As filed with the Securities and Exchange Commission on December 21, 2001
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
IVOICE, INC.
(Exact name of registrant as specified in its charter)
Delaware 7373 52-1750786
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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:
SCOTT S. ROSENBLUM, ESQ. LAWRENCE A. MUENZ, ESQ.
Kramer Levin Naftalis & Frankel LLP Meritz & Muenz LLP
919 Third Avenue Three Hughes Place
New York, New York 10022 Dix Hills, New York 11746
(212) 715-9100 (631) 242-7384
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. [ ]
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.
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed
Maximum Proposed
Number of Shares Offering Maximum Amount of
Title of Shares to be Price Aggregate Registration
to be Registered Registered Per Share (1) Offering Price Fee
- --------------------------------------------------------------------------------
Class A common 50,000,000 (2) $0.075 $3,750,000 $896.25
stock, par 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 December 11, 2001.
(2) Represents the shares of our Class A common stock that (a) in good faith,
we anticipate we will be required to issue to Beacon Capital, LLC, upon
conversion of $300,000 of our 8% convertible debentures issued to Beacon
Capital, LLC; and (b) are issuable upon exercise of a five-year signing
warrants issued to Beacon Capital, LLC as a commitment fee for purchasing
an aggregate of $300,000 of our 8% convertible debentures.
PROSPECTUS
50,000,000 SHARES
COMMON STOCK
iVOICE, INC.
Beacon Capital, LLC, the selling stockholder, may offer to sell up to
35,250,00 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.
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 ______________, 2002.
TABLE OF CONTENTS
Prospectus Summary...........................................................2
Risk Factors.................................................................2
Use of Proceeds..............................................................8
Market for Common Equity.....................................................8
Management's Discussion and Analysis or Plan of Operation....................9
Description of Business.....................................................13
Management and Executive Compensation.......................................18
Security Ownership of Certain Beneficial Owners.............................18
Certain Relationship and Related Transactions...............................19
Description of Property.....................................................19
Description of Securities...................................................20
Transaction with Selling Stockholders.......................................22
Selling Stockholder.........................................................24
Plan of Distribution........................................................25
Legal Proceedings...........................................................26
Experts and Counsel.........................................................27
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities.................................................................27
Where You Can Find More Information.........................................27
Index to Financial Statements...............................................28
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, 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 agreement we
entered into with Beacon Capital, LLC for the purchase of our 8% convertible
debentures, we are registering the following 50,000,000 shares of our Class A
common stock for resale by Beacon Capital.
Class A common stock Up to 49,500,000 shares of our Class A common stock
offered by Beacon that in good faith, we anticipate we will be required
Capital,LLC to issue upon conversion by Beacon Capital of an
aggregate of $300,000 of our 8% convertible debentures
issued to Beacon Capital.
Up to 500,000 shares of our Class A common stock that
in good faith, we anticipate we will be required to
issue upon exercise of a warrant issued to Beacon
Capital as a commitment fee for the purchase of
$300,000 of our 8% convertible debentures.
Use of Proceeds We will not receive any of the proceeds from the sale
by Beacon Capital of shares of our Class A common
stock. However, upon exercise of the warrants issued
to Beacon Capital, 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 may constitute our principal source of
financing for the foreseeable future.
2
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 September 30, 2001,
our accumulated deficit was $11,526,341. 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 fiscal years 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.
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;
3
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.
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.
4
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.
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.
5
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 Securities and Exchange Commission, or
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 September 30, 2001, Jerome R. Mahoney, our President and Chief
Executive Officer, owned approximately 41.6% 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.
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 September 30, 2001, 58,739,542 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 currently 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
this registration statement, of which this prospectus forms a part, and the
registration statement on Form SB-2 that we filed on September 7, 2001, and
subsequently amended on December 7, 2001, as of December 20, 2001, we had
approximately 280,000,000 shares of Class A common stock reserved for possible
future issuance.
