Memorandum of Compliance
Outlining Certain Changes Reflected in
Registration Statement on Form SB-2
of iVoice Technology, Inc.
Set forth below are the responses of iVoice Technology, Inc. to the comments
from the staff of the Division of Corporation Finance (the "Staff") of the
Securities and Exchange Commission (the "SEC") with respect to the
Registration Statement on Form SB-2 of the Company, which was filed with the
SEC on November 15, 2004. For the Staff's convenience, the Staff's comments
have been stated below in their entirety, with the responses to a particular
comment set out immediately under the comment or comments. The responses
described below are contained in Amendment No. 1 to the Registration
Statement on Form SB-2 ("Amendment No. 1" or the "registration statement"),
which is being filed simultaneously herewith. Capitalized terms used herein
are intended to have the meanings ascribed to such terms in the Amendment No.
1.
General
1. On August 2004, you entered into a standby equity distribution
agreement with Cornell Capital Partners for the sale of up to $10
million of your common stock, relying upon Rule 506 of Regulation D)
and/or Section 4(2) of the Securities Act. Thereafter, you filed a
registration statement concerning Cornell Capital's resale of the
shares underlying the equity line. After considering the factual
context of the proposed equity line financing, we do not believe that a
binding contractual commitment for the sale of shares under the equity
line was entered into with Cornell Capital, because at the time the
equity line was entered, iVoice Technology was (and is) a non-reporting
company with no trading market. As such, the arrangement by Cornell
Capital to pay for shares at a purchase price that is effectively 87.5%
of a "market price," does not represent an irrevocable commitment to
purchase the equity line shares. Further, the conditions to Cornell
Capital's purchase obligation include admission of the shares to the
OTC Bulletin Board, which is also inconsistent with a conclusion that
there is a pre-existing, irrevocable purchase commitment. Please revise
the disclosure throughout the filing to remove any implication that
there is an existing equity line arrangement with Cornell Capital that
provides you with a viable mechanism to obtain needed financing.
We have modified the disclosure throughout the registration statement to
indicate that the equity line arrangement is conditioned on satisfying
certain requirements and if those requirements are not met, iVoice Technology
will not be able to access the equity line of credit. However, we
respectfully disagree with you that there is no existing purchase agreement
or existing arrangement and that it should not be disclosed in the
registration statement. iVoice Technology did enter into an agreement with
Cornell Capital for the sale of shares under the equity line. While there
are conditions to iVoice Technology's ability to draw down under the equity
line, including the requirement that the shares be listed on the OTC Bulletin
Board and that a
registration statement for the resale of the shares underlying the equity
line be declared effective, these conditions are not within the control of
Cornell Capital. We believe that these conditions can be satisfied by
iVoice Technology, although they are not completely within its control
either. We believe that this equity line arrangement is similar to having a
revolving credit facility, where borrowing is conditioned on meeting
certain requirements, such as having a sufficient borrowing base and/or
having no events of default.
Therefore, we have left in the registration statement a description of the
equity line of credit arrangement but have added disclosure regarding
conditions that must be satisfied, if possible, before any funds can be
obtained on pp. 17, 21 and 32 of the registration statement.
2. We note iVoice, Inc.'s, press release dated September 9, 2004 regarding
its intent to sell its speech engine and related intellectual property
to Biometric Company for $6.25 million. Please supplementally inform us
concerning the relationship between this speech engine technology and
the technology that will be contributed to you and the business you
will conduct.
This press release related to iVoice Inc.'s entering into a letter of intent
to sell a large portion of its assets to another company. However, this
proposed transaction was never completed, and the letter of intent was
terminated. There is no impediment to the contribution of the IVR software
technology to iVoice Technology and the business to be conducted by iVoice
Technology.
Prospectus Cover Page
3. We note that Mr. Mahoney will not be receiving shares of your Class A
common stock. Please advise us of any other affiliates who will not be
receiving shares of your Class A common stock.
There are no other affiliates of iVoice, Inc. who will not be receiving
shares of iVoice Technology Class A Common Stock. We are not aware of any
other affiliates who will receive shares of iVoice Technology Class A Common
Stock.
4. Please provide the legend specified by Item 502(b) of Regulation S-B.
The registration statement has been amended to include the legend specified
by Item 502(b) of Regulations S-B.
Prospectus Summary
Overview, pp. 1-2
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5. Tell us whether any of the remaining patents and patent rights held by
iVoice includes technology that is used in the iVoice software business
or whether all necessary technology assets will be transferred to you.
It does not appear that an assignment or contribution agreement
specifying the terms and assets being transferred as well as the
liabilities being incurred has been, or is planned to be, filed as a
material exhibit. Please file this agreement. Please see Items
601(b)(2) and (10) of Regulation S-B.
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Disclosure has been added to the registration statement to indicate that all
intellectual property necessary for the IVR software business will be
assigned and transferred by iVoice Inc. to iVoice Technology. An assignment
of intellectual property will be filed as an exhibit to the registration
statement.
6. You indicate that you may expand through acquisitions. Please disclose
whether there are any plans, proposals or arrangements, whether in
writing or oral, concerning proposed acquisitions. Tell us the status
of any potential acquisitions being considered which have not resulted
in plans, proposals or arrangements.
