UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC20549
FORM 8-K
CURRENT REPORT
Pursuant to Section13 or15(d) of the Securities Exchange Act of1934
Date of Report (Date of earliest event reported) (April 24, 2000)
-------------------------
Ivoice.Com, inc.
(formerly ThirdCAI, INc.)
(Exact name of registrant as specified in its charter)
Delaware 000-29341 86-0974165
- ------------------------------------------------------------------------
(State of (Commission (I.R.S. Employer
organization) File Number) Identification No.)
750 Highway 34, Matawan, NJ 07747
- ---------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (732) 441-7700
ITEM1. CHANGES IN CONTROL OF REGISTRANT
On April 24, 2000, a change in control of ThirdCAI, Inc., (the "Company")
occurred pursuant to the Agreement and Plan of Reorganization between
iVoice.com, Inc., a Delaware corporation ("IVOC") and the persons being the
owners of record of all of the issued and outstanding stock of ThirdCAI, Inc., a
Nevada corporation (the "Company"). IVOC acquired100% of the outstanding common
stock of the Company in exchange for $150,000 and 50,000 newly issued shares of
IVOC Class A common stock. The cash payment was drawn from the working capital
of IVOC.
ITEM2. ACQUISITION OR DISPOSITION OF ASSETS
On April 24, 2000, the Board of Directors of IVOC approved the purchase of
100% of the outstanding common stock of the Company in exchange for $150,000 and
50,000 newly issued shares of IVOC Class A common stock. The cash payment was
drawn from the working capital of IVOC. The acquisition was consummated pursuant
to the Agreement and Plan of Reorganization between iVoice.com, Inc., a Delaware
corporation and the persons being the owners of record of all of the issued and
outstanding stock of the Company.
The Company entered into a definitive agreement to acquire MaiSoft, Inc.
("MaiSoft"). As of the date of this filing, this transaction has not closed and
it is less than probable that this transaction will close. The Company will only
purchase certain software codes and MaiSoft will operate as a separate
non-related entity. (see "Notes to Financial Statements: Note 12 (a)" and
"Financial Statements for Maisoft")
ITEM5. OTHER
The Form10-SB for iVoice.com, Inc. has been included as an exhibit with this
Form 8-K.
ITEM6 RESIGNATIONS OF REGISTRANT'S DIRECTORS
On April 24,2000, Edmond L. Lonergran, the Company's sole officer and director
appointed Jerome R. Mahoney as a member of the board of directors.
On April 24,2000, the Company accepted the resignation of Edmond L. Lonergran as
a member of the board and the sole officer, effective immediately. Mr. Joel G.
Beagelman was appointed to fill the vacancy left by Mr. Lonergran's resignation.
Mr. Mahoney was also elected as Chief Executive Officer, Mr. Beagelman was also
appointed as Chief Financial Officer and Leo Pudio was also elected as
Vice-President of Operations.
ITEM7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
INVOICE.COM, INC.
FINANCIAL STATEMENT
INDEX
Independent Auditors' Report F2
Balance Sheets F3
Statements of Operations F4
Statements of Stockholders' Equity F5-F6
Statements of Cash Flows F7-F8
Notes to Financial Statement F9-F26
-F1-
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS' OF IVOICE.COM, INC.
We have audited the accompanying balance sheets of iVoice.com, Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 iVoice.com, Inc. as of December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1(a), the Company
had a loss and a negative cash flow from operations along with negative working
capital which raises substantial doubt about its ability to continue as a going
concern. Management's plans in regards to these matters are also discussed in
Note 1(a). The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
April 24, 2000
- F2 -
IVOICE.COM, INC.
BALANCE SHEETS
December 31,
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 195,861 $ 71,328
Accounts receivable, net of allowance for
doubtful accounts of $50,000 and $7,500 31,726 46,865
Inventory 10,140 8,457
Prepaid expenses and other current assets 52,100 2,100
Debt issue costs 362,541 --
----------- -----------
Total current assets 652,368 128,750
Property and equipment, net of accumulated
depreciation of $17,836 and $3,186 55,408 12,743
Software license costs, net of accumulated
amortization of $54,400 489,600 --
----------- -----------
TOTAL ASSETS $ 1,197,376 $ 141,493
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 181,754 $ 132,116
Legal settlement payable 4,800,000 --
Due to related parties 21,000 20,000
Convertible debentures 350,000 --
Note payable -- 12,318
----------- -----------
Total liabilities 5,352,754 164,434
----------- -----------
Commitments and contingencies -- --
STOCKHOLDERS' DEFICIENCY
Common stock, series A - par value $.01; authorized
75,000,000 and 40,000,000
shares, 54,093,663 and
10,000,000 issued and outstanding 540,937 100,000
Common stock, series B - no par value; authorized,
issued and outstanding 700,000 and 400,000 shares 70 40
Additional paid in capital 1,395,671 (85,289)
Accumulated deficit (6,092,056) (37,692)
----------- -----------
Total stockholders' deficiency (4,155,378) (22,941)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 1,197,376 $ 141,493
=========== ===========
The accompanying notes are an integral part of the financial statement.
- F3 -
IVOICE.COM, INC.
STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
1999 1998
-----------------------------
SALES, net $ 776,773 $ 626,486
COST OF SALES 280,317 382,501
----------- -----------
GROSS PROFIT 496,456 243,985
----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 168,707 33,685
General and administrative expenses 1,177,730 237,306
Bad debt expense 39,874 7,500
Provision for obsolescence 31,000 --
Non-recurring expenses (see Note 11) 5,028,000 --
Depreciation and amortization 69,050 3,186
----------- -----------
Total selling, general and administrative expenses 6,514,361 281,677
----------- -----------
LOSS FROM OPERATIONS (6,017,905) (37,692)
OTHER EXPENSE
Interest expense (36,459) --
----------- -----------
LOSS BEFORE INCOME TAXES (6,054,364) (37,692)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $(6,054,364) $ (37,692)
=========== ===========
NET LOSS PER COMMON SHARE
Basic $ (.20) $ (.00)
=========== ===========
Diluted $ (.20) $ (.00)
=========== ===========
The accompanying notes are an integral part of the financial statement.
- F4 -
IVOICE.COM, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock Common Stock
Series A Series B
Shares Amount Shares Amount
Balance,
January1,1998, adjusted to reflect
outstanding shares of Visual 10,000,000 $ 100,000 400,000 $ 40
Net loss for the year ended
December 31,1998 -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31,1998 10,000,000 100,000 400,000 40
Acquisition of net asset of Visual 36,932,364 369,324 300,000 30
Issuance of common stock for
software license costs 3,200,000 32,000 -- --
Issuance of common stock for
services 2,630,000 26,300 -- --
Issuance of common stock for
exercise
of stock options 100,000 1,000 -- --
Issuance of common stock for cash 981,299 9,813 -- --
Issuance of common stock for
compensation 250,000 2,500 -- --
Issuance of stock options as
compensation -- -- -- --
Issuance of convertible bonds -- -- -- --
Net loss for the year ended
December 31,1999 -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31,1999 54,093,663 $ 540,937 700,000 $ 70
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statement.
-F5-
IVOICE.COM, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY (Continued)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Additional Total
Paid in Accumulated Stockholders'
Capital Deficit Deficiency
----------- ----------- -----------
Balance,
January1,1998, adjusted to reflect
outstanding shares of Visual $ (85,289) $ -- $ 14,751
Net loss for the year ended
December 31,1998 -- (37,692) (37,692)
----------- ----------- -----------
Balance at December 31,1998 (85,289) (37,692) (22,941)
Acquisition of net asset of Visual (231,354) -- 138,000
Issuance of common stock for
software license costs 512,000 -- 544,000
Issuance of common stock for
services 264,500 -- 290,800
Issuance of common stock for
exercise
of stock options 13,000 -- 14,000
Issuance of common stock for cash 231,314 -- 241,127
Issuance of common stock for
compensation 85,000 -- 87,500
Issuance of stock options as
compensation 256,500 -- 256,500
Issuance of convertible bonds 350,000 -- 350,000
Net loss for the year ended
December 31,1999 -- (6,054,364) (6,054,364)
----------- ----------- -----------
Balance at December 31,1999 $ 1,395,671 $(6,092,056) $(4,155,378)
=========== =========== ===========
The accompanying notes are an integral part of the financial statement.
- F6 -
IVOICE.COM, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
1999 1998
----------- ------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(6,054,364) $ (37,692)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities
Depreciation and amortization 69,050 3,186
Bad debt expense 42,500 7,500
Provision for obsolescence 31,000 --
Legal settlement expense 4,500,000 --
Debt issue expense 32,959 --
Common stock issued for consulting services 290,800
Common stock issued for compensation 56,500 --
Stock options issued as compensation 256,500 --
Changes in certain assets and liabilities:
Increase in accounts receivable (27,361) (4,365)
Decrease in inventory 81,191 4,075
Increase in prepaid expense -- --
Increase in accounts payable and
accrued expenses 49,638 116,416
Increase in legal settlement payable 300,000 --
----------- -----------
Total cash (used in) provided by operating activities (371,587) 89,120
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,189) (5,186)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 255,127 --
Prepaid offering and debt issue costs (95,500) --
Repayment of notes payable (12,318) (27,554)
Sale of convertible debentures 350,000 --
----------- -----------
Total cash provided by (used in) financing activities 497,309 (27,554)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 124,533 56,380
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 71,328 14,948
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 195,861 $ 71,328
=========== ===========
CASH PAID DURING THE YEAR FOR:
Interest expense $ 41,708 $ --
=========== ===========
Income taxes $ -- $ --
=========== ===========
The accompanying notes are an integral part of the financial statement.
- F7 -
IVOICE.COM, INC.
STATEMENTS OF CASH FLOWS (Continued)
DECEMBER 31, 1999 AND 1998
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
a) On May 21, 1999, the Company executed a Reorganization Agreement
that provided that the Company and International Voice Technologies,
Corp. ("IVT") would be merged and the Company would be the surviving
entity. In connection with the merger transaction, the sole
shareholder of IVT, received the following:
i) 10,000,000 shares of the Company's Class A common stock and
ii) 400,000 shares of the Company's Class B common stock.
b) On May 14, 1999, the Company issued 9,000,000 stock options to
purchase the Company's class A common stock for $.033 per share.
c) On June 15, 1999, the Company issued 250,000 shares of Class A
common stock in relation to an employee agreement.
d) On June 25, 1999, the Company issued 3,200,000 shares of the their
Class A common stock valued at .17 per share or $544,000 in
connection with the purchase of pre-developed software codes.
e) In connection with the Reorganization Agreement, the stock price was
calculated using an average of the share price before the merger
when the agreement was accepted. A consulting company received
2,000,000 shares of the Company's Class A common stock, valued at
.114 per share or $228,000 for services performed during April and
May 1999.
f) The Company issued 230,000 shares of its Class A common stock valued
at $30,800 for services performed relating to the merger during May
1999.
g) The Company issued 400,000 shares of its Class A common stock for
legal services valued at $32,000 for services performed relating to
the merger during April and May 1999.
h) The Company incurred non-cash debt issue costs totaling $350,000 in
relation to their 50% discount on the issuance of the 12%
convertible bonds (see Note 7).
i) As described in notes 8(f) and 12(b), the Company issued 2,000,000
shares of its Class A common stock valued at $4,500,000 in relation
to a legal settlement.
The accompanying notes are an integral part of the financial statement.
- F8 -
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying financial statements include the accounts of
iVoice.com, Inc. (the "Company"), formerly known as Visual Telephone
International, Inc. ("Visual"), which was incorporated under the
laws of Utah on December 2, 1995, subsequently changed to Delaware.
Effective May 21, 1999, Visual and International Voice Technologies,
Corp. ("IVT") entered into a merger agreement whereby the Company
would be the surviving entity (see Note 2 for Reorganization). As a
result, IVT's former shareholder obtained control of Visual. For
accounting purposes, this acquisition has been treated as a
recapitalization of IVT.
