As filed with the Securities and Exchange Commission on October 3, 2005
Registration No. 333-_______
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IVOICE TECHNOLOGY, INC.
(Name of Small Business Issuer in Its Charter)
New Jersey 7373 20-1862731
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Identification No.)
Organization) Classification Code Number)
750 Highway 34
Matawan, New Jersey 07747
(732) 441-7700
(Address and telephone number of Principal
Executive Offices and Principal Place of Business)
Jerome R. Mahoney
750 Highway 34
Matawan, New Jersey 07747
(732) 441-7700
(Name, address and telephone number of
agent for service)
with copies to:
Scott Rosenblum, Esq.
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
(212) 715-9100
Telecopier: (212) 715-8000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
---------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed
Title of Each Class Maximum
of Securities to be Aggregate
Registered Amount to be Offering Price Amount of Registration
Registered (1) (2) Fee
- --------------------------------------------------------------------------------
Class A Common
Stock, no par value
per share 1,053,781,579 $10,537,816 $1,240 (3)
- --------------------------------------------------------------------------------
(1) Includes 1,052,631,579 shares of Class A Common Stock issuable pursuant to
an equity line of credit, 150,000 shares of Class A Common Stock issuable
pursuant to a commitment fee and 1,000,000 shares of Class A Common Stock
issuable pursuant to a placement agent fee.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933 assuming a market
value per share of $.01. The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
(3) Previously paid in connection with the Registrant's Form SB-2 Registration
Statement File No. 333-120608, filed on November 18, 2004.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8 (a),
may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
Subject to completion, dated October 3, 2005
iVoice Technology, Inc.
1,053,781,579 Shares of Class A Common Stock
This prospectus relates to the offering of up to 1,053,781,579 shares of
iVoice Technology, Inc. Class A Common Stock by certain persons who will become
stockholders of iVoice Technology. iVoice Technology is not selling any shares
of Class A Common Stock in this offering and therefore will not receive any
proceeds from this offering. iVoice Technology will, however, receive proceeds
from the sale of Class A Common Stock under an equity line of credit pursuant to
a Standby Equity Distribution Agreement with Cornell Capital Partners, L.P.
The selling shareholders will sell their shares of our Class A Common
Stock that are registered pursuant to the registration statement of which this
prospectus is a part at prevailing market prices or privately negotiated prices.
The prevailing market prices for the shares will fluctuate based on the demand
for the shares of Class A Common Stock.
The selling stockholders consist of:
o Cornell Capital Partners, as investor under the Standby Equity
Distribution Agreement, who intends to sell an aggregate of up to
1,052,781,579 shares of Class A Common Stock; and
o Monitor Capital, Inc., as holder of shares of Class A Common Stock,
who intends to sell an aggregate of up to 1,000,000 shares of Class
A Common Stock.
These securities are speculative and involve a high degree of risk. Please
refer to "Risk Factors" beginning on page 7.
Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act of 1933, as amended, in connection with its purchase of shares of
iVoice Technology's Class A Common Stock under the Standby Equity Distribution
Agreement at a 5% discount to the prevailing market price of such common stock.
In addition, iVoice Technology will pay to Cornell Capital Partners in shares of
iVoice Technology Class A Common Stock a one-time commitment fee of 1.5% of the
initial outstanding shares of Class A Common Stock (approximately 150,000 shares
of Class A Common Stock) on or about the date of effectiveness of the
registration statement of which this prospectus is a part. iVoice Technology has
also agreed to permit Cornell Capital Partners to retain an amount equal to 6%
of the proceeds received by iVoice Technology under the Standby Equity
Distribution Agreement.
Monitor Capital, Inc. is an "underwriter" within the meaning of the
Securities Act of 1933, as amended, in connection with the sale of Class A
Common Stock that it will receive as a placement agent fee from iVoice
Technology in connection with the private placement of iVoice
Technology's Class A Common Stock pursuant to its proposed equity line of credit
with Cornell Capital Partners. Under the terms of a placement agent agreement,
iVoice Technology has agreed to issue to Monitor Capital on or about the date of
effectiveness of the registration statement of which this prospectus is a part a
number of shares of Class A Common Stock equal to $10,000 divided by the closing
bid price of the Class A Common Stock on the date of effectiveness of the
registration statement of which this prospectus is a part. Any discount to
market price is an underwriting discount.
With the exception of Cornell Capital Partners and Monitor Capital, which
are deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended, no other underwriter or person has been engaged to facilitate the sale
of shares of Class A Common Stock in this offering. This offering will terminate
24 months after the accompanying registration statement is declared effective by
the Securities and Exchange Commission.
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved of these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ____________ ___, 2005.
TABLE OF CONTENTS
PROSPECTUS SUMMARY...........................................................1
SUMMARY OF THE OFFERING......................................................2
SUMMARY CONDENSED FINANCIAL INFORMATION......................................4
POTENTIAL DILUTION DUE TO CONVERSION AT BELOW MARKET PRICE ..................6
RISK FACTORS.................................................................7
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...................22
SELLING STOCKHOLDERS........................................................22
USE OF PROCEEDS.............................................................24
EQUITY LINE OF CREDIT.......................................................25
PLAN OF OFFERING............................................................27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.........................................................29
OUR BUSINESS................................................................41
IVOICE TECHNOLOGY'S MANAGEMENT..............................................46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................51
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS.............................................53
DESCRIPTION OF SECURITIES...................................................56
CHANGES IN ACCOUNTANTS......................................................60
INDEX TO FINANCIAL STATEMENTS..............................................F-1
PART II INFORMATION NOT REQUIRED IN PROSPECTUS...........................II-2
i
PROSPECTUS SUMMARY
Overview
iVoice Technology, Inc., which we refer to in this prospectus as "iVoice
Technology," "we", "us" or "the Company," was incorporated in New Jersey on
November 10, 2004 as a wholly-owned subsidiary of iVoice, Inc. ("iVoice"). While
iVoice has been engaged in the speech recognition software and computerized
telephony business since 1997, iVoice management seeks to leverage the value of
underutilized developed technology and believes that the transition to an
independent company will provide iVoice Technology with greater access to
capital. This should provide needed financial resources to potentially penetrate
the market and distribute the product. In connection with the reorganization of
iVoice, immediately prior to the distribution by dividend by iVoice to all of
its stockholders of up to 10,050,000 shares of the Company's Class A Common
Stock (the "Distribution") on August 5, 2005, iVoice transferred to iVoice
Technology its Interactive Voice Response (IVR) software business and related
liabilities, including all intellectual property of iVoice relating to the IVR
software business. As such, iVoice Technology now owns and operates iVoice's IVR
software business. iVoice has retained cash assets of approximately $11.1
million, no part of which was or will be transferred to iVoice Technology and
operating assets consisting of its iVoiceMail software and its portfolio of
patents and patent rights. iVoice will also continue to seek additional
operating income opportunities through potential acquisitions or investments.
iVoice Technology is a development stage company. iVoice Technology may
seek to expand its operations through additional sales and marketing activity
and the acquisition of additional businesses. Any potential acquired additional
businesses may be outside the current field of operations of iVoice Technology.
iVoice Technology may not be able to identify, successfully integrate or
profitably manage any such businesses or operations. Currently, iVoice
Technology has no plans, proposals or arrangements, either orally or in writing,
regarding any proposed acquisitions and is not considering any potential
acquisitions.
iVoice Technology intends to continue to develop, market and license the
IVR line of computerized telephony software. The IVR software is designed to
enable a caller to obtain requested information in voice form from a local or
non-local database and allow information in PC databases to be accessed from a
standard touch-tone telephone using a telephone keypad or voice command.
About Us
iVoice Technology was incorporated in New Jersey on November 10, 2004 as a
wholly-owned subsidiary of iVoice, Inc. iVoice Technology received by assignment
all of the interests in and rights and title to, and assumed all of the
obligations of, all of the agreements, contracts, understandings and other
instruments of iVoice Technology, Inc., a Nevada corporation and affiliate of
iVoice Technology. These agreements, contracts, understandings and other
instruments consisted of financing documentation, employment agreements and an
administrative services agreement with iVoice. Since this assignment, iVoice
Technology Nevada has no operating business, assets or known liabilities, and is
currently in the process of being dissolved. When we refer to or describe any
agreement, contract or other written
instrument of iVoice Technology in this prospectus, such references may be to an
agreement, contract or other written instrument that had been entered into by
iVoice Technology Nevada and assigned to iVoice Technology.
Our principal office is located at 750 Highway 34, Matawan, New Jersey
07747. Our telephone number is (732) 441-7700. We will be setting up a company
website, which will be located at www.ivoicetechnology.com.
SUMMARY OF THE OFFERING
This offering relates to the sale of Class A Common Stock by certain
persons who are, or will become, stockholders of iVoice Technology. The selling
stockholders consist of:
o Cornell Capital Partners, as investor under the Standby Equity
Distribution Agreement, who intends to sell an aggregate of up to
1,052,781,579 shares of Class A Common Stock; and
o Monitor Capital, Inc., as the holder of shares of Class A Common
Stock, who intends to sell an aggregate of up to 1,000,000 shares of
Class A Common Stock.
On September 22, 2004, iVoice Technology entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners, L.P. (the "2004 Standby
Equity Distribution Agreement"). On February 28, 2005, the Standby Equity
Distribution Agreement was terminated. On March 9, 2005, we obtained a
non-binding letter of commitment from Cornell Capital Partners to provide a $10
million standby equity line of credit.
On August 31, 2005, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners, L.P., pursuant to which we may, at our
discretion, periodically issue and sell to Cornell Capital Partners shares of
Class A Common Stock for a total purchase price of $10.0 million. The maximum
amount of each advance amount is $500,000 per advance notice. A minimum of seven
trading days must pass between each advance notice. Cornell Capital Partners,
L.P. will purchase the shares of Class A Common Stock for a 5% discount to the
prevailing market price of our common stock. In addition, Cornell Capital
Partners will retain 6% of each advance under the equity line of credit, and
will receive a one-time commitment fee, payable in shares of iVoice Technology
Class A Common Stock, of 1.5% of the initial outstanding shares of Class A
Common Stock (exclusive of shares issuable under the equity line of credit or
upon conversion of the secured convertible debentures) on the date that the
registration statement of which this prospectus is a part becomes effective.
Cornell Capital Partners has informed us that it intends to sell any shares
purchased under the equity line of credit at the then prevailing market price.
The obligation of Cornell Capital Partners to purchase shares under the equity
line of credit terminates upon the suspension of the effectiveness of the
registration statement of which this prospectus is a part for an aggregate of
fifty days or the failure of iVoice Technology to remedy a material breach of
the Standby Equity Distribution Agreement within thirty days of receipt of
notice. The initial closing under the Standby Equity Distribution Agreement and
each subsequent closing of a purchase and sale of shares are conditioned upon
the satisfaction of customary conditions.
2
On August 12 and November 19, 2004, iVoice Technology issued an aggregate
of $560,000 in secured convertible debentures, with interest payable at 5% per
annum, to Cornell Capital Partners L.P. The debentures were convertible at the
option of the holder only after our Class A Common Stock has commenced trading
on the Over-the-Counter Bulletin Board. On February 28, 2005, iVoice
Technology's obligations under the secured convertible debentures were
terminated and replaced with a secured promissory note representing the same
principal amount, which note accrues interest at a rate of 12% per annum, but is
not convertible into any equity security of iVoice Technology. On February 28,
2005, iVoice Technology borrowed an additional $140,000, included as part of the
same note representing iVoice Technology's former obligations under the secured
convertible debentures. In connection with the issuances of the secured
convertible debentures, iVoice Technology paid a fee to Cornell Capital Partners
equal to 10% of the aggregate principal amount of the debentures. When the
secured convertible debentures were terminated, iVoice Technology received a
credit for fees that would otherwise have been payable upon the issuance of the
$560,000 in replacement notes. iVoice Technology paid Cornell Capital a fee of
$14,000 in connection with its $140,000 borrowing. iVoice Technology's
obligations under the secured promissory note issued to Cornell Capital Partners
are secured by a first priority security interest in substantially all of its
assets. iVoice has also guaranteed the payment of all amounts payable by iVoice
Technology pursuant to the secured promissory note.
In August 2004, iVoice Technology entered into an agreement with Sloan
Securities Corporation for Sloan Securities to act as an agent for the private
placement of shares of our Class A Common Stock to Cornell Capital Partners
pursuant to the 2004 Standby Equity Distribution Agreement. On February 28,
2005, the placement agent agreement was terminated. On September 22, 2005, we
entered into a placement agent agreement with Monitor Capital, Inc., under which
we have agreed to issue to Monitor Capital on or about the date of effectiveness
of the registration statement of which this prospectus is a part a number of
shares of Class A Common Stock equal to $10,000 divided by the closing bid price
of the Class A Common Stock on the date of effectiveness of the registration
statement of which this prospectus is a part.
This prospectus relates to the shares of Class A Common Stock to be issued
to Cornell Capital Partners under the equity line of credit and the shares of
Class A Common Stock to be issued to Monitor Capital as a placement agent fee.
Class A Common Stock Offered 1,053,781,579 shares by selling
stockholders
Offering Price Market price
Class A Common Stock Outstanding 10, 050,000 shares of Class A Common Stock
Before the Offering
Use of Proceeds We will not receive any proceeds of the
shares offered by the selling stockholders.
Any proceeds we receive from the sale of
common stock under the equity line of
credit will be used for sales and
marketing, payment of administrative
services, working capital purposes,
acquisitions and
3
repayment of the secured promissory note
that we issued to Cornell Capital Partners
on February 28, 2005. See "Use of
Proceeds."
Risk Factors The securities offered hereby involve a
high degree of risk and immediate
substantial dilution. You should read
carefully the factors discussed under "Risk
Factors" beginning on page 7. Several of
the most significant risk factors include:
o Future sales by our stockholders may
adversely affect our stock price and
our ability to raise funds in new
stock offerings.
o Existing stockholders will experience
significant dilution from our sale of
shares under the equity line of
credit.
o The selling stockholders have
informed us that they intend to sell
their shares of common stock in the
public market, which sales may cause
our stock price to decline.
o The sale of our stock under our
equity line of credit could encourage
short sales by third parties, which
could contribute to the further
decline of our stock price.
o iVoice has in the past, and iVoice
Technology may in the future, sell or
issue additional unregistered
convertible securities which are
convertible into common shares of
iVoice Technology, without
limitations on the number of common
shares the securities are convertible
into, which could dilute the value of
your holdings and could have other
negative impacts on your investment.
SUMMARY CONDENSED FINANCIAL INFORMATION
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplates continuation of the company as a going concern. iVoice
Technology has traditionally operated as a non-reporting component of iVoice and
accordingly these financial statements have been derived from the consolidated
financial statements and accounting records of iVoice, and reflect significant
assumptions and allocations. iVoice allocated operating costs to iVoice
Technology. These allocations are reflected in the selling, general and
administrative, cost of revenue and/or
4
research and development line items in our statements of operations. The general
corporate expense allocation is primarily for cash management, selling expense,
legal, accounting, tax, insurance, public relations, advertising, and human
resources. Other general categories of operating expense, as well as other
income and expense, have been allocated to iVoice Technology by iVoice based
upon a ratio of revenue of iVoice Technology over total iVoice revenue for the
applicable periods. Management believes that although the financial information
was prepared on a pro forma basis, the cost of these services charged are a
reasonable representation of the costs that would have been incurred if iVoice
Technology had performed these functions as a stand-alone company. iVoice
Technology relies on iVoice for administrative and other services. These
financial statements do not necessarily reflect the financial position, results
of operations, and cash flows of iVoice Technology had it been a stand-alone
company.
SUMMARY CONDENSED FINANCIAL INFORMATION
For the Six For the Six For the For the Year
Months Ended Months Ended Year Ended Ended
June 30, June 30, December December 31,
2005 2004 31, 2004 2003
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Statements of Operation
Data:
Sales $ 70,838 $ 131,006 $ 239,114 $ 303,756
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Cost of sales 738 52,818 72,870 123,091
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Gross Profit 70,100 78,188 166,244 180,665
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Selling, general, and
administrative Expenses 198,653 568,089 863,456 965,341
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Loss from operations (128,553) (489,901) (697,212) (784,676)
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Other (Expense) (28,600) (837,946) (780,915) (346,744)
- ---------------------------------------------------------------------------------------------------------
Net Loss $ (157,173) $(1,327,847) $(1,478,127) $(1,131,420)
- ---------------------------------------------------------------------------------------------------------
June 30, December 31, December 31,
2005 2004 2003
-----------------------------------------------
Balance Sheet Data:
- --------------------------------------------------------------------------------
Current Assets $ 414,051 $ 378,332 $ 52,077
- --------------------------------------------------------------------------------
Intangibles -- -- 45,400
- --------------------------------------------------------------------------------
Liabilities 816,592 623,747 23,662
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Stockholders' equity
(deficiency) (397,851) (240,678) 73,815
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5
POTENTIAL DILUTION DUE TO CONVERSION AT BELOW MARKET PRICE
The net tangible book value of iVoice Technology as of June 30, 2005 was
($397,851) or ($.03959) per share of Class A Common Stock. Net tangible book
value per share is determined by dividing the tangible book value of iVoice
Technology (total tangible assets less total liabilities) by the number of
outstanding shares of our common stock. Since no proceeds from this offering
will be paid to iVoice Technology, our net tangible book value will be
unaffected by this offering. Our net tangible book value, however, will be
impacted if and when common stock is issued under the proposed equity line of
credit. The amount of dilution will depend on the offering price and number of
shares to be issued under the equity line of credit. The following example shows
the dilution to new investors at an offering price of $0.01 per share.
If we assume that iVoice Technology will issue 1,052,631,579 shares of
Class A Common Stock under its equity line of credit at an assumed offering
price of $0.01 per share (i.e., the maximum number of shares needed in order to
raise a total of $10.0 million under the equity line of credit, excluding the
commitment fee), less a retention fee of $600,000, offering expenses of
$182,990, and $767,000 repayment of the promissory note plus interest, our net
tangible book value as of June 30, 2005 would have been $8,052,159 or $0.00740
per share. Such an offering would represent an immediate increase in net
tangible book value to existing stockholders of $0.04699 per share and an
immediate dilution to new stockholders of $0.00260 per share, or 26%. The
following table illustrates the per share dilution:
Assumed public offering price per share $ 0.01000
Net tangible book value per share before this offering ($.03959)
Increase attributable to new investors $.04699
--------
Net tangible book value per share after this offering $ 0.00740
-----------
Dilution per share to new stockholders $ 0.00260
===========
The conversion price of our Class A Common Stock is based on the
then-existing market price. In order to provide you an example of the dilution
per share you may experience, we have prepared the following table showing the
dilution per share at various assumed market prices ((1) assuming the Cornell
conversion of $10,000,000, estimated commitment fees of 150,000 shares, Mr.
Mahoney converts $190,000 of indebtedness, and the placement fee of $10,000):
- --------------------------------------------------------------------------------
Assumed Market No. of Shares to Dilution per Share
Price be issued (1) to New Investors
-------------- ---------------- ------------------
$0.0100 1,077,531,579 $0.00260
- --------------------------------------------------------------------------------
$0.0075 1,436,658,772 $0.00193
- --------------------------------------------------------------------------------
$0.0050 2,154,913,158 $0.00128
- --------------------------------------------------------------------------------
$0.0025 4,309,676,316 $0.00064
- --------------------------------------------------------------------------------
6
RISK FACTORS
You should carefully consider each of the following risk factors and all
of the other information in this information statement. The following risks
relate principally to the offering and iVoice Technology's business.
If any of the following risks and uncertainties develops into actual
events, the business, financial condition or results of operations of iVoice
Technology could be materially adversely affected. If that happens, the trading
price of iVoice Technology shares could decline significantly.
The risk factors below contain forward-looking statements regarding the
offering and iVoice Technology. Actual results could differ materially from
those set forth in the forward-looking statements. See "Cautionary Statement
Regarding Forward-Looking Statements" below.
Risks Related to Our Business
iVoice Technology will face many of the difficulties that companies in the early
stage may face.
As a result of the Company's limited operating history, the currently
difficult economic conditions of the telecommunications marketplace and the
emerging nature of the interactive voice response industry, it may be difficult
for you to assess our growth and earnings potential. The Company believes that
due primarily to the relatively brief time IVR has been available to the general
public, there has not yet been developed, implemented and demonstrated a
commercially viable business model from which to successfully operate any form
of business that relies on the products and services that we intend to market,
sell, and distribute. Therefore, we have faced many of the difficulties that
companies in the early stages of their development in new and evolving markets
often face, as they are described herein. We may continue to face these
difficulties in the future, some of which may be beyond our control. If we are
unable to successfully address these problems, our future growth and earnings
will be negatively affected.
iVoice Technology has no operating history as an independent public company and
may be unable to operate profitably as a stand-alone company.
Although iVoice has operated as a reporting public company since 2000 and
has sold computerized telephony software since 1997, iVoice Technology does not
have an operating history as an independent public company. Historically, since
the businesses that comprise each of iVoice Technology and iVoice have been
under one ultimate parent, they have been able to rely, to some degree, on the
earnings, assets, and cash flow of each other for capital requirements. Now that
the Distribution has occurred, iVoice Technology is able to rely only on the IVR
software business for such requirements. iVoice operated the IVR software
business from the fourth quarter of 1999 until August 5, 2005. The IVR software
business has operated at a loss in the past for iVoice, and as an independent
company such losses may continue or increase. Additionally, iVoice Technology's
business has relied on iVoice for financial, administrative and managerial
expertise in conducting its operations. Now that the Distribution has occurred,
iVoice Technology will maintain its own credit and banking relationships and
7
perform its own financial and investor relations functions. iVoice Technology
may not be able to successfully put in place the financial, administrative and
managerial structure necessary to operate as an independent public company, and
the development of such structure will require a significant amount of
management's time and other resources.
iVoice's operations demonstrate a history of net losses and cash flow shortfalls
and iVoice Technology's likely will as well.
iVoice, of which iVoice Technology was a part, has incurred recurring
operating losses. The IVR software business had net losses of approximately
$1,478,000 and $1,131,000 for the years ended December 31, 2004 and 2003,
respectively, and cash used in operations of approximately $1,372,000 and
$927,000 during the years ended December 31, 2004 and 2003, respectively. iVoice
has been and may, in the future, be dependent upon outside and related party
financing to develop and market their software products, perform their business
development activities, and provide for ongoing working capital requirements.
During the year ended December 31, 2004 and the six months ending June 30, 2005,
substantially all of this financing was provided by iVoice, Inc. and Cornell
Capital Partners. There can be no assurance that iVoice Technology will have
operations separately that fare any better than those of iVoice.
Our historical information has limited relevance to our results of operations as
a separate company.
The historical financial information we have included in this prospectus
does not reflect what our results of operations, financial position and cash
flows would have been had we been a separate, stand-alone entity during the
periods presented or what our results of operations, financial position and cash
flows will be in the future. This is because iVoice did not account for us as,
and we were not operated as, a single stand-alone business for the periods
presented. For more information about the preparation of our financial
statements from the financial statements of iVoice, see "Summary Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
iVoice Technology has received a going concern opinion from its independent
auditors that describes the uncertainty regarding its ability to continue as a
going concern.
iVoice Technology has received a report from its independent auditors for
the fiscal years ended December 31, 2004 and December 31, 2003 containing an
explanatory paragraph that describes the uncertainty regarding the Company's
ability to continue as a going concern due to its historical negative cash flow
and because, as of the date of the auditors' opinion, the Company did not have
access to sufficient committed capital to meet its projected operating needs for
at least the next 12 months.
Our consolidated financial statements have been prepared on the basis of a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. We have not made any
adjustments to our consolidated financial statements as a result of the going
concern modification to the report of our independent registered public
accounting firm. If we become unable to continue as a going concern, we could
have to liquidate our assets, which means that we are likely to receive
significantly less for those
8
assets than the values at which such assets are carried on our consolidated
financial statements. Any shortfall in the proceeds from the liquidation of our
assets would directly reduce the amounts, if any, that holders of our common
stock could receive in liquidation.
There can be no assurance that management's plans will be successful, and
other unforeseeable actions may become necessary. Any inability to raise capital
may require us to reduce the level of our operations. Such actions would have a
material adverse effect on us, our business and operations and result in charges
that would be material to our business and results of operations.
iVoice Technology's future revenue and operating results are unpredictable and
may fluctuate, which could cause iVoice Technology's stock price to decline.
Our short operating history and the rapidly changing nature of the market
in which we compete make it difficult to accurately forecast our revenues and
operating results. Our operating results are unpredictable and we expect them to
fluctuate in the future due to a number of factors. These factors may include,
among others:
o the timing of sales of our products and services, particularly in
light of our minimal sales history;
o the introduction of competitive products by existing or new
competitors;
o reduced demand for any given product;
o difficulty in keeping current with changing technologies;
o unexpected delays in introducing new products, new product features
and services;
o increased or uneven expenses, whether related to sales and
marketing, product development or administration;
o deferral of recognition of our revenue in accordance with applicable
accounting principles due to the time required to complete projects;
o the mix of product license and services revenue;
o seasonality in the end-of-period buying patterns of foreign and
domestic software markets;
o the market's transition between operating systems; and
o costs related to possible acquisitions of technology or businesses.
Due to these factors, forecasts may not be achieved, either because
expected revenues do not occur or because they occur at lower prices or on terms
that are less favorable to us. In addition, these factors increase the chances
that our results could diverge from the expectations of investors and analysts.
If so, the market price of our stock would likely decline.
9
iVoice Technology has in the past and may in the future sell additional
unregistered convertible securities, possibly without limitations on the number
of shares of common stock the securities are convertible into, which could
dilute the value of the holdings of current stockholders and have other
detrimental effects on your holdings.
We have relied on the private placement of convertible debentures and
promissory notes to obtain working capital and may continue to do so in the
future. As of the date of the registration statement of which this prospectus is
a part, however, we have outstanding convertible obligations. The $190,000
promissory note owing to Mr. Mahoney provides that, at Mr. Mahoney's option,
principal and interest due on the note can be converted into shares of the
Company's Class B Common Stock which is convertible into the number of shares of
Class A Common Stock determined by dividing the number of shares of Class B
Common Stock being converted by a 20% discount of the lowest price of at which
iVoice Technology had ever issued its Class A Common Stock. There is no limit
upon the number of shares that we may be required to issue upon conversion of
any of these obligations.
In order to obtain working capital in the future, we intend to issue
additional equity securities and convertible obligations.
In the event that the price of our Class A Common Stock decreases, and our
convertible obligations (or any other convertible obligations we may issue) are
converted into shares of our Class A Common Stock:
o the percentage of shares outstanding that will be held by these
holders upon conversion will increase accordingly,
o increased share issuance, in addition to a stock overhang of an
indeterminable amount, may depress the price of our Class A Common
Stock,
o the sale of a substantial amount of convertible debentures to
relatively few holders could effectuate a possible change in control
of the Company, and
o in the event of our voluntary or involuntary liquidation while the
secured convertible debentures are outstanding, the holders of those
securities will be entitled to a preference in distribution of our
property.
In addition, if the market price declines significantly, we could be
required to issue a number of shares of Class A Common Stock sufficient to
result in our current stockholders not having an effective vote in the election
of directors and other corporate matters. In the event of a change in control of
the Company, it is possible that the new majority stockholders may take actions
that may not be consistent with the objectives or desires of our current
stockholders.
We are required to convert our existing convertible obligations based upon
a formula that varies with the market price of our common stock. As a result, if
the market price of our Class A Common Stock increases after the issuance of our
convertible obligations, it is possible, that, upon conversion of our
convertible obligations, we will issue shares of Class A Common Stock at a price
that is far less than the then-current market price of our Class A Common Stock.
10
If the market price of our Class A Common Stock decreases after our
issuance of any convertible obligations, upon conversion, we will have to issue
an increased number of shares to the holders of our convertible obligations. Any
sale of convertible obligations may result in a very large conversion at one
time. If we do not have a sufficient number of shares to cover the conversion,
we may have a risk of a civil lawsuit.
For more information, please see "Potential Dilution Due to Conversion at
Below Market Price."
If iVoice Technology loses the services of any key personnel, including our
chief executive officer or our directors, our business may suffer.
We are dependent on our key officers and directors, including Jerome R.
Mahoney and Mark Meller, our Non-Executive Chairman of the Board and our
President, Chief Executive Officer and Chief Financial Officer, respectively.
The loss of any of our key personnel could materially harm our business because
of the cost and time necessary to retain and train a replacement. Such a loss
would also divert management attention away from operational issues. To minimize
the effects of such loss, iVoice Technology has entered into employment
contracts with Jerome Mahoney and Mark Meller. However, Mr. Meller's employment
agreement has a term of only one year.
Our potential future business acquisitions may be unpredictable and may cause
our business to suffer.
iVoice Technology may seek to expand its operations through the
acquisition of additional businesses. These potential acquired additional
businesses may be outside the current field of operations of iVoice Technology.
iVoice Technology may not be able to identify, successfully integrate or
profitably manage any such businesses or operations. The proposed expansion may
involve a number of special risks, including possible adverse effects on iVoice
Technology's operating results, diversion of management attention, inability to
retain key personnel, risks associated with unanticipated events and the
financial statement effect of potential impairment of acquired intangible
assets, any of which could have a materially adverse effect on iVoice
Technology's business, financial condition and results of operations. In
addition, if competition for acquisition candidates or assumed operations were
to increase, the cost of acquiring businesses or assuming customers' operations
could increase materially. The inability of iVoice Technology to implement and
manage its expansion strategy successfully may have a material adverse effect on
the business and future prospects of iVoice Technology. Furthermore, through the
acquisition of additional businesses, iVoice Technology may effect a business
acquisition with a target business which may be financially unstable,
under-managed, or in its early stages of development or growth. While iVoice
Technology may, under certain circumstances, seek to effect business
acquisitions with more than one target business, as a result of its limited
resources, iVoice Technology, in all likelihood, will have the ability to effect
only a single business acquisition at one time. Currently, iVoice Technology has
no plans, proposals or arrangements, either orally or in writing, regarding any
proposed acquisitions and is not considering any potential acquisitions.
