As filed with the Securities and Exchange Commission on November 18, 2004
Registration No. 333-______
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------
DEEP FIELD TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
New Jersey 7373 20-1862733
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Identification No.)
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)
with copies to:
Scott Rosenblum, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
(212) 715-9100
Telecopier: (212) 715-8000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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
Title of Each Class Maximum
of Securities to be Amount to be Aggregate Amount of Registration
Registered Registered (1) Offering Price Fee
(2)
- --------------------------------------------------------------------------------
Class A Common
Stock, no par value 1,147,531,579 $11,475,316 $1,453.92
per share
- --------------------------------------------------------------------------------
(1) Includes 62,500,000 shares of Class A Common Stock issuable upon conversion
of convertible debentures, 1,052,631,579 shares of Class A Common Stock issuable
pursuant to an equity line of credit, 150,000 shares of Class A Common Stock
issuable pursuant to a commitment fee, 1,000,000 shares of Class A Common Stock
issuable pursuant to a placement agent fee and 31,250,000 shares of Class A
Common Stock issuable upon conversion of Series A Preferred Stock.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933 assuming a market
value per share of $.01.
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.
==============================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and we are
not soliciting offers to buy these securities in any state where the offer or
sale is not permitted.
Subject to completion, dated November 18, 2004
Deep Field Technologies, Inc.
1,147,531,579 Shares of Class A Common Stock
This prospectus relates to the offering of up to 1,147,531,579 shares of
Deep Field Technologies, Inc. Class A Common Stock by certain persons who will
become stockholders of Deep Field Technologies. Please refer to "Selling
Stockholders" beginning on page 18. Deep Field Technologies is not selling any
shares of Class A Common Stock in this offering and therefore will not receive
any proceeds from this offering. Deep Field Technologies will, however, receive
proceeds from the sale of Class A Common Stock under an equity line of credit
pursuant to a Standby Equity Distribution Agreement with Cornell Capital
Partners, L.P. All costs associated with this registration will be borne by Deep
Field Technologies. Deep Field Technologies has agreed to allow Cornell Capital
Partners to retain 6% of the proceeds raised by us under the equity line of
credit.
The shares of Class A Common Stock are being offered for sale by the
selling stockholders at prices established on the Over-the-Counter Bulletin
Board during the term of this offering. These prices will fluctuate based on the
demand for the shares of Class A Common Stock.
The selling stockholders consist of:
o Cornell Capital Partners, as holder of secured convertible debentures
and as investor under the Standby Equity Distribution Agreement, who
intends to sell an aggregate of up to 1,115,281,579 shares of Class A
Common Stock;
o iVoice, Inc., as holder of shares of Series A Preferred Stock, who
intends to sell an aggregate of up to 31,250,000 shares of Class A
Common Stock; and
o Sloan Securities Corporation, as holder of shares of Class A Common
Stock, who intends to sell an aggregate of up to 1,000,000 shares of
Class A Common Stock.
Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act of 1933, as amended, in connection with the sale of Class A
Common Stock that it will receive under the Standby Equity Distribution
Agreement and upon conversion of Deep Field Technologies's 5% secured
convertible debentures due 2006. Under the Standby Equity Distribution
Agreement, Cornell Capital Partners will pay a net purchase price of 95% of Deep
Field Technologies's market price as calculated in the agreement. Deep Field
Technologies will pay to Cornell Capital Partners in shares of Deep Field
Technologies Class A Common Stock a one-time commitment fee of 1.5% of the
initial outstanding shares of Class A Common Stock on or about the date of
effectiveness of the registration statement of which this prospectus is a part.
Deep Field Technologies has also agreed to permit Cornell Capital Partners to
retain an amount equal to 6% of the proceeds received by Deep Field Technologies
under the Standby Equity
Distribution Agreement. In addition, in August and _____ 2004, Deep Field
Technologies issued an aggregate of $400,000 in secured convertible debentures
to Cornell Capital Partners. Each of these debentures are convertible into
shares of Class A Common Stock at a price equal to the lesser of (a) an amount
equal to one hundred twenty percent (120%) of the initial bid price of the Class
A Common Stock as of the closing date of the registration of shares or (b) an
amount equal to eighty percent (80%) of the lowest closing bid price of the
Class A Common Stock for the five trading days immediately preceding the
conversion date. Deep Field Technologies will issue an additional $100,000 of
secured convertible debentures to Cornell Capital Partners within five days
after the date of effectiveness of the registration statement of which this
prospectus is a part. Any discount to market price, the retained proceeds and
commitment fee are underwriting discounts.
Sloan Securities Corporation is an "underwriter" within the meaning of the
Securities Act of 1933, as amended, in connection with the sale of Class A
Common Stock that it will receive as a placement agent fee from Deep Field
Technologies in connection with the private placement of secured convertible
debentures to Cornell Capital Partners. Under the placement agent agreement,
Deep Field Technologies agreed to issue to Sloan Securities on or about the date
of effectiveness of the registration statement of which this prospectus is a
part a number of shares of Class A Common Stock equal to $10,000 divided by the
closing bid price of the Class A Common Stock on the date of effectiveness of
the registration statement of which this prospectus is a part. Any discount to
market price is an underwriting discount.
These Securities are speculative and involve a high degree of risk.
Please refer to "Risk Factors" beginning on page 5.
With the exception of Cornell Capital Partners and Sloan Securities, which
are deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended, no other underwriter or person has been engaged to facilitate the sale
of shares of Class A Common Stock in this offering. This offering will terminate
24 months after the accompanying registration statement is declared effective by
the Securities and Exchange Commission.
The Securities and Exchange Commission and state securities regulators
have not 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 date of this prospectus is ________________, 200_.
TABLE OF CONTENTS
PROSPECTUS SUMMARY...........................................................1
SUMMARY OF THE OFFERING......................................................2
SUMMARY CONSOLIDATED FINANCIAL INFORMATION...................................4
RISK FACTORS.................................................................5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...................17
SELLING STOCKHOLDERS........................................................18
USE OF PROCEEDS.............................................................19
DILUTION....................................................................20
EQUITY LINE OF CREDIT.......................................................21
PLAN OF OFFERING............................................................23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.........................................................25
DESCRIPTION OF BUSINESS.....................................................35
MANAGEMENT..................................................................40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................42
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS.............................................44
DESCRIPTION OF SECURITIES...................................................45
EXPERTS.....................................................................51
LEGAL MATTERS...............................................................51
HOW TO GET MORE INFORMATION.................................................51
INDEX TO FINANCIAL STATEMENTS..............................................F-1
PROSPECTUS SUMMARY
Overview
Deep Field Technologies, Inc., which we refer to in this prospectus as
"Deep Field Technologies," "we", "us" or "the Company," was incorporated in New
Jersey on November 10, 2004 as a wholly owned subsidiary of iVoice Inc.
("iVoice"). While iVoice has been engaged in the speech recognition software and
computerized telephony business since 1997, iVoice management seeks to leverage
the value of underutilized developed technology and believes that the transition
to an independent company will provide Deep Field Technologies with greater
access to capital. This should provide needed financial resources to potentially
penetrate the market and distribute the product. As such, Deep Field
Technologies's business will be formed from the contribution of certain assets
and related liabilities on or about the effective date of the registration
statement of which this prospectus is a part. In connection with the iVoice
reorganization, iVoice will transfer to us its Unified Messaging software
business and related liabilities. Following this transfer, iVoice will
distribute by dividend to all of the stockholders of iVoice up to 10,000,000
shares of Deep Field Technologies, Inc. Class A Common Stock (the
"Distribution"). Following the Distribution, Deep Field Technologies will own
and operate iVoice's Unified Messaging software business. Concurrently with the
Distribution, iVoice intends to contribute the majority of its remaining
business lines into two new companies and intends to distribute the stock of
those two companies to its stockholders. Following the Distribution and the two
other distributions, iVoice's operating assets will consist of its iVoiceMail
software and its portfolio of patents and patent rights, and its future business
development operations will consist of licensing its intellectual property
rights. Deep Field Technologies will be a development stage company following
the Distribution. Deep Field Technologies intends to seek to expand its
operations through additional sales and marketing activity and the acquisition
of additional businesses. These potential acquired additional businesses may be
outside the current field of operations of Deep Field Technologies. Deep Field
Technologies may not be able to identify, successfully integrate or profitably
manage any such businesses or operations.
Deep Field Technologies intends to continue to develop, market and license
the Unified Messaging line of computerized telephony software. With Unified
Messaging, e-mail, voice mail and faxes can be handled through a desktop
computer 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.
About Us
Deep Field Technologies was incorporated in New Jersey on November 10,
2004 as a wholly-owned subsidiary of iVoice, Inc. Deep Field Technologies
received by assignment all of the interests in and rights and title to, and
assumed all of the obligations of, all of the agreements, contracts,
understandings and other instruments of iVoice Technology 2, Inc., a Nevada
corporation and affiliate of Deep Field Technologies. When we refer to or
describe any agreement, contract or other written instrument of Deep Field
Technologies in this prospectus,
1
we are referring to an agreement, contract or other written instrument that had
been entered into by iVoice Technology 2 and assigned to Deep Field
Technologies.
Our principal office is located at 750 Highway 34, Matawan, New Jersey
07747. Our telephone number is (732) 441-7700.
SUMMARY OF THE OFFERING
This offering relates to the sale of Class A Common Stock by certain
persons who are, or will become, stockholders of Deep Field Technologies. The
selling stockholders consist of:
o Cornell Capital Partners, as holder of secured convertible debentures
and as investor under the Standby Equity Distribution Agreement, who
intends to sell an aggregate of up to 1,115,281,579 shares of Class A
Common Stock;
o iVoice, Inc., as holder of shares of Series A Preferred Stock, who
intends to sell an aggregate of up to 31,250,000 shares of Class A
Common Stock; and
o Sloan Securities Corporation, as holder of shares of Class A Common
Stock, who intends to sell an aggregate of up to 1,000,000 shares of
Class A Common Stock.
Pursuant to the Standby Equity Distribution Agreement with Cornell Capital
Partners, L.P., we may, at our discretion, periodically issue and sell to
Cornell Capital Partners shares of Class A Common Stock for a total purchase
price of $10.0 million. The maximum amount of each advance amount is $500,000
per advance notice. A minimum of seven trading days must pass between each
advance notice. Cornell Capital Partners, L.P. will purchase the shares of Class
A Common Stock for a 5% discount to the prevailing market price of our common
stock. In addition, Cornell Capital Partners will retain 6% of each advance
under the equity line of credit, and will receive a one-time commitment fee,
payable in shares of Deep Field Technologies Class A Common Stock, of 1.5% of
the initial outstanding shares of Class A Common Stock (exclusive of shares
issuable under the equity line of credit or upon conversion of the secured
convertible debentures) on the date that the registration statement of which
this prospectus is a part becomes effective. Cornell Capital Partners has
informed us that it intends to sell any shares purchased under the equity line
of credit at the then prevailing market price. The obligation of Cornell Capital
Partners to purchase shares under the equity line of credit terminates upon the
suspension of the effectiveness of the registration statement of which this
prospectus is a part for an aggregate of fifty days or the failure of Deep Field
Technologies to remedy a material breach of the Standby Equity Distribution
Agreement within thirty days of receipt of notice. The initial closing under the
Standby Equity Distribution Agreement and each subsequent closing of a purchase
and sale of shares are conditioned upon the satisfaction of customary
conditions.
In August and _______, 2004, Deep Field Technologies issued an aggregate
of $400,000 in secured convertible debentures, with interest payable at 5% per
annum, to Cornell Capital Partners. Each of the debentures are convertible into
shares of Class A Common Stock at a price equal to the lesser of (a) an amount
equal to one hundred twenty percent (120%) of the initial bid price of the Class
A Common Stock on the date of effectiveness of the registration statement of
2
which this prospectus is a part or (b) an amount equal to eighty percent (80%)
of the lowest closing bid price of the Class A Common Stock for the five trading
days immediately preceding the conversion date. The secured convertible
debentures have a term of two years with all accrued interest due at the
expiration of the term. At our option, these debentures may be redeemed at a 20%
premium prior to August 12, 2006. The secured convertible debentures are secured
by a first priority security interest in substantially all of the assets of Deep
Field Technologies. Deep Field Technologies will issue an additional $100,000 of
secured convertible debentures to Cornell Capital Partners on or about the date
of effectiveness of the registration statement of which this prospectus is a
part.
In August 2004, Deep Field Technologies entered into an agreement with
Sloan Securities Corporation to act as an agent for the private placement of
secured convertible debentures to Cornell Capital Partners. Under the placement
agent agreement, Deep Field Technologies agreed to issue to Sloan Securities on
or about the date of effectiveness of the registration statement of which this
prospectus is a part a number of shares of Class A Common Stock equal to $10,000
divided by the closing bid price of the Class A Common Stock on the date of
effectiveness of the registration statement of which this prospectus is a part.
In consideration of and exchange for the assets that Deep Field
Technologies will receive pursuant to the spin-off of the Unified Messaging
business, Deep Field Technologies will issue 10 shares of Series A 5%
Convertible Preferred Stock to iVoice. Each share of Series A 5% Convertible
Preferred Stock has a stated value of $25,000 per share. Each share of Series A
5% Convertible Preferred Stock will be convertible into shares of Class A Common
Stock at a price equal to the lesser of (a) an amount equal to one hundred
twenty-five percent (125%) of the closing bid price of the Class A Common Stock
as of the conversion date or (b) an amount equal to eighty percent (80%) of the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the conversion date.
This prospectus relates to the shares of Class A Common Stock to be issued
to Cornell Capital Partners under the equity line of credit (including the
one-time commitment fee) and upon conversion of the secured convertible
debentures, the shares of Class A Common Stock to be issued to Sloan Securities
as a placement agent fee and the shares of Class A Common Stock to be issued to
iVoice upon conversion of the Series A Preferred Stock.
Class A Common Stock Offered 1,147,531,579 shares by selling
stockholders
Offering Price Market price
Class A Common Stock Outstanding 100 shares of Class A Common Stock
Before the Offering
Use of Proceeds We will not receive any proceeds of the
shares offered by the selling stockholders.
Any proceeds we receive from the sale of
common stock under the equity line of
credit will be used for sales and
marketing, payment of administrative
services, working capital purposes and
acquisitions. See "Use
3
of Proceeds."
Risk Factors The securities offered hereby involve a
high degree of risk and immediate
substantial dilution. You should read
carefully the factors discussed under
"Risk Factors" beginning on page 5.
Several of the most significant risk
factors include:
o Future sales by our stockholders may
adversely affect our stock price and
our ability to raise funds in new
stock offerings.
o Existing stockholders will experience
significant dilution from our sale of
shares under the equity line of
credit.
o The investor under the equity line of
credit will pay less than the
then-prevailing market price for our
common stock.
o The selling stockholders have
informed us that they intend to sell
their shares of common stock in the
public market, which sales may cause
our stock price to decline.
o 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.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
For the Nine For the Nine For the Year For the Year
Months Ended Months Ended Ended Ended
September September December December
30, 2004 30, 2003 31, 2003 31, 2002
------------ ------------ ------------ ------------
Statement of Operation Data:
- --------------------------------------------------------------------------------
Sales $6,160 $6,883 $8,505 $23,238
- --------------------------------------------------------------------------------
Cost of sales 2,353 2,612 3,447 5,987
- --------------------------------------------------------------------------------
Gross profit 3,807 4,271 5,058 17,251
- --------------------------------------------------------------------------------
Selling, general, and
administrative expenses 35,416 17,281 24,288 77,784
- --------------------------------------------------------------------------------
Loss from operations (31,609) (13,010) (19,230) (60,533)
- --------------------------------------------------------------------------------
Net Loss (58,941) (18,858) (28,938) (69,845)
- --------------------------------------------------------------------------------
4
September 30, 2004 December 31, 2003
------------------ -----------------
Balance Sheet Data:
- --------------------------------------------------------------------------------
Current Assets $173,217 $390
- --------------------------------------------------------------------------------
Intangibles 70,000 --
- --------------------------------------------------------------------------------
Liabilities 202,639 --
- --------------------------------------------------------------------------------
Stockholders' equity (deficiency) 40,578 390
- --------------------------------------------------------------------------------
RISK FACTORS
You should carefully consider each of the following risk factors and all
of the other information in this information statement. The following risks
relate principally to the offering and Deep Field Technologies's business.
If any of the following risks and uncertainties develops into actual
events, the business, financial condition or results of operations of Deep Field
Technologies could be materially adversely affected. If that happens, the
trading price of Deep Field Technologies Class A Common Stock could decline
significantly.
The risk factors below contain forward-looking statements regarding the
offering and Deep Field Technologies. Actual results could differ materially
from those set forth in the forward-looking statements. See "Cautionary
Statement Regarding Forward-Looking Statements" below.
Risks Related to Our Business
Deep Field Technologies will face many of the difficulties that companies in the
early stage may face.
As a result of the Company's limited operating history, the currently
difficult economic conditions of the telecommunications marketplace, government
restrictions on telemarketing activities and the emerging nature of the unified
messaging industry, it may be difficult for you to assess our growth and
earnings potential. The Company believes that due primarily to the relatively
brief time its Unified Messaging software has been available to the general
public, there has not yet been developed, implemented and demonstrated a
commercially viable business model from which to successfully operate any form
of business that relies on the products and services that we intend to market,
sell, and distribute. Therefore, we have faced many of the difficulties that
companies in the early stages of their development in new and evolving markets
often face. These have included, among others:
o Substantial delays and expenses related to testing and development
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 recruiting qualified employees for management and other
positions;
5
o Lack of sufficient customers, revenues and cash flow; and
o Limited financial resources.
We may continue to face these and other difficulties in the future, some
of which may be beyond our control. If we are unable to successfully address
these problems, our future growth and earnings will be negatively affected.
Deep Field Technologies has no operating history as an independent public
company and may be unable to operate profitably as a stand-alone company.
Although iVoice has operated as a reporting public company since 2000 and
has sold computerized telephony software since 1997, Deep Field Technologies
does not have an operating history as an independent public company.
Historically, since the businesses that comprise each of Deep Field Technologies
and iVoice have been under one ultimate parent, they have been able to rely, to
some degree, on the earnings, assets, and cash flow of each other for capital
requirements. After the Distribution, Deep Field Technologies will be able to
rely only on the Unified Messaging software business for such requirements. The
Unified Messaging software business has operated at a loss in the past for
iVoice, and as an independent company such losses may continue or increase.
Additionally, Deep Field Technologies's business has relied on iVoice for
financial, administrative and managerial expertise in conducting its operations.
Following the Distribution, Deep Field Technologies will maintain its own credit
and banking relationships and perform its own financial and investor relations
functions. Deep Field Technologies may not be able to successfully put in place
the financial, administrative and managerial structure necessary to operate as
an independent public company, and the development of such structure will
require a significant amount of management's time and other resources.
iVoice's operations demonstrate a history of net losses and cash flow shortfalls
and Deep Field Technologies's likely will as well.
iVoice, of which Deep Field Technologies was a part, has incurred
recurring operating losses. iVoice used cash in operations of approximately
$1,142,000 and $352,000 during the years ended December 31, 2003 and 2002,
respectively, and has a history of net losses. iVoice had a cash balance of
approximately $4,500,000 and $560,000 at December 31, 2003 and 2002,
respectively, and current assets exceeded current liabilities by approximately
$3,200,000 at December 31, 2003 and current liabilities exceeded current assets
by approximately $720,000 at December 31, 2002. iVoice had stockholders' equity
of approximately $3,400,000 at December 31, 2003 and a stockholders' deficit of
approximately $382,000 at December 31, 2002. iVoice has been and may, in the
future, be dependent upon outside and related party financing to develop and
market their software products, perform their business development activities,
and provide for ongoing working capital requirements. During the year ended
December 31, 2003, substantially all of this financing has been provided by
Cornell Capital Partners. There can be no assurance that Deep Field Technologies
will have operations separately that fare any better than those of iVoice.
6
Deep Field Technologies has received a going concern opinion from its
independent auditors that describes the uncertainty regarding its ability to
continue as a going concern.
Deep Field Technologies has received a report from its independent
auditors for the fiscal year ended December 31, 2003 containing an explanatory
paragraph that describes the uncertainty regarding the Company's ability to
continue as a going concern due to its historical negative cash flow and
because, as of the date of the auditors' opinion, the Company did not have
access to sufficient committed capital to meet its projected operating needs for
at least the next 12 months.
There can be no assurance that management's plans will be successful, and
other unforeseeable actions may become necessary. Any inability to raise capital
may require us to reduce the level of our operations. Such actions could have a
material adverse effect on our business and operations and result in charges
that could be material to our business and results of operations.
Deep Field Technologies's future revenue and operating results are unpredictable
and may fluctuate.
Our short operating history and the rapidly changing nature of the market
in which we compete make it difficult to accurately forecast our revenues and
operating results. Our operating results are unpredictable and we expect them to
fluctuate in the future due to a number of factors. These factors may include,
among others:
o the timing of sales of our products and services, particularly in
light of our minimal sales history;
o difficulty in keeping current with changing technologies;
o unexpected delays in introducing new products, new product features
and services;
o increased expenses, whether related to sales and marketing, product
development or administration;
o deferral of recognition of our revenue in accordance with applicable
accounting principles due to the time required to complete projects;
o the mix of product license and services revenue; and
o costs related to possible acquisitions of technology or businesses.
iVoice's earnings and stock price will be subject to significant fluctuations.
Due to the factors noted in this prospectus, our earnings and stock price
will be subject to significant volatility, particularly on a quarterly basis.
iVoice has previously experienced shortfalls in revenue and earnings from levels
expected by investors, which have had an
7
immediate and material adverse effect on the trading price of its common stock.
This may occur for Deep Field Technologies in the future.
If either iVoice or Deep Field Technologies lose the services of any key
personnel, including our chief executive officer or our directors, our business
may suffer.
We are dependent on our key officers and directors, including Jerome R.
Mahoney and Mark Meller, our Chairman of the Board and our President, Chief
Executive Officer and Chief Financial Officer, respectively, 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. To minimize the
effects of such loss, both of iVoice and Deep Field Technologies have entered
into employment contracts with Jerome Mahoney and Deep Field Technologies has
entered into an employment contract with Mark Meller.
Our potential future business acquisitions may be unpredictable and may cause
our business to suffer.