The financial statements presented include only the accounts of IVT
from its inception (December 17, 1997 - operations began January
1998) through May 21, 1999, and that of iVoice (Visual and IVT
merged) from May 22, 1999 through December 31, 1999.
The Company is publicly traded and is currently exempt from the
requirement to register with a non-reporting public company traded
on the Over The Counter Bulletin Board ("OTCBB"). The Company is
required to become a fully reporting company by May 24, 2000 in
order to continue to be quoted on the OTCBB.
As reflected in the accompanying financial statements, the Company
had a loss and a negative cash flow from operations as well as a
negative working capital as of December 31, 1999. These matters
raise substantial doubt about the Company's ability to continue as a
going concern.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheet is dependent upon continued
operations of the Company which, in turn, is dependent upon the
Company's ability to continue to raise capital and generate positive
cash flows from operations. The financial statements do not include
any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classifications of liabilities
that might be necessary should the Company be unable to continue its
existence.
Management plans to take the following steps that it believes will
be sufficient to provide the Company with the ability to continue in
existence:
(i) The Company has entered into a letter of intent with an investment
banking firm to raise between $1,000,000 to $5,000,000 in
convertible debentures (see Note 12g).
(ii) Re-negotiate the terms relating to their 12% convertible
debentures (see Notes 7 and 12m).
- F9 -
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation (continued)
(iii) Structure arrangements for the provision of services by
outside consultants and third party providers in a manner
which reserves the cash flow of the Company, such as through
agreements which require those consultants or service
providers to take a portion of any agreed-upon fee in stock or
stock options (see Note 12).
(iv) Expand the company through acquisitions that will enable the
Company to integrate new technology with their existing
technology (see Note 12a).
(v) Expand their sales force to help grow sales.
b) Line of Business
The Company is a communication company primarily engaged in the
development, manufacturing and marketing of voice and computer
technology communication systems for small-to-medium sized
businesses and corporate departments. The technology allows these
businesses to communicate more effectively by integrating their
traditional office telephone systems with voicemail, automated
attendant and Interactive Voice Response ("IVR") functions. IVR
products allow information in PC databases to be accessed from a
standard touch-tone telephone system. The Company sells its products
through Dealer and Reseller channels as well as through OEM
agreements with certain telecommunications and networking companies
throughout the United States.
c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates.
d) Revenue Recognition
The Company obtains its income from the sale of its systems and from
commissions obtained from securing telephone usage contracts for a
regional telecommunications company. These commissions are a monthly
percentage of the gross usage charges of the customers obtained by
the Company. The Company recognizes revenue at the time of shipment
for sales of systems which do not require customization to be
performed by the Company. Revenue for systems which require
customization to be performed by the Company are recognized by the
contract method of accounting, using percentage of completion for
larger more complex systems (generally over a $25,000 sales price).
Progress toward completion is measured by costs incurred to date as
a percentage of total estimated costs for each contract. Unbilled
receivables accrued under percentage of completion method amounted
to $-0- as of December 31, 1999 and 1998, respectively. The
completed contract method is used for smaller systems.
- F10 -
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d) Revenue Recognition (continued)
The Company recognizes revenue from services at the time the service
is performed or over the period of the contract for
maintenance/support.
e) Advertising Costs
Advertising costs are expensed as incurred and are included in
selling expenses. For the years ended December 31, 1999 and 1998,
advertising expense amounted to $42,136 and $0, respectively.
f) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
g) Concentration of Credit Risk
The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances exceeded FDIC insured
levels at various times during the year.
h) Inventory
Inventory, consisting primarily of system components, is valued at
the lower of cost or market. Cost is determined on a first-in,
first-out basis.
i) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method based upon the estimated useful lives
of the assets, generally five to seven years. Maintenance and
repairs are charged to expense as incurred.
j) Software License Cost
Software license costs are recorded at the lower of cost or fair
market value as of the date of purchase. These costs represent the
purchase of various exploitation rights to certain software,
pre-developed codes and systems patented by Parawan Electronics,
Corp. ("Parawan"), a non-related third party. As of December 31,
1999, these costs are capitalized pursuant to Statement of Financial
Accounting Standards ("SFAS") 86, paragraph 7 and are being
amortized using the straight-line method over a period of five
years. As described in Note 1 o), 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 unamortization cost. No impairment loss should
be recognized as of December 31, 1999.
- F11 -
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k) Income Taxes
Income taxes are provided for based on the liability method of
accounting pursuant to SFAS No. 109, "Accounting for Income Taxes".
The liability method requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
temporary differences between the reported amount of assets and
liabilities and their tax basis.
l) Offering Costs
Offering costs consist primarily of professional fees. These costs
are charged against the proceeds of the sale of common stock in the
periods in which they occur. As of December 31, 1999 the Company has
prepaid offering costs totaling $50,000.
m) Debt Issue Costs
Debt issue costs represent various commissions paid and the
estimated cost of the 50% conversion discount feature relating to
the issuance of the Company's convertible debentures. These costs
are being amortized over the life of the debt (see Note 7).
n) Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts
receivable, inventory, accounts payable and accrued expenses and
deferred revenue approximates fair value due to the relatively short
maturity of these instruments.
o) Long-Lived Assets
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of", requires that
long-lived assets and certain identifiable intangibles to be held
and used or disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company has
adopted this statement and determined that an impairment loss should
not be recognized for applicable assets of continuing operations.
p) Earnings Per Share
SFAS No. 128, "Earnings Per Share" requires presentation of basic
earnings per share ("Basic EPS") and diluted earnings per share
("Diluted EPS").
The computation of basic earnings per share is computed by dividing
income available to common stockholders by the weighted average
number of outstanding common shares during the period. Diluted
earnings per share gives effect to all dilutive potential common
shares outstanding during the period. The computation of diluted EPS
does not assume conversion, exercise or contingent exercise of
securities that would have an anti-dilutive effect on earnings. The
shares used in the computations are as follows:
- F12 -
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
p) Earnings per share (continued)
As December 31,
1999 1998
---- ----
Basic and Diluted EPS 30,500,000 10,000,000
========== ==========
q) Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", establishes
standards for the reporting and display of comprehensive income and
its components in the financial statements. The items of other
comprehensive income that are typically required to be displayed are
foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain investments in debt and
equity securities. As of December 31, 1999 and 1998, the Company has
no items that represent comprehensive income, and thus, has not
included a statement of comprehensive income.
r) Recent Accounting Pronouncements
SFAS No. 131, "Disclosure About Segments of an Enterprise and
Related Information" changes the way public companies report
information about segments. SFAS No. 131, which is based on the
selected segment information quarterly and entity-wide disclosures
about products and services, major customers, and the material
countries in which the entity holds assets and reports revenue. This
statement is effective for the Company's 1999 fiscal year. The
Company is in the process of evaluating the disclosure requirements
under this standard.
SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities" requires that certain derivative instruments be
recognized in balance sheets at fair value and for changes in fair
value to be recognized in operations. Additional guidance is also
provided to determine when hedge accounting treatment is appropriate
whereby hedging gains and losses are offset by losses and gains
related directly to the hedged item. While the standard, as amended,
must be adopted in the fiscal year beginning after June 15, 2000,
its impact on the Company's consolidated financial statements is not
expected to be material as the Company has not historically used
derivative and hedge instruments.
Statement of Position ("SOP") No. 98-1 specifies the appropriate
accounting for costs incurred to develop or obtain computer software
for internal use. The new pronouncement provides guidance on which
costs should be capitalized, and over what period such costs should
be amortized and what disclosures should be made regarding such
costs. This pronouncement is effective for fiscal years beginning
after December 15, 1998, but earlier application is acceptable.
Previously capitalized costs will not be adjusted. The Company
believes that it is already in substantial compliance with the
accounting requirements as set forth in this new pronouncement and
therefore believes that adoption will not have a material effect on
financial condition or operating results.
-F13-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
r) Recent Accounting Pronouncements (continued)
SOP No. 98-5 requires that companies write-off defined previously
capitalized start-up costs including organization costs and expense
future start-up costs as incurred. The Company believes that it is
already in substantial compliance with the accounting requirements
as set forth in this new pronouncement and therefore believes that
adoption will not have a material effect on financial condition or
operating results.
NOTE 2 - CORPORATE REORGANIZATION AND MERGER
On May 21, 1999, the Company executed a Reorganization Agreement
(the "Agreement") that provided that the Company and International
Voice Technologies, Corp. ("IVT") would be merged and the Company
would be the surviving entity. On May 25, 1999, a certificate of
merger was filed with the State of Delaware. In connection with the
merger transaction, the sole shareholder of IVT, received the
following:
i) 10,000,000 shares of the Company's Class A common stock;
and
ii) 400,000 shares of the Company's Class B common stock.
In addition, the two controlling shareholders of Visual sold 300,000
shares of the Company's Class B common stock to IVT's sole
shareholder and concurrently canceled a total of 2,000,000 shares of
their Class A common stock.
The Agreement also provided that certain assets of the Company would
be transferred to Communications Research, Inc., ("CRI"), a wholly
owned subsidiary of Visual. It also provided that the shares of CRI
would be distributed pro rata to the Class A shareholders of the
Company before the issuance of the 10,000,000 shares to the sole
shareholder of IVT. The stock of CRI was distributed at the rate of
one share of CRI for each four shares of the Company's Class A
stock.
A finder's fee of 2,000,000 shares was issued on August 30, 1999, in
connection with the reorganization.
-F14-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - CORPORATE REORGANIZATION AND MERGER (Continued)
This merger transaction has been accounted for in the financial
statements as a public shell merger. As a result of this transaction
the former shareholders of IVT acquired or exercised control over a
majority of the shares of Visual. Accordingly, the transaction has
been treated for accounting purposes as a recapitalization of IVT
and, therefore, these financial statements represent a continuation
of the legal entity, IVT, not Visual, the legal survivor.
Consequently, the comparative figures are those of iVoice.com.
Because the historical financial statements are presented in this
manner, proforma financial statements are not required.
In accounting for this transaction:
i) IVT is deemed to be the purchaser and surviving company for
accounting purposes. Accordingly, its net assets are included
in the balance sheet at their historical book values;
ii) Control of the net assets and business of Visual was acquired
effective May 21, 1999 (the "Effective Date"). This
transaction has been accounted for as a purchase of the assets
and liabilities of Visual by IVT at the fair value of
$138,000. The historical cost of the net assets acquired was
$90,780. A summary of the assigned values of the net assets
acquired is as follows:
Cash and cash equivalents $ 191
Property and equipment 138,809
Accrued expenses (1,000)
----------
Net assets acquired $ 138,000
==========
iii) The statements of operations and cash flows include IVT's
results of operations and cash flows from January 1, 1998
(date operations began) and Visual's results of operations
from the Effective Date.
-F15-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
December 31,
1999 1998
------ ------
Equipment $ 8,932 $ 8,186
Furniture and fixtures 64,312 7,743
------- --------
73,244 15,929
Less: Accumulated depreciation (17,836) (3,186)
-------- --------
property and equipment, net $55,408 $ 12,743
======= ========
Depreciation expense for the years ended December 31, 1999 and 1998
was $14,650 and $3,186, respectively.
NOTE 4 - INCOME TAXES
The components of the provision for income taxes are as follows:
December 31,
------------
1999 1998
-------- --------
Current Tax Expense
U.S. Federal $ - $ -
State and Local - -
-------- --------
Total Current - -
-------- --------
Deferred Tax Expense
U.S. Federal - -
State and Local - -
--------- --------
Total Deferred - -
--------- --------
Total Tax Provision from
Continuing Operations$ $ - $ -
========= ========
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
Federal Income Tax Rate (34.0)%
Deferred Tax Charge (Credit) -
Effect on Valuation Allowance 34.0%
State Income Tax, Net of Federal Benefit -
-------
Effective Income Tax Rate 0.0%
=======
-F16-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - INCOME TAXES (Continued)
As of December 31, 1999 and 1998, the Company had net carryforward
losses of approximately $1,700,000 and $38,000 that can be utilized
to offset future taxable income through 2014. Utilization of these
net carryforward losses is subject to the limitations of Internal
Revenue Code Section 382. Because of the current uncertainty of
realizing the benefit of the tax carryforward, a valuation allowance
equal to the tax benefit for deferred taxes has been established.
