Mahoney,
President and Chief Executive Officer of the Company, sold Common
Stock Shares of the Company and has loaned proceeds of these
sales to the Company to fund its working capital requirements.
The Company has executed a promissory note and Security Agreement
in favor of Mr. Mahoney. As of March 31, 2001, the outstanding
loan balance including monies loaned from the proceeds of stock
sales, unpaid compensation, income taxes incurred from the sale
of stock and unreimbursed expenses, totaled $1,042,711.
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 stock share of iVoice.com, Inc., no par value, for each
dollar owed.
F-34
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
NOTE 4 - COMMITMENTS AND CONTINGENCIES
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.
In May 1999, the Company entered into a five-year employment
agreement with its majority stockholder (the "Executive"). He
will serve as the Company's Chairman of the Board and Chief
Executive Officer for a term of five years. As consideration, the
Company agrees to pay the Executive a sum of $180,000 the first
year with a 10% increase every year thereafter.
The Company has been named defendant in a lawsuit brought by
Lighthouse Technical Consulting, Inc. filed March 14, 2001. In
this lawsuit, the plaintiff makes claim for non-payment of
$15,000 for placement services performed by Lighthouse. The
Company is currently in discussions with the plaintiff's attorney
to reach payment terms favorable to each party.
The Company has been named defendant in a lawsuit brought by
Business Staffing, Inc. filed April 12, 2001. In this lawsuit,
the plaintiff makes claim for non-payment of $37,250 for
placement services performed by Business Staffing. The Company is
in dispute of the amount owed and intends to vigorously defend
itself in this suit.
F-35
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
NOTE 5 - CAPITAL LEASE OBLIGATIONS
During the year ended December 31, 2000, the Company incurred two
capital lease obligations totaling $92,895 in connection with the
acquisition of computers and office furniture.
The future minimum lease payments due under the capital leases at
March 31, 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. $ 28,811
Lease payable for furniture, payable at $2,151 per
month, including interest at 20.79%. Final payment
due April 2003. 41,940
---------
Present value of net minimum lease payments $ 70,751
==========
The future minimum lease payments $ 88,521
Less amount representing interest 17,770
----------
Present value of net minimum lease payments 70,751
Less current portion 29,878
----------
Long term capital lease obligations $ 40,873
===========
NOTE 6 - COMMON STOCK
The Company issuance of common stock for the three months ended
March 31, 2001 is as follows:
a) Class A Common Stock
Class A common stock consists of the following as of March
31, 2001: 150,000,000 shares 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 March
31, 2001, 109,408,548 shares were issued and outstanding.
F-36
iVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
NOTE 6 - COMMON STOCK - continued
a) Class A Common Stock- continued
Each holder of Class A Common stock is entitled to receive
ratably dividends, if any, as may be declared by the Board
of Directors out of funds legally available for the
payment of dividends. The Company has never paid any
dividends on its common stock.
For the three months ended March 31, 2001, the Company had
the following transactions:
1. The Company issued 1,019,287 shares of its Class A
common stock for services rendered.
2. The Company issued 2,020,834 shares of its Class A
common stock for compensation valued at $224,000.
3. The Company issued 1,172,000 shares of its Class A
common to Swartz Private Equity under the terms of
their financing agreement with Swartz for net proceeds
of $129,931
4. The Company issued 328,951 shares of its Class A common
stock as repayment of loans to related parties for a
total value of $75,659.
5. The Company issued 897,761 shares of Class A common
stock for the conversion of $50,000 in debenture
principal and $6,559 in accrued interest.
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 March 31, 2001, 700,000 shares were
issued; and 364,000 shares were outstanding. Class B
common stockholders are not entitled to receive dividends.
F-37
No dealer, salesman or other person has been authorized to give any
information or to make representations other than those contained in this
prospectus, and if given or made, such information or representations must not
be relied upon as having been authorized by us or the selling stockholders.
