-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UqtbBC/en8vHf8mx3A1Ib0V6k9POKhrN+UaUfcr9GlqUjxl4DcEeMue/rLXT9Dz3 GjOKjLxVHOCyrWQbR6zAzA== 0000922423-05-000569.txt : 20060914 0000922423-05-000569.hdr.sgml : 20060914 20050407172242 ACCESSION NUMBER: 0000922423-05-000569 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20050407 DATE AS OF CHANGE: 20050805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: iVoice Technology, Inc. CENTRAL INDEX KEY: 0001307969 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 201862731 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-120490 FILM NUMBER: 05739933 BUSINESS ADDRESS: STREET 1: 750 HIGHWAY 34 CITY: MATAWAN STATE: NJ ZIP: 07747 BUSINESS PHONE: 732-441-7700 MAIL ADDRESS: STREET 1: 750 HIGHWAY 34 CITY: MATAWAN STATE: NJ ZIP: 07747 SB-2/A 1 kl00336_sb2-a.txt FORM SB-2 AMENDMENT NO. 2 As filed with the Securities and Exchange Commission on April 7, 2005 Registration No. 333-120490 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- AMENDMENT NO. 2 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- IVOICE TECHNOLOGY, INC. (Name of Small Business Issuer in Its Charter) New Jersey 7373 20-1862731 (State or Other Jurisdiction (Primary Standard (I.R.S. Employer of Incorporation or Industrial Identification No.) Organization) Classification Code Number) 750 Highway 34 Matawan, New Jersey 07747 (732) 441-7700 (Address and telephone number of Principal Executive Offices and Principal Place of Business) Jerome R. Mahoney 750 Highway 34 Matawan, New Jersey 07747 (732) 441-7700 (Name, address and telephone number of agent for service) with copies to: Scott Rosenblum, Esq. Kramer Levin Naftalis & Frankel LLP 919 Third Avenue New York, New York 10022 (212) 715-9100 Telecopier: (212) 715-8000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| ---------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated April 7, 2005 iVoice Technology, Inc. 10,050,000 Shares of Class A Common Stock This prospectus relates to the distribution by dividend to all of the stockholders of iVoice, Inc. of up to 10,000,000 shares of iVoice Technology, Inc. Class A Common Stock (the "Distribution"). iVoice Technology is not selling any shares of Class A Common Stock in this offering and therefore will not receive any proceeds from this offering. All costs associated with this registration will be borne by iVoice Technology. iVoice Technology is currently a wholly-owned subsidiary of iVoice, Inc. and after the Distribution iVoice Technology will be an independent public company. Holders of iVoice common stock, other than affiliates of iVoice, Inc., will receive one share of iVoice Technology Class A Common Stock for every ____ shares of iVoice common stock that they hold. Holders of less than ____ shares of iVoice common stock will receive one share of iVoice Technology Class A Common Stock. Following the Distribution, 100% of the outstanding iVoice Technology Class A Common Stock will be held by non-affiliates of iVoice Technology or iVoice, Inc. and 100% of the outstanding iVoice Technology Class B Common Stock (including securities convertible into such shares) will be beneficially owned by affiliates of iVoice Technology or iVoice, Inc. No such affiliates will receive shares of iVoice Technology Class A Common Stock in the Distribution. Currently, no public market exists for iVoice Technology Class A Common Stock. These Securities are speculative and involve a high degree of risk. Please refer to "Risk Factors" beginning on page 12. No underwriter or person has been engaged to facilitate the Distribution in this offering. The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is ___________, 2005. TABLE OF CONTENTS Page ---- PROSPECTUS SUMMARY..........................................................2 SUMMARY OF THE DISTRIBUTION.................................................4 SUMMARY CONDENSED FINANCIAL INFORMATION....................................10 POTENTIAL DILUTION DUE TO CONVERSION AT BELOW MARKET PRICE.................11 RISK FACTORS...............................................................12 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS..................27 USE OF PROCEEDS............................................................28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................28 OUR BUSINESS...............................................................38 IVOICE TECHNOLOGY'S MANAGEMENT.............................................44 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................47 PRINCIPAL STOCKHOLDERS.....................................................50 DESCRIPTION OF SECURITIES..................................................51 THE DISTRIBUTION...........................................................53 FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION........................59 REASONS FOR FURNISHING THIS DOCUMENT.......................................60 RELATIONSHIP BETWEEN IVOICE AND IVOICE TECHNOLOGY FOLLOWING THE DISTRIBUTION.........................................................60 WHERE YOU CAN FIND MORE INFORMATION........................................61 PART II INFORMATION NOT REQUIRED IN PROSPECTUS..........................II-1 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. As such, iVoice Technology's business will be formed from the contribution by iVoice of certain assets and related liabilities on or about the effective date of the registration statement of which this prospectus is a part. In connection with a reorganization of iVoice, immediately prior to the Distribution, iVoice will transfer to iVoice Technology its Interactive Voice Response (IVR) software business and related liabilities, including all intellectual property of iVoice relating to the IVR software business. Following the Distribution, iVoice Technology will own and operate iVoice's IVR. Concurrently with the Distribution, iVoice intends to contribute the majority of its remaining business lines into two new companies and intends to distribute the stock of those two companies to its stockholders. iVoice will retain cash assets of approximately $6.7 million, no part of which will be transferred to iVoice Technology. Following the Distribution and the two other distributions, iVoice's operating assets will consist of its iVoiceMail software and its portfolio of patents and patent rights, and its future business development operations will consist of licensing its intellectual property rights. iVoice Technology will be a development stage company following the Distribution. Following the Distribution, iVoice Technology may seek to expand its operations through additional sales and marketing activity and the acquisition of additional businesses. Any potential acquired additional businesses may be outside the current field of operations of iVoice Technology. iVoice Technology may not be able to identify, successfully integrate or profitably manage any such businesses or operations. Currently, iVoice Technology has no plans, proposals or arrangements, either orally or in writing, regarding any proposed acquisitions and is not considering any potential acquisitions. iVoice Technology intends to continue to develop, market and license the IVR line of computerized telephony software. The IVR software is designed to enable a caller to obtain requested information in voice form from a local or non-local database and allow information in PC databases to be accessed from a standard touch-tone telephone using a telephone keypad or voice command. In September 2004, iVoice announced its intention to distribute iVoice Technology Class A Common Stock to its stockholders and to contribute to iVoice Technology its IVR business upon the effectiveness of required Securities Exchange Commission filings and final approval by the Board of Directors of the terms and conditions of the Distribution. The board of directors and management of iVoice believe that the Distribution is in the best interests of iVoice and its stockholders. iVoice believes that the Distribution will enhance value for iVoice stockholders and that the spin off of the IVR business into iVoice Technology 2 has provided greater access to capital by allowing the financial community to focus solely on iVoice Technology and its IVR software business as a stand alone company. In determining the terms of the spin off of the IVR business and the Distribution, the board considered the ability of iVoice to satisfy its working capital needs as a whole as against the ability of the IVR business to satisfy its capital needs as a stand alone company. iVoice's present plan, which is subject to change, is to become a technology licensing company, and, in order to effectuate that business plan, iVoice would need to significantly expand its research and development and hire different types of personnel. In addition, the iVoice board believed that, as a result of each company's business plan, the IVR business as a stand-alone company would more easily be able to obtain financing from third parties than iVoice would. After considering these issues and the relative working capital needs of iVoice and iVoice Technology, the iVoice board elected not to transfer any part of the current cash balance of iVoice to iVoice Technology. Prior to and after the Distribution, members of the Board of Directors and management of iVoice and iVoice Technology have had and will have a variety of conflicts of interest, as Mr. Jerome Mahoney, the Chairman of the Board of iVoice Technology, will also continue to serve as the Chairman of the Board and Chief Executive Officer of iVoice. In addition, following the Distribution, Mr. Mahoney will own iVoice shares and have the right to convert $190,000 (plus accrued and unpaid interest) of indebtedness into 190,000 shares (plus shares attributable to conversion of accrued and unpaid interest) of iVoice Technology Class B Common Stock which is convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price at which iVoice had ever issued its Class A Common Stock. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. See "Potential Dilution Due to Conversion at Below Market Price." Each share of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. For example, if Mr. Mahoney converts his indebtedness into 190,000 shares of Class B Common Stock, he will have voting rights equal to 19,000,000 shares of Class A Common Stock and will have control over the management and direction of iVoice Technology, including the election of directors, appointment of management and approval of actions requiring the approval of stockholders. In addition, Mr. Mahoney may be deemed to receive personal benefit as a result of the creation of iVoice Technology and the Distribution. This relationship could create, or appear to create, potential conflicts of interest when iVoice Technology's directors and management are faced with decisions that could have different implications for iVoice Technology and iVoice. On August 12 and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in secured convertible debentures, with interest payable at 5% per annum, to Cornell Capital Partners L.P. The debentures were convertible at the option of the holder only after our Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. On February 28, 2005, iVoice Technology's obligations under the secured convertible debentures were terminated and replaced with secured promissory notes of the same principal amount, which notes accrue interest at rate of 12% per annum, but are not convertible into any equity security of iVoice Technology. On February 28, 2005, iVoice Technology borrowed an additional $140,000 pursuant to an additional promissory note payable to Cornell Capital Partners. In connection with the issuances of the secured convertible debentures, iVoice Technology paid a fee to Cornell Capital Partners equal to 10% of the aggregate principal 3 amount of the debentures. When the secured convertible debentures were terminated, iVoice Technology received a credit for fees that would otherwise have been payable upon the issuance of the $560,000 in replacement notes. iVoice Technology paid Cornell Capital a fee of $14,000 in connection with its $140,000 borrowing. iVoice Technology's obligations under the secured promissory notes issued to Cornell Capital Partners are secured by a first priority security interest in substantially all of its assets. iVoice has also guaranteed the payment of all amounts payable by iVoice Technology pursuant to the secured promissory notes. Why iVoice Sent This Document To You iVoice, Inc. sent you this document because you were an owner of iVoice common stock on the record date. This entitles you to receive a distribution of one share of Class A Common Stock of iVoice Technology, Inc., which is currently a wholly-owned subsidiary of iVoice, for every ____ iVoice shares you owned on that date. No action is required on your part to participate in the Distribution and you do not have to pay cash or other consideration to receive your iVoice Technology shares. This document describes iVoice Technology's business, the relationship between iVoice and iVoice Technology, and how this transaction benefits iVoice and its stockholders, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of the shares of iVoice Technology stock that you will receive in the Distribution. You should be aware of certain risks relating to the Distribution and iVoice Technology's businesses, which are described in this document beginning on page 12. About Us iVoice Technology was incorporated in New Jersey on November 10, 2004 as a wholly-owned subsidiary of iVoice, Inc. iVoice Technology received by assignment all of the interests in and rights and title to, and assumed all of the obligations of, all of the agreements, contracts, understandings and other instruments of iVoice Technology, Inc., a Nevada corporation and affiliate of iVoice Technology. These agreements, contracts, understandings and other instruments consisted of financing documentation, employment agreements and an administrative services agreement with iVoice. Since this assignment, iVoice Technology Nevada has no operating business, assets or known liabilities, and is currently in the process of being dissolved. When we refer to or describe any agreement, contract or other written instrument of iVoice Technology in this prospectus, we are referring to an agreement, contract or other written instrument that had been entered into by iVoice Technology Nevada and assigned to iVoice Technology. Our principal office is located at 750 Highway 34, Matawan, New Jersey 07747. Our telephone number is (732) 441-7700. We will be setting up a company website, which will be located at www.ivoicetechnologies.com. SUMMARY OF THE DISTRIBUTION Distributing Company iVoice, Inc., a New Jersey corporation. As used in this prospectus, the term iVoice includes iVoice, Inc. and its wholly-owned and majority-owned subsidiaries, other than the 4 Company, as of the relevant date, unless the context otherwise requires. Distributed Company iVoice Technology, Inc., a New Jersey corporation. As used in this prospectus, the terms iVoice Technology, the Company, we, our, us and similar terms mean iVoice Technology, Inc., as of the relevant date, unless the context otherwise requires. iVoice Technology Shares iVoice will distribute to iVoice stockholders an to be Distributed aggregate of approximately 10,000,000 shares of Class A Common Stock, no par value per share, of iVoice Technology. Mr. Mahoney has agreed to forego receiving any shares of iVoice Technology Class A Common Stock that he is or would be entitled to receive in the Distribution by virtue of his ownership of either iVoice Class A Common Stock or iVoice Class B Common Stock. Based on approximately _________ iVoice shares outstanding on the Record Date, as defined below, and approximately ____ iVoice shares outstanding on the Record Date that will actually participate in the Distribution, one share of iVoice Technology Class A Common Stock will be distributed for approximately every ____ shares of iVoice common stock outstanding on the Record Date. iVoice Technology currently has 100 shares of Class A Common Stock outstanding. A 100,000-for-one stock split will be accomplished by means of a stock dividend and will be effectuated immediately prior to the effective date of this registration statement. The shares of iVoice Technology Class A Common Stock to be distributed will constitute 100% of the iVoice Technology Class A Common Stock outstanding after the Distribution. Immediately following the Distribution, iVoice and its subsidiaries will not own any shares of iVoice Technology Class A Common Stock and iVoice Technology will be an independent public company. Record Date If you own iVoice shares at the close of business on ___________, 2005 (the "Record Date"), then you will receive iVoice Technology Class A Common Stock in the Distribution. If you own fewer than ____ iVoice shares on the Record Date, then you will receive one share of iVoice Technology Class A Common Stock. 5 Distribution Date We currently anticipate that the Distribution will occur shortly after the effective date of the registration statement. If you are a record holder of iVoice stock, instead of physical stock certificates you will receive from iVoice Technology's transfer agent shortly after the effective date of the registration statement a statement of your book entry account for the shares of iVoice Technology Class A Common Stock distributed to you. If you are not a record holder of iVoice stock because such shares are held on your behalf by your stockbroker or other nominee, your iVoice Technology Class A Common Stock should be credited to your account with your stockbroker or other nominee after the effective date of the registration statement. Following the Distribution, you may request physical stock certificates if you wish, and instructions for making that request will be furnished with your account statement. Distribution On the Distribution Date, the distribution agent identified below will begin distributing certificates representing our Class A Common Stock to iVoice stockholders that have requested physical certificates. You will not be required to make any payment or take any other action to receive your shares of our Class A Common Stock. The distributed shares of our Class A Common Stock will be freely transferable unless you are issued shares in respect of restricted shares of iVoice common stock. Distribution Ratio iVoice will distribute to iVoice stockholders an aggregate of approximately 10,000,000 shares of Class A Common Stock of iVoice Technology, based on approximately _____ iVoice shares outstanding on the record date. Mr. Mahoney has agreed to forego receiving any shares of iVoice Technology Class A Common Stock that he is or would be entitled to receive in the Distribution by virtue of his ownership of either iVoice Class A Common Stock or iVoice Class B Common Stock. The actual number of iVoice shares outstanding on the record date that will participate in the Distribution is ________. Therefore, for every ____ shares of iVoice common stock that you own of record on ________, 2005, you will receive one share of iVoice Technology Class A Common Stock. The Distribution ratio is subject to change depending upon the number of outstanding shares of iVoice common stock on the Record Date. If you own fewer than ____ shares of iVoice common stock, you will receive one share of iVoice Technology Class A Common Stock in the Distribution. iVoice shareholders are not receiving shares of iVoice Technology Class A Common Stock on a one-for-one basis because iVoice Technology's management has determined that a more modest capital structure and fewer outstanding shares of common stock would be more beneficial for stockholders. 6 Distribution Agent Fidelity Transfer Company. Their address is 1800 South West Temple, Suite 301, Salt Lake City, Utah 84115. Their telephone number is (801) 484-7222. Transfer Agent and Fidelity Transfer Company. Their address is 1800 Registrar for the iVoice South West Temple, Suite 301, Salt Lake City, Utah Technology Shares 84115. Their telephone number is (801) 484-7222. Fractional Shares of Our iVoice will not distribute any fractional shares of Common Stock iVoice Technology Class A Common Stock. In lieu of distributing a fraction of a share of our Class A Common Stock to any iVoice stockholder, fractional shares will be rounded up to the next higher whole number of shares. Trading Market We anticipate that our Class A Common Stock will be traded on the Over-the-Counter Bulletin Board under the proposed symbol "____." We expect that a market maker will apply for quotation on the Over-the-Counter Bulletin Board on our behalf prior to the Distribution. No public trading market for our Class A Common Stock currently exists. However, a trading market for the entitlement to receive shares of our Class A Common Stock in the distribution, referred to as a when-issued market, may develop on or after the record date for the distribution. Dividend Policy iVoice has not paid cash dividends in the past, and we anticipate that following the Distribution neither iVoice Technology nor iVoice will pay cash dividends. However, no formal action has been taken with respect to future dividends, and the declaration and payment of dividends by iVoice Technology and iVoice will be at the sole discretion of their respective boards of directors. Risk Factors The distribution and ownership of our Class A Common Stock involve various risks. You should read carefully the factors discussed under "Risk Factors" beginning on page 12. Several of the most significant risks of the Distribution include: o The Distribution may cause the trading price of iVoice Common Stock to decline. o Substantial sales of shares of iVoice Technology Class A Common Stock may have an adverse impact on the trading price of our Class A Common Stock. 7 o There has not been a prior trading market for iVoice Technology Class A Common Stock and a trading market for our Class A Common Stock may not develop. o The Distribution of iVoice Technology Class A Common Stock may result in tax liability to you. o iVoice has in the past, and iVoice Technology may in the future, sell or issue unregistered convertible securities which are convertible into common shares of iVoice Technology, without limitations on the number of common shares the securities are convertible into, which could dilute the value of your holdings and could have other negative impacts on your investment. Federal Income Tax iVoice and iVoice Technology do not intend for the Consequences Distribution to be tax-free for U.S. federal income tax purposes. You will be required to pay income tax on the value of your shares of iVoice Technology Class A Common Stock received to the extent of the current or accumulated earnings and profits of iVoice. You are advised to consult your own tax advisor as to the specific tax consequences of the Distribution. Our Relationship with Prior to the Distribution, iVoice and iVoice iVoice After the Technology have entered or will enter into Distribution agreements to transfer to iVoice Technology selected assets and liabilities of iVoice related to iVoice Technology's business and to make arrangements for the Distribution. iVoice and iVoice Technology have entered into an administrative services agreement for the provision of certain services by iVoice to iVoice Technology following the Distribution. The administrative services agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. Following termination of the administrative services agreement, we expect that iVoice Technology will operate on a completely stand-alone basis from iVoice and there will be no business or operating relationship between iVoice and iVoice Technology. See "Certain Relationships and Related Transactions." In addition, after the Distribution, we anticipate that one of iVoice Technology's two directors will also be a director of iVoice. After the Distribution, any arrangements with iVoice that may occur will not be deemed to be on an "arms-length" basis because of the relationships between the boards of directors and executive officers of iVoice Technology and iVoice, but we will seek to establish terms and conditions at least as favorable as those that could be obtained from an independent third party. 8 Board of Directors of After the Distribution, iVoice Technology is iVoice Technology expected to have an initial board of two directors. The initial directors will serve one-year terms. Jerome R. Mahoney and Arie Seidler have been identified to serve on the initial board. Jerome R. Mahoney expects to remain on iVoice's board following the Distribution Date. Management of iVoice Mr. Mahoney will serve as Chairman of the Board of Technology iVoice Technology and will continue to serve as Chairman of the Board and Chief Executive Officer of iVoice, and Arie Seidler will serve as President and Chief Executive Officer of iVoice Technology. Mr. Mahoney will not provide services to iVoice Technology on a full-time basis; Mr. Seidler will devote substantially all of his time to iVoice Technology. Conflicts of Interest After the Distribution, Mr. Mahoney, the Chairman of the Board of iVoice Technology, will continue to serve as the Chairman of the Board and Chief Executive Officer of iVoice. Further, Mr. Mahoney will own both iVoice shares and have the right to convert $190,000 of indebtedness (plus the amount of accrued and unpaid interest on such indebtedness) into more than 190,000 shares of iVoice Technology Class B Common Stock which is convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price at which iVoice had ever issued its Class A Common Stock. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. See "Potential Dilution Due to Conversion at Below Market Price." Each share of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. For example, if Mr. Mahoney converts $190,000 of indebtedness into 190,000 shares of Class B Common Stock, he will have voting rights equal to 19,000,000 shares of Class A Common Stock and will have control over the management and direction of iVoice Technology, including the election of directors, appointment of management and approval of actions requiring the approval of stockholders. In addition, Mr. Mahoney may be deemed to receive personal benefit as a result of the creation of iVoice Technology and the Distribution. This relationship could create, or appear to create, potential conflicts of interest when iVoice Technology's directors and management are faced with decisions that have different implications for iVoice Technology and iVoice, such as potential business acquisitions 9 to be made by iVoice Technology or disputes arising out of any agreements between the two companies. iVoice Technology does not have any formal procedure in place for resolving such conflicts of interest which may arise in the future. Certain Anti-takeover Some of the provisions of iVoice Technology's Effects certificate of incorporation and bylaws may have the effect of making the acquisition of control of iVoice Technology in a transaction not approved by iVoice Technology's board of directors more difficult. Stockholder Inquiries Any persons having inquiries relating to the Distribution should contact the Shareholder Services department of the distribution agent at (801) 484-7222 or iVoice Technology, in writing at iVoice Technology, Inc., 750 Highway 34, Matawan, NJ 07747 Attention: Investor Relations, or by email at information@ivoice.com, or by telephone at (732) 441-7700. SUMMARY CONDENSED FINANCIAL INFORMATION The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the company as a going concern. iVoice Technology has traditionally operated as a non-reporting component of iVoice and accordingly these financial statements have been derived from the consolidated financial statements and accounting records of iVoice, and reflect significant assumptions and allocations. iVoice allocated operating costs to iVoice Technology. These allocations are reflected in the selling, general and administrative, cost of revenue and/or research and development line items in our statements of operations. The general corporate expense allocation is primarily for cash management, selling expense, legal, accounting, tax, insurance, public relations, advertising, and human resources. Other general categories of operating expense, as well as other income and expense, have been allocated to iVoice Technology by iVoice based upon a ratio of revenue of iVoice Technology over total iVoice revenue for the applicable periods. Management believes that although the financial information was prepared on a pro forma basis, the cost of these services charged are a reasonable representation of the costs that would have been incurred if iVoice Technology had performed these functions as a stand-alone company. iVoice Technology relies on iVoice for administrative and other services. These financial statements do not necessarily reflect the financial position, results of operations, and cash flows of iVoice Technology had it been a stand-alone company. For the For the Year Ended Year Ended December 31, 2004 December 31, 2003 ----------------- ----------------- Statement of Operation Data: - ------------------------------------------------------------------------------- Sales $239,114 $303,756 - ------------------------------------------------------------------------------- Cost of sales 72,870 123,091 - ------------------------------------------------------------------------------- Gross profit 166,244 180,665 - ------------------------------------------------------------------------------- Selling, general, and administrative expenses 863,456 965,341 - ------------------------------------------------------------------------------- 10 For the For the Year Ended Year Ended December 31, 2004 December 31, 2003 ----------------- ----------------- Loss from operations (697,212) (784,676) - ------------------------------------------------------------------------------- Net Loss (1,478,127) (1,131,420) - ------------------------------------------------------------------------------- December 31, 2004 December 31, 2003 ----------------- ----------------- Balance Sheet Data: - ----------------------------------------------------- --------------------- Current Assets $378,332 $52,077 - ----------------------------------------------------- --------------------- Intangibles -- 45,400 - ----------------------------------------------------- --------------------- Liabilities 623,747 23,662 - ----------------------------------------------------- --------------------- Stockholders' equity (deficiency) (240,678) 73,815 - ------------------------------------------------------------------------------- POTENTIAL DILUTION DUE TO CONVERSION AT BELOW MARKET PRICE The net tangible book value of iVoice Technology as of December 31, 2004 was ($240,678) or ($2,406.78) per share of Class A Common Stock. Net tangible book value per share is determined by dividing the tangible book value of iVoice Technology (total tangible assets less total liabilities) by the number of outstanding shares of our common stock. Since no proceeds from this offering will be paid to iVoice Technology, our net tangible book value will be unaffected by this offering. Our net tangible book value, however, will be impacted if and when common stock is issued under the proposed equity line of credit. The amount of dilution will depend on the offering price and number of shares to be issued under the equity line of credit. The following example shows the dilution to new investors at an offering price of $0.01 per share. If we assume that iVoice Technology will issue 1,052,631,579 shares of Class A Common Stock under its proposed equity line of credit at an assumed offering price of $0.01 per share (i.e., the maximum number of shares needed in order to raise a total of $10.0 million under the equity line of credit, excluding the commitment fee), less a retention fee of $600,000, offering expenses of $213,500, and repayment of the promissory note, our net tangible book value as of December 31, 2004 would have been $8,485,822 or $0.00788 per share. Such an offering would represent an immediate increase in net tangible book value to existing stockholders of $2,406.78788 per share and an immediate dilution to new stockholders of $0.00212 per share, or 21.2%. The following table illustrates the per share dilution: Assumed public offering price per share $ 0.01000 Net tangible book value per share before this offering ($2,406.78000) Increase attributable to new investors $2,406.78788 ------------ Net tangible book value per share after this offering $ 0.00788 Dilution per share to new stockholders $ 0.00212 =========== The conversion price of our Class A Common Stock is based on the then-existing market price. In order to provide you an example of the dilution per share you may experience, we have prepared the following table showing the dilution per share at various assumed market prices (assuming that Mr. Mahoney converts $190,000 of indebtedness): 11 Assumed Market No. of Shares to Dilution per Share Price be issued (1) to New Investors --------------- ---------------- ------------------ $0.0100 19,000,000 $0.00212 $0.0075 25,333,333 $0.00159 $0.0050 38,000,000 $0.00106 $0.0025 76,000,000 $0.00053 RISK FACTORS You should carefully consider each of the following risk factors and all of the other information in this information statement. The following risks relate principally to the Distribution and iVoice Technology's business. If any of the following risks and uncertainties develops into actual events, the business, financial condition or results of operations of iVoice Technology could be materially adversely affected. If that happens, the trading prices of iVoice Technology shares could decline significantly. The risk factors below contain forward-looking statements regarding the Distribution and iVoice Technology. Actual results could differ materially from those set forth in the forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements" below. Risks Related to Our Business iVoice Technology will face many of the difficulties that companies in the early stage may face. As a result of the Company's limited operating history, the currently difficult economic conditions of the telecommunications marketplace and the emerging nature of the interactive voice response industry, it may be difficult for you to assess our growth and earnings potential. The Company believes that due primarily to the relatively brief time IVR has been available to the general public, there has not yet been developed, implemented and demonstrated a commercially viable business model from which to successfully operate any form of business that relies on the products and services that we intend to market, sell, and distribute. Therefore, we have faced many of the difficulties that companies in the early stages of their development in new and evolving markets often face, as they are described herein. We may continue to face these difficulties in the future, some of which may be beyond our control. If we are unable to successfully address these problems, our future growth and earnings will be negatively affected. iVoice Technology has no operating history as an independent public company and may be unable to operate profitably as a stand-alone company. Although iVoice has operated as a reporting public company since 2000 and has sold computerized telephony software since 1997, iVoice Technology does not have an operating history as an independent public company. Historically, since the businesses that comprise each of iVoice Technology and iVoice have been under one ultimate parent, they have been able to rely, to some degree, on the earnings, assets, and cash flow of each other for capital requirements. After the Distribution, iVoice Technology will be able to rely only on the IVR 12 software business for such requirements. iVoice has operated the IVR software business since the fourth quarter of 1999. The IVR software business has operated at a loss in the past for iVoice, and as an independent company such losses may continue or increase. Additionally, iVoice Technology's business has relied on iVoice for financial, administrative and managerial expertise in conducting its operations. Following the Distribution, iVoice Technology will maintain its own credit and banking relationships and perform its own financial and investor relations functions. iVoice Technology may not be able to successfully put in place the financial, administrative and managerial structure necessary to operate as an independent public company, and the development of such structure will require a significant amount of management's time and other resources. iVoice's operations demonstrate a history of net losses and cash flow shortfalls and iVoice Technology's likely will as well. iVoice, of which iVoice Technology was a part, has incurred recurring operating losses. iVoice used cash in operations of approximately $1,213,000 and $1,142,000 during the years ended December 31, 2004 and 2003, respectively, and has a history of net losses. iVoice had a cash balance of approximately $8,000,000 and $4,500,000 at December 31, 2004 and 2003, respectively, and current assets exceeded current liabilities by approximately $5,100,000 and $3,200,000 at December 31, 2004 and 2003, respectively. iVoice had stockholders' equity of approximately $5,400,000 and $3,400,000 at December 31, 2004 and 2003, respectively. The IVR software business had net losses of approximately $1,478,000 and $1,131,000 for the years ended December 31, 2004 and 2003, respectively, and cash used in operations of approximately $1,372,000 and $927,000 during the years ended December 31, 2004 and 2003, respectively. iVoice has been and may, in the future, be dependent upon outside and related party financing to develop and market their software products, perform their business development activities, and provide for ongoing working capital requirements. During the year ended December 31, 2004, substantially all of this financing has been provided by iVoice, Inc and Cornell Capital Partners. There can be no assurance that iVoice Technology will have operations separately that fare any better than those of iVoice. Our historical information has limited relevance to our results of operations as a separate company. The historical financial information we have included in this prospectus does not reflect what our results of operations, financial position and cash flows would have been had we been a separate, stand-alone entity during the periods presented or what our results of operations, financial position and cash flows will be in the future. This is because iVoice did not account for us as, and we were not operated as, a single stand-alone business for the periods presented. For more information about the preparation of our financial statements from the financial statements of iVoice, see "Summary Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 13 iVoice Technology has received a going concern opinion from its independent auditors that describes the uncertainty regarding its ability to continue as a going concern. iVoice Technology has received a report from its independent auditors for the fiscal years ended December 31, 2004 and December 31, 2003 containing an explanatory paragraph that describes the uncertainty regarding the Company's ability to continue as a going concern due to its historical negative cash flow and because, as of the date of the auditors' opinion, the Company did not have access to sufficient committed capital to meet its projected operating needs for at least the next 12 months. Our consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have not made any adjustments to our consolidated financial statements as a result of the going concern modification to the report of our independent registered public accounting firm. If we become unable to continue as a going concern, we could have to liquidate our assets, which means that we are likely to receive significantly less for those assets than the values at which such assets are carried on our consolidated financial statements. Any shortfall in the proceeds from the liquidation of our assets would directly reduce the amounts, if any, that holders of our common stock could receive in liquidation. There can be no assurance that management's plans will be successful, and other unforeseeable actions may become necessary. Any inability to raise capital may require us to reduce the level of our operations. Such actions would have a material adverse effect on us, our business and operations and result in charges that would be material to our business and results of operations. iVoice Technology's future revenue and operating results are unpredictable and may fluctuate, which could cause iVoice Technology's stock price to decline. Our short operating history and the rapidly changing nature of the market in which we compete make it difficult to accurately forecast our revenues and operating results. Our operating results are unpredictable and we expect them to fluctuate in the future due to a number of factors. These factors may include, among others: o the timing of sales of our products and services, particularly in light of our minimal sales history; o the introduction of competitive products by existing or new competitors; o reduced demand for any given product; o difficulty in keeping current with changing technologies; o unexpected delays in introducing new products, new product features and services; o increased or uneven expenses, whether related to sales and marketing, product development or administration; 14 o deferral of recognition of our revenue in accordance with applicable accounting principles due to the time required to complete projects; o the mix of product license and services revenue; o seasonality in the end-of-period buying patterns of foreign and domestic software markets; o the market's transition between operating systems; and o costs related to possible acquisitions of technology or businesses. Due to these factors, forecasts may not be achieved, either because expected revenues do not occur or because they occur at lower prices or on terms that are less favorable to us. In addition, these factors increase the chances that our results could diverge from the expectations of investors and analysts. If so, the market price of our stock would likely decline. iVoice Technology has in the past and may in the future sell additional unregistered convertible securities, possibly without limitations on the number of shares of common stock the securities are convertible into, which could dilute the value of the holdings of current stockholders and have other detrimental effects on your holdings. We have relied on the private placement of convertible debentures and secured promissory notes to obtain working capital and may continue to do so in the future. As of the date of this registration statement, however, we have no outstanding convertible debentures. The $190,000 promissory note owing to Mr. Mahoney provides that, at Mr. Mahoney's option, principal and interest due on the note can be converted into shares of the Company's Class A Common Stock at a conversion price equal to the lesser of (a) an amount equal to 120% of the initial bid price of our Class A Common Stock on the date of the effectiveness of the registration statement of which this prospectus is a part or (b) an amount equal to 80% of the lowest closing bid price of our Class A Common Stock for the five trading days immediately preceding the conversion date. There is no limit upon the number of shares that we may be required to issue upon conversion of any of these obligations. In order to obtain working capital in the future, we may intend to issue additional equity securities. In the event that the price of our Class A Common Stock decreases, and our convertible obligations (or any other convertible obligations we may issue) are converted into shares of our Class A Common Stock: o the percentage of shares outstanding that will be held by these holders upon conversion will increase accordingly, o increased share issuance, in addition to a stock overhang of an indeterminable amount, may depress the price of our Class A Common Stock, 15 o the sale of a substantial amount of convertible debentures to relatively few holders could effectuate a possible change in control of the Company, and o in the event of our voluntary or involuntary liquidation while the secured convertible debentures are outstanding, the holders of those securities will be entitled to a preference in distribution of our property. In addition, if the market price declines significantly, we could be required to issue a number of shares of Class A Common Stock sufficient to result in our current stockholders not having an effective vote in the election of directors and other corporate matters. In the event of a change in control of the Company, it is possible that the new majority stockholders may take actions that may not be consistent with the objectives or desires of our current stockholders. We are required to convert our existing convertible obligations based upon a formula that varies with the market price of our common stock. As a result, if the market price of our Class A Common Stock increases after the issuance of our convertible obligations, it is possible, that, upon conversion of our convertible obligations, we will issue shares of Class A Common Stock at a price that is far less than the then-current market price of our Class A Common Stock. If the market price of our Class A Common Stock decreases after our issuance of any convertible obligations, upon conversion, we will have to issue an increased number of shares to the holders of our convertible obligations. Any sale of convertible obligations may result in a very large conversion at one time. If we do not have a sufficient number of shares to cover the conversion, we may have a risk of a civil lawsuit. For more information, please see "Potential Dilution Due to Conversion at Below Market Price." If iVoice Technology loses the services of any key personnel, including our chief executive officer or our directors, our business may suffer. We are dependent on our key officers and directors, including Jerome R. Mahoney and Arie Seidler, our Chairman of the Board and our President and Chief Executive Officer, respectively. The loss of any of our key personnel could materially harm our business because of the cost and time necessary to retain and train a replacement. Such a loss would also divert management attention away from operational issues. To minimize the effects of such loss, iVoice Technology has entered into employment contracts with Jerome Mahoney and Arie Seidler. However, Mr. Seidler's employment agreement has a term of only one year. Our potential future business acquisitions may be unpredictable and may cause our business to suffer. iVoice Technology may seek to expand its operations through the acquisition of additional businesses. These potential acquired additional businesses may be outside the current field of operations of iVoice Technology. iVoice Technology may not be able to identify, successfully integrate or profitably manage any such businesses or operations. The proposed expansion may involve a number of special risks, including possible adverse effects on iVoice Technology's operating results, diversion of management attention, inability to retain key 16 personnel, risks associated with unanticipated events and the financial statement effect of potential impairment of acquired intangible assets, any of which could have a materially adverse effect on iVoice Technology's business, financial condition and results of operations. In addition, if competition for acquisition candidates or assumed operations were to increase, the cost of acquiring businesses or assuming customers' operations could increase materially. The inability of iVoice Technology to implement and manage its expansion strategy successfully may have a material adverse effect on the business and future prospects of iVoice Technology. Furthermore, through the acquisition of additional businesses, iVoice Technology may effect a business acquisition with a target business which may be financially unstable, under-managed, or in its early stages of development or growth. While iVoice Technology may, under certain circumstances, seek to effect business acquisitions with more than one target business, as a result of its limited resources, iVoice Technology, in all likelihood, will have the ability to effect only a single business acquisition at one time. Currently, iVoice Technology has no plans, proposals or arrangements, either orally or in writing, regarding any proposed acquisitions and is not considering any potential acquisitions. Members of iVoice Technology's Board of Directors and management may have conflicts of interest after the Distribution; iVoice Technology does not have any formal procedure for resolving conflicts in the future. After the Distribution, Mr. Mahoney, a member of the board of directors, will own iVoice shares and have the right to convert $190,000 of indebtedness into 190,000 shares of iVoice Technology Class B Common Stock which are convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price at which iVoice had ever issued its Class A Common Stock. In addition, Mr. Mahoney has the right to convert the amount of all accrued and unpaid interest on such indebtedness into 1 share of iVoice Technology Class B Common Stock for each dollar of accrued and unpaid interest. As of March 31, 2005, accrued and unpaid interest on this indebtedness was $26,334.97. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. In addition, following the Distribution, we anticipate that Mr. Mahoney, the Chairman of the Board of iVoice Technology will also continue to serve as the Chairman of the Board and Chief Executive Officer of iVoice. These relationships could create, or appear to create, potential conflicts of interest when iVoice Technology's directors and management are faced with decisions that could have different implications for iVoice Technology and iVoice. For example, Mr. Mahoney may experience conflicts of interest with respect to the allocation of his time, services and functions among iVoice, iVoice Technology and any other projects. Other examples could include potential business acquisitions that would be suitable for either iVoice Technology or iVoice, activities undertaken by iVoice in the future that could be in direct competition with iVoice Technology, or the resolution of disputes arising out of the agreements governing the relationship between iVoice and iVoice Technology following the Distribution. Also, the appearance of conflicts, even if such conflicts do not materialize, might adversely affect the public's perception of iVoice Technology following the Distribution. Furthermore, iVoice Technology does not have any formal procedure for resolving such conflicts of interest should they arise following the Distribution. 17 iVoice Technology's industry is characterized by rapid technological change and failure to adapt our product development to these changes may cause our products to become obsolete. We participate in a highly dynamic industry characterized by rapid change and uncertainty relating to new and emerging technologies and markets. Future technology or market changes may cause some of our products to become obsolete more quickly than expected. iVoice Technology stockholders may experience significant dilution if future equity offerings are used to fund operations or acquire businesses. On March 9, 2005, we obtained a non-binding letter of commitment from Cornell Capital Partners to provide a $10 million standby equity line of credit. If working capital or future acquisitions are financed through the issuance of equity securities, such as through the possible sale of Class A Common Stock on the terms of the non-binding letter of intent from Cornell Capital Partners, L.P. (see "Certain Relationships and Related Transactions" beginning on page 47), iVoice Technology stockholders would experience significant dilution. In addition, the conversion of outstanding debt obligations into equity securities would have a dilutive effect on iVoice Technology shareholders. Further, securities issued in connection with future financing activities or potential acquisitions may have rights and preferences senior to the rights and preferences of the iVoice Technology Class A Common Stock. Except for the potential sale of Class A Common Stock to Cornell Capital Partners on the terms of the non-binding letter of intent, iVoice Technology currently has no expectations or plans to conduct future equity offerings. Management believes that if the transactions contemplated by the non-binding letter of commitment are consummated, the Company will have sufficient capital resources to conduct its business as currently planned over the 12-month period following the Distribution. However, Cornell Capital Partners is under no obligation to execute any definitive agreements with iVoice Technology. Furthermore, if a definitive agreement is executed, Cornell Capital Partners is under no obligation to purchase shares of Class A Common Stock unless certain conditions are satisfied by iVoice Technology, including completing of the Distribution, listing our Class A Common Stock on the Over-the-Counter Bulletin Board and having the registration statement relating to such Class A Common Stock declared effective. If Cornell Capital Partners does not execute the definitive agreements or iVoice Technology cannot satisfy the requirements for Cornell Capital Partners to purchase the Class A Common Stock under the terms of the definitive documents, we will not have sufficient capital resources to conduct our business on a long-term basis, which would have a material adverse effect on us and our financial condition. Management believes that its going-forward expenses over the next 12 months will be approximately $431,000 and, assuming that iVoice Technologies has no revenues, iVoice Technologies expects to have aggregate liabilities of approximately $432,000, which includes salaries for iVoice Technology's officers and employees for the year ending December 31, 2005. Management has no current plan to hire additional employees, perform additional research and development or purchase additional equipment or services beyond the requirements of the administrative services agreement with iVoice. Management believes that the deficiency between the Company's expenses and net revenues will be more than covered by 18 the cash available from the proceeds of the secured promissory notes. If there are additional deficiencies that are in excess of the proceeds of the secured promissory notes, and iVoice Technology is unable to obtain funds from the equity line of credit, management believes that iVoice Technology can limit its operations, defer payments to management and maintain its business at nominal levels until it can identify alternative sources of capital. The trend toward consolidation in iVoice Technology's industry may impede its ability to compete effectively. As consolidation in the software industry continues, fewer companies dominate particular markets, changing the nature of the market and potentially providing consumers with fewer choices. Also, many of these companies offer a broader range of products than us, ranging from desktop to enterprise solutions. We may not be able to compete effectively against these competitors. Furthermore, we may use strategic acquisitions, as necessary, to acquire technology, people and products for our overall product strategy. The trend toward consolidation in our industry may result in increased competition in acquiring these technologies, people or products, resulting in increased acquisition costs or the inability to acquire the desired technologies, people or products. Any of these changes may have a significant adverse effect on our future revenues and operating results. iVoice Technology faces intense price-based competition for licensing of its products which could reduce profit margins. Price competition is often intense in the software market, especially for computerized telephony software products. Many of our competitors have significantly reduced the price of their products. Price competition may continue to increase and become even more significant in the future, resulting in reduced profit margins. Neither iVoice nor iVoice Technology has experienced any pressure from price competition on the pricing of its IVR software products in the past, but iVoice Technology believes that this pressure could occur in the future. iVoice Technology may be unsuccessful in adapting to changes in the dynamic technological environment of telecommunications in a timely manner. Critical issues concerning the commercial use of telecommunications, including security, reliability, cost, ease of use, accessibility, quality of service or potential tax or other government regulation, remain unresolved and may affect the use of telecommunications as a medium to distribute or support our software products and the functionality of some of our products. If we are unsuccessful in timely assimilating changes in the telecommunications environment into our business operations and product development efforts, our future net revenues and operating results could be adversely effected. iVoice Technology may be unsuccessful in continuing existing distribution channels or in developing new distribution channels. Due to our limited operating history, we currently offer products directly to end-users and through dealer and reseller channels established by iVoice. We intend to assume iVoice's relationships and contractual arrangements with these dealers and resellers. However, there can be no assurance that these dealers and resellers will wish to continue their existing arrangements, 19 or create new arrangements, with us. If we cannot continue to use iVoice's existing dealer and reseller channels, we will need to develop a new network of dealers and resellers. However, we may not be able to effectively develop our own network of resellers and dealers to distribute our software products. If we cannot assume iVoice's existing distribution channels and we cannot develop our own new distribution channels, this would have a material adverse effect on us and our financial condition. The adoption of new channels may adversely impact existing channels and/or product pricing, which may reduce our future revenues and profitability. Restrictive product return policies may limit iVoice Technology's sales and penetration into the marketplace. iVoice Technology only permits returns from authorized dealers and resellers of unused inventory, subject to the consent of the Company and a twenty-five percent restocking fee. End users who purchase products directly from iVoice Technology may not return such products to iVoice Technology under any circumstances. Such policies may deter resellers and end users from purchasing our products in a competitive and quickly evolving marketplace, and have a material adverse effect on our ability to remain competitive with similar products. iVoice Technology may depend on distribution by resellers and distributors for a significant portion of revenues. We may distribute some of our products through resellers and distributors. We intend to assume iVoice's existing relationships and contractual relationships with its resellers and distributors. To effectively do so, we must establish and maintain good working relationships with these resellers and distributors. If we are unsuccessful in establishing and maintaining relationships with iVoice's existing resellers and distributors or with new resellers and distributors, or if these resellers and distributors are unsuccessful in reselling our products, our future net revenues and operating results may be adversely affected. iVoice Technology does not have any material relationship with any single distributor or reseller. The limited scope of results of iVoice Technology's research and development may limit the ability of iVoice Technology to expand or maintain its sales and products in a competitive marketplace. iVoice Technology currently has no plans to engage in research and development of new products or improvements on existing technologies. Failure to engage in such research and to develop new technologies or products or upgrades, enhancements, applications or uses for existing technologies may place iVoice Technology at a competitive disadvantage in the marketplace for its products. As no current research and development program currently exists within iVoice Technology, any future research and development programs could cause us to incur substantial fixed costs which may result in such programs being prohibitively expensive to initiate without substantial additional financing being obtained on favorable terms. Also, the lack of any current research and development program may result in an extended launch period for a research and development program at a point in our business when time is of the essence. These delays could have a material adverse effect on the amount and timing of future revenues. 20 Such limited research and development may also adversely affect the ability of iVoice Technology to test any new technologies which may be established in the future in order to determine if they are successful. If they are not technologically successful, our resulting products may not achieve market acceptance and our products may not compete effectively with products of our competitors currently in the market or introduced in the future. If iVoice Technology must restructure its operations, valuable resources will be diverted from other business objectives. We intend to continually evaluate our product and corporate strategy. We have in the past undertaken, and will in the future undertake, organizational changes and/or product and marketing strategy modifications. These organizational changes increase the risk that objectives will not be met due to the allocation of valuable limited resources to implement changes. Further, due to the uncertain nature of any of these undertakings, these efforts may not be successful and we may not realize any benefit from these efforts. Potential software defects and product liability could result in delays in market acceptance, unexpected costs and diminished operating results. Software products frequently contain errors or defects, especially when first introduced or when new versions or enhancements are released. Defects and errors could be found in current versions of our products, future upgrades to current products or newly developed and released products. Software defects could result in delays in market acceptance or unexpected reprogramming costs, which could materially adversely affect our operating results. Most of our license agreements with customers contain provisions designed to limit our exposure to potential product liability claims. It is possible, however, that these provisions limiting our liability may not be valid as a result of federal, state, local or foreign laws or ordinances or unfavorable judicial decisions. A successful product liability claim may have a material adverse effect on our business, operating results and financial condition. iVoice Technology relies on third party technologies which may not support iVoice Technology products. Our software products are designed to run on the Microsoft(R) Windows(R) operating system and with industry standard hardware. Although we believe that the operating systems and necessary hardware are and will be widely utilized by businesses in the corporate market, businesses may not actually adopt such technologies as anticipated or may in the future migrate to other computing technologies that we do not support. Moreover, if our products and technology are not compatible with new developments from industry leaders such as Microsoft, our business, results of operations and financial condition could be materially and adversely affected. iVoice Technology faces aggressive competition in many areas of the business, and the business will be harmed if iVoice Technology fails to compete effectively. We encounter aggressive competition from numerous competitors in many areas of our business. Many of our current and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical and marketing resources than we 21 have. We may not be able to compete effectively with these competitors. Our competition may engage in research and development to develop new products and periodically enhance existing products in a timely manner, while we have no established plan or intention to engage in any manner of research or development. We anticipate that we may have to adjust the prices of many of our products to stay competitive. In addition, new competitors may emerge, and entire product lines may be threatened by new technologies or market trends that reduce the value of these product lines. The market in which we compete is influenced by the strategic direction of major computer hardware manufacturers and operating system software providers. We may not be able to access sufficient funds when needed. We are dependent on external financing to fund our operations. Our financing needs are expected to be provided, through the possible sale of Class A Common Stock on the terms of the non-binding letter of intent to provide an equity line of credit from Cornell Capital Partners. However, Cornell Capital Partners is under no obligation to execute any definitive agreements with iVoice Technology. Furthermore, if definitive agreements are executed Cornell Capital Partners is under no obligation to purchase any shares of Class A Common Stock, Cornell Capital Partners will be obligated to purchase shares of Class A Common Stock only upon the satisfaction of certain conditions being met by iVoice Technology, including completing of the Distribution, listing our Class A Common Stock on the Over-the-Counter Bulletin Board and having the registration statement relating to such Class A Common Stock declared effective. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." If Cornell Capital Partners does not execute the definitive agreements or iVoice Technology cannot satisfy the requirements for Cornell Capital Partners to purchase the Class A Common Stock under the terms of the definitive documents, we will not have sufficient capital resources to operate our business, and we have no current plans to obtain other financing. If we obtain the equity line of credit, we cannot assure you that we will be able to access such financing in sufficient amounts or at all when needed. Our inability to obtain sufficient financing would have an immediate material adverse effect on us, our financial condition and our business. Our obligations under the secured promissory notes are secured by substantially all of our assets. Our obligations under the secured promissory notes issued to Cornell Capital Partners are secured by substantially all of our assets. As a result, if we default under the terms of the secured promissory notes, Cornell Capital Partners could foreclose its security interest and liquidate all of our assets. This would cause operations to cease. Jerome Mahoney, the Chairman of the Board of iVoice Technology, may have control over the management and direction of iVoice Technology. Mr. Mahoney will have the right to convert $190,000 of indebtedness, together with any accrued but unpaid interest on the indebtedness, into 190,000 shares (plus shares receivable upon conversion of accrued and unpaid interest on the promissory note) of iVoice Technology Class B Common Stock, which Class B Stock is convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being 22 converted by a 20% discount of the lowest price at which iVoice had ever issued its Class A Common Stock. Interest accrues on the outstanding principal balance of the note at a rate of 2% per annum. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. Each share of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. If Mr. Mahoney converts his indebtedness into 190,000 shares of Class B Common Stock, he will have voting rights equal to 19,000,000 shares of Class A Common Stock and will have control over the management and direction of iVoice Technology, including the election of directors, appointment of management and approval of actions requiring the approval of stockholders. iVoice Technology's management team is new and its working relationships are untested. We have only recently assembled our management team as part of the Distribution and changes in our operating structure. Some members of our management team have worked with each other in the past, although at this time we cannot assess the effectiveness of their working relationships after the Distribution. As a result, we may be unable to effectively develop and sell our software products and iVoice Technology, as a business, may fail. iVoice Technology relies on intellectual property and proprietary rights which may not remain unique to iVoice Technology. We regard our software as proprietary and underlying technology as proprietary. We seek to protect our proprietary rights through a combination of confidentiality agreements and copyright, patent, trademark and trade secret laws. We do not have any patents or statutory copyrights on any of our proprietary technology that we believe to be material to our future success. Our future patents, if any, may be successfully challenged and may not provide us with any competitive advantages. We may not develop proprietary products or technologies that are patentable and other parties may have prior claims. In selling our products, we rely primarily on shrink-wrap licenses that are not signed by licensees. Therefore, such licenses may be unenforceable under the laws of some jurisdictions. In addition, existing copyright laws afford limited practical protection. Furthermore, the laws of some foreign countries do not offer the same level of protection of our proprietary rights as do the laws of the United States. Patent, trademark and trade secret protection is important to us because developing and marketing new technologies and products is time-consuming and expensive. We do not own any U.S. or foreign patents or registered intellectual property. We may not obtain issued patents or other protection from any future patent applications owned by or licensed to us. Our competitive position is also dependent upon unpatented trade secrets. Trade secrets are difficult to protect. Our competitors may independently develop proprietary information and techniques that are substantially equivalent to ours or otherwise gain access to our trade secrets, such as through unauthorized or inadvertent disclosure of our trade secrets. 23 There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology substantially equivalent or superseding proprietary technology. Furthermore, there can be no assurance that any confidentiality agreements between us and our employees will provide meaningful protection of our proprietary information, in the event of any unauthorized use or disclosure thereof. As a consequence, any legal action that we may bring to protect proprietary information could be expensive and may distract management from day-to-day operations. iVoice Technology may become involved in future litigation, which may result in substantial expense and may divert our attention from the implementation of our business strategy. We believe that the success of our business depends, in part, on obtaining intellectual property protection for our products, defending our intellectual property once obtained and preserving our trade secrets. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. Any litigation could result in substantial expense and diversion of our attention from our business, and may not adequately protect our intellectual property rights. In addition, we may be sued by third parties which claim that our products infringe the intellectual property rights of others. This risk is exacerbated by the fact that the validity and breadth of claims covered in technology patents involve complex legal and factual questions for which important legal principles are unresolved. Any litigation or claims against us, whether valid or not, could result in substantial costs, place a significant strain on our financial resources, divert management resources and harm our reputation. Such claims could result in awards of substantial damages, which could have a material adverse impact on our results of operations. In addition, intellectual property litigation or claims could force us to: o cease licensing, incorporating or using any of our products that incorporate the challenged intellectual property, which would adversely effect our revenue; o obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; and o redesign our products, which would be costly and time-consuming. iVoice Technology may incur increased expenses after the administrative services agreement with iVoice is terminated. In connection with its spin-off, iVoice Technology has entered into an administrative services agreement with iVoice. Under this agreement, iVoice is providing iVoice Technology with services in such areas as inventory purchasing, material and inventory control, employee benefits administration, payroll, financial accounting and reporting, and other areas where iVoice Technology needs assistance and support. The agreement will continue following the completion of the Distribution on a month-to-month basis. Upon termination of the agreement, iVoice Technology will be required to obtain such services from a third party or increase its headcount to provide such services. This could be more expensive than the fees which iVoice Technology has been required to pay under the administrative services agreement. 24 Risks Relating to the Distribution The Distribution may cause the trading price of iVoice common stock to decline. Following the Distribution, iVoice expects that its common stock will continue to be listed and traded on the Over-the-Counter Bulletin Board under the symbol "IVOC." Following the Distribution and the intended distributions of the two other new subsidiaries of iVoice to the iVoice stockholders, iVoice's operating assets will consist of its portfolio of patents and patent rights, and its future business development operations will consist of licensing its intellectual property rights. A trading market may not continue for the shares of iVoice common stock or ever develop for the iVoice Technology Class A Common Stock. As a result of the Distribution, the trading price of iVoice common stock immediately following the Distribution may be substantially lower than the trading price of iVoice common stock immediately prior to the Distribution. The combined trading prices of iVoice common stock and the iVoice Technology Class A Common Stock after the Distribution may be less than the trading price of iVoice common stock immediately prior to the Distribution. Further, the combined trading prices of iVoice common stock, the iVoice Technology Class A Common Stock and the common stock of each of the two other new companies being distributed to iVoice stockholders after the Distribution and the two other distributions may be less than the trading price of iVoice common stock immediately prior to these distributions. Substantial sales of shares of iVoice Technology Class A Common Stock may have an adverse impact on the trading price of the iVoice Technology Class A Common Stock. After the Distribution, some iVoice Technology stockholders may decide that they do not want shares in a company consisting of the IVR software operations, and may sell their iVoice Technology common stock following the Distribution. Based on the number of shares of iVoice common stock anticipated to be outstanding on the record date and the number of shares of iVoice common stock anticipated to be outstanding on the Record Date and that will actually participate in the Distribution, iVoice will distribute to iVoice stockholders a total of approximately 10,000,000 shares of iVoice Technology Class A Common Stock. Under the United States federal securities laws, substantially all of these shares may be resold immediately in the public market, except for (1) shares of iVoice Technology Class A Common Stock held by affiliates of iVoice Technology or (2) shares which are issued in respect of restricted shares of iVoice common stock. iVoice Technology cannot predict whether stockholders will resell large numbers of shares of iVoice Technology Class A Common Stock in the public market following the Distribution or how quickly they may resell these shares of iVoice Technology Class A Common Stock. If iVoice Technology stockholders sell large numbers of shares of iVoice Technology Class A Common Stock over a short period of time, or if investors anticipate large sales of shares of iVoice Technology Class A Common Stock over a short period of time, this could adversely affect the trading price of the iVoice Technology Class A Common Stock. 25 There has not been any prior trading market for the iVoice Technology Class A Common Stock and a trading market for the iVoice Technology Class A Common Stock may not develop. There is no current trading market for the iVoice Technology Class A Common Stock, although a when-issued trading market may develop prior to completion of the Distribution. We anticipate that the iVoice Technology Class A Common Stock will be listed on the Over-the-Counter Bulletin Board under the proposed symbol "___." Shares of iVoice Technology Class A Common Stock may not be actively traded or the prices at which the iVoice Technology Class A Common Stock will trade may be low. Some of the iVoice stockholders who receive iVoice Technology Class A Common Stock may decide that they do not want shares in a company consisting of an IVR software business, and may sell their shares of iVoice Technology Class A Common Stock following the Distribution. This may delay the development of an orderly trading market in iVoice Technology Class A Common Stock for a period of time following the Distribution. Until the shares of iVoice Technology Class A Common Stock are fully distributed and an orderly market develops, the prices at which the iVoice Technology Class A Common Stock trade may fluctuate significantly and may be lower than the price that would be expected for a fully distributed issue. Prices for iVoice Technology Class A Common Stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for the shares, iVoice Technology's results of operations, what investors think of iVoice Technology and the IVR software industry, changes in economic conditions in the IVR software industry, and general economic and market conditions. Market fluctuations could have a material adverse impact on the trading price of the iVoice Technology Class A Common Stock. Our common stock is deemed to be "penny Stock" which may make it more difficult for investors to sell their shares due to suitability requirements. Our common stock is deemed to be "penny stock" as that term is defined in Rule 3A51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are stock: o with a price of less than $5.00 per share; o that are not traded on a "recognized" national exchange; o whose prices are not quoted on the Nasdaq automated quotation system (Nasdaq listed stock must still have a price of not less than $5.00 per share); or o in issuers with net tangible assets of less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years. Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether in investment in a penny stock is a suitable investor for a prospective 26 investor. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline. If we are able to sell shares of our Class A Common Stock to Cornell Capital Partners, stockholders would experience significant dilution from such sale of shares. Under the terms of the non-binding letter of intent received by iVoice Technology, if we executed definitive agreements and satisfy the conditions therein, iVoice Technology may issue and sell to Cornell Capital Partners shares of Class A Common Stock for a total purchase price of up to $10.0 million. As stated above under " -- We may not be able to access sufficient funds when needed," the commitment provides that our ability to obtain funds under any definitive agreement will be subject to the satisfaction of certain conditions that we may not be able to satisfy. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." If we consummate the transactions contemplated by the commitment and are able to sell such shares of Class A Common Stock to Cornell Capital Partners, such sale of shares will have a dilutive impact on our stockholders. As a result, our net income per share could decrease in future periods, and the market price of our Class A Common Stock could decline. In addition, if our stock price declines, the price at which we sell such shares to Cornell Capital Partners could decrease, and we would need to issue a greater number of shares of Class A Common Stock. If our stock price is lower, then iVoice Technology stockholders would experience greater dilution. The Distribution of iVoice Technology Class A Common Stock may result in tax liability to you. You will be required to pay income tax on the value of your shares of iVoice Technology Class A Common Stock received to the extent of the current or accumulated earnings and profits of iVoice. Any excess will be treated as a tax-free return of capital and thereafter as capital gain. You are advised to consult your own tax advisor as to the specific tax consequences of the Distribution. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Information included in this prospectus may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend" or "project" or the negative of these words or other variations on these words or comparable terminology. This prospectus contains forward-looking statements, including statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for 27 working capital. These statements may be found under "Management's Discussion and Analysis of Financial Conditions and Results of Operations" and "Our Business," as well as in this prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this prospectus will in fact occur. USE OF PROCEEDS iVoice Technology will receive no proceeds from the distribution of securities in this Distribution. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with our audited financial statements and related notes included elsewhere in this prospectus. Our fiscal year currently ends on December 31, and each of our fiscal quarters ends on the final day of a calendar quarter (each March 31, June 30 and September 30). The following discussion contains forward-looking statements. Please see "Cautionary Statement Regarding Forward-Looking Statements" for a discussion of uncertainties, risks and assumptions associated with these statements. Overview iVoice Technology has traditionally operated as a non-reporting component of iVoice and accordingly the financial statements discussed below have been derived from the consolidated financial statements and accounting records of iVoice, and reflect significant assumptions and allocations. These financial statements do not necessarily reflect the financial position, results of operations and cash flows of iVoice Technology had it been a stand-alone entity. iVoice Technology seeks to leverage the value of underutilized developed technology and believes that the transition to an independent company will provide iVoice Technology with greater access to capital. This should provide needed financial resources to potentially penetrate the market and distribute the product. As such, iVoice Technology's business will be formed from the contribution by iVoice of certain assets and related liabilities on or about the effective date of the registration statement of which this prospectus is a part. In connection with a reorganization of iVoice, immediately prior to the Distribution, iVoice will transfer to iVoice Technology its IVR software business and related liabilities, including all intellectual property of iVoice relating to the IVR software business . The board and management of iVoice has elected not to transfer any part of its working cash balance of iVoice to iVoice Technology. Based upon the current intention of iVoice Technology not to conduct any research and development or hire additional employees and instead focus on the sale of the existing IVR technology, the board has determined that, on balance, iVoice Technology has the ability to satisfy its working capital needs as a whole. The board and management of iVoice also determined that iVoice Technology 28 has the ability to obtain financing to satisfy any addition working capital needs as a stand-alone company. The emerging nature of the interactive voice response industry and unforeseen expenses from the separation from iVoice, make it difficult to assess the future growth of iVoice Technology. The IVR software business has operated at a loss in the past for iVoice, and as an independent company such losses may continue or increase. Additionally, iVoice Technology's business has relied on iVoice for financial, administrative and managerial expertise in conducting its operations. Following the Distribution, iVoice Technology will develop and maintain its own credit and banking relationships and perform its own financial and investor relations functions. iVoice Technology may not be able to successfully put in place the financial, administrative and managerial structure necessary to operate as an independent public company, and the development of such structure will require a significant amount of management's time and other resources. iVoice Technology has received a going concern opinion from its auditors. Its continuation as a going concern is dependent upon obtaining the financing necessary to operate its business. Our financing needs are expected to be provided, in large part, from the sale of Class A Common Stock to Cornell Capital Partners pursuant to the terms of definitive documents executed pursuant to the non-binding letter of intent iVoice Technology has received from Cornell Capital. Such Class A Common Stock would then be sold to Cornell Capital Partners at the discretion of the Company to fund working capital needs. However, Cornell Capital Partners is under no obligation to execute any definitive agreements with iVoice Technology. Furthermore, Cornell Capital Partners is under no obligation to purchase any shares of Class A Common Stock until the execution of the definitive agreements, following which Cornell Capital Partners will be obligated to purchase shares of Class A Common Stock only upon the satisfaction of certain conditions being met by iVoice Technology, including completing of the Distribution, listing our Class A Common Stock on the Over-the-Counter Bulletin Board and having the registration statement relating to the Standby Equity Distribution Agreement declared effective. See "Liquidity and Capital Resources." If Cornell Capital Partners does not execute the definitive agreements or iVoice Technology cannot satisfy the requirements for Cornell Capital Partners to purchase the Class A Common Stock under the terms of any definitive documents, we will not be able to obtain sufficient capital resources to operate our business, and we have no current plans to obtain other financing. We cannot assure you that we will be able to access any financing in sufficient amounts or at all when needed. Our inability to obtain sufficient financing would have an immediate material adverse effect on us, our financial condition and our business. Separation from iVoice iVoice Technology was incorporated under the laws of the State of New Jersey on November 10, 2004, as a wholly-owned subsidiary of iVoice. iVoice Technology will have no material assets or activities until the contribution of the IVR software business described in this prospectus. After the Distribution, iVoice Technology will be an independent public company, with iVoice having no continuing ownership interest in iVoice Technology. 