As filed with the Securities and Exchange Commission on January 2, 2004
Registration No. ________
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
iVoice, Inc.
(Name of Registrant in Our
Charter)
New Jersey 7373 51-0471976
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Identification No.)
or Organization) Classification Code
Number)
750 Highway 34
Matawan, New Jersey
07747
(732) 441-7700
(Address and Telephone Number of Principal Executive Offices and Principal Place of Business)
Jerome R. Mahoney
750 Highway 34
Matawan, New Jersey
07747
(732) 441-7700
(Name, address and telephone number of agent for service)
Copies of all communications 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: As
soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
============================================================================================================================
Proposed Maximum
Proposed Maximum Aggregate Amount Of
Title Of Each Class Of Amount To Be Offering Price Offering Registration
Securities To Be Registered Registered(1) Per Share (2) Price (2) Fee (2)
- ----------------------------------------------------------------------------------------------------------------------------
Class A common stock, no par value per share 4,700,000,000 $.0029 $13,630,000 $1,102.67
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 4,700,000,000 $.0029 $13,630,000 $1,102.67
============================================================================================================================
(1) These shares consist of (i) 3,693,939,394 shares issuable pursuant to
the terms of a standby equity distribution agreement dated December 31,
2003 between iVoice, Inc. and a certain investor, (ii) 306,060,606
shares issued to such investor and two other investors in connection
with such agreement, and (iii) 700,000,000 issuable upon conversion of
certain shares of our Class B common stock held by another investor.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. For the
purposes of this table, we have used the average of the closing bid and
asked prices as of December 30, 2003.
(3) iVoice, Inc.'s account with the Securities and Exchange Commission has
a credit of $57.10, which should be applied against the Registration
Fee. The remaining $1,045.57 is being submitted simultaneously with the
filing of this Registration Statement.
------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Subject to completion, dated January 2, 2004
iVOICE, INC.
4,700,000,000 Shares of Class A Common Stock
This prospectus relates to the sale of up to 4,700,000,000 shares of
Class A common stock of iVoice, Inc. by the selling stockholders named in this
prospectus. Please refer to "Selling Stockholders" beginning on page 10. We are
not selling any shares of Class A common stock and, therefore, will not receive
any proceeds from the sale of shares of Class A common stock by the selling
stockholders. We will, however, receive proceeds from the sale of shares of our
Class A common stock under a standby equity distribution agreement, also
referred to as an "Equity Line of Credit Agreement," entered into with Cornell
Capital Partners, L.P. on December 31, 2003.
Our shares of Class A common stock are traded on the Over-the-Counter
Bulletin Board under the symbol "IVOC." On December 30, 2003, the last reported
sale price of our Class A common stock was $0.0028 per share. Nevertheless, the
prices at which the selling stockholders may sell the shares offered hereby will
be determined by the prevailing market price for the shares or in negotiated
transactions.
The selling stockholders are:
o Cornell Capital Partners, which intends to sell up to
3,993,939,394 shares of our Class A common stock.
o CapStone Investments which intends to sell up to 3,030,303
shares of our Class A common stock.
o Butler Gonzalez LLP, which intends to sell up to 3,030,303
shares of our Class A common stock.
o Jerome R. Mahoney, our president and chief executive
officer, who intends to sell up to 700,000,000 shares of our
Class A common stock.
Cornell Capital Partners is an "underwriter," within the meaning of the
Securities Act of 1933, in connection with its sale of shares of our Class A
common stock it receives under the Equity Line of Credit Agreement. On the date
of each advance under the Equity Line of Credit Agreement, we will issue to
Cornell Capital Partners shares of Class A common stock at a per share purchase
price equal to the lowest closing bid price of our Class A common stock on the
Over-the-Counter Bulletin Board during the five consecutive trading day period
immediately following our request for such advance, subject to the provisions of
the Equity Line of Credit Agreement. Pursuant to the Equity Line of Credit
Agreement, we (i) agreed to pay to Cornell Capital Partners a cash fee equal to
5.5% of the amount of each advance and (ii) issued to Cornell Capital Partners
300,000,000 shares of our Class A common stock as a one-time commitment fee. The
5.5% cash fee and the one-time commitment fee are underwriting discounts.
We engaged CapStone Investments, a registered broker-dealer, to act as
placement agent in connection with the Equity Line of Credit Agreement. As
payment for its placement agent services, we issued CapStone Investments an
aggregate of 3,030,303 shares of Class A common stock.
Investing in these securities is speculative and involves a high degree
of risk. Please refer to "Risk Factors" beginning on page 4.
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 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 ___________ .
TABLE OF CONTENTS
Prospectus Summary.............................................................1
Risk Factors...................................................................4
Cautionary Note Regarding Forward Looking Statements..........................10
Selling Stockholders..........................................................11
Use of Proceeds...............................................................13
Dilution......................................................................14
Description of Equity Line of Credit..........................................15
Plan of Distribution..........................................................17
Management's Discussion and Analysis or Plan of Operation.....................19
Description of Business.......................................................25
Management....................................................................32
Principal Stockholders........................................................35
Certain Relationships and Related Transactions................................36
Market Price of Common Equity and Other Stockholder Matters...................37
Description of Securities.....................................................38
Experts.......................................................................41
Legal Matters.................................................................41
Disclosure of Commission Position on Indemnification of
Securities Act Liability....................................................41
How To Get More Information...................................................41
Index to Financial Statements................................................F-1
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete and does not contain all the
information you should consider before buying shares of our Class A common stock
in this offering. You should read this entire prospectus carefully, especially
the investment risks discussed under "Risk Factors."
Overview
iVoice, Inc. designs, manufactures, and markets innovative computerized
telephony communications systems and software incorporating speech recognition
technology that streamlines the call handling process. Our speech recognition
software products enables users to communicate more effectively and efficiently
through the integration of speech recognition into their traditional office
telephone systems with call handling applications such as automated attendant,
voice mail, unified messaging, and interactive voice response, or "IVR." Our
products are designed to be "people oriented," with features that can be readily
used without special training or manuals. Our principal speech recognition
applications, Speech-enabled Auto Attendant, iVoiceMail, Unified Messaging, and
iVoice IVR, incorporate this philosophy. Except for iVoice IVR, which is
generally sold directly to end users due to required customization, we market
and promote our speech enabled products through telephony reseller channels and
telephone equipment manufacturer distributor networks. We believe this allows us
to leverage those resellers' existing customer bases. We may, however, sell
direct to end users in geographic locations where an existing dealer
relationship does not exist.
iVoice, Inc., formerly known as Visual Telephone International, Inc.,
was originally incorporated on December 2, 1995 under the laws of the State of
Utah, and subsequently changed its state of incorporation to the State of
Delaware. On April 25, 2003, we formed a wholly owned subsidiary in the State of
New Jersey and on May 5, 2003, we changed our state of incorporation from the
State of Delaware to the State of New Jersey by merging into the newly formed
subsidiary. In September 2003, we announced our intention to distribute to our
stockholders shares of Class A common stock of Trey Resources, Inc., one of our
subsidiaries, and our Automated Reminder business, upon the effectiveness of
required Securities and Exchange Commission filings and final approval by our
Board of Directors of the terms and conditions of the proposed distribution, as
described in the registration statement on Form SB-2 of Trey Resources,
initially filed with the Securities and Exchange Commission on October 3, 2003.
It is intended that Trey Resources will own and operate our Automatic Reminder
software business as an independent publicly traded entity following the
distribution.
Our principal office is located at 750 Highway 34, Matawan, New Jersey
07747. Our telephone number is (732) 441-7700.
Offering
This prospectus relates to the sale of shares of our Class A common
stock by the following selling stockholders:
o Cornell Capital Partners, which intends to sell up to
3,993,939,394 shares of our Class A common stock.
o CapStone Investments, which intends to sell up to 3,030,303
shares of our Class A common stock.
o Butler Gonzalez LLP which intends to sell up to 3,030,303
shares of our Class A common stock.
o Jerome R. Mahoney, our president, chief executive officer,
and chief financial officer, who intends to sell up to
700,000,000 shares of our Class A common stock.
On December 31, 2003, we entered into the Equity Line of Credit
Agreement with Cornell Capital Partners, pursuant to which, we have the right,
upon effectiveness of the registration statement to which this prospectus
relates, to receive advances of up to an aggregate amount of $20.0 million from
Cornell Capital Partners under an equity line of credit (the "Equity Line of
Credit"), and to simultaneously issue shares of our Class A common stock in lieu
of repayment of such advances. The number of shares to be issued to Cornell
Capital Partners in connection with each advance will be determined by dividing
the amount of each advance by the lowest closing bid price of the Class A Common
stock over the five trading days after we provide Cornell Capital Partners
notice requesting such advance. A minimum of seven trading days must pass
between each advance notice. In addition, we have agreed to pay to Cornell
Capital Partners a cash fee equal to 5.5% of the amount of each advance under
the Equity Line of Credit, and issued to Cornell Capital Partners 300,000,000
shares of our Class A common stock as a one-time commitment fee.
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We will not be able to receive more than $350,000 per advance, or more
than an aggregate amount of $1,400,000 in advances in any 30-day period;
however, the aggregate amount of all of the advance notices in the 30-day period
immediately following the effective date of the registration statement to which
this prospectus relates may equal up to a maximum of $3,000,000. Further,
despite our contractual right to receive advances under the Equity Line of
Credit and issue shares of our Class A common stock to Cornell Capital Partners
in connection therewith, we are prohibited under the Equity Line of Credit
Agreement from issuing shares to Cornell Capital Partners which would cause
Cornell Capital Partners to own in excess of 9.9% of our then-outstanding shares
of Class A common stock. Because the volume of trading in our stock has been
volatile, there can be no assurance that Cornell Capital Partners will be able
to sell a sufficient number of shares to allow us to take full advantage of the
Equity Line of Credit.
In connection with the Equity Line of Credit Agreement, we granted
Cornell Capital Partners registration rights with respect to shares issued to it
thereunder, in connection with which we are filing this prospectus and the
registration statement to which this prospectus relates. We are required to use
our best efforts to have the registration statement declared effective by the
Securities and Exchange Commission and are unable to receive advances under the
Equity Line of Credit until the registration statement to which this prospectus
relates has been declared effective. The Equity Line of Credit expires on the
earlier to occur of the date on which Cornell Capital Partners shall have paid
an aggregate of $20.0 million for the shares under the Equity Line of Credit and
the date occurring 24 months after the effective date of the registration
statement to which this prospectus relates; provided, that, Cornell Capital
Partners' obligation to purchase shares under the Equity Line of Credit
Agreement will terminate earlier upon (1) suspension of the effectiveness of the
registrations statement to which this prospectus relates for an aggregate of 50
days or (2) our failure to remedy a material breach of the Equity Line of Credit
Agreement within 30 days of receipt of notice of such breach.
We engaged CapStone Investments, a registered broker-dealer, to act as
placement agent in connection with the Equity Line of Credit. As payment for its
services, we issued CapStone Investments 3,030,303 shares of our Class A common
stock, with respect to which CapStone Investments has "piggy-back" registration
rights.
We have also engaged the law firm of Butler Gonzalez LLP to act as
escrow agent to hold shares of our Class A common stock to be purchased by
Cornell Capital Partners in connection with each advance under the Equity Line
of Credit. As partial payment for its services, we issued Butler Gonzalez LLP
3,030,303 shares of our Class A common stock, with respect to which Butler
Gonzalez LLP has "piggy-back" registration rights. We have also agreed to pay
Butler Gonzalez LLP an escrow fee of $500 per advance under the Equity Line of
Credit.
We are also registering 700,000,000 shares of our Class A common stock
which are issuable upon conversion of certain shares of our Class B common stock
issued to Jerome R. Mahoney in May 1999 in connection with our merger with
International Voice Technologies, Inc.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary financial information should be read in
connection with, and are qualified by reference to, the financial statements and
related notes and "Management's Discussion and Analysis or Plan of Operations"
appearing elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 2002 and 2001 and the balance sheet data as of December
31, 2002 are derived from our financial statements, which have been audited by
Mendlowitz Weitsen LLP, independent auditors. The statement of operations
information the nine-month periods ended September 30, 2003 and 2002 and the
balance sheet data as of September 30, 2003 are derived from our unaudited
financial statements. In the opinion of management, all necessary adjustments,
consisting only of normal recurring accruals, have been included to present
fairly the unaudited interim results when read in conjunction with the audited
financial statements and notes thereto appearing in this prospectus. Historical
results are not necessarily indicative of results that may be expected for any
future period.
For the Nine For the Nine
Months Ended Months Ended For the Year Ended
September 30, 2003 September 30, 2002 December 31, 2002
------------------ ------------------ -----------------
Statement of Operation Data:
Sales, net $ 349,403 $ 457,303 $ 646,560
Cost of sales 132,593 139,774 184,306
Gross profit 216,810 317,529 462,254
Selling, general and administrative expenses 950,638 1,604,370 2,262,627
Loss from operations (733,828) (1,302,719) (1,800,373)
Net loss $(1,215,960) $(1,660,638) $(2,059,460)
Loss per share - basic and diluted $ (0.00) $ (0.01) $ (0.02)
September 30, 2003 December 31, 2002
------------------ -----------------
Balance Sheet Data:
Cash and cash equivalents $ 1,469,229 $ 566,345
Accounts receivable, net 8,793 15,187
Inventory 23,096 31,878
Costs in excess of billings of uncompleted contracts 11,832 23,778
Prepaid expenses and other current assets 405,424 7,558
Total current assets 1,918,374 644,746
Property and equipment, net 48,736 70,186
Software license costs, net 68,100 163,200
Intangible assets, net 105,106 97,486
Deposits and other assets 20,500 7,000
Total assets $ 2,160,816 $ 982,618
Accounts payable and accrued expenses 205,284 360,106
Capital leases payable - current -- 13,928
Due to related parties 430,554 615,259
Convertible debentures 140,000 115,800
Notes payable -- 234,667
Net current liabilities of discontinued operations 517,636 --
Deferred maintenance contracts 29,155 24,156
Total current liabilities 1,322,629 1,363,916
Long-term debt -- --
Total liabilities 1,322,629 1,363,916
Common stock 914,618 518,277
Additional paid-in capital 15,591,520 13,619,554
Treasury stock (28,800) (28,800)
Accumulated deficit (15,707,117) (14,490,329)
Accumulated other comprehensive income 67,966 --
Total stockholders' equity (deficiency) 838,187 (381,298)
Total liabilities and stockholders' deficiency $ 2,160,816 $ 982,618
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RISK FACTORS
Investing in our Class A common stock involves a high degree of risk.
You should carefully consider the risks and uncertainties described below and
the other information in this filing before deciding to purchase our Class A
common stock. If any of these risks or uncertainties actually occur, our
business, financial condition or operating results could be materially harmed.
In that case, the trading price of our Class A common stock could decline and
you could lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE HISTORICALLY LOST MONEY AND MAY CONTINUE TO LOSE MONEY IN THE FUTURE.
We have historically lost money. In the nine months ended September 30,
2003 and the year ended December 31, 2002, we had net losses of $1,215,960 and
$2,059,460, respectively, and $0.00 or $0.02 per share, respectively. Future
losses are likely to occur. Accordingly, we may experience significant liquidity
and cash flow problems because our operations are not profitable. No assurances
can be given that we will be successful in reaching or maintaining profitable
operations.
IF WE CANNOT RAISE ADDITIONAL CAPITAL TO FINANCE FUTURE OPERATIONS, WE MAY NEED
TO CURTAIL OUR OPERATIONS IN THE FUTURE.
We have relied on significant external financing to fund our
operations. Such financing has historically come from a combination of
borrowings and sales of securities from third parties and funds provided by
certain officers and directors. We cannot assure you that financing whether from
external sources or related parties will be available if needed or on favorable
terms. Our inability to obtain adequate financing will result in the need to
curtail business operations. Any of these events would be materially harmful to
our business and may result in a lower stock price. While we have recently
raised sufficient working capital to fund our operations for at least the next
24 months, we expect that we will need to raise additional capital to fund our
future operations.
WE HAVE BEEN THE SUBJECT OF A "GOING CONCERN" OPINION FROM OUR INDEPENDENT
AUDITORS, WHICH MEANS THAT WE MAY NOT BE ABLE TO CONTINUE OPERATIONS.
Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with the year ended December 31, 2002
financial statements, which states that iVoice had losses and negative cash
flows from operations for the years ended December 31, 2002 and 2001 and as of
those dates had negative working capital which raises substantial doubt about
our ability to continue as a going concern. Our financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
This may have an adverse effect on our ability to obtain financing for our
operations and to further develop and market our products.
BECAUSE OUR VOICE-RECOGNITION BUSINESS IS IN ITS EARLY STAGES, WE MAY EXPERIENCE
DIFFICULTIES THAT COULD PREVENT US FROM BECOMING PROFITABLE.
Because voice-recognition products have been available to the general
public for a limited period of time, we may experience 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.
4
We may continue to face these and other difficulties in the future, some of
which may be beyond our control. If we are unable to successfully address these
problems, our business will suffer and our stock price could decline.
IF OUR TECHNOLOGIES AND PRODUCTS CONTAIN DEFECTS OR OTHERWISE DO NOT WORK AS
EXPECTED, WE MAY INCUR SIGNIFICANT EXPENSES IN ATTEMPTING TO CORRECT THESE
DEFECTS OR IN DEFENDING LAWSUITS OVER ANY SUCH DEFECTS.
Voice-recognition products are not currently accurate in every
instance, and may never be. Furthermore, we could inadvertently release products
and technologies that contain defects. In addition, third-party technology that
we include in our products could contain defects. We may incur significant
expenses to correct such defects. Clients who are not satisfied with our
products or services could bring claims against us for substantial damages. Such
claims could cause us to incur significant legal expenses and, if successful,
could result in the plaintiffs being awarded significant damages. Our payment of
any such expenses or damages could prevent us from becoming profitable.
OUR SUCCESS IS HIGHLY DEPENDENT UPON OUR ABILITY TO COMPETE AGAINST COMPETITORS
THAT HAVE SIGNIFICANTLY GREATER RESOURCES THAN WE HAVE.
The call-processing and voice-recognition industries are highly
competitive, and we believe that this competition will intensify. The segment of
the voice-recognition industry that supplies call-processing systems to
businesses is also extremely competitive. Many of our competitors have longer
operating histories, significantly greater financial, technical, product
development and marketing resources, greater name recognition and larger client
bases than we do. Our competitors could use these resources to develop products
that are more effective or less costly than any or all of our products or that
could render any or all of our products obsolete. Our competitors could also use
their economic strength to influence the market to continue to buy their
existing products. Industry analysts recognize Nuance Communications, Inc. and
SpeechWorks International, Inc., a wholly-owned subsidiary of ScanSoft, Inc., as
the market leaders in our industry. Nuance sells software to a broad range of
companies directly and through a channel of resellers. Nuance's five largest
resellers, based on revenue in 2002, were Nortel Networks, Edify (a subsidiary
of S1 Corporation), Motorola, Syntellect and Avaya. Speechworks' clients
include, among others, America Online, Amtrak, AT&T, Aetna, Bell Canada,
Continental Airlines, Ford Motor Company, France Telecom, GMAC Commercial
Mortgage, Jaguar Cars, Microsoft, Neiman Marcus, Nortel Networks, Quantas
Airlines, The Boeing Company, The Hartford Insurance, Thrifty Car Rental,
Ticketmaster, United Airlines, U.S. Postal Service, Wachovia/First Union
Corporation, Yahoo.
PROTECTING OUR INTELLECTUAL PROPERTY IN OUR TECHNOLOGY THROUGH PATENTS MAY BE
COSTLY AND INEFFECTIVE AND IF WE ARE NOT ABLE TO PROTECT OUR INTELLECTUAL
PROPERTY, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AND WE MAY NOT BE
PROFITABLE.
Our future success depends in part on our ability to protect the
intellectual property for our technology through patents. We will only be able
to protect our products and methods from unauthorized use by third parties to
the extent that our products and methods are covered by valid and enforceable
patents or are effectively maintained as trade secrets. To date, we have filed
ten patent applications for internally developed applications with the U.S
Patent and Trademark Office. Of the patents applications we have filed, we
received one patent for our Speech-Enabled Automatic Telephone Dialer in May
2003, and a notice of allowance for a second patent for our Speech-Enabled
Automatic Telephone Dialer in July 2003. No assurances can be given that the
remaining patent applications will be approved.
The protection provided by our patents, and patent applications if issued, may
not be broad enough to prevent competitors from introducing similar products
into the market. Our patents, if challenged or if we attempt to enforce them,
may not be upheld by the courts of any jurisdiction.
Litigation and other proceedings relating to patent matters, whether
initiated by us or a third party, can be expensive and time consuming,
regardless of whether the outcome is favorable to us, and may require the
diversion of substantial financial, managerial and other resources. An adverse
outcome could subject us to significant liabilities to third parties or require
us to cease any related development product sales or commercialization
activities. In addition, if patents that contain dominating or conflicting
claims have been or are subsequently issued to others and the claims of these
patents are ultimately determined to be valid, we may be required to obtain
licenses under patents of others in order to develop, manufacture use, import
and/or sell our products. We may not be able to obtain licenses under any of
these patents on terms acceptable to us, if at all. If we do not obtain these
licenses, we could encounter delays in, or be prevented entirely from using,
importing,
5
developing, manufacturing, offering or selling any products or practicing any
methods, or delivering any services requiring such licenses.
IF WE ARE NOT ABLE TO PROTECT OUR TRADE SECRETS THROUGH ENFORCEMENT OF OUR
CONFIDENTIALITY AND NON-COMPETITION AGREEMENTS, THEN WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY AND WE MAY NOT BE PROFITABLE.
We attempt to protect our trade secrets, including the processes,
concepts, ideas and documentation associated with our technologies, through the
use of confidentiality agreements and non-competition agreements with our
current employees and with other parties to whom we have divulged such trade
secrets. If the employees or other parties breach our confidentiality agreements
and non-competition agreements or if these agreements are not sufficient to
protect our technology or are found to be unenforceable, our competitors could
acquire and use information that we consider to be our trade secrets and we may
not be able to compete effectively. Most of our competitors have substantially
greater financial, marketing, technical and manufacturing resources than we have
and we may not be profitable if our competitors are also able to take advantage
of our trade secrets.
OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND FAILURE TO ADAPT
OUR PRODUCT DEVELOPMENT TO THESE CHANGES MAY CAUSE OUR PRODUCTS TO BECOME
OBSOLETE.
We participate in a highly dynamic industry characterized by rapid
change and uncertainty relating to new and emerging technologies and markets.
Future technology or market changes may cause some of our products to become
obsolete more quickly than expected.
THE TREND TOWARD CONSOLIDATION IN OUR INDUSTRY MAY IMPEDE OUR ABILITY TO COMPETE
EFFECTIVELY.
As consolidation in the software industry continues, fewer companies
dominate particular markets, changing the nature of the market and potentially
providing consumers with fewer choices. Also, many of these companies offer a
broader range of products than us, ranging from desktop to enterprise solutions.
We may not be able to compete effectively against these competitors.
Furthermore, we may use strategic acquisitions, as necessary, to acquire
technology, people and products for our overall product strategy. The trend
toward consolidation in our industry may result in increased competition in
acquiring these technologies, people or products, resulting in increased
acquisition costs or the inability to acquire the desired technologies, people
or products. Any of these changes may have a significant adverse effect on our
future revenues and operating results.
WE FACE INTENSE PRICE-BASED COMPETITION FOR LICENSING OF OUR PRODUCTS WHICH
COULD REDUCE PROFIT MARGINS.
Price competition is often intense in the software market, especially
for computerized telephony software products. Many of our competitors have
significantly reduced the price of their products. Price competition may
continue to increase and become even more significant in the future, resulting
in reduced profit margins.
PRODUCT RETURNS MAY EXCEED ESTABLISHED RESERVES AND AFFECT OUR REVENUES.
Product returns can occur when we introduce upgrades and new versions
of products or when distributors or retailers have excess inventories. Our
return policy allows distributors, subject to various limitations, to return
products in exchange for new products or for credit towards future products. End
users may return our products through dealers and distributors within a
reasonable period from the date of license for a full refund. In addition,
retailers may return older versions of our products. We estimate and maintain
reserves for product returns. However, future returns could exceed the reserves
we have established, which could have a material adverse effect on our operating
results.
IF WE LOSE THE SERVICES OF ANY OF OUR KEY PERSONNEL, INCLUDING OUR PRESIDENT AND
CHIEF EXECUTIVE OFFICER, OUR BUSINESS MAY SUFFER.
We are dependent on our key officer, Jerome R. Mahoney, our chief
executive officer and president, and our key employees in our finance,
technology, sales and marketing operations. The loss of any of our key personnel
could materially harm our business because of the cost and time necessary to
retain and train a replacement. Such a loss would also divert management
attention away from operational issues. In an attempt to minimize the effects of
such loss, we presently maintain a $5,000,000 key-man term life insurance policy
on Mr. Mahoney.
6
IF WE DISTRIBUTE SHARES OF CLASS A COMMON STOCK OF TREY RESOURCES, INC. AND OUR
AUTOMATED REMINDER BUSINESS TO OUR STOCKHOLDERS, OUR PRESIDENT, CHIEF EXECUTIVE
OFFICER AND SOLE DIRECTOR MAY HAVE CONFLICTS OF INTEREST.
After the distribution to our stockholders shares of Class A common
stock of Trey Resources and our Automated Reminder business, as described in the
registration statement on Form SB-2 of Trey Resources, Inc. initially filed with
the Securities and Exchange Commission on October 3, 2003, our president, chief
executive officer and sole director, Jerome R. Mahoney, will serve as Chairman
of the Board of Trey Resources and will have the right to convert $250,000 of
indebtedness into $250,000 shares of Class B Common Stock of Trey Resources,
which will be convertible into an indeterminable number of shares of Class A
Common Stock of Trey Resources. This could create, or appear to create,
potential conflicts of interest when our president, chief executive officer and
sole director is faced with decisions that could have different implications for
Trey Resources. Examples of these types of decisions might include any of the
potential business acquisitions made by us or the resolution of disputes arising
out of the agreements governing the relationship between Trey Resources and us
following the distribution. Also, the appearance of conflicts, even if such
conflicts do not materialize, might adversely effect the public's perception of
us following the distribution.
OUR SOLE DIRECTOR CONTROLS A SIGNIFICANT PERCENTAGE OF OUR CAPITAL STOCK AND HAS
SUFFICIENT VOTING POWER TO CONTROL THE VOTE ON SUBSTANTIALLY ALL CORPORATE
MATTERS.
As of December 18, 2003, Jerome R. Mahoney, our president, chief
executive officer, chief financial officer and sole director, owned
approximately 89.8% of our outstanding shares of shares of our Class A common
stock (assuming the conversion of outstanding shares of Class B common stock and
debt into shares of Class A common stock). Mr. Mahoney is able to influence all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership,
which is not subject to any voting restrictions, could limit the price that
investors might be willing to pay for our Class A common stock. In addition, Mr.
Mahoney is in a position to impede transactions that may be desirable for other
stockholders. He could, for example, make it more difficult for anyone to take
control of us.
RISKS RELATED TO THIS OFFERING
OUR ISSUANCES OF SHARES OF CLASS A COMMON STOCK UNDER THE EQUITY LINE OF CREDIT
LIKELY WILL RESULT IN OVERALL DILUTION TO MARKET VALUE AND RELATIVE VOTING POWER
OF PREVIOUSLY ISSUED CLASS A COMMON STOCK, WHICH COULD RESULT IN SUBSTANTIAL
DILUTION TO THE VALUE OF SHARES HELD BY STOCKHOLDERS PRIOR TO SALES UNDER THIS
PROSPECTUS.
The issuance of our Class A common stock in connection with advances
under the Equity Line of Credit may result in substantial dilution to the equity
interests of holders of our Class A common stock. Specifically, the issuance of
a significant amount of additional shares of Class A common stock will result in
a decrease of the relative voting control of our common stock issued and
outstanding prior to the issuance of our Class A common stock in connection with
the Equity Line of Credit. Furthermore, public resales of our Class A common
stock by Cornell Capital Partners following the issuance of Class A common stock
in connection with the Equity Line of Credit likely will depress the prevailing
market price of our Class A common stock.
EXISTING STOCKHOLDERS LIKELY WILL EXPERIENCE INCREASED DILUTION WITH DECREASES
IN MARKET VALUE OF OUR CLASS A COMMON STOCK IN RELATION TO OUR ISSUANCES OF
SHARES UNDER THE EQUITY LINE OF CREDIT, WHICH COULD HAVE A MATERIAL ADVERSE
IMPACT ON THE VALUE OF THEIR SHARES.
The formula for determining the number of shares of our Class A common
stock to be issued under the Equity Line of Credit is based, in part, on the
market price of the Class A common stock and is equal to the lowest closing bid
price of our Class A common stock over the five trading days after the advance
notice is provided by us to Cornell Capital Partners. As a result, the lower the
market price of our Class A common stock at and around the time we sell shares
under the Equity Line of Credit, the more shares of our Class A common stock
Cornell Capital Partners receives. Any increase in the number of shares of our
Class A common stock issued as a result of decreases in the prevailing market
price would compound the risks of dilution described in the preceding risk
factor.
