As filed with the Securities and Exchange Commission on April 7, 2005
Registration No. 333-120490
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IVOICE TECHNOLOGY, INC.
(Name of Small Business Issuer in Its Charter)
New Jersey 7373 20-1862731
(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. |_|
----------
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 April 7, 2005
iVoice Technology, Inc.
10,050,000 Shares of Class A Common Stock
This prospectus relates to the distribution by dividend to all of the
stockholders of iVoice, Inc. of up to 10,000,000 shares of iVoice Technology,
Inc. Class A Common Stock (the "Distribution"). iVoice Technology is not
selling any shares of Class A Common Stock in this offering and therefore
will not receive any proceeds from this offering. All costs associated with
this registration will be borne by iVoice Technology.
iVoice Technology is currently a wholly-owned subsidiary of iVoice,
Inc. and after the Distribution iVoice Technology will be an independent
public company.
Holders of iVoice common stock, other than affiliates of iVoice, Inc.,
will receive one share of iVoice Technology Class A Common Stock for every
____ shares of iVoice common stock that they hold. Holders of less than ____
shares of iVoice common stock will receive one share of iVoice Technology
Class A Common Stock. Following the Distribution, 100% of the outstanding
iVoice Technology Class A Common Stock will be held by non-affiliates of
iVoice Technology or iVoice, Inc. and 100% of the outstanding iVoice
Technology Class B Common Stock (including securities convertible into such
shares) will be beneficially owned by affiliates of iVoice Technology or
iVoice, Inc. No such affiliates will receive shares of iVoice Technology
Class A Common Stock in the Distribution.
Currently, no public market exists for iVoice Technology Class A Common
Stock.
These Securities are speculative and involve a high degree of risk.
Please refer to "Risk Factors" beginning on page 12.
No underwriter or person has been engaged to facilitate the
Distribution in this offering.
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 ___________, 2005.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY..........................................................2
SUMMARY OF THE DISTRIBUTION.................................................4
SUMMARY CONDENSED FINANCIAL INFORMATION....................................10
POTENTIAL DILUTION DUE TO CONVERSION AT BELOW MARKET PRICE.................11
RISK FACTORS...............................................................12
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS..................27
USE OF PROCEEDS............................................................28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................28
OUR BUSINESS...............................................................38
IVOICE TECHNOLOGY'S MANAGEMENT.............................................44
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................47
PRINCIPAL STOCKHOLDERS.....................................................50
DESCRIPTION OF SECURITIES..................................................51
THE DISTRIBUTION...........................................................53
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION........................59
REASONS FOR FURNISHING THIS DOCUMENT.......................................60
RELATIONSHIP BETWEEN IVOICE AND IVOICE TECHNOLOGY FOLLOWING THE
DISTRIBUTION.........................................................60
WHERE YOU CAN FIND MORE INFORMATION........................................61
PART II INFORMATION NOT REQUIRED IN PROSPECTUS..........................II-1
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PROSPECTUS SUMMARY
Overview
iVoice Technology, Inc., which we refer to in this prospectus as
"iVoice Technology," "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 iVoice Technology with
greater access to capital. This should provide needed financial resources to
potentially penetrate the market and distribute the product. As such, iVoice
Technology's business will be formed from the contribution by iVoice 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 a reorganization of iVoice, immediately prior to the Distribution,
iVoice will transfer to iVoice Technology its Interactive Voice Response
(IVR) software business and related liabilities, including all intellectual
property of iVoice relating to the IVR software business. Following the
Distribution, iVoice Technology will own and operate iVoice's IVR.
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. iVoice will
retain cash assets of approximately $6.7 million, no part of which will be
transferred to iVoice Technology. 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. iVoice Technology will be a development stage company
following the Distribution. Following the Distribution, iVoice Technology
may seek to expand its operations through additional sales and marketing
activity and the acquisition of additional businesses. Any potential
acquired additional businesses may be outside the current field of operations
of iVoice Technology. iVoice Technology may not be able to identify,
successfully integrate or profitably manage any such businesses or
operations. Currently, iVoice Technology has no plans, proposals or
arrangements, either orally or in writing, regarding any proposed
acquisitions and is not considering any potential acquisitions.
iVoice Technology intends to continue to develop, market and license
the IVR line of computerized telephony software. The IVR software is designed
to enable a caller to obtain requested information in voice form from a local
or non-local database and allow information in PC databases to be accessed
from a standard touch-tone telephone using a telephone keypad or voice
command.
In September 2004, iVoice announced its intention to distribute iVoice
Technology Class A Common Stock to its stockholders and to contribute to
iVoice Technology its IVR business upon the effectiveness of required
Securities Exchange Commission filings and final approval by the Board of
Directors of the terms and conditions of the Distribution.
The board of directors and management of iVoice believe that the
Distribution is in the best interests of iVoice and its stockholders. iVoice
believes that the Distribution will enhance value for iVoice stockholders and
that the spin off of the IVR business into iVoice Technology
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has provided greater access to capital by allowing the financial community to
focus solely on iVoice Technology and its IVR software business as a stand
alone company. In determining the terms of the spin off of the IVR business
and the Distribution, the board considered the ability of iVoice to satisfy
its working capital needs as a whole as against the ability of the IVR
business to satisfy its capital needs as a stand alone company. iVoice's
present plan, which is subject to change, is to become a technology licensing
company, and, in order to effectuate that business plan, iVoice would need to
significantly expand its research and development and hire different types of
personnel. In addition, the iVoice board believed that, as a result of each
company's business plan, the IVR business as a stand-alone company would more
easily be able to obtain financing from third parties than iVoice would. After
considering these issues and the relative working capital needs of iVoice and
iVoice Technology, the iVoice board elected not to transfer any part of the
current cash balance of iVoice to iVoice Technology.
Prior to and after the Distribution, members of the Board of Directors
and management of iVoice and iVoice Technology have had and will have a
variety of conflicts of interest, as Mr. Jerome Mahoney, the Chairman of the
Board of iVoice Technology, will also continue to serve as the Chairman of the
Board and Chief Executive Officer of iVoice. In addition, following the
Distribution, Mr. Mahoney will own iVoice shares and have the right to convert
$190,000 (plus accrued and unpaid interest) of indebtedness into 190,000
shares (plus shares attributable to conversion of accrued and unpaid interest)
of iVoice Technology Class B Common Stock which is convertible 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
at which iVoice had ever issued its Class A Common Stock. There is no
limitation on the number of shares of Class A Common Stock we may be required
to issue to Mr. Mahoney upon the conversion of this indebtedness. See
"Potential Dilution Due to Conversion at Below Market Price." Each share of
Class B Common Stock has voting rights equal to 100 shares of Class A Common
Stock. For example, if Mr. Mahoney converts his indebtedness into 190,000
shares of Class B Common Stock, he will have voting rights equal to 19,000,000
shares of Class A Common Stock and will have control over the management and
direction of iVoice Technology, including the election of directors,
appointment of management and approval of actions requiring the approval of
stockholders. In addition, Mr. Mahoney may be deemed to receive personal
benefit as a result of the creation of iVoice Technology and the Distribution.
This relationship could create, or appear to create, potential conflicts of
interest when iVoice Technology's directors and management are faced with
decisions that could have different implications for iVoice Technology and
iVoice.
On August 12 and November 19, 2004, iVoice Technology issued an
aggregate of $560,000 in secured convertible debentures, with interest payable
at 5% per annum, to Cornell Capital Partners L.P. The debentures were
convertible at the option of the holder only after our Class A Common Stock
has commenced trading on the Over-the-Counter Bulletin Board. On February 28,
2005, iVoice Technology's obligations under the secured convertible debentures
were terminated and replaced with secured promissory notes of the same
principal amount, which notes accrue interest at rate of 12% per annum, but
are not convertible into any equity security of iVoice Technology. On February
28, 2005, iVoice Technology borrowed an additional $140,000 pursuant to an
additional promissory note payable to Cornell Capital Partners. In connection
with the issuances of the secured convertible debentures, iVoice Technology
paid a fee to Cornell Capital Partners equal to 10% of the aggregate principal
3
amount of the debentures. When the secured convertible debentures were
terminated, iVoice Technology received a credit for fees that would otherwise
have been payable upon the issuance of the $560,000 in replacement notes.
iVoice Technology paid Cornell Capital a fee of $14,000 in connection with its
$140,000 borrowing. iVoice Technology's obligations under the secured
promissory notes issued to Cornell Capital Partners are secured by a first
priority security interest in substantially all of its assets. iVoice has also
guaranteed the payment of all amounts payable by iVoice Technology pursuant to
the secured promissory notes.
Why iVoice Sent This Document To You
iVoice, Inc. sent you this document because you were an owner of iVoice
common stock on the record date. This entitles you to receive a distribution
of one share of Class A Common Stock of iVoice Technology, Inc., which is
currently a wholly-owned subsidiary of iVoice, for every ____ iVoice shares
you owned on that date. No action is required on your part to participate in
the Distribution and you do not have to pay cash or other consideration to
receive your iVoice Technology shares.
This document describes iVoice Technology's business, the relationship
between iVoice and iVoice Technology, and how this transaction benefits
iVoice and its stockholders, and provides other information to assist you in
evaluating the benefits and risks of holding or disposing of the shares of
iVoice Technology stock that you will receive in the Distribution. You should
be aware of certain risks relating to the Distribution and iVoice
Technology's businesses, which are described in this document beginning on
page 12.
About Us
iVoice Technology was incorporated in New Jersey on November 10, 2004
as a wholly-owned subsidiary of iVoice, Inc. iVoice Technology 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, Inc., a Nevada corporation and
affiliate of iVoice Technology. These agreements, contracts, understandings
and other instruments consisted of financing documentation, employment
agreements and an administrative services agreement with iVoice. Since this
assignment, iVoice Technology Nevada has no operating business, assets or
known liabilities, and is currently in the process of being dissolved. When
we refer to or describe any agreement, contract or other written instrument
of iVoice Technology in this prospectus, we are referring to an agreement,
contract or other written instrument that had been entered into by iVoice
Technology Nevada and assigned to iVoice Technology.
Our principal office is located at 750 Highway 34, Matawan, New Jersey
07747. Our telephone number is (732) 441-7700. We will be setting up a
company website, which will be located at www.ivoicetechnologies.com.
SUMMARY OF THE DISTRIBUTION
Distributing Company iVoice, Inc., a New Jersey corporation. As used in
this prospectus, the term iVoice includes iVoice,
Inc. and its wholly-owned and majority-owned
subsidiaries, other than the
4
Company, as of the relevant date, unless the
context otherwise requires.
Distributed Company iVoice Technology, Inc., a New Jersey corporation.
As used in this prospectus, the terms iVoice
Technology, the Company, we, our, us and similar
terms mean iVoice Technology, Inc., as of the
relevant date, unless the context otherwise
requires.
iVoice Technology Shares iVoice will distribute to iVoice stockholders an
to be Distributed aggregate of approximately 10,000,000 shares of
Class A Common Stock, no par value per share, of
iVoice Technology. Mr. Mahoney has agreed to
forego receiving any shares of iVoice Technology
Class A Common Stock that 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. Based on
approximately _________ iVoice shares outstanding
on the Record Date, as defined below, and
approximately ____ iVoice shares outstanding on
the Record Date that will actually participate in
the Distribution, one share of iVoice Technology
Class A Common Stock will be distributed for
approximately every ____ shares of iVoice common
stock outstanding on the Record Date. iVoice
Technology currently has 100 shares of Class A
Common Stock outstanding. A 100,000-for-one stock
split will be accomplished by means of a stock
dividend and will be effectuated immediately prior
to the effective date of this registration
statement. The shares of iVoice Technology Class A
Common Stock to be distributed will constitute 100%
of the iVoice Technology Class A Common Stock
outstanding after the Distribution. Immediately
following the Distribution, iVoice and its
subsidiaries will not own any shares of iVoice
Technology Class A Common Stock and iVoice
Technology will be an independent public company.
Record Date If you own iVoice shares at the close of business
on ___________, 2005 (the "Record Date"), then you
will receive iVoice Technology Class A Common Stock
in the Distribution. If you own fewer than ____
iVoice shares on the Record Date, then you will
receive one share of iVoice Technology Class A
Common Stock.
5
Distribution Date We currently anticipate that the Distribution will
occur shortly after the effective date of the
registration statement. If you are a record holder
of iVoice stock, instead of physical stock
certificates you will receive from iVoice
Technology's transfer agent shortly after the
effective date of the registration statement a
statement of your book entry account for the shares
of iVoice Technology Class A Common Stock
distributed to you. If you are not a record holder
of iVoice stock because such shares are held on
your behalf by your stockbroker or other nominee,
your iVoice Technology Class A Common Stock should
be credited to your account with your stockbroker
or other nominee after the effective date of the
registration statement. Following the Distribution,
you may request physical stock certificates if you
wish, and instructions for making that request will
be furnished with your account statement.
Distribution On the Distribution Date, the distribution agent
identified below will begin distributing
certificates representing our Class A Common Stock
to iVoice stockholders that have requested physical
certificates. You will not be required to make any
payment or take any other action to receive your
shares of our Class A Common Stock. The distributed
shares of our Class A Common Stock will be freely
transferable unless you are issued shares in
respect of restricted shares of iVoice common
stock.
Distribution Ratio iVoice will distribute to iVoice stockholders an
aggregate of approximately 10,000,000 shares of
Class A Common Stock of iVoice Technology, based on
approximately _____ iVoice shares outstanding on
the record date. Mr. Mahoney has agreed to forego
receiving any shares of iVoice Technology Class A
Common Stock that 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. The actual number of
iVoice shares outstanding on the record date that
will participate in the Distribution is ________.
Therefore, for every ____ shares of iVoice common
stock that you own of record on ________, 2005,
you will receive one share of iVoice Technology
Class A Common Stock. The Distribution ratio is
subject to change depending upon the number of
outstanding shares of iVoice common stock on the
Record Date. If you own fewer than ____ shares of
iVoice common stock, you will receive one share of
iVoice Technology Class A Common Stock in the
Distribution. iVoice shareholders are not
receiving shares of iVoice Technology Class A
Common Stock on a one-for-one basis because iVoice
Technology's management has determined that a more
modest capital structure and fewer outstanding
shares of common stock would be more beneficial for
stockholders.
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Distribution Agent Fidelity Transfer Company. Their address is 1800
South West Temple, Suite 301, Salt Lake City, Utah
84115. Their telephone number is (801) 484-7222.
Transfer Agent and Fidelity Transfer Company. Their address is 1800
Registrar for the iVoice South West Temple, Suite 301, Salt Lake City, Utah
Technology Shares 84115. Their telephone number is (801) 484-7222.
Fractional Shares of Our iVoice will not distribute any fractional shares of
Common Stock iVoice Technology Class A Common Stock. In lieu of
distributing a fraction of a share of our Class A
Common Stock to any iVoice stockholder, fractional
shares will be rounded up to the next higher whole
number of shares.
Trading Market We anticipate that our Class A Common Stock will be
traded on the Over-the-Counter Bulletin Board under
the proposed symbol "____." We expect that a market
maker will apply for quotation on the
Over-the-Counter Bulletin Board on our behalf prior
to the Distribution. No public trading market for
our Class A Common Stock currently exists. However,
a trading market for the entitlement to receive
shares of our Class A Common Stock in the
distribution, referred to as a when-issued market,
may develop on or after the record date for the
distribution.
Dividend Policy iVoice has not paid cash dividends in the past, and
we anticipate that following the Distribution
neither iVoice Technology nor iVoice will pay cash
dividends. However, no formal action has been taken
with respect to future dividends, and the
declaration and payment of dividends by iVoice
Technology and iVoice will be at the sole
discretion of their respective boards of directors.
Risk Factors The distribution and ownership of our Class A
Common Stock involve various risks. You should read
carefully the factors discussed under "Risk
Factors" beginning on page 12. Several of the
most significant risks of the Distribution include:
o The Distribution may cause the trading price
of iVoice Common Stock to decline.
o Substantial sales of shares of iVoice
Technology Class A Common Stock may have an
adverse impact on the trading price of our
Class A Common Stock.
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o There has not been a prior trading market
for iVoice Technology Class A Common Stock
and a trading market for our Class A Common
Stock may not develop.
o The Distribution of iVoice Technology Class
A Common Stock may result in tax liability
to you.
o iVoice has in the past, and iVoice
Technology may in the future, sell or issue
unregistered convertible securities which
are convertible into common shares of iVoice
Technology, without limitations on the
number of common shares the securities are
convertible into, which could dilute the
value of your holdings and could have other
negative impacts on your investment.
Federal Income Tax iVoice and iVoice Technology do not intend for the
Consequences Distribution to be tax-free for U.S. federal income
tax purposes. You will be required to pay income
tax on the value of your shares of iVoice
Technology Class A Common Stock received to the
extent of the current or accumulated earnings and
profits of iVoice. You are advised to consult your
own tax advisor as to the specific tax consequences
of the Distribution.
Our Relationship with Prior to the Distribution, iVoice and iVoice
iVoice After the Technology have entered or will enter into
Distribution agreements to transfer to iVoice Technology
selected assets and liabilities of iVoice related
to iVoice Technology's business and to make
arrangements for the Distribution. iVoice and
iVoice Technology have entered into an
administrative services agreement for the provision
of certain services by iVoice to iVoice Technology
following the Distribution. The administrative
services agreement will continue on a month to
month basis until iVoice Technology has found
replacement services for those services being
provided by iVoice or can provide these services
for itself. Following termination of the
administrative services agreement, we expect that
iVoice Technology will operate on a completely
stand-alone basis from iVoice and there will be no
business or operating relationship between iVoice
and iVoice Technology. See "Certain Relationships
and Related Transactions." In addition, after the
Distribution, we anticipate that one of iVoice
Technology's two directors will also be a director
of iVoice. After the Distribution, any arrangements
with iVoice that may occur will not be deemed to be
on an "arms-length" basis because of the
relationships between the boards of directors and
executive officers of iVoice Technology and iVoice,
but we will seek to establish terms and conditions
at least as favorable as those that could be
obtained from an independent third party.