Deep Field Technologies intends to seek to expand its operations through
the acquisition of additional businesses. These potential acquired additional
businesses may be outside the current field of operations of Deep Field
Technologies. Deep Field Technologies may not be able to identify, successfully
integrate or profitably manage any such businesses or operations. The proposed
expansion may involve a number of special risks, including possible adverse
effects on Deep Field Technologies's operating results, diversion of management
attention, inability to retain key personnel, risks associated with
unanticipated events and the financial statement effect of potential impairment
of acquired intangible assets, any of which could have a materially adverse
effect on Deep Field Technologies's business, financial condition and results of
operations. In addition, if competition for acquisition candidates or assumed
operations were to increase, the cost of acquiring businesses or assuming
customers' operations could increase materially. The inability of Deep Field
Technologies to implement and manage its expansion strategy successfully may
have a material adverse effect on the business and future prospects of Deep
Field Technologies. Furthermore, through the acquisition of additional
businesses, Deep Field Technologies may effect a business acquisition with a
target business which may be financially unstable, under-managed, or in its
early stages of development or growth. While Deep Field Technologies may, under
certain circumstances, seek to effect business acquisitions with more than one
target business, as a result of its limited resources, Deep Field Technologies,
in all likelihood, will have the ability to effect only a single business
acquisition at one time.
Members of Deep Field Technologies's Board of Directors and management may have
conflicts of interest after the Distribution; Deep Field Technologies does not
have any formal procedure for resolving conflicts in the future.
After the Distribution, Mr. Mahoney, a member of the board of directors,
will own iVoice shares and have the right to convert $190,000 of indebtedness
into 190,000 shares of Deep Field Technologies Class B Common Stock which are
convertible into an indeterminate number of shares of Deep Field Technologies
Class A Common Stock. In addition, following the
8
Distribution, we anticipate that Mr. Mahoney, the Chairman of the Board of Deep
Field Technologies will also continue to serve as the Chairman of the Board and
Chief Executive Officer of iVoice. These relationships could create, or appear
to create, potential conflicts of interest when Deep Field Technologies's
directors and management are faced with decisions that could have different
implications for Deep Field Technologies and iVoice. Examples of these types of
decisions might include decisions relating to the potential business
acquisitions made by Deep Field Technologies or the resolution of disputes
arising out of the agreements governing the relationship between iVoice and Deep
Field Technologies following the Distribution. Also, the appearance of
conflicts, even if such conflicts do not materialize, might adversely affect the
public's perception of Deep Field Technologies following the Distribution.
Furthermore, Deep Field Technologies does not have any formal procedure for
resolving such conflicts of interest should they arise following the
Distribution.
In addition, after the Distribution, iVoice will own shares of Deep Field
Technologies Series A 5% Convertible Preferred Stock. In some circumstances,
such as in the event of a sale of Deep Field Technologies, iVoice could have
interests that are different from the Company's or yours.
Deep Field Technologies's 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.
Deep Field Technologies stockholders may experience significant dilution if
future equity offerings are used to fund operations or acquire businesses.
If working capital or future acquisitions are financed through the
issuance of equity securities, such as through the Standby Equity Distribution
Agreement with Cornell Capital Partners, LP (see "Certain Relationships and
Related Transactions" beginning on page 42), Deep Field Technologies
stockholders would experience significant dilution. In addition, securities
issued in connection with future financing activities or potential acquisitions
may have rights and preferences senior to the rights and preferences of the Deep
Field Technologies Class A Common Stock. Further, the conversion of outstanding
debt obligations into equity securities could have a dilutive effect on Deep
Field Technologies shareholders.
The trend toward consolidation in Deep Field Technologies's industry may impede
its 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
9
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.
Deep Field Technologies faces intense price-based competition for licensing of
its 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.
Deep Field Technologies may be unsuccessful in adapting to changes in the
dynamic technological environment of telecommunications in a timely manner.
Critical issues concerning the commercial use of telecommunications,
including security, reliability, cost, ease of use, accessibility, quality of
service or potential tax or other government regulation, remain unresolved and
may affect the use of telecommunications as a medium to distribute or support
our software products and the functionality of some of our products. If we are
unsuccessful in timely assimilating changes in the telecommunications
environment into our business operations and product development efforts, our
future net revenues and operating results could be adversely effected.
Deep Field Technologies may be unsuccessful in developing new distribution
channels.
Due to our limited operating history, we currently offer products directly
to end-users and through dealer and reseller channels established by iVoice. We
may not be able to effectively develop our own network of resellers to
distribute our software products. We may also be unsuccessful in utilizing
rapidly evolving distribution and marketing technologies to develop these
distribution channels. The adoption of new channels may adversely impact
existing channels and/or product pricing, which may reduce our future revenues
and profitability.
Product returns may exceed established reserves and affect Deep Field
Technologies's 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.
10
Deep Field Technologies may depend on distribution by resellers and distributors
for a significant portion of revenues.
We may distribute some of our products through resellers and distributors.
To effectively do so, we must establish and maintain good working relationships
with resellers and distributors. No such relationships currently exist. If we
are unsuccessful in establishing and maintaining relationships with resellers
and distributors, or if these resellers and distributors are unsuccessful in
reselling our products, our future net revenues and operating results may be
adversely affected.
The results of Deep Field Technologies's research and development efforts are
uncertain.
We believe that we will need to make research and development expenditures
to create new uses and new features to our products to remain competitive. While
we perform usability and beta testing of new products, the products we are
currently developing or may develop in the future may not be technologically
successful. If they are not technologically successful, our resulting products
may not achieve market acceptance and our products may not compete effectively
with products of our competitors currently in the market or introduced in the
future.
The greater than expected length of the product development cycle may adversely
affect our future revenues.
The length of our product development cycle has generally been greater
than we originally expected. We are likely to experience delays in future
product development. These delays could have a material adverse effect on the
amount and timing of future revenues.
If Deep Field Technologies must restructure its operations, valuable resources
will be diverted from other business objectives.
We intend to continually evaluate our product and corporate strategy. We
have in the past undertaken, and will in the future undertake, organizational
changes and/or product and marketing strategy modifications. These
organizational changes increase the risk that objectives will not be met due to
the allocation of valuable limited resources to implement changes. Further, due
to the uncertain nature of any of these undertakings, these efforts may not be
successful and we may not realize any benefit from these efforts.
Deep Field Technologies must attract and retain personnel while competition for
personnel in this industry is intense.
We believe that our future success will depend in part on our ability to
recruit and retain highly skilled management, sales and marketing and technical
personnel. Competition in recruiting personnel in the software industry is
intense. To accomplish this, we believe that we must provide personnel with a
competitive compensation package, including stock options, which may require
ongoing stockholder approval. Failure to provide a competitive compensation
package may adversely affect our ability to attract and retain highly qualified
personnel.
11
Potential software defects and product liability could result in delays in
market acceptance, unexpected costs and diminished operating results.
Software products frequently contain errors or defects, especially when
first introduced or when new versions or enhancements are released. Defects and
errors could be found in current versions of our products, future upgrades to
current products or newly developed and released products. Software defects
could result in delays in market acceptance or unexpected reprogramming costs,
which could materially adversely affect our operating results. Most of our
license agreements with customers contain provisions designed to limit our
exposure to potential product liability claims. It is possible, however, that
these provisions limiting our liability may not be valid as a result of federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions. A
successful product liability claim may have a material adverse effect on our
business, operating results and financial condition.
Deep Field Technologies relies on third party technologies which may not support
Deep Field Technologies products.
Our software products are designed to run on the Microsoft(R) Windows(R)
operating system and with industry standard hardware. Although we believe that
the operating systems and necessary hardware are and will be widely utilized by
businesses in the corporate market, businesses may not actually adopt such
technologies as anticipated or may in the future migrate to other computing
technologies that we do not support. Moreover, if our products and technology
are not compatible with new developments from industry leaders such as
Microsoft, our business, results of operations and financial condition could be
materially and adversely affected.
Deep Field Technologies faces aggressive competition in many areas of the
business, and the business will be harmed if Deep Field Technologies fails to
compete effectively.
We encounter aggressive competition from numerous competitors in many
areas of our business. Many of our current and potential competitors have longer
operating histories, greater name recognition and substantially greater
financial, technical and marketing resources than we have. We may not be able to
compete effectively with these competitors. To remain competitive, we must
develop new products and periodically enhance our existing products in a timely
manner. We anticipate that we may have to adjust the prices of many of our
products to stay competitive. In addition, new competitors may emerge, and
entire product lines may be threatened by new technologies or market trends that
reduce the value of these product lines. The market in which we compete is
influenced by the strategic direction of major computer hardware manufacturers
and operating system software providers. Our competitiveness depends on our
ability to enhance existing products and to offer successful new products on a
timely basis. We have limited resources and must restrict product development
efforts to a relatively small number of projects.
We may not be able to access sufficient funds when needed.
We are dependent on external financing to fund our operations. Our
financing needs are expected to be provided, in large part, from an equity line
of credit of up to $10.0 million under a
12
Standby Equity Distribution Agreement with Cornell Capital Partners, L.P. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." No assurances can be given that
such financing will be available in sufficient amounts or at all when needed.
Quarterly financial results are subject to significant fluctuations which could
cause Deep Field Technologies's stock price to decline.
We expect that we will be subject to substantial fluctuations in quarterly
net revenues and operating results. Fluctuations may be caused by a number of
factors including, but not limited to, the following:
o the timing and volume of customer orders, customer cancellations,
and reductions in orders by our distributors;
o the timing and amount of our expenses;
o the introduction of competitive products by existing or new
competitors;
o reduced demand for any given product;
o seasonality in the end-of-period buying patterns of foreign and
domestic software markets; and
o the market's transition between operating systems.
Due to these factors, forecasts may not be achieved, either because
expected revenues do not occur or because they occur at lower prices or on terms
that are less favorable to us. In addition, these factors increase the chances
that our results could diverge from the expectations of investors and analysts.
If so, the market price of our stock would likely decline.
Deep Field Technologies's management team is new and its working relationships
are untested.
We have only recently assembled our management team as part of the
Distribution and changes in our operating structure. Some members of our
management team have worked with each other in the past, although at this time
we cannot assess the effectiveness of their working relationships after the
Distribution. As a result, we may be unable to effectively develop and sell our
software products and Deep Field Technologies, as a business, may fail.
Deep Field Technologies relies on intellectual property and proprietary rights
which may not remain unique to Deep Field Technologies.
We regard our software as proprietary and underlying technology as
proprietary. We seek to protect our proprietary rights through a combination of
confidentiality agreements and copyright, patent, trademark and trade secret
laws.
13
We do not have any patents or statutory copyrights on any of our
proprietary technology that we believe to be material to our future success. Our
future patents, if any, may be successfully challenged and may not provide us
with any competitive advantages. We may not develop proprietary products or
technologies that are patentable and other parties may have prior claims.
In selling our products, we rely primarily on shrink-wrap licenses that
are not signed by licensees. Therefore, such licenses may be unenforceable under
the laws of some jurisdictions. In addition, existing copyright laws afford
limited practical protection. Furthermore, the laws of some foreign countries do
not offer the same level of protection of our proprietary rights as do the laws
of the United States.
Patent, trademark and trade secret protection is important to us because
developing and marketing new technologies and products is time-consuming and
expensive. We do not own any U.S. or foreign patents or registered intellectual
property. We may not obtain issued patents or other protection from any future
patent applications owned by or licensed to us.
Our competitive position is also dependent upon unpatented trade secrets.
Trade secrets are difficult to protect. Our competitors may independently
develop proprietary information and techniques that are substantially equivalent
to ours or otherwise gain access to our trade secrets, such as through
unauthorized or inadvertent disclosure of our trade secrets.
There can be no assurance that our means of protecting our proprietary
rights will be adequate or that our competitors will not independently develop
similar technology substantially equivalent or superseding proprietary
technology. Furthermore, there can be no assurance that any confidentiality
agreements between us and our employees will provide meaningful protection of
our proprietary information, in the event of any unauthorized use or disclosure
thereof. As a consequence, any legal action that we may bring to protect
proprietary information could be expensive and may distract management from
day-to-day operations.
Deep Field Technologies may become involved in future litigation, which may
result in substantial expense and may divert our attention from the
implementation of our business strategy.
We believe that the success of our business depends, in part, on obtaining
intellectual property protection for our products, defending our intellectual
property once obtained and preserving our trade secrets. Litigation may be
necessary to enforce our intellectual property rights, to protect our trade
secrets and to determine the validity and scope of our proprietary rights. Any
litigation could result in substantial expense and diversion of our attention
from our business, and may not adequately protect our intellectual property
rights.
In addition, we may be sued by third parties which claim that our products
infringe the intellectual property rights of others. This risk is exacerbated by
the fact that the validity and breadth of claims covered in technology patents
involve complex legal and factual questions for which important legal principles
are unresolved. Any litigation or claims against us, whether valid or not, could
result in substantial costs, place a significant strain on our financial
resources, divert management resources and harm our reputation. Such claims
could result in awards of
14
substantial damages, which could have a material adverse impact on our results
of operations. In addition, intellectual property litigation or claims could
force us to:
o cease licensing, incorporating or using any of our products that
incorporate the challenged intellectual property, which would
adversely effect our revenue;
o obtain a license from the holder of the infringed intellectual
property right, which license may not be available on reasonable
terms, if at all; and
o redesign our products, which would be costly and time-consuming.
Deep Field Technologies may incur increased expenses after the administrative
services agreement with iVoice is terminated.
In connection with its spin-off, Deep Field Technologies has entered into
an administrative services agreement with iVoice. Under this agreement, iVoice
is providing Deep Field Technologies with services in such areas as inventory
purchasing, material and inventory control, employee benefits administration,
payroll, financial accounting and reporting, and other areas where Deep Field
Technologies needs assistance and support. The agreement will terminate upon
completion of the Distribution. Upon termination of the agreement, Deep Field
Technologies will be required to obtain such services from a third party or
increase its headcount to provide such services. This could be more expensive
than the fees which Deep Field Technologies has been required to pay under the
administrative services agreement.
Risks related to this Offering
Future sales by our stockholders may adversely affect our stock price and our
ability to raise funds in new stock offerings.
Sales of our common stock in the public market following this offering
could lower the market price of our Class A Common Stock. Sales may also make it
more difficult for us to sell equity securities or equity-related securities in
the future at a time and price that our management deems acceptable or at all.
The 100 shares of Class A common stock outstanding as of September 30, 2004 are
"restricted securities" and may be resold in the public market only if
registered or pursuant to an exemption from registration. Some of these shares
may be resold under Rule 144.
In addition, we have secured convertible debentures and Series A Preferred
Stock that are convertible into an aggregate of 93,750,000 shares of Class A
common stock (assuming a market price of $0.01 per share used in calculating the
conversion price) and a placement agent fee payable in up to 1,000,000 shares of
Class A common stock.
Upon issuance of the maximum number of shares being registered in
connection with the equity line of credit (including the commitment fee), there
will be an additional 1,052,781,579 shares of Class A Common Stock outstanding;
including the shares available for issuance upon conversion of the secured
convertible debentures and the Series A Preferred Stock and the shares to be
paid as the placement agent fee, there will be an additional 1,147,531,579
shares of Class A Common Stock outstanding. All of these shares of Class A
Common Stock may be immediately
15
resold in the public market upon effectiveness of the registration statement of
which this prospectus is a part, the sale of Class A Common Stock to the
investor, or the payment of the commitment fee, under the terms of the Standby
Equity Distribution Agreement, the payment of the placement agent fee and upon
conversion of the secured convertible debentures and the Series A Preferred
Stock.
Existing stockholders will experience significant dilution from our sale of
shares under the equity line of credit.
The sale of shares under the equity line of credit will have a dilutive
impact on our stockholders. As a result, our net income per share could decrease
in future periods, and the market price of our Class A Common Stock could
decline. In addition, if our stock price declines, in order to receive a given
advance, we will need to issue a greater number of shares of Class A Common
Stock under the Standby Equity Distribution Agreement. If our stock price is
lower, then our existing stockholders would experience greater dilution.
The investor under the line of credit will pay less than the then-prevailing
market price of our Class A Common Stock.
The Class A Common Stock to be issued under the equity line of credit will
be issued at a 5% discount to the lowest closing bid price for the five days
immediately following the notice date of an advance. These discounted sales
could cause the price of our common stock to decline.
Further, because the investor under the equity line of credit will acquire
our Class A Common Stock at a discount, it will have an incentive to sell
immediately in order to realize a gain on the difference. This incentive to sell
immediately into the public market to realize a gain on the difference
accelerates if the market price of our Class A Common Stock declines.
The selling stockholders intend to sell their shares of Class A Common Stock in
the public market, which sales may cause our stock price to decline.
The selling stockholders intend to sell the shares of Class A Common Stock
being registered in this offering in the public market. That means that up to
1,147,531,579 shares of Class A Common Stock, the number of shares being
registered in this offering, may be sold. Such sales may cause our stock price
to decline.
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.
The significant downward pressure on the price of our Class A Common Stock
caused by the sale of material amounts of Class A Common Stock under the equity
line of credit could encourage short sales by third parties. Such an event could
place further downward pressure on the price of our common stock.
16
There has been no trading market for our Class A Common Stock, it will likely be
relatively thinly traded and we cannot predict the extent to which a trading
market will develop.
Before the Distribution and this offering, our Class A Common Stock has
not traded on any market. We expect that, if and when a trading market develops
in our Class A Common Stock, it will be thinly traded compared to larger more
widely known companies. Thinly traded Class A Common Stock can be more volatile
than common stock trading in an active public market. We cannot predict the
extent to which an active public market for the Class A Common Stock will
develop or be sustained after the Distribution and this offering.
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.
The issuance of shares of Class A Common Stock in connection with this offering
could result in a change of control.
We are registering 1,147,531,579 shares of Class A Common Stock in this
offering. These shares represent greater than 99.9% of our outstanding Class A
Common Stock, and we anticipate all such shares will be sold in this offering.
If all or any 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 Deep Field Technologies by electing its or
their own directors.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Information included 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 of Financial
Condition and Results of Operations" and "Description of 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
17
risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this prospectus will in fact occur.
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. The table identifies the selling stockholders. None of the selling
stockholders have held a position or office, or had any other material
relationship, with Deep Field Technologies, except as follows:
Cornell Capital Partners has outstanding loans to Deep Field Technologies
in the aggregate amount of $400,000 as of ________, 2004, which is evidenced by
secured convertible debentures. Deep Field Technologies has agreed to issue an
additional $100,000 of secured convertible debentures to Cornell Capital
Partners on or about the date of effectiveness of the registration statement of
which this prospectus is a part. The secured convertible debentures are
convertible into shares of Class A Common Stock at a price equal to the lesser
of (a) an amount equal to one hundred twenty percent (120%) of the initial bid
price of the Class A Common Stock on the date of effectiveness of the
registration statement of which this prospectus is a part or (b) an amount equal
to eighty percent (80%) of the lowest closing bid price of the Class A Common
Stock for the five trading days immediately preceding the conversion date. The
secured convertible debentures have a term of two years with all accrued
interest due at the expiration of the term. At our option, these debentures may
be redeemed at a 20% premium prior to August 12, 2006. The secured convertible
debentures are secured by a first priority security interest in substantially
all of the assets of Deep Field Technologies.
In addition, Deep Field Technologies and Cornell Capital Partners have
entered into a Standby Equity Distribution Agreement dated as of August 12, 2004
to obtain an equity line of credit. Under this agreement, Deep Field
Technologies may issue and sell to Cornell Capital Partners Class A Common Stock
for a total purchase price of up to $10.0 million. Deep Field Technologies will
be entitled to commence drawing funds under this agreement when the Class A
Common Stock issuable under the equity line of credit is registered for resale
by Cornell Capital Partners with the Securities and Exchange Commission and the
authorization for quotation on the National Association of Securities Dealers
Over-the-Counter Bulletin Board is obtained and maintained, and the equity line
of credit will remain outstanding for two years thereafter. To date, Deep Field
Technologies has not drawn down on the equity line of credit. All investment
decisions of Cornell Capital Partners are made by its general partner, Yorkville
Advisors, LLC. Mark Angelo, the managing partner of Yorkville Advisors, makes
the investment decisions on behalf of Yorkville Advisors.
In August 2004, Deep Field Technologies entered into an agreement with
Sloan Securities to act as an agent for the private placement of secured
convertible debentures to Cornell Capital Partners. Under the placement agent
agreement, Deep Field Technologies agreed to issue to Sloan Securities on or
about the date of effectiveness of the registration statement of which this
prospectus is a part a number of shares of Class A Common Stock equal to $10,000
divided by the closing bid price of the Class A Common Stock on the date of
effectiveness of the registration statement of which this prospectus is a part.
18
In consideration of and exchange for the assets that Deep Field
Technologies will receive pursuant to the spin-off of the Unified Messaging
business, Deep Field Technologies will issue 10 shares of Series A 5%
Convertible Preferred Stock to iVoice. Each share of Series A 5% Convertible
Preferred Stock has a stated value of $25,000 per share. Each share of Series A
5% Convertible Preferred Stock will be convertible into shares of Class A Common
Stock at a price equal to the lesser of (a) an amount equal to one hundred
twenty-five percent (125%) of the closing bid price of the Class A Common Stock
as of the conversion date or (b) an amount equal to eighty percent (80%) of the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the conversion date.
The table follows:
Percentage of
Outstanding
Shares Shares to be Shares
Beneficially Acquired under Shares to be Beneficially
Selling Owned Before the Line of Sold in the Owned After
Stockholder Offering Credit Offering Offering
- --------------- -------------- ---------------- --------------- -------------
Cornell Capital
Partners, L.P. 62,500,000(1) 1,052,781,579(2) 1,115,281,579(2) 0%
iVoice, Inc. 31,250,000(1) 0 31,250,000 0%
Sloan Securities
Corporation 1,000,000(1) 0 1,000,000 0%
Total 94,750,000(1) 1,052,781,579 1,147,531,579 0%
(1) The shares of Class A Common Stock indicated are issuable upon payment of
the placement agent fee and the conversion of secured convertible
debentures and Series A 5% Convertible Preferred Stock at the sale price
or conversion price, respectively, described above based upon an assumed
average closing bid price of $.01. Once a market price is determined, the
sale price for the placement agent fee, the conversion price for the
debentures and the preferred stock and then the sale price for the shares
available under the equity line of credit can be determined by reference
to the formula described above.
(2) Includes the 150,000 shares of Class A Common Stock issuable as a
commitment fee.
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 certain selling stockholders. There will
be no proceeds to us from the sale of shares of Class A Common Stock by the
selling stockholders in this offering. However, we will receive the proceeds
from the sale of shares of Class A Common Stock to Cornell Capital Partners
under the equity line of credit. The purchase price of the shares purchased
under the equity line of credit will be equal to 95% of the lowest closing bid
price of our common stock on the Over-the-Counter Bulletin Board for the five
days immediately following the notice date. Cornell Capital Partners will retain
6% of each advance made to us under the equity line of credit.