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
It may be more difficult for us to raise funds in subsequent stock
offerings as a result of the sales of our common stock by Cornell Capital
Partners in this offering. As noted above, sales by Cornell Capital Partners
likely will result in
7
substantial dilution to the holdings and interest of current and new
stockholders. Additionally, as noted above, the volume of shares sold by the
Equity Line Investor could depress the market price of our stock. These factors
could make it more difficult for us to raise additional capital through
subsequent offerings of our common stock, which could have a material adverse
effect on our operations.
THE SELLING STOCKHOLDERS MAY SELL CLASS A COMMON STOCK AT ANY PRICE OR TIME,
WHICH COULD RESULT IN A DECREASE IN THE MARKET PRICE OF OUR CLASS A COMMON STOCK
AND A RESULTING DECREASE IN THE VALUE OF SHARES HELD BY EXISTING STOCKHOLDERS.
Upon effectiveness of this registration statement, Cornell Capital
Partners may offer and sell the shares of Class A common stock received in
connection with advances under the Equity Line of Credit Agreement at a price
and time determined by Cornell Capital Partners. The other selling stockholders
similarly may sell the shares they received in connection with the Equity Line
of Credit Agreement at prices and times determined by them. The timing of sales
and the price at which the shares are sold by the selling stockholders could
have an adverse effect upon the public market for our Class A common stock.
Although Cornell Capital Partners is a statutory underwriter, there is no
independent or third-party underwriter involved in the offering of the shares
held by or to be received by Cornell Capital Partners, and there can be no
assurance that the disposition of those shares will be completed in a manner
that is not disruptive to the market for our Class A common stock.
THE SALE OF OUR STOCK UNDER OUR EQUITY LINE OF CREDIT COULD ENCOURAGE SHORT
SALES BY THIRD PARTIES, WHICH COULD CONTRIBUTE TO THE FURTHER DECLINE OF OUR
STOCK PRICE.
There is an increased potential for short sales of our Class A common
stock due to the sales of shares issued to Cornell Capital Partners in
connection with the Equity Line of Credit, which could materially effect the
market price of our stock. Downward pressure on the market price of our common
stock that likely will result from sales of our Class A common stock by Cornell
Capital Partners issued in connection with the Equity Line of Credit could
encourage short sales of our Class A common stock. A "short sale" is defined as
the sale of stock by an investor that the investor does not own. Typically,
investors who sell short believe that the price of the stock will fall, and
anticipate selling at a price higher than the price at which they will buy the
stock. Significant amounts of such short selling could place further downward
pressure on the market price of our common stock.
BECAUSE THE TRADING MARKET FOR OUR CLASS A COMMON STOCK IS LIMITED, AND WE
CANNOT PREDICT THE EXTENT TO WHICH A PUBLIC TRADING MARKET WILL DEVELOP,
INVESTORS WHO PURCHASE SHARES OF OUR CLASS A COMMON STOCK MAY HAVE DIFFICULTY
SELLING THEIR SHARES.
Prior to this offering, there have been extended periods in our history
where there has been a limited public market for our Class A common stock. There
can be no assurance that an active trading market for our stock will develop or
continue. An absence of an active trading market could adversely affect our
stockholders' ability to sell our Class A common stock in short time periods, or
possibly at all. Our Class A common stock has experienced, and is likely to
experience in the future, significant price and volume fluctuations which could
adversely affect the market price of our stock without regard to our operating
performance. In addition, we believe that factors such as quarterly fluctuations
in our financial results and changes in the overall economy or the condition of
the financial markets could cause the price of our Class A common stock to
fluctuate substantially. Purchasers of our shares of Class A common stock may
have difficulty selling their shares should they desire to do so.
OUR CLASS A COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE
DIFFICULT FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS.
Our Class A common stock is deemed to be "penny stock" as that term is
defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934.
Regulations governing penny stocks require that you receive, prior to a purchase
or sale, a disclosure explaining the penny stock market and associated risks.
These requirements may reduce the potential market for our Class A common stock
by reducing the number of potential investors. This may make it more difficult
for
8
investors in our Class A common stock to sell shares to third parties or to
otherwise dispose of them. This could cause our stock price to decline. Penny
stocks are stock:
o with a price of less than $5.00 per share;
o that are not traded on a "recognized" national exchange;
o whose prices are not quoted on the Nasdaq automated
quotation system (Nasdaq listed stock must still have a
price of not less than $5.00 per share); or
o in issuers with net tangible assets less than $2.0 million
(if the issuer has been in continuous operation for at least
three years) or $5.0 million (if in continuous operation for
less than three years), or with average revenues of less
than $6.0 million for the last three years.
Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor.
THE PRICE YOU PAY IN THIS OFFERING WILL FLUCTUATE AND MAY BE HIGHER OR LOWER
THAN THE PRICES PAID BY OTHER PEOPLE PARTICIPATING IN THIS OFFERING.
The price in this offering will fluctuate based on the prevailing
market price of the Class A common stock on the Over-the-Counter Bulletin Board.
Accordingly, the price you pay in this offering may be higher or lower than the
prices paid by other people participating in this offering.
WE MAY NOT BE ABLE TO ACCESS SUFFICIENT FUNDS UNDER THE EQUITY LINE OF CREDIT
WHEN NEEDED.
We are dependent on external financing to fund our operations. Our
financing needs are expected to be provided from the Equity Line of Credit, in
large part. No assurances can be given that such financing will be available in
sufficient amounts or at all when needed.
WE MAY BE UNABLE TO CONTINUE TO RECEIVE ADVANCES OR ISSUE SHARES UNDER THE
EQUITY LINE OF CREDIT IF THE TRADING VOLUME IN OUR STOCK IS NOT SUFFICIENT TO
ALLOW THE EQUITY LINE INVESTOR TO SELL ITS SHARES.
Despite our contractual right to receive advances under the Equity Line
of Credit and sell shares of our stock to Cornell Capital Partners, we are also
prohibited by the Equity Line of Credit Agreement from receiving advances under
the Equity Line of Credit to the extent any issuance of shares to Cornell
Capital Partners would cause it to own in excess of 9.9% of our then-outstanding
shares of Class A common stock. Because the volume of trading in our stock has
been volatile, there can be no assurance that Cornell Capital Partners will be
able to sell a sufficient number of shares to allow us to take full advantage of
the Equity Line of Credit.
If Cornell Capital Partners is unable to sell all of the shares it
receives in connection with advances made under the Equity Line of Credit, once
the number of unsold shares retained by the Equity Line Investor reaches 9.9% of
the then-outstanding shares of our Class A common stock, we would be unable to
receive advances under the Equity Line of Credit until Cornell Capital Partners
had sold additional shares into the market. Alternatively, our waiting to
receive subsequent advances under the Equity Line of Credit until Cornell
Capital Partners has sold all the shares it receives from us will result in a
delay in our access to the capital available under the Equity Line of Credit
Agreement. These restrictions on our access to the capital available under the
Equity Line of Credit Agreement could have a material adverse effect on our
operations.
THE ISSUANCE OF SHARES OF CLASS A COMMON STOCK UNDER THE EQUITY LINE OF CREDIT
COULD RESULT IN A CHANGE OF CONTROL.
We are registering 4,700,000,000 shares of Class A common stock in this
offering. Of this amount, 300,000,000 shares were issued to Cornell Capital
Partners as a one-time commitment fee in connection with the Equity Line of
Credit Agreement, and up to an aggregate of 3,693,939,394 shares of our Class A
common stock could be purchased by Cornell Capital Partners under the Equity
Line of Credit Agreement, which shares may be resold from time to time. Although
we are prohibited from selling shares to Cornell Capital Partners under the
Equity Line of Credit if such sale would result in Cornell Capital Partners
holding more than 9.9% of the then-outstanding Class A common stock, Cornell
Capital Partners is not prohibited from selling shares of Class A common stock
received in connection with an advance, and then receiving additional shares of
common stock in connection with a subsequent advance. In this way, Cornell
Capital Partners could sell more than 9.9% of the outstanding Class A common
stock to one or more investors in a relatively short time frame while never
holding more than 9.9% at one time. Concentration of ownership of our capital
stock could delay or prevent change of control. At December 18, 2003, the
3,993,939,394 shares of our Class A common stock offered hereby represent 84.6%
of our outstanding Class A common stock.
9
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this prospectus
may contain forward-looking statements. This information may involve known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative of these words or other
variations on these words or comparable terminology.
This prospectus contains forward-looking statements, including
statements regarding, among other things, (a) our projected sales and
profitability, (b) our growth strategies, (c) anticipated trends in our
industry, (d) our future financing plans and (e) our anticipated needs for
working capital. These statements may be found under "Management's Discussion
and Analysis or Plan of Operations" and "Business," as well as in this
prospectus generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this prospectus will in fact occur.
10
SELLING STOCKHOLDERS
The table below sets forth information regarding ownership of our Class
A common stock by the selling stockholders as of December 18, 2003, and the
shares of Class A common stock to be sold by them under this prospectus. The
number of shares beneficially owned is determined under rules promulgated by the
Securities and Exchange Commission, 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 December 18, 2003, through the
exercise or conversion of any stock option, convertible security, warrant or
other right. 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. As of December 18, 2003, 4,719,208,096 shares of our
Class A common stock were outstanding.
Securities Prior to Offering Securities After Offering
---------------------------------------------------------------------- --------------------------
Percentage
Number of Percentage Number of of
Number of Shares of of Shares of Outstanding
Shares of Class Class A Common Outstanding Class A Number of Shares of
A Common Stock Stock Issuable Shares of Common Stock Shares of Class A
Selling Beneficially Under Equity Class A Offered Class A Common
Stockholder Owned Line of Credit Common Stock Hereby Common Stock Stock
----------- -------------- -------------- ------------ ------------ -------------- ----------
Cornell Capital Partners, L.P. 300,000,000(1) 3,693,939,394(2) 45.8%(3) 3,993,939,394 0 0.0%
Newbridge Securities 3,030,303(4) 0 * 3,030,303 0 0.0%
Butler Gonzalez 3,030,303(5) 0 * 3,030,303 0 0.0%
Jerome R. Mahoney 41,278,512,295(6)(7) 0 89.2% 700,000,000 40,578,512,295 89.0%
- -------------------------------------
* Less than 1%
(1) Includes 300,000,000 shares of Class A common stock issued to Cornell
Capital Partners, as a one-time commitment fee under the Equity Line of
Credit Agreement, on January 2, 2004.
(2) The registration statement to which this prospectus relates covers, among
other shares identified herein, up to 3,693,939,394 shares of Class A common
stock issuable under the Equity Line of Credit. Because the specific
circumstances of the issuances under the Equity Line of Credit are
unascertainable at this time, the maximum aggregate number of shares of our
Class A common stock offered by Cornell Capital Partners cannot be
determined at this time, but cannot exceed 3,693,939,394 unless and until we
file additional registration statements registering the resale of the
additional shares.
(3) Cornell Capital Partners is prohibited by the terms of the Equity Line of
Credit Agreement from having shares issued to it under the Equity Line of
Credit to the extent that such issuance would result in Cornell Capital
Partners beneficially owning more than 9.9% of the then-outstanding shares
of our Class A common stock following such issuance. The percentage set
forth is not determinative of Cornell Capital Partners' beneficial
ownership of our Class A common stock pursuant to Rule 13d-3 or any other
provision under the Securities Exchange Act of 1934.
(4) Includes 3,030,030 shares of Class A common stock issued to Newbridge
Securities Corporation, as payment for services as placement agent in
connection with the Equity Line of Credit Agreement, on January 2, 2004.
(5) Includes 3,030,030 shares of Class A common stock issued to Butler Gonzalez,
as partial payment for services as escrow agent in connection with the
Equity Line of Credit Agreement, on January 2, 2004.
(6) Includes (i) 450,000 shares of our Class A common stock held by Mr.
Mahoney's minor children, (ii) 29,506,147,541 shares of our Class A common
stock issuable upon conversion of 1,799,875 shares of our Class B common
stock held by Mr. Mahoney, and (iii) 11,761,114,754 shares of our Class A
common stock issuable upon conversion of a promissory note dated March 20,
2001, made by us in favor of Mr. Mahoney, as amended on August 13, 2002.
Pursuant to such promissory note, Mr. Mahoney may, at any time, convert
amounts owed to him for monies loaned thereunder and interest thereon into
(i) one share of Class B common stock for each dollar owed, (ii) the number
of shares of Class A common stock calculated by dividing (x) the sum of the
amount being prepaid by (y) 50% of the lowest issue price of shares of our
Class A common stock since the first advance of funds under such note, or
(iii) payment of the principal of the note, before any repayment of
interest. At December 18, 2003, the total balance owed to Mr. Mahoney was
$717,428, convertible into 717,428 shares of our Class B common stock, or
11,761,114,754 shares of our Class A common stock.
(7) Since we do not have a sufficient number of authorized shares of Class A
common stock to issue all of the shares of Class A common stock issuable
upon the exercise or conversion of all of our outstanding options, warrants,
debentures and Class B common stock, Mr. Mahoney has agreed that, until such
time as our right to receive advances under the Equity Line of Credit
Agreement expires and until we have increased the number of authorized
shares of Class A common stock in an amount sufficient to issue all shares
of our Class A common stock underlying all then-outstanding options,
warrants, debentures, Class B common stock or other obligations to issue
shares of our Class A common stock, Mr. Mahoney will not convert any of his
shares of Class B common stock or the balance due under his convertible
promissory note, if any such conversion or conversions, in the aggregate,
would result in our issuance to Mr. Mahoney of more than 1,200,000,000
shares of our Class A common stock.
11
None of the selling stockholders has held a position or office, or had
any other material relationship, with us, except as follows:
o Cornell Capital Partners, L.P. is the investor under the Equity
Line of Credit Agreement. Cornell Capital Partners is an
"underwriter" within the meaning of the Securities Act of 1933,
in connection with its sale of shares of Class A common stock it
receives under the Equity Line of Credit Agreement. Under the
Equity Line of Credit Agreement, we (i) agreed to pay to Cornell
Capital Partners a cash fee equal to 5.5% of the amount of each
advance and (ii) issued Cornell Capital Partners 300,000,000
shares of Class A common stock as a one-time commitment fee. The
5.5% cash fee and the one-time commitment fee are underwriting
discounts. Cornell Capital Partners and we entered into an equity
line of credit agreement in June 2002, which was subsequently
amended in February 2003, pursuant to which we raised net
proceeds in an aggregate amount of $4,609,110. The principal
terms of such equity line of credit agreement were substantially
similar to the principal terms of the Equity Line of Credit
Agreement to which Cornell Capital Partners and we are currently
parties. Cornell Capital Partners is also the investor under an
equity line of credit with Trey Resources and, as of December 18,
2003, had outstanding loans to Trey Resources in the aggregate
principal amount of $100,000, which is evidenced by a convertible
debenture. All investment decisions of Cornell Capital Partners
are made by its general partner, Yorkville Advisors, LLC. Mark
Angelo, the managing member of Yorkville Advisors, makes the
investment decisions on behalf of Yorkville Advisors.
o CapStone Investments is an unaffiliated registered broker-dealer
that has been retained by iVoice to act as placement agent in
connection with the Equity Line of Credit with Cornell Capital
Partners, L.P. For its services, CapStone Investments has
received 3,030,303 shares of Class A common stock, which shares
are being registered in this offering. Scott Capozza, principal
of CapStone Investments, makes the investment decisions on behalf
of CapStone Investments.
o Pursuant to the Equity Line of Credit Agreement, Butler Gonzalez
LLP shall act as escrow agent to hold shares of the our Class A
common stock to be purchased by Cornell Capital Partners in
connection with each advance under the Equity Line of Credit. For
its services, we issued Butler Gonzalez LLP 3,030,303 shares of
our Class A common stock and have agreed to pay Butler Gonzalez
LLP escrow fees in the amount of $500 out of the proceeds from
each advance made under the Equity Line of Credit Agreement.
Thomas Butler and David Gonzalez, partners of the law firm of
Butler Gonzalez LLP, make the investment decisions on behalf of
Butler Gonzalez LLP.
o The shares being registered for Jerome R. Mahoney, our president,
chief executive officer and chief financial officer, are issuable
upon conversion of certain shares of our Class B common stock
issued to Mr. Mahoney in May 1999 in connection with our merger
with International Voice Technologies, Inc.
12
USE OF PROCEEDS
This prospectus relates to shares of our Class A common stock that may
be offered and sold from time to time by the selling stockholders. There will be
no proceeds to us from sales by the selling stockholders of shares of Class A
common stock in this offering.
We will receive proceeds from our sale of shares of Class A common
stock to Cornell Capital Partners under the Equity Line of Credit. We could
receive gross proceeds of up to $20.0 million under the Equity Line of Credit,
before payment of fees and expenses. However, we cannot assure you to what
extent, if at all, we will require Cornell Capital Partners to purchase any of
our shares of Class A common stock pursuant to the Equity Line of Credit
Agreement.
The per share purchase price of the shares purchasable by Cornell
Capital Partners in connection with any advance under the Equity Line of Credit
Agreement will be equal to the lowest closing bid price of our common stock on
the Over-the-Counter Bulletin Board over the five trading days immediately
following the date we provide notice requesting such advance. For each advance
under the Equity Line of Credit, we have agreed to pay to Cornell Capital
Partners a cash fee equal to 5.5% of the amount of such advance and Butler
Gonzalez LLP an escrow fee in the amount of $500.
We intend to use net the proceeds from advances under Equity Line of
Credit, if any, for general corporate purposes, provided that, in accordance
with the provisions of the Equity Line of Credit Agreement, none of the net
proceeds will be used to pay any liability incurred by any of our officers,
directors or employees, except for any liability owed to such person for, or
incurred by such person originating from, services rendered to us, or from which
we have indemnified such person.
13
DILUTION
The net tangible book value of iVoice as of September 30, 2003 was
$651,481 or $0.00016 per share of Class A common stock. Net tangible book value
per share is determined by dividing the tangible book value of iVoice (total
tangible assets less total liabilities) by the number of outstanding shares of
our common stock. Since this offering is being made solely by the selling
stockholders and none of the proceeds will be paid to iVoice, our net tangible
book value will be unaffected by this offering. Our net tangible book value,
however, will be impacted by the common stock to be issued under the Equity Line
of Credit. The amount of dilution will depend on the offering price and number
of shares to be issued under the Equity Line of Credit. The following example
shows the dilution to new investors at an offering price of $0.004 per share.
If we assume that iVoice had issued 6,666,666,667 shares of Class A
common stock under the Equity Line of Credit at an assumed offering price of
$0.00300 per share (i.e., the maximum number of shares needed in order to raise
a total of $20.0 million under the equity line of credit, less a 5.5% cash fee
$1,100,000 and offering expenses of $30,000, our net tangible book value as of
September 30, 2003 would have been $19,521,481 or $0.00183 per share. Such an
offering would represent an immediate increase in net tangible book value to
existing stockholders of $0.00167 per share and an immediate dilution to new
stockholders of $0.00117 per share. The following table illustrates the per
share dilution:
Assumed public offering price per share $0.00300
Net tangible book value per share before this offering $0.00016
Increase attributable to new investors $0.00167
-----------
Net tangible book value per share after this offering $0.00183
-----------
Dilution per share to new stockholders $0.00117
===========
The offering price of our Class A common stock is based on the
then-existing market price. In order to give prospective investors an idea of
the dilution per share they may experience, we have prepared the following table
showing the dilution per share at various assumed offering prices:
Assumed No. of Shares to be Dilution Per Share to
Offering Price Issued New Investors
-------------- ------------------- ---------------------
$0.00300 6,666,666,667(1) $0.00117
$0.00600 3,333,333,333 $0.00337
$0.00900 2,222,222,222 $0.00585
$0.01200 1,666,666,667 $0.00854
- ---------------------
(1) This represents the maximum number of shares of Class A common stock
needed to raise $20,000,000 under the Equity Line of Credit at an
assumed offering price of $.00300 per share; however, only
3,693,939,394 shares of our Class A common stock issuable under the
Equity Line of Credit are being registered in this filing and we cannot
require Cornell Capital Partners to purchase additional shares unless
and until such additional shares are registered under the Securities
Act of 1933.
14
DESCRIPTION OF EQUITY LINE OF CREDIT
Summary. On December 31, 2003, we entered into the Equity Line of
Credit Agreement with Cornell Capital Partners, pursuant to which, we have the
right, upon effectiveness of the registration statement to which this prospectus
relates, to receive advances of up to an aggregate amount of $20.0 million from
Cornell Capital Partners under the Equity Line of Credit, and to simultaneously
issue shares of our Class A common stock in lieu of repayment of such advances.
Cornell Capital Partners is a private limited partnership whose
business operations are conducted through its general partner, Yorkville
Advisors, LLC. Cornell Capital Partners is an "underwriter" within the meaning
of the Securities Act of 1933, in connection with its sale of shares of Class A
common stock it receives under the Equity Line of Credit Agreement. On the date
of each advance of funds under the Equity Line of Credit Agreement, Cornell
Capital Partners will purchase shares of Class A common stock at a per share
purchase price equal to the lowest closing bid price of the Class A common stock
on the Over-the-Counter Bulletin Board during the five consecutive trading day
period immediately following our request for such advance, subject to the
provisions of the Equity Line of Credit Agreement. We have agreed to pay to
Cornell Capital Partners a cash fee equal to 5.5% of the amount of each advance
on the date thereof. We also issued Cornell Capital Partners 300,000,000 shares
of Class A common stock as a one-time commitment fee under the Equity Line of
Credit Agreement. The 5.5% cash fee and the one-time commitment fee are
underwriting discounts.
In connection with the Equity Line of Credit, we engaged CapStone
Investments a registered broker-dealer, to act as placement agent, and Butler
Gonzalez LLP, a law firm, to act as escrow agent to hold shares of our Class A
common stock to be purchased by Cornell Capital Partners in connection with each
advance. We issued 3,030,303 shares of our Class A common stock to each of
CapStone Investments, as payment for its services, and Butler Gonzalez LLP, as
partial payment for its services. We also agreed to pay Butler Gonzalez LLP an
escrow fee of $500 per advance under the Equity Line of Credit.
Equity Line of Credit Explained. Pursuant to the Equity Line of Credit,
we may periodically sell shares of Class A common stock to Cornell Capital
Partners to raise capital for general corporate purposes. The periodic sale of
shares is known as an advance. We may request in writing an advance every 7
trading days. A closing will be held no more than 6 trading days after such
written notice at which time we will deliver shares of Class A common stock and
Cornell Capital Partners will pay the advance amount.
We may request advances under the Equity Line of Credit once the
underlying shares are registered with the Securities and Exchange Commission,
provided that certain conditions set forth in the Equity Line of Credit
Agreement are satisfied. Thereafter, we may continue to request advances until
Cornell Capital Partners has advanced $20.0 million or 24 months after the
effective date of the registration statement to which this prospectus relates,
whichever occurs first; provided, that, Cornell Capital Partners' obligation
to purchase shares under the Equity Line of Credit Agreement will terminate
earlier upon (1) suspension of the effectiveness of the registrations statement
to which this prospectus relates for an aggregate of 50 days or (2) our failure
to remedy a material breach of the Equity Line of Credit Agreement within 30
days of receipt of notice of such breach.
The following are some of the other conditions that we must meet before
Cornell Capital Partners is obligated to buy our shares: (1) once declared
effective by the Securities and Exchange Commission, the registration statement
to which this prospectus relates must remain effective; (2) our representations
and warranties given to Cornell Capital Partners under the Equity Line of Credit
Agreement must be true and correct, and we must comply with the provisions of
the agreement; and (3) our Class A common stock must remain traded on the
Over-the-Counter Bulletin Board or another trading market or exchange. There is
no guarantee that we will be able to meet these or any other conditions under
the equity line purchase agreement, or that we will be able to draw on any
portion of the Equity Line of Credit.
Under the terms of the Equity Line of Credit Agreement, we may not
issue or sell (1) any shares of our common stock or preferred stock without
consideration or for a consideration per share less than the highest reported
bid price for our common stock on the date of issuance or (2) issue or sell any
warrant, option, right, contract, call, or other security granting the holder
thereof the right to acquire shares of our common stock without consideration or
for a consideration per share less than the highest reported bid price for the
common stock on the date of issuance, except for common stock issuable pursuant
to our obligations on the date we signed the Equity Line of Credit Agreement,
upon the conversion of stock options, convertible debt or Class B common stock.
The amount of each advance shall be limited to $350,000 and is subject
to an aggregate maximum advance amount of $1,400,000 in any 30-day period.
However, the aggregate amount of all of the advance notices in the initial
30-day period following the effective date of the registration statement to
which this prospectus relates, may equal up to a maximum of $3,000,000. The
amount available under the Equity Line of Credit is not dependent on the price
or volume of our Class A common stock. Cornell Capital Partners may not own more
than 9.9% of our outstanding common stock at any time. Because Cornell Capital
Partners can repeatedly acquire and sell shares, this limitation does not limit
the potential dilutive effect or the total number of shares that Cornell Capital
Partners may receive under the Equity Line of Credit.
We cannot predict the actual number of shares of Class A common stock
that will be issued pursuant to the Equity Line of Credit, in part, because the
purchase price of the shares will fluctuate based on prevailing market
conditions and we have not determined the total amount of advances we intend to
draw. Nonetheless, we can estimate the number of shares of our Class A common
stock that will be issued using certain assumptions. For example, we would need
to issue 6,666,666,667 shares of Class A common stock in order to raise the
maximum amount under the Equity Line of Credit at a purchase price of $0.003, a
recent market price of our Class A common stock.
Of the shares of Class A common stock issuable under the Equity Line of
Credit, we are registering a total of 3,693,939,394 shares in this offering. The
issuance of such shares under the Equity Line of Credit may result in a change
of control. If all or a significant block of these shares are held by one or
more stockholders working together, then such stockholder or stockholders would
have enough shares to assume control of iVoice by electing its or their own
directors. This could happen, for example, if Cornell Capital Partners sold the
shares purchased under the Equity Line of Credit to the same purchaser.
15
Proceeds used under the Equity Line of Credit will be used in the
manner set forth in the "Use of Proceeds" section of this prospectus. We cannot
predict the total amount of proceeds to be raised in this transaction because we
have not determined the total amount of the advances we intend to draw.
We expect to incur expenses of approximately $30,000 consisting
primarily of printing expenses, accounting fees and legal fees incurred in
connection with the registration of the shares of Class A common stock offered
hereby. In addition, we have agreed to pay Cornell Capital Partners a cash fee
equal to 5.5% of the amount of the advance and Butler Gonzalez LLP $500, for
each advance made under the Equity Line of Credit. Such fees are in addition to
our issuances of 300,000,000 shares of Class A common stock to Cornell Capital
Partners, as a one-time commitment fee, 3,030,303 shares of common stock to each
of CapStone Investments and Butler Gonzalez LLP, as payment and partial
payment, respectively, for their services in connection with the Equity Line of
Credit.
16
PLAN OF DISTRIBUTION
This prospectus covers the sale of shares of common stock from time to
time by the selling stockholders named in the table above. The selling
stockholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale. The sales may be made from time to
time on one or more exchanges or in the over-the-counter market or otherwise, at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The selling stockholders may effect
such transactions by selling the shares to or through broker-dealers. The shares
may be sold by one or more of, or a combination of, the following:
o a block trade in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus;
o an over-the-counter distribution in accordance with the
rules of the Over-the-Counter Bulletin Board;
o ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and
o in privately negotiated transactions.
To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan of distribution. In effecting
sales, broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in the resales.
The selling stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with the selling stockholders. The
selling stockholders also may sell shares short and redeliver the shares to
close out such short positions. The selling stockholders may enter into option
or other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus. A selling stockholder may also
loan or pledge the shares registered hereunder to a broker-dealer and the
broker-dealer may sell the shares so loaned or upon a default the broker-dealer
may effect sales of the pledged shares pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholders in amounts
to be negotiated in connection with the sale. Such broker-dealers and any other
participating broker-dealers are deemed to be "underwriters" within the meaning
of the Securities Act of 1933, in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. Cornell Capital Partners is an
"underwriter" within the meaning of the Securities Act of 1933, in connection
with the sale of shares of Class A common stock under the Equity Line of Credit.
In connection with the Equity Line of Credit, we have (i) agreed to pay to
Cornell Capital Partners a cash fee equal to 5.5% of the amount of each advance
on the date thereof, and (ii) issued to Cornell Capital Partners 300,000,000
shares of Class A common stock as a one-time commitment fee. The 5.5% cash fee
and the one-time commitment fee are underwriting discounts. We will not receive
any proceeds from the sale of any of the shares of common stock by the selling
stockholders. We will, however, receive proceeds from the sale of Class A common
stock under the Equity Line of Credit.
Cornell Capital Partners was formed in February 2000 as a Delaware
limited partnership. Cornell Capital Partners is a domestic hedge fund in the
business of investing in and financing public companies. Cornell Capital
Partners does not intend to make a market in our capital stock or to otherwise
engage in stabilizing or other transactions intended to help support the stock
price. Prospective investors should take these factors into consideration before
purchasing our Class A common stock.