11
Members of iVoice Technology's Board of Directors and management may have
conflicts of interest after the Distribution; iVoice Technology does not have
any formal procedure for resolving conflicts in the future.
Mr. Mahoney, a member of the board of directors, owns iVoice shares and
has the right to convert $190,000 of indebtedness into 190,000 shares of iVoice
Technology Class B Common Stock which are convertible into the number of shares
of Class A Common Stock determined by dividing the number of shares of Class B
Common Stock being converted by a 20% discount of the lowest price at which the
Company had ever issued its Class A Common Stock. In addition, Mr. Mahoney has
the right to convert the amount of all accrued and unpaid interest on such
indebtedness into 1 share of iVoice Technology Class B Common Stock for each
dollar of accrued and unpaid interest. As of June 30, 2005, accrued and unpaid
interest on this indebtedness was $32,110. There is no limitation on the number
of shares of Class A Common Stock we may be required to issue to Mr. Mahoney
upon the conversion of this indebtedness. In addition, Mr. Mahoney, the
Non-Executive Chairman of the Board of iVoice Technology serves as the Chairman
of the Board and Chief Executive Officer of iVoice and we anticipate that he
will continue to serve in such capacities. These relationships could create, or
appear to create, potential conflicts of interest when iVoice Technology's
directors and management are faced with decisions that could have different
implications for iVoice Technology and iVoice. For example, Mr. Mahoney may
experience conflicts of interest with respect to the allocation of his time,
services and functions among iVoice, iVoice Technology and any other projects.
Other examples could include potential business acquisitions that would be
suitable for either iVoice Technology or iVoice, activities undertaken by iVoice
in the future that could be in direct competition with iVoice Technology, or the
resolution of disputes arising out of the agreements governing the relationship
between iVoice and iVoice Technology following the Distribution. Also, the
appearance of conflicts, even if such conflicts do not materialize, might
adversely affect the public's perception of iVoice Technology following the
Distribution. Furthermore, iVoice Technology does not have any formal procedure
for resolving such conflicts of interest should they arise following the
Distribution.
iVoice Technology's industry is characterized by rapid technological change and
failure to adapt our product development to these changes may cause our products
to become obsolete.
We participate in a highly dynamic industry characterized by rapid change
and uncertainty relating to new and emerging technologies and markets. Future
technology or market changes may cause some of our products to become obsolete
more quickly than expected.
iVoice Technology stockholders may experience significant dilution if future
equity offerings are used to fund operations or acquire businesses.
On September 22, 2005, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners to provide a $10 million standby equity
line of credit. If working capital or future acquisitions are financed through
the issuance of equity securities, such as through the sale of our Class A
Common Stock on the terms of the Standby Equity Distribution Agreement with
Cornell Capital Partners, L.P. (see "Certain Relationships and Related
Transactions" beginning on page 52), iVoice Technology stockholders would
experience significant dilution.
12
In addition, the conversion of outstanding debt obligations into equity
securities would have a dilutive effect on iVoice Technology shareholders.
Further, securities issued in connection with future financing activities or
potential acquisitions may have rights and preferences senior to the rights and
preferences of the iVoice Technology Class A Common Stock.
Except for the potential sale of our Class A Common Stock to Cornell
Capital Partners on the terms of the Standby Equity Distribution Agreement,
iVoice Technology currently has no expectations or plans to conduct future
equity offerings. Management believes that if the transactions contemplated by
the Standby Equity Distribution Agreement are consummated, the Company will have
sufficient capital resources to conduct its business as currently planned over
the 12-month period following the Distribution.
Cornell Capital Partners is under no obligation to purchase shares of
Class A Common Stock under the Standby Equity Distribution Agreement unless
certain conditions are satisfied by iVoice Technology, including having the
registration statement relating to such Class A Common Stock and of which this
prospectus is a part declared effective. If iVoice Technology cannot satisfy the
requirements for Cornell Capital Partners to purchase the Class A Common Stock
under the terms of the Standby Equity Distribution Agreement, we will not have
sufficient capital resources to conduct our business on a long-term basis, which
would have a material adverse effect on us and our financial condition.
Management believes that its going-forward expenses over the next 12 months will
be approximately $431,000 and, assuming that iVoice Technologies has no
revenues, iVoice Technologies expects to have aggregate liabilities of
approximately $432,000, which includes salaries for iVoice Technology's officers
and employees for the year ending December 31, 2005. Management has no current
plan to hire additional employees, perform additional research and development
or purchase additional equipment or services beyond the requirements of the
administrative services agreement with iVoice. Management believes that the
deficiency between the Company's expenses and net revenues will be more than
covered by the cash available from the proceeds of the secured promissory note.
If there are additional deficiencies that are in excess of the proceeds of the
secured promissory note, and iVoice Technology is unable to obtain funds from
the equity line of credit, management believes that iVoice Technology can limit
its operations, defer payments to management and maintain its business at
nominal levels until it can identify alternative sources of capital.
The trend toward consolidation in iVoice Technology's industry may impede its
ability to compete effectively.
As consolidation in the software industry continues, fewer companies
dominate particular markets, changing the nature of the market and potentially
providing consumers with fewer choices. Also, many of these companies offer a
broader range of products than us, ranging from desktop to enterprise solutions.
We may not be able to compete effectively against these competitors.
Furthermore, we may use strategic acquisitions, as necessary, to acquire
technology, people and products for our overall product strategy. The trend
toward consolidation in our industry may result in increased competition in
acquiring these technologies, people or products, resulting in increased
acquisition costs or the inability to acquire the desired technologies, people
or products. Any of these changes may have a significant adverse effect on our
future revenues and operating results.
13
iVoice Technology faces intense price-based competition for licensing of its
products which could reduce profit margins.
Price competition is often intense in the software market, especially for
computerized telephony software products. Many of our competitors have
significantly reduced the price of their products. Price competition may
continue to increase and become even more significant in the future, resulting
in reduced profit margins. Neither iVoice nor iVoice Technology has experienced
any pressure from price competition on the pricing of its IVR software products
in the past, but iVoice Technology believes that this pressure could occur in
the future.
iVoice Technology may be unsuccessful in adapting to changes in the dynamic
technological environment of telecommunications in a timely manner.
Critical issues concerning the commercial use of telecommunications,
including security, reliability, cost, ease of use, accessibility, quality of
service or potential tax or other government regulation, remain unresolved and
may affect the use of telecommunications as a medium to distribute or support
our software products and the functionality of some of our products. If we are
unsuccessful in timely assimilating changes in the telecommunications
environment into our business operations and product development efforts, our
future net revenues and operating results could be adversely effected.
iVoice Technology may be unsuccessful in continuing existing distribution
channels or in developing new distribution channels.
Due to our limited operating history, we currently offer products directly
to end-users and through dealer and reseller channels established by iVoice. We
intend to assume iVoice's relationships and contractual arrangements with these
dealers and resellers. However, there can be no assurance that these dealers and
resellers will wish to continue their existing arrangements, or create new
arrangements, with us. If we cannot continue to use iVoice's existing dealer and
reseller channels, we will need to develop a new network of dealers and
resellers. However, we may not be able to effectively develop our own network of
resellers and dealers to distribute our software products. If we cannot assume
iVoice's existing distribution channels and we cannot develop our own new
distribution channels, this would have a material adverse effect on us and our
financial condition. The adoption of new channels may adversely impact existing
channels and/or product pricing, which may reduce our future revenues and
profitability.
Restrictive product return policies may limit iVoice Technology's sales and
penetration into the marketplace.
iVoice Technology only permits returns from authorized dealers and
resellers of unused inventory, subject to the consent of the Company and a
twenty-five percent restocking fee. End users who purchase products directly
from iVoice Technology may not return such products to iVoice Technology under
any circumstances. Such policies may deter resellers and end users from
purchasing our products in a competitive and quickly evolving marketplace, and
have a material adverse effect on our ability to remain competitive with similar
products. iVoice Technology does not have any material relationship with any
single distributor or reseller. iVoice Technology does not have any material
relationship with any single distributor or reseller.
14
iVoice Technology may depend on distribution by resellers and distributors for a
significant portion of revenues.
We may distribute some of our products through resellers and distributors.
We intend to assume iVoice's existing relationships and contractual
relationships with its resellers and distributors. To effectively do so, we must
establish and maintain good working relationships with these resellers and
distributors. If we are unsuccessful in establishing and maintaining
relationships with iVoice's existing resellers and distributors or with new
resellers and distributors, or if these resellers and distributors are
unsuccessful in reselling our products, our future net revenues and operating
results may be adversely affected. iVoice Technology does not have any material
relationship with any single distributor or reseller.
The limited scope of results of iVoice Technology's research and development may
limit the ability of iVoice Technology to expand or maintain its sales and
products in a competitive marketplace.
iVoice Technology currently has no plans to engage in research and
development of new products or improvements on existing technologies. Failure to
engage in such research and to develop new technologies or products or upgrades,
enhancements, applications or uses for existing technologies may place iVoice
Technology at a competitive disadvantage in the marketplace for its products. As
no current research and development program currently exists within iVoice
Technology, any future research and development programs could cause us to incur
substantial fixed costs which may result in such programs being prohibitively
expensive to initiate without substantial additional financing being obtained on
favorable terms. Also, the lack of any current research and development program
may result in an extended launch period for a research and development program
at a point in our business when time is of the essence. These delays could have
a material adverse effect on the amount and timing of future revenues.
Such limited research and development may also adversely affect the
ability of iVoice Technology to test any new technologies which may be
established in the future in order to determine if they are successful. If they
are not technologically successful, our resulting products may not achieve
market acceptance and our products may not compete effectively with products of
our competitors currently in the market or introduced in the future.
If iVoice Technology must restructure its operations, valuable resources will be
diverted from other business objectives.
We intend to continually evaluate our product and corporate strategy. We
have in the past undertaken, and will in the future undertake, organizational
changes and/or product and marketing strategy modifications. These
organizational changes increase the risk that objectives will not be met due to
the allocation of valuable limited resources to implement changes. Further, due
to the uncertain nature of any of these undertakings, these efforts may not be
successful and we may not realize any benefit from these efforts.
15
Potential software defects and product liability could result in delays in
market acceptance, unexpected costs and diminished operating results.
Software products frequently contain errors or defects, especially when
first introduced or when new versions or enhancements are released. Defects and
errors could be found in current versions of our products, future upgrades to
current products or newly developed and released products. Software defects
could result in delays in market acceptance or unexpected reprogramming costs,
which could materially adversely affect our operating results. Most of our
license agreements with customers contain provisions designed to limit our
exposure to potential product liability claims. It is possible, however, that
these provisions limiting our liability may not be valid as a result of federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions. A
successful product liability claim may have a material adverse effect on our
business, operating results and financial condition.
iVoice Technology relies on third party technologies which may not support
iVoice Technology products.
Our software products are designed to run on the Microsoft(R) Windows(R)
operating system and with industry standard hardware. Although we believe that
the operating systems and necessary hardware are and will be widely utilized by
businesses in the corporate market, businesses may not actually adopt such
technologies as anticipated or may in the future migrate to other computing
technologies that we do not support. Moreover, if our products and technology
are not compatible with new developments from industry leaders such as
Microsoft, our business, results of operations and financial condition could be
materially and adversely affected.
iVoice Technology faces aggressive competition in many areas of the business,
and the business will be harmed if iVoice Technology fails to compete
effectively.
We encounter aggressive competition from numerous competitors in many
areas of our business. Many of our current and potential competitors have longer
operating histories, greater name recognition and substantially greater
financial, technical and marketing resources than we have. We may not be able to
compete effectively with these competitors. Our competition may engage in
research and development to develop new products and periodically enhance
existing products in a timely manner, while we have no established plan or
intention to engage in any manner of research or development. We anticipate that
we may have to adjust the prices of many of our products to stay competitive. In
addition, new competitors may emerge, and entire product lines may be threatened
by new technologies or market trends that reduce the value of these product
lines. The market in which we compete is influenced by the strategic direction
of major computer hardware manufacturers and operating system software
providers.
We may not be able to access sufficient funds when needed.
We are dependent on external financing to fund our operations. Our
financing needs are expected to be provided through the possible sale of our
Class A Common Stock on the terms of the Standby Equity Distribution Agreement
with Cornell Capital Partners.
16
However, Cornell Capital Partners is under no obligation to purchase any
shares of our Class A Common Stock under the Standby Equity Distribution
Agreement, unless we satisfy certain conditions, including the registration
statement relating to such Class A Common Stock having been declared effective.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." If iVoice Technology cannot
satisfy the conditions for drawing on the equity line of credit, we will not
have sufficient capital resources to operate our business, and we have no
current plans to obtain other financing. We cannot assure you that we will be
able to access financing under the Standby Equity Distribution Agreement in
sufficient amounts or at all when needed. Our inability to obtain sufficient
financing would have an immediate material adverse effect on us, our financial
condition and our business.
Our obligations under the secured promissory note are secured by substantially
all of our assets.
Our obligations under the secured promissory note issued to Cornell
Capital Partners are secured by substantially all of our assets. As a result, if
we default under the terms of the secured promissory note, Cornell Capital
Partners could foreclose its security interest and liquidate all of our assets.
This would cause operations to cease.
Jerome Mahoney, the Non-Executive Chairman of the Board of iVoice Technology,
may have control over the management and direction of iVoice Technology.
Mr. Mahoney will have the right to convert $190,000 of indebtedness,
together with any accrued but unpaid interest on the indebtedness, into 190,000
shares (plus shares receivable upon conversion of accrued and unpaid interest on
the promissory note) of iVoice Technology Class B Common Stock, which Class B
Common Stock is convertible into the number of shares of Class A Common Stock
determined by dividing the number of shares of Class B Common Stock being
converted by a 20% discount of the lowest price at which the Company had ever
issued its Class A Common Stock. Interest accrues on the outstanding principal
balance of the note at a rate of 2% per annum. There is no limitation on the
number of shares of Class A Common Stock we may be required to issue to Mr.
Mahoney upon the conversion of this indebtedness. Each share of Class B Common
Stock has voting rights equal to 100 shares of Class A Common Stock. If Mr.
Mahoney converts his indebtedness into 190,000 shares of Class B Common Stock,
he will have voting rights equal to 19,000,000 shares of Class A Common Stock
and will have control over the management and direction of iVoice Technology,
including the election of directors, appointment of management and approval of
actions requiring the approval of stockholders.
In addition, Mark Meller, our President, Chief Executive Officer and Chief
Financial Officer, has granted an irrevocable proxy to Jerome Mahoney (or his
designee) to vote and exercise all voting and related rights with respect to
certain shares of our Common Stock that are owned at any time by Mr. Meller.
iVoice Technology's management team is new and its working relationships are
untested.
We have only recently assembled our management team as part of the
Distribution and changes in our operating structure. Some members of our
management team have worked with each other in the past, although at this time
we cannot assess the effectiveness of their working relationships after the
Distribution. As a result, we may be unable to effectively develop and sell our
software products and iVoice Technology, as a business, may fail.
17
iVoice Technology relies on intellectual property and proprietary rights which
may not remain unique to iVoice Technology.
We regard our software as proprietary and underlying technology as
proprietary. We seek to protect our proprietary rights through a combination of
confidentiality agreements and copyright, patent, trademark and trade secret
laws.
We do not have any patents or statutory copyrights on any of our
proprietary technology that we believe to be material to our future success. Our
future patents, if any, may be successfully challenged and may not provide us
with any competitive advantages. We may not develop proprietary products or
technologies that are patentable and other parties may have prior claims.
In selling our products, we rely primarily on shrink-wrap licenses that
are not signed by licensees. Therefore, such licenses may be unenforceable under
the laws of some jurisdictions. In addition, existing copyright laws afford
limited practical protection. Furthermore, the laws of some foreign countries do
not offer the same level of protection of our proprietary rights as do the laws
of the United States.
Patent, trademark and trade secret protection is important to us because
developing and marketing new technologies and products is time-consuming and
expensive. We do not own any U.S. or foreign patents or registered intellectual
property. We may not obtain issued patents or other protection from any future
patent applications owned by or licensed to us.
Our competitive position is also dependent upon unpatented trade secrets.
Trade secrets are difficult to protect. Our competitors may independently
develop proprietary information and techniques that are substantially equivalent
to ours or otherwise gain access to our trade secrets, such as through
unauthorized or inadvertent disclosure of our trade secrets.
There can be no assurance that our means of protecting our proprietary
rights will be adequate or that our competitors will not independently develop
similar technology substantially equivalent or superseding proprietary
technology. Furthermore, there can be no assurance that any confidentiality
agreements between us and our employees will provide meaningful protection of
our proprietary information, in the event of any unauthorized use or disclosure
thereof. As a consequence, any legal action that we may bring to protect
proprietary information could be expensive and may distract management from
day-to-day operations.
iVoice Technology may become involved in future litigation, which may result in
substantial expense and may divert our attention from the implementation of our
business strategy.
We believe that the success of our business depends, in part, on obtaining
intellectual property protection for our products, defending our intellectual
property once obtained and preserving our trade secrets. Litigation may be
necessary to enforce our intellectual property rights, to protect our trade
secrets and to determine the validity and scope of our proprietary rights. Any
litigation could result in substantial expense and diversion of our attention
from our business, and may not adequately protect our intellectual property
rights.
18
In addition, we may be sued by third parties who claim that our products
infringe the intellectual property rights of others. This risk is exacerbated by
the fact that the validity and breadth of claims covered in technology patents
involve complex legal and factual questions for which important legal principles
are unresolved. Any litigation or claims against us, whether valid or not, could
result in substantial costs, place a significant strain on our financial
resources, divert management resources and harm our reputation. Such claims
could result in awards of substantial damages, which could have a material
adverse impact on our results of operations. In addition, intellectual property
litigation or claims could force us to:
o cease licensing, incorporating or using any of our products that
incorporate the challenged intellectual property, which would
adversely effect our revenue;
o obtain a license from the holder of the infringed intellectual
property right, which license may not be available on reasonable
terms, if at all; and
o redesign our products, which would be costly and time-consuming.
iVoice Technology may incur increased expenses after the administrative services
agreement with iVoice is terminated.
In connection with its spin-off, iVoice Technology entered into an
administrative services agreement with iVoice. Under this agreement, iVoice is
providing iVoice Technology with services in such areas as inventory purchasing,
material and inventory control, employee benefits administration, payroll,
financial accounting and reporting, and other areas where iVoice Technology
needs assistance and support. The agreement will continue on a month-to-month
basis. Upon termination of the agreement, iVoice Technology will be required to
obtain such services from a third party or increase its headcount to provide
such services. This could be more expensive than the fees which iVoice
Technology has been required to pay under the administrative services agreement.
Risks related to this Offering
Future sales by our stockholders may adversely affect our stock price and our
ability to raise funds in new stock offerings.
Sales of our common stock in the public market following this offering
could lower the market price of our Class A Common Stock. Sales may also make it
more difficult for us to sell equity securities or equity-related securities in
the future at a time and price that our management deems acceptable or at all.
Upon issuance of the maximum number of shares being registered in
connection with the equity line of credit (including the commitment fee) and the
placement agent fee, there will be an additional 1,053,781,579 shares of Class A
Common Stock outstanding. All of these shares of our Class A Common Stock may be
immediately resold in the public market upon effectiveness of the registration
statement of which this prospectus is a part.
19
Our common stock is deemed to be "penny stock" which may make it more difficult
for investors to sell their shares due to suitability requirements.
Our common stock is deemed to be "penny stock" as that term is defined in
Rule 3A51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks
are stock:
o with a price of less than $5.00 per share;
o that are not traded on a "recognized" national exchange;
o whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00
per share); or
o in issuers with net tangible assets of less than $2.0 million (if
the issuer has been in continuous operation for at least three
years) or $5.0 million (if in continuous operation for less than
three years), or with average revenues of less than $6.0 million for
the last three years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether in investment in a penny stock
is a suitable investor for a prospective investor. These requirements may reduce
the potential market for our common stock by reducing the number of potential
investors. This may make it more difficult for investors in our common stock to
sell shares to third parties or to otherwise dispose of them. This could cause
our stock price to decline.
If we are able to sell shares of our Class A Common Stock to Cornell Capital
Partners, stockholders would experience significant dilution from such sale of
shares.
Under the terms our equity line of credit with Cornell Capital Partners,
if we satisfy the conditions therein, iVoice Technology may issue and sell to
Cornell Capital Partners shares of Class A Common Stock for a total purchase
price of up to $10.0 million. As stated above under " -- We may not be able to
access sufficient funds when needed," our agreement with Cornell Capital
Partners provides that our ability to obtain funds will be subject to the
satisfaction of certain conditions that we may not be able to satisfy. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." If we are able to sell such
shares of Class A Common Stock to Cornell Capital Partners, such sale of shares
will have a dilutive impact on our stockholders. As a result, our net income per
share could decrease in future periods, and the market price of our Class A
Common Stock could decline. In addition, if our stock price declines, the price
at which we sell such shares to Cornell Capital Partners could decrease, and we
would need to issue a greater number of shares of our Class A Common Stock under
the Standby Equity Distribution Agreement. If our stock price is lower, then
iVoice Technology stockholders would experience greater dilution.
20
The investor under the line of credit will pay less than the then-prevailing
market price of our Class A Common Stock.
The Class A Common Stock to be issued under the equity line of credit will
be issued at a 5% discount to the lowest closing bid price for the five days
immediately following the notice date of an advance. These discounted sales
could cause the price of our common stock to decline.
Further, because the investor under the equity line of credit will acquire
our Class A Common Stock at a discount, it will have an incentive to sell
immediately in order to realize a gain on the difference. This incentive to sell
immediately into the public market to realize a gain on the difference
accelerates if the market price of our Class A Common Stock declines.
The selling stockholders intend to sell their shares of Class A Common Stock in
the public market, which sales may cause our stock price to decline.
The selling stockholders intend to sell the shares of Class A Common Stock
being registered in this offering in the public market. That means that up to
1,053,781,579 shares of Class A Common Stock, the number of shares being
registered in this offering, may be sold. Such sales may cause our stock price
to decline.
The sale of our stock under our equity line of credit could encourage short
sales by third parties, which could contribute to the further decline of our
stock price.
The significant downward pressure on the price of our Class A Common Stock
caused by the sale of material amounts of Class A Common Stock under the equity
line of credit could encourage short sales by third parties. Such an event could
place further downward pressure on the price of our common stock.
Prior to the Distribution, there was no trading market for our Class A Common
Stock, it may be relatively thinly traded and we cannot predict the extent to
which a trading market will develop.
Prior to the Distribution, our Class A Common Stock was not traded on any
market. We expect that, if and when a trading market develops in our Class A
Common Stock, it will be thinly traded compared to larger more widely known
companies. Thinly traded Class A Common Stock can be more volatile than common
stock trading in an active public market. We cannot predict the extent to which
an active public market for the Class A Common Stock will develop or be
sustained after the Distribution and this offering.
The price you pay in this offering will fluctuate and may be higher or lower
than the prices paid by other people participating in this offering.
The price in this offering will fluctuate based on the prevailing market
price of the Class A Common Stock on the Over-the-Counter Bulletin Board.
Accordingly, the price you pay in this offering may be higher or lower than the
prices paid by other people participating in this offering.
21
The issuance of shares of Class A Common Stock in connection with this offering
could result in a change of control.
We are registering 1,053,781,579 shares of Class A Common Stock in this
offering. These shares represent more than 96.8% of our outstanding Class A
Common Stock, and we anticipate all such shares will be sold in this offering.
If all or any significant block of these shares are held by one or more
stockholders working together, then such stockholder or stockholders would have
enough shares to assume control of iVoice Technology by electing its or their
own directors.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Information included in this prospectus may contain forward-looking
statements. This information may involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements to be materially different from the future results, performance or
achievements expressed or implied by any forward-looking statements.
Forward-looking statements, which involve assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may," "will," "should," "expect," "anticipate," "estimate," "believe,"
"intend" or "project" or the negative of these words or other variations on
these words or comparable terminology.
This prospectus contains forward-looking statements, including statements
regarding, among other things, (a) our projected sales and profitability, (b)
our growth strategies, (c) anticipated trends in our industry, (d) our future
financing plans and (e) our anticipated needs for working capital. These
statements may be found under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Our Business," as well as in this
prospectus generally. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this prospectus generally. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this prospectus will in fact occur.
SELLING STOCKHOLDERS
The following table presents information regarding the selling
stockholders. The table identifies the selling stockholders. None of the selling
stockholders have held a position or office, or had any other material
relationship, with iVoice Technology, except as follows:
Cornell Capital Partners has outstanding loans to iVoice Technology in the
aggregate amount of $700,000 as of February 28, 2005, which is evidenced by a
secured promissory note. The secured promissory note is secured by a first
priority security interest in substantially all of the assets of iVoice
Technology.
On August 12, 2004, iVoice Technology entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners, L.P. On February 28, 2005,
the Standby Equity Distribution Agreement was terminated. On March 9, 2005, we
obtained a non-binding letter of commitment from Cornell Capital Partners to
provide a $10 million standby equity line of credit.
22
On September 22, 2005, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners, L.P., pursuant to which we may, at our
discretion, periodically issue and sell to Cornell Capital Partners shares of
Class A Common Stock for a total purchase price of $10.0 million. The maximum
amount of each advance amount is $500,000 per advance notice. A minimum of seven
trading days must pass between each advance notice. Cornell Capital Partners,
L.P. will purchase shares of our Class A Common Stock for a 5% discount to the
prevailing market price of our Class A Common Stock. In addition, Cornell
Capital Partners will retain 6% of each advance under the equity line of credit,
and will receive a one-time commitment fee, payable in shares of iVoice
Technology Class A Common Stock, of 1.5% of the initial outstanding shares of
Class A Common Stock (exclusive of shares issuable under the equity line of
credit) on the date that the registration statement of which this prospectus is
a part becomes effective. Cornell Capital Partners has informed us that it
intends to sell any shares purchased under the equity line of credit at the then
prevailing market price. The obligation of Cornell Capital Partners to purchase
shares under the equity line of credit terminates upon the suspension of the
effectiveness of the registration statement of which this prospectus is a part
for an aggregate of fifty days or the failure of iVoice Technology to remedy a
material breach of the Standby Equity Distribution Agreement within thirty days
of receipt of notice. The initial closing under the Standby Equity Distribution
Agreement and each subsequent closing of a purchase and sale of shares is
subject to satisfaction of customary conditions. iVoice Technology will be
entitled to commence drawing funds under this agreement when the Class A Common
Stock issuable under the equity line of credit is registered for resale by
Cornell Capital Partners with the Securities and Exchange Commission and the
authorization for quotation on the National Association of Securities Dealers
Over-the-Counter Bulletin Board is obtained and maintained, and the equity line
of credit will remain outstanding for two years thereafter. All investment
decisions of Cornell Capital Partners are made by its general partner, Yorkville
Advisors, LLC. Mark Angelo, the managing partner of Yorkville Advisors, makes
the investment decisions on behalf of Yorkville Advisors.
In August 2004, iVoice Technology entered into an agreement with Sloan
Securities to act as an agent for the private placement of shares of our Class A
Common Stock to Cornell Capital Partners pursuant to the August 12, 2004 Standby
Equity Distribution Agreement. On February 28, 2005, the placement agent
agreement was terminated. Under the placement agent agreement entered into on
September 22, 2005, iVoice Technology has agreed to issue to Monitor Capital on
or about the date of effectiveness of the registration statement of which this
prospectus is a part a number of shares of Class A Common Stock equal to $10,000
divided by the closing bid price of the Class A Common Stock on the date of
effectiveness of the registration statement of which this prospectus is a part.
23
The table follows:
Percentage of
Outstanding Shares
Shares Beneficially Shares to be Acquired Shares to be Sold Beneficially Owned
Selling Stockholder Owned Before Offering under the Line of Credit in the Offering After Offering
------------------- --------------------- ------------------------ ----------------- ------------------
Cornell Capital
Partners, L.P. 0 1,052,781,579(2) 1,052,781,579 0%
Monitor Capital, Inc. 1,000,000(1) 0 1,000,000 0%
Total 1,000,000 1,052,781,579 1,053,781,579 0%
(1) The shares of Class A Common Stock indicated are issuable upon payment of
the placement agent fee based upon a price of $.01 per share. Once a
market price is determined, the sale price for the placement agent fee and
then the sale price for the shares available under the equity line of
credit can be determined by reference to the formula described above.
(2) Includes the 150,000 shares of Class A Common Stock issuable as a
commitment fee.
USE OF PROCEEDS
This prospectus relates to shares of our Class A Common Stock that may be
offered and sold from time to time by certain selling stockholders. There will
be no proceeds to us from the sale of shares of Class A Common Stock by the
selling stockholders in this offering. However, we will receive the proceeds
from the sale of shares of Class A Common Stock to Cornell Capital Partners
under the proposed equity line of credit. Under the terms of the proposed equity
line of credit, the purchase price of the shares under the equity line of credit
will be equal to 95% of the lowest closing bid price of our common stock on the
Over-the-Counter Bulletin Board for the five trading days immediately following
the date of a notice from iVoice Technology to Cornell Capital Partners
requiring it to advance funds to us under the proposed equity line of credit.
Under the terms of the proposed equity line of credit, Cornell Capital Partners
will retain 6% of each advance made to us.