Disclosure has been added to pp. 1, 16 and 37 of the registration statement.
7. You indicate that iVoice will be receiving 5% Series A convertible
preferred stock with an aggregate stated value of $750,000 in exchange
for the transfer of the IVR software business. Disclose and also inform
us in detail how the value of such assets was determined. We note that
the balance sheet in iVoice's recent Form 10-QSB for the quarter ended
September 30, 2004 shows intangible assets with a recorded value of
$199,000. It also appears that your pro forma balance sheet does not
reflect assets that will be contributed to iVoice Technology that have
a carrying value of $750,000. Nevertheless, on page 24 you state that
the assets to be transferred have "an aggregate book value of
$750,000." Please advise and revise as appropriate.
iVoice has restructured its proposed distribution so that the IVR software
business will be transferred to iVoice Technology for no consideration other
than the issuance of the shares of iVoice Technology Class A Common Stock
that will be distributed to the iVoice stockholders. We have modified the
disclosure in the registration statement to remove any references to the
convertible preferred stock, which will no longer be issued.
8. In a prominent place in the summary, please inform stockholders about
the existence and potential adverse effects of securities that have
conversion (or exercise) prices that are dependent upon a fluctuating
market price. There appear to be at least three categories of these
"toxic" securities, including the $750,000 of convertible debt to be
held by iVoice, the $190,000 of convertible debt to be held by Mr.
Mahoney and the $560,000 of convertible debt held by Cornell Capital.
In addition to an overview in the summary, ensure that a prominently
positioned risk factor concisely and comprehensively addresses the
potential adverse effects of a substantial portion of your
capitalization being convertible at substantial discounts to
fluctuating market prices. Throughout your filing you sometimes
indicate that shares issuable under these arrangements are
"indeterminable." Please revise these references to more precisely
describe the below market conversion feature and if true, state that
there is no limitation on the number of shares you may be obligated to
issue under the arrangements. Ensure that you provide numerical
examples to show investors the potential effects of fluctuations in the
market price on the number of shares you arc obligated to issue. In
view of the absence of a market price for your securities, we suggest
that you use book value and declines to 75%, 50% and 25% of book value
to provide investors with meaningful, concrete examples of the
sensitivity of your share issuance obligations to changes in market
prices for your securities.
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Disclosure has been added to pp. 2, 3, 7, 8, 10, 15, 16, 21 and 49 of the
registration statement.
9. We note your disclosure on page 25 regarding Mr. Mahoney's agreement to
forego receiving any of your Class A common stock as a result of his
ownership of capital stock in iVoice. Is there a written agreement
which may need to be filed as an exhibit? Please see Items 601(b)(4)
and (10) of Regulation S-B. We also note that pursuant to iVoice's
filings, it appears that Mr. Mahoney owns approximately 90 percent of
iVoice. Mr. Mahoney will be receiving, however, a note convertible
into Class B common stock with extraordinary voting rights. Please
summarily discuss the foregoing issues in this section, particularly
the control over the company that Mr. Mahoney may acquire upon
conversion of his note to Class B common stock as well as through his
control of iVoice and its Series A preferred stock holdings.
Disclosure has been added to pp. 2, 8 and 21 of the registration statement.
10. We note that iVoice disclosed in its recent Form 10-QSB for the quarter
ended September 30, 2004 a cash balance of approximately $7.5 million.
Please advise us whether you will be receiving any portion of this cash
balance. In light of iVoice's capital resources, please discuss
summarily in this section and more fully elsewhere in your prospectus
the issues that were considered by iVoice's management and board of
directors in creating your initial financial condition and
capitalization with respect to your business plans and objectives.
iVoice Technology will not receive any portion of the $7.5 million cash
balance. The disclosure has been amended to discuss the issues considered by
iVoice's management and board of directors in establishing the initial
capitalization of iVoice Technologies.
About Us, p. 2
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11. iVoice, Inc. maintains a Web site that continues to reflect the
business to be transferred to you. Please supplementally advise us
whether you will be maintaining a separate Web site upon the transfer
of the IVR software business to you. If available, please consider
disclosing your prospective new Internet address. Please see Item 101
(c)(3) of Regulation S-B.
iVoice Technology will have and maintain its own website, separate from the
iVoice Inc. website, upon the transfer of the IVR software business.
Disclosure has been added to page 3 of the registration statement.
12. We note your disclosure regarding iVoice Technology, Inc., a Nevada
corporation. Please elaborate further on the relationship of iVoice
Technology Nevada to you and iVoice as well as the purpose of the
assignments. Please briefly identify the material agreements that have
been transferred to you. Please revise your disclosure in Management's
Discussion and Analysis as appropriate. Such agreements as well as the
conveyance instruments may need to be filed as exhibits. Please see
Item 601(b)(10) of Regulation S-B.
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Please note that all agreements entered into by iVoice Technology Nevada
have been transferred to iVoice Technology New Jersey, as well as the
actual assignment documents, which are listed as exhibits to be filed, and
the material agreements which were so transferred are being simultaneously
filed as exhibits to the registration statement.
Summary of the Distribution, pp. 2-7
13. If the record date has been selected, please disclose it in your next
filing. If you plan to select a record date at a later time, please
modify the presentation so that it will accommodate the entry of the
applicable date.
