Filed pursuant to 424(b)(3)
Registration No. 333-65814
IVOICE, INC.
PROSPECTUS SUPPLEMENT NO. 1
(To the Prospectus dated September 20, 2001)
This prospectus supplement no. 1 supplements and amends the prospectus
dated September 20, 2001 relating to the resale of shares of Class A common
stock, par value $0.001, of iVoice, Inc., that may be offered and sold from time
to time by the "selling stockholders" named therein on Page 27.
Our common stock is traded in the over-the-counter ("OTC") market and
quoted through the OTC Bulletin Board under the symbol "IVOC." On December 10,
2001, the reported closing price for our Class A common stock was $0.04 per
share.
The prospectus, together with this prospectus supplement, constitutes the
prospectus required to be delivered by Section 5(b) of the Securities Act of
1933, as amended, with respect to offers and sales of the shares of our Class A
common stock. All references in the prospectus to "this prospectus" are hereby
amended to read "this prospectus (as supplemented and amended)."
YOU SHOULD READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT CAREFULLY
BEFORE YOU INVEST, INCLUDING THE RISK FACTORS WHICH BEGIN ON PAGE 2 OF THE
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
The date of this Prospectus Supplement is December 11, 2001.
The prospectus is hereby amended to add a new section entitled "Recent
Developments."
RECENT DEVELOPMENTS
On July 18, 2001, we entered into a subscription agreement with Meridian
Equities International, Inc. pursuant to which we agreed to sell, and Meridian
agreed to purchase, up to a maximum of $150,000 of our 8% convertible
debentures. In addition, we agreed to issue to Meridian upon funding a warrant
to purchase 250,000 shares of our Class A common stock. In accordance with the
terms of the subscription agreement, and as a condition to funding by Meridian,
we filed a registration statement to register for resale, among other shares,
the shares of Class A common stock into which the debentures were convertible
and the shares of Class A common stock into which the warrant was exercisable.
On September 20, 2001, the Securities and Exchange Commission declared the
registration statement effective and we consequently requested that Meridian
purchase the entire $150,000 of the convertible debentures. Meridian failed to
comply with our request, stating that we had failed to meet all of the specified
conditions to funding. We were unable to reach agreement on this issue with
Meridian and so we agreed to terminate the subscription agreement. On December
7, 2001, we filed a post-effective amendment to our registration statement on
Form SB-2, file no. 333-65814, to deregister 35,250,000 shares of our Class A
common stock that would have been issued to Meridian upon conversion of the
debentures and upon exercise of the warrant.
On November 20, 2001, we entered into a subscription agreement with Beacon
Capital, LLC in which we agreed to sell to Beacon Capital, and Beacon Capital
agreed to purchase, $150,000 of our 8% convertible debentures on terms
substantially identical to those we offered to Meridian. As one of the
conditions to funding, we are required to register for resale the shares of
Class A common stock into which the debentures are convertible and into which
the warrants may be exercised. We are in the process of preparing a new
registration statement to register those shares and anticipate filing it.
On November 13, 2001, we filed our Quarterly Report on Form 10-QSB for the
period ended September 30, 2001. A copy of the Form 10-QSB is attached hereto
and made a part of this prospectus supplement. The information contained in the
Form 10-QSB is intended to update the information contained in our prospectus
dated September 20, 2001, where applicable.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number 000-229341
iVoice, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1750786
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 Highway 34
Matawan, NJ 07747
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (732) 441-7700
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: Class A common,
par value $.001
per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X__ NO ____
Number of shares of Class A common stock, $.001 par value, outstanding as of:
November 5, 2001 148,808,854
IVOICE, INC.
FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 2001 (Unaudited) 1
Statements of Operation -
For the three months ended
September 30, 2001 and 2000
and nine months ended September 30,
2001 and 2000 2
Statements of Cash Flows -
For the nine months ended September 30,
2001 and 2000 3 - 5
Notes to the financial statements 6 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14 - 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 6. Exhibits and reports on Form 8-K 18
IVOICE, INC.