Neither the delivery of this prospectus nor any sale hereunder will, under any
circumstances, create an implication that the information herein is correct as
of any time subsequent to its date. This prospectus does not constitute an offer
to or solicitation of offers by anyone in any jurisdiction in which such an
offer or solicitation is not authorized or in which the person making such an
offer is not qualified to do so or to anyone to whom it is unlawful to make such
an offer or solicitation.
165,893,750 SHARES
IVOICE.COM, INC.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
______, 2001
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our certificate of incorporation provides that a director shall not be
liable to iVoice or our stockholders for monetary damages for breach of
fiduciary duty as a director.
In addition, our certificate of incorporation provides that we shall
indemnify to the fullest extent permitted by law any person made or threatened
to be made a party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative (a "legal action"), whether such legal action be
by or in the right of the corporation or otherwise, by reason of the fact that
such person is or was a director or officer of the company, or serves or served
at the request of the Company as a director or officer, of another corporation,
partnership, joint venture, trust or any other enterprise. In addition, our
certificate of incorporation provides for indemnification of any person made or
threatened to be made a party to any legal action by reason of the fact that
such person is or was a director or officer of the Company and is or was serving
as a fiduciary of, or otherwise rendering to, any employee benefit plan of or
relating to the Company. The indemnification obligation of the Company in our
certificate of incorporation is permitted under Section 145 of the General
Corporation Law of the State of Delaware.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore
unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this Registration Statement will be as
follows:
Total
-----
SEC registration fee (actual) .......................................$2,908.11
Accounting fees and expenses .........................................$1000.00
Legal fees and expenses.............................................$15,000.00
Printing and engraving expenses..........................................$0.00
Miscellaneous expenses................................................$1000.00
Item 26. Recent Sales of Unregistered Securities
The following table denotes the sales of securities made within the past
three years which were exempt from registration pursuant to Rule 504 of
Regulation D. All shares issued were shares of our Class A common stock and were
purchased for cash.
Name Date Issued No. of Shares
- ---- ----------- -------------
Toby Investments Group 5/6/98 585,000
Hazlet Investors 5/6/98 1,085,000
U.S. Water Treatment Co. 5/8/98 500,000
Toby Investments Group 5/8/98 500,000
Arab Commerce Bank Ltd. 7/14/98 370,370
Lufeng Investments Ltd. 7/14/98 370,370
Swan Alley (Nominees) Ltd. 7/15/98 925,925
Millenium Holdings Group, Inc. 7/15/98 157,407
Neil Liebman 7/15/98 27,778
Name Date Issued No. of Shares
- ---- ----------- -------------
U.S. Water Treatment Co. 9/8/98 1,375,000
Toby Investments Group 9/8/98 1,375,000
RFG, Inc 12/2/98 300,000
Toby Investments Group 12/2/98 1,000,000
Toby Investments Group 12/8/98 300,000
H. Glenn Bagwell, Jr. 12/21/98 1,300,000
H. Glenn Bagwell, Jr. 1/4/99 1,000,000
Toby Investments Group 1/14/99 1,353,000
J V O Consulting, Inc. 1/19/99 285,715
H. Glenn Bagwell, Jr. 1/19/99 750,000
Bon Temps Roule, Inc. 1/22/99 285,715
H. Glenn Bagwell, Jr. 3/15/99 2,500,000
Toby Investments Group 3/18/99 500,000
H. Glenn Bagwell, Jr. 4/5/99 2,500,000
Dot Com Funding 6/2/99 981,299
H. Glenn Bagwell, Jr. 4/5/00 1,240,047
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 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 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 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 on Form SB-2, filed with the SEC on
November 17, 2000).
3.5 Bylaws of Del Enterprises, Inc (incorporated herein by reference to
Exhibit 3.5 of the registration on Form SB-2, filed with the SEC on
November 17, 2000).
4.1 Debenture No.1 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 on Form SB-2, filed with the SEC on November 17, 2000).