Under the securities laws of certain states, the shares of our Class A
common stock may be sold in such states only through registered or licensed
brokers or dealers. The selling stockholders are advised to ensure that any
underwriters, brokers, dealers or agents effecting transactions on behalf of the
selling stockholders are registered to sell securities in all fifty states. In
addition, in certain states the shares of Class A common stock may not be sold
unless the shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
We will pay all the expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
have agreed to
17
indemnify, to the extent permitted by law, Cornell Capital Partners and its
directors, officers, partners, employees, agents, representatives and each
person who controls Capital Partners within the meaning of the Securities Act of
1933, from certain liabilities, including liabilities incurred under the
Securities Act. We estimate that the expenses of the offering to be borne by us
will be approximately $30,000, plus the cash fees equal to 5.5% of the aggregate
gross proceeds received as advances under the Equity Line of Credit. The
estimated offering expenses consist of the Securities and Exchange Commission
registration fee of approximately $1,103, printing expenses of approximately
$3,000, accounting fees of approximately $5,000, legal fees of approximately
$17,000 and miscellaneous expenses of approximately $3,897.
Under applicable rules and regulations under the Exchange Act of 1934,
any person engaged in the distribution of the shares may not simultaneously
engage in market making activities with respect to our common stock for a period
of two business days prior to the commencement of such distribution. In
addition, the selling stockholders will be subject to applicable provisions of
the Exchange Act of 1934 and the associated rules and regulations under the
Exchange Act of 1934, including Regulation M, which provisions may limit the
timing of purchases and sales of shares of our common stock by the selling
stockholders. We will make copies of this prospectus available to the selling
stockholders and have informed them of the need for delivery of copies of this
prospectus to purchasers at or prior to the time of any sale of the shares.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following information should be read in conjunction with the
consolidated financial statements of iVoice and the notes thereto appearing
elsewhere in this filing. Statements in this Management's Discussion and
Analysis or Plan of Operation and elsewhere in this prospectus that are not
statements of historical or current fact constitute "forward-looking
statements."
Overview
To date we have incurred substantial losses and have accumulated a
deficit of $15,707,117 as of September 30, 2003. We have been able to raise
sufficient working capital through advances under an equity line of credit
agreement we entered into in February 2003. Under that agreement, also with
Cornell Capital Partners, we raised the maximum dollar amount allowable
thereunder. As of September 30, 2003, we had working capital of $595,745 and a
cash balance of $1,469,229. We expect that this cash balance, as well as an
additional $2,832,000 in advances that we received under the previous equity
line of credit agreement in October 2003, has provided us with sufficient
resources to continue operating for the foreseeable future.
We have met interoperability standards with several leading PC-based
Private Branch Exchange (or PBX) manufacturers for our award winning product,
iVoice Speech-enabled Auto Attendant. To date, rigorous testing and
compatibility studies have developed into co-marketing arrangements with 3Com,
for its NBX(R) platform, Artisoft for its TeleVantage(R) Communication server,
and AltiGen's AltiServ(R) for its phone systems. These recent platform
integrations add to several others previously completed, including a Siemens
Ready(TM) certification, NEC Fusion Strategic Alliance and Sprint North Supply.
Through these co-marketing arrangements and strategic alliances, we will attempt
to capture significant market share in the business communication solution
market by expanding distribution through these manufacturers' authorized
reseller networks.
We are currently focused on developing our dealer and reseller
channels. We believe we can leverage already existing equipment manufacturers
reseller channels by integrating our speech recognition software directly into
their established revenue producing product lines. Each manufacturer has an
estimated 150-600 authorized dealers and resellers throughout North America. The
recent introduction of an entirely TAPI (Telephone Application Program
Interface) based Speech-enabled Auto Attendant and Name Dialer, allows
integration into different PBX systems without the need for additional hardware
devices. We expect these integration changes to provide for greater appeal to
telephony re-sellers allowing for more economical customer installations with no
change in software pricing our charges for our software.
Unless special arrangements are made, we generally receive 50% of the
contract as a down payment on any product purchased with the balance due upon
completion of the installation. We recognize our revenue using the percentage of
completion method for turnkey systems that require custom configuration by the
customer. We determine the expected costs on a particular installation by
estimating the hardware costs and anticipated labor hours to configure and
install a system. Revenues are then recognized in proportion to the amount of
costs incurred as of the reporting date over the total estimated costs
anticipated. For orders comprised only of software or hardware items, we
recognize revenue upon shipment of those items to the customer. We accept
company checks or Visa/MasterCard.
Research And Development
We focus our research and development efforts on enhancing our existing
product line and the developing new products that integrate with our existing
products. We continually seek to improve our core speech recognition technology
through ease of use, broader application and increased accuracy. We employ
qualified technical personnel to strengthen our product line.
For the nine months ending September 30, 2003, research and development
expenditures consisted of $150,753 in salaries and wages to technical staff and
$5,618 in technical hardware supplies, software tool-kits and technical
publications. In 2002, we spent $165,415 in salaries and wages to technical
staff and $5,013 in technical hardware supplies, software tool-kits and
technical publications. In 2001, research and development expenditures consisted
of $380,692 in salaries and wages to our technical staff and $6,773 for
technical hardware supplies, software tool-kits and technical publications. In
2000, we spent $406,106 in technical salaries and wages and $17,361 for related
supplies, tools and publications. Reductions in amounts expended were deemed
necessary for the conservation of capital resources.
19
Our current research and development efforts have allowed us to
recently release our item locator application that incorporates speech
recognition as its means of interaction and our Speech Enabled Auto Attendant on
the same platform. The "Hear I Am" Voice Item Locator enables individuals to
simply say the name of an item or a product and the Hear I Am Voice Locator
answers back with the location of that item. For example, were a unit installed
in a large retail outlet, an individual could simply say, "beveled tile" and the
Locator would respond "Aisle 7, Shelf Number 2A." The unit is also compatible
with video display screens that exhibit the floor plan and item location. The
Speech Enabled Auto Attendant engages callers in a natural language dialog and
is ready to transfer the caller to an extension at any time. Callers can
interrupt the Auto Attendant at any time by barging in on the prompts and simply
saying the name of the person, or department they wish to speak to.
Our products are designed to be "people oriented," with features that
can be readily used without special training or manuals. In order to remain
competitive, we must continue to fund research and development efforts.
Plant and Equipment
We do not anticipate incurring any significant expenses for the
purchase of plant or equipment over the next 12 months.
Employees
As of September 30, 2003, the Company had 7 full-time employees, 1
part-time employee, 2 part-time consultants for a total of 10 individuals.
Recent Developments
In September 2003, we announced our intention to distribute to our
stockholders shares of Class A common stock of Trey Resources, Inc., one of our
subsidiaries, and our Automated Reminder business, upon the effectiveness of
required Securities and Exchange Commission filings and final approval by our
Board of Directors of the terms and conditions of the distribution, as described
in the registration statement on Form SB-2 of Trey Resources, initially filed
with the Securities and Exchange Commission on October 3, 2003. It is intended
that Trey Resources will own and operate our Automatic Reminder software
business as an independent publicly traded entity following the distribution.
In connection with the proposed distribution to our stockholders of
shares of Class A common stock of Trey Resources and our Automated Reminder
business, we intend to allocate to Trey Resources corporate assets, liabilities
and expenses related to the Automatic Reminder software business, based on an
estimate of the proportion of such amounts allocable to Trey Resources,
utilizing factors such as total revenues, employee headcount and other relevant
factors.
In February 2003, we entered into an administrative services agreement
with Trey Resources, pursuant to which, upon consummation of the proposed
spin-off of Trey Resources, we will provide Trey Resources services in such
areas as information management and technology, sharing of office space,
personnel and indirect overhead expenses, employee benefits administration,
payroll, financial accounting and reporting, claims administration and
reporting, and other areas where Trey Resources may need transitional assistance
and support. The term of the agreement is two years, but may be terminated
earlier under certain circumstances, including a default, and may be renewed for
additional one-year terms. In exchange for our services under the administrative
services agreement, Trey Resources has agreed to pay us an annual fee of
approximately $95,000.
On October 24, 2003, Trey Resources filed with the Securities and
Exchange Commission a registration statement on Form SB-2 relating to the
registration of shares to be issued upon conversion of Trey Resource's
outstanding convertible debentures issued to The May Davis Group in March 2003
and Cornell Capital Partners in September 2003, and pursuant to an equity line
of credit agreement entered between Trey Resources and Cornell Capital Partners
in January 2003. In connection therewith, we agreed to provide a full and
unconditional guaranty of the payment and performance obligations of Trey
Resources, in accordance with the terms of securities purchase agreements
between Trey Resources and the holders of the convertible debentures, which
cannot be discharged, except by complete performance of the obligations under
the securities purchase agreements and the related documents. Under the
guaranty, if Trey Resources defaults in payment or performance of any of its
obligations under the convertible debentures, we are required to pay or perform
such obligations upon two days' written notice or demand by the holders of the
convertible debentures and to take an advance under the Equity Line of Credit on
the day of any such default, in the amount of $250,000 in order to repay to the
principal amount of the convertible debentures plus $50,000 within seven days of
default by Trey Resources. Notwithstanding anything to the contrary, so long as
the outstanding principal amount is zero or would be made zero simultaneously
with the termination, we shall have the right to terminate the guaranty at any
time by providing written notice of such termination.
Results Of Operations
Three and Nine Months Ended September 30, 2003 Compared To September 30, 2002
Revenues are derived primarily from the sale of voice and computer
technology communication systems for small-to-medium sized businesses and
corporate departments. Total revenues for the three and nine months ended
September 30, 2003 were $126,683 and $349,403, respectively, as compared to
$140,614 and $457,303 for the three and nine months ended September 30, 2002, an
decrease of $13,931 or 9.9% and $107,900 or 23.6%, respectively. The decrease in
sales for the three and nine month period reflects continued sluggish demand for
our speech recognition telecommunication products as well as reduced resources
devoted to sales and marketing efforts. The current three-month period ending
September 30, 2003 does however reflect an increase of $52,038 over the
three-month period ending June 30, 2003.
We continue to market and promote our speech enabled products to
telephony reseller networks throughout the US and Canada in order to leverage
those resellers' existing customer bases. We also sells directly to end-users,
systems that require significant customization.
Unless special arrangements are made, we generally receive 50% of the
contract as a down payment on any product purchased with the balance due upon
completion of the installation. We recognize our revenue using the percentage of
completion method for turnkey systems that require custom configuration by the
customer. We determine the expected costs on a particular installation by
estimating the hardware costs and anticipated labor hours to configure and
install a system. Revenues are then recognized in proportion to the amount of
costs incurred as of the reporting date over the total estimated costs
anticipated. For orders comprised only of software or hardware items, we
recognize revenue upon shipment of those items to the customer.
20
Gross margin for the three and nine months ended September 30, 2003 was
$76,762 and $216,810 or 60.6% and 62.1%, respectively, as compared to $102,277
and $317,529 or 72.7% and 69.4% for the three and nine months ended September
30, 2002. The gross margin is dependent, in part, on product mix, which
fluctuates from time to time; complexity of a communication system installation
which determines necessary hardware requirements and may not have a
proportionate relationship with the system selling price; and the ability of our
technology personnel to efficiently configure and install our communications
products. The decreases of $25,515 or 24.9% for the three-month period and
$100,719 or 31.7% for the nine-month periods ending September 30, 2003 were
generally a result of an overall decrease in total sales volume. Decreases in
gross profit percentages reflect a higher percentage of labor costs allocated to
cost of sales.
Total operating expenses decreased, from $344,116 for the three months
ended September 30, 2002 to $290,064 for the three months ended September 30,
2003 a decrease of $54,052 or 15.7%. Specific line items that reflect the
reduction in total operating expenses for the three months ending September 30,
2003, include reduced payroll and benefit costs of $63,092 and reduced promotion
and related travel costs of $17,301, offset by an increase in professional fees
of $34,262. As a result of the downturn in the telecommunications industry over
the past several years, we have effectively reduced our working capital
requirements to preserve our cash resources. Total operating expenses for the
nine months ending September 30, 2003 have been reduced from $1,604,370 to
$950,638 for the nine months ending September 30, 2002, a reduction of $653,732
or 40.7%.
The loss from operations for the three and nine months ended September
30, 2003 was $213,302 and $733,828 compared to $241,839 and $1,286,841 for the
three and nine months ended September 30, 2002, a decrease of $28,537 and
$533,013 in the three and nine month comparative periods.
Interest expense of $211,442 and $297,912 was incurred for the three
and nine-month period ending September 30, 2003 as compared to $47,235 and
$376,611 for the three and nine-month period ending September 30, 2002,
respectively, an increase of $164,207 for the three month comparative periods
and a decrease of $78,699 for the nine-month comparative periods. The current
year quarterly figures reflect $178,721 in discounts on advances received under
our equity line of credit agreement that we entered into with Cornell Capital
Partners in February 2003, $22,795 in discounts related to the beneficial
conversion feature of interest due on our 12% convertible debentures; and $9,926
in interest accrued on amounts outstanding to related parties. The prior
three-month period ending September 30, 2002 reflects $19,881 in discounts on
advances and beneficial conversion features of convertible debentures issued in
2002; $8,320 in interest outstanding convertible debentures; $17,452 in interest
accrued on amounts outstanding to related parties; and $1,582 in finance charges
on capitalized leases payable.
Other income for the three and nine-month period ending September 30,
2003 reflects a realized gain on the sale of securities held for sale. Other
income for the nine months ended September 30, 2002, reflects income of $28,800
for the retention of 600,000 shares of our Class A common stock previously
issued to an employee and charged to compensation expense in a prior period.
These shares were deemed unvested with the terminated employee and were recorded
as treasury stock purchase at a value of $28,800.
Net loss for the three and nine month period ending September 30, 2003
was $547,793 and $1,215,960 as compared to $302,540 and $1,660,638 for the three
and nine months of 2002. The respective changes in net loss for the comparative
periods were a result of the factors discussed above.
Year Ended December 31, 2002 Compared To December 31, 2001
Sales for the year ended December 31, 2002 were $646,560, an increase
of $220,612 or 51.8% as compared to sales of $425,948 for the year ended
December 31, 2001. The increase was largely attributable to an increase in sales
of its Speech Enabled Auto Attendant application. For the years ended December
31, 2002 and 2001, total turnkey and software only sales of our Speech Enabled
Auto Attendant, amounted to $239,921 and $99,536 respectively, an increase of
$140,385 or 141.0%. IVR sales totaled $264,282 for the year ending December 31,
2002 as compared to $205,485 for the year ending December 31, 2001 an increase
of $58,795 or 28.6%. Other revenues from the sale of other software and related
hardware products as well as maintenance, installation and support fees totaled
$142,357 and $120,926 for the years ended December 31, 2002 and 2001
respectively, an increase of $21,431 or 17.7%
21
Our gross profit for the year ended December 31, 2002 was $462,254, an
increase of $203,535 or 78.7% compared to $258,719 for the year ending December
31, 2001. Our gross margin percentage for the twelve months ended December 31,
2002 was 71.5% versus 60.7% for the prior year. This represents a 10.8% increase
over the gross profit percentage recorded for the same prior year period. The
gross margin is dependent, in part, on product mix, which fluctuates from time
to time; complexity of a communication system installation which determines
necessary hardware requirements and may not have a proportionate relationship
with the system selling price; and the ability of our technology personnel to
efficiently configure and install our communications products. The dollar amount
of gross profit has increased as a result of increased revenues for the
comparative periods. The increase in gross margin percentages year over year is
a result of a more favorable product mix.
Operating expenses decreased from $3,035,992 for the year ended
December 31, 2001 to $2,262,627 for the year ended December 31, 2002 a decrease
of $773,365 or 25.5%. Material changes in specific classifications of operating
expenses include a decrease in total payroll and benefit costs of $952,558.
While the current year reflects an income tax reimbursement charge of $45,605
for income tax incurred by Jerome R. Mahoney for sales of Class A common stock
which he sold in order to provide working capital to us, the prior year included
a similar tax reimbursement accrual amounting to $95,100 as well as accruals for
reimbursement to Mr. Mahoney for a charitable donation of his personal holdings
of our Class A common stock valued at $350,000. This reduction in reimbursements
to our president was the most significant decrease in operating expenses year
over year. Also contributing to the decrease in operating expense was a
reduction in professional fees of $151,634; a reduction in rent expense of
$60,900 and a reduction in advertising and promotion of $22,753. Offsetting the
decreases in the specific operating expense items described above were an
increase in charges for the reduction of strike prices on previously issued
warrants, a charge of $175,833 related to the write-down of goodwill and an
increase to bad debt expense of $45,751.
The net loss from operations for the year ending December 31, 2002 was
$1,800,373 compared to $2,777,273 for the year ended December 31, 2001. This
decrease of $976,900 was a result of the increase in net revenues and gross
profit from year to year combined with lower operating expenses in current year
as described above.
Other income for the year ended December 31, 2002, included amounts
received for participation in the New Jersey Technology Tax Certificate Transfer
Program for the sale of our unused state net-operating-loss carry forwards.
After related commissions and expenses related to application submission we
received cash proceeds of $152,473. Also included in other income was income
from forfeited employee stock compensation totaling $28,800. None of these items
were incurred in the year ending December 31, 2001.
Other expense for the year ended December 31 2002 and 2001 was
comprised of interest expense. Total other expense decreased $229,801 to
$440,360 in the year ended December 31, 2002 compared to $670,161 in 2001.
Interest expense reflects interest on our outstanding convertible debentures and
promissory notes, interest on related party and capital lease obligations as
well as discounts charged to expense for the beneficial conversion features
related to our convertible debt obligations.
Net Loss decreased $1,387,974 to $2,059,460 for the year ended December
31, 2002 compared to $3,447,434 for the year ended December 31, 2001 as a result
of the factors discussed above.
Liquidity and Capital Resources
The primary source of financing for us has been through the issuance of
common stock and debt that is convertible into shares of our common stock. An
equity line of credit agreement entered into in February 2003 with Cornell
Capital Partners has provided the primary source of working capital for the last
12 months. Through the date of this filing, we have received total net proceeds
of $4,609,110 representing the maximum gross proceeds under the equity line of
credit agreement of $5,000,000. The difference between the gross and net
proceeds reflects discounts, professional fees and other costs associated with
the registration and administration of the equity line.
In October 1999, we had issued a series of convertible debentures
consisting of ten notes payable totaling $500,000 bearing interest at 12% per
annum and payable on December 1, 2000. The 12% debentures were 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 which shall equal 50%
of the average bid price during the 20 trading days before the conversion date.
As of September 30, 2003, all of the outstanding principal and interest was
repaid through the issuance of Class A common shares in accordance with the
terms described above. Additionally, we settled with an investor without penalty
or additional costs arising from our default under the debenture agreement and
we entered into mutual releases, which prevents either party from any claims
against the other resulting from the debenture agreement.
As of December 19, 2003, we owed our former chief financial officer,
Kevin Whalen, an aggregate amount of $74,000 for unpaid salary. Trey Resources
has agreed to assume this obligation upon consummation of our proposed spin-off
of Trey Resources.
During the period from June 2000 through December 2002, Mr. Mahoney
sold personal holdings of shares of our Class A common stock and loaned the
proceeds of these sales to us to fund our working capital requirements. A
promissory note made by us in favor of Mr. Mahoney with respect to such loans
was executed on March 20, 2001 and amended on August 13, 2002. At December 18,
2003, the total balance owed to Mr. Mahoney was $717,428. Trey Resources has
agreed to assume $250,000 of such outstanding indebtedness upon consummation of
our proposed spin-off of Trey Resources.
As of September 30, 2003, we had have incurred substantial losses and
had accumulated a deficit of $15,707,117. However, we have been able to raise
sufficient working capital using the equity line of credit with Cornell Capital
Partners. As of September 30, 2003 we had working capital of $595,745 and a cash
balance of $1,469,229. This cash balance as well as an additional $2,832,000 in
advances under the equity line, received in October 2003, provides us with
sufficient resources to continue operating for the next 24 months.
In addition to any advances we receive under the Equity Line of Credit
Agreement dated as of December 31, 2003, we may seek to raise additional funds
through the issuance of equity in the near future to facilitate certain
transactions that
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may require capital resources that exceed our current resources. There is no
assurance that any new financing arrangement will enable us to raise the
requisite capital.
During the nine months ended September 30, 2003, we had a net increase
in cash of $919,281. Our sources and uses of funds in such nine months were as
follows:
Cash used by operating activities. We had cash used by operating
activities of $693,108 in the nine months ended September 30, 2003. Cash
provided by operating activities consisted of non-cash expenses for depreciation
and amortization of $188,887, an increase in accounts payable and accrued
expenses of $268,109 and changes in other operating assets and liabilities of
$65,856. These items were offset by a net loss of $1,215,960 and an increase in
accounts receivable of $20,803.
Cash used in financing activities. We had cash provided by financing
activities of $1,675,328, consisting primarily of the issuance of common stock
of $1,873,923 and the sale of convertible debentures of $140,000. These amounts
were partially offset by the repayment of obligations of $338,595.
During the year ended December 31, 2002, we had a net increase in cash
of $480,802. Our principal sources and uses of funds in the year ended December
31, 2002, were as follows:
Cash used by operating activities. We used $351,840 in cash for
operating activities in the year ended December 31, 2002 a decrease of $510,641
compared to $872,481 in cash used for operating activities in the year ending
December 31, 2001. This reduction was primarily due to a reduction in our
overall operating budget that included substantial reductions in staff and rent.
These operating cuts reduced our operating expenses in the current year by
$773,367.
Cash used in financing activities. Financing activities in the year
ended December 31, 2002 provided a total of $838,311 in cash. This total
consisted primarily of the issuance of common stock of $253,662, collections of
stock subscriptions of $317,000; the sale of convertible debentures of $255,000
and advances under the equity line of credit with Cornell Capital Partners of
$470,000. These amounts were partially offset by the repayment of related party
obligations of $117,000, repayment of notes payable and convertible debentures
of $305,333 and repayment of capital leases totaling $35,018.
Other than the existing Equity Line of Credit, no other financing
agreement is currently available to us. In light of this, it should be noted
that there is no assurance that the Equity Line of Credit will enable us to
raise the requisite capital needed to implement our long-term growth strategy or
that alternative forms of financing will be available.
Effect Of Recent Accounting Pronouncements
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective immediately for all new variable
interest entities created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1, 2003, the provisions
of FIN 46 must be applied for the first interim or annual period ending after
December 18, 2003. The adoption of this standard did not have a material impact
on our financial position and results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." We are
required to adopt this statement by the first quarter of fiscal 2004. Certain
provisions of this statement relating to SFAS No. 133 implementation issues that
have been effective for prior fiscal quarters will continue to be applied in
accordance with their respective effective dates. We do not expect that the
adoption of SFAS No. 149 will have a material impact on our financial position,
results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for us on September 1, 2003. Although we are authorized to
issue preferred stock, to date, no shares have been issued or are outstanding
however, we do
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not expect that the adoption of SFAS No. 150 will have a material impact on our
financial position, results of operations or cash flows.
Critical Accounting Policies
Below is a description of those accounting policies that we view as
most critical in the preparation of our financial statements.
Revenue Recognition. We obtain our income primarily from the sale of
our voice recognition software applications and communication systems. Revenue
for systems that 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. We recognize revenue from support services at the
time the service is performed or over the period of the contract for
maintenance/support.
With respect to the sale of software license fees, we recognize revenue
in accordance with Statement of Position 97-2, Software Revenue Recognition (SOP
97-2), as amended, and generally recognizes revenue when all of the following
criteria are met: (1) persuasive evidence of an arrangement exists generally
evidenced by a signed, written purchase order from the customer, (2) delivery of
the software product on Compact Disk (CD) or other means to the customer has
occurred, (3) the perpetual license fee is fixed or determinable and (4)
collectibility, which is assessed on a customer-by-customer basis, is probable.
With respect to customer support services, upon the completion of one
year from the date of sale, considered the warranty period, we offer customers
an optional annual software maintenance and support agreement for subsequent
one-year periods. Sales of purchased maintenance and support agreements are
recorded as deferred revenues and recognized over the respective terms of the
agreements.
Through the nine-month period ending September 30, 2003, approximately
86.7% of the revenues reported by us were derived from the sale of our voice
recognition software applications and communication systems. 12.6% of the
reported revenues have been derived from the sale of optional customer support
services with the balance of 0.7% being miscellaneous receipts and
reimbursements. Generally, we do not license our software in multiple element
arrangements whereby the customer purchases a combination of software and
maintenance. In a typical arrangement, software maintenance services are sold
separately from the software product; are not considered essential to the
functionality of the software and are purchased at the customer's option upon
the completion of the first year licensed.
Software License Cost. Software license costs are recorded at cost,
which approximates fair market value as of the date of purchase. These costs
represent the purchase of various exploitation rights to certain software,
pre-developed codes and systems developed by 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. We have adopted SFAS No. 121. The carrying value of
software license costs are regularly reviewed by us and a loss would be
recognized if the value of the estimated un-discounted cash flow benefit related
to the asset falls below the unamortized cost. No impairment loss was recognized
as of December 31, 2002.
Purchased software and capitalized software development costs are
amortized using the greater of the revenue method or the straight-line method
with useful lives ranging from three to five years. Amortization expense is
classified in costs of revenue on the statements of operations. Our products
operate on or with other third party software and operating systems. When
determining the useful life of a product we consider factors such as the current
state of the technology, operating systems on which our products run,
competitive products and the potential use of our products by the end user.
Technological advances in software operating systems and other software
technologies on which our products rely may shorten the expected life cycle of
our products. We make an assessment of the useful lives of our products at each
balance sheet date. If that assessment determines that a shortened product life
has occurred, we amortize the remaining unamortized balances over the new
estimated useful life of the product and provide disclosure regarding a change
in estimate in the notes to the financial statements pursuant to Accounting
Principles Board Opinion No. 20 "Accounting Changes."
We evaluate the estimated net realizable value of each software product
at each balance sheet date. The estimate is based on historical and forecasted
net revenue for each product. Net revenue is the product revenue reduced by the
estimated costs of revenue and, if in development, the estimated cost to
complete the development of the product. When the net book value exceeds the
estimate of net realizable value, we record a write-down to net realizable value
on each product affected. Our ability to achieve our revenue forecast is subject
to judgment, competitive pressures, market and economic conditions and our
ability to successfully license our products to our customers. A change in one
or more of these factors may influence management's estimates. Accordingly,
currently estimated net realizable values are subject to being reduced resulting
in corresponding charges for impairment in the future.
Debt Issue Costs. Debt issue costs represent the estimated cost of the
conversion discount feature relating to the issuance of our convertible
debentures issued in previous periods. In previous years, these costs were
amortized and charged to interest expense over the life of the debt. During the
year ended December 31, 2001, we charged to expense the fair value of the
beneficial conversion features of the convertible debt as measured at the date
of issuance in accordance with EITF Issue 98-5. Any newly incurred debt issue or
financing costs are charged to expense as incurred. The switch to this method of
accounting did not have a material affect on our financial statements.
Long-Lived Assets. SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," requires that
long-lived assets and certain identifiable intangibles to be held and used or
disposed of by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. We have adopted this statement and determined that an impairment
loss should not be recognized for applicable assets of continuing operations as
of the period ending December 31, 2002. We will review our assets again at
December 31, 2003 to determine if any impairment of our long-lived assets has
been sustained.
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DESCRIPTION OF BUSINESS
Backround
Our current corporate configuration is the result of a number of
separate transactions over the past several years.
On February 26, 1996, Select Resources, Inc., a publicly held Delaware
company, and three of its principal stockholders entered into a stock exchange
agreement with Visual Telephone of New Jersey, Inc., a privately held New Jersey
corporation, and its two stockholders pursuant to which Select Resources
acquired all of the outstanding shares of Visual Telephone and spun-off Select
Housing Associates, Inc., its wholly owned subsidiary. The aim of this agreement
was to provide for a more profitable business direction for Select Resources.
Pursuant to the agreement, Select Resources agreed to issue 5,611,000 shares of
its capital stock to one of the two stockholders of Visual Telephone and to
transfer one-half of the shares of Select Housing Associates to the other
stockholder of Visual Telephone, namely Joel Beagelman, in return for all of the
outstanding shares of Visual Telephone. In addition, Select Resources
transferred the other half of the shares of Select Housing Associates to Gary W.
Pomeroy and Brad W. Pomeroy, two of Select Resources' three principal
stockholders, in return for the cancellation of 1,111,000 shares of common stock
of Select Resources owned by them. At the time of the stock exchange agreement,
Mr. Beagelman, Gary W. Pomeroy and Brad W. Pomeroy were directors of Select
Resources. On February 26, 1996, the stock exchange agreement was approved by
the consent of stockholders a majority of the outstanding shares of common stock
of Select Resources. Visual Telephone then merged into Select Resources, which
changed its name to that of the subsidiary.
In July 1996, Visual Telephone acquired 100% of the outstanding common
shares of Communications Research Inc., or "CRI," for $50,000 in cash, $150,000
in notes and 1,000,000 shares of Visual Telephone. CRI designs, develops, sells,
and supports PC-based communication systems that transmit data, voice and
full-motion video.