For illustrative purposes, Deep Field Technologies has set forth below its
intended use of proceeds for the range of net proceeds indicated below to be
received under the equity line of
19
credit. For the purposes of this table, Deep Field Technologies assumes a
purchase price per share of Class A Common Stock of $.0095, equal to 95% of an
assumed market price of $.01 per share (526,315,789 and 1,052,631,579 shares of
Class A Common Stock, respectively). The table assumes estimated offering
expenses of $113,500, plus the 6% retainage fee.
Gross Proceeds $5,000,000 $10,000,000
Net Proceeds 4,586,500 9,286,500
- --------------------------------------------------------------------------------
Use of Proceeds: Amount Amount
- --------------------------------------------------------------------------------
Sales and Marketing $500,000 $1,000,000
Working Capital and general corporate
purposes which include employee salaries, cost of
additional personnel, support and management
systems, legal and professional costs, and
capital costs for computers, related equipment,
and, potentially, acquisitions of other companies 4,086,500 8,286,500
----------- ----------
Total $4,586,500 $9,286,500
============ ===========
Except for the equity line of credit and the issuance of the secured
convertible debentures, the Company has no other significant sources of working
capital or cash commitments. In addition, management cannot be certain that it
will generate significant revenue from product sales. No assurance can be given
that Deep Field Technologies will raise sufficient funds from such financing
arrangements, or that the Company will ever produce sufficient revenues to
sustain its operations or, that a market will develop for its common stock upon
which a significant amount of the Company's financing is dependant. If Deep
Field Technologies is unable to recognize sufficient proceeds from these
arrangements, however, management believes that Deep Field Technologies can
limit its operations, defer payments to management and maintain its business at
nominal levels until it can identify alternative sources of capital. In such
event, assuming the receipt of the minimum $500,000 proceeds from the equity
line of credit, management believes that Deep Field Technologies could maintain
its operations for 12 months.
DILUTION
The net tangible book value of Deep Field Technologies as of September 30,
2004 was ($29,425) or ($294.25) per share of Class A Common Stock. Net tangible
book value per share is determined by dividing the tangible book value of Deep
Field Technologies (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 Deep
Field Technologies, 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 $0.01 per share.
If we assume that Deep Field Technologies had issued 1,052,631,579 shares
of Class A Common Stock under the equity line of credit at an assumed offering
price of $0.01 per share (i.e., the maximum number of shares needed in order to
raise a total of $10.0 million under the
20
equity line of credit, excluding the commitment fee), less a retention fee of
$600,000 and offering expenses of $113,500, our net tangible book value as of
September 30, 2004 would have been $9,257,075 or $0.00879 per share. Such an
offering would represent an immediate increase in net tangible book value to
existing stockholders of $294.25879 per share and an immediate dilution to new
stockholders of $0.00121 per share, or 12.1%. The following table illustrates
the per share dilution:
Assumed public offering price per share $ 0.01
Net tangible book value per share before this
offering ($294.25)
Increase attributable to new investors $294.25879
------------
Net tangible book value per share after this
offering $ 0.00879
-------------
Dilution per share to new stockholders $ 0.00121
=============
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 Offering No. of Shares to Dilution Per Share
Price be Issued (1) to New Investors
------------------ ------------------ -------------------
$0.010 1,052,631,579 $0.00121
$0.008 1,315,789,474 $0.00096
$0.006 1,754,385,965 $0.00072
$0.004 2,631,578,947 $0.00048
(1) This represents the maximum number of shares of Class A Common Stock
that will be required to issue in order to raise a total of $10.0 million under
the equity line of credit at that price, excluding the shares of Class A Common
Stock issuable under the commitment fee. This does not give effect to the
payment of the placement agent fee or the conversion of the secured convertible
debentures or the Series A Preferred Stock.
EQUITY LINE OF CREDIT
Summary
On August 12, 2004, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners, L.P. Pursuant to this agreement, 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 $10.0 million. For each
share of Class A Common Stock purchased under the equity line of credit, Cornell
Capital Partners will pay 95% of the lowest closing bid price on the
Over-the-Counter Bulletin Board or other principal market on which our common
stock is traded during the five trading days following the date that Deep Field
Technologies delivers to Cornell Capital Partners a notice requiring it to
advance funds to us. 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 6% of each advance
under the equity line of credit. The sale of the shares under the equity line of
credit is conditioned upon us registering the shares of Class A Common Stock
with the Securities and Exchange Commission. The costs associated with this
registration will be borne by us.
21
Equity Line of Credit Explained
Pursuant to the Standby Equity Distribution Agreement, we may periodically
sell shares of Class A Common Stock to Cornell Capital Partners, L.P. to raise
capital to fund our working capital needs. The periodic sale of shares is known
as an advance. We may request an advance every seven trading days. A closing
will be held six trading days after such written notice at which time we will
deliver shares of Class A Common Stock to Cornell Capital Partners 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.
Thereafter, we may continue to request advances until Cornell Capital Partners
has advanced $10.0 million or two years after the effective date of the
accompanying registration statement, whichever occurs first.
The amount of each maximum advance amount is $500,000 per advance notice.
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, if Deep Field
Technologies issued 1,052,781,579 shares of Class A Common Stock to Cornell
Capital Partners (i.e., the number of shares needed to raise the maximum amount
available under the equity line of credit at a price of $0.01 per share,
including the commitment fee) for gross proceeds of $10,000,000, these shares
would represent greater than 99.9% of our outstanding Class A Common Stock upon
issuance.
Deep Field Technologies is registering for resale by Cornell Capital
Partners a total of 1,115,281,579 shares of Class A Common Stock issuable under
the equity line of credit and the conversion of the debentures. Up to
1,052,781,579 of these shares of Class A Common Stock could be issued under the
equity line of credit. The issuance of the 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 Deep
Field Technologies 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.
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.
22
We expect to incur expenses of approximately $113,500 consisting primarily
of professional fees incurred in connection with this registration. In addition,
Cornell Capital Partners will retain 6% of each advance. In connection with the
equity line of credit, Deep Field Technologies will pay Cornell Capital Partners
in shares of Deep Field Technologies Class A Common Stock a one-time commitment
fee of 1.5% of the initial outstanding shares of Class A Common Stock on or
about the date of effectiveness of the registration statement of which this
prospectus is a part.
PLAN OF OFFERING
The selling stockholders have advised us that the sale or distribution of
Deep Field Technologies's Class A Common Stock owned by the selling stockholders
may be effected directly to purchasers by the selling stockholders or by
pledgees, donees, transferees or other successors in interest, as principals or
through one or more underwriters, brokers, dealers or agents from time to time
in one or more transactions (which may involve crosses or block transactions)
(i) on the over-the-counter market or in any other market on which the price of
Deep Field Technologies's shares of Class A common stock are quoted or (ii) in
transactions otherwise than on the over-the-counter market or in any other
market on which the price of Deep Field Technologies's shares of Class A Common
Stock are quoted. However, the selling stockholders are advised that the
registration statement of which this prospectus is a part may not cover sales by
pledges or transferees of the selling stockholders and if this prospectus is to
be used in connection with the resale of any of the shares acquired by Cornell
Capital Partners, a post-effective amendment to the registration statement of
which this prospectus is a part must be filed to include disclosure required by
Item 507 of Regulation S-B with respect to additional selling stockholders and
such post-effective amendment must be declared effective prior to its use.
Any transactions by the selling stockholders may be effected at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at varying prices determined at the time of sale or at negotiated
or fixed prices, in each case as determined by the selling stockholders or by
agreement between the selling stockholders and underwriters, brokers, dealers or
agents, or purchasers. If the selling stockholders effect such transactions by
selling their shares of Deep Field Technologies's Class A Common Stock to or
through underwriters, brokers, dealers or agents, such underwriters, brokers,
dealers or agents may receive compensation in the form of discounts, concessions
or commissions from the selling stockholders or commissions from purchasers of
Class A Common Stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The selling stockholders and any brokers, dealers or agents that
participate in the distribution of the Class A Common Stock may be deemed to be
underwriters, and any profit on the sale of Class A Common Stock by them and any
discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act in connection with the sale of Class A Common Stock under the
equity line of credit and the secured convertible debentures. Cornell Capital
Partners will pay Deep Field Technologies 95%
23
of the lowest closing bid price of Deep Field Technologies's Class A Common
Stock on the Over-the-Counter Bulletin Board or other principal trading market
on which our Class A Common Stock is traded during the five trading days
following the date that Deep Field Technologies delivers to Cornell Capital
Partners a notice requiring it to advance funds to us. In addition, Cornell
Capital Partners will retain 6% of the proceeds received by Deep Field
Technologies under the equity line of credit. In August 2004 and _______, 2004,
Deep Field Technologies issued an aggregate of $400,000 in secured convertible
debentures, with interest payable at 5% per annum, to Cornell Capital Partners.
Deep Field Technologies has agreed to issue an additional $100,000 of secured
convertible debentures to Cornell Capital Partners on or about the date of
effectiveness of the registration statement of which this prospectus is a part.
Each of the debentures are convertible into shares of Class A Common Stock at a
price equal to the lesser of (a) an amount equal to one hundred twenty percent
(120%) of the initial bid price of the Class A Common Stock as of the closing
date of the registration of shares or (b) an amount equal to eighty percent
(80%) of the lowest closing bid price of the Class A Common Stock for the five
trading days immediately preceding the conversion date. The 5% and potential 20%
discounts, the 6% retained amount, and the one-time commitment fee of 1.5% of
the initial outstanding shares of Class A Common Stock are underwriting
discounts.
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 Deep Field Technologies's 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 Deep Field Technologies's common stock.
Sloan Securities is an "underwriter" within the meaning of the Securities
Act of 1933, as amended, in connection with the sale of Class A Common Stock
that it will receive as a placement agent fee from Deep Field Technologies in
connection with the private placement of secured convertible debentures to
Cornell Capital Partners. Under the placement agent agreement, Deep Field
Technologies agreed to issue to Sloan Securities on or about the date of
effectiveness of the registration statement of which this prospectus is a part a
number of shares of Class A Common Stock equal to $10,000 divided by the closing
bid price of the Class A Common Stock on the date of effectiveness of the
registration statement of which this prospectus is a part. Any discount to
market price is an underwriting discount.
Sloan Securities is a privately owned investment bank and brokerage firm.
Sloan Securities does not intend to make a market in Deep Field Technologies's
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 Deep Field Technologies's common stock.
Under the securities laws of certain states, the shares of 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.
24
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 indemnify Cornell Capital Partners and its controlling persons
against certain liabilities, including liabilities under the Securities Act. We
estimate that the expenses of the offering to be borne by us will be
approximately $113,500, as well as retention of 6% of the gross proceeds
received under the equity line of credit. The estimated offering expenses
consist of: a SEC registration fee of $1,454, printing expenses of $25,000,
accounting fees of $8,000, legal fees of $50,000 and miscellaneous expenses of
$29,046. 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.
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934 will apply
to purchases and sales of shares of Class A Common Stock by the selling
stockholders, and that there are restrictions on market-making activities by
persons engaged in the distribution of the shares. Under Regulation M, the
selling stockholders or their agents may not bid for, purchase, or attempt to
induce any person to bid for or purchase, shares of Class A Common Stock of Deep
Field Technologies while such selling stockholders are distributing shares
covered by this prospectus. Accordingly, except as noted below, the selling
stockholders are not permitted to cover short sales by purchasing shares while
the offering is taking place. Cornell Capital Partners can cover any short
positions only with shares received from Deep Field Technologies under the
equity line of credit. The selling stockholders are advised that if a particular
offer of Class A Common Stock is to be made on terms constituting a material
change from the information set forth above with respect to this Plan of
Distribution, then, to the extent required, a post-effective amendment to the
accompanying registration statement must be filed with the Securities and
Exchange Commission.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our audited
financial statements and related notes included elsewhere in this prospectus.
Our fiscal year currently ends on December 31, and each of our fiscal quarters
ends on the final day of a calendar quarter (each March 31, June 30 and
September 30). The following discussion contains forward-looking statements.
Please see "Cautionary Statement Regarding Forward-Looking Statements" for a
discussion of uncertainties, risks and assumptions associated with these
statements.
Separation From iVoice
Deep Field Technologies was incorporated under the laws of the State of
New Jersey on November 10, 2004 as a wholly-owned subsidiary of iVoice. Deep
Field Technologies will have no material assets or activities until the
contribution of the Unified Messaging software business described in this
prospectus. After the Distribution, Deep Field Technologies will be an
independent public company, with iVoice having no continuing ownership interest
in Deep Field Technologies.
25
Deep Field Technologies received by assignment all of the interests in and
rights and title to, and assumed all of the obligations of, all of the
agreements, contracts, understandings and other instruments of iVoice Technology
2, Inc., a Nevada corporation and affiliate of Deep Field Technologies. When we
refer to or describe any agreement, contract or other written instrument of Deep
Field Technologies in this prospectus, we are referring to an agreement,
contract or other written instrument that had been entered into by iVoice
Technology 2 and assigned to Deep Field Technologies.
Deep Field Technologies's financial statements have been prepared in
accordance with accounting principles generally accepted in the United States,
and reflect the historical financial position, results of operations, and cash
flows of the business to be transferred to Deep Field Technologies from iVoice
as part of the Distribution. The financial information included in this
prospectus, however, is not necessarily indicative of what Deep Field
Technologies's results of operations or financial position would have been had
it operated as an independent company during the periods presented, nor is it
necessarily indicative of its future performance as an independent company.
Deep Field Technologies will operate the Unified Messaging software
business. This business has historically operated as a non-reportable segment of
iVoice due to its low sales volume and business activity relative to iVoice's
other business activities. Even if Deep Field Technologies was to operate the
Unified Messaging business on a stand alone basis, management is uncertain that
sufficient cash to sustain its operations will be generated in the next twelve
months, or beyond, by the sales activity of Unified Messaging. Deep Field
Technologies intends to use a portion of the proceeds from any financing
arrangements, on sales and marketing efforts for Unified Messaging. It is
unclear whether such efforts will result in a reasonably successful operating
business due to iVoice's previous lack of sales and marketing efforts on Unified
Messaging, Deep Field Technologies's lack of operating history, the current
economic environment and, more specifically, the uncertainty of the
telecommunications market.
Upon effectiveness of the registration statement of which this prospectus
is a part, Deep Field Technologies will be allocated the iVoice corporate
assets, liabilities and expenses related to the Unified Messaging software
business based on an estimate of the proportion of such amounts allocable to
Deep Field Technologies, utilizing such factors as total revenues, employee
headcount and other relevant factors. Deep Field Technologies believes that
these allocations have been made on a reasonable basis. Deep Field Technologies
believes that all costs allocated to Deep Field Technologies are a reasonable
representation of the costs that Deep Field Technologies would have incurred if
Deep Field Technologies had performed these functions as a stand-alone company.
To provide for an orderly transition to the status of two independent
companies, iVoice and Deep Field Technologies have entered into an
administrative services agreement. Under this agreement, iVoice is providing
Deep Field Technologies services in such areas as inventory purchasing, material
and inventory control, sharing of office space, source code management, employee
benefits administration, payroll, electronic data processing services, financial
accounting and reporting, claims administration and reporting, and other areas
where Deep Field Technologies needs transitional assistance and support. Under
the administrative services agreement, iVoice is providing Deep Field
Technologies substantially the same level of service
26
and use substantially the same degree of care as iVoice's personnel provided and
used in providing such services prior to the execution of the agreement. For
these services, Deep Field Technologies pays iVoice a fee of $5,000 per month.
Deep Field Technologies believes that the terms and conditions of the
administrative services agreement are as favorable to Deep Field Technologies as
those available from unrelated parties for a comparable arrangement.
The agreement will terminate upon completion of the Distribution.
Following completion of the Distribution and termination of the administrative
services agreement, Deep Field Technologies will operate on a completely
stand-alone basis from iVoice and there will be no relationship between iVoice
and Deep Field Technologies. However, following the Distribution, iVoice will
retain some ownership interest in Deep Field Technologies. In partial
consideration of and exchange for the assets that Deep Field Technologies will
receive in the spin-off of iVoice's Unified Messaging software business, Deep
Field Technologies will issue 10 shares of its Series A 5% Convertible Preferred
Stock to iVoice. See "Certain Relationships and Related Transactions."
Upon termination of the administrative services agreement, Deep Field
Technologies would be required to obtain such services from a third party or
increase its headcount to provide such services. This could be more expensive
than the fees which Deep Field Technologies has been required to pay under the
administrative services agreement.
iVoice announced in September 2004 its intention to distribute our shares
to its stockholders upon effectiveness of required Securities and Exchange
Commission filings, including this registration statement.
Results of Operations for the Nine Months Ended September 30, 2004 as
Compared with the Nine Months Ended September 30, 2003
All revenues reported by Deep Field Technologies are derived from the sale
or license of our unified messaging systems, which store all messages in one
location for access, typically a groupware database with one single list of
users for e-mail, voice, telephones and computers. Total revenues for the nine
months ended September 30, 2004 and September 30, 2003 were $6,160 and $6,883,
respectively. The Unified Messaging business has only operated as a division of
iVoice and has never operated on a stand-alone basis. The low sales volume of
the Unified Messaging business is attributable to the minimal resources made
available by iVoice for the sales and marketing of the Unified Messaging
software products. Management feels that the sales of the Unified Messaging
software products may increase as greater financial and operational resources
are made available for the sales and marketing of the products.
Gross margin for the nine months ended September 30, 2004 and September
30, 2003 was $3,807 and $4,271, respectively. In an attempt to garner increased
market share, Deep Field Technologies implemented a strategy of reducing the
prices at which it sold its products to end-users, dealers, and resellers. In
addition, Deep Field Technologies also offered demonstration units for free to
selected dealers and value added resellers. As a result, gross profit margin
decreased to 61.8% for the nine months ended September 30, 2004 from 62% for the
nine months ended September 30, 2003.
27
Total operating expenses increased to $25,316 for the nine months ended
September 30, 2004 from $17,281 for the nine months ended September 30, 2003, an
increase of $8,035. This increase in the current year nine-month period is
attributable to accrued compensation due to Mr. Mahoney pursuant to his
employment contract dated as of August 3, 2004, as well as legal and
professional fees incurred in connection with the anticipated registration of
shares of Deep Field Technologies. These costs were not incurred in the prior
period.
As of September 30, 2004, Deep Field Technologies had one part-time
employee. Mr. Meller was hired as our President, Chief Executive Officer and
Chief Financial Officer as of October 1, 2004. Deep Field Technologies is
pursuing additions to its sales and management staff, which will increase
operating expenditures for payroll and related benefit costs in future quarters.
The loss from operations for the nine months ended September 30, 2004 was
$58,941 compared to $18,858 for the nine months ended September 30, 2003, an
increase of $40,083. As discussed above, the material changes in operations
result from accrued salary to Deep Field Technologies's Chairman and legal and
professional fees incurred in connection with the anticipated registration of
shares of Deep Field Technologies.
Other expenses for the nine months ended September 30, 2004 were $27,332
as compared to $5,848 for the nine-month period ending September 30, 2003, an
increase of $21,484. During the current year nine-month period, Deep Field
Technologies recorded interest expense on and $20,000 in fees related to the
issuance of $200,000 in 5% secured convertible debentures. In future periods,
Deep Field Technologies will incur significant additional expenses related to
its financings. Such expenses will include interest expense and charges for the
beneficial conversion feature of its convertible debentures. Additionally, the
Company will also incur charges for the market discount provided pursuant to its
Standby Equity Distribution Agreement with Cornell Capital Partners, L.P.
Results of Operations for Year Ended December 31, 2003, as Compared with the
Year Ended December 31, 2002.
Revenues are derived primarily from the license of our unified messaging
systems, which store all messages in one location for access, typically a
groupware database with one single list of users for e-mail, voice, telephones
and computers. Total revenues for the twelve months ended December 31, 2003 and
December 31, 2002 were $8,505 and $23,238, respectively, a decrease of 36.6%.
The decrease in sales for the twelve month period is attributable to a lack of
financial resources to effectively market the product. Management feels that the
sales of the Unified Messaging software products may increase as greater
financial and operational resources are made available for the sales and
marketing of the products.
Gross margin for the twelve months ended December 31, 2003 and December
31, 2002 was $5,058 and $17,251 respectively. The decrease in gross margin is a
result of pricing pressures in the marketplace for Unified Messaging software.
Total operating expenses decreased, from $77,784 for the twelve months
ended December 31, 2002 to $24,288 for the twelve months ended December 31,
2003, a decrease of
28
$53,496, or 68.8%. The lower operating expenses were a result of lower sales
activity. As of December 31, 2003, Deep Field Technologies had no full-time
employees. Deep Field Technologies is pursuing additions to its sales and
management staff, which will increase operating expenditures for payroll and
related benefit costs in future quarters.
The loss from operations for the twelve months ended December 31, 2003 was
$(28,938) compared to $(69,845) for the twelve months ended December 31, 2002, a
decrease of 58.6%.
Liquidity and Capital Resources
To date, Deep Field Technologies has incurred substantial losses, and will
require financing for working capital to meet its operating obligations. We
anticipate that we will require financing on an ongoing basis for the
foreseeable future.
We intend to sell shares of Class A Common Stock immediately following the
completion of the Distribution in order to generate capital necessary to sustain
our operations. In the event that, in the judgment of the Board of Directors,
sufficient capital has not been raised from the proceeds of the public offering
for Deep Field Technologies to both sustain its business operations and to make
payment to each of Mr. Mahoney and Mr. Meller, Mr. Mahoney and Mr. Meller have
agreed to accept shares of Deep Field Technologies Class B Common Stock in
satisfaction of Deep Field Technologies's obligations.