Under our subscription agreements, the number of shares of Class A common
stock issued to the holders of our 8% convertible debentures upon conversion is
based on a formula tied to the market price of our Class A common stock prior
to:
o conversion of $275,000 in convertible debentures plus interest at 8%
issued to certain purchasers under the subscription agreement with
those purchasers; and
o conversion of $300,000 in convertible debentures plus interest at 8%
issued to Beacon Capital, LLC under the subscription agreement with
Beacon Capital, LLC.
6
The lower the average trading price of our common stock at the time of a
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.
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 September 30, 2001 the debenture holders
have converted $305,00 of the principal amount of the debenture and $6,559 of
interest into 2,996,738 shares of our Class A common stock. At September 30,
2001, the remaining outstanding principal balance and unpaid interest amounted
to $194,800 and $76,670 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 September 30, 2001, approximately 9,265,187
additional shares of Class A 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.
7
USE OF PROCEEDS
We will not receive any of the proceeds from the sale by Beacon Capital of
the shares of Class A common stock offered under this prospectus. We will,
however receive funds under the agreement as follows:
o $150,000 from the issuance and sale of 8% convertible debentures to
certain purchasers pursuant to a subscription agreement with Beacon
Capital; and
o any additional amounts we may receive if the warrants we issued to
purchase shares of our Class A common stock are exercised.
We intend to use the net proceeds received in accordance with the foregoing in
the following order of priority:
Expenses of financing (registration, $ 49,000
issuance, and distribution)
Sales and marketing $150,000
Research and development $ 70,000
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) $ 31,000
--------
Total proceeds $300,000
========
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
8
2001
First Quarter $0.4000 $0.0950
Second Quarter $0.1700 $0.0500
Third Quarter $0.0820 $0.0430
(1) Trading prices are only available for the period commencing May 28,
1999.
Our Class A common stock is quoted on the OTC Bulletin Board under the
symbol "IVOC." As of September 30, 2001, there were 416 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 July 18, 2001, our stockholders voted to amend our certificate of
incorporation to effect the following changes:
o to change our name to iVoice, Inc.;
o to increase the authorized number of shares of our 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 us to issue up to 1,000,000 shares of preferred stock
with a par value of $1.00 per share.
On August 24, 2001, we filed a certificate of amendment to our certificate
of incorporation with the Secretary of State of the State of Delaware to effect
the changes voted upon by our stockholders on July 18, 2001.
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.
9
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. In addition, on
December 17, 2001, we agreed to sell to Beacon Capital, and Beacon Capital
agreed to purchase, an additional $150,000 of our 8% convertible debentures on
terms identical to the terms of our initial sale to Beacon Capital of $150,000
of our 8% convertible debentures. As one of the con ditions 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.
In addition, on July 18, 2001, we entered into a subscription with certain
purchasers pursuant to which we agreed to sell and they agreed to purchase, up
to a maximum of $150,000 of our 8% convertible debentures. The convertible
debentures are set to mature on the fifth anniversary of the date of issuance
and are convertible into Class A common stock at the lesser of (i) 140% of the
closing bid price for the Class A common stock on the date we receive the funds
and (ii) 80% of the Market Price (defined as the average of the three lowest
closing bid prices for the Class A common stock). Through November 30, 2001,
holders of our 8% convertible debentures converted $177,100 in principal and
$2,086 in interest into 4,456,073 shares of our Class A common stock.
September 30, 2001 Compared to September 30, 2000
We derive our revenues primarily from 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, a
decrease of $88,300, or 50.4%, and $373,114, or 55.1%, respectively. This
decrease in sales for these three- and nine-month periods is largely
attributable to weak economic conditions resulting in weak demand for our
products, as well as our lack of sufficient capital resources to effectively
develop a successful sales campaign.
We will continue to market and promote our products to telephony reseller
networks in order to leverage those resellers' existing customer bases. On
October 30, 2001, we announced that we had joined the 3Com(R) NBX Solution
Providers Program. This will give us direct access to the fast-growing
networked-telephony market. As we have demonstrated to 3Com that our Speech
Enabled Auto Attendant is fully integratable with the NBX platform, 3Com has
designated as a 3Com NBX Solution Provider and 3Com and iVoice will jointly
market our speech-enabled applications to 3Com NBX authorized resellers.