BALANCE SHEETS
SEPTEMBER 30, 2001
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,177
Accounts receivable, net of allowance for
doubtful accounts of $2,500 36,811
Inventory 19,691
Prepaid expenses and other current assets 545,353
----------
Total current assets 615,032
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $76,628 113,519
OTHER ASSETS
Other Receivable 67,650
Software license costs, net of accumulated amortization of $244,800 299,200
Financing costs, net of accumulated amortization of $4,167 137,950
Intangible assets, net of accumulated amortization of $17,760 274,881
Deposits and other assets 13,900
-----------
Total other assets 793,581
-----------
TOTAL ASSETS $ 1,522,132
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,218,036
Obligations under capital leases - current 33,213
Billings in excess of estimated costs on uncompleted jobs 51,306
Due to related parties 836,419
12% Convertible debentures 194,800
8% Convertible debentures 275,000
-----------
Total current liabilities 2,608,774
-----------
LONG-TERM DEBT
Obligation under Capital leases - non-current 23,389
-----------
Total liabilities 2,632,163
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' DEFICIENCY
Preferred stock, par value $1.00; authorized 1,000,000
shares, no shares issued or outstanding -
Common stock, Class A - par value $.001; authorized
600,000,000 shares, 142,810,525 issued and outstanding 1,163,966
Common stock, Class B - no par value; authorized 3,000,000
shares; 700,000 shares issued; 364,000 shares outstanding 37
Subscriptions receivable (990,000)
Additional paid in capital 10,242,307
Accumulated deficit (11,526,341)
------------
Total stockholders' deficiency (1,110,031)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,522,132
The accompanying notes are an integral part of the financial statement.
- 1 -
IVOICE, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
SALES, net $ 87,043 $ 175,343 $ 303,948 $ 677,062
COST OF SALES 31,161 70,663 130,279 232,465
----------- ----------- ----------- -----------
GROSS PROFIT 55,882 104,680 173,669 444,597
----------- ----------- ----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 31,171 69,960 138,470 323,734
General and administrative expenses 349,489 407,501 1,653,307 1,305,976
Research and development 90,389 152,011 320,475 260,620
Bad debt expense - 16,652 23,308 39,152
Depreciation and amortization 40,539 39,999 120,718 106,113
----------- ----------- ----------- -----------
Total selling, general and administrative expenses 511,588 686,123 2,256,278 2,035,595
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (455,706) (581,443) (2,082,609) (1,590,998)
OTHER EXPENSE
Non-recurring expense -- -- 352,706 --
Interest expense 36,782 170,767 107,591 491,986
----------- ----------- ----------- -----------
Total other expenses 36,782 170,767 460,297 491,986
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (492,488) (752,210) (2,542,906) (2,082,984)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- ----------
NET LOSS $ (492,488) $ (752,210) $(2,542,906) $(2,082,984)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE
Basic $ (0.00) $ (0.01) $ (0.02) $ (0.03)
=========== =========== =========== ===========
Diluted $ (0.00) $ (0.01) $ (0.02 $ (0.03)
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statement.
- 2 -
IVOICE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
September 30,
---------------------------
2001 2000
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (2,542,906) (2,082,984)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 120,717 106,113
Bad debt expense 23,308 39,152
Amortization of debt issue costs 157,697 432,750
Common stock issued for consulting services 300,138 382,619
Common stock issued for compensation 224,000 69,938
Common stock issued for settlements 211,080 --
Common stock issued for interest 6,559 --
Changes in certain assets and liabilities:
Accounts receivable 17,560 (243,674)
Inventory 537 (8,735)
Accounts payable and accrued liabilities 680,199 200,538
Legal settlement payable -- (300,000)
Deferred revenue 28,294 --
Other assets 87,658 (66,986)
------------- -----------
Total cash used in operating activities (685,159) (1,471,269)
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,872) (112,801)
Purchase of goodwill and other intangibles (3,390) (152,355)
------------- -----------
Total cash used in investing activities (5,262) (265,156)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 129,931 746,000
Proceeds from exercise of options on common stock -- 319,166
Proceeds from officer loans 264,000 396,798
Prepaid offering and debt issue costs -- (31,500)
Increase in borrowing under capital lease obligations -- 92,895
Repayment of capital lease obligations (20,682) --
Repayment of notes payable -- (9,414)
Sale of convertible debentures 275,000 150,000
------------- -----------
Total cash provided by financing activities 648,249 1,663,945
------------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (42,172) (72,480)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 55,349 195,861
------------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 13,177 $ 123,381
------------- -----------
CASH PAID DURING THE PERIOD FOR:
Interest expense $ 10,976 $ 7,590
============= ===========
Income taxes $ -- $ --
============= ===========
The accompanying notes are an integral part of the financial statement.