The full realization of the tax benefit associated with the
carryforward depends predominantly upon the Company's ability to
generate taxable income during the carryforward period.
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. Significant components of the Company's
deferred tax assets and liabilities are summarized as follows:
December 31
1999 1998
-------- --------
Net Operating Loss Carryforwards $578,000 $12,920
Less: Valuation Allowance (578,000) (12,920)
--------- --------
Net Deferred Tax Assets $ - $ -
========= ========
Net operating loss carryforwards expire starting in 2007 through
2014.
NOTE 5 - DUE TO RELATED PARTY
As of December 31, 1999 and 1998, due to related parties represents
non-interest bearing advances of $21,000 and $20,000, respectively,
from an officer (see also Notes 8, 9 and 10).
NOTE 6 - NOTE PAYABLE
Note payable represented a $12,318 note payable to the Bank of New
York, as of December 31, 1998. The note has been repaid as of
December 31, 1999.
-F17-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 7 - CONVERTIBLE DEBENTURES
Convertible debentures consisted of six notes payable totaling
$350,000 bearing interest at 12% per annum payable on December 1,
2000, which were sold by the Company to non-related third parties as
of December 1, 1999. These debentures are convertible into shares of
the Company's Class A Common Stock at the option of the holder by
dividing the outstanding principal and interest by the conversion
price which shall equal 50% of the average bid price during the 20
trading days before the conversion date. The convertible debentures
are subject to default if the Company has not registered its shares
under a regulation offering within 150 days of the effective date of
the debentures (also see Note 1(m)).
NOTE 8 - COMMITMENTS AND CONTINGENCIES
a) The Company's future minimum annual aggregate rental payments
required under operating that have initial or remaining
non-cancelable lease terms in excess of one year are as
follows:
December 31,
2000 $ 51,000
2001 44,800
----------
Total $ 95,800
==========
Rent expense under operating leases for the year ended December 31,
1999 and 1998 was $70,185 and $1,000, respectively.
b) The Company is committed to a monthly lease agreement for
their office currently utilized as the corporate headquarters.
Monthly lease payments total $1,450.
c) During May 1999, the Company entered into a five year
employment agreement with its majority shareholder (the
"Executive"). He will serve as the Company's Chairman of the
Board and its Chief Executive Officer for a term of five
years. As consideration, the Company agrees to pay the
Executive a sum of $180,000 the first year with a 10% increase
every year thereafter.
d) In connection with the Reorganization Agreement, the Company
entered into a five-year consulting agreement with one of
Visual's Directors (the "Director"). The agreement provides
that the Director will devote his part-time efforts to:
o coordinating investor and public relations, including
working with investment bankers in connection with
public or private equity or debt funding ventures;
o facilitating the preparation and filing of a Form 10 or
Form 10-SB registration statement with the Securities
and Exchange Commission (the "SEC"),
-F18-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
o the subsequent preparation and filing of periodic
reports with the SEC;
o seeking and evaluating potential business or product
line acquisitions;
o seeking potential sources of debt or equity financing
for the Company's business activities or growth; and
o monitoring, and reporting to management of the Company
on a monthly basis of, the activities of each of the
subsidiaries, if any, of the Company; and such other
activities as shall be mutually agreed upon by the
parties.
As compensation for his services, the Director shall receive a
fee of $104,000 per year provided, however, that such fee
shall be paid only from up to 10% of any equity or debt funds
raised by the Company. If such funds are not available for
payment of the consulting fee when due, such amount shall be
accrued and paid by the Company as soon as such equity or debt
funds are received by the Company. If any accrued consulting
fees are outstanding at the termination of the Agreement, the
Company will have no further obligation to pay the Consultant
any accrued fees. As consideration for entering into the
Consulting Agreement, the Director received 50,000 shares of
common stock of a public company received by Visual in a
Settlement Agreement dated March 5, 2000.
e) On June 2, 1999, subsequently amended January 11, 2000, the Company
entered into a three-year employment agreement, expiring on May 31,
2002, with an employee. As compensation, such employee will receive
a base salary and
1) options to purchase 140,000 shares of the Company's Class A
common stock; and
2) 250,000 shares of the Company's Class A common stock.
f) The Company is a party to a lawsuit initiated by an individual on
November 1, 1999 relating to an investment made into an entity
called IVS Corp. ("IVS"). This investment was made between the years
1994 and 1996. IVS was incorporated in 1993 and ceased operations in
November, 1997. The majority shareholder of IVS is the majority
shareholder and CEO of the Company. The Company believes this
lawsuit should not exceed $4,800,000 and accordingly has established
a reserve in accounts payable and accrued expenses. The Company
settled this lawsuit during March 2000 (also see Note 12).
-F19-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 9 - COMMON STOCK
The company has two issuances of common stock:
a) Class A Common Stock
Class A common stock consists of 75,000,000 shares of
authorized common stock with a par value of $.01. Class A
stock has voting rights of 1:1 and as of December 31, 1999 and
1998, 54,083,663 and 10,000,000 were issued and outstanding,
respectively.
Each holder of Class A Common stock is entitled to receive
ratably dividends, if any, as may be declared by the Board of
Directors out of funds legally available for the payment of
dividends. As of December 31, 1999 and 1998, the Company has
not paid any dividends on its Common Stock.
b) Class B Common Stock
Class B Common Stock consists of 700,000 shares of authorized
common stock with no intrinsic value. Class B stock has voting
rights of 100 to 1 with respect to Class A Common Stock. As of
December 31, 1999 and 1998, 700,000 and 400,000 were issued
and outstanding, respectively (see Note 2). Class B common
stockholders are not entitled to receive dividends (see Note
12h).
NOTE 10 - STOCK OPTIONS
During 1997, the Company issued the following options:
a) On December 15, 1997, issued options to purchase 75,866 shares
of Class A common stock at $.12, which expired on December 15,
1999.
During 1998, the Company issued various options as follows:
b) On January 1, 1998, issued options to purchase 400,000 shares
of Class A common stock, at an average exercise price of $1.33
for services, with expiration on January 1, 2001.
c) On July 13, 1998, issued options to purchase 50,000 shares of
Class A common stock at $.10 per share expiring in 12 months
(expired).
d) On July 14, 1998, issued options to purchase 195,185 shares of
Class A common stock at $.1035 for investment banking
services, exercisable within three years (see note 10).
-F20-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 10 - STOCK OPTIONS (Continued)
e) On October 5, 1998, issued options to purchase 1,000,000
shares of Class A common stock at $.03 (exercised).
f) On November 23, 1998, issued options to purchase 300,000
shares of Class A common stock at $.05 (exercised).
g) On December 22, 1998, issued options to purchase 10,000 shares
of Class A common stock at $.10 for investment banking
services.
During 1999, the Company issued various options as follows:
h) On January 5, 1999, issued options to purchase 10,000 share of
Class A common stock at $.12 per share expiring in five years.
i) On January 21, 1999, issued options to purchase 10,000 shares
of Class A common stock at $.107 per share expiring in five
years.
j) On February 5, 1999, issued options to purchase 10,000 shares
of Class A common stock at $.107 per share expiring in five
years.
k) On March 17, 1999, issued options to purchase 10,000 shares of
Class A common stock at $.107 per share expiring in five
years.
l) On April 6, 1999, issued options to purchase 10,000 shares of
Class A common stock at $.107 per share expiring in five
years.
m) On May 14, 1999, the Company issued an option to purchase
9,000,000 shares of Class A Common Stock at $.033 per share
expiring in five years.
Options outstanding, except options under employee stock option plan
are as follows as of December 31,1999:
-F21-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 10 - STOCK OPTIONS (Continued)
Expiration Date Exercise Price Shares
--------------- -------------- ------
a) December 15, 1999 (Expired) .1200 75,866
c) July 13, 1999 (Expired) .1000 50,000
d) July 14, 2001 .1035 195,185
b) January 1, 2001 .3100 100,000
b) January 1, 2001 1.0000 100,000
b) January 1, 2001 2.0000 200,000
g) December 22, 2003 .1000 10,000
h-l)January - April 2004 .1096 50,000
--------
781,051
========
n) Employee Stock Option Plan
During the year ended December 31, 1999, the Company adopted
the Employee Stock Option Plan (the "Plan") in order to
attract and retain qualified personnel. Under the Plan, the
Board of Directors (the "Board"), in its discretion may grant
stock options (either incentive or non-qualified stock
options) to officers and employees to purchase the company's
common stock at no less than 85% of the market price on the
date the option is granted. Options generally vest over four
years and have a maximum term of five to ten years. During the
year ended December 31, 1999, 20,000,000 shares were reserved
for future issuance under the plan of which 9,510,000 shares
were granted subsequent to the adoption as detailed below:
Optionee Date #Shares Price
----------------- -------- --------- -----
Joel Beagleman 05/14/99 9,000,000 0.033
Leo Pudlo 06/15/99 140,000 0.350
Carolyn Mikuski 08/02/99 10,000 0.290
Arlene Wiko 08/02/99 5,000 0.290
Peter Spohrer 08/02/99 20,000 0.290
Randy Gerber 08/02/99 5,000 0.290
David B. Alberding 09/07/99 20,000 0.210
Robert Weist 08/02/99 20,000 0.290
Greg M. Shanken 10/15/99 20,000 0.160
John Bianco 11/08/99 100,000 0.165
John Bianco 11/08/99 150,000 0.210
Derek Rowe 12/27/99 20,000 0.350
---------
9,510,000
-F22-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 10 - STOCK OPTIONS (Continued)
The Company has adopted only the disclosure provisions of SFAS No.
123. It applies Accounting Principles Bulletin ("APB") Opinion No.
25, "Accounting for Stock Issued to Employess", and its related
interpretations in accounting for its plan. It does not recognize
compensation expense for its stock-based compensation plan other
than for restricted stock and options/warrants issued to outside
third parties. If the Company had elected to recognize compensation
expense based upon the fair value at the grant date for awards under
its plan consistent with the methodology prescribed by SFAS No. 123,
the Company's net loss and loss per share would be increased to the
proforma amounts indicated below:
For The Year Ended,
December 31,
------------
1999 1998
----------- --------
Net Loss
As Reported $(1,662,702) $ --
=========== ========
Proforma $(1,945,123) $ --
=========== ========
Basic Loss Per Share
As Reported $ (.026) $ --
=========== ========
Proforma $ (.031) $ --
=========== ========
These proforma amounts may not be representative of future
disclosures because they do not take into effect proforma
compensation expense related to grants made before 1997. The fair
value of these options were estimated at the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 1999
and 1998: dividend yield of 0%; expected volatility of 320%;
risk-free interest rates of 5.84%; and expected life of 3.0 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its employee stock
options.
-F23-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 10 - STOCK OPTIONS (Continued)
The following summarizes the stock option and warrant transactions:
Weighted Other Weighted
Employee Average Options Average
Stock Options Exercise and Exercise
Outstanding Price Warrants Price
---------- -------- ---------- --------
Balance, December 31, 1997 -- $ -- 75,866 $ 0.12
Granted -- $ -- 1,955,185 $ 0.06
Exercised -- $ -- (1,300,000) 0.03
Canceled -- $ -- -- --
---------- -------- ----------- --------
Balance, December 31, 1998 -- $ -- 731,051 $ 0.12
Granted 9,510,000 $ .03 50,000 $ 0.11
Exercised -- $ -- $ --
Canceled -- $ -- (125,866) $ 0.11
---------- -------- ----------- --------
Balance, December 31, 1999 9,510,000 $ .03 655,185 $ 0.12
---------- -------- ----------- --------
Outstanding and Exercisable,
December 31, 1998 -- $ -- 731,051 $ 0.12
---------- -------- ----------- --------
Outstanding and Exercisable,
December 31, 1999 9,000,000$ 03 655,185 $ 0.12
---------- -------- ----------- --------
The weighted average remaining contractual lives of the employee
stock options is 2.5 years at December 31, 1999.