On May 21, 1999, International Voice Technologies, Corp., a Delaware
corporation, merged with and into Visual Telephone (which in the interim had
changed its name to Visual Telephone International, Inc.), with Visual Telephone
surviving. Simultaneous with the merger, Visual Telephone changed its name to
iVoice.com, Inc., and it was planned that Visual Telephone would spin off CRI
prior to the merger with International Voice Technologies. Our current business
is essentially that of International Voice Technologies, and this merger was
aimed at giving that business better access to the capital markets by merging it
into a public company. In addition, we changed our OTC Bulletin Board trading
symbol to "IVOC."
In consideration for the merger with International Voice Technologies,
Jerome R. Mahoney, the sole stockholder of International Voice Technologies,
received 10,000,000 shares of our Class A common stock and 700,000 shares of our
Class B common stock. In addition, the two controlling stockholders of Visual
Telephone sold 300,000 shares of Class B common stock to Mr. Mahoney and
concurrently canceled a total of 2,000,000 shares of their Class A common stock.
The consulting firm of Toby Investments was awarded 2,000,000 shares of common
stock for consulting services on the transaction. The agreement also provided
that certain of the assets of Visual Telephone would be transferred to Visual
Telephone's wholly owned subsidiary, CRI. The merger was accounted for in its
financial statements as a public shell merger. In a public shell merger the
stockholders of the operating company, in this case International Voice
Technologies, become the majority owners of the shell company, in this case
Visual Telephone, and the stockholders of Visual Telephone, the public shell
company, become minority stockholders in International Voice Technologies, the
operating company.
As for the CRI spin-off, on September 18, 2000, CRI filed a
registration statement to provide for the distribution of its shares to Visual
Telephone's stockholders as of May 21, 1999. Visual Telephone's stockholders
received one CRI share for every four shares owned in Visual Telephone. The
principal stockholders, officers and directors of Visual Telephone were Carl
Ceragno and Joel Beagelman. Mr. Ceragno remained with CRI as its President and
Mr. Beagelman entered into a consulting agreement with us.
On April 24, 2000, we entered into an agreement and plan of
reorganization with all the stockholders and ThirdCAI, another shell company
that was a reporting company under the Securities Exchange Act of 1934. In this
transaction, which took place by means of a short-form merger, with ThirdCAI's
name being changed to iVoice, we acquired all the issued and outstanding shares
of ThirdCAI in exchange for $150,000, and a finder's fee paid to Corporate
Architect, Inc., consisting of 50,000 shares of our Class A voting common stock.
The purpose of this transaction was to enable our business to be conducted by a
reporting company, as pursuant to the "eligibility rule" adopted by the National
Association of Securities Dealers, Inc., or "NASD," as only reporting companies
may continue to have stock quoted on the OTC Bulletin Board.
25
On April 25, 2003, we formed a wholly owned subsidiary in the State of
New Jersey and on May 5, 2003, we changed our state of incorporation from
Delaware to New Jersey by merging into the newly formed New Jersey subsidiary.
In September 2003, we announced our intention to distribute to our
stockholders shares of Class A common stock of Trey Resources, Inc., one of our
subsidiaries, and our Automated Reminder business, upon the effectiveness of
required Securities and Exchange Commission filings and final approval by our
Board of Directors of the terms and conditions of the proposed distribution, as
described in the registration statement on Form SB-2 of Trey Resources,
initially filed with the Securities and Exchange Commission on October 3, 2003.
It is intended that Trey Resources will own and operate our Automatic Reminder
software business as an independent publicly traded entity following the
distribution.
Our principal offices and facilities are located at 750 Highway 34,
Matawan, NJ 07747 and our telephone number is (732) 441-7700. Our common stock
is quoted on the OTC Bulletin Board under the trading symbol "IVOC."
Our Business
We design, manufacture, and market innovative voice and computer
telephony communications systems for businesses and corporate departments with
as many as 20,000 telephones. Our speech recognition software products enable
our customers to communicate more effectively by integrating their traditional
office telephone systems with automated attendant, voice mail, unified
messaging, and interactive voice response, or "IVR," functions. Our products are
designed to be "people oriented," with features that can be readily used without
special training or manuals. Our principal products, Speech-enabled Auto
Attendant, iVoiceMail, Unified Messaging, and iVoice IVR, incorporate this
philosophy. We also design, market, and support voice recognition products.
Except for iVoice IVR, which is generally sold directly to end users due to
required customization, we market and promote our speech enabled products
through telephony reseller channels and telephone equipment manufacturer
distributor networks. This allows us to leverage those resellers' existing
customer bases. We may, however, sell directly to end users in geographic
locations where an existing dealer relationship does not exist. On direct sales
orders, iVoice is able to achieve greater profit margins through higher direct
selling prices.
Products and Services
Our products use standard open-architecture personal computer platforms
and Microsoft Windows 2000, NT Server and NT Workstation operating systems,
thereby facilitating the rapid adoption of new PC-based technologies while
reducing overall product costs. We concentrate our development efforts on
software rather than hardware because we believe that the most efficient way to
create product value is to emphasize software solutions that meet customers'
needs. We have traditionally used standard PC-related hardware components in our
products, in part, to limit our need to manufacture components. However, we have
recently developed our software for use with Telephony Application Program
Interface or TAPI. The use of TAPI allows us to integrate into different
telephone private branch exchange systems or PBX's, eliminating the need for
additional external hardware. Our manufacturing operations consist only of
the installation of our proprietary software and a voiceboard, if required, into
a fully assembled PC system. We obtain from suppliers components such as
PCs, circuit boards, application cards, faxboards, and voiceboards.
Our products include the iVoice Speech Enabled Auto Attendant allowing
businesses to incorporate speech recognition into their telephone systems
without duplicating their current voicemail applications. The Speech Enabled
Auto Attendant uses a customized dictionary of names and extension numbers that
enables callers to contact their party using their spoken voice. Also, one of
our principal products is iVoice IVR (interactive voice response), described
below.
Except for iVoice IVR that is generally sold directly to end users due
to requested customization, we market and promote our products to telephony
reseller and distributor networks. This allows us to leverage those resellers'
existing customer bases. Our flagship product is iVoice IVR, an application
generator that allows full connectivity to many databases, including Microsoft
Access, Microsoft Excel, Microsoft Fox Pro, DBase, Btrieve, and Paradox, or to
standard text files. iVoice IVR can be used to read information from, and write
information to, databases, as well as query databases and return information.
iVoice IVR performs over 40 different customizable commands. Properties can be
set up for each command, as if the commands were being executed manually. iVoice
IVR links a phone system to a database to provide customers with 24-hour
immediate access to account information, via telephone. With iVoice IVR,
polished IVR applications are quick and easy to install. No knowledge of
computer programming and minimal database knowledge is needed. iVoice IVR will
execute any created application when a caller dials in. Using DTMF (touch-tone
telephones) or speech activation allows callers to interact with the system.
Advanced database technology permits reading, writing, appending, searching and
seeking database information. A user can record product inventory, set up games,
keep a record of patients or customers, and perform other applications. The
advanced, innovative technology, backed by a simple, easy-to-use drag-and-drop
interface, makes writing applications simple.
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The iVoice IVR also incorporates an Internet access tool, which can be
either connected to the IVR system or run as a standalone. This IVR system also
has a graphical user interface and provides for Internet access to the system.
Once logged onto the Internet, a user can gain access to the IVR system by
clicking on a hypertext link for the user's browser. Upon entering the IVR
system, the response prompts are in text form rather than voice form. The user
can enter selections and get information by clicking on icons or choosing items
from menus. Some of the Internet applications available are order processing and
transactions, database integration, questions and queries, account status,
delivery information, funds transfer, and claims information.
The following is a list of Speech-enabled applications which iVoice has
developed and are available for sale:
iVoice IVR (Interactive Voice Response). Enables a caller to
obtain requested information in voice form from a local or
non-local database. Examples of IVR range from simply
selecting announcements from a list of options stored in the
computer (also know as Audio Text) to more complex interactive
exchanges such as querying a database for information. iVoice
IVR allows information in PC databases to be accessed from a
standard touch-tone telephone using a telephone keypad or
voice commands. iVoice IVR is sold as a customized turnkey
system or as an Application Generator giving the end user the
ability to develop their own customized IVR application.
Speech Enabled Auto Attendant. Any business can improve and
speed up service for its customers by enabling them to reach
the desired contact person or department by simply saying the
appropriate name. Our speech recognition system is accurate
and reliable. Callers no longer need to punch in letters on a
telephone keypad.
Unified Messaging. With Unified Messaging, e-mail, voice mail
and faxes can be handled through a desktop PC or the
telephone. All messages can be viewed and acted upon in order
of importance via Microsoft Outlook or a Web Browser. E-mail
can also be retrieved over the phone, using text-to-speech,
and responded to with a voice message including directed to a
fax machine.
iVoiceMail. This allows a caller to store voice messages and
reply via the computer. This method allows the caller to
conduct a dialogue with another person without having to be on
the same line at the same time. As with most voice mail
systems, the caller can record, store and delete messages and
direct messages to multiple subscribers.
Hear I Am Locator. This enables individuals to simply say the
name of an item or a product and the Hear I Am Voice Locator
answers back with the location. For example, were a unit
installed in a large retail outlet, an individual could simply
say, "Beveled Tile" and the Locator would respond "Aisle 7,
Shelf Number 2A." The unit is also compatible with video
display screens that exhibit the floor plan and item location.
iVoice Name Dialer is an automatic phone dialing system. The
system imports the necessary contact information for dialing
(names and phone numbers) from a variety of sources including,
but not limited to, Microsoft Outlook, ACT, and Gold Mine. The
imported names are then transcribed, through software, into a
set of phonemes to be used for voice recognition. When the end
user picks up the handset, the call is automatically
transferred through the PBX, to the Name Dialer software
running on a server machine. The user simply says the name of
the person (whose name came from the contact list) and the
Name Dialer places the call.
iVoice Speech Directory allows employees to pick up their
phone, say the name of a co-worker they wish to speak to, and
the Speech Directory will transfer the call. Just by speaking
the person's name, the Speech Directory can also return an
internal pager number, cell numbers and email listings through
a voice activated telephony directory.
Interactive Voice Response/Web Applications. Using the
Internet to access the IVR system, you "DIAL" the system by
clicking on a hypertext link from your browser. The system
responds the same way, except in text form, and not the normal
voice prompt.
27
You may enter selections and get information by clicking on
icons or choosing items from menus.
We are currently working on upgrading and enhancing existing products,
with the aim of adding to some products, a full toolkit that would enable
natural language recognition allowing the systems to understand spoken sentences
rather than just single words.
Automatic Reminder Business
In September 2003, we announced our intention to distribute to our
stockholders shares of Class A common stock of Trey Resources, Inc., one of our
subsidiaries, and our Automated Reminder business, upon the effectiveness of
required Securities and Exchange Commission filings and final approval by our
Board of Directors of the terms and conditions of the distribution, as described
in the registration statement on Form SB-2 of Trey Resources, initially filed
with the Securities and Exchange Commission on October 3, 2003. It is intended
that Trey Resources will own and operate our Automatic Reminder software
business as an independent publicly traded entity following the distribution.
The Automatic Reminder is a Microsoft Windows-based software
application that automatically initiates a telephone call to a client or patient
to verify a set appointment or reservation time. The information necessary to
place the call is retrieved from an electronic database of information that
includes the necessary information to place the call such as the client's or
patient's name, phone number and previously set appointment time and a
pre-recorded message or instruction that is played back to the call recipient.
Using a graphical user interface, Automatic Reminder can be easily configured to
call a user's clients or patients one time or multiple times, on different
phones, in different languages, and at different times. Automatic Reminder also
provides statistics on calls placed such as calls attempted, calls completed,
intercepted, retried, and busy/no answer calls with its innovative call
reporting feature. Through a series of steps that includes pre-recorded prompts,
the Automatic Reminder asks call recipients to confirm his or her appointment or
to cancel and request rescheduling of their appointment by pressing a key on
their telephone keypad.
Marketing and Distribution
We are currently focused on developing our dealer and reseller
channels. We believe we can leverage already existing equipment manufacturers
reseller channels by integrating our speech recognition software directly into
their established revenue producing product lines. We estimate that each major
telephony equipment manufacturer has an estimated 150-600 authorized dealers and
resellers throughout North America. The recent introduction of an entirely TAPI
(Telephone Application Program Interface) based Speech-enabled Auto Attendant
and Name Dialer, allows integration into different PBX systems without the need
for additional hardware devices. Although concentration on resellers is the
predominate and preferred sales channel, we also sell directly to end-users via
our direct sales force providing management with information on market trends
and customer needs. The direct channel also provides an avenue more suitable for
iVoice IVR applications that often require customized development, which is
usually difficult to provide through the reseller network.
Our marketing strategy emphasizes our user-friendly PC-based processing
applications that offer integrated access to a broad range of communication
avenues with other people and information sources. Our strategy is built around
the following basic elements:
Emphasize software, not hardware. We concentrate our
developing software that meets our clients' needs, rather than
on designing or modifying hardware. This allows us to create
the most value from our products.
Use of standard, Microsoft Windows-based architecture, open
systems and hardware. Our products use standard,
open-architecture PC platforms and operating systems rather
than proprietary computer hardware and operating systems. As a
result, we can quickly adapt to new PC-based technologies,
leveraging the substantial investments made by third parties
in developing these new technologies for the PC environment.
In addition, using available hardware components and software
minimizes our manufacturing activity and thereby reduces the
overall cost of our products.
Focus on businesses and corporate departments having as many
as 20,000 telephones. Our products are designed for use by
businesses and corporate departments having as many 20,000
telephones in a wide range of markets, including
manufacturing, retail,
28
service, healthcare, and government. Our products offer these
organizations, features offered by large, proprietary call
processing systems, but at a more affordable price.
Develop user-friendly products. We aim to make our products as
easy as possible to install, maintain, and use. We accomplish
this by incorporating product features that can be used
without special training or manuals. One example of this
user-oriented philosophy is exhibited in our voicemail
product. iVoiceMail has user prompts that encourage
conversation between callers and subscriber and uses
simplified screens and menus for ease of installation.
Minimize distribution overhead. We are able to achieve broad
market coverage in the U.S. via a nationwide network of
independent telephone system dealers, and
original-equipment-manufacturers, or "OEMs." This structure
both minimizes our selling overhead and maximizes our product
exposure, and allows us to focus our resources on product
development.
New Products
In December 2003, we announced the release of version 3.2 of our Speech
Enabled Auto Attendant using a Telephone Application Program Interface. The
latest version includes recent updates and features, including the Locate, Find
Me application. Telephony Application Program Interface or TAPI, allows us to
integrate our applications into different telephone private branch exchange
systems (or PBX's), thereby eliminating the need for additional external and
expensive hardware components. Each phone system hardware provider provides a
specific software driver that interfaces directly with or Speech Enabled Auto
Attendant. TAPI provides a high-level interface for dialing and disconnecting.
In October 2003, we announced that the Hear I Am Voice Activated
Locator can include iVoice's Speech Enabled Auto Attendant on the same platform.
We seek to bring a complete speech application to market by combining the power
of our Speech Enabled Auto Attendant with the patent pending technology behind
the Hear I Am Locator. The application allows a customer the ability to find an
item in a store or to be transferred directly to the individual or department
they are seeking all on the same call.
Competition
We operate in an industry segment having inherent risks generally
associated with small technology companies. Such risks include, but are not
limited to, the ability to: a) generate sales of our product at levels
sufficient to cover our costs and provide a return for investors, b) attract
additional capital in order to finance growth, c) further develop and
successfully market and distribute commercial products and d) successfully
compete with other technology companies having financial, production and
marketing resources significantly greater than we have.
The voice-recognition industry is highly competitive, and we believe
that this competition will intensify. The segment of the industry that supplies
call-processing systems to businesses is also extremely competitive. Many of our
competitors have longer operating histories, significantly greater financial,
technical, product development, and marketing resources, greater name
recognition or larger client bases than we do.
For example, industry analysts recognize Nuance Communications, Inc.
and SpeechWorks International, Inc., a wholly-owned subsidiary of ScanSoft,
Inc., as the market leaders in our industry. Nuance sells software to a broad
range of companies directly and through a channel of resellers. Nuance's five
largest resellers, based on revenue in 2002, were Nortel Networks, Edify (a
subsidiary of S1 Corporation), Motorola, Syntellect and Avaya. Speechworks'
clients include, among others, America Online, Amtrak, AT&T, Aetna, Bell Canada,
Continental Airlines, Ford Motor Company, France Telecom, GMAC Commercial
Mortgage, Jaguar Cars, Microsoft, Neiman Marcus, Nortel Networks, Quantas
Airlines, The Boeing Company, The Hartford Insurance, Thrifty Car Rental,
Ticketmaster, United Airlines, U.S. Postal Service, Wachovia/First Union
Corporation, Yahoo.
On a more directly competitive scale, other companies that produce
computerized telephony systems that incorporate speech recognition into their
products such as the iVoice Speech-enabled Auto Attendant include companies like
Locus Dialogue, Phonetic Systems and Sound Advantage. We believe that the iVoice
Speech-enabled Auto Attendant has competitive advantages based upon product
features, the accuracy of the speech recognition and product pricing.
29
We believe that in order to be competitive, we need to continue develop
and maintain competitive products and take and hold sufficient market share from
our competitors. Our methods of competition, therefore, include (1) continuing
our efforts to develop and sell products which, when compared to existing
products, perform more efficiently and are available at prices that are
acceptable to the market, (2) concentrating on developing software that meets
our clients' needs, rather than on designing or modifying hardware, (3) using
standard, Microsoft Windows-based architecture, open systems and hardware to
quickly adapt to new PC-based technologies, and (4) forming co-marketing
arrangements and strategic alliances with manufacturers to capture significant
market share by expanding distribution through these manufacturers' authorized
reseller networks.
Suppliers
Our suppliers include Dialogic Corporation (an Intel company) that
distributes through a network of resellers for voiceboards, and iTox, Inc., and
Amer.com, Inc. for computer hardware components. Since our products are based
and run on standard PC architecture and as result of iVoice's recent integration
with TAPI, we do not rely on any one specific supplier for its system
components. We have not experienced any supply shortages with respect to the
components used in systems or developed applications.
Customers
Direct customers are comprised of businesses, organization and
corporate departments that use telephones as a principal means of
communications. Specifically, the end users of our products seek to automate the
call process for incoming callers in order to improve customer service and
increase productivity. The iVoice Speech-enabled Auto Attendant and iVoice IVR
seek to fulfill these customer needs. Customers who seek to automate the call
process for outbound calling are primary targets for the iVoice Name Dialer and
iVoice Patient Reminder.
Wholesale customers include value added resellers and distributors of
telephony equipment throughout North America.
For the nine-month period ending September 30, 2003, two customers
represented 10.2% and 8.6% of our total revenues for the period. For the year
ended December 31, 2002, no one customer represented more than 10% of our total
revenues. We do not rely on any one specific customer for any significant
portion of our revenue base.
We generally require customers to pay 50% down on any turnkey
applications purchased, with the balance due when installation has been
completed. Software only sales require cash-on-delivery or prepayment before
shipping except for dealers and resellers, which subject to credit approval are
given 30 day payment terms. We accept checks or Visa/MasterCard.
Approximately 70% of our revenues are derived from customers located in
the northeast U.S. The remaining 30% are from customers located elsewhere in the
continental U.S.
Patents and Trademarks
We have filed ten patent applications with the United States Patent and
Trademark Office for speech enabled applications that it has developed
internally. Of the patents applications we have filed, we received one patent
for our Speech-Enabled Automatic Telephone Dialer in May 2003, and a notice of
allowance for a second patent for our Speech-Enabled Automatic Telephone Dialer
in July 2003. The remaining patent applications are pending. These applications
include various versions of the "iVoice Speech Enabled Name Dialer", the "Voice
Activated Voice Operated Copier", the "Voice Activated Voice Operational
Universal Remote Control", and the "Voice Activated, Voice Responsive Product
Locator."
In February 2002, we filed a Trademark application for our `iVoice'
logo and approval is pending.
Government Regulation
We are subject to licensing and regulation by a number of authorities
in our state or municipality. These may include health, safety, and fire
regulations. Our operations are also subject to federal and state minimum wage
laws governing such matters as working conditions and overtime.
30
We are not subject to any necessary government approval or license
requirement in order to market, distribute or sell its principal or related
products other than ordinary federal, state, and local laws which governs the
conduct of business in general. We are unaware of any pending or probable
government regulations that would have any material impact on the conduct of
business.
Research and Development
Our research and development efforts focus on enhancing our existing
product line and the development of new products that integrate with our
existing products. We continually seek to improve our core speech recognition
technology through ease of use, broader application and increased accuracy. We
employ qualified technical personnel to strengthen its product line.
For the nine months ending September 30, 2003, research and development
expenditures consisted of $150,753 in salaries and wages to technical staff and
$5,618 in technical hardware supplies, software tool-kits and technical
publications. In 2002, we spent $165,415 in salaries and wages to technical
staff and $5,013 in technical hardware supplies, software tool-kits and
technical publications. In 2001, research and development expenditures consisted
of $380,692 in salaries and wages to our technical staff and $6,773 for
technical hardware supplies, software tool-kits and technical publications. In
2000, we spent $406,106 in technical salaries and wages and $17,361 for related
supplies, tools and publications. Reductions in amounts expended were deemed
necessary for the conservation of capital resources.
Licenses
We have a worldwide, non-exclusive, irrevocable, royalty-free, fully
paid license from Entropic, Inc., a Microsoft company, to incorporate their
speech engine into customized software applications for our customers. We also
have non-exclusive license agreements with Fonix Corporation, which allows us to
incorporate their text-to-speech software into our applications so clients can
listen to e-mail messages from any telephone.
Employees
As of December 18, 2003, we had 7 full-time employees, 1 part-time
employee, 2 part-time consultants for a total of 10 individuals. None of our
employees are represented by a labor organization and we are not a party to any
collective bargaining agreements.
No employees are covered by collective bargaining agreements. We
consider our relationship with our employees generally to be good.
Property
We do not own any real property for use in our operations or otherwise.
Our facilities are located at 750 Highway 34, Matawan, New Jersey and
consist of approximately 6,000 square feet of space. We are leasing this space
on a month-to month basis with a monthly rent of $7,500. We use our facilities
to house our corporate headquarters and believe our facilities are suitable for
such purpose. We also believe that our insurance coverage adequately covers our
interest in our leased space. We have a good relationship with our landlord and
believe that our current facilities will be adequate for the foreseeable future.
We currently occupy the same space as our subsidiary, Trey Resources.
Under the terms of our administrative services agreement with Trey Resources, we
have agreed to permit it to continue to share such space with us after
consummation of our proposed spin-off of Trey Resources.
Legal Proceedings
We are subject to litigation from time to time arising from our normal
course of operations. Currently, we are not a party to any material legal
proceedings, nor to our knowledge, is any such proceeding threatened against us.
31
MANAGEMENT
Our present director and executive officer is as follows:
Name Age Position
------------------- -------- ----------------------------------
Jerome R. Mahoney 42 President, Chief Executive Officer,
Chief Financial Officer and Director
The following is a brief description of the background of our sole director and
executive officer:
Jerome R. Mahoney (President, Chief Executive Officer and Director)
Jerome R. Mahoney has been our president, chief executive officer, and
sole director since May 21, 1999. Mr. Mahoney has been serving as our chief
financial officer since May 1, 203 Mr. Mahoney started at Executone Information
Systems, a telephone systems manufacturer, and was Director of National Accounts
from 1988 to 1989. In 1989, Mr. Mahoney founded Voice Express, Inc., a New York
company that sold voicemail systems and telephone system service contracts and
installed these systems. Mr. Mahoney sold Voice Express Systems in 1993. From
1993 to 1997, Mr. Mahoney was President of IVS Corp., and on December 17, 1997,
he established International Voice Technologies, which we merged with on May 21,
1999. Mr. Mahoney intends to serve as Chairman of the Board of Trey Resources
upon consummation of our proposed spin-off of such subsidiary. Mr. Mahoney
received a B.A. in finance and marketing from Fairleigh Dickinson University,
Rutherford, N.J. in 1983.
Executive Compensation
The following table shows all the cash compensation paid by us, as well
as certain other compensation paid or accrued, during the fiscal years ended
December 31, 2002, 2001 and 2000 to named executive officers. No restricted
stock awards, long-term incentive plan payouts or other types of compensation,
other than the compensation identified in the chart below, were paid to these
executive officers during these fiscal years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------------------------- --------------------------------------------------
Awards Payouts
--------------------------------------------------
Other Restricted
Annual Stock Options/ LTIP All Other
Name and Salary Bonus Compensation Award(s) SAR's Payouts Compensation
------ ----- ------------ -------- ----- ------- ------------
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------ ---- --- --- --- --- --- --- ---
Jerome R. Mahoney (1) 2002 $232,320 $0 $45,605(3) $0 0 0 $4,729(7)
President, Chief Executive
Officer and Chief
Financial Officer 2001 $211,200 $75,000 $95,000(3) $0 0 0 $354,416(7)
2000 $192,000 $0 $34,000(4) $0 0 0 $4,416(7)
Kevin Whalen(2) 2002 $100,000 $0 $0 $0 0 $0
Former Chief Financial 2001 $93,333 $34,000 $0 $115,0004(5) 1,200,000(6) 0 $0
Officer 2000 $53,333 $0 $0 $20,950(5) 200,000(6) 0 $0
- -----------------------
(1) Mr. Mahoney has been serving as our Chief Financial Officer since
May 1, 2003
(2) Effective May 16, 2000, Mr. Whalen was promoted to Chief Financial
Officer and is not subject to any employment contract with iVoice, Inc.
Effective April 30, 2003, we terminated Mr. Whalen's employment with
us.
(3) Represents amounts accrued for reimbursement of income taxes of $45,605
in 2002 and $95,000 in 2001, paid by Mr. Mahoney on sales of personal
holdings of iVoice shares of our Class A common stock, the proceeds of
which have been loaned to iVoice.
(4) Represents accrued and unpaid sales commissions due to Mr. Mahoney.
(5) Represents 1,000,000 shares of our Class A common stock granted on
March 20, 2001 and 50,000 shares of our Class A common stock granted on
September 20, 2000 and 5,000 shares of our Class A common stock granted
on June 30, 2000. All shares granted vest with Mr. Whalen three years
from the date granted. Total restricted shares held by Mr. Whalen total
1,055,000 valued at $1,910 as of December 31, 2002.
(6) Represents options to purchase 1,000,000 shares of our Class A common
stock at $.06 granted on June 27, 2001; options to purchase 200,000
shares of our Class A common stock at $.10 granted on March 12, 2001;
options to purchase 100,000 shares of our Class A common stock at $.50
granted on June 30, 2000; options to purchase 50,000 shares of our
Class A common stock at $.60 granted on May 17, 2000; and options to
32
purchase 50,000 shares of our Class A common stock at $.75 granted on
May 2, 2000. All options vest 25% per year and expire 5 years from the
date of issue. To date, none of these options have been exercised.
(7) Represents $4,729 in life insurance premiums paid on behalf of Mr.
Mahoney for the year ending December 31, 2002; $350,000 as
reimbursement for the donation of personal holdings of iVoice Class A
Common shares donated to charity and $4,416 in life insurance premiums
paid on behalf of Mr. Mahoney for the year ending December 31, 2001 and
$4,416 in life insurance premiums paid on behalf of Mr. Mahoney for the
year ending December 31, 2000.
Options
We did not grant any options to any of the named executive officers
during the year ended December 31, 2002. The following table sets forth
information concerning the number of unexercised options and the December 31,
2002 fiscal year-end value of unexercised options on an aggregated basis held by
Kevin Whalen. As we have not granted any stock appreciation rights, there were
no stock appreciation rights outstanding at the end of fiscal year ended
December 31, 2002.
AGGREGATED OPTIONS EXERCISES AND FISCAL YEAR END OPTIONS VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options at Fiscal Year-End In-the-Money Options
Shares Value (#) at Fiscal Year-End ($) (1)
Acquired on Realized -------------------------------------- -----------------------------
Name Exercise (#) ($) Exercisable Unexcersisable Exercisable Unexercsisable
- -------------------------- ------------ --------- ----------------- ------------------- ----------- --------------
Kevin Whalen, Former Chief
Financial Officer (2) 0 0 400,000 1,000,000 0 0
- -------------------------
(1) Options are "in-the-money" if, on December 31, 2002, the fair market
value of our common stock exceeded the exercise price of those options.
The amount shown under the column "Value of Unexercised In-the-Money
Options at Fiscal Year-End" is calculated by determining the difference
between the aggregate fair market value of our common stock underlying
the options on December 31, 2002 and the aggregate exercise price of
the options. The value of the unexercised in-the-money options were
calculated by determining the difference between the fair market value
of the common stock underlying the options and the exercise price of
the options as of December 31, 2002.
(2) Effective April 30, 2003, we terminated Mr. Whalen's employment with
us.
Directors Compensation
During fiscal year 2002, no fees were paid to our sole director, and the
sole director was not reimbursed for expenses incurred.