- 3 -
IVOICE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
SEPTEMBER 30, 2001:
a) During the nine months ended September 30, 2001, the Company issued
12,194,287 shares of its Class A common stock for services valued at
$897,055. The Company has registered for resale with the SEC, 10,600,000 of
these issued shares during this nine-month period.
b) During the nine months ended September 30, 2001, the Company issued
2,020,834 restricted shares of its Class A common stock as compensation
valued at $224,000.
c) During the nine months ended September 30, 2001, the Company issued 828,000
registered shares and 850,000 restricted shares of its Class A common stock
as payment for termination of the Swartz Financing Agreement valued at
$154,830.
d) During the nine months ended September 30, 2001, the Company issued 450,000
restricted shares of its Class A common stock to a holder of its 12%
convertible debentures as settlement for failure to register shares under
the registration rights agreement related to the 12% convertible debentures
valued at $56,250.
e) During the nine months ended September 30, 2001, the Company issued 328,951
restricted shares of its Class A common stock as repayment of amounts owed
to related parties valued at $75,659.
f) During the nine months ended September 30, 2001, the Company issued
2,892,628 restricted shares of its Class A common stock for the repayment
of $142,200 in principal on its 12% Convertible Debentures.
g) During the nine months ended September 30, 2001, the Company issued 104,110
restricted shares of its Class A common stock for interest on its 12%
Convertible Debentures valued at $6,559.
h) During the nine months ended September 30, 2001, the Company issued
$275,000 of its 8% convertible debentures exercisable at an 80% conversion
price. The 20% conversion discount totaling $68,750 was recorded as a
prepaid debt issue cost and will be amortized over the life of the debt.
SEPTEMBER 30, 2000:
a) During the nine months ended September 30, 2000, the Company converted a
$4,500,000 legal settlement payable into 2,000,000 shares of its Class A
restricted common stock.
b) During the nine months ended September 30, 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.
The accompanying notes are an integral part of the financial statement.
- 4 -
IVOICE, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
SEPTEMBER 30, 2000 (continued):
c) During the nine months ended September 30, 2000, the Company issued 578,820
shares of its restricted Class A common stock for services valued at
$415,972.
d) During the nine months ended September 30, 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.
e) During the nine months ended September 30, 2000, the Company issued 50,000
shares of its restricted Class A common stock to Corporate Architects, Inc.
with a value of $46,875 for the purchase of ThirdCAI, Inc.
f) During the nine months ended September 30, 2000, the Company issued 80,000
shares of its restricted Class A common stock as compensation valued at
$69,938.
The accompanying notes are an integral part of the financial statement.
- 5 -
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form
10-QSB and Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair
presentation have been included.
For further information, refer to the financial statements and
footnotes included in Form 10-KSB for the year ended December 31,
2000.
The result of operations for the nine-month periods ended
September 30, 2001 and 2000 are not necessarily indicative of the
results to be expected for the full year.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern, which
contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has
sustained significant net losses which have resulted in an
accumulated deficit at September 30, 2001 of $11,526,341, and
periodic cash flow difficulties, which raise substantial doubt of
the Company's ability to continue as a going concern.
The net loss for the year ended December 31, 2000 was $2,891,379
and the Company recorded a net loss of $2,542,906 for the nine
months ended September 30, 2001. To date, the Company has funded
its operations through the issuances of convertible debt, sales of
its Class A common stock and loans from its principal stockholder,
the proceeds of which are derived from sales of this principal
stockholder's personal holdings of the Company's Class A common
stock. The Company anticipates a net loss for the year ended
December 31, 2001, and with a cash balance of $13,177 at September
30, 2001 and expected cash requirements for the year, there is
substantial doubt as to the Company's ability to continue
operations.
The Company believes that these conditions have resulted from the
inherent risks associated with small technology companies. Such
risks include, but are not limited to, the ability to: a) generate
sales of its product at levels sufficient to cover its costs and
provide a return for investors, b) attract additional capital in
order to finance growth, c) further develop and successfully
market commercial products and d) successfully compete with other
technology companies having financial, production and marketing
resources significantly greater than those of the Company.
The financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets, or
the amounts and classification of liabilities that might be
necessary in the event the Company cannot continue in existence.
- 6 -
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
The Company is attempting to improve these conditions by way of
financial assistance through collaborative partnering agreements,
issuances of additional equity, debt arrangements, and product
sales. Management believes that appropriate funding will be
generated and future product sales will result from these
opportunities and that the Company will continue operations
through the next fiscal year; however, no assurance can be given
that sales will be generated or that the additional necessary
funding will be raised.
On August 24, 2001, the Company amended its certificate of
incorporation to a) change its name to iVoice Inc.; b) to increase
the number of shares it is authorized to issue of its Class A
common stock to 600,000,000 shares; c) to increase the number of
shares it is authorized to issue of its Class B common stock to
3,000,000 shares; d) to change the par value of its Class A common
stock to $.001 per share; and e) to give the board of directors
the authority to issue up to 1,000,000 shares of preferred stock
with $1.00 par value.
Earnings Per Share
SFAS No. 128, "Earnings Per Share" requires presentation of basic
earnings per share ("Basic EPS") and diluted earnings per share
("Diluted EPS").
The computation of basic earnings per share is computed by
dividing income available to common stockholders by the weighted
average number of outstanding common shares during the period.
Diluted earnings per share gives effect to all dilutive potential
common shares outstanding during the period. The computation of
diluted EPS does not assume conversion, exercise or contingent
exercise of securities that would have an anti-dilutive effect on
earnings. The shares used in the computations are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
2001 2000 2001 2000
---- ---- ---- ----
Basic and Diluted 132,577,874 99,719,095 117,196,212 81,831,436
- 7 -
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 2 - CONVERTIBLE DEBENTURES
The Company has previously issued two series of convertible
debentures consisting of ten notes payable totaling $500,000
bearing interest at 12% per annum and payable on December 1, 2000
and fourteen notes payable totaling $275,000 bearing interest at
8% and maturing 5 years from the date of issue.
The 12% debentures are convertible into shares of the Company's
Class A Common Stock at the option of the holder by dividing the
outstanding principal and interest by the conversion price which
shall equal 50% of the average bid price during the 20 trading
days before the conversion date. As of September 30, 2001,
$305,200 in principal of the 12% debentures and $6,559 in accrued
interest had been converted into 2,996,738 shares of the Company's
Class A common stock. Total outstanding principal balance of the
12% convertible debentures at September 30, 2001 was $194,800 plus
accrued interest of $76,670.
The 8% debentures are convertible into Class A common shares at
the lesser of (i) 140% of the closing bid price for the Common
Stock on the Closing Date, or (ii) 80% of the average of the three
lowest closing bid for the 22 trading days immediately preceding
the date of conversion. Total outstanding principal balance of the
8% convertible debentures at September 30, 2001 was $275,000 plus
accrued interest of $5,995.
The Company has been advised by the holders of the 12% debentures
that the Company has breached the following terms of the
debentures: (a) Failure to register, on a timely basis, under the
Securities Act of 1933, the shares issuable upon the conversion of
the debentures, (b) Registering additional shares other than the
shares issuable upon the conversion of the debentures, and (c)
Failure to provide the debenture holders a perfected security
interest in certain assets of the Company pursuant to a Security
Agreement that was part of the debenture documentation. The
Company has reached settlement terms with one previous holder of
the 12% debentures regarding the interest and penalties demanded
under default by this former holder whereby the Company has issued
450,000 shares to this former holder in full settlement of their
claim. The Company has not accrued any amounts with respect to the
Company's default on the 12% debentures that may be due to the
remaining holders. The Company anticipates issuing additional
shares to settle the debenture holders, claims arising from our
default the amount of which is undeterminable at this time.
- 8 -
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 3 - DUE TO RELATED PARTY
During the period from June 2000 to date, Jerome R. Mahoney,
President and Chief Executive Officer of the Company has sold
personal holdings of the Company's Class A common shares and has
loaned the proceeds of these sales to the Company to fund its
working capital requirements. The Company has executed a
promissory note and Security Agreement in favor of Mr. Mahoney.