NOTE 11 - NON-RECURRING EXPENSES
Non-recurring expenses consisted of the following for the year ended
December 31, 1999:
a) Legal Settlements $ 4,800,000
b) Merger Costs 228,000
-----------
Total non-recurring expenses$ 5,028,000
===========
a) The Company recognized $4,800,000 of expenses relating to
legal settlements. During February 2000, the Company settled a
lawsuit and agreed to pay $300,000 in cash and issue 2,000,000
shares of its Class A restricted common stock valued at
$4,500,000 (see Note 12b).
-F24-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 11 - NON-RECURRING EXPENSES (Continued)
b) In connection with the Reorganization Agreement, a consulting
company received 2,000,000 shares of the Company's Class A
common stock, valued at .114 per share or $228,000 for
services performed. These shares were for services performed
during the merger (see Note 2).
NOTE 12 - SUBSEQUENT EVENTS
a) On March 27, 2000, the Company entered into a definitive
agreement to acquire MaiSoft, Inc. ("MaiSoft"). MaiSoft
possesses unified messaging technology which will be
integrated with the Company's present technology. The terms of
the agreement specify that the Company will pay $1,000,000 in
cash and issue 2,400,000 shares of its class A common stock in
exchange for certain assets of Maisoft. The agreement is
subject to a repricing mechanism after one year based upon
certain levels of the Company's common stock price. As of the
date of this report, this transaction has not closed and it is
less than probable that this transaction will close.
b) During February 2000, the Company settled a lawsuit (see Note
8F). As settlement, the Company paid $300,000 in cash and
issued 2,000,000 shares of its Class A restricted common stock
valued at $4,500,000.
c) During March 2000, the Company increased its authorized shares
of its Class A common stock from 75,000,000 to 150,000,000.
d) During March 2000, 195,185 of outstanding stock options were
exercised.
e) During January, February and March 2000, the Company issued
four additional 12% secured convertible debentures due
December 1, 2000, totaling $150,000.
f) On April 21, 2000, the Company executed an agreement and plan
of reorganization with ThirdCAI, Inc. ("ThirdCAI"), a fully
reporting holding company. The agreement stipulates that
ThirdCAI and the Company would be merged and the Company would
be the surviving entity. The Company will issue 50,000 shares
for all outstanding shares of ThirdCAI. A finders fee of
$150,000 is also payable in relation to the agreement
g) On April 19, 2000, the Company entered into a letter of intent
with an investment banking firm to issue a minimum of
$1,000,000 and a maximum of $5,000,000 of 6% convertible
debentures, due in one year, on a "best efforts" basis, as
follows:
i) $1,000,000 to $2,500,000 funded by May 10, 2000; and
ii) $1,000,000 to $2,500,000 funded within 60 days of the
initial closing on May 10, 2000.
-F25-
IVOICE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 12 - SUBSEQUENT EVENTS (Continued)
The debentures are convertible at the lessor of :
(a) 50% discount of the lowest closing bid price from April
18, 2000 until the date of the initial closing; or
(b) a 50% discount, utilizing a twenty (20) day average
closing bid price to the market price at the time of
conversion for the first $2,500,000 raise. The second
$2,500,000 raise will be convertible at a 50% discount,
utilizing a twenty (20) day average closing bid price to
the market price at the time of conversion. The
Debenture may be converted at any time and must be
converted within one year from the date of an effective
registration.
The debentures and underlying securities shall be registered
by an appropriate registration statement filed no later than
sixty (60) days from the date of the initial closing of this
offering.
h) On April 24, 2000, the Company filed to amend its Articles of
Incorporation to state that Class B common stock is
convertible into its Class A common stock at a conversion rate
of one share of Class B common stock for one hundred shares of
Class A common stock. The conversion ratio is in relation to
the voting ratio.
i) On April 24, 2000, the Company terminated its agreement with
their former investment banking firm. The Company has agreed
to issue shares of its restricted Class A common stock as
settlement for all obligations relating to their agreement.
This settlement is not yet finalized.
j) On March 21, 2000, 9,000,000 stock options were exercised to
purchase 9,000,000 shares of the Company's Class A common
stock at a strike price of $.033 (see Note 10m).
k) During April 2000, the Company issued 37,500 shares of its
Class A common stock for services rendered to two non-related
individuals. These services were valued at the closing market
price of the Company's Class A common stock on the date of
issuance which approximated $72,000.
l) During April 2000, the Company sold 1,750,000 shares of its
Class A commons stock for approximately $750,000.
m) On April 24, 2000, the Company entered into discussions to
issue 100,000 shares of its Class A common stock to the 12%
convertible debenture holders, to extend the default term of
the debentures for a period of six months.
-F26-
(b) Form 10-SB of iVoice.Com, Inc.
iVoice.com, Inc.
----------------
(Exact name of registrant as specified in its charter)
Delaware 86-0974165
- ------------------------------------------------------------------------
(State of organization) (I.R.S. Employer Identification No.)
750 Route 34, Matawan, NJ 07747
- -------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (732) 441-7700
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01 per share
3
ITEM 1. DESCRIPTION OF BUSINESS
Background
The Company, formerly Visual Telephone International, Inc., a Delaware
corporation, was incorporated in 1989, and is the successor to Booster
Corporation, a publicly traded Utah corporation, incorporated in 1985.
On February 5, 1988, Articles of Amendment were filed with the state of Utah
changing the name of the Company from Booster Corp. to "Kenneth Dion of
Scottsdale, Inc.".
On January 23, 1990, Articles of Amendment were filed with the state of Utah
changing the name of the Company from Kenneth Dion of Scottsdale, inc. to
"Select Housing Associates, Inc.".
On February 2, 1990, Select Housing Associates, Inc. (a Utah corporation) was
merged into Del Enterprises, Inc. (a Delaware corporation, which was
incorporated on October 20, 1989).
On November 12, 1991, the name of the corporation, Select Housing Associates,
Inc., was changed to "Select Resources, Inc." to differentiate it from the
wholly-owned California subsidiary, Select Housing Associates.
On March 25, 1996, Certificate of Amendment were filed with the state of
Delaware changing the name of the Company from Select Resources, Inc. to "Visual
Telephone of New Jersey, Inc.", and on September 2, 1996 to "Visual Telephone
International, Inc."
During 1995, the Company exchanged all of its Select Housing shares for 100% of
the shares of Visual Telephone of New Jersey as well as changed its name to
Visual Telephone of New Jersey. This name change was pursuant to a stock
exchange agreement. On February 26, 1996, the Company entered into a Stock
Exchange Agreement with Visual Telephone of NJ., Inc. ("Visual Telephone"), a
privately held New Jersey corporation, its shareholders, and three of the
principle shareholders of the Company. The purpose of the agreement was to
acquire all of the outstanding shares of Visual Telephone and to spin-off Select
Housing Associates, Inc. ("SHA"), a wholly owned subsidiary of the Company. As
set forth in the agreement, the Company agreed to issue 5,611,000 shares to one
of the two shareholders of Visual Telephone and to transfer one-half of the
shares of SHA owned by the Company to Joel Beagelman, the other shareholder of
Visual Telephone, in return for all of the outstanding shares of Visual
Telephone. In addition, the Company agreed to transfer the other half of the
shares of SHA owned by the Company to Gary W. Pomeroy and Brad W. Pomeroy in
return for the cancellation of 1,111,000 shares of common stock of the Company
owned by such individuals. Mr. Beagelman and the Pomeroys were directors of the
Company at the time of the transaction. On February 26, 1996, the Stock Exchange
Agreement was approved by the consent of shareholders of the Company owning a
majority of the outstanding shares of common stock of the Company. Visual
telephone would be considered a public shell (explanation to follow).
In July 1996, the Company acquired Communications Research Inc. ("CRI"). On May
21, 1999, International Voice Technologies, Corp. ("IVT") a Delaware
corporation, merged into the Company. Simultaneous with the merger with IVT,
Communications Research, Inc. ("CRI") was spun off and the name of the Company,
Visual Telephone International, Inc., was changed to iVoice.com, Inc.
Additionaly, the Company revised its trading symbol on the NASD OTC Bulletin
Board to "IVOC". In consideration for merging IVT into the Company, the sole
shareholder of IVT, Jerome Mahoney, received:
a. 10,000,000 shares of Class A Common Stock issued, and
4
b. 700,000 shares of Class B Common Stock. (see "Certain Transactions
and Business Relationships").
c. The firm of Toby Investments consulted on this transaction and was
awarded 2,000,000 shares of Common Stock for his efforts.
During April 2000, the Company issued 37,500 shares of its Class A common stock
for services rendered to Robert Keenan, who received 25,000 shares and to Ken
Glynn, Esq. , who received 12,500 shares. These shares were exempt from the
registration requirements of Section 5 of the Securities Exchange Act of 1934,
as amended, (the "Act") as provided in Section 4(2) of that Act.
During April 2000, the Company sold 1,750,000 shares of its Class A common
stock for approximately $750,000 to Gaston Coldwater, LLC. These shares were
exempt from registration pursuant to Rule 504 of Regulation D.
CRI is currently in the process of filing a registration statement to provide
for the proposed distribution of CRI shares to Visual Telephone shareholders.
The Visual Telephone shareholders are to receive one share of CRI for every four
shares of Visual shares owned. The principal shareholders, officers and
directors of Visual Telephone were Carl Ceragno and Joel Beagelman. Mr. Ceragno
remained with CRI and Mr. Beagelman obtained a consulting agreement with
iVoice.com.
The merger between IVT and Visual Telephone was accounted for in its financial
statements as a public shell merger. In a public shell merger the shareholders
of the operating company (in this case IVT) become the majority owners of the
shell company (Visual Telephone), and the shareholders of the public shell
company become minority shareholders.
The Company's present management team includes:
1. Jerome R. Mahoney President and Chief Executive Officer (1)
2. Joel G. Beagelman Vice President and Chief Financial Officer (1)
3. Leo Pudio Vice President of Operations.
(1) Serves as a member of the Board of Directors
Mr. Beagelman has a consulting agreement with the Company. The consulting
agreement has a five year term with compensation of $104,000 per year. The
Company granted Mr. Beagelman a stock option for the right to purchase up to
9,000,000 shares of Class A common stock. Mr. Beagleman also received 50,000
shares of IntermediaNet Common Stock in lieu of services provided related to the
spin-off of Communications Research, Inc. and the public shell merger of IVT.
The 50,000 shares of IntermedialNet was the result of a claim that arose prior
to the merger between IVT and Visual Telephone where Visual Telephone purchased
a license from IntermediaNet to use its video conferencing equipment. This
equipment did not meet the standards as promoted by IntermediaNet thus the
Company cancelled the agreement and asked for restitution for the time and
monies extended. The claim was settled by IntermediaNet giving Visual Telephone
50,000 shares of its stock. This stock as of May 1999, had an estimated value of
less than $5,000.
The Company's principal offices and facilities are located at 750 Highway 34,
Matawan, NJ 07747 and its telephone number is (732) 441-7000.
5
iVoice.com. Inc., (NASDAQ BB: "IVOC"), designs, manufactures and markets voice
and computer technology communications systems for small and mid-size business
and corporate departments. The Company provides interactive voice response (IVR)
products that allow information in PC databases to be accessed from a standard
touch-tone telephone. The Company sells its products through dealer and reseller
channels, as well as through OEM agreements with telecommunication and
networking companies.
The Company's product strategy emphasizes the development of software as opposed
to hardware, and the use of standard PC-related hardware components in its
products, in part to limit its manufacturing activity.