We also sell directly to end users in locations where an existing
telephone equipment dealer relationship does not exist. On direct sales orders,
we are able to achieve greater profit margins through higher direct selling
prices. Furthermore, at the end of the quarter ending September 30, 2001, we had
totaling $65,000 received follow-up orders for additional product installations
at existing customer locations totaling. 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 we anticipate that
we will fully recognize these contracts in the fourth quarter of 2001. We
believe that the terrorist attacks of September 11, 2001 delayed our receipt and
completion of these orders.
Unless special arrangements are made, we receive 50% of the contract as a
down payment on any product purchased, with the balance due when we finish
installing the product. We accept company checks or Visa/Mastercard. We
recognize our revenue using the percentage-of-completion method. We estimate
installation costs for any given contract by estimating the hardware costs and
how long it will take to configure and install the system. We then recognize
revenues in proportion to the costs incurred as of the reporting date over the
total estimated costs.
10
Gross profit 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. Gross profit depends, 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. Our gross profit
dollar amount 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.
Out 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, we have reduced our working
capital requirements to preserve our cash resources. Pursuant to this policy,
cash operating expenses for the three-month comparative period reflect a
reduction in payroll and related benefits of $149,924, a reduction in travel
costs of $10,033 and a reduction in 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.
In order to preserve our cash, as of September 30, 2001, we had reduced
our staff to 10 full-time employees and 3 part-time employees for a total of 13
individuals. 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.
We incurred interest expense of $36,782 and $107,591 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 our 12% debentures in
2001 as well as the absence in the quarter ending September 30, 2001, of the
amortized debt discount recorded in the quarter 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 our 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.
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
our 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.
11
Our gross profit for the year ended December 31, 2000, decreased to
$420,151 from $496,456 in 1999, a decrease of $76,305, or 15.4%. 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 and 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 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 that 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
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. This raises 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 (1) loans from our
principal stockholder; (2) proceeds of the sale of convertible debentures; (3)
proceeds from the exercise of warrants; and (4) sales of our products. To date,
we have had difficulty in raising sufficient cash to effectively implement our
business plan, and we are unsure whether we can secure sufficient financing to
meet our current operating requirements.
In November 2001, we entered into a subscription agreement with Beacon
Capital, LLC, in which we agreed to issue to Beacon Capital, and Beacon Capital
agreed to purchase $150,000 of our 8% convertible debentures and a warrant to
purchase 250,000 shares of our Class A common stock. In addition, on December
17, 2001, we agreed to issue to Beacon Capital, and Beacon Capital agreed to
purchase an additional $150,000 of our 8% convertible debentures and a warrant
to purchase an additional 250,000 of our Class A common stock,
The proceeds of the 8% convertible debentures purchased by Beacon Capital
will provide only short-term working capital requirements and we will need
additional financing.
We are unsure whether we will be able to secure sufficient financing to
meet out current operating requirements. We are searching for potential merger
candidates with compatible technology and products, which Management feels may
make financing more appealing to potential investors, although we have not
entered into any agreements or letters of intent to, bind us.
12
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."
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.
13
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-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.
14
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.
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:
15
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.
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.
16
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., Phillips
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. 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 September 30, 2001, we employed 13 individuals, consisting of 10
full-time employees and 3 part-time employees. None of our employees are
represented by a labor organization and we are not a party to any collective
bargaining agreements.
17
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.
Other Securities
Annual Restricted Underlying LTIP All Other
Name and Position(s) Year Salary ($) Bonus Compensation Stock Options/SARPs Payouts Compensation
- -------------------- ---- ---------- ----- ------------ ----- ------------- ------- ------------
Jerome R. Mahoney 2000 $226,000 -- -- -- -- -- --
Chief Executive 1999 $120,000 -- -- -- -- -- --
Officer and
President
Joel G. Beagelman (1) 2000 $ 44,000 -- -- -- -- -- --
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 November 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 November 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 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.