As of September 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 $1,700,678, of this amount,
$864,259 is reflected in accrued expenses.
Under the terms of the loan agreements, the note holder may elect
prepayment of the principal and interest owed pursuant to this
note by issuing Jerome Mahoney, or his assigns, one Class B common
share of iVoice, Inc., no par value, for each dollar owed.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
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 a defendant in a lawsuit brought about
by Communication Research, Inc., or "CRI." In this lawsuit, CRI
makes claims against the Company of constructive eviction,
trespass, breach of contract, conversion, interference with
economic relations, and quantum merit. The Company believes that
it 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
The Company has been named defendant in a lawsuit brought by
Lighthouse Technical Consulting, Inc. filed July 2, 2001. In this
lawsuit, the plaintiff makes claim for non-payment of $15,000 for
placement services performed by Lighthouse. The Company is in
dispute of the amount owed and intends to vigorously defend itself
in this suit.
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.
- 9 -
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 4 - COMMITMENTS AND CONTINGENCIES - (Continued)
The Company has been named 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. The Company disputes
the amount owed and intends to vigorously defend itself in this
suit. In an arbitration hearing held in July 2001, the arbitrator
determined that no amount is due to Lorelei.
The Company filed a Summons and Complaint in U.S. District Court
against PanAm Wireless, doing business as Celpage, Inc. The
Complaint alleges that Celpage breached the Software\Hardware
Agreement between iVoice and Celpage by refusing to accept and pay
for the balance of a system installation specified in the
Agreement. The Company is seeking damages in the amount of
$245,375 together with interest from January 17, 2001. The
Company's balance sheet at September 30, 2001 reflects, in other
assets, a receivable in the amount of $67,650 representing the
$245,375 less deferred revenues of $147,225 and a reserve of
$30,500.
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
September 30, 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. $ 23,586
Lease payable for furniture, payable at $2,151 per
month, including interest at 20.79%. Final payment
due April 2003. 33,015
--------
Present value of net minimum lease payments $ 56,601
========
The future minimum lease payments $ 67,414
Less amount representing interest 10,813
--------
Present value of net minimum lease payments 56,601
Less current portion 33,213
--------
Long term capital lease obligations $ 23,388
========
- 10 -
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 6 - COMMON STOCK
In August 2001, the Company amended its Certificate of
Incorporation to change the par value of its Class A common stock
from $.01 to $.001 and to increase the number of shares the
Company is authorized to issue of its Class A common stock from
150,000,000 to 600,000,000 and its Class B common stock from
700,000 to 3,000,000. The amendment also granted the board of
directors the rights to prescribe and authorize the issuance of
1,000,000 preferred shares, $1.00 par value.
a) Class A Common Stock
Class A common stock consists of the following as of
September 30, 2001: 600,000,000 shares of authorized
common stock with a par value of $.001. Class A stock
has voting rights of 1:1 and as of September 30,
2001, 142,810,525 shares were issued and outstanding.
Each holder of Class A Common stock is entitled to
receive ratably dividends, if any, as may be declared
by the Board of Directors out of funds legally
available for the payment of dividends. The Company
has never paid any dividends on its Common Stock.
For the nine months ended September 30, 2001, the Company had the
following transactions:
1. The Company issued 12,194,287 shares of its Class A
common stock for services rendered valued at $897,055.
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, LLC under the terms of
their financing agreement with Swartz for net proceeds
of $129,931
4. The Company issued 328,951 shares of its Class A common
stock as repayment of loans to related parties for a
total value of $75,659.
5. The Company issued 2,996,738 shares of Class A common
stock for the conversion of $142,200 in debenture
principal and $6,559 in accrued interest.
6. The Company issued 2,128,000 shares of its Class A
common stock valued at $211,080, to settle disputes
arising from financing agreements entered into by the
Company.
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IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 6 - COMMON STOCK - (Continued)
a) Class A Common Stock - (continued)
7. The Company issued 18,000,000 shares of its Class A
common stock for the exercise of a warrant issued to
EMCO\Hanover Group, Inc. issued pursuant to a
consulting agreement with them.
b) Class B Common Stock
Class B Common Stock consists of 3,000,000 shares of
authorized common stock with no par value. Class B stock
has voting rights of 100 to 1 with respect to Class A
Common Stock. As of September 30, 2001, 700,000 shares
were issued; and 364,000 shares were outstanding. Class B
common stockholders are not entitled to receive
dividends.
c) Preferred Stock
Preferred Stock consists of 1,000,000 shares of
authorized preferred stock with $1.00 par value. As of
September 30, 2001, no shares were issued or outstanding.