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Board of Directors of After the Distribution, iVoice Technology is
iVoice Technology expected to have an initial board of two directors.
The initial directors will serve one-year terms.
Jerome R. Mahoney and Arie Seidler have been
identified to serve on the initial board. Jerome R.
Mahoney expects to remain on iVoice's board
following the Distribution Date.
Management of iVoice Mr. Mahoney will serve as Chairman of the Board of
Technology iVoice Technology and will continue to serve as
Chairman of the Board and Chief Executive Officer
of iVoice, and Arie Seidler will serve as President
and Chief Executive Officer of iVoice Technology.
Mr. Mahoney will not provide services to iVoice
Technology on a full-time basis; Mr. Seidler will
devote substantially all of his time to iVoice
Technology.
Conflicts of Interest After the Distribution, Mr. Mahoney, the Chairman
of the Board of iVoice Technology, will continue
to serve as the Chairman of the Board and Chief
Executive Officer of iVoice. Further, Mr. Mahoney
will own both iVoice shares and have the right to
convert $190,000 of indebtedness (plus the amount
of accrued and unpaid interest on such
indebtedness) into more than 190,000 shares of
iVoice Technology Class B Common Stock which is
convertible 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 at which iVoice
had ever issued its Class A Common Stock. There is
no limitation on the number of shares of Class A
Common Stock we may be required to issue to Mr.
Mahoney upon the conversion of this indebtedness.
See "Potential Dilution Due to Conversion at Below
Market Price." Each share of Class B Common Stock
has voting rights equal to 100 shares of Class A
Common Stock. For example, if Mr. Mahoney converts
$190,000 of indebtedness into 190,000 shares of
Class B Common Stock, he will have voting rights
equal to 19,000,000 shares of Class A Common Stock
and will have control over the management and
direction of iVoice Technology, including the
election of directors, appointment of management
and approval of actions requiring the approval of
stockholders. In addition, Mr. Mahoney may be
deemed to receive personal benefit as a result of
the creation of iVoice Technology and the
Distribution. This relationship could create, or
appear to create, potential conflicts of interest
when iVoice Technology's directors and management
are faced with decisions that have different
implications for iVoice Technology and iVoice,
such as potential business acquisitions
9
to be made by iVoice Technology or disputes
arising out of any agreements between the two
companies. iVoice Technology does not have any
formal procedure in place for resolving such
conflicts of interest which may arise in the
future.
Certain Anti-takeover Some of the provisions of iVoice Technology's
Effects certificate of incorporation and bylaws may have
the effect of making the acquisition of control of
iVoice Technology in a transaction not approved by
iVoice Technology's board of directors more
difficult.
Stockholder Inquiries Any persons having inquiries relating to the
Distribution should contact the Shareholder
Services department of the distribution agent at
(801) 484-7222 or iVoice Technology, in writing at
iVoice Technology, Inc., 750 Highway 34, Matawan,
NJ 07747 Attention: Investor Relations, or by email
at information@ivoice.com, or by telephone at (732)
441-7700.
SUMMARY CONDENSED FINANCIAL INFORMATION
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.
iVoice Technology has traditionally operated as a non-reporting component of
iVoice and accordingly these financial statements have been derived from the
consolidated financial statements and accounting records of iVoice, and
reflect significant assumptions and allocations. iVoice allocated operating
costs to iVoice Technology. These allocations are reflected in the selling,
general and administrative, cost of revenue and/or 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. Other general categories of operating expense, as well as other
income and expense, have been allocated to iVoice Technology by iVoice based
upon a ratio of revenue of iVoice Technology over total iVoice revenue for
the applicable periods. Management believes that although the financial
information was prepared on a pro forma basis, the cost of these services
charged are a reasonable representation of the costs that would have been
incurred if iVoice Technology had performed these functions as a stand-alone
company. iVoice Technology relies on iVoice for administrative and other
services. These financial statements do not necessarily reflect the financial
position, results of operations, and cash flows of iVoice Technology had it
been a stand-alone company.
For the For the
Year Ended Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Statement of Operation Data:
- -------------------------------------------------------------------------------
Sales $239,114 $303,756
- -------------------------------------------------------------------------------
Cost of sales 72,870 123,091
- -------------------------------------------------------------------------------
Gross profit 166,244 180,665
- -------------------------------------------------------------------------------
Selling, general, and
administrative expenses 863,456 965,341
- -------------------------------------------------------------------------------
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For the For the
Year Ended Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Loss from operations (697,212) (784,676)
- -------------------------------------------------------------------------------
Net Loss (1,478,127) (1,131,420)
- -------------------------------------------------------------------------------
December 31, 2004 December 31, 2003
----------------- -----------------
Balance Sheet Data:
- ----------------------------------------------------- ---------------------
Current Assets $378,332 $52,077
- ----------------------------------------------------- ---------------------
Intangibles -- 45,400
- ----------------------------------------------------- ---------------------
Liabilities 623,747 23,662
- ----------------------------------------------------- ---------------------
Stockholders' equity (deficiency) (240,678) 73,815
- -------------------------------------------------------------------------------
POTENTIAL DILUTION DUE TO CONVERSION AT BELOW MARKET PRICE
The net tangible book value of iVoice Technology as of December 31,
2004 was ($240,678) or ($2,406.78) per share of Class A Common Stock. Net
tangible book value per share is determined by dividing the tangible book
value of iVoice Technology (total tangible assets less total liabilities) by
the number of outstanding shares of our common stock. Since no proceeds from
this offering will be paid to iVoice Technology, our net tangible book value
will be unaffected by this offering. Our net tangible book value, however,
will be impacted if and when common stock is issued under the proposed 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 iVoice Technology will issue 1,052,631,579 shares of
Class A Common Stock under its proposed 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 equity line of credit,
excluding the commitment fee), less a retention fee of $600,000, offering
expenses of $213,500, and repayment of the promissory note, our net tangible
book value as of December 31, 2004 would have been $8,485,822 or $0.00788 per
share. Such an offering would represent an immediate increase in net tangible
book value to existing stockholders of $2,406.78788 per share and an immediate
dilution to new stockholders of $0.00212 per share, or 21.2%. The following
table illustrates the per share dilution:
Assumed public offering price per share $ 0.01000
Net tangible book value per share before this
offering ($2,406.78000)
Increase attributable to new investors $2,406.78788
------------
Net tangible book value per share after this
offering $ 0.00788
Dilution per share to new stockholders $ 0.00212
===========
The conversion price of our Class A Common Stock is based on the
then-existing market price. In order to provide you an example of the
dilution per share you may experience, we have prepared the following table
showing the dilution per share at various assumed market prices (assuming
that Mr. Mahoney converts $190,000 of indebtedness):
11
Assumed Market No. of Shares to Dilution per Share
Price be issued (1) to New Investors
--------------- ---------------- ------------------
$0.0100 19,000,000 $0.00212
$0.0075 25,333,333 $0.00159
$0.0050 38,000,000 $0.00106
$0.0025 76,000,000 $0.00053
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 Distribution and iVoice Technology's business.
If any of the following risks and uncertainties develops into actual
events, the business, financial condition or results of operations of iVoice
Technology could be materially adversely affected. If that happens, the
trading prices of iVoice Technology shares could decline significantly.
The risk factors below contain forward-looking statements regarding the
Distribution and iVoice Technology. 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
iVoice Technology 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 and the
emerging nature of the interactive voice response 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 IVR 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, as they are described
herein. We may continue to face these 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.
iVoice Technology 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, iVoice Technology
does not have an operating history as an independent public company.
Historically, since the businesses that comprise each of iVoice Technology
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, iVoice Technology will be able
to rely only on the IVR
12
software business for such requirements. iVoice has operated the IVR software
business since the fourth quarter of 1999. The IVR software business has
operated at a loss in the past for iVoice, and as an independent company such
losses may continue or increase. Additionally, iVoice Technology's business
has relied on iVoice for financial, administrative and managerial expertise in
conducting its operations. Following the Distribution, iVoice Technology will
maintain its own credit and banking relationships and perform its own
financial and investor relations functions. iVoice Technology 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 iVoice Technology's likely will as well.
iVoice, of which iVoice Technology was a part, has incurred recurring
operating losses. iVoice used cash in operations of approximately $1,213,000
and $1,142,000 during the years ended December 31, 2004 and 2003,
respectively, and has a history of net losses. iVoice had a cash balance of
approximately $8,000,000 and $4,500,000 at December 31, 2004 and 2003,
respectively, and current assets exceeded current liabilities by
approximately $5,100,000 and $3,200,000 at December 31, 2004 and 2003,
respectively. iVoice had stockholders' equity of approximately $5,400,000
and $3,400,000 at December 31, 2004 and 2003, respectively. The IVR
software business had net losses of approximately $1,478,000 and $1,131,000
for the years ended December 31, 2004 and 2003, respectively, and cash used
in operations of approximately $1,372,000 and $927,000 during the years
ended December 31, 2004 and 2003, respectively. 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, 2004, substantially all of this financing
has been provided by iVoice, Inc and Cornell Capital Partners. There can be
no assurance that iVoice Technology will have operations separately that fare
any better than those of iVoice.
Our historical information has limited relevance to our results of operations
as a separate company.
The historical financial information we have included in this
prospectus does not reflect what our results of operations, financial
position and cash flows would have been had we been a separate, stand-alone
entity during the periods presented or what our results of operations,
financial position and cash flows will be in the future. This is because
iVoice did not account for us as, and we were not operated as, a single
stand-alone business for the periods presented. For more information about
the preparation of our financial statements from the financial statements of
iVoice, see "Summary Consolidated Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
13
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.
iVoice Technology has received a report from its independent auditors
for the fiscal years ended December 31, 2004 and 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.
Our consolidated financial statements have been prepared on the basis
of a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. We have not
made any adjustments to our consolidated financial statements as a result of
the going concern modification to the report of our independent registered
public accounting firm. If we become unable to continue as a going concern,
we could have to liquidate our assets, which means that we are likely to
receive significantly less for those assets than the values at which such
assets are carried on our consolidated financial statements. Any shortfall
in the proceeds from the liquidation of our assets would directly reduce the
amounts, if any, that holders of our common stock could receive in
liquidation.
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
would have a material adverse effect on us, our business and operations and
result in charges that would be material to our business and results of
operations.
iVoice Technology's future revenue and operating results are unpredictable
and may fluctuate, which could cause iVoice Technology's stock price to
decline.
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 the introduction of competitive products by existing or new
competitors;
o reduced demand for any given product;
o difficulty in keeping current with changing technologies;
o unexpected delays in introducing new products, new product
features and services;
o increased or uneven expenses, whether related to sales and
marketing, product development or administration;
14
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;
o seasonality in the end-of-period buying patterns of foreign and
domestic software markets;
o the market's transition between operating systems; and
o costs related to possible acquisitions of technology or
businesses.
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.
iVoice Technology has in the past and may in the future sell additional
unregistered convertible securities, possibly without limitations on the
number of shares of common stock the securities are convertible into, which
could dilute the value of the holdings of current stockholders and have other
detrimental effects on your holdings.
We have relied on the private placement of convertible debentures
and secured promissory notes to obtain working capital and may continue to do
so in the future. As of the date of this registration statement, however, we
have no outstanding convertible debentures. The $190,000 promissory note
owing to Mr. Mahoney provides that, at Mr. Mahoney's option, principal and
interest due on the note can be converted into shares of the Company's Class
A Common Stock at a conversion price equal to the lesser of (a) an amount
equal to 120% of the initial bid price of our Class A Common Stock on the
date of the effectiveness of the registration statement of which this
prospectus is a part or (b) an amount equal to 80% of the lowest closing bid
price of our Class A Common Stock for the five trading days immediately
preceding the conversion date. There is no limit upon the number of shares
that we may be required to issue upon conversion of any of these obligations.
In order to obtain working capital in the future, we may intend
to issue additional equity securities.
In the event that the price of our Class A Common Stock
decreases, and our convertible obligations (or any other convertible
obligations we may issue) are converted into shares of our Class A Common
Stock:
o the percentage of shares outstanding that will be held by these
holders upon conversion will increase accordingly,
o increased share issuance, in addition to a stock overhang of an
indeterminable amount, may depress the price of our Class A Common
Stock,
15
o the sale of a substantial amount of convertible debentures to
relatively few holders could effectuate a possible change in
control of the Company, and
o in the event of our voluntary or involuntary liquidation while the
secured convertible debentures are outstanding, the holders of
those securities will be entitled to a preference in distribution
of our property.
In addition, if the market price declines significantly, we could
be required to issue a number of shares of Class A Common Stock sufficient to
result in our current stockholders not having an effective vote in the
election of directors and other corporate matters. In the event of a change
in control of the Company, it is possible that the new majority stockholders
may take actions that may not be consistent with the objectives or desires of
our current stockholders.
We are required to convert our existing convertible obligations
based upon a formula that varies with the market price of our common stock.
As a result, if the market price of our Class A Common Stock increases after
the issuance of our convertible obligations, it is possible, that, upon
conversion of our convertible obligations, we will issue shares of Class A
Common Stock at a price that is far less than the then-current market price
of our Class A Common Stock.
If the market price of our Class A Common Stock decreases after
our issuance of any convertible obligations, upon conversion, we will have
to issue an increased number of shares to the holders of our convertible
obligations. Any sale of convertible obligations may result in a very large
conversion at one time. If we do not have a sufficient number of shares to
cover the conversion, we may have a risk of a civil lawsuit.
For more information, please see "Potential Dilution Due to
Conversion at Below Market Price."
If iVoice Technology loses 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 Arie Seidler, our Chairman of the Board and our President and
Chief Executive Officer, respectively. 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,
iVoice Technology has entered into employment contracts with Jerome Mahoney
and Arie Seidler. However, Mr. Seidler's employment agreement has a term of
only one year.
Our potential future business acquisitions may be unpredictable and may cause
our business to suffer.
iVoice Technology may 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 iVoice
Technology. iVoice Technology 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 iVoice Technology's operating results, diversion of
management attention, inability to retain key
16
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 iVoice Technology'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 iVoice Technology to implement and manage its
expansion strategy successfully may have a material adverse effect on the
business and future prospects of iVoice Technology. Furthermore, through the
acquisition of additional businesses, iVoice Technology 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 iVoice
Technology may, under certain circumstances, seek to effect business
acquisitions with more than one target business, as a result of its limited
resources, iVoice Technology, in all likelihood, will have the ability to
effect only a single business acquisition at one time. Currently, iVoice
Technology has no plans, proposals or arrangements, either orally or in
writing, regarding any proposed acquisitions and is not considering any
potential acquisitions.
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.
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 iVoice Technology Class B Common Stock
which are convertible 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 at which iVoice had ever
issued its Class A Common Stock. In addition, Mr. Mahoney has the right to
convert the amount of all accrued and unpaid interest on such indebtedness
into 1 share of iVoice Technology Class B Common Stock for each dollar of
accrued and unpaid interest. As of March 31, 2005, accrued and unpaid
interest on this indebtedness was $26,334.97. There is no limitation on the
number of shares of Class A Common Stock we may be required to issue to Mr.
Mahoney upon the conversion of this indebtedness. In addition, following the
Distribution, we anticipate that Mr. Mahoney, the Chairman of the Board of
iVoice Technology 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 iVoice Technology's
directors and management are faced with decisions that could have different
implications for iVoice Technology and iVoice. For example, Mr. Mahoney may
experience conflicts of interest with respect to the allocation of his time,
services and functions among iVoice, iVoice Technology and any other
projects. Other examples could include potential business acquisitions that
would be suitable for either iVoice Technology or iVoice, activities
undertaken by iVoice in the future that could be in direct competition with
iVoice Technology, or the resolution of disputes arising out of the
agreements governing the relationship between iVoice and iVoice Technology
following the Distribution. Also, the appearance of conflicts, even if such
conflicts do not materialize, might adversely affect the public's perception
of iVoice Technology following the Distribution. Furthermore, iVoice
Technology does not have any formal procedure for resolving such conflicts of
interest should they arise following the Distribution.
17
iVoice Technology'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.
iVoice Technology stockholders may experience significant dilution if future
equity offerings are used to fund operations or acquire businesses.
On March 9, 2005, we obtained a non-binding letter of commitment from
Cornell Capital Partners to provide a $10 million standby equity line of
credit. If working capital or future acquisitions are financed through the
issuance of equity securities, such as through the possible sale of Class A
Common Stock on the terms of the non-binding letter of intent from Cornell
Capital Partners, L.P. (see "Certain Relationships and Related Transactions"
beginning on page 47), iVoice Technology stockholders would experience
significant dilution. In addition, the conversion of outstanding debt
obligations into equity securities would have a dilutive effect on iVoice
Technology shareholders. Further, securities issued in connection with
future financing activities or potential acquisitions may have rights and
preferences senior to the rights and preferences of the iVoice Technology
Class A Common Stock.
Except for the potential sale of Class A Common Stock to Cornell
Capital Partners on the terms of the non-binding letter of intent, iVoice
Technology currently has no expectations or plans to conduct future equity
offerings. Management believes that if the transactions contemplated by the
non-binding letter of commitment are consummated, the Company will have
sufficient capital resources to conduct its business as currently planned
over the 12-month period following the Distribution.