For illustrative purposes, iVoice Technology has set forth below its
intended use of proceeds for the range of net proceeds indicated below to be
received under the equity line of credit. For the purposes of this table, iVoice
Technology assumes a purchase price per share of Class A Common Stock of $.0095,
equal to 95% of an assumed market price of $.01 per share (526,315,789 and
1,052,631,579 shares of Class A Common Stock, respectively). The table assumes
estimated offering expenses of $182,990, repayment of a secured promissory note
issued to Cornell Capital of approximately $767,000 (including accrued and
unpaid interest), plus the 6% retainage fee.
24
Gross Proceeds $5,000,000 $10,000,000
Net Proceeds 4,517,010 9,217,010
- --------------------------------------------------------------------------------
Use of Proceeds: Amount Amount
- --------------------------------------------------------------------------------
Sales and Marketing $500,000 $1,000,000
Repayment of secured promissory notes 767,000 767,000
Working Capital and general corporate 3,250,010 7,450,010
purposes which include employee salaries, cost of
additional personnel, support and management
systems, legal and professional costs, and
capital costs for computers, related equipment,
and, potentially, acquisitions of other companies
Total $4,517,010 $9,217,010
========== ===========
Except for the equity line of credit and the issuance of secured
promissory notes, the Company has no other significant sources of working
capital or cash commitments. In addition, management cannot be certain that it
will generate significant revenue from product sales. No assurance can be given
that iVoice Technology will raise sufficient funds from such financing
arrangements, or that the Company will ever produce sufficient revenues to
sustain its operations or, that a market will develop for its common stock upon
which a significant amount of the Company's financing is dependant. If iVoice
Technology is unable to recognize sufficient proceeds from these arrangements,
however, management believes that iVoice Technology can limit its operations,
defer payments to management and maintain its business at nominal levels until
it can identify alternative sources of capital. In such event, assuming the
receipt of the minimum $500,000 proceeds from the equity line of credit,
management believes that iVoice Technology could maintain its operations for 12
months.
EQUITY LINE OF CREDIT
Summary
On August 12, 2004, we entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners, L.P. On February 28, 2005, the Standby
Equity Distribution Agreement was terminated. On March 9, 2005, we obtained a
non-binding letter of commitment from Cornell Capital Partners to provide a $10
million standby equity line of credit. On September 22, 2005, we entered into a
Standby Equity Distribution Agreement with Cornell Capital Partners pursuant to
which we may, at our discretion, periodically sell to Cornell Capital Partners
shares of Class A Common Stock for a total purchase price of up to $10.0
million. For each share of Class A Common Stock purchased under the equity line
of credit, Cornell Capital Partners will pay 95% of the lowest closing bid price
on the Over-the-Counter Bulletin Board or other principal market on which our
Class A Common Stock is traded during the five trading days following the date
that iVoice Technology delivers to Cornell Capital Partners a notice requiring
it to advance funds to us. Cornell Capital Partners is a private limited
partnership whose business operations are conducted through its general partner,
Yorkville Advisors, LLC. Further, Cornell Capital Partners will retain 6% of
each advance under the equity line of credit. The sale
25
of the shares under the equity line of credit is conditioned upon us registering
the shares of Class A Common Stock with the Securities and Exchange Commission.
The costs associated with this registration will be borne by us.
Equity Line of Credit Explained
Pursuant to the Standby Equity Distribution Agreement, we may periodically
sell shares of Class A Common Stock to Cornell Capital Partners, L.P. to raise
capital to fund our working capital needs. The periodic sale of shares is known
as an advance. We may request an advance every seven trading days. A closing
will be held six trading days after such written notice at which time we will
deliver shares of Class A Common Stock to Cornell Capital Partners and Cornell
Capital Partners will pay the advance amount.
We may request advances under the equity line of credit once the
underlying shares are registered with the Securities and Exchange Commission.
Thereafter, we may continue to request advances until Cornell Capital Partners
has advanced $10.0 million or two years after the effective date of the
accompanying registration statement, whichever occurs first.
The maximum amount of each advance amount is $500,000 per advance notice.
The amount available under the equity line of credit is not dependent on the
price or volume of our Class A Common Stock. Cornell Capital Partners may not
own more than 9.9% of our outstanding common stock at any time. Because Cornell
Capital Partners can repeatedly acquire and sell shares, this limitation does
not limit the potential dilutive effect or the total number of shares that
Cornell Capital Partners may receive under the equity line of credit.
We cannot predict the actual number of shares of Class A Common Stock that
will be issued pursuant to the equity line of credit, in part, because the
purchase price of the shares will fluctuate based on prevailing market
conditions and we have not determined the total amount of advances we intend to
draw. Nonetheless, we can estimate the number of shares of our Class A Common
Stock that will be issued using certain assumptions. For example, if iVoice
Technology issued 1,052,781,579 shares of Class A Common Stock to Cornell
Capital Partners (i.e., the number of shares needed to raise the maximum amount
available under the equity line of credit at a price of $0.01 per share,
including the commitment fee) for gross proceeds of $10,000,000, these shares
would represent greater than 96.8% of our outstanding Class A Common Stock upon
issuance.
iVoice Technology is registering for resale by Cornell Capital Partners a
total of 1,052,781,579 shares of Class A Common Stock issuable under the equity
line of credit. The issuance of the shares under the equity line of credit may
result in a change of control. If all or a significant block of these shares are
held by one or more stockholders working together, then such stockholder or
stockholders would have enough shares to assume control of iVoice Technology by
electing its or their own directors. This could happen, for example, if Cornell
Capital Partners sold the shares purchased under the equity line of credit to
the same purchaser.
Proceeds used under the equity line of credit will be used in the manner
set forth in the "Use of Proceeds" section of this prospectus. We cannot predict
the total amount of proceeds to
26
be raised in this transaction because we have not determined the total amount of
the advances we intend to draw.
We expect to incur expenses of approximately $[182,990] consisting
primarily of professional fees incurred in connection with this registration. In
addition, Cornell Capital Partners will retain 6% of each advance. In connection
with the equity line of credit, iVoice Technology will pay Cornell Capital
Partners in shares of iVoice Technology Class A Common Stock a one-time
commitment fee of 1.5% of the initial outstanding shares of Class A Common Stock
on or about the date of effectiveness of the registration statement of which
this prospectus is a part.
PLAN OF OFFERING
The selling stockholders have advised us that the sale or distribution of
iVoice Technology's Class A Common Stock owned by the selling stockholders may
be effected directly to purchasers by the selling stockholders or by pledgees,
donees, transferees or other successors in interest, as principals or through
one or more underwriters, brokers, dealers or agents from time to time in one or
more transactions (which may involve crosses or block transactions) (i) on the
over-the-counter market or in any other market on which the price of iVoice
Technology's shares of Class A common stock are quoted or (ii) in transactions
otherwise than on the over-the-counter market or in any other market on which
the price of iVoice Technology's shares of Class A Common Stock are quoted.
However, the selling stockholders are advised that the registration statement of
which this prospectus is a part may not cover sales by pledgees or transferees
of the selling stockholders and if this prospectus is to be used in connection
with the resale of any of the shares acquired by Cornell Capital Partners, a
post-effective amendment to the registration statement of which this prospectus
is a part must be filed to include disclosure required by Item 507 of Regulation
S-B with respect to additional selling stockholders and such post-effective
amendment must be declared effective prior to its use.
Any transactions by the selling stockholders may be effected at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at varying prices determined at the time of sale or at negotiated
or fixed prices, in each case as determined by the selling stockholders or by
agreement between the selling stockholders and underwriters, brokers, dealers or
agents, or purchasers. If the selling stockholders effect such transactions by
selling their shares of iVoice Technology's Class A Common Stock to or through
underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or
agents may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders or commissions from purchasers of
Class A Common Stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). The selling stockholders and any brokers, dealers or agents that
participate in the distribution of our Class A Common Stock may be deemed to be
underwriters, and any profit on the sale of our Class A Common Stock by them and
any discounts, concessions or commissions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
27
Cornell Capital Partners is an "underwriter" within the meaning of the
Securities Act in connection with the sale of Class A Common Stock under the
equity line of credit. Under the terms of the equity line of credit, Cornell
Capital Partners will pay iVoice Technology 95% of the lowest closing bid price
of iVoice Technology's Class A Common Stock on the Over-the-Counter Bulletin
Board or other principal trading market on which our Class A Common Stock is
traded during the five trading days following the date that iVoice Technology
delivers to Cornell Capital Partners a notice requiring it to advance funds to
us. In addition, Cornell Capital Partners will retain 6% of the proceeds of each
advance received by iVoice Technology under the equity line of credit. The 5%
discount, the 6% retained amount, and the one-time commitment fee of 1.5% of the
initial outstanding shares of Class A Common Stock are underwriting discounts.
Cornell Capital Partners was formed in February 2000 as a Delaware limited
partnership. Cornell Capital Partners is a domestic hedge fund in the business
of investing in and financing public companies. Cornell Capital Partners does
not intend to make a market in iVoice Technology's stock or to otherwise engage
in stabilizing or other transactions intended to help support the stock price.
Prospective investors should take these factors into consideration before
purchasing iVoice Technology's common stock.
Monitor Capital is an "underwriter" within the meaning of the Securities
Act of 1933, as amended, in connection with the sale of Class A Common Stock
that it will receive as a placement agent fee from iVoice Technology in
connection with the private placement of shares of our Class A Common Stock to
Cornell Capital Partners under the equity line of credit. Under the placement
agent agreement, iVoice Technology agreed to issue to Monitor Capital on or
about the date of effectiveness of the registration statement of which this
prospectus is a part a number of shares of Class A Common Stock equal to $10,000
divided by the closing bid price of the Class A Common Stock on the date of
effectiveness of the registration statement covering the Distribution. Any
discount to market price is an underwriting discount.
Monitor Capital is a privately owned investment bank and brokerage firm.
Monitor Capital does not intend to make a market in iVoice Technology's stock or
to otherwise engage in stabilizing or other transactions intended to help
support the stock price. Prospective investors should take these factors into
consideration before purchasing iVoice Technology's common stock.
Under the securities laws of certain states, shares of our Class A Common
Stock may be sold in such states only through registered or licensed brokers or
dealers. The selling stockholders are advised to ensure that any underwriters,
brokers, dealers or agents effecting transactions on behalf of the selling
stockholders are registered to sell securities in all fifty states. In addition,
in certain states the shares of our Class A Common Stock may not be sold unless
the shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
We will pay all the expenses incident to the registration, offering and
sale of the shares of common stock to the public hereunder other than
commissions, fees and discounts of underwriters, brokers, dealers and agents. We
estimate that the expenses of the offering to be borne by us will be
approximately $182,990, as well as retention of 6% of the gross proceeds
28
received under the equity line of credit. The estimated offering expenses
consist of: a SEC registration fee of $1,240, printing expenses of $25,000,
accounting fees of $16,750, legal fees of $100,000 and miscellaneous expenses of
$40,000. We will not receive any proceeds from the sale of any of the shares of
common stock by the selling stockholders. We will, however, receive proceeds
from the sale of our Class A Common Stock under the equity line of credit.
The selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934 will apply
to purchases and sales of shares of our Class A Common Stock by the selling
stockholders, and that there are restrictions on market-making activities by
persons engaged in the distribution of the shares. Under Regulation M, the
selling stockholders or their agents may not bid for, purchase, or attempt to
induce any person to bid for or purchase, shares of our Class A Common Stock of
iVoice Technology while such selling stockholders are distributing shares
covered by this prospectus. Accordingly, except as noted below, the selling
stockholders are not permitted to cover short sales by purchasing shares while
the offering is taking place. Cornell Capital Partners can cover any short
positions only with shares received from iVoice Technology under the equity line
of credit. The selling stockholders are advised that if a particular offer of
Class A Common Stock is to be made on terms constituting a material change from
the information set forth above with respect to this Plan of Distribution, then,
to the extent required, a post-effective amendment to the accompanying
registration statement must be filed with the Securities and Exchange
Commission.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our audited
financial statements and related notes included elsewhere in this prospectus.
Our fiscal year currently ends on December 31, and each of our fiscal quarters
ends on the final day of a calendar quarter (each March 31, June 30 and
September 30). The following discussion contains forward-looking statements.
Please see "Cautionary Statement Regarding Forward-Looking Statements" for a
discussion of uncertainties, risks and assumptions associated with these
statements.
Overview
Prior to August 5, 2005, the Company's previous financial results and
operations were reflected in the consolidated financial statements and
accounting records of iVoice, and reflected significant assumptions and
allocations. These financial statements do not necessarily reflect the financial
position, results of operations and cash flows of iVoice Technology had it been
a stand-alone entity.
iVoice Technology seeks to leverage the value of underutilized developed
technology and believes that the transition to an independent company will
provide iVoice Technology with greater access to capital. This should provide
needed financial resources to potentially penetrate the market and distribute
the product. As such, iVoice Technology's business will be formed from the
contribution by iVoice of certain assets and related liabilities on or about the
effective date of the registration statement of which this prospectus is a part.
In connection with the spin-off of iVoice Technology by iVoice, iVoice assigned
and conveyed to iVoice Technology its
29
IVR software business and related liabilities, including all intellectual
property of iVoice relating to the IVR software business. The board and
management of iVoice elected not to transfer any part of its working cash
balance to iVoice Technology. Based upon the current intention of iVoice
Technology not to conduct any research and development or hire additional
employees and instead focus on the sale of the existing IVR technology, the
board has determined that, on balance, iVoice Technology has the ability to
satisfy its working capital needs as a whole. The board and management of iVoice
also determined that iVoice Technology has the ability to obtain financing to
satisfy any addition working capital needs as a stand-alone company.
The emerging nature of the interactive voice response industry and
unforeseen expenses from the separation from iVoice, make it difficult to assess
the future growth of iVoice Technology.
The IVR software business has operated at a loss in the past for iVoice,
and as an independent company such losses may continue or increase.
Additionally, iVoice Technology's business has relied on iVoice for financial,
administrative and managerial expertise in conducting its operations. Following
the Distribution, iVoice Technology will develop and maintain its own credit and
banking relationships and perform its own financial and investor relations
functions. iVoice Technology may not be able to successfully put in place the
financial, administrative and managerial structure necessary to operate as an
independent public company, and the development of such structure will require a
significant amount of management's time and other resources.
iVoice Technology has received a going concern opinion from its auditors.
Its continuation as a going concern is dependent upon obtaining the financing
necessary to operate its business. The financing of our working capital needs
are expected to be provided, in large part, from the sale of Class A Common
Stock to Cornell Capital Partners pursuant to the terms of the Standby Equity
Distribution Agreement. However, Cornell Capital Partners is under no obligation
to purchase any shares of our Class A Common Stock unless certain conditions are
met by iVoice Technology, including having the registration statement of which
this prospectus is a part declared effective by the SEC. See "- Liquidity and
Capital Resources." If iVoice Technology cannot fund its working capital needs
under the Standby Equity Distribution Agreement with Cornell Capital Partners,
we will be unable to obtain sufficient capital resources to operate our
business, and have no other plans to obtain alternative financing. We cannot
assure you that we will be able to access any financing in sufficient amounts or
at all when needed. Our inability to obtain sufficient working capital funding
will have an immediate material adverse effect upon our financial condition and
our business.
Separation from iVoice
iVoice Technology was incorporated under the laws of the State of New
Jersey on November 10, 2004, as a wholly-owned subsidiary of iVoice. iVoice
Technology will have no material assets or activities until the contribution of
the IVR software business described in this prospectus. After the Distribution,
iVoice Technology will be an independent public company, with iVoice having no
continuing ownership interest in iVoice Technology.
30
On November 11, 2004, iVoice Technology received by assignment all of the
interests in and rights and title to, and assumed all of the obligations of, all
of the agreements, contracts, understandings and other instruments of iVoice
Technology, Inc., a Nevada corporation and affiliate of iVoice Technology. These
agreements, contracts, understandings and other instruments consisted of the
documentation relating to the issuance of the secured convertible debentures and
the equity line of credit, the employment agreements with Mr. Mahoney and, our
former Chief Executive Officer and President, Arie Seidler and the
administrative services agreement. Since this assignment, iVoice Technology
Nevada has no operating business, assets or known liabilities, and is currently
in the process of being dissolved. When we refer to or describe any agreement,
contract or other written instrument of iVoice Technology in this prospectus,
such references may be to an agreement, contract or other written instrument
that had been entered into by iVoice Technology Nevada and assigned to iVoice
Technology.
iVoice Technology's financial statements have been prepared in accordance
with accounting principles generally accepted in the United States, and reflect
the historical financial position, results of operations, and cash flows of the
business transferred to iVoice Technology by iVoice as part of the Distribution.
The financial information included in this prospectus, however, is not
necessarily indicative of what iVoice Technology's results of operations or
financial position would have been had it operated as an independent company
during the periods presented, nor is it necessarily indicative of its future
performance as an independent company.
iVoice Technology operates the IVR software business. iVoice Technology
intends to use a portion of the proceeds from any financing arrangements, on
sales and marketing efforts for IVR. It is unclear whether such efforts will
result in a reasonably successful operating business due to iVoice's previous
lack of sales and marketing efforts on IVR, iVoice Technology's lack of
operating history, the current economic environment and, more specifically, the
uncertainty of the telecommunications market.
As of August 5, 2005, iVoice Technology assigned, contributed and conveyed
to iVoice Technology the iVoice corporate assets, liabilities and expenses
related to the IVR software business, including the IVR software and all
intellectual property of iVoice relating to the IVR software business and the
assignment of iVoice's existing agreements and arrangements with dealers and
resellers. This assignment, contribution and conveyance of assets, liabilities
and expenses was based on an estimate of the proportion of such amounts
allocable to iVoice Technology, utilizing such factors as total revenues,
employee headcount and other relevant factors. iVoice Technology believes that
these allocations have been made on a reasonable basis. iVoice Technology
believes that all costs allocated to iVoice Technology are a reasonable
representation of the costs that iVoice Technology would have incurred if iVoice
Technology had performed these functions as a stand-alone company.
In conjunction with the separation of the IVR software business from
iVoice, iVoice Technology entered into an administrative services agreement with
iVoice for the provision of certain services by iVoice to iVoice Technology
following the Distribution. This agreement will continue on a month to month
basis until iVoice Technology has found replacement services for those services
being provided by iVoice or can provide these services for itself. See
"Relationship Between iVoice and iVoice Technology Following the Distribution"
for a
31
description of the administrative services agreement. Following termination of
the administrative services agreement, we expect that iVoice Technology will
operate on a completely stand-alone basis from iVoice and there will be no
business or operating relationship between iVoice and iVoice Technology. iVoice
Technology has no current intention to terminate the administrative services
agreement, seek replacement services or provide services for itself in the near
future.
iVoice announced in September 2004 its intention to distribute its shares
of our Class A Common Stock to its stockholders upon effectiveness of required
Securities and Exchange Commission filings. Our shares of Class A Common Stock
were distributed to iVoice's stockholders on or about August 10, 2005.
Results of Operations for the Year Ended December 31, 2004 as Compared with
the Year Ended December 31, 2003
All revenues reported by iVoice Technology are derived from the sale or
license of our interactive voice response software products, which enable a
caller to obtain requested information in voice form from a local or non-local
database. Total revenues for the year ended December 31, 2004 and December 31,
2003 were $239,114 and $303,756 respectively. The $64,642 decrease in revenue
between the year ended December 31, 2004 and the year ended December 31, 2003
was the result of fewer units being sold in 2004 as compared to 2003, reflecting
a weaker demand for the product offset by increases in other revenue. The IVR
business has only operated as a division and/or a subsidiary of iVoice and has
never operated on a stand-alone basis. The low sales volume of the IVR business
is attributable to the minimal resources made available by iVoice for the sales
and marketing of the interactive voice response software products. Management
feels that the sales of the interactive voice response software products may
increase if greater financial and operational resources were made available for
the sales and marketing of the products. If iVoice Technology can obtain funds
under the proposed equity line of credit, iVoice Technology will be able to
devote more resources to operating the business. See -- "Liquidity and Capital
Resources."
Gross margin for the year ended December 31, 2004 and December 31, 2003
was $166,244 (69.5%) and $180,665 (59.5%), respectively. The increase in gross
margin is a result of a change in the products and services mix being sold. At
times, contracts require iVoice Technology to provide more service in a sale
than might otherwise be typical, resulting in a change in gross margin. In the
year ending December 31, 2004, iVoice Technology provided more consulting and
maintenance services, which have higher gross margins than the sale of software
products.
Total operating expenses decreased to $863,456 for the year ended December
31, 2004 from $965,341 for the year ended December 31, 2003, a decrease of
$101,885 or 10.6%. This decrease in the current year is primarily attributable
to reductions in research and development and amortization expenses offset by
increases in accrued professional and consulting fees in connection with
financing the operation of the business and the anticipated registration of
shares of iVoice Technology. The reductions in research and development expense
reflect a decrease in the number of employees performing research and
development functions.
32
As of December 31, 2004, iVoice Technology had five employees, four of
whom are full-time and one of whom is part-time.
The loss from operations for the year ended December 31, 2004 was
$(697,212) compared to $(784,676) for the year ended December 31, 2003, a
decrease of $87,464. As discussed above, this decrease was primarily
attributable to reductions in research and development and amortization expenses
offset by increases in accrued professional and consulting fees incurred in
connection with financing the operation of the business and the anticipated
registration of shares of iVoice Technology.
Total expenses for the year ended December 31, 2004 were $780,915 as
compared to $346,744 for the year ended December 31, 2003, an increase of
$434,171. During the year ended December 31, 2004, iVoice Technology recorded
$31,487 of interest expense and $850,555 of financing costs. Of the financing
costs, $794,555 was attributed to allocations from the parent for stock issued
and fees paid to Cornell Capital for initial and additional financing
arrangements during 2004 and $56,000 was paid to Cornell Capital for fees
related to the issuance of $560,000 of secured convertible debentures. Interest
expense included accrued interest on the secured debentures of $7,044 in 2004. A
significant portion of iVoice, Inc.'s interest expense was allocated to iVoice
Technology in 2004 and 2003 as a result of the funding for the loss from
operations. These amounts are $24,443 and $516,719, respectively. Other income
primarily consists of $57,237 related to the write-off of certain accounts
payable and $52,337 in interest income. In future periods, iVoice Technology
will incur additional interest expense and additional fees related to the
borrowings from the promissory note issued in replacement of the convertible
debentures and the anticipated sale of shares under the equity line of credit to
fund working capital needs. There is no assurance that iVoice Technology will be
able to raise funds by selling its common stock.
Results of Operations for the Six Months Ending June 30, 2005 as Compared with
the Six Months Ending June 30, 2004.
All revenues reported by iVoice Technology are derived from the sale or
license of our interactive voice response software products, which enable a
caller to obtain requested information in voice form from a local or non-local
database. Total revenues for the six months ended June 30, 2005 and June 30,
2004 were $70,838 and $131,006, respectively. The $60,168 decrease in revenue
between the six months ended June 30, 2005 and the six months ended June 30,
2004 was the result of fewer turn-key systems being sold in 2005 as compared to
2004. Until August 5, 2005 the IVR business only operated as a division and/or a
subsidiary of iVoice and had never operated on a stand-alone basis. The low
sales volume of the IVR business is attributable to the minimal resources made
available by iVoice for the sales and marketing of the interactive voice
response software products. Management feels that the sales of the interactive
voice response software products may increase if greater financial and
operational resources were made available for the sales and marketing of the
products. If iVoice Technology can obtain funds under the equity line of credit,
iVoice Technology will be able to devote more resources to operating the
business. See "Liquidity and Capital Resources."
Gross margin for the six months ended June 30, 2005 and June 30, 2004 was
$70,100 (99%) and $78,188 (59.7%), respectively. Revenues in the six months
ended June 30, 2005
33
contained very little hardware and had very little direct costs. Software and
maintenance revenue has a very low direct cost content. The increase in gross
margin rate is a result of a change in the hardware and software mix being sold
as compared to the same period in the prior year. The decrease in gross margin
dollars is the result of lower sales.
Total operating expenses decreased to $198,653 for the six months ended
June 30, 2005 from $568,089 for the six months ended June 30, 2004, a decrease
of $369,436 or 65%. This decrease in the current six month period is primarily
attributable to reductions in the allocated costs from iVoice. In the six months
ended June 30, 2004, iVoice accrued professional and consulting fees in
connection with financing the operation of the business and the anticipated
registration of shares of iVoice Technology. The reductions in allocated selling
and research and development expenses reflect a decrease in the number of
employees performing these functions.
As of June 30, 2005, iVoice Technology had one full-time employee and two
part-time employees.
The loss from continuing operations before other income (expense) for the
six months ended June 30, 2005 was $128,553 compared to a loss of $489,901 for
the six months ended June 30, 2004, a decrease in the loss of $361,348. As
discussed above, this decrease was primarily attributable to reductions in
allocated selling, research and development and accrued professional and
consulting fees incurred in connection with financing the operation of the
business and the anticipated registration of shares of iVoice Technology.
Total other income (expense) for the six months ended June 30, 2005 were
an expense of $28,620 as compared to an expense of $837,946 for the six months
ended June 30, 2004, a decrease of $809,326. During the six months ended June
30, 2005, iVoice Technology recorded $14,000 for financing costs, $16,359 of
interest expense and $1,739 of interest income. In the six months ending June
30, 2004, iVoice, Inc allocated $888,146 for financing costs, $10,750 for
interest expenses and $60,950 for other income to iVoice Technology. The
allocated finance costs were for fees paid to Cornell Capital for initial and
additional financing arrangements. The allocated other income was primarily from
interest earned on the cash accounts. The allocated interest expense was for
accrued interest on related party debts.
Net loss for the six months ending June 30, 2005 was $157,173 as compared
to a loss of $1,327,847 for the six months ending June 30, 2004. The decrease in
net loss of $1,170,674 was the result of the factors discussed above.
Liquidity and Capital Resources
To date, iVoice Technology has incurred substantial losses, and will
require financing for working capital to meet its operating obligations. We
anticipate that we will require financing on an ongoing basis for the
foreseeable future.
On August 12 and November 19, 2004, iVoice Technology issued an aggregate
of $560,000 in secured convertible debentures, with interest payable at 5% per
annum, to Cornell Capital Partners. On February 28, 2005, iVoice Technology's
obligations under the secured convertible debentures were terminated and
replaced with a secured promissory note of the same principal amount, with an
additional loan of $140,000 bringing the promissory note to an
34
aggregate principal amount of $700,000. The promissory note accrues interest at
rate of 12% per annum, but is not convertible into any equity security of iVoice
Technology. In connection with the issuances of the secured convertible
debentures, iVoice Technology paid a fee to Cornell Capital Partners equal to
10% of the aggregate principal amount of the debentures. When the secured
convertible debentures were terminated, iVoice Technology received a credit for
fees that would otherwise have been payable upon the issuance of the $560,000 in
replacement notes. iVoice Technology paid Cornell Capital a fee of $14,000 in
connection with its $140,000 additional borrowing. The Company's obligations
under the secured promissory note issued to Cornell Capital Partners are secured
by a first priority security interest in substantially all of our assets. iVoice
has also guaranteed the payment of all amounts payable by iVoice Technology
pursuant to the secured promissory note. This guaranty terminated on August 5,
2005.
On March 9, 2005, iVoice Technology received a non-binding letter of
intent from Cornell Capital whereby Cornell Capital offered, subject to
satisfaction of certain conditions, to purchase shares of iVoice Technology's
common stock upon the terms set forth in the non-binding letter of intent and
the definitive documentation to be executed after satisfaction of those closing
conditions. On September 22, 2005, iVoice Technology entered into a Standby
Equity Distribution Agreement with Cornell Capital, pursuant to which iVoice
Technology may, from time to time, issue and sell to Cornell Capital Partners
our Class A Common Stock for a total purchase price of up to $10.0 million. The
purchase price for the shares is 95% of the market price, which is defined as
the lowest closing bid price of the Class A Common Stock during the five trading
days following the date that iVoice Technology delivers to Cornell Capital
Partners a notice requiring it to advance funds to us. A cash fee equal to six
percent (6%) of the cash proceeds of the draw down is also be payable at the
time of funding. In addition, Cornell Capital Partners is entitled to receive,
as additional compensation, the number of shares of Class A Common Stock equal
to one and one half percent (1.5%) of the number of shares of Class A Common
Stock outstanding on the date that a registration statement in respect of the
shares to be distributed pursuant to the equity line of credit becomes
effective.
However, Cornell Capital Partners is under no obligation to purchase any
shares of Class A Common Stock unless certain conditions are met by iVoice
Technology, including having the registration statement relating to the Standby
Equity Distribution Agreement declared effective. If iVoice Technology cannot
satisfy the requirements for Cornell Capital Partners to purchase the Class A
Common Stock under the terms of the Standby Equity Distribution Agreement, we
will not be able to obtain sufficient capital resources to operate our business,
and we have no current plans to obtain alternative financing. We cannot assure
you that we will be able to access any financing in sufficient amounts or at all
when needed. Our inability to obtain sufficient financing would have an
immediate material adverse effect on us, our financial condition and our
business. Management believes that its going-forward expenses for the twelve
months following the date of this prospectus will be approximately $432,000,
which includes salaries for iVoice Technology's officers and employees, and
assuming iVoice Technologies has no revenues in such period, iVoice Technology
expects to incur liabilities, for the year ending December 31, 2005 of
approximately $432,000. Management has no current plan to hire additional
employees, perform additional research and development or purchase additional
equipment or services beyond the requirements of the administrative services
agreement with iVoice. Management believes that the deficiency between the
Company's expenses and net revenues will be more than
35
covered by the cash available from the proceeds of the secured promissory note.
If there are additional deficiencies that are in excess of the proceeds of the
secured promissory note, and iVoice Technology is unable to obtain funds from
the sale of our Class A Common Stock to Cornell Capital Partners, management
believes that iVoice Technology can limit its operations, defer payments to
management and maintain its business at nominal levels until it can identify
alternative sources of capital.