The record date has not been selected yet; we expect to select the record
date at a later time. Please note that the references to the record date are
blank so that we can enter in the applicable date when it has been selected.
Please see pages 4 and 52 of the registration statement.
14. With respect to your "Distribution Ratio" discussion, please disclose
the number of shares of iVoice outstanding on the record date as well
as the actual portion of such outstanding shares that will be
participating in the Distribution. We note that Mr. Mahoney and other
affiliates, if any, will not receive a distribution of shares of your
Class A common stock with respect to their holdings of iVoice shares.
We have amended the disclosure to indicate the number of shares of iVoice
Technology that will be outstanding as of the record date. As indicated in
our response to comment 3, other than Mr. Mahoney, there is no other
affiliate of iVoice who will not receive a distribution of shares of the
Class A common stock of iVoice Technologies. We are not aware of any other
affiliate who will receive shares of Common Stock of iVoice Technologies
Class A Common Stock.
15. We note your disclosure under "Our Relationship With iVoice After the
Distribution" and elsewhere in your prospectus regarding the
administrative services agreement. Please supplementally inform us of
the purpose of such an agreement when the business has yet to be
transferred to find operated by you. Please clarify your disclosure.
The purpose of the administrative services agreement is to provide iVoice
Technology with certain necessary infrastructure and administrative
services at a rate that will not burden iVoice Technology in an
unreasonable manner. iVoice Technology believes that the provisions of the
administrative services agreement have permitted and will continue to
permit iVoice Technology to execute the transition from unincorporated
division to independent affiliate with minimal disruption. Pursuant to your
comment, we have clarified our disclosure on pp. 7 and 48 of the
registration statement.
Summary of Consolidated Financial Information, p. 7
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16. At the outset of the section, please add a discussion regarding how
you derived your financial information from the financial information
of iVoice. Address the fact that such financial information does not
represent actual historical results and depicts your performance as
if you operated as an independent entity. Please note that such
financial information is based on significant assumptions and
allocations, among other things, that
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may not represent actual results. In addition to this discussion,
ensure that a prominently positioned risk factor concisely and
comprehensively addresses the risk reflected in your financial
information having been prepared on a fictional basis as opposed to
reflecting actual historical results.
Disclosure has been added to pp. 9 and 12 of the registration statement.
Risk Factors
iVoice Technology will face many of the difficulties that companies in the
early stage may face, p. 8
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17. Please limit each risk factor to a clearly defined risk with a
discussion of its applicability to you. This particular risk factor is
general and broad. Please consider preparing separate risk factors with
fuller discussions for each of the points that you enumerate in this
risk factor. You should review your other risk factors in light of this
comment.
Disclosure has been added to p. 11 of the registration statement.
iVoice Technology has no operating history as an independent public company
and may be unable to operate profitably as a stand-alone company, pp. 8-9
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18. Discuss how long iVoice has operated the IVR software business that is
being spun off to you.
Disclosure has been added to p. 11 of the registration statement.
iVoice's operations demonstrate a history of net losses and cash flow
shortfalls and iVoice Technology's likely will as well, p 9
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19. More specifically discuss your net loss and negative cash flows from
operations for your last fiscal year and your nine-months ended
September 30, 2004 with respect to the IVR software business that is
being transferred to you.
Disclosure has been added to p. 12 of the registration statement.
iVoice Technology has received a going concern opinion from its independent
auditors that describes the uncertainty regarding its ability to continue as
a going concern, p. 9,
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20. Please revise this risk factor to briefly discuss the consequence to
investors of the fact that the financial statements do not include any
adjustments that might result from the outcome of the uncertainty
regarding the your ability to operate as a going concern.
Disclosure has been added to p. 13 of the registration statement.
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iVoice's earnings and stock price will be subject to significant
fluctuations, p. 10
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21. Why are fluctuations in iVoice's stock price a material risk to holders
of iVoice Technology stock? Clarify why this paragraph is provided,
and among other matters, expand the risk factor caption to state the
material risk to holders of iVoice Technology stock that results from
the uncertainty you describe. Given that you comprise only a component
of iVoice, your disclosure regarding the earnings and stock price of
iVoice appears to be of limited applicability in assessing any risks
that affect your business and stock price.
We have amended our disclosure in the registration statement to delete this
risk factor.
If either iVoice or iVoice Technology lose the services of any key personnel,
including our chief executive officer of our directors, our business may
suffer, p. 10
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22. We note that you plan to have a very limited business relationship with
iVoice upon the Distribution. As such, please inform us why the loss
of iVoice personnel presents a risk to your business. Otherwise,
please revise this risk factor accordingly.
We have amended our disclosure on p. 15 of the registration statement to
clarify that the risk factor relates to losing the services of key personnel
not of iVoice, but of iVoice Technology.
Members of iVoice Technology's Board of Directors and management may have
conflicts of interest after the Distribution; iVoice Technology does not have
any formal procedure for resolving conflicts in the future, p. 11.
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23. Please provide additional disclosure as to how a conflict of interest
between you and iVoice may result in a risk. In addition, we note your
disclosure regarding conflicts that may arise as a result of potential
business acquisitions. Please elaborate further on how a prospective
acquisition by you may conflict with the interests of iVoice.