Employment Agreement
On May 1, 1999, we entered into a five-year employment agreement with
Mr. Mahoney. Mr. Mahoney will serve as our president and chief executive officer
for a term of five years. As consideration, we agreed to pay Mr. Mahoney the sum
of $180,000 the first year with a 10% increase every year thereafter. The
employment agreement with Mr. Mahoney provides for a severance payment to him of
three hundred percent (300%), less $100, of his gross income for services
rendered to us in each of the five prior calendar years (or shorter period
during which Mr. Mahoney shall have been employed by us) should his employment
be terminated following a "Change in Control," as defined in the agreement.
33
Stock Option Plan
In 1999, we adopted our Employee Stock Option Plan in order to attract
and retain qualified personnel. Under the plan, our Board of Directors, in its
discretion may grant stock options (either incentive or non-qualified stock
options) to officers and employees to purchase shares of our Class A common
stock at no less than 85% of the market price on the date the option is granted.
Options generally vest over four years and have a maximum term of five years.
During 1999, 20,000,000 shares of Class A common stock were reserved for future
issuance under the plan. As of January 15, 2003, options to purchase 16,559,000
shares of Class A were granted. Of these granted options, options to purchase
9,000,000 shares of Class A common stock were exercised. Options to purchase
6,891,083 shares of our Class A common stock were outstanding and held by
employees, of which options to purchase 2,704,415 shares of our Class A common
stock are vested. At December 31, 2002, the weighted average exercise price of
all outstanding options was $0.077 per share. The weighted average exercise
price of all vested options is $0.369 per share. All options issued to employees
vest at 25% per year and expire in 5 years.
Employee Stock Option Plan Information
As of December 31, 2002
Number of Shares of
Common Stock Remaining
Number of Shares of Common Weighted-Average Available for Future
Stock to be Issued upon Exercise Price of Issuance under Equity
Exercise of Outstanding Options Outstanding Options Incentive Plan (1)
Employee Stock Option Plan Information 6,891,083 $0.077 13,108,917
- -------------
(1) Excludes shares of our Class A common stock to be issued upon exercise of
outstanding options.
34
PRINCIPAL STOCKHOLDERS
The following tables set forth certain information regarding the
beneficial ownership of our voting securities as of December 18, 2003 of (i)
each person known to us to beneficially own more than 5% of the applicable class
of voting securities, (ii) our sole director, (iii) and each named executive
officer and (iv) all directors and executive officers as a group. As of December
18, 2003, a total of 4,719,208,096 shares of Class A common stock outstanding
and a total of 1,799,875 shares of our Class B common stock were outstanding.
Each share of Class A common stock and Class B common stock is entitled to one
vote on matters on which holders of common stock are eligible to vote. The
column entitled "Percentage of Total Voting Stock" shows the percentage of total
voting stock beneficially owned by each listed party.
The number of shares beneficially owned is determined under rules
promulgated by the Securities and Exchange Commission, 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 December 18, 2003,
through the exercise or conversion of any stock option, convertible security,
warrant or other right. 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.
Ownership of Common Stock
Common Stock
Beneficially Owned
---------------------------------
Name/Address Title of Class Number Percent
- ----------------------------------------- --------------------------- ------------------ ------------
Jerome R. Mahoney Class A Common Stock 41,278,512,295(1) 89.8%
c/o iVoice, Inc. Class B Common Stock 1,799,875(1) 100.0%
750 Highway 34
Matawan, New Jersey 07747
Kevin Whalen(2) Class A Common Stock 1,455,000(3) *
c/o iVoice, Inc. Class B Common Stock 0 0%
750 Highway 34
Matawan, New Jersey 07747
Director and executive officer as a group Class A Common Stock 41,278,512,295 89.8%
Class B Common Stock 1,799,875 100.0%
- -------------------------------
(1) Includes (i) 450,000 shares of our Class A common stock held by Mr.
Mahoney's minor children, (ii) 29,506,147,541 shares of our Class A common
stock issuable upon conversion of 1,799,875 shares of our Class B common
stock held by Mr. Mahoney, and (iii) 11,761,114,754 shares of our Class A
common stock issuable upon conversion of a promissory note dated March 20,
2001, as amended on August 13, 2002. Pursuant to such promissory note, Mr.
Mahoney may, at any time, convert amounts owed to him for monies loaned
thereunder and interest thereon into (i) one share of our Class B common
stock for each dollar owed, (ii) the number of shares of our Class A common
stock calculated by dividing (x) the sum of the amount being prepaid by (y)
50% of the lowest issue price of shares of our Class A common stock since
the first advance of funds under such note, or (iii) payment of the
principal of the note, before any repayment of interest. At December 18,
2003, the total balance owed to Mr. Mahoney was $717,428, convertible into
717,428 shares of our Class B common stock, or 11,761,114,754 shares of our
Class A common stock. Since we do not have a sufficient number of
authorized shares of Class A common stock to issue all of the shares of
Class A common stock issuable upon the exercise or conversion of all of our
outstanding options, warrants, debentures and Class B common stock, Mr.
Mahoney has agreed that, until such time as our right to receive advances
under the Equity Line of Credit Agreement expires and until we have
increased the number of authorized shares of Class A common stock in an
amount sufficient to issue all shares of our Class A common stock
underlying all then-outstanding options, warrants, debentures, Class B
common stock or other obligations to issue shares of our Class A common
stock, Mr. Mahoney will not convert any of his shares of Class B common
stock or the balance due under his convertible promissory note, if any such
conversion or conversions, in the aggregate, would result in our issuance
to Mr. Mahoney of more than 1,200,000,000 shares of our Class A common
stock.
(2) Effective April 30, 2003, Mr. Whalen terminated his employment with us.
(3) Includes options to purchase 400,000 shares of our Class A common stock.
35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Change of Conversion Price of Class B Common Stock
On October 15, 2002, our stockholders approved a change in the
conversion price of our Class B common stock held by Jerome R. Mahoney, our
president, chief executive officer, chief financial officer and president. On
January 13, 2003, we amended our certificate of incorporation to provide that
the Class B common stock is convertible into the number of shares of Class A
common stock determined by dividing the number of Class B common stock being
converted by 50% of the lowest price that we had previously issued our Class A
common stock. Previously, each share of Class B common stock was convertible
into 100 shares of Class A common stock. Accordingly, the number of shares of
Class A common stock to be received by Mr. Mahoney upon conversion of the Class
B common stock will be greater as the price of the Class A common stock
declines.
Issuance and Amendment of Convertible Promissory Note
During the period from June 2000 through December 2002, Mr. Mahoney had
sold personal holdings of shares of our Class A common stock and loaned the
proceeds of these sales to us to fund our working capital requirements. On March
20, 2001, we executed a promissory note and security agreement in favor of Mr.
Mahoney with respect to such loans. As a result, all of our assets are subject
to a security agreement with Mr. Mahoney. Trey Resources has agreed to assume
$250,000 of such outstanding indebtedness upon consummation of our proposed
spin-off of Trey Resources.
On August 13, 2002, our board of directors approved amendments to the
promissory note dated March 20, 2001, to allow for the conversion of amounts due
thereunder into (i) one share of Class B common stock for each dollar owed, or
(ii) the number of shares of Class A common stock calculated by dividing (x) the
sum of the amount being prepaid by (y) 50% of the lowest issue price of our
Class A common stock since the first advance of funds under the note, whichever
the note holder chooses, or (iii) payment of the principal of the principal of
note, before any repayment of interest.
As of September 30, 2002, the outstanding loan balance including
interest, monies loaned from the proceeds of stock sales, unpaid compensation,
income taxes incurred from the sale of stock and unreimbursed expenses, totaled
$2,009,822. On October 14, 2002 Mr. Mahoney converted $1,504,875 of the amounts
owed to him under the promissory note into 1,504,875 shares of Class B common
stock. At December 18, 2003, the total balance owed to Mr. Mahoney was $717,428,
convertible into 717,428 shares of our Class B common stock, or 11,761,114,754
shares of our Class A common stock.
Since we do not have a sufficient number of authorized shares of Class
A common stock to issue all of the shares of Class A common stock issuable upon
the exercise or conversion of all of our outstanding options, warrants,
debentures and Class B common stock, Mr. Mahoney has agreed that, until such
time as our right to receive advances under the Equity Line of Credit Agreement
expires and until we have increased the number of authorized shares of Class A
common stock in an amount sufficient to issue all shares of our Class A common
stock underlying all then-outstanding options, warrants, debentures, Class B
common stock or other obligations to issue shares of our Class A common stock,
Mr. Mahoney will not convert any of his shares of Class B common stock or the
balance due under his convertible promissory note, if any such conversion or
conversions, in the aggregate, would result in our issuance to Mr. Mahoney of
more than 1,200,000,000 shares of our Class A common stock.
Proposed Spin-Off of Automatic Reminder Business
In September 2003, we announced our intention to distribute to our
stockholders shares of Class A common stock of Trey Resources, Inc., one of our
subsidiaries, and our Automated Reminder business, upon the effectiveness of
required Securities and Exchange Commission filings and final approval by our
Board of Directors of the terms and conditions of the distribution, as described
in the registration statement on Form SB-2 of Trey Resources, initially filed
with the Securities and Exchange Commission on October 3, 2003. It is intended
that Trey Resources will own and operate our Automatic Reminder software
business as an independent publicly traded entity following the distribution.
Trey Resources issued $40,000 in convertible debentures to The May
Davis Group in March 2003, and $100,000 in convertible debentures to Cornell
Capital Partners in September 2003. These debentures are convertible into shares
of Class A common stock of Trey Resources at a price equal to either (a) an
amount equal to 120% of the closing bid price of the Class A common stock of
Trey Resources as of the date of the distribution to our stockholders of shares
of Class A common stock of Trey Resources or (b) an amount equal to 80% of the
average closing bid price of the Class A common stock of Trey Resources for the
four trading days immediately preceding the conversion date. These convertible
debentures accrue interest at a rate of 5% per year and are convertible at the
holder's option. These convertible debentures have a term of two years with all
accrued interest due and payable at the end of the term. At Trey Resources'
option, these debentures may be paid in cash or redeemed at a 20% premium prior
to April 2004.
In January 2003, Trey Resources entered into an equity line of credit
agreement. Under this agreement, Trey Resources may issue and sell to Cornell
Capital Partners shares of its Class A common stock for a total purchase price
of up to $10.0 million. Subject to certain conditions, Trey Resources will be
entitled to commence drawing down on its equity line of credit when its Class A
common stock under the equity line of credit is registered with the Securities
and Exchange Commission and will continue for two years thereafter. The purchase
price for the shares will be equal to 91% of the market price, which is defined
as the lowest closing bid price of the Class A common stock of Trey Resources
during the five trading days following the notice date. A cash fee equal to six
percent (6%) of the cash proceeds of the draw down is also payable at the time
of funding. To date, Trey Resources has not drawn down on the equity line of
credit.
On October 24, 2003, Trey Resources filed with the Securities and
Exchange Commission a registration statement on Form SB-2 relating to the
registration of shares to be issued upon conversion of Trey Resource's
outstanding convertible debentures issued to The May Davis Group in March 2003
and Cornell Capital Partners in September 2003, and pursuant to an equity line
of credit agreement entered between Trey Resources and Cornell Capital Partners
in January 2003. In connection therewith, we agreed to provide a full and
unconditional guaranty of the payment and performance obligations of Trey
Resources, in accordance with the terms of securities purchase agreements
between Trey Resources and the holders of the convertible debentures, which
cannot be discharged, except by complete performance of the obligations under
the securities purchase agreements and the related documents. Under the
guaranty, if Trey Resources defaults in payment or performance of any of its
obligations under the convertible debentures, we are required to pay or perform
such obligations upon two days' written notice or demand by the holders of the
convertible debentures and to take an advance under the Equity Line of Credit on
the day of any such default, in the amount of $250,000 in order to repay to the
principal amount of the convertible debentures plus $50,000 within seven days of
default by Trey Resources. Notwithstanding anything to the contrary, so long as
the outstanding principal amount is zero or would be made zero simultaneously
with the termination, we shall have the right to terminate the guaranty at any
time by providing written notice of such termination.
36
In January 2003, Trey Resources entered into a separate employment
agreement with Mr. Mahoney, our president, chief executive officer, chief
financial officer and sole director, pursuant to which Mr. Mahoney shall act as
Chairman of the Board of Trey Resources upon completion of our proposed spin-off
of Trey Resources. The agreement calls for annual compensation of $180,000 per
annum, and the usual and customary perquisites and benefits valued at
approximately $25,000. The agreement also provides for a bonus of $350,000 to be
paid upon successful completion of the proposed spin-off of Trey Resources.
Trey Resources has agreed to assume $250,000 of such outstanding
indebtedness under the promissory note we issued to Jerome R. Mahoney on March
12, 2001, as amended on August 12, 2002 (described above), upon consummation of
our proposed spin-off of Trey Resources. The debt will be subject to a
promissory note having substantially the same terms the promissory note we
issued to Mr. Mahoney. Mr. Mahoney may, at his sole discretion, convert such
debt into Class B Common Stock of Trey Resources at the rate of one dollar per
share, which stock will be convertible at any time into Class A common stock at
a rate equal to 50% of the lowest price that Trey Resources issues shares of
Class A common stock of Trey Resources subsequent to the date of the note.
Mr. Mahoney has agreed to forego receipt of Class A common stock of
Trey Resources that he otherwise would have been eligible to receive from the
proposed spin-off of Trey Resources by virtue of his ownership of our Class B
common stock.
In February 2003, we entered into an administrative services agreement
with Trey Resources, pursuant to which, upon consummation of the proposed
spin-off of Trey Resources, we will provide Trey Resources services in such
areas as information management and technology, sharing of office space,
personnel and indirect overhead expenses, employee benefits administration,
payroll, financial accounting and reporting, claims administration and
reporting, and other areas where Trey Resources may need transitional assistance
and support. The term of the agreement is two years, but may be terminated
earlier under certain circumstances, including a default, and may be renewed for
additional one-year terms. In exchange for our services under the administrative
services agreement, Trey Resources has agreed to pay us an annual fee of
approximately $95,000. We beleive that the fees for these services are less than
the fees that Trey Resources would incur if it had obtained these services
through other sources.
MARKET PRICE OF COMMON EQUITY AND OTHER STOCKHOLDER MATTERS
Market Information
Our common stock is quoted on the OTC Bulletin Board under the symbol
"IVOC." The following table shows the high and low closing prices for the
periods indicated.
High Low
2001
First Quarter $0.4000 $0.0950
Second Quarter $0.1700 $0.0500
Third Quarter $0.0820 $0.0430
Fourth Quarter $0.0900 $0.0400
2002
First Quarter $0.0590 $0.0270
Second Quarter $0.0380 $0.0120
Third Quarter $0.0170 $0.0013
Fourth Quarter $0.0031 $0.0009
2003
First Quarter $0.0080 $0.0003
Second Quarter $0.0090 $0.0002
Third Quarter $0.0380 $0.0004
Fourth Quarter to date $0.0110 $0.0029
Holders Of Common Equity
As of December 18, 2003, the number of record holders of our common
shares was approximately 656.
Dividend Information
As of December 18, 2003, we have not paid any dividends on any class of
our common stock. 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.
37
Description of Securities
Pursuant to our certificate of incorporation, as amended, we are
authorized to issue 10,000,000,000 shares of Class A common stock, no par value
per share, 50,000,000 shares of Class B common stock, par value $.01 per share
and 1,000,000 shares of preferred stock, par value of $1.00 per share. Below is
a description of iVoice's outstanding securities, including Class A common
stock, Class B common stock, options, warrants and debt.
We do not have a sufficient number of authorized shares of Class A
common stock to issue all of the shares of Class A common stock issuable upon
the exercise or conversion of all of our outstanding options, warrants,
debentures and Class B common stock. Accordingly, Mr. Mahoney has agreed that,
until such time as our right to receive advances under the Equity Line of Credit
Agreement expires and until we have increased the number of authorized shares of
Class A common stock in an amount sufficient to issue all shares of our Class A
common stock underlying all then-outstanding options, warrants, debentures,
Class B common stock or other obligations to issue shares of our Class A common
stock, Mr. Mahoney will not convert any of his shares of Class B common stock or
the balance due under his convertible promissory note dated March 20, 2001, as
amended August 13, 2002, if any such conversion or conversions, in the
aggregate, would result in our issuance to Mr. Mahoney of more than
1,200,000,000 shares of our Class A common stock.
Class A Common Stock
Each holder of our Class A common stock is entitled to one vote for
each share held of record. Holders of our Class A common stock have no
preemptive, subscription, conversion, or redemption rights. Upon liquidation,
dissolution or winding-up, the holders of Class A common stock are entitled to
receive our net assets pro rata. Each holder of Class A common stock is entitled
to receive ratably any dividends declared by our board of directors out of funds
legally available for the payment of dividends. We have not paid any dividends
on our common stock and do not contemplate doing so in the foreseeable future.
We anticipate that any earnings generated from operations will be used to
finance our growth.
As of December 18, 2003, we had 4,719,208,096 shares of Class A common
stock outstanding.
Class B Common Stock
Each holder of Class B Common Stock shall have the right to convert
each share of Class B Common Stock into the number of Class A Common Stock
Shares calculated by dividing the number of Class B Common Stock Shares being
converted by fifty percent (50%) of the lowest price that we had previously
issued our Class A Common Stock since the Class B Common Stock Shares were
issued. Every holder of the outstanding shares of the Class B Common Stock
Shares shall be entitled on each matter to cast the number of votes equal to the
number of Class A Common Stock Shares that would be issued upon the conversion
of the Class B Common Stock Shares held by that holder, had all of the
outstanding Class B Common Stock Shares held by that holder been converted on
the record date used for purposes of determining which stockholders would vote
in such an election. With respect to all matters upon which stockholders are
entitled to vote or to which stockholders are entitled to give consent, the
holders of the outstanding shares of Class B Common Stock Shares shall vote
together with Class A Common Stock Shares without regard to class, except as to
those matters on which separate class voting is required by applicable law.
There shall be no cumulative voting by stockholders. Each Class B Common Stock
Share shall receive dividends or other distributions, as declared, equal to the
number of Class A Common Stock Shares that would be issued upon the conversion
of the Class B Common Stock Shares, had all of the outstanding Class B Common
Stock Shares been converted on the record date established for the purposes
distributing any dividend or other stockholder distribution. Jerome R. Mahoney
is the sole owner of the Class B common stock, of which there are 50,000,000
shares authorized, 2,204,875 issued and 1,799,875 shares outstanding as of
December 18, 2003. On December 18, 2003, these shares of Class B common stock
were convertible into 29,506,147,541 shares of Class A common stock.
Preferred Stock
The Board of Directors expressly is authorized, subject to limitations
prescribed by the New Jersey Business Corporations Act and the provisions of
this Certificate of Incorporation, to provide, by resolution and by filing an
amendment to the Certificate of Incorporation pursuant to the New Jersey
Business Corporations Act, for the issuance from time to time of the 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:
38
a) the number of shares constituting that series and the
distinctive designation of that series;
b) the dividend rate on the shares of that series, whether
dividends shall be 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;
c) whether that series shall have voting rights, in addition to
voting rights provided by law, and, if so, the terms of such
voting rights;
d) whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such events
as the Board of Directors shall determine;
e) whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption,
including the dates upon or after which they shall be
redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions
and at different redemption dates;
f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so,
the terms and amount of such sinking fund;
g) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, and the relative rights of priority, if
any, of payment of shares of that series; and
h) any other relative powers, preferences and rights of that
series, and qualifications, limitations or restrictions on that
series.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Preferred Stock of
each series shall be entitled to receive only such amount or amounts as shall
have been fixed by the certificate of designations or by the resolution or
resolutions of the Board of Directors providing for the issuance of such series.
Options and Warrants
As of December 18, 2003, our employees held options to purchase 826,083
shares of our Class A common stock. These options were granted to our employees
under our 1999 Stock Option Plan. The exercise prices ranged from $0.06 to $3.75
per share. All options issued to employees vest at 25% per year and expire in 5
years. Of that total, 802,583 of the options were exercisable, at a weighted
average exercise price of $0.387 per share.
As of December 18, 2003, we had outstanding, to persons other than
employees, warrants to purchase 6,558,260 shares of our Class A common stock.
These warrants have exercise prices ranging from $0.047 per share to $2.00 per
share, with a weighted average exercise price of $0.135 per share. These
warrants will expire at various times through May 1, 2006.
Debt
Trey Resources issued $40,000 in convertible debentures to The May
Davis Group in March 2003, and $100,000 in convertible debentures to Cornell
Capital Partners in September 2003. These debentures are convertible into shares
of Class A common stock of Trey Resources at a price equal to either (a) an
amount equal to 120% of the closing bid price of the Class A common stock of
Trey Resources as of the date of the distribution to our stockholders of Class A
common stock of Trey Resources or (b) an amount equal to 80% of the average
closing bid price of the Class A common stock of Trey Resources for the four
trading days immediately preceding the conversion date. These convertible
debentures accrue interest at a rate of 5% per year and are convertible at the
holder's option. These convertible debentures have a term of two years with all
accrued interest due and payable at the end of the term. At Trey Resources'
option, these debentures may be paid in cash or redeemed at a 20% premium prior
to April 2004.
In January 2003, Trey Resources entered into an equity line of credit
agreement. Under this agreement, Trey Resources may issue and sell to Cornell
Capital Partners shares of its Class A common stock for a total purchase price
of up to $10.0 million. Subject to certain conditions, Trey Resources will be
entitled to commence drawing down on its equity line of credit when its Class A
common stock under the equity line of credit is registered with the Securities
and Exchange Commission and will continue for two years thereafter. The purchase
price for the shares will be equal to 91% of the market price, which is defined
as the lowest closing bid price of the Class A Common Stock of Trey Resources
during the five trading days following the notice date. A cash fee equal to six
percent (6%) of the cash proceeds of the draw down is also payable at the time
of funding. To date, Trey Resources has not drawn down on the equity line of
credit.
Trey Resources filed a registration statement on Form SB-2 with the
Securities and Exchange Commission on October 24, 2003, relating to the
registration of shares to be issued upon conversion of Trey Resource's
outstanding convertible debentures and pursuant to an equity line of credit
agreement between Trey Resources and Cornell Capital Partners. In connection
therewith, we agreed to provide a full and unconditional guaranty of the payment
and performance obligations of Trey Resources, in accordance with the terms of a
securities purchase agreement between Trey Resources and the holders of the
convertibe debentures. Under the guaranty, if Trey Resources defaults in payment
or performance of any of its obligations under the convertible debentures, we
are required to pay or perform such obligations upon two days' written notice or
demand by the holders of the convertible debentures and to take an advance under
the Equity Line of Credit on the day of any such default, in the amount of
$250,000 in order to repay to the principal amount of the convertible debentures
plus $50,000 within seven days of default by Trey Resources. This guaranty
cannot be discharged, except by complete performance of the obligations under
the securities purchase agreements and the related documents. Notwithstanding
anything to the contrary, so long as the outstanding principal amount is zero or
would be made zero simultaneously with the termination, we shall have the right
to terminate the guaranty at any time by providing written notice of such
termination.
39
Transfer Agent
Our transfer agent is Fidelity Transfer Company. Its address is 1800
South West Temple, Suite 301, Salt Lake City, Utah 84115. Its telephone number
is (801) 484-7222.
Limitation of Liability and Indemnification
Our Bylaws include an indemnification provision under which we have
agreed to indemnify our directors and officers of to fullest extent possible
from and against any and all claims of any type arising from or related to
future acts or omissions as a director or officer of iVoice.
Anti-Takeover Effects of Provisions of Articles of Incorporation
The authorized but unissued shares of our capital stock are available
for future issuance without our stockholders' approval. These additional shares
may be utilized for a variety of corporate purposes including but not limited to
future public or direct offerings to raise additional capital, corporate
acquisitions and employee incentive plans. The issuance of such shares may also
be used to deter a potential takeover of iVoice that may otherwise be beneficial
to stockholders by diluting the shares held by a potential suitor or issuing
shares to a stockholder that will vote in accordance with our Board of
Directors' desires. A takeover may be beneficial to stockholders because, among
other reasons, a potential suitor may offer stockholders a premium for their
shares of stock compared to the then-existing market price.
40
EXPERTS
The financial statements for the year ended December 31, 2002 included
in this prospectus have been audited by Mendlowitz Weitsen, LLP, independent
certified public accountants to the extent and for the periods set forth in
their report (which contains an explanatory paragraph regarding our ability to
continue as a going concern) appearing elsewhere herein and are included in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
On February 9, 2001, we dismissed Merdinger, Fruchter, Rosen & Corso
("MFR&C") as our independent accountants. The dismissal was approved by our
Board of Directors. The reports of MFR&C on our financial statements for the
fiscal years ended December 31, 2000 and December 31, 1999, contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles, except that the reports
contained an explanatory paragraph expressing substantial doubt regarding our
ability to continue as a going concern.
On February 9, 2001, we retained the firm of Mendlowitz Weitsen, LLP as
our new independent accountants. Prior to engaging Mendlowitz Weitsen, LLP, we
did not consult with Mendlowitz Weitsen, LLP, on any accounting, auditing,
financial reporting or any other matters.
LEGAL MATTERS
Kramer Levin Naftalis & Frankel LLP, New York, New York, will pass upon
the validity of the shares of common stock offered hereby for us.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION OF SECURITIES ACT LIABILITY
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons in the successful defense of any
action, suit or proceeding) is asserted by that director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether that
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of that issue.
HOW TO GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act with respect to the
securities offered by this prospectus. This prospectus, which forms a part of
the registration statement, does not contain all the information set forth in
the registration statement, as permitted by the rules and regulations of the
Commission. For further information with respect to us and the securities
offered by this prospectus, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document that we have filed as an exhibit to the registration statement
are qualified in their entirety by reference to the to the exhibits for a
complete statement of their terms and conditions. The registration statement and
other information may be read and copied at the Commission's Public Reference
Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission.
41
INDEX TO FINANCIAL STATEMENTS
Financial Statements as of September 30, 2003
Consolidated Balance Sheets - September 30, 2003 (Unaudited)........... F-2
Consolidated Statements of Operation - For the Three and
Nine Months Ended September 30, 2003 and 2002........................ F-3
Consolidated Statements of Cash Flows - For the Nine
Months Ended September 30, 2003 and 2002............................. F-4
Notes to the Financial Statements...................................... F-7
Financial Statements as of December 31, 2002 and 2001
Independent Auditors' Report ..........................................F-15
Consolidated Balance Sheets - December 31, 2002 and 2001...............F-16
Consolidated Statements of Operations for the Years
Ended December 31, 2002 and 2001.....................................F-18
Consolidated Statements of Stockholders' Deficiency for
the Years Ended December 31, 2002 and 2001...........................F-19
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2002 and 2001.....................................F-23
Notes to the Financial Statements......................................F-27
F-1
iVoice, Inc.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,469,229
Accounts receivable, net of allowance
for doubtful accounts of $2,700 8,793
Inventory 23,096
Securities available for sale 117,360
Costs in excess of billings 11,832
Net current assets of discontinued operations 71,397
Prepaid expenses and other current assets 216,667
------------
Total current assets 1,918,374
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $155,559 48,736
OTHER ASSETS
Software license costs, net of accumulated amortization
of $385,900 68,100
Intangible assets 105,106
Net long-term assets of discontinued operations 13,500
Deposits and other assets 7,000
------------
Total other assets 193,706
------------
TOTAL ASSETS $ 2,160,816
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 205,284
5% Convertible debentures - Note 3 140,000
Due to related parties - Note 4 430,554
Net current liabilities of discontinued operations 517,636
Deferred maintenance contracts 29,155
------------
Total current liabilities 1,322,629
------------
LONG-TERM DEBT --
------------
Total liabilities 1,322,629
------------
COMMITMENTS AND CONTINGENCIES - Note 5 --
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00; authorized 1,000,000
shares, no shares issued or outstanding --
Common stock, Class A - no par value; authorized 10,00,000,00
shares, 3,983,175,753 issued and 3,982,575,753 shares
outstanding 914,491
Common stock, Class B - par value $.01; authorized
50,000,000 shares; 2,204,875 shares issued; 1,799,875
shares outstanding 127 Treasury stock, 600,000 Class A
shares, at cost (28,800) Additional paid in capital 15,591,520
Accumulated deficit (15,707,117)
Accumulated other comprehensive income 67,966
------------
Total stockholders' equity 838,187
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,160,816
============
The accompanying notes are an integral part of the financial statement.