29 On November 11, 2004, iVoice Technology received by assignment all of the interests in and rights and title to, and assumed all of the obligations of, all of the agreements, contracts, understandings and other instruments of iVoice Technology, Inc., a Nevada corporation and affiliate of iVoice Technology. These agreements, contracts, understandings and other instruments consisted of the documentation relating to the issuance of the secured convertible debentures and the equity line of credit, the employment agreements with Messrs. Mahoney and Seidler and the administrative services agreement. Since this assignment, iVoice Technology Nevada has no operating business, assets or known liabilities, and is currently in the process of being dissolved. When we refer to or describe any agreement, contract or other written instrument of iVoice Technology in this prospectus, we are referring to an agreement, contract or other written instrument that had been entered into by iVoice Technology Nevada and assigned to iVoice Technology. iVoice Technology's financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and reflect the historical financial position, results of operations, and cash flows of the business to be transferred to iVoice Technology from iVoice as part of the Distribution. The financial information included in this prospectus, however, is not necessarily indicative of what iVoice Technology's results of operations or financial position would have been had it operated as an independent company during the periods presented, nor is it necessarily indicative of its future performance as an independent company. iVoice Technology will operate the IVR software business. This business has historically operated as a non-reportable segment of iVoice. Even if iVoice Technology was to operate the IVR business on a stand alone basis, management is uncertain that sufficient cash to sustain its operations will be generated in the next twelve months, or beyond, by the sales activity of IVR. iVoice Technology intends to use a portion of the proceeds from any financing arrangements, on sales and marketing efforts for IVR. It is unclear whether such efforts will result in a reasonably successful operating business due to iVoice's previous lack of sales and marketing efforts on IVR, iVoice Technology's lack of operating history, the current economic environment and, more specifically, the uncertainty of the telecommunications market. Upon effectiveness of the registration statement of which this prospectus is a part, iVoice Technology will be allocated the iVoice corporate assets, liabilities and expenses related to the IVR software business, including the IVR software and all intellectual property of iVoice relating to the IVR software business and the assignment of iVoice's existing agreements and arrangements with dealers and resellers. This allocation of assets, liabilities and expenses will be based on an estimate of the proportion of such amounts allocable to iVoice Technology, utilizing such factors as total revenues, employee headcount and other relevant factors. iVoice Technology believes that these allocations have been made on a reasonable basis. iVoice Technology believes that all costs allocated to iVoice Technology are a reasonable representation of the costs that iVoice Technology would have incurred if iVoice Technology had performed these functions as a stand-alone company. In conjunction with the separation of the IVR software business from iVoice, iVoice Technology entered into an administrative services agreement with iVoice for the provision of certain services by iVoice to iVoice Technology following the Distribution. This agreement will 30 continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. See "Relationship Between iVoice and iVoice Technology Following the Distribution" for a description of the administrative services agreement. Following termination of the administrative services agreement, we expect that iVoice Technology will operate on a completely stand-alone basis from iVoice and there will be no business or operating relationship between iVoice and iVoice Technology. iVoice Technology has no current intention to terminate the administrative services agreement, seek replacement services or provide services for itself in the near future. iVoice announced in September 2004 its intention to distribute our shares to its stockholders upon effectiveness of required Securities and Exchange Commission filings, including this registration statement. Results of Operations for the Year Ended December 31, 2004 as Compared with the Year Ended December 31, 2003 All revenues reported by iVoice Technology are derived from the sale or license of our interactive voice response software products, which enable a caller to obtain requested information in voice form from a local or non-local database. Total revenues for the year ended December 31, 2004 and December 31, 2003 were $239,114 and $303,756 respectively. The $64,642 decrease in revenue between the year ended December 31, 2004 and the year ended December 31, 2003 was the result of fewer units being sold in 2004 as compared to 2003, reflecting a weaker demand for the product offset by increases in other revenue. The IVR business has only operated as a division of iVoice and has never operated on a stand-alone basis. The low sales volume of the IVR business is attributable to the minimal resources made available by iVoice for the sales and marketing of the interactive voice response software products. Management feels that the sales of the interactive voice response software products may increase if greater financial and operational resources were made available for the sales and marketing of the products. If iVoice Technology can obtain funds under the proposed equity line of credit, iVoice Technology will be able to devote more resources to operating the business. See "Liquidity and Capital Resources." Gross margin for the year ended December 31, 2004 and December 31, 2003 was $166,244 (69.5%) and $180,665 (59.5%), respectively. The increase in gross margin is a result of a change in the products and services mix being sold. At times, contracts require iVoice Technology to provide more service in a sale than might otherwise be typical, resulting in a change in gross margin. In the year ending December 31, 2004, iVoice Technology provided more consulting and maintenance services, which have higher gross margins than the sale of software products. Total operating expenses decreased to $863,456 for the year ended December 31, 2004 from $965,341 for the year ended December 31, 2003, a decrease of $101,885 or 10.6%. This decrease in the current year is primarily attributable to reductions in research and development and amortization expenses offset by increases in accrued professional and consulting fees in connection with financing the operation of the business and the anticipated registration of shares 31 of iVoice Technology. The reductions in research and development expense reflect a decrease in the number of employees performing research and development functions. As of December 31, 2004, iVoice Technology had five employees, four of whom are full-time and one of whom is part-time. The loss from operations for the year ended December 31, 2004 was $(697,212) compared to $(784,676) for the year ended December 31, 2003, a decrease of $87,464. As discussed above, this decrease was primarily attributable to reductions in research and development and amortization expenses offset by increases in accrued professional and consulting fees incurred in connection with financing the operation of the business and the anticipated registration of shares of iVoice Technology. Other expenses for the year ended December 31, 2004 were $780,915 as compared to $346,744 for the year ended December 31, 2003, an increase of $434,171. During the year ended December 31, 2004, iVoice Technology recorded $882,042 of interest and financing costs (primarily from debt conversion discounts ($140,000) on the issuance of $560,000 of secured convertible debentures). A significant portion of iVoice, Inc.'s interest expense was allocated to iVoice Technology in 2004 and 2003 as a result of the funding for the loss from operations. Other income primarily consists of $57,237 related to the write-off of certain accounts payable and $52,337 in interest income. In future periods, iVoice Technology will incur additional interest expense and additional fees related to the borrowings from the promissory notes issued in replacement of the convertible debentures and, if the equity line of credit is consummated, the anticipated sale of shares to fund working capital needs. There is no assurance that iVoice Technology will enter into the equity line of credit or, if it does obtain such line of credit, be able to raise funds by selling its common stock. Liquidity and Capital Resources To date, iVoice Technology has incurred substantial losses, and will require financing for working capital to meet its operating obligations. We anticipate that we will require financing on an ongoing basis for the foreseeable future. If we execute definitive documentation and satisfy necessary conditions under the equity line of credit described in our non-binding letter of commitment with Cornell Capital Partners, we intend to sell shares of Class A Common Stock as soon as possible following the completion of the Distribution in order to generate capital necessary to sustain our operations. In the event that, in the judgment of the Board of Directors, sufficient capital has not been raised from the proceeds of such sales for iVoice Technology to both sustain its business operations and to make payment to each of Mr. Mahoney and Mr. Seidler, Mr. Mahoney has agreed to accept shares of iVoice Technology Class B Common Stock in satisfaction of iVoice Technology's obligations under his employment agreement. In August 2004, the Company entered into an agreement with Sloan Securities Corporation to as an agent for the private placement of secured convertible debentures to Cornell Capital Partners, L.P. Under the placement agent agreement, the Company agreed to issue to Sloan on or about the date of effectiveness of the registration statement covering the 32 Distribution, a number of shares of Class A Common Stock to equal to $10,000 divided by the closing bid price of the Class A Common Stock on the date of effectiveness of the registration statement covering the Distribution. On August 12 and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in secured convertible debentures, with interest payable at 5% per annum, to Cornell Capital Partners. On February 28, 2005, iVoice Technology's obligations under the secured convertible debentures were terminated and replaced with secured promissory notes of the same principal amount, which notes accrue interest at rate of 12% per annum, but are not convertible into any equity security of iVoice Technology. On February 28, 2005, iVoice Technology borrowed an additional $140,000 pursuant to an additional promissory note payable to Cornell Capital Partners. In connection with the issuances of the secured convertible debentures, iVoice Technology paid a fee to Cornell Capital Partners equal to 10% of the aggregate principal amount of the debentures. When the secured convertible debentures were terminated, iVoice Technology received a credit for fees that would otherwise have been payable upon the issuance of the $560,000 in replacement notes. iVoice Technology paid Cornell Capital a fee of $14,000 in connection with its $140,000 borrowing. iVoice Technology's obligations under the secured promissory notes issued to Cornell Capital Partners are secured by a first priority security interest in substantially all of its assets. iVoice has also guaranteed the payment of all amounts payable by iVoice Technology pursuant to the secured promissory notes. Effective August 12, 2004, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners to obtain an equity line of credit. On February 28, 2005, iVoice Technology entered into a Termination Agreement with Cornell Capital Partners, pursuant to which the equity line transaction was terminated. On March 9, 2005, iVoice Technology received a non-binding letter of intent from Cornell Capital whereby Cornell Capital offered, subject to satisfaction of certain conditions, to purchase shares of iVoice Technology's common stock upon the terms set forth in the non-binding letter of intent and the definitive documentation to be executed after satisfaction of those closing conditions. Pursuant to the terms of the non-binding letter of intent, if the definitive documentation is executed, iVoice Technology may, from time to time, issue and sell to Cornell Capital Partners Class A Common Stock for a total purchase price of up to $10.0 million. The purchase price for the shares would be equal to 95% of the market price, which is defined as the lowest closing bid price of the Class A Common Stock during the five trading days following the date that iVoice Technology delivers to Cornell Capital Partners a notice requiring it to advance funds to us. A cash fee equal to six percent (6%) of the cash proceeds of the draw down would also be payable at the time of funding. In addition, Cornell Capital Partners would receive, as additional compensation, the number of shares of Class A Common Stock equal to one and one half percent (1.5%) of the number of shares of Class A Common Stock outstanding on the date that a registration statement in respect of the shares to be distributed pursuant to the equity line of credit becomes effective. However, Cornell Capital Partners is under no obligation to execute any definitive agreements with iVoice Technology. Furthermore, Cornell Capital Partners is under no obligation to purchase any shares of Class A Common Stock until the execution of the definitive agreements, following which Cornell Capital Partners will be obligated to purchase shares of Class A Common Stock only upon the satisfaction of certain conditions being met by iVoice Technology, including completing of the Distribution, listing our Class A Common Stock on the Over-the-Counter Bulletin Board and having the registration statement relating to the Standby Equity Distribution Agreement declared effective. If Cornell Capital Partners does not execute 33 definitive agreements or iVoice Technology cannot satisfy the requirements for Cornell Capital Partners to purchase the Class A Common Stock under the terms of the definitive documents, we will not be able to obtain sufficient capital resources to operate our business, and we have no current plans to obtain other financing. We cannot assure you that we will be able to access any financing in sufficient amounts or at all when needed. Our inability to obtain sufficient financing would have an immediate material adverse effect on us, our financial condition and our business. Management believes that its going-forward expenses for the twelve months following the distribution will be approximately $431,000, which includes salaries for iVoice Technology's officers and employees, and assuming iVoice Technologies has no revenues in such period, iVoice Technology expects to incur liabilities, for the year ending December 31, 2005 of approximately $432,000. Management has no current plan to hire additional employees, perform additional research and development or purchase additional equipment or services beyond the requirements of the administrative services agreement with iVoice. Management believes that the deficiency between the Company's expenses and net revenues will be more than covered by the cash available from the proceeds of the secured promissory notes. If there are additional deficiencies that are in excess of the proceeds of the secured promissory notes, and iVoice Technology is unable to obtain funds from the sale of Class A Common Stock to Cornell Capital Partners, management believes that iVoice Technology can limit its operations, defer payments to management and maintain its business at nominal levels until it can identify alternative sources of capital. Except for these two financing agreements, the Company has no other significant sources of working capital or cash commitments. However, no assurance can be given that iVoice Technology will enter into the equity line of credit or raise sufficient funds from such financing arrangements, or that iVoice Technology will ever produce sufficient revenues to sustain its operations, or that a market will develop for its common stock for which a significant amount of iVoice Technology's financing is dependent upon. Upon the date of this prospectus, iVoice Technology will assume an aggregate of $190,000 in liabilities from iVoice and iVoice will assign to iVoice Technology assets having an aggregate book value of $10,000. See "Selected Historical and Pro Forma Financial Information" contained in the financial statements of iVoice Technology at the back of this prospectus. iVoice Technology believes that the fair value of these assets may be greater than the book value, although it has not undertaken an appraisal. The assumed obligations are described below. iVoice Technology has agreed to assume from iVoice upon the date of this prospectus an outstanding promissory note in the amount of $190,000 payable to Jerry Mahoney. This amount is related to funds that had been loaned to iVoice in July 2000 that were used to develop the IVR software business. The amount of $190,000 includes approximately $24,000 for interest on the original loan from Jerry Mahoney to iVoice. iVoice Technology, for value received, will promise to pay to Mr. Mahoney the principal sum of $190,000 that will bear interest at the prime rate plus 2% per annum on the unpaid balance until paid or until default. Interest payments will be due annually. All accrued interest becomes due on the date of any payment of the promissory note. At the time of default (if any) the interest rate shall increase to 20% until the principal balance has been paid. Under the terms of the promissory note, at the option of the note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of 34 iVoice Technology, par value $0.01, for each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice Technology calculated by dividing (x) the sum of the principal and interest that the note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of Class A Common Stock since the first advance of funds under this note, or (iii) payment of the principal of this note, before any repayment of interest. iVoice Technology has yet to record this liability on its financial statements, as the promissory note will not be assumed by iVoice Technology until the effectiveness of the registration statement. Mr. Mahoney has agreed to forego receiving any shares of iVoice Technology Class A Common Stock or iVoice Technology Class B Common Stock he is or would be entitled to receive in the Distribution by virtue of his ownership of either iVoice Class A Common Stock or iVoice Class B Common Stock. iVoice Technology has entered into employment contracts with its Non-Executive Chairman of the Board of Directors and its President and Chief Executive Officer. As consideration, iVoice Technology agreed to pay Mr. Mahoney the sum of $85,000 the first year with an annual increase based on the Consumer Price Index every year thereafter. Mr. Mahoney will also be entitled to incentive compensation based upon acquisitions completed by iVoice Technology. The employment agreement with Mr. Mahoney provides for a severance payment to him of three hundred percent (300%), less $100, of his gross income for services rendered to iVoice Technology in each of the five prior calendar years (or shorter period during which Mr. Mahoney shall have been employed by iVoice Technology) should his employment be terminated following a change in control, as defined in the employment agreement. iVoice Technology entered into an employment agreement as of August 1, 2004 with Mr. Seidler. Mr. Seidler will serve as iVoice Technology's President and Chief Executive Officer for a term of one year. As consideration, iVoice Technology agreed to pay Mr. Seidler a base salary of $85,000 during the term. iVoice Technology also agreed to pay Mr. Seidler incentive compensation based on the amount of total revenues collected by the Company. Mr. Seidler will also be entitled to additional incentive compensation based upon acquisitions completed by iVoice Technology. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to bad debts, inventory obsolescence, intangible assets, payroll tax obligations, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. 35 We have identified below the accounting policies, revenue recognition and software costs, related to what we believe are most critical to our business operations and are discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. Revenue Recognition With respect to the sale of software license fees, the Company recognizes revenue in accordance with Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), as amended, and generally recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists generally evidenced by a signed, written purchase order from the customer, (2) delivery of the software product on Compact Disk (CD) or other means to the customer has occurred, (3) the perpetual license fee is fixed or determinable and (4) collectibility, which is assessed on a customer-by-customer basis, is probable. With respect to customer support services, upon the completion of one year from the date of sale, the Company offers customers an optional annual software maintenance and support agreement for subsequent one-year periods. Sales of purchased maintenance and support agreements are recorded as deferred revenues and recognized over the respective terms of the agreements. The Company derives its revenues from the licensing of its software product and optional customer support (maintenance) services. Presently, 100% of the revenues reported by the Company are derived from the licensing of the Company's IVR software. No revenues have been derived from the sale of optional customer support services. The Company's standard license agreement provides for a one-time fee for use of the Company's product in perpetuity for each computer or CPU in which the software will reside. The Company's software application is fully functional upon delivery and implementation and does not require any significant modification or alteration. The Company also offers customers an optional annual software maintenance and support agreement for the subsequent one-year periods. Such maintenance and support services are free for the first year the product is licensed. The software maintenance and support agreement provides free software updates, if any, and technical support the customer may need in deploying or changing the configuration of the software. Generally, the Company does not license its software in multiple element arrangements whereby the customer purchases a combination of software and maintenance. In a typical arrangement, software maintenance services are sold separately from the software product; are not considered essential to the functionality of the software and are purchased at the customer's option upon the completion of the first year licensed. The Company does not offer any special payment terms or significant discount pricing. Normal and customary payment terms require payment for the software license fees when the product is shipped. Payment for software maintenance is due prior to the commencement of the maintenance period. It is also the Company's policy not to provide direct customers (as opposed to resellers and dealers) the right to refund any portion of its license fees. The Company accepts Visa and MasterCard as well as company checks. 36 Customers may license the Company's products through our telesales organization and through promotions or reseller agreements with independent third parties. iVoice Technology only permits returns from authorized dealers and resellers of unused inventory, subject to the consent of the Company and a twenty-five percent restocking fee. End users who purchaser products directly from iVoice Technology may not return such products to iVoice Technology under any circumstances. Accordingly, the Company records a provision for product returns and allowances against product revenue in the same period the revenue is recorded. The estimates are based on historical sales returns and other known data as well as market and economic conditions. Our current products are not sold through retail distribution channels. Current reseller agreements provide for a limited contractual right of return and do not provide for future price concessions, minimum inventory commitments nor is payment contingent upon the reseller's future sales or our products. Revenues generated from products licensed through marketing channels where the right of return exists, explicitly or implicitly, is reduced by reserves for estimated product returns. Such reserves are estimates based on returns history and current economic and market trends. Software Costs Software license costs are recorded at cost, which approximates fair market value as of the date of purchase. These costs represent the purchase of various exploitation rights to certain software, pre-developed codes and systems developed by a non-related third party. These costs are capitalized pursuant to Statement of Financial Accounting Standards ("SFAS") 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed". The Company has adopted SFAS No. 121. The carrying value of software license costs are regularly reviewed by the Company and a loss would be recognized if the value of the estimated undiscounted cash flow benefit related to the asset falls below the unamortized cost. The Company develops software for licensing to its customers and capitalizes software development costs when technological feasibility has been established. Software development costs not qualifying for capitalization are expensed and classified as research and development expenses in the statements of operations. Research and development expenses and the capitalization rate will fluctuate from period to period depending upon the number and status of software development projects that are in process and the related number of people assigned to those projects. Purchased software and capitalized software development costs are amortized using the greater of the revenue method or the straight-line method with useful lives ranging from three to five years. Amortization expense is classified in costs of revenue on the statements of operations. Our products operate on or with other third party software and operating systems. When determining the useful life of a product we consider factors such as the current state of the technology, operating systems on which our products run, competitive products and the potential use of our products by the end user. Technological advances in software operating systems and other software technologies on which our products rely may shorten the expected life cycle of our products. We make an assessment of the useful lives of our products at each balance sheet date. If that assessment determines that a shortened product life has occurred, we amortize the remaining unamortized balances over the new estimated useful life of the product and provide 37 disclosure regarding a change in estimate in the notes to the financial statements pursuant to Accounting Principles Board Opinion No. 20 "Accounting Changes." The Company evaluates the estimated net realizable value of each software product at each balance sheet date. The estimate is based on historical and forecasted net revenue for each product. Net revenue is the product revenue reduced by the estimated costs of revenue and, if in development, the estimated cost to complete the development of the product. When the net book value exceeds the estimate of net realizable value, the Company records a write-down to net realizable value on each product affected. Management's ability to achieve its revenue forecast is subject to judgment, competitive pressures, market and economic conditions and management's ability to successfully license its products to its customers. A change in one or more of these factors may influence management's estimates. Accordingly, currently estimated net realizable values are subject to being reduced resulting in corresponding charges for impairment in the future. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which requires variable interest entities to be consolidated by the primary beneficiary of the entity if certain criteria are met. FIN 46 is effective for all new variable interest entities created after January 31, 2003. For variable interest entities created or acquired before February 1, 2003, the provisions of FIN 46 become effective for the Company on September 1, 2003. The Company does not expect that the adoption of FIN 46 will have a material impact on its financial position, results of operations or cash flows. In April, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Except as noted below, the Company is required to adopt this statement by the first quarter of the fiscal year, 2004. Certain provisions of this statement relating to SFAS No. 133 implementation issues that have been effective for prior fiscal quarters will continue to be applied in accordance with their respective effective dates. The Company does not expect that the adoption of SFAS No. 149 will have a material impact on its financial position, results of operations or cash flows. In May, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for the Company on September 1, 2003. The Company does not expect that the adoption of SFAS No. 150 will have a material impact on the Company's financial position, results of operations or cash flows. OUR BUSINESS Background iVoice Technology, Inc. (the "Company") was incorporated in New Jersey on November 10, 2004 as a wholly-owned subsidiary of iVoice, Inc. It is engaged in the design, manufacture, 38 and marketing of specialized telecommunication equipment. As of December 31, 2004, the Company employed four full-time employees and one part-time employee. Following the Distribution, iVoice Technology may seek to expand its operations through additional sales and marketing activity and the acquisition of additional businesses. Any potential acquired additional businesses may be outside the current field of operations of iVoice Technology. iVoice Technology may not be able to identify, successfully integrate or profitably manage any such businesses or operations. Currently, iVoice Technology has no plans, proposals or arrangements, either orally or in writing, regarding any proposed acquisitions and is not considering any potential acquisitions. The following description of our business is intended to provide an understanding of our product and the direction of our initial marketing strategy. As the Company is in its developmental stages, any focus described in the following pages may change and different initiatives may be pursued, at the discretion of Management. Products Our flagship product is IVR, an application generator that allows full connectivity to many databases, including Microsoft Access, Microsoft Excel, Microsoft Fox Pro, DBase, Btrieve, and Paradox, or to standard text files. IVR can be used to read information from, and write information to, databases, as well as query databases and return information. The IVR software is sold as an application generator that gives the end user the ability to develop their own customized IVR application or as a customized turnkey system. IVR performs over 40 different customizable commands. Examples of IVR range from simply selecting announcements from a list of options stored in the computer (also known as audio text) to more complex interactive exchanges such as querying a database for information. Properties can be set up for each command, as if the commands were being executed manually. IVR links a phone system to a database to provide customers with 24-hour immediate access to account information, via telephone. With IVR, polished IVR applications are quick and easy to install. No knowledge of computer programming and minimal database knowledge is needed. IVR will execute any created application when a caller dials in. Using DTMF (touch-tone telephones) or speech activation allows callers to interact with the system. Advanced database technology permits reading, writing, appending, searching and seeking database information. A user can record product inventory, set up games, keep a record of patients or customers, and perform other applications. The advanced, innovative technology, backed by a simple, easy-to-use drag-and-drop interface, makes writing applications simple. The IVR software also incorporates an Internet access tool, which can be either connected to the IVR system or run as a standalone. This IVR system also has a graphical user interface and provides for Internet access to the system. Once logged onto the Internet, a user can gain access to the IVR system by clicking on a hypertext link for the user's browser. Upon entering the IVR system, the response prompts are in text form rather than voice form. The user can enter selections and get information by clicking on icons or choosing items from menus. Some of the Internet applications available are order processing and transactions, database integration, questions and queries, account status, delivery information, funds transfer, and claims information. 39 We are in the process of rolling out Version 3.0 of the IVR software, which incorporates certain upgrades designed to improve stability and performance of the software. Only minor changes are being made to the user interface, and there are no material new features that are readily apparent to the end user. We currently have no plans to engage in future research and development or to launch any additional versions of the IVR software or other products. Distribution As a product line of iVoice, Inc., IVR has produced sales revenues for the past three fiscal years. In the past, iVoice devoted limited resources to the marketing of IVR. The Company's future revenues depend on its ability to develop a customer base through the establishment of a reseller channel using various marketing and sales promotions. iVoice Technology will market its products directly, with a sales force, and through more than 100 domestic and international re-sellers. iVoice Technology intends to enter into arrangements with resellers to broaden distribution channels and to increase its sales penetration to specific markets and industries. Distributors will be selected based on their access to the markets, industries and customers that are candidates for the products. Competition The Company competes generally with a number of other manufacturers of supplemental telecommunications software, telecommunications integrators, as well as application service providers (ASPs), which provide IVR software to other businesses and organizations either through internet servers or telecommunication servers. System design and engineering, application technical features, built-in speech recognition capabilities and simplicity of user implementation and administration are the principal characteristics of our IVR that differentiates it from competing products. The markets in which we compete are the IVR enterprise market, in which the customers are generally direct end users and smaller clients with limited capacity requirements and revenue per contract, and the IVR enhanced services market, which consists primarily of service providers and other large organizations who require a greater level of capacity and features. The IVR enterprise market is fragmented and highly competitive. The Company's major competitors in this market are Avaya Inc., IBM Corporation, Nortel Networks Limited, Aspect Communications Corporation and Security First Corp. (formerly Edify Corporation). The principal competitive factors in this market include breadth and depth of solution, product features, product scalability and reliability, client services, the ability to implement solutions, and the creation of a referenceable customer base. The Company believes that its product line of solutions, combined with its professional and technical services and its extensive customer base, allow it to compete favorably in this market. However, this market is evolving rapidly, and the Company anticipates intensified competition not only from traditional IVR vendors but also from emerging vendors with non-traditional technologies and solutions. Competition in the IVR enhanced network services market ranges from large telecommunication suppliers offering turnkey, multi-application solutions to "niche" companies that specialize in a particular enhanced service such as prepaid or voicemail. The Company's 40 primary competitors in this market are suppliers such as Comverse Technology, Inc., Unisys Corporation and Lucent Technologies Inc. that provide a suite of enhanced services. Smaller niche players that compete with the Company in various geographies and/or products include GlenAyre Electronics Inc. The Company anticipates that competition will continue from existing and new competitors, some of which have greater financial, technological and marketing resources and greater market share than the Company. No assurance can be given that our competitors will not develop new technologies or enhancements to their existing products or introduce new products that will offer superior price or performance features. We expect our competitors to offer new and existing products at prices necessary to gain or retain market share. Certain of our competitors have substantial financial resources, which may enable them to withstand sustained price competition or a market downturn better than us. There can be no assurance that we will be able to compete successfully in the pricing of our products, or otherwise, in the future. As is customary in the telecommunications industry, the Company produces its products from readily available components purchased from a variety of manufacturers. Printed circuit boards and housings are contracted for manufacture according to Company specifications from among many available suppliers. The business of the Company is not seasonal. The Company maintains no special arrangements relating to working capital items, and as far as it is aware this is standard in the industry. The Company is not subject to environmental protection regulations during the foreseeable future. The Company has spent nothing on research and development in the last three fiscal years. None of the Company's present business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government. Product Development We are in the process of rolling out Version 3.0 of the IVR software, which incorporates certain upgrades designed to improve stability and performance of the software. Only minor changes are being made to the user interface, and there are no material new features that are readily apparent to the end user. We currently have no plans to engage in future research and development or to launch any additional versions of the IVR software or other products. iVoice Technology considers its current products to be competitive with products offered by others in its industry segment. It does not foresee spending any significant capital on new product development in the foreseeable future. Business Development Business development objectives at iVoice Technology will be to focus on two primary functions as listed below: 1. Negotiate and secure strategic alliances related to our IVR products; and 2. Negotiate, secure and manage Original Equipment Manufacturer (OEM) and reseller accounts. 41 Strategic Alliances iVoice Technology's business development efforts will seek to engage and secure strategic alliances with related telecommunications businesses and professional organizations in order to develop co-marketing programs that will expand market share for our products and develop brand recognition. By entering into strategic alliances with companies that offer telecommunications devices or services to businesses or professional organizations whereby appointment setting and scheduling are of vital importance, we will seek to obtain access to an installed customer base as well as new sales opportunities of our products. Manage OEM and Reseller Accounts While we have traditionally sold our product primarily on a direct basis, with our existing officers and employees fulfilling orders received by telephone and the internet, we will seek to obtain new OEM and reseller relationships that will serve as an extension of our sales team which has yet to be hired. We currently have no strategic alliances with any OEMs or resellers other than the existing relationship between iVoice's resellers and iVoice that are being transferred to us by iVoice for our benefit, nor do we have any current material negotiations with any OEM or other reseller. Ideally, an OEM agreement, which provides distribution of our software product along with the manufacturers own telecommunication equipment, could produce the most widespread distribution and acceptance of our product at minimal distribution costs. Many of the OEMs have extensive and established reseller channels that could provide an avenue of distribution for our software. To effectively manage these accounts, we will need to provide these resellers with product literature, pricing, and sales leads as well as technical training and support. Sales and Marketing The IVR enterprise market is characterized by a business environment that has goals to improve customer communication and personalization as well as reduce the costs of customer contact, a historically time-and-money intensive operation. Furthermore, consumers are increasingly taking charge of this important interaction between enterprise and consumer; deciding where, when and how they want this communication. To address this new business paradigm, enterprises are increasingly applying innovative wireless, speech and web technologies to leverage existing customer service infrastructures in the creation of interactive, self-directed service applications. These new applications are designed to put the customer in control of the delivery of the information while allowing the enterprise control of the data. This serves to address the enterprise's objectives of improving the customer experience and reducing operating costs. The Company's strengths are reflected in the IVR enterprise market as part of a suite of offerings that can be delivered as components or as part of a total, turnkey solution. These IVR solutions use the latest in technology to allow enterprises to automate increasingly complex interactions, enabling businesses to provide quick and timely communications with customers and business partners. Such technology enables enterprises to communicate with their customers through voice, web, e-mail, facsimile and other forms of communication on a variety of devices, including telephones, PCs, mobile phones and personal digital assistants ("PDAs"). 42 iVoice Technology will market its products directly and through more than 100 domestic and international re-sellers. The Company intends to enter into arrangements with resellers to broaden distribution channels and to increase its sales penetration to specific markets and industries. Distributors will be selected based on their access to the markets, industries and customers that are candidates for the products. The Company is actively seeking strategic relationships with companies to build its developing partner program. The partner program will be built by establishing relationships in basic areas consisting of software and technology solution partners and system integration partners. These relationships will enhance the Company's technological strength, improve its market position, facilitate shorter time-to-market, enhance its ability to deliver end-to-end solutions, and broaden its market coverage. Developing market possibilities will be crucial to our success. However, we cannot provide any assurance that we will be able to effectively market and sell our products for these uses or that they will be accepted by our perceived market. Intellectual Property Rights We regard some features of our IVR software and documentation to be proprietary intellectual property. We have been and will be dependent in part on our ability to protect our proprietary technology. We will seek to use copyright, trademarks, trade secret laws, confidentiality agreements and other measures if necessary to establish and protect our rights in our proprietary technology. We have not filed any provisional patent applications with respect to some of our application and intellectual property rights. We are currently reviewing our technologies and processes with our patent attorneys to determine if it is possible to obtain any patents or statutory copyrights on any of our proprietary technology which we believe to be material to our future success. If we were to file for any patent or copyright protection, we cannot be certain that others will not develop substantially equivalent or superseding proprietary technology before any patent or copyright protection is awarded to us. Any provisional patent application requires that we file one or more non-provisional patent applications within 12 months from the date of filing to specify the claims asserted for patent protection. Furthermore, there can be no assurance that any confidentiality agreements between our employees and us will provide meaningful protection of our proprietary information in the event of any unauthorized use or disclosure of such proprietary information. There can be no assurance that we will not become the subject of claims of infringement with respect to intellectual property rights associated with our products. In addition, we may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any such claims could be time consuming and could result in costly litigation or lead us to enter into royalty or licensing agreements rather than disputing the merits of such claims. Employees As of December 31, 2004, we had four full-time employees and one part-time employee. We have entered into employment agreements with our President and Chief Executive Officer 43 (Mr. Seidler) and our Chairman of the Board (Mr. Mahoney). Mr. Mahoney will not provide services to iVoice Technology on a full-time basis; Mr. Seidler will devote substantially all of his time to iVoice Technology. Many services that would be provided by employees are currently being provided to iVoice Technology by iVoice under the administrative services agreement. We do not currently have any plans to hire additional personnel, and we expect our current officers and employees to continue to fulfill orders received by telephone and the internet for iVoice Technology products. However, if iVoice Technology can obtain funds under the equity line of credit, iVoice Technology will be able to devote more resources to expanding its personnel. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Within the industry, competition for key technical and management personnel is intense, and there can be no assurance that we can retain our future key technical and managerial employees or that, should we seek to add or replace key personnel, we can assimilate or retain other highly qualified technical and managerial personnel in the future. Government Regulation We are subject to licensing and regulation by a number of authorities in the state and municipality in which we conduct operations. These may include health, safety, and fire regulations. Our operations are also subject to federal and state minimum wage laws governing such matters as working conditions and overtime. We are not subject to any necessary government approval or license requirement in order to market, distribute or sell our principal or related products other than ordinary federal, state, and local laws that govern the conduct of business in general. Legal Proceedings iVoice Technology is not party to any material legal proceedings, nor to the knowledge of iVoice Technology, is any such proceeding threatened against it. Properties We do not own any real property. We currently co-occupy the same space as iVoice and are subleasing from iVoice some of the office space located at 750 Highway 34, Matawan, New Jersey. The rent payment for the sublease is currently included in the administrative services agreement. Following the Distribution, we intend to continue subleasing such space pursuant to the administrative services agreement and anticipate no relocation of our offices in the foreseeable future. IVOICE TECHNOLOGY'S MANAGEMENT iVoice Technology initially intends to have a board of directors that will consist of two directors. Listed below is certain information concerning individuals who are expected to serve as directors and executive officers of iVoice Technology following the Distribution. Mr. Mahoney is currently a director of iVoice and we anticipate that Mr. Mahoney will remain a director of both iVoice and iVoice Technology following the Distribution. 44 Position with Director Term Name Age iVoice Technology, Inc. since Expires - ----------------- --- --------------------------------- -------- ------- Jerome R. Mahoney 43 Non-Executive Chairman of the Board 2004 2005 Arie Seidler 63 Director, President and Chief Executive Officer 2004 2005 Jerome R. Mahoney. Mr. Mahoney is iVoice Technology's Chairman of the Board. He has been a director of iVoice since May 21, 1999. Mr. Mahoney is also the Chairman of the Board of Trey Resources, Inc. and has been a director of Trey Resources since January 1, 2002. He is also the Chairman of the Board of Deep Field Technologies, Inc. and SpeechSwitch, Inc. and has been a director of Deep Field Technologies and SpeechSwitch since August 2004. Mr. Mahoney started at Executone Information Systems, a telephone systems manufacturer, and was Director of National Accounts from 1988 to 1989. In 1989, Mr. Mahoney founded Voice Express, Inc., a New York company that sold voicemail systems and telephone system service contracts and installed these systems. Mr. Mahoney sold Voice Express Systems in 1993. From 1993 to 1997, Mr. Mahoney was President of IVS Corp., and on December 17, 1997, he established International Voice Technologies, with which iVoice merged on May 21, 1999. Mr. Mahoney received a B.A. in finance and marketing from Fairleigh Dickinson University, Rutherford, N.J. in 1983. Arie Seidler. Mr. Seidler has been iVoice Technology's President and Chief Executive Officer and a director since August 1, 2004. In 1994, Mr. Seidler founded Vertical Solutions, Inc., a management consulting and business advisory services firm, and was Chief Executive Officer of Vertical Solutions from 1994 to 2004. In 1979, Mr. Seidler founded The Wheatley Group and served as Chief Executive Officer of The Wheatley Group until 1990. From 1974 to 1979, Mr. Seidler was a management consultant with KPMG Peat Marwick. Compensation of Executive Officers No officers or directors of iVoice Technology received any compensation for services to iVoice Technology during any of the last three fiscal years. Employment Agreements Jerome Mahoney iVoice Technology entered into a five-year employment agreement with Mr. Mahoney as of August 1, 2004. Mr. Mahoney will serve as iVoice Technology's Non-Executive Chairman of the Board for a term of five years. As consideration, iVoice Technology agreed to pay Mr. Mahoney the sum of $85,000 the first year with an annual increase based on the Consumer Price Index every year thereafter. iVoice Technology also agreed to pay Mr. Mahoney a bonus for each merger or acquisition completed by the Company equal to six percent (6%) of the gross consideration paid or received by iVoice Technology in a merger or acquisition completed by the Company during the term of the agreement. This bonus would be payable in the form of cash, debt or shares of Class B Common Stock at the option of Mr. Mahoney. 45 In the event Mr. Mahoney's employment agreement is terminated by iVoice Technology for cause or due to Mr. Mahoney's disability or retirement, iVoice Technology will pay him his full base salary for five years from the date of termination at the highest salary level under the agreement. Under his agreement, "cause" means (1) the willful and continued failure of Mr. Mahoney to substantially perform his duties to the Company after written demand for such performance is delivered to Mr. Mahoney by the Company's board of directors, (2) the willful engaging by Mr. Mahoney in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, (3) the conviction of Mr. Mahoney of a felony, which is limited solely to a crime that relates to the business operations of the Company or that results in his being unable to substantially carry out his duties as set forth in the agreement, or (4) the commission of any act by Mr. Mahoney against the Company that may be construed as embezzlement, larceny, and/or grand larceny. However, Mr. Mahoney will not be deemed to have been terminated for cause unless the board of directors determines, by a vote of at least 75% of the members of the board of directors that Mr. Mahoney was guilty of conduct described in items (1), (2) or (4) above. As the board of directors consists solely of Mr. Mahoney and Mr. Seidler, and Mr. Mahoney would be required to recuse himself from any discussions or vote regarding any potential termination, Mr. Seidler would be required to determine, in accordance with his fiduciary duties as a board member, if Mr. Mahoney should be terminated for cause. In the event Mr. Mahoney's employment agreement is terminated due to Mr. Mahoney's death, iVoice Technology will pay to his estate his full base salary for eight years from the date of termination at the highest salary level under the agreement. In the event Mr. Mahoney's employment agreement is terminated by iVoice Technology within three years following a change in control, as defined in the employment agreement, or by Mr. Mahoney for good reason within three years following a change in control, Mr. Mahoney will be entitled to receive a severance payment equal to three hundred percent (300%), less $100, of his gross income for services rendered to iVoice Technology in each of the five prior calendar years (or shorter period during which Mr. Mahoney shall have been employed by iVoice Technology). Under his employment agreement, "good reason" means, among other things, (1) any limitation on Mr. Mahoney's powers as Chairman of the Board, (2) a reduction in compensation, (3) a relocation of the Company outside New Jersey or (4) the failure of the Company to make any required payments under the agreement. The employment agreement restricts Mr. Mahoney from competing with iVoice Technology during the term of the agreement and for one year after he is no longer employed by the Company; provided that Mr. Mahoney is receiving severance or other compensation from the Company pursuant to the employment agreement for at least one year. Arie Seidler iVoice Technology entered into an employment agreement with Mr. Seidler as of August 1, 2004. Mr. Seidler will serve as iVoice Technology's President and Chief Executive Officer for a term of one year. As consideration, iVoice Technology agreed to pay Mr. Seidler a base salary of $85,000 during the term. In addition, iVoice Technology agreed to pay Mr. Seidler incentive compensation based on the amount of total revenues collected by iVoice Technology. If iVoice Technology records and collects total revenues in an amount greater than $300,000 but less than $2,000,000, Mr. Seidler will receive a bonus equal to 7.5% of the total revenues of the Company. If iVoice Technology records and collects total revenues in an amount greater than $2,000,000, in addition to the 7.5% bonus, Mr. Seidler will also receive a 46 bonus equal to 3.5% of the total revenues of the Company in excess of $2,000,000. However, if the Company's pre-tax profit margin for the year is less than 35%, Mr. Seidler's aggregate bonus will be reduced by 35%. iVoice Technology also agreed to pay Mr. Seidler a bonus for each merger or acquisition brought to the Company exclusively by Mr. Seidler and completed by the Company equal to six percent (6%) of the gross consideration paid or received by iVoice Technology, net of any debt or other liabilities assumed by the Company, in a merger or acquisition completed by the Company during the term of the agreement. This merger or acquisition bonus would be payable in the form of cash, debt or shares of Class A Common Stock at the option of iVoice Technology. In the event Mr. Seidler's employment agreement is terminated due to his death or disability or by iVoice Technology with or without cause, Mr. Seidler will receive the portion of his salary earned up until the date of his termination. Under his agreement, "cause" means (1) any material breach of the agreement by Mr. Seidler, (2) Mr. Seidler's failure to perform his duties under the employment agreement to the reasonable satisfaction of the board of directors, (3) any material act, or material failure to act, by Mr. Seidler in bad faith and to the material detriment of the Company, (4) commission of a material act involving moral turpitude, dishonesty, unethical business conduct, or any other conduct which significantly impairs the reputation of the Company, its subsidiaries or affiliates or (5) the conviction of Mr. Seidler of a felony. The employment agreement restricts Mr. Seidler from competing with iVoice Technology during the term of the agreement and for eighteen months after he is no longer employed by the Company. Equity Compensation Plans There are no existing equity compensation plans and iVoice Technology has no current plans, proposals or arrangements to establish, or provide any awards under, any such equity compensation plans. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On August 12 and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in secured convertible debentures, with interest payable at 5% per annum, to Cornell Capital Partners L.P. The debentures were intended to be convertible at the option of the holder only after our Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. On February 28, 2005, iVoice Technology's obligations under the secured convertible debentures were terminated and replaced with secured promissory notes of the same principal amount, which notes accrue interest at rate of 12% per annum, but are not convertible into any equity security of iVoice Technology. On February 28, 2005, iVoice Technology borrowed an additional $140,000 pursuant to an additional promissory note payable to Cornell Capital Partners. In connection with the issuances of the secured convertible debentures, iVoice Technology paid a fee to Cornell Capital Partners equal to 10% of the aggregate principal amount of the debentures. When the secured convertible debentures were terminated, iVoice Technology received a credit for fees that would otherwise have been payable upon the issuance of the $560,000 in replacement notes. iVoice Technology paid Cornell Capital a fee of $14,000 in connection with its $140,000 borrowing. iVoice Technology's obligations under the secured promissory notes issued to Cornell Capital Partners are secured by a first priority security interest 47 in substantially all of its assets. iVoice has also guaranteed the payment of all amounts payable by iVoice Technology pursuant to the secured promissory notes. Effective August 12, 2004, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners to obtain an equity line of credit. On February 28, 2005, iVoice Technology entered into a Termination Agreement with Cornell Capital Partners, pursuant to which the equity line transaction was terminated. On March 9, 2005, iVoice Technology received a non-binding letter of intent from Cornell Capital whereby Cornell Capital offered, subject to satisfaction of certain conditions, to purchase shares of iVoice Technology's common stock upon the terms set forth in the non-binding letter of intent and the definitive documentation to be executed after satisfaction of closing conditions. Pursuant to the terms of the non-binding letter of intent, if the definitive documentation is executed, iVoice Technology may then issue and sell to Cornell Capital Partners Class A Common Stock for a total purchase price of up to $10.0 million. The purchase price for the shares would be equal to 95% of the market price, which is defined as the lowest closing bid price of the Class A Common Stock during the five trading days following the date that iVoice Technology delivers to Cornell Capital Partners a notice requiring it to advance funds to us. A cash fee equal to six percent (6%) of the cash proceeds of the draw down would also be payable at the time of funding. In addition, Cornell Capital Partners would receive, as additional compensation, the number of shares of Class A Common Stock equal to one and one half percent (1.5%) of the number of shares of Class A Common Stock outstanding on the date that the registration statement in respect of the shares to be distributed pursuant to the equity line of credit becomes effective. However, Cornell Capital Partners is under no obligation to execute any definitive agreements with iVoice Technology. Furthermore, Cornell Capital Partners is under no obligation to purchase any shares of Class A Common Stock until the execution of the definitive agreements, following which Cornell Capital Partners will be obligated to purchase shares of Class A Common Stock only upon the satisfaction of certain conditions being met by iVoice Technology, including completing of the Distribution, listing our Class A Common Stock on the Over-the-Counter Bulletin Board and having the registration statement relating to the Standby Equity Distribution Agreement declared effective. If Cornell Capital Partners does not execute the definitive agreements or iVoice Technology cannot satisfy the requirements for Cornell Capital Partners to purchase the Class A Common Stock under the terms of the definitive documents, we will not be able to obtain sufficient capital resources to operate our business, and we have no current plans to obtain other financing. We cannot assure you that we will be able to access any financing in sufficient amounts or at all when needed. Our inability to obtain sufficient financing would have an immediate material adverse effect on us, our financial condition and our business. Upon the effective date of the registration statement of which this prospectus is a part, iVoice Technology will assume an aggregate of $190,000 in liabilities from iVoice and iVoice will assign to iVoice Technology assets having an aggregate book value of $10,000. See "Selected Historical and Pro Forma Financial Information" contained in the financial statements of iVoice Technology at the back of this prospectus. iVoice Technology believes that the fair value of these assets may be greater than the book value, although it has not undertaken an appraisal. The assumed obligations are described below. 48 In connection with the assumption of assets and liabilities by iVoice Technology from iVoice, iVoice Technology will assume from iVoice immediately prior to the date of this prospectus $190,000 of outstanding indebtedness from iVoice to Jerry Mahoney. The debt will be subject to a promissory note having substantially the same terms as the note from iVoice to Mr. Mahoney. iVoice Technology, upon the date of this prospectus, will issue a promissory note in the amount of $190,000 payable to Mr. Mahoney that will bear interest at the prime rate plus 2% per annum on the unpaid balance until paid or until default. Interest payments are due and payable annually. Under the terms of the promissory note, at the option of the note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of iVoice Technology, par value $0.01, for each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice Technology calculated by dividing (x) the sum of the principal and interest that the note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of Class A Common Stock since the first advance of funds under this note, or (iii) payment of the principal of this note, before any repayment of interest. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. See "Potential Dilution Due to Conversion at Below Market Price." Mr. Mahoney has agreed to forego receiving any shares of iVoice Technology's Class A Common Stock or Class B Common Stock he is or would be entitled to receive in the Distribution by virtue of his ownership of either iVoice Class A Common Stock or iVoice Class B Common Stock. iVoice Technology entered into two separate employment agreements with Mr. Mahoney, its Chairman of the Board, and Mr. Seidler, its President and Chief Executive Officer, respectively, as of August 1, 2004. Mr. Mahoney's agreement provides for annual compensation of $85,000 per annum with an annual increase based on the Consumer Price Index every year thereafter. Mr. Seidler's agreement provides for compensation of $85,000 plus additional incentive compensation. Each of Mr. Mahoney and Mr. Seidler will also be entitled to additional incentive compensation based upon acquisitions completed by iVoice Technology. iVoice Technology believes that the compensation provided to each of Mr. Mahoney and Mr. Seidler are commensurate with compensation levels paid by other companies to management having equivalent experiences and capabilities. In August 2004, iVoice Technology entered into a temporary administrative services agreement with iVoice. Pursuant to that agreement, iVoice is providing iVoice Technology with physical premises, inventory purchasing services, material and inventory control services, source code management and other personnel and data processing services for a period ending upon completion of the Distribution. For these services iVoice Technology is paying iVoice $7,000 per month during the term of the agreement. The administrative services agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. Following termination of the administrative services agreement, we expect that iVoice Technology will operate on a completely stand-alone basis from iVoice and there will be no business or operating relationship between iVoice and iVoice Technology. 49 PRINCIPAL STOCKHOLDERS The following table sets forth, as of February 28, 2005, information with respect to the beneficial ownership of our common stock by (i) persons known by us to beneficially own more than five percent of the outstanding shares, (ii) the director, (iii) each executive officer and (iv) all directors and executive officers as a group.
Common Stock Common Stock Beneficially Beneficially Owned Before Percentage Owned After Percentage Name Title of Class Distribution Ownership Distribution Ownership - ------------------------------- --------------------------- ------------------ ------------------ ------------------- ----------- Jerome R. Mahoney Class A Common Stock 0(1) 0%(1) 0(1) 0%(1) - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ Class B Common Stock 190,000(2) 100%(2) 190,000(2) 100%(2) - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ Class C Common Stock 0 0% 0 0% - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ Arie Seidler Class A Common Stock 0 0% 0 0% - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ Class B Common Stock 0 0% 0 0% - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ Class C Common Stock 0 0% 0 0% - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ iVoice, Inc. Class A Common Stock 100 100% 0 0% - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ Class B Common Stock 0 0% 0 0% - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ Class C Common Stock 0 0% 0 0% - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ All directors and executive officers as a group (2 persons) Class A Common Stock 0(1) 0%(1) 0(1) 0%(1) - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ Class B Common Stock 190,000(2) 100%(2) 190,000(2) 0%(2) - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------ Class C Common Stock 0 0% 0 0% - ------------------------------- --------------------------- ----------------- ------------------ ------------------- ------------
(1) Does not give effect to the right of Mr. Mahoney pursuant to the promissory note executed by Mr. Mahoney and iVoice Technology in the amount of $190,000 to convert $190,000 of indebtedness plus accrued and unpaid interest into more than 190,000 shares of Class B Common Stock which is convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price at which iVoice had ever issued its Class A Common Stock. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. (2) Mr. Mahoney may at his option convert the $190,000 promissory note held by him into Class B Common Stock of iVoice Technology at a rate of one dollar per share. The Class B Common Stock is convertible at any time into Class A Common Stock at a rate equal to 80% of the lowest price that iVoice Technology issues shares of Class A Common Stock subsequent to the date of the note. Thus by virtue of Mr. Mahoney's right to convert $190,000 of indebtedness plus accrued and unpaid interest into more than 190,000 shares of Class B Common Stock, Mr. Mahoney is deemed to beneficially own such shares for the purpose of computing the percentage of ownership by him, but such shares are not treated as outstanding for the purpose of computing the percentage ownership of any other person. 50 DESCRIPTION OF SECURITIES Pursuant to iVoice Technology's certificate of incorporation, as amended, we are authorized to issue 10,000,000,000 shares of Class A Common Stock, no par value per share, 50,000,000 shares of Class B Common Stock, par value $0.01 per share, 20,000,000 shares of Class C Common Stock, par value $0.01 per share, and 1,000,000 shares of Preferred Stock, par value of $1.00 per share. Below is a description of iVoice Technology's outstanding securities, including Class A Common Stock, Class B Common Stock, Class C Common Stock, and Preferred Stock. Class A Common Stock Each holder of our Class A Common Stock is entitled to one vote for each share held of record. Holders of our Class A Common Stock have no preemptive, subscription, conversion, or redemption rights. Upon liquidation, dissolution or winding-up, the holders of Class A Common Stock are entitled to receive our net assets pro rata. Each holder of Class A Common Stock is entitled to receive ratably any dividends declared by our board of directors out of funds legally available for the payment of dividends. We have not paid any dividends on our Common Stock and do not contemplate doing so in the foreseeable future. We anticipate that any earnings generated from operations will be used to finance our growth. As of November 30, 2004, there is one record holder of Class A Common Stock and iVoice Technology had 100 shares of Class A Common Stock outstanding. There will be approximately 10,000,000 outstanding shares of iVoice Technology Class A Common Stock immediately following the 100,000-for-one split to be effectuated prior to the Distribution. Class B Common Stock Each holder of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. Holders of Class B Common Stock are entitled to receive dividends in the same proportion as the Class B Common Stock conversion rights have to Class A Common Stock. There are 50,000,000 shares authorized and 0 shares issued and outstanding as of September 30, 2004. A holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price that iVoice Technology had ever issued its Class A Common Stock. Upon our liquidation, dissolution, or winding-up, holders of Class B Common Stock will be entitled to receive distributions. Class C Common Stock Each holder of our Class C Common Stock is entitled to 1,000 votes for each one share held of record. Holders of our Class C Common Stock have no preemptive, subscription, conversion, or redemption rights. Shares of Class C Common Stock are not convertible into Class A Common Stock. There are 20,000,000 shares authorized and 0 shares issued and outstanding as of September 30, 2004. Upon liquidation, dissolution or winding-up, the holders of Class C Common Stock are not entitled to receive our net assets pro rata. We have not paid 51 any dividends on our common stock and do not contemplate doing so in the foreseeable future. We anticipate that any earnings generated from operations will be used to finance our growth. Preferred Stock iVoice Technology is authorized to issue 1,000,000 shares of Preferred Stock, par value $1.00 per share. As of September 30, 2004, iVoice Technology has not issued any shares of Preferred Stock. iVoice Technology has no current plans to issue any shares of preferred stock. Our board of directors is authorized (by resolution and by filing an amendment to our certificate of incorporation and subject to limitations prescribed by the New Jersey Business Corporation Act) to issue, from to time, shares of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and other rights of the shares of each such series and to fix the qualifications, limitations and restrictions thereon, including, but without limiting the generality of the foregoing, the following: o the number of shares constituting that series and the distinctive designation of that series; o the dividend rate on the shares of that series, whether dividends are cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; o whether that series has voting rights, in addition to voting rights provided by law, and, if so, the terms of those voting rights; o whether that series has conversion privileges, and, if so, the terms and conditions of conversion, including provisions for adjusting the conversion rate in such events as our board of directors determines; o whether or not the shares of that series are redeemable, and, if so, the terms and conditions of redemption, including the dates upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; o whether that series has a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of that sinking fund; o the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of iVoice Technology, and the relative rights of priority, if any, of payment of shares of that series; and o any other relative powers, preferences and rights of that series, and qualifications, limitations or restrictions on that series. If we liquidate, dissolve or wind up our affairs, whether voluntarily or involuntarily, the holders of Preferred Stock of each series will be entitled to receive only that amount or those 52 amounts as are fixed by the Company's certificate of incorporation or the certificate of designations or by resolution of the board of directors providing for the issuance of that series. Transfer Agent iVoice and iVoice Technology's transfer agent is Fidelity Transfer Company. The address is 1800 South West Temple, Suite 301, Salt Lake City, Utah 84115. The telephone number is (801) 484-7222. Limitation of Liability: Indemnification Our by-laws include an indemnification provision under which we have agreed to indemnify directors of iVoice Technology to the fullest extent possible from and against any and all claims of any type arising from or related to future acts or omissions as a director of iVoice Technology. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of iVoice Technology pursuant to the foregoing, or otherwise, iVoice Technology has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. THE DISTRIBUTION Introduction In September 2004, iVoice's board of directors declared a distribution payable to the holders of record of outstanding iVoice common stock at the close of business on November 1, 2004. A new record date has been set for ______, 200_ (the "Record Date"). iVoice currently anticipates that it will distribute to iVoice stockholders, other than Mr. Mahoney, an aggregate of approximately 10,000,000 shares of iVoice Technology Class A Common Stock. Accordingly, the Distribution will consist of one share of iVoice Technology Class A Common Stock for approximately every ____ shares of iVoice common stock outstanding on the Record Date. Holders of less than ____ shares of iVoice common stock will receive one share of iVoice Technology Class A Common Stock. We currently anticipate that the Distribution will be effected near the effective date of the registration statement. iVoice Technology is currently a wholly-owned subsidiary of iVoice. As a result of the Distribution, 100% of the outstanding iVoice Technology Class A Common Stock will be distributed to iVoice stockholders. Immediately following the Distribution, iVoice and its subsidiaries will not own any shares of iVoice Technology Class A Common Stock and iVoice Technology will be an independent public company. The iVoice Technology Class A Common Stock will be distributed by book entry. Instead of stock certificates, each iVoice stockholder that is a record holder of iVoice shares will receive a statement of such stockholder's book entry account for the iVoice Technology Class A Common Stock distributed to such stockholder. Account statements reflecting ownership of the iVoice Technology Class A Common Stock will be mailed shortly after the Distribution Date. iVoice Technology Class A Common Stock should 53 be credited to accounts with stockbrokers, banks or nominees of iVoice stockholders that are not record holders after the effective date of the Distribution. iVoice Technology was incorporated on November 10, 2004. On November 11, 2004, iVoice Technology received by assignment all of the interests in and rights and title to, and assumed all of the obligations of, all of the agreements, contracts, understandings and other instruments of iVoice Technology, Inc., a Nevada corporation and affiliate of iVoice Technology. These agreements, contracts, understandings and other instruments consisted of the documentation relating to the issuance of the secured convertible debentures and the equity line of credit, the employment agreements with Messrs. Mahoney and Seidler and the administrative services agreement. Since this assignment, iVoice Technology Nevada has no operating business, assets or known liabilities, and is currently in the process of being dissolved. When we refer to or describe any agreement, contract or other written instrument of iVoice Technology in this prospectus, we are referring to an agreement, contract or other written instrument that had been entered into by iVoice Technology Nevada and assigned to iVoice Technology. iVoice Technology's principal executive offices are located at 750 Highway 34, Matawan, New Jersey 07747, and its telephone number is (732) 441-7700. iVoice Technology will own and operate the IVR software business of iVoice. Concurrently with the Distribution, iVoice intends to contribute the majority of its remaining business lines into two new companies and distribute the stock of those two companies to its stockholders. Following the Distribution and the two other distributions, iVoice's operating assets will consist of its iVoiceMail software and its portfolio of patents and patent rights, and its future business development operations will consist of licensing its intellectual property rights. Reasons for the Distribution The board of directors and management of iVoice believe that the Distribution is in the best interests of iVoice, iVoice Technology and iVoice stockholders. iVoice believes that the Distribution will enhance value for iVoice stockholders and give iVoice Technology the financial and operational flexibility to take advantage of potential growth opportunities in the IVR software business. iVoice's board of directors and management believe that the Distribution will enhance the ability of each of iVoice Technology and iVoice to focus on strategic initiatives and new business opportunities, improve cost structures and operating efficiencies and design equity-based compensation programs targeted to its own performance. In addition, iVoice's board of directors expects that the transition to an independent company will provide iVoice Technology with greater access to capital by allowing the financial community to focus solely on iVoice Technology and allow the investment community to measure iVoice Technology's performance relative to its peers. The IVR software business also has some important traits that make this business distinct from iVoice's other operations with respect to markets, products, capital needs and plans for growth. The Distribution will give iVoice Technology direct access to the capital markets as a stand alone company. 54 The board of directors and management of iVoice believe that the Distribution is in the best interests of iVoice and its stockholders. iVoice believes that the Distribution will enhance value for iVoice stockholders and that the spin off of the IVR business into iVoice Technology has provided greater access to capital by allowing the financial community to focus solely on iVoice Technology and its IVR software business as a stand alone company. In determining whether of not to spin off the IVR business and make the Distribution, the board considered the ability of iVoice to satisfy its working capital needs as a whole as against the ability of the IVR business to satisfy its capital needs as a stand alone company. As financing was available to the IVR business as a stand alone company, it was determined that the IVR business would be transferred to iVoice Technology. After considering the availability of such financing and the relative working capital needs of iVoice and iVoice Technology, the board elected not to transfer any part of the current cash balance of iVoice to iVoice Technology. As part of iVoice, the IVR software business competed with iVoice's other core business groups for capital to finance expansion and growth opportunities. As a separate entity, iVoice Technology will be free of iVoice's capital structure restrictions and should be in a better position to fund the implementation of its business strategy. The Distribution will also enable iVoice Technology to provide its management and employees incentive compensation in the form of equity ownership in iVoice Technology, enhancing iVoice Technology's ability to retain and motivate key employees, and, if iVoice Technology seeks to hire additional or replacement personnel, attract such personnel. However, there are no present plans, proposals or arrangements to establish, or provide any awards under, any such incentive compensation plan. Manner of Effecting the Distribution The Distribution will be made on the basis of one share of iVoice Technology Class A Common Stock for approximately every ____ shares of iVoice common stock outstanding on the Record Date. Holders of less than ____ shares of iVoice common stock will receive one share of iVoice Technology Class A Common Stock. Based on approximately _________ iVoice shares outstanding on the Record Date and approximately ____ iVoice shares outstanding on the Record Date that will actually participate in the Distribution, we currently anticipate that an aggregate of approximately 10,000,000 shares of iVoice Technology Class A Common Stock will be distributed to iVoice stockholders. At the time of the Distribution, the shares of iVoice Technology Class A Common Stock to be distributed will constitute 100% of the outstanding iVoice Technology Class A Common Stock. Immediately following the Distribution, iVoice will not own any iVoice Technology Class A Common Stock and iVoice Technology will be an independent public company. The shares of iVoice Technology Class A Common Stock being distributed in the Distribution will be fully paid and non-assessable and the holders thereof will not be entitled to preemptive rights. See "Description of Securities" beginning on page 49. iVoice will use a book entry system to distribute the shares of iVoice Technology Class A Common Stock in the Distribution. Following the Distribution, each record holder of iVoice stock on the Record Date will receive from the Distribution Agent a statement of the shares of iVoice Technology Class A Common Stock credited to the stockholder's account. If you are not a record holder of iVoice stock because your shares are held on your behalf by your stockbroker 55 or other nominee, your shares of iVoice Technology Class A Common Stock should be credited to your account with your stockbroker or nominee after the effective date of the registration statement. After the Distribution, stockholders may request stock certificates from iVoice Technology's transfer agent instead of participating in the book entry system. No fractional shares of iVoice Technology Class A Common Stock will be issued. If you own a fractional share of iVoice common stock as of the Record Date or own a number of iVoice shares that is not a multiple of ____, you will receive the next higher whole number of shares of iVoice Technology Class A Common Stock in the Distribution. If you own less than ____ shares you will receive one share of iVoice Technology Class A Common Stock. No iVoice stockholder will be required to pay any cash or other consideration for the shares of iVoice Technology Class A Common Stock received in the Distribution, or to surrender or exchange iVoice shares in order to receive shares of iVoice Technology Class A Common Stock. The Distribution will not affect the number of, or the rights attaching to, outstanding iVoice shares. No vote of iVoice stockholders is required or sought in connection with the Distribution, and iVoice stockholders will have no appraisal rights in connection with the Distribution. In order to receive shares of iVoice Technology Class A Common Stock in the Distribution, iVoice stockholders must be stockholders at the close of business on the Record Date. Results of the Distribution After the Distribution, iVoice Technology will be a separate public company operating the IVR software business. Based on approximately _________ iVoice shares outstanding on the Record Date and approximately ____ iVoice shares outstanding on the Record Date that will actually participate in the Distribution, immediately after the Distribution, iVoice Technology expects to have approximately 20,000 holders of record of iVoice Technology Class A Common Stock, and approximately 10,000,000 shares of iVoice Technology Class A Common Stock outstanding. The Distribution will not affect the number of outstanding iVoice shares or any rights of iVoice stockholders. Listing and Trading of the iVoice Technology Class A Common Stock Neither iVoice Technology nor iVoice makes recommendations on the purchase, retention or sale of shares of iVoice common stock or shares of iVoice Technology Class A Common Stock. You should consult with your own financial advisors, such as your stockbroker, bank or tax advisor. If you do decide to purchase or sell any iVoice or iVoice Technology shares, you should make sure your stockbroker, bank or other nominee understands whether you want to purchase or sell iVoice common stock or iVoice Technology Class A Common Stock, or both. The following information may be helpful in discussions with your stockbroker, bank or other nominee. 56 There is not currently a public market for the iVoice Technology Class A Common Stock, although a when-issued market may develop prior to completion of the Distribution. When-issued trading refers to a transaction made conditionally because the security has been authorized but is not yet issued or available. Even though when-issued trading may develop, none of these trades would settle prior to the effective date of the Distribution, and if the Distribution does not occur, all when-issued trading will be null and void. On the first trading day following the date of the Distribution, when-issued trading in respect of shares of iVoice Technology Class A Common Stock will end and regular-way trading will begin. Regular-way trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full business day following the date of a transaction. We anticipate that the iVoice Technology Class A Common Stock will trade on the Over-the-Counter Bulletin Board under the proposed symbol "____." The shares of iVoice Technology Class A Common Stock distributed to iVoice stockholders will be freely transferable, except for (1) shares of iVoice Technology Class A Common Stock received by persons who may be deemed to be affiliates of iVoice Technology under the Securities Act of 1933, as amended (the "Securities Act"), and (2) shares of iVoice Technology Class A Common Stock received by persons who hold restricted shares of iVoice common stock. Persons who may be deemed to be affiliates of iVoice Technology after the Distribution generally include individuals or entities that control, are controlled by, or are under common control with iVoice Technology and may include certain directors, officers and significant stockholders of iVoice Technology. Persons who are affiliates of iVoice Technology will be permitted to sell their shares of iVoice Technology Class A Common Stock only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act and the provisions of Rule 144 thereunder. There can be no assurance as to whether the iVoice Technology Class A Common Stock will be actively traded or as to the prices at which the iVoice Technology Class A Common Stock will trade. Some of the iVoice stockholders who receive shares of iVoice Technology Class A Common Stock may decide that they do not want shares in a company consisting of the IVR business, and may sell their shares of iVoice Technology Class A Common Stock following the Distribution. This may delay the development of an orderly trading market in iVoice Technology Class A Common Stock for a period of time following the Distribution. Until the shares of iVoice Technology Class A Common Stock are fully distributed and an orderly market develops, the prices at which the iVoice Technology Class A Common Stock trades may fluctuate significantly and may be lower than the price that would be expected for a fully distributed issue. Prices for iVoice Technology Class A Common Stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for the shares, iVoice Technology's results of operations, what investors think of iVoice Technology and the IVR industry, the amount of dividends that iVoice Technology pays, changes in economic conditions in the IVR industry and general economic and market conditions. Following the Distribution, iVoice expects that its common stock will continue to be listed and traded on the Over-the-Counter Bulletin Board under the symbol "IVOC." Following the Distribution and the distribution of the two other new subsidiaries of iVoice, iVoice will have 57 no remaining businesses other than the licensing of its intellectual property rights. A trading market may not continue for the shares of iVoice common stock or ever develop for the iVoice Technology Class A Common Stock. As a result of the Distribution, the trading price of iVoice common stock immediately following the Distribution may be substantially lower than the trading price of iVoice common stock immediately prior to the Distribution. The combined trading prices of iVoice common stock and the iVoice Technology Class A Common Stock after the Distribution may be less than the trading price of iVoice common stock immediately prior to the Distribution. Further, the combined trading prices of iVoice common stock, the iVoice Technology Class A Common Stock and the common stock of each of the two other new companies being distributed to iVoice stockholders after the Distribution and the two other distributions may be less than the trading price of iVoice common stock immediately prior to these distributions. Even though iVoice is currently a publicly held company, there can be no assurance as to whether an active trading market for iVoice common stock will be maintained after the Distribution and the two other distributions or as to the prices at which the iVoice common stock will trade. iVoice stockholders may sell their iVoice common stock following the Distribution. These and other factors may delay or hinder the return to an orderly trading market in the iVoice common stock following the Distribution. Whether an active trading market for iVoice common stock will be maintained after the Distribution and the prices for iVoice common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for the shares, iVoice's results of operations, what investors think of iVoice and its industries, changes in economic conditions in its industries and general economic and market conditions. In addition, the stock market often experiences significant price fluctuations that are unrelated to the operating performance of the specific companies whose stock is traded. Market fluctuations could have a material adverse impact on the trading price of the iVoice Technology Class A Common Stock and/or iVoice common stock. As described elsewhere in this prospectus, iVoice Technology had issued to Cornell Capital Partners $560,000 aggregate principal amount of secured convertible debentures. On February 28, 2005, iVoice Technology's obligations under the secured convertible debentures were terminated and replaced with secured promissory notes of the same principal amount, which notes accrue interest at rate of 12% per annum, but are not convertible into any equity security of iVoice Technology. Mr. Mahoney will have the right to convert $190,000 of indebtedness plus accrued and unpaid interest into 190,000 (plus on a dollar per share basis, amounts of accrued and unpaid interest) shares of iVoice Technology Class B Common Stock which is convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price at which iVoice had ever issued its Class A Common Stock. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of these obligations. See "Potential Dilution Due to Conversion at Below Market Price." However, assuming a market price for iVoice Technology Class A Common Stock of $0.01, we would be required to issue 23,750,000 shares of Class A Common Stock to Mr. Mahoney, plus shares 58 attributable to accrued and unpaid interest upon conversion of his promissory note. As of March 31, 2005, there was $26,334.97 of accrued and unpaid interest on the promissory note. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION The following discussion summarizes the material U.S. federal income tax consequences resulting from the Distribution. This discussion is based upon the U.S. federal income tax laws and regulations now in effect and as currently interpreted by courts or the Internal Revenue Service and does not take into account possible changes in such tax laws or such interpretations, any of which may be applied retroactively. The following summary is for general information only and may not be applicable to stockholders who received their shares of iVoice stock pursuant to an employee benefit plan or who are foreign persons or who are otherwise subject to special treatment under U.S. federal income tax laws. Each stockholder's individual circumstances may affect the tax consequences of the Distribution to such stockholder. In addition, no information is provided with respect to tax consequences under any applicable foreign, state or local laws. Consequently, each iVoice stockholder is advised to consult his own tax advisor as to the specific tax consequences of the Distribution to him and the effect of possible changes in tax laws. General Each iVoice stockholder who receives shares of iVoice Technology Class A Common Stock in the Distribution will generally be treated as receiving a taxable dividend equal to the fair market value on the Distribution date of the shares received to the extent of the current or accumulated earnings and profits of iVoice as of the end of the year in which the Distribution occurs. Any such earnings and profits will be proportionately allocated among the shares received. iVoice does not have any accumulated earnings and profits. Following the end of the year in which the Distribution occurs, iVoice will provide, or otherwise make available, to its stockholders information setting forth the portion of the Distribution, if any, that is treated as a dividend. Dividends received by non-corporate taxpayers generally are taxed at the same preferential rates that apply to long-term capital gains. Any portion of the Distribution that exceeds such earnings and profits will be treated as a tax-free return of capital to the extent of the stockholder's adjusted tax basis in the iVoice shares and thereafter as gain from the sale or exchange of iVoice shares. Stockholders which are corporations may be subject to additional special provisions dealing with taxable distributions, such as the dividends received deduction and the extraordinary dividend rules. The basis of shares received in the Distribution will be equal to their fair market value on the distribution date, and a stockholder's holding period with respect to the shares received will begin on the day following the date of the Distribution. 59 You should consult your own tax advisor as to the particular consequences of the Distribution to you, including the application of state, local and foreign tax laws. CHANGES IN ACCOUNTANTS (a) On February 23, 2005, iVoice Technology terminated the services of its independent account, Mendlowitz Weitsen, LLP. For the two most recent fiscal years: (i) the independent account's report did not contain an adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty, audit scope, or accounting principles and (ii) there were no disagreements with the former accountant, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the former accountant's satisfaction, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report. The decision to change accountants was recommended by iVoice Technology's Audit Committee. (b) On February 23, 2005, iVoice Technology engaged the independent accounting firm of Bagell, Josephs & Company, L.L.C. as principal accountant to audit iVoice Technology's financial statements for the fiscal years ended December 31, 2004 and 2003. REASONS FOR FURNISHING THIS DOCUMENT This document is being furnished solely to provide information to iVoice stockholders who will receive iVoice Technology Class A Common Stock in the Distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any securities of iVoice or iVoice Technology. Neither iVoice nor iVoice Technology will update the information contained in this document except in the normal course of their respective public disclosure practices. However, this document will be amended if there is any material change in the terms of the Distribution. RELATIONSHIP BETWEEN IVOICE AND IVOICE TECHNOLOGY FOLLOWING THE DISTRIBUTION To provide for an orderly transition to the status of two independent companies, iVoice and iVoice Technology have entered into an administrative services agreement. Under this agreement, iVoice is providing iVoice Technology services in such areas as inventory purchasing, material and inventory control, sharing of office space, source code management, employee benefits administration, payroll, electronic data processing services, financial accounting and reporting, claims administration and reporting, and other areas where iVoice Technology needs transitional assistance and support. Under the administrative services agreement, iVoice is providing iVoice Technology substantially the same level of service and use substantially the same degree of care as iVoice's personnel provided and used in providing such services prior to the execution of the agreement. For these services, iVoice Technology pays iVoice a fee of $7,000 per month. iVoice Technology believes that the terms and conditions of the administrative services agreement are as favorable to iVoice Technology as those available from unrelated parties for a comparable arrangement. The administrative services agreement will continue on a month to month basis until iVoice 60 Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. Following termination of the administrative services agreement, we expect that iVoice Technology will operate on a completely stand-alone basis from iVoice and there will be no business or operating relationship between iVoice and iVoice Technology. Upon termination of the agreement, iVoice Technology would be required to obtain such services from a third party or increase its headcount to provide such services. This could be more expensive than the fees which iVoice Technology has been required to pay under the administrative services agreement. WHERE YOU CAN FIND MORE INFORMATION iVoice Technology has filed with the Securities and Exchange Commission the registration statement under the Securities Act with respect to the iVoice Technology Class A Common Stock. This document does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto, to which reference is hereby made. Statements made in this document as to the contents of any contract, agreement or other document referred to herein are not necessarily complete. The registration statement and the exhibits thereto filed by iVoice Technology with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such information can be obtained by mail from the Public Reference Branch of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's website is http://www.sec.gov. Upon the effectiveness of the registration statement, iVoice Technology will be required to comply with the reporting requirements of the Securities Exchange Act of 1934 and to file with the Commission reports, proxy statements and other information as required by the Exchange Act. Additionally, iVoice Technology will be required to provide annual reports containing audited financial statements to its stockholders in connection with its annual meetings of stockholders. These reports, proxy statements and other information will be available to be inspected and copied at the public reference facilities of the Commission or obtained by mail or over the Internet from the Commission, as described above. 61 iVOICE TECHNOLOGY, INC. INDEX TO FINANCIAL STATEMENTS Contents Page - -------- ---- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2 AUDITED FINANCIAL STATEMENTS Balance Sheets F-3 Statements of Operations F-4 Statements of Owner's Equity (Deficiency) F-5 Statements of Cash Flows F-6 NOTES TO AUDITED FINANCIAL STATEMENTS F-7 SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION Condensed Unaudited Pro Forma Balance Sheet for the year ended December 31, 2004 F-19 Unaudited Pro Forma Statement of Operations for F-20 the year ended December 31, 2004 Unaudited Pro Forma Statement of Operations for F-21 the year ended December 31, 2003 NOTES TO CONDENSED UNAUDITED PRO FORMA FINANCIAL INFORMATION F-22 F-1 Bagell, Josephs & Company, LLC 200 Haddonfield Berlin Road, Gibbsboro, NJ 08026 Tel: 856.346.2628 Fax: 856.346.2882 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF iVOICE TECHNOLOGY, INC. Matawan, New Jersey We have audited the accompanying balance sheets of the interactive voice response software business of iVoice, Inc. (iVoice Technology, Inc., a wholly owned subsidiary of iVoice, Inc.) as of December 31, 2004 and 2003 and the related statements of operations, owner's equity and cash flows for the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the interactive voice response software business of iVoice, Inc. (iVoice Technology, Inc.) as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years ended December 31, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements have been derived from the consolidated financial statements and accounting records of iVoice, Inc., and reflect significant assumptions and allocations. Moreover, as indicated in Note 1, the Company relies on iVoice, Inc. for administrative, management, research and other services. Accordingly, these financial statements do not necessarily reflect the financial position, results of operations, and cash flows of the Company had it been a stand-alone Company. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3, the Company had net losses and negative cash flows from operations for the years ended December 31, 2004 and 2003, and as of those dates had negative working capital, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ BAGELL, JOSEPHS & COMPANY, L.L.C. Gibbsboro, New Jersey March 21, 2005 F-2
iVOICE TECHNOLOGY, INC. BALANCE SHEETS December 31, 2004 2003 ----------- ----------- ASSETS - ------ CURRENT ASSETS Cash and cash equivalents $ 346,599 $ 0 Accounts receivable 31,733 37,483 Inventory, net 0 11,888 Cost in excess of billing 0 2,706 ----------- ----------- Total current assets 378,332 52,077 PROPERTY AND EQUIPMENT, net Property and equipment, net 4,737 0 OTHER ASSETS Software license costs, net 0 45,400 ----------- ----------- TOTAL ASSETS $ 383,069 $ 97,477 =========== =========== LIABILITIES AND OWNER'S EQUITY (DEFICIENCY) - ------------------------------------------- CURRENT LIABILITIES Accounts payable and accrued expenses $ 30,606 $ 0 5% Convertible debentures 560,000 0 Deferred maintenance contracts 33,141 23,662 ----------- ----------- Total current liabilities 623,747 23,662 OWNER'S EQUITY (DEFICIENCY) Common Stock Class A, no par value; Authorized 10,000,000,000 shares; 100 and 0 shares issued and outstanding, respectively 0 0 Class B, par value $.01; Authorized 50,000,000 shares; no shares issued and outstanding 0 0 Class C, par value $.01; Authorized 20,000,000 shares; no shares issued and outstanding 0 0 Preferred Stock; Par value $1.00; Authorized 1,000,000 shares; no shares issued and outstanding 0 0 Net investment, iVoice, Inc. 7,297,231 6,133,597 Accumulated deficit (7,537,909) (6,059,782) ----------- ----------- Total owner's equity (deficiency) (240,678) 73,815 ----------- ----------- TOTAL LIABILITIES AND OWNER'S EQUITY (DEFICIENCY) $ 383,069 $ 97,477 =========== ===========
The Notes to Financial Statements are an integral part of these statements. F-3
iVOICE TECHNOLOGY, INC. STATEMENTS OF OPERATIONS For The Years December 31, 2004 and 2003 2004 2003 ----------- ----------- SALES, net $ 239,114 $ 303,756 72,870 123,091 COST OF SALES ----------- ----------- GROSS PROFIT 166,244 180,665 ----------- ----------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling expenses 45,512 68,692 General & administrative expense 721,733 665,473 Research & development 50,788 128,696 Depreciation & amortization 45,423 102,480 ----------- ----------- Total Selling, General & Administrative expense 863,456 965,341 ----------- ----------- LOSS FROM CONTINUING OPERATIONS (697,212) (784,676) ----------- ----------- OTHER INCOME (EXPENSE) Other income 113,194 100,557 Gain on sale of securities held for sale 0 69,418 Interest expense (882,042) (516,719) Other expense (12,067) 0 ----------- ----------- Total other expense (780,915) (346,744) ----------- ----------- LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (1,478,127) (1,131,420) ----------- ----------- PROVISION FOR INCOME TAXES 0 0 ----------- ----------- NET LOSS FROM CONTINUING OPERATIONS $(1,478,127) $(1,131,420) =========== =========== NET LOSS PER COMMON SHARE: Basic $(14,781.27) $(11,314.20) =========== =========== Diluted $(14,781.27) $(11,314.20) =========== ===========
The Notes to Financial Statements are an integral part of these statements. F-4
iVOICE TECHNOLOGY, INC. STATEMENTS OF OWNER'S EQUITY (DEFICIENCY) For the Years Ended December 31, 2004 and 2003 Total Common Common Net Owner's Stock Stock Investment Accumulated Equity Shares Amount iVoice, Inc Deficit (Deficiency) ------ ------ ----------- ------- ------------ Balance at January 1, 2003 0 0 5,108,396 (4,928,362) 180,034 Net transactions with iVoice, Inc. 1,025,201 -- 1,025,201 Net loss for the twelve months ended December 31, 2003 (1,131,420) (1,131,420) ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2003 0 0 6,133,597 (6,059,782) 73,815 Issuance of common stock 100 0 0 Net transactions with iVoice, Inc. 1,163,634 1,163,634 Net loss for the twelve months ended December 31, 2004 (1,478,127) (1,478,127) ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2004 100 $ 0 $ 7,297,231 $(7,482,909) $ (240,678) =========== =========== =========== =========== ===========
The Notes to Financial Statements are an integral part of these statements. F-5
iVOICE TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS For The Years December 31, 2004 and 2003 2004 2003 ------------ ----------- CASH FLOW FROM OPERATING ACTIVITIES Net loss $(1,478,127) $(1,033,500) Depreciation and amortization 45,423 102,480 Changes in operating assets and liabilities Decrease in accounts receivable 5,750 -- Decrease in inventory 11,888 -- Decrease in cost in excess of billing 2,706 -- Increase in accounts payable and accrued expenses 30,606 -- Increase in deferred maintenance contracts 9,479 3,739 ----------- ----------- Net cash used in operating activities (1,372,295) (927,281) ----------- ----------- CASH FLOWS FOR INVESTING ACTIVITIES Purchase of property and equipment (4,760) -- ----------- ----------- Net cash used in investing activities (4,760) 0 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Allocation of costs by iVoice 1,163,634 927,281 Sale of convertible debentures 560,000 ----------- ----------- Net cash provided by financing activities 1,723,634 927,281 ----------- ----------- NET INCREASE (DECREASE) IN CASH 346,599 0 CASH - beginning 0 0 CASH - end $ 346,599 $ 0 =========== =========== CASH PAID DURING THE YEAR FOR: Interest expense $ 25 $ 516,719 =========== =========== Income taxes $ 0 $ 0 =========== ===========
The Notes to Financial Statements are an integral part of these statements. F-6 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 NOTE 1 - BACKGROUND iVoice Technology, Inc. ("iVoice Technology" or the "Company") was incorporated under the laws of New Jersey on November 10, 2004 as a wholly owned subsidiary of iVoice, Inc. ("iVoice"). The Company received by assignment all of the interests in and rights and title to, and assumed all of the obligations of, all of the agreements, contracts, understandings and other instruments of iVoice Technology, Inc., a Nevada corporation and affiliate of the Company. When we refer to or describe any agreement, contract or other written instrument of the Company in these notes, we are referring to an agreement, contract or other written instrument that had been entered into by iVoice Technology Nevada and assigned to the Company. On September 1, 2004, the Board of Directors of iVoice, Inc. resolved to pursue the separation of iVoice software business into three publicly owned companies. iVoice will continue to focus on its own computerized telephony technology and related business development operations. iVoice Technology will continue to develop, market and license the Interactive Voice Response line of computerized telephony software. In September, 2004, iVoice Inc. announced that it intends to distribute to its shareholders all of the iVoice Technologies Class A Common Stock. The spin-off transaction will be accomplished by the distribution of certain intellectual property, representing the software codes of Interactive Voice Response ("IVR"), and certain accrued liabilities and related party debt to iVoice Technology (the "Distribution"), the shares of common stock of which will be distributed to iVoice shareholders in the form of a taxable dividend. In conjunction with the spin-off, iVoice Technology has entered into a temporary administrative services agreement with iVoice. The administrative services agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. iVoice Technology also intends to assume $190,000 in accrued liabilities and related party debt presently outstanding and incurred by iVoice. The debt being assumed will be convertible into Class B Common Stock of iVoice Technology at the option of the holder as later described in these notes. NOTE 2 - BUSINESS OPERATIONS The Company will continue to develop, market and license the Interactive Voice Response line, which was developed by iVoice. The Company's Interactive Voice Response line is designed to read information from and write information to, databases, as well as to query databases and return information. IVR is an application generator that allows full connectivity to many databases, including Microsoft Access, Microsoft Excel, Microsoft Fox Pro, and Paradox, or to standard text F-7 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 files. The IVR software is sold as an application generator that gives the end user the ability to develop their own customized IVR applications or as a customized turnkey system. IVR performs over 40 different customizable commands. Examples of IVR range from simply selecting announcements from a list of options stored in the computer (also known as audio text) to more complex interactive exchanges such as querying a database for information. NOTE 3 - GOING CONCERN The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has traditionally operated as a non-reporting component of iVoice, Inc. and accordingly these financial statements have been derived from the consolidated financial statements and accounting records of iVoice, Inc., and reflect significant assumptions and allocations. The Company relies on iVoice, Inc. for administrative, management, research and other services. These financial statements do not necessarily reflect the financial position, results of operations, and cash flows of the Company had it been a stand-alone Company. As of December 31, 2004, the Company had a net loss, a negative cash flow from operations as well as negative working capital. These matters raise substantial doubt about the Company's ability to continue as a going concern. Therefore, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn, is dependent upon the Company's ability to raise capital and/or generate positive cash flow from operations. In order to provide necessary working capital, in August 2004, the Company entered into a subscription agreement, pursuant to which the Company issued $280,000 of secured convertible debentures in August 2004, and an additional $280,000 of secured convertible debentures, in November 2004, around the time of filing of the registration statement for the Class A Common Stock. The debentures are convertible at the option of the holder only after the Company's Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. Interest on the secured convertible debentures is payable at 5% per annum and the notes are convertible into the Company's Class A Common Stock at a price equal to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the initial bid price of the Class A Common Stock on the date of effectiveness of the registration statement, or (b) an amount equal to eighty percent (80%) of the lowest closing bid price of the Class A Common Stock for the five (5) trading days immediately preceding the conversion date. Additionally, the Company had also entered into a Standby Equity Distribution Agreement, subsequently terminated, where the Company could, at its discretion, periodically sell to an investor shares of Class A Common Stock to raise capital to fund working capital needs. These two financing transactions required the Company to register its common stock under Section 12 (g) of the U.S. Securities Exchange Act of 1934 and subsequently register for resale a number of shares to facilitate these financing transactions. F-8 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presentation The accompanying financial statements have been derived from the consolidated financial statements and accounting records of iVoice using the historical results of operations and historical basis of assets and liabilities of the Company's Interactive Voice Response business. Management believes the assumptions underlying the financial statements are reasonable. However, the financial statements included herein may not necessarily reflect the Company's results of operations, financial position, and cash flows in the future or what its results of operations, financial position and cash flows would have had the Company been a stand-alone company during the periods presented. b) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. c) Software License Costs Software license costs are recorded at cost, which approximates fair market value as of the date of purchase. These costs represent the purchase of various exploitation rights to certain software, pre-development codes and systems developed by a non-related third party. These costs are capitalized pursuant to Statement of Financial Accounting Standards ("SFAS") 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed". The Company has adopted SFAS No. 121. The carrying value of software license costs are regularly reviewed by the Company and a loss would be recognized if the value of the estimated un-discounted cash flow benefit related to the asset falls below the unamortized cost. Historically the Interactive Voice Response software technology has produced limited sales revenue. However, management believes that the limited sales generated result from a lack of application of Company sales and marketing resources to the software. It is Management's plan to devote such resources to its software technology to recognize the technology's potential value and therefore, no impairment loss has been recorded. d) Revenue Recognition The Company derives its revenues from the licensing of its software product and optional customer support (maintenance) service. The Company's standard license F-9 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 agreement provides for a one-time fee for use of the Company's product in perpetuity for each computer or CPU in which the software will reside. The Company's software application is fully functional upon delivery and implementation and does not require any significant modification or alteration. The Company also offers customers an optional annual software maintenance and support agreement for the subsequent one-year periods. Such maintenance and support services are free for the first year the product is licensed and is considered the warranty period. The software maintenance and support agreement provides free software updates, if any, and technical support the customer may need in deploying or changing the configuration of the software. Generally, the Company does not license its software in multiple element arrangements whereby the customer purchases a combination of software and maintenance. In a typical arrangement, software maintenance services are sold separately from the software product; are not considered essential to the functionality of the software and are purchased at the customer's option upon the completion of the first year licensed. The Company does not offer any special payment terms or significant discount pricing. Normal and customary payment terms require payment for the software license fees when the product is shipped. Payment for software maintenance is due prior to the commencement of the maintenance period. It is also the Company's policy to not provide customers the right to refund any portion of its license fees. The Company accepts Visa and MasterCard as well as company checks. With respect to the sale of software license fees, the Company recognizes revenue in accordance with Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), as amended, and generally recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists generally evidenced by a signed, written purchase order from the customer, (2) delivery of the software product on Compact Disk (CD) or other means to the customer has occurred, (3) the perpetual license fee is fixed or determinable and (4) collectibility, which is assessed on a customer-by-customer basis, is probable. With respect to customer support services, upon the completion of one year from the date of sale, considered to be the warrantee period, the Company offers customers an optional annual software maintenance and support agreement for subsequent one-year periods. Sales of purchased maintenance and support agreements are recorded as deferred revenue and recognized over the respective terms of the agreements. Three customers generated approximately 69% of the revenue for the Company through one-time contracts that will be unlikely to impact revenues in future periods. e) Product Warranties The Company estimates its warranty costs based on historical warranty claims experience in estimating potential warranty claims. Due to the limited sales of the Company's products, management has determined that warranty costs are immaterial and has not included an accrual for potential warranty claims. Presently, costs related to warranty coverage are expensed as incurred. Warranty claims are reviewed quarterly to F-10 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 verify that warranty liabilities properly reflect any remaining obligation based on the anticipated expenditures over the balance of the obligation period. f) Research and development costs Research and development costs will be charged to expense as incurred. g) Inventory Inventory, consisting primarily of system components such as computer components, voice cards, and monitors, is valued at the lower of cost or market. Cost is determined on a first-in, first-out basis. h) Income Taxes The Company accounts for income taxes under the Financial Accounting Standards Board ("FASB") of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" ("Statement 109"). Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company, not being a separate reporting entity, will not receive any benefit from the approximately $7,000,000 net operating loss allocated to the IVR software business contained in these financial statements. i) Organization Costs Organization costs consist primarily of professional and filing fees relating to the formation of the Company. These costs have been expensed. j) Earnings Per Share SFAS No. 128, "Earnings Per Share" requires presentation of basic earnings per share ("basic EPS") and diluted earnings per share ("diluted EPS"). The computation of basic pro forma EPS is computed by dividing income available to common shareholders by the expected number of shares to be issued in connection with the Company's proposed spin-off from iVoice, Inc. Diluted earnings per share gives effect to all dilutive potential Common shares outstanding during the period. The computation of diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings resulting from the Company's net loss position. Since the earnings per share information is being shown F-11 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 on a pro forma basis, only the most recent year has been presented. The shares used in the computation are as follows: As of As of December 31, 2004 December 31, 2003 ----------------- ----------------- Pro Forma Basis and diluted purposes 100 100 k) Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income", establishes standards for the reporting and display of comprehensive income and its components in the financial statements. The items of other comprehensive income that are typically required to be displayed are foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities, As of December 31, 2004 and 2003, the Company has no items that represent comprehensive income, and thus, has not included a statement of comprehensive income. l) Recent Accounting Pronouncements In December 2003, the FASB issued Interpretation No. 46-R, "Consolidation of Variable Interest Entities" ("FIN 46-R"). FIN 46-R, which modifies certain provisions and effective dates of FIN No. 46, sets forth criteria to be used in determining whether an investment in a variable interest entity should be consolidated, and is based on the general premise that companies that control another entity through interests other than voting interests should consolidate the controlled entity. The provisions of FIN 46 became effective for the Company during the third quarter of Fiscal 2004. The adoption of this new standard did not have any impact on the Company's financial position, results of operations or cash flows. In December 2003, the FASB issued a revision to SFAS No. 132 "Employers' Disclosures about Pensions and Other Post retirement Benefits." This revised statement requires additional annual disclosures regarding types of pension plan assets, investment strategy, future plan contributions, expected benefit payments and other items. The statement also requires quarterly disclosure of the components of net periodic benefit cost and plan contributions. This currently has no effect on the Company. m) Reclassification Certain amounts in the 2003 financial statements were reclassified to conform to the 2004 presentation. The reclassification in 2003 results in no changes to the net loss for that period. F-12 NOTE 5 - INTANGIBLE ASSETS iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 Intangible assets consist of software source codes originally purchased by iVoice for $454,000 in May 1999. The asset is reflected at its original cost net of accumulated amortization of $454,000, from the date acquired by iVoice. The asset was amortized over a 5-year period. In accordance with FAS 142 goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually, and whenever events or changes in circumstances indicate the carrying amounts of the assets may be impaired. We have elected to perform our impairment review during the fourth quarter of each year, in conjunction with our annual planning cycle. At December 31, 2004, we found no impairment of goodwill or other indefinite-lived intangible assets. NOTE 6 - RELATED PARTY TRANSACTIONS During the years ended December 31, 2004 and December 31, 2003 iVoice allocated operating costs of $1,163,634 and $965,341, respectively to iVoice Technology. These allocations are reflected in the selling, general and administrative, cost of revenue and research and development line items in our statements of operations. The general corporate expense allocation is primarily for cash management, selling expense, legal, accounting, tax, insurance, public relations, advertising, and human resources. The amortization of the Interactive Voice Response software has been reflected as cost of sales. Other general categories of operating expense, as well as other income and expense, have been allocated to iVoice Technology by iVoice based upon a ratio of revenue of the Interactive Voice Response software over total iVoice revenue for the applicable periods. Management believes the costs of these services charged are a reasonable representation of the costs that would have been incurred if iVoice Technology had performed these functions as a stand-alone company. In conjunction with the spin-off, iVoice Technology has entered into a temporary administrative services agreement with iVoice. The administrative services agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. NOTE 7 - INCOME TAXES The reconciliation of the effective income tax rate to the Federal Statutory rate is as follows: Federal Income Tax Rate (34.0)% Deferred Tax charge (Credit) 0.0 % Effect on Valuation Allowance 38.1 % State Income Tax, Net of Federal Benefits ( 4.1)% Effective Income Tax Rate 0.0 % F-13 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 Prior to the spin-off, the Company was included as part of iVoice's consolidated federal income tax return. However, the income tax expense presented in these financial statements has been computed on a separate return basis. NOTE 8 - COMMITMENTS AND CONTINGENCIES As discussed in Note 3, the Company has entered into a subscription agreement with certain purchasers for the sale of $700,000 in convertible debentures. The debentures will be convertible into Class A Common Stock at the discretion of the holders only after the Company's Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. Additionally, the Company has entered into a Standby Equity Distribution Agreement whereby the Company, at their discretion, may periodically sell to an investor shares of Class A Common Stock to raise capital to fund its working capital needs. These transactions will require the Company to register its common stock under Section 12(g) of the Securities Exchange Act of 1934 and subsequently register for resale a number of shares to facilitate these financial transactions. The Company will also assume an outstanding promissory note in the amount of $190,000 payable to Jerry Mahoney, President and Chief Executive Officer of iVoice and Non-Executive Chairman of the Board of iVoice Technology. This amount is related to funds loaned to iVoice and is unrelated to the operations of iVoice Technology. The note will bear interest at the rate of Prime plus 2.0% per annum on the unpaid balance until paid. Under the terms of the Promissory Note, at the option of the Note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of iVoice Technology, Inc., par value $.01, for each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice Technology, Inc. calculated by dividing (x) the sum of the principal and interest that the Note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of Class A Common Stock since the first advance of funds under this Note, or (iii) payment of the principal of this Note, before any repayment of interest. Effective August 1, 2004, the Company entered into a one year employment contract with Arie Seidler, its President and Chief Executive Officer. The Company will pay Mr. Seidler a base salary of $85,000 during the term. Mr. Seidler can earn bonuses based on the Company achieving certain levels of sales and profitability and will also be entitled to certain bonuses based on mergers and acquisitions completed by the Company. The Company entered into a five-year employment agreement with Jerome Mahoney, its non-executive Chairman of the Board of Directors, effective August 1, 2004. The Company will compensate Mr. Mahoney with a base salary of $85,000 for the first year with annual increases based on the Consumer Price Index. Mr. Mahoney will also be entitled to certain bonuses based on mergers and acquisitions completed by the Company. In conjunction with the spin-off, iVoice Technology has entered into an administrative services agreement F-14 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 with iVoice. The administrative services agreement will continue on a month-to- month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. NOTE 9 - CAPITAL STOCK Pursuant to iVoice Technology's certificate of incorporation, as amended, the Company is authorized to issue 10,000,000,000 shares of Class A Common Stock, no par value per share, 50,000,000 shares of Class B Common Stock, par value $0.01 per share, 20,000,000 shares of Class C Common Stock, par value $0.01 per share, and 1,000,000 shares of Preferred Stock, par value of $1.00 per share. Below is a description of iVoice Technology's outstanding securities, including Class A Common Stock, Class B Common Stock, Class C Common Stock, and Preferred Stock. a) Class A Common Stock As of December 31, 2004, there are 2,000 shares of Class A Common Stock authorized, no par value, and 100 shares were issued and outstanding. Each holder of Class A Common Stock is entitled to receive ratably dividends, if any, as may be declared by the Board of Directors out of funds legally available for payment of dividends. The Company has never paid any dividends on its common stock and does not contemplate doing so in the foreseeable future. The Company anticipates that any earnings generated from operations will be used to finance its growth objectives. b) Class B Common Stock As of December 31, 2004, there are 50,000,000 shares of Class B Common Stock authorized, par value $.01 per share. Each holder of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. A holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of Class B Common Stock being converted by a 20% discount of the lowest price that iVoice Technology, Inc. had ever issued its Class A Common Stock. Upon our liquidation, dissolution, or winding-up, holders of Class B Common Stock will be entitled to receive distributions. As of December 31, 2004, no shares were issued or outstanding. c) Class C Common Stock As of December 31, 2004, there are 20,000,000 shares of Class C Common Stock authorized, par value $.01 per share. Each holder of Class C Common Stock is entitled to 1,000 votes for each share held of record. Shares of Class C Common Stock are not convertible into Class A Common Stock. Upon liquidation, dissolution or wind-up, the holders of Class C Common Stock are not entitled to receive our net assets pro rata. As of December 31, 2004, no shares were issued or outstanding. F-15 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 d) Preferred Stock iVoice Technology is authorized to issue 1,000,000 shares of Preferred Stock, par value $1.00 per share. As of December 31, 2004, iVoice Technology has not issued any shares of Preferred Stock. NOTE 10 - SUBSEQUENT EVENTS In August 2004, the Company entered into an agreement with Sloan Securities Corporation to act as an agent for the private placement of secured convertible debentures to Cornell Capital Partners, L.P. Under the placement agent agreement, the Company agreed to issue to Sloan on or about the date of effectiveness of the registration statement for the Class A Common Stock a number of shares of Class A Common Stock equal to $10,000 divided by the closing bid price of the Class A Common Stock on the date of effectiveness of such registration statement. The Company issued the following secured convertible debentures to Cornell Capital Partners on the dates and amounts as follows: August 2004 for $280,000 and November 2004 for $280,000. These debentures were convertible at the option of the holder only after the Company's Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. Each of the debentures were convertible into shares of Class A Common Stock at a price equal to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the initial bid price of the Class A Common Stock on the date of effectiveness of the registration statement of which this prospectus is a part or (b) an amount equal to eighty percent (80%) of the lowest closing bid price of the Class A Common Stock for the five trading days immediately preceding the conversion date. The secured convertible debentures had a term of two years with all accrued interest due at the expiration of the term. At our option, these debentures may be redeemed at a 20% premium prior to August 12, 2006. The secured convertible debentures were secured by a first priority security interest in substantially all of the assets of iVoice Technology. On February 28, 2005, the Company renegotiated the terms and conditions of its Convertible Debentures with the holders of such debentures. The parties thereto agreed to terminate the $560,000 Convertible Debentures replacing them with Promissory Notes. The Promissory Note was in the amount of $700,000, $560,000 of which replaced the Convertible Debentures in 2004, and $140,000 of which was advanced on February 28, 2005. A commitment fee of 10% of the face amount of the Convertible Debentures was paid at the time of each advance on the Convertible Debentures. Such commitment fees were credited against commitment fees due and owing against the Note. The balance of the commitment fee against the Notes was paid on February 28, 2005, at the time that such $140,000 was advanced to the Company. The Promissory Note bears interest at the rate of 12% per annum. Principal on the Note will be amortized in equal weekly installments of $10,000 commencing on July 4, 2005. Payments of interest shall commence on September 1, 2005 and shall continue on the first day of each calendar month thereafter until the principal is paid in full. Payment in full of the principal and interest on the Note is due on or before July 4, 2006. In the event all principal and interest has not been paid by the one year anniversary of the initial payment on July 4, 2005, in accordance with the amortization schedule described above, the Company will make a lump sum payment of all outstanding interest and principal on July 4, 2006. F-16 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 On February 28, 2005, the iVoice, Inc. agreed to provide Cornell Capital Partners a full and unconditional guaranty of the payment and performance obligations of iVoice Technology under the promissory notes, which cannot be discharged, except by complete performance of the obligations under the promissory notes and the related documents. Under the guaranty, if iVoice Technology defaults in payment or performance of any of its obligations under the promissory notes, iVoice, Inc. is required to pay or perform such obligations upon two days' written notice or demand by the holders of the promissory notes and to take an advance or advances, as may be necessary, from the Standby Equity Distribution Agreement by and between iVoice and Cornell Capital Partners, LP. Notwithstanding anything to the contrary, this Guaranty shall be discharged and terminated on the date that iVoice Technology's registration statement in connection with the Distribution is declared effective by the U.S Securities and Exchange Commission. Effective August 12, 2004, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners to obtain an equity line of credit. Under this agreement, iVoice Technology may issue and sell to Cornell Capital Partners Class A Common Stock for a total purchase price of up to $10.0 million. Effective February 28, 2005, iVoice Technology, Inc. terminated its Standby Equity Distribution Agreement, dated August 2004, entered into by and between the Company and Cornell Capital Partners, LLP. On March 9, 2005, the Company executed a non-binding letter agreement with Cornell Capital Partners LLP whereby the parties agreed subject to the satisfaction of certain conditions to enter into a Standby Equity Distribution Agreement following the date that the Company's registration statement on Form SB-2, as filed with the Securities and Exchange Commission on November 2004, is deemed effective by that agency. Subject to various conditions, the non-binding letter of commitment provides that, upon execution of definitive documents and the satisfaction of any conditions that may be set forth in such documents iVoice Technology will be entitled to commence drawing funds under this agreement when the resale of the Class A Common Stock issuable under the equity line of credit is registered with the Securities and Exchange Commission, and the equity line of credit will remain outstanding for two years thereafter. The non-binding letter of commitment provides that the purchase price for the shares will be equal to 95% of the market price, which is defined as the lowest closing bid price of the Class A Common Stock during the five trading days following the date that iVoice Technology delivers to Cornell Capital Partners a notice requiring it to advance funds to the Company. A cash fee equal to six percent (6%) of the cash proceeds of the draw down is also payable at the time of funding. In addition, non-binding letter of commitment provides that Cornell Capital Partners will receive, as additional compensation, the number of shares of Class A Common Stock equal to one and one half percent (1.5%) of the number of shares of Class A Common Stock outstanding on the date that the registration statement in respect of the shares to be distributed pursuant to the equity line of credit becomes effective. To date, iVoice Technology has not drawn down on the equity line of credit. F-17 SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma condensed statements of operations for the years ended December 31, 2004 and 2003 and the unaudited pro forma condensed balance sheet at December 31, 2004 present the results of operations and financial position of iVoice Technology, Inc., assuming that the transactions contemplated by the spin-off had been completed as of the beginning of 2003 with respect to the pro forma consolidated income statements years ended December 31, 2004 and 2003 for the year ended December 31, 2004 with respect to the pro forma consolidated balance sheet. The pro forma adjustments give effect of a spin-off transaction whereby shareholders of the Company's former parent, iVoice Inc., will receive a pro-rata distribution of the Company's shares in the form of a taxable dividend. Under the spin-off transaction, the Company will receive certain intellectual property and liabilities of the Company's former parent, iVoice, Inc. In the opinion of management, they include all material adjustments necessary to reflect, on a pro forma basis, the impact of transactions contemplated by the spin-off on the historical financial information of iVoice Technology, Inc. The pro forma financial information is presented for informational purposes and does not purport to represent what our financial position and our results of operations actually would have been had the separation and related transactions occurred on the dates indicated. Actual results might have differed from pro forma results if iVoice Technology had operated independently. The pro forma financial information should not be relied upon as being indicative of results iVoice Technology would have had or of future results after the spin-off. The historical selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the combined financial statements and notes thereto included elsewhere in this prospectus. F-18