Disclosure has been added to p. 16 of the registration statement.
iVoice Technology stockholders may_experience significant dilution if future
equity offerings are used to fund operations or acquire businesses pp. 11-12
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24. Specifically discuss your expectations and plans to obtain working
capital from future equity offerings and the likelihood of dilution as
a result of such offerings. Please quantify your need for additional
capital resources over the 12-month period following the distribution.
Disclosure has been added to p. 17 of the registration statement.
7
iVoice Technology faces intense price-based competition for licensing of its
products which could reduce profit margins, p. 12
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25. Please disclose whether such price competition has previously resulted
in any pressure on the pricing of your products in the IVR software
business. If such pressure did exist, please provide details of such
pricing pressure and the effect on your business.
Disclosure has been added to p. 18 of the registration statement.
iVoice Technology may be unsuccessful in developing new channels, p. 12
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26. We note your disclosure regarding existing relationships between
dealers and resellers with iVoice. Please revise to discuss whether you
will be assuming any of these relationships and the extent to which you
will need to develop a new network as opposed to utilizing the assumed
iVoice network. Also address any risks presented by iVoice's dealers
and resellers in not agreeing to the transfer of the relationship to
you. Also elaborate on the risks presented by "rapidly evolving
distribution and marketing technologies."
Disclosure has been added to p. 18 of the registration statement.
Product returns may exceed established reserves and affect iVoice
Technology's revenues, p. 13
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27. We note your disclosure in the first paragraph on page 27 where, you
state that your policy is to not provide customers the right to refund
any portion of its license fees. We also note your disclosure in the
third paragraph on page 27 of your filing in which you state that
"[c]urrent reseller agreements do not provide for a contractual right
of return." The foregoing statements differ from your disclosure in
this risk factor. Please reconcile the disclosures. Further, please
disclose whether any returns for a period materially exceeded the
reserves you had established for such period.
The disclosure has been revised on p. 19 of the registration statement to
clarify the return policies of iVoice Technology and the related risks.
iVoice Technology may depend on distribution by resellers and distributors
for a significant portion of revenues, p. 13
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28. You mentioned the existence of reseller relationships in your filing.
The prior comment noted one such instance and on page 30 you mention
the existence of more than 100 resellers. Please reconcile such
disclosure with the text in this risk factor stating that "[n]o such
relationships currently exist" and your disclosure on page 32 stating
that you have "traditionally sold [y]our product primarily on a direct
basis." Please revise your risk factor and other disclosures as
appropriate.
The disclosure has been revised on p. 19 of the registration statement to
clarify the disclosure and reconcile the statements made within the
registration statement.
8
29. Please consider discussing in this risk factor or in a separate risk
factor your dependence on any customer which represents a material
portion of your revenues. We note that iVoice identifies specific
customers such as ADP and the American Red Cross in its press releases.
iVoice Technology does not have any repeat customers. A customer in one
period is not going to be a customer in another period. iVoice Technology
is not dependent on any customer to provide any further business.
Therefore, we have not added any risk factor language regarding customers.
The results of iVoice Technology's research and development efforts are
uncertain, p. 13
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30. In the caption, disclose the risk to investors that result from this
uncertainty. Do you expect your business will be dependant on the
results of a specific ongoing research and development project? Please
revise to provide more specific information concerning research and
development efforts that are in process that subject investors to
material risks.
The disclosure has been revised on p. 19 of the registration statement to
clarify that iVoice Technology has no current plans to engage in research
and development on an ongoing basis.
The greater than expected length of the product development cycle may
adversely affect our future revenues, p. 13
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31. Please revise to include details of specific examples of when your
product development cycle exceeded your expectations. Please provide
specific information that provides a context to the investors about the
scope of this risk and how it has affected you in the past by detailing
how such delays have previously affected your operations and financial
results.
As the Company has no current plans to develop future products and has no
history of failing to achieve an intended product cycle, the disclosure has
been amended to remove this risk factor from the registration statement.
iVoice Technology must attract and retain personnel while competition for
personnel in this industry is intense, p. 14
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32. We note that you currently have only five full-time employees and that
you plan to terminate the administrative services agreement with iVoice
and fulfill such services inhouse. Please discuss specifically your
needs and plans for hiring additional personnel to operate as an
independent company. Elaborate on the specific risks of not being able
to fulfill personnel requirements to meet such needs. We would expect
to see quantitative disclosure in the Management's Discussion and
Analysis regarding these plans and the extent to which they will cause
expenditures and cash rate usage in future periods to vary from the
expenditure levels and cash requirements that were recorded in the
carve-out financial statements.
We have amended the disclosure on pp.23, 28 and 32 of the registration
statement to reflect that iVoice Technology will continue the administrative
services agreement on a month to month basis, and has no plans to terminate
the agreement in the foreseeable future. We have also
9
amended the disclosure on p. 32 of the registration statement to reflect
that iVoice Technology has no current plans to expand its personnel beyond
current levels.
iVoice Technology relies on third party technologies which may not support
iVoice Technology products, p. 14
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33. If applicable, please consider adding disclosure regarding any reliance
upon licensed software or hardware that is material to the operations
of your business. Any substantial dependency upon technology licenses
should also be described under Business or another appropriate portion
of the body of the prospectus, including a description of license terms
and conditions. As applicable, please identify each material license on
which you are substantially dependent and disclose the term of each
such agreement, the scope of the license, its termination provisions
and other significant terms. Such agreements may need to be filed as
exhibits. Please see item 601(b)(10) of Regulation S-B.
iVoice does not license any hardware or software (excluding off-the-shelf
software) from third parties in its operations or products.