18
Name and Address of Amount and Nature Percentage of
Beneficial Owner Title of Class of Beneficial Owner Class (1)
---------------- -------------- ------------------- -------------
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
Joel Beagelman Class A common stock 8,703,184 (2) 4.7%
750 Highway 34
Matawan, NJ 07747
SECURITY OWNERSHIP OF
MANAGEMENT
Jerome R. Mahoney Class A common stock 39,010,056 (3) 39.9%
c/o iVoice, Inc. Class B common stock 354,000 (4) 100%
750 Highway 34
Matawan, New Jersey
07747
(1) Based on 151,266,598 outstanding shares of our Class A common stock and
354,000 shares of our Class B common stock, which Class B shares are
convertible into 35,400,000 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 354,000 shares of Class B common stock held by Mr.
Mahoney that have the voting power of, and may be converted into
35,400,000 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 35,400,000 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 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
$1,574,658.
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.
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.
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In order to reduce our overhead expenses, we are negotiating with the
landlord of our corporate headquarters to reduce our monthly rent for the
balance of our lease term.
DESCRIPTION OF SECURITIES
Pursuant to our certificate of incorporation, as amended on August 24,
2001, we are authorized to issue 600,000,000 shares of Class A common stock, par
value $0.001 per share, 3,000,000 shares of Class B common stock, no par value
and 1,000,000 shares of preferred stock, par value of $1.00 per share.
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 148,808,854 shares of Class A common stock were issued and
outstanding as of November 5, 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 3,000,000 shares authorized and 364,000 shares issued
and outstanding as of August 31, 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.
Preferred Stock
On August 24, 2001, we filed a certificate of amendment to our certificate
of incorporation, authorizing us to issue 1,000,000 shares of preferred stock ,
par value $1.00 per share. As of November 27, 2001, we have not issued any
shares of preferred stock.
Our board of directors is authorized (by resolution and by filing an
amendment to our certificate of incorporation and subject to limitations
prescribed by the General Corporation Law of the State of Delaware) to issue,
from to time, shares of preferred stock in one or more series, to establish from
time to time the number of shares to be included in each series, and to fix the
designation, powers, preferences and other rights of the shares of each such
series and to fix the qualifications, limitations and restrictions thereon,
including, but without limiting the generality of the foregoing, the following:
o the number of shares constituting that series and the distinctive
designation of that series;
o the dividend rate on the shares of that series, whether dividends
are cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on
shares of that series;
o whether that series has voting rights, in addition to voting rights
provided by law, and, if so, the terms of those voting rights;
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o whether that series has conversion privileges, and, if so, the terms
and conditions of conversion, including provisions for adjusting the
conversion rate in such events as our board of directors determines;
o whether or not the shares of that series are redeemable, and, if so,
the terms and conditions of redemption, including the dates upon or
after which they are redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions
and at different redemption dates;
o whether that series has a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount
of that sinking fund;
o the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of iVoice, and
the relative rights of priority, if any, of payment of shares of
that series; and
o any other relative powers, preferences and rights of that series,
and qualifications, limitations or restrictions on that series.
If we liquidate, dissolve or wind up our affairs, whether voluntarily or
involuntarily, the holders of preferred stock of each series will be entitled to
receive only that amount or those amounts as are fixed by the certificate of
designations or by resolution of the board of directors providing for the
issuance of that series.
Options and Warrants
As of September 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 September 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 September 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
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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.
Transfer Agent and Registrar
Our transfer agent and registrar is Fidelity Transfer Company, 1800 South
West Temple, Suite 301, Salt Lake City, UT 84115.
TRANSACTION WITH SELLING STOCKHOLDER
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 a
private transaction 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 an "accredited investor" as defined in Rule 501 of Regulation D under
the Securities Act, and as a result, such offering qualifies as exempt from
registration in accordance with Rule 506 of Regulation D.
The following pages generally describe the transaction we entered into
with Beacon Capital, LLC with respect to the shares of our Class A common stock
registered under this prospectus. The description not intended to be complete
and the discussion in this prospectus is qualified in its entirety by reference
to the documents included or referenced in the exhibits to the registration
statement of which this prospectus forms a part.