CONDENSED UNAUDITED PRO FORMA BALANCE SHEETS (UNAUDITED) AS OF DECEMBER 31, 2004 As Pro Forma Reported Adjustments Pro Forma -------- ----------- --------- Current Assets Cash $ 346,599 $ -- $ 346,599 Accounts Receivable 31,733 -- 31,733 --------- --------- --------- Total Current Assets 378,332 -- 378,332 --------- --------- --------- Property and Equipment, net 4,737 -- 4,737 --------- --------- --------- Total Assets $ 383,069 $ -- $ 383,069 ========= ========= ========= Current Liabilities Accounts payable and accrued liabilities: 30,606 -- 30,606 Due to related party -- 190,000 190,000 Convertible debentures 560,000 -- 560,000 Deferred maint contracts 33,141 -- 33,141 --------- --------- --------- Total current liabilities 623,747 190,000 813,747 --------- --------- --------- Stockholder's deficit (240,678) (190,000) (430,678) --------- --------- --------- Total Liabilities and Stockholder's Deficit $ 383,069 $ -- $ 383,069 ========= ========= =========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information. F-19
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 2004 As Pro Forma Reported Adjustments Pro Forma -------- ----------- --------- Sales, net $ 239,114 $ -- $ 239,114 Cost of Sales 72,870 -- 72,870 ----------- ----------- ----------- Gross Profit 166,244 -- 166,244 Selling General and Administrative Expenses 863,456 49,000 912,456 ----------- ----------- ----------- Loss from Operations (697,212) (49,000) (746,212) Other Income (Expense) (780,915) (12,350) (793,265) ----------- ----------- ----------- Loss before Income Taxes (1,478,127) (61,350) (1,539,477) Provision for Income Taxes -- -- -- ----------- ----------- ----------- Net Loss $(1,478,127) $ (61,350) $(1,539,477) =========== =========== =========== Net Loss Per Common Share: Basic $ (0.15) =========== Diluted $ (0.15) ===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information. F-20
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) YEAR ENDED DECEMBER 31, 2003 As Pro Forma Reported Adjustments Pro Forma -------- ----------- --------- Sales, net 303,756 $ -- 303,756 Cost of Sales 123,091 -- 123,091 ----------- ----------- ----------- Gross Profit 180,665 -- 180,665 Selling General and Administrative Expenses 965,341 84,000 1,049,341 ----------- ----------- ----------- Income (Loss) from Operations (784,676) (84,000) (868,676) Other Income (Expense) (346,744) (12,350) (359,094) ----------- ----------- ----------- Loss before Income Taxes (1,131,420) (96,350) (1,227,770) Provision for Income Taxes -- -- -- ----------- ----------- ----------- Net Loss (1,131,420) (96,350) $(1,227,770) =========== =========== =========== Net Loss Per Common Share: Basic $ (0.12) =========== Diluted $ (0.12) ===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information. F-21 NOTES TO CONDENSED UNAUDITED PRO FORMA FINANCIAL INFORMATION NOTE 1. The historical financial statements of iVoice Technology, Inc. reflect periods during which iVoice Technology did not operate as a separate, independent public company. Certain estimates, assumptions and allocations were made in preparing such financial statements. Therefore, the historical financial statements do not necessarily reflect the results of operations or financial position that would have occurred had iVoice Technology been a separate, independent public company during the periods presented, nor are they indicative of future performance. Management believes that the estimates, assumptions and allocations made in preparing the historical financial statements are reasonable. NOTE 2. The pro forma unaudited balance sheet was prepared assuming the distribution occurred on December 31, 2004 and includes "Pro Forma Adjustments" for transactions that occurred subsequent to December 31, 2003 as follows: a) The Company is assuming an outstanding promissory note in the amount of $190,000 payable to Jerry Mahoney, President and Chief Executive Officer of iVoice. The note will bear interest at the rate of prime plus 2.0% per annum on the unpaid balance until paid or until default. Under the terms of the Promissory Note, at the option of the Note holder, principal and interest can be converted into either (i) one Class B common stock share of iVoice Technology, Inc., par value $.01, for each dollar owed, (ii) the number of Class A common stock shares of iVoice Technology, Inc. calculated by dividing (x) the sum of the principal and interest that the Note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of Class A common stock since the first advance of funds under this Note, or (iii) payment of the principal of this Note, before any repayment of interest. NOTE 3. The pro forma unaudited statement of operations for the year ended December 31, 2004 was prepared assuming the distribution occurred on January 1, 2003 and includes "Pro Forma Adjustments" for transactions that would have occurred subsequent to January 1, 2003 as follows: a) $49,000 in administrative services provided by iVoice, Inc. pursuant to an administrative service agreement between iVoice Technology and iVoice, Inc. b) $12,350 in interest at 6.5% per annum on $190,000 in outstanding amounts due to a related party being assumed by iVoice Technology. F-22 The pro forma unaudited statement of operations for the year ended December 31, 2003 was prepared assuming the distribution occurred on January 1, 2003 and includes "Pro Forma Adjustments" for transactions that would have occurred subsequent to January 1, 2003 as follows: a) $84,000 in administrative services provided by iVoice, Inc. pursuant to an administrative service agreement between iVoice Technology and iVoice, Inc. The administrative services agreement sets forth charges generally intended to allow the providing company to fully recover the allocated direct costs of providing the services, plus all out-of-pocket costs and expenses. In conjunction with the spin-off, iVoice Technology has entered into a temporary administrative service agreement with iVoice. The administrative services agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. b) $12,350 in interest at 6.5% per annum on $190,000 in outstanding amounts due to a related party being assumed by iVoice Technology. NOTE 4. The average number of shares of iVoice Technology common stock used in the computation of basic and diluted net income per share was 10,000,100 for the year ended December 31, 2004 and 2003, based on a distribution ratio of one share of iVoice Technology Class A common stock for every 874 shares of iVoice common stock. Since the Company is in a net loss position, all common stock equivalents are considered anti-dilutive and are therefore not included in the calculation of earnings per share. F-23 - ------------------------------------ --------------------------------- Until ___, all dealers that effect transactions in these securities, whether or not participating in this offering may be required to iVoice Technology, Inc deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as 10,050,000 Shares of underwriters and with respect to their unsold allotments or Class A Common Stock subscription. The information contained in this prospectus is current only as of its date. --------------- -------------------- TABLE OF CONTENTS [LOGO] Page ---- Prospectus Summary............... ____________________ Summary of the Distribution...... Summary Condensed Financial Information Potential Dilution Due to Conversion at Below Market Date: ________, 2005 Price.......................... Risk Factors..................... Cautionary Statement Regarding Forward-Looking Statements..... Use of Proceeds.................. Management's Discussion and Analysis of Financial Condition and Results of Operations...... Our Business..................... iVoice Technology's Management... Certain Relationships and Related Transactions................... Principal Stockholders........... Description of Securities ....... The Distribution................. Federal Income Tax Consequences of the Distribution............... Changes in Accountants........... Reasons for Furnishing this Document....................... Relationship between iVoice and iVoice Technology following the Distribution................... Where You Can Find More Information.................... Index to Financial Statements.... - ------------------------------------ --------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers iVoice Technology's bylaws provide that it will indemnify a person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of iVoice Technology) by reason of the fact that such person is or was a director or an officer of iVoice Technology against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that that person reasonably believed to be in the best interests of iVoice Technology and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of that person was unlawful. iVoice Technology's bylaws also provide that it will indemnify a person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of iVoice Technology to procure a judgment in its favor by reason of the fact that said person is or was a director or an officer of iVoice Technology against expenses actually and reasonably incurred in connection with the defense or settlement of that action if that person acted in good faith, in a manner that that person reasonably believed to be in the best interests of iVoice Technology and with such care, including reasonable inquiry, that such action would not be deemed grossly negligent on the part of such person. Item 25. Other Expenses of Issuance and Distribution The following table sets forth estimated expenses expected to be incurred in connection with the issuance and distribution of the securities being registered. iVoice Technology will pay all expenses in connection with this offering. Securities and Exchange Commission [$95] Registration Fee Printing and Engraving Expenses $ 25,000 Accounting Fees and Expenses $ 8,000 Legal Fees and Expenses $ 150,000 Miscellaneous $ 30,000 --------- TOTAL $213,095 ======== Item 26. Recent Sales of Unregistered Securities In August 2004, the Company entered into an agreement with Sloan Securities Corporation to act as an agent for the private placement of secured convertible debentures to Cornell Capital Partners, L.P. Under the placement agent agreement, the Company agreed to issue to Sloan on or about the date of effectiveness of the registration statement of which this prospectus is a part a number of shares of Class A Common Stock equal to $10,000 divided by the closing bid price of the Class A Common Stock on the date of effectiveness of the registration statement of which this prospectus is a part. On August 12 and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in secured convertible debentures, with II-1 interest payable at 5% per annum, to Cornell Capital Partners. The debentures were convertible at the option of the holder only after the Company's Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. Each of the debentures were convertible into shares of Class A Common Stock at a price equal to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the initial bid price of the Class A Common Stock on the date of effectiveness of the registration statement of which this prospectus is a part or (b) an amount equal to eighty percent (80%) of the lowest closing bid price of the Class A Common Stock for the five trading days immediately preceding the conversion date. The secured convertible debentures had a term of two years with all accrued interest due at the expiration of the term. At our option, these debentures could be redeemed at a 20% premium prior to August 12, 2006. The secured convertible debentures were secured by a first priority security interest in substantially all of the assets of iVoice Technology. On February 28, 2005, the secured convertible debentures were terminated and replaced by a promissory note in the amount of $700,000 ($560,000 representing replacement notes and $140,000 representing new financing). Effective August 12, 2004, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners to obtain an equity line of credit. On February 28, 2005, iVoice Technology entered into a Termination Agreement with Cornell Capital Partners, pursuant to which the equity line transaction was terminated. On March 9, 2005, iVoice Technology received a non-binding letter of intent from Cornell Capital whereby Cornell Capital agreed has offered, subject to satisfaction of certain conditions, to purchase shares of iVoice Technology's common stock upon the terms set forth in the non-binding letter of intent and the definitive documentation to be executed after satisfaction of those closing conditions. Pursuant to the terms of the non-binding letter of intent, if the definitive documentation is executed, iVoice Technology, subject to satisfaction of conditions, may issue and sell to Cornell Capital Partners Class A Common Stock for a total purchase price of up to $10.0 million. The purchase price for the shares would be equal to 95% of the market price, which is defined as the lowest closing bid price of the Class A Common Stock during the five trading days following the date that iVoice Technology delivers to Cornell Capital Partners a notice requiring it to advance funds to us. A cash fee equal to six percent (6%) of the cash proceeds of the draw down would also be payable at the time of funding. In addition, Cornell Capital Partners would receive, as additional compensation, the number of shares of Class A Common Stock equal to one and one half percent (1.5%) of the number of shares of Class A Common Stock outstanding on the date that the registration statement in respect of the shares to be distributed pursuant to the equity line of credit becomes effective. iVoice Technology has agreed to assume from iVoice upon the date of this prospectus an outstanding promissory note in the amount of $190,000 payable to Jerry Mahoney. This amount is related to funds loaned to iVoice and unrelated to the operations of iVoice Technology. iVoice Technology, for value received, will promise to pay to Mr. Mahoney the principal sum of $190,000 that will bear interest at the prime rate plus 2% per annum on the unpaid balance until paid or until default. Interest payments will be due annually. All accrued interest becomes due on the date of any payment of the promissory note. At the time of default (if any) the interest rate shall increase to 20% until the principal balance has been paid. Under the terms of the promissory note, at the option of the note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of iVoice Technology, par value $0.01, for each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice Technology II-2 calculated by dividing (x) the sum of the principal and interest that the note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of Class A Common Stock since the first advance of funds under this note, or (iii) payment of the principal of this note, before any repayment of interest. iVoice Technology has yet to record this liability on its financial statements, as the promissory note will not be assumed by iVoice Technology until the effectiveness of the registration statement. We relied upon the exemption provided in Section 4(2) of the Securities Act and/or Rule 506 thereunder, which cover "transactions by an issuer not involving any public offering," to issue securities discussed above without registration under the Securities Act of 1933. iVoice Technology made a determination in each case that the person to whom the securities were issued did not need the protections that registration would afford. The certificates representing the securities issued displayed a restrictive legend to prevent transfer except in compliance with applicable laws, and our transfer agent was instructed not to permit transfers unless directed to do so by iVoice Technology, after approval by our legal counsel. iVoice Technology believes that the investors to whom securities were issued had such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment. iVoice Technology also believes that the investors had access to the same type of information as would be contained in a registration statement. Item 27. Exhibits No. Description - --- ----------- 3.1* Amended and Restated Certificate of Incorporation of iVoice Technology, Inc. 3.2* By-laws of iVoice Technology, Inc. 4.1* Form of iVoice Technology, Inc. 5% Secured Convertible Debenture due August 12, 2006 issued to Cornell Capital Partners, LP 5.1** Opinion of Meritz & Muenz LLP 10.1* Standby Equity Distribution Agreement, dated August 12, 2004, between Cornell Capital Partners, LP and iVoice Technology, Inc. 10.2* Securities Purchase Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Cornell Capital Partners, LP. 10.3* Escrow Agreement, dated August 12, 2004, between iVoice Technology, Inc., Cornell Capital Partners, LP and Butler Gonzalez LLP 10.4* Registration Rights Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Cornell Capital Partners, LP II-3 10.5* Escrow Agreement, dated August 12, 2004, between iVoice Technology, Inc., Cornell Capital Partners, LP. and Butler Gonzalez LLP 10.6* Investor Registration Rights Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Cornell Capital Partners, LP. 10.7* Security Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Cornell Capital Partners, LP. 10.8* Placement Agent Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Sloan Securities Corporation. 10.9 Employment Agreement, dated as of August 1, 2004, between iVoice Technology, Inc. and Jerome Mahoney 10.10 Employment Agreement, dated as of August 1, 2004, between iVoice Technology, Inc. and Arie Seidler 10.11 Administrative Services Agreement, dated August 1, 2004, between iVoice, Inc. and iVoice Technology, Inc. 10.12** Assignment and Assumption Agreement and Consent, dated November 11, 2004 between iVoice Technology, Inc. (Nevada) and iVoice Technology, Inc. (New Jersey) 10.13** Assignment and Assumption Agreement and Consent, dated November 11, 2004 between iVoice Technology, Inc. (Nevada) and iVoice Technology, Inc. (New Jersey) 10.14** Assignment of Intellectual Property between iVoice, Inc. and iVoice Technology, Inc. 10.15 Waiver dated January 6, 2005 of Jerome Mahoney 10.16 Promissory Note from iVoice Technology, Inc. to Jerome Mahoney (undated) 10.17 Termination Agreement, dated February 28, 2005, between Cornell Capital Partners, LP and iVoice Technology, Inc., with respect to a Securities Purchase Agreement, Convertible Debentures, Security Agreement, Investor Registration Rights Agreement, an Escrow Agreement and Irrevocable Transfer Agent Instructions, each dated August 13, 2004. 10.18 Termination Agreement, dated February 28, 2005, between Cornell Capital Partners, LP and iVoice Technology, Inc., with respect to a Standby Equity Distribution Agreement, Registration Rights Agreement, Escrow Agreement and Placement Agent Agreement, each dated August 13, 2004. II-4 10.19 Promissory Note, dated February 28, 2005, from iVoice Technology, Inc. to Cornell Capital Partners, LP 10.20 Security Agreement, dated as of February 28, 2005, by and between iVoice Technology, Inc. and Cornell Capital Partners, LP 10.21 Guaranty of Promissory Note from iVoice Technology, Inc. to Cornell Capital Partners, LP, made by iVoice, Inc. in favor of Cornell Capital Partners, LP 10.22 Non-Binding Letter of Intent, dated March 9, 2005, between Cornell Capital Partners, LP and iVoice Technology, Inc. 10.23 Amendment No. 1 to Employment Agreement, dated April 1, 2005, between iVoice Technology, Inc. and Jerome Mahoney 23.1 Consent of Bagell, Josephs & Company, L.L.C. 23.2** Consent of Meritz & Muenz LLP * Previously filed. ** To be filed by amendment. Item 28. Undertakings The undersigned registrant hereby undertakes: (1) To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Sections 10(a)(3) of the Securities Act of 1933 (the "Act"); (ii) Reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; II-5 (iii) Include any additional or changed material information on the plan of distribution; (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Amendment No. 2 to the registration statement to be signed on our behalf by the undersigned, on April 7, 2005. IVOICE TECHNOLOGY, INC. By: /s/Jerome R. Mahoney -------------------------------------- Name: Jerome R. Mahoney Title: Non-Executive Chairman of the Board Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates stated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Jerome R. Mahoney Non-Executive Chairman of April 7, 2005 - ------------------------- the Board Jerome R. Mahoney /s/Arie Seidler President (Principal April 7, 2005 - ------------------------- Executive Officer) and Chief Arie Seidler Executive Officer (Principal Accounting Officer) and Director II-7 EX-10 2 kl00336_ex10-9.txt EXHIBIT 10.9 EMPLOYMENT AGREEMENT Exhibit 10.9 EMPLOYMENT AGREEMENT AGREEMENT made as of August 1, 2004, by and between iVoice Technology, Inc., a Nevada corporation (hereinafter referred to as the "Company"), having an office at 750 Highway 34, Matawan, New Jersey 07747 and Jerome Mahoney, residing at 750 Rt. 34, Matawan, NJ 07747 (hereinafter referred to as the "Executive"). W I T N E S S E T H : WHEREAS, the Company desires to engage the services of the Executive, and the Executive desires to render such services; NOW, THEREFORE, in consideration of the premises, the parties agree as follows: 1. Employment. The Company hereby employs the Executive as Chairman of the Board of Directors, and the Executive hereby accepts such employment, subject to the terms and conditions hereinafter set forth. 2. Term. The term of the Executive's employment hereunder shall commence on August 1 2004 and shall continue to July 31, 2009. 3. Duties. The Executive agrees that the Executive will serve the Company on a part-time basis faithfully and to the best of his ability as the Chairman of the Board of Directors, subject to the general supervision of the Board of Directors of the Company. The Executive agrees that the Executive will not, during the term of this Agreement, engage in any other business activity which interferes with the performance of his obligations under this Agreement. The Executive further agrees to serve as a director of the Company and/or of any parent, subsidiary or affiliate of the Company if the Executive is elected to such directorship. Upon the Date of Termination, the Executive shall resign as an officer and director of the Company and any of its subsidiaries. 4. Compensation. (a) In consideration of the services to be rendered by the Executive hereunder, including, without limitation, any services rendered by the Executive as director of the Company or of any parent, subsidiary or affiliate of the Company, the Company agrees to pay the Executive, and the Executive agrees to accept fixed compensation at the rate of Eighty Five Thousand ($ 85,000.00), subject to all required federal, state and local payroll deductions, that shall increase on the anniversary date of August 3, 2005 and upon every annual anniversary thereafter, at the rate based on the Consumer Price Index (b) The Executive shall also be entitled to three weeks vacation, unlimited sick leave and fringe benefits, (monthly expenses, travel expenses and an Annual Bonus) in accordance with Company policies and plans in effect, from time to time, for executive officers of the Company. (c) The Executive shall participate in the Company's Corporate Compensation Program as approved and authorized by the Board of Directors of the Company, subject to amendment by the Board of Directors or the Compensation Committee of the Board of Directors of the Company ("Incentive Compensation"). The Executive shall not receive any Incentive Compensation should the Executive be terminated for Termination for Cause. Such Incentive Compensation for the particular fiscal year shall be paid to the Executive no later than upon the filing of the Company's Form 10-KSB, or equivalent form, or if no Form 10-KSB need be filed, then within ninety (90) days after the end of each fiscal year. (d) Except as hereinafter provided in Section 5(a), the Company shall pay the Executive, for any period during which the Executive is unable fully to perform his duties because of physical or mental illness or incapacity, an amount equal to the fixed compensation due the Executive for such period less the aggregate amount of all income disability benefits which the Executive may receive or to which the Executive may be entitled under or by reason of (i) any group health and/or disability insurance plan provided by the Company; (ii) any applicable state disability law; (iii) the Federal Social Security Act; (iv) any applicable worker's compensation law or similar law; and (v) any plan towards which the Company or any parent, subsidiary or affiliate of the Company has contributed or for which it has made payroll deductions, such as group accident, health and/or disability policies. (e) The Executive shall be granted a stock option under the Company's stock option plan as adopted by the Board of Directors and the shareholders of the Company (the "Plan"). The Company will provide the Executive a Stock Option Contract for his signature which will set out the terms of the option. This Stock Option shall be subject to the terms of the Plan. (f) Upon the closing of an acquisition or merger by the Company, the executive shall receive acquisition compensation equal to six percent (6%) of the gross consideration paid or received by the Company, payable in the form of cash, debt or in shares of the Company's Class B Common stock, at the Executive's option, related to a merger or acquisition transaction(s) consummated with the Company during the term of this Agreement. 5. Compensation Upon Termination. Upon termination of the Executive's employment or during a period of Disability the Executive shall be entitled to the following benefits: (a) Termination for Cause, Disability, Death or Retirement etc. (i) If the Executive's employment shall be terminated by the Company for Termination for Cause, or by the Company or the Executive for Disability, or by either the Company or the Executive for Retirement, the Company shall pay to the Executive the Executive's full base salary for five years from date of termination at the highest salary under the agreement, plus all other amounts to which the Executive is entitled under any compensation plan of the Company in effect on the date the payments are due, in addition to any other benefits set forth in this Agreement. If the Executive's employment shall be terminated by the Company for Death, the Company shall pay to the estate of the Executive the Executive's full base salary through the period of eight (8) years following the Date of Termination at the highest rate in effect at the date that Notice of Termination is given, plus all other amounts to which the Executive is entitled under any compensation plan of the Company in effect on the date the payments are due, in addition to any other benefits set forth in this Agreement, and the Company shall have no further obligations to the Executive under this Agreement. (ii) If the Executive's employment shall be terminated by the Executive for any reason other than for Termination for Cause, Death, Disability, Retirement or Good Reason after a Change in Control, the Company shall pay to the Executive the Executive's full base salary through the Term of this Agreement, plus an additional five (5) years following the Date of Termination, at the highest rate in effect at the date that Notice of Termination is given, plus all other amounts to which the Executive is entitled under any compensation plan of the Company in effect on the date the payments are due , in addition to any other benefits set forth in this Agreement, and the Company shall have no further obligations to the Executive under this Agreement. (b) Severance Benefits. If the Executive's employment shall be terminated by the Company within three (3) years after a Change in Control of the Company, for reasons other than for Termination for Cause, Retirement, Death or Disability, or terminated by the Executive for Good Reason within three (3) years after a Change in Control of the Company, then, subject to the limitations set forth in Subparagraph 5(d) below, the Executive shall be entitled to the benefits provided below: (i) the Company shall pay the Executive the Executive's full base salary through the Date of Termination, plus (5), five years at the rate equal to the greater of the rate in effect on the date prior to the Change in Control and the rate in effect at the time Notice of Termination is given, plus all other amounts to which the Executive is entitled under any compensation plan of the Company in effect on the date, the payments are due, except as otherwise provided below; (ii) in lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, except as provided in Paragraph 5(d) below, the Company shall pay as severance pay to the Executive a lump sum severance payment equal to 300% of an average annual amount actually paid by the Company or any parent or subsidiary of the Company to the Executive and included in the Executive's gross income for services rendered in each of the five prior calendar years (or shorter period during which the Executive shall have been employed by the Company or any parent or subsidiary of the Company), less $100; 2 (iii) in consideration of the surrender on the Date of Termination of the then outstanding options ("Options") granted to the Executive, if any, under the stock option plans of the Company, or otherwise, for shares of common stock of the Company ("Company Shares"), except as provided in Paragraph 5(d) below, the Executive shall receive an amount in cash equal to the product of (A) the excess of, (x) in the case of options granted after the date of this Agreement that qualify as incentive stock options ("ISOs") under Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), the closing price on or nearest the Date of Termination of Company Shares as reported in the principal national securities exchange on which the Company's Shares are listed or admitted to trading or, if the Company Shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in use, or, if on any such date the Company Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Company Shares selected by the Board of Directors of the Company, and (y) in the case of all other Options, the higher of such closing price or the highest per share price for any Company Shares actually paid in connection with any Change in Control of the Company, over the per share exercise price of each Option held by the Executive (irrespective of whether or not such Option is then fully exercisable), times (B) the number of Company Shares covered by each such Option (irrespective of whether or not such Option is then fully exercisable). The parties hereto acknowledge and agree that the benefits afforded to the Executive under this Subparagraph (iii) do not, and shall not be deemed to, materially increase the benefits accruing to the Executive under any stock option plan under which any such Options are granted. Insofar as the Executive receives full payment under this Subparagraph (iii) with respect to the surrender of all such Options, such Options so surrendered shall be canceled upon the Executive's receipt of such payment. However, if pursuant to the limitations set forth under Paragraph 5(d) below, the full amount described under this Subparagraph 5(b)(iii) cannot be paid, the number of Options which are canceled shall be reduced so that the ratio of the value of the canceled Options to the value of all such Options equals the ratio of the amount payable under this Subparagraph 5(b)(iii) after the application of the limitation described under Paragraph 5(d), to the amount that otherwise would have been paid under this Subparagraph 5(b)(iii) in the absence of such limitations. The Options canceled pursuant to the immediately preceding sentence shall be those Options providing the smallest "excess amounts" as determined under Subparagraph 5(b)(iii)(A). For those Options not surrendered and canceled pursuant to this subparagraph, the Company shall guaranty the Executive's loan for such amount as needed by the Executive to exercise those outstanding Options that may be exercised as they become exercisable by the Executive. Additionally, those stock options not surrendered and canceled as determined in this Subparagraph 5(b)(iii) shall hereinafter become fully exercisable for the remaining term of such stock option grant, regardless whether the Executive continues as an employee of the Company; and (iv) The Company shall also pay to the Executive all legal fees and expenses incurred by the Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 499 of the Code to any payment or benefit provided hereunder). (c) Date Benefits Due. The payments provided for in Paragraph 5(b) above shall be made not later than the fifth day following the Date of Termination, provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 7872(f)(2) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive repayable on the fifth day after demand by the Company (together with interest at the rate provided in Section 7872(f)(2) of the Code). (d) Reduction to Avoid Non-Deductibility. Any of the other provisions of this Agreement notwithstanding, if any payment to be made by the Company pursuant to this Agreement to the Executive 3 or for the Executive's benefit (the "Payments") otherwise would not be deductible by the Company for Federal income tax purposes due to the provisions of the Code Section 280G, the aggregate present value (determined as of the date of the Change in Control) of the Payments shall be reduced (but not to a negative amount) to an amount expressed in the present value as of such date (the "Reduced Amount") that maximizes the present value of the Payments without causing any payment to be nondeductible by the Company due to the Code Section 280G. The determination of the Reduced Amount and the accompanying reduction in Payments shall be made by the independent certified public accountants for the Company. Any such decrease in Payments shall be applied to the amounts to be paid to the Executive or for the Executive's benefit hereunder in the following order but only to the extent such amounts would be taken into account in determining whether the Payments constitute "parachute payments" within the meaning of the Code Section 280G(b)(2)(A): (i) to decrease the amounts payable to the Executive pursuant to Subparagraph 5(b)(iii); (ii) to decrease the amounts payable to the Executive pursuant to Subparagraph 5(b)(ii); (iii) to decrease the amounts payable to the Executive pursuant to Section 5(j); (iv) to decrease the amounts payable to the Executive pursuant Subparagraph 5(b)(iv); and (v)to decrease the amounts payable to the Executive pursuant to Section 5(a) (e) Determination of Reduced Amount. The determination of the Reduced Amount and of the reduction in the Payments shall be communicated to the Executive in writing by the Company. If the Executive does not agree with such determinations, the Executive may give written notice of such disagreement to the Board within five (5) days of the Executive's receipt of the determination, and within fifteen (15) days after the Executive's notice of disagreement, the Executive shall deliver to the Board the Executive's calculation of the reduction in Payments. If the Executive fails to give notice of disagreement or to furnish the Executive's calculation in accordance with the provisions of the immediately preceding sentence, the Executive shall be conclusively deemed to have accepted the determinations made by the independent public accountants for the Company. If the accountants for the Company and the Executive's accountants are unable to agree upon the reduction of Payments within ten (10) days of the receipt of the Board of the Executive's calculation, the determination of the reduction in Payments shall be made by a third accounting firm picked by the Company's accountants and the Executive's accountants (the "Arbiter") whose determination shall be final and binding upon the Executive and the Company, except to the extent provided below. The Company shall withhold for income tax purposes all amounts that the Company's independent certified public accountants believe that the Company is required to withhold. (f) Arbiter to Resolve Disputes. If the Arbiter's and the Company's accountant's fees shall be borne solely by the Company. The Executive's accountant's fees shall be borne by the Executive. (g) Final Payment. As promptly as practicable after the final determination of the reduction in Payments, the Company shall pay to the Executive or for the Executive's benefit the amounts determined to be payable. (h) IRS Ruling. In the event there is a final determination by the Internal Revenue Service or by a court of competent jurisdiction that any portion of the Payments is not deductible by the Company by reason of Section 280G, then the amount of the Payments that exceeds the amount deductible by the Company shall be deemed to be a loan by the Company to the Executive, which shall be repaid by the Executive five (5) days after delivery of a demand by the Company therefor together with interest from the date paid by the Company to the date repaid by the Executive at the rate provided for a demand loan in Section 7872(f)(2) of the Code. (i) Interpretation. The provisions of this Section 4 shall be interpreted in a manner that will avoid the disallowance of a deduction to the Company pursuant to Section 280G and the imposition of excise taxes on the Executive under Section 4899 of the Code. (j) Additional Fringe Benefits. If the Executive's employment shall be terminated by the Company other than for Termination for Cause, Retirement, Death or Disability or by the Executive within three years after a Change in Control of the Company for Good Reason, then for an (8) year period after such termination, the Company shall arrange to provide the Executive with life, disability, Health and 4 accident insurance benefits substantially similar to those that the Executive was receiving immediately prior to the Notice of Termination. In addition to the benefits set forth above, the Company shall reimburse the Executive for the cost of leasing, insuring and maintaining (including the cost of fuel) a luxury automobile of the Executive's choice not to exceed $800 per month during the eight (8) year period following the Executive's termination. Benefits otherwise receivable by the Executive pursuant to this Paragraph 5(j) shall be reduced to the extent comparable benefits are otherwise received by the Executive during the three (3) year period following the Executive's termination and any such benefits otherwise received by the Executive shall be reported to the Company. (k) No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Paragraph 5 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Paragraph 5 be reduced by any compensation earned by the Executive as the result of the Executive's employment by another employer, by any retirement benefits, by offset against any amount claimed to be owing by the Executive to the Company, or otherwise, except as specifically provided in this Paragraph 5. (l) The benefits provided in this Paragraph 5 shall replace benefits provided to the Executive other than in this Agreement only in the circumstances set forth herein, and under all other circumstances, the Executive's benefits will be determined in accordance with other agreements between the Company and the Executive and other plans, arrangements and programs of the Company in which the Executive participates. (m) Notwithstanding anything in this Agreement, the Company shall arrange to provide the Executive and his immediate family with health insurance benefits substantially similar to those that the Executive was receiving, immediately prior to the Notice of Termination, for the remainder of his and his spouse's life. 6. Termination for Cause. Termination by the Company of the Executive's employment for cause (hereinafter referred to as "Termination for Cause), shall mean termination upon (i) the willful and continued failure by the Executive to substantially perform the Executive's material duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such failure after the issuance by the Executive for Good Reason of a Notice of Termination (as the terms "Good Reason" and "Notice of Termination" are defined in this Agreement) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the material duties that the Board believes that the Executive has not substantially performed, or (ii) the willful engaging by the Executive in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise or (iii) the conviction of the Executive of a felony, limited solely for a crime related to the business operations of the Company, or that results in the Executive being unable to substantially carry out his duties as set forth in this Agreement, or (iv) the commission of any act by the Executive against the Company that may be construed as the crime of embezzlement, larceny, and/or grand larceny. For purposes of this Paragraph 6, no act, or failure to act, on the Executive's part, shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. Any other provision in this paragraph to the contrary notwithstanding, the Executive shall not be deemed to have been terminated for Termination for Cause unless and until the Board duly adopts a resolution by the affirmative vote of no less than three-quarters (3/4) of the entire membership of the Board, at a meeting of the Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive was guilty of conduct described in Subparagraphs (i), (ii) or (iv) of this paragraph and specifying the particulars thereof in detail and a certified copy of such resolution is delivered to the Executive. 