The flagship product of the Company called INSIGHT, is a software development
toolkit providing 32-bit interactive voice response (IVR) capabilities for the
Windows NT platform (complete with a graphical user interface ("GUI")). INSIGHT
is the current generation of the Company's product IVR (interactive voice
response) Tools enabling callers to query and modify database information over
their touch-tone telephone. Phone callers use their touch-tone pad to input
requests, such as ordering a product, obtaining a work schedule, or requesting
account balance information, and the database "speaks" information back to the
caller. IVR also enables customers and businesses to conduct transactions 24
hours a day, seven days a week. INSIGHT utilizes open development languages
(i.e. Microsoft's Visual Basic and Visual FoxPro, Delphi, Access and C++),
database application (i.e. Oracle, Sybase, Btrieve and OBDC) and platforms such
as Windows NT.
The Company also markets several call-processing features. One such feature is a
Unified Messaging System, which is an inbox for all messages. Using Microsoft
Outlook or a Web browser, messages are made available from anywhere in the world
and can be reviewed and acted upon. With this system customers will have access
to all voice, fax and e-mail messages through their PC or the telephone Unified
Messaging System inbox. E-mail can be retrieved over the phone using its
text-to-speech capabilities and responded to with a voice message. Faxes can
also be retrieved over the phone and re-directed to any fax machine from the
phone.
Other call-processing features that the Company markets are Voice Mail,
Automated Attendant (allows a caller to store voice messages and to reply to a
computer thus providing the ability to conduct a dialogue with a person without
having to be on the same line at the same time), Interactive Voice Response
(allows a caller to obtain information in voice form from a local or non-local
database), Text to Speech (converts any computer readable text into intelligible
sounding speech) and Speech Recognition (the process by which the PC translates
spoken words into commands).
Recent Developments
On April 24, 2000, iVoice.com, Inc. (the "Company") entered into an Agreement
and Plan of Reorganization with all the shareholders of record of all the issued
and outstanding shares of ThirdCAI ("CAI"). The Company acquired all the issued
and outstanding shares of CAI in exchange for US$150,000.00 and 50,000 shares of
the Company's Class A voting common stock.
As of April 24, 2000, there were 3 record shareholders of the CAI's issued and
outstanding stock. One of the shareholders was a corporation, of which the sole
officer and director of CAI was also the President.
On February 29, 2000, the Company entered into an agreement with the Municipal
Traffic Department of Shelby County, Tennnessee, which is evidenced by a
purchase order. Under the terms the Company will supply Windows NT IVR Hardware
and Software considerations in exchange for the quoted price of $33,199.00.
6
Product and Services
The Company possesses technology of PC/Computer Telephony Integrated ("CTI") -
based call processing systems. The Company's software products enable
small-to-medium sized businesses and offices to communicate by integrating their
traditional office telephone systems with voice mail, automated attendant and
interactive voice functions.
All the Company's products are designed to be user friendly with features that
can be readily used without special training or manuals. The products run on
standard open-architecture PC platforms. Thus, off-the-shelf products such as
Microsoft Windows NT Server/Workstation operating systems and hardware
peripheral items are compatible with iVoice.com's line of products.
The Company emphasizes the development of software and uses standard PC-related
hardware components in its products. The Company's manufacturing operations
consist of final assembly and quality control testing of materials,
subassemblies and systems. Third party vendors are used for hardware components
such as PCs, circuitboards, application cards, faxboards and voiceboards. The
Company obtains voiceboards from Natural Micro Systems and Dialogic, both
domestic suppliers.
INSIGHT is the Company's flagship product. This is a software development
toolkit which provides 32-bit interactive voice response for the Windows NT
platform plus a graphical user interface ("GUI"). INSIGHT enables callers to
query and modify database information over their touch-tone telephone. Here
callers use their touch-tone pad to input requests, such as ordering a product,
obtaining a work schedule, or requesting account balance information upon which
the database "speaks" information back to the caller. INSIGHT includes over 500
built-in voice prompts, which enable users to easily incorporate telephony into
their database applications.
Some of the features and functions that INSIGHT provides are as follows:
1. Windows NT based INSIGHT supports the windows NT platform, a
powerful, reliable operating environment that allows for numerous
advanced interactive voice response ("IVR") applications.
2. MICROSOFT NT based INSIGHT supports the MICROSOFT NT platform. The
Company has updated this system to incorporate an Internet Access
Tool, which can be either connected to the IVR system or ran as a
standalone. This system also has a Graphical User Interface. This
application also provides for Internet access to the system.
Once logged onto the Internet, access to the IVR system is accomplished by
clicking on a hypertext link for your browser. Upon entering the IVR system, the
response prompts are in text form rather than voice form. The user can enter
selections and get information by clicking on icons or choosing items from
menus.
Some of the Internet applications available are order processing and
transactions, database integration, questions and queries, account status,
delivery information, funds transfer and claims information.
The following call-processing features are also available with the above
platforms:
1. IVR: Permits a caller to obtain requested information in voice form
from a local or non-local database. Examples of IVR range from
simply selecting announcements from a list of options stored in the
computer (also know as Audio Text) to more complex interactive
exchanges such as querying a database for information.
7
2. Speech Recognition: The process by which the PC translates spoken
words into commands. You may now speak to all of your Voice Mail or
IVR Applications.
3. Unified Messaging: Unified messaging is a unified inbox application
for windows NT auto attendant/voice mail system and Windows NT
Interactive Voice Response ("IVR") system. With Unified Messaging,
e-mail, voice mail and faxes can be handled through a desktop PC or
the telephone.
All messages can be viewed and acted upon in order of importance via Microsoft
Outlook or a Web Browser. E-mail can also be retrieved over the phone, using
text-to-speech, and responded to with a voice message including directed to a
fax machine.
4. IVR/WEB Applications: With the INTERNET access for the IVR system,
you "DIAL" the system by clicking on a hypertext link from your
browser. The system responds the same way, except in text form, and
not the normal voice prompt. You may enter selections and get
information by clicking on icons or choosing items from menus.
5. Voice Mail: Voice mail allows a caller to store voice messages and
reply via the computer. This method provides the caller to conduct a
dialogue with another person without having to be on the same line
at the same time. As with most voice mail systems, the caller can
record, store and delete messages and direct messages to multiple
subscribers.
6. Speech Enabled Auto attendant: The Automated attendant allows a
caller to direct a computer to switch the call to a telephone
extension different from the one dialed, without the manual
intervention of an operator .
New Products
The Company is presently focusing on upgrading and enhancing existing products,
thus no new products are scheduled to be released other than upgraded products
in the immediate future.
1. Full toolkit from Entropic/Microsoft agreement, enabling this software to
be dialog based, have an interactive understanding of a sentence.
2. ACD call center applications.
3. PBX telephone system development, with IP telephony.
Marketing
The Company's marketing strategy is to focus getting its product in front of
small-to-medium sized offices emphasizing that their products are user friendly,
easy-to-use PC-based processing products that offer integrated access to a broad
range of communication avenues with other people and information sources. The
Company's strategy is built around the following five basic elements:
1. Emphasize Software, Not Hardware- the Company concentrates its
development efforts on software rather than on the design or
modification of hardware. By emphasizing software solutions to meet
its customer's needs, the Company can create the most value of its
products.
8
2. Use Standard, Microsoft Windows NT Based Architecture, Open Systems
and Hardware- The Company's products use standard, open-architecture
PC platforms and operating systems rather than proprietary computer
hardware and operating systems. As a result, the Company can quickly
adopt to new PC-based technologies, leveraging the substantial
investments made by third parties in developing these new
technologies for the PC environment. In addition, the user of
available hardware components and software minimizes the Company's
manufacturing activity which reduces the overall cost of its
products.
3. Focus on Small -to-Medium sized Offices- The Company's products are
designed for use by small to medium sized businesses and offices in
a wide range of markets, including manufacturing, retail, service,
healthcare and government settings. Here the Company's products
offer many of the features that are available by the large,
proprietary call processing systems, but at a price that is more
affordable to its target market.
4. Make Products that are Easy to Install, Modify and Use- the Company
strives to maximize ease of use for the installer, the systems
manager and the user- This is accomplished by designing the products
to be "people - oriented," by having product features that can be
used without the need for special training or manuals. One examples
of this user oriented philosophy is exhibited in the Company's voice
mail product which has user prompts that encourage conversation
between callers and subscriber, plus the software has simplified
installation screens and menus for ease of installation.
5. Minimize distribution Overhead- The Company is able to achieve broad
market coverage domestically via a direct sales force, a nationwide
network of independent telephone system dealers and OEM
representatives. This structure both minimizes the Company's selling
overhead and maximizes its product exposure, plus making available
funds for product development
The Company's method to get product in front of its target market is through
four sales people, two telemarketers and several independent sales reps. These
people contact the end users directly. The strategy is to increase the direct
sales force and establish more satellite locations to better serve clients. In
addition the Company will expand product awareness through displaying the
products at show/conventions and through literature.
The Company is unsure as to the timing and size and results fo the marketing
efforts that will be necessary in order for the Company to become profitable.
Customers
As covered in the marketing section, the Company's customers are small-to-large
sized offices.
The Company is not dependant on any one or few customers.
Fee Structure
Unless special arrangements are made, the Company expects 50% down on any
product purchased with the Balance upon completion of installation. The Company
accepts company checks or Visa/Mastercard.
9
Business Partners
The Company has agreements with Nuance and Entropic (owned by Microsoft),
whereby these companies have released their Interactive Voice Response ("IVR")
proprietary codes for evaluation by the Company in achieve a tighter integration
of IVR not their phone systems.
Recent News Releases
MaiSoft, Inc.
On February 15, 2000 a letter of intent ("LOI") was signed whereby the Company
would acquire Maisoft Inc., of Laguna Hills, CA. Maisoft Inc., is a developer,
manufacturer and supports open system-based advanced computer telephony
products, specializing in voice processing and data processing servers known as
unified messaging. The Maisoft "Office Messenger" server for Windows NT was
awarded the "Product of the Year" for 1999 by CTI Magazine (now "TMC
Communications Solutions Magazine").
On April 17, 2000, the Company entered into an acquisition agreement with
Maisoft. Under the terms of the agreement, the Company agreed to purchase,
accept and acquire 100% of the issued and issued and outstanding, goodwill of
and all right, title and interest of Maisoft. As consideration, the Company will
pay $1,000,000.00 in certifiable funds to the two principal shareholders of
Maisoft. The Company also will pay $6,000,000.00 in the Company's common stock,
which would be subject to lock up from trading. The value of such stocks would
be the lowest price of the Company's stock as of March 3, 2000.
On April 20, 2000, the Company entered into a Second Supplemental Agreement to
Acquisition Agreement with Maisoft. Under the terms of the supplemental
agreement, the POP3 integration with direct connection to an ISP (POP3) is to be
completed and delivered on June 1, 2000. On May 25, 2000, Maisoft is to put the
source code in escrow. In consideration of these terms, the Company will place
$1,000,000.00 and 2,400,000 shares of common stock in escrow.
On April 27, 2000, the Company entered into a Third Supplemental Agreement to
Acquisition Agreement with Maisoft due to the fact that the Company could not
meet the terms of the above-referenced agreement by the specified time. Under
the terms of the third supplemental agreement, Maisoft will only sell its
"Unified Messaging Source Code" including "MAPI" and "POP3" to the Company for
$400,000. The Company will not supply any funds for salaries, rent, etc. until
May 25, 2000. The Company has notified Maisoft that it can only purchase the
source codes as discussed in the Third Supplemental Agreeement.
Michaels Stores, Inc.
On January 27, 2000, iVoice.com announced that it was in negotiations to receive
an order to purchase a speech-enabled locator system. The development is
complete and this system will be installed sometime mid-April. This system will
enable Michaels'customers and prospects to locate the store nearest to them by
simply saying their zip code through their phone.
411 Technologies, LLC
On February 3, 2000, iVoice announced that it received a contract to develop
software to access Internet by dialing a toll-free number. The system is
currently under development with an estimated installation date in the May to
June 2000 timeframe. This system will allow telephone users voice access to the
Internet obtaining such information as stock quotes, news and weather, plus
additional sites as they become available.
10
Panam Wireless, Inc, d.b.a CELPAGE
On February 8, 2000, iVoice announced that it received a contract to provide,
install and maintain the hardware and software of the Celpage system currently
under development. The system is scheduled to be delivered in April or May 2000.