SALE OF $300,000 of OUR 8% CONVERTIBLE DEBENTURES
On October 22, 2001, we agreed to terminate the subscription agreement
between Meridian Equities International, Inc. and us dated July, 2001, in which
we agreed to sell to Meridian and Meridian agreed to purchase, $150,000 of our
8% convertible debentures. 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 the same terms as the terms we offered Meridian. In
addition, on December 17, 2001, we agreed to sell to Beacon Capital and Beacon
Capital agreed to purchase an additional $150,000 of our 8% convertible
debentures on the same terms as the initial $150,000 of our 8% convertible
debentures purchased by Beacon Capital. The convertible debentures are set to
mature on the fifth anniversary of the date of issuance.
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Beacon Capital will pay us $300,000 for our 8% convertible debentures when
the following events occur: (1) 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; (2) we have canceled and terminated
our equity-line of credit financing with Swartz Private Equity, LLC; (3) 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; (4) the
par value of our Class A common stock has been changed to $.001; and (5) 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.
As a commitment fee for purchasing our 8% convertible debentures, we will
pay Beacon Capital a placement fee of 10% of the principal amount of those
debentures plus 2% for non-accountable expenses. In addition, Beacon Capital
will receive upon funding warrants to purchase an aggregate of 500,000 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 Beacon Capital.
Beacon Capital has the right to convert all or part of each 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 Beacon Capital 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) and (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 Beacon Capital. 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
(except that there will be no default until the holders of at least 25% of the
aggregate principal amount of the debentures outstanding notify 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.
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If at the time we receive a notice of conversion from Beacon Capital 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 Beacon Capital, the transfer agent fails for any reason to
deliver the shares of Class A common stock to Beacon Capital and Beacon Capital
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 Beacon Capital, we will be required to pay Beacon
Capital, in addition to any other amounts due to Beacon Capital, a buy-in
adjustment amount, equal to the excess, if any, of (x) Beacon Capital'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 Beacon Capital 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 Beacon
Capital. 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 any time 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.
SELLING STOCKHOLDER
The following table sets forth certain information with respect to Beacon
Capital, LLC as of December 12, 2001. Beacon Capital is not an affiliate of ours
or has not had a material relationship with us during the past three years.
Because the conversion rate of the debentures and payment of interest
thereon depends 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 conversion or interest payments and
subsequently offered for sale under this registration statement, cannot be
determined at this time. We have contractually agreed to include in this
prospectus 50,000,000 shares of Class A common stock issuable upon conversion of
the debentures, payment of interest thereunder and exercise of the warrants
issued to the selling stockholder and have disregarded the conversion
limitations for purposes of the table below.
Amount and percentage of
Maximum number of Class A common stock
Number of shares of shares of Class A beneficially owned
Class A common common stock that may after the offering (1)
stock owned be offered under
Name of Selling Stockholder prior to this offering this prospectus Amount Percentage
- --------------------------- ---------------------- -------------------- ------ ----------
Beacon Capital, LLC 0 50,000,000 (2) 0 0%
(1) Assumes that Beacon Capital 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.
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(2) Includes the sum of (a) 49,500,000 shares of our Class A common stock
issuable upon conversion by of $300,000 of our 8% convertible debentures;
and (b) 500,000 shares of our Class A common stock issuable upon exercise
of outstanding warrants issued as a commitment fee for purchasing our 8%
convertible debentures subscription agreement. The shares of Class A
common stock, when issued to Beacon Capital, will be owned beneficially by
Katherine B. Wagner.
PLAN OF DISTRIBUTION
We are registering the resale of our Class A common stock on behalf of
Beacon Capital, LLC. For purposes of the plan of distribution, a "selling
stockholder" includes donees, transferees and pledges selling shares of Class A
common stock received from Beacon Capital after the date of this prospectus.
This prospectus may also be used by transferees of the selling stockholder or by
other persons acquiring shares, including brokers who borrow the shares to
settle short sales of our Class A common stock. If the selling stockholder
transfer any of its shares, each transferee must be bound to the same
restrictions and limitations that apply to the selling stockholder 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
stockholder will bear all brokerage commissions and similar selling expenses
associated with the sale of the shares.