F-2
iVoice, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
SALES, net $ 126,683 $ 140,614 $ 349,403 $ 457,303
COST OF SALES 49,921 38,337 132,593 139,774
----------- ----------- ----------- -----------
GROSS PROFIT 76,762 102,277 216,810 317,529
----------- ----------- ----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 23,484 35,319 77,063 93,056
General and administrative expenses 199,148 214,432 607,574 1,229,285
Research and development 30,700 57,665 156,371 170,428
Bad debt expense - -- -- 3,000
Depreciation and amortization 36,732 36,700 109,630 108,601
----------- ----------- ----------- -----------
Total selling, general and administrative expenses 290,064 344,116 950,638 1,604,370
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (213,302) (241,839) (733,828) (1,286,841)
COSTS IN CONNECTION WITH SPIN-OFF 116 -- 44,621 --
----------- ----------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS 124,012 4,244 140,678 16,764
----------- ----------- ----------- -----------
OTHER INCOME\ (EXPENSE)
Non-recurring expense -- (9,222) -- (9,222)
Other Income 1,079 -- 1,079 28,800
Interest expense (211,442) (47,235) (297,912) (376,611)
----------- ----------- ----------- -----------
Total other income (expense) (210,363) (56,457) (296,833) (357,033)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (547,793) (302,540) (1,215,960) (1,660,638)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (547,793) $ (302,540) $(1,215,960) $(1,660,638)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE
Basic $( 0.00) $ (0.00) $( 0.00) $( 0.01)
=========== =========== =========== ===========
Diluted $( 0.00) $ (0.00) $( 0.00) $( 0.01)
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statement.
F-3
iVoice, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended
September 30,
--------------
2003 2002
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(1,215,960) $(1,660,638)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 28,454 30,357
Amortization of prepaid expense 78,833 326,667
Amortization of intangibles -- 9,843
Amortization of software license 81,600 81,600
Bad debt expense -- 3,000
Forfeited employee stock compensation -- (28,800)
Discounts on stock options -- 316,750
Debt issue costs -- 216,977
Gain on sale of investments (1,079) --
Common stock issued for consulting services -- 45,000
Common stock issued for interest 28,584 10,735
Changes in certain assets and liabilities:
Accounts receivable 6,394 (20,803)
Inventory 8,782 8,123
Accounts payable and accrued liabilities 268,109 196,760
Deferred revenue 16,945 (19,304)
Other assets 6,230 686
Total cash used in operating activities (693,108) (483,047)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (7,004) (2,641)
Investment in securities available for sale (50,000) --
Proceeds from investment dispositions 1,685 --
Purchase of goodwill and other intangibles (7,620) (1,560)
----------- -----------
Total cash used in investing activities (62,939) (4,201)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,873,923 102,696
Collections on stock subscriptions -- 317,000
Proceeds from related party loans -- 3,000
Repayment of related party loans (90,000) (90,000)
Proceeds from notes payable 1,700,000 250,000
Repayment of notes payable (1,934,667) (93,453)
Repayment of capital lease obligations (13,928) (25,556)
Sale of convertible debentures 140,000 255,000
----------- -----------
Total cash provided by financing activities 1,675,328 718,687
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 919,281 231,439
The accompanying notes are an integral part of the financial statement.
F-4
iVoice, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
For the Nine Months Ended
September 30,
---------------------------
2003 2002
---------- ----------
CASH AND EQUIVALENTS - BEGINNING OF PERIOD - Continuing Operations 566,345 85,543
CASH AND EQUIVALENTS - BEGINNING OF PERIOD - Discontinued Operations -- --
---------- ----------
CASH AND EQUIVALENTS - END OF PERIOD - Continuing Operations $1,469,229 $ 316,982
========== ==========
CASH AND EQUIVALENTS - END OF PERIOD - Discontinued Operations $ 16,397 $ --
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest expense $ 700 $ 6,104
Income taxes $ -- $ --
========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
SEPTEMBER 30, 2003
- ------------------
During the nine months ended September 30, 2003, the Company:
a) issued 235,000,000 shares of Class A common stock for consulting services
valued at $315,000.
b) issued 466,859,715 shares of its Class A common stock for the repayment of
$115,800 in principal on its 12% Convertible Debentures.
c) issued 58,405,204 shares of its Class A common stock for interest on its
outstanding 12% Convertible Debentures valued at $24,497.
d) issued 2,093,900,745 shares of Class A common stock with a total value of
$1,938,754. Of this amount, $1,849,418 was for repayment of principal and
$4,087 was for the repayment of interest on notes payable, issued as advances
on the equity line financing with Cornell Capital Partners, LP. The balance
of $85,249 was market discount charged to expense.
The accompanying notes are an integral part of the financial statement.
F-5
iVoice, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES - Continued
SEPTEMBER 30, 2002
- ------------------
During the nine months ended September 30, 2002, the Company:
a) issued 10,000 shares as partial payment for leasehold improvements valued at
$540.
b) issued 2,250,000 shares of Class A common stock for legal services valued at
$45,000.
c) issued 6,200,000 shares of its Class A common stock for fees and services
associated with the financing agreement with Cornell Capital, LP, valued at
$117,800.
d) retained 600,000 shares previously issued to an employee as compensation.
These shares were deemed as not having been vested with the terminated
employee and were recorded as treasury stock at a value of $28,800.
e) issued 4,364,516 shares of its Class A common stock for interest on its
outstanding Convertible Debentures valued at $95,679. Of this amount $10,735
reflects interest incurred in the current period and $84,944 represents
amounts accrued in prior periods.
f) issued 505,921 shares of its Class A common stock for the repayment of
$15,000 in principal on its 8% Convertible Debentures.
g) issued 7,229,230 shares of its Class A common stock for the repayment of
$64,000 in principal on its 12% Convertible Debentures.
h) issued 19,464,744 shares of its Class A common stock for the repayment of
$71,483 in principal on its 5% Convertible Debentures.
The accompanying notes are an integral part of the financial statement.
F-6
iVoice, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include
the accounts of iVoice, Inc. (the "Company" or "iVoice"), and its
wholly owned subsidiaries. iVoice, Inc. formerly known as Visual
Telephone International, Inc. ("Visual") was incorporated under the
laws of Utah on December 2, 1995, subsequently changed to Delaware.
On April 25, 2003, iVoice formed a wholly owned subsidiary in the
State of New Jersey and on May 5, 2003, iVoice changed its state of
incorporation from Delaware to New Jersey by merging into the newly
formed New Jersey subsidiary. These financial statements have been
prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-QSB and Regulation S-B. Accordingly, they do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included.
The result of operations for the three and nine-month periods ended
September 30, 2003 and 2002 are not necessarily indicative of the
results to be expected for the full year.
For further information, refer to the financial statements and
footnotes included in Form 10-KSB for the year ended December 31,
2002
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries Trey Resources, Inc.
and iVoice Acquisition 2, Inc. All significant intercompany
transactions and balances have been eliminated in consolidation. The
balance sheet, statements of operations and the cash flows of the
Company's wholly owned subsidiary, Trey Resources Inc. are presented
as discontinued operations due to the planned Distribution discussed
under Trey Resources Distribution. Where appropriate, prior year
amounts have been reclassified to conform to the current period
presentation
F-7
iVOICE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
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 of earnings per share for basic
and diluted purposes are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------- ----------- ------------- -----------
3,291,495,029 196,507,632 1,958,056,182 172,613,099
Company Background
------------------
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 and the name of the
Company was changed to iVoice.com, Inc.
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.com,
Inc. 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.
On August 24, 2001, the Company amended its certificate of
incorporation to change its name to iVoice, Inc. from iVoice.com,
Inc.
On April 25, 2003, iVoice formed a wholly owned subsidiary in the
State of New Jersey and on May 5, 2003, iVoice changed its state of
incorporation from Delaware to New Jersey by merging into the newly
formed New Jersey subsidiary.
F-8
iVOICE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -Continued
At September 30, 2003 the Company held a 100% investment in Trey
Resources, Inc. In June 2003, the Company filed a registration
statement with the SEC to spin off Trey as a separate public company
in a pro rata dividend distribution of the common stock of Trey
Resources to iVoice shareholders. (See the Trey Resources
Distribution below.) Upon determination of effectiveness of the
registration statement, the distribution of shares in Trey Resources
will occur. While Trey has not operated its Automatic Reminder
software business as a stand-alone company, the assets, liabilities,
revenue and expense, previously consolidated with the financial
statements of the Company are presented in these financial
statements as discontinued operations at September 30, 2003 and for
the three and nine months ended September 30, 2003 and 2002.
The Company is publicly traded and is currently traded on the NASD
Over the Counter Bulletin Board ("OTCBB") under the symbol "IVOC".
NOTE 2 - DISCONTINUED OPERATIONS
In June 2003, the Company announced its intention to spin-off its
Automatic Reminder software business in the form of a pro-rata
distribution to iVoice stockholders of approximately 65% of the
outstanding shares of Class A Common Stock of Trey Resources, Inc.,
which is currently a wholly owned subsidiary of iVoice. Trey will
own and operate the Automatic Reminder software business of iVoice
as an independent publicly traded entity following the distribution.
In June 2003 and subsequently amended in October 2003, iVoice filed
a registration statement with the SEC related to the pro rata
dividend distribution of the shares of Trey Resources, Inc. held by
the Company to the shareholders of iVoice. Management anticipates
that the distribution will take place on or about the effective date
of the registration statement. Each iVoice stockholder as of October
13, 2003, the record date for the distribution, will receive one (1)
Trey share for every twelve hundred (1,200) iVoice shares held on
that date.
The summarized unaudited results of operations for the nine months
ended September 30, 2003 and 2002 are as follows:
2003 2002
--------- ---------
Revenues $ 1,350 $ 1,050
Cost of Revenues -- --
--------- ---------
Gross profit 1,350 1,050
Operating Expenses 125,875 16,928
--------- ---------
Operating Loss (124,525) (15,878)
Interest expense 16,153 886
Provision for income taxes -- --
--------- ---------
Net Loss $(140,678) $ (16,764)
========= =========
F-9
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
NOTE 2 - DISCONTINUED OPERATIONS - Continued
At September 30, 2003 and December 31, 2002 the net current
liabilities and the net long-term assets of Trey Resources were as
follows:
September 30,
2003 December 31,
(Unaudited) 2002
----------- ------------
Current assets:
Cash $ 16,397 $ --
Prepaid expenses 55,000 --
-------- --------
Total current assets 71,397 --
Current liabilities:
Accounts payable and accrued expenses $267,636 $142,333
Convertible debentures 140,000 --
Due to related party 250,000 250,000
-------- --------
Total current liabilities 657,636 342,333
-------- --------
Net current liabilities of discontinued
operations $586,239 $342,333
======== ========
Capitalized software license costs $ 13,500 $ 27,000
-------- --------
Net long-term assets of discontinued operations $ 13,500 $ 27,000
======== ========
NOTE 3 - CONVERTIBLE DEBENTURES
In January 2003, the Company, through its Trey Resources, Inc.
subsidiary, entered into a subscription agreement with certain
purchasers to issue $250,000 in convertible debentures, with
interest payable at 5% per annum. The notes are convertible into the
Company's Class A common stock at a price equal to either (a) an
amount equal to one hundred twenty percent (120%) of the closing bid
price for the Common Stock on the Closing Date, or (b) an amount
equal to eighty percent (80%) of the average of the four (4) lowest
Closing Bid Prices of the Common Stock for the five (5) trading days
immediately preceding the Conversion Date. At September 30, 2003, a
total of $140,000 in debenture proceeds has been received so far and
is outstanding as of that date.
F-10
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
NOTE 3 - CONVERTIBLE DEBENTURES - Continued
In October 1999, the Company issued a series of convertible
debentures consisting of ten notes payable totaling $500,000 bearing
interest at 12% per annum and payable on December 1, 2000. 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. At September 30, 2003, all of the outstanding
principal and interest was repaid through the issuance of Class A
common shares in accordance with the terms described above.
Additionally, the Company has settled with the investor without
penalty or additional costs arising from the Company's default under
the Debenture agreement. The parties have also entered into mutual
releases, which prevents either party from any claims against the
other resulting from the financing agreement.
NOTE 4 - DUE TO RELATED PARTIES
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.
On August 13, 2002, the board of directors approved amendments to
the Promissory Note payable to Mr. Mahoney for monies loaned to the
Company from the proceeds of stock sales of personal holdings of
iVoice Class A common stock, unpaid compensation, income taxes
incurred from the sale of Company stock and unreimbursed expenses.
The change allows for the conversion of amounts due under the
Promissory Note into either (i) one Class B common stock share of
iVoice, Inc., no par value, for each dollar owed, or (ii) the number
of Class A common stock shares of iVoice, Inc. calculated by
dividing (x) the sum of the principal and interest that the Note
holder has decided to prepay by (y) fifty percent (50%) of the
lowest issue price of Series A common stock since the first advance
of funds under this Note, whichever the Note holder chooses, or
(iii) payment of the principal of this Note, before any repayment of
interest.
F-11
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
NOTE 4 - DUE TO RELATED PARTIES - Continued
On October 14, 2002, Mr. Mahoney converted $1,504,875 of the amounts
owed to him into 1,504,875 shares of Class B common stock. As of
September 30, 2003, the outstanding loan balance including monies
loaned from the proceeds of stock sales, unpaid compensation, income
taxes incurred from the sale of stock and unreimbursed expenses,
totaled $680,554.
In connection with the assignment of assets and liabilities from
iVoice to Trey pursuant to the anticipated spin-off transaction,
iVoice will be assigning to Trey Resources, $250,000 of outstanding
indebtedness from iVoice to Mr. Mahoney. As such, this amount is
reflected in the net current liabilities of discontinued operations.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
a) The Company leases its headquarters located at 750 Highway 34,
Matawan, New Jersey on a month-to-month obligation of $7,500 per
month. The Company maintains a good relationship with its landlord
and believes that its current facilities will be adequate for the
foreseeable future.
b) 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.
c) In February 2003, the Company entered into an Equity Line of Credit
with Cornell Capital Partners, L.P. Pursuant to the Equity Line of
Credit, the Company may, at its discretion, periodically sell to
Cornell Capital Partners shares of Class A common stock for a total
purchase price of up to $5.0 million to raise capital to fund our
working capital needs. For each share of Class A common stock
purchased under the Equity Line of Credit, Cornell Capital Partners
will pay 91% of the 5 lowest closing bid prices on the
Over-the-Counter Bulletin Board or other principal market on which
our common stock is traded for the 5 days immediately following the
notice date. Pursuant to the agreement with Cornell Capital
Partners, LP, we registered for resale on Form SB-2, 5,000,000,000
shares of Class A common stock with the Securities and Exchange
Commission. The offering will terminate 24 months after the
Securities and Exchange Commission declares the registration
statement effective.
d) The Company's assets are subject to a Security Agreement with the
majority stockholder. See Note 4.
F-12
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
NOTE 6 - COMMON STOCK
In January 2003, the Company amended its Certificate of
Incorporation to change the par value of its Class A Common Stock
from $.001 to $.0001 and to increase the number of shares the
Company is authorized to issue of its Class A Common Stock from
600,000,000 to 10,000,000,000 and its Class B Common Stock from
3,000,000 to 50,000,000.
On April 25, 2003, iVoice formed a wholly owned subsidiary in the
State of New Jersey and on May 5, 2003, iVoice changed its state of
incorporation from Delaware to New Jersey by merging into the newly
formed New Jersey subsidiary. In doing so, the par value of its
Class A common stock has changed from $.0001 to no par value and the
par value of the Class B common stock has changed from no par value
to $.01 per share.
a) Class A Common Stock
--------------------
Class A Common Stock consisted of the following as of September
30, 2003: 10,000,000,000 shares of authorized common stock with
no par value, 3,983,175,753, shares were issued and 3,982,575,753
shares were outstanding.
Class A Common Stock has voting rights of 1:1. 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 and does not
contemplate doing so in the foreseeable future. The Company
anticipates that any earnings generated from operations will be
used to finance the Company's growth objectives.
For the three months ended September 30, 2003, the Company had
the following transactions in its Class A Common Stock:
1. The Company issued 150,000,000 shares of its Class A
Common Stock for consulting services rendered valued at
$260,000.
2. The Company issued 207,090,232 shares of Class A Common
Stock for the conversion of $51,050 in debenture
principal on its 12% convertible debentures
3. The Company issued 58,405,204 shares of its Class A
common stock for interest on its outstanding 12%
Convertible Debentures valued at $24,497.
4. The Company issued 919,403,023 shares of Class A common
stock for repayment of $1,343,347 in principal, $4,087
in interest and $130,994 in discount on notes payable
issued for advances on the equity line financing with
Cornell Capital Partners, LP
5. The Company issued 295,081,967 shares of Class A common
stock upon conversion of 18,000 shares of Class B common
stock.
F-13
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
NOTE 6 - COMMON STOCK - Continued
b) Class B Common Stock
--------------------
Class B Common Stock consists of 50,000,000 shares of authorized
common stock with par value $.01 per share. Each share of Class B
common stock is convertible into Class A common stock calculated
by dividing the number of Class B shares being converted by fifty
percent (50%) of the lowest price that the Company had previously
issued its Class A common stock since the Class B shares were
issued. Each holder of Class B common stock has voting rights
equal to the number of Class A shares that would be issued upon
the conversion of the Class B shares, had all of the outstanding
Class B shares been converted on the record date used for
purposes of determining which shareholders would vote. Holders of
Class B common stock are entitled to receive dividends in the
same proportion as the Class B common stock conversion and voting
rights have to Class A common stock. Jerome R. Mahoney is the
sole owner of the Class B common stock. As of September 30, 2003,
there are 2,204,875 shares issued and 1,799,875 shares
outstanding
Pursuant to the conversion terms of the Class B Common stock, on
September 30, 2003, the 1,799,875 outstanding shares of Class B
common stock are convertible into 29,506,147,541 shares of Class
A common stock.
In the nine months ended September 30, 2003, a total of 59,000
Class B shares were converted into 610,318,926 Class A shares.
c) Preferred Stock
---------------
Preferred Stock consists of 1,000,000 shares of authorized
preferred stock with $1.00 par value. As of September 30, 2003,
no shares were issued or outstanding.
F-14
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
www.mwllp.com
INDEPENDENT AUDITOR'S REPORT
----------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS' OF
iVOICE, INC.
Matawan, New Jersey
We have audited the accompanying consolidated balance sheets of iVoice, Inc. as
of December 31, 2002 and 2001, and the related consolidated statements of
operations, stockholders' deficiency and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinions.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of iVoice, Inc. as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2, the
Company had net losses and negative cash flows from operations for the years
ended December 31, 2002 and 2001, and as of those dates had negative working
capital, which raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
MENDLOWITZ WEITSEN, LLP
East Brunswick, New Jersey
February 27, 2003
F-15
iVOICE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
------------
2002 2001
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 566,345 $ 85,543
Accounts receivable, net of allowance for
doubtful accounts of $2,700 and $4,000 15,187 37,284
Inventory 31,878 20,586
Costs in excess of billings on uncompleted jobs 23,778 --
Prepaid expenses and other current assets 7,558 331,361
---------- ----------
Total current assets 644,746 474,774
---------- ----------
PROPERTY AND EQUIPMENT, net 70,186 106,585
---------- ----------
OTHER ASSETS
Other receivable -- 67,650
Software license costs, net of accumulated amortization
of $380,800 and $272,000 163,200 272,000
Financing costs -- 35,427
Intangible assets, net of accumulated amortization
of $0 and $21,041 97,486 271,299
Deposits and other assets 7,000 13,900
---------- ----------
Total other assets 267,686 660,276
---------- ----------
TOTAL ASSETS $ 982,618 $1,241,635
========== ==========
The accompanying notes are an integral part of the financial statement.
F-16
iVOICE, INC.
CONSOLIDATED BALANCE SHEETS - (Continued)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
2002 2001
------------ ------------
CURRENT LIABILITIES
Obligations under capital leases - current $ 13,928 $ 35,018
Accounts payable and accrued expenses 360,106 391,531
Notes Payable 234,667 --
Due to related parties 615,259 1,868,943
Convertible debentures 115,800 359,800
Deferred maintenance contracts 24,156 17,214
Billings in excess of costs and estimated earnings -- 26,403
------------ ------------
Total current liabilities 1,363,916 2,698,909
LONG-TERM DEBT
Obligations under capital leases - non-current -- 13,928
------------ ------------
Total liabilities 1,363,916 2,712,837
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred stock, $1 par value; Authorized shares - 1,000,000;
Issued and outstanding shares - none -- --
Common stock, Class A - par value $.001, Authorized shares -
600,000,000; 2002 - 518,691,163 shares issued, 518,091,163
shares outstanding 2001- 154,123,517 shares issued and outstanding 518,091 1,175,278
Common stock, Class B - no par value, Authorized shares - 3,000,000
2001 - 700, 000 shares issued, 354,000 shares outstanding
2002 - 2,204,875 shares issued, 1,858,875 shares outstanding, 186 36
Subscription receivable -- (783,750)
Additional paid in capital 13,619,554 10,568,103
Accumulated deficit (14,490,329) (12,430,869)
Treasury stock, 2002 - 600,000 Class A shares, at cost;
2001- none (28,800) --
------------ ------------
Total stockholders' deficiency (381,298) (1,471,202)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 982,618 $ 1,241,635
============ ============
The accompanying notes are an integral part of the financial statement.
F-17
iVOICE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
2002 2001
----------- -----------
SALES, net $ 646,560 $ 425,948
COST OF SALES 184,306 167,229
----------- -----------
GROSS PROFIT 462,254 258,719
----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 129,988 165,617
General and administrative expenses 1,507,681 2,297,015
Research and development 229,179 387,463
Bad debt expense 70,558 24,808
Write-off of goodwill 175,833 --
Depreciation and amortization 149,388 161,089
----------- -----------
Total selling, general and administrative expenses 2,262,627 3,035,992
----------- -----------
LOSS FROM OPERATIONS (1,800,373) (2,777,273)
OTHER INCOME \ (EXPENSE)
Other income 181,273
Interest expense (440,360) (670,161)
Total other expense (259,087) (670,161)
----------- -----------
LOSS BEFORE INCOME TAXES (2,059,460) (3,447,434)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $(2,059,460) $(3,447,434)
=========== ===========
NET LOSS PER COMMON SHARE
Basic $ (.02) $ (.03)
Diluted $ (.02) $ (.03)
=========== ===========
The accompanying notes are an integral part of the financial statement.
F-18
iVOICE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Common Stock Class A Common Stock Class B
Shares Amount Shares Amount
------ ------ ------ ------
Balance at January 1, 2002 154,123,517 $ 1,175,278 354,000 $ 36
Collection of stock subscriptions -- -- -- --
Issuance of common stock for services 34,460,000 34,460 -- --
Purchase of treasury stock -- -- -- --
Issuance of common stock for cash 173,362,846 173,363 -- --
Issuance of common stock for compensation -- -- -- --
Issuance of convertible debentures -- -- -- --
Issuance of stock on conversion of Class B shares -- -- 1,504,875 150
Issuance of stock on debenture conversion 148,465,066 148,465 -- --
Issuance of stock on interest conversion 8,279,734 8,280 -- --
Adjustment for change in par value -- (1,021,755) -- --
Net loss for the year ended December 31, 2002 -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 2002 518,091,163 $ 518,091 1,858,875 $ 186
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statement.
F-19
iVOICE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Stock Additional Total
Subscriptions Treasury Paid in Accumulated Stockholders'
Receivable Stock Capital Deficit Deficiency
---------- ----- ------- ------- ----------
Balance at January 1, 2002 $ (783,750) $ -- $ 10,568,103 $(12,430,869) $ (1,471,202)
Collection of stock subscriptions 783,750 -- -- -- 783,750
Issuance of common stock for services -- -- 158,260 -- 192,720
Purchase of treasury stock -- -- (28,800) -- (28,800)
Issuance of common stock for cash -- -- 80,302 -- 253,665
Issuance of common stock for compensation -- -- -- -- --
Issuance of convertible debentures -- -- 63,750 -- 63,750
Issuance of stock on conversion of Class B shares -- -- 1,504,725 -- 1,504,875
Issuance of stock on debenture conversion -- -- 130,535 -- 279,000
Issuance of stock on interest conversion -- -- 92,124 -- 100,404
Adjustment for change in par value -- -- 1,021,755 -- --
Net loss for the year ended December 31, 2002 -- -- -- (2,059,460) (2,059,460)
------------ ------------ ------------ ============ ============
Balance at December 31, 2002 $ -- $ (28,800) $ 13,619,554 $(14,490,329) $ (381,298)
============ ============ ============ ============ ============
The accompanying notes are an integral part of the financial statement.
F-20
iVOICE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Common Stock Class A Common Stock Class B
Shares Amount Shares Amount
------ ------ ------ ------
Balance at January 1, 2001 103,969,71 $1,039,69 364,000 $ 37
Issuance of common stock for settlements 2,128,000 21,280 -- --
Issuance of common stock for services 15,194,287 32,693 -- --
Issuance of common stock for exercise
of stock options 18,000,000 18,000 -- --
Subscriptions received -- -- -- --
Issuance of common stock for cash 1,172,000 11,720 -- --
Issuance of common stock for compensation 2,183,834 20,371 -- --
Issuance of convertible debentures -- -- -- --
Issuance of stock on conversion of
Class B shares 1,000,000 1,000 (10,000) (1)
Issuance of stock for repayment of amounts
due to related parties 328,951 3,290 -- --
Issuance of stock on debenture conversion 9,829,204 25,972 -- --
Issuance of stock on interest conversion 317,526 1,255 -- --
Net loss for the year ended December 31, 2001 -- -- -- --
----------- ----------- ----------- --------
Balance at December 31, 2001 154,123,517 $ 1,175,278 354,000 $ 36
=========== =========== =========== ========
The accompanying notes are an integral part of the financial statement.
F-21
iVOICE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Stock Additional Total
Subscriptions Paid in Accumulated Stockholders'
Receivable Capital Deficit Deficiency
---------- ------- ------- ----------
Balance at January 1, 2001 $ -- $ 7,586,182 $ (8,983,435) $ (357,519)
Issuance of common stock for settlements -- 189,800 -- 211,080
Issuance of common stock for services -- 886,212 -- 918,905
Issuance of common stock for exercise
of stock options (990,000) 972,000 -- --
Subscriptions received 206,250 -- 206,250
Issuance of common stock for cash -- 153,370 -- 165,090
Issuance of common stock for compensation -- 214,060 -- 234,431
Issuance of convertible debentures -- 106,250 -- 106,250
Issuance of stock on conversion of Class B shares -- (999) -- --
Issuance of stock for repayment of amounts
due to related parties -- 72,369 75,659
Issuance of stock on debenture conversion -- 376,229 -- 402,201
Issuance of stock on interest conversion -- 12,630 -- 13,885
Net loss for the year ended December 31, 2001 -- -- (3,447,434) (3,447,434)
------------ ------------ ------------ ------------
Balance at December 31, 2001 $ (783,750) $ 10,568,103 $(12,430,869) $ (1,471,202)
============ ============ ============ ============
The accompanying notes are an integral part of the financial statement.
F-22
iVOICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2002 2001
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(2,059,460) $(3,447,434)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities
Depreciation and amortization 40,588 39,164
Amortization of prepaid expense 326,667 --
Amortization of intangibles -- 13,125
Amortization of software licenses 108,800 108,800
Bad debt expense 70,558 24,808
Write-off of goodwill 175,833 --
Forfeited employee stock compensation (28,800) --
Stock option discounts 316,750 56,250
Debt issue costs 216,977 259,780
Common stock issued for services 74,380 536,989
Common stock issued for compensation -- 234,431
Common stock issued for settlements -- 211,080
Common stock issued for interest 15,460 13,883
Changes in certain assets and liabilities:
Accounts receivable 19,189 15,587
Inventory (11,292) (358)
Other assets 4,036 124,589
Accounts payable and accrued expenses 421,713 916,220
Deferred revenue (43,239) 20,605
----------- -----------
Total cash used in operating activities (351,840) (872,481)
----------- -----------
The accompanying notes are an integral part of the financial statement.
F-23
iVOICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2002 AND 2001
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (3,649) (4,828)
Purchase of intangibles (2,020) (3,090)
--------- ---------
Total cash used in investing activities (5,669) (7,918)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 253,662 129,931
Proceeds from related party loans 3,000 354,000
Repayments of related party loans (120,000) (120,000)
Collections of stock subscriptions 317,000 150,000
Proceeds from notes payable 470,000 --
Repayment of notes payable (235,333) --
Repayment of capital leases payable (35,018) (28,338)
Repayment of convertible debentures (70,000) --
Sale of convertible debentures 255,000 425,000
--------- ---------
Total cash provided by financing activities 838,311 910,593
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 480,802 30,194
CASH AND CASH EQUIVALENTS - beginning 85,543 55,349
--------- ---------
CASH AND CASH EQUIVALENTS - end $ 566,345 $ 85,543
========= =========
CASH PAID DURING THE YEAR FOR:
Interest expense $ 7,196 $ 13,872
========= =========
Income taxes $ -- $ --
========= =========
The accompanying notes are an integral part of the financial statement.