NOTE 7 - OPTIONS & WARRANTS
For the nine-month period ending September 30, 2001, the
Company issued various options as follows:
a) Warrants to purchase 404,510 shares of iVoice Class A
common stock with an average exercise price of $.1220, to
Swartz Private Equity, LLC as drawdown fees under the
financing agreement with them. The warrants expire five
years from the date of issue.
b) Warrants to purchase 343,750 shares of iVoice Class A
common stock with an exercise price of $.1323 to Owen May
and Michael Jacobs of the May Davis Group as a fee for
the placement of the Company's 8% convertible debentures,
pursuant to a subscription agreement with them. The
warrants expire five years from the date of issue.
c) Warrants to purchase 18,000,000 shares of iVoice Class A
common stock with an exercise price of $.055 to the
EMCO\Hanover Group, Inc. pursuant to a consulting
agreement with them. The warrants were exercised and are
reflected as a subscription receivable. See Note 6
regarding shares issued for exercise of this warrant.
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IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 7 - OPTIONS & WARRANTS - (continued)
d) Options to purchase 1,540,000 shares of iVoice Class A
common stock with an average exercise price of $.074 to
company employees pursuant to the iVoice Employee Stock
Option Plan. Options generally vest over four years and
have a maximum term of five years.
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.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations ("MD&A") should be read in conjunction with
our Financial Statements included herein.
Recent Developments
Through November 2, 2001 holders of the Company's 8% convertible debentures
converted $122,300 in principal and $878 in interest into 2,998,329 shares of
the Company's Class A common stock.
On July 18, 2001, the Company entered into a subscription agreement with
Meridian Equities International Inc. to purchase up to a maximum of $150,000 of
convertible debentures, which shall pay cumulative interest at rate of 8% per
annum. Pursuant to that subscription agreement, the Company has filed a
registration statement with the U.S. Securities & Exchange Commission to
register for resale, a number of shares into which the debentures are
convertible. On September 20, 2001, the Securities & Exchange Commission
declared the Company's registration statement effective, the Company
simultaneously requested funding of the $150,000 convertible debenture and was
denied funding by Meridian Equities. Subsequently, on October 11, 2001 the
Company resubmitted its request for funding and was again denied by Meridian
citing iVoice's failure to meet all of the conditions precedent to funding as
indicated in the subscription agreement.
The Company has, in its opinion, met all of the conditions precedent to funding
as described in the subscription agreement between iVoice and Meridian.
Specifically, a daily average trading volume of its common stock, multiplied by
the volume weighted average closing price ("VWAP") for the thirty (30) trading
days preceding funding, exceeding a minimum of $25,000. The Company has
consulted counsel regarding Meridian's breach of the Subscription agreement and
may seek legal remedies to enforce Meridian's obligation under the agreement and
recover damages sustained by iVoice.
September 30, 2001 compared to September 30, 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 and nine months ended September 30,
2001 were $87,043 and $303,948, respectively, as compared to $175,343 and
$677,062 for the three and nine months ended September 30, 2000, an decrease of
$88,300 or 50.4% and $373,114 or 55.1%, respectively. The decrease in sales for
the three and nine month period are largely attributable to weak economic
conditions resulting in weak demand for the Company's products, coupled with the
Company's lack of sufficient capital resources to effectively develop a
successful sales campaign.
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iVoice will continue to market and promote its products to telephony reseller
networks in order to leverage those resellers' existing customer bases. On
October 30, 2001, the Company announced its participation in the 3Com(R) NBX
Solution Providers Program providing direct access to the fast-growing market of
networked telephony. Having demonstrated full integration with the NBX platform,
iVoice shall be designated a 3Com NBX Solution Provider whereby its speech
enabled applications will be promoted through joint marketing efforts to 3Com
NBX Authorized Resellers.