The selling stockholder may offer its 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 stockholder may sell its 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. The selling
stockholder reserves the right to accept, and together with its 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 stockholder may use broker-dealers to sell its 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 stockholder may
allow other broker-dealers to participate in resales.
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The 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 those broker-dealers and any profit
on resale of the shares 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 the selling stockholder might be deemed to be an
underwriter, it will be subject to the prospectus delivery requirements of the
Securities Act. We have informed the selling stockholder that the
anti-manipulative provisions of Regulation M promulgated under the Securities
Exchange Act of 1934 may apply to their sale of our Class A common stock in the
market.
In addition to selling shares of our Class A common stock under this
prospectus, the selling stockholder 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 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
On August 24, 2001, we filed a summons and complaint in the U.S. District
Court against PanAm Wireless, doing business as Celpage, Inc. The complaint
alleges that Celpage breached the software\hardware agreement we entered into
with Celpage by refusing to accept and pay for the balance of a system
installation specified in the agreement. We are seeking damages in the amount of
$245,375, together with interest from January 17, 2001. Our 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.
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 is
claiming that we failed to pay Lighthouse $15,000 for placement services it
performed for us. We have expressed to Lighthouse our interest in negotiating a
payment schedule acceptable to both parties, but we may not succeed in doing so.
We have accrued, and have included in our June 30, 2001, balance sheet, the
amount that we owe Lighthouse.
We have been named as a defendant in a lawsuit brought by Business
Staffing, Inc. filed April 12, 2001. In this lawsuit, the plaintiff claims
non-payment of $37,250 for placement services performed by Business Staffing. 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 claims
non-payment of $6,000 for placement services performed by Lorelei Personnel,
Inc. On November 29, 2001, the plaintiff was awarded $6,000 for placement
services performed, plus legal fees and court costs. We have filed an objection
with the court for the legal fees and court costs awarded in the judgment and
are considering an appeal of the entire decision, however, the judgment will not
have a material adverse effect on our operations.
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EXPERTS AND LEGAL COUNSEL
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.
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.
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 SEC 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 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 SEC 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.
27
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
September 30, 2001
Item Page
- ---- ----
Balance Sheets as of September 30, 2001 (unaudited) .................... F-29
Statements of Operations for the three months ended
September 30, 2001 and September 30, 2000 and the nine
months ended September 30, 2001 and September 30, 2000 (unaudited) ..... F-30
Statements of Cash Flows for the nine months ended June 30, 2001
and 2000 (unaudited).................................................... F-31
Notes to Financial Statements........................................... F-33
28
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, 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.
F-29
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.
F-30
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.
F-31
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.
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.
F-32
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.
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.
F-33
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Earnings Per Share
SFAS No. 128, "Earnings Per Share" requires presentation of basic
earnings per share ("Basic EPS") and diluted earnings per share
("Diluted EPS").
The computation of basic earnings per share is computed by
dividing income available to common stockholders by the weighted
average number of outstanding common shares during the period.
Diluted earnings per share gives effect to all dilutive potential
common shares outstanding during the period. The computation of
diluted EPS does not assume conversion, exercise or contingent
exercise of securities that would have an anti-dilutive effect on
earnings. The shares used in the computations are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2001 2000 2001 2000
------ ------ ------ ------
Basic and Diluted 132,577,874 99,719,095 117,196,212 81,831,436
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.
F-24
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.
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.
F-35
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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
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
========
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
F-36
IVOICE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
NOTE 6 - COMMON STOCK - (Continued)
a) Class A Common Stock - (continued)
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.
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.
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.
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.
50,000,000 SHARES
IVOICE, INC.
COMMON STOCK
PROSPECTUS
______, 2002
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) .........................................$896.25
Accounting fees and expenses ........................................$1,000.00
Legal fees and expenses..............................................$1,000.00
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
- ---- ----------- -------------
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
statement on Form SB-2, filed with the SEC on November 17, 2000).
3.2 Certificate of amendment to the certificate of incorporation of Del
Enterprises, Inc., filed March 14, 2000 (incorporated herein by reference
to Exhibit 3.2 of the registration statement on Form SB-2, filed with the
SEC on November 17, 2000).