This Voice Processing Platform can handle over 100,000 subscribers at any given
time.
On February 9, 2000, the Company entered into a Software/Hardware Maintenance
Agreement with Panam Wireless, Inc. d/b/a CELPAGE (CELPAGE). Under the terms of
the agreement, the Company will provide the maintenance of the Software and
Hardware (Application Generator, Database and Dialogic Boards) for CELPAGE at an
annual rate of 10% of total cost.
Sales by Geographic Area
North East - 70%
Approximately 30% elsewhere in the continental USA.
Competition
The call-processing industry is highly competitive, especially the segment of
the industry that supplies call-processing systems to small and medium-sized
business offices. The Company believes that the competitive pressures it faces
will only intensify, which is based on the recent new entrants into the market
coupled by the stronger presence of competition via the merging of smaller
companies. This level of competition puts pressure on product pricing and thus
margins.
Presently the Company's principal competitors fall into two categories: 1)
telephone equipment manufacturers that offer their own call-processing systems
or offer their systems as private labels (for example, AT&T, Rolm Co. and
Toshiba America Information Systems, Inc.), and 2) independent call-processing
system manufactures, whose products integrate with multiple telephone systems
and either are based on proprietary hardware (for example, Centigram
communication corporation, Octel Communications Corp., and VMX, Inc.) or are PC
based similar to the Company's products (for example, Applied Voice Technologies
Inc., Microlog corporation and Active Voice corporation).
Currently 90% of the Company's sales have been through its direct sales and 10%
through its dealer channel. The Company in facing the competitive pressure,
emphasizes product pricing, system features, ease of product use, installation
technical and sales support and product reliability.
Suppliers
Dialogic, Bicom, iTox (a DFI company) and Ingram-Micro.
Government Regulation or Government Approval
Through our strategic alliance with Engineering Professional Associates (EPS),
their GSA Schedule is utilized.
Research and Development
The Company's research and development efforts focus on enhancing its existing
product line, focusing on technological enhancements coupled with the ease of
use and reliability of its products. Note that in 1999 there
11
were no funds expended in R&D. The Company has been focusing its efforts on
business development and intends to renew its R&D program in the year 2000.
Patents, Trademarks and Licenses
The Company possesses Licensing Agreements with Nuance Com., Entropic (owned by
Microsoft) and Lemout & Hauspie (L & H)
Employees
The Company employs 13 full time employees. None of the employees is represented
by a labor organization and the Company is not a party to any collective
bargaining agreements.
Risk Factors
The Company's business is subject to numerous risk factors, including the
following:
Limited History of Operations:
As a company with limited operating history, it will be subject to all of the
risks, uncertainties and lack of standing generally associated with new
enterprises. Despite the fact that the Company's Chief Executive Officer has
substantial experience in dealing with the target market, there can be
absolutely no assurance that the Company will be able to survive in the highly
competitive and rapidly changing environment of the call processing arena. See
"Business".
Limited Working Capital:
The Company currently has limited working capital. Even if the Company
successfully puts its marketing, research and development, manufacturing and
sales programs in order, it is possible that it will require additional funds to
enable it to implement its advertising and marketing programs and to expand into
other available market segments. See "Financial Statements".
No Restrictions of the Activities of the Company:
Neither the Common Shares nor any other agreement restricts the activities of
the Company with respect to other borrowings or the use of its assets or the
future income to secure Company debts or borrowings for any purpose, including
the acquisition of assets of any nature.
Dividend Policy - No Dividends in Immediate Future :
The Company has no plans to pay any dividends in the near future. The Company
intends to retain all earnings, if any, in the foreseeable future, for use in
its business operations.
Continuing Operating Losses:
iVoice.com has recently generated operating losses. During the fiscal year ended
December 31, 1998, the Company had a net loss of $37,692 on $626,486 of revenue
and for year ended December 31, 1999 a net loss of $6,054,364 on revenue of
$776,773. There can be no assurance that the Company will generate operating
income or net income in the future.
12
Thus, the Company is an operating entity that has a continuing need for
additional capital for use in its present business activities and proposed
expansion.
Unpredictability of Future Revenues:
As a result of the Company's limited operating history and the emerging nature
of the voice communications industry and the Internet, the Company is unable to
forecast its expenses and revenues accurately. The Company believes that due
primarily to the relatively brief time call processing 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 voice communications and Internet-based product and/or service business. The
Company's current and future estimated expense levels are based largely on its
estimates of future revenues and may increase because many of its operating
expenses are either fixed, such as rent for office space, or subject to likely
increases. Few, if any, of the Company's operating expenses can be quickly or
easily reduced, such as the laying off of personnel, in a manner which would not
cause a material adverse effect to the Company's business, financial condition
and operating results. In addition, the Company may be unable to adjust spending
in a timely manner to compensate for any unexpected expenditures; and a
shortfall in actual revenues as compared to estimated revenues would have an
immediate material adverse effect on the Company's business, financial condition
and operating results.
Reliance on Management. The success of the Company depends significantly upon
the efforts of the Chief Executive Officer, Jerome R. Mahoney. See "Management".
The loss of services of Mr. Mahoney would likely have a materially adverse
effect on the business and the future prospects of the Company. See "Management
- - Employment Agreement." .
Jerome R. Mahoney, Chief Executive Officer and Director, entered into a five (5)
year employment agreement with the Company on April 28, 1999. The Agreement
called a base salary of $180,000 per year which will be increased by 10%
annually. If Mr. Mahoney terminated by the Company without cause, he will be
entitled to full base salary through the Date of Termination at the rate equal
to the greater of the rate in effect on the date prior to the Change Control and
the rate in effect at the time Notice of Termination is given, plus all other
amounts to which the Executive is entitled under any compensation plan of the
Company in effect on the date. See "Management - Employment Agreement".
Supermajority Voting Control Rights. Jerome Mahoney, CEO, has super majority
voting control rights through ownership of 700,000 shares of Class B stock,
which provides for 100 votes per share or 70,000,000 votes.
Competition. The call-processing industry in general is highly competitive, and
the Company believes that the competitive pressures it faces are likely to
intensify. The segment of the industry that supplies call-processing systems to
small and medium-sized business offices is also extremely competitive, having
endured intense price competition and pressure on margins on the past few years.
Technical Change and Product Obsolescence. The ability of the Company to compete
successfully in the call-processing market that is characterized by rapidly
changing technology will depend in part upon its ability to continually advance
its technology and to develop new applications and designs for its products. See
"Business."
Y2K. The Company did not experience Y2K problems with its systems nor with any
of its vendors or clients systems.
13
Forward Looking Statements
This registration statement contains forward-looking statements that are based
on the Company's beliefs as well as assumptions made by and information
currently available to the Company. When used in this registration statement,
the words "believe," "endeavor," "expect," "anticipate," "estimate," "intends,"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and assumptions,
including, without limitation, the risks and uncertainties concerning
technological changes, increased competition, and general economic conditions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, or projected. The Company cautions potential
investors not to place undue reliance on any such forward-looking statements,
all of which speak only as of the date made.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal Year Ended December 31, 1999 Versus Year Ended December 31, 1998
Sales for the year ended December 31, 1999 were $776,773, an increase of
$150,287 or 24% over the prior years sales of $626,486. The increase was a
result of increased marketing efforts.
Unless special arrangements are made, the Company receives 50% of the contract
as a down payment on any product purchased with the balance due upon completion
of the installation. The Company recognizes its revenue using the percentage of
completion method. As of December 31, 1999, the Company has an additional
$567,300 of contracts for which work has not yet been started. These contracts
will begin in January 2000. The Company accepts company checks or
Visa/Mastercard. The increase in receivable is due to the recording of two large
sales in December 1999.
The Company's gross profit for the year ended December 31, 1999 increased
$252,471 or 103% December 31, 1998 to $496,456 from $243,985 in 1998. The
Company's gross margin percentage for the twelve months ended December 31, 1999
was 63.9% versus 38.9% for the prior year. This represents a 25% increase over
the gross profit percentage recorded for the same period prior year. This
increase is a result of changes in some of the components included in the
systems sold where the components themselves had a lower cost then the replaced
component thus increasing the margin of the overall system. The rate should
remain stable unless a similar situation with components should arise again or
more products with different margins are added to the product line.
Operating expenses increased from $281,677 for the year ended December 31, 1998
to $6,514,361 for the year ended December 31, 1999 or an increase of $6,232,684.
This increase is a result of increase of $940,424 in general and administrative
expenses attributable to commissions and salaries to the Company's executives,
an increase of $135,022 in selling expenses , an increase in depreciation of
$68,732, a onetime charge of $31,000 for obsolete inventory. Plus now recurring
expenses totaling $5,028,000, which consist of a $4,800,000 legal settlement
charge and $228,000 in merger costs.
14
The net loss from operations for the year ending December 31, 1999 was
$6,017,905 compared to $37,692 for the year ended December 31, 1998 or an
increase of $5,980,213.
Other expense of $1,162,405 are non-recurring expenses consisting of $500,000
legal settlement charge, $427,113 in outside services and $228,000 in merger
costs
Liquidity and Capital Resources
The Company is funding its current operations principally from its operations.
However, the Company is operating on a negative cash flow basis and anticipates
it will require additional financing during the final quarter of 2000. To
achieve the Company's growth potential it will requires additional amounts of
capital. There is no assurance that the Company can obtain any such financing on
terms that will enable the Company to implement its long-term growth strategy.
According, the Company's viability for the foreseeable future is questionable if
additional funding is not obtained. The Company will attempt to obtain such
funds through venture capital, or other private or public financing. Currently,
the Company is not seeking funding. The Company has started to reduce spending
in order to cover day to day operations as best as possible with current cash
flow. However, there can be no assurance that such funds will be available, or
if available, the cost of such funds to the Company.
Material Commitments -
Jerry Mahoney. President, Chairman of the Board and Chief Executive Officer
andChairman. The Company entered into an employment agreement with Mr. Mahoney
on April 28, 1999 that commenced on May 1, 1999 and terminates on April 30,
2004. It provides for a base salary of $180,000 per year which will be increased
by 10% annually.
Leo Pudio. Vice President of Operation. On June 2, 1999, the Company entered
into a three (3) year employment agreement with Mr. Pudio. Thae agreement called
for a base salary of $80,000 with annual increases. In addition, Mr. Pudio was
granted stock options to purchase 140,000 shares of class A common stock of the
Company at $0.35 per share. In addition within sixty (60) days for signing the
agreement, Mr. Pudil was granted 250,000 shares the Company's Class A common
stock.
Joel G. Beagelman. Secretary and Treasurer and Chief Financial Officer. On May
21, 1999 the Company entered into a five (5) year consulting agreement with Mr.
Beagelman. The agreement for a fee of $2,000 per week subject to certain
performance criteria. A subsequent amendment to this agreement granted Mr.
Beagelman stock options for the right to purchae up to 9,000,000 shares of the
Company's Class A common stock. This stock option was exercisable immediately.
Asset Management
The Company manages its inventory by ordering specific hardware and software for
just in time delivery for each installation. The hardware is received checked
modified and shipped to each jurisdiction for installation within a short period
of time. Therefore, the Company usually maintains in inventory only the
equipment needed for programming and testing, Inventory may also include the
hardware needed for a customer's installation that may already be shipped. For
the year ended December 31, 1999, the inventory balance was a nominal $10,140.
As of December 31, 1999 most of the Company's receivable are due under contracts
with various customers. Accounts receivable as of December 31, 1999 was $31,726.
15
General Risk Factors Affecting Results
Rapid technological change as well as changes in customer requirements and
references characterize the software industry. The Company believes that its
future quarterly results will depend in large part upon its ability to offer
products that compete favorably with respect to price, product reliability,
performance, range of useful features ease of use, continuing product
enhancements, reputation, support and training. Further, increased competition
in the market for call processing systems could have a negative effect on the
Company's results of operations.