In August 2004, the Company entered into an agreement with Sloan
Securities Corporation to act as an agent for the private placement of secured
convertible debentures to Cornell Capital Partners, L.P. Under the placement
agent agreement, the Company agreed to issue to Sloan on or about the date of
effectiveness of the registration statement of which this prospectus is a part a
number of shares of Class A Common Stock equal to $10,000 divided by the closing
bid price of the Class A Common Stock on the date of effectiveness of the
registration statement of which this prospectus is a part. On August 12 and
_______, 2004, Deep Field Technologies issued an aggregate of $400,000 in
secured convertible debentures, with interest payable at 5% per annum, to
Cornell Capital Partners. Each of the debentures are convertible into shares of
Class A Common Stock at a price equal to the lesser of (a) an amount equal to
one hundred twenty percent (120%) of the initial bid price of the Class A Common
Stock on the date of effectiveness of the registration statement of which this
prospectus is a part or (b) an amount equal to eighty percent (80%) of the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the conversion date. The secured convertible debentures
have a term of two years with all accrued interest due at the expiration of the
term. At our option, these debentures may be redeemed at a 20% premium prior to
August 12, 2006. The secured convertible debentures are secured by a first
priority security interest in substantially all of the assets of Deep Field
Technologies. Deep Field Technologies will issue an additional $100,000 of
secured convertible debentures to Cornell Capital Partners on or about the date
of effectiveness of the registration statement of which this prospectus is a
part.
Effective August 12, 2004, Deep Field Technologies entered into a Standby
Equity Distribution Agreement with Cornell Capital Partners to obtain an equity
line of credit. Under this agreement, Deep Field Technologies may issue and sell
to Cornell Capital Partners Class A Common Stock for a total purchase price of
up to $10.0 million. Deep Field Technologies will be
29
entitled to commence drawing funds under this agreement when the resale of the
Class A Common Stock issuable under the equity line of credit is registered with
the Securities and Exchange Commission, and the equity line of credit will
remain outstanding for two years thereafter. The purchase price for the shares
will be equal to 95% of the market price, which is defined as the lowest closing
bid price of the Class A Common Stock during the five trading days following the
date that Deep Field Technologies delivers to Cornell Capital Partners a notice
requiring it to advance funds to us. A cash fee equal to six percent (6%) of the
cash proceeds of the draw down is also payable at the time of funding. In
addition, Cornell Capital Partners will receive, as additional compensation, the
number of shares of Class A Common Stock equal to one and one half percent
(1.5%) of the number of shares of Class A Common Stock outstanding on the date
that the registration statement in respect of the shares to be distributed
pursuant to the equity line of credit becomes effective. To date, Deep Field
Technologies has not drawn down on the equity line of credit.
Except for these two financing agreements, the Company has no other
significant sources of working capital or cash commitments. However, no
assurance can be given that Deep Field Technologies will raise sufficient funds
from such financing arrangements, or that Deep Field Technologies will ever
produce sufficient revenues to sustain its operations, or that a market will
develop for its common stock for which a significant amount of Deep Field
Technologies's financing is dependent upon.
Management believes that the financing arrangements in place are
sufficient to satisfy Deep Field Technologies's cash requirements for the next
twelve months. If Deep Field Technologies is unable to recognize sufficient
proceeds from these arrangements, management believes that Deep Field
Technologies can limit its operations, defer payments to management and maintain
its business at nominal levels until it can identify alternative sources of
capital.
Upon the date of this prospectus, Deep Field Technologies will assume an
aggregate of $190,000 in liabilities from iVoice and iVoice will assign to Deep
Field Technologies assets having an aggregate book value of $250,000. Deep Field
Technologies believes that the fair value of these assets may be greater than
the book value, although it has not undertaken an appraisal. The assumed
obligations are described below.
In consideration of and exchange for the assets that Deep Field
Technologies will receive pursuant to the spin-off of the Unified Messaging
business, Deep Field Technologies will issue 10 shares of Series A 5%
Convertible Preferred Stock to iVoice. Each share of Series A 5% Convertible
Preferred Stock has a stated value of $25,000 per share. Each share of Series A
5% Convertible Preferred Stock will be convertible into shares of Class A Common
Stock at a price equal to the lesser of (a) an amount equal to one hundred
twenty-five percent (125%) of the closing bid price of the Class A Common Stock
as of the conversion date or (b) an amount equal to eighty percent (80%) of the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the conversion date.
Deep Field Technologies has agreed to assume from iVoice upon the date of
this prospectus an outstanding promissory note in the amount of $190,000 payable
to Jerry Mahoney. This amount is related to funds loaned to iVoice and unrelated
to the operations of Deep Field Technologies. Deep Field Technologies, for value
received, will promise to pay to Mr. Mahoney
30
the principal sum of $190,000 that will bear interest at the prime rate plus 2%
per annum on the unpaid balance until paid or until default. Interest payments
will be due annually. All accrued interest becomes due on the date of any
payment of the promissory note. At the time of default (if any) the interest
rate shall increase to 20% until the principal balance has been paid. Under the
terms of the promissory note, at the option of the note holder, principal and
interest can be converted into either (i) one share of Class B Common Stock of
Deep Field Technologies, par value $0.01, for each dollar owed, (ii) the number
of shares of Class A Common Stock of Deep Field Technologies calculated by
dividing (x) the sum of the principal and interest that the note holder has
requested to have prepaid by (y) eighty percent (80%) of the lowest issue price
of Class A Common Stock since the first advance of funds under this note, or
(iii) payment of the principal of this note, before any repayment of interest.
Deep Field Technologies has yet to record this liability on its financial
statements, as the promissory note will not be assumed by Deep Field
Technologies until the effectiveness of the registration statement.
Mr. Mahoney has agreed to forego receiving any shares of Deep Field
Technologies Class A Common Stock or Deep Field Technologies Class B Common
Stock he is or would be entitled to receive in the Distribution by virtue of his
ownership of either iVoice Class A Common Stock or iVoice Class B Common Stock.
Deep Field Technologies has entered into employment contracts with its
Non-Executive Chairman of the Board of Directors and its President, Chief
Executive Officer and Chief Financial Officer. As consideration, Deep Field
Technologies agreed to pay Mr. Mahoney the sum of $85,000 the first year with an
annual increase based on the Consumer Price Index every year thereafter.
However, when Deep Field Technologies achieves annual sales equal to or greater
than $2,000,000, Mr. Mahoney's base annual compensation will automatically be
increased to $145,000. Mr. Mahoney will also be entitled to incentive
compensation based upon acquisitions completed by Deep Field Technologies. 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 Deep Field Technologies in each of the five prior calendar years (or
shorter period during which Mr. Mahoney shall have been employed by Deep Field
Technologies) should his employment be terminated following a change in control,
as defined in the employment agreement.
Deep Field Technologies entered into an employment agreement with Mr.
Meller as of October 1, 2004. Mr. Meller will serve as Deep Field Technologies's
President, Chief Executive Officer and Chief Financial Officer for a term of
five years. As consideration, Deep Field Technologies agreed to pay Mr. Meller a
base salary of $85,000 the first year with an annual increase based on the
Consumer Price Index every year thereafter. However, when Deep Field
Technologies achieves annual sales equal to or greater than $2,000,000, Mr.
Meller's base annual salary will automatically be increased to $145,000. Mr.
Meller will also be entitled to incentive compensation based upon acquisitions
completed by Deep Field Technologies. The employment agreement with Mr. Meller
provides for a severance payment to him of three hundred percent (300%), less
$100, of his gross income for services rendered to Deep Field Technologies in
each of the five prior calendar years (or shorter period during which Mr. Meller
shall have been employed by Deep Field Technologies) should his employment be
terminated following a change in control, as defined in the employment
agreement. Mr. Meller shall also be paid the sum of $50,000 upon the completion
of the Distribution. Mr. Meller has agreed to
31
forego receipt of the $50,000 until such time that management believes it has
sufficient financing in place to fund this obligation.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of
operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP). The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate these estimates, including
those related to bad debts, inventory obsolescence, intangible assets, payroll
tax obligations, and litigation. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of certain assets and liabilities. Actual results may differ
from these estimates under different assumptions or conditions.
We have identified below the accounting policies, revenue recognition and
software costs, related to what we believe are most critical to our business
operations and are discussed throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations where such policies affect our
reported and expected financial results.
Revenue Recognition
With respect to the sale of software license fees, the Company recognizes
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, the Company offers 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.
The Company derives its revenues from the licensing of its software
product and optional customer support (maintenance) services. Presently, 100% of
the revenues reported by the Company are derived from the licensing of the
Company's Unified Messaging software. No revenues have been derived from the
sale of optional customer support services. The Company's standard license
agreement provides for a one-time fee for use of the Company's product in
perpetuity for each computer or CPU in which the software will reside. The
Company's software application is fully functional upon delivery and
implementation and does not require any significant modification or alteration.
The Company also offers customers an optional annual software maintenance and
support agreement for the subsequent one-year periods. Such
32
maintenance and support services are free for the first year the product is
licensed. The software maintenance and support agreement provides free software
updates, if any, and technical support the customer may need in deploying or
changing the configuration of the software. Generally, the Company does not
license its 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.
The Company does not offer any special payment terms or significant
discount pricing. Normal and customary payment terms require payment for the
software license fees when the product is shipped. Payment for software
maintenance is due prior to the commencement of the maintenance period. It is
also the Company's policy not to provide customers the right to refund any
portion of its license fees. The Company accepts Visa and MasterCard as well as
company checks.
Customers may license the Company's products through our telesales
organization and through promotions or reseller agreements with independent
third parties. A customer may return a product under very limited circumstances
during the first thirty days for a replacement if the media is damaged or for a
full refund if the software does not perform in accordance with written
specifications. Accordingly, the Company records a provision for product returns
and allowances against product revenue in the same period the revenue is
recorded. The estimates are based on historical sales returns and other known
data as well as market and economic conditions.
Our current products are not sold through retail distribution channels.
Current reseller agreements do not provide for a contractual right of return,
future price concessions, minimum inventory commitments nor is payment
contingent upon the reseller's future sales or our products. Revenues generated
from products licensed through marketing channels where the right of return
exists, explicitly or implicitly, is reduced by reserves for estimated product
returns. Such reserves are estimates based on returns history and current
economic and market trends.
Software Costs
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". 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 undiscounted cash flow benefit related to the asset falls
below the unamortized cost. The Company develops software for licensing to its
customers and capitalizes software development costs when technological
feasibility has been established. Software development costs not qualifying for
capitalization are expensed and classified as research and development expenses
in the statements of operations. Research and development expenses and the
capitalization rate will
33
fluctuate from period to period depending upon the number and status of software
development projects that are in process and the related number of people
assigned to those projects.
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."
The Company evaluates 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, the Company records a write-down to net
realizable value on each product affected. Management's ability to achieve its
revenue forecast is subject to judgment, competitive pressures, market and
economic conditions and management's ability to successfully license its
products to its 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.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"), which requires
variable interest entities to be consolidated by the primary beneficiary of the
entity if certain criteria are met. FIN 46 is effective for all new variable
interest entities created after January 31, 2003. For variable interest entities
created or acquired before February 1, 2003, the provisions of FIN 46 become
effective for the Company on September 1, 2003. The Company does not expect that
the adoption of FIN 46 will have a material impact on its financial position,
results of operations or cash flows.
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." Except
as noted below, the Company is required to adopt this statement by the first
quarter of the fiscal year, 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. The Company does not expect that the adoption of SFAS No. 149
will have a material impact on its financial position, results of operations or
cash flows.
34
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 the Company on September 1, 2003. The Company does not
expect that the adoption of SFAS No. 150 will have a material impact on the
Company's financial position, results of operations or cash flows.
DESCRIPTION OF BUSINESS
Background
Deep Field Technologies, Inc. (the "Company") was incorporated in New
Jersey on November 10, 2004 as a wholly-owned subsidiary of iVoice, Inc. It is
engaged in the design, manufacture, and marketing of specialized
telecommunication equipment. As of September 30, 2004, the Company employed no
full-time employees and one part-time employee. Deep Field Technologies intends
to seek to expand its operations through the acquisition of additional
businesses. These potential acquired additional businesses may be outside the
current field of operations of Deep Field Technologies. Deep Field Technologies
may not be able to identify, successfully integrate or profitably manage any
such businesses or operations.
The following description of our business is intended to provide an
understanding of our product and the direction of our initial marketing
strategy. As the Company is in its developmental stages, any focus described in
the following pages may change and different initiatives may be pursued, at the
discretion of Management.
Products
Our flagship product is the Unified Messaging software, which enables
users to access e-mail, voice mail, facsimiles and paging messages in a single
session at a personal computer. The system displays a listing of all of the
user's messages and enables the user to access and control all of his or her
messages with a click of the computer mouse.
Unified Messaging technology provides the power to reach people almost
anywhere, at any time, and the flexibility to allow people to control when they
can be reached. This is based on a concept of "your time" communications where
subscribers can interface with messages when and how they want. With Unified
Messaging, subscribers reduce the number of places they must check for incoming
voice, fax and e-mail messages. From a single interface, they can check for all
message types.
Our Unified Messaging product serves small to medium-sized organizations,
and is designed to support from four to 32 ports. Unified Messaging provides LAN
integration and close integration with other application servers. The Unified
Messaging platform comes complete with analog and digital networking, allowing
communication between geographically dispersed offices. In addition to the
Unified Messaging interface from a desktop PC, laptop computer or a telephone,
Unified Messaging also provides desktop call management capabilities for
individuals and small workgroups. The Unified Messaging products run on
off-the-shelf server hardware and Microsoft Windows-based server operating
systems and interface with a wide variety of telephony and computer equipment.
35
Distribution
As a product line of iVoice, Inc., Unified Messaging has produced minimal
sales revenues for the past three fiscal years. In the past, iVoice devoted
limited resources to the marketing of Unified Messaging. The Company's future
revenues depend on its ability to develop a customer base through the
establishment of a reseller channel using various marketing and sales
promotions.
Deep Field Technologies intends to market its products directly, with a
sales force, and through a nationwide network of independent telephone system
dealers, strategic partners and domestic re-sellers. Deep Field Technologies
intends to enter into arrangements with resellers to broaden distribution
channels and to increase its sales penetration to specific markets and
industries. Distributors will be selected based on their access to the markets,
industries and customers that are candidates for the products.
Competition
The Company competes generally with a number of other manufacturers of
supplemental telecommunications software, telecommunications integrators, as
well as application service providers (ASPs), which provide Unified Messaging
software to other businesses and organizations either through internet servers
or telecommunication servers. System design and engineering, application
technical features, built-in speech recognition capabilities and simplicity of
user implementation and administration are the principal characteristics of our
Unified Messaging software that differentiates it from competing products.
The Unified Messaging market is fragmented and highly competitive. The
Company's major competitors in this market are Lucent Technologies Inc., Nortel
Networks Limited, Siemens Business Communications Systems, Inc., BayPoint
Innovations, Comverse Technology, Inc., ActiveVoice LLC and AVT Corporation. The
principal competitive factors in this market include product pricing and
quality, systems features, ease of use and installation, technical and sales
support and product reliability. The Company believes that its product line of
solutions, combined with its professional and technical services and its
extensive customer base, allow it to compete favorably in this market. However,
this market has endured intense price competition and pressure on margins in the
past few years and has experienced several new market entrants and
consolidations of smaller competitors into larger entities.
No assurance can be given that our competitors will not develop new
technologies or enhancements to their existing products or introduce new
products that will offer superior price or performance features. We expect our
competitors to offer new and existing products at prices necessary to gain or
retain market share. Certain of our competitors have substantial financial
resources, which may enable them to withstand sustained price competition or a
market downturn better than us. There can be no assurance that we will be able
to compete successfully in the pricing of our products, or otherwise, in the
future.
Deep Field Technologies's product strategy emphasizes the development of
software as opposed to hardware, and the use of standard PC-related hardware
components in its products, in part to limit its manufacturing activity. Deep
Field Technologies's manufacturing operations
36
consist primarily of final assembly and quality control testing of materials,
subassemblies and systems. Deep Field Technologies does not manufacture or
perform significant modifications on any hardware components, and is therefore
dependent upon third-party manufacturers or vendors of certain critical hardware
components such as PCs and voice boards.
Deep Field Technologies's products incorporate a number of commercially
available application cards, voice boards, and other circuitboards that enable
integration with certain telephone systems. Voice boards are available in
quantity from very few domestic suppliers.
The business of the Company is not seasonal. The Company maintains no
special arrangements relating to working capital items, and as far as it is
aware this is standard in the industry. The Company is not subject to
environmental protection regulations during the foreseeable future. The Company
has spent nothing on research and development in the last three fiscal years.
None of Deep Field Technologies's present business is subject to renegotiation
of profits or termination of contracts or subcontracts at the election of the
government.
Product Development
Deep Field Technologies considers its current products to be competitive
with products offered by others in its industry segment. It does not foresee
spending any significant capital on new product development in the foreseeable
future.
To date, Deep Field Technologies has experienced significant post-release
errors and bugs in its products. There can be no assurance that any of these
problems will be avoided in the future, particularly as its products become more
complex and sophisticated.
Business Development
Business development objectives at Deep Field Technologies will be to
focus on three primary functions as listed below:
1. Negotiate and secure a nationwide network of independent telephone systems
dealers and reseller accounts;
2. Negotiate, secure and manage strategic alliances with various
manufacturers of telephone systems and business equipment; and
3. Provide leads for a sales staff which will need to be hired.
Dealer and Reseller Relationships
While we have traditionally sold our product primarily on a direct basis,
we will seek to obtain relationships with independent telephone systems dealers
and resellers that will serve as an extension of our sales team which has yet to
be hired. We will seek to develop relationships with related telecommunications
businesses and professional organizations in order to develop co-marketing
programs that will expand market share for our products and develop brand
recognition. In addition, we hope to enter into agreements with various
resellers who have the marketing capability and technical expertise to
effectively sell our products. We have not
37
entered into any relationships with any dealers or resellers, nor are we
currently negotiating any such relationships.
Strategic Alliances
Deep Field Technologies's business development efforts will seek to engage
and secure strategic alliances with various manufacturers of telephone systems
and business equipment. By entering into strategic alliances with companies that
offer telecommunications devices or services to businesses or professional
organizations, we will seek to obtain access to an installed customer base as
well as new sales opportunities of our products. Ideally, a strategic alliance
that provides distribution of our software product along with the manufacturer's
own telecommunication equipment could produce the most widespread distribution
and acceptance of our product at minimal distribution costs. In addition, many
of these manufacturers may have extensive and established reseller channels that
could provide an alternative avenue of distribution for our software. We have
not entered into any strategic alliances, nor are we currently negotiating any
such strategic alliances.
Sales Leads
Through alliances and marketing relationships, we will constantly be
looking for ways to increase the number of leads that can be cultivated by a
Deep Field Technologies sales team which will be hired. By working with the
sales teams of third parties we believe that we can increase the number of sales
staff that sell Deep Field Technologies products, and provide qualified customer
leads for the future insides sales staff at Deep Field Technologies.
Sales and Marketing
Deep Field Technologies intends to market its products directly, with a
sales force, and through a nationwide network of independent telephone system
dealers, strategic partners and domestic re-sellers. Deep Field Technologies
intends to enter into arrangements with resellers to broaden distribution
channels and to increase its sales penetration to specific markets and
industries. Distributors will be selected based on their access to the markets,
industries and customers that are candidates for the products.
The Company is actively seeking strategic relationships with companies to
build its developing partner program. The partner program will be built by
establishing relationships in basic areas consisting of software and technology
solution partners and system integration partners. These relationships will
enhance the Company's technological strength, improve its market position,
facilitate shorter time-to-market, enhance its ability to deliver end-to-end
solutions, and broaden its market coverage.
Developing market possibilities will be crucial to our success. However,
we cannot provide any assurance that we will be able to effectively market and
sell our products for these uses or that they will be accepted by our perceived
market.
38
Intellectual Property Rights
We regard some features of our Unified Messaging software and
documentation to be proprietary intellectual property. We have been and will be
dependent in part on our ability to protect our proprietary technology. We will
seek to use copyright, trademarks, trade secret laws, confidentiality agreements
and other measures if necessary to establish and protect our rights in our
proprietary technology. We have not filed any provisional patent applications
with respect to some of our application and intellectual property rights. If we
were to file for any patent or copyright protection, we cannot be certain that
others will not develop substantially equivalent or superseding proprietary
technology before any patent or copyright protection is awarded to us. Any
provisional patent application requires that we file one or more non-provisional
patent applications within 12 months from the date of filing to specify the
claims asserted for patent protection. Furthermore, there can be no assurance
that any confidentiality agreements between our employees and us will provide
meaningful protection of our proprietary information in the event of any
unauthorized use or disclosure of such proprietary information.
There can be no assurance that we will not become the subject of claims of
infringement with respect to intellectual property rights associated with our
products. In addition, we may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the validity
of our proprietary rights. Any such claims could be time consuming and could
result in costly litigation or lead us to enter into royalty or licensing
agreements rather than disputing the merits of such claims.
Employees
As of September 30, 2004, we had no full-time employees and one part-time
employee. Mr. Meller was hired as our President, Chief Executive Officer and
Chief Financial Officer as of October 1, 2004. We have entered into employment
agreements with our President, Chief Executive Officer and Chief Financial
Officer (Mr. Meller) and our Chairman of the Board (Mr. Mahoney). Mr. Mahoney
and Mr. Meller will only provide services to Deep Field Technologies on a
part-time basis. Many services that would be provided by employees are currently
being provided to Deep Field Technologies by iVoice under the administrative
services agreement. Our future success depends in significant part upon
obtaining and retaining highly qualified, key technical and senior management
personnel following the Distribution.
Competition for such personnel is intense, and there can be no assurance
that we can retain our future key technical and managerial employees or that we
can assimilate or retain other highly qualified technical and managerial
personnel in the future.
Government Regulation
We are subject to licensing and regulation by a number of authorities in
the state and municipality in which we conduct operations. 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.
39
We are not subject to any necessary government approval or license
requirement in order to market, distribute or sell our principal or related
products other than ordinary federal, state, and local laws that govern the
conduct of business in general.
Legal Proceedings
Deep Field Technologies is not party to any material legal proceedings,
nor to the knowledge of Deep Field Technologies, is any such proceeding
threatened against it.
Properties
We do not own any real property. We currently co-occupy the same space as
iVoice and are subleasing from iVoice some of the office space located at 750
Highway 34, Matawan, New Jersey. The rent payment for the sublease is currently
included in the administrative services agreement.
MANAGEMENT
Deep Field Technologies initially intends to have a board of directors
that will consist of two directors. Listed below is certain information
concerning individuals who are expected to serve as directors and executive
officers of Deep Field Technologies following the Distribution. Mr. Mahoney is
currently a director of iVoice and we anticipate that Mr. Mahoney will remain a
director of both iVoice and Deep Field Technologies following the Distribution.