3.3 Certificate of merger of International Voice Technologies, Inc. into
Visual Telephone International, Inc., filed May 21, 1999 (incorporated
herein by reference to Exhibit 3.3 of the registration statement on
Form SB-2, filed with the SEC on November 17, 2000).
3.4 Certificate of amendment to the certificate of incorporation of
iVoice.com, Inc., filed April 27, 2000 (incorporated herein by reference
to Exhibit 3.4 of the registration statement on Form SB-2, filed with the
SEC on November 17, 2000).
3.5 Certificate of amendment to the certificate of incorporation of
iVoice.com, Inc., filed August 24, 2001 (incorporated herein by reference
to Exhibit 3.5 of the registration statement on Form SB-2, filed with the
SEC on September 7, 2001).
3.6 Bylaws of Del Enterprises, Inc (incorporated herein by reference to
Exhibit 3.5 of the registration statement on Form SB-2, filed with the SEC
on November 17, 2000).
4.1 Debenture No.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 statement on Form SB-2, filed with the SEC on November 17,
2000).
4.2 Debenture No. 2 issued by iVoice.com, Inc. for $50,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to New Millenium Capital
Partners, LLC on October 29, 1999 (incorporated herein by reference to
Exhibit 4.2 of the registration statement on Form SB-2, filed with the SEC
on November 17, 2000).
4.3 Debenture No. 3 issued by iVoice.com, Inc. for $50,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to AJW Partners, LLC on October
29, 1999 (incorporated herein by reference to Exhibit 4.3 of the
registration statement on Form SB-2, filed with the SEC on November 17,
2000).
4.4 Debenture No. 4 issued by iVoice.com, Inc. for $50,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to AJW Partners, LLC on October
29, 1999 (incorporated herein by reference to Exhibit 4.4 of the
registration statement on Form SB-2, filed with the SEC on November 17,
2000).
4.5 Debenture No. 5 issued by iVoice.com, Inc. for $50,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to Bank Insinger de
Beaufort, N.V. on October 29, 1999 (incorporated herein by reference to
Exhibit 4.5 of the registration statement on Form SB-2, filed with the
SEC on November 17, 2000).
4.6 Debenture No. 6 issued by iVoice.com, Inc. for $100,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to New Millenium Capital
Partners, LLC on October 29, 1999 (incorporated herein by reference to
Exhibit 4.6 of the registration statement on Form SB-2, filed with the SEC
on November 17, 2000).
4.7 Debenture No. 7 issued by iVoice.com, Inc. for $50,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to New Millenium Capital
Partners II, LLC on October 29, 1999 (incorporated herein by reference to
Exhibit 4.7 of the registration statement on Form SB-2, filed with the SEC
on November 17, 2000).
4.8 Debenture No. 8 issued by iVoice.com, Inc. for $50,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to AJW Partners, LLC on October
29, 1999 (incorporated herein by reference to Exhibit 4.8 of the
registration statement on Form SB-2, filed with the SEC on November 17,
2000).
4.9 Debenture No. 9 issued by iVoice.com, Inc. for $25,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to New Millenium Capital
Partners II, LLC on October 29, 1999 (incorporated herein by reference to
Exhibit 4.9 of the registration statement on Form SB-2, filed with the SEC
on November 17, 2000).
4.10 Debenture No. 10 issued by iVoice.com, Inc. for $25,000 in 12% Secured
Convertible Debenture Due December 1, 2000 to AJW Partners, LLC, on
October 29, 1999 (incorporated herein by reference to Exhibit 4.10 of the
registration statement on Form SB-2, filed with the SEC on November 17,
2000).
4.11 Form 8% Convertible Debentures issued by iVoice.com, Inc. for $150,000 due
April 30, 2006 to the purchasers thereof on April 30, 2001(incorporated
herein by reference to Exhibit 4.11 of the registration statement on Form
SB-2, filed with the SEC on September 7, 2001)
4.12 Form 8% Convertible Debentures issued by iVoice.com, Inc. to certain
purchasers thereof for an aggregate of $125,000 (incorporated herein by
reference to Exhibit 4.12 of the registration statement on Form SB-2,
filed with the SEC on September 7, 2001).