The Company also sells directly to end users in geographic locations where an
existing dealer relationship does not exist. On direct sales orders, the Company
is able to achieve greater profit margins through higher direct selling prices.
Furthermore, at the end of the quarter ending September 30, 2001, iVoice has
received follow-up orders for additional product installations at existing
customer locations totalling $65,000. Of this amount, only $12,504 is recorded
in sales as earned revenue in the current quarterly period. The remaining
$52,496 has been recorded as deferred revenue and it is anticipated that these
contracts will be fully recognized in the fourth quarter of 2001. It is
management's opinion that the events of September 11, delayed the receipt and
completion of these orders.
Unless special arrangements are made, the Company receives 50% of the contract
as a down payment on any product purchased with the balance due upon completion
of the installation. The Company recognizes its revenue using the percentage of
completion method. The Company determines the expected costs on a particular
installation by estimating the hardware costs and anticipated labor hours to
configure and install a system. Revenues are then recognized in proportion to
the amount of costs incurred as of the reporting date over the total estimated
costs anticipated. The Company accepts company checks or Visa/Mastercard.
Gross margin for the three and nine months ended September 30, 2001 was $55,882
and $173,669 or 64.2% and 57,1%, respectively, as compared to $104,680 and
$444,597 or 59.7% and 65.7% for the three and nine months ended September 30,
2000. The gross margin is dependent, in part, on product mix, which fluctuates
from time to time; complexity of a communication system installation which
determines necessary hardware requirements and may not have a proportionate
relationship with the system selling price; and the ability of Company
technology personnel to efficiently configure and install the Company's
communicaitons products. The dollar amount of gross profit has decreased due to
reduced revenues for the comparative periods however margin percentages are
consistent with prior periods with variances due only to product mix.
Total operating expenses decreased, from $686,123 for the three months ended
September 30, 2000 to $511,588 for the three months ended September 30, 2001 a
decrease of $174,535. In recent months, the Company has reduced its working
capital requirements to preserve its cash resources. Pursuant to this policy,
cash operating expenses for the three-month comparative period reflect a
reduction of $149,924 in payroll and related benefits, a reduction in travel
costs of $10,033 and telephone costs of $5,904. Offsetting these reductions was
an increase in consulting expenses of $105,691 for services provided by
EMCO\Hanover Group, Inc. paid for with Class A common stock. Although the
nine-month period ending September 30, 2001 reflects an increase in operating
expenses of $220,683 compared to the same nine-month period of 2000, the
increase is a result of higher payroll costs incurred in the first quarter of
2001 compared to the prior year.
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As of September 30, 2001, the Company has reduced its staff to 10 full-time
employees and 3 part-time employees for a total of 13 individuals. The company
has reduced the number of employees in order to preserve its cash resources.
The loss from operations for the three and nine months ended September 30, 2001
was $455,706 and $2,082,609 compared to $581,443 and $1,590,998 for the three
and nine months ended September 30, 2000, a decrease of $125,737 in the three
month comparative period and an increase of $491,611 for the nine month
comparative period.
Interest expense of $36,782 and $107,591 was incurred for the three and
nine-month period ending September 30, 2001 as compared to $170,767 and $491,986
for the three and nine-month period ending September 30, 2000, respectively.
This decrease of $133,985 and $384,395 for the three and nine-month comparative
periods reflects a lower outstanding principal balance of the Company's 12%
debentures in 2001 as well as the absence of the amortized debt discount in the
current period recorded in the previous period ending September 30, 2000.
Other expenses for the nine-month period ending September 30, 2001 include
non-recurring charges of $352,706 recorded in the second quarter of 2001. This
amount represents a $141,626 write-off of capitalized financing costs incurred
in connection with the agreement with Swartz Private Equity and $154,830 in
charges related to the termination of the Swartz agreement, along with $56,250
in settlement charges incurred with respect to a former debenture holder's claim
for damages incurred in default of the Company's 12% convertible debentures.
Net loss for the three and nine month period ending September 30, 2001 was
$492,488 and $2,542,906 as compared to $752,210 and $2,082,984 for the three and
nine months of 2000. The respective changes in net loss for the comparative
periods were a result of the factors discussed above.