Except for these two financing agreements, the Company has no other
significant sources of working capital or cash commitments. However, no
assurance can be given that iVoice Technology will raise sufficient funds from
such financing arrangements, or that iVoice Technology will ever produce
sufficient revenues to sustain its operations, or that a market will develop for
its common stock for which a significant amount of iVoice Technology's financing
is dependent upon.
On August 5, 2005, iVoice Technology assumed an aggregate of $190,000 in
liabilities from iVoice and iVoice assigned to iVoice Technology assets having
an aggregate book value of $10,000. See "Selected Historical and Pro Forma
Financial Information" contained in the financial statements of iVoice
Technology at the back of this prospectus. iVoice Technology believes that the
fair value of these assets may be greater than the book value, although it has
not undertaken an appraisal. The assumed obligations are described below.
iVoice Technology assumed from iVoice outstanding indebtedness in the
amount of $190,000 payable to Jerry Mahoney. This amount is related to funds
that had been loaned to iVoice in July 2000 that were used to develop the IVR
software business. The amount of $190,000 includes approximately $32,110 for
interest on the original loan from Jerry Mahoney to iVoice. Pursuant to the
terms of the promissory note representing such obligation, iVoice Technology,
for value received, will pay to Mr. Mahoney the principal sum of $190,000 that
will bear interest at the prime rate plus 2% per annum on the unpaid balance
until paid or until default. Interest payments will be due annually. All accrued
interest becomes due on the date of any payment of the promissory note. At the
time of default (if any) the interest rate shall increase to 20% until the
principal balance has been paid. Under the terms of the promissory note, at the
option of the note holder, principal and interest can be converted into either
(i) one share of Class B Common Stock of iVoice Technology, par value $0.01, for
each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice
Technology calculated by dividing (x) the sum of the principal and interest that
the note holder has requested to have prepaid by (y) eighty percent (80%) of the
lowest issue price of Class A Common Stock since the first advance of funds
under this note, or (iii) payment of the principal of this note, before any
repayment of interest. iVoice Technology has yet to record this liability on its
financial statements, as this indebtedness was not assumed by iVoice Technology
until August 5, 2005.
Mr. Mahoney agreed to forego receiving any shares of iVoice Technology
Class A Common Stock he would have been entitled to receive in the Distribution
by virtue of his ownership of either iVoice Class A Common Stock or iVoice Class
B Common Stock.
iVoice Technology has entered into employment contracts with its
Non-Executive Chairman of the Board of Directors and its President, Chief
Executive Officer and Chief Financial Officer. As consideration, iVoice
Technology agreed to pay Jerome Mahoney the sum
36
of $85,000 the first year with an annual increase based on the Consumer Price
Index every year thereafter. Mr. Mahoney will also be entitled to incentive
compensation based upon mergers and acquisitions completed by iVoice Technology.
The employment agreement with Mr. Mahoney provides for a severance payment to
him of three hundred percent (300%), less $100, of his gross income for services
rendered to iVoice Technology in each of the five prior calendar years (or
shorter period during which Mr. Mahoney shall have been employed by iVoice
Technology) should his employment be terminated following a change in control,
as defined in the employment agreement.
iVoice Technology entered into an employment agreement as of August 1,
2004 with Mr. Seidler, which agreement was amended on August 12, 2005, to serve
as iVoice Technology's President and Chief Executive Officer. Mr. Seidler
resigned as iVoice Technology's President and Chief Executive Officer and his
employment agreement was terminated on August 26, 2005.
Following Mr. Seidler's resignation, iVoice Technology entered into an
employment agreement with Mark Meller as of August 29, 2005. Mr. Meller will
serve as iVoice Technology's President, Chief Executive Officer and Chief
Financial Officer for a term of one year. As consideration, iVoice Technology
agreed to pay Mr. Meller a base salary of $85,000 the first year with an annual
increase based on the Consumer Price Index every year thereafter. Mr. Meller has
agreed to forego receipt of $65,000 of his salary until such time that
management believes it has sufficient financing in place to fund this
obligation. Additionally, the Board of Directors may, in its sole discretion,
pay Mr. Meller the balance of his compensation in the form of iVoice Technology
Class A or Class B Common Stock. Mr. Meller will also be entitled to certain
bonuses based on mergers and acquisitions completed by iVoice Technology. The
employment agreement with Mr. Meller provides for a severance payment to him of
three hundred percent (300%), less $100, of his gross income for services
rendered to iVoice Technology in each of the five prior calendar years (or
shorter period during which Mr. Meller shall have been employed by iVoice
Technology) should his employment be terminated following a change in control,
as defined in the employment agreement.
During the six months ended June 30, 2005, the Company had a net increase
in cash of $46,001. The Company's principal sources and uses of funds were as
follows:
Cash used by operating activities. The Company used $93,999 in cash for
operating activities in the six months ended June 30, 2005. This was primarily
the result of the cash used to fund the loss from current operating activities.
Cash provided by financing activities. Financing activities in the six
months ended June 30, 2005 provided a total of $140,000 in cash. This consisted
of net proceeds from the issuance of the secured promissory note under the
financing with Cornell Capital Partners.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of
operations are based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP). The preparation of these financial
37
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate these
estimates, including those related to bad debts, inventory obsolescence,
intangible assets, payroll tax obligations, and litigation. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of certain assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions.
We have identified below the accounting policies, revenue recognition and
software costs, related to what we believe are most critical to our business
operations and are discussed throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations where such policies affect our
reported and expected financial results.
Revenue Recognition
With respect to the sale of software license fees, the Company recognizes
revenue in accordance with Statement of Position 97-2, Software Revenue
Recognition (SOP 97-2), as amended, and generally recognizes revenue when all of
the following criteria are met: (1) persuasive evidence of an arrangement exists
generally evidenced by a signed, written purchase order from the customer, (2)
delivery of the software product on Compact Disk (CD) or other means to the
customer has occurred, (3) the perpetual license fee is fixed or determinable
and (4) collectibility, which is assessed on a customer-by-customer basis, is
probable.
With respect to customer support services, upon the completion of one year
from the date of sale, the Company offers customers an optional annual software
maintenance and support agreement for subsequent one-year periods. Sales of
purchased maintenance and support agreements are recorded as deferred revenues
and recognized over the respective terms of the agreements.
The Company derives its revenues from the licensing of its software
product and optional customer support (maintenance) services. Presently, 100% of
the revenues reported by the Company are derived from the licensing of the
Company's IVR software. No revenues have been derived from the sale of optional
customer support services. The Company's standard license agreement provides for
a one-time fee for use of the Company's product in perpetuity for each computer
or CPU in which the software will reside. The Company's software application is
fully functional upon delivery and implementation and does not require any
significant modification or alteration. The Company also offers customers an
optional annual software maintenance and support agreement for the subsequent
one-year periods. Such maintenance and support services are free for the first
year the product is licensed. The software maintenance and support agreement
provides free software updates, if any, and technical support the customer may
need in deploying or changing the configuration of the software. Generally, the
Company does not license its software in multiple element arrangements whereby
the customer purchases a combination of software and maintenance. In a typical
arrangement, software maintenance services are sold separately from the software
product; are not considered essential to the functionality of the software and
are purchased at the customer's option upon the completion of the first year
licensed.
38
The Company does not offer any special payment terms or significant
discount pricing. Normal and customary payment terms require payment for the
software license fees when the product is shipped. Payment for software
maintenance is due prior to the commencement of the maintenance period. It is
also the Company's policy not to provide direct customers (as opposed to
resellers and dealers) the right to refund any portion of its license fees. The
Company accepts Visa and MasterCard as well as company checks.
Customers may license the Company's products through our telesales
organization and through promotions or reseller agreements with independent
third parties. iVoice Technology only permits returns from authorized dealers
and resellers of unused inventory, subject to the consent of the Company and a
twenty-five percent restocking fee. End users who purchaser products directly
from iVoice Technology may not return such products to iVoice Technology under
any circumstances. Accordingly, the Company records a provision for product
returns and allowances against product revenue in the same period the revenue is
recorded. The estimates are based on historical sales returns and other known
data as well as market and economic conditions.
Our current products are not sold through retail distribution channels.
Current reseller agreements provide for a limited contractual right of return
and do not provide for future price concessions, minimum inventory commitments
nor is payment contingent upon the reseller's future sales or our products.
Revenues generated from products licensed through marketing channels where the
right of return exists, explicitly or implicitly, is reduced by reserves for
estimated product returns. Such reserves are estimates based on returns history
and current economic and market trends.
Software Costs
Software license costs are recorded at cost, which approximates fair
market value as of the date of purchase. These costs represent the purchase of
various exploitation rights to certain software, pre-developed codes and systems
developed by a non-related third party. These costs are capitalized pursuant to
Statement of Financial Accounting Standards ("SFAS") 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed". The
Company has adopted SFAS No. 121. The carrying value of software license costs
are regularly reviewed by the Company and a loss would be recognized if the
value of the estimated undiscounted cash flow benefit related to the asset falls
below the unamortized cost. The Company develops software for licensing to its
customers and capitalizes software development costs when technological
feasibility has been established. Software development costs not qualifying for
capitalization are expensed and classified as research and development expenses
in the statements of operations. Research and development expenses and the
capitalization rate will fluctuate from period to period depending upon the
number and status of software development projects that are in process and the
related number of people assigned to those projects.
Purchased software and capitalized software development costs are
amortized using the greater of the revenue method or the straight-line method
with useful lives ranging from three to five years. Amortization expense is
classified in costs of revenue on the statements of operations. Our products
operate on or with other third party software and operating systems. When
determining the useful life of a product we consider factors such as the current
state of the
39
technology, operating systems on which our products run, competitive products
and the potential use of our products by the end user. Technological advances in
software operating systems and other software technologies on which our products
rely may shorten the expected life cycle of our products. We make an assessment
of the useful lives of our products at each balance sheet date. If that
assessment determines that a shortened product life has occurred, we amortize
the remaining unamortized balances over the new estimated useful life of the
product and provide disclosure regarding a change in estimate in the notes to
the financial statements pursuant to Accounting Principles Board Opinion No. 20
"Accounting Changes."
The Company evaluates the estimated net realizable value of each software
product at each balance sheet date. The estimate is based on historical and
forecasted net revenue for each product. Net revenue is the product revenue
reduced by the estimated costs of revenue and, if in development, the estimated
cost to complete the development of the product. When the net book value exceeds
the estimate of net realizable value, the Company records a write-down to net
realizable value on each product affected. Management's ability to achieve its
revenue forecast is subject to judgment, competitive pressures, market and
economic conditions and management's ability to successfully license its
products to its customers. A change in one or more of these factors may
influence management's estimates. Accordingly, currently estimated net
realizable values are subject to being reduced resulting in corresponding
charges for impairment in the future.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"), which requires
variable interest entities to be consolidated by the primary beneficiary of the
entity if certain criteria are met. FIN 46 is effective for all new variable
interest entities created after January 31, 2003. For variable interest entities
created or acquired before February 1, 2003, the provisions of FIN 46 become
effective for the Company on September 1, 2003. The Company does not expect that
the adoption of FIN 46 will have a material impact on its financial position,
results of operations or cash flows.
In April, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." Except
as noted below, the Company is required to adopt this statement by the first
quarter of the fiscal year, 2004. Certain provisions of this statement relating
to SFAS No. 133 implementation issues that have been effective for prior fiscal
quarters will continue to be applied in accordance with their respective
effective dates. The Company does not expect that the adoption of SFAS No. 149
will have a material impact on its financial position, results of operations or
cash flows.
In May, 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for the Company on September 1, 2003. The Company does not
expect that the adoption of SFAS No. 150 will have a material impact on the
Company's financial position, results of operations or cash flows.
40
OUR BUSINESS
Background
iVoice Technology, Inc. (the "Company") was incorporated in New Jersey on
November 10, 2004 as a wholly-owned subsidiary of iVoice, Inc. It is engaged in
the design, manufacture, and marketing of specialized telecommunication
equipment. As of June 30, 2005, the Company employed one full-time employee and
two part-time employees. iVoice Technology may seek to expand its operations
through additional sales and marketing activity and the acquisition of
additional businesses. Any potential acquired additional businesses may be
outside the current field of operations of iVoice Technology. iVoice Technology
may not be able to identify, successfully integrate or profitably manage any
such businesses or operations. Currently, iVoice Technology has no plans,
proposals or arrangements, either orally or in writing, regarding any proposed
acquisitions and is not considering any potential acquisitions.
The following description of our business is intended to provide an
understanding of our product and the direction of our initial marketing
strategy. As the Company is in its developmental stages, any focus described in
the following pages may change and different initiatives may be pursued, at the
discretion of Management.
Products
Our flagship product is IVR, an application generator that allows full
connectivity to many databases, including Microsoft Access, Microsoft Excel,
Microsoft Fox Pro, DBase, Btrieve, and Paradox, or to standard text files. IVR
can be used to read information from, and write information to, databases, as
well as query databases and return information. The IVR software is sold as an
application generator that gives the end user the ability to develop their own
customized IVR application or as a customized turnkey system. IVR performs over
40 different customizable commands. Examples of IVR range from simply selecting
announcements from a list of options stored in the computer (also known as audio
text) to more complex interactive exchanges such as querying a database for
information.
Properties can be set up for each command, as if the commands were being
executed manually. IVR links a phone system to a database to provide customers
with 24-hour immediate access to account information, via telephone. With IVR,
polished IVR applications are quick and easy to install. No knowledge of
computer programming and minimal database knowledge is needed. IVR will execute
any created application when a caller dials in. Using DTMF (touch-tone
telephones) or speech activation allows callers to interact with the system.
Advanced database technology permits reading, writing, appending, searching and
seeking database information. A user can record product inventory, set up games,
keep a record of patients or customers, and perform other applications. The
advanced, innovative technology, backed by a simple, easy-to-use drag-and-drop
interface, makes writing applications simple.
The IVR software also incorporates an Internet access tool, which can be
either connected to the IVR system or run as a standalone. This IVR system also
has a graphical user interface and provides for Internet access to the system.
Once logged onto the Internet, a user can gain access to the IVR system by
clicking on a hypertext link for the user's browser. Upon
41
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.
We are in the process of rolling out Version 3.0 of the IVR software,
which incorporates certain upgrades designed to improve stability and
performance of the software. Only minor changes are being made to the user
interface, and there are no material new features that are readily apparent to
the end user. We currently have no plans to engage in future research and
development or to launch any additional versions of the IVR software or other
products.
Distribution
As a product line of iVoice, Inc., IVR has produced sales revenues for the
past three fiscal years. In the past, iVoice devoted limited resources to the
marketing of IVR. The Company's future revenues depend on its ability to develop
a customer base through the establishment of a reseller channel using various
marketing and sales promotions.
iVoice Technology will market its products directly, with a sales force,
and through more than 100 domestic and international re-sellers. iVoice
Technology intends to enter into arrangements with resellers to broaden
distribution channels and to increase its sales penetration to specific markets
and industries. Distributors will be selected based on their access to the
markets, industries and customers that are candidates for the products.
Competition
The Company competes generally with a number of other manufacturers of
supplemental telecommunications software, telecommunications integrators, as
well as application service providers (ASPs), which provide IVR software to
other businesses and organizations either through internet servers or
telecommunication servers. System design and engineering, application technical
features, built-in speech recognition capabilities and simplicity of user
implementation and administration are the principal characteristics of our IVR
that differentiates it from competing products. The markets in which we compete
are the IVR enterprise market, in which the customers are generally direct end
users and smaller clients with limited capacity requirements and revenue per
contract, and the IVR enhanced services market, which consists primarily of
service providers and other large organizations who require a greater level of
capacity and features.
The IVR enterprise market is fragmented and highly competitive. The
Company's major competitors in this market are Avaya Inc., IBM Corporation,
Nortel Networks Limited, Aspect Communications Corporation and Security First
Corp. (formerly Edify Corporation). The principal competitive factors in this
market include breadth and depth of solution, product features, product
scalability and reliability, client services, the ability to implement
solutions, and the creation of a referenceable customer base. The Company
believes that its product line of solutions, combined with its professional and
technical services and its extensive customer base, allow it to compete
favorably in this market. However, this market is evolving rapidly, and the
42
Company anticipates intensified competition not only from traditional IVR
vendors but also from emerging vendors with non-traditional technologies and
solutions.
Competition in the IVR enhanced network services market ranges from large
telecommunication suppliers offering turnkey, multi-application solutions to
"niche" companies that specialize in a particular enhanced service such as
prepaid or voicemail. The Company's primary competitors in this market are
suppliers such as Comverse Technology, Inc., Unisys Corporation and Lucent
Technologies Inc. that provide a suite of enhanced services. Smaller niche
players that compete with the Company in various geographies and/or products
include GlenAyre Electronics Inc. The Company anticipates that competition will
continue from existing and new competitors, some of which have greater
financial, technological and marketing resources and greater market share than
the Company.
No assurance can be given that our competitors will not develop new
technologies or enhancements to their existing products or introduce new
products that will offer superior price or performance features. We expect our
competitors to offer new and existing products at prices necessary to gain or
retain market share. Certain of our competitors have substantial financial
resources, which may enable them to withstand sustained price competition or a
market downturn better than us. There can be no assurance that we will be able
to compete successfully in the pricing of our products, or otherwise, in the
future.
As is customary in the telecommunications industry, the Company produces
its products from readily available components purchased from a variety of
manufacturers. Printed circuit boards and housings are contracted for
manufacture according to Company specifications from among many available
suppliers. The business of the Company is not seasonal. The Company maintains no
special arrangements relating to working capital items, and as far as it is
aware this is standard in the industry. The Company is not subject to
environmental protection regulations during the foreseeable future. The Company
has spent nothing on research and development in the last three fiscal years.
None of the Company's present business is subject to renegotiation of profits or
termination of contracts or subcontracts at the election of the government.
Product Development
We are in the process of rolling out Version 3.0 of the IVR software,
which incorporates certain upgrades designed to improve stability and
performance of the software. Only minor changes are being made to the user
interface, and there are no material new features that are readily apparent to
the end user. We currently have no plans to engage in future research and
development or to launch any additional versions of the IVR software or other
products.
iVoice Technology considers its current products to be competitive with
products offered by others in its industry segment. It does not foresee spending
any significant capital on new product development in the foreseeable future.
Business Development
Business development objectives at iVoice Technology will be to focus on
two primary functions as listed below:
43
1. Negotiate and secure strategic alliances related to our IVR products; and
2. Negotiate, secure and manage Original Equipment Manufacturer (OEM) and
reseller accounts.
Strategic Alliances
iVoice Technology's business development efforts will seek to engage and
secure strategic alliances with related telecommunications businesses and
professional organizations in order to develop co-marketing programs that will
expand market share for our products and develop brand recognition. By entering
into strategic alliances with companies that offer telecommunications devices or
services to businesses or professional organizations whereby appointment setting
and scheduling are of vital importance, we will seek to obtain access to an
installed customer base as well as new sales opportunities of our products.
Manage OEM and Reseller Accounts
While we have traditionally sold our product primarily on a direct basis,
with our existing officers and employees fulfilling orders received by telephone
and the internet, we will seek to obtain new OEM and reseller relationships that
will serve as an extension of our sales team which has yet to be hired. We
currently have no strategic alliances with any OEMs or resellers other than the
existing relationship between iVoice's resellers and iVoice that are being
transferred to us by iVoice for our benefit, nor do we have any current material
negotiations with any OEM or other reseller. Ideally, an OEM agreement, which
provides distribution of our software product along with the manufacturers own
telecommunication equipment, could produce the most widespread distribution and
acceptance of our product at minimal distribution costs. Many of the OEMs have
extensive and established reseller channels that could provide an avenue of
distribution for our software. To effectively manage these accounts, we will
need to provide these resellers with product literature, pricing, and sales
leads as well as technical training and support.
Sales and Marketing
The IVR enterprise market is characterized by a business environment that
has goals to improve customer communication and personalization as well as
reduce the costs of customer contact, a historically time-and-money intensive
operation. Furthermore, consumers are increasingly taking charge of this
important interaction between enterprise and consumer; deciding where, when and
how they want this communication. To address this new business paradigm,
enterprises are increasingly applying innovative wireless, speech and web
technologies to leverage existing customer service infrastructures in the
creation of interactive, self-directed service applications. These new
applications are designed to put the customer in control of the delivery of the
information while allowing the enterprise control of the data. This serves to
address the enterprise's objectives of improving the customer experience and
reducing operating costs.
The Company's strengths are reflected in the IVR enterprise market as part
of a suite of offerings that can be delivered as components or as part of a
total, turnkey solution. These IVR solutions use the latest in technology to
allow enterprises to automate increasingly complex
44
interactions, enabling businesses to provide quick and timely communications
with customers and business partners. Such technology enables enterprises to
communicate with their customers through voice, web, e-mail, facsimile and other
forms of communication on a variety of devices, including telephones, PCs,
mobile phones and personal digital assistants ("PDAs").
iVoice Technology will market its products directly and through more than
100 domestic and international re-sellers. The Company intends to enter into
arrangements with resellers to broaden distribution channels and to increase its
sales penetration to specific markets and industries. Distributors will be
selected based on their access to the markets, industries and customers that are
candidates for the products.
The Company is actively seeking strategic relationships with companies to
build its developing partner program. The partner program will be built by
establishing relationships in basic areas consisting of software and technology
solution partners and system integration partners. These relationships will
enhance the Company's technological strength, improve its market position,
facilitate shorter time-to-market, enhance its ability to deliver end-to-end
solutions, and broaden its market coverage.
Developing market possibilities will be crucial to our success. However,
we cannot provide any assurance that we will be able to effectively market and
sell our products for these uses or that they will be accepted by our perceived
market.
Intellectual Property Rights
We regard some features of our IVR software and documentation to be
proprietary intellectual property. We have been and will be dependent in part on
our ability to protect our proprietary technology. We will seek to use
copyright, trademarks, trade secret laws, confidentiality agreements and other
measures if necessary to establish and protect our rights in our proprietary
technology. We have not filed any provisional patent applications with respect
to some of our application and intellectual property rights. We are currently
reviewing our technologies and processes with our patent attorneys to determine
if it is possible to obtain any patents or statutory copyrights on any of our
proprietary technology which we believe to be material to our future success. If
we were to file for any patent or copyright protection, we cannot be certain
that others will not develop substantially equivalent or superseding proprietary
technology before any patent or copyright protection is awarded to us. Any
provisional patent application requires that we file one or more non-provisional
patent applications within 12 months from the date of filing to specify the
claims asserted for patent protection. Furthermore, there can be no assurance
that any confidentiality agreements between our employees and us will provide
meaningful protection of our proprietary information in the event of any
unauthorized use or disclosure of such proprietary information.
There can be no assurance that we will not become the subject of claims of
infringement with respect to intellectual property rights associated with our
products. In addition, we may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the validity
of our proprietary rights. Any such claims could be time consuming and could
result in costly litigation or lead us to enter into royalty or licensing
agreements rather than disputing the merits of such claims.
45
Employees
As of June 30, 2005, we had one full-time employee and two part-time
employees. We have entered into employment agreements with our President and
Chief Executive Officer (Mr. Meller) and our Non-Executive Chairman of the Board
(Mr. Mahoney). Messrs. Mahoney and Meller will not provide services to iVoice
Technology on a full-time basis. Many services that would be provided by
employees are currently being provided to iVoice Technology by iVoice under the
administrative services agreement. We do not currently have any plans to hire
additional personnel and we expect our current officers and directors to
continue to fulfill orders received by telephone and the internet for iVoice
Technology products. However, if iVoice Technology can obtain funds under the
equity line of credit, iVoice Technology will be able to devote more resources
to expanding its personnel. See " Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Within the industry, competition for key technical and management
personnel is intense, and there can be no assurance that we can retain our
future key technical and managerial employees or that, should we seek to add or
replace key personnel, we can assimilate or retain other highly qualified
technical and managerial personnel in the future.
Government Regulation
We are subject to licensing and regulation by a number of authorities in
the state and municipality in which we conduct operations. These may include
health, safety, and fire regulations. Our operations are also subject to federal
and state minimum wage laws governing such matters as working conditions and
overtime.
We are not subject to any necessary government approval or license
requirement in order to market, distribute or sell our principal or related
products other than ordinary federal, state, and local laws that govern the
conduct of business in general.
Legal Proceedings
iVoice Technology is not party to any material legal proceedings, nor to
the knowledge of iVoice Technology, is any such proceeding threatened against
it.
Properties
We do not own any real property. We currently co-occupy the same space as
iVoice and are subleasing from iVoice some of the office space located at 750
Highway 34, Matawan, New Jersey. The rent payment for the sublease is currently
included in the administrative services agreement. Following the Distribution,
we intend to continue subleasing such space pursuant to the administrative
services agreement and anticipate no relocation of our offices in the
foreseeable future.
IVOICE TECHNOLOGY'S MANAGEMENT
iVoice Technology initially intends to have a board of directors that will
consist of two directors. Listed below is certain information concerning
individuals who currently serve as
46
directors and executive officers of iVoice Technology. Mr. Mahoney is currently
a director of iVoice and we anticipate that Mr. Mahoney will remain a director
of both iVoice and iVoice Technology.
Position with Director
Name Age iVoice Technology, Inc. since
- ------------------ --- ----------------------------------- --------
Jerome R. Mahoney 43 Non-Executive Chairman of the Board 2004
Mark Meller 45 President and Chief Executive Officer N/A
Frank V. Esser 66 Director 2005
Jerome R. Mahoney. Mr. Mahoney is iVoice Technology's Non-Executive
Chairman of the Board. He has been a director of iVoice since May 21, 1999. Mr.
Mahoney is also the Chairman of the Board of Trey Resources, Inc. and has been a
director of Trey Resources since January 1, 2002. He is also the Non-Executive
Chairman of the Board of Deep Field Technologies, Inc. and SpeechSwitch, Inc.
and has been a director of Deep Field Technologies and SpeechSwitch since August
2004. Mr. Mahoney started at Executone Information Systems, a telephone systems
manufacturer, and was Director of National Accounts from 1988 to 1989. In 1989,
Mr. Mahoney founded Voice Express, Inc., a New York company that sold voicemail
systems and telephone system service contracts and installed these systems. Mr.
Mahoney sold Voice Express Systems in 1993. From 1993 to 1997, Mr. Mahoney was
President of IVS Corp., and on December 17, 1997, he established International
Voice Technologies, with which iVoice merged on May 21, 1999. Mr. Mahoney
received a B.A. in finance and marketing from Fairleigh Dickinson University,
Rutherford, N.J. in 1983.
Mark Meller. Mr. Meller has been iVoice Technology's President, Chief
Executive Officer and Chief Financial Officer since August 29, 2005. Mr. Meller
has also been the President, Chief Executive Officer and Chief Financial Officer
of Trey Resources, Inc. and a director of Trey Resources, Inc. since September
2003 and the President, Chief Executive Officer and Chief Financial Officer of
Deep Field Technologies, Inc. since October 1, 2004. Since 1988, Mr. Meller has
been Chief Executive Officer of Bristol Townsend & Co., Inc., a New Jersey-based
consulting firm providing merger and acquisition advisory services to middle
market companies. From 1986 to 1988, Mr. Meller was Vice President of Corporate
Finance and General Counsel of Crown Capital Group, Inc., a New Jersey-based
consulting firm providing advisory services for middle market leveraged buy-outs
(LBO's). Prior to 1986, Mr. Meller was a financial consultant and practiced law
in New York City. He is a member of the New York State Bar.
Frank V. Esser. Mr. Esser has served as a director of the Company since
June 2005. He has been a director of iVoice since February 2004. Mr. Esser
functioned as Transfer Agent and Head Bookkeeper in the Treasury Department of
Texaco Inc from 1959 to 1968. As a certified public accountant with Ernst &
Young from 1968 to 1981, he participated in the audits of major publicly traded
companies such as J.P. Stevens & Co., Dynamics Corporation of America, and
Phillips - Van Heusen Corporation, along with law firms, banks, manufacturing
companies and other organizations, and also participated in the public offerings
of equity and debt and the preparation of SEC filings. In 1981, Mr. Esser
accepted the position of Corporate Controller
47
with Grow Group, Inc., a Fortune 500 manufacturer of paints, solvents, and
household products and became its Chief Financial Officer in 1987. During 1997
and 1998, Mr. Esser was Chief Financial Officer of a privately-held plastics
injection molding company. In 1998, Mr. Esser accepted the position of Senior
Associate at Beacon Consulting Associates, adding the title of Vice President in
1999, and has been working in such capacities ever since. Mr. Esser holds a BBA
degree from Baruch College of the City University of New York and is a Certified
Public Accountant in New York State.
In consideration of Mr. Esser's service as a director of the Company, he
will receive a fee of $12,000 for each year of service as a director.
Compensation of Executive Officers
The following table sets forth compensation information for services rendered
by certain of our executive officers in all capacities during the last three
completed fiscal years. The following information includes the dollar value of
base salaries, bonus awards, the number of stock options granted, and certain
other compensation, if any, whether paid or deferred.
Summary Compensation Table
Securities
Other Annual Restricted Underlying All Other
Name and Position(s) Year Salary($) Bonus Compensation Stock Options Compensation
- -------------------- ---- --------- ----- ------------ ---------- ---------- ------------
Jerome R. Mahoney(1)
Non-Executive Chairman 2004 $21,250 $0 $0 $0 $0 $0
Of the Board 2003 $0 $0 $0 $0 $0 $0
2002 $0 $0 $0 $0 $0 $0
Arie Seidler(2) 2004 $35,417 $0 $0 $0 $0 $0
President and Chief 2003 $0 $0 $0 $0 $0 $0
Executive Officer 2002 $0 $0 $0 $0 $0 $0
(1) Mr. Mahoney has been serving as our Non-Executive Chairman of the Board
since August 1, 2004. Mr. Mahoney's salary is unpaid.