Position with Director Term
Name Age Deep Field Technologies, Inc. since Expires
- ----------------- ---- ----------------------------- -------- --------
Jerome R. Mahoney 43 Non-Executive Chairman of the 2004 2005
Board
Mark Meller 45 President, Chief Executive 2004 2005
Officer and Chief Financial
Officer
Jerome R. Mahoney. Mr. Mahoney is Deep Field Technologies's Chairman of
the Board. He has been a director of iVoice since May 21, 1999. Mr. Mahoney
is also the Chairman of the Board of Trey Resources, Inc. and has been a
director of Trey Resources since January 1, 2002. He is also the Chairman of
the Board of iVoice Technology, Inc. and SpeechSwitch, Inc. and has been a
director of iVoice Technology and SpeechSwitch since November 2004. 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, with which we merged on May 21,
1999. Mr. Mahoney received a B.A. in finance and marketing from Fairleigh
Dickinson University, Rutherford, N.J. in 1983.
Mark Meller. Mr. Meller is Deep Field Technologies's President, Chief
Executive Officer and Chief Financial Officer and a director of Deep Field
Technologies. Mr. Meller has also been the President, Chief Executive Officer
and Chief Financial Officer of Trey Resources and a
40
director of Trey Resources since September 2003. Since 1988, Mr. Meller has been
Chief Executive Officer of Bristol Townsend & Co., Inc., a New Jersey-based
consulting firm providing merger and acquisition advisory services to middle
market companies. Mr. Meller is also a registered principal of Bristol
Investment Group, Inc., a New York-based NASD member broker/dealer. From 1986 to
1988, Mr. Meller was Vice President of Corporate Finance and General Counsel of
Crown Capital Group, Inc., a New Jersey-based consulting firm providing advisory
services for middle market leveraged buy-outs (LBO's). Prior to 1986, Mr. Meller
was a financial consultant and practiced law in New York City. He is a member of
the New York State Bar.
Compensation of Executive Officers
No officers or directors of Deep Field Technologies received any
compensation for services to Deep Field Technologies during any of the last
three fiscal years.
Employment Agreements
Deep Field Technologies entered into a five-year employment agreement with
Mr. Mahoney as of August 3, 2004. Mr. Mahoney will serve as Deep Field
Technologies's Non-Executive Chairman of the Board for a term of five years. As
consideration, Deep Field Technologies agreed to pay Mr. Mahoney the sum of
$85,000 the first year with an annual increase based on the Consumer Price Index
every year thereafter. However, when Deep Field Technologies achieves annual
sales equal to or greater than $2,000,000, Mr. Mahoney's base annual
compensation will automatically be increased to $145,000. Deep Field
Technologies also agreed to pay Mr. Mahoney a bonus for each merger or
acquisition completed by the Company equal to six percent (6%) of the gross
consideration paid or received by Deep Field Technologies in a merger or
acquisition completed by the Company during the term of the agreement. This
bonus would be payable in the form of cash, debt or shares of Class B Common
Stock at the option of Mr. Mahoney. 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 Deep Field Technologies in
each of the five prior calendar years (or shorter period during which Mr.
Mahoney shall have been employed by Deep Field Technologies) should his
employment be terminated following a change in control, as defined in the
employment agreement. The employment agreement restricts Mr. Mahoney from
competing with Deep Field Technologies during the term of the agreement and for
one year after he is no longer employed by the Company; provided that Mr.
Mahoney is receiving severance or other compensation from the Company pursuant
to the employment agreement for at least one year.
Deep Field Technologies entered into a five-year employment agreement with
Mr. Meller as of October 1, 2004. Mr. Meller will serve as Deep Field
Technologies's President, Chief Executive Officer and Chief Financial Officer
for a term of five years. As consideration, Deep Field Technologies agreed to
pay Mr. Meller the sum of $85,000 the first year with an annual increase based
on the Consumer Price Index every year thereafter. However, when Deep Field
Technologies achieves annual sales equal to or greater than $2,000,000, Mr.
Meller's base annual salary will automatically be increased to $145,000. Deep
Field Technologies also agreed to pay Mr. Meller a bonus for each merger or
acquisition completed by the Company equal to six percent (6%) of the gross
consideration paid or received by Deep Field Technologies, net of any
41
debt or other liabilities assumed by the Company, in a merger or acquisition
completed by the Company during the term of the agreement. This bonus would be
payable in the form of cash, debt or shares of Class B Common Stock at the
option of Mr. Meller. The employment agreement with Mr. Meller provides for a
severance payment to him of three hundred percent (300%), less $100, of his
gross income for services rendered to Deep Field Technologies in each of the
five prior calendar years (or shorter period during which Mr. Meller shall have
been employed by Deep Field Technologies) should his employment be terminated
following a change in control, as defined in the employment agreement. The
employment agreement restricts Mr. Meller from competing with Deep Field
Technologies during the term of the agreement and for one year after he is no
longer employed by the Company; provided that Mr. Meller is receiving severance
or other compensation from the Company pursuant to the employment agreement for
at least one year. Mr. Meller shall also be paid the sum of $50,000 upon the
completion of the Distribution. Mr. Meller has agreed to forego receipt of the
$50,000 until such time that management believes it has sufficient financing in
place to fund this obligation.
Stock Option Plan
None.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective August 12, 2004, Deep Field Technologies entered into a Standby
Equity Distribution Agreement with Cornell Capital Partners to obtain an equity
line of credit. Under this agreement, Deep Field Technologies may issue and sell
to Cornell Capital Partners Class A Common Stock for a total purchase price of
up to $10.0 million. Deep Field Technologies will be entitled to commence
drawing funds under this agreement when the resale of the Class A Common Stock
issuable under the equity line of credit is registered with the Securities and
Exchange Commission, and the equity line of credit will remain outstanding for
two years thereafter. The purchase price for the shares will be equal to 95% of
the market price, which is defined as the lowest closing bid price of the Class
A Common Stock during the five trading days following the date that Deep Field
Technologies delivers to Cornell Capital Partners a notice requiring it to
advance funds to us. A cash fee equal to six percent (6%) of the cash proceeds
of the draw down is also payable at the time of funding. In addition, Cornell
Capital Partners will receive, as additional compensation, the number of shares
of Class A Common Stock equal to one and one half percent (1.5%) of the number
of shares of Class A Common Stock outstanding on the date that the registration
statement in respect of the shares to be distributed pursuant to the equity line
of credit becomes effective. To date, Deep Field Technologies has not drawn down
on the equity line of credit.
In August and _______, 2004, Deep Field Technologies issued an aggregate
of $400,000 in secured convertible debentures, with interest payable at 5% per
annum, to Cornell Capital Partners. Each of the debentures are convertible into
shares of Class A Common Stock at a price equal to the lesser of (a) an amount
equal to one hundred twenty percent (120%) of the initial bid price of the Class
A Common Stock on the date of effectiveness of the registration statement of
which this prospectus is a part or (b) an amount equal to eighty percent (80%)
of the lowest closing bid price of the Class A Common Stock for the five trading
days immediately preceding the conversion date. The secured convertible
debentures have a term of two years with all
42
accrued interest due at the expiration of the term. At our option, these
debentures may be redeemed at a 20% premium prior to August 12, 2006. The
secured convertible debentures are secured by a first priority security interest
in substantially all of the assets of Deep Field Technologies. Deep Field
Technologies will issue an additional $100,000 of secured convertible debentures
to Cornell Capital Partners on or about the date of effectiveness of the
registration statement of which this prospectus is a part.
Upon the effective date of this prospectus, Deep Field Technologies will
assume an aggregate of $190,000 in liabilities from iVoice and iVoice will
assign to Deep Field Technologies assets having an aggregate book value of
$250,000. Deep Field Technologies believes that the fair value of these assets
may be greater than the book value, although it has not undertaken an appraisal.
The assumed obligations are described below.
In consideration of and exchange for the assets that Deep Field
Technologies will receive pursuant to the spin-off of the Unified Messaging
business, Deep Field Technologies will issue 10 shares of Series A 5%
Convertible Preferred Stock to iVoice. Each share of Series A 5% Convertible
Preferred Stock has a stated value of $25,000 per share. Each share of Series A
5% Convertible Preferred Stock will be convertible into shares of Class A Common
Stock at a price equal to the lesser of (a) an amount equal to one hundred
twenty-five percent (125%) of the closing bid price of the Class A Common Stock
as of the conversion date or (b) an amount equal to eighty percent (80%) of the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the conversion date.
In connection with the assumption of assets and liabilities by Deep Field
Technologies from iVoice, Deep Field Technologies will assume from iVoice
immediately prior to the date of this prospectus $190,000 of outstanding
indebtedness from iVoice to Jerry Mahoney. The debt will be subject to a
promissory note having substantially the same terms as the note from iVoice to
Mr. Mahoney. Deep Field Technologies, upon the date of this prospectus, will
issue a promissory note in the amount of $190,000 payable to Mr. Mahoney that
will bear interest at the prime rate plus 2% per annum on the unpaid balance
until paid or until default. Interest payments are due and payable annually.
Under the terms of the promissory note, at the option of the note holder,
principal and interest can be converted into either (i) one share of Class B
Common Stock of Deep Field Technologies, par value $0.01, for each dollar owed,
(ii) the number of shares of Class A Common Stock of Deep Field Technologies
calculated by dividing (x) the sum of the principal and interest that the note
holder has requested to have prepaid by (y) eighty percent (80%) of the lowest
issue price of Class A Common Stock since the first advance of funds under this
note, or (iii) payment of the principal of this note, before any repayment of
interest.
Mr. Mahoney has agreed to forego receiving any shares of Deep Field
Technologies's Class A Common Stock or Class B Common Stock he is or would be
entitled to receive in the Distribution by virtue of his ownership of either
iVoice Class A Common Stock or iVoice Class B Common Stock.
Deep Field Technologies entered into two separate employment agreements
with Mr. Mahoney, its Chairman of the Board, and Mr. Meller, its President,
Chief Executive Officer and Chief Financial Officer, respectively, as of August
3, 2004 and October 1, 2004, respectively.
43
Each of the employment agreements provides for annual compensation of $85,000
per annum with an annual increase based on the Consumer Price Index every year
thereafter. However, when Deep Field Technologies achieves annual sales equal to
or greater than $2,000,000, each of Mr. Mahoney and Mr. Meller's base annual
compensation will automatically be increased to $145,000. Each of Mr. Mahoney
and Mr. Meller will also be entitled to additional incentive compensation based
upon acquisitions completed by Deep Field Technologies. Mr. Meller's agreement
also provides for a bonus of $50,000 to be paid upon successful completion of
the Distribution. Mr. Meller has agreed to forego receipt of the $50,000 until
such time that management believes that it has sufficient financing in place to
fund this obligation. Deep Field Technologies believes that the compensation
provided to each of Mr. Mahoney and Mr. Meller are commensurate with
compensation levels paid by other companies to management having equivalent
experiences and capabilities.
In August 2004, Deep Field Technologies entered into a temporary
administrative services agreement with iVoice. Pursuant to that agreement,
iVoice is providing Deep Field Technologies with physical premises, inventory
purchasing services, material and inventory control services, source code
management and other personnel and data processing services for a period ending
upon completion of the Distribution. For these services Deep Field Technologies
is paying iVoice $5,000 per month during the term of the agreement. Following
completion of the Distribution and termination of the administrative services
agreement, we expect that Deep Field Technologies will operate on a completely
stand-alone basis from iVoice and there will be no business or operating
relationship between iVoice and Deep Field Technologies.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
STOCKHOLDER MATTERS
We anticipate that our common stock will be quoted on the OTC Bulletin
Board under the symbol "____." There has been no trading market for our shares
prior to the date of this prospectus.
Holders of common equity
As of September 30, 2004, there was one record holder of our common
shares.
Dividend information
To date, Deep Field Technologies has never paid a dividend. We have no
plans to pay any dividends in the near future. We intend to retain all earnings,
if any, for the foreseeable future, for use in our business operations.
Security Ownership
The following table sets forth, as of September 30, 2004, information with
respect to the beneficial ownership of our common stock by (i) persons known by
us to beneficially own more than five percent of the outstanding shares, (ii)
the director, (iii) each executive officer and (iv) all directors and executive
officers as a group.
44
Common Common
Stock Stock
Beneficially Beneficially
Owned Owned
Before Percentage After Percentage
Name Title of Class Distribution Ownership Distribution Ownership
- ----------------- --------------- ------------- --------- ------------ ----------
Class A Common
Jerome R. Mahoney Stock 0(1) 0%(1) 0(1) 0%(1)
- ----------------------------------------------------------------------------------------
Class B Common
Stock 190,000(2) 100%(2) 190,000(2) 100%(2)
- ----------------------------------------------------------------------------------------
Class C Common
Stock 0 0% 0 0%
- ----------------------------------------------------------------------------------------
Class A Common
Mark Meller Stock 0 0% 0 0%
- ----------------------------------------------------------------------------------------
Class B Common
Stock 0 0% 0 0%
- ----------------------------------------------------------------------------------------
Class C Common
Stock 0 0% 0 0%
- ----------------------------------------------------------------------------------------
Class A Common
iVoice, Inc. Stock 100 100% 0 0%
- ----------------------------------------------------------------------------------------
Class B Common
Stock 0 0% 0 0%
- ----------------------------------------------------------------------------------------
Class C Common
Stock 0 0% 0 0%
- ----------------------------------------------------------------------------------------
All directors and Class A Common
executive officers Stock 0(1) 0%(1) 0(1) 0%(1)
as a group (2
persons)
- ----------------------------------------------------------------------------------------
Class B Common
Stock 190,000(2) 100%(2) 190,000(2) 0%(2)
- ----------------------------------------------------------------------------------------
Class C Common
Stock 0 0% 0 0%
- ----------------------------------------------------------------------------------------
- --------------
(1) Does not give effect to the right of Mr. Mahoney pursuant to the promissory
note to be executed by Mr. Mahoney and Deep Field Technologies in the amount of
$190,000 to convert $190,000 of indebtedness into 190,000 shares of Class B
Common Stock which is convertible into an indeterminate number of shares of
Class A Common Stock.
(2) Mr. Mahoney may at his option convert the $190,000 promissory note held by
him into Class B Common Stock of Deep Field Technologies at a rate of one dollar
per share. The Class B Common Stock is convertible at any time into Class A
Common Stock at a rate equal to 80% of the lowest price that Deep Field
Technologies issues shares of Class A Common Stock subsequent to the date of the
note. Thus by virtue of Mr. Mahoney's right to convert $190,000 of indebtedness
into 190,000 shares of Class B Common Stock, Mr. Mahoney is deemed to
beneficially own such shares for the purpose of computing the percentage of
ownership by him, but such shares are not treated as outstanding for the purpose
of computing the percentage ownership of any other person.
DESCRIPTION OF SECURITIES
Pursuant to Deep Field Technologies' 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 $0.01 per share, 20,000,000 shares of Class C Common Stock, par value
$0.01 per share, and 1,000,000 shares of Preferred Stock, par value of $1.00 per
share. Below is a description of Deep Field Technologies's outstanding
securities, including Class A Common Stock, Class B Common Stock, Class C Common
Stock, and Preferred 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
45
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 September 30, 2004, there
is one record holder of Class A Common Stock and Deep Field Technologies had 100
shares of Class A Common Stock outstanding. There will be 10,000,000 outstanding
shares of Deep Field Technologies Class A Common Stock immediately following the
100,000-for-one split to be effectuated prior to the Distribution.
Class B Common Stock
Each holder of Class B Common Stock has voting rights equal to 100 shares
of Class A Common Stock. Holders of Class B Common Stock are entitled to receive
dividends in the same proportion as the Class B Common Stock conversion rights
have to Class A Common Stock. There are 50,000,000 shares authorized and 0
shares issued and outstanding as of September 30, 2004. A holder of Class B
Common Stock has the right to convert each share of Class B Common Stock into
the number of shares of Class A Common Stock determined by dividing the number
of shares of Class B Common Stock being converted by a 20% discount of the
lowest price that Deep Field Technologies had ever issued its Class A Common
Stock. Upon our liquidation, dissolution, or winding-up, holders of Class B
Common Stock will be entitled to receive distributions.
Class C Common Stock
Each holder of our Class C Common Stock is entitled to 1,000 votes for
each one share held of record. Holders of our Class C Common Stock have no
preemptive, subscription, conversion, or redemption rights. Shares of Class C
Common Stock are not convertible into Class A Common Stock. There are 20,000,000
shares authorized and 0 shares issued and outstanding as of September 30, 2004.
Upon liquidation, dissolution or winding-up, the holders of Class C Common Stock
are not entitled to receive our net assets pro rata. 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.
Preferred Stock
Deep Field Technologies is authorized to issue 1,000,000 shares of
Preferred Stock, par value $1.00 per share, 10 shares of which have been
designated as Series A 5% Convertible Preferred Stock. As of September 30, 2004,
Deep Field Technologies has not issued any shares of Preferred Stock. In partial
consideration of and exchange for the assets that Deep Field Technologies will
receive in the spin-off of the Unified Messaging business, Deep Field
Technologies will issue 10 shares of Series A 5% Convertible Preferred Stock to
iVoice. Deep Field Technologies has no current plans to issue any other shares
of preferred stock.
Our board of directors is authorized (by resolution and by filing an
amendment to our certificate of incorporation and subject to limitations
prescribed by the New Jersey Business Corporation Act) to issue, from to time,
shares of Preferred Stock in one or more series, to
46
establish from time to time the number of shares to be included in each series,
and to fix the designation, powers, preferences and other rights of the shares
of each such series and to fix the qualifications, limitations and restrictions
thereon, including, but without limiting the generality of the foregoing, the
following:
o the number of shares constituting that series and the distinctive
designation of that series;
o the dividend rate on the shares of that series, whether dividends
are cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on
shares of that series;
o whether that series has voting rights, in addition to voting rights
provided by law, and, if so, the terms of those voting rights;
o whether that series has conversion privileges, and, if so, the terms
and conditions of conversion, including provisions for adjusting the
conversion rate in such events as our board of directors determines;
o whether or not the shares of that series are redeemable, and, if so,
the terms and conditions of redemption, including the dates upon or
after which they are redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions
and at different redemption dates;
o whether that series has a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount
of that sinking fund;
o the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of Deep Field
Technologies, and the relative rights of priority, if any, of
payment of shares of that series; and
o any other relative powers, preferences and rights of that series,
and qualifications, limitations or restrictions on that series.
If we liquidate, dissolve or wind up our affairs, whether voluntarily or
involuntarily, the holders of Preferred Stock of each series will be entitled to
receive only that amount or those amounts as are fixed by the Company's
certificate of incorporation or the certificate of designations or by resolution
of the board of directors providing for the issuance of that series.
47
Series A 5% Convertible Preferred Stock
General
In partial consideration of and exchange for the assets that Deep Field
Technologies will receive in the spin-off of the Unified Messaging business,
Deep Field Technologies will issue 10 shares of Series A 5% Convertible
Preferred Stock to iVoice.
Dividends
Dividends are payable quarterly on the Series A 5% Convertible Preferred
Stock on the last day of each calendar quarter in an amount equal to 5% per
annum of the stated value of the Series A 5% Convertible Preferred Stock.
Dividends are payable, at the option of Deep Field Technologies, in cash or,
with the consent of the holders of Series A 5% Convertible Preferred Stock, in
shares of Class A Common Stock valued at the lowest closing bid price of the
Class A Common Stock for the five trading days immediately preceding the
dividend payment date.
Conversion
Subject to the limitations described below, the Series A 5% Convertible
Preferred Stock is convertible at any time and from time to time at the option
of the holder into a number of shares of Class A Common Stock determined by
dividing the applicable conversion price into the aggregate stated value of the
Series A 5% Convertible Preferred Stock held by that holder. The conversion
price will be a price equal to the lesser of (a) an amount equal to one hundred
twenty-five percent (125%) of the closing bid price of the Class A Common Stock
as of the conversion date or (b) an amount equal to eighty percent (80%) of the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the conversion date.
The Series A 5% Convertible Preferred Stock is not convertible by a holder
who, upon conversion of the shares, would beneficially own (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and 13G thereunder) at that time, after giving
effect to the conversion, in excess of 4.99% of the outstanding shares of Class
A Common Stock. The terms of Series A 5% Convertible Preferred Stock are
convertible only to the extent that the number of shares of Class A Common Stock
issuable upon conversion, together with the number of shares of Class A Common
Stock then owned by the holder, would not exceed 4.99% of the then outstanding
shares of Class A Common Stock as determined in accordance with Section 13(d) of
the Exchange Act. The 4.99% limitation does not prevent any holder from
converting its Series A 5% Convertible Preferred Stock into 4.99% of our then
outstanding Class A Common Stock, subsequently selling its shares of Class A
Common Stock, then converting additional Series A 5% Convertible Preferred Stock
into an additional number of shares of Class A Common Stock not to exceed 4.99%
of our outstanding Class A Common Stock. Thus, the total number of shares of
Class A Common Stock potentially issuable to the holder of Series A 5%
Convertible Preferred Stock in the aggregate may exceed 4.99% of our outstanding
Class A Common Stock.
In addition, if a court determines that, regardless of the limitation
described above, a holder of Series A 5% Convertible Preferred Stock would still
be deemed the beneficial owner of more than 4.99% of the outstanding Class A
Common Stock, then Deep Field Technologies will
48
be required to redeem the number of that holder's shares of Series A 5%
Convertible Preferred Stock that would allow that holder to be deemed a
beneficial owner of not more than 4.99% of the outstanding Class A Common Stock.
Deep Field Technologies would redeem the Series A 5% Convertible Preferred Stock
at a redemption price in cash equal to the stated value of the shares being so
redeemed plus any accrued and unpaid dividends on such shares up to the
redemption date.
Liquidation
In the event of the liquidation of Deep Field Technologies, the holders of
Series A 5% Convertible Preferred Stock will be entitled to receive a
liquidation preference before any amounts are paid to holders of any class of
Deep Field Technologies common stock. The liquidation preference is an amount
equal to 125% of the stated value of the Series A 5% Convertible Preferred Stock
plus any accrued and unpaid dividends on that stock through the liquidation
date.
Voting Rights
The holders of Series A 5% Convertible Preferred Stock will have no right
to vote, except as otherwise provided by law. However, each holder of Series A
5% Convertible Preferred Stock is entitled to receive prior notification of a
meeting of the stockholders, including copies of any information sent to the
stockholders. To the extent the holders of Series A 5% Convertible Preferred
Stock are entitled by law to vote on any matter as a class, the affirmative vote
of a majority of the Series A 5% Convertible Preferred Stock is required to
approve the matter.