We nay not be able to access sufficient funds when needed, p. 15
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34. As previously noted, please provide a specific discussion quantifying
your capital requirements to fund planned operations over the next 12
months and your current deficiency with respect to the same. Please
discuss your plans to meet such deficiency and the risk to investors if
you are unable to address the deficiency. Will you seek to obtain a new
equity line agreement after the Distribution, and if you are unable to
negotiate one, what steps would you take to address capital
deficiencies?
Disclosure has been added to pp. 17, 21 and 32 of the registration statement.
Quarterly financial results are subject to significant fluctuations which
could cause iVoice Technology's stock price to decline, p. 15
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35. This risk factor appears to be similar to the risk factor presented at
the bottom of page 9 of your filing. Please consolidate.
We have consolidated the referenced risk factors as per your comment.
Government regulation of telemarketing activities may diminish iVoice
Technology's earning potential, p. 17
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36. Please discuss the extent to which you have been marketing your
products to telemarketers and the portion of your revenue, if any, that
is derived from sales to telemarketers.
As iVoice Technology does not engage in telemarketing and its products do not
have a material application in the telemarketing industry, we have removed
the referenced disclosure from the registration statement.
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The Distribution of iVoice Technology Class A Common Stock will result in
substantial tax liability, pp. 17-18
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37. In this paragraph you indicate that the distribution will only be
taxable "to the extent of [your] current or accumulated earnings and
profits." Since it does not appear that there are any earnings or
profits, why do you believe that a tax liability will be generated?
Furthermore, including this information concerning the limited extent
to which tax liability is likely to be incurred suggests that there
will be no tax liability. We note the disclosure in the Federal Income
Tax Consequence section at page 48 as well. Given the nature of the
transaction you are registering, expand to provide a materially
complete tax matters discussion and provide an opinion that is
referenced in and supports the material tax consequences you describe.
See Item 601(b)(8) of Regulation S-B.
The determination of earnings and profits for tax purposes can differ from
earnings and profits as computed for financial reporting purposes. In
addition, current earnings and profits is determined as of the end of the
year in which the distribution occurs. Therefore, iVoice Technology will not
be able to determine at the time of the Distribution the extent to which the
Distribution will be taxable.
We do not believe that the language provided suggests that there will be no
tax liability. The disclosure is clear that it will be taxable to the extent
of the lesser of (i) the fair market value of the shares received and (ii)
the earnings and profits, which are merely the governing rules.
We believe that the form of disclosure provided is standard disclosure for
distributions of property. In response to the SEC's comment, however, we
have made some revisions to the discussion on p. 48 to make the discussion
clearer and to address the basis and holding period of the shares received.
In addition, we have deleted the word "substantial" in the heading to the
risk factor on pp. 17-18.
We respectfully suggest that no tax opinion is required or warranted in this
transaction. As clearly disclosed, the Distribution is a taxable
transaction. Were the company to conclude that the Distribution was not
taxable, then a shareholder would be warranted in expecting, and the rules
would seem to mandate, that a tax opinion supporting that conclusion be
provided, since the tax-free nature of the transaction would be material.
In contrast, disclosure that the receipt of property is taxable should not
necessitate a tax opinion. We believe that such a result is the expected norm
and is not material. Moreover, while iVoice Technology cannot know for sure
to what extent it will have earnings and profits, based on prior year results
of iVoice, it is not particularly likely that the Distribution will result in
a material tax liability to shareholders, as the Commission has implied.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
38. Please consider preparing a separate "Overview" section in order to
provide a general analysis and discussion of the condition of your
business. Please note that Management's Discussion and Analysis should
include disclosure based on currently known trends, events and
uncertainties that are reasonably expected to have material effects
upon you. For example, your separation from iVoice may likely entail
significant expenditures to
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hire necessary personnel and develop administrative systems, among
other things. Please also disclose whether any customer provides a
material portion of your revenue. In preparing your response, refer
to Item 303 of Regulation S-B and Release Nos. 33-6835 and 33-8350
for additional guidance. Further, include in the first paragraph of
such "Overview" a discussion regarding your carve-out financial
statements and how such financial statements do not reflect actual
results.
Disclosure has been added to p. 27 of the registration statement.
Separation from iVoice, pp. 20-21
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39. We refer you to the first paragraph in this section. Please revise your
disclosure to indicate that the IVR software business will be
transferred to you by iVoice in exchange for Series A preferred stock
with an aggregate stated value of $750,000. As a result, iVoice also
will have a significant continuing ownership interest in you.
Since, as mentioned above with respect to comment #7, iVoice will no longer
receive any Series A preferred stock in connection with the contribution of
the IVR software to iVoice Technology, we do not believe any revisions of
this disclosure is necessary.
40. We refer you to the second paragraph on page 21 of your filing. Please
consider revising your disclosure to detail the specific material
assets being transferred to you and to discuss whether any agreements
or other obligations are being transferred. In this regard, we note
that any existing customer, reseller, distributor, co-marketing,
alliance or vendor agreements that are material to the IVR software
business may likely be transferred to you as well.