F-24
iVOICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2002 AND 2001
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
For the Year Ended December 31, 2002
------------------------------------
a) During the year ended December 31, 2002, the Company issued 10,000
shares of Class A common stock as partial payment for leasehold
improvements valued at $540.
b) During the year ended December 31, 2002, the Company issued
2,250,000 shares of Class A common stock for legal services valued
at $45,000.
c) During the year ended December 31, 2002, the Company issued
26,000,000 shares of Class A common stock for consulting services
valued at $29,380.
d) During the year ended December 31, 2002, the Company issued
6,200,000 shares of its Class A common stock for fees and services
associated with the financing agreement with Cornell Capital, LP,
valued at $117,800.
e) During the year ended December 31, 2002, the Company retained
600,000 shares of Class A common stock previously issued to an
employee as compensation. These shares were deemed as not having
been vested with the terminated employee and were recorded as
treasury stock at a value of $28,800.
f) During the year ended December 31, 2002, the Company issued
22,229,230 shares of Class A common stock for the conversion of
$79,000 in debenture principal and 4,279,750 shares of Class A
Common Stock for the conversion of $93,085 in accrued interest on
its outstanding 12% Convertible Debentures.
g) During the year ended December 31, 2002, the Company issued 505,921
shares of its Class A common stock for the repayment of $15,000 in
principal and 84,766 shares of Class A Common Stock for the
conversion of $2,594 in accrued interest on its 8% Convertible
Debentures.
h) During the year ended December 31, 2002, the Company issued
173,362,846 shares of Class A common stock with a total value of
$253,665. Of this amount, $235,333 was for repayment of principal on
$470,000 of notes payable, issued as advances on the equity line
financing with Cornell Capital Partners, LP. The balance of $18,332
was market discount charged to expense.
i) During the year ended December 31, 2002, the Company issued
129,645,133 shares of Class A common stock upon conversion of
$185,000 in principal and 3,915,218 shares of Class A Common Stock
for the conversion of $4,725 in accrued interest on its 5%
Convertible Debentures.
j) During the year ended December 31, 2002, the Company issued
1,504,875 shares of Class B common stock upon conversion of
$1,504,875 in amounts due to related parties.
The accompanying notes are an integral part of the financial statement.
F-25
iVOICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 2002 AND 2001
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES - Continued
For the Year Ended December 31, 2001
- ------------------------------------
a) The Company issued 15,194,287 shares of its Class A Common Stock for
services valued at $1,062,055. Of these shares, the company has
registered for resale with the U.S. Securities and Exchange
Commission, 10,600,000 shares during the year ended December 31,
2001.
b) The Company issued 2,183,834 restricted shares of its Class A Common
Stock as compensation to Company employees valued at $234,431.
c) 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) 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) 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) The Company issued 2,892,628 shares of its Class A Common Stock for
the repayment of $142,200 in principal on its 12% Convertible
Debentures.
g) The Company issued 6,936,576 shares of its Class A Common Stock for
the repayment of $260,000 in principal on its 8% Convertible
Debentures
h) The Company issued 317,526 shares of its Class A Common Stock for
interest on its 8% and 12% Convertible Debentures valued at $13,883.
i) The Company issued $425,000 of its 8% Convertible Debentures
exercisable at an 80% conversion price. The 20% conversion discount
totaling $106,250 was recorded as interest expense.
The accompanying notes are an integral part of the financial statement.
F-26
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
a) Basis of Presentation
---------------------
The accompanying consolidated financial statements include the
accounts of iVoice, Inc. (the "Company" or "iVoice"), and its wholly
owned subsidiaries. iVoice, Inc. formerly known as Visual Telephone
International, Inc. ("Visual") was incorporated under the laws of
Utah on December 2, 1995, subsequently changed to Delaware.
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 and the name of the
Company was changed to iVoice.com, Inc.
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.com,
Inc. 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.
On August 24, 2001, the Company amended its certificate of
incorporation to change its name to iVoice, Inc. from iVoice.com,
Inc.
The Company is publicly traded and is currently traded on the Over
The Counter Bulletin Board ("OTCBB") under the symbol "IVOC".
b) Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of the Company and its inactive subsidiaries iVoice
Acquisition 1, Inc. and iVoice Acquisition 2, Inc. All significant
intercompany transactions and balances have been eliminated in
consolidation.
c) Line of Business
----------------
The Company is a communication company primarily engaged in the
development, manufacturing and marketing of voice recognition and
computerized telephony systems for small-to-medium sized businesses
and corporate departments. The Company's technology allows
businesses to communicate more efficiently and effectively by
integrating speech recognition into their traditional office
telephone systems with voicemail, automated attendant and
Interactive Voice Response ("IVR") functions. IVR products allow
information in PC databases to be accessed from a standard
touch-tone telephone system. The Company sells its products directly
to business customers and through Dealer and Reseller channels
throughout the United States.
F-27
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
d) Use of Estimates
----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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.
e) Revenue Recognition
-------------------
The Company obtains its income primarily from the sale of its voice
recognition and computer technology communication systems. Revenue
for systems that 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 asset, "Costs and estimated earnings in
excess of billings" represents revenue recognized in excess of the
amount billed. The liability, "Billings in excess of costs and
estimated earnings" represents billings in excess of revenues
recognized. 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 or support.
f) Advertising Costs
-----------------
Advertising costs are expensed as incurred and are included in
selling expenses. For the years ended December 31, 2002 and 2001,
advertising expense amounted to $19,254 and $42,006, respectively.
g) Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
h) 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.
i) 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-28
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
j) 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.
k) Software License Cost
---------------------
Software license costs are recorded at cost, which approximates fair
market value as of the date of purchase. These costs represent the
purchase of various exploitation rights to certain software,
pre-developed codes and systems patented by Parwan Electronics,
Corp. ("Parwan"), a non-related third party. These costs are
capitalized pursuant to Statement of Financial Accounting Standards
("SFAS") 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed", and are being amortized using
the straight-line method over a period of five years. As described
later in Note 1, 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, 2002.
l) 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.
m) Financing Costs
---------------
Financing costs consist primarily of professional fees and various
paid commissions relating to the issuance of the Company's
convertible debentures and equity credit lines. These costs are
expensed as incurred.
n) Debt Issue Costs
----------------
Debt issue costs represent the estimated cost of the conversion
discount feature relating to the issuance of the Company's
convertible debentures. In previous years, these costs were
amortized and charged to interest expense over the life of the debt.
During the year ended December 31, 2001, the Company charged to
expense the fair value of the beneficial conversion features of the
convertible debt as measured at the date of issuance in accordance
with Emerging Issues Task Force (EITF) Issue 98-5. The switch to
this method of accounting did not have a material affect on the
Company's financial statements.
o) Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash and cash equivalents, accounts
receivable, inventory, accounts payable, accrued expenses and
deferred revenue approximates fair value due to the relatively short
maturity of these instruments.
F-29
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
p) 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.
q) 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,
-----------------
2002 2001
---- ----
Basic and Diluted EPS Purposes 238,826,772 125,732,776
=========== ===========
r) 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, 2002 and 2001, the Company has
no items that represent comprehensive income, and thus, has not
included a statement of comprehensive income.
s) Recent Accounting Pronouncements
--------------------------------
SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information" requires that a public company report financial
and descriptive information about its reportable operating segments.
It also requires that an enterprise report certain information about
its products and services, the geographic areas in which they
operate and their major customers. In determining the requirements
of this pronouncement, Management believes that there is no
materially reportable segment information with respect to the
Company's operations and does not provide any segment information
regarding products and services, major customers, and the material
countries in which the Company holds assets and reports revenue.
F-30
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
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.
SFAS No. 142, "Goodwill and Other Intangible Assets" requires
goodwill to be tested for impairment under certain circumstances,
and written off when impaired, rather than being amortized as
previous standards require. In accordance with the requirements of
this pronouncement, the Company has assessed the value of the
intangible assets reflected as goodwill on its books and has
determined that no future benefit for these assets exists.
Accordingly, management has expensed a total of $175,833 in the year
ending December 31, 2002, related to the carrying value of its
goodwill and is separately stated in the Consolidated Statement of
Operations.
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 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 pronouncement and therefore believes that
adoption will not have a material effect on financial condition or
operating results.
SFAS No. 145 - "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections."
Under SFAS No. 4, all gains and losses from extinguishment of debt
were required to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. This Statement
eliminates SFAS No. 4 and, thus, the exception to applying APB No.
30 to all gains and losses related to extinguishments of debt. As a
result, gains and losses from extinguishment of debt should be
classified as extraordinary items only if they meet the criteria in
APB No. 30. Applying the provisions of APB No. 30 will distinguish
transactions that are part of an entity's recurring operations from
those that are unusual or infrequent or that meet the criteria for
F-31
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
classification as an extraordinary item. The Company does not expect
the adoption of SFAS No. 145 to have a material impact on its
financial position or results of operations.
SFAS No. 146 - "Accounting for Costs Associated with Exit or
Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The
principal difference between this Statement and EITF 94-3 relates to
its requirements for recognition of a liability for a cost
associated with an exit or disposal activity. This Statement
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred.
Under EITF 94-3, a liability was recognized at the date of an
entity's commitment to an exit plan. This Statement is effective for
exit or disposal activities that are initiated after December 31,
2002. The Company does not expect the adoption of SFAS No. 146 to
have a material impact on its financial position or results of
operations.
SFAS No. 147 - "Acquisitions of Certain Financial Institutions, an
amendment of FASB Statements No. 72 and 144 and FASB Interpretation
No. 9," which applies to the acquisition of all or part of a
financial institution, except for a transaction between two or more
mutual enterprises. SFAS No. 147 removes the requirement in SFAS No.
72 and Interpretation 9 thereto, to recognize and amortize any
excess of the fair value of liabilities assumed over the fair value
of tangible and identifiable intangible assets acquired as an
unidentifiable intangible asset. This statement requires that those
transactions be accounted for in accordance with SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." In addition, this statement amends SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," to
include certain financial institution-related intangible assets.
This statement is effective for acquisitions for which the date of
acquisition is on or after October 1, 2002, and is not applicable to
the Company.
SFAS No. 148, "Accounting for Stock Based Compensation-Transition
and Disclosure." This statement was issued to provide alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used
on reported results. This statement is effective for financial
statements for fiscal years ending after December 15, 2002. This
statement does not have any impact on the Company because the
Company does not plan to implement the fair value method.
NOTE 2 - GOING CONCERN
- ----------------------
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally accepted
in the United States of America, which
F-32
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
contemplates continuation of the Company as a going concern. As of
December 31, 2002 and 2001, the Company had a net loss, a negative
cash flow from operations as well as negative working capital. These
matters raise substantial doubt about the Company's ability to
continue as a going concern. Therefore, recoverability of a major
portion of the recorded asset amounts shown in the accompanying
consolidated 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/or generate positive cash
flows from operations.
To date, the Company has funded its operations through the issuance
of convertible debt, sales of its Class A Common Stock and loans
from its principal stockholder, the proceeds of which are derived
from sales of this principal stockholder's personal holdings of the
Company's Class A Common Stock. The Company has incurred accumulated
net losses totaling $14,490,329 through the year ended December 31,
2002, and had a cash balance of $566,345 as of that date.
Considering expected cash requirements for the up coming year, there
is substantial doubt as to the Company's ability to continue
operations.
The Company believes that its condition resulted from the inherent
risks associated with small technology companies. Such risks
include, but are not limited to, the ability to: a) generate sales
of its product at levels sufficient to cover its costs and provide a
return for investors, b) attract additional capital in order to
finance growth, c) further develop and successfully market
commercial products and d) successfully compete with other
technology companies having financial, production and marketing
resources significantly greater than those of 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.
In June 2002, the Company entered into financing agreement with
Cornell Capital Partners, LP that will require the issuance of
additional equity as described in Note 7 of these financial
statements. Management believes that appropriate funding will be
generated by the financing agreement with Cornell enabling the
Company to continue operations through the current fiscal year.
Management is also confident that future product sales will generate
necessary cash flow, reducing the Company's need for additional
financing. It should be noted however, that no assurance can be
given that these future sales will materialize or that additional
necessary funding can be raised.
In an effort to reach profitability and become less dependent on its
requirement to finance continuing operations, the Company is working
to increase its revenue and profit margins through the establishment
of its own dealer and reseller channel. Management has determined
that addressing the following areas, as they relate to innovation,
reliability and marketability of the Company's products, are crucial
to reaching profitability:
F-33
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
o Accuracy of its core speech recognition technology.
o Creating desired user features that distinguish the
Company's products form the competition.
o Obtaining an agreement with an Original Equipment
Manufacturer (OEM) to include the Company's products in
every unit the manufacturer ships.
Management believes that leveraging already existing equipment
manufacturers reseller channels will provide an avenue to distribute
software only, providing greater profit margins than complete
turnkey systems, which involve purchasing and sub-assembly of
hardware components. Management has also introduced several new user
features to its Speech Enabled Auto Attendant that sets this product
apart from competition. The introduction of an entirely TAPI
(Telephone Application Program Interface) based Speech-enabled Auto
Attendant and Name Dialer, allows iVoice applications to integrate
into different PBX systems without the need for additional hardware
devices. These feature and integration changes should provide for
greater appeal to telephony re-sellers allowing for more economical
customer installations with no reduction in the prices iVoice
charges for its own software.
Furthermore, the Company intends to add sales personnel in the
upcoming fiscal year to increase its efforts in establishing
relationships with OEMs. Management considers good working
relationships with manufacturers will assist in the promotion of
iVoice products to the manufacturers authorized re-seller networks.
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment is summarized as follows:
December 31,
------------
2002 2001
-------- --------
Equipment $ 62,443 $ 59,524
Leasehold improvements 11,454 10,184
Furniture and fixtures 123,394 123,394
-------- --------
197,291 193,102
Less: Accumulated depreciation 127,105 86,517
-------- --------
Property and equipment, net $ 70,186 $106,585
======== ========
Depreciation expense for the years ended December 31, 2002 and 2001
was $40,588 and $39,164, respectively.
NOTE 4 - GOODWILL AND INTANGIBLES
- ---------------------------------
During the year ended December 31, 2002, the Company has assessed
the value of the intangible assets reflected as goodwill on its
books and has determined that no future benefit for these assets
exists in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets". Under this pronouncement, goodwill and other
intangible assets are
F-34
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
tested for impairment under certain circumstances, and written off
when impaired, rather than being amortized as previous standards
require. Accordingly for the year ended December 31, 2002,
management has expensed a total of $175,833, related to goodwill
recorded in connection with the merger with ThirdCAI, Inc. Total
remaining intangible assets, consisting of costs associated with the
Company's patent applications amounted to $97,486. At December 31,
2001, intangible assets totaled $271,299 net of accumulated
amortization of $21,024.
NOTE 5 - COSTS IN EXCESS OF BILLINGS/BILLINGS IN EXCESS OF COSTS
- ----------------------------------------------------------------
Costs in excess of billings/(billings in excess of costs and
estimated earnings) on uncompleted contracts as of December 31, 2002
and 2001 consists of the following:
December 31,
------------
2002 2001
---------- ----------
Costs incurred on uncompleted contracts $ 40,637 $ 56,385
Estimated earnings 87,030 53,763
---------- ----------
127,667 110,148
Less billings to date 103,889 136,551
---------- ----------
$ 23,778 $ (26,403)
========== ==========
NOTE 6 - INCOME TAXES
- ---------------------
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
Federal Income Tax Rate (34.0)%
Deferred Tax Charge (Credit) -
Effect on Valuation Allowance 38.7 %
State Income Tax, Net of Federal Benefit (4.1)%
-------
Effective Income Tax Rate 0.0%
=======
As of December 31, 2002 and 2001, the Company had net operating loss
carry forwards of approximately $8,800,000 and $6,900,000,
respectively that can be utilized to offset future taxable income
for Federal income tax purposes through 2015. Utilization of these
net loss carry forwards is subject to the limitations of Internal
Revenue Code Section 382. Because of the current uncertainty of
realizing the benefit of the tax carry forward, a valuation
allowance equal to the tax benefit for deferred taxes has been
established. The full realization of the tax benefit associated with
the carry forward depends predominantly upon the Company's ability
to generate taxable income during the carry forward period.
For state income taxes, the Company's net operating loss carry
forwards have been reduced by $2,972,044. During the year ended
2002, the company participated in the Technology Tax Certificate
Transfer Program sponsored by the New Jersey Economic Development
Authority and the State of New Jersey. Under the program, eligible
businesses may sell their unused net-operating-loss carry forwards
and unused research and development tax-credit
F-35
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
carry forwards to any corporate taxpayer in the State of New Jersey
for at least 75% of the value of the tax benefits. After related
commissions and expenses related to application submission the
Company received cash proceeds of $152,474.
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
-----------
2002 2001
----------- -----------
Net Operating Loss Carry forwards $ 3,430,000 $ 2,630,000
Less: Valuation Allowance (3,430,000) (2,630,000)
----------- -----------
Net Deferred Tax Assets $ - $ -
=========== ===========
Net operating loss carry forwards expire starting in 2007 through
2017.
NOTE 7 - NOTE PAYABLE
- ---------------------
In August and November, 2002 the Company issued promissory notes
payable to Cornell Capital Partners, LP totaling $470,000 for
advances on the equity-line financing agreement entered into with
Cornell in June, 2002.
The note maturities range from 120 to 150 days from the date of
issue with interest accruing at rates ranging from 8% to 12%per
annum on any balance left unpaid after the maturity date. It is
anticipated that the outstanding notes will be fully repaid with
Class A common stock issuable under the equity-line financing
agreement with Cornell Capital. At December 31, 2002, a total of
$235,333 has been repaid through the issuance of 173,362,846 Class A
common shares leaving an unpaid balance of $234,667.
NOTE 8 - DUE TO RELATED PARTIES
- -------------------------------
Due to related parties consisted of amounts due to the officers of
the company as follows:
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, which accrues
interest at 9.5% per year on the unpaid balance.
On August 13, 2002, the board of directors approved amendments to
the Promissory Note payable to Mr. Mahoney for monies loaned to the
Company from the proceeds of stock sales of personal holdings of
iVoice Class A common stock, unpaid compensation, income taxes
incurred from the sale of Company stock and unreimbursed expenses.
The
F-36
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
change allows for the conversion of amounts due under the Promissory
Note into either (i) one Class B common stock share of iVoice, Inc.,
no par value, for each dollar owed, or (ii) the number of Class A
common stock shares of iVoice, Inc. calculated by dividing (x) the
sum of the principal and interest that the Note holder has decided
to prepay by (y) fifty percent (50%) of the lowest issue price of
Series A common stock since the first advance of funds under this
Note, whichever the Note holder chooses, or (iii) payment of the
principal of this Note, before any repayment of interest.
On October 14, 2002, Mr. Mahoney converted $1,504,875 of the amounts
owed to him into 1,504,875 shares of Class B common stock. As of
December 31, 2002 and 2001, the remaining outstanding balance owed
to Mr. Mahoney amounted to $547,926 and $1,821,610.
Also included in amounts due to related parties was unpaid
compensation to Kevin Whalen, the Company's Chief Financial Officer.
Effective May 1, 2001, Mr. Whalen was granted a salary increase of
$20,000. To date, this annual salary increase, as well as a bonus of
$34,000 for the year-end December 31, 2001, has been accrued, with
the repayment terms as to be mutually agreed upon between the
Company and Mr. Whalen. At December 31, 2002 and 2001, total amounts
due to Mr. Whalen totaled $67,333 and $47,333 respectively.
NOTE 9 - CONVERTIBLE DEBENTURES
- -------------------------------
The Company has previously issued three series of convertible
debentures as follows:
In October 1999, the Company's issued convertible debentures
totaling $500,000 bearing interest at 12% per annum and payable on
December 1, 2000. The 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, 2002,
$384,200 in principal and $99,644 in accrued interest had been
converted into 30,463,005 shares of the Company's Class A Common
Stock. Total outstanding principal balance of the 12% convertible
debentures at December 31, 2002 and 2001 respectively was $115,800
and $194,800 plus accrued interest of $23,519 and $82,514.
In 2001, the Company issued convertible debentures totaling $425,000
bearing interest at 8% and maturing 5 years from the date of issue.
The 8% debentures are convertible into Class A common shares at the
lesser of (i) 140% of the closing bid price for the Common Stock on
the Closing Date, or (ii) 80% of the average of the three lowest
closing bid for the 22 trading days immediately preceding the date
of conversion. As of December 31, 2002, all outstanding principal of
the 8% debentures and $9,918 in accrued interest had been converted
into 7,740,679 shares of the Company's Class A Common Stock. Total
F-37
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
outstanding principal balance of the 8% convertible debentures at
December 31, 2001 was $165,000 plus accrued interest of $3,936.
On June 11, 2002, the Company entered into a subscription agreement
with certain purchasers to issue $255,000 in convertible debentures,
with interest payable at 5% per annum. The notes are convertible
into the Company's Class A common stock at a price equal to either
(a) an amount equal to one hundred twenty percent (120%) of the
closing bid price for the Common Stock on the Closing Date, or (b)
an amount equal to eighty percent (80%) of the average of the four
(4) lowest Closing Bid Prices of the Common Stock for the five (5)
trading days immediately preceding the Conversion Date. As of
December 31, 2002, the Company had issued 129,645,133 shares of
Class A common stock for the conversion of $185,000 in debenture
principal and $4,725 in accrued interest. The Company also repaid
the remaining $70,000 in debenture principal with a 20% premium in
cash, from proceeds of an advance on the equity line financing with
Cornell Capital Partners, LP as discussed in Note 6.
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 the default, the amount of which is undeterminable at
this time.
NOTE 10 - 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, 2002 are follows:
2002 2001
-------- -------
Lease payable for computer equipment,
payable at $1,367 per month, including
interest at 22.31%. Final payment is due
June 2003. $ 7,693 $20,749
F-38
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
Lease payable for furniture, payable at
$2,151 per month, including interest at
20.79%. Final payment due April 2003. 6,235 28,197
-------- -------
Present value of net minimum lease payments $ 13,928 $48,946
======== =======
The future minimum lease payments $ 14,653 $56,864
Less amount representing interest 725 7,918
Present value of net minimum lease payments 13,928 48,946
Less current portion 13,928 35,108
Long term capital lease obligations $ - $13,928
======== =======
NOTE 11 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
a) The Company leases its headquarters located at 750 Highway 34,
Matawan, New Jersey. 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. On December 5, 2001, the Company renegotiated this
lease into an eight-month term requiring monthly payments of
$7,000 and reduced the space it occupies. Effective September
15, 2002, the lease became a month-to-month obligation of $8,000
per month. The Company maintains a good relationship with its
landlord and believes that its current facilities will be
adequate for the foreseeable future.
Rent expense under operating leases for the year ended December
31, 2002 and 2001 was $96,868 and $176,560, respectively.
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,
-----------
2003 $ -
==========
b) 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.
c) The Company filed suit against PanAm Wireless, Inc., the parent
company of Celpage, Inc., for the installation of a 196-port IVR
System to recover the balance of a system installation contract.
PanAm Wireless, Inc. subsequently filed a counterclaim against
iVoice alleging iVoice's failure to supply PanAm with the
required equipment and that the system did not provide the
services as specified in the
F-39
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
purchase order. The case has presently been dismissed in court
and the parties are preparing to enter into mutual releases from
any further obligations of performance under the original
contract. As a result, in the year ended December 31, 2002, the
Company has expensed $67,650 previously reflected in other
receivables related to this transaction.
d) In June 2002, the Company entered into an Equity Line of Credit
with Cornell Capital Partners, L.P. Pursuant to the Equity Line
of Credit, the Company may, at its discretion, periodically sell
to Cornell Capital Partners shares of Class A common stock for a
total purchase price of up to $5.0 million to raise capital to
fund our working capital needs. For each share of Class A common
stock purchased under the Equity Line of Credit, Cornell Capital
Partners will pay 91% of the 5 lowest closing bid prices on the
Over-the-Counter Bulletin Board or other principal market on
which our common stock is traded for the 5 days immediately
following the notice date. Pursuant to the agreement with
Cornell Capital Partners, LP, we registered for resale on Form
SB-2, shares of Class A common stock with the Securities and
Exchange Commission which was filed on July 2, 2002 and later
amended on August 8, 2002. On August 14, 2002, the Securities
and Exchange Commission declared the Form SB-2 filed effective.
The offering will terminate 24 months after the Securities and
Exchange Commission declares the registration statement
effective. Through December 31, 2002, we issued $470,000 in
promissory notes for advances on the equity-line of credit with
Cornell as described in Note 6 of these financial statements.
e) The Company's assets are subject to a Security Agreement with
the majority stockholder. See Note 7.
NOTE 12 - 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 December 31,
2002: 600,000,000 shares of authorized common stock with a par
value of $.001, 518,691,163, shares were issued and 518,091,163
shares were outstanding.
Each holder of Class A Common stock is entitled to receive
ratably dividends, if any, as may be declared by the Board of
Directors out of funds legally available for the payment of
dividends. The Company has never paid any dividends on its Common
Stock and does not contemplate doing so in the foreseeable
future. The Company
F-40
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
anticipates that any earnings generated from operations will be
used to finance the growth objectives.
For the year ended December 31, 2002, the Company had the
following transactions in its Class A Common Stock:
1. The Company issued 10,000 shares of its Class A
Common Stock for partial payment of leasehold
improvements valued at $540.
2. The Company issued 2,250,000 shares of Class A
Common Stock for legal services valued at $45,000.
3. The Company issued 26,000,000 shares of Class A
Common Stock for consulting services valued at
$29,380.
4. The Company issued 505,921 shares of Class A
Common Stock for the conversion of $15,000 in
debenture principal and 84,766 shares for $2,594
in accrued interest on its 8% Convertible
Debentures.
5. The Company issued 22,229,230 shares of Class A
Common Stock for the conversion of $79,000 in
debenture principal and 4,279,750 shares of Class
A Common Stock for the conversion of $93,085 in
accrued interest on its outstanding 12%
Convertible Debentures.
6. The Company issued 6,200,000 shares of Class A
common stock for fees and services associated with
the financing agreement with Cornell Capital, LP,
valued at $117,800.
7. The Company issued 125,729,915 shares of Class A
common stock for the conversion of $185,000 in
debenture principal and 3,915,218 shares of Class
A Common Stock for the conversion of $4,725 in
accrued interest on its 5% Convertible Debentures.
8. The Company issued 173,362,846 shares of Class A
common stock for repayment of $235,333 in
principal and $18,332 in discount on $470,000 of
notes payable issued for advances on the equity
line financing with Cornell Capital Partners, LP
b) Class B Common Stock
--------------------
Class B Common Stock consists of 3,000,000 shares of
authorized common stock with no par value. Class B stock has
voting rights of 100 to 1 with respect to Class A Common
Stock. As of December 31, 2002, 2,204,875 shares were issued;
and 1,858,875 shares were outstanding. Class B common
stockholders are not entitled to receive dividends.
F-41
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
For the year ended December 31, 2002, the Company had the
following transactions in its Class B Common Stock:
1. The Company issued 1,504,875 shares of Class B
common stock upon conversion of $1,504,875 in
amounts due to related parties
c) Preferred Stock
---------------
Preferred Stock consists of 1,000,000 shares of authorized
preferred stock with $1.00 par value. As of December 31, 2002,
no shares were issued or outstanding.
NOTE 13 - STOCK OPTIONS
- -----------------------
During 2002, the Company issued various options as follows:
a) On August 23, 2002, the Company issued to one of its
employees, options to purchase 5,000,000 shares of iVoice
Class A Common Stock at a price of $.009 per share. The
options vest at 25% per year and expire five-years from the
date of issue.
During 2001, the Company issued various options as follows:
a) The Company issued to its employees, options to purchase
1,655,000 shares of iVoice Class A Common Stock at an average
price of $.076 per share. Of these options, 255,000 were
cancelled due to employee terminations in 2001. The remaining
options vest at 25% per year and have a five-year expiration
from date of issue.
b) Warrants to purchase 404,510 shares of iVoice Class A Common
Stock with an average exercise price of $.1220, to Swartz
Private Equity, LLC as drawdown fees under the financing
agreement with them. The warrants expire five years from the
date of issue.
c) Warrants to purchase a total of 343,750 shares of iVoice Class
A Common Stock with an exercise price of $.1323 to Owen May
and Michael Jacobs of the May Davis Group as a fee for the
placement of the Company's 8% convertible debentures, pursuant
to a subscription agreement with them. The warrants expire
five years from the date of issue.
d) Warrants to purchase 18,000,000 shares of iVoice Class A
Common Stock with an exercise price of $.055 to the
EMCO\Hanover Group, Inc. pursuant to a consulting agreement
with them. The warrants were exercised and are reflected as a
subscription receivable. See Note 10 regarding shares issued
for exercise of this warrant.
e) On November 15, 2001, the Company issued warrants to purchase
a total of 250,000 shares of iVoice Class A Common Stock at
$.047 per share to Beacon Capital LLC in consideration for the
placement of $150,000 of the Company's 8% convertible
F-42
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
debentures pursuant to an subscription agreement with them.