Rights in the Event of Merger or Consolidation
If Deep Field Technologies enters into (a) a sale of all or substantially
all of its assets, (b) a consolidation or merger with any other entity (other
than a consolidation or merger in which Deep Field Technologies is the surviving
entity or (c) a transaction in which more than 50% of the voting power of Deep
Field Technologies is disposed of, then, at the option of each holder of Series
A 5% Convertible Preferred Stock, any of these transactions will be deemed a
liquidation of Deep Field Technologies in which Deep Field Technologies will be
required to distribute to the holder the liquidation preference described above.
Options and Warrants
None.
49
Debt
On August 12 and _______, 2004, Deep Field Technologies issued an
aggregate of $400,000 in secured convertible debentures, with interest payable
at 5% per annum, to Cornell Capital Partners. Each of the debentures are
convertible into shares of Class A Common Stock at a price equal to the lesser
of (a) an amount equal to one hundred twenty percent (120%) of the initial bid
price of the Class A Common Stock on the date of effectiveness of the
registration statement of which this prospectus is a part or (b) an amount equal
to eighty percent (80%) of the lowest closing bid price of the Class A Common
Stock for the five trading days immediately preceding the conversion date. The
secured convertible debentures have a term of two years with all accrued
interest due at the expiration of the term. At our option, these debentures may
be redeemed at a 20% premium prior to August 12, 2006. The secured convertible
debentures are secured by a first priority security interest in substantially
all of the assets of Deep Field Technologies. Deep Field Technologies will issue
an additional $100,000 of secured convertible debentures to Cornell Capital
Partners on or about the date of effectiveness of the registration statement of
which this prospectus is a part.
Transfer Agent
Deep Field Technologies's transfer agent is Fidelity Transfer Company. The
address is 1800 South West Temple, Suite 301, Salt Lake City, Utah 84115. The
telephone number is (801) 484-7222.
Limitation of Liability: Indemnification
Our by-laws include an indemnification provision under which we have
agreed to indemnify directors of Deep Field Technologies to the 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 of Deep Field Technologies.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Deep Field Technologies pursuant to the foregoing, or otherwise, Deep Field
Technologies has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
Anti-Takeover Effects Of Provisions Of The Certificate Of Incorporation
Authorized and unissued stock. 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 Deep
Field Technologies 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 Deep Field Technologies's 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.
For example, after the Distribution, iVoice will own shares of Deep Field
Technologies Series A 5% Convertible Preferred Stock. In some circumstances,
such as in the event of a sale
50
of Deep Field Technologies, iVoice could have interests that are different from
the Company's or yours.
Some of the provisions of Deep Field Technologies's certificate of
incorporation and bylaws may have the effect of making the acquisition of
control of Deep Field Technologies in a transaction not approved by Deep Field
Technologies's board of directors more difficult.
EXPERTS
The financial statements for the years ended December 31, 2003 and
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 Deep Field Technologies's 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.
LEGAL MATTERS
Meritz & Muenz LLP, Washington, D.C. will pass upon the validity of the
shares of common stock offered hereby for us.
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. 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.
51
INDEX TO FINANCIAL STATEMENTS
Contents Page
- -------- ----
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM F-2
AUDITED FINANCIAL STATEMENTS
Balance Sheet F-3
Statement of Operations F-4
Statement of Owner's Equity F-5
Statement of Cash Flows F-6
NOTES TO AUDITED FINANCIAL STATEMENTS F-7
UNAUDITED FINANCIAL STATEMENTS
Balance Sheet F-17
Statement of Operations F-18
Statement of Stockholder's Equity F-19
Statement of Cash Flows F-20
NOTES TO UNAUDITED FINANCIAL STATEMENTS F-21
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION F-31
Condensed Unaudited Pro Forma Balance
Sheet F-32
Unaudited Pro Forma Statement of
Operations F-33
Unaudited Pro Forma Statement of
Operations F-34
NOTES TO CONDENSED UNAUDITED PRO FORMA
FINANCIAL INFORMATION F-35
F-1
[LOGO]
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF DEEP FIELD TECHNOLOGIES, INC.
Matawan, New Jersey
We have audited the accompanying balance sheet of the unified voice messaging
software business of iVoice, Inc. (Deep Field Technologies, Inc., a wholly owned
subsidiary of iVoice, Inc.) as of December 31, 2003 and the related statements
of operations, owner's equity and cash flows for the years ended December 31,
2003 and 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the unified voice messaging
software business of iVoice, Inc. (Deep Field Technologies, Inc.) as of December
31, 2003, and the results of its operations and its cash flows for the years
ended December 31, 2003 and 2002, in conformity with accounting principles
generally accepted in the United States of America.
These financial statements have been derived from the consolidated financial
statements and accounting records of iVoice, Inc., and reflect significant
assumptions and allocations. Moreover, as indicated in Note 1, the Company
relies on iVoice, Inc. for administrative, management, research and other
services. Accordingly, these financial statements do not necessarily reflect the
financial position, results of operations, and cash flows of the Company had it
been a stand-alone Company.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3, the Company
had net losses and negative cash flows from operations for the years ended
December 31, 2003 and 2002, 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 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Mendlowitz Weitsen, LLP
---------------------------
MENDLOWITZ WEITSEN, LLP
East Brunswick, New Jersey
November 11, 2004
F-2
DEEP FIELD TECHNOLOGIES, INC.
BALANCE SHEET
December 31, 2003
ASSETS
------
CURRENT ASSETS
Inventory, net $ 315
Costs in excess of billing 75
----------
Total current assets 390
--------
TOTAL ASSETS $ 390
=========
LIABILITIES AND OWNER'S EQUITY
------------------------------
CURRENT LIABILITIES
None $ -
COMMITMENTS AND CONTINGENCIES
OWNER'S EQUITY
Common stock:
Class A, par value $.00001; Authorized -
10,000,000,000 shares; no shares
issued and outstanding Class B, par value
$.00001; Authorized - 50,000,000
shares; no shares issued and outstanding -
Class C, par value $.00001; Authorized -
20,000,000 shares; no shares issued and outstanding -
Preferred Stock; Par value $1.00; Authorized
1,000,000 shares;
no shares issued and outstanding -
Net investment - iVoice, Inc. 99,173
Additional paid in capital
Accumulated deficit (98,783)
-----------
Total owner's equity 390
-----------
TOTAL LIABILITIES AND OWNER'S EQUITY $ 390
===========
The Notes to Financial Statements are an integral part of these statements.
F-3
DEEP FIELD TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
For The Years Ended December 31, 2003 and 2002
2003 2002
---- ----
SALES, net $ 8,505 $ 23,238
COST OF SALES 3,447 5,987
--------- ----------
GROSS PROFIT 5,058 17,251
--------- ----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 1,923 4,672
General & administrative 15,892 50,634
Research & development 3,604 8,237
Write off of Goodwill - 6,330
Bad debt Expense - 2,540
Depreciation & amortization 2,869 5,371
--------- ----------
Total Selling, General & Administrative expense 24,288 77,784
--------- ----------
LOSS FROM OPERATIONS (19,230) (60,533)
---------- ---------
OTHER INCOME \(EXPENSE)
Other Income 2,818 6,515
Gain on Sale of Securities held for sale 1,944 -
Interest expense (14,488) (15,827)
----------- ----------
Total other expense (9,708) (9,312)
----------- ----------
LOSS BEFORE INCOME TAXES (28,938) (69,845)
----------- ----------
PROVISION FOR INCOME TAXES - -
----------- ----------
NET LOSS $ (28,938) $ (69,845)
=========== ==========
PRO FORMA NET LOSS PER COMMON SHARE:
Basic $ (289.38) $ (698.45)
=========== ==========
Diluted $ (289.38) $ (698.45)
============ ==========
The Notes to Financial Statements are an integral part of these statements.
F-4
DEEP FIELD TECHNOLOGIES, INC.
STATEMENT OF OWNER'S EQUITY
For the Years Ended December 31, 2003 and 2002
Common Common Additional Net Total
Stock Stock Paid in Investment Accumulated Owner's
Shares Amount Capital iVoice, Inc. Deficit Equity
------ ------ ------- ------------ ------- ------
Balance at January 1, 2002 0 0 0
Net transactions with iVoice, Inc. $75,715 $75,715
Net loss for the twelve months
ended December 31, 2002 - - - $(69,845) $(69,845)
---------- ---------- ---------- ---------- ----------
Balance at January 1, 2003 71,715 (69,845) 1,870
Sale of convertible debentures
Net transactions with iVoice, Inc. 27,458 27,458
Net loss for the twelve months ended - - - (28,938) (28,938)
December 31, 2003 ---------- ---------- ---------- ---------- ---------
Balance at December 31, 2003 $ - $ - $99,173 $(98,783) $ 390
========== ========== ========== ========== =========
The Notes to Financial Statements are an integral part of these statements.
F-5
DEEP FIELD TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
For The Years Ended December 31, 2003 and 2002
2003 2002
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (28,938) $(69,845)
Depreciation and amortization 2,869 5,371
Bad Debt Expense - 2,540
Changes in operating assets and liabilities
Increase in accounts payable and accrued expenses (1,389) (9,781)
----------- ----------
Net cash used in operating activities (27,458) (71,715)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Allocation of costs by iVoice 27,458 71,715
----------- ----------
Net cash provided by financing activities 27,458 71,715
----------- ----------
NET INCREASE (DECREASE) IN CASH - -
CASH - beginning - -
----------- ----------
CASH - end $ - $ -
=========== ==========
CASH PAID DURING THE YEAR FOR:
Interest expense $ 14,468 $ 9,312
Income taxes $ - $ -
=========== ==========
The Notes to Financial Statements are an integral part of these statements.
F-6
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 1 - BACKGROUND
Deep Field Technologies, Inc. ("Deep Field Technologies" or the "Company") was
incorporated under the laws of New Jersey on November 10, 2004 as a wholly owned
subsidiary of iVoice, Inc. ("iVoice"). The Company received by assignment all of
the interests in and rights and title to, and assumed all of the obligations of,
all of the agreements, contracts, understandings and other instruments of iVoice
Technology 2, Inc., a Nevada corporation and affiliate of the Company. When we
refer to or describe any agreement, contract or other written instrument of the
Company in these notes, we are referring to an agreement, contract or other
written instrument that had been entered into by iVoice Technology 2 and
assigned to the Company.
In September 2004, the Board of Directors of iVoice resolved to pursue the
separation of iVoice software business into three publicly owned companies.
iVoice will continue to focus on its own computerized telephony technology and
related business development operations. Deep Field Technologies intends to
continue to develop, market and license the Unified Messaging line of
computerized telephony software.
The spin-off transaction will be accomplished by the distribution of certain
intellectual property, representing the software codes of Unified Messaging, and
certain accrued liabilities and related party debt to Deep Field Technologies
(the "Distribution"), the shares of common stock of which will be distributed to
iVoice shareholders in the form of a taxable dividend.
In conjunction with the spin-off, Deep Field Technologies has entered into a
temporary administrative services agreement with iVoice. The agreement will
terminate upon completion of the Distribution. However, if, following the
Distribution, Deep Field Technologies is unable to replace any or all of the
services currently being provided by iVoice under the administrative services
agreement, the administrative services agreement will be continued with respect
to those services on a month-to-month basis.
Deep Field Technologies also intends to assume $190,000 in accrued liabilities
and related party debt presently outstanding and incurred by iVoice. The debt
being assumed will be convertible into Class B Common Stock of Deep Field
Technologies at the option of the holder as later described in these notes.
NOTE 2 - BUSINESS OPERATIONS
The Company will continue to develop, market and license the Unified Messaging
line, which was developed by iVoice. With Unified Messaging, e-mail, voice mail
and faxes can be handled through a desktop computer or 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.
NOTE 3 - GOING CONCERN
F-7
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern. The Company has
traditionally operated as a non-reporting component of iVoice, Inc. and
accordingly these financial statements have been derived from the consolidated
financial statements and accounting records of iVoice, Inc., and reflect
significant assumptions and allocations. The Company relies on iVoice, Inc. for
administrative, management, research and other services. These financial
statements do not necessarily reflect the financial position, results of
operations, and cash flows of the Company had it been a stand-alone Company.
As of December 31, 2003, 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 balance sheets is dependent upon continued operations of the
Company, which in turn, is dependent upon the Company's ability to raise capital
and/or generate positive cash flow from operations.
In order to provide necessary working capital, in August 2004, the Company
entered into a subscription agreement, pursuant to which the Company issued
$200,000 of secured convertible debentures in August 2004, and will issue an
additional $200,000 of secured convertible debentures around the time of filing
of the registration statement for the Class A Common Stock and an additional
$100,000 of secured convertible debentures based on the effectiveness of the
registration statement. Interest on the notes is payable at 5% per annum and the
notes are convertible into the Company's Class A Common Stock at a price equal
to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the
initial bid price of the Class A Common Stock on the date of effectiveness of
the registration statement, or (b) an amount equal to eighty percent (80%) of
the lowest closing bid price of the Class A Common Stock for the five (5)
trading days immediately preceding the conversion date. Additionally, the
Company has also entered into a Standby Equity Distribution Agreement where the
Company may, at its discretion, periodically sell to an investor shares of Class
A Common Stock to raise capital to fund working capital needs. These two
financing transactions will require the Company to register its common stock
under Section 12 (g) of the U.S. Securities Exchange Act of 1934 and
subsequently register for resale a number of shares to facilitate these
financing transactions.
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.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying financial statements have been derived from the
consolidated financial statements and accounting records of iVoice using the
historical results of operations and historical basis of assets and liabilities
of the Company's Interactive Voice Response business. Management believes the
assumptions underlying the financial statements are
F-8
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
reasonable. However, the financial statements included herein may not
necessarily reflect the Company's results of operations, financial position, and
cash flows in the future or what its results of operations, financial position
and cash flows would have had the Company been a stand-alone company during the
periods presented.
b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
c) Software License Costs
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-development 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".
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 unamortized cost. Historically the Interactive Voice Response
software technology has produced limited sales revenue. However, management
believes that the limited sales generated result from a lack of application of
Company sales and marketing resources to the software, It is Management's plan
to devote such resources to its software technology to recognize the
technology's potential value and therefore, no impairment loss has been
recorded.
d) Revenue Recognition
The Company derives its revenues from the licensing of its software
product and optional customer support (maintenance) service. The Company's
standard license agreement provides for a one-time fee for use of the Company's
product in perpetuity for each computer or CPU in which the software will
reside. The Company's software application is fully functional upon delivery and
implementation and does not require any significant modification or alteration.
The Company also offers customers an optional annual software maintenance and
support agreement for the subsequent one-year periods. Such maintenance and
support services are free for the first year the product is licensed and is
considered the warranty period. The software maintenance and support agreement
provides free software updates, if any, and technical support the customer may
need in deploying or changing the configuration of the software. Generally, the
Company does not license its 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.
F-9
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
The Company does not offer any special payment terms or significant
discount pricing. Normal and customary payment terms require payment for the
software license fees when the product is shipped. Payment for software
maintenance is due prior to the commencement of the maintenance period. It is
also the Company's policy to not provide customers the right to refund any
portion of its license fees. The Company accepts Visa and MasterCard as well as
company checks.
With respect to the sale of software license fees, the Company recognizes
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 to be the warrantee period, the Company offers
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 revenue and recognized over the respective
terms of the agreements.
e) Product Warranties
The Company estimates its warranty costs based on historical warranty
claims experience in estimating potential warranty claims. Due to the limited
sales of the Company's products, management has determined that warranty costs
are immaterial and has not included an accrual for potential warranty claims.
Presently, costs related to warranty coverage are expensed as incurred. Warranty
claims are reviewed quarterly to verify that warranty liabilities properly
reflect any remaining obligation based on the anticipated expenditures over the
balance of the obligation period.
f) Research and development costs
Research and development costs will be charged to expense as incurred.
g) 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.
h) Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards
F-10
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
Board ("FASB") of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes" ("Statement 109"). Under Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company, not being a separate reporting entity, will not receive any
benefit from the approximately $100,000 net operating loss allocated to the
unified voice messaging software business contained in these financial
statements.
i) Organization Costs
Organization costs consist primarily of professional and filing fees
relating to the formation of the Company. These costs have been expensed.
j) 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 pro forma EPS is computed by dividing income
available to common shareholders by the expected number of shares to be issued
in connection with the Company's proposed spin-off from iVoice, Inc. 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 resulting from the Company's net loss position.
Since the earnings per share information is being shown on a pro forma basis,
only the most recent year has been presented. The shares used in the computation
are as follows:
As of December 31, 2003
-----------------------
Pro Forma Basis and diluted purposes 100
k) 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, 2003 and 2002, the Company has no items
that represent comprehensive income, and thus, has not included a statement of
comprehensive income.
F-11
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
l) Recent Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46-R, "Consolidation
of Variable Interest Entities" ("FIN 46-R"). FIN 46-R, which modifies certain
provisions and effective dates of FIN No. 46, sets forth criteria to be used in
determining whether an investment in a variable interest entity should be
consolidated, and is based on the general premise that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. The provisions of FIN 46 became effective for the Company
during the third quarter of Fiscal 2004. The adoption of this new standard did
not have any impact on the Company's financial position, results of operations
or cash flows.
In December, 2003, the FASB issued a revision to SFAS No. 132 "Employers'
Disclosures about Pensions and Other Post retirement Benefits." This revised
statement requires additional annual disclosures regarding types of pension plan
assets, investment strategy, future plan contributions, expected benefit
payments and other items. The statement also requires quarterly disclosure of
the components of net periodic benefit cost and plan contributions. This
currently has no effect on the Company.
NOTE 5 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 2003 and December 31, 2002, iVoice allocated
operating costs of $24,288 and $77,784, respectively to Deep Field Technologies.
These allocations are reflected in the selling, general and administrative, cost
of revenue and research and development line items in our statements of
operations. The general corporate expense allocation is primarily for cash
management, selling expense, legal, accounting, tax, insurance, public
relations, advertising, and human resources. The amortization of the Unified
Messaging software has been reflected as cost of sales. Other general categories
of operating expense, as well as other income and expense, have been allocated
to Deep Field Technologies by iVoice based upon a ratio of revenue of the
Unified Messaging software over total iVoice revenue for the applicable periods.
Management believes the costs of these services charged are a reasonable
representation of the costs that would have been incurred if Deep Field
Technologies had performed these functions as a stand-alone company.
In conjunction with the spin-off, Deep Field Technologies has entered into a
temporary administrative services agreement with iVoice. The agreement will
terminate upon completion of the Distribution.
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 38.1 %
State Income Tax, Net of Federal Benefits ( 4.1)%
Effective Income Tax Rate 0.0 %
F-12
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
Prior to the spin-off, the Company was included as part of iVoice's consolidated
federal income tax return, however the income tax expense presented in these
financial statements has been computed on a separate return basis.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 3, the Company has entered into a subscription agreement
with certain purchasers for the sale of $500,000 in convertible debentures. The
notes will be convertible into Class A common stock at the discretion of the
holders. Additionally, the Company has entered into a Standby Equity
Distribution Agreement whereby the Company, at its discretion, may periodically
sell to an investor shares of Class A Common Stock to raise capital to fund its
working capital needs. These transactions will require the Company to register
its common stock under Section 12 (g) of the Securities Exchange Act of 1934 and
subsequently register for resale a number of shares to facilitate these
financial transactions.
The Company will also assume an outstanding promissory note in the amount of
$190,000 payable to Jerry Mahoney, President and Chief Executive Officer of
iVoice and Non-Executive Chairman of the Board of Deep Field Technologies. This
amount is related to funds loaned to iVoice and is unrelated to the operations
of. Deep Field Technologies. The note will bear interest at the rate of Prime
plus 2.0% per annum on the unpaid balance until paid. Under the terms of the
Promissory Note, at the option of the Note holder, principal and interest can be
converted into either (i) one share of Class B Common Stock of Deep Field
Technologies, Inc., par value $.01 per share, for each dollar owed, (ii) the
number of shares of Class A Common Stock of Deep Field Technologies, Inc.
calculated by dividing (x) the sum of the principal and interest that the Note
holder has requested to have prepaid by (y) eighty percent (80%) of the lowest
issue price of Class A Common Stock since the first advance of funds under this
Note, or (iii) payment of the principal of this Note, before any repayment of
interest.
Deep Field Technologies, Inc. entered into employment agreements with Jerome
Mahoney, its Chairman of the Board and Mark Meller, its President, Chief
Executive Officer and Chief Financial Officer, as of August 3, 2004 and October
1, 2004, respectively.
Each of the employment agreements is for a term of five years and provides for
annual compensation of $85,000 with an annual increase based on the Consumer
Price Index. However, if Deep Field Technologies, Inc. achieves annual sales
equal to or greater than $2,000,000, Mr. Mahoney and Mr. Meller will each be
entitled to an automatic increase to $145,000. Each will also be entitled to
additional bonus incentives based on any mergers or acquisitions completed by
the Company.
Mr. Meller will also be entitled to a sum of $50,000 upon the completion of the
Distribution. Mr. Meller has agreed to defer the receipt of said sum until such
time that management believes it has sufficient financing in place to fund this
obligation.
F-13
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 8 - CAPITAL STOCK
Pursuant to Deep Field Technologies's certificate of incorporation, as amended,
the Company is 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 $0.01 per share, 20,000,000 shares of Class C Common Stock, par value
$0.01 per share, and 1,000,000 shares of Preferred Stock, par value of $1.00 per
share. Below is a description of Deep Field Technologies's outstanding
securities, including Class A Common Stock, Class B Common Stock, Class C Common
Stock, and Preferred Stock.
a) Class A Common Stock
As of September 30, 2004, there are 2,000 shares of Class A Common Stock
authorized, no par value, and 100 shares were issued and outstanding.
Each holder of Class A Common stock is entitled to receive ratably
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for 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 its growth objectives.
b) Class B Common Stock
As of September 30, 2004, there are 50,000,000 shares of Class B Common
Stock authorized, par value $.01 per share. Each holder of Class B Common Stock
has voting rights equal to 100 shares of Class A Common Stock. A holder of Class
B Common Stock has the right to convert each share of Class B Common Stock into
the number of shares of Class A Common Stock determined by dividing the number
of Class B Common Stock being converted by a 20% discount of the lowest price
that Deep Field Technologies, Inc. had ever issued its Class A Common Stock.