However, Cornell Capital Partners is under no obligation to execute any
definitive agreements with iVoice Technology. Furthermore, if a definitive
agreement is executed, Cornell Capital Partners is under no obligation to
purchase shares of Class A Common Stock unless certain conditions are
satisfied by iVoice Technology, including completing of the Distribution,
listing our Class A Common Stock on the Over-the-Counter Bulletin Board and
having the registration statement relating to such Class A Common Stock
declared effective. If Cornell Capital Partners does not execute the
definitive agreements or iVoice Technology cannot satisfy the requirements for
Cornell Capital Partners to purchase the Class A Common Stock under the terms
of the definitive documents, we will not have sufficient capital resources to
conduct our business on a long-term basis, which would have a material adverse
effect on us and our financial condition. Management believes that its
going-forward expenses over the next 12 months will be approximately $431,000
and, assuming that iVoice Technologies has no revenues, iVoice Technologies
expects to have aggregate liabilities of approximately $432,000, which
includes salaries for iVoice Technology's officers and employees for the year
ending December 31, 2005. Management has no current plan to hire additional
employees, perform additional research and development or purchase additional
equipment or services beyond the requirements of the administrative services
agreement with iVoice. Management believes that the deficiency between the
Company's expenses and net revenues will be more than covered by
18
the cash available from the proceeds of the secured promissory notes. If there
are additional deficiencies that are in excess of the proceeds of the secured
promissory notes, and iVoice Technology is unable to obtain funds from the
equity line of credit, management believes that iVoice Technology can limit
its operations, defer payments to management and maintain its business at
nominal levels until it can identify alternative sources of capital.
The trend toward consolidation in iVoice Technology'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 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.
iVoice Technology 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. Neither iVoice nor iVoice Technology
has experienced any pressure from price competition on the pricing of its IVR
software products in the past, but iVoice Technology believes that this
pressure could occur in the future.
iVoice Technology 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.
iVoice Technology may be unsuccessful in continuing existing distribution
channels or 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 intend to assume iVoice's relationships and contractual
arrangements with these dealers and resellers. However, there can be no
assurance that these dealers and resellers will wish to continue their
existing arrangements,
19
or create new arrangements, with us. If we cannot continue to use iVoice's
existing dealer and reseller channels, we will need to develop a new network
of dealers and resellers. However, we may not be able to effectively develop
our own network of resellers and dealers to distribute our software products.
If we cannot assume iVoice's existing distribution channels and we cannot
develop our own new distribution channels, this would have a material adverse
effect on us and our financial condition. The adoption of new channels may
adversely impact existing channels and/or product pricing, which may reduce
our future revenues and profitability.
Restrictive product return policies may limit iVoice Technology's sales and
penetration into the marketplace.
iVoice Technology only permits returns from authorized dealers and
resellers of unused inventory, subject to the consent of the Company and a
twenty-five percent restocking fee. End users who purchase products
directly from iVoice Technology may not return such products to iVoice
Technology under any circumstances. Such policies may deter resellers and end
users from purchasing our products in a competitive and quickly evolving
marketplace, and have a material adverse effect on our ability to remain
competitive with similar products.
iVoice Technology 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. We intend to assume iVoice's existing relationships and
contractual relationships with its resellers and distributors. To
effectively do so, we must establish and maintain good working relationships
with these resellers and distributors. If we are unsuccessful in establishing
and maintaining relationships with iVoice's existing resellers and
distributors or with new 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. iVoice Technology
does not have any material relationship with any single distributor or
reseller.
The limited scope of results of iVoice Technology's research and development
may limit the ability of iVoice Technology to expand or maintain its sales
and products in a competitive marketplace.
iVoice Technology currently has no plans to engage in research and
development of new products or improvements on existing technologies.
Failure to engage in such research and to develop new technologies or
products or upgrades, enhancements, applications or uses for existing
technologies may place iVoice Technology at a competitive disadvantage in the
marketplace for its products. As no current research and development program
currently exists within iVoice Technology, any future research and
development programs could cause us to incur substantial fixed costs which
may result in such programs being prohibitively expensive to initiate without
substantial additional financing being obtained on favorable terms. Also,
the lack of any current research and development program may result in an
extended launch period for a research and development program at a point in
our business when time is of the essence. These delays could have a material
adverse effect on the amount and timing of future revenues.
20
Such limited research and development may also adversely affect the
ability of iVoice Technology to test any new technologies which may be
established in the future in order to determine if they are 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.
If iVoice Technology 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.
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.
iVoice Technology relies on third party technologies which may not support
iVoice Technology 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.
iVoice Technology faces aggressive competition in many areas of the business,
and the business will be harmed if iVoice Technology 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
21
have. We may not be able to compete effectively with these competitors. Our
competition may engage in research and development to develop new products and
periodically enhance existing products in a timely manner, while we have no
established plan or intention to engage in any manner of research or
development. 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.
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, through the possible sale of
Class A Common Stock on the terms of the non-binding letter of intent to
provide an equity line of credit from Cornell Capital Partners.
However, Cornell Capital Partners is under no obligation to execute any
definitive agreements with iVoice Technology. Furthermore, if definitive
agreements are executed Cornell Capital Partners is under no obligation to
purchase any shares of Class A Common Stock, Cornell Capital Partners will be
obligated to purchase shares of Class A Common Stock only upon the
satisfaction of certain conditions being met by iVoice Technology, including
completing of the Distribution, listing our Class A Common Stock on the
Over-the-Counter Bulletin Board and having the registration statement
relating to such Class A Common Stock declared effective. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." If Cornell Capital Partners does not
execute the definitive agreements or iVoice Technology cannot satisfy the
requirements for Cornell Capital Partners to purchase the Class A Common
Stock under the terms of the definitive documents, we will not have
sufficient capital resources to operate our business, and we have no current
plans to obtain other financing. If we obtain the equity line of credit, we
cannot assure you that we will be able to access such financing in sufficient
amounts or at all when needed. Our inability to obtain sufficient financing
would have an immediate material adverse effect on us, our financial
condition and our business.
Our obligations under the secured promissory notes are secured by
substantially all of our assets.
Our obligations under the secured promissory notes issued to Cornell
Capital Partners are secured by substantially all of our assets. As a result,
if we default under the terms of the secured promissory notes, Cornell Capital
Partners could foreclose its security interest and liquidate all of our
assets. This would cause operations to cease.
Jerome Mahoney, the Chairman of the Board of iVoice Technology, may have
control over the management and direction of iVoice Technology.
Mr. Mahoney will have the right to convert $190,000 of
indebtedness, together with any accrued but unpaid interest on the
indebtedness, into 190,000 shares (plus shares receivable upon conversion of
accrued and unpaid interest on the promissory note) of iVoice Technology
Class B Common Stock, which Class B Stock is convertible into the number of
shares of Class A Common Stock determined by dividing the number of shares of
Class B Common Stock being
22
converted by a 20% discount of the lowest price at which iVoice had ever
issued its Class A Common Stock. Interest accrues on the outstanding principal
balance of the note at a rate of 2% per annum. There is no limitation on the
number of shares of Class A Common Stock we may be required to issue to Mr.
Mahoney upon the conversion of this indebtedness. Each share of Class B Common
Stock has voting rights equal to 100 shares of Class A Common Stock. If Mr.
Mahoney converts his indebtedness into 190,000 shares of Class B Common Stock,
he will have voting rights equal to 19,000,000 shares of Class A Common Stock
and will have control over the management and direction of iVoice Technology,
including the election of directors, appointment of management and approval of
actions requiring the approval of stockholders.
iVoice Technology'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 iVoice Technology, as a business, may fail.
iVoice Technology relies on intellectual property and proprietary rights
which may not remain unique to iVoice Technology.
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.
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.
23
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.
iVoice Technology 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 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.
iVoice Technology may incur increased expenses after the administrative
services agreement with iVoice is terminated.
In connection with its spin-off, iVoice Technology has entered into an
administrative services agreement with iVoice. Under this agreement, iVoice
is providing iVoice Technology with services in such areas as inventory
purchasing, material and inventory control, employee benefits administration,
payroll, financial accounting and reporting, and other areas where iVoice
Technology needs assistance and support. The agreement will continue
following the completion of the Distribution on a month-to-month basis. Upon
termination of the agreement, iVoice Technology 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 iVoice Technology
has been required to pay under the administrative services agreement.
24
Risks Relating to the Distribution
The Distribution may cause the trading price of iVoice common stock to
decline.
Following the Distribution, iVoice expects that its common stock will
continue to be listed and traded on the Over-the-Counter Bulletin Board under
the symbol "IVOC." Following the Distribution and the intended distributions
of the two other new subsidiaries of iVoice to the iVoice stockholders,
iVoice's operating assets will consist of its portfolio of patents and patent
rights, and its future business development operations will consist of
licensing its intellectual property rights. A trading market may not
continue for the shares of iVoice common stock or ever develop for the iVoice
Technology Class A Common Stock. As a result of the Distribution, the trading
price of iVoice common stock immediately following the Distribution may be
substantially lower than the trading price of iVoice common stock immediately
prior to the Distribution.
The combined trading prices of iVoice common stock and the iVoice
Technology Class A Common Stock after the Distribution may be less than the
trading price of iVoice common stock immediately prior to the Distribution.
Further, the combined trading prices of iVoice common stock, the iVoice
Technology Class A Common Stock and the common stock of each of the two other
new companies being distributed to iVoice stockholders after the Distribution
and the two other distributions may be less than the trading price of iVoice
common stock immediately prior to these distributions.
Substantial sales of shares of iVoice Technology Class A Common Stock may
have an adverse impact on the trading price of the iVoice Technology Class A
Common Stock.
After the Distribution, some iVoice Technology stockholders may decide
that they do not want shares in a company consisting of the IVR software
operations, and may sell their iVoice Technology common stock following the
Distribution.
Based on the number of shares of iVoice common stock anticipated to be
outstanding on the record date and the number of shares of iVoice common
stock anticipated to be outstanding on the Record Date and that will actually
participate in the Distribution, iVoice will distribute to iVoice
stockholders a total of approximately 10,000,000 shares of iVoice Technology
Class A Common Stock. Under the United States federal securities laws,
substantially all of these shares may be resold immediately in the public
market, except for (1) shares of iVoice Technology Class A Common Stock held
by affiliates of iVoice Technology or (2) shares which are issued in respect
of restricted shares of iVoice common stock. iVoice Technology cannot predict
whether stockholders will resell large numbers of shares of iVoice Technology
Class A Common Stock in the public market following the Distribution or how
quickly they may resell these shares of iVoice Technology Class A Common
Stock. If iVoice Technology stockholders sell large numbers of shares of
iVoice Technology Class A Common Stock over a short period of time, or if
investors anticipate large sales of shares of iVoice Technology Class A
Common Stock over a short period of time, this could adversely affect the
trading price of the iVoice Technology Class A Common Stock.
25
There has not been any prior trading market for the iVoice Technology Class A
Common Stock and a trading market for the iVoice Technology Class A Common
Stock may not develop.
There is no current trading market for the iVoice Technology Class A
Common Stock, although a when-issued trading market may develop prior to
completion of the Distribution. We anticipate that the iVoice Technology
Class A Common Stock will be listed on the Over-the-Counter Bulletin Board
under the proposed symbol "___."
Shares of iVoice Technology Class A Common Stock may not be actively
traded or the prices at which the iVoice Technology Class A Common Stock will
trade may be low. Some of the iVoice stockholders who receive iVoice
Technology Class A Common Stock may decide that they do not want shares in a
company consisting of an IVR software business, and may sell their shares of
iVoice Technology Class A Common Stock following the Distribution. This may
delay the development of an orderly trading market in iVoice Technology Class
A Common Stock for a period of time following the Distribution. Until the
shares of iVoice Technology Class A Common Stock are fully distributed and an
orderly market develops, the prices at which the iVoice Technology Class A
Common Stock trade may fluctuate significantly and may be lower than the
price that would be expected for a fully distributed issue. Prices for iVoice
Technology Class A Common Stock will be determined in the marketplace and may
be influenced by many factors, including the depth and liquidity of the
market for the shares, iVoice Technology's results of operations, what
investors think of iVoice Technology and the IVR software industry, changes
in economic conditions in the IVR software industry, and general economic and
market conditions. Market fluctuations could have a material adverse impact
on the trading price of the iVoice Technology Class A Common Stock.
Our common stock is deemed to be "penny Stock" which may make it more
difficult for investors to sell their shares due to suitability requirements.
Our common stock is deemed to be "penny stock" as that term is defined
in Rule 3A51-1 promulgated under the Securities Exchange Act of 1934. Penny
stocks are stock:
o with a price of less than $5.00 per share;
o that are not traded on a "recognized" national exchange;
o whose prices are not quoted on the Nasdaq automated quotation
system (Nasdaq listed stock must still have a price of not less
than $5.00 per share); or
o in issuers with net tangible assets of less than $2.0 million (if
the issuer has been in continuous operation for at least three
years) or $5.0 million (if in continuous operation for less than
three years), or with average revenues of less than $6.0 million
for the last three years.
Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether in investment in a
penny stock is a suitable investor for a prospective
26
investor. These requirements may reduce the potential market for our common
stock by reducing the number of potential investors. This may make it more
difficult for investors in our common stock to sell shares to third parties or
to otherwise dispose of them. This could cause our stock price to decline.
If we are able to sell shares of our Class A Common Stock to Cornell Capital
Partners, stockholders would experience significant dilution from such sale
of shares.
Under the terms of the non-binding letter of intent received by iVoice
Technology, if we executed definitive agreements and satisfy the conditions
therein, iVoice Technology may issue and sell to Cornell Capital Partners
shares of Class A Common Stock for a total purchase price of up to $10.0
million. As stated above under " -- We may not be able to access sufficient
funds when needed," the commitment provides that our ability to obtain funds
under any definitive agreement will be subject to the satisfaction of
certain conditions that we may not be able to satisfy. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." If we consummate the
transactions contemplated by the commitment and are able to sell such shares
of Class A Common Stock to Cornell Capital Partners, such sale of shares 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, the
price at which we sell such shares to Cornell Capital Partners could
decrease, and we would need to issue a greater number of shares of Class A
Common Stock. If our stock price is lower, then iVoice Technology
stockholders would experience greater dilution.
The Distribution of iVoice Technology Class A Common Stock may result in tax
liability to you.
You will be required to pay income tax on the value of your shares of
iVoice Technology Class A Common Stock received to the extent of the current
or accumulated earnings and profits of iVoice. Any excess will be treated as
a tax-free return of capital and thereafter as capital gain. You are advised
to consult your own tax advisor as to the specific tax consequences of the
Distribution.
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
27
working capital. These statements may be found under "Management's Discussion
and Analysis of Financial Conditions and Results of Operations" and "Our
Business," as well as in this prospectus generally. Actual events or results
may differ materially from those discussed in forward-looking statements as a
result of various factors, including, without limitation, the risks outlined
under "Risk Factors" and matters described in this prospectus generally. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this prospectus will in fact occur.
USE OF PROCEEDS
iVoice Technology will receive no proceeds from the distribution of
securities in this Distribution.
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.
Overview
iVoice Technology has traditionally operated as a non-reporting
component of iVoice and accordingly the financial statements discussed below
have been derived from the consolidated financial statements and accounting
records of iVoice, and reflect significant assumptions and allocations.
These financial statements do not necessarily reflect the financial position,
results of operations and cash flows of iVoice Technology had it been a
stand-alone entity.
iVoice Technology seeks to leverage the value of underutilized
developed technology and believes that the transition to an independent
company will provide iVoice Technology with greater access to capital. This
should provide needed financial resources to potentially penetrate the market
and distribute the product. As such, iVoice Technology's business will be
formed from the contribution by iVoice 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 a reorganization of
iVoice, immediately prior to the Distribution, iVoice will transfer to iVoice
Technology its IVR software business and related liabilities, including all
intellectual property of iVoice relating to the IVR software business . The
board and management of iVoice has elected not to transfer any part of its
working cash balance of iVoice to iVoice Technology. Based upon the current
intention of iVoice Technology not to conduct any research and development or
hire additional employees and instead focus on the sale of the existing IVR
technology, the board has determined that, on balance, iVoice Technology has
the ability to satisfy its working capital needs as a whole. The board and
management of iVoice also determined that iVoice Technology
28
has the ability to obtain financing to satisfy any addition working capital
needs as a stand-alone company.
The emerging nature of the interactive voice response industry and
unforeseen expenses from the separation from iVoice, make it difficult to
assess the future growth of iVoice Technology.
The IVR software business has operated at a loss in the past for
iVoice, and as an independent company such losses may continue or increase.
Additionally, iVoice Technology's business has relied on iVoice for
financial, administrative and managerial expertise in conducting its
operations. Following the Distribution, iVoice Technology will develop and
maintain its own credit and banking relationships and perform its own
financial and investor relations functions. iVoice Technology 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 Technology has received a going concern opinion from its
auditors. Its continuation as a going concern is dependent upon obtaining the
financing necessary to operate its business. Our financing needs are expected
to be provided, in large part, from the sale of Class A Common Stock to
Cornell Capital Partners pursuant to the terms of definitive documents
executed pursuant to the non-binding letter of intent iVoice Technology has
received from Cornell Capital. Such Class A Common Stock would then be sold to
Cornell Capital Partners at the discretion of the Company to fund working
capital needs. However, Cornell Capital Partners is under no obligation to
execute any definitive agreements with iVoice Technology. Furthermore, Cornell
Capital Partners is under no obligation to purchase any shares of Class A
Common Stock until the execution of the definitive agreements, following which
Cornell Capital Partners will be obligated to purchase shares of Class A
Common Stock only upon the satisfaction of certain conditions being met by
iVoice Technology, including completing of the Distribution, listing our Class
A Common Stock on the Over-the-Counter Bulletin Board and having the
registration statement relating to the Standby Equity Distribution Agreement
declared effective. See "Liquidity and Capital Resources." If Cornell Capital
Partners does not execute the definitive agreements or iVoice Technology
cannot satisfy the requirements for Cornell Capital Partners to purchase the
Class A Common Stock under the terms of any definitive documents, we will not
be able to obtain sufficient capital resources to operate our business, and we
have no current plans to obtain other financing. We cannot assure you that we
will be able to access any financing in sufficient amounts or at all when
needed. Our inability to obtain sufficient financing would have an immediate
material adverse effect on us, our financial condition and our business.