(2) Mr. Seidler served as our President and Chief Executive Officer until
August 26, 2005.
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Value of Unexercised
Shares Acquired on Value Number of Securities Underlying In-the-Money Options/SARs at
Exercise Realized Unexercised Options/SARs at FY-End FY-End ($)
Name (#) ($) (#) Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------ -------- ---------------------------------- ----------------------------
None 0 0 0 0 / 0
iVoice Technology entered into a five-year employment agreement with Mr.
Mahoney as of August 1, 2004. Mr. Mahoney will serve as iVoice Technology's
Non-Executive Chairman of
48
the Board for a term of five years. As consideration, iVoice Technology agreed
to pay Mr. Mahoney the sum of $85,000 the first year with an annual increase
based on the Consumer Price Index every year thereafter. iVoice Technology also
agreed to pay Mr. Mahoney a bonus for each merger or acquisition completed by
the Company equal to six percent (6%) of the gross consideration paid or
received by iVoice Technology in a merger or acquisition completed by the
Company during the term of the agreement. This bonus would be payable in the
form of cash, debt or shares of our Class B Common Stock at the option of Mr.
Mahoney.
In the event Mr. Mahoney's employment agreement is terminated by iVoice
Technology for cause or due to Mr. Mahoney's disability or retirement, iVoice
Technology will pay him his full base salary for five years from the date of
termination at the highest salary level under the agreement. Under his
agreement, "cause" means (1) the willful and continued failure of Mr. Mahoney to
substantially perform his duties to the Company after written demand for such
performance is delivered to Mr. Mahoney by the Company's board of directors, (2)
the willful engaging by Mr. Mahoney in conduct that is demonstrably and
materially injurious to the Company, monetarily or otherwise, (3) the conviction
of Mr. Mahoney of a felony, which is limited solely to a crime that relates to
the business operations of the Company or that results in his being unable to
substantially carry out his duties as set forth in the agreement, or (4) the
commission of any act by Mr. Mahoney against the Company that may be construed
as embezzlement, larceny, and/or grand larceny. However, Mr. Mahoney will not be
deemed to have been terminated for cause unless the board of directors
determines, by a vote of at least 75% of the members of the board of directors
that Mr. Mahoney was guilty of conduct described in items (1), (2) or (4) above.
As the board of directors consists solely of Mr. Mahoney and Mr. Esser, Mr.
Mahoney, pursuant to his employment agreement, would be required to recuse
himself from any discussions or vote regarding any potential termination, Mr.
Esser would be required to determine, in accordance with his fiduciary duties as
a board member, if Mr. Mahoney should be terminated for cause.
In the event Mr. Mahoney's employment agreement is terminated due to Mr.
Mahoney's death, iVoice Technology will pay to his estate his full base salary
for eight years from the date of termination at the highest salary level under
the agreement. In the event Mr. Mahoney's employment agreement is terminated by
iVoice Technology within three years following a change in control, as defined
in the employment agreement, or by Mr. Mahoney for good reason within three
years following a change in control, Mr. Mahoney will be entitled to receive a
severance payment equal to three hundred percent (300%), less $100, of the
average amount of his gross income for services rendered to iVoice Technology in
each of the five prior calendar years (or shorter period during which Mr.
Mahoney shall have been employed by iVoice Technology). Under his employment
agreement, "good reason" means, among other things, (1) any limitation on Mr.
Mahoney's powers as Chairman of the Board, (2) a reduction in compensation, (3)
a relocation of the Company outside New Jersey or (4) the failure of the Company
to make any required payments under the agreement. The employment agreement
restricts Mr. Mahoney from competing with iVoice Technology during the term of
the agreement and for one year after he is no longer employed by the Company;
provided that Mr. Mahoney is receiving severance or other compensation from the
Company pursuant to the employment agreement for at least one year.
49
Mark Meller
iVoice Technology entered into a one-year employment agreement with Mr.
Meller as of August 29, 2005. Mr. Meller will serve as iVoice Technology's
President, Chief Executive Officer and Chief Financial Officer for a term of one
year. As consideration, iVoice Technology agreed to pay Mr. Meller an annual
base salary of $85,000. Mr. Meller has agreed to forego receipt of $65,000 of
such compensation until such time that management believes it has sufficient
financing in place to fund this obligation. iVoice Technology also agreed to pay
Mr. Meller a bonus for each merger or acquisition completed by the Company equal
to six percent (6%) of the gross consideration paid or received by iVoice
Technology, net of any debt or other liabilities assumed by the Company, in a
merger or acquisition completed by the Company during the term of the agreement.
This bonus would be payable in the form of cash, debt or shares of Class B
Common Stock at the option of Mr. Meller.
In the event Mr. Meller's employment agreement is terminated by iVoice
Technology for cause or due to Mr. Meller's disability or retirement, iVoice
Technology will pay him his full base salary for five years from the date of
termination at the highest salary level under the agreement. Under his
agreement, "cause" means (1) the willful and continued failure of Mr. Meller to
substantially perform his duties to the Company after written demand for such
performance is delivered to Mr. Meller by the Company's board of directors, (2)
the willful engaging by Mr. Meller in conduct that is demonstrably and
materially injurious to the Company, monetarily or otherwise, (3) the conviction
of Mr. Meller of a felony, which is limited solely to a crime that relates to
the business operations of the Company or that results in his being unable to
substantially carry out his duties as set forth in the agreement, or (4) the
commission of any act by Mr. Meller against the Company that may be construed as
embezzlement, larceny, and/or grand larceny. However, Mr. Meller will not be
deemed to have been terminated for cause unless the board of directors
determines, by a vote of at least 75% of the members of the board of directors
that Mr. Meller was guilty of conduct described in items (1), (2) or (4) above.
In the event Mr. Meller's employment agreement is terminated due to Mr.
Meller's death, iVoice Technology will pay to his estate his full base salary
for eight years from the date of termination at the highest salary level under
the agreement. In the event Mr. Meller's employment agreement is terminated by
iVoice Technology within three years following a change in control, as defined
in the employment agreement, or by Mr. Meller for good reason within three years
following a change in control, Mr. Meller will be entitled to receive a
severance payment equal to three hundred percent (300%), less $100, of the
average amount of his gross income for services rendered to iVoice Technology in
each of the five prior calendar years (or shorter period during which Mr. Meller
shall have been employed by iVoice Technology). Under his employment agreement,
"good reason" means, among other things, (1) any limitation on Mr. Meller's
powers as Chief Executive Officer, President and Chief Financial Officer, (2) a
reduction in compensation, (3) a relocation of the Company outside New Jersey or
(4) the failure of the Company to make any required payments under the
agreement. The employment
50
agreement restricts Mr. Meller from competing with iVoice Technology during the
term of the agreement and for one year after he is no longer employed by the
Company; provided that Mr. Meller is receiving severance or other compensation
from the Company pursuant to the employment agreement for at least one year.
In addition, on August 5, 2005, Mr. Mahoney and Mr. Meller entered into a
voting agreement pursuant to which they agree to vote their respective shares in
favor of any proposal that is submitted to the Company's shareholders for
approval by a unanimous vote or consent of the Board of Directors of the
Company. In connection with such voting agreement, Mr. Meller has also granted
an irrevocable proxy with a term of ten years to Jerome Mahoney (or his
designee) to vote and exercise all voting and related rights with respect to
shares of the Company's Class B Common Stock or Class A Common Stock that are
owned at any time by Mr. Meller. The irrevocable proxy is terminable only upon
the written consent of Jerome Mahoney.
Equity Compensation Plans
There are no existing equity compensation plans and iVoice Technology has
no current plans, proposals or arrangements to establish, or provide any awards
under, any such equity compensation plans.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 12 and November 19, 2004, iVoice Technology issued an aggregate
of $560,000 in secured convertible debentures, with interest payable at 5% per
annum, to Cornell Capital Partners L.P. The debentures were intended to be
convertible at the option of the holder only after our Class A Common Stock has
commenced trading on the Over-the-Counter Bulletin Board. On February 25, 2005,
iVoice Technology's obligations under the secured convertible debentures were
terminated and replaced with a secured promissory note of the same principal
amount, which note accrues interest at rate of 12% per annum, but is not
convertible into any equity security of iVoice Technology. On February 28, 2005,
iVoice Technology borrowed an additional $140,000 pursuant to an additional
promissory note payable to Cornell Capital Partners. In connection with the
issuances of the secured convertible debentures, iVoice Technology paid a fee to
Cornell Capital Partners equal to 10% of the aggregate principal amount of the
debentures. When the secured convertible debentures were terminated, iVoice
Technology received a credit for fees that would otherwise have been payable
upon the issuance of the $560,000 in replacement notes. iVoice Technology paid
Cornell Capital a fee of $14,000 in connection with its $140,000 borrowing.
iVoice Technology's obligations under the secured promissory note issued to
Cornell Capital Partners are secured by a first priority security interest in
substantially all of our assets. iVoice has also guaranteed the payment of all
amounts payable by iVoice Technology pursuant to the secured promissory note.
Effective August 12, 2004, iVoice Technology entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners to obtain an equity line of
credit. On February 28, 2005, iVoice Technology entered into a Termination
Agreement with Cornell Capital Partners, pursuant to which the equity line
transaction was terminated. On March 9, 2005, iVoice Technology received a
non-binding letter of intent from Cornell Capital whereby Cornell Capital
offered, subject to satisfaction of certain conditions, to purchase shares of
iVoice Technology's common stock upon the terms set forth in the non-binding
letter of intent and the definitive documentation to be executed after
satisfaction of closing conditions. On September 22, 2005, the
51
Company entered into a Standby Equity Distribution Agreement with Cornell
Capital, pursuant to which iVoice Technology may issue and sell to Cornell
Capital Partners Class A Common Stock for a total purchase price of up to $10.0
million. The purchase price for the shares is 95% of the market price, which is
defined as the lowest closing bid price of our Class A Common Stock during the
five trading days following the date that iVoice Technology delivers to Cornell
Capital Partners a notice requiring it to advance funds to us. A cash fee equal
to six percent (6%) of the cash proceeds of the draw down is also payable at the
time of funding. In addition, iVoice Technology has agreed, pursuant to the
terms of the Standby Equity Distribution Agreement, that Cornell Capital
Partners will receive, as additional one time compensation, the number of shares
of our Class A Common Stock equal to one and one half percent (1.5%) of the
number of shares of our Class A Common Stock outstanding on the date that the
registration statement in respect of the shares to be distributed pursuant to
the equity line of credit becomes effective.
However, Cornell Capital Partners is under no obligation to purchase any
shares of our Class A Common Stock unless certain conditions being met by iVoice
Technology, including having the registration statement relating to the shares
sold under the Standby Equity Distribution Agreement declared effective. If
iVoice Technology cannot satisfy the requirements for Cornell Capital Partners
to purchase our Class A Common Stock under the terms of the Standby Equity
Distribution Agreement, we will not be able to obtain sufficient capital
resources to operate our business, and we have no current plans to obtain other
financing. We cannot assure you that we will be able to access any financing in
sufficient amounts or at all when needed. Our inability to obtain sufficient
financing would have an immediate material adverse effect on us, our financial
condition and our business.
On August 5, 2005, iVoice Technology assumed an aggregate of $190,000 in
liabilities from iVoice and iVoice assigned to iVoice Technology assets having
an aggregate book value of $10,000. See "Selected Historical and Pro Forma
Financial Information" contained in the financial statements of iVoice
Technology at the back of this prospectus. iVoice Technology believes that the
fair value of these assets may be greater than the book value, although it has
not undertaken an appraisal. The assumed obligations are described below.
In connection with the assumption of assets and liabilities by iVoice
Technology from iVoice, iVoice Technology assumed from iVoice $190,000 of
outstanding indebtedness from iVoice to Jerry Mahoney. The debt is subject to a
promissory note having substantially the same terms as the terms applicable to
the indebtedness from iVoice to Mr. Mahoney. On August 5, 2005, iVoice
Technology, issued a promissory note in the amount of $190,000 payable to Mr.
Mahoney that bears interest at the prime rate plus 2% per annum on the unpaid
balance until paid or until default. Interest payments are due and payable
annually. Under the terms of the promissory note, at the option of the note
holder, principal and interest can be converted into either (i) one share of
Class B Common Stock of iVoice Technology, par value $0.01, for each dollar
owed, (ii) the number of shares of our Class A Common Stock of iVoice Technology
calculated by dividing (x) the sum of the principal and interest that the note
holder has requested to have prepaid by (y) eighty percent (80%) of the lowest
issue price of our Class A Common Stock since the first advance of funds under
this note, or (iii) payment of the principal of this note, before any repayment
of interest. There is no limitation on the number of shares of our Class A
Common Stock we may
52
be required to issue to Mr. Mahoney upon the conversion of this indebtedness.
See "Potential Dilution Due to Conversion at Below Market Price."
Mr. Mahoney agreed to forego receiving any shares of iVoice Technology's
Class A Common Stock or Class B Common Stock he would otherwise have been
entitled to receive in the Distribution by virtue of his ownership of either
iVoice Class A Common Stock or iVoice Class B Common Stock.
iVoice Technology entered into two separate employment agreements with Mr.
Mahoney, its Non-Executive Chairman of the Board, and Mr. Seidler, its President
and Chief Executive Officer, respectively, as of August 1, 2004. Mr. Seidler
resigned his positions as of August 26, 2005 and his employment agreement was
terminated. On August 29, 2005, iVoice Technology entered into an employment
agreement with Mark Meller, its new Chief Executive Officer, President and Chief
Financial Officer. Mr. Mahoney's employment agreement provides for annual
compensation of $85,000 per annum with an annual increase based on the Consumer
Price Index every year thereafter and Mr. Meller's employment agreement provides
for annual compensation of $85,000 per annum. However, when iVoice Technology
achieves annual sales equal to or greater than $2,000,000, Mr. Mahoney's base
annual compensation will automatically be increased to $145,000. Each of Mr.
Mahoney and Mr. Meller will also be entitled to additional incentive
compensation based upon mergers and acquisitions completed by iVoice Technology.
Mr. Meller has agreed to forego receipt of $65,000 of his annual compensation
until such time that management believes that it has sufficient financing in
place to fund this obligation. iVoice Technology believes that the compensation
provided to each of Mr. Mahoney and Mr. Meller are commensurate with
compensation levels paid by other companies to management having equivalent
experiences and capabilities.
In August 2004, iVoice Technology entered into an administrative services
agreement with iVoice. Pursuant to that agreement, iVoice is providing iVoice
Technology with physical premises, inventory purchasing services, material and
inventory control services, source code management and other personnel and data
processing services on a month-to-month basis. For these services iVoice
Technology is paying iVoice $7,000 per month during the term of the agreement.
The administrative services agreement will continue on a month to month basis
until iVoice Technology has found replacement services for those services being
provided by iVoice or can provide these services for itself. Following
termination of the administrative services agreement, we expect that iVoice
Technology will operate on a completely stand-alone basis from iVoice and there
will be no business or operating relationship between iVoice and iVoice
Technology.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol
"IVOT."
The following table shows the high and low closing prices for the period
indicated:
2005 High Low
---- ---- ---
Third Quarter $.06 $.01
(through
August 26, 2005)
53
Holders of common equity
As of August 26, 2005, there were 729 record holders of our common shares.
Dividend information
To date, iVoice Technology has never paid a dividend. We have no plans to
pay any dividends in the near future. We intend to retain all earnings, if any,
for the foreseeable future, for use in our business operations.
Security Ownership
The following table sets forth, as of August 31, 2005, information with
respect to the beneficial ownership of our common stock by (i) persons known by
us to beneficially own more than five percent of the outstanding shares, (ii)
each director, (iii) each executive officer and (iv) all directors and executive
officers as a group.
Common Stock Common Stock
Beneficially Beneficially
Owned Before Percentage Owned After Percentage
Name Title of Class Distribution Ownership Distribution Ownership
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Jerome R. Mahoney Class A Common Stock 0(1) 0%(1) 0(1) 0%(1)
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Class B Common Stock 190,000(2) 100%(2) 190,000(2) 100%(2)
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Class C Common Stock 0 0% 0 0%
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Frank V. Esser Class A Common Stock 14,351 0% 14,351 0%
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Class B Common Stock 0 0% 0 0%
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Class C Common Stock 0 0% 0 0%
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Mark Meller Class A Common Stock 0 0% 0 0%
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Class B Common Stock 0 0% 0 0%
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Class C Common Stock 0 0% 0 0%
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
All directors and executive Class A Common Stock 14,351(1) 0%(1) 14,351(1) 0%(1)
officers as a group (3 persons)
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Class B Common Stock 190,000(2) 100%(2) 190,000(2) 0%(2)
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
Class C Common Stock 0 0% 0 0%
- --------------------------------- ----------------------- ----------------- ------------------ ----------------- ------------
- ---------------
(1) Does not give effect to the right of Mr. Mahoney pursuant to the promissory
note to be executed by iVoice Technology in favor of Mr. Mahoney in the amount
of $190,000 to convert $190,000 of indebtedness plus accrued and unpaid interest
into more than 190,000 shares of Class B Common Stock which is convertible into
the number of shares of our Class A Common Stock, determined by dividing the
number of shares of our Class B Common Stock being converted by a 20% discount
of the lowest price at which the Company had ever issued its Class A
54
Common Stock. There is no limitation on the number of shares of our Class A
Common Stock we may be required to issue to Mr. Mahoney upon the conversion of
this indebtedness.
(2) Mr. Mahoney may at his option convert the $190,000 promissory note held by
him into Class B Common Stock of iVoice Technology at a rate of one dollar per
share. Such Class B Common Stock is convertible at any time into shares of our
Class A Common Stock at a rate equal to 80% of the lowest price that iVoice
Technology issues shares of Class A Common Stock subsequent to the date of the
note. Thus by virtue of Mr. Mahoney's right to convert $190,000 of indebtedness
plus accrued and unpaid interest into more than 190,000 shares of our Class B
Common Stock, Mr. Mahoney is deemed to beneficially own such shares for the
purpose of computing the percentage of ownership by him, but such shares are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.
55
DESCRIPTION OF SECURITIES
Pursuant to iVoice Technology's certificate of incorporation, as amended,
we are authorized to issue 10,000,000,000 shares of Class A Common Stock, no par
value per share, 50,000,000 shares of Class B Common Stock, par value $0.01 per
share, 20,000,000 shares of Class C Common Stock, par value $0.01 per share, and
1,000,000 shares of Preferred Stock, par value of $1.00 per share. Below is a
description of iVoice Technology's outstanding securities, including Class A
Common Stock, Class B Common Stock, Class C Common Stock, and Preferred Stock.
Class A Common Stock
Each holder of our Class A Common Stock is entitled to one vote for each
share held of record. Holders of our Class A Common Stock have no preemptive,
subscription, conversion, or redemption rights. Upon liquidation, dissolution or
winding-up, the holders of Class A Common Stock are entitled to receive our net
assets pro rata. Each holder of Class A Common Stock is entitled to receive
ratably any dividends declared by our board of directors out of funds legally
available for the payment of dividends. We have not paid any dividends on our
Common Stock and do not contemplate doing so in the foreseeable future. We
anticipate that any earnings generated from operations will be used to finance
our growth. As of June 30, 2005, there was one record holder of Class A Common
Stock and iVoice Technology had 100 shares of Class A Common Stock outstanding.
iVoice Technology currently has 10,050,000 shares of Class A Common Stock
outstanding. On August 4, 2005, a 100,500-for-one stock split was accomplished
by means of a stock dividend.
Class B Common Stock
Each holder of Class B Common Stock has voting rights equal to 100 shares
of Class A Common Stock. Holders of Class B Common Stock are entitled to receive
dividends in the same proportion as the Class B Common Stock conversion rights
have to Class A Common Stock. There are 50,000,000 shares of our Class B Common
Stock authorized and 0 shares issued and outstanding as of June 30, 2005. A
holder of Class B Common Stock has the right to convert each share of Class B
Common Stock into the number of shares of Class A Common Stock determined by
dividing the number of shares of Class B Common Stock being converted by a 20%
discount of the lowest price that iVoice Technology had ever issued its Class A
Common Stock. Upon our liquidation, dissolution, or winding-up, holders of Class
B Common Stock will be entitled to receive distributions.
Class C Common Stock
Each holder of our Class C Common Stock is entitled to 1,000 votes for
each one share held of record. Holders of our Class C Common Stock have no
preemptive, subscription, conversion, or redemption rights. Shares of Class C
Common Stock are not convertible into Class A Common Stock. There are 20,000,000
shares authorized and 0 shares issued and outstanding as of June 30, 2005. Upon
liquidation, dissolution or winding-up, the holders of Class C Common Stock are
not entitled to receive our net assets pro rata. We have not paid any
56
dividends on our common stock and do not contemplate doing so in the foreseeable
future. We anticipate that any earnings generated from operations will be used
to finance our growth.
Preferred Stock
iVoice Technology is authorized to issue 1,000,000 shares of Preferred
Stock, par value $1.00 per share. As of June 30, 2005, iVoice Technology has not
issued any shares of Preferred Stock. iVoice Technology has no current plans to
issue any shares of preferred stock.
Our board of directors is authorized (by resolution and by filing an
amendment to our certificate of incorporation and subject to limitations
prescribed by the New Jersey Business Corporation Act) to issue, from to time,
shares of Preferred Stock in one or more series, to establish from time to time
the number of shares to be included in each series, and to fix the designation,
powers, preferences and other rights of the shares of each such series and to
fix the qualifications, limitations and restrictions thereon, including, but
without limiting the generality of the foregoing, the following:
o the number of shares constituting that series and the distinctive
designation of that series;
o the dividend rate on the shares of that series, whether dividends
are cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on
shares of that series;
o whether that series has voting rights, in addition to voting rights
provided by law, and, if so, the terms of those voting rights;
o whether that series has conversion privileges, and, if so, the terms
and conditions of conversion, including provisions for adjusting the
conversion rate in such events as our board of directors determines;
o whether or not the shares of that series are redeemable, and, if so,
the terms and conditions of redemption, including the dates upon or
after which they are redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions
and at different redemption dates;
o whether that series has a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount
of that sinking fund;
o the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of iVoice
Technology, and the relative rights of priority, if any, of payment
of shares of that series; and
o any other relative powers, preferences and rights of that series,
and qualifications, limitations or restrictions on that series.
If we liquidate, dissolve or wind up our affairs, whether voluntarily or
involuntarily, the holders of Preferred Stock of each series will be entitled to
receive only that amount or those
57
amounts as are fixed by the Company's certificate of incorporation or the
certificate of designations or by resolution of the board of directors providing
for the issuance of that series.
Options and Warrants
None.
Debt
On August 12 and November 19, 2004, iVoice Technology issued an aggregate
of $560,000 in secured convertible debentures, with interest payable at 5% per
annum, to Cornell Capital Partners. The debentures were convertible at the
option of the holder only after the Company's Class A Common Stock has commenced
trading on the Over-the-Counter Bulletin Board. Each of the debentures were
convertible into shares of Class A Common Stock at a price equal to the lesser
of (a) an amount equal to one hundred twenty percent (120%) of the initial bid
price of the Class A Common Stock on the date of effectiveness of the
registration statement of which this prospectus is a part or (b) an amount equal
to eighty percent (80%) of the lowest closing bid price of the Class A Common
Stock for the five trading days immediately preceding the conversion date. The
secured convertible debentures had a term of two years with all accrued interest
due at the expiration of the term. At our option, these debentures could be
redeemed at a 20% premium prior to August 12, 2006. The secured convertible
debentures were secured by a first priority security interest in substantially
all of the assets of iVoice Technology. On February 28, 2005, the secured
convertible debentures were terminated and replaced by a promissory note in the
amount of $700,000 ($560,000 representing replacement notes and $140,000
representing new financing).
On August 5, 2005, iVoice Technology assumed an aggregate of $190,000 in
liabilities from iVoice in exchange for an assignment from iVoice of assets
having an aggregate book value of $10,000. In connection with the assumption of
assets and liabilities by iVoice Technology from iVoice, iVoice Technology
assumed $190,000 of outstanding indebtedness from iVoice to Jerry Mahoney,
subject to a promissory note having substantially the same terms as the terms
applicable to the indebtedness from iVoice to Mr. Mahoney. The promissory note
bears interest at the prime rate plus 2% per annum on the unpaid balance until
paid or until default. Interest payments are due and payable annually. Under the
terms of the promissory note, at the option of the note holder, principal and
interest can be converted into either (i) one share of Class B Common Stock of
iVoice Technology, par value $0.01, for each dollar owed, (ii) the number of
shares of Class A Common Stock of iVoice Technology calculated by dividing (x)
the sum of the principal and interest that the note holder has requested to have
prepaid by (y) eighty percent (80%) of the lowest issue price of our Class A
Common Stock since the first advance of funds under this note, or (iii) payment
of the principal of this note, before any repayment of interest.
Transfer Agent
iVoice Technology's transfer agent is Fidelity Transfer Company. The
address for the transfer agent is 1800 South West Temple, Suite 301, Salt Lake
City, Utah 84115. The telephone number for the transfer agent is (801) 484-7222.
58
Limitation of Liability: Indemnification
Our by-laws include an indemnification provision under which we have
agreed to indemnify directors of iVoice Technology to the fullest extent
possible from and against any and all claims of any type arising from or related
to future acts or omissions as a director of iVoice Technology.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
iVoice Technology pursuant to the foregoing, or otherwise, iVoice Technology has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
Anti-Takeover Effects Of Provisions Of The Certificate Of Incorporation
Authorized and unissued stock. The authorized but unissued shares of our
capital stock are available for future issuance without our stockholders'
approval. These additional shares may be utilized for a variety of corporate
purposes including but not limited to future public or direct offerings to raise
additional capital, corporate acquisitions and employee incentive plans. The
issuance of such shares may also be used to deter a potential takeover of iVoice
Technology that may otherwise be beneficial to stockholders by diluting the
shares held by a potential suitor or issuing shares to a stockholder that will
vote in accordance with iVoice Technology's board of directors' desires. A
takeover may be beneficial to stockholders because, among other reasons, a
potential suitor may offer stockholders a premium for their shares of stock
compared to the then-existing market price.
Some of the provisions of iVoice Technology's certificate of incorporation
and bylaws may have the effect of making the acquisition of control of iVoice
Technology in a transaction not approved by iVoice Technology's board of
directors more difficult.
Listing and Trading of the iVoice Technology Class A Common Stock
iVoice Technology makes no recommendations on the purchase, retention or
sale of shares of iVoice Technology Class A Common Stock. You should consult
with your own financial advisors, such as your stockbroker, bank or tax advisor.
If you do decide to purchase or sell any iVoice Technology shares, the
following information may be helpful in discussions with your stockbroker, bank
or other nominee.
The shares of iVoice Technology Class A Common Stock distributed to iVoice
stockholders will be freely transferable, except for (1) shares of iVoice
Technology Class A Common Stock received by persons who may be deemed to be
affiliates of iVoice Technology under the Securities Act of 1933, as amended
(the "Securities Act"), and (2) shares of iVoice Technology Class A Common Stock
received by persons who hold restricted shares of iVoice common stock. Persons
who may be deemed to be affiliates of iVoice Technology after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with iVoice Technology and may include certain
directors, officers and significant stockholders of iVoice Technology. Persons
who are affiliates of iVoice Technology
59
will be permitted to sell their shares of iVoice Technology Class A Common Stock
only pursuant to an effective registration statement under the Securities Act or
an exemption from the registration requirements of the Securities Act, such as
the exemptions afforded by Section 4(1) of the Securities Act and the provisions
of Rule 144 thereunder.
There can be no assurance as to whether the iVoice Technology Class A
Common Stock will be actively traded or as to the prices at which the iVoice
Technology Class A Common Stock will trade. Unless and until the shares of
iVoice Technology Class A Common Stock are fully distributed and an orderly
market develops, the prices at which the iVoice Technology Class A Common Stock
trades may fluctuate significantly and may be lower than the price that would be
expected for a fully distributed issue. Prices for iVoice Technology Class A
Common Stock will be determined in the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for the shares, iVoice
Technology's results of operations, what investors think of iVoice Technology
and the IVR industry, the amount of dividends that iVoice Technology pays,
changes in economic conditions in the IVR industry and general economic and
market conditions.
In addition, the stock market often experiences significant price
fluctuations that are unrelated to the operating performance of the specific
companies whose stock is traded. Market fluctuations could have a material
adverse impact on the trading price of the iVoice Technology Class A Common
Stock and/or iVoice common stock.
As described elsewhere in this prospectus, iVoice Technology had issued to
Cornell Capital Partners $560,000 aggregate principal amount of secured
convertible debentures. On February 28, 2005, iVoice Technology's obligations
under the secured convertible debentures were terminated and replaced with a
secured promissory note of the same principal amount, which note accrues
interest at rate of 12% per annum, but is not convertible into any equity
security of iVoice Technology.
Mr. Mahoney will have the right to convert $190,000 of indebtedness plus
accrued and unpaid interest into 190,000 (plus on a dollar per share basis,
amounts of accrued and unpaid interest) shares of iVoice Technology Class B
Common Stock which is convertible into the number of shares of Class A Common
Stock determined by dividing the number of shares of Class B Common Stock being
converted by a 20% discount of the lowest price at which the Company had ever
issued its Class A Common Stock. There is no limitation on the number of shares
of Class A Common Stock we may be required to issue to Mr. Mahoney upon the
conversion of these obligations. See "Potential Dilution Due to Conversion at
Below Market Price." However, assuming a market price for iVoice Technology
Class A Common Stock of $0.01, we would be required to issue 23,750,000 shares
of Class A Common Stock to Mr. Mahoney, plus shares attributable to accrued and
unpaid interest upon conversion of his promissory note. As of June 30, 2005,
there was $32,110 of accrued and unpaid interest on the promissory note.