4.2 Debenture No. 2 issued by iVoice.com, Inc. for $50,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to New Millenium Capital
Partners, LLC on October 29, 1999 (incorporated herein by reference to
Exhibit 4.2 of the registration 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 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 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 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 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 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 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 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 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.
4.12 * Form 8% Convertible Debentures issued by iVoice.com, Inc. to certain
purchasers thereof for an aggregate of $125,000.
4.13 * Form 8% Convertible Debentures to be issued by iVoice.com, Inc. to
Meridian Equities International, Inc. in the amount of $150,000.
5.1 * Opinion of Kramer Levin Naftalis & Frankel LLP.
10.1 iVoice.com, Inc. 1999 Option Stock Plan (incorporated herein by
reference to Exhibit 10.1 of the registration 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 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 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 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 on Form SB-2, filed
with the SEC on November 17, 2000).
10.6 * Subscription agreement between iVoice.com, Inc. and Meridian Equities
International, Inc., dated July 18, 2001, for the purchase of an
aggregate of $150,000 of 8% Convertible Debentures.
10.7 * Registration rights agreement between iVoice.com, Inc. and Meridian
Equities International, Inc., dated as of July 18, 2001.
10.8 * Form of warrant to purchase 250,000 shares of iVoice.com, Inc. to be
issued to Meridian Equities International, Inc.
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.
10.10 * Registration rights agreement by and among iVoice.com, Inc. and the
investor signatories thereto dated as of April 30, 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.
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.
10.13 * Investment agreement dated July 18, 2001, between iVoice.com, Inc. and
Maple Avenue, LLC.
10.14 * Registration rights agreement dated July 18, 2001, between iVoice.com,
Inc. and Maple Avenue, LLC.
10.15 * Escrow agreement by and among iVoice.com, Inc., Maple Avenue, LLCand
Joseph B. LaRocco, dated as of July 18, 2001.
10.16 * Warrant to purchase 450,000 shares of iVoice.com, Inc. issued to Maple
Avenue, LLC, dated July 18, 2001.
10.17 * Consulting agreement entered into on March 15, 2001 by and between
iVoice.com, Inc. and Finnigan USA.
11 * Statements regarding computation of per share earnings.
13.1 Form 10-SB12G (incorporated by reference and previously filed on
February 4, 2000 with the Commission).
13.2 Form 10-QSB for the quarter ending March 31, 2000 (incorporated by
reference and previously filed with the Commission).
13.3 Form 10-QSB for the quarter ending June 30, 2000 (incorporated by
reference and previously filed with the Commission).
13.4 Form 10-QSB for the quarter ending September 30, 2000 (incorporated by
reference and previously filed with the Commission).
13.5 Form 10-K for the year ending December 31, 2000 (incorporated by
reference and previously filed with the Commission).
13.6 Form 10-QSB for the quarter ending March 31, 2001 (incorporated by
reference and previously filed with the Commission).
15 Letter on unaudited interim financial information (incorporated by
reference and previously filed with the Commission).
23.1 * Consent of Merdinger, Fruchter, Rosen & Corso, P.C.
23.2 * Consent of Kramer Levin Naftalis & Frankel LLP (contained in the opinion
filed as Exhibit 5.1 hereto).
23.3 * Consent of Mendlowitz Weitsen, LLP
24.1 * Power of attorney (contained on the signature page of this Registration
Statement).
- ----------------
* Filed herewith
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii. To 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;
iii. To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that clauses (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
such clauses is contained in periodic reports file with or furnished to
the Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
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
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Matawan, New Jersey, on July 24, 2001.
IVOICE.COM, INC.
By: /s/ Jerome R. Mahoney
---------------------------
Jerome R. Mahoney
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerome R. Mahoney his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Jerome R. Mahoney Chief Executive Officer, July 24, 2001
- --------------------- President and
Jerome R. Mahoney Director
/s/ Kevin Whalen Chief Financial Officer July 24, 2001
- --------------------
Kevin Whalen