Separation from iVoice
iVoice Technology was incorporated under the laws of the State of New
Jersey on November 10, 2004, as a wholly-owned subsidiary of iVoice. iVoice
Technology will have no material assets or activities until the contribution
of the IVR software business described in this prospectus. After the
Distribution, iVoice Technology will be an independent public company, with
iVoice having no continuing ownership interest in iVoice Technology.
29
On November 11, 2004, iVoice Technology 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, Inc., a Nevada corporation and affiliate of iVoice
Technology. These agreements, contracts, understandings and other
instruments consisted of the documentation relating to the issuance of the
secured convertible debentures and the equity line of credit, the employment
agreements with Messrs. Mahoney and Seidler and the administrative services
agreement. Since this assignment, iVoice Technology Nevada has no operating
business, assets or known liabilities, and is currently in the process of
being dissolved. When we refer to or describe any agreement, contract or
other written instrument of iVoice Technology in this prospectus, we are
referring to an agreement, contract or other written instrument that had been
entered into by iVoice Technology Nevada and assigned to iVoice Technology.
iVoice Technology'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 iVoice Technology from
iVoice as part of the Distribution. The financial information included in
this prospectus, however, is not necessarily indicative of what iVoice
Technology'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.
iVoice Technology will operate the IVR software business. This business
has historically operated as a non-reportable segment of iVoice. Even if
iVoice Technology was to operate the IVR 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
IVR. iVoice Technology intends to use a portion of the proceeds from any
financing arrangements, on sales and marketing efforts for IVR. 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 IVR,
iVoice Technology'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, iVoice Technology will be allocated the iVoice
corporate assets, liabilities and expenses related to the IVR software
business, including the IVR software and all intellectual property of iVoice
relating to the IVR software business and the assignment of iVoice's existing
agreements and arrangements with dealers and resellers. This allocation of
assets, liabilities and expenses will be based on an estimate of the
proportion of such amounts allocable to iVoice Technology, utilizing such
factors as total revenues, employee headcount and other relevant factors.
iVoice Technology believes that these allocations have been made on a
reasonable basis. iVoice Technology believes that all costs allocated to
iVoice Technology are a reasonable representation of the costs that iVoice
Technology would have incurred if iVoice Technology had performed these
functions as a stand-alone company.
In conjunction with the separation of the IVR software business from
iVoice, iVoice Technology entered into an administrative services agreement
with iVoice for the provision of certain services by iVoice to iVoice
Technology following the Distribution. This agreement will
30
continue on a month to month basis until iVoice Technology has found
replacement services for those services being provided by iVoice or can
provide these services for itself. See "Relationship Between iVoice and iVoice
Technology Following the Distribution" for a description of the administrative
services agreement. Following termination of the administrative services
agreement, we expect that iVoice Technology will operate on a completely
stand-alone basis from iVoice and there will be no business or operating
relationship between iVoice and iVoice Technology. iVoice Technology has no
current intention to terminate the administrative services agreement, seek
replacement services or provide services for itself in the near future.
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 Year Ended December 31, 2004 as Compared
with the Year Ended December 31, 2003
All revenues reported by iVoice Technology are derived from the sale or
license of our interactive voice response software products, which enable a
caller to obtain requested information in voice form from a local or
non-local database. Total revenues for the year ended December 31, 2004
and December 31, 2003 were $239,114 and $303,756 respectively. The
$64,642 decrease in revenue between the year ended December 31, 2004 and the
year ended December 31, 2003 was the result of fewer units being sold in 2004
as compared to 2003, reflecting a weaker demand for the product offset by
increases in other revenue. The IVR business has only operated as a division
of iVoice and has never operated on a stand-alone basis. The low sales volume
of the IVR business is attributable to the minimal resources made available
by iVoice for the sales and marketing of the interactive voice response
software products. Management feels that the sales of the interactive voice
response software products may increase if greater financial and operational
resources were made available for the sales and marketing of the products.
If iVoice Technology can obtain funds under the proposed equity line of
credit, iVoice Technology will be able to devote more resources to operating
the business. See "Liquidity and Capital Resources."
Gross margin for the year ended December 31, 2004 and December 31,
2003 was $166,244 (69.5%) and $180,665 (59.5%), respectively. The
increase in gross margin is a result of a change in the products and services
mix being sold. At times, contracts require iVoice Technology to provide
more service in a sale than might otherwise be typical, resulting in a change
in gross margin. In the year ending December 31, 2004, iVoice Technology
provided more consulting and maintenance services, which have higher gross
margins than the sale of software products.
Total operating expenses decreased to $863,456 for the year ended
December 31, 2004 from $965,341 for the year ended December 31, 2003,
a decrease of $101,885 or 10.6%. This decrease in the current year is
primarily attributable to reductions in research and development and
amortization expenses offset by increases in accrued professional and
consulting fees in connection with financing the operation of the business
and the anticipated registration of shares
31
of iVoice Technology. The reductions in research and development expense
reflect a decrease in the number of employees performing research and
development functions.
As of December 31, 2004, iVoice Technology had five employees, four
of whom are full-time and one of whom is part-time.
The loss from operations for the year ended December 31, 2004 was
$(697,212) compared to $(784,676) for the year ended December 31,
2003, a decrease of $87,464. As discussed above, this decrease was
primarily attributable to reductions in research and development and
amortization expenses offset by increases in accrued professional and
consulting fees incurred in connection with financing the operation of the
business and the anticipated registration of shares of iVoice Technology.
Other expenses for the year ended December 31, 2004 were $780,915
as compared to $346,744 for the year ended December 31, 2003, an increase
of $434,171. During the year ended December 31, 2004, iVoice Technology
recorded $882,042 of interest and financing costs (primarily from debt
conversion discounts ($140,000) on the issuance of $560,000 of secured
convertible debentures). A significant portion of iVoice, Inc.'s interest
expense was allocated to iVoice Technology in 2004 and 2003 as a result of
the funding for the loss from operations. Other income primarily consists of
$57,237 related to the write-off of certain accounts payable and $52,337 in
interest income. In future periods, iVoice Technology will incur additional
interest expense and additional fees related to the borrowings from the
promissory notes issued in replacement of the convertible debentures and, if
the equity line of credit is consummated, the anticipated sale of shares to
fund working capital needs. There is no assurance that iVoice Technology
will enter into the equity line of credit or, if it does obtain such line of
credit, be able to raise funds by selling its common stock.
Liquidity and Capital Resources
To date, iVoice Technology 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.
If we execute definitive documentation and satisfy necessary
conditions under the equity line of credit described in our non-binding
letter of commitment with Cornell Capital Partners, we intend to sell shares
of Class A Common Stock as soon as possible 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 such sales for
iVoice Technology to both sustain its business operations and to make payment
to each of Mr. Mahoney and Mr. Seidler, Mr. Mahoney has agreed to accept
shares of iVoice Technology Class B Common Stock in satisfaction of iVoice
Technology's obligations under his employment agreement.
In August 2004, the Company entered into an agreement with Sloan
Securities Corporation to 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 covering the
32
Distribution, a number of shares of Class A Common Stock to 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 covering the Distribution. On
August 12 and November 19, 2004, iVoice Technology issued an aggregate of
$560,000 in secured convertible debentures, with interest payable at 5% per
annum, to Cornell Capital Partners. On February 28, 2005, iVoice Technology's
obligations under the secured convertible debentures were terminated and
replaced with secured promissory notes of the same principal amount, which
notes accrue interest at rate of 12% per annum, but are not convertible into
any equity security of iVoice Technology. On February 28, 2005, iVoice
Technology borrowed an additional $140,000 pursuant to an additional
promissory note payable to Cornell Capital Partners. In connection with the
issuances of the secured convertible debentures, iVoice Technology paid a fee
to Cornell Capital Partners equal to 10% of the aggregate principal amount of
the debentures. When the secured convertible debentures were terminated,
iVoice Technology received a credit for fees that would otherwise have been
payable upon the issuance of the $560,000 in replacement notes. iVoice
Technology paid Cornell Capital a fee of $14,000 in connection with its
$140,000 borrowing. iVoice Technology's obligations under the secured
promissory notes issued to Cornell Capital Partners are secured by a first
priority security interest in substantially all of its assets. iVoice has also
guaranteed the payment of all amounts payable by iVoice Technology pursuant to
the secured promissory notes.
Effective August 12, 2004, iVoice Technology entered into a Standby
Equity Distribution Agreement with Cornell Capital Partners to obtain an
equity line of credit. On February 28, 2005, iVoice Technology entered into
a Termination Agreement with Cornell Capital Partners, pursuant to which the
equity line transaction was terminated. On March 9, 2005, iVoice Technology
received a non-binding letter of intent from Cornell Capital whereby Cornell
Capital offered, subject to satisfaction of certain conditions, to purchase
shares of iVoice Technology's common stock upon the terms set forth in the
non-binding letter of intent and the definitive documentation to be executed
after satisfaction of those closing conditions. Pursuant to the terms of the
non-binding letter of intent, if the definitive documentation is executed,
iVoice Technology may, from time to time, issue and sell to Cornell Capital
Partners Class A Common Stock for a total purchase price of up to $10.0
million. The purchase price for the shares would 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 iVoice
Technology 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 would also be payable at the time of funding. In
addition, Cornell Capital Partners would 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 a registration statement in respect of the
shares to be distributed pursuant to the equity line of credit becomes
effective.
However, Cornell Capital Partners is under no obligation to execute
any definitive agreements with iVoice Technology. Furthermore, Cornell
Capital Partners is under no obligation to purchase any shares of Class A
Common Stock until the execution of the definitive agreements, following
which Cornell Capital Partners will be obligated to purchase shares of Class
A Common Stock only upon the satisfaction of certain conditions being met by
iVoice Technology, including completing of the Distribution, listing our
Class A Common Stock on the Over-the-Counter Bulletin Board and having the
registration statement relating to the Standby Equity Distribution Agreement
declared effective. If Cornell Capital Partners does not execute
33
definitive agreements or iVoice Technology cannot satisfy the requirements for
Cornell Capital Partners to purchase the Class A Common Stock under the terms
of the definitive documents, we will not be able to obtain sufficient capital
resources to operate our business, and we have no current plans to obtain
other financing. We cannot assure you that we will be able to access any
financing in sufficient amounts or at all when needed. Our inability to obtain
sufficient financing would have an immediate material adverse effect on us,
our financial condition and our business. Management believes that its
going-forward expenses for the twelve months following the distribution will
be approximately $431,000, which includes salaries for iVoice Technology's
officers and employees, and assuming iVoice Technologies has no revenues in
such period, iVoice Technology expects to incur liabilities, for the year
ending December 31, 2005 of approximately $432,000. Management has no current
plan to hire additional employees, perform additional research and development
or purchase additional equipment or services beyond the requirements of the
administrative services agreement with iVoice. Management believes that the
deficiency between the Company's expenses and net revenues will be more than
covered by the cash available from the proceeds of the secured promissory
notes. If there are additional deficiencies that are in excess of the proceeds
of the secured promissory notes, and iVoice Technology is unable to obtain
funds from the sale of Class A Common Stock to Cornell Capital Partners,
management believes that iVoice Technology can limit its operations, defer
payments to management and maintain its business at nominal levels until it
can identify alternative sources of capital.
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 iVoice Technology will enter into the equity line
of credit or raise sufficient funds from such financing arrangements, or that
iVoice Technology 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 iVoice Technology's financing is dependent upon.
Upon the date of this prospectus, iVoice Technology will assume an
aggregate of $190,000 in liabilities from iVoice and iVoice will assign to
iVoice Technology assets having an aggregate book value of $10,000. See
"Selected Historical and Pro Forma Financial Information" contained in the
financial statements of iVoice Technology at the back of this prospectus.
iVoice Technology 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.
iVoice Technology 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 that had been
loaned to iVoice in July 2000 that were used to develop the IVR software
business. The amount of $190,000 includes approximately $24,000 for interest
on the original loan from Jerry Mahoney to iVoice. iVoice Technology, 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 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
34
iVoice Technology, par value $0.01, for each dollar owed, (ii) the number of
shares of Class A Common Stock of iVoice Technology 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.
iVoice Technology has yet to record this liability on its financial
statements, as the promissory note will not be assumed by iVoice Technology
until the effectiveness of the registration statement.
Mr. Mahoney has agreed to forego receiving any shares of iVoice
Technology Class A Common Stock or iVoice Technology 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.
iVoice Technology has entered into employment contracts with its
Non-Executive Chairman of the Board of Directors and its President and Chief
Executive Officer. As consideration, iVoice Technology 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. Mr. Mahoney will also be
entitled to incentive compensation based upon acquisitions completed by
iVoice Technology. 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 iVoice Technology in each of the five
prior calendar years (or shorter period during which Mr. Mahoney shall have
been employed by iVoice Technology) should his employment be terminated
following a change in control, as defined in the employment agreement.
iVoice Technology entered into an employment agreement as of August 1,
2004 with Mr. Seidler. Mr. Seidler will serve as iVoice Technology's
President and Chief Executive Officer for a term of one year. As
consideration, iVoice Technology agreed to pay Mr. Seidler a base salary of
$85,000 during the term. iVoice Technology also agreed to pay Mr. Seidler
incentive compensation based on the amount of total revenues collected by the
Company. Mr. Seidler will also be entitled to additional incentive
compensation based upon acquisitions completed by iVoice Technology.
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.
35
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 IVR 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 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 direct customers (as opposed to
resellers and dealers) the right to refund any portion of its license fees.
The Company accepts Visa and MasterCard as well as company checks.
36
Customers may license the Company's products through our telesales
organization and through promotions or reseller agreements with independent
third parties. iVoice Technology only permits returns from authorized
dealers and resellers of unused inventory, subject to the consent of the
Company and a twenty-five percent restocking fee. End users who purchaser
products directly from iVoice Technology may not return such products to
iVoice Technology under any circumstances. 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 provide for a limited contractual right of return
and do not provide for 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 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
37
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.
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.
OUR BUSINESS
Background
iVoice Technology, 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,
38
and marketing of specialized telecommunication equipment. As of December 31,
2004, the Company employed four full-time employees and one part-time
employee. Following the Distribution, iVoice Technology may seek to expand its
operations through additional sales and marketing activity and the acquisition
of additional businesses. Any potential acquired additional businesses may be
outside the current field of operations of iVoice Technology. iVoice
Technology may not be able to identify, successfully integrate or profitably
manage any such businesses or operations. Currently, iVoice Technology has no
plans, proposals or arrangements, either orally or in writing, regarding any
proposed acquisitions and is not considering any potential acquisitions.
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 IVR, an application generator that allows full
connectivity to many databases, including Microsoft Access, Microsoft Excel,
Microsoft Fox Pro, DBase, Btrieve, and Paradox, or to standard text files.
IVR can be used to read information from, and write information to,
databases, as well as query databases and return information. The IVR
software is sold as an application generator that gives the end user the
ability to develop their own customized IVR application or as a customized
turnkey system. IVR performs over 40 different customizable commands.
Examples of IVR range from simply selecting announcements from a list of
options stored in the computer (also known as audio text) to more complex
interactive exchanges such as querying a database for information.
Properties can be set up for each command, as if the commands were
being executed manually. IVR links a phone system to a database to provide
customers with 24-hour immediate access to account information, via
telephone. With IVR, polished IVR applications are quick and easy to
install. No knowledge of computer programming and minimal database knowledge
is needed. IVR will execute any created application when a caller dials in.
Using DTMF (touch-tone telephones) or speech activation allows callers to
interact with the system. Advanced database technology permits reading,
writing, appending, searching and seeking database information. A user can
record product inventory, set up games, keep a record of patients or
customers, and perform other applications. The advanced, innovative
technology, backed by a simple, easy-to-use drag-and-drop interface, makes
writing applications simple.
The IVR software also incorporates an Internet access tool, which can
be either connected to the IVR system or run as a standalone. This IVR
system also has a graphical user interface and provides for Internet access
to the system. Once logged onto the Internet, a user can gain access to the
IVR system by clicking on a hypertext link for the user's browser. Upon
entering the IVR system, the response prompts are in text form rather than
voice form. The user can enter selections and get information by clicking on
icons or choosing items from menus. Some of the Internet applications
available are order processing and transactions, database integration,
questions and queries, account status, delivery information, funds transfer,
and claims information.
39
We are in the process of rolling out Version 3.0 of the IVR software,
which incorporates certain upgrades designed to improve stability and
performance of the software. Only minor changes are being made to the user
interface, and there are no material new features that are readily apparent
to the end user. We currently have no plans to engage in future research and
development or to launch any additional versions of the IVR software or other
products.
Distribution
As a product line of iVoice, Inc., IVR has produced sales revenues for
the past three fiscal years. In the past, iVoice devoted limited resources to
the marketing of IVR. 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.
iVoice Technology will market its products directly, with a sales
force, and through more than 100 domestic and international re-sellers.
iVoice Technology 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 IVR 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 IVR that differentiates it from competing products. The markets in
which we compete are the IVR enterprise market, in which the customers are
generally direct end users and smaller clients with limited capacity
requirements and revenue per contract, and the IVR enhanced services market,
which consists primarily of service providers and other large organizations
who require a greater level of capacity and features.
The IVR enterprise market is fragmented and highly competitive. The
Company's major competitors in this market are Avaya Inc., IBM Corporation,
Nortel Networks Limited, Aspect Communications Corporation and Security First
Corp. (formerly Edify Corporation). The principal competitive factors in this
market include breadth and depth of solution, product features, product
scalability and reliability, client services, the ability to implement
solutions, and the creation of a referenceable customer base. 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 is evolving rapidly, and the
Company anticipates intensified competition not only from traditional IVR
vendors but also from emerging vendors with non-traditional technologies and
solutions.