CHANGES IN ACCOUNTANTS
On February 23, 2005, iVoice Technology terminated the services of its
independent account, Mendlowitz Weitsen, LLP. For the two most recent fiscal
years and through the subsequent interim period ending upon such termination,
(i) the independent account's report did
60
not contain an adverse opinion or disclaimer of opinion, nor was it modified as
to uncertainty, audit scope, or accounting principles and (ii) there were no
disagreements with the former accountant, whether or not resolved, on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the former accountant's
satisfaction, would have caused it to make reference to the subject matter of
the disagreement(s) in connection with its report. The decision to change
accountants was recommended by iVoice Technology's Audit Committee.
On February 23, 2005, iVoice Technology engaged the independent accounting
firm of Bagell, Josephs & Company, L.L.C. as principal accountant to audit
iVoice Technology's financial statements for the fiscal years ended December 31,
2004 and 2003.
EXPERTS
The financial statements for the years ended December 31, 2004 and
December 31, 2003, included in this prospectus have been audited by Bagell,
Josephs & Company, L.L.C., independent certified public accountants to the
extent and for the periods set forth in their report (which contains an
explanatory paragraph regarding iVoice Technology's ability to continue as a
going concern) appearing elsewhere herein and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
Meritz & Muenz LLP, Washington, D.C. will pass upon the validity of the
shares of common stock offered hereby for us.
WHERE YOU CAN FIND MORE INFORMATION
iVoice Technology has filed with the Securities and Exchange Commission
the registration statement under the Securities Act with respect to the iVoice
Technology Class A Common Stock. This document does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements made in this
document as to the contents of any contract, agreement or other document
referred to herein are not necessarily complete. The registration statement and
the exhibits thereto filed by iVoice Technology with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
information can be obtained by mail from the Public Reference Branch of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's website is http://www.sec.gov. Upon the effectiveness of the
registration statement, iVoice Technology will be required to comply with the
reporting requirements of the Securities Exchange Act of 1934 and to file with
the Commission reports, proxy statements and other information as required by
the Exchange Act. Additionally, iVoice Technology will be required to provide
annual reports containing audited financial statements to its stockholders in
connection with its annual meetings of stockholders. These reports, proxy
statements and other information will be available to be inspected and copied at
the public reference facilities of the Commission or obtained by mail or over
the Internet from the Commission, as described above.
61
iVOICE TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
Contents Page
- -------- ----
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM F-2
AUDITED FINANCIAL STATEMENTS
Balance Sheets - December 31, 2004 and 2003 F-3
Statements of Operations - for the years ended
December 31, 2004 and 2003 F-4
Statements of Owner's Equity (Deficiency) - for the
years ended December 31, 2004 and 2003 F-5
Statements of Cash Flow - for the years ended
December 31, 2004 and 2003 F-6
NOTES TO AUDITED FINANCIAL STATEMENTS F-7
UNAUDITED FINANCIAL STATEMENTS
Balance Sheet - June 30, 2005 F-19
Condensed Statements of Operations - for the
three months and six months ended June 30, 2005
and 2004 F-20
Statements of Cash Flow - for the six months
ended June 30, 2005 and 2004 F-21
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS F-22
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION F-32
Condensed Unaudited Pro Forma Balance Sheets at
December 31, 2004 F-33
Unaudited Pro Forma Statement of Operations for
the year ended December 31, 2004 F-34
Condensed Unaudited Pro Forma Balance Sheets as
Of June 30, 2005 F-35
Unaudited Pro Forma Statement of Operations for
the year ended December 31, 2003 F-36
Unaudited Pro Forma Statement of Operations for
the six months ended June 30, 2005 F-37
NOTES TO CONDENSED UNAUDITED PRO FORMA
FINANCIAL INFORMATION F-38
F-1
Bagell, Josephs & Company, LLC
200 Haddonfield Berlin Road, Gibbsboro, NJ 08026
Tel: 856.346.2628 Fax: 856.346.2882
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF iVOICE TECHNOLOGY, INC.
Matawan, New Jersey
We have audited the accompanying balance sheets of the interactive voice
response software business of iVoice, Inc. (iVoice Technology, Inc., a wholly
owned subsidiary of iVoice, Inc.) as of December 31, 2004 and 2003 and the
related statements of operations, owner's equity and cash flows for the years
ended December 31, 2004 and 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the interactive voice response
software business of iVoice, Inc. (iVoice Technology, Inc.) as of December 31,
2004 and 2003 (except for Note 10 as to which such date is August 4, 2005), and
the results of its operations and its cash flows for the years ended December
31, 2004 and 2003, in conformity with accounting principles generally accepted
in the United States of America.
These financial statements have been derived from the consolidated financial
statements and accounting records of iVoice, Inc., and reflect significant
assumptions and allocations. Moreover, as indicated in Note 1, the Company
relies on iVoice, Inc. for administrative, management, research and other
services. Accordingly, these financial statements do not necessarily reflect the
financial position, results of operations, and cash flows of the Company had it
been a stand-alone Company.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3, the Company
had net losses and negative cash flows from operations for the years ended
December 31, 2004 and 2003, and as of those dates had negative working capital,
which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BAGELL, JOSEPHS & COMPANY, L.L.C.
Gibbsboro, New Jersey
March 21, 2005
F-2
iVOICE TECHNOLOGY, INC.
BALANCE SHEETS
December 31,
2004 2003
----------- -----------
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 346,599 $ 0
Accounts receivable 31,733 37,483
Inventory, net 0 11,888
Cost in excess of billing 0 2,706
----------- -----------
Total current assets 378,332 52,077
PROPERTY AND EQUIPMENT, net
Property and equipment, net 4,737 0
OTHER ASSETS
Software license costs, net 0 45,400
----------- -----------
TOTAL ASSETS $ 383,069 $ 97,477
=========== ===========
LIABILITIES AND OWNER'S EQUITY (DEFICIENCY)
- -------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 30,606 $ 0
5% Convertible debentures 560,000 0
Deferred maintenance contracts 33,141 23,662
----------- -----------
Total current liabilities 623,747 23,662
OWNER'S EQUITY (DEFICIENCY)
Common Stock
Class A, no par value; Authorized 10,000,000,000 0 0
shares; 10,050,000 shares issued and
outstanding as of 12/31/04 and 0 shares
issued and outstanding as of 12/31/03
Class B, par value $.01; Authorized 50,000,000
shares; no shares issued and outstanding 0 0
Class C, par value $.01; Authorized 20,000,000
shares; no shares issued and outstanding 0 0
Preferred Stock; Par value $1.00; Authorized
1,000,000 shares; no shares issued and outstanding 0 0
Net investment, iVoice, Inc. 7,297,231 6,133,597
Accumulated deficit (7,537,909) (6,059,782)
----------- -----------
Total owner's equity (deficiency) (240,678) 73,815
----------- -----------
TOTAL LIABILITIES AND OWNER'S EQUITY (DEFICIENCY) $ 383,069 $ 97,477
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
F-3
iVOICE TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
For The Years December 31, 2004 and 2003
2004 2003
----------- -----------
SALES, net $ 239,114 $ 303,756
COST OF SALES 72,870 123,091
----------- -----------
GROSS PROFIT 166,244 180,665
----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Selling expenses 45,512 68,692
General & administrative expense 721,733 665,473
Research & development 50,788 128,696
Depreciation & amortization 45,423 102,480
----------- -----------
Total Selling, General & Administrative expense 863,456 965,341
----------- -----------
LOSS FROM CONTINUING OPERATIONS (697,212) (784,676)
----------- -----------
OTHER INCOME (EXPENSE)
Other income 113,194 100,557
Write off of financing costs (850,555) 0
Gain on sale of securities held for sale 0 69,418
Interest expense (31,487) (516,719)
Other expense (12,067) 0
----------- -----------
Total other expense (780,915) (346,744)
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (1,478,127) (1,131,420)
----------- -----------
PROVISION FOR INCOME TAXES 0 0
----------- -----------
NET LOSS FROM CONTINUING OPERATIONS $(1,478,127) $(1,131,420)
=========== ===========
NET LOSS PER COMMON SHARE:
Basic $ (0.15) $ (0.11)
=========== ===========
Diluted $ (0.15) $ (0.11)
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
F-4
iVOICE TECHNOLOGY, INC.
STATEMENTS OF OWNER'S EQUITY (DEFICIENCY)
For the Years Ended December 31, 2004 and 2003
Total
Common Common Net Owner's
Stock Stock Investment Accumulated Equity
Shares Amount iVoice, Inc Deficit (Deficiency)
----------- ----------- ------------ ----------- ------------
Balance at January 1, 2003 0 0 5,108,396 (4,928,362) 180,034
Net transactions with iVoice, Inc. 1,025,201 -- 1,025,201
Net loss for the twelve months ended
December 31, 2003 (1,131,420) (1,131,420)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 0 0 6,133,597 (6,059,782) 73,815
Issuance of common stock 100 0 0
Retroactive treatment of 100,500:1
stock split 10,049,900 0 0
Net transactions with iVoice, Inc. 1,163,634 1,163,634
Net loss for the twelve months ended
December 31, 2004 (1,478,127) (1,478,127)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2004 (As
Retroactively Restated) 10,050,000 $ 0 $ 7,297,231 $(7,537,909) $ (240,678)
=========== =========== =========== =========== ===========
The Notes to Financial Statements are an integral part of these statements.
F-5
iVOICE TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
For The Years December 31, 2004 and 2003
2004 2003
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(1,478,127) $(1,033,500)
Depreciation and amortization 45,423 102,480
Changes in operating assets and liabilities
Decrease in accounts receivable 5,750 --
Decrease in inventory 11,888 --
Decrease in cost in excess of billing 2,706 --
Increase in accounts payable and accrued expenses 30,606 --
Increase in deferred maintenance contracts 9,479 3,739
----------- -----------
Net cash (used in) operating activities (1,372,275) (927,281)
----------- -----------
CASH FLOWS FOR INVESTING ACTIVITIES
Purchase of property and equipment (4,760) --
----------- -----------
Net cash used in investing activities (4,760) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Allocation of costs by iVoice 1,163,634 927,281
Sale of convertible debentures 560,000
----------- -----------
Net cash provided by financing activities 1,723,634 927,281
----------- -----------
NET INCREASE IN CASH 346,599 0
CASH - beginning 0 0
CASH - end $ 346,599 $ 0
=========== ===========
CASH PAID DURING THE YEAR FOR:
Interest expense $ 25 $ 516,719
=========== ===========
Income taxes $ 0 $ 0
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
F-6
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 1 - BACKGROUND
iVoice Technology, Inc. ("iVoice Technology" or the "Company") was incorporated
under the laws of New Jersey on November 10, 2004 as a wholly owned subsidiary
of iVoice, Inc. ("iVoice"). The Company received by assignment all of the
interests in and rights and title to, and assumed all of the obligations of, all
of the agreements, contracts, understandings and other instruments of iVoice
Technology, Inc., a Nevada corporation and affiliate of the Company. When we
refer to or describe any agreement, contract or other written instrument of the
Company in these notes, we are referring to an agreement, contract or other
written instrument that had been entered into by iVoice Technology Nevada and
assigned to the Company.
On September 1, 2004, the Board of Directors of iVoice, Inc. resolved to pursue
the separation of iVoice software business into three publicly owned companies.
iVoice will continue to focus on its own computerized telephony technology and
related business development operations. iVoice Technology will continue to
develop, market and license the Interactive Voice Response line of computerized
telephony software.
In September, 2004, iVoice Inc. announced that it intends to distribute to its
shareholders all of the iVoice Technologies Class A Common Stock.
The spin-off transaction will be accomplished by the distribution of certain
intellectual property, representing the software codes of Interactive Voice
Response ("IVR"), and certain accrued liabilities and related party debt to
iVoice Technology (the "Distribution"), the shares of common stock of which will
be distributed to iVoice shareholders in the form of a taxable dividend.
In conjunction with the spin-off, iVoice Technology has entered into a temporary
administrative services agreement with iVoice. The administrative services
agreement will continue on a month to month basis until iVoice Technology has
found replacement services for those services being provided by iVoice or can
provide these services for itself.
iVoice Technology also intends to assume $190,000 in accrued liabilities and
related party debt presently outstanding and incurred by iVoice. The debt being
assumed will be convertible into Class B Common Stock of iVoice Technology at
the option of the holder as later described in these notes.
NOTE 2 - BUSINESS OPERATIONS
The Company will continue to develop, market and license the Interactive Voice
Response line, which was developed by iVoice. The Company's Interactive Voice
Response line is designed to read information from and write information to,
databases, as well as to query databases and return information.
IVR is an application generator that allows full connectivity to many databases,
including Microsoft Access, Microsoft Excel, Microsoft Fox Pro, and Paradox, or
to standard text files.
F-7
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
The IVR software is sold as an application generator that gives the end user the
ability to develop their own customized IVR applications or as a customized
turnkey system. IVR performs over 40 different customizable commands. Examples
of IVR range from simply selecting announcements from a list of options stored
in the computer (also known as audio text) to more complex interactive exchanges
such as querying a database for information.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern. The Company has
traditionally operated as a non-reporting component of iVoice, Inc. and
accordingly these financial statements have been derived from the consolidated
financial statements and accounting records of iVoice, Inc., and reflect
significant assumptions and allocations. The Company relies on iVoice, Inc. for
administrative, management, research and other services. These financial
statements do not necessarily reflect the financial position, results of
operations, and cash flows of the Company had it been a stand-alone Company.
As of December 31, 2004, the Company had a net loss, a negative cash flow from
operations as well as negative working capital. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Therefore,
recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheets is dependent upon continued operations of the
Company, which in turn, is dependent upon the Company's ability to raise capital
and/or generate positive cash flow from operations.
In order to provide necessary working capital, in August 2004, the Company
entered into a subscription agreement, pursuant to which the Company issued
$280,000 of secured convertible debentures in August 2004, and an additional
$280,000 of secured convertible debentures, in November 2004, around the time of
filing of the registration statement for the Class A Common Stock. The
debentures are convertible at the option of the holder only after the Company's
Class A Common Stock has commenced trading on the Over-the-Counter Bulletin
Board. Interest on the secured convertible debentures is payable at 5% per annum
and the notes are convertible into the Company's Class A Common Stock at a price
equal to the lesser of (a) an amount equal to one hundred twenty percent (120%)
of the initial bid price of the Class A Common Stock on the date of
effectiveness of the registration statement, or (b) an amount equal to eighty
percent (80%) of the lowest closing bid price of the Class A Common Stock for
the five (5) trading days immediately preceding the conversion date.
Additionally, the Company had also entered into a Standby Equity Distribution
Agreement, subsequently terminated, where the Company could, at its discretion,
periodically sell to an investor shares of Class A Common Stock to raise capital
to fund working capital needs. These two financing transactions required the
Company to register its common stock under Section 12 (g) of the U.S. Securities
Exchange Act of 1934 and subsequently register for resale a number of shares to
facilitate these financing transactions.
F-8
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying financial statements have been derived from the
consolidated financial statements and accounting records of iVoice using the
historical results of operations and historical basis of assets and liabilities
of the Company's Interactive Voice Response business. Management believes the
assumptions underlying the financial statements are reasonable. However, the
financial statements included herein may not necessarily reflect the Company's
results of operations, financial position, and cash flows in the future or what
its results of operations, financial position and cash flows would have had the
Company been a stand-alone company during the periods presented.
b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
c) Software License Costs
Software license costs are recorded at cost, which approximates fair
market value as of the date of purchase. These costs represent the purchase of
various exploitation rights to certain software, pre-development codes and
systems developed by a non-related third party. These costs are capitalized
pursuant to Statement of Financial Accounting Standards ("SFAS") 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed".
The Company has adopted SFAS No. 121. The carrying value of software license
costs are regularly reviewed by the Company and a loss would be recognized if
the value of the estimated un-discounted cash flow benefit related to the asset
falls below the unamortized cost. Historically the Interactive Voice Response
software technology has produced limited sales revenue. However, management
believes that the limited sales generated result from a lack of application of
Company sales and marketing resources to the software. It is Management's plan
to devote such resources to its software technology to recognize the
technology's potential value and therefore, no impairment loss has been
recorded.
d) Revenue Recognition
The Company derives its revenues from the licensing of its software
product and optional customer support (maintenance) service. The Company's
standard license agreement provides
F-9
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
for a one-time fee for use of the Company's product in perpetuity for each
computer or CPU in which the software will reside. The Company's software
application is fully functional upon delivery and implementation and does not
require any significant modification or alteration. The Company also offers
customers an optional annual software maintenance and support agreement for the
subsequent one-year periods. Such maintenance and support services are free for
the first year the product is licensed and is considered the warranty period.
The software maintenance and support agreement provides free software updates,
if any, and technical support the customer may need in deploying or changing the
configuration of the software. Generally, the Company does not license its
software in multiple element arrangements whereby the customer purchases a
combination of software and maintenance. In a typical arrangement, software
maintenance services are sold separately from the software product; are not
considered essential to the functionality of the software and are purchased at
the customer's option upon the completion of the first year licensed.
The Company does not offer any special payment terms or significant
discount pricing. Normal and customary payment terms require payment for the
software license fees when the product is shipped. Payment for software
maintenance is due prior to the commencement of the maintenance period. It is
also the Company's policy to not provide customers the right to refund any
portion of its license fees. The Company accepts Visa and MasterCard as well as
company checks.
With respect to the sale of software license fees, the Company recognizes
revenue in accordance with Statement of Position 97-2, Software Revenue
Recognition (SOP 97-2), as amended, and generally recognizes revenue when all of
the following criteria are met: (1) persuasive evidence of an arrangement exists
generally evidenced by a signed, written purchase order from the customer, (2)
delivery of the software product on Compact Disk (CD) or other means to the
customer has occurred, (3) the perpetual license fee is fixed or determinable
and (4) collectibility, which is assessed on a customer-by-customer basis, is
probable.
With respect to customer support services, upon the completion of one year
from the date of sale, considered to be the warrantee period, the Company offers
customers an optional annual software maintenance and support agreement for
subsequent one-year periods. Sales of purchased maintenance and support
agreements are recorded as deferred revenue and recognized over the respective
terms of the agreements.
Three customers generated approximately 69% of the revenue for the Company
through one-time contracts that will be unlikely to impact revenues in future
periods.
e) Product Warranties
The Company estimates its warranty costs based on historical warranty
claims experience in estimating potential warranty claims. Due to the limited
sales of the Company's products, management has determined that warranty costs
are immaterial and has not included an accrual for potential warranty claims.
Presently, costs related to warranty coverage are expensed as incurred. Warranty
claims are reviewed quarterly to verify that warranty liabilities properly
reflect any remaining obligation based on the anticipated expenditures over the
balance of the obligation period.
F-10
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
f) Research and development costs
Research and development costs will be charged to expense as incurred.
g) Inventory
Inventory, consisting primarily of system components such as computer
components, voice cards, and monitors, is valued at the lower of cost or market.
Cost is determined on a first-in, first-out basis.
h) Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board ("FASB") of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes" ("Statement 109"). Under Statement 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
The Company, not being a separate reporting entity, will not receive any
benefit from the approximately $7,000,000 net operating loss allocated to the
IVR software business contained in these financial statements.
i) Organization Costs
Organization costs consist primarily of professional and filing fees
relating to the formation of the Company. These costs have been expensed.
j) Earnings Per Share
SFAS No. 128, "Earnings Per Share" requires presentation of basic earnings
per share ("basic EPS") and diluted earnings per share ("diluted EPS").
The computation of basic pro forma EPS is computed by dividing income
available to common shareholders by the expected number of shares to be issued
in connection with the Company's proposed spin-off from iVoice, Inc. Diluted
earnings per share gives effect to all dilutive potential Common shares
outstanding during the period. The computation of diluted EPS does not assume
conversion, exercise or contingent exercise of securities that would have an
anti-dilutive effect on earnings resulting from the Company's net loss position.
Since the
F-11
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
earnings per share information is being shown on a pro forma basis, only the
most recent year has been presented. The shares used in the computation are as
follows:
As of As of
December 31, 2004 December 31, 2003
----------------- -----------------
Pro Forma Basis and diluted purposes 10,050,000 10,050,000
k) Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
the reporting and display of comprehensive income and its components in the
financial statements. The items of other comprehensive income that are typically
required to be displayed are foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on certain investments in debt and
equity securities, As of December 31, 2004 and 2003, the Company has no items
that represent comprehensive income, and thus, has not included a statement of
comprehensive income.
l) Recent Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46-R, "Consolidation
of Variable Interest Entities" ("FIN 46-R"). FIN 46-R, which modifies certain
provisions and effective dates of FIN No. 46, sets forth criteria to be used in
determining whether an investment in a variable interest entity should be
consolidated, and is based on the general premise that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. The provisions of FIN 46 became effective for the Company
during the third quarter of Fiscal 2004. The adoption of this new standard did
not have any impact on the Company's financial position, results of operations
or cash flows.
In December 2003, the FASB issued a revision to SFAS No. 132 "Employers'
Disclosures about Pensions and Other Post retirement Benefits." This revised
statement requires additional annual disclosures regarding types of pension plan
assets, investment strategy, future plan contributions, expected benefit
payments and other items. The statement also requires quarterly disclosure of
the components of net periodic benefit cost and plan contributions. This
currently has no effect on the Company.
m) Reclassification
Certain amounts in the 2003 financial statements were reclassified to
conform to the 2004 presentation. The reclassification in 2003 results in no
changes to the net loss for that period.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of software source codes originally purchased by
iVoice for $454,000 in May 1999. The asset is reflected at its original cost net
of accumulated amortization of $454,000, from the date acquired by iVoice. The
asset was amortized over a 5-year period.
F-12
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
In accordance with FAS 142 goodwill and indefinite-lived intangible assets
are reviewed for impairment at least annually, and whenever events or changes in
circumstances indicate the carrying amounts of the assets may be impaired. We
have elected to perform our impairment review during the fourth quarter of each
year, in conjunction with our annual planning cycle. At December 31, 2004, we
found no impairment of goodwill or other indefinite-lived intangible assets.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the years ended December 31, 2004 and December 31, 2003 iVoice
allocated operating costs of $1,163,634 and $965,341, respectively to iVoice
Technology. These allocations are reflected in the selling, general and
administrative, cost of revenue and research and development line items in our
statements of operations. The general corporate expense allocation is primarily
for cash management, selling expense, legal, accounting, tax, insurance, public
relations, advertising, and human resources. The amortization of the Interactive
Voice Response software has been reflected as cost of sales. Other general
categories of operating expense, as well as other income and expense, have been
allocated to iVoice Technology by iVoice based upon a ratio of revenue of the
Interactive Voice Response software over total iVoice revenue for the applicable
periods. Management believes the costs of these services charged are a
reasonable representation of the costs that would have been incurred if iVoice
Technology had performed these functions as a stand-alone company.
In conjunction with the spin-off, iVoice Technology has entered into a
temporary administrative services agreement with iVoice. The administrative
services agreement will continue on a month to month basis until iVoice
Technology has found replacement services for those services being provided by
iVoice or can provide these services for itself.
NOTE 7 - INCOME TAXES
The reconciliation of the effective income tax rate to the Federal
Statutory rate is as follows:
Federal Income Tax Rate (34.0)%
Deferred Tax charge (Credit) 0.0 %
Effect on Valuation Allowance 38.1 %
State Income Tax, Net of Federal Benefits ( 4.1)%
Effective Income Tax Rate 0.0 %
Prior to the spin-off, the Company was included as part of iVoice's
consolidated federal income tax return. However, the income tax expense
presented in these financial statements has been computed on a separate return
basis.
F-13
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
NOTE 8 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 3, the Company has entered into a subscription
agreement with certain purchasers for the sale of $700,000 in convertible
debentures. The debentures will be convertible into Class A Common Stock at the
discretion of the holders only after the Company's Class A Common Stock has
commenced trading on the Over-the-Counter Bulletin Board. Additionally, the
Company had entered into a Standby Equity Distribution Agreement whereby the
Company, at their discretion, may periodically sell to an investor shares of
Class A Common Stock to raise capital to fund its working capital needs. These
transactions will require the Company to register its common stock under Section
12(g) of the Securities Exchange Act of 1934 and subsequently register for
resale a number of shares to facilitate these financial transactions. On
February 28, 2005, the Standby Equity Distribution Agreement was terminated. The
Company has obtained a non-binding commitment for a Standby Equity Distribution
Agreement whereby the Company, at its discretion, may periodically sell to an
investor shares of Class A Common Stock to raise capital to fund its working
capital needs. This transaction will require the Company to register its Class A
Common Stock for resale to facilitate this financial transaction.
On February 28, 2005, convertible debentures equal in principal to
$560,000 were terminated and replaced with a secured promissory note of the same
value. In addition, on February 28, 2005, iVoice Technology borrowed an
additional $140,000 under the promissory note. On February 28, 2005, the Standby
Equity Distribution Agreement was terminated.
The Company will also assume outstanding indebtedness in the amount of
$190,000 payable to Jerry Mahoney, President and Chief Executive Officer of
iVoice and Non-Executive Chairman of the Board of iVoice Technology. This amount
is related to funds loaned to iVoice and is unrelated to the operations of
iVoice Technology. The note representing such obligation will bear interest at
the rate of Prime plus 2.0% per annum on the unpaid balance until paid. Under
the terms of the Promissory Note, at the option of the Note holder, principal
and interest can be converted into either (i) one share of Class B Common Stock
of iVoice Technology, Inc., par value $.01, for each dollar owed, (ii) the
number of shares of Class A Common Stock of iVoice Technology, Inc. calculated
by dividing (x) the sum of the principal and interest that the Note holder has
requested to have prepaid by (y) eighty percent (80%) of the lowest issue price
of iVoice Technology, Inc. Class A Common Stock since the first advance of funds
under this Note, or (iii) payment of the principal of this Note, before any
repayment of interest.
Effective August 1, 2004, the Company entered into a one year employment
contract with Arie Seidler, its President and Chief Executive Officer. The
Company will pay Mr. Seidler a base salary of $40,000 during the term. Mr.
Seidler can earn bonuses based on the Company achieving certain levels of sales
and profitability and will also be entitled to certain bonuses based on mergers
and acquisitions completed by the Company.
The Company entered into a five-year employment agreement with Jerome
Mahoney, its Non-Executive Chairman of the Board of Directors, effective August
1, 2004. The Company will compensate Mr. Mahoney with a base salary of $85,000
for the first year with annual increases
F-14
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
based on the Consumer Price Index. Mr. Mahoney will also be entitled to certain
bonuses based on mergers and acquisitions completed by the Company.
In conjunction with the spin-off, iVoice Technology has entered into an
administrative services agreement with iVoice. The administrative services
agreement will continue on a month-to- month basis until iVoice Technology has
found replacement services for those services being provided by iVoice or can
provide these services for itself.
NOTE 9 - CAPITAL STOCK
Pursuant to iVoice Technology's certificate of incorporation, as amended,
the Company is authorized to issue 10,000,000,000 shares of Class A Common
Stock, no par value per share, 50,000,000 shares of Class B Common Stock, par
value $0.01 per share, 20,000,000 shares of Class C Common Stock, par value
$0.01 per share, and 1,000,000 shares of Preferred Stock, par value of $1.00 per
share. Below is a description of iVoice Technology's outstanding securities,
including Class A Common Stock, Class B Common Stock, Class C Common Stock, and
Preferred Stock.
I. Class A Common Stock
As of December 31, 2004, there are 10,000,000,000 shares of Class A Common
Stock authorized, no par value, and 100 shares were issued and outstanding.
Subsequent to December 31, 2004, upon the registration statement becoming
effective, the Company's proposed 100,500-for-one stock split retroactively
increased the shares to 10,050,000 (See Note 10).
Each holder of Class A Common Stock is entitled to receive ratably
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for payment of dividends. The Company has never paid any
dividends on its common stock and does not contemplate doing so in the
foreseeable future. The Company anticipates that any earnings generated from
operations will be used to finance its growth objectives.
II. Class B Common Stock
As of December 31, 2004, there are 50,000,000 shares of Class B Common
Stock authorized, par value $.01 per share. Each holder of Class B Common Stock
has voting rights equal to 100 shares of Class A Common Stock. A holder of Class
B Common Stock has the right to convert each share of Class B Common Stock into
the number of shares of Class A Common Stock determined by dividing the number
of Class B Common Stock being converted by a 20% discount of the lowest price
that iVoice Technology, Inc. had ever issued its Class A Common Stock. Upon our
liquidation, dissolution, or winding-up, holders of Class B Common Stock will be
entitled to receive distributions. As of December 31, 2004, no shares were
issued or outstanding.
III. Class C Common Stock
As of December 31, 2004, there are 20,000,000 shares of Class C Common
Stock authorized, par value $.01 per share. Each holder of Class C Common Stock
is entitled to 1,000 votes for each share held of record. Shares of Class C
Common Stock are not convertible into Class A Common Stock. Upon liquidation,
dissolution or wind-up, the holders of Class C Common Stock are not entitled to
receive our net assets pro rata. As of December 31, 2004, no shares were issued
or outstanding.
F-15
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
IV. Preferred Stock
iVoice Technology is authorized to issue 1,000,000 shares of Preferred
Stock, par value $1.00 per share. As of December 31, 2004, iVoice Technology has
not issued any shares of Preferred Stock.