Disclosure has been added to p. 28 of the registration statement.
41. We refer you to the third paragraph on page 21 of your filing. We also
note your disclosure in Note I to your financial statements on page F-7
stating that the temporary administrative services agreement may be
continued on a month-to-month basis. Please consider elaborating on
such continuation option and your expectations of employing such
option. We note your disclosure elsewhere in your filing in which you
state that the administrative services agreement will be terminated
upon the Distribution without qualification. Please revise such
disclosure in order to reflect this option.
Disclosure has been added to p. 28 of the registration statement. As per our
revised disclosure on p. 28, we anticipate that the administrative services
agreement will remain in effect for the foreseeable future.
Reserves of Operations for the Nine Months Ended September 30, 2004 as
Compared with the Nine Months Ended September 30, 2003, p. 21-22
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42. Please discuss the causes for any material changes, and quantify the
impact of each identified source for significant changes, from period
to period in line items of your financial statements. For example, you
state that your low sales volume is attributable to the minimal
resources provided by iVoice. The limitations of minimal resources in
both
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periods, however, does not explain the change in revenue between the
two periods. Following are further nonexclusive examples of other
disclosure requiring a more robust discussion of material changes:
o With reference to the first paragraph of page 22, how much of
the change in operating expenses is attributable to executive
compensation and how much is due to professional fees;
o With reference to the fourth paragraph of page 22, it appears
that only $28,000 of the $450,000 change in other expenses is
explained; and
o With reference to the second paragraph of page 23, there
appears to be no discussion regarding the specific changes in
your operations, business conditions or transactions that led
to the $230,000 decline.
What other events or business conditions contributed materially to the
changes in results and what was the dollar impact of each of the
contributing factors? Please refer to Item 303 of Regulation S-B and
Section III.D of Release No. 33-6835 for guidance.
Disclosure has been modified on p. 29 of the registration statement.
43. The fourth paragraph on page 22 indicates that you will incur charges
for the effects of the beneficial conversion feature of your
convertible debentures. Please expand the discussion to describe how
such amounts will be calculated and how they will be reflected in the
financial statements of future periods.
Disclosure has been added to p. 30 of the registration statement.
44. With respect to the last paragraph on page 22, please quantify the
amount of the change in price and discuss in quantitative terms the
effect the change in price had on your revenues as compared to the
portion of the change that was due to a change in the volume sold.
Disclosure has been modified on p. 30 of the registration statement.
Results of Operations for Year Ended December 31, 2003 as Compared with Year
Ended December 31, 2002, pp. 22-23
- ----------------------------------------------------------------------------
45. The numbers disclosed for your loss of operations in this section do
not reconcile with the numbers presented in your financial statements.
The numbers appear to be for net loss. Please correct and reconcile.
Disclosure has been modified on p. 31 of the registration statement.
Liquidity and Capital Resource, pp. 23-25
- -----------------------------------------
46. You state that "Mr. Mahoney has agreed to accept shares of [your] Class
B Common Stock in satisfaction of [your] obligations" in the second
paragraph of this section. Does
13
this statement refer to the $190,000 note to Mr. Mahoney that is by
its terms convertible into either Class A or B common stock or has
Mr. Mahoney also agreed to accept the note for payments owed to him
under his employment agreement with Class B common stock? Please
inform us whether there are any other obligations owed by you to Mr.
Mahoney. Please clarify your disclosure and note that any agreement
would need to be filed as an exhibit. Please see Item
601(b)(10)(i)(A) of Regulation S-B.
Disclosure has been modified on p. 31 of the registration statement to
clarify that if, in the discretion of the board of iVoice Technology, iVoice
Technology is unable to raise adequate financing, Mr. Mahoney has agreed to
accept Class B Stock in satisfaction of the obligations of iVoice Technology
under his employment agreement with iVoice Technology.
47. Please supplementally inform us of the terms of your sale of
convertible debentures. Are the terms embodied in a purchase agreement?
Does Cornell Capital Partners have discretion as to whether it shall
purchase the $140,000 of convertible debentures? We note that the
purchase is related to the effectiveness of this filing. However, your
subsequent registration statement, File No. 333-120608, filed in
connection with your equity line of credit appears to state that the
subsequent purchase of convertible debentures is related to the
effectiveness of that registration statement.
Please note that the terms of the sale of convertible debentures were
embodied in a purchase agreement, which was provided to you by email on
December 6, 2004 and by Federal Express on December 9, 2004. In addition,
the purchase agreement is being filed concurrently with the registration
statement. The sale of the debentures is conditioned solely on the
effectiveness of the registration statement. Please refer to Exhibit 10.2
of the amendment to the registration statement. We will remove the
reference in our subsequent registration statement, File No. 333-120608
which erroneously indicates that the sale of the debentures in dependent
upon the effectiveness of that registration statement.
48. Your amended disclosure in this section will not include a discussion
of the equity line of credit and as a result, your current financing
arrangements will not be sufficient for the next 12 months. Please
expand to address your capital requirements in quantitative terms and
how you plan to meet such requirements. Based on your "as-if'
assumptions in your carve-out financial statements, at what rate do you
use cash in operations and for what period of time will you be able to
fund your anticipated business operations with existing capital
resources? Please discuss any expenditure for staffing, equipment and
services, among other things, that you plan to undertake in order to
become a functioning independent company.