Upon our liquidation, dissolution, or winding-up, holders of Class B Common
Stock will be entitled to receive distributions. As of September 30, 2004, no
shares were issued or outstanding.
c) Class C Common Stock
As of September 30, 2004, there are 20,000,000 shares of Class C Common
Stock authorized, par value $.01 per share. Each holder of Class C Common Stock
is entitled to 1,000 votes for each share held of record. Shares of Class C
Common Stock are not convertible into Class A Common Stock. Upon liquidation,
dissolution or wind-up, the holders of Class C Common Stock are not entitled to
receive our net assets pro rata. As of September 30, 2004, no shares were issued
or outstanding.
d) Preferred Stock
Deep Field Technologies is authorized to issue 1,000,000 shares of
Preferred Stock, par value $1.00 per share, 10 shares of which have been
designated as Series A 5% Convertible
F-14
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
Preferred Stock. As of September 30, 2004, Deep Field Technologies has not
issued any shares of Preferred Stock.
e) Series A 5% Convertible Preferred Stock
In partial consideration of and exchange for the assets that Deep Field
Technologies will receive pursuant to the spin-off of the Unified Messaging
business, Deep Field Technologies will issue 10 shares of Series A 5%
Convertible Preferred Stock to iVoice.
The par value of each share of Series A 5% Convertible Preferred Stock is
$1.00 per share and the stated value of each share is Twenty-Five Thousand
Dollars ($25,000) per share. Dividends are payable quarterly on the Series A 5%
Convertible Preferred Stock on the last day of each calendar quarter in an
amount equal to 5% per annum of the stated value of the Series A 5% Convertible
Preferred Stock. Dividends are payable, at the option of Deep Field
Technologies, in cash or, with the consent of the holders of Series A 5%
Convertible Preferred Stock, in shares of Class A Common Stock valued at the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the dividend payment date.
Each dividend shall be payable in equal quarterly amounts on each March
31, June 30, September 30 and December 31 of each year, commencing December 31,
2004 (provided that such initial dividend payment shall include all dividends
accrued from the Closing Date until the initial Dividend Payment Due Date.
Each share of Series A 5% Convertible Preferred Stock is convertible into
shares of Class A Common Stock of the Company at a price equal to the lesser of
(a) an amount equal to one hundred twenty-five percent (125%) of the closing bid
price of the Class A Common Stock as of the conversion date, or (b) an amount
equal to 80% of the lowest closing bid price of Class A Common Stock for the
five trading days immediately preceding the conversion date.
In the event of the liquidation of Deep Field Technologies, the holders of
Series A 5% Convertible Preferred Stock will be entitled to receive a
liquidation preference before any amounts are paid to holders of any class of
Deep Field Technologies common stock. The liquidation preference is an amount
equal to 125% of the stated value of the Series A 5% Convertible Preferred Stock
plus any accrued and unpaid dividends on that stock through the liquidation
date.
The holders of Series A 5% Convertible Preferred Stock will have no right
to vote, except as otherwise provided by law.
NOTE 9 - SUBSEQUENT EVENTS
On September 13, 2004, iVoice announced that it intends to distribute to
iVoice's shareholders all common stock shares of its subsidiary iVoice
Technology 2, Inc.
F-15
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
The following two financing transactions will require the Company to register
its common stock under Section 12(g) of the Securities Exchange Act of 1934 and
subsequently register for resale a number of shares to facilitate these
financing transactions.
In August 2004, the Company entered into an agreement with Sloan Securities
Corporation to act as an agent for the private placement of secured convertible
debentures to Cornell Capital Partners, L.P. Under the placement agent
agreement, the Company agreed to issue to Sloan on or about the date of
effectiveness of the registration statement for the Class A Common Stock a
number of shares of Class A Common Stock equal to $10,000 divided by the closing
bid price of the Class A Common Stock on the date of effectiveness of such
registration statement. In August 2004, the Company issued $200,000 of secured
convertible debentures and will issue an additional $200,000 of secured
convertible debentures around the time of filing of the registration statement
for the Class A Common Stock and an additional $100,000 of secured convertible
debentures based on the effectiveness of the registration statement, to Cornell
Capital Partners. Each of the debentures are convertible into shares of Class A
Common Stock at a price equal to the lesser of (a) an amount equal to one
hundred twenty percent (120%) of the initial bid price of the Class A Common
Stock on the date of effectiveness of the registration statement of which this
prospectus is a part or (b) an amount equal to eighty percent (80%) of the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the conversion date. The secured convertible debentures
have a term of two years with all accrued interest due at the expiration of the
term. At our option, these debentures may be redeemed at a 20% premium prior to
August 12, 2006. The secured convertible debentures are secured by a first
priority security interest in substantially all of the assets of Deep Field
Technologies.
Effective August 12, 2004, Deep Field Technologies entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners to obtain an equity line of
credit. Under this agreement, Deep Field Technologies may issue and sell to
Cornell Capital Partners Class A Common Stock for a total purchase price of up
to $10.0 million. Deep Field Technologies will be entitled to commence drawing
funds under this agreement when the resale of the Class A Common Stock issuable
under the equity line of credit is registered with the Securities and Exchange
Commission, and the equity line of credit will remain outstanding for two years
thereafter. The purchase price for the shares will be equal to 95% of the market
price, which is defined as the lowest closing bid price of the Class A Common
Stock during the five trading days following the date that Deep Field
Technologies delivers to Cornell Capital Partners a notice requiring it to
advance funds to the Company. A cash fee equal to six percent (6%) of the cash
proceeds of the draw down is also payable at the time of funding. In addition,
Cornell Capital Partners will receive, as additional compensation, the number of
shares of Class A Common Stock equal to one and one half percent (1.5%) of the
number of shares of Class A Common Stock outstanding on the date that the
registration statement in respect of the shares to be distributed pursuant to
the equity line of credit becomes effective. To date, Deep Field Technologies
has not drawn down on the equity line of credit.
F-16
DEEP FIELD TECHNOLOGIES, INC.
BALANCE SHEET
September 30, 2004
(Unaudited)
ASSETS
------
CURRENT ASSETS
Cash 169,900
Accounts Receivables 3,000
Inventory 317
Prepaid expenses 70,000
----------
Total current assets 243,217
---------
TOTAL ASSETS $ 243,217
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expense $ 1,342
Deferred maintenance contracts 1,297
5% Convertible debentures 200,000
---------
Total current liabilities 202,639
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock:
Class A, par value $.00001; Authorized - 10,000,000,000 shares;
100 shares issued and outstanding
Class B, par value $.00001; Authorized - 50,000,000 shares;
no shares issued and outstanding -
Class C, par value $.00001; Authorized - 20,000,000 shares;
no shares issued and outstanding -
Preferred Stock; Par value $1.00; Authorized 1,000,000 shares;
no shares issued and outstanding -
Net investment - iVoice, Inc. 148,302
Additional paid in capital 50,000
Accumulated deficit (157,724)
---------
Total stockholders' equity 40,578
---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 243,217
==========
The Notes to Financial Statements are an integral part of these statements.
F-17
DEEP FIELD TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
For The Nine Months Ended September 30, 2004 and 2003
(Unaudited)
2004 2003
---- ----
SALES, net $ 6,160 $ 6,883
COST OF SALES 2,353 2,612
---------- ---------
GROSS PROFIT 3,807 4,271
---------- ---------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 1,807 1,518
General & administrative 30,154 10,522
Research & development 2,016 3,081
Depreciation & amortization 1,439 2,160
---------- ---------
Total Selling, General & Administrative expense 35,416 17,281
---------- ---------
LOSS FROM OPERATIONS (31,609) (13,010)
---------- ---------
OTHER INCOME \(EXPENSE)
Other Income 6,526 21
Interest expense (33,858) (5,869)
---------- ---------
Total other expense (27,332) (5,848)
---------- ---------
LOSS BEFORE INCOME TAXES (58,941) (18,858)
---------- ---------
PROVISION FOR INCOME TAXES - -
---------- ---------
NET LOSS $ (58,941) $(18,858)
========== =========
PRO FORMA NET LOSS PER COMMON SHARE:
Basic
Diluted
The Notes to Financial Statements are an integral part of these statements.
F-18
DEEP FIELD TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
For the Nine Months Ended September 30, 2004
(Unaudited)
Net
Common Common Additional Investment Total
Stock Stock Paid in iVoice, Accumulated Owner's
Shares Amount Capital Inc. Deficit Equity
------ ------ ------- ---- ------- ------
Balance at January 1, 2004 $99,173 $ (98,783) $ 390
Issuance of common stock 100 - -
Sale of convertible
debentures 50,000 50,000
Net transactions with
iVoice, Inc. 49,129 49,129
Net loss for the nine
months ended - - - - (58,941) (58,941)
September 30, 2004 ------ ------- ------- ------- ----------- ---------
Balance at September 30, 2004 100 - 50,000 $148,302 (157,724) $ 40,578
====== ======= ======= ======== =========== ========
The Notes to Financial Statements are an integral part of these statements.
F-19
DEEP FIELD TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
For The Nine Months Ended September 30, 2004 and 2003
(Unaudited)
2004 2003
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (58,941) $(18,858)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities
Depreciation and amortization 1,439 2,160
Changes in operating assets and liabilities
Increase in accounts payable and accrued expenses (71,727) (466)
----------- ---------
Net cash used in operating activities (129,229) (17,164)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Allocation of costs by iVoice 49,129 17,164
Sale of convertible debentures 200,000 -
Paid in Capital 50,000 -
Net cash provided by financing activities 299,129 17,164
----------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 169,900 -
CASH - beginning - -
----------- --------
CASH - end $ 169,900 $ -
=========== =========
CASH PAID DURING THE YEAR FOR:
Interest expense $ 33,858 $ 5,869
=========== =========
Income taxes $ - $ -
=========== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
For the Nine Months Ended September 30, 2003
a) The Company issued $200,000 on August 12, 2004 of its 5% Convertible
Debentures with a 20% beneficial conversion feature. The beneficial
conversion has been recorded as a prepaid financing cost until such time as
the Company's Class A common stock into which the debentures are convertible
is registered. Upon effective registration of the Company's common stock, any
amounts capitalized as beneficial conversion feature will be charged to
expense in accordance with EITF Issue 98-5.
The Notes to Financial Statements are an integral part of these statements.
F-20
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 1 - BACKGROUND
Deep Field Technologies, Inc. ("Deep Field Technologies" or the "Company") was
incorporated under the laws of New Jersey on November 10, 2004 as a wholly owned
subsidiary of iVoice, Inc. ("iVoice"). The Company received by assignment all of
the interests in and rights and title to, and assumed all of the obligations of,
all of the agreements, contracts, understandings and other instruments of iVoice
Technology 2, Inc., a Nevada corporation and affiliate of the Company. When we
refer to or describe any agreement, contract or other written instrument of the
Company in these notes, we are referring to an agreement, contract or other
written instrument that had been entered into by iVoice Technology 2 and
assigned to the Company.
In September 2004, the Board of Directors of iVoice resolved to pursue the
separation of iVoice software business into three publicly owned companies.
iVoice will continue to focus on its own computerized telephony technology and
related business development operations. Deep Field Technologies intends to
continue to develop, market and license the Unified Messaging line of
computerized telephony software.
The spin-off transaction will be accomplished by the distribution of certain
intellectual property, representing the software codes of Unified Messaging, and
certain accrued liabilities and related party debt to Deep Field Technologies
(the "Distribution"), the shares of common stock of which will be distributed to
iVoice shareholders in the form of a taxable dividend.
In conjunction with the spin-off, Deep Field Technologies has entered into a
temporary administrative services agreement with iVoice. The agreement will
terminate upon completion of the Distribution. However, if, following the
Distribution, Deep Field Technologies is unable to replace any or all of the
services currently being provided by iVoice under the administrative services
agreement, the administrative services agreement will be continued with respect
to those services on a month-to-month basis.
Deep Field Technologies also intends to assume $190,000 in accrued liabilities
and related party debt presently outstanding and incurred by iVoice. The debt
being assumed will be convertible into Class B Common Stock of Deep Field
Technologies at the option of the holder as later described in these notes.
NOTE 2 - BUSINESS OPERATIONS
The Company will continue to develop, market and license the Unified Messaging
line, which was developed by iVoice. With Unified Messaging, e-mail, voice mail
and faxes can be handled through a desktop computer or 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.
NOTE 3 - GOING CONCERN
F-21
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern. The Company has
traditionally operated as a non-reporting component of iVoice, Inc. and
accordingly these financial statements have been derived from the consolidated
financial statements and accounting records of iVoice, Inc., and reflect
significant assumptions and allocations. The Company relies on iVoice, Inc. for
administrative, management, research and other services. These financial
statements do not necessarily reflect the financial position, results of
operations, and cash flows of the Company had it been a stand-alone Company.
As of September 30, 2004, 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 balance sheets is dependent upon continued operations of the
Company, which in turn, is dependent upon the Company's ability to raise capital
and/or generate positive cash flow from operations.
In order to provide necessary working capital, in August 2004, the Company
entered into a subscription agreement, pursuant to which the Company issued
$200,000 of secured convertible debentures in August 2004, and will issue an
additional $200,000 of secured convertible debentures around the time of filing
of the registration statement for the Class A Common Stock and an additional
$100,000 of secured convertible debentures based on the effectiveness of the
registration statement. Interest on the notes is payable at 5% per annum and the
notes are convertible into the Company's Class A Common Stock at a price equal
to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the
initial bid price of the Class A Common Stock on the date of effectiveness of
the registration statement, or (b) an amount equal to eighty percent (80%) of
the lowest closing bid price of the Class A Common Stock for the five (5)
trading days immediately preceding the conversion date. Additionally, the
Company has also entered into a Standby Equity Distribution Agreement where the
Company may, at its discretion, periodically sell to an investor shares of Class
A Common Stock to raise capital to fund working capital needs. These two
financing transactions will require the Company to register its common stock
under Section 12 (g) of the U.S. Securities Exchange Act of 1934 and
subsequently register for resale a number of shares to facilitate these
financing transactions.
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.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying financial statements have been derived from the
consolidated financial statements and accounting records of iVoice using the
historical results of operations and historical basis of assets and liabilities
of the Company's Interactive Voice Response business. Management believes the
assumptions underlying the financial statements are
F-22
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
reasonable. However, the financial statements included herein may not
necessarily reflect the Company's results of operations, financial position, and
cash flows in the future or what its results of operations, financial position
and cash flows would have had the Company been a stand-alone company during the
periods presented.
b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
c) Software License Costs
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-development 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".
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 unamortized cost. Historically the Interactive Voice Response
software technology has produced limited sales revenue. However, management
believes that the limited sales generated result from a lack of application of
Company sales and marketing resources to the software, It is Management's plan
to devote such resources to its software technology to recognize the
technology's potential value and therefore, no impairment loss has been
recorded.
d) Revenue Recognition
The Company derives its revenues from the licensing of its software
product and optional customer support (maintenance) service. The Company's
standard license agreement provides for a one-time fee for use of the Company's
product in perpetuity for each computer or CPU in which the software will
reside. The Company's software application is fully functional upon delivery and
implementation and does not require any significant modification or alteration.
The Company also offers customers an optional annual software maintenance and
support agreement for the subsequent one-year periods. Such maintenance and
support services are free for the first year the product is licensed and is
considered the warranty period. The software maintenance and support agreement
provides free software updates, if any, and technical support the customer may
need in deploying or changing the configuration of the software. Generally, the
Company does not license its 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.
F-23
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
The Company does not offer any special payment terms or significant
discount pricing. Normal and customary payment terms require payment for the
software license fees when the product is shipped. Payment for software
maintenance is due prior to the commencement of the maintenance period. It is
also the Company's policy to not provide customers the right to refund any
portion of its license fees. The Company accepts Visa and MasterCard as well as
company checks.
With respect to the sale of software license fees, the Company recognizes
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 to be the warrantee period, the Company offers
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 revenue and recognized over the respective
terms of the agreements.
e) Product Warranties
The Company estimates its warranty costs based on historical warranty
claims experience in estimating potential warranty claims. Due to the limited
sales of the Company's products, management has determined that warranty costs
are immaterial and has not included an accrual for potential warranty claims.
Presently, costs related to warranty coverage are expensed as incurred. Warranty
claims are reviewed quarterly to verify that warranty liabilities properly
reflect any remaining obligation based on the anticipated expenditures over the
balance of the obligation period.
f) Research and development costs
Research and development costs will be charged to expense as incurred.
g) 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.
h) Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board ("FASB") of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes" ("Statement 109"). Under Statement 109, deferred
tax assets and liabilities are
F-24
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
The Company, not being a separate reporting entity, will not receive any
benefit from the approximately $158,000 net operating loss allocated to the
unified voice messaging software business contained in these financial
statements.
i) Organization Costs
Organization costs consist primarily of professional and filing fees
relating to the formation of the Company. These costs have been expensed.
j) 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 pro forma EPS is computed by dividing income
available to common shareholders by the expected number of shares to be issued
in connection with the Company's proposed spin-off from iVoice, Inc. 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 resulting from the Company's net loss position.
Since the earnings per share information is being shown on a pro forma basis,
only the most recent year has been presented. The shares used in the computation
are as follows:
As of September 30, 2004
------------------------
Pro Forma Basis and diluted purposes 100
k) 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, 2003 and 2002, the Company has no items
that represent comprehensive income, and thus, has not included a statement of
comprehensive income.
l) Recent Accounting Pronouncements
F-25
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
In December 2003, the FASB issued Interpretation No. 48-R, "Consolidation
of Variable Interest Entities" ("FIN 46-R"). FIN 46-R, which modifies certain
provisions and effective dates of FIN No. 46, sets forth criteria to be used in
determining whether an investment in a variable interest entity should be
consolidated, and is based on the general premise that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. The provisions of FIN 46 became effective for the Company
during the third quarter of Fiscal 2004. The adoption of this new standard did
not have any impact on the Company's financial position, results of operations
or cash flows.
In December, 2003, the FASB issued a revision to SFAS No. 132 "Employers'
Disclosures about Pensions and Other Post retirement Benefits." This revised
statement requires additional annual disclosures regarding types of pension plan
assets, investment strategy, future plan contributions, expected benefit
payments and other items. The statement also requires quarterly disclosure of
the components of net periodic benefit cost and plan contributions. This
currently has no effect on the Company.
NOTE 5 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2004, iVoice allocated operating
costs of $35,416 and $17,281, respectively to Deep Field Technologies. These
allocations are reflected in the selling, general and administrative, cost of
revenue and research and development line items in our statements of operations.
The general corporate expense allocation is primarily for cash management,
selling expense, legal, accounting, tax, insurance, public relations,
advertising, and human resources. The amortization of the Unified Messaging
software has been reflected as cost of sales. Other general categories of
operating expense, as well as other income and expense, have been allocated to
Deep Field Technologies by iVoice based upon a ratio of revenue of the Unified
Messaging software over total iVoice revenue for the applicable periods.
Management believes the costs of these services charged are a reasonable
representation of the costs that would have been incurred if Deep Field
Technologies had performed these functions as a stand-alone company.
In conjunction with the spin-off, Deep Field Technologies has entered into a
temporary administrative services agreement with iVoice. The agreement will
terminate upon completion of the Distribution.
NOTE 6 - CONVERTIBLE DEBENTURES AND EQUITY LINE OF CREDIT
The following two financing transactions will require the Company to register
its common stock under Section 12(g) of the Securities Exchange Act of 1934 and
subsequently register for resale a number of shares to facilitate these
financing transactions.
In August 2004, the Company entered into an agreement with Sloan Securities
Corporation to act as an agent for the private placement of secured convertible
debentures to Cornell Capital Partners, L.P. Under the placement agent
agreement, the Company agreed to issue to Sloan on or about the date of
effectiveness of the registration statement for the Class A Common Stock a
number of shares of Class A Common Stock equal to $10,000 divided by the closing
bid price of the
F-26
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
Class A Common Stock on the date of effectiveness of such registration
statement. In August 2004, the Company issued $200,000 of secured convertible
debentures and will issue an additional $200,000 of secured convertible
debentures around the time of filing of the registration statement for the Class
A Common Stock and an additional $100,000 of secured convertible debentures
based on the effectiveness of the registration statement, to Cornell Capital
Partners. Each of the debentures are convertible into shares of Class A Common
Stock at a price equal to the lesser of (a) an amount equal to one hundred
twenty percent (120%) of the initial bid price of the Class A Common Stock on
the date of effectiveness of the registration statement of which this prospectus
is a part or (b) an amount equal to eighty percent (80%) of the lowest closing
bid price of the Class A Common Stock for the five trading days immediately
preceding the conversion date. The secured convertible debentures have a term of
two years with all accrued interest due at the expiration of the term. At our
option, these debentures may be redeemed at a 20% premium prior to August 12,
2006. The secured convertible debentures are secured by a first priority
security interest in substantially all of the assets of Deep Field Technologies.
Effective August 12, 2004, Deep Field Technologies entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners to obtain an equity line of
credit. Under this agreement, Deep Field Technologies may issue and sell to
Cornell Capital Partners Class A Common Stock for a total purchase price of up
to $10.0 million. Deep Field Technologies will be entitled to commence drawing
funds under this agreement when the resale of the Class A Common Stock issuable
under the equity line of credit is registered with the Securities and Exchange
Commission, and the equity line of credit will remain outstanding for two years
thereafter. The purchase price for the shares will be equal to 95% of the market
price, which is defined as the lowest closing bid price of the Class A Common
Stock during the five trading days following the date that Deep Field
Technologies delivers to Cornell Capital Partners a notice requiring it to
advance funds to the Company. A cash fee equal to six percent (6%) of the cash
proceeds of the draw down is also payable at the time of funding. In addition,
Cornell Capital Partners will receive, as additional compensation, the number of
shares of Class A Common Stock equal to one and one half percent (1.5%) of the
number of shares of Class A Common Stock outstanding on the date that the
registration statement in respect of the shares to be distributed pursuant to
the equity line of credit becomes effective. To date, Deep Field Technologies
has not drawn down on the equity line of credit.
NOTE 7 - 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 38.1 %
State Income Tax, Net of Federal Benefits ( 4.1)%
Effective Income Tax Rate 0.0 %
F-27
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
Prior to the spin-off, the Company was included as part of iVoice's consolidated
federal income tax return, however the income tax expense presented in these
financial statements has been computed on a separate return basis.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 3, the Company has entered into a subscription agreement
with certain purchasers for the sale of $500,000 in convertible debentures. The
notes will be convertible into Class A common stock at the discretion of the
holders. Additionally, the Company has entered into a Standby Equity
Distribution Agreement whereby the Company, at its discretion, may periodically
sell to an investor shares of Class A Common Stock to raise capital to fund its
working capital needs. These transactions will require the Company to register
its common stock under Section 12 (g) of the Securities Exchange Act of 1934 and
subsequently register for resale a number of shares to facilitate these
financial transactions.