Due to the factors noted above, the Company's future earnings and stock price
may be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenues or earnings could have an immediate and significant
adverse effect on the trading price of the Company's stock and warrants.
ITEM 3. DESCRIPTION OF PROPERTY.
On March 15, 2000 the Company entered into a lease for approximately 8,000
square feet of office space to house its corporate headquarters and research
facilities. The office is located at 750 Highway 34, Matawan, New Jersey 07747.
The term of the lease is for two years with a monthly rental of $11,000.
On May 21, 1999 the Company also entered into a lease for 1,500 square feet for
one and one half years from Mejor Angora, L.L.C., at 282 Grand Avenue,
Englewood, New Jersey at an annual rental of $19,800 per year with certain
escalations. The Company also uses this space for its first "satellite" sales
office.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth each person known to the Company, as of May 1,
2000, to be a beneficial owner of five percent (5%) or more of the Company's
common stock, by the Company's directors individually, and by all of the
Company's directors and executive officers as a group. Except as noted, each
person has sole voting and investment power with respect to the shares shown.
Shares
Name/Address Beneficially Percentage
Title of Class of Owner Owned Ownership
Common Jerome R. Mahoney 80,450,000(1) 57.3%
750 Highway 34
Matawan, NJ 07747
Common Joel Beagelman 8,500,000(2) 12.1%
750 Highway 34
Matawan, NJ 07747
Common Leo Pudio 250,000 .35%
750 Highway 34
Matawan, NJ 07747
Common All Officers & Directors 89,200,000 63.5%
As a Group (3 individuals)
16
1. Includes 450,000 Class A common stock shares held by his minor children
and 700,000 Class B common stock shares held by Mr. Mahoney that may vote
an equivalent of 70,000,000 Class A common stock shares and may be
converted into a like number of Class A common stock shares.
2. Includes 100,000 held by his daughter.
There are no arrangements known to the Company that at a later date may result
in a change in control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The members of the Board of Directors of the Company serve until the next annual
meeting of the stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors.
There are no agreements for any officer or director to resign at the request of
any other person, and none of the officers or directors named below is acting on
behalf of, or at the direction of, any other person.
Information as to the directors and executive officers of the Company is as
follows:
Name Age Position
Jerome R. Mahoney 39 President, Chairman of the Board,
Chief Executive Officer and Director
Joel G. Beagelman 57 Chief Financial Officer
Secretary/Treasurer/Director
Leo Pudio 50 Vice-President of Operations
Jerome R. Mahoney; Chief Executive Officer/President/Director
Jerome R. Mahoney, has been Chief Executive Officer and a director of the
Company since May 21, 1999. Prior to joining the Company, Mr. Mahoney founded
Voice Express, Inc. a New York Company, in 1989. Voice Express sold voice mail
systems, telephone system service contracts and installed these systems. Mr.
Mahoney sold Voice Express Systems in 1993 and joined Executive Information
Systems where he was until 1988, at which time he was the Director of National
Accounts. From 1993-1997 Mr. Mahoney was President of IVS Corp., and on December
17, 1997 he established International Voice Technologies (IVT), which merged
with the Company on May 21, 1999. Mr. Mahoney received a B.A. in finance and
marketing from Fairleigh Dickinson University, Rutherford, N.J. in 1983.
Joel G. Beagelman; Chief Financial Officer/Secretary/Treasurer/Director
Joel G. Beagelman has been the Chief Financial Officer for the Company since May
21, 1999 and a Director of the Company since 1998. From 1963 through 1972, Mr.
Beagleman was a Sales Manager and Designer for Nationwide Corrugated Container
and from 1972 through 1978, Mr. Beagelman was the founder and president of
National Fiber Corp., a broker of corrugated products and point-of-purchase
displays. Mr. Beagleman sold National Fiber in 1978 and acted as president of
Fast-Pak Container Corporation from 1979 through 1995. From 1995 to May 21,1999
Mr. Beagelman actively ran Visual Telephone International as President. Mr.
Beagelman received an AAS degree in Business Technology in 1968 from the City
University of New York and in 1987, a BA degree in Economics, Law and Labor
Studies from the William Paterson University.
17
Leo Pudio; Vice-President of Operations
Leo Pudio. has been Vice President of Operations since June, 1999. Mr. Pudio was
formerly Vice President of Computer Associates, along with 10 years of
consulting experience in the telephony and computer industry.
There is no family relationship between any of the officers and directors of the
Company. The Company's Board of Directors has not established any committees.
Conflicts of Interest
The Company does not currently have a right of first refusal pertaining to
opportunities that come to management's attention insofar as such opportunities
may relate to the Company's proposed business operations.
The officers and directors are, so long as they are officers or directors of the
Company, subject to the restriction that all opportunities contemplated by the
Company's plan of operation which come to their attention, either in the
performance of their duties or in any other manner, will be considered
opportunities of, and be made available to the Company and the companies that
they are affiliated with on an equal basis. A breach of this requirement will be
a breach of the fiduciary duties of the officer or director. Subject to the next
paragraph, if a situation arises in which more than one company desires to merge
with or acquire that target company and the principals of the proposed target
company have no preference as to which company will merge or acquire such target
company, the company of which the President first became an officer and director
will be entitled to proceed with the transaction. Except as set forth above, the
Company has not adopted any other conflict of interest policy with respect to
such transactions.
Investment Company Act of 1940
Although the Company will be subject to regulation under the Securities Act of
1933 and the Securities Exchange Act of 1934, management believes the Company
will not be subject to regulation under the Investment Company Act of 1940
insofar as the Company will not be engaged in the business of investing or
trading in securities. In the event the Company engages in business combinations
that result in the Company holding passive investment interests in a number of
entities, the Company could be subject to regulation under the Investment
Company Act of 1940. In such event, the Company would be required to register as
an investment company and could be expected to incur significant registration
and compliance costs. The Company has obtained no formal determination from the
Securities and Exchange Commission as to the status of the Company under the
Investment Company Act of 1940 and, consequently, any violation of such Act
would subject the Company to material adverse consequences.
ITEM 6. EXECUTIVE COMPENSATION
The following table summarizes the compensation earned and paid by the Company
to each Officer and to all Executive Officers as a group for services rendered
in all capacities during the year ended December 31, 1999:
Summary Compensation Table
Annual compensation Long-term compensation
---------------------------------------------------------
Awards Payouts
-----------------------------
18
Other Securities
Annual Restricted underlying LTIP All
Bonus Comp. Stock options / Payouts other
Name and Position Year Salary($) ($) ($) Awards ($) SARs (#) ($) Comp.($)
- ---------------------------------------------------------------------------------------------------
Jerome R. Mahoney,
CEO/President/Director 1999 $180,000
Joel G. Beagelman,
CFO/Secretary/Treasurer
Director 1999 104,000
Leo Pudio,
Vice-President of
Operations 1999 80,000
Option /SAR Grant in Last Fiscal Year
Individual Grants
Number of Percent of total
securities options / SARs
underlying granted to Exercise or
options / SARs employees in last base price
Name Granted (#) fiscal year ($/sh) Date
Leo Pudio 140,000 (1) $.35/sh June 15, 1999
(1) On June 15, 1999, as part of the Employment Agreement, Mr. Pudio was granted
stock options to purchase 140,000 shares of class A common stock of the Company
at $0.35 per share. The option may be exercised at any time commencing on the
one year anniversary of the Commencement Date as to an aggregate of one-third of
the total shares granted on the commencement date. An additional one-third of
the total shares granted on the Commencement Date becoming exercisable upon each
succedding anniversary of the Commencement Date.
The Directors who are employees of the Company receive no compensation for their
services as Directors, either on an annual basis or for each meeting. Directors
are not reimbursed for any expenses they may incur in attending meetings of the
Board of Directors.
Employment Agreements
Jerome Mahoney. The Company entered into an employment agreement with Mr.
Mahoney on April 28, 1999 that commenced on May 1, 1999 and terminates on April
30, 2004. It provides for a base salary of $180,000 per year which will be
increased by 10% annually.
Leo Pudio On June 2, 1999, the Company entered into a three (3) year employment
agreement with Mr. Pudio. Thae agreement called for a base salary of $80,000
with annual increases. In addition, Mr. Pudio was granted stock options to
purchase 140,000 shares of class A common stock of the Company at $0.35 per
share. In addition within sixty (60) days for signing the agreement, Mr. Pudil
was granted 250,000 shares the Company's Class A common stock.
19
Employee Stock Option Plan
The Company adopted the Employee Stock Option Plan ( the "Plan") in order to
attract and retain qualified personnel. Under the Plan, of compensation
committee of the Board of Directors, in its discretion may grant stock options
(either incentive or non-qualified stock options) to officers and employees. The
terms and conditions upon which the options may be exercised are set out in the
Plan. To date, options for the right to purchase 490,000 Class A common stock
shares have been granted under the Plan and remain unexercised. The Plan is
intended to provide a method whereby employees of the Company and others who are
making and are expected to make substantial contributions to the successful
management and growth of the Company are offered an opportunity to acquire
Common Stock as an incentive to remain with the Company and advance its
interests.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April, 1999, the Company granted Jerome Mahoney the right to annual increases
of 10%. On May 21, 1999, Jerome Mahoney was issued 10,000,000 class A shares and
700,000 shares of Class B for the acquisition of IVT. Each Class B share hav a
voting equivalent equal to 100 Class A shares and may be converted into an equal
number of Class A shares.
On June 5, 1999, Saraj Tschand (Founder and owner of Parwan Electronics),
received 3.2 million shares of the Company in exchange for the Company receiving
all of Parwan's pre-developed software code. Parwan retained its existing
international clientele but cannot sell to new or existing accounts.
ITEM 8. DESCRIPTION OF SECURITIES.
The Company has authorized capital stock of 150,000,000 shares of Class A Common
Stock, par value $.01 per share and 700,000 shares of Class B Common stock, par
value $.01 per share.
Each holder of Class A Common stock is entitled to receive ratably dividends, if
any, as may be declared by the Board of Directors out of funds legally available
for the payment of dividends. The Company has not paid any dividends on its
Common Stock, and none are contemplated in the foreseeable future. It is
anticipated any earnings that may be generated from operations of the Company
will be used to finance the growth of the company. See "Risk Factors -Lack of
Dividends". Holders of Class B Common stock are not entitled to receive
dividends.
Holders of Class A Common stock are entitled to one vote for each share held of
record. There are no cumulative voting rights in the election of directors. Thus
the holders of more than 50% of the outstanding shares of Common Stock can elect
all of the directors of the Company if they choose to do so. No one shareholder
beneficially owns more than 50% of the Company's Class A Common Stock. A total
of 70,431,061 shares of Class A Common stock are outstanding. Jerry Mahoney is
the sole owner of Class B Common Stock. There are 700,000 shares of Class B
Common stock issued and outstanding. Class B Common stock has voting rights of
100 to 1 providing for each Class B Common Stock share has 100 Class A Common
Stock votes.
The holders of Class A Common Stock have no preemptive, subscription, conversion
or redemption rights. Upon liquidation, dissolution or winding-up of the
Company, the holders of the Class A Common Stock are entitled to receive pro
rata the assets of the Company. The holders of Class B Common Stock have the
right to convert each share of Class B Common Stock for one hundred shares of
Class A Common Stock. Holders of Class B Common Stock are not entitled to
receive pro rata the assets of this Company.
20
Shares Eligible for Future Sale
These shares would be eligible for sale in the public market subject to the
conditions and restrictions of Rule 144. Rule 144 provides in part that a person
who is not an affiliate of the Company and who hold restricted stock for a
period between one and two years may sell all or part of such securities. An
affiliated person would have to hold the restricted securities two years before
gaining the ability to sell all or part of such securities. Sales under Rule 144
are also subject to certain provisions relating to the manner and notice of sale
and availability of current public information about the Company.