NOTE 10 - SUBSEQUENT EVENTS
In September 2005, the Company entered into an agreement with Monitor
Capital, Inc. for Monitor Capital to act as an agent for the private placement
to Cornell Capital Partners, L.P. Under the placement agent agreement, the
Company agreed to issue to Monitor Capital on or about the date of effectiveness
of the registration statement for the Class A Common Stock a number of shares of
Class A Common Stock equal to $10,000 divided by the closing bid price of the
Class A Common Stock on the date of effectiveness of such registration
statement. The Company issued the following secured convertible debentures to
Cornell Capital Partners on the dates and amounts as follows: August 2004 for
$280,000 and November 2004 for $280,000. These debentures were convertible at
the option of the holder only after the Company's Class A Common Stock has
commenced trading on the Over-the-Counter Bulletin Board. Each of the debentures
were convertible into shares of Class A Common Stock at a price equal to the
lesser of (a) an amount equal to one hundred twenty percent (120%) of the
initial bid price of the Class A Common Stock on the date of effectiveness of
the registration statement of which this prospectus is a part or (b) an amount
equal to eighty percent (80%) of the lowest closing bid price of the Class A
Common Stock for the five trading days immediately preceding the conversion
date. The secured convertible debentures had a term of two years with all
accrued interest due at the expiration of the term. At our option, these
debentures may be redeemed at a 20% premium prior to August 12, 2006. The
secured convertible debentures were secured by a first priority security
interest in substantially all of the assets of iVoice Technology. On February
28, 2005, the Company renegotiated the terms and conditions of its Convertible
Debentures with the holders of such debentures. The parties thereto agreed to
terminate the $560,000 Convertible Debentures replacing them with a Promissory
Note. The Promissory Note was in the amount of $700,000, $560,000 of which
replaced the Convertible Debentures in 2004, and $140,000 of which was advanced
on February 28, 2005. A commitment fee of 10% of the face amount of the
Convertible Debentures was paid at the time of each advance on the Convertible
Debentures. Such commitment fees were credited against commitment fees due and
owing against the Note. The balance of the commitment fee against the Note was
paid on February 28, 2005, at the time that such $140,000 was advanced to the
Company.
F-16
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
The Promissory Note bears interest at the rate of 12% per annum. Principal
on the Note will be amortized in equal weekly installments of $10,000 commencing
on July 4, 2005. Payments of interest shall commence on September 1, 2005 and
shall continue on the first day of each calendar month thereafter until the
principal is paid in full. Payment in full of the principal and interest on the
Note is due on or before July 4, 2006. In the event all principal and interest
has not been paid by the one year anniversary of the initial payment on July 4,
2005, in accordance with the amortization schedule described above, the Company
will make a lump sum payment of all outstanding interest and principal on July
4, 2006.
On February 28, 2005, the iVoice, Inc. agreed to provide Cornell Capital
Partners a full and unconditional guaranty of the payment and performance
obligations of iVoice Technology under the promissory note, which cannot be
discharged, except as specifically provided in the promissory note and the
related documents. Under the guaranty, if iVoice Technology defaults in payment
or performance of any of its obligations under the promissory note, iVoice, Inc.
is required to pay or perform such obligations upon two days' written notice or
demand by the holders of the promissory notes and to take an advance or
advances, as may be necessary, from the Standby Equity Distribution Agreement by
and between iVoice and Cornell Capital Partners, LP. Notwithstanding anything to
the contrary, this Guaranty shall be discharged and terminated on the date that
iVoice Technology's registration statement in connection with the Distribution
is declared effective by the U.S Securities and Exchange Commission.
Effective August 12, 2004, iVoice Technology entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners to obtain an equity line of
credit. Under this agreement, iVoice Technology may issue and sell to Cornell
Capital Partners Class A Common Stock for a total purchase price of up to $10.0
million. Effective February 28, 2005, iVoice Technology, Inc. terminated its
Standby Equity Distribution Agreement, dated August 2004, entered into by and
between the Company and Cornell Capital Partners, LLP. On March 9, 2005, the
Company executed a non-binding letter agreement with Cornell Capital Partners
LLP whereby the parties agreed subject to the satisfaction of certain conditions
to enter into a Standby Equity Distribution Agreement following the date that
the Company's registration statement on Form SB-2, as filed with the Securities
and Exchange Commission on November 2004, is deemed effective by that agency.
Subject to various conditions, the non-binding letter of commitment provides
that, upon execution of definitive documents and the satisfaction of any
conditions that may be set forth in such documents iVoice Technology will be
entitled to commence drawing funds under this agreement when the resale of the
Class A Common Stock issuable under the equity line of credit is registered with
the Securities and Exchange Commission, and the equity line of credit will
remain outstanding for two years thereafter. The non-binding letter of
commitment provides that purchase price for the shares will be equal to 95% of
the market price, which is defined as the lowest closing bid price of the Class
A Common Stock during the five trading days following the date that iVoice
Technology delivers to Cornell Capital Partners a notice requiring it to advance
funds to the Company. A cash fee equal to six percent (6%) of the cash proceeds
of the draw down is also payable at the time of funding. In addition,
non-binding letter of commitment provides that Cornell Capital Partners will
receive, as additional compensation, the number of shares of Class A Common
Stock equal to one and one half percent (1.5%) of the number of
F-17
iVOICE TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
shares of Class A Common Stock outstanding on the date that the registration
statement in respect of the shares to be distributed pursuant to the equity line
of credit becomes effective. To date, iVoice Technology has not drawn down on
the equity line of credit.
According to the registration statement for the distribution of the iVoice
Technology Class A Common Stock, a 100,500-for-one stock split will be
accomplished by means of a stock dividend and will be effectuated immediately
prior to the effective date of the registration statement. The Company has
retroactively restated the shares outstanding at December 31, 2004 for this
stock split.
F-18
iVOICE TECHNOLOGY, INC.
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 392,600
Accounts receivable, net of allowance for doubtful
accounts of $0 21,451
-----------
Total current assets 414,051
-----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $69 4,690
-----------
TOTAL ASSETS $ 418,741
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 32,826
Note payable 700,000
Due to related parties 63,750
Deferred maintenance contracts 20,016
-----------
Total current liabilities 816,592
-----------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' (DEFICIENCY)
Preferred stock, $1 par value; authorized 1,000,000 shares;
no shares issued and outstanding --
Common stock, Class A - no par value; authorized
10,000,000,000 shares; 10,050,000 shares issued and
outstanding --
Common stock, Class B - $.01 par value; authorized
50,000,000 shares; no shares issued and outstanding --
Common stock, Class C - $.01 par value; authorized
20,000,000 shares; no shares issued and outstanding --
Additional Paid in Capital 7,297,231
Accumulated deficit (7,695,082)
-----------
Total stockholders' (deficiency) (397,851)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) $ 418,741
===========
The accompanying notes are an integral part of thesecondensed financial
statements.
F-19
iVOICE TECHNOLOGY, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------ ------------ -------------
SALES, net $ 16,977 $ 64,772 $ 70,838 $ 131,006
COST OF SALES -- 26,384 738 52,818
------------ ------------ ------------ ------------
GROSS PROFIT 16,977 38,388 70,100 78,188
------------ ------------ ------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling expenses 22,771 17,862 24,635 40,200
General and administrative expenses 67,998 192,688 173,971 435,223
Research and development -- 19,628 -- 41,214
Depreciation and amortization 24 24,595 47 51,452
------------ ------------ ------------ ------------
Total selling, general and administrative
expenses 90,793 254,773 198,653 568,089
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (73,816) (216,385) (128,553) (489,901)
------------ ------------ ------------ ------------
OTHER INCOME\(EXPENSE)
Other income 943 41,327 1,739 60,950
Write-off of financing costs -- (99,315) (14,000) (888,146)
Interest expense (8,726) (5,163) (16,359) (10,750)
------------ ------------ ------------ ------------
Total other income\(expense) (7,783) (63,151) (28,620) (837,946)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (81,599) (279,536) (157,173) (1,327,847)
PROVISION FOR INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET LOSS FROM CONTINUING OPERATIONS $ (81,599) $ (279,536) $ (157,173) $ (1,327,847)
============ ============ ============ ============
PRO FORMA NET LOSS PER COMMON SHARE
Basic $ ( 0.01) $ ( 0.03) $ ( 0.02) $ ( 0.13)
============ ============= ============ ============
Diluted $ ( 0.01) $ ( 0.03) $ ( 0.02) $ ( 0.13)
============ ============= ============ ============
PRO FORMA WEIGHTED AVERAGE COMMON SHARES
Basic 10,050,000 10,050,000 10,050,000 10,050,000
========== ============ ============ ============
Diluted 10,050,000 10,050,000 10,050,000 10,050,000
========== ============ ============ ============
The accompanying notes are an integral part of these condensed financial
statements.
F-20
iVOICE TECHNOLOGY, INC.
CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
For the Six Months Ended
June 30,
------------------------------
2005 2004
----------- -----------
CASH FLOW (USED IN) OPERATING ACTIVITIES
Net loss $ (157,173) $(1,327,847)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 47 --
Amortization of software license -- 45,400
Changes in certain assets and liabilities:
Accounts receivable 10,282 26,956
Inventory -- 2,509
Costs in excess of billing -- 2,706
Accounts payable and accrued liabilities 2,220 --
Deferred revenue (13,125) (19,886)
Related party accounts 63,750 --
----------- -----------
Total cash used in operating activities (93,999) (1,270,162)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Allocation of costs by iVoice, Inc -- 1,270,162
Net proceeds from notes payable 140,000 --
----------- -----------
Total cash provided by financing activities 140,000 1,270,162
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 46,001 --
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 346,599 --
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 392,600 $ --
=========== ===========
CASH PAID DURING THE PERIOD FOR:
Interest expense $ -- $ --
Income taxes =========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
F-21
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
NOTE 1 - BACKGROUND
The unaudited interim financial statements included herein have been
prepared by iVoice Technology, Inc. ("iVoice Technology" or the "Company")
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted as allowed by such rules and regulations, and the Company believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these financial statements be read in conjunction with the
December 31, 2004 audited financial statements and the accompanying notes
thereto. While management believes the procedures followed in preparing these
financial statements are reasonable, the accuracy of the amounts are in some
respects dependent upon the facts that will exist, and procedures that will be
accomplished by the Company later that year.
The management of the Company believes that the accompanying unaudited
financial statements contain all adjustments (including normal recurring
adjustments) necessary to present fairly the operations and cash flows for the
periods presented.
iVoice Technology was incorporated under the laws of New Jersey on
November 10, 2004 as a wholly owned subsidiary of iVoice, Inc. ("iVoice"). The
Company received by assignment all of the interests in and rights and title to,
and assumed all of the obligations of, all of the agreements, contracts,
understandings and other instruments of iVoice Technology, Inc., a Nevada
corporation and affiliate of the Company. When we refer to or describe any
agreement, contract or other written instrument of the Company in these notes,
we may be referring to an agreement, contract or other written instrument that
had been entered into by iVoice Technology Nevada and thereafter assigned to the
Company.
On September 1, 2004, the Board of Directors of iVoice, the former parent
of the Company, resolved to pursue the separation of iVoice software business
into three publicly owned companies. iVoice will continue to focus on its own
computerized telephony technology and related business development operations.
iVoice Technology will continue to develop, market and license the Interactive
Voice Response line of computerized telephony software.
The spin-off transaction was accomplished, on August 5, 2005, by the
assignment, contribution and conveyance of certain intellectual property,
representing the software codes of Interactive Voice Response ("IVR"), and
certain accrued liabilities and related party debt to iVoice Technology (the
"Distribution"). The shares of Class A Common Stock of the Company were
distributed to iVoice shareholders in the form of a taxable special dividend
distribution.
In conjunction with the spin-off, iVoice Technology entered into a
temporary administrative services agreement with iVoice. The administrative
services agreement
F-22
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
will continue on a month-to-month basis until iVoice Technology has found
replacement services for those services being provided by iVoice or can provide
these services for itself.
On August 5, 2005, iVoice Technology assumed $190,000 in accrued
liabilities and related party debt incurred by iVoice. The debt assumed is
convertible into iVoice Technology Class B Common Stock at the option of the
holder as later described in these notes.
On August 4, 2005, the Company received notice from the SEC that the
registration statement to effectuate the spin-off of iVoice Technology from
iVoice was declared effective and the Company immediately embarked on the
process to spin off iVoice Technology from iVoice.
NOTE 2 - BUSINESS OPERATIONS
The Company will continue to develop, market and license the Interactive
Voice Response line, which was developed by iVoice. The Company's Interactive
Voice Response line is designed to read information from and write information
to, databases, as well as to query databases and return information.
IVR is an application generator that allows full connectivity to many
databases, including Microsoft Access, Microsoft Excel, Microsoft Fox Pro, and
Paradox, or to standard text files. The IVR software is sold as an application
generator that gives the end user the ability to develop their own customized
IVR applications or as a customized turnkey system. IVR performs over 40
different customizable commands. Examples of IVR range from simply selecting
announcements from a list of options stored in the computer (also known as audio
text) to more complex interactive exchanges such as querying a database for
information.
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplates continuation of the Company as a going concern. The Company's
previous financial results and operations were reflected in the consolidated
financial statements and accounting records of iVoice and reflected significant
assumptions and allocations. The Company has relied on iVoice for
administrative, management, research and other services. These financial
statements do not necessarily reflect the financial position, results of
operations, and cash flows of the Company had it been a stand-alone company.
As of June 30, 2005, the Company had a net loss, a negative cash flow from
operations, as well as negative working capital. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Therefore,
recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheets is dependent
F-23
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
upon continued operations of the Company, which in turn, is dependent upon the
Company's ability to raise capital and/or generate positive cash flow from
operations.
In order to provide necessary working capital, in August 2004, the Company
entered into a subscription agreement, pursuant to which the Company issued
$280,000 of secured convertible debentures in August 2004, and an additional
$280,000 of secured convertible debentures, in November 2004. On February 28,
2005, convertible debentures equal in principal to $560,000 were terminated and
replaced with a secured promissory note in the amount of $700,000 ($560,000
representing replacement notes and $140,000 representing new financing).
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying financial statements have been derived from the
consolidated financial statements and accounting records of iVoice using the
historical results of operations and historical basis of assets and liabilities
of the Company's Interactive Voice Response business. Management believes the
assumptions underlying the financial statements are reasonable. However, the
financial statements included herein may not necessarily reflect the Company's
results of operations, financial position, and cash flows in the future or what
its results of operations, financial position and cash flows would have had the
Company been a stand-alone company during the periods presented.
b) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
c) Software License Costs
Software license costs are recorded at cost, which approximates fair
market value as of the date of purchase. These costs represent the purchase of
various exploitation rights to certain software, pre-development codes and
systems developed by a non-related third party. These costs are capitalized
pursuant to Statement of Financial Accounting Standards ("SFAS") 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed".
The Company has adopted SFAS No. 121. The carrying value of software license
costs are regularly reviewed by the Company and a loss would
F-24
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
be recognized if the value of the estimated non-discounted cash flow benefit
related to the asset falls below the unamortized cost. Historically the
Interactive Voice Response software technology has produced limited sales
revenue. However, management believes that the limited sales generated result
from a lack of application of Company sales and marketing resources to the
software, It is management's plan to devote such resources to its software
technology to recognize the technology's potential value and therefore, no
impairment loss has been recorded.
d) Revenue Recognition
The Company derives its revenues from the licensing of its software
product and optional customer support (maintenance) service. The Company's
standard license agreement provides for a one-time fee for use of the Company's
product in perpetuity for each computer or CPU in which the software will
reside. The Company's software application is fully functional upon delivery and
implementation and does not require any significant modification or alteration.
The Company also offers customers an optional annual software maintenance and
support agreement for the subsequent one-year periods. Such maintenance and
support services are free for the first year the product is licensed and is
considered the warranty period. The software maintenance and support agreement
provides free software updates, if any, and technical support the customer may
need in deploying or changing the configuration of the software. Generally, the
Company does not license its software in multiple element arrangements whereby
the customer purchases a combination of software and maintenance. In a typical
arrangement, software maintenance services are sold separately from the software
product; are not considered essential to the functionality of the software and
are purchased at the customer's option upon the completion of the first year
licensed.
The Company does not offer any special payment terms or significant
discount pricing. Normal and customary payment terms require payment for the
software license fees when the product is shipped. Payment for software
maintenance is due prior to the commencement of the maintenance period. It is
also the Company's policy to not provide customers the right to refund any
portion of its license fees. The Company accepts Visa and MasterCard as well as
company checks.
With respect to the sale of software license fees, the Company recognizes
revenue in accordance with Statement of Position 97-2, Software Revenue
Recognition (SOP 97-2), as amended, and generally recognizes revenue when all of
the following criteria are met: (1) persuasive evidence of an arrangement exists
generally evidenced by a signed, written purchase order from the customer, (2)
delivery of the software product on Compact Disk (CD) or other means to the
customer has occurred, (3) the perpetual license fee is fixed or determinable
and (4) collectibility, which is assessed on a customer-by-customer basis, is
probable.
With respect to customer support services, upon the completion of one year
from the date of sale, considered to be the warranty period, the Company offers
customers an optional annual software maintenance and support agreement for
subsequent one-year
F-25
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
periods. Sales of purchased maintenance and support agreements are recorded as
deferred revenue and recognized over the respective terms of the agreements.
e) Product Warranties
The Company estimates its warranty costs based on historical warranty
claims experience in estimating potential warranty claims. Due to the limited
sales of the Company's products, management has determined that warranty costs
are immaterial and has not included an accrual for potential warranty claims.
Presently, costs related to warranty coverage are expensed as incurred. Warranty
claims are reviewed quarterly to verify that warranty liabilities properly
reflect any remaining obligation based on the anticipated expenditures over the
balance of the obligation period.
f) Research and development costs
Research and development costs will be charged to operations as incurred.
g) Inventory
Inventory, consisting primarily of system components such as computer
components, voice cards, and monitors, is valued at the lower of cost or market.
Cost is determined on a first-in, first-out basis.
h) Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board ("FASB") of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes" ("Statement 109"). Under Statement 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
The Company, not being a separate reporting entity, will not receive any
benefit from the approximately $7,000,000 net operating loss allocated to the
IVR software business contained in these financial statements.
i) Organization Costs
Organization costs consist primarily of professional and filing fees
relating to the formation of the Company. These costs have been expensed.
F-26
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
j) Earnings Per Share
SFAS No. 128, "Earnings Per Share" requires presentation of basic earnings
per share ("basic EPS") and diluted earnings per share ("diluted EPS").
The computation of basic pro forma EPS is computed by dividing income
available to common shareholders by the number of shares issued in connection
with the Company's proposed spin-off from iVoice. Diluted earnings per share
gives effect to all dilutive potential Common shares outstanding during the
period. The computation of diluted EPS does not assume conversion, exercise or
contingent exercise of securities that would have an anti-dilutive effect on
earnings resulting from the Company's net loss position. The shares used in the
computation are as follows:
For the three months For the six months
ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Pro Forma Basis and diluted purposes 10,050,000 10,050,000 10,050,000 10,050,000
k) Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
the reporting and display of comprehensive income and its components in the
financial statements. The items of other comprehensive income that are typically
required to be displayed are foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on certain investments in debt and
equity securities, As of June 30, 2005 and 2004, the Company has no items that
represent comprehensive income, and thus, has not included a statement of
comprehensive income.
l) Recent Accounting Pronouncements
In December 2003, the FASB issued Interpretation No. 46-R, "Consolidation
of Variable Interest Entities" ("FIN 46-R"). FIN 46-R, which modifies certain
provisions and effective dates of FIN No. 46, sets forth criteria to be used in
determining whether an investment in a variable interest entity should be
consolidated, and is based on the general premise that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. The provisions of FIN 46 became effective for the Company
during the third quarter of fiscal 2004. The adoption of this new standard did
not have any impact on the Company's financial position, results of operations
or cash flows.
In December 2003, the FASB issued a revision to SFAS No. 132 "Employers'
Disclosures about Pensions and Other Post retirement Benefits." This revised
statement requires additional annual disclosures regarding types of pension plan
assets, investment strategy, future plan contributions, expected benefit
payments and other items. The
F-27
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
statement also requires quarterly disclosure of the components of net periodic
benefit cost and plan contributions. This currently has no effect on the
Company.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective for small business issuers as of the first interim period
that begins after December 15, 2005. Accordingly, the Company will implement the
revised standard in the fourth quarter of fiscal year 2005. Currently, the
Company accounts for its share-based payment transactions under the provisions
of APB 25, which does not necessarily require the recognition of compensation
cost in the financial statements (note 3(d)). Management is assessing the
implications of this revised standard, which may materially impact the Company's
results of operations in the fourth quarter of fiscal year 2005 and thereafter.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consist of software source codes originally purchased by
iVoice for $454,000 in May 1999. The asset is reflected at its original cost net
of accumulated amortization of $454,000, from the date acquired by iVoice. The
asset was amortized over a 5-year period.
In accordance with FAS 142 goodwill and indefinite-lived intangible assets
are reviewed for impairment at least annually, and whenever events or changes in
circumstances indicate the carrying amounts of the assets may be impaired. We
have elected to perform our impairment review during the fourth quarter of each
year, in conjunction with our annual planning cycle. At June 30, 2005, we found
no impairment of goodwill or other indefinite-lived intangible assets.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the six months ended June 30, 2004 iVoice allocated operating costs
of $1,270,162 to iVoice Technology. These allocations are reflected in the
selling, general and administrative, cost of revenue, research and development,
and other income (expense) line items in our statements of operations. The
general corporate expense allocation is primarily for cash management, selling
expense, legal, accounting, tax, insurance, public relations, advertising,
transfer agents, and human resources. The amortization of the Interactive Voice
Response software has been reflected as cost of sales. Other general categories
of operating expense, as well as other income and expense, have been allocated
to iVoice Technology by iVoice based upon a ratio of revenue of the Interactive
Voice Response software over total iVoice revenue for the applicable periods.
Management believes the costs of these services charged are a reasonable
representation of the costs that would have been incurred if iVoice Technology
had performed these functions as a stand-alone company.
F-28
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
In conjunction with the spin-off, iVoice Technology has entered into a
temporary administrative services agreement with iVoice. The administrative
services agreement will continue on a month to month basis until iVoice
Technology has found replacement services for those services being provided by
iVoice or can provide these services for itself.
NOTE 7 - INCOME TAXES
The reconciliation of the effective income tax rate to the Federal
Statutory rate is as follows:
Federal Income Tax Rate (34.0)%
Deferred Tax charge (Credit) 0.0 %
Effect on Valuation Allowance 38.1 %
State Income Tax, Net of Federal Benefits ( 4.1)%
Effective Income Tax Rate 0.0 %
Prior to the spin-off, the Company was included as part of iVoice's
consolidated federal income tax return. The Company has provided for a 100%
allowance of its deferred tax assets.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
As discussed in Note 3, the Company has entered into a subscription
agreement with certain purchasers for the sale of $560,000 in convertible
debentures. Additionally, the Company had entered into a Standby Equity
Distribution Agreement whereby the Company, at their discretion, may
periodically sell to an investor shares of Class A Common Stock to raise capital
to fund its working capital needs. These transactions will require the Company
to register its common stock under Section 12(g) of the Securities Exchange Act
of 1934 and subsequently register for resale a number of shares to facilitate
these financial transactions. On February 28, 2005, the Standby Equity
Distribution Agreement was terminated. The Company has obtained a non-binding
commitment for a Standby Equity Distribution Agreement whereby the Company, at
its discretion, may periodically sell to an investor shares of Class A Common
Stock to raise capital to fund its working capital needs. This transaction will
require the Company to register its Class A Common Stock for resale to
facilitate this financial transaction.
On February 28, 2005, convertible debentures equal in principal to
$560,000 were terminated and replaced with a secured promissory note in the
amount of $700,000 ($560,000 representing replacement notes and $140,000
representing new financing).
The Company will also assume an outstanding promissory note in the amount
of $190,000 payable to Jerry Mahoney, President and Chief Executive Officer of
iVoice and Non-Executive Chairman of the Board of iVoice Technology. This amount
is related to funds loaned to iVoice and is unrelated to the operations of
iVoice Technology. The note will bear interest at the rate of prime plus 2.0%
per annum on the unpaid balance until paid. Under the terms of the Promissory
Note, at the option of the Note holder, principal
F-29
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
and interest can be converted into either (i) one share of Class B Common Stock
of iVoice Technology, Inc., par value $.01, for each dollar owed, (ii) the
number of shares of Class A Common Stock of iVoice Technology, Inc. calculated
by dividing (x) the sum of the principal and interest that the Note holder has
requested to have prepaid by (y) eighty percent (80%) of the lowest issue price
of Class A Common Stock since the first advance of funds under this Note, or
(iii) payment of the principal of this Note, before any repayment of interest.
iVoice Technology entered into an employment agreement as of August 1,
2004 with Arie Seidler, which agreement was amended on August 12, 2005. Mr.
Seidler resigned as iVoice Technology's President and Chief Executive Officer
and his employment agreement was terminated on August 26, 2005.
On August 29, 2005, the Company entered into an employment agreement with
Mark Meller. Mr. Meller will serve as the Company's President, Chief Executive
Officer and Chief Financial Officer for a term of one year. As compensation, the
Company will pay Mr. Meller an annual base salary of $85,000. Mr. Meller has
agreed to defer all but $20,000 of his compensation until such time that Board
of Directors determines, in its sole discretion, that the Company has sufficient
financial resources to pay his compensation and the Board of Directors may also
elect to pay Mr. Meller the balance of his compensation in the form of Company
Class A or Class B Common Stock. Mr. Meller will also be entitled to certain
bonuses based on mergers and acquisitions completed by the Company.
The Company entered into a five-year employment agreement with Jerome
Mahoney to serve as its Non-Executive Chairman of the Board of Directors,
effective August 1, 2004. The Company will compensate Mr. Mahoney with a base
salary of $85,000 for the first year with annual increases based on the Consumer
Price Index. Mr. Mahoney's compensation shall be deferred until such time that
the Board of Directors determines that the Company has sufficient financial
resources to pay his compensation in cash and presently, Mr. Mahoney's
compensation will be paid in the form of Class B Common Stock. Mr. Mahoney will
also be entitled to certain bonuses based on mergers and acquisitions completed
by the Company.
In conjunction with the various spin-offs, iVoice Technology has entered
into temporary administrative services agreement with iVoice. The administrative
services agreements will continue on a month-to- month basis until these
companies have found replacement services for those services being provided by
iVoice or can provide these services for itself.
NOTE 9 - CAPITAL STOCK
Pursuant to iVoice Technology's certificate of incorporation, as amended,
the Company is authorized to issue 10,000,000,000 shares of Class A Common
Stock, no par value per share, 50,000,000 shares of Class B Common Stock, par
value $0.01 per share, 20,000,000 shares of Class C Common Stock, par value
$0.01 per share, and 1,000,000
F-30
iVOICE TECHNOLOGY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
shares of Preferred Stock, par value of $1.00 per share. Below is a description
of iVoice Technology's outstanding securities, including Class A Common Stock,
Class B Common Stock, Class C Common Stock, and Preferred Stock.
a) Class A Common Stock
As of June 30, 2005, there were 10,000,000,000 shares of Class A Common
Stock authorized, no par value, and 100 shares were issued and outstanding. On
August 4, 2005, the Company effected a 100,500-for-one forward stock split of
the Class A Common Stock increasing the issued and outstanding shares to
10,050,000. The number of outstanding and issued Class A Common Stock shares was
retroactively adjusted to reflect the aforementioned stock split that occurred
on August 4, 2005.
Each holder of Class A Common Stock is entitled to receive ratably
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for payment of dividends. The Company has never paid any
dividends on its common stock and does not contemplate doing so in the
foreseeable future. The Company anticipates that any earnings generated from
operations will be used to finance its growth objectives.
b) Class B Common Stock
As of June 30, 2005, there are 50,000,000 shares of Class B Common Stock
authorized, par value $.01 per share. Each holder of Class B Common Stock has
voting rights equal to 100 shares of Class A Common Stock. A holder of Class B
Common Stock has the right to convert each share of Class B Common Stock into
the number of shares of Class A Common Stock determined by dividing the number
of Class B Common Stock being converted by a 20% discount of the lowest price
that iVoice Technology, Inc. had ever issued its Class A Common Stock. Upon our
liquidation, dissolution, or winding-up, holders of Class B Common Stock will be
entitled to receive distributions. As of June 30, 2005, no shares were issued or
outstanding.
c) Class C Common Stock
As of June 30, 2005, there are 20,000,000 shares of Class C Common Stock
authorized, par value $.01 per share. Each holder of Class C Common Stock is
entitled to 1,000 votes for each share held of record. Shares of Class C Common
Stock are not convertible into Class A Common Stock. Upon liquidation,
dissolution or wind-up, the holders of Class C Common Stock are not entitled to
receive our net assets pro rata. As of June 30, 2005, no shares were issued or
outstanding.
d) Preferred Stock
iVoice Technology is authorized to issue 1,000,000 shares of Preferred
Stock, par value $1.00 per share. As of June 30, 2005, iVoice Technology has not
issued any shares of Preferred Stock.
F-31
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
-------------------------------------------------------
The following unaudited pro forma condensed statements of operations for the six
months ended June 30, 2005 the years ended December 31, 2004 and 2003 and the
unaudited pro forma condensed balance sheets at June 30, 2005 and December 31,
2004 present the results of operations and financial position of iVoice
Technology, Inc., assuming that the transactions contemplated by the spin-off
had been completed as of the beginning of 2003 with respect to the pro forma
consolidated income statements for the six months ended June 30, 2005, and the
years ended December 31, 2004 and 2003 for the year ended December 31, 2004 with
respect to the pro forma consolidated balance sheet. The pro forma adjustments
give effect to the spin-off transaction whereby shareholders of the Company's
former parent, iVoice Inc., received a pro-rata distribution of the Company's
shares in the form of a taxable dividend. Under the spin-off transaction, the
Company received certain intellectual property and liabilities of the Company's
former parent, iVoice, Inc. In the opinion of management, they include all
material adjustments necessary to reflect, on a pro forma basis, the impact of
transactions contemplated by the spin-off on the historical financial
information of iVoice Technology, Inc.