7. Non-Disclosure of Confidential Information and Non- Competition (a) The Executive acknowledges that the Executive has been informed that it is the policy of the Company to maintain as secret and confidential all information (i) relating to the products, processes, designs and/or systems used by the Company and (ii) relating to the customers and employees of the 5 Company (all such information hereafter referred to as "confidential information"), and the Executive further acknowledges that such confidential information is of great value to the Company. The parties recognize that the services to be performed by the Executive are special and unique, and that by reason of his employment by the Company, the Executive has and will acquire confidential information as aforesaid. The parties confirm that it is reasonably necessary to protect the Company's goodwill, and accordingly the Executive does agree that the Executive will not directly or indirectly (except where authorized by the Board of Directors of the Company for the benefit of the Company): A. At any time during his employment by the Company or after the Executive ceases to be employed by the Company, divulge to any persons, firms or corporations, other than the Company (hereinafter referred to collectively as "third parties"), or use or allow or cause or authorize any third parties to use, any such confidential information; and B. At any time during his employment by the Company and for a period of one (1) year after the Executive ceases to be employed by the Company, solicit or cause or authorize directly or indirectly to be solicited, for or on behalf of the Executive or third parties, any business from persons, firms, corporations or other entities who were at any time within one (1) year prior to the cessation of his employment hereunder, customers of the Company; and C. At any time during his employment by the Company and for a period of one (1) year after the Executive ceases to be employed by the Company, accept or cause or authorize directly or indirectly to be accepted, for or on behalf of the Executive or third parties, any business from any such customers of this Company; and D. At any time during his employment by the Company and for a period of one (1) year after the Executive ceases to be employed by the Company, solicit or cause or authorize directly or indirectly to be solicited for employment, for or on behalf of the Executive or third parties, any persons (excluding any individuals residing in the same immediate primary residence as the Executive, and/or the Executive's immediate family) who were at any time within one year prior to the cessation of his employment hereunder, employees of the Company; and E. At any time during his employment by the Company and for a period of one year after the Executive ceases to be employed by the Company, employ or cause or authorize directly or indirectly to be employed, for or on behalf of the Executive or third parties, any such employees of the Company; and F. At any time during his employment by the Company and for a period of one (1) year after the Executive ceases to be employed by the Company, compete with the Company in any fashion or work for, advise, be a consultant to or an officer, director, agent or employee of or otherwise associate with any person, firm, corporation or other entity which is engaged in or plans to engage in a business or activity which competes with any business or activity engaged in by the Company, or which is under development or in a planning stage by the Company. Notwithstanding the above, should the Executive not be receiving compensation from the Company either in a lump sum, or on a regular basis for a period at least equal to one (1) year, or life, as set forth in this Agreement following his Date of Termination, then Subparagraphs 7(C), 7(E) and 7(F) shall be ineffective. Additionally, Subparagraphs 7(C), 7(D), and 7(E) shall be ineffective as it relates to the spouse of the Executive. (b) The Executive agrees that, upon the expiration of his employment by the Company for any reason, the Executive shall forthwith deliver up to the Company any and all records, drawings, notebooks, keys and other documents and material, and copies thereof in his possession or under his control which is the property of the Company or which relate to any confidential information or any discoveries of the Company. (c) The Executive agrees that any breach or threatened breach by the Executive of any provision of this Section 7 shall entitle the Company, in addition to any other legal remedies available to it, to enjoin such breach or threatened breach through any court of competent jurisdiction. The parties understand and intend that each restriction agreed to by the Executive herein above shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any restriction will not affect the enforceability of the remaining restrictions, and that one or more or all of such restrictions may be enforced in whole or in part as the circumstances warrant. 6 (d) For the purposes of this Section, the term "Company" shall mean and include any and all subsidiaries, parents and affiliated corporations of the Company in existence from time to time. 8. Change in Control. (a) Effectiveness of Change in Control Provisions. The terms set forth in this Paragraph 8, shall be effective should a Change in Control of the Company, as defined below, have occurred during the term of this Agreement, or during any extensions thereof, and shall continue in effect for a period of thirty-six (36) months beyond the month in which such Change in Control occurred. However, the definitions set forth in Subparagraph 8(c) shall apply throughout this Agreement. (b) Change in Control. No benefits shall be payable hereunder unless an event as set forth below, shall have occurred (hereinafter called a "Change in Control"): (i) Any person including any individual, firm, partnership or other entity, together with all Affiliates and Associates (as defined by ss.240.12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") of such person, directly or indirectly acquires securities of the Company's then outstanding securities representing twenty percent (20%) or more of the voting securities of the Company, such person being hereinafter referred to as an Acquiring Person; or, but excluding: (A) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, or (B) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the Company, or (c) the Company or any Subsidiary of the Company, is or becomes the Beneficial Owner (as defined in Rule 13d-3 under the Exchange Act),or (D) a person who acquires securities of the Company directly from the Company pursuant to a transaction that has been approved by a vote of at least a majority of the Incumbent Board, or (ii) Individuals who, on the date hereof, constitute the Incumbent Board shall cease for any reason to constitute a majority of the Board; or (iii) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such other surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (c) Definitions. For the purposes of this Agreement, the following terms shall mean: (i) "Incumbent Board" shall mean the members of the Board, who were members of the Board prior to the date of this Agreement. (ii) "Subsidiary" shall mean any corporation of which an amount of voting securities sufficient to elect at least a majority of the directors of such corporation is beneficially owned, directly or indirectly, by the Company, or is otherwise controlled by the Company. (iii) "Good Reason" shall mean, without the Executive's express written consent, the occurrence of any of the following circumstances unless, such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as defined in Paragraphs 8(c)(iv) and (v), respectively, given in respect thereof: (A) the assignment to the Executive of any duties inconsistent with the Executive's status as Chairman of the Board, and/or Chief Executive Officer of the Company, or a substantial adverse alteration in the nature or status of the Executive's responsibilities from those in effect immediately prior to a Change in Control of the Company; (B) a reduction by the Company in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time, except for across-the-board salary reductions similarly affecting all senior executives of the Company and all senior executives of any person in control of the Company; 7 (c) the relocation of the Company's principal executive offices to a location which is not within the boundaries of the state of New Jersey or the Company requiring the Executive to be based anywhere other than the Company's principal executive offices, except for required travel on the Company's business to an extent substantially consistent with the Executive's present business travel obligations, or the adverse and substantial alteration of the office space or secretarial or support services provided to the Executive for the performance of the Executive's duties; (D) the failure by the Company, without the Executive's consent, to pay to the Executive any portion of the Executive's current compensation, except pursuant to an across-the-board compensation deferral similarly affecting all senior executives of the Company and all senior executives of any person in control of the Company, or the failure by the Company to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; (E) the failure by the Company to continue in effect any compensation plan in which the Executive participates that is material to the Executive's total compensation, including but not limited to the Company's Incentive Stock Option Plan, 401(k) plan, cafeteria or salary reduction plan, or any other or substitute plans adopted prior to a Change in Control of the Company, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, than the Executive's participation as it existed at the time of a Change in Control of the Company; (F) unless such action is pursuant to an across-the-board reduction in benefits similarly affecting all senior executives of the Company and all senior executives of any person in control of the Company, the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, automobile reimbursement, Company credit card, medical, health and accident, or disability plans, if any, in which the Executive was participating at the time of a Change in Control of the Company, or the taking of any action by the Company that would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of a Change in Control of the Company, or the failure by the Company to provide the Executive with the number of paid vacation or sick days to which the Executive is entitled under this Agreement at the time of a Change in Control of the Company; (G) the failure of the Company to obtain a satisfaction agreement from any successor to assume and agree to perform this Agreement, as contemplated in Paragraph 5 hereof; or (H) any purported termination of the Executive's employment that is not affected pursuant to a Notice of Termination satisfying the requirements of Subparagraph 8(c)(iv) below (and, if applicable, the requirement of Paragraph 6 above); for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment pursuant to this paragraph shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of right with respect to, any circumstances constituting Good Reason hereunder. (iv) "Notice of Termination" shall mean a notice that shall indicate the specific termination provision of this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (v) "Date of Termination" shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided, that the Executive shall not return to the full-time performance of the Executive's duties during such thirty (30) day period), or (B) if employment is terminated due to Death of the Executive, upon receipt of Notice of Termination or (c) if employment is terminated pursuant to any other provision in this Agreement, the date specified in Notice of Termination (which, in the case of a termination pursuant to any provision of this Agreement other than for Disability and Death shall not be less than fifteen (15) nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 8 Notwithstanding the above, provided, that if within fifteen (15) days after any Notice of Termination is given to the Executive or prior to the Date of Termination (as determined without regard to this provision) the Executive receiving such Notice of Termination notifies the Company that a dispute exists concerning such termination, that during the pendency of any such dispute, the Company will continue to pay the Executive his full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue the Executive as a participant in all compensation, benefit, and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved. However, should final resolution of the dispute result in the Notice of Termination being affirmed in the forum, as set forth in Paragraph 16, utilized for resolving said dispute, then the Executive shall be liable to the Company for all compensation, benefit, and insurance plans paid and/or provided to the Executive during the period that the Notice of Termination was in dispute. Amounts paid under this subparagraph are prior to all other amounts due under this Agreement and shall not reduce any other amounts due under this Agreement, which other amounts shall be in addition to, and shall not be offset by, amounts due under this subparagraph. Anything to the contrary herein notwithstanding, twenty-four hours after written notice to the Executive, the Company may relieve the Executive of authority to act on behalf of, or legally bind, the Company, provided, that any such action by the Company shall be without prejudice to the Executive's right to the compensation and benefits provided under this Agreement and the Executive's right to termination hereunder under such circumstances and with the compensation and benefits following such termination as provided in this Agreement. (vi) "Disability"- If the Executive, due to physical or mental illness or incapacity, is unable fully to perform his duties herein for twelve (12) consecutive months. (vii) "Death"- If the Executive shall die during the term of this Agreement. (viii) "Retirement"- Shall mean termination in accordance with the Company's retirement policy, if any, including early retirement, generally applicable to its salaried employees or in accordance with any retirement arrangement established with the Executive's consent with respect to the Executive. (d) Termination Following Change in Control. If any of the events described in Paragraph 8(b) hereof constituting a Change in Control of the Company shall have occurred, the Executive shall be entitled to the benefits provided in Paragraph 5 hereof upon the subsequent termination of the Executive's employment during the term of this Agreement unless such termination is (i) because of the Executive's Death, Disability or Retirement, (ii) by the Company for Termination for Cause, or (iii) by the Executive for Good Reason within three years after a Change in Control shall have occurred. (e) Notice of Termination. Any purported termination of the Executive's employment by the Company or by the Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Paragraph 15 hereof. 9. Successors; Binding Agreement. (a) Assumption by Successor. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive terminates the Executive's employment for Good Reason following a Change in Control of the Company, except that for purposes of implementing this paragraph, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law, or otherwise. 9 (b) Successors. Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive (except by will or intestate succession) or any successor to the Executive's interest, nor shall it be subject to attachment, execution, pledge or hypothecation, but this Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representative, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive hereunder if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there is no such designee, to the Executive's estate. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party that are not set forth in this Agreement. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Paragraph 5 shall survive the expiration of the term of this Agreement. 11. Severance and Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 13. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof, supersedes any prior agreement between the parties, and may not be changed or terminated orally. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party to be bound; provided, however, that the Executive's compensation and benefits may be increased at any time by the Company without in any way affecting any of the other terms and conditions of this Agreement, which in all other respects shall remain in full force and effect. 14. Negotiated Agreement. This Agreement has been negotiated and shall not be construed against the party responsible for drafting all or parts of this Agreement. 15. Notices. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or received by United States registered or certified mail, return receipt requested, postage prepaid, or by nationally recognized overnight delivery service providing for a signed return receipt, addressed to the Executive at the Executive's home address set forth in the Company's records and to the Company at the address set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Board with a copy to counsel to the Company, at Muenz & Meritz, P.C., 2021 O Street, Washington, DC 20036, Attention: Lawrence A. Muenz, Esq., or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 16. Governing Law and Resolution of Disputes. All matters concerning the validity and interpretation of and performance under this Agreement shall be governed by the laws of the State of New York. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Garden City, New York, in accordance with the rules of the American Arbitration Association ("AAA") then in effect. Any judgment rendered by the arbitrator as above provided 10 shall be final and binding on the parties hereto for all purposes and may be entered in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of the Executive's right to be paid following termination for any reason during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company share bear the total cost of filing fees for the initial Demand of Arbitration, as well as all charges billed by the AAA, regardless of which party shall commence the action. The Company shall bear the cost of the Executive's legal fees regarding any dispute or controversy arising under or in connection with this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. iVoice Technology, Inc. By: /s/ Arie Seidler Dated:______________________ ----------------------------- Title: President -------------------------- JEROME MAHONEY By: /s/ Jerome Mahoney ----------------------------- Dated:______________________ 11 EX-10 3 kl00336_ex10-10.txt EXHIBIT 10.10 EMPLOYMENT AGREEMENT Exhibit 10.10 EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT (the "Agreement") dated as of August 1, 2004 by and between iVoice Technology, Inc., Inc., a Nevada corporation with an address at 750 Highway 34, Matawan, NJ 07747 (the "Company"), and Arie Seidler, residing at 315 West 33rd Street, Apt 23J, NYC, NY 10001 (the "Employee"). W I T N E S S E T H WHEREAS, the Company desires that Employee be employed by it and render services to it, and Employee is willing to be so employed and to render such services to the Company, all on the terms and subject to the conditions contained herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Employment Subject to and upon the terms and conditions contained in this Agreement, the Company hereby employs Employee, for the period set forth in Paragraph 2 (subject to the terms and conditions of this Agreement), to render the services to the Company, its affiliates and/or subsidiaries described in Paragraph 3. 2. Term Employee's term of employment under this Agreement shall commence on August 1, 2004 (the "Commencement Date") and shall continue for a period terminating on July 31, 2005 (the "Expiration Date"), unless earlier terminated under the terms and conditions herein (the "Employment Term"). 3. Duties (a) The Employee agrees that he will serve the Company faithfully and to the best of his ability as the President and the Chief Executive Officer of the Company, subject to the general supervision of the Board of Directors of the Company. Employee shall be based in the Company's offices in New Jersey. (b) Employee agrees to abide by all By-Laws and policies of the Company promulgated from time to time by the Company. 4. Services and Best Efforts Employee shall devote his attention, best efforts and ability of the service to the Company, its affiliates and subsidiaries during the term of this Agreement. 5. Compensation (a) Base Salary. Commencing on the Commencement Date, the Employee shall receive an annual salary, payable semi-monthly during the Employment Term, in the amount of Eighty-five Thousand Dollars ($85,000), subject to all required federal, state and local payroll deductions. The Employee's base salary shall be increased on each anniversary of the Commencement Date as deemed appropriate by the Board of Directors of the Company. (d) Incentive Compensation. (i) For annual recorded and collected revenues of the Company in excess of Three Hundred Thousand Dollars ($300,000), but not exceeding Two Million Dollars ($2,000,000), the Employee shall receive additional annual incentive compensation equal to seven and one-half percent (7 1/2%) of the total annual revenues of the Company. (ii) For annual recorded and collected revenues of the Company in excess of Two Million Dollars ($2,000,000), the Employee shall receive additional annual incentive compensation, in addition to the incentive compensation referred to in clause (d) (i),equal to three and one-half percent (3 1/2%) of total annual revenues of the Company, in excess of two million dollars. (iii) Notwithstanding the above, should the pre-tax profit margin fall below thirty-five percent (35%), the incentive compensation payable pursuant to this paragraph shall be reduced by thirty-five percent (35%). (iv) Upon the closing of an acquisition, merger or purchase of assets by the Company which transaction was exclusively brought to the Company by the Executive, the Employee shall receive, acquisition compensation equal to six percent (6%) of the gross consideration paid, net of any debt or other liabilities assumed by the Company, or received by the Company, payable in the form of cash, debt or in shares of the Company's Class A common stock related to a merger or acquisition transaction(s) consummated with the Company during the term of this Agreement . 6. Business Expenses Employee shall be reimbursed for only those business expenses incurred by him (a) which are reasonable and necessary for Employee to perform his duties under this Agreement in accordance with policies established from time to time by the Company, which shall include and not be limited to: travel, parking, tools and cell phone calls and (b) for which Employee has submitted vouchers and/or receipts. The Employee shall be compensated at the rate of $.36 per mile, or as revised from time to time, pursuant to 2 the Internal Revenue Service's regulations, for every mile that he drives while on Company business and utilizing his own vehicle. Additionally, the Employee shall be provided a notebook computer for business use that the Employee shall return to the Company upon Termination of this Agreement. 7. Employee Benefits The Company shall reimburse the Employee for his actual cost of health insurance, but such reimbursement shall not exceed One Thousand Dollars ($1,000) per month. The Employee hereby elects not to participate in any health insurance plan offered to employees. 8. Vacation and Sick Leave Employee shall be entitled to four (4) weeks of vacation per annum during the Employment Term, to be taken at such times as may be mutually agreed upon by the Company and Employee. The Employee shall be entitled to one (1) week of sick and/or personal leave per annum during the Employment Term. 9. Death and Disability (a) The Employment Term shall terminate on the date of Employee's death, in which event Employee's salary payable pursuant to Paragraph 5 through the last day of the month in which the Employee's death did occur shall be paid to his estate. Employee's estate will not be entitled to any other compensation upon termination of this Agreement pursuant to this Paragraph 9(a). (b) If during the Employment Term, Employee, because of physical or mental illness or incapacity, shall become substantially unable to perform the duties and services required of him under this Agreement for a period of forty-five (45) consecutive days or ninety (90) days in the aggregate, the Company may, upon at least ten (10) days' prior written notice given at any time after the expiration of such 45 or 90-day period, as the case may be, to Employee of its intention to do so, terminate this Agreement as of such date as may be set forth in the notice. In case of such termination, Employee shall be entitled to receive his salary payable pursuant to Paragraph 5 through the date of termination. Employee will not be entitled to any other compensation upon termination of this Agreement pursuant to this Paragraph 9(b). 10. Termination (a) The Company may terminate the employment of Employee For Cause or Without Cause during the Employment Term. Upon such termination, except as set forth herein, the Company shall be released from any and all further obligations under this Agreement, except that the Company shall be obligated to pay Employee the unpaid prorated salary pursuant to Paragraph 5 earned or accrued up through the day on which Employee is terminated. 3 (b) As used herein, the term "Without Cause" shall mean termination of the Employee's employment by the Company for any reason other than For Cause, Death or Disability. (c) As used herein, the term "For Cause" shall mean: (i) any material breach of this Agreement by Employee that, in the case of a breach that may be cured or remedied, is not cured or remedied to the reasonable satisfaction of the Company within 30 days after notice is given by the Company to Employee, setting forth in reasonable detail the nature of such breach; (ii) Employee's failure to perform his duties and services hereunder to the reasonable satisfaction of the Board of Directors or CEO of the Company that, in the case of any such failure that may be cured or remedied, is not cured or remedied to the reasonable satisfaction of the Company within 30 days after notice is given by the Company to Employee, setting forth in reasonable detail the nature of such failure; (iii) any material act, or material failure to act, by Employee in bad faith and to the material detriment of the Company; or (iv) commission by Employee of a material act involving moral turpitude, dishonesty, unethical business conduct, or any other conduct which significantly impairs the reputation of the Company, its subsidiaries or affiliates. (v) the conviction of the Employee of a felony, including the plea of nolo contendere 11. Disclosure of Information and Restrictive Covenant (a) Employee acknowledges that, by his employment, he has been and will be in a confidential relationship with the Company and will have access to confidential information and trade secrets of the Company, its subsidiaries and affiliates, including, but not limited to, confidential information or trade secrets belonging or relating to the Company, its subsidiaries, affiliates, customers and/or clients or proprietary processes or procedures of the Company, its subsidiaries, affiliates, customers and/or clients. Proprietary processes and procedures shall include, but shall not be limited to, all information which is known only to employees of the Company, its respective subsidiaries and affiliates or others in a confidential relationship with the Company or its respective subsidiaries and affiliates which relates to business matters. Confidential information and trade secrets include, but are not limited to, customer and client lists, price lists, marketing and sales strategies and procedures, operational and equipment techniques, business plans and systems, quality control procedures and systems, special projects and technological research, including projects, research and reports for any entity or client or any project, research, report or the like concerning sales or manufacturing or new technology, employee compensation plans and any other information relating thereto, and any other records, files, drawings, inventions, discoveries, applications or processes which are not in the public domain (all the foregoing shall be referred to herein as the "Confidential Information"). Employee agrees that in consideration of the execution of this Agreement by the Company, he will not use, or disclose to any third party, any of the Confidential Information, other than as required to perform his services hereunder or as directed or authorized by the Company's Board of Directors or President. 4 (b) (i) Employee will not, at any time prior to the Expiration Date, or if the Employee's employment shall terminate prior to the Expiration Date, then for a period of eighteen (18) months after the Employee ceases to be employed by the Company, engage in or participate in any business activity, including, but not limited to, acting as a director, officer, employee, agent, independent contractor, partner, consultant, licensor or licensee, franchiser or franchisee, proprietor, syndicate member, or shareholder that operates a business or activity which competes with any business or activity engaged in by the Company. (ii) Any time during his employment by the Company or after the Employee ceases to be employed by the Company, divulge to any persons, firms or corporations, other than the Company (hereinafter referred to collectively as "third parties"), or use or allow or cause or authorize any third parties to use, any such Confidential Information; and (iii) At any time during his employment by the Company and for a period of eighteen (18) months after the Employee ceases to be employed by the Company, solicit or cause or authorize directly or indirectly to be solicited, for or on behalf of the Employee or third parties, any business from persons, firms, corporations or other entities who were at any time within one (1) year prior to the cessation of his employment hereunder, customers of the Company; and (iv) At any time during his employment by the Company and for a period of eighteen (18) months after the Employee ceases to be employed by the Company, accept or cause or authorize directly or indirectly to be accepted, for or on behalf of the Employee or third parties, any business from any such customers of this Company; and (v) At any time during his employment by the Company and for a period of eighteen (18) months after the Employee ceases to be employed by the Company, solicit or cause or authorize directly or indirectly to be solicited for employment, for or on behalf of the Employee or third parties, any persons who were at any time within one year prior to the cessation of his employment hereunder, employees of the Company; and (vi) At any time during his employment by the Company and for a period of eighteen (18) months after the Employee ceases to be employed by the Company, employ or cause or authorize directly or indirectly to be employed, for or on behalf of the Employee or third parties, any such employees of the Company; and (vii) At any time during his employment by the Company and for a period of eighteen (18) months after the Employee ceases to be employed by the Company, compete with the Company in any fashion or work for, advise, be a consultant to or an officer, director, agent or employee of or otherwise associate with any person, firm, corporation or other entity which is engaged in or plans to engage in a business or activity which competes with any business or activity engaged in by the Company, or which is under development or in a planning stage by the Company. (c) Employee will not induce or persuade other employees of the Company to join him in any activity prohibited by Paragraph 11 or 12. (d) This Paragraph 11 and Paragraphs 12, 13, 14, 15, 20, 21 and 23 shall survive the expiration or termination of the Agreement for any reason. 5 (e) It is expressly agreed by Employee that the nature and scope of each of the provisions set forth in Paragraphs 11 and 12 are reasonable and necessary. If, for any reason, any aspect of these provisions as they apply to Employee is determined by a court of competent jurisdiction to be unreasonable or unenforceable, the provisions shall only be modified to the minimum extent required to make the provisions reasonable and/or enforceable, as the case may be. Employee acknowledges and agrees that his services are of a unique character and expressly grants to the Company or any subsidiary, successor or assignee of the Company, the right to enforce the provisions above through the use of all remedies available at law or in equity, including, but not limited to, injunctive relief. 12. Company Property (a) Any patents, inventions, discoveries, applications, processes or designs, devised, planned, applied, created, discovered or invented by Employee in the course of Employee's employment under this Agreement and which pertain to any aspect of the Company's or its respective subsidiaries' or affiliates' businesses shall be the sole and absolute property of the Company, and Employee shall make prompt report thereof to the Company and promptly execute any and all documents reasonably requested to assure the Company the full and complete ownership thereof. (b) All records, files, lists, including computer generated lists, drawings, documents, equipment and similar items relating to the Company's business which Employee shall prepare or receive from the Company shall remain the Company's sole and exclusive property. Upon termination of the Employment Term, or, if earlier, upon demand by the Company, Employee shall promptly return to the Company all property of the Company in his possession. Employee further represents that he will not copy or cause to be copied, print out or cause to be printed out any software, documents or other materials originating with or belonging to the Company. Employee covenants that, upon termination of his employment with the Company, he will not retain in his possession any such software, documents or other materials. 13. Remedy It is mutually understood and agreed that Employee's services are special, unique, unusual, extraordinary and of an intellectual character giving them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, in the event of any breach of this Agreement by Employee, including, but not limited to, the breach of the non-disclosure, non-solicitation and non-compete clauses under Paragraphs 11 and 12 hereof, the Company shall be entitled to equitable relief by way of injunction or otherwise in addition to damages the Company may be entitled to recover. Nothing herein shall be deemed to restrict any remedy available to Employee for breach of the Agreement by the Company. 14. Representations and Warranties of Employee and the Company (a) In order to induce the Company to enter into this Agreement, Employee hereby represents and warrants to the Company as follows: (i) Employee has 6 the legal capacity and unrestricted right to execute and deliver this Agreement once to perform all of his obligations hereunder: (ii) the execution and delivery of this Agreement by Employee and the performance of his obligations hereunder will not violate or be in conflict with any fiduciary or other duty, instrument, agreement, document, arrangement or other understanding to which Employee is a party or by which he is or may be bound or subject; and (iii) Employee is not a party to any instrument, agreement, document, arrangement or other understanding with any person (other than the Company) requiring or restricting the use or disclosure of any confidential information or the provision of any employment, consulting or other services. (b) The Company hereby represents and warrants to Employee, as follows: (i) the execution, delivery, and performance of this Agreement has been duly authorized by all necessary corporate action of the Company; and (ii) this Agreement constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, except that such enforcement may be subject to any bankruptcy, insolvency, reorganization, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors' rights generally. 15. Notices All notices given hereunder shall be in writing and shall be deemed effectively given when mailed, if sent by registered or certified mail, return receipt requested, addressed to Employee at his address set forth on the first page of this Agreement, and to the Company at its address set forth on the first page of this Agreement, Attention: Jerome Mahoney, Chairman of the Board, with a copy to Meritz & Muenz LLP, 2021 O Street, Washington DC 20036, Attention: Lawrence A. Muenz, or at such address as such party shall have designated by a notice given in accordance with this Paragraph 15, or when actually received by the party for whom intended, if sent by any other means. 16. Entire Agreement This Agreement constitutes the entire understanding of the parties with respect to its subject matter and no change, alteration or modification hereof may be made except in writing signed by the parties hereto. Any prior or other agreements, promises, negotiations or representations not expressly set forth in this Agreement are of no force or effect. 17. Severability If any provision of this Agreement shall be unenforceable under any applicable law, then notwithstanding such unenforceability, the remainder of this Agreement shall continue in full force and effect. 18. Waivers, Modifications, Etc. No amendment, modification or waiver of any provision of this Agreement shall be effective unless the same shall be in writing and signed by each of the parties 7 hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 19. Assignment Neither this Agreement, nor any of Employee's rights, powers, duties or obligations hereunder, may be assigned by Employee. This Agreement shall be binding upon and inure to the benefit of Employee and his heirs and legal representatives and the Company and its successors and assigns. Successors of the Company shall include, without limitation, any corporation or corporations acquiring, directly or indirectly, all or substantially all of the assets of the Company, whether by merger, consolidation, purchase, lease or otherwise, and such successor shall thereafter be deemed "the Company" for the purpose hereof. 20. Applicable Law This Agreement shall be deemed to have been made, drafted, negotiated and the transactions contemplated hereby consummated and fully performed in the State of New Jersey and shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to the conflicts of law rules thereof. Nothing contained in this Agreement shall be construed so as to require the commission of any act contrary to law, and whenever there is any conflict between any provision of this Agreement and any statute, law, ordinance, order or regulation, contrary to which the parties hereto have no legal right to contract, the latter shall prevail, but in such event any provision of this Agreement so affected shall be curtailed and limited only to the extent necessary to bring it within the legal requirements. 21. Jurisdiction and Venue It is hereby irrevocably agreed that all actions, suits or proceedings between the Company and Employee arising out of, in connection with or relating to this Agreement shall be exclusively heard and determined in, and the parties do hereby irrevocably submit to the exclusive jurisdiction of the appropriate New Jersey trial court located in the county in which the Company's principal offices are located, or the Federal District Court in the district in which the Company's principal offices are located. The parties also agree that a final judgment in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The parties hereby unconditionally waive any objection which either of them may now or hereafter have to the venue of any such action, suit or proceeding brought in any of the aforesaid courts, and waive any claim that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 22. Full Understanding Employee represents and agrees that he fully understands his right to discuss all aspects of this Agreement with his private attorney, that to the extent, if any, that he desired, he availed himself of this right, that he has carefully read and fully understands all of the provisions of this Agreement, that he is competent to execute this Agreement 8 that his agreement to execute this Agreement has not been obtained by any duress and that he freely and voluntarily enters into it, and that he has read this document in its entirety and fully understands the meaning, intent and consequences of this document which is that it constitutes an agreement of employment. 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date written below. IVOICE TECHNOLOGY, INC. ARIE SEIDLER By: /s/ Jerome Mahoney By: /s/ Arie Seidler ------------------------- ------------------------- Title: Chairman of the Board of Directors Dated:______________________ ------------------------------------ Dated:______________________ 10 EX-10 4 kl00336_ex10-11.txt EXHIBIT 10.11 ADMINISTRATIVE SERVICES AGREE Exhibit 10.11 ADMINISTRATIVE SERVICES AGREEMENT This Administrative Services Agreement is entered into this 1st day of August 2004 by and between iVoice, Inc., a New Jersey corporation ("iVoice"), and iVoice Technology, Inc., a Nevada corporation (the "Company"). The Company is a wholly owned subsidiary of iVoice and has relied since its inception upon various administrative services provided by iVoice. The Company and iVoice intend to file a registration statement on Form SB-2 under the Securities Act of 1933 relating to the distribution by iVoice of all of the capital stock of the Company. Upon the effectiveness of the registration statement and the consummation of the transactions described therein, iVoice will own none of the outstanding capital stock of the Company. The Company desires to engage iVoice to provide certain administrative services hereinafter described (the "Services"), and iVoice desires to provide the Services, on the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein set forth, the parties hereto agree as follows: 1. Services -------- 1.1 During the term of this Agreement, iVoice shall provide the following Services to the Company: (a) Inventory purchasing services comprised of processing purchase orders submitted by the Company for components and supplies in the manner heretofore ordered through iVoice's purchasing department and, in connection therewith, negotiating prices, expediting deliveries and administering subcontracts; (b) Material and inventory control, including incoming inspection, segregated storage, issuance of inventory items upon request from Company personnel, maintenance of the Company's inventory in an orderly fashion and issuance of itemized inventory status reports on a weekly basis; (c) Building rent (sublease of space) and maintenance, including janitorial services for the premises leased by the Company from iVoice; (d) Personnel administrative services, including referral services and background investigations for employment candidates upon request from the Company, payroll processing and benefit plan administration; (e) Electronic data processing services, including billing and collection services and management and financial reporting services comprised of monthly cash flow statements, profit and loss statements, profit reports by shop order, inventory analysis reports and analysis reports for corporate overhead and general and administrative expenses on a monthly and cumulative basis, to be furnished within 20 days after the close of each month during the term of this Agreement; and (f) Contract administration and assistance at the request of the Company in contract negotiations. (g) Source code management for of product, including, technical support, build code for installation, training of new clients, installation of new clients, and ongoing telephone and remote support of clients. 1.2 iVoice shall perform the Services in a timely and efficient manner, in accordance with all applicable laws, regulations and ordinances, and shall assign to each of the Services substantially the same priority as assigned to services of like category performed in its own operations. 2. Term ---- 2.1 The term of this Agreement shall commence as of the date of the execution of this Agreement, and shall continue until the Company's stock has been distributed, unless earlier terminated or extended in accordance with the provisions of this Section 2. 2.2 The term of this Agreement may be extended for on month to month basis until iVoice receives written notice on Termination from the Company. 2.3 This Agreement may be terminated, and any one or more of the Services may be reduced in scope or eliminated in its entirety, at any time during the term hereof upon 90 days' prior written notice from the Company. 3. Fees ---- 3.1 In consideration for the Services, the Company shall pay to iVoice during the term of this Agreement an administrative services fee (the "Services Fee") of $7,000.00 per month. iVoice represents and warrants to the Company that the Services Fee reflects actual historical expenditures for like services properly allocated by iVoice to the conduct of the business and operations of the Company during the two most recent fiscal years of the Company and iVoice (the "Expense Allocation"). After July 31, 2006, the fees hereunder may be adjusted as agreed in writing to reflect historical increases in the cost of such services. 