Competition in the IVR enhanced network services market ranges from
large telecommunication suppliers offering turnkey, multi-application
solutions to "niche" companies that specialize in a particular enhanced
service such as prepaid or voicemail. The Company's
40
primary competitors in this market are suppliers such as Comverse Technology,
Inc., Unisys Corporation and Lucent Technologies Inc. that provide a suite of
enhanced services. Smaller niche players that compete with the Company in
various geographies and/or products include GlenAyre Electronics Inc. The
Company anticipates that competition will continue from existing and new
competitors, some of which have greater financial, technological and marketing
resources and greater market share than the Company.
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.
As is customary in the telecommunications industry, the Company
produces its products from readily available components purchased from a
variety of manufacturers. Printed circuit boards and housings are contracted
for manufacture according to Company specifications from among many available
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 the Company's present business is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of the government.
Product Development
We are in the process of rolling out Version 3.0 of the IVR software,
which incorporates certain upgrades designed to improve stability and
performance of the software. Only minor changes are being made to the user
interface, and there are no material new features that are readily apparent
to the end user. We currently have no plans to engage in future research and
development or to launch any additional versions of the IVR software or other
products.
iVoice Technology 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.
Business Development
Business development objectives at iVoice Technology will be to
focus on two primary functions as listed below:
1. Negotiate and secure strategic alliances related to our IVR
products; and
2. Negotiate, secure and manage Original Equipment Manufacturer
(OEM) and reseller accounts.
41
Strategic Alliances
iVoice Technology's business development efforts will seek to engage
and secure strategic alliances 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. By
entering into strategic alliances with companies that offer
telecommunications devices or services to businesses or professional
organizations whereby appointment setting and scheduling are of vital
importance, we will seek to obtain access to an installed customer base as
well as new sales opportunities of our products.
Manage OEM and Reseller Accounts
While we have traditionally sold our product primarily on a direct
basis, with our existing officers and employees fulfilling orders received by
telephone and the internet, we will seek to obtain new OEM and reseller
relationships that will serve as an extension of our sales team which has yet
to be hired. We currently have no strategic alliances with any OEMs or
resellers other than the existing relationship between iVoice's resellers and
iVoice that are being transferred to us by iVoice for our benefit, nor do we
have any current material negotiations with any OEM or other reseller.
Ideally, an OEM agreement, which provides distribution of our software
product along with the manufacturers own telecommunication equipment, could
produce the most widespread distribution and acceptance of our product at
minimal distribution costs. Many of the OEMs have extensive and established
reseller channels that could provide an avenue of distribution for our
software. To effectively manage these accounts, we will need to provide these
resellers with product literature, pricing, and sales leads as well as
technical training and support.
Sales and Marketing
The IVR enterprise market is characterized by a business environment
that has goals to improve customer communication and personalization as well
as reduce the costs of customer contact, a historically time-and-money
intensive operation. Furthermore, consumers are increasingly taking charge of
this important interaction between enterprise and consumer; deciding where,
when and how they want this communication. To address this new business
paradigm, enterprises are increasingly applying innovative wireless, speech
and web technologies to leverage existing customer service infrastructures in
the creation of interactive, self-directed service applications. These new
applications are designed to put the customer in control of the delivery of
the information while allowing the enterprise control of the data. This
serves to address the enterprise's objectives of improving the customer
experience and reducing operating costs.
The Company's strengths are reflected in the IVR enterprise market as
part of a suite of offerings that can be delivered as components or as part
of a total, turnkey solution. These IVR solutions use the latest in
technology to allow enterprises to automate increasingly complex
interactions, enabling businesses to provide quick and timely communications
with customers and business partners. Such technology enables enterprises to
communicate with their customers through voice, web, e-mail, facsimile and
other forms of communication on a variety of devices, including telephones,
PCs, mobile phones and personal digital assistants ("PDAs").
42
iVoice Technology will market its products directly and through more
than 100 domestic and international re-sellers. The Company 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.
Intellectual Property Rights
We regard some features of our IVR 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. We are currently reviewing our technologies and processes
with our patent attorneys to determine if it is possible to obtain any
patents or statutory copyrights on any of our proprietary technology which we
believe to be material to our future success. 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 December 31, 2004, we had four full-time employees and one
part-time employee. We have entered into employment agreements with our
President and Chief Executive Officer
43
(Mr. Seidler) and our Chairman of the Board (Mr. Mahoney). Mr. Mahoney will
not provide services to iVoice Technology on a full-time basis; Mr. Seidler
will devote substantially all of his time to iVoice Technology. Many services
that would be provided by employees are currently being provided to iVoice
Technology by iVoice under the administrative services agreement. We do not
currently have any plans to hire additional personnel, and we expect our
current officers and employees to continue to fulfill orders received by
telephone and the internet for iVoice Technology products. However, if iVoice
Technology can obtain funds under the equity line of credit, iVoice Technology
will be able to devote more resources to expanding its personnel. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Within the industry, competition for key technical and management
personnel is intense, and there can be no assurance that we can retain our
future key technical and managerial employees or that, should we seek to add
or replace key personnel, 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.
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
iVoice Technology is not party to any material legal proceedings, nor
to the knowledge of iVoice Technology, 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. Following the
Distribution, we intend to continue subleasing such space pursuant to the
administrative services agreement and anticipate no relocation of our offices
in the foreseeable future.
IVOICE TECHNOLOGY'S MANAGEMENT
iVoice Technology 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 iVoice Technology 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 iVoice Technology following the Distribution.
44
Position with Director Term
Name Age iVoice Technology, Inc. since Expires
- ----------------- --- --------------------------------- -------- -------
Jerome R. Mahoney 43 Non-Executive Chairman of the Board 2004 2005
Arie Seidler 63 Director, President and Chief
Executive Officer 2004 2005
Jerome R. Mahoney. Mr. Mahoney is iVoice Technology'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 Deep Field Technologies, Inc. and SpeechSwitch, Inc. and has
been a director of Deep Field Technologies and SpeechSwitch since August
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 iVoice
merged on May 21, 1999. Mr. Mahoney received a B.A. in finance and marketing
from Fairleigh Dickinson University, Rutherford, N.J. in 1983.
Arie Seidler. Mr. Seidler has been iVoice Technology's President and
Chief Executive Officer and a director since August 1, 2004. In 1994, Mr.
Seidler founded Vertical Solutions, Inc., a management consulting and
business advisory services firm, and was Chief Executive Officer of Vertical
Solutions from 1994 to 2004. In 1979, Mr. Seidler founded The Wheatley Group
and served as Chief Executive Officer of The Wheatley Group until 1990. From
1974 to 1979, Mr. Seidler was a management consultant with KPMG Peat Marwick.
Compensation of Executive Officers
No officers or directors of iVoice Technology received any compensation
for services to iVoice Technology during any of the last three fiscal years.
Employment Agreements
Jerome Mahoney
iVoice Technology entered into a five-year employment agreement with
Mr. Mahoney as of August 1, 2004. Mr. Mahoney will serve as iVoice
Technology's Non-Executive Chairman of the Board for a term of five years.
As consideration, iVoice Technology 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. iVoice Technology 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 iVoice
Technology 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.
45
In the event Mr. Mahoney's employment agreement is terminated by iVoice
Technology for cause or due to Mr. Mahoney's disability or retirement, iVoice
Technology will pay him his full base salary for five years from the date of
termination at the highest salary level under the agreement. Under his
agreement, "cause" means (1) the willful and continued failure of Mr. Mahoney
to substantially perform his duties to the Company after written demand for
such performance is delivered to Mr. Mahoney by the Company's board of
directors, (2) the willful engaging by Mr. Mahoney in conduct that is
demonstrably and materially injurious to the Company, monetarily or
otherwise, (3) the conviction of Mr. Mahoney of a felony, which is limited
solely to a crime that relates to the business operations of the Company or
that results in his being unable to substantially carry out his duties as set
forth in the agreement, or (4) the commission of any act by Mr. Mahoney
against the Company that may be construed as embezzlement, larceny, and/or
grand larceny. However, Mr. Mahoney will not be deemed to have been
terminated for cause unless the board of directors determines, by a vote of
at least 75% of the members of the board of directors that Mr. Mahoney was
guilty of conduct described in items (1), (2) or (4) above. As the board of
directors consists solely of Mr. Mahoney and Mr. Seidler, and Mr. Mahoney
would be required to recuse himself from any discussions or vote regarding
any potential termination, Mr. Seidler would be required to determine, in
accordance with his fiduciary duties as a board member, if Mr. Mahoney should
be terminated for cause.
In the event Mr. Mahoney's employment agreement is terminated due to
Mr. Mahoney's death, iVoice Technology will pay to his estate his full base
salary for eight years from the date of termination at the highest salary
level under the agreement. In the event Mr. Mahoney's employment agreement is
terminated by iVoice Technology within three years following a change in
control, as defined in the employment agreement, or by Mr. Mahoney for good
reason within three years following a change in control, Mr. Mahoney will be
entitled to receive a severance payment equal to three hundred percent
(300%), less $100, of his gross income for services rendered to iVoice
Technology in each of the five prior calendar years (or shorter period during
which Mr. Mahoney shall have been employed by iVoice Technology). Under his
employment agreement, "good reason" means, among other things, (1) any
limitation on Mr. Mahoney's powers as Chairman of the Board, (2) a reduction
in compensation, (3) a relocation of the Company outside New Jersey or (4)
the failure of the Company to make any required payments under the
agreement. The employment agreement restricts Mr. Mahoney from competing
with iVoice Technology 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.
Arie Seidler
iVoice Technology entered into an employment agreement with Mr. Seidler
as of August 1, 2004. Mr. Seidler will serve as iVoice Technology's
President and Chief Executive Officer for a term of one year. As
consideration, iVoice Technology agreed to pay Mr. Seidler a base salary of
$85,000 during the term. In addition, iVoice Technology agreed to pay Mr.
Seidler incentive compensation based on the amount of total revenues
collected by iVoice Technology. If iVoice Technology records and collects
total revenues in an amount greater than $300,000 but less than $2,000,000,
Mr. Seidler will receive a bonus equal to 7.5% of the total revenues of the
Company. If iVoice Technology records and collects total revenues in an
amount greater than $2,000,000, in addition to the 7.5% bonus, Mr. Seidler
will also receive a
46
bonus equal to 3.5% of the total revenues of the Company in excess of
$2,000,000. However, if the Company's pre-tax profit margin for the year is
less than 35%, Mr. Seidler's aggregate bonus will be reduced by 35%. iVoice
Technology also agreed to pay Mr. Seidler a bonus for each merger or
acquisition brought to the Company exclusively by Mr. Seidler and completed by
the Company equal to six percent (6%) of the gross consideration paid or
received by iVoice Technology, net of any debt or other liabilities assumed by
the Company, in a merger or acquisition completed by the Company during the
term of the agreement. This merger or acquisition bonus would be payable in
the form of cash, debt or shares of Class A Common Stock at the option of
iVoice Technology.
In the event Mr. Seidler's employment agreement is terminated due to
his death or disability or by iVoice Technology with or without cause, Mr.
Seidler will receive the portion of his salary earned up until the date of
his termination. Under his agreement, "cause" means (1) any material breach
of the agreement by Mr. Seidler, (2) Mr. Seidler's failure to perform his
duties under the employment agreement to the reasonable satisfaction of the
board of directors, (3) any material act, or material failure to act, by Mr.
Seidler in bad faith and to the material detriment of the Company, (4)
commission of a material act involving moral turpitude, dishonesty, unethical
business conduct, or any other conduct which significantly impairs the
reputation of the Company, its subsidiaries or affiliates or (5) the
conviction of Mr. Seidler of a felony. The employment agreement restricts
Mr. Seidler from competing with iVoice Technology during the term of the
agreement and for eighteen months after he is no longer employed by the
Company.
Equity Compensation Plans
There are no existing equity compensation plans and iVoice Technology
has no current plans, proposals or arrangements to establish, or provide any
awards under, any such equity compensation plans.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 12 and November 19, 2004, iVoice Technology issued an
aggregate of $560,000 in secured convertible debentures, with interest
payable at 5% per annum, to Cornell Capital Partners L.P. The debentures
were intended to be convertible at the option of the holder only after our
Class A Common Stock has commenced trading on the Over-the-Counter Bulletin
Board. On February 28, 2005, iVoice Technology's obligations under the
secured convertible debentures were terminated and replaced with secured
promissory notes of the same principal amount, which notes accrue interest at
rate of 12% per annum, but are not convertible into any equity security of
iVoice Technology. On February 28, 2005, iVoice Technology borrowed an
additional $140,000 pursuant to an additional promissory note payable to
Cornell Capital Partners. In connection with the issuances of the secured
convertible debentures, iVoice Technology paid a fee to Cornell Capital
Partners equal to 10% of the aggregate principal amount of the debentures.
When the secured convertible debentures were terminated, iVoice Technology
received a credit for fees that would otherwise have been payable upon the
issuance of the $560,000 in replacement notes. iVoice Technology paid Cornell
Capital a fee of $14,000 in connection with its $140,000 borrowing. iVoice
Technology's obligations under the secured promissory notes issued to Cornell
Capital Partners are secured by a first priority security interest
47
in substantially all of its assets. iVoice has also guaranteed the payment of
all amounts payable by iVoice Technology pursuant to the secured promissory
notes.
Effective August 12, 2004, iVoice Technology entered into a Standby
Equity Distribution Agreement with Cornell Capital Partners to obtain an
equity line of credit. On February 28, 2005, iVoice Technology entered into
a Termination Agreement with Cornell Capital Partners, pursuant to which the
equity line transaction was terminated. On March 9, 2005, iVoice Technology
received a non-binding letter of intent from Cornell Capital whereby Cornell
Capital offered, subject to satisfaction of certain conditions, to purchase
shares of iVoice Technology's common stock upon the terms set forth in the
non-binding letter of intent and the definitive documentation to be executed
after satisfaction of closing conditions. Pursuant to the terms of the
non-binding letter of intent, if the definitive documentation is executed,
iVoice Technology may then issue and sell to Cornell Capital Partners Class A
Common Stock for a total purchase price of up to $10.0 million. The
purchase price for the shares would 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 iVoice Technology
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 would also be payable at the time of funding. In addition, Cornell
Capital Partners would 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.
However, Cornell Capital Partners is under no obligation to execute
any definitive agreements with iVoice Technology. Furthermore, Cornell
Capital Partners is under no obligation to purchase any shares of Class A
Common Stock until the execution of the definitive agreements, following
which Cornell Capital Partners will be obligated to purchase shares of Class
A Common Stock only upon the satisfaction of certain conditions being met by
iVoice Technology, including completing of the Distribution, listing our
Class A Common Stock on the Over-the-Counter Bulletin Board and having the
registration statement relating to the Standby Equity Distribution Agreement
declared effective. If Cornell Capital Partners does not execute the
definitive agreements or iVoice Technology cannot satisfy the requirements
for Cornell Capital Partners to purchase the Class A Common Stock under the
terms of the definitive documents, we will not be able to obtain sufficient
capital resources to operate our business, and we have no current plans to
obtain other financing. We cannot assure you that we will be able to access
any financing in sufficient amounts or at all when needed. Our inability to
obtain sufficient financing would have an immediate material adverse effect
on us, our financial condition and our business.
Upon the effective date of the registration statement of which this
prospectus is a part, iVoice Technology will assume an aggregate of $190,000
in liabilities from iVoice and iVoice will assign to iVoice Technology assets
having an aggregate book value of $10,000. See "Selected Historical and Pro
Forma Financial Information" contained in the financial statements of iVoice
Technology at the back of this prospectus. iVoice Technology 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.
48
In connection with the assumption of assets and liabilities by iVoice
Technology from iVoice, iVoice Technology 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.
iVoice Technology, 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 iVoice
Technology, par value $0.01, for each dollar owed, (ii) the number of shares
of Class A Common Stock of iVoice Technology 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.
There is no limitation on the number of shares of Class A Common Stock we may
be required to issue to Mr. Mahoney upon the conversion of this
indebtedness. See "Potential Dilution Due to Conversion at Below Market
Price."
Mr. Mahoney has agreed to forego receiving any shares of iVoice
Technology'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.
iVoice Technology entered into two separate employment agreements with
Mr. Mahoney, its Chairman of the Board, and Mr. Seidler, its President and
Chief Executive Officer, respectively, as of August 1, 2004. Mr. Mahoney's
agreement provides for annual compensation of $85,000 per annum with an
annual increase based on the Consumer Price Index every year thereafter. Mr.
Seidler's agreement provides for compensation of $85,000 plus additional
incentive compensation. Each of Mr. Mahoney and Mr. Seidler will also be
entitled to additional incentive compensation based upon acquisitions
completed by iVoice Technology. iVoice Technology believes that the
compensation provided to each of Mr. Mahoney and Mr. Seidler are commensurate
with compensation levels paid by other companies to management having
equivalent experiences and capabilities.
In August 2004, iVoice Technology entered into a temporary
administrative services agreement with iVoice. Pursuant to that agreement,
iVoice is providing iVoice Technology 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 iVoice
Technology is paying iVoice $7,000 per month during the term of the
agreement. The administrative services agreement will continue on a month to
month basis until iVoice Technology has found replacement services for those
services being provided by iVoice or can provide these services for itself.
Following termination of the administrative services agreement, we expect
that iVoice Technology will operate on a completely stand-alone basis from
iVoice and there will be no business or operating relationship between iVoice
and iVoice Technology.
49
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of February 28, 2005, 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.