Please see our response to comment #1. In addition, disclosure has been
modified on pp. 17 and 32 of the registration statement.
49. Please consider revising your disclosure regarding the $190,000 note to
discuss the reason for your assumption of a liability that is unrelated
to your business. Also, provide a reasonably detailed explanation of
the transactions that generated the $190,000 liability of iVoice to Mr.
Mahoney. Is this liability attributable to cash advances only or does
it include an interest component? If so, how much of the $190,000
obligation represents funds advanced to iVoice?
Disclosure has been modified on p. 33 of the registration statement.
14
Our Business
50. Please elaborate on your plans to expand by acquisition. In this
regard, what strategies do you expect to pursue regarding the
acquisition of businesses. For example, is your objective to obtain
complementary products, to diversify your current business, or to
expand your geographic reach?
Disclosure has been modified on p. 16 and 37 of the registration statement.
Competition, pp. 30-31
- ----------------------
51. You identify two specific markets in which you compete--the IVR
enterprise market and the IVR enhanced network services market. Please
elaborate on the distinction between-these two markets and discuss how
your products address the needs of customers in these two markets.
Disclosure has been modified on pp. 38 and 39 of the registration statement.
Product Development, pp. 31-32
- ------------------------------
52. Please discuss whether any development efforts are currently being
undertaken in the IVR software business and, if applicable, provide a
brief summary of the status of such efforts. Are you developing any new
versions of your products?
Disclosure has been modified on pp. 38 and 40 of the registration statement.
Business Development, p. 32
- ---------------------------
53. With respect to your strategic alliances and OEM and reseller accounts,
consider disclosing the status of any current negotiations. Expand to
describe the nature and significance of any material strategic
alliances and OEM and reseller accounts.
Disclosure has been modified on p. 40 of the registration statement.
Employees, p. 34
- ----------------
54. Please expand to discuss your specific requirements and plans to
increase the number of employees in order to operate your business.
Disclosure has been modified on p. 42 of the registration statement.
Properties, p. 35
- -----------------
55. Discuss your specific plans with respect to your office space after the
Distribution.
Disclosure has been modified on p. 43 of the registration statement.
iVoice Technology's Management
56. We refer to your statement concerning Mr. Mahoney in which you state
that "we merged [with International Voice Technologies] on May 21,
1999." Please clarify.
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Disclosure has been modified on p. 43 of the registration statement to
clarify that it was not iVoice Technologies, but rather iVoice which merged
with International Voice Technologies on May 21, 1999.
57. On page 45 of the filing under "Reasons for the Distribution" you
discuss the ability to create equity incentive plans as a reason for
the Distribution. Please disclose the material features of such equity
incentive plans, if any. Are there any current plans, proposals or
arrangements to provide awards under an equity incentive plan following
the Distribution? If so, please provide a materially complete
description of those planned awards.
Disclosure has been modified on pp. 45 and 54 of the registration statement.
Certain Relationships and Related Transactions
58. Please indicate the relationship you have with Cornell Capital that
requires you to disclose your transactions with them in this section.
In particular, is Cornell Capital a significant shareholder or will it
become one in connection with the Distribution? What is the specific
nature of its intent? Please refer to Item 404 of Regulation S-B.
Disclosure has been modified on p. 48 of the registration statement to
reflect that Cornell Capital may be deemed to be the beneficial owner of the
shares of iVoice Technology's Class A Common Stock into which the secured
convertible debentures may be converted. We are unaware of the specific
nature of Cornell's intent with respect to either the secured convertible
debentures or the shares of iVoice Technology's Class A Common Stock into
which such secured convertible debentures may be converted.
Principal Stockholders
59. Please include iVoice and Cornell Capital in your table with respect to
their Series A preferred stock and convertible notes, respectively. It
appears iVoice and Cornell Capital each have a contractual right to
acquire the underlying shares of common stock within 60 days and would
he the beneficial owners of the underlying shares. Please see Rule
13d-3. in addition, please disclose with clarity in a footnote or
otherwise that control of the company will remain with Mr. Mahoney
through (1) his promissory that is convertible to Class B common stock
with extraordinary voting rights as well as (2) his ownership of iVoice
and their holdings of your Series A preferred stock. If you don't
believe Mr. Mahoney will be the controlling person following the
Distribution, tell us why in your response letter.
Further, please note that once a market price is determined and you are
able to determine the number of shares issuable upon conversion of
iVoice, Cornell Capital and Mr. Mahoney's respective obligations, you
will need to assess the adequacy of your disclosure concerning the
principal beneficial owners, particularly during the prospectus
distribution period.
Disclosure has been modified on pp. 48-49 of the registration statement.
16
Description of Securities
Class A Common Stock, p. 39
- ---------------------------
60. You state that 100 shares of your Class A common stock was issued and
outstanding as of September 30, 2004. However, you were not
incorporated as a legal entity until November 10, 2004. Please modify
your disclosure to convey that the financial statements show that 100
shares were outstanding but that these shares were not actually
outstanding at September 30, and are presented as such as part of the
preparation of those statements on a carve-out basis.
Disclosure has been modified on p. 48 and 50 of the registration statement.