The pro forma financial information is presented for informational purposes and
does not purport to represent what our financial position and our results of
operations actually would have been had the separation and related transactions
occurred on the dates indicated. Actual results might have differed from pro
forma results if iVoice Technology had operated independently. The pro forma
financial information should not be relied upon as being indicative of results
iVoice Technology would have had or of future results after the spin-off. The
historical selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial statements and notes thereto included
elsewhere in this prospectus.
F-32
CONDENSED UNAUDITED PRO FORMA BALANCE SHEETS
--------------------------------------------
(UNAUDITED)
-----------
AS OF DECEMBER 31, 2004
-----------------------
As Pro Forma
Reported Adjustments Pro Forma
-------- ----------- ---------
Current Assets
Cash $ 346,599 $ -- $ 346,599
Accounts Receivable 31,733 -- 31,733
--------- --------- ---------
Total Current Assets 378,332 -- 378,332
Property and Equipment, net 4,737 -- 4,737
--------- --------- ---------
Total Assets $ 383,069 $ -- $ 383,069
========= ========= =========
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable and accrued liabilities: 30,606 -- 30,606
Due to related party -- 190,000 190,000
Convertible debentures 560,000 -- 560,000
Deferred maint contracts 33,141 -- 33,141
--------- --------- ---------
Total current liabilities 623,747 190,000 813,747
Stockholder's deficit (240,678) (190,000) (430,678)
--------- --------- ---------
Total Liabilities and Stockholder's Deficit $ 383,069 $ -- $ 383,069
========= ========= =========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-33
PRO FORMA STATEMENT OF OPERATIONS
---------------------------------
(UNAUDITED)
-----------
YEAR ENDED DECEMBER 31, 2004
----------------------------
As Pro Forma
Reported Adjustments Pro Forma
----------- ----------- -----------
Sales, net $ 239,114 $ -- $ 239,114
Cost of Sales 72,870 -- 72,870
----------- ----------- -----------
Gross Profit 166,244 -- 166,244
Selling General and Administrative
Expenses 863,456 49,000 912,456
----------- ----------- -----------
Loss from Operations (697,212) (49,000) (746,212)
Other Income (Expense) (780,915) (12,350) (793,265)
----------- ----------- -----------
Loss before Income Taxes (1,478,127) (61,350) (1,539,477)
Provision for Income Taxes -- -- --
----------- ----------- -----------
Net Loss $(1,478,127) $ (61,350) $(1,539,477)
=========== =========== ===========
Net Loss Per Common Share:
Basic $ (0.15)
===========
Diluted $ (0.15)
===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-34
CONDENSED UNAUDITED PRO FORMA BALANCE SHEETS
--------------------------------------------
(UNAUDITED)
-----------
AS OF JUNE 30, 2005
-------------------
As Pro Forma
Reported Adjustments Pro Forma
----------- ----------- -----------
Current Assets
Cash $ 392,600 $ -- $ 392,600
Accounts Receivable 21,451 -- 21,451
----------- ----------- -----------
Total Current Assets 414,051 -- 414,051
----------- ----------- -----------
Property and Equipment, net 4,690 -- 4,690
----------- ----------- -----------
Total Assets $ 418,741 $ -- $ 418,741
=========== =========== ===========
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable and accrued liabilities: 32,826 -- 32,826
Due to related party 63,750 190,000 253,750
Promissory Notes Payable 700,000 -- 700,000
Deferred maint contracts 20,016 -- 20,016
----------- ----------- -----------
Total current liabilities 816,592 190,000 1,006,592
Stockholder's deficit (397,851) (190,000) (587,851)
----------- ----------- -----------
Total Liabilities and Stockholder's Deficit $ 418,741 $ -- $ 418,741
=========== =========== ===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-35
PRO FORMA STATEMENT OF OPERATIONS
---------------------------------
(UNAUDITED)
-----------
YEAR ENDED DECEMBER 31, 2003
----------------------------
As Pro Forma
Reported Adjustments Pro Forma
----------- ----------- -----------
Sales, net $ 303,756 $ -- $ 303,756
Cost of Sales 123,091 -- 123,091
----------- ----------- -----------
Gross Profit 180,665 -- 180,665
Selling General and Administrative Expenses 965,341 84,000 1,049,341
----------- ----------- -----------
Income (Loss) from Operations (784,676) (84,000) (868,676)
Other Income (Expense) (346,744) (12,350) (359,094)
----------- ----------- -----------
Loss before Income Taxes (1,131,420) (96,350) (1,227,770)
Provision for Income Taxes -- -- --
----------- ----------- -----------
Net Loss $(1,131,420) $ (96,350) $(1,227,770)
=========== =========== ===========
Net Loss Per Common Share:
Basic $ (0.12)
===========
Diluted $ (0.12)
===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-36
PRO FORMA STATEMENT OF OPERATIONS
---------------------------------
(UNAUDITED)
-----------
SIX MONTHS ENDED JUNE 30, 2005
------------------------------
As Pro Forma
Reported Adjustments Pro Forma
--------- ----------- ---------
Sales, net $ 70,838 $ -- $ 70,838
Cost of Sales 738 -- 738
--------- --------- ---------
Gross Profit 70,100 -- 70,100
Selling General and Administrative Expenses 198,653 -- 198,653
--------- --------- ---------
Loss from Operations (128,553) -- (128,553)
Other Income (Expense) (28,620) (8,075) (36,695)
--------- --------- ---------
Loss before Income Taxes (157,173) (8,075) (165,248)
Provision for Income Taxes -- -- --
--------- --------- ---------
Net Loss $(157,173) $ (8,075) $(165,248)
========= ========= =========
Net Loss Per Common Share:
Basic $ (0.02)
=========
Diluted $ (0.02)
=========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information.
F-37
NOTES TO CONDENSED UNAUDITED PRO FORMA FINANCIAL INFORMATION
------------------------------------------------------------
NOTE 1.
The historical financial statements of iVoice Technology, Inc. reflect periods
during which iVoice Technology did not operate as a separate, independent public
company. Certain estimates, assumptions and allocations were made in preparing
such financial statements. Therefore, the historical financial statements do not
necessarily reflect the results of operations or financial position that would
have occurred had iVoice Technology been a separate, independent public company
during the periods presented, nor are they indicative of future performance.
Management believes that the estimates, assumptions and allocations made in
preparing the historical financial statements are reasonable.
NOTE 2.
The pro forma unaudited balance sheet was prepared assuming the distribution
occurred on December 31, 2004 and includes "Pro Forma Adjustments" for
transactions that occurred subsequent to December 31, 2003 as follows:
a) The Company is assuming outstanding indebtedness in the amount of $190,000
payable to Jerry Mahoney, President and Chief Executive Officer of iVoice.
The note representing such obligation will bear interest at the rate of
prime plus 2.0% per annum on the unpaid balance until paid or until
default. Under the terms of the Promissory Note, at the option of the Note
holder, principal and interest can be converted into either (i) one Class
B common stock share of iVoice Technology, Inc., par value $.01, for each
dollar owed, (ii) the number of Class A common stock shares of iVoice
Technology, Inc. calculated by dividing (x) the sum of the principal and
interest that the Note holder has requested to have prepaid by (y) eighty
percent (80%) of the lowest issue price of iVoice Technology Class A
common stock since the first advance of funds under this Note, or (iii)
payment of the principal of this Note, before any repayment of interest.
The pro forma unaudited balance sheet was prepared assuming the distribution
occurred on June 30, 2005 and includes "Pro Forma Adjustments" for transactions
that occurred subsequent to December 31, 2003 as follows:
a) The Company is assuming outstanding indebtedness in the amount of $190,000
payable to Jerry Mahoney, President and Chief Executive Officer of iVoice.
The note representing such obligation will bear interest at the rate of
prime plus 2.0% per annum on the unpaid balance until paid or until
default. Under the terms of the Promissory Note, at the option of the Note
holder, principal and interest can be converted into either (i) one Class
B common stock share of iVoice Technology, Inc., par value $.01, for each
dollar owed, (ii) the number of Class A common stock shares of iVoice
Technology, Inc. calculated by dividing (x) the sum of the principal and
interest that the Note holder has requested to have prepaid by (y) eighty
percent (80%) of the lowest issue price of iVoice Technology Class A
common stock since the first advance of funds under this Note, or (iii)
payment of the principal of this Note, before any repayment of interest.
F-38
NOTE 3.
The pro forma unaudited statement of operations for the year ended December 31,
2004 was prepared assuming the distribution occurred on January 1, 2003 and
includes "Pro Forma Adjustments" for transactions that would have occurred
subsequent to January 1, 2003 as follows:
a) $49,000 in administrative services provided by iVoice, Inc. pursuant to an
administrative service agreement between iVoice Technology and iVoice,
Inc.
b) $12,350 in interest at 6.5% per annum on $190,000 in outstanding amounts
due to a related party being assumed by iVoice Technology.
The pro forma unaudited statement of operations for the six months ended June
30, 2005 was prepared assuming the distribution occurred on January 1, 2003 and
includes "Pro Forma Adjustments" for transactions that would have occurred
subsequent to January 1, 2003 as follows:
a) $8,075 in interest at 8.5% per annum on $190,000 in outstanding amounts
due to a related party being assumed by iVoice Technology.
The pro forma unaudited statement of operations for the year ended December 31,
2003 was prepared assuming the distribution occurred on January 1, 2003 and
includes "Pro Forma Adjustments" for transactions that would have occurred
subsequent to January 1, 2003 as follows:
a) $84,000 in administrative services provided by iVoice, Inc. pursuant to an
administrative service agreement between iVoice Technology and iVoice,
Inc. The administrative services agreement sets forth charges generally
intended to allow the providing company to fully recover the allocated
direct costs of providing the services, plus all out-of-pocket costs and
expenses. In conjunction with the spin-off, iVoice Technology has entered
into a temporary administrative service agreement with iVoice. The
administrative services agreement will continue on a month to month basis
until iVoice Technology has found replacement services for those services
being provided by iVoice or can provide these services for itself.
b) $12,350 in interest at 6.5% per annum on $190,000 in outstanding amounts
due to a related party being assumed by iVoice Technology.
NOTE 4.
The average number of shares of iVoice Technology common stock used in the
computation of basic and diluted net income per share was 10,050,000 for the six
months ended June 30, 2005 and for the years ended December 31, 2004 and 2003,
based on a distribution ratio of one share of iVoice Technology Class A common
stock for every 988 shares of iVoice common stock. Since the Company is in a net
loss position, all common stock equivalents are considered anti-dilutive and are
therefore not included in the calculation of earnings per share.
F-39
======================================== ===================================
All dealers that effect transactions in
these securities, whether or not
participating in this offering may be
required to deliver a prospectus. This
is in addition to the dealers' iVoice Technology, Inc.
obligation to deliver a prospectus when
acting as underwriters and with respect
to their unsold allotments or 1,053,781,579 Shares of
subscription. The information contained Class A Common Stock
in this prospectus is current only as of
its date.
--------------------
--------------------
TABLE OF CONTENTS
Page [LOGO]
----
Prospectus Summary...............
Summary of the Distribution......
Summary Condensed Financial
Information.................... --------------------
Potential Dilution Due to
Conversion at Below Market
Price..........................
Risk Factors.....................
Cautionary Statement Regarding Date: ________, 2005
Forward-Looking Statements.....
Use of Proceeds..................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......
Our Business.....................
iVoice Technology's Management...
Certain Relationships and Related
Transactions...................
Principal Stockholders...........
Description of Securities .......
The Distribution.................
Federal Income Tax Consequences
of the Distribution............
Reasons for Furnishing this
Document.......................
Relationship between iVoice and
iVoice Technology following
the Distribution...............
Where You Can Find More Information
Index to Financial Statements....
======================================== ===================================
II-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
iVoice Technology's bylaws provide that it will indemnify a person who was
or is a party, or is threatened to be made a party, to any proceeding (other
than an action by or in the right of iVoice Technology) by reason of the fact
that such person is or was a director or an officer of iVoice Technology against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding if that person acted in
good faith and in a manner that that person reasonably believed to be in the
best interests of iVoice Technology and, in the case of a criminal proceeding,
had no reasonable cause to believe the conduct of that person was unlawful.
iVoice Technology's bylaws also provide that it will indemnify a person who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed action by or in the right of iVoice Technology to procure a
judgment in its favor by reason of the fact that said person is or was a
director or an officer of iVoice Technology against expenses actually and
reasonably incurred in connection with the defense or settlement of that action
if that person acted in good faith, in a manner that that person reasonably
believed to be in the best interests of iVoice Technology and with such care,
including reasonable inquiry, that such action would not be deemed grossly
negligent on the part of such person.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth estimated expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered. iVoice Technology will pay all expenses in connection with this
offering.
Securities and Exchange Commission Registration Fee $ 1,240
Printing and Engraving Expenses $ 25,000
Accounting Fees and Expenses $ 16,750
Legal Fees and Expenses $100,000
Miscellaneous $ 40,000
--------
TOTAL $182,990
========
Item 26. Recent Sales of Unregistered Securities
In August 2004, the Company entered into an agreement with Sloan
Securities Corporation for Sloan Securities to act as an agent for the private
placement of secured convertible debentures to Cornell Capital Partners, L.P.
Under the placement agent agreement, the Company agreed to issue to Sloan
Securities on or about the date of effectiveness of registration statement for
such securities a number of shares of Class A Common Stock equal to $10,000
divided by the closing bid price of the Class A Common Stock on the date of
effectiveness of the registration statement for such securities. On August 12
and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in
secured convertible debentures,
II-2
with interest payable at 5% per annum, to Cornell Capital Partners. The
debentures were convertible at the option of the holder only after the Company's
Class A Common Stock has commenced trading on the Over-the-Counter Bulletin
Board. Each of the debentures were convertible into shares of Class A Common
Stock at a price equal to the lesser of (a) an amount equal to one hundred
twenty percent (120%) of the initial bid price of the Class A Common Stock on
the date of effectiveness of the registration statement of which this prospectus
is a part or (b) an amount equal to eighty percent (80%) of the lowest closing
bid price of the Class A Common Stock for the five trading days immediately
preceding the conversion date. The secured convertible debentures had a term of
two years with all accrued interest due at the expiration of the term. At our
option, these debentures could be redeemed at a 20% premium prior to August 12,
2006. The secured convertible debentures were secured by a first priority
security interest in substantially all of the assets of iVoice Technology. On
February 28, 2005, the placement agent agreement with Sloan Securities was
terminated and the secured convertible debentures were terminated and replaced
by a promissory note in the amount of $700,000 ($560,000 representing
replacement notes and $140,000 representing new financing).
Effective August 12, 2004, iVoice Technology entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners to obtain an equity line of
credit. On February 28, 2005, iVoice Technology entered into a Termination
Agreement with Cornell Capital Partners, pursuant to which the equity line
transaction was terminated. In September 2005, iVoice Technology and Cornell
Capital entered into a Standby Equity Distribution Agreement whereby Cornell
Capital agreed has agreed, subject to satisfaction of certain conditions, to
purchase shares of iVoice Technology's common stock upon the terms set forth
therein. Pursuant to the terms of the Standby Equity Distribution Agreement,
iVoice Technology, subject to satisfaction of conditions, may issue and sell to
Cornell Capital Partners Class A Common Stock for a total purchase price of up
to $10.0 million. The purchase price for the shares would be equal to 95% of the
market price, which is defined as the lowest closing bid price of the Class A
Common Stock during the five trading days following the date that iVoice
Technology delivers to Cornell Capital Partners a notice requiring it to advance
funds to us. A cash fee equal to six percent (6%) of the cash proceeds of the
draw down would also be payable at the time of funding. In addition, Cornell
Capital Partners would receive, as additional compensation, the number of shares
of Class A Common Stock equal to one and one half percent (1.5%) of the number
of shares of Class A Common Stock outstanding on the date that the registration
statement in respect of the shares to be distributed pursuant to the equity line
of credit becomes effective.
In September 2005, the Company entered into a placement agent agreement
with Monitor Capital, Inc. Under the placement agent agreement, the Company
agreed to issue to Monitor Capital on or about the date of effectiveness of this
registration statement a number of shares equal to $10,000 divided by the
closing and bid price of our Class A common stock on the date of effectiveness
of this registration statement.
On August 5, 2005 iVoice Technology assumed from iVoice outstanding
indebtedness in the amount of $190,000 payable to Jerry Mahoney. This amount is
related to funds loaned to iVoice and unrelated to the operations of iVoice
Technology. iVoice Technology, for value received, will promise to pay to Mr.
Mahoney the principal sum of $190,000 that will bear interest at the prime rate
plus 2% per annum on the unpaid balance until paid or until default. Interest
payments will be due annually. All accrued interest becomes due
II-3
on the date of any payment of the promissory note representing such obligation.
At the time of default (if any) the interest rate shall increase to 20% until
the principal balance has been paid. Under the terms of the promissory note, at
the option of the note holder, principal and interest can be converted into
either (i) one share of Class B Common Stock of iVoice Technology, par value
$0.01, for each dollar owed, (ii) the number of shares of Class A Common Stock
of iVoice Technology calculated by dividing (x) the sum of the principal and
interest that the note holder has requested to have prepaid by (y) eighty
percent (80%) of the lowest issue price of Class A Common Stock since the first
advance of funds under this note, or (iii) payment of the principal of this
note, before any repayment of interest. iVoice Technology has yet to record this
liability on its financial statements, as this indebtedness was not assumed by
iVoice Technology until August 5, 2005
We relied upon the exemption provided in Section 4(2) of the Securities
Act and/or Rule 506 thereunder, which cover "transactions by an issuer not
involving any public offering," to issue securities discussed above without
registration under the Securities Act of 1933. iVoice Technology made a
determination in each case that the person to whom the securities were issued
did not need the protections that registration would afford. The certificates
representing the securities issued displayed a restrictive legend to prevent
transfer except in compliance with applicable laws, and our transfer agent was
instructed not to permit transfers unless directed to do so by iVoice
Technology, after approval by our legal counsel. iVoice Technology believes that
the investors to whom securities were issued had such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of the prospective investment. iVoice Technology also believes that the
investors had access to the same type of information as would be contained in a
registration statement.
Item 27. Exhibits
No. Description
- --- -----------
3.1 Amended and Restated Certificate of Incorporation of iVoice
Technology, Inc. (filed as Exhibit 3.1 to iVoice Technology, Inc.'s
Amendment No. 1 to Form SB-2 Registration Statement, File No.
333-120490, filed on January 11, 2005, and incorporated herein by
reference)
3.2 By-laws of iVoice Technology, Inc. (filed as Exhibit 3.2 to iVoice
Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration
Statement, File No. 333-120490, filed on January 11, 2005, and
incorporated herein by reference)
4.1 Form of iVoice Technology, Inc. 5% Secured Convertible Debenture due
August 12, 2006 issued to Cornell Capital Partners, LP (filed as
Exhibit 4.1 to iVoice Technology, Inc.'s Amendment No. 1 to Form
SB-2 Registration Statement, File No. 333-120490, filed on January
11, 2005, and incorporated herein by reference)
5.1* Opinion of Meritz & Muenz LLP
II-4
9.1 Voting Agreement, dated August 5, 2005, between Jerome Mahoney and
Mark Meller
9.2 Irrevocable Proxy of Mark Meller, dated August 5, 2005
10.1 Standby Equity Distribution Agreement, dated August 12, 2004,
between Cornell Capital Partners, LP and iVoice Technology, Inc.
(filed as Exhibit 10.1 to iVoice Technology, Inc.'s Amendment No. 1
to Form SB-2 Registration Statement, File No. 333-120490, filed on
January 11, 2005, and incorporated herein by reference)
10.2 Securities Purchase Agreement, dated August 12, 2004, between iVoice
Technology, Inc. and Cornell Capital Partners, LP. (filed as Exhibit
10.2 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2
Registration Statement, File No. 333-120490, filed on January 11,
2005, and incorporated herein by reference)
10.3 Escrow Agreement, dated August 12, 2004, between iVoice Technology,
Inc., Cornell Capital Partners, LP and Butler Gonzalez LLP (filed as
Exhibit 10.3 to iVoice Technology, Inc.'s Amendment No. 1 to Form
SB-2 Registration Statement, File No. 333-120490, filed on January
11, 2005, and incorporated herein by reference)
10.4 Registration Rights Agreement, dated August 12, 2004, between iVoice
Technology, Inc. and Cornell Capital Partners, LP (filed as Exhibit
10.4 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2
Registration Statement, File No. 333-120490, filed on January 11,
2005, and incorporated herein by reference)
10.5 Escrow Agreement, dated August 12, 2004, between iVoice Technology,
Inc., Cornell Capital Partners, LP. and Butler Gonzalez LLP (filed
as Exhibit 10.5 to iVoice Technology, Inc.'s Amendment No. 1 to Form
SB-2 Registration Statement, File No. 333-120490, filed on January
11, 2005, and incorporated herein by reference)
10.6 Investor Registration Rights Agreement, dated August 12, 2004,
between iVoice Technology, Inc. and Cornell Capital Partners, LP
(filed as Exhibit 10.6 to iVoice Technology, Inc.'s Amendment No. 1
to Form SB-2 Registration Statement, File No. 333-120490, filed on
January 11, 2005, and incorporated herein by reference)
10.7 Security Agreement, dated August 12, 2004, between iVoice
Technology, Inc. and Cornell Capital Partners, LP (filed as Exhibit
10.7 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2
Registration Statement, File No. 333-120490, filed on January 11,
2005, and incorporated herein by reference)
10.8 Placement Agent Agreement, dated August 12, 2004, between iVoice
Technology, Inc. and Sloan Securities Corporation (filed as Exhibit
10.8 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2
Registration Statement, File No. 333-120490, filed on January 11,
2005, and incorporated herein by reference)
II-5
10.9 Employment Agreement, dated as of August 1, 2004, between iVoice
Technology, Inc. and Jerome Mahoney (filed as Exhibit 10.9 to iVoice
Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration
Statement, File No. 333-120490, filed on April 7, 2005, and
incorporated herein by reference)
10.10 Employment Agreement, dated as of August 1, 2004, between iVoice
Technology, Inc. and Arie Seidler (filed as Exhibit 10.10 to iVoice
Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration
Statement, File No. 333-120490, filed on April 7, 2005, and
incorporated herein by reference)
10.11 Administrative Services Agreement, dated August 1, 2004, between
iVoice, Inc. and iVoice Technology, Inc. (filed as Exhibit 10.11 to
iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration
Statement, File No. 333-120490, filed on April 7, 2005, and
incorporated herein by reference)
10.12 Assignment and Assumption Agreement and Consent, dated November 11,
2004 between iVoice Technology, Inc. (Nevada) and iVoice Technology,
Inc. (New Jersey) (filed as Exhibit 10.12 to iVoice Technology,
Inc.'s Amendment No. 3 to Form SB-2 Registration Statement, File No.
333-120490, filed on June 24, 2005, and incorporated herein by
reference)
10.13 Corporate Contribution and General Conveyance Agreement, dated
August 5, 2005 between iVoice, Inc. and iVoice Technology, Inc.
10.14 [Intentionally Omitted.]
10.15 Waiver dated January 6, 2005 of Jerome Mahoney (filed as Exhibit
10.11 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2
Registration Statement, File No. 333-120490, filed on April 7, 2005,
and incorporated herein by reference)
10.16 Promissory Note from iVoice Technology, Inc. to Jerome Mahoney,
dated August 5, 2005
10.17 Termination Agreement, dated February 28, 2005, between Cornell
Capital Partners, LP and iVoice Technology, Inc., with respect to a
Securities Purchase Agreement, Convertible Debentures, Security
Agreement, Investor Registration Rights Agreement, an Escrow
Agreement and Irrevocable Transfer Agent Instructions, each dated
August 13, 2004 (filed as Exhibit 10.17 to iVoice Technology, Inc.'s
Amendment No. 2 to Form SB-2 Registration Statement, File No.
333-120490, filed on April 7, 2005, and incorporated herein by
reference)
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10.18 Termination Agreement, dated February 28, 2005, between Cornell
Capital Partners, LP and iVoice Technology, Inc., with respect to a
Standby Equity Distribution Agreement, Registration Rights
Agreement, Escrow Agreement and Placement Agent Agreement, each
dated August 13, 2004 (filed as Exhibit 10.18 to iVoice Technology,
Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No.
333-120490, filed on April 7, 2005, and incorporated herein by
reference)
10.19 Promissory Note, dated February 28, 2005, from iVoice Technology,
Inc. to Cornell Capital Partners, LP (filed as Exhibit 10.19 to
iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration
Statement, File No. 333-120490, filed on April 7, 2005, and
incorporated herein by reference)
10.20 Security Agreement, dated as of February 28, 2005, by and between
iVoice Technology, Inc. and Cornell Capital Partners, LP (filed as
Exhibit 10.20 to iVoice Technology, Inc.'s Amendment No. 2 to Form
SB-2 Registration Statement, File No. 333-120490, filed on April 7,
2005, and incorporated herein by reference)
10.21 Guaranty of Promissory Note, dated as of February 28, 2005, from
iVoice Technology, Inc. to Cornell Capital Partners, LP, made by
iVoice, Inc. in favor of Cornell Capital Partners, LP (filed as
Exhibit 10.21 to iVoice Technology, Inc.'s Amendment No. 2 to Form
SB-2 Registration Statement, File No. 333-120490, filed on April 7,
2005, and incorporated herein by reference)
10.22 Non-Binding Letter of Intent, dated March 9, 2005, between Cornell
Capital Partners, LP and iVoice Technology, Inc. (filed as Exhibit
10.22 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2
Registration Statement, File No. 333-120490, filed on April 7, 2005,
and incorporated herein by reference)
10.23 Amendment No. 1 to Employment Agreement, dated April 1, 2005,
between iVoice Technology, Inc. and Jerome Mahoney (filed as Exhibit
10.23 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2
Registration Statement, File No. 333-120490, filed on April 7, 2005,
and incorporated herein by reference)
10.24 Amendment No. 2 to Employment Agreement, dated June 15, 2005,
between iVoice Technology, Inc. and Jerome Mahoney (filed as Exhibit
10.24 to iVoice Technology, Inc.'s Amendment No. 3 to Form SB-2
Registration Statement, File No. 333-120490, filed on June 24, 2005,
and incorporated herein by reference)
10.25 Amendment No. 1 to Employment Agreement, dated June 15, 2005,
between iVoice Technology, Inc. and Arie Seidler (filed as Exhibit
10.25 to iVoice Technology, Inc.'s Amendment No. 4 to Form SB-2
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Registration Statement, File No. 333-120490, filed on July 28, 2005,
and incorporated herein by reference)
10.26 Amendment No. 3 to Employment Agreement, dated July 18, 2005,
between iVoice Technology, Inc. and Jerome Mahoney (filed as Exhibit
10.26 to iVoice Technology, Inc.'s Amendment No. 4 to Form SB-2
Registration Statement, File No. 333-120490, filed on July 28, 2005,
and incorporated herein by reference)
10.27 Amendment No. 2 to Employment Agreement, dated August 12, 2005,
between iVoice Technology, Inc. and Arie Seidler
10.28 Employment Agreement, dated August 29, 2005, between iVoice
Technology, Inc. and Mark Meller (filed as Exhibit 10.2 to iVoice
Technology, Inc.'s Current Report on Form 8-K, filed on August 29,
2005, and incorporated herein by reference)
10.29 Standby Equity Distribution Agreement, dated September 2, 2005,
between Cornell Capital Partners, LP and iVoice Technology, Inc.
(filed as Exhibit 10.1 to iVoice Technology, Inc.'s Current Report
on Form 8-K, filed on September 30, 2005, and incorporated herein by
reference)
10.30 Escrow Agreement, dated September 22, 2005, between iVoice
Technology, Inc., Cornell Capital Partners, LP. and [David Gonzalez,
Esq.] (filed as Exhibit 10.4 to iVoice Technology, Inc.'s Current
Report on Form 8-K, filed on September 30, 2005, and incorporated
herein by reference)
10.31 Placement Agent Agreement, dated September 22, 2005, between iVoice
Technology, Inc. and Monitor Capital Inc. (filed as Exhibit 10.3 to
iVoice Technology, Inc.'s Current Report on Form 8-K, filed on
September 30, 2005, and incorporated herein by reference)
10.32 Registration Rights Agreement, dated September 22, 2005, between
iVoice Technology, Inc. and Cornell Capital Partners, LP (filed as
Exhibit 10.2 to iVoice Technology, Inc.'s Current Report on Form
8-K, filed on September 30, 2005, and incorporated herein by
reference)
10.33 Amendment No. 4 to Employment Agreement, dated September 29, 2005,
between iVoice Technology, Inc. and Jerome Mahoney
10.34 Amendment No. 1 to Employment Agreement, dated September 29, 2005,
between iVoice Technology, Inc. and Mark Meller
16 Letter of Mendlowitz Weitsen, LLP, dated May 27, 2005, with respect
to the change in the Company's principal accountants (filed as
Exhibit 16 to iVoice Technology, Inc.'s Amendment No. 3 to Form SB-2
Registration Statement, File No. 333-120490, filed on June 24, 2005,
and incorporated herein by reference)
23.1 Consent of Bagell, Josephs & Company, L.L.C.
23.2* Consent of Meritz & Muenz LLP
* To be filed by amendment.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
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(i) Include any prospectus required by Sections 10(a)(3) of the
Securities Act of 1933 (the "Act");
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information on the
plan of distribution;
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, on October 3, 2005.
IVOICE TECHNOLOGY, INC.
By: /s/ Mark Meller
---------------------------------------
Name: Mark Meller
Title: President, Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
Non-Executive Chairman of October 3, 2005
- ---------------------------- the Board
Jerome R. Mahoney
President (Principal October 3, 2005
- ---------------------------- Executive Officer), Chief
Mark Meller Executive Officer (Principal
Accounting Officer) and
Chief Financial Officer
Director October 3, 2005
- ----------------------------
Frank V. Esser
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