Common Stock Common Stock
Beneficially Beneficially
Owned Before Percentage Owned After Percentage
Name Title of Class Distribution Ownership Distribution Ownership
- ------------------------------- --------------------------- ------------------ ------------------ ------------------- -----------
Jerome R. Mahoney Class A Common 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%
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
Arie Seidler Class A Common Stock 0 0% 0 0%
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
Class B Common Stock 0 0% 0 0%
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
Class C Common Stock 0 0% 0 0%
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
iVoice, Inc. Class A Common Stock 100 100% 0 0%
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
Class B Common Stock 0 0% 0 0%
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
Class C Common Stock 0 0% 0 0%
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
All directors and
executive officers as
a group (2 persons) Class A Common Stock 0(1) 0%(1) 0(1) 0%(1)
- ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
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 executed by Mr. Mahoney and iVoice Technology in the amount
of $190,000 to convert $190,000 of indebtedness plus accrued and unpaid
interest into more than 190,000 shares of Class B Common Stock which is
convertible 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 at which iVoice had ever issued its Class A
Common Stock. There is no limitation on the number of shares of Class A
Common Stock we may be required to issue to Mr. Mahoney upon the conversion
of this indebtedness.
(2) Mr. Mahoney may at his option convert the $190,000 promissory note held
by him into Class B Common Stock of iVoice Technology 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 iVoice
Technology 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 plus accrued and unpaid interest into more than 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.
50
DESCRIPTION OF SECURITIES
Pursuant to iVoice Technology's 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 iVoice Technology'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 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 November 30, 2004, there is one
record holder of Class A Common Stock and iVoice Technology had 100 shares of
Class A Common Stock outstanding. There will be approximately 10,000,000
outstanding shares of iVoice Technology 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 iVoice Technology 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
51
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
iVoice Technology is authorized to issue 1,000,000 shares of Preferred
Stock, par value $1.00 per share. As of September 30, 2004, iVoice Technology
has not issued any shares of Preferred Stock. iVoice Technology has no
current plans to issue any shares of preferred stock.
Our board of directors is authorized (by resolution and by filing an
amendment to our certificate of incorporation and subject to limitations
prescribed by the New Jersey Business Corporation Act) to issue, from to
time, shares of Preferred Stock in one or more series, to establish from time
to time the number of shares to be included in each series, and to fix the
designation, powers, preferences and other rights of the shares of each such
series and to fix the qualifications, limitations and restrictions thereon,
including, but without limiting the generality of the foregoing, the
following:
o the number of shares constituting that series and the distinctive
designation of that series;
o the dividend rate on the shares of that series, whether dividends
are cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on
shares of that series;
o whether that series has voting rights, in addition to voting
rights provided by law, and, if so, the terms of those voting
rights;
o whether that series has conversion privileges, and, if so, the
terms and conditions of conversion, including provisions for
adjusting the conversion rate in such events as our board of
directors determines;
o whether or not the shares of that series are redeemable, and, if
so, the terms and conditions of redemption, including the dates
upon or after which they are redeemable, and the amount per share
payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
o whether that series has a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and
amount of that sinking fund;
o the rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of iVoice
Technology, 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
52
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.
Transfer Agent
iVoice and iVoice Technology'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 iVoice Technology 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 iVoice Technology.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of iVoice Technology pursuant to the foregoing, or otherwise, iVoice
Technology 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.
THE DISTRIBUTION
Introduction
In September 2004, iVoice's board of directors declared a distribution
payable to the holders of record of outstanding iVoice common stock at the
close of business on November 1, 2004. A new record date has been set for
______, 200_ (the "Record Date"). iVoice currently anticipates that it will
distribute to iVoice stockholders, other than Mr. Mahoney, an aggregate of
approximately 10,000,000 shares of iVoice Technology Class A Common Stock.
Accordingly, the Distribution will consist of one share of iVoice Technology
Class A Common Stock for approximately every ____ shares of iVoice common
stock outstanding on the Record Date. Holders of less than ____ shares of
iVoice common stock will receive one share of iVoice Technology Class A
Common Stock. We currently anticipate that the Distribution will be effected
near the effective date of the registration statement.
iVoice Technology is currently a wholly-owned subsidiary of iVoice. As
a result of the Distribution, 100% of the outstanding iVoice Technology Class
A Common Stock will be distributed to iVoice stockholders. Immediately
following the Distribution, iVoice and its subsidiaries will not own any
shares of iVoice Technology Class A Common Stock and iVoice Technology will
be an independent public company. The iVoice Technology Class A Common Stock
will be distributed by book entry. Instead of stock certificates, each iVoice
stockholder that is a record holder of iVoice shares will receive a statement
of such stockholder's book entry account for the iVoice Technology Class A
Common Stock distributed to such stockholder. Account statements reflecting
ownership of the iVoice Technology Class A Common Stock will be mailed
shortly after the Distribution Date. iVoice Technology Class A Common Stock
should
53
be credited to accounts with stockbrokers, banks or nominees of iVoice
stockholders that are not record holders after the effective date of the
Distribution.
iVoice Technology was incorporated on November 10, 2004. On November
11, 2004, iVoice Technology 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, Inc., a Nevada corporation and affiliate of iVoice Technology.
These agreements, contracts, understandings and other instruments consisted
of the documentation relating to the issuance of the secured convertible
debentures and the equity line of credit, the employment agreements with
Messrs. Mahoney and Seidler and the administrative services agreement. Since
this assignment, iVoice Technology Nevada has no operating business, assets
or known liabilities, and is currently in the process of being dissolved.
When we refer to or describe any agreement, contract or other written
instrument of iVoice Technology in this prospectus, we are referring to an
agreement, contract or other written instrument that had been entered into by
iVoice Technology Nevada and assigned to iVoice Technology. iVoice
Technology's principal executive offices are located at 750 Highway 34,
Matawan, New Jersey 07747, and its telephone number is (732) 441-7700. iVoice
Technology will own and operate the IVR software business of iVoice.
Concurrently with the Distribution, iVoice intends to contribute the
majority of its remaining business lines into two new companies and
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.
Reasons for the Distribution
The board of directors and management of iVoice believe that the
Distribution is in the best interests of iVoice, iVoice Technology and iVoice
stockholders. iVoice believes that the Distribution will enhance value for
iVoice stockholders and give iVoice Technology the financial and operational
flexibility to take advantage of potential growth opportunities in the IVR
software business.
iVoice's board of directors and management believe that the
Distribution will enhance the ability of each of iVoice Technology and iVoice
to focus on strategic initiatives and new business opportunities, improve
cost structures and operating efficiencies and design equity-based
compensation programs targeted to its own performance. In addition, iVoice's
board of directors expects that the transition to an independent company will
provide iVoice Technology with greater access to capital by allowing the
financial community to focus solely on iVoice Technology and allow the
investment community to measure iVoice Technology's performance relative to
its peers.
The IVR software business also has some important traits that make this
business distinct from iVoice's other operations with respect to markets,
products, capital needs and plans for growth. The Distribution will give
iVoice Technology direct access to the capital markets as a stand alone
company.
54
The board of directors and management of iVoice believe that the
Distribution is in the best interests of iVoice and its stockholders. iVoice
believes that the Distribution will enhance value for iVoice stockholders and
that the spin off of the IVR business into iVoice Technology has provided
greater access to capital by allowing the financial community to focus solely
on iVoice Technology and its IVR software business as a stand alone company.
In determining whether of not to spin off the IVR business and make the
Distribution, the board considered the ability of iVoice to satisfy its
working capital needs as a whole as against the ability of the IVR business
to satisfy its capital needs as a stand alone company. As financing was
available to the IVR business as a stand alone company, it was determined
that the IVR business would be transferred to iVoice Technology. After
considering the availability of such financing and the relative working
capital needs of iVoice and iVoice Technology, the board elected not to
transfer any part of the current cash balance of iVoice to iVoice
Technology.
As part of iVoice, the IVR software business competed with iVoice's
other core business groups for capital to finance expansion and growth
opportunities. As a separate entity, iVoice Technology will be free of
iVoice's capital structure restrictions and should be in a better position to
fund the implementation of its business strategy. The Distribution will also
enable iVoice Technology to provide its management and employees incentive
compensation in the form of equity ownership in iVoice Technology, enhancing
iVoice Technology's ability to retain and motivate key employees, and, if
iVoice Technology seeks to hire additional or replacement personnel, attract
such personnel. However, there are no present plans, proposals or
arrangements to establish, or provide any awards under, any such incentive
compensation plan.
Manner of Effecting the Distribution
The Distribution will be made on the basis of one share of iVoice
Technology Class A Common Stock for approximately every ____ shares of iVoice
common stock outstanding on the Record Date. Holders of less than ____
shares of iVoice common stock will receive one share of iVoice Technology
Class A Common Stock. Based on approximately _________ iVoice shares
outstanding on the Record Date and approximately ____ iVoice shares
outstanding on the Record Date that will actually participate in the
Distribution, we currently anticipate that an aggregate of approximately
10,000,000 shares of iVoice Technology Class A Common Stock will be
distributed to iVoice stockholders. At the time of the Distribution, the
shares of iVoice Technology Class A Common Stock to be distributed will
constitute 100% of the outstanding iVoice Technology Class A Common Stock.
Immediately following the Distribution, iVoice will not own any iVoice
Technology Class A Common Stock and iVoice Technology will be an independent
public company.
The shares of iVoice Technology Class A Common Stock being distributed
in the Distribution will be fully paid and non-assessable and the holders
thereof will not be entitled to preemptive rights. See "Description of
Securities" beginning on page 49.
iVoice will use a book entry system to distribute the shares of iVoice
Technology Class A Common Stock in the Distribution. Following the
Distribution, each record holder of iVoice stock on the Record Date will
receive from the Distribution Agent a statement of the shares of iVoice
Technology Class A Common Stock credited to the stockholder's account. If you
are not a record holder of iVoice stock because your shares are held on your
behalf by your stockbroker
55
or other nominee, your shares of iVoice Technology Class A Common Stock should
be credited to your account with your stockbroker or nominee after the
effective date of the registration statement. After the Distribution,
stockholders may request stock certificates from iVoice Technology's transfer
agent instead of participating in the book entry system.
No fractional shares of iVoice Technology Class A Common Stock will be
issued. If you own a fractional share of iVoice common stock as of the Record
Date or own a number of iVoice shares that is not a multiple of ____, you
will receive the next higher whole number of shares of iVoice Technology
Class A Common Stock in the Distribution. If you own less than ____ shares
you will receive one share of iVoice Technology Class A Common Stock.
No iVoice stockholder will be required to pay any cash or other
consideration for the shares of iVoice Technology Class A Common Stock
received in the Distribution, or to surrender or exchange iVoice shares in
order to receive shares of iVoice Technology Class A Common Stock. The
Distribution will not affect the number of, or the rights attaching to,
outstanding iVoice shares. No vote of iVoice stockholders is required or
sought in connection with the Distribution, and iVoice stockholders will have
no appraisal rights in connection with the Distribution.
In order to receive shares of iVoice Technology Class A Common Stock in
the Distribution, iVoice stockholders must be stockholders at the close of
business on the Record Date.
Results of the Distribution
After the Distribution, iVoice Technology will be a separate public
company operating the IVR software business. Based on approximately
_________ iVoice shares outstanding on the Record Date and approximately
____ iVoice shares outstanding on the Record Date that will actually
participate in the Distribution, immediately after the Distribution, iVoice
Technology expects to have approximately 20,000 holders of record of iVoice
Technology Class A Common Stock, and approximately 10,000,000 shares of
iVoice Technology Class A Common Stock outstanding. The Distribution will
not affect the number of outstanding iVoice shares or any rights of iVoice
stockholders.
Listing and Trading of the iVoice Technology Class A Common Stock
Neither iVoice Technology nor iVoice makes recommendations on the
purchase, retention or sale of shares of iVoice common stock or shares of
iVoice Technology Class A Common Stock. You should consult with your own
financial advisors, such as your stockbroker, bank or tax advisor.
If you do decide to purchase or sell any iVoice or iVoice Technology
shares, you should make sure your stockbroker, bank or other nominee
understands whether you want to purchase or sell iVoice common stock or
iVoice Technology Class A Common Stock, or both. The following information
may be helpful in discussions with your stockbroker, bank or other nominee.
56
There is not currently a public market for the iVoice Technology Class
A Common Stock, although a when-issued market may develop prior to completion
of the Distribution. When-issued trading refers to a transaction made
conditionally because the security has been authorized but is not yet issued
or available. Even though when-issued trading may develop, none of these
trades would settle prior to the effective date of the Distribution, and if
the Distribution does not occur, all when-issued trading will be null and
void. On the first trading day following the date of the Distribution,
when-issued trading in respect of shares of iVoice Technology Class A Common
Stock will end and regular-way trading will begin. Regular-way trading refers
to trading after a security has been issued and typically involves a
transaction that settles on the third full business day following the date of
a transaction. We anticipate that the iVoice Technology Class A Common Stock
will trade on the Over-the-Counter Bulletin Board under the proposed symbol
"____."
The shares of iVoice Technology Class A Common Stock distributed to
iVoice stockholders will be freely transferable, except for (1) shares of
iVoice Technology Class A Common Stock received by persons who may be deemed
to be affiliates of iVoice Technology under the Securities Act of 1933, as
amended (the "Securities Act"), and (2) shares of iVoice Technology Class A
Common Stock received by persons who hold restricted shares of iVoice common
stock. Persons who may be deemed to be affiliates of iVoice Technology after
the Distribution generally include individuals or entities that control, are
controlled by, or are under common control with iVoice Technology and may
include certain directors, officers and significant stockholders of iVoice
Technology. Persons who are affiliates of iVoice Technology will be
permitted to sell their shares of iVoice Technology Class A Common Stock only
pursuant to an effective registration statement under the Securities Act or
an exemption from the registration requirements of the Securities Act, such
as the exemptions afforded by Section 4(1) of the Securities Act and the
provisions of Rule 144 thereunder.
There can be no assurance as to whether the iVoice Technology Class A
Common Stock will be actively traded or as to the prices at which the iVoice
Technology Class A Common Stock will trade. Some of the iVoice stockholders
who receive shares of iVoice Technology Class A Common Stock may decide that
they do not want shares in a company consisting of the IVR business, and may
sell their shares of iVoice Technology Class A Common Stock following the
Distribution. This may delay the development of an orderly trading market in
iVoice Technology Class A Common Stock for a period of time following the
Distribution. Until the shares of iVoice Technology Class A Common Stock are
fully distributed and an orderly market develops, the prices at which the
iVoice Technology Class A Common Stock trades may fluctuate significantly and
may be lower than the price that would be expected for a fully distributed
issue. Prices for iVoice Technology Class A Common Stock will be determined
in the marketplace and may be influenced by many factors, including the depth
and liquidity of the market for the shares, iVoice Technology's results of
operations, what investors think of iVoice Technology and the IVR industry,
the amount of dividends that iVoice Technology pays, changes in economic
conditions in the IVR industry and general economic and market conditions.
Following the Distribution, iVoice expects that its common stock will
continue to be listed and traded on the Over-the-Counter Bulletin Board under
the symbol "IVOC." Following the Distribution and the distribution of the
two other new subsidiaries of iVoice, iVoice will have
57
no remaining businesses other than the licensing of its intellectual property
rights. A trading market may not continue for the shares of iVoice common
stock or ever develop for the iVoice Technology Class A Common Stock. As a
result of the Distribution, the trading price of iVoice common stock
immediately following the Distribution may be substantially lower than the
trading price of iVoice common stock immediately prior to the Distribution.
The combined trading prices of iVoice common stock and the iVoice Technology
Class A Common Stock after the Distribution may be less than the trading price
of iVoice common stock immediately prior to the Distribution. Further, the
combined trading prices of iVoice common stock, the iVoice Technology Class A
Common Stock and the common stock of each of the two other new companies being
distributed to iVoice stockholders after the Distribution and the two other
distributions may be less than the trading price of iVoice common stock
immediately prior to these distributions.
Even though iVoice is currently a publicly held company, there can be
no assurance as to whether an active trading market for iVoice common stock
will be maintained after the Distribution and the two other distributions or
as to the prices at which the iVoice common stock will trade. iVoice
stockholders may sell their iVoice common stock following the Distribution.
These and other factors may delay or hinder the return to an orderly trading
market in the iVoice common stock following the Distribution. Whether an
active trading market for iVoice common stock will be maintained after the
Distribution and the prices for iVoice common stock will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for the shares, iVoice's results of operations, what
investors think of iVoice and its industries, changes in economic conditions
in its industries and general economic and market conditions.
In addition, the stock market often experiences significant price
fluctuations that are unrelated to the operating performance of the specific
companies whose stock is traded. Market fluctuations could have a material
adverse impact on the trading price of the iVoice Technology Class A Common
Stock and/or iVoice common stock.
As described elsewhere in this prospectus, iVoice Technology had
issued to Cornell Capital Partners $560,000 aggregate principal amount of
secured convertible debentures. On February 28, 2005, iVoice Technology's
obligations under the secured convertible debentures were terminated and
replaced with secured promissory notes of the same principal amount, which
notes accrue interest at rate of 12% per annum, but are not convertible into
any equity security of iVoice Technology.
Mr. Mahoney will have the right to convert $190,000 of indebtedness
plus accrued and unpaid interest into 190,000 (plus on a dollar per share
basis, amounts of accrued and unpaid interest) shares of iVoice Technology
Class B Common Stock which is convertible 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 at which iVoice
had ever issued its Class A Common Stock. There is no limitation on the
number of shares of Class A Common Stock we may be required to issue to Mr.
Mahoney upon the conversion of these obligations. See "Potential Dilution
Due to Conversion at Below Market Price." However, assuming a market price
for iVoice Technology Class A Common Stock of $0.01, we would be required to
issue 23,750,000 shares of Class A Common Stock to Mr. Mahoney, plus shares
58
attributable to accrued and unpaid interest upon conversion of his promissory
note. As of March 31, 2005, there was $26,334.97 of accrued and unpaid
interest on the promissory note.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following discussion summarizes the material U.S. federal income
tax consequences resulting from the Distribution. This discussion is based
upon the U.S. federal income tax laws and regulations now in effect and as
currently interpreted by courts or the Internal Revenue Service and does not
take into account possible changes in such tax laws or such interpretations,
any of which may be applied retroactively.