Liquidity and Capital Resources
- -------------------------------
We have incurred substantial losses, we have accumulated a deficit, and we
require additional financing. As of September 30, 2001 we had negative working
capital of $1,993,742 and a cash balance of $13,177. These matters raise
substantial doubt about our ability to continue as a going concern. We
anticipate that we will require additional financing on an ongoing basis for the
foreseeable future.
We have funded our operations principally from a) loans from our principal
stockholder; b) from the proceeds of the sale of convertible debentures; c) from
proceeds from the exercise of warrants and d) sales of our products. To date,
the Company has had difficulty in raising sufficient cash to effectively
implement its business plan. Management is unsure whether it can secure
sufficient financing to meet its current operating requirements. There can be no
assurances that the Company will be successful in procuring financing to meet
its current obligations or financing which is sufficient to enable the Company
to meet its business plan objectives, or that such financing will be available
on terms acceptable to the Company. It should be expected that any future debt
or equity financing arrangement may dilute the ownership of existing
shareholders.
In July 2001, the Company entered into a subscription agreement with Meridian
Equities International, Inc., whereby the Company would issue $150,000 in 8%
convertible debentures and a warrant to purchase
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250,000 shares of Class A common stock. Upon completing all of the conditions
precedent to funding as described in the subscription agreement between iVoice
and Meridian, including the filing and effective determination of a registration
statement with the Securities and Exchange Commission, Meridian has withheld
funding of the $150,000 for the purchase of the Company's 8% convertible
debentures. The absence of this working capital may cause the Company further
difficulty in meeting its short term operating obligations.
The Company is considering filing a post-effective amendment to the registration
statement filed on September 7, 2001, to effectively substitute Meridian
Equities International, Inc. with a new investor under the same investment
terms. Although there can be no assurance that a new investor will be obtained
or that the Securities and Exchange Commission will allow this amendment to the
registration statement.
The Company is actively searching for potential merger candidates with
synergistic technology and products, which Management feels may make financing
more appealing to potential investors, although the Company has not entered into
any agreements or letters of intent to, bind the Company.
SAFE HARBOR STATEMENT
Certain statements in this Form 10-QSB, including trends in or expectations
regarding the Company's operations, and/or the negotiations with respect to
securing financing constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based
on currently available operating, financial and competitive information, and are
subject to various and sometimes numerous risks and uncertainties. Actual future
results and trends may differ significantly.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company filed a Summons and Complaint in U.S. District
Court against PanAm Wireless, doing business as Celpage, Inc.
The Complaint alleges that Celpage breached the
Software\Hardware Agreement between iVoice and Celpage by
refusing to accept and pay for the balance of a system
installation specified in the Agreement. The Company is
seeking damages in the amount of $245,375 together with
interest from January 17, 2001. The Company's balance sheet at
September 30, 2001 reflects, in other assets, a receivable in
the amount of $67,650 representing the $245,375 less deferred
revenues of $147,225 and a reserve of $30,500.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of September 30, 2000 convertible debentures consisted of
ten notes payable totaling $500,000 bearing interest at 12%
per annum 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. We have been advised by the
holders of the debentures that we have 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 debenuture documentation. The Company is in
discussions with the debenture holders attempting to resolve
these issues in a mutually favorable manner. However, it is
uncertain whether the Company will be able to reach an
agreement under terms favorable to iVoice.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 18, 2001, one shareholder holding a majority of the
outstanding voting shares of the Company, consented in writing
to certain shareholder action to effect the following changes:
o to change the Company's name to iVoice, Inc.;
o to increase the authorized number of shares of the
Company's Class A common stock to a total of
600,000,000 shares;
o to increase in the authorized number of shares Class B
common stock to a total of 3,000,000 shares;
o to change the par value of the Class A common stock
from $.01 to $.001 per share; and
o to authorize the Company to issue up to 1,000,000
shares of preferred stock with a par value of $1.00 per
share.
Prior to taking this action, an information statement was sent
to all shareholders.
On August 24, 2001, we filed to amend our certificate of
incorporation with the Secretary of State of the State of
Delaware to effect the changes voted upon by our shareholders
on July 18, 2001.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(3)(i) Amendment to Certificate of Incorporation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned therunto duly authorized.
iVoice, Inc.
By: /s/ Jerome R. Mahoney
---------------------------------
Jerome R. Mahoney, President
Date: November 13, 2001
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