The warrants are exercisable at any time prior to their five
(5) year expiration and carry a cash or cashless exercise at
the option of the holders.
a) Options outstanding, except options under employee stock
option plan, are as follows as of December 31, 2002:
Expiration Date Exercise Price Shares
--------------- -------------- ------
December 22, 2003 .1000 10,000
January 5, 2004 .1200 10,000
January 21, 2004 .1177 10,000
February 5, 2004 .1430 10,000
March 17, 2004 .0869 15,000
April 6, 2004 .0583 15,000
August 17, 2005 .1406 5,490,000
January 9, 2006 .1045 200,000
February 27, 2006 .1406 87,310
February 28, 2006 .1458 78,000
March 13, 2006 .1221 39,200
April 30, 2006 .1323 343,750
November 14, 2006 .0470 250,000
---------
6,558,260
Employee Stock Option Plan
--------------------------
During the year ended December 31, 1999, 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 years. During
1999, 20,000,000 shares were reserved for future issuance under the
plan. As of December 31, 2002, 16,559,000 options to purchase shares
were granted. A total of 9,000,000 of these granted options were
exercised. At December 31, 2002, a total of 6,891,083 options to
purchase Class A common shares were outstanding and held by company
employees. The exercise prices range from $0.009 to $3.75 per share.
All options issued to employees vest at 25% per year and expire in 5
years.
The following employee options have been exercised to date:
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
F-43
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
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:
For The Year Ended,
December 31,
2002 2001
----------- -----------
Net Loss
As Reported $(2,059,460) $(3,447,434)
=========== ===========
Proforma $(2,506,143) $(3,848,540)
=========== ===========
Basic Loss Per Share
As Reported $ (.02) $ (.03)
=========== ===========
Proforma $ (.02) $ (.03)
=========== ===========
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, 2002
and 2001: dividend yield of 0%; expected volatility of 320%;
risk-free interest rates of 4.30% and 5.50% respectively; and
expected life of 4.21 and 4.05 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, 2001 764,000 $ .670 5,960,000 $ 0.456
Granted 1,795,000 $ .078 18,998,260 $ 0.058
Exercised -- $ .000 (18,000,000) $ 0.040
Canceled (612,917) $ .246 (400,000) $ 1.328
----------- --------- ----------- ----------
F-44
iVOICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
Balance, December 31, 2001 1,946,083 $ .257 6,558,260 $ 0.135
Granted 5,000,000 $ .009 -- $ 0.000
Exercised -- $ .000 -- $ 0.000
Canceled (55,000) $ .023 (--) $ 0.000
----------- --------- ----------- ----------
Balance, December 31, 2002 6,891,083 $ .077 6,558,260 $ 0.135
=========== ========= =========== ==========
Outstanding and Exercisable,
December 31, 2001 265,583 $ .576 6,558,260 $ 0.135
=========== ========= =========== ==========
Outstanding and Exercisable,
December 31, 2002 705,333 $ .369 6,558,260 $ 0.135
=========== ========= =========== ==========
NOTE 13 - SUBSEQUENT EVENTS
- ---------------------------
On January 13, 2003, the Company amended its certificate of
incorporation in the state of Delaware to:
a) Increase the number of Authorized Class A Common Stock Shares
to a total of ten billion (10,000,000,000) shares.
b) Change the stated par value of the Class A Common Stock Shares
from $.001 to $.0001 per share.
c) Increase the number of Authorized Class B Common Stock Shares
to a total of fifty million (50,000,000) shares.
d) Revise the conversion ratio and voting rights of Class B
Common Stock Shares whereby upon conversion, each share of
Class B Common Stock is convertible into Class A Common Stock
Shares calculated by dividing the number of Class B Common
Stock Shares being converted by fifty percent (50%) of the
lowest price that the Company had previously issued its Class
A Common Stock since the Class B Common Stock Shares were
issued.
e) Permit Class B Common Stock Shares to receive dividends upon
the declaration of a dividend to Class A Common Stock
shareholders.
F-45
We have not authorized any dealer, salesperson or
other person to provide any information or make
any representations about iVoice, Inc. except the
information or representations contained in this
prospectus. You should not rely on any additional
information or representations if made.
-----------------------
This prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy any
securities:
---------------
o except the Class A common stock offered
by this prospectus; PROSPECTUS
o in any jurisdiction in which the offer ---------------
or solicitation is not authorized;
o in any jurisdiction where the dealer or 4,700,000,000 Shares of
other salesperson is not qualified to Class A Common Stock
make the offer or solicitation;
o to any person to whom it is unlawful to IVOICE, INC.
make the offer or solicitation; or
o to any person who is not a United States
resident or who is outside the
jurisdiction of the United States.
The delivery of this prospectus or any accompanying
sale does not imply that: ----------
o there have been no changes in the
affairs of iVoice, Inc. after the date
of this prospectus; or
o the information contained in this
prospectus is correct after the date of
this prospectus.
-----------------------
Until __________, all dealers effecting
transactions in the registered securities, whether
or not participating in this distribution, may be
required to deliver a prospectus. This is in
addition to the obligation of dealers to deliver a
prospectus when acting as underwriters.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
iVoice, Inc.'s bylaws provide that it has the power to indemnify any
officer or director against damages if such person acted in good faith and in a
manner the person reasonably believed to be in the best interests of iVoice,
Inc. No indemnification may be made (i) if a person is adjudged liable unless a
court determines that such person is entitled to such indemnification, (ii) with
respect to amounts paid in settlement without court approval or (iii) expenses
incurred in defending any action without court approval.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered. iVoice, Inc. will pay all expenses in connection with this
offering.
Securities and Exchange Commission Registration Fee $ 1,103
Printing and Engraving Expenses $ 3,000
Accounting Fees and Expenses $ 5,000
Legal Fees and Expenses $ 17,000
Miscellaneous $ 3,897
---------
TOTAL $ 30,000
=========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
iVoice, Inc. issued the unregistered securities set forth below during
the past three years. iVoice, Inc. relied upon the exemption provided in Section
4(2) of the Securities Act and/or Rule 506 thereunder, which cover "transactions
by an issuer not involving any public offering," to issue securities discussed
above without registration under the Securities Act of 1933. iVoice made a
determination in each case that the person to whom the securities were issued
did not need the protections that registration would afford. The certificates
representing the securities issued displayed a restrictive legend to prevent
transfer except in compliance with applicable laws, and our transfer agent was
instructed not to permit transfers unless directed to do so by iVoice, after
approval by its legal counsel. iVoice believes that the investors to whom
securities were issued had such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of the
prospective investment. iVoice also believes that the investors had access to
the same type of information as would be contained in a registration statement.
On January 2, 2004, iVoice, Inc. issued 300,000,000 shares of Class A
common stock to Cornell Capital Partners, L.P. as a one-time commitment fee
pursuant to the equity standby distribution agreement dated December 31, 2003
between iVoice, Inc. and Cornell Capital Partners, L.P., with respect to which
this registration statement relates in part.
On January 2, 2004, iVoice, Inc. issued 3,030,303 shares of Class A
common stock to CapStone Investments, as payment for its services as placement
agent in connection with the equity standby distribution agreement dated
December 31, 2003 between iVoice, Inc. and Cornell Capital Partners, L.P., with
respect to which this registration statement relates in part.
On January 2, 2004, iVoice, Inc. issued 3,030,303 shares of Class A
common stock to the law firm of Butler Gonzalez LLP, as partial payment for its
services as escrow agent in connection with the equity standby distribution
agreement dated December 31, 2003 between iVoice, Inc. and Cornell Capital
Partners, L.P., with respect to which this registration statement relates in
part.
Nine Months Ended September 30, 2003
On January 21, 2003, iVoice issued 44,000,000 shares of Class A common
stock upon conversion of 22,000 shares of Class B common stock.
On February 14, 2003, iVoice issued 35,000,000 shares of its Class A
Common Stock to Bruce Barren for consulting services rendered valued at $35,000.
On April 1, September 4 and September 29, 2003, iVoice issued 50,000,000
shares, 25,000,000 shares and 25,000,000 shares respectively, of its Class A
Common Stock to Stone Street Advisors for consulting services rendered valued at
$242,000.
On April 22, 2003, iVoice issued 90,909,090 shares of Class A common
stock upon conversion of 8,000 shares of Class B common stock.
On June 9, 2003, iVoice issued 180,327,869 shares of Class A common
stock upon conversion of 11,000 shares of Class B common stock.
II-1
On July 30, 2003, iVoice issued 100,000,000 shares of its Class A Common
Stock to Chris Benz for consulting services rendered valued at $38,000.
On September 4, 2003, iVoice issued 2,724,337 shares of its Class A
common stock for the repayment of $4,087 in interest on notes payable issued for
advances on the equity line financing with Cornell Capital Partners, L.P.
On September 4, 2003, iVoice issued 295,081,967 shares of Class A common
stock upon conversion of 18,000 shares of Class B common stock.
On September 8, 2003, and September 29, 2003, iVoice issued 55,343,448
shares and 3,061,756 shares, respectively, of its Class A common stock to the
holders of its 12% convertible debentures for the conversion of interest valued
at $24,497.
On various dates from the period beginning January 1, 2003 and September
30, 2003, iVoice issued 466,859,715 shares of Class A Common Stock to the
holders of its 12% convertible debentures for the conversion of $115,800 in
debenture principal.
On various dates from the period beginning January 1, 2003 and September
30, 2003, iVoice issued 2,091,176,408 shares of Class A common stock for
repayment of $1,849,418 in advances on the equity line financing with Cornell
Capital Partners, LP. Of that amount, $1,684,668 represents principal and
$164,750 represents market discount on notes payable issued as advances.
Year Ended December 31, 2002
In August and November 2002, we borrowed a total of $470,000 from
Cornell Capital partners, which amounts are evidenced by two promissory notes.
One note was issued in August 2002 in the principal amount of $250,000. This
note is due 120 days after issuance. This note bears interest at 8% per year if
not paid by the maturity date. The second note was issued in November 2002 in
the principal amount of $220,000. This note is due 150 days after issuance. This
note bears interest at 12% per year if not paid by the maturity date. As of
January 15, 2003, iVoice owed Cornell Capital Partners an aggregate of $179,671
under these two promissory notes. The proceeds under these notes represent
advances under the Equity Line of Credit that will be repaid through the
issuance of Class A common stock pursuant the terms of the Equity Line of Credit
agreement.
iVoice issued 10,000 shares of its Class A common stock for partial
payment of leasehold improvements valued at $540.
iVoice issued 2,250,000 shares of Class A common stock for legal
services valued at $45,000.
iVoice issued 505,921 shares of Class A common stock for the conversion
of $15,000 in debenture principal and 84,766 shares for $2,594 in accrued
interest on its 8% Convertible Debentures.
iVoice issued 7,229,230 shares of Class A common stock for the
conversion of $64,000 in debenture principal and 4,279,750 shares of Class A
Common Stock for the conversion of $93,085 in accrued interest on its
outstanding 12% Convertible Debentures.
iVoice issued 6,200,000 shares of its Class A common stock for fees and
services associated with the financing iVoice issued 19,464,744 shares of its
Class A common stock for the conversion of $71,483 in debenture principal on its
5% Convertible Debentures.
iVoice issued 36,675,000 shares for repayment of $93,453 in principal on
a $250,000 note payable issued for an advance on the equity line financing with
Cornell Capital Partners, LP.
On August 23, 2002, iVoice issued, to an employee, an option to
purchase 5,000,000 shares of iVoice Class A common stock at a price of $.009 per
share. The options vest at 25% per year and have a five-year expiration from
date of issue.
In June 2002, iVoice issued 5,500,000 shares of Class A common stock to
Cornell Capital Partners, 500,000 shares of Class A common stock to Westrock
Advisors and 200,000 shares of Class A common stock to Seth A Farbman, all in
connection with the Equity Line of Credit. These shares were valued at $110,000,
$10,000 and $4,000, respectively.
II-2
In May 2002, iVoice issued 2,250,000 shares of Class A common stock to
Lawrence A. Muenz for legal services rendered. These legal services were valued
at $45,000.
In April and May 2002, iVoice issued 2,741,331 shares of Class A common
stock for the conversion of $29,823.64 of convertible debentures.
In June 2002, we entered into an Equity Line of Credit with Cornell
Capital Partners Pursuant to the Equity Line of Credit, we may, at our
discretion, periodically sell to Cornell Capital Partners shares of Class A
common stock for a total purchase price of up to $5.0 million. For each share of
Class A common stock purchased under the Equity Line of Credit, Cornell Capital
Partners will pay 91% of the lowest closing bid price on the Over-the-Counter
Bulletin Board or other principal market on which our common stock is traded for
the 5 days immediately following the notice date. Cornell Capital Partners is a
private limited partnership whose business operations are conducted through its
general partner, Yorkville Advisors, LLC. Further, Cornell Capital Partners will
retain 5% of each advance under the Equity Line of Credit. In addition, iVoice
engaged Westrock Advisors, Inc., a registered broker-dealer, to advise it in
connection with the Equity Line of Credit. For its services, Westrock Advisors
received 500,000 shares of iVoice's Class A common stock. On August 14, 2002,
iVoice registered 399,500,000 shares of Class A common stock to be issued under
the Equity Line of Credit. To date, iVoice has issued a total of 206,861,946
shares of Class A common stock under the Equity Line of Credit. iVoice received
net proceeds of $290,329 from the sale of these shares under the Equity Line of
Credit. Accordingly, iVoice has $4,709,671 available under the Equity Line of
Credit. This prospectus relates to the offering of up to 5,000,000,000
additional shares of Class A commons tock under the Equity Line of Credit. The
issuance of these shares is conditioned upon iVoice registering these shares
with the Securities and Exchange Commission.
In June 2002, iVoice raised $255,000 from the sale of convertible
debentures. These debentures are convertible into shares of Class A common stock
at a price equal to either (a) an amount equal to one hundred twenty percent
(120%) of the closing bid price of the common stock as of the closing date or
(b) an amount equal to eighty percent (80%) of the average closing bid price of
the common stock for the four trading days immediately preceding the conversion
date. These convertible debentures accrue interest at a rate of 5% per year and
are convertible at the holder's option. These convertible debentures have a term
of two years. All amounts outstanding under these convertible debentures have
been redeemed. iVoice issued 129,645,133 shares of Class A common stock upon
conversion of $189,725, the outstanding balance due under the debentures.
Year Ended December 31, 2001. In the year ending December 31, 2001,
iVoice issued the following unregistered securities pursuant to various
exemptions from registration under the Securities Act of 1933:
iVoice, Inc. issued 15,194,287 shares of Class A common stock for
services valued at $918,905.
iVoice, Inc. issued 9,829,204 shares of Class A common stock for the
conversion of $402,201 in debenture principal and 317,576 shares of Class A
common stock for $13,885 in accrued interest.
iVoice, Inc. issued 2,128,000 shares of Class A common stock valued at
$211,080 to settle disputes arising from financing agreements.
iVoice, Inc. issued 1,172,000 shares of Class A common stock to Swartz
Private Equity, LLC under the terms of a financing agreement for net proceeds of
$129,931.
iVoice, Inc. issued $425,000 of 8% Convertible Debentures exercisable
at an 80% conversion price. The 20% conversion discount totaling $106,250 was
recorded as interest expense.
iVoice, Inc. issued 2,183,834 shares of our Class A common stock at
various times during the year as compensation to employees valued at $234,432.
On January 30, 2001, iVoice, Inc. issued 328,951 shares of our Class A
common stock as repayment of amounts owed to related parties valued at $75,659.
On November 20, 2001, iVoice, Inc. issued 1,000,000 shares of our Class
A common stock for the conversion of 10,000 shares of our Class B common stock.
During 2001, we issued the following options and warrants:
II-3
o Options to purchase 1,655,000 shares of Class A common stock to
employees at an average price of $0.076 per share. Of these
options, 255,000 were cancelled due to employee terminations in
2001. The remaining options vest at 25% per year and have a
five-year expiration from date of issue.
o Warrants to purchase 404,510 shares of Class A common stock with
an average exercise price of $0.1220, to Swartz Private Equity,
LLC as draw-down fees under a financing agreement. The warrants
expire five years from the date of issue.
o Warrants to purchase a total of 343,750 shares of Class A common
stock with an exercise price of $0.1323 to Owen May and Michael
Jacobs of the May Davis Group as a fee for the placement of 8%
convertible debentures, pursuant to a subscription agreement. The
warrants expire five years from the date of issue.
o Warrants to purchase 18,000,000 shares of Class A common stock
with an exercise price of $0.055 to the EMCO\Hanover Group, Inc.
pursuant to a consulting agreement with them. We issued
18,000,000 shares of Class A common stock for the exercise of
this warrant.
o Warrants to purchase a total of 250,000 shares of Class A common
stock at $0.047 per share to Beacon Capital LLC in consideration
for the placement of $150,000 of 8% convertible debentures
pursuant to an subscription agreement. The warrants are
exercisable at any time prior to their five year expiration and
carry a cash or cashless exercise at the option of the holders.
Year Ended December 31, 2000. On February 10, 2000, iVoice settled a
$4,500,000 lawsuit by issuing 2,000,000 shares of Class A common stock. These
shares were valued at $300,000 on the date of issuance.
On January 10 and February 2, 2000, we issued $100,000 and $50,000,
respectively, of 12% Convertible Debentures exercisable at a 50% conversion
price. The 50% conversion discount totaling $150,000 was recorded as a prepaid
debt issue cost and was amortized over the life of the debt. Debt issue costs
represent the estimated cost of the conversion discount feature relating to the
issuance of iVoice's convertible debentures. In previous years, these costs were
amortized and charged to interest expense over the life of the debt. During the
year ended December 31, 2001, iVoice charged to expense the fair value of the
beneficial conversion features of the convertible debt as measured at the date
of issuance in accordance with EITF Issue 98-5. The switch to this method of
accounting did not have a material affect on iVoice's financial statements.
During the year ended December 31, 2000, iVoice issued 848,718 shares
of Class A common stock for services valued at $518,155.
On April 24, 2000, iVoice issued 50,000 shares of Class A common stock
to Corporate Architects, Inc. with a value of $46,875 as a referral fee for the
purchase of ThirdCAI, Inc.
During the year ended December 31, 2000, iVoice issued 80,000 shares of
Class A common stock as compensation to employees valued at $69,938.
During the year ended December 31, 2000, iVoice issued 9,000,000 shares
of Class A common stock upon the exercise of options at $0.033 per share for a
total of $297,000.
During the year ended December 31, 2000, iVoice issued 33,600,000
shares of Class A common stock for the conversion of 336,000 shares of Class B
common stock.
During the year ended December 31, 2000, iVoice issued 1,007,287 shares
of Class A common stock for the conversion of $163,000 in principal on its
outstanding 12% convertible debentures.
During the year ended December 31, 2000, iVoice issued 1,240,047 shares
of Class A common stock for cash totaling $746,000.
On August 17, 2000, in connection with a financing agreement with
Swartz Private Equity, LLC, we issued a warrant to purchase 5,490,000 shares of
Class A common stock at $0.484 per share. The warrant expires on August 16, 2005
and contains strike price reset provisions.
II-4
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).
3.7 Certificate of Incorporation of iVoice, Inc., a New Jersey
corporation (incorporated herein by reference to Exhibit 3.1 of
the Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2003, filed with the SEC on May 12, 2003).
3.8 By-laws of iVoice, Inc., a New Jersey corporation (incorporated
herein by reference to Exhibit 3.2 of the Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2003, filed
with the SEC on May 12, 2003).
4.1 Debenture No issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to AJW
Partners, LLC on October 29, 1999 (incorporated herein by
reference to Exhibit 4.1 of the registration statement on Form
SB-2, filed with the SEC on November 17, 2000).
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).
II-5
No. Description
- --- -----------
4.7 Debenture No. 7 issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to New
Millenium Capital Partners II, LLC on October 29, 1999
(incorporated herein by reference to Exhibit 4.7 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
4.8 Debenture No. 8 issued by iVoice.com, Inc. for $50,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to AJW
Partners, LLC on October 29, 1999 (incorporated herein by
reference to Exhibit 4.8 of the registration statement on Form
SB-2, filed with the SEC on November 17, 2000).
4.9 Debenture No. 9 issued by iVoice.com, Inc. for $25,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to New
Millenium Capital Partners II, LLC on October 29, 1999
(incorporated herein by reference to Exhibit 4.9 of the
registration statement on Form SB-2, filed with the SEC on
November 17, 2000).
4.10 Debenture No. 10 issued by iVoice.com, Inc. for $25,000 in 12%
Secured Convertible Debenture Due December 1, 2000 to AJW
Partners, LLC, on October 29, 1999 (incorporated herein by
reference to Exhibit 4.10 of the registration statement on Form
SB-2, filed with the SEC on November 17, 2000).
4.11 Form 8% Convertible Debentures issued by iVoice.com, Inc. for
$150,000 due April 30, 2006 to the purchasers thereof on April
30, 2001(incorporated herein by reference to Exhibit 4.11 of the
registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
4.12 Form 8% Convertible Debentures issued by iVoice.com, Inc. to
certain purchasers thereof for an aggregate of $125,000
(incorporated herein by reference to Exhibit 4.12 of the
registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
4.13 Form 8% Convertible Debentures to be issued by iVoice.com, Inc.
to Beacon Capital, LLC in the amount of $150,000. (incorporated
herein by reference to Exhibit 4.12 of the registration statement
on Form SB-2, filed with the SEC on December 21, 2001).
5.1* Opinion 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. (incorporated herein by
reference to Exhibit 4.12 of the registration statement on Form
SB-2, filed with the SEC on December 21, 2001).
II-6
No. Description
- --- -----------
10.7 Registration rights agreement between iVoice.com, Inc. and Beacon
Capital, LLC, dated as of November 20, 2001. (incorporated herein
by reference to Exhibit 4.12 of the registration statement on
Form SB-2, filed with the SEC on December 21, 2001).
10.8 Form of warrant to purchase 250,000 shares of iVoice.com, Inc. to
be issued to Beacon Capital, LLC (incorporated herein by
reference to Exhibit 4.12 of the registration statement on Form
SB-2, filed with the SEC on December 21, 2001).
10.9 Subscription agreement between iVoice.com, Inc. and the purchaser
signatories thereof, dated April 30, 2001, for the purchase of an
aggregate of $275,000 of 8% Convertible Debentures due April 30,
2001 (incorporated herein by reference to Exhibit 10.9 of the
registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
10.10 Registration rights agreement by and among iVoice.com, Inc. and
the investor signatories thereto dated as of April 30, 2001
(incorporated herein by reference to Exhibit 10.10 of the
registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
10.11 Warrant to purchase 171,875 shares of iVoice.com, Inc. issued to
Michael Jacobs of The May Davis Group, Inc., dated April 30, 2001
(incorporated herein by reference to Exhibit 10.11 of the
registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
10.12 Warrant to purchase 171,875 shares of iVoice.com, Inc. issued to
Owen May of The May Davis Group, Inc., dated April 30, 2001
(incorporated herein by reference to Exhibit 10.12 of the
registration statement on Form SB-2, filed with the SEC on
September 7, 2001).
10.13 Consulting agreement entered into on March 15, 2001 by and
between iVoice.com, Inc. and Finnigan USA (incorporated herein by
reference to Exhibit 10.13 of the registration statement on Form
SB-2, filed with the SEC on September 7, 2001).
10.14 Real Property Lease Agreement dated December 5, 2001 between
iVoice.com, Inc. and B&R Holding Company (incorporated herein by
reference to Exhibit 10.14 to the Form 10-KSB for the year ended
December 31, 2001 filed with the SEC on March 27, 2002).
10.15 Equity Line of Credit Agreement dated as of June 2002 between
iVoice, Inc. and Cornell Capital Partners (incorporated herein by
reference to Exhibit 10.15 to the Registration Statement on Form
SB-2 filed on July 2, 2002).
10.16 Registration Rights Agreement dated as of June 2002 between
iVoice, Inc. and Cornell Capital Partners (incorporated herein by
reference to Exhibit 10.16 to the Registration Statement on Form
SB-2 filed on July 2, 2002).
10.17 Escrow Agreement dated as of June 2002 among iVoice, Inc.,
Cornell Capital Partners, Butler Gonzalez LLP and Wachovia, N.A.
(incorporated herein by reference to Exhibit 10.17 to the
Registration Statement on Form SB-2 filed on July 2, 2002).
10.18 Placement Agent Agreement dated June 2002 between iVoice, Inc.
and Westrock Advisors, Inc. (incorporated herein by reference to
Exhibit 10.18 to the Registration Statement on Form SB-2 filed on
July 2, 2002).
10.19 Securities Purchase Agreement dated June 2002 between iVoice,
Inc. and the buyers identified therein (incorporated herein by
reference to Exhibit 10.19 to the Registration Statement on Form
SB-2 filed on July 2, 2002).
II-7
No. Description
- --- -----------
10.20 Registration Rights Agreement dated June 2002 between iVoice,
Inc. and the buyers identified therein (incorporated herein by
reference to Exhibit 10.20 to the Registration Statement on Form
SB-2 filed on July 2, 2002).
10.21 Form of Debenture (incorporated herein by reference to Exhibit
10.21 to the Registration Statement on Form SB-2 filed on July 2,
2002).
10.22 Escrow Agreement dated June 2002 between iVoice, Inc., the buyers
identified therein and Wachovia, N.A. (incorporated herein by
reference to Exhibit 10.22 to the Registration Statement on Form
SB-2 filed on July 2, 2002).
10.23 Transfer Agent Instructions dated June 2002 between iVoice, Inc.,
Cornell Capital Partners and Fidelity Transfer Co. (incorporated
herein by reference to Exhibit 10.23 to the Registration
Statement on Form SB-2 filed on July 2, 2002).
10.24 Letter Agreement dated June 28, 2002 (incorporated herein by
reference to Exhibit 10.24 to the Registration Statement on Form
SB-2 filed on February 11, 2003).
10.25 Promissory Note dated as of August 16, 2002 given by iVoice, Inc.
to Cornell Capital Partners (incorporated herein by reference to
Exhibit 10.25 to the Registration Statement on Form SB-2 filed on
February 11, 2003).
10.26 Promissory Note dated as of November 27, 2002 given by iVoice,
Inc. to Cornell Capital Partners (incorporated herein by
reference to Exhibit 10.26 to the Registration Statement on Form
SB-2 filed on February 11, 2003).
II-8
No. Description
- --- -----------
10.27 Letter Agreement dated January 24, 2003 between iVoice, Inc. and
Mr. Jerome Mahoney (incorporated herein by reference to Exhibit
10.27 to the Registration Statement on Form SB-2 filed February
11, 2003).
10.28** Standy Equity Distribution Agreement dated December 31, 2003
between iVoice, Inc. and Cornell Capital Partners, L.P.
10.29** Registration Rights Agreement dated December 31, 2003 between
iVoice, Inc. and Cornell Capital Partners, L.P.
10.30** Placement Agent Agreement dated December 31, 2003 between iVoice,
Inc. and CapStone Investments
10.31** Escrow Agreement dated December 31, 2003 among iVoice, Inc.,
Cornell Capital Partners, L.P. and Butler Gonzalez LLP
10.32** Letter Agreement dated December 19, 2003 between iVoice, Inc. and
Jerome Mahoney
10.33** Form of Guaranty by iVoice, Inc. in favor of holders of
Convertible Debt of Trey Resources, Inc.
10.34** Administrative Services Agreement dated February 22, 2003 between
iVoice, Inc. and Trey Resources, Inc.
10.35 Equity Line of Credit Agreement dated January 24, 2003 between
Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc.
(incorporated herein by reference to Exhibit 10.1 of the
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2003, filed with the SEC on May 12, 2003)
10.36 Registration Rights Agreement dated January 24, 2003 between
Cornell Capital Partners, LP, and iVoice Acquisition 1, Inc.
(incorporated herein by reference to Exhibit 10.2 of the
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2003, filed with the SEC on May 12, 2003).
10.37 Stock Purchase Agreement dated January 24, 2003 between iVoice
Acquisition 1, Inc. and listed Buyers (incorporated herein by
reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2003, filed with the SEC
on May 12, 2003).
10.38 Form of 5% Convertible Debenture issued by iVoice Acquisition 1,
Inc. (incorporated herein by reference to Exhibit 10.4 of the
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2003, filed with the SEC on May 12, 2003).
10.39 Placement Agreement dated January 24, 2003 between iVoice
Acquisition 1, Inc. and Cornell Capital Partners LP.
(incorporated herein by reference to Exhibit 10.5 of the
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2003, filed with the SEC on May 12, 2003).
10.40 Consulting Services Agreement dated July 27, 2003 between iVoice,
Inc. and Stone Street Advisors, LLC (incorporated herein by
reference to Exhibit 10.6 of the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2003, filed with the
SEC on November 14, 2003).
21** List of Subsidiaries of iVoice, Inc.
23.1** Consent of Mendlowitz Weitsen LLP.
23.2 Consent of Kramer, Levin, Naftalis & Frankel, LLP (incorporated
by reference to Exhibit 5.1).
- ---------------
* To be filed.
** Filed herewith.
II-9
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sale; 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 of 1933;
(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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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 paragraphs (1)(i) and
(1)(ii) above do not apply if the registration statement is on Form
S-3, and the information required to be, included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the registrant pursuant to Section 13 or Section 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 of 1933, 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 the 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than 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 the final adjudication
of such issue.
II-10
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on our behalf by the undersigned, on January 2, 2004.
IVOICE, INC.
By: /s/ Jerome R. Mahoney
------------------------------------
Name: Jerome R. Mahoney
Title: President, Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Jerome R. Mahoney President, Chief Executive January 2, 2004
- --------------------------- Officer, Chief Financial
Jerome R. Mahoney Officer and Sole Director
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