The following summary is for general information only and may not be
applicable to stockholders who received their shares of iVoice stock pursuant
to an employee benefit plan or who are foreign persons or who are otherwise
subject to special treatment under U.S. federal income tax laws. Each
stockholder's individual circumstances may affect the tax consequences of the
Distribution to such stockholder. In addition, no information is provided
with respect to tax consequences under any applicable foreign, state or local
laws. Consequently, each iVoice stockholder is advised to consult his own tax
advisor as to the specific tax consequences of the Distribution to him and
the effect of possible changes in tax laws.
General
Each iVoice stockholder who receives shares of iVoice Technology Class
A Common Stock in the Distribution will generally be treated as receiving a
taxable dividend equal to the fair market value on the Distribution date of
the shares received to the extent of the current or accumulated earnings and
profits of iVoice as of the end of the year in which the Distribution occurs.
Any such earnings and profits will be proportionately allocated among the
shares received. iVoice does not have any accumulated earnings and
profits.
Following the end of the year in which the Distribution occurs, iVoice
will provide, or otherwise make available, to its stockholders information
setting forth the portion of the Distribution, if any, that is treated as a
dividend.
Dividends received by non-corporate taxpayers generally are taxed at
the same preferential rates that apply to long-term capital gains. Any
portion of the Distribution that exceeds such earnings and profits will be
treated as a tax-free return of capital to the extent of the stockholder's
adjusted tax basis in the iVoice shares and thereafter as gain from the sale
or exchange of iVoice shares. Stockholders which are corporations may be
subject to additional special provisions dealing with taxable distributions,
such as the dividends received deduction and the extraordinary dividend rules.
The basis of shares received in the Distribution will be equal to their
fair market value on the distribution date, and a stockholder's holding
period with respect to the shares received will begin on the day following
the date of the Distribution.
59
You should consult your own tax advisor as to the particular
consequences of the Distribution to you, including the application of state,
local and foreign tax laws.
CHANGES IN ACCOUNTANTS
(a) On February 23, 2005, iVoice Technology terminated the services of
its independent account, Mendlowitz Weitsen, LLP. For the two most recent
fiscal years: (i) the independent account's report did not contain an adverse
opinion or disclaimer of opinion, nor was it modified as to uncertainty, audit
scope, or accounting principles and (ii) there were no disagreements with the
former accountant, whether or not resolved, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to the former accountant's satisfaction,
would have caused it to make reference to the subject matter of the
disagreement(s) in connection with its report. The decision to change
accountants was recommended by iVoice Technology's Audit Committee.
(b) On February 23, 2005, iVoice Technology engaged the independent
accounting firm of Bagell, Josephs & Company, L.L.C. as principal accountant
to audit iVoice Technology's financial statements for the fiscal years ended
December 31, 2004 and 2003.
REASONS FOR FURNISHING THIS DOCUMENT
This document is being furnished solely to provide information to
iVoice stockholders who will receive iVoice Technology Class A Common Stock
in the Distribution. It is not, and is not to be construed as, an inducement
or encouragement to buy or sell any securities of iVoice or iVoice
Technology. Neither iVoice nor iVoice Technology will update the information
contained in this document except in the normal course of their respective
public disclosure practices. However, this document will be amended if there
is any material change in the terms of the Distribution.
RELATIONSHIP BETWEEN IVOICE AND IVOICE TECHNOLOGY FOLLOWING THE DISTRIBUTION
To provide for an orderly transition to the status of two independent
companies, iVoice and iVoice Technology have entered into an administrative
services agreement. Under this agreement, iVoice is providing iVoice
Technology 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 iVoice Technology needs transitional assistance and
support. Under the administrative services agreement, iVoice is providing
iVoice Technology substantially the same level of service 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, iVoice Technology pays iVoice a fee of $7,000 per month.
iVoice Technology believes that the terms and conditions of the
administrative services agreement are as favorable to iVoice Technology as
those available from unrelated parties for a comparable arrangement.
The administrative services agreement will continue on a month to month
basis until iVoice
60
Technology has found replacement services for those services being provided by
iVoice or can provide these services for itself. Following termination of the
administrative services agreement, we expect that iVoice Technology will
operate on a completely stand-alone basis from iVoice and there will be no
business or operating relationship between iVoice and iVoice Technology. Upon
termination of the agreement, iVoice Technology 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 iVoice Technology
has been required to pay under the administrative services agreement.
WHERE YOU CAN FIND MORE INFORMATION
iVoice Technology has filed with the Securities and Exchange Commission
the registration statement under the Securities Act with respect to the
iVoice Technology Class A Common Stock. This document does not contain all of
the information set forth in the registration statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements made in this
document as to the contents of any contract, agreement or other document
referred to herein are not necessarily complete. The registration statement
and the exhibits thereto filed by iVoice Technology with the Commission may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
information can be obtained by mail from the Public Reference Branch of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission maintains a website that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the Commission's website is http://www.sec.gov. Upon the
effectiveness of the registration statement, iVoice Technology will be
required to comply with the reporting requirements of the Securities Exchange
Act of 1934 and to file with the Commission reports, proxy statements and
other information as required by the Exchange Act. Additionally, iVoice
Technology will be required to provide annual reports containing audited
financial statements to its stockholders in connection with its annual
meetings of stockholders. These reports, proxy statements and other
information will be available to be inspected and copied at the public
reference facilities of the Commission or obtained by mail or over the
Internet from the Commission, as described above.
61
iVOICE TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
Contents Page
- -------- ----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
AUDITED FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Operations F-4
Statements of Owner's Equity (Deficiency) F-5
Statements of Cash Flows F-6
NOTES TO AUDITED FINANCIAL STATEMENTS F-7
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION
Condensed Unaudited Pro Forma Balance Sheet for
the year ended December 31, 2004 F-19
Unaudited Pro Forma Statement of Operations for F-20
the year ended December 31, 2004
Unaudited Pro Forma Statement of Operations for F-21
the year ended December 31, 2003
NOTES TO CONDENSED UNAUDITED PRO FORMA FINANCIAL
INFORMATION F-22
F-1
Bagell, Josephs & Company, LLC
200 Haddonfield Berlin Road, Gibbsboro, NJ 08026
Tel: 856.346.2628 Fax: 856.346.2882
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF iVOICE TECHNOLOGY, INC.
Matawan, New Jersey
We have audited the accompanying balance sheets of the interactive voice
response software business of iVoice, Inc. (iVoice Technology, Inc., a wholly
owned subsidiary of iVoice, Inc.) as of December 31, 2004 and 2003 and the
related statements of operations, owner's equity and cash flows for the years
ended December 31, 2004 and 2003. 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 interactive voice
response software business of iVoice, Inc. (iVoice Technology, Inc.) as of
December 31, 2004 and 2003, and the results of its operations and its cash
flows for the years ended December 31, 2004 and 2003, 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, 2004 and 2003, 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/ BAGELL, JOSEPHS & COMPANY, L.L.C.
Gibbsboro, New Jersey
March 21, 2005
F-2
iVOICE TECHNOLOGY, INC.
BALANCE SHEETS
December 31,
2004 2003
----------- -----------
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 346,599 $ 0
Accounts receivable 31,733 37,483
Inventory, net 0 11,888
Cost in excess of billing 0 2,706
----------- -----------
Total current assets 378,332 52,077
PROPERTY AND EQUIPMENT, net
Property and equipment, net 4,737 0
OTHER ASSETS
Software license costs, net 0 45,400
----------- -----------
TOTAL ASSETS $ 383,069 $ 97,477
=========== ===========
LIABILITIES AND OWNER'S EQUITY (DEFICIENCY)
- -------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 30,606 $ 0
5% Convertible debentures 560,000 0
Deferred maintenance contracts 33,141 23,662
----------- -----------
Total current liabilities 623,747 23,662
OWNER'S EQUITY (DEFICIENCY)
Common Stock
Class A, no par value; Authorized 10,000,000,000
shares; 100 and 0 shares issued and outstanding,
respectively 0 0
Class B, par value $.01; Authorized 50,000,000
shares; no shares issued and outstanding 0 0
Class C, par value $.01; Authorized 20,000,000
shares; no shares issued and outstanding 0 0
Preferred Stock; Par value $1.00; Authorized
1,000,000 shares; no shares issued and outstanding 0 0
Net investment, iVoice, Inc. 7,297,231 6,133,597
Accumulated deficit (7,537,909) (6,059,782)
----------- -----------
Total owner's equity (deficiency) (240,678) 73,815
----------- -----------
TOTAL LIABILITIES AND OWNER'S EQUITY (DEFICIENCY)
$ 383,069 $ 97,477
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
F-3
iVOICE TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
For The Years December 31, 2004 and 2003
2004 2003
----------- -----------
SALES, net $ 239,114 $ 303,756
72,870 123,091
COST OF SALES
----------- -----------
GROSS PROFIT 166,244 180,665
----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses 45,512 68,692
General & administrative expense 721,733 665,473
Research & development 50,788 128,696
Depreciation & amortization 45,423 102,480
----------- -----------
Total Selling, General & Administrative expense 863,456 965,341
----------- -----------
LOSS FROM CONTINUING OPERATIONS (697,212) (784,676)
----------- -----------
OTHER INCOME (EXPENSE)
Other income 113,194 100,557
Gain on sale of securities held for sale 0 69,418
Interest expense (882,042) (516,719)
Other expense (12,067) 0
----------- -----------
Total other expense (780,915) (346,744)
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (1,478,127) (1,131,420)
----------- -----------
PROVISION FOR INCOME TAXES 0 0
----------- -----------
NET LOSS FROM CONTINUING OPERATIONS $(1,478,127) $(1,131,420)
=========== ===========
NET LOSS PER COMMON SHARE:
Basic $(14,781.27) $(11,314.20)
=========== ===========
Diluted $(14,781.27) $(11,314.20)
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
F-4
iVOICE TECHNOLOGY, INC.
STATEMENTS OF OWNER'S EQUITY (DEFICIENCY)
For the Years Ended December 31, 2004 and 2003
Total
Common Common Net Owner's
Stock Stock Investment Accumulated Equity
Shares Amount iVoice, Inc Deficit (Deficiency)
------ ------ ----------- ------- ------------
Balance at January 1, 2003 0 0 5,108,396 (4,928,362) 180,034
Net transactions with iVoice, Inc. 1,025,201 -- 1,025,201
Net loss for the twelve months ended
December 31, 2003 (1,131,420) (1,131,420)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 0 0 6,133,597 (6,059,782) 73,815
Issuance of common stock 100 0 0
Net transactions with iVoice, Inc. 1,163,634 1,163,634
Net loss for the twelve months ended
December 31, 2004 (1,478,127) (1,478,127)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2004 100 $ 0 $ 7,297,231 $(7,482,909) $ (240,678)
=========== =========== =========== =========== ===========
The Notes to Financial Statements are an integral part of these statements.
F-5
iVOICE TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
For The Years December 31, 2004 and 2003
2004 2003
------------ -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(1,478,127) $(1,033,500)
Depreciation and amortization 45,423 102,480
Changes in operating assets and
liabilities
Decrease in accounts receivable 5,750 --
Decrease in inventory 11,888 --
Decrease in cost in excess of billing 2,706 --
Increase in accounts payable and
accrued expenses 30,606 --
Increase in deferred maintenance contracts 9,479 3,739
----------- -----------
Net cash used in operating activities (1,372,295) (927,281)
----------- -----------
CASH FLOWS FOR INVESTING ACTIVITIES
Purchase of property and equipment (4,760) --
----------- -----------
Net cash used in investing activities (4,760) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Allocation of costs by iVoice 1,163,634 927,281
Sale of convertible debentures 560,000
----------- -----------
Net cash provided by financing activities 1,723,634 927,281
----------- -----------
NET INCREASE (DECREASE) IN CASH 346,599 0
CASH - beginning 0 0
CASH - end $ 346,599 $ 0
=========== ===========
CASH PAID DURING THE YEAR FOR:
Interest expense $ 25 $ 516,719
=========== ===========
Income taxes $ 0 $ 0
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
F-6
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 1 - BACKGROUND
iVoice Technology, Inc. ("iVoice Technology" 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, 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 Nevada and assigned to the Company.
On September 1, 2004, the Board of Directors of iVoice, Inc. 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. iVoice Technology
will continue to develop, market and license the Interactive Voice Response
line of computerized telephony software.
In September, 2004, iVoice Inc. announced that it intends to distribute to
its shareholders all of the iVoice Technologies Class A Common Stock.
The spin-off transaction will be accomplished by the distribution of certain
intellectual property, representing the software codes of Interactive Voice
Response ("IVR"), and certain accrued liabilities and related party debt to
iVoice Technology (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, iVoice Technology has entered into a
temporary administrative services agreement with iVoice. The administrative
services agreement will continue on a month to month basis until iVoice
Technology has found replacement services for those services being provided
by iVoice or can provide these services for itself.
iVoice Technology 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 iVoice
Technology 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 Interactive
Voice Response line, which was developed by iVoice. The Company's Interactive
Voice Response line is designed to read information from and write
information to, databases, as well as to query databases and return
information.
IVR is an application generator that allows full connectivity to many
databases, including Microsoft Access, Microsoft Excel, Microsoft Fox Pro,
and Paradox, or to standard text
F-7
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
files. The IVR software is sold as an application generator that gives the end
user the ability to develop their own customized IVR applications or as a
customized turnkey system. IVR performs over 40 different customizable
commands. Examples of IVR range from simply selecting announcements from a
list of options stored in the computer (also known as audio text) to more
complex interactive exchanges such as querying a database for information.
NOTE 3 - GOING CONCERN
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, 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
$280,000 of secured convertible debentures in August 2004, and an additional
$280,000 of secured convertible debentures, in November 2004, around the time
of filing of the registration statement for the Class A Common Stock. The
debentures are convertible at the option of the holder only after the
Company's Class A Common Stock has commenced trading on the Over-the-Counter
Bulletin Board. Interest on the secured convertible debentures 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 had also entered into a Standby
Equity Distribution Agreement, subsequently terminated, where the Company
could, 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 required 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.
F-8
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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 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 accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
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
F-9
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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.
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.
Three customers generated approximately 69% of the revenue for the
Company through one-time contracts that will be unlikely to impact revenues
in future periods.
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
F-10
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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 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 $7,000,000 net operating loss
allocated to the IVR 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
F-11
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
on a pro forma basis, only the most recent year has been presented. The shares
used in the computation are as follows:
As of As of
December 31, 2004 December 31, 2003
----------------- -----------------
Pro Forma Basis and diluted purposes 100 100
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, 2004 and
2003, the Company has no items that represent comprehensive income, and
thus, has not included a statement of comprehensive income.
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.
m) Reclassification
Certain amounts in the 2003 financial statements were reclassified to
conform to the 2004 presentation. The reclassification in 2003 results in no
changes to the net loss for that period.
F-12
NOTE 5 - INTANGIBLE ASSETS
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
Intangible assets consist of software source codes originally purchased
by iVoice for $454,000 in May 1999. The asset is reflected at its original
cost net of accumulated amortization of $454,000, from the date acquired by
iVoice. The asset was amortized over a 5-year period.
In accordance with FAS 142 goodwill and indefinite-lived intangible
assets are reviewed for impairment at least annually, and whenever events or
changes in circumstances indicate the carrying amounts of the assets may be
impaired. We have elected to perform our impairment review during the fourth
quarter of each year, in conjunction with our annual planning cycle. At
December 31, 2004, we found no impairment of goodwill or other
indefinite-lived intangible assets.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 2004 and December 31, 2003 iVoice
allocated operating costs of $1,163,634 and $965,341, respectively to iVoice
Technology. 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 Interactive Voice Response 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 iVoice Technology by iVoice
based upon a ratio of revenue of the Interactive Voice Response 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 iVoice Technology had performed these
functions as a stand-alone company.
In conjunction with the spin-off, iVoice Technology has entered into a
temporary administrative services agreement with iVoice. The administrative
services agreement will continue on a month to month basis until iVoice
Technology has found replacement services for those services being provided
by iVoice or can provide these services for itself.
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) 0.0 %
Effect on Valuation Allowance 38.1 %
State Income Tax, Net of Federal Benefits ( 4.1)%
Effective Income Tax Rate 0.0 %
F-13
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
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 $700,000 in convertible
debentures. The debentures will be convertible into Class A Common Stock at
the discretion of the holders only after the Company's Class A Common Stock
has commenced trading on the Over-the-Counter Bulletin Board. Additionally,
the Company has entered into a Standby Equity Distribution Agreement whereby
the Company, at their 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 iVoice
Technology. This amount is related to funds loaned to iVoice and is unrelated
to the operations of iVoice Technology. 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 iVoice Technology, Inc., par value $.01, for each dollar owed, (ii) the
number of shares of Class A Common Stock of iVoice Technology, 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.
Effective August 1, 2004, the Company entered into a one year
employment contract with Arie Seidler, its President and Chief Executive
Officer. The Company will pay Mr. Seidler a base salary of $85,000 during
the term. Mr. Seidler can earn bonuses based on the Company achieving
certain levels of sales and profitability and will also be entitled to
certain bonuses based on mergers and acquisitions completed by the Company.
The Company entered into a five-year employment agreement with Jerome
Mahoney, its non-executive Chairman of the Board of Directors, effective
August 1, 2004. The Company will compensate Mr. Mahoney with a base salary
of $85,000 for the first year with annual increases based on the Consumer
Price Index. Mr. Mahoney will also be entitled to certain bonuses based on
mergers and acquisitions completed by the Company.
In conjunction with the spin-off, iVoice Technology has entered into an
administrative services agreement
F-14
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
with iVoice. The administrative services agreement will continue on a
month-to- month basis until iVoice Technology has found replacement services
for those services being provided by iVoice or can provide these services for
itself.