4.13* Form 8% Convertible Debentures to be issued by iVoice.com, Inc.
to Beacon Capital, LLC in the amount of $150,000.
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 statement on Form SB-2, filed with the
SEC on November 17, 2000).
10.2 Investment agreement dated August 17, 2000, between iVoice.com, Inc. and
Swartz Private Equity, LLC with exhibits (incorporated herein by reference
to Exhibit 10.2 of the registration statement on Form SB-2, filed with the
SEC on November 17, 2000).
10.3 Registration rights agreement dated August 17, 2000, between iVoice.com,
Inc. and Swartz Private Equity, LLC (incorporated herein by reference to
Exhibit 10.3 of the registration statement on Form SB-2, filed with the
SEC on November 17, 2000).
10.4 Registration rights agreement by and among iVoice.com, Inc. and the
investors signatories thereto dated as of October 28, 1999 (incorporated
herein by reference to Exhibit 10.4 of the registration statement on Form
SB-2, filed with the SEC on November 17, 2000).
10.5 Warrant to purchase 5,490,000 shares of iVoice.com, Inc. issued to Swartz
Private Equity, LLC, dated August 17, 2000 (incorporated herein by
reference to Exhibit 10.5 of the registration statement on Form SB-2,
filed with the SEC on November 17, 2000).
10.6* Subscription agreement between iVoice.com, Inc. and Beacon Capital, LLC,
November 20, 2001, for the purchase of an aggregate of $150,000 of 8%
Convertible Debentures.
10.7* Registration rights agreement between iVoice.com, Inc. and Beacon Capital,
LLC, dated as of November 20, 2001.
10.8* Form of warrant to purchase 250,000 shares of iVoice.com, Inc. to be
issued to Beacon Capital, LLC
10.9* Agreement between iVoice, Inc. and Beacon Capital, LLC, dated as of
December 17, 2001, for the purchase of an additional $150,000 of our 8%
convertible debentures.
10.10 Subscription agreement between iVoice.com, Inc. and the purchaser
signatories thereof, dated April 30, 2001, for the purchase of an
aggregate of $275,000 of 8% Convertible Debentures due April 30, 2001
(incorporated herein by reference to Exhibit 10.9 of the registration
statement on Form SB-2, filed with the SEC on September 7, 2001).
10.11 Registration rights agreement by and among iVoice.com, Inc. and the
investor signatories thereto dated as of April 30, 2001 (incorporated
herein by reference to Exhibit 10.10 of the registration statement on Form
SB-2, filed with the SEC on September 7, 2001).
10.12 Warrant to purchase 171,875 shares of iVoice.com, Inc. issued to Michael
Jacobs of The May Davis Group, Inc., dated April 30, 2001 (incorporated
herein by reference to Exhibit 10.11 of the registration statement on Form
SB-2, filed with the SEC on September 7, 2001).
10.13 Warrant to purchase 171,875 shares of iVoice.com, Inc. issued to Owen May
of The May Davis Group, Inc., dated April 30, 2001 (incorporated herein by
reference to Exhibit 10.12 of the registration statement on Form SB-2,
filed with the SEC on September 7, 2001).
10.14 Consulting agreement entered into on March 15, 2001 by and between
iVoice.com, Inc. and Finnigan USA (incorporated herein by reference to
Exhibit 10.13 of the registration statement on Form SB-2, filed with the
SEC on September 7, 2001).
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-K for the year ending December 31, 2000 (incorporated by reference
and previously filed with the Commission).
13.3 Form 10-QSB for the quarter ending March 31, 2001 (incorporated by
reference and previously filed with the Commission).
13.4 Form 10-QSB for the quarter ending June 30, 2001 (incorporated by
reference and previously filed with the Commission).
13.5 Form 10-QSB for the quarter ending September 30, 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).
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* 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 December 20, 2001.
IVOICE, 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, President December 20, 2001
- ---------------------- and Director -----------------
Jerome R. Mahoney
/s/ Kevin Whalen Chief Financial Officer December 20, 2001
- --------------------- -----------------
Kevin Whalen