The Company will also assume an outstanding promissory note in the amount of
$190,000 payable to Jerry Mahoney, President and Chief Executive Officer of
iVoice and Non-Executive Chairman of the Board of Deep Field Technologies. This
amount is related to funds loaned to iVoice and is unrelated to the operations
of. Deep Field Technologies. The note will bear interest at the rate of Prime
plus 2.0% per annum on the unpaid balance until paid. Under the terms of the
Promissory Note, at the option of the Note holder, principal and interest can be
converted into either (i) one share of Class B Common Stock of Deep Field
Technologies, Inc., par value $.01 per share, for each dollar owed, (ii) the
number of shares of Class A Common Stock of Deep Field Technologies, Inc.
calculated by dividing (x) the sum of the principal and interest that the Note
holder has requested to have prepaid by (y) eighty percent (80%) of the lowest
issue price of Class A Common Stock since the first advance of funds under this
Note, or (iii) payment of the principal of this Note, before any repayment of
interest.
Deep Field Technologies, Inc. entered into employment agreements with Jerome
Mahoney, its Chairman of the Board and Mark Meller, its President, Chief
Executive Officer and Chief Financial Officer, as of August 3, 2004 and October
1, 2004, respectively.
Each of the employment agreements is for a term of five years and provides for
annual compensation of $85,000 with an annual increase based on the Consumer
Price Index. However, if Deep Field Technologies, Inc. achieves annual sales
equal to or greater than $2,000,000, Mr. Mahoney and Mr. Meller will each be
entitled to an automatic increase to $145,000. Each will also be entitled to
additional bonus incentives based on any mergers or acquisitions completed by
the Company.
Mr. Meller will also be entitled to a sum of $50,000 upon the completion of the
Distribution. Mr. Meller has agreed to defer the receipt of said sum until such
time that management believes it has sufficient financing in place to fund this
obligation.
NOTE 9 - CAPITAL STOCK
F-28
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
Pursuant to Deep Field Technologies's certificate of incorporation, as amended,
the Company is 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 $0.01 per share, 20,000,000 shares of Class C Common Stock, par value
$0.01 per share, and 1,000,000 shares of Preferred Stock, par value of $1.00 per
share. Below is a description of Deep Field Technologies's outstanding
securities, including Class A Common Stock, Class B Common Stock, Class C Common
Stock, and Preferred Stock.
a) Class A Common Stock
As of September 30, 2004, there are 2,000 shares of Class A Common Stock
authorized, no par value, and 100 shares were issued and outstanding.
Each holder of Class A Common stock is entitled to receive ratably
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for 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 its growth objectives.
b) Class B Common Stock
As of September 30, 2004, there are 50,000,000 shares of Class B Common
Stock authorized, par value $.01 per share. Each holder of Class B Common Stock
has voting rights equal to 100 shares of Class A Common Stock. A holder of Class
B Common Stock has the right to convert each share of Class B Common Stock into
the number of shares of Class A Common Stock determined by dividing the number
of Class B Common Stock being converted by a 20% discount of the lowest price
that Deep Field Technologies, Inc. had ever issued its Class A Common Stock.
Upon our liquidation, dissolution, or winding-up, holders of Class B Common
Stock will be entitled to receive distributions. As of September 30, 2004, no
shares were issued or outstanding.
c) Class C Common Stock
As of September 30, 2004, there are 20,000,000 shares of Class C Common
Stock authorized, par value $.01 per share. Each holder of Class C Common Stock
is entitled to 1,000 votes for each share held of record. Shares of Class C
Common Stock are not convertible into Class A Common Stock. Upon liquidation,
dissolution or wind-up, the holders of Class C Common Stock are not entitled to
receive our net assets pro rata. As of September 30, 2004, no shares were issued
or outstanding.
d) Preferred Stock
Deep Field Technologies is authorized to issue 1,000,000 shares of
Preferred Stock, par value $1.00 per share, 10 shares of which have been
designated as Series A 5% Convertible Preferred Stock. As of September 30, 2004,
Deep Field Technologies has not issued any shares of Preferred Stock.
F-29
DEEP FIELD TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
e) Series A 5% Convertible Preferred Stock
In partial consideration of and exchange for the assets that Deep Field
Technologies will receive pursuant to the spin-off of the Unified Messaging
business, Deep Field Technologies will issue 10 shares of Series A 5%
Convertible Preferred Stock to iVoice.
The par value of each share of Series A 5% Convertible Preferred Stock is
$1.00 per share and the stated value of each share is Twenty-Five Thousand
Dollars ($25,000) per share. Dividends are payable quarterly on the Series A 5%
Convertible Preferred Stock on the last day of each calendar quarter in an
amount equal to 5% per annum of the stated value of the Series A 5% Convertible
Preferred Stock. Dividends are payable, at the option of Deep Field
Technologies, in cash or, with the consent of the holders of Series A 5%
Convertible Preferred Stock, in shares of Class A Common Stock valued at the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the dividend payment date.
Each dividend shall be payable in equal quarterly amounts on each March
31, June 30, September 30 and December 31 of each year, commencing December 31,
2004 (provided that such initial dividend payment shall include all dividends
accrued from the Closing Date until the initial Dividend Payment Due Date.
Each share of Series A 5% Convertible Preferred Stock is convertible into
shares of Class A Common Stock of the Company at a price equal to the lesser of
(a) an amount equal to one hundred twenty-five percent (125%) of the closing bid
price of the Class A Common Stock as of the conversion date, or (b) an amount
equal to 80% of the lowest closing bid price of Class A Common Stock for the
five trading days immediately preceding the conversion date.
In the event of the liquidation of Deep Field Technologies, the holders of
Series A 5% Convertible Preferred Stock will be entitled to receive a
liquidation preference before any amounts are paid to holders of any class of
Deep Field Technologies common stock. The liquidation preference is an amount
equal to 125% of the stated value of the Series A 5% Convertible Preferred Stock
plus any accrued and unpaid dividends on that stock through the liquidation
date.
The holders of Series A 5% Convertible Preferred Stock will have no right
to vote, except as otherwise provided by law.
F-30
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed statements of operations for the
nine months ended September 30, 2004 and for the year ended December 31, 2003
and the unaudited pro forma condensed balance sheet at December 31, 2003 present
the results of operations and financial position of Deep Field Technologies
Inc., assuming that the transactions contemplated by the spin-off had been
completed as of the beginning of 2003 with respect to the pro forma consolidated
income statements for the nine months ended September 30, 2004 and for the year
ended December 31, 2003 with respect to the pro forma consolidated balance
sheet. The pro forma adjustments give effect of a spin-off transaction whereby
shareholders of the Company's former parent, iVoice Inc., will receive a
pro-rata distribution of the Company's shares in the form of a taxable dividend.
Under the spin-off transaction, the Company will receive certain intellectual
property and liabilities of the Company's former parent, iVoice, Inc. In the
opinion of management, they include all material adjustments necessary to
reflect, on a pro forma basis, the impact of transactions contemplated by the
spin-off on the historical financial information of Deep Field Technologies,
Inc.
The pro forma financial information is presented for informational purposes and
does not purport to represent what our financial position and our results of
operations actually would have been had the separation and related transactions
occurred on the dates indicated. Actual results might have differed from pro
forma results if Deep Field Technologies had operated independently. The pro
forma financial information should not be relied upon as being indicative of
results Deep Field Technologies would have had or of future results after the
spin-off. The historical selected financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the combined financial statements and notes
thereto included elsewhere in this prospectus.
F-31
CONDENSED UNAUDITED PRO FORMA BALANCE SHEETS
(UNAUDITED)
AS OF SEPTEMBER 30, 2004
As Pro Forma
Reported Adjustments Pro Forma
-------- ----------- ---------
Current Assets
Cash $ 169,900 $169,900
Accounts receivable 3,000 3,000
Inventory 317 $ - 317
Prepaid expenses 70,000 - 70,000
----------- ---------- -----------
Total Current Assets 243,217 - 243,217
Property and Equipment, net
Other Assets
Intangibles and Goodwill -
----------
Total Other Assets -
----------
Total Assets $ 243,217 $ - $ 243,217
----------- ---------- -----------
Current Liabilities
Accounts payable and accrued 2,639 2,639
liabilities
Due to iVoice, Inc. -
Due to related party - 190,000 190,000
Convertible debentures 200,000 - 200,000
----------- ---------- -----------
Total current liabilities 202,639 190,000 392,639
Stockholders equity 40,578 (190,000) (149,422)
----------- ---------- -----------
Total Liabilities and Stockholder's
Deficit $ 243,217 $ - $ 243,217
========== ========== ==========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-32
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2004
As Pro Forma
Reported Adjustments Pro Forma
-------- ----------- ---------
Sales, net $ 6,160 $ - $ 6,160
---------- ---------- ----------
Cost of Sales 2,353 - 2,353
Gross Profit 3,807 3,807
Selling General and
Administrative Expenses 35,416 95,000 130,416
---------- ---------- ----------
Income (Loss) from Operations (31,609) (95,000) (126,609)
Other Income (Expense) (27,332) (259,263) (286,595)
---------- ---------- ----------
Income (Loss) before Income
Taxes (58,941) (354,263) (413,204)
Provision for Income Taxes - - -
---------- ---------- -----------
Net Income (Loss) $ (58,941) $ (354,263) $ (413,204)
Net Loss Per Common Share:
Basic $ (0.04)
===========
Diluted $ (0.04)
===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-33
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 2003
As Pro Forma
Reported Adjustments Pro Forma
-------- ----------- ---------
Sales, net $ 8,505 $ 8,505
Cost of Sales 3,447 - 3,447
---------- ---------- -----------
Gross Profit 5,058 - 5,058
---------- ---------- -----------
Selling General and
Administrative Expenses 24,288 60,000 84,288
---------- ---------- -----------
Income (Loss) from Operations (19,230) (60,000) (79,230)
Other Income (Expense) (9,708) (12,350) (22,058)
---------- ----------- -----------
Income (Loss) before Income (28,938) (72,350) (101,288)
Taxes
Provision for Income Taxes - - -
---------- ----------- -----------
Net Income (Loss) $ (28,938) $ (72,350) $ (101,288)
------------ ---------- -----------
Net Loss Per Common Share:
Basic $ (0.01)
===========
Diluted $ (0.01)
===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-34
NOTES TO CONDENSED UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTE 1.
The historical financial statements of Deep Field Technologies, Inc.
reflect periods during which Deep Field Technologies did not operate as a
separate, independent public company. Certain estimates, assumptions and
allocations were made in preparing such financial statements. Therefore, the
historical financial statements do not necessarily reflect the results of
operations or financial position that would have occurred had Deep Field
Technologies been a separate, independent public company during the periods
presented, nor are they indicative of future performance.
Management believes that the estimates, assumptions and allocations made
in preparing the historical financial statements are reasonable.
NOTE 2.
The pro forma unaudited balance sheet was prepared assuming the
distribution occurred on September 30, 2004 and includes "Pro Forma Adjustments"
for transactions that occurred subsequent to September 30, 2000 as follows:
(a) The Company is also assuming an outstanding promissory note in
the amount of $190,000 payable to Jerry Mahoney, President and
Chief Executive Officer of iVoice. The note will bear interest at
the rate of Prime plus 2.0% per annum on the unpaid balance until
paid or until default. Under the terms of the Promissory Note, at
the option of the Note holder, principal and interest can be
converted into either (i) one Class B common stock share of Deep
Field Technologies, Inc., par value $.01, for each dollar owed,
(ii) the number of Class A common stock shares of Deep Field
Technologies calculated by dividing (x) the sum of the principal
and interest that the Note holder has requested to have prepaid
by (y) eighty percent (80%) of the lowest issue price of Series A
common stock since the first advance of funds under this Note, or
(iii) payment of the principal of this Note, before any repayment
of interest.
NOTE 3.
The pro forma unaudited statement of operations for the nine months ended
September 30, 2004 was prepared assuming the distribution occurred on January 1,
2003 and includes "Pro Forma Adjustments" for transactions that would have
occurred subsequent to January 1, 2003 as follows:
(a) $45,000 in administrative services provided by iVoice, Inc. pursuant
to an administrative service agreement between Deep Field
Technologies and iVoice, Inc.
(b) $9,263 in interest at 6.5% per annum on $190,000 in outstanding
amounts due to a related party being assumed by Deep Field
Technologies.
F-35
The pro forma unaudited statement of operations for the year ended December 31,
2003 was prepared assuming the distribution occurred on January 1, 2003 and
includes "Pro Forma Adjustments" for transactions that would have occurred
subsequent to January 1, 2003 as follows:
(c) $60,000 in administrative services provided by iVoice, Inc.
pursuant to an administrative service agreement between Deep
Field Technologies and iVoice, Inc. The administrative services
agreement sets forth charges generally intended to allow the
providing company to fully recover the allocated direct costs of
providing the services, plus all out-of-pocket costs and
expenses. In conjunction with the spin-off, Deep Field
Technologies has entered into a temporary administrative service
agreement with iVoice. The agreement will terminate upon
completion of the Distribution.
(d) $12,350 in interest at 6.5% per annum on $190,000 in outstanding
amounts due to a related party being assumed by Deep Field
Technologies.
(e) Write off of $250,000 in intangible assets which were transferred
from iVoice to Deep Field Technologies and were subject to
evaluation.
NOTE 4.
The average number of shares of Deep Field Technologies common stock used in the
computation of basic and diluted net income per share was 10,000,100 for the
nine months ended September 30, 2004 and the year ended December 31, 2003, based
on a distribution ratio of one share of Deep Field Technologies Class A common
stock for every 874 shares of iVoice common stock. Since the Company is in a net
loss position, all common stock equivalents are considered anti-dilutive and are
therefore not included in the calculation of earnings per share.
F-36
PART 11
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Deep Field Technologies's bylaws provide that it will indemnify a person
who was or is a party, or is threatened to be made a party, to any proceeding
(other than an action by or in the right of Deep Field Technologies) by reason
of the fact that such person is or was a director or an officer of Deep Field
Technologies against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding if that
person acted in good faith and in a manner that that person reasonably believed
to be in the best interests of Deep Field Technologies and, in the case of a
criminal proceeding, had no reasonable cause to believe the conduct of that
person was unlawful. Deep Field Technologies's bylaws also provide that it will
indemnify a person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action by or in the right of Deep Field
Technologies to procure a judgment in its favor by reason of the fact that said
person is or was a director or an officer of Deep Field Technologies against
expenses actually and reasonably incurred in connection with the defense or
settlement of that action if that person acted in good faith, in a manner that
that person reasonably believed to be in the best interests of Deep Field
Technologies and with such care, including reasonable inquiry, that such action
would not be deemed grossly negligent on the part of such person.
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. Deep Field Technologies will pay all expenses in connection with
this offering.
Securities and Exchange Commission $1,454
Registration Fee
Printing and Engraving Expenses $25,000
Accounting Fees and Expenses $8,000
Legal Fees and Expenses $50,000
Miscellaneous $29,046
-------
TOTAL $113,500
========
Item 26. Recent Sales of Unregistered Securities
In August 2004, the Company entered into an agreement with Sloan
Securities Corporation to act as an agent for the private placement of secured
convertible debentures to Cornell Capital Partners, L.P. Under the placement
agent agreement, the Company agreed to issue to Sloan on or about the date of
effectiveness of the registration statement of which this prospectus is a part a
number of shares of Class A Common Stock equal to $10,000 divided by the closing
bid price of the Class A Common Stock on the date of effectiveness of the
registration statement of which this prospectus is a part. On August 12 and
_______, 2004, Deep Field Technologies issued an aggregate of $400,000 in
secured convertible debentures, with
II-1
interest payable at 5% per annum, to Cornell Capital Partners. Each of the
debentures are convertible into shares of Class A Common Stock at a price equal
to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the
initial bid price of the Class A Common Stock on the date of effectiveness of
the registration statement of which this prospectus is a part or (b) an amount
equal to eighty percent (80%) of the lowest closing bid price of the Class A
Common Stock for the five trading days immediately preceding the conversion
date. The secured convertible debentures have a term of two years with all
accrued interest due at the expiration of the term. At our option, these
debentures may be redeemed at a 20% premium prior to August 12, 2006. The
secured convertible debentures are secured by a first priority security interest
in substantially all of the assets of Deep Field Technologies. Deep Field
Technologies will issue an additional $100,000 of secured convertible debentures
to Cornell Capital Partners on or about the date of effectiveness of the
registration statement of which this prospectus is a part.
Effective August 12, 2004, Deep Field Technologies entered into a Standby
Equity Distribution Agreement with Cornell Capital Partners to obtain an equity
line of credit. Under this agreement, Deep Field Technologies may issue and sell
to Cornell Capital Partners Class A Common Stock for a total purchase price of
up to $10.0 million. Deep Field Technologies will be entitled to commence
drawing funds under this agreement when the resale of the Class A Common Stock
issuable under the equity line of credit is registered with the Securities and
Exchange Commission, and the equity line of credit will remain outstanding for
two years thereafter. The purchase price for the shares will be equal to 95% of
the market price, which is defined as the lowest closing bid price of the Class
A Common Stock during the five trading days following the date that Deep Field
Technologies delivers to Cornell Capital Partners a notice requiring it to
advance funds to us. A cash fee equal to six percent (6%) of the cash proceeds
of the draw down is also payable at the time of funding. In addition, Cornell
Capital Partners will receive, as additional compensation, the number of shares
of Class A Common Stock equal to one and one half percent (1.5%) of the number
of shares of Class A Common Stock outstanding on the date that the registration
statement in respect of the shares to be distributed pursuant to the equity line
of credit becomes effective. To date, Deep Field Technologies has not drawn down
on the equity line of credit.
In consideration of and exchange for the assets that Deep Field
Technologies will receive pursuant to the spin-off of the Unified Messaging
systems business, Deep Field Technologies will issue 10 shares of Series A 5%
Convertible Preferred Stock to iVoice. Each share of Series A 5% Convertible
Preferred Stock has a stated value of $25,000 per share. Each share of Series A
5% Convertible Preferred Stock will be convertible into shares of Class A Common
Stock at a price equal to the lesser of (a) an amount equal to one hundred
twenty-five percent (125%) of the closing bid price of the Class A Common Stock
as of the conversion date or (b) an amount equal to eighty percent (80%) of the
lowest closing bid price of the Class A Common Stock for the five trading days
immediately preceding the conversion date.
Deep Field Technologies has agreed to assume from iVoice upon the date of
this prospectus an outstanding promissory note in the amount of $190,000 payable
to Jerry Mahoney. This amount is related to funds loaned to iVoice and unrelated
to the operations of Deep Field Technologies. Deep Field Technologies, for value
received, will promise to pay to Mr. Mahoney the principal sum of $190,000 that
will bear interest at the prime rate plus 2% per annum on the unpaid balance
until paid or until default. Interest payments will be due annually. All accrued
II-2
interest becomes due on the date of any payment of the promissory note. At the
time of default (if any) the interest rate shall increase to 20% until the
principal balance has been paid. Under the terms of the promissory note, at the
option of the note holder, principal and interest can be converted into either
(i) one share of Class B Common Stock of Deep Field Technologies, par value
$0.01, for each dollar owed, (ii) the number of shares of Class A Common Stock
of Deep Field Technologies calculated by dividing (x) the sum of the principal
and interest that the note holder has requested to have prepaid by (y) eighty
percent (80%) of the lowest issue price of Class A Common Stock since the first
advance of funds under this note, or (iii) payment of the principal of this
note, before any repayment of interest. Deep Field Technologies has yet to
record this liability on its financial statements, as the promissory note will
not be assumed by Deep Field Technologies until the effectiveness of the
registration statement.
We 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. Deep Field Technologies 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 Deep Field
Technologies, after approval by our legal counsel. Deep Field Technologies
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. Deep Field Technologies also
believes that the investors had access to the same type of information as would
be contained in a registration statement.
Item 27. Exhibits
No. Description
- ----------------- ---------------------------------------------------------
3.1* Certificate of Incorporation of Deep Field Technologies,
Inc.
3.2* Amendment to Certificate of Incorporation of Deep Field
Technologies, Inc.
3.3* By-laws of Deep Field Technologies, Inc.
4.1* Form of Deep Field Technologies, Inc. 5% Secured
Convertible Debenture due August 12, 2006 issued to
Cornell Capital Partners, LP
5.1* Opinion of Meritz & Muenz LLP
10.1* Standby Equity Distribution Agreement, dated August 12,
2004, between Cornell Capital Partners, LP and Deep Field
Technologies, Inc.
10.2* Securities Purchase Agreement, dated August 12, 2004,
between Deep Field Technologies, Inc. and Cornell Capital
Partners, LP.
10.3* Escrow Agreement, dated August 12, 2004, between Deep
Field Technologies, Inc., Cornell Capital Partners, LP and
Butler Gonzalez LLP
II-3
10.4* Registration Rights Agreement, dated August 12, 2004,
between Deep Field Technologies, Inc. and Cornell Capital
Partners, LP
10.5* Escrow Agreement, dated August 12, 2004, between Deep
Field Technologies, Inc., Cornell Capital Partners, LP.
and Butler Gonzalez LLP
10.6* Investor Registration Rights Agreement, dated August 12,
2004, between Deep Field Technologies, Inc. and Cornell
Capital Partners, LP.
10.7* Security Agreement, dated August 12, 2004, between Deep
Field Technologies, Inc. and Cornell Capital Partners, LP.
10.8* Employment Agreement, dated as of August 3, 2004, between
Deep Field Technologies, Inc. and Jerome Mahoney
10.9* Employment Agreement, dated as of October 1, 2004, between
Deep Field Technologies, Inc. and Mark Meller
10.10* Administrative Services Agreement, dated August 1, 2004,
between iVoice, Inc. and Deep Field Technologies, Inc.
23.1 Consent of Mendlowitz Weitsen, LLP
23.2* Consent of Meritz & Muenz LLP
* To be filed by amendment.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections 10(a)(3) of the
Securities Act of 1933 (the "Act");
(ii) 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,
II-4
in the aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information on the
plan of distribution;
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer 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 small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
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 November 18, 2004.
DEEP FIELD TECHNOLOGIES, INC.
By: /s/ Jerome R. Mahoney
------------------------------
Name: Jerome R. Mahoney
Title: Non-Executive Chairman of the
Board
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
- ------------------------ Non-Executive Chairman of November 18, 2004
Jerome R. Mahoney the Board
/s/ Mark Meller President (Principal November 18, 2004
- -------------------------- Executive Officer), Chief
Mark Meller Executive Officer and Chief
Financial Officer (Principal
Accounting Officer)
II-6