Series A 5% Convertible Preferred Stock
- ---------------------------------------
61. Disclose the prospective stated value of your to-be-issued preferred
shares. Provide a materially complete explanation of how the aggregate
stated value of the 30 shares was determined. Did you obtain an opinion
of a third party as to the value of the assets being transferred? What
steps were taken by the board of directors in establishing this dollar
amount?
Since, as mentioned above with respect to comment #7, iVoice will no longer
receive any Series A preferred stock in connection with the contribution of
the IVR software to iVoice Technology, we have revised the disclosure in the
registration statement to remove any reference to the Series A 5% Convertible
Preferred Stock.
The Distribution
Results of the Distribution, p. 46
- ----------------------------------
62. Please also explain to us your statement that "regardless of the number
of stockholders of record and outstanding iVoice shares as of the
Record Date" you expect to have 10 million shares outstanding and
approximately 20,000 holders. Do you intend to adjust the distribution
ratio so that the 10 million shares will he allocated among the
holders? You plan to distribute one share of your Class A common stock
for every 874 shares of Voice stock or fraction thereof. Please also
explain your statement in the Prospectus Summary that the ratio is
subject to change depending on the number of shares outstanding.
Please also confirm whether your apparent uncertainty as to the
Distribution ratio is derived from the existence of nominee holders
holding for the accounts of beneficial stockholders. Please explain how
and when you will compute Distribution ratio to achieve the issuance of
the desired 10 million shares. Will the shares be held in aggregate by
nominee holders or will each beneficial owner's shareholdings be used
to determine the shares issuable as well as serve as the basis for any
rounding determinations.
Further, please supplementally provide us with an analysis of what you
would do in terms of updating your disclosure, if you were to change
the Distribution ratio after the
17
effective date. Would you be able to make this change by prospectus
supplement and, if so, what is the basis for such belief?
Disclosure has been modified on pp. 52, 54 and 55 of the registration
statement.
63. We refer you to Rule 10b-17 of the Exchange Act in connection with your
proposed dividend.
iVoice Technology will comply with the applicable requirements of Rule 10b-17
of the Exchange Act.
64. Please provide the disclosure required by Item 201(a)(2) of Regulation
S-B.
Disclosure has been modified on p. 57 of the registration statement.
Financial Statements
65. Your attention is directed to Item 310(g) of Regulation S-B and the
need for updated financial statements and related disclosures.
iVoice Technology is currently in compliance with Item 310(g) of Regulation
S-B, but will update its financial statements and related disclosures
accordingly should it be required to do so pursuant to such rule.
66. You are reminded that a currently dated consent of the independent
accountants with typed signature should be included in any amendment to
the registration statement.
A currently dated consent of the independent accountants with typed signature
has been attached as Exhibit 23.1 to the amendment of the registration
statement.
Note 5--.Related Duty Transactions, p. F-13 to F-14
- ---------------------------------------------------
67. Please provide consistent disclosures regarding administrative services
following the completion of the Distribution, The risk factor on page
14 of the text indicates that the agreement with iVoice will terminate
following the distribution and you will be required to obtain such
services from another party which could be more expensive. Note 6 to
your December 31, 2003 and 2002 financial statements indicates that the
amounts allocated by iVoice on a historical basis are a reasonable
approximation of what would have been incurred by you on a stand alone
basis and Note 1 indicates that the administrative services agreement
may be continued after the distribution if you are unable to replace
it. We note similar disclosures in Management's Discussion and Analysis
and throughout the prospectus. Please also note our prior comment.
Disclosure has been modified on p. F-7, F-13, F-22 and F-30 of the
registration statement.
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Note 6 - Convertible Debenture and Equity Line of Credit, p. F-27
- -----------------------------------------------------------------
68. Please expand Note 6 to your September 30, 2004 financial statements to
quantify the amount capitalized for the beneficial conversion feature
and how such amount was calculated.
Disclosure has been modified on p. F-28 of the registration statement.
Selected Historical and Pro Forma Financial Information, pp. F-32 to F-37
- -------------------------------------------------------------------------
69. Pro forma adjustments should only include those adjustments that are
directly attributable to the specific transaction requiring pro forma
presentation, are factually supportable and expected to have a
continuing impact. It appears to us that the impairment of intangible
assets is not directly attributable to the spin-off and the adjustment
should therefore be eliminated from the pro forma presentation. Revise
the historical financial statements to reflect the impairment in the
appropriate period and provide an explanation of the reasons for the
impairment in the notes to the financial statements and in Management's
Discussion and Analysis.
Disclosure has been modified on pp. F-32 to F-37 of the registration
statement.
Item 27. Exhibits.
70. Please file all required exhibits. The exhibits form an integral part
of your registration statement, provide material disclosure to
investors and facilitate our review of your filing. Please refer to
Item 601(b) of Regulation S-B for additional guidance. We will review
the exhibits when they are filed and may have further comments at that
time.
We are filing a number of the outstanding exhibits concurrently with this
filing, and we expect to file the balance of the outstanding exhibits in a
subsequent amendment.
Signatures
71. Per your disclosure, Mr. Seidler also serves as a director. Please
revise as appropriate.
The signature block for Mr. Seidler has been revised to indicate that he is
also signing as a director.
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