NOTE 9 - CAPITAL STOCK
Pursuant to iVoice Technology'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 iVoice Technology'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 December 31, 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 December 31, 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 iVoice Technology, 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
December 31, 2004, no shares were issued or outstanding.
c) Class C Common Stock
As of December 31, 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 December 31, 2004,
no shares were issued or outstanding.
F-15
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
d) Preferred Stock
iVoice Technology is authorized to issue 1,000,000 shares of Preferred
Stock, par value $1.00 per share. As of December 31, 2004, iVoice
Technology has not issued any shares of Preferred Stock.
NOTE 10 - SUBSEQUENT EVENTS
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. The Company issued the following secured convertible
debentures to Cornell Capital Partners on the dates and amounts as follows:
August 2004 for $280,000 and November 2004 for $280,000. These debentures were
convertible at the option of the holder only after the Company's Class A Common
Stock has commenced trading on the Over-the-Counter Bulletin Board. Each of the
debentures were 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 had 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 were secured by a first priority security
interest in substantially all of the assets of iVoice Technology. On February
28, 2005, the Company renegotiated the terms and conditions of its Convertible
Debentures with the holders of such debentures. The parties thereto agreed to
terminate the $560,000 Convertible Debentures replacing them with Promissory
Notes. The Promissory Note was in the amount of $700,000, $560,000 of which
replaced the Convertible Debentures in 2004, and $140,000 of which was advanced
on February 28, 2005. A commitment fee of 10% of the face amount of the
Convertible Debentures was paid at the time of each advance on the Convertible
Debentures. Such commitment fees were credited against commitment fees due and
owing against the Note. The balance of the commitment fee against the Notes was
paid on February 28, 2005, at the time that such $140,000 was advanced to the
Company.
The Promissory Note bears interest at the rate of 12% per annum.
Principal on the Note will be amortized in equal weekly installments of
$10,000 commencing on July 4, 2005. Payments of interest shall commence on
September 1, 2005 and shall continue on the first day of each calendar month
thereafter until the principal is paid in full. Payment in full of the
principal and interest on the Note is due on or before July 4, 2006. In the
event all principal and interest has not been paid by the one year
anniversary of the initial payment on July 4, 2005, in accordance with the
amortization schedule described above, the Company will make a lump sum
payment of all outstanding interest and principal on July 4, 2006.
F-16
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
On February 28, 2005, the iVoice, Inc. agreed to provide Cornell
Capital Partners a full and unconditional guaranty of the payment and
performance obligations of iVoice Technology under the promissory notes,
which cannot be discharged, except by complete performance of the obligations
under the promissory notes and the related documents. Under the guaranty, if
iVoice Technology defaults in payment or performance of any of its
obligations under the promissory notes, iVoice, Inc. is required to pay or
perform such obligations upon two days' written notice or demand by the
holders of the promissory notes and to take an advance or advances, as may be
necessary, from the Standby Equity Distribution Agreement by and between
iVoice and Cornell Capital Partners, LP. Notwithstanding anything to the
contrary, this Guaranty shall be discharged and terminated on the date that
iVoice Technology's registration statement in connection with the
Distribution is declared effective by the U.S Securities and Exchange
Commission.
Effective August 12, 2004, iVoice Technology entered into a Standby
Equity Distribution Agreement with Cornell Capital Partners to obtain an
equity line of credit. Under this agreement, iVoice Technology may issue and
sell to Cornell Capital Partners Class A Common Stock for a total purchase
price of up to $10.0 million. Effective February 28, 2005, iVoice Technology,
Inc. terminated its Standby Equity Distribution Agreement, dated August 2004,
entered into by and between the Company and Cornell Capital Partners, LLP. On
March 9, 2005, the Company executed a non-binding letter agreement with
Cornell Capital Partners LLP whereby the parties agreed subject to the
satisfaction of certain conditions to enter into a Standby Equity Distribution
Agreement following the date that the Company's registration statement on Form
SB-2, as filed with the Securities and Exchange Commission on November 2004,
is deemed effective by that agency. Subject to various conditions, the
non-binding letter of commitment provides that, upon execution of definitive
documents and the satisfaction of any conditions that may be set forth in such
documents iVoice Technology 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 non-binding letter of commitment provides that 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 iVoice Technology 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, non-binding letter
of commitment provides that 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, iVoice Technology has not drawn down on the equity line of
credit.
F-17
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed statements of operations for the
years ended December 31, 2004 and 2003 and the unaudited pro forma condensed
balance sheet at December 31, 2004 present the results of operations and
financial position of iVoice Technology, 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 years ended
December 31, 2004 and 2003 for the year ended December 31, 2004 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 iVoice Technology, 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 iVoice Technology had operated
independently. The pro forma financial information should not be relied upon
as being indicative of results iVoice Technology 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-18
CONDENSED UNAUDITED PRO FORMA BALANCE SHEETS
(UNAUDITED)
AS OF DECEMBER 31, 2004
As Pro Forma
Reported Adjustments Pro Forma
-------- ----------- ---------
Current Assets
Cash $ 346,599 $ -- $ 346,599
Accounts Receivable 31,733 -- 31,733
--------- --------- ---------
Total Current Assets 378,332 -- 378,332
--------- --------- ---------
Property and Equipment, net 4,737 -- 4,737
--------- --------- ---------
Total Assets $ 383,069 $ -- $ 383,069
========= ========= =========
Current Liabilities
Accounts payable and accrued liabilities: 30,606 -- 30,606
Due to related party -- 190,000 190,000
Convertible debentures 560,000 -- 560,000
Deferred maint contracts 33,141 -- 33,141
--------- --------- ---------
Total current liabilities 623,747 190,000 813,747
--------- --------- ---------
Stockholder's deficit (240,678) (190,000) (430,678)
--------- --------- ---------
Total Liabilities and Stockholder's Deficit $ 383,069 $ -- $ 383,069
========= ========= =========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-19
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 2004
As Pro Forma
Reported Adjustments Pro Forma
-------- ----------- ---------
Sales, net $ 239,114 $ -- $ 239,114
Cost of Sales 72,870 -- 72,870
----------- ----------- -----------
Gross Profit 166,244 -- 166,244
Selling General and
Administrative Expenses 863,456 49,000 912,456
----------- ----------- -----------
Loss from Operations (697,212) (49,000) (746,212)
Other Income (Expense) (780,915) (12,350) (793,265)
----------- ----------- -----------
Loss before Income Taxes (1,478,127) (61,350) (1,539,477)
Provision for Income Taxes -- -- --
----------- ----------- -----------
Net Loss $(1,478,127) $ (61,350) $(1,539,477)
=========== =========== ===========
Net Loss Per Common Share:
Basic $ (0.15)
===========
Diluted $ (0.15)
===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-20
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 2003
As Pro Forma
Reported Adjustments Pro Forma
-------- ----------- ---------
Sales, net 303,756 $ -- 303,756
Cost of Sales 123,091 -- 123,091
----------- ----------- -----------
Gross Profit 180,665 -- 180,665
Selling General and Administrative
Expenses 965,341 84,000 1,049,341
----------- ----------- -----------
Income (Loss) from Operations (784,676) (84,000) (868,676)
Other Income (Expense) (346,744) (12,350) (359,094)
----------- ----------- -----------
Loss before Income Taxes (1,131,420) (96,350) (1,227,770)
Provision for Income Taxes -- -- --
----------- ----------- -----------
Net Loss (1,131,420) (96,350) $(1,227,770)
=========== =========== ===========
Net Loss Per Common Share:
Basic $ (0.12)
===========
Diluted $ (0.12)
===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-21
NOTES TO CONDENSED UNAUDITED PRO FORMA FINANCIAL
INFORMATION
NOTE 1.
The historical financial statements of iVoice Technology, Inc. reflect
periods during which iVoice Technology 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 iVoice Technology 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 December 31, 2004 and includes "Pro Forma Adjustments" for
transactions that occurred subsequent to December 31, 2003 as follows:
a) The Company is 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
iVoice Technology, Inc., par value $.01, for each dollar owed,
(ii) the number of Class A common stock shares of iVoice
Technology, 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.
NOTE 3.
The pro forma unaudited statement of operations for the year ended December
31, 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) $49,000 in administrative services provided by iVoice, Inc.
pursuant to an administrative service agreement between iVoice
Technology and iVoice, Inc.
b) $12,350 in interest at 6.5% per annum on $190,000 in
outstanding amounts due to a related party being assumed by
iVoice Technology.
F-22
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:
a) $84,000 in administrative services provided by iVoice, Inc.
pursuant to an administrative service agreement between iVoice
Technology 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, iVoice Technology has entered into
a temporary administrative service agreement with iVoice. The
administrative services agreement will continue on a month to
month basis until iVoice Technology has found replacement
services for those services being provided by iVoice or can
provide these services for itself.
b) $12,350 in interest at 6.5% per annum on $190,000 in outstanding
amounts due to a related party being assumed by iVoice
Technology.
NOTE 4.
The average number of shares of iVoice Technology common stock used in the
computation of basic and diluted net income per share was 10,000,100 for the
year ended December 31, 2004 and 2003, based on a distribution ratio of one
share of iVoice Technology 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-23
- ------------------------------------ ---------------------------------
Until ___, all dealers
that effect transactions in
these securities, whether or
not participating in this
offering may be required to iVoice Technology, Inc
deliver a prospectus. This is
in addition to the dealers'
obligation to deliver a
prospectus when acting as 10,050,000 Shares of
underwriters and with respect
to their unsold allotments or Class A Common Stock
subscription. The information
contained in this prospectus
is current only as of its date.
--------------- --------------------
TABLE OF CONTENTS [LOGO]
Page
----
Prospectus Summary............... ____________________
Summary of the Distribution......
Summary Condensed Financial Information
Potential Dilution Due to
Conversion at Below Market Date: ________, 2005
Price..........................
Risk Factors.....................
Cautionary Statement Regarding
Forward-Looking Statements.....
Use of Proceeds..................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......
Our Business.....................
iVoice Technology's Management...
Certain Relationships and Related
Transactions...................
Principal Stockholders...........
Description of Securities .......
The Distribution.................
Federal Income Tax Consequences of
the Distribution...............
Changes in Accountants...........
Reasons for Furnishing this
Document.......................
Relationship between iVoice and
iVoice Technology following the
Distribution...................
Where You Can Find More
Information....................
Index to Financial Statements....
- ------------------------------------ ---------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
iVoice Technology'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 iVoice Technology) by reason of the fact
that such person is or was a director or an officer of iVoice Technology 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 iVoice Technology and, in the case of a criminal proceeding,
had no reasonable cause to believe the conduct of that person was unlawful.
iVoice Technology'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 iVoice Technology to procure a
judgment in its favor by reason of the fact that said person is or was a
director or an officer of iVoice Technology 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 iVoice Technology 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. iVoice Technology will pay all expenses in connection with this
offering.
Securities and Exchange Commission [$95]
Registration Fee
Printing and Engraving Expenses $ 25,000
Accounting Fees and Expenses $ 8,000
Legal Fees and Expenses $ 150,000
Miscellaneous $ 30,000
---------
TOTAL $213,095
========
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 November 19, 2004, iVoice Technology issued an
aggregate of $560,000 in secured convertible debentures, with
II-1
interest payable at 5% per annum, to Cornell Capital Partners. The debentures
were convertible at the option of the holder only after the Company's Class A
Common Stock has commenced trading on the Over-the-Counter Bulletin Board. Each
of the debentures were 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 had a term of two years with
all accrued interest due at the expiration of the term. At our option, these
debentures could be redeemed at a 20% premium prior to August 12, 2006. The
secured convertible debentures were secured by a first priority security
interest in substantially all of the assets of iVoice Technology. On February
28, 2005, the secured convertible debentures were terminated and replaced by a
promissory note in the amount of $700,000 ($560,000 representing replacement
notes and $140,000 representing new financing).
Effective August 12, 2004, iVoice Technology entered into a Standby
Equity Distribution Agreement with Cornell Capital Partners to obtain an
equity line of credit. On February 28, 2005, iVoice Technology entered into
a Termination Agreement with Cornell Capital Partners, pursuant to which the
equity line transaction was terminated. On March 9, 2005, iVoice Technology
received a non-binding letter of intent from Cornell Capital whereby Cornell
Capital agreed has offered, subject to satisfaction of certain conditions, to
purchase shares of iVoice Technology's common stock upon the terms set forth
in the non-binding letter of intent and the definitive documentation to be
executed after satisfaction of those closing conditions. Pursuant to the
terms of the non-binding letter of intent, if the definitive documentation is
executed, iVoice Technology, subject to satisfaction of conditions, may issue
and sell to Cornell Capital Partners Class A Common Stock for a total
purchase price of up to $10.0 million. The purchase price for the shares
would 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 iVoice Technology 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 would also be payable
at the time of funding. In addition, Cornell Capital Partners would 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.
iVoice Technology 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 iVoice Technology. iVoice Technology, 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 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 iVoice
Technology, par value $0.01, for each dollar owed, (ii) the number of shares
of Class A Common Stock of iVoice Technology
II-2
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. iVoice Technology has yet to record this liability on its financial
statements, as the promissory note will not be assumed by iVoice Technology
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. iVoice Technology made a
determination in each case that the person to whom the securities were issued
did not need the protections that registration would afford. The certificates
representing the securities issued displayed a restrictive legend to prevent
transfer except in compliance with applicable laws, and our transfer agent
was instructed not to permit transfers unless directed to do so by iVoice
Technology, after approval by our legal counsel. iVoice Technology believes
that the investors to whom securities were issued had such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of the prospective investment. iVoice Technology 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* Amended and Restated Certificate of Incorporation of
iVoice Technology, Inc.
3.2* By-laws of iVoice Technology, Inc.
4.1* Form of iVoice Technology, 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 iVoice
Technology, Inc.
10.2* Securities Purchase Agreement, dated August 12, 2004,
between iVoice Technology, Inc. and Cornell Capital
Partners, LP.
10.3* Escrow Agreement, dated August 12, 2004, between iVoice
Technology, Inc., Cornell Capital Partners, LP and Butler
Gonzalez LLP
10.4* Registration Rights Agreement, dated August 12, 2004,
between iVoice Technology, Inc. and Cornell Capital
Partners, LP
II-3
10.5* Escrow Agreement, dated August 12, 2004, between iVoice
Technology, Inc., Cornell Capital Partners, LP. and Butler
Gonzalez LLP
10.6* Investor Registration Rights Agreement, dated August 12,
2004, between iVoice Technology, Inc. and Cornell Capital
Partners, LP.
10.7* Security Agreement, dated August 12, 2004, between iVoice
Technology, Inc. and Cornell Capital Partners, LP.
10.8* Placement Agent Agreement, dated August 12, 2004, between
iVoice Technology, Inc. and Sloan Securities Corporation.
10.9 Employment Agreement, dated as of August 1, 2004, between
iVoice Technology, Inc. and Jerome Mahoney
10.10 Employment Agreement, dated as of August 1, 2004, between
iVoice Technology, Inc. and Arie Seidler
10.11 Administrative Services Agreement, dated August 1, 2004,
between iVoice, Inc. and iVoice Technology, Inc.
10.12** Assignment and Assumption Agreement and Consent, dated
November 11, 2004 between iVoice Technology, Inc.
(Nevada) and iVoice Technology, Inc. (New Jersey)
10.13** Assignment and Assumption Agreement and Consent, dated
November 11, 2004 between iVoice Technology, Inc.
(Nevada) and iVoice Technology, Inc. (New Jersey)
10.14** Assignment of Intellectual Property between iVoice, Inc.
and iVoice Technology, Inc.
10.15 Waiver dated January 6, 2005 of Jerome Mahoney
10.16 Promissory Note from iVoice Technology, Inc. to Jerome
Mahoney (undated)
10.17 Termination Agreement, dated February 28, 2005, between
Cornell Capital Partners, LP and iVoice Technology, Inc.,
with respect to a Securities Purchase Agreement,
Convertible Debentures, Security Agreement, Investor
Registration Rights Agreement, an Escrow Agreement and
Irrevocable Transfer Agent Instructions, each dated August
13, 2004.
10.18 Termination Agreement, dated February 28, 2005, between
Cornell Capital Partners, LP and iVoice Technology, Inc.,
with respect to a Standby Equity Distribution Agreement,
Registration Rights Agreement, Escrow Agreement and
Placement Agent Agreement, each dated August 13, 2004.
II-4
10.19 Promissory Note, dated February 28, 2005, from iVoice
Technology, Inc. to Cornell Capital Partners, LP
10.20 Security Agreement, dated as of February 28, 2005, by and
between iVoice Technology, Inc. and Cornell Capital
Partners, LP
10.21 Guaranty of Promissory Note from iVoice Technology, Inc.
to Cornell Capital Partners, LP, made by iVoice, Inc. in
favor of Cornell Capital Partners, LP
10.22 Non-Binding Letter of Intent, dated March 9, 2005, between
Cornell Capital Partners, LP and iVoice Technology, Inc.
10.23 Amendment No. 1 to Employment Agreement, dated April 1,
2005, between iVoice Technology, Inc. and Jerome Mahoney
23.1 Consent of Bagell, Josephs & Company, L.L.C.
23.2** Consent of Meritz & Muenz LLP
* Previously filed.
** 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, 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;
II-5
(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-6
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 Amendment
No. 2 to the registration statement to be signed on our behalf by the
undersigned, on April 7, 2005.
IVOICE TECHNOLOGY, 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 Amendment
No. 1 to the 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 April 7, 2005
- ------------------------- the Board
Jerome R. Mahoney
/s/Arie Seidler President (Principal April 7, 2005
- ------------------------- Executive Officer) and Chief
Arie Seidler Executive Officer (Principal
Accounting Officer) and
Director
II-7