Note that if companies currently quoted on the OTC Bulletin Board do not comply
with the new NASD rules, their shares will only be quoted in the less automated
"Pink Sheets", a system run by the National Quotation Bureau, Inc. The
"Eligibility Rule Phase-In Schedule" published by NASD, requires that the
Company become fully reporting by May 1, 2000. The vast majority of
Broker-dealers generally do not engage in the sales or trading of securities of
a "non-reporting" issuer. Development of a trading market is limited by the of
regulations under Rule 15c2-11 of the 1934 Act which require that before a
broker-dealer can make a market in the Company's securities the Company must
provide these broker-dealers with current information about the Company. The
Company presently has formulated no specific plans to distribute information to
broker-dealers and probably will only do so if there appears otherwise to be
adequate interest in making a market in the Company's securities. Furthermore,
in view of the absence of an underwriter and the nature of the Company as a
"non-reporting" issuer, there is virtually no likelihood that a regular trading
market will develop in the near future or that if developed it will be
sustained. Accordingly, an investment in the Company's Common Stock should be
considered highly illiquid.
If in the future the Company exceeds $10 million in assets, it would have to
register as a reporting issuer under rule 12(g) of the 1934 Act. In such event,
the Company is prepared to register as a reporting company and thereafter to
comply with the reporting requirements of the 1934 Act.
Restrictions on Transferability of Securities:
The common stock shares of the Company (the "Common Stock") have not been
registered under the U.S. Securities Act of 1933, as amended (the "Securities
Act"). The Common Stock may not be acquired with a view to immediate resale or
distribution thereof. Accordingly, the Common Stock may be offered, sold,
resold, transferred or otherwise disposed of directly or indirectly pursuant to
exemptions from the federal and state securities laws. The Company makes no
representation in respect to or assumes any responsibility for the availability
of any exemption or for undertaking to register the Common Shares. Although
public trading in the Company's securities is not prohibited, there may be no
public market for its Common Shares and there can be no assurance that a market
will develop. See "Description of Securities".
Resale Restrictions. Various state securities laws impose restrictions on
transferring "penny stocks" and as a result, investors in the Common Stock may
have their ability to sell their shares of the Common Stock impaired. For
example, the Utah Securities Commission prohibits brokers from soliciting buyers
for "penny stocks", which makes selling them more difficult.
"Penny Stock" Issues. The shares of the Common Stock are "penny stocks" as
defined in the Exchange Act, which are traded in the over-the-counter market on
the OTC Bulletin Board. As a result, an investor may find it more difficult to
dispose of or obtain accurate quotations as to the price of the shares of the
Common Stock being registered hereby. In addition, the "penny stock" rules
adopted by the Commission under the Exchange Act subject the sale of the shares
of the Common Stock to certain regulations which impose sales practice
requirements on broker-dealers. For example, broker-dealers selling such
securities must, prior to effecting the
21
transaction, provide their customers with a document that discloses the risks of
investing in such securities. Furthermore, if the person purchasing the
securities is someone other than an accredited investor or an established
customer of the broker-dealer, the broker-dealer must also approve the potential
customer's account by obtaining information concerning the customer's financial
situation, m investment experience and investment objectives. The broker-dealer
must also make a determination whether the transaction is suitable for the
customer and whether the customer has sufficient knowledge and experience in
financial matters to be reasonably expected to be capable of evaluating the risk
of transactions in such securities. Accordingly, the Commission's rules may
limit the number of potential purchasers of the shares of the Common Stock.
If the Company can meet the listing requirements in the future, management
intends to apply to include the shares of the Common Stock being registered
hereby for quotation on The NASDAQ SmallCap Market operated by The NASDAQ Stock
Market. The Common Stock has not yet been approved for quotation on The NASDAQ
SmallCap Market and there can be no assurance that an active trading market will
develop or if such market is developed that it will be sustained. The NASDAQ
Stock Market recently approved changes to the standards for companies to become
listed on The NASDAQ SmallCap Market, including, without limitation, new
corporate governance standards, a new requirement that companies seeking listing
have net tangible assets of $2,000,000, market capitalization of $35,000,000 or
net income of $500,000 and other qualitative requirements. If the Company is
unable to satisfy the requirements for quotation on The NASDAQ SmallCap Market,
trading in the Common Stock being registered hereby would continue to be
conducted on the OTC Bulletin Board. Even if the shares of the Common Stock are
listed for quotation on The NASDAQ SmallCap Market, the market price of the
shares must remain above $5.00 per share or else such shares will be subject to
the "penny stock" rules of the Commission discussed above. If the market price
of such shares falls below $1.00 per share, such shares will be delisted from
The NASDAQ SmallCap Market and will once again be quoted on the OTC Bulletin
Board.
In addition to the recent changes in The NASDAQ SmallCap Market listing
requirements discussed above, the National Association of Securities Dealers,
Inc. (the "NASD") has recently announced changes in the requirements for
continued quotation on the OTC Bulletin Board. Essentially the new rules require
OTC Bulletin Board companies to become a "reporting company" under the
Securities Exchange Act of 1934. If the Company cannot comply with this NASD
rule by the Eligibility Rule Phase-In Schedule, the Common Stock will only be
quoted in the less automated "Pink Sheets", a system run by the National
Quotation Bureau, Inc. The "Eligibility Rule Phase-In Schedule" published by
NASD, requires that the Company become a "reporting company" by May 17, 2000 or
the Company's Common Stock will be traded in the "Pink Sheets". It is
anticipated that the transaction with ThirdCai, Inc. and reported in Item 2 of
the Current Report on Form 8-K dated April 26, 2000, will satisfy this
requirement. There can be no assurance that an active trading market will
develop for the shares of the Common Stock in the "Pink Sheets" or if such
market is developed that it will be sustained.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is quoted on the NASD OTC Bulletin Board in the
United States under the symbol IVOC.
Market Price
High Low
1999 (1)
22
Second Quarter 1999 (2) $.6875 $.32
Third Quarter 1999 $.33 $.125
Fourth Quarter 1999 $.34 $.125
2000
First Quarter 2000 $5.9375 $.29
(1) Trading prices only available since May 28, 1999.
Since April 24, 2000 NASD added the additional trading symbol "E" to the
Company's trading symbol recognizing that the Company's common stock will be
removed from trading on the NASD OTC Bulletin Board, unless prior to May 17,
2000, the Company becomes a reporting company pursuant to the Securities
Exchange Act of 1934.
Effective August 11, 1993, the Securities and Exchange Commission adopted Rule
15g-9, which established the definition of a "penny stock," for purposes
relevant to the Company, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience and objectives of the
person; and (ii) make a reasonable determination that the transactions in penny
stocks are suitable for that person and that person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading, and about commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
The National Association of Securities Dealers, Inc. (the "NASD"), which
administers NASDAQ, has recently made changes in the criteria for initial
listing on the NASDAQ Small Cap market and for continued listing. For initial
listing, a company must have net tangible assets of $4 million, market
capitalization of $50 million or net income of $750,000 in the most recently
completed fiscal year or in two of the last three fiscal years. For initial
listing, the common stock must also have a minimum bid price of $4 per share. In
order to continue to be included on NASDAQ, a company must maintain $2,000,000
in net tangible assets and a $1,000,000 market value of its publicly traded
securities. In addition, continued inclusion requires two market makers and a
minimum bid price of $1.00 per share.
Management intends to strongly consider undertaking a transaction with any
merger or acquisition candidate that will allow the Company's securities to be
traded without the aforesaid limitations. However, there can be no assurances
that, upon a successful merger or acquisition, the Company will qualify its
securities for listing on NASDAQ or some other national exchange, or be able to
maintain the maintenance criteria necessary to insure continued listing. The
failure of the Company to qualify its securities or to meet the relevant
maintenance
23
criteria after such qualification in the future may result in the discontinuance
of the inclusion of the Company's securities on a national exchange. In such
events, trading, if any, in the Company's securities may then continue in the
non-NASDAQ over-the-counter market. As a result, a shareholder may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Company's securities.
Holders
There are 315 holders of the Company's Common Stock. All of the issued and
outstanding shares of the Company's Common Stock were issued in accordance with
the exemption from registration afforded by Section 4(2) of the Securities Act
of 1933.
Dividends
The Registrant has not paid any dividends to date, and has no plans to do so in
the immediate future.
ITEM 2. LEGAL PROCEEDINGS
iVoice.com, Inc. was a party to a lawsuit initiated by a Michael Wong on
November 1, 1999 for a $300,000 investment by Wong into an entity called IVS
between the years 1994 and 1996. This action was filed at the United States
District Court, the Eastern District of New York. IVS was incorporated in 1993
and ceased operations in November, 1997. Wong is claiming rights to some assets
of IVS were transferred out of IVS. The majority shareholder of IVS was Jerome
Mahoney, who is the CEO of iVoice.com. This action was filed at the U.S.
District Court, E.D.N.Y. at the Clerks Office Long Island Courthouse, case
number CV-99 7078.
iVoice.com was the result of a reverse merger on May 21, 1999 between
International Voice Technologies (IVT), a private Delaware corporation
established on December 17, 1997, and Visual Telephone International, the public
entity.
A settlement was reached on February 7, 2000 and executed on February 14, 2000,
whereby the Plaintiff was awarded the sum of $300,000 and 2,000,000 restricted
shares of class A common stock of iVoice.com.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On May 21, 1999, International Voice Technologies, Corp. ("IVT") a Delaware
corporation, merged into the Company. Simultaneous with the merger with IVT,
Communications Research, Inc. ("CRI") was spun off and the name of the Company,
Visual Telephone International, Inc., was changed to iVoice.com, Inc.
Additionaly, the Company revised its trading symbol on the NASD OTC Bulletin
Board to "IVOC". In consideration for merging IVT into the Company, the sole
shareholder of IVT, Jerome Mahoney, received:
d. 10,000,000 shares of Class A Common Stock issued, and
e. 700,000 shares of Class B Common Stock. (see "Certain Transactions
and Business Relationships").
f. The firm of Toby Investments consulted on this transaction and was
awarded 2,000,000 shares of Common Stock for his efforts.
During April 2000, the Company issued 37,500 shares of its Class A common stock
for services rendered to Robert Keenan, who received 25,000 shares and to Ken
Glynn, Esq. , who received 12,500 shares. These shares were exempt from the
registration requirements of Section 5 of the Securities Exchange Act of 1934,
as amended, (the "Act") as provided in Section 4(2) of that Act.
24
During April 2000, the Company sold 1,750,000 shares of its Class A common
stock for approximately $750,000 to Gaston Coldwater, LLC. These shares were
exempt from registration pursuant to Rule 504 of Regulation D.
On April 24, 2000, the Company acquired all the issued and outstanding shares of
CAI in exchange for US$150,000.00 and 50,000 shares of the Company's Class A
voting common stock.
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has satisfied a one year holding period, under certain circumstances, may
sell within any three-month period a number of shares which does not exceed the
greater of one percent of the then outstanding Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale. Rule
144 also permits, under certain circumstances, the sale of shares without any
quantity limitation by a person who has satisfied a two-year holding period and
who is not, and has not been for the preceding three months, an affiliate of the
Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director.
The Company's Certificate of Incorporation provides that the Company shall
indemnify to the fullest extent permitted by law any person made or threatened
to be made a party to any action, suit or proceeding, whether criminal, civil,
administrative or investigative (a "legal action"), whether such legal Action be
by or in the right of the corporation or otherwise, by reason of the fact that
such person is or was a director or officer of the company, or serves or served
at the request of the Company as a director or officer, of another corporation,
partnership, joint venture, trust or any other enterprise. In addition, the
Company's Certificate of Incorporation provides for indemnification of any
person made or threatened to be made a party to any Legal Action by reason of
the fact that such person is or was a director or officer of the Company and is
or was serving as a fiduciary of, or otherwise rendering to, any employee
benefit plan of or relating to the Company. The indemnification obligation of
the Company in the Certificate of Incorporation is permitted under Section 145
of the General Corporation Law of the State of Delaware.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
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.
25
Part F/S
The financial statements are attached at the end of this Form 10-SB.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
iVoice.com, Inc.
By: /s/Jerome R. Mahoney
--------------------
Jerome R. Mahoney, President
26