3.2 In the event that the Company elects to reduce the scope of one or more Services or eliminates one or more Services in its entirety, the Services Fees shall be reduced to reflect the reduction or elimination of those Services, based upon the corresponding portion or portions of the Expense Allocation attributable thereto, from and after the effective date thereof. 27 4. Obligations and Relationship ---------------------------- Both parties to this Agreement shall at all times act as independent contractors and, notwithstanding anything contained herein, the relationship established hereunder between the parties shall not be construed as a partnership, joint venture or other form of joint enterprise. Except as expressly authorized by a party hereto, no party shall be authorized to make any representations or to create or assume any obligation or liability in respect of or on behalf of the other party, and this Agreement shall not be construed or constituting either party or the agent of the other party. 5. Limited Liability; Indemnification ---------------------------------- 5.1 iVoice shall not be liable to the Company for any loss, claim, expense or damage, including indirect, special, consequential or exemplary damages, for any act or omission performed or omitted by it hereunder so long as its act or omission does not constitute fraud, bad faith or gross negligence. iVoice shall not be liable to the Company for the consequences of any failure or delay in performing any Services if the failure shall be caused by labor disputes, strikes or other events or circumstances beyond its control and it shall have provided prompt notice to the Company of its inability to perform Services and the reason therefor. 5.2 In any action, suit or proceeding (other than an action by or in the right of the Company) to which iVoice or any agent or employee of iVoice performing Services hereunder (an "Indemnitee") was or is a party by reason of his or its performance or non-performance of Services, the Company shall indemnify the Indemnitee and hold the Indemnitee harmless from and against expenses, judgments, fines and amounts paid (with the consent of the Company) in settlement actually and reasonably incurred by the Indemnity in connection therewith if the Indemnity acted in good faith and provided that the Indemnitee's conduct does not constitute negligence or misconduct. 6. Confidentiality --------------- Any and all information obtained by iVoice in connection with the Services contemplated by this Agreement shall be held in the strictest confidence and not disclosed to any other person without the prior written consent of the Company. 7. Notices ------- All notices and other communications permitted or required hereunder shall be in writing and shall be deemed given when delivered by hand to an officer of either party. 8. Binding Effect -------------- This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors. 28 9. No Third Party Beneficiaries ---------------------------- This Agreement is solely for the benefit of the parties hereto and shall not confer upon third parties any remedy, claim, cause of action or other right in addition to those existing without reference to this Agreement. 10. Entire Agreement ---------------- This Agreement constitutes the entire agreement between the parties with respect to the subject matters covered hereby and supersedes any prior agreement or understanding between the parties with respect to those matters. 11. Assignment; Amendment; Waiver ----------------------------- This Agreement is not assignable by the Company without the prior written consent of iVoice. Neither the rights nor the duties arising hereunder may be assigned or delegated. This Agreement may not be amended nor may any rights hereunder be waived except by an instrument in writing signed by the party sought to be charged with the amendment or waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. 12. Governing Law ------------- This Agreement shall be construed in accordance with and governed by the laws of the State of New Jersey, without giving effect to the provisions, policies or principles thereof relating to choice or conflict of laws. 13. Headings -------- The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. {the remainder of this page has been intentionally left blank} IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. IVOICE, INC. By: /s/ Jerry Mahoney ---------------------------- Jerry Mahoney President iVoice Technology, Inc. By: /s/ Arie Seidler ---------------------------- President EX-10 5 kl00336_ex10-15.txt EXHIBIT 10.15 WAIVER FOR RECEIPT Exhibit 10.15 Waiver for Receipt of iVoice Technology Class A Common Stock I, Jerome Mahoney, in regards to the iVoice, Inc. distribution by dividend to all of the stockholders of iVoice, Inc. of up to 10,000,000 shares of iVoice Technology, Inc. Class A Common Stock (the "Distribution"), hereby agree to forego receiving any shares of iVoice Technology Class A Common Stock that I would be entitled to receive in the Distribution by virtue of my ownership of either iVoice Class A Common Stock or iVoice Class B Common Stock. By: /s/ Jerome Mahoney -------------------------- January 6, 2005 Jerome Mahoney EX-10 6 kl00336_ex10-16.txt EXHIBIT 10.16 PROMISSORY NOTE Exhibit 10.16 PROMISSORY NOTE THEREFORE, FOR VALUE RECEIVED the undersigned, promises to pay to Jerome Mahoney, the principal sum of One Hundred and Ninety Thousand Dollars ($190,000), at the rate of prime plus 2 percent annum on the unpaid balance until paid or until default, both principal and interest payable in lawful money of the United States of America, at iVoice Technology, Inc. ("iVoice") 750 Highway 34, Matawan, New Jersey 07747, or at such place as the legal holder hereof may designate in writing. It is understood and agreed that additional amounts may be advanced by the holder hereof as provided in the instruments, if any, securing this Note and such advances will be added to the principal of this Note and will accrue interest at the above specified rate of interest from the date of advance until paid. Such advances may include, in addition to cash advances: deferred compensation, deferred expense reimbursement, deferred commissions and income tax reimbursement for the recognition of income upon the sale of common stock for the purpose of the holder advancing additional funds to iVoice. The principal and interest shall be due and payable as follows: (a) interest shall accrue monthly on the unpaid balance and shall be paid annually, and (b) principal shall be payable on demand. Notwithstanding anything to the contrary herein, the Note holder may elect prepayment of the principal and/or interest owed pursuant to this Note by requiring [Voice to issue to Jerome Mahoney, or his assigns either: (i) one Class B common stock share of iVoice par value $.01 per share, for each dollar owed, (ii) the number of Class A common stock shares of voice calculated by dividing (x) the sum of the principal and interest that the Note holder has decided 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. Unless otherwise provided, this Note may be prepaid in full or in part at any time without penalty or premium. Partial prepayments shall be applied to installments due in reverse order of their maturity. In the event of (a) default in payment of any installment of principal or interest hereof as the same becomes due and such default is not cured within ten (10) days from the due date, or (b) default under the terms of any instrument securing this Note, and such default is not cured within fifteen (15) days after written notice to maker, then in either such event the holder may, without further notice, declare the remainder of the principal sum, together with all interest accrued thereon, and the prepayment premium, if any, at once due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise the same at any other time. The unpaid principal of this Note and any part thereof, accrued interest and all other sums due under this Note shall bear interest at the rate of prime plus 2 percent per annum after default until paid. All parties to this Note, including maker and any sureties, endorsers, or guarantors, hereby waive protest, presentment, notice of dishonor, and notice of acceleration of maturity and agree to continue to remain bound for the payment of principal, interest, and all other sums due under this Note, notwithstanding any change or changes by way of release, surrender, exchange, modification or substitution of any security for this Note or by way of any extension or extensions of time for the payment of principal and interest; and all such parties waive all and every kind of notice of such change or changes and agree that the same may be made without notice or consent of any of them. Upon default, the holder of this Note may employ an attorney to enforce the holder's rights and remedies and the maker, principal, surety, guarantor and endorsers of this Note hereby agree to pay to the holder reasonable attorneys fees, plus all other reasonable expenses incurred by the holder in exercising any of the holder's right and remedies upon default. The failure to exercise any such right or remedy shall not be a waiver or release of such rights or remedies or the right to exercise any of them at another time. This Note is to be governed and construed in accordance with the laws of the State of New Jersey. IN TESTIMONY WHEREOF, each corporate maker has caused this instrument to be executed in its corporate name by its President, and its corporate seal to be hereto affixed, all by order of its Board of Directors first duly given, the day and year first written below: iVoice Technology, Inc. By: /s/ Jerome Mahoney Dated:_______________________ -------------------------- 2 EX-10 7 kl00336_ex10-17.txt EXHIBIT 10.17 TERMINATION AGREEMENT Exhibit 10.17 TERMINATION AGREEMENT --------------------- THIS TERMINATION AGREEMENT (the "Agreement") is made and entered into effective as of February 28, 2005, by and between iVOICE TECHNOLOGY, INC., a New Jersey corporation (the "Company"), and CORNELL CAPITAL PARTNERS, LP., a Delaware limited partnership (the "Buyer"). Recitals: WHEREAS, the Company and the Buyer entered into a Securities Purchase Agreement (the "Securities Purchase Agreement"); Convertible Debentures (the "Convertible Debentures"); a Security Agreement (the "Security Agreement"); an Investor Registration Rights Agreement (the "Investor Registration Rights Agreement"); an Escrow Agreement (the "Escrow Agreement"); and an Irrevocable Transfer Agent Instructions (the "Irrevocable Transfer Agent Instructions"), all of which are dated August 13, 2004 (collectively, the Securities Purchase Agreement, Convertible Debentures issued thereto dated August 13, 2004 and November 17, 2004, the Security Agreement, the Investor Registration Rights Agreement, the Escrow Agreement and Irrevocable Transfer Agent Instructions are referred to as the "Transaction Documents." NOW, THEREFORE, in consideration of the promises and the mutual promises, conditions and covenants contained herein and in the Transaction Documents and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Termination. The parties to this Agreement hereby terminate the Transaction Documents and the respective rights and obligations contained therein, except as otherwise stated herein. As a result of this provision, none of the parties shall have any rights or obligations under or with respect to the Transaction Documents except as otherwise specified herein. 2. Principal and Interest. Notwithstanding the foregoing, the Company shall pay the Buyer the purchase price of Seven Hundred Thousand Dollars ($700,000), plus accrued interest as set forth in the Transaction Documents. The terms of repayment shall be set forth in the Promissory Note of even date herewith between the parties. 3. Payment of Fees. Notwithstanding the termination of the Transaction Documents, all fees paid to the Buyer by the Company pursuant to the Transaction Documents shall be deemed fully earned as August 13, 2004. Any fees not previously paid to the Buyer, if any, shall be paid immediately. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have signed and delivered this Termination Agreement on the date first set forth above. iVOICE TECHNOLOGY, INC. By: /s/ Jerome R. Mahoney ---------------------------- Name: Jerome R. Mahoney Title: Chairman CORNELL CAPITAL PARTNERS, LP By: /s/ Mark A. Angelo ---------------------------- Name: Mark A. Angelo Title: Portfolio Manager EX-10 8 kl00336_ex10-18.txt EXHIBIT 10.18 TERMINATION AGREEMENT Exhibit 10.18 TERMINATION AGREEMENT THIS TERMINATION AGREEMENT (the "Agreement") is made and entered into effective as of February 28, 2005, by and between iVOICE TECHNOLOGY, INC., a New Jersey corporation (the "Company"), and CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the "Investor"). Recitals: WHEREAS, the Company and the Investor entered into an Standby Equity Distribution Agreement (the "Standby Equity Distribution"); a Registration Rights Agreement (the "Registration Rights Agreement"); an Escrow Agreement (the "Escrow Agreement"); and a Placement Agent Agreement (the "Placement Agent Agreement", all of which are dated August 13, 2004 (collectively, the Standby Equity Distribution Agreement, the Registration Rights Agreement, the Escrow Agreement and Placement Agent Agreement are referred to as the "Transaction Documents." NOW, THEREFORE, in consideration of the promises and the mutual promises, conditions and covenants contained herein and in the Transaction Documents and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: Termination. Each of the parties to this Agreement hereby terminate the Transaction Documents and the respective rights and obligations contained therein. As a result of this provision, none of the parties shall have any rights or obligations under or with respect to the Transaction Documents. IN WITNESS WHEREOF, the parties have signed and delivered this Termination Agreement on the date first set forth above. iVOICE TECHNOLOGY, INC. CORNELL CAPITAL PARTNERS, LP By: /s/ Jerome R. Mahoney By: Yorkville Advisors, LLC -------------------------- Its: General Partner Name: Jerome R. Mahoney Title: Chairman By: /s/ Mark A. Angelo ----------------------------- Name: Mark A. Angelo Title: Portfolio Manager EX-10 9 kl00336_ex10-19.txt EXHIBIT 10.19 PROMISSORY NOTE Exhibit 10.19 PROMISSORY NOTE February 28, 2005 Jersey City, New Jersey $700,000 FOR VALUE RECEIVED, the undersigned, iVOICE TECHNOLOGY, INC., a New Jersey corporation (the "Company"), promises to pay CORNELL CAPITAL PARTNERS, LP (the "Lender") at 101 Hudson Street, Suite 3700, Jersey City, New Jersey 07302 or other address as the Lender shall specify in writing, the principal sum of Seven Hundred Thousand Dollars ($700,000) and interest at the annual rate of twelve percent (12%) on the unpaid balance pursuant to the following terms: On or about August 13, 2004, the parties entered into a Securities Purchase Agreement (the "Securities Purchase Agreement"); a Secured Debenture (the "Secured Debenture"); a Security Agreement (the "Security Agreement"); an Investor Registration Rights Agreement (the "Investor Registration Rights Agreement"); and an Escrow Agreement (the "Escrow Agreement") (collectively, the Securities Purchase Agreement, the Secured Debenture, the Security Agreement, the Investor Registration Rights Agreement and the Escrow Agreement are referred to as the "Transaction Documents"). The parties hereby terminate the Transaction Documents and the respective rights and obligations contained therein. None of the parties shall have any rights or obligations under or with respect to the Transaction Documents. 1. Principal and Interest. For value received, the Company hereby promises to pay to the order of the Lender in lawful money of the United States of America and in immediately available funds the principal sum of Seven Hundred Thousand Dollars ($700,000), of which Two Hundred Eighty Thousand Dollars ($280,000) was previously funded on August 13, 2004 and Two Hundred Eighty Thousand Dollars ($280,000) was funded on November 17, 2004. The remaining amount of this Promissory Note (the "Note") of One Hundred Forty Thousand Dollars ($140,000) shall be funded within five (5) days from the date hereof (the "Closing"). The Company shall pay a commitment fee of ten percent (10%) of the principal sum of this Note, which shall be paid and deducted from the gross proceeds available from the Closing. The parties acknowledge that $56,000 of such fee due and owing has already been paid. 2. Payments. The first payment of principal shall be due and payable on the first (1st) Monday of September 2005 (the "Initial Payment"), and with weekly payments being due and payable each succeeding week thereafter until all principal has been paid. The amount of each payment shall be Ten Thousand Dollars ($10,000). Interest shall accrue from the date hereof. The Company shall pay all accrued and unpaid interest at the time of the Final Payment (as such term is defined herein). In the event all principal and interest has not been satisfied by the one (1) year anniversary from the Initial Payment, the Lender shall make a lump sum payment (the "Final Payment") of all outstanding interest and principal on the one (1) year anniversary from the Initial Payment. 3. Waiver and Consent. To the fullest extent permitted by law and except as otherwise provided herein, the Company waives demand, presentment, protest, notice of dishonor, suit against or joinder of any other person, and all other requirements necessary to charge or hold the Company liable with respect to this Note. 4. Costs, Indemnities and Expenses. In the event of default as described herein, the Company agrees to pay all reasonable fees and costs incurred by the Lender in collecting or securing or attempting to collect or secure this Note, including reasonable attorneys' fees and expenses, whether or not involving litigation, collecting upon any judgments and/or appellate or bankruptcy proceedings. The Company agrees to pay any documentary stamp taxes, intangible taxes or other taxes which may now or hereafter apply to this Note or any payment made in respect of this Note, and the Company agrees to indemnify and hold the Lender harmless from and against any liability, costs, attorneys' fees, penalties, interest or expenses relating to any such taxes, as and when the same may be incurred. 5. Event of Default. An "Event of Default" shall be deemed to have occurred upon the occurrence of any of the following: (i) the Company should fail for any reason or for no reason to make any payment of the interest or principal pursuant to this Note within fifteen (15) days of the date due as prescribed herein and after five (5) days following written notice to the Company; (ii) failure by the Company for twenty (20) days after notice to it to satisfy any of its other obligations or requirements or comply with any of its other agreements under this Note; (iii) any proceedings under any bankruptcy laws of the United States of America or under any insolvency, not disclosed to the Lender, reorganization, receivership, readjustment of debt, dissolution, liquidation or any similar law or statute of any jurisdiction now or hereinafter in effect (whether in law or at equity) is filed by or against the Company or for all or any part of its property; or (iv) a breach by the Company of its obligations, or an event of default, under the Security Agreement, or any other agreements hereunder between the Company and the Lender of even date herewith which is not cured by any applicable cure period set forth therein. Upon an Event of Default (as defined above), the entire principal balance and accrued interest outstanding under this Note, and all other obligations of the Company under this Note, shall be immediately due and payable without any action on the part of the Lender, interest shall accrue on the unpaid principal balance at eighteen percent (18%) or the highest rate permitted by applicable law, if lower, and the Lender shall be entitled to seek and institute any and all remedies available to it. 6. Maximum Interest Rate. In no event shall any agreed to or actual interest charged, reserved or taken by the Lender as consideration for this Note exceed the limits imposed by New Jersey law. In the event that the interest provisions of this Note shall result at any time or for any reason in an effective rate of interest that exceeds the maximum interest rate permitted by applicable law, then without further agreement or 2 notice the obligation to be fulfilled shall be automatically reduced to such limit and all sums received by the Lender in excess of those lawfully collectible as interest shall be applied against the principal of this Note immediately upon the Lender's receipt thereof, with the same force and effect as though the Company had specifically designated such extra sums to be so applied to principal and the Lender had agreed to accept such extra payment(s) as a premium-free prepayment or prepayments. 7. Secured Nature of the Note. This Note is secured by the Pledged Property as defined in the Security Agreement between the Company and the Lender of even date herewith. 8. Issuance of Capital Stock. So long as any portion of this Note is outstanding, the Company shall not, without the prior written consent of the Buyer(s), issue or sell shares of Common Stock or Preferred Stock (i) without consideration or for a consideration per share less than the bid price of the Common Stock (the "Bid Price") determined immediately prior to its issuance, (ii) any warrant, option, right, contract, call, or other security instrument granting the holder thereof, the right to acquire Common Stock without consideration or for a consideration less than such Common Stock's Bid Price value determined immediately prior to it's issuance, (iii) enter into any security instrument granting the holder a security interest in any and all assets of the Company, or (iv) file any registration statement on Form S-8, except for the registration of an employee stock option plan. Notwithstanding anything to the contrary, the Company may issue Common Stock issuable pursuant to the Company's obligations upon the conversion of stock options, convertible debt or Class B Common Stock. For purposes of this Section, Bid Price shall mean, on any date, the closing bid price (as reported by Bloomberg L.P.) of the Common Stock on the principal market (the "Principal Market") or if the Common Stock is not traded on a Principal Market, the highest reported bid price for the Common Stock, as furnished by the National Association of Securities Dealers, Inc. The Principal Market shall mean the Nasdaq National Market, the Nasdaq SmallCap Market, the American Stock Exchange, the OTC Bulletin Board or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock. 9. Cancellation of Note. Upon the repayment by the Company of all of its obligations hereunder to the Lender, including, without limitation, the principal amount of this Note, plus accrued but unpaid interest, the indebtedness evidenced hereby shall be deemed canceled and paid in full. Except as otherwise required by law or by the provisions of this Note, payments received by the Lender hereunder shall be applied first against expenses and indemnities, next against interest accrued on this Note, and next in reduction of the outstanding principal balance of this Note. 10. Severability. If any provision of this Note is, for any reason, invalid or unenforceable, the remaining provisions of this Note will nevertheless be valid and enforceable and will remain in full force and effect. Any provision of this Note that is held invalid or unenforceable by a court of competent jurisdiction will be deemed 3 modified to the extent necessary to make it valid and enforceable and as so modified will remain in full force and effect. 11. Amendment and Waiver. This Note may be amended, or any provision of this Note may be waived, provided that any such amendment or waiver will be binding on a party hereto only if such amendment or waiver is set forth in a writing executed by the parties hereto. The waiver by any such party hereto of a breach of any provision of this Note shall not operate or be construed as a waiver of any other breach. 12. Successors. Except as otherwise provided herein, this Note shall bind and inure to the benefit of and be enforceable by the parties hereto and their permitted successors and assigns. 13. Assignment. This Note shall not be directly or indirectly assignable or delegable by the Company. The Lender may assign this Note as long as such assignment complies with the Securities Act of 1933, as amended. 14. No Strict Construction. The language used in this Note will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party. 15. Further Assurances. Each party hereto will execute all documents and take such other actions as the other party may reasonably request in order to consummate the transactions provided for herein and to accomplish the purposes of this Note. 16. Notices, Consents, etc. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) trading day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to Company: iVoice Technology, Inc. 750 Highway 34 Matawan, NJ 07747 Attention: Jerome R. Mahoney Telephone: (732) 441-7700 Facsimile: (732) 441-9895 If to the Lender: Cornell Capital Partners, LP. 101 Hudson Street, Suite 3700 Jersey City, NJ 07302 Attention: Mark A. Angelo Telephone: (201) 324-1619 Facsimile: (201) 324-1447 4 or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) trading days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. 17. Remedies, Other Obligations, Breaches and Injunctive Relief. The Lender's remedies provided in this Note shall be cumulative and in addition to all other remedies available to the Lender under this Note, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy of the Lender contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit the Lender's right to pursue actual damages for any failure by the Company to comply with the terms of this Note. No remedy conferred under this Note upon the Lender is intended to be exclusive of any other remedy available to the Lender, pursuant to the terms of this Note or otherwise. No single or partial exercise by the Lender of any right, power or remedy hereunder shall preclude any other or further exercise thereof. The failure of the Lender to exercise any right or remedy under this Note or otherwise, or delay in exercising such right or remedy, shall not operate as a waiver thereof. Every right and remedy of the Lender under any document executed in connection with this transaction may be exercised from time to time and as often as may be deemed expedient by the Lender. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Lender and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Lender shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, and specific performance without the necessity of showing economic loss and without any bond or other security being required. 18. Governing Law; Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New Jersey, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New Jersey or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New Jersey. Each party hereby irrevocably submits to the exclusive jurisdiction of the Superior Court of the State of New Jersey sitting in Hudson County, New Jersey and the United States Federal District Court for the District of New Jersey sitting in Newark, New Jersey, for the adjudication of any dispute hereunder or in 5 connection herewith or therewith, or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 19. No Inconsistent Agreements. None of the parties hereto will hereafter enter into any agreement, which is inconsistent with the rights granted to the parties in this Note. 20. Third Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity, other than the parties to this Note and their respective permitted successor and assigns, any rights or remedies under or by reason of this Note. 21. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR THE LENDER TO LOAN TO THE COMPANY THE MONIES HEREUNDER, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION. 22. Entire Agreement. This Note (including any recitals hereto) set forth the entire understanding of the parties with respect to the subject matter hereof, and shall not be modified or affected by any offer, proposal, statement or representation, oral or written, made by or for any party in connection with the negotiation of the terms hereof, and may be modified only by instruments signed by all of the parties hereto. [REMAINDER OF PAGE INTENTIONALY LEFT BLANK] 6 IN WITNESS WHEREOF, this Promissory Note is executed by the undersigned as of the date hereof. CORNELL CAPITAL PARTNERS, LP By: Yorkville Advisors, LLC Its: General Partner By: /s/ Mark Angelo ------------------------------- Name: Mark Angelo Its: Portfolio Manager iVOICE TECHNOLOGY, INC. By: /s/ Jerome R. Mahoney ------------------------------- Name: Jerome R. Mahoney Title: Chairman 7 EX-10 10 kl00336_ex10-20.txt EXHIBIT 10.20 SECURITY AGREEMENT Exhibit 10.20 SECURITY AGREEMENT THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made effective as of February 28, 2005, by and between iVOICE TECHNOLOGY, INC., (the "Company"), and CORNELL CAPITAL PARTNERS, LP (the "Secured Party"). WHEREAS, the Company shall issue to the Secured Party, as provided in the Promissory Note dated the date hereof, and the Secured Party shall accept Promissory Note in a principal amount of Seven Hundred Thousand Dollars ($700,000) (the "Note"); WHEREAS, to induce the Secured Party to enter into the Note (collectively, this Agreement and the Note shall be referred to as the "Transaction Documents"), the Company hereby grants to the Secured Party a security interest in and to the pledged property identified on Exhibit "A" hereto until the satisfaction of the Obligations, as defined herein below. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1. DEFINITIONS AND INTERPRETATIONS ------------------------------- Section 1.1. Recitals. The above recitals are true and correct and are incorporated herein, in their entirety, by this reference. Section 1.2. Interpretations. Nothing herein expressed or implied is intended or shall be construed to confer upon any person other than the Secured Party any right, remedy or claim under or by reason hereof. Section 1.3. Obligations Secured. The obligations secured hereby are any and all obligations of the Company now existing or hereinafter incurred to the Secured Party, whether oral or written and whether arising before, on or after the date hereof including, without limitation, those obligations of the Company to the Secured Party under the Note, and any other amounts now or hereafter owed to the Secured Party by the Company thereunder or hereunder (collectively, the "Obligations"). ARTICLE 2. PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL AND TERMINATION OF SECURITY INTEREST ------------------------------------ Section 2.1. Pledged Property. (a) Company hereby pledges to the Secured Party, and creates in the Secured Party for its benefit, a security interest in and to all of the property of the Company as set forth in Exhibit A attached hereto and the products thereof and the proceeds of all such items (collectively, the "Pledged Property") for such time until the Obligations are paid in full. (b) Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably requested by the Secured Party to perfect its security interest in the Pledged Property. Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge and deliver to the Secured Party such documents and instruments, including, without limitation, financing statements, certificates, affidavits and forms as may, in the Secured Party's reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve, the security interest of the Secured Party in the Pledged Property, and the Secured Party shall hold such documents and instruments as secured party, subject to the terms and conditions contained herein. Section 2.2. Rights; Interests; Etc. (a) So long as no Event of Default (as hereinafter defined) shall have occurred and be continuing: (i) the Company shall be entitled to exercise any and all rights pertaining to the Pledged Property or any part thereof for any purpose not inconsistent with the terms hereof; and (ii) the Company shall be entitled to receive and retain any and all payments paid or made in respect of the Pledged Property. (b) Upon the occurrence and during the continuance of an Event of Default: (i) All rights of the Company to exercise the rights which it would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to receive payments which it would otherwise be authorized to receive and retain pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights shall thereupon become vested in the Secured Party who shall thereupon have the sole right to exercise such rights and to receive and hold as Pledged Property such payments; provided, however, that if the Secured Party shall become entitled and shall elect to exercise its right to realize on the Pledged Property pursuant to Article 5 hereof, then all cash sums received by the Secured Party, or held by Company for the benefit of the Secured Party and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any outstanding Obligations; and 2 (ii) All interest, dividends, income and other payments and distributions which are received by the Company contrary to the provisions of Section 2.2(b)(i) hereof shall be received in trust for the benefit of the Secured Party, shall be segregated from other property of the Company and shall be forthwith paid over to the Secured Party; or (iii) The Secured Party in its sole discretion shall be authorized to sell any or all of the Pledged Property at public or private sale in order to recoup all of the outstanding principal plus accrued interest owed pursuant to the Note as described herein (c) Each of the following events shall constitute a default under this Agreement (each an "Event of Default"): (i) any default, whether in whole or in part, shall occur in the payment to the Secured Party of principal, interest or other item comprising the Obligations as and when due or with respect to any other debt or obligation of the Company to a party other than the Secured Party and five (5) days of have elapsed since the Company had received written notice of such default and has failed to cure such default; (ii) any default, whether in whole or in part, shall occur in the due observance or performance of any obligations or other covenants, terms or provisions to be performed under this Agreement or the Transaction Documents and five (5) days of have elapsed since the Company had received written notice of such default and has failed to cure such default; (iii) the Company shall: (1) make a general assignment for the benefit of its creditors; (2) apply for or consent to the appointment of a receiver, trustee, assignee, custodian, sequestrator, liquidator or similar official for itself or any of its assets and properties; (3) commence a voluntary case for relief as a debtor under the United States Bankruptcy Code; (4) file with or otherwise submit to any governmental authority any petition, answer or other document seeking: (A) reorganization, (B) an arrangement with creditors or (C) to take advantage of any other present or future applicable law respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief of debtors, dissolution or liquidation; (5) file or otherwise submit any answer or other document admitting or failing to contest the material allegations of a petition or other document filed or otherwise submitted against it in any proceeding under any such applicable law, or (6) be adjudicated a bankrupt or insolvent by a court of competent jurisdiction; or (iv) any case, proceeding or other action shall be commenced against the Company for the purpose of effecting, or an order, judgment or decree shall be entered by any court of competent jurisdiction approving (in whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any receiver, trustee, assignee, custodian, sequestrator, liquidator or other official shall be appointed with respect to the Company, or shall be appointed to take or shall otherwise acquire possession or control of all or a substantial part of the assets and properties of the Company, and any of the foregoing shall continue unstayed and in effect for any period of thirty (30) days. 3 ARTICLE 3. ATTORNEY-IN-FACT; PERFORMANCE ----------------------------- Section 3.1. Secured Party Appointed Attorney-In-Fact. Upon the occurrence of an Event of Default, the Company hereby appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Secured Party's discretion to take any action and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement, including, without limitation, to receive and collect all instruments made payable to the Company representing any payments in respect of the Pledged Property or any part thereof and to give full discharge for the same. The Secured Party may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged Property as and when the Secured Party may determine. To facilitate collection, the Secured Party may notify account debtors and obligors on any Pledged Property to make payments directly to the Secured Party. Section 3.2. Secured Party May Perform. If the Company fails to perform any agreement contained herein, the Secured Party, at its option, may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be included in the Obligations secured hereby and payable by the Company under Section 8.3. ARTICLE 4. REPRESENTATIONS AND WARRANTIES ------------------------------ Section 4.1. Authorization; Enforceability. Each of the parties hereto represents and warrants that it has taken all action necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and binding obligation of the respective party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors' rights or by the principles governing the availability of equitable remedies. Section 4.2. Ownership of Pledged Property. The Company warrants and represents that it shall be, at the time the Securities and Exchange Commission deems the Company's registration statement effective, the legal and beneficial owner of the Pledged Property free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement. 4 ARTICLE 5. DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL Section 5.1. Default and Remedies. (a) If an Event of Default described in Section 2.2(c)(i) and (ii) occurs, then in each such case the Secured Party may declare the Obligations to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration, the Obligations shall become immediately due and payable. If an Event of Default described in Sections 2.2(c)(iii) or (iv) occurs and is continuing for the period set forth therein, then the Obligations shall automatically become immediately due and payable without declaration or other act on the part of the Secured Party. (b) Upon the occurrence of an Event of Default, the Secured Party shall: (i) be entitled to receive all distributions with respect to the Pledged Property, (ii) to cause the Pledged Property to be transferred into the name of the Secured Party or its nominee, (iii) to dispose of the Pledged Property, and (iv) to realize upon any and all rights in the Pledged Property then held by the Secured Party. Section 5.2. Method of Realizing Upon the Pledged Property: Other Remedies. Upon the occurrence of an Event of Default, in addition to any rights and remedies available at law or in equity, the following provisions shall govern the Secured Party's right to realize upon the Pledged Property: (a) Any item of the Pledged Property may be sold for cash or other value in any number of lots at brokers board, public auction or private sale and may be sold without demand, advertisement or notice (except that the Secured Party shall give the Company ten (10) days' prior written notice of the time and place or of the time after which a private sale may be made (the "Sale Notice")), which notice period is hereby agreed to be commercially reasonable. At any sale or sales of the Pledged Property, the Company may bid for and purchase the whole or any part of the Pledged Property and, upon compliance with the terms of such sale, may hold, exploit and dispose of the same without further accountability to the Secured Party. The Company will execute and deliver, or cause to be executed and delivered, such instruments, documents, assignments, waivers, certificates, and affidavits and supply or cause to be supplied such further information and take such further action as the Secured Party reasonably shall require in connection with any such sale. (b) Any cash being held by the Secured Party as Pledged Property and all cash proceeds received by the Secured Party in respect of, sale of, collection from, or other realization upon all or any part of the Pledged Property shall be applied as follows: (i) to the payment of all amounts due the Secured Party for the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3 hereof; (ii) to the payment of the Obligations then due and unpaid. 5 (iii) the balance, if any, to the person or persons entitled thereto, including, without limitation, the Company. (c) In addition to all of the rights and remedies which the Secured Party may have pursuant to this Agreement, the Secured Party shall have all of the rights and remedies provided by law, including, without limitation, those under the Uniform Commercial Code. (i) If the Company fails to pay such amounts due upon the occurrence of an Event of Default which is continuing, then the Secured Party may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of Company, wherever situated. (ii) The Company agrees that it shall be liable for any reasonable fees, expenses and costs incurred by the Secured Party in connection with enforcement, collection and preservation of the Transaction Documents, including, without limitation, reasonable legal fees and expenses, and such amounts shall be deemed included as Obligations secured hereby and payable as set forth in Section 8.3 hereof. Section 5.3. Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relating to the Company or the property of the Company or of such other obligor or its creditors, the Secured Party (irrespective of whether the Obligations shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Secured Party shall have made any demand on the Company for the payment of the Obligations), subject to the rights of Previous Security Holders, shall be entitled and empowered, by intervention in such proceeding or otherwise: (i) to file and prove a claim for the whole amount of the Obligations and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Secured Party (including any claim for the reasonable legal fees and expenses and other expenses paid or incurred by the Secured Party permitted hereunder and of the Secured Party allowed in such judicial proceeding), and (ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by the Secured Party to make such payments to the Secured Party and, in the event that the Secured Party shall consent to the making of such payments directed to the Secured Party, to pay to the Secured Party any amounts for expenses due it hereunder. Section 5.4. Duties Regarding Pledged Property. The Secured Party shall have no duty as to the collection or protection of the Pledged Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond 6 the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party's possession. ARTICLE 6. AFFIRMATIVE COVENANTS --------------------- The Company covenants and agrees that, from the date hereof and until the Obligations have been fully paid and satisfied, unless the Secured Party shall consent otherwise in writing (as provided in Section 8.4 hereof): Section 6.1. Existence, Properties, Etc. (a) The Company shall do, or cause to be done, all things, or proceed with due diligence with any actions or courses of action, that may be reasonably necessary (i) to maintain Company's due organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions in which the failure to do so could have a Material Adverse Effect (as defined below); and (b) the Company shall not do, or cause to be done, any act impairing the Company's corporate power or authority (i) to carry on the Company's business as now conducted, and (ii) to execute or deliver this Agreement or any other document delivered in connection herewith, including, without limitation, any UCC-1 Financing Statements required by the Secured Party to which it is or will be a party, or perform any of its obligations hereunder or thereunder. For purpose of this Agreement, the term "Material Adverse Effect" shall mean any material and adverse affect as determined by Secured Party in its sole discretion, whether individually or in the aggregate, upon (a) the Company's assets, business, operations, properties or condition, financial or otherwise; (b) the Company's to make payment as and when due of all or any part of the Obligations; or (c) the Pledged Property. Section 6.2. Financial Statements and Reports. The Company shall furnish to the Secured Party such financial data as the Secured Party may reasonably request. Without limiting the foregoing, the Company shall furnish to the Secured Party (or cause to be furnished to the Secured Party) the following: (a) as soon as practicable and in any event within one hundred and five (105) days after the end of each fiscal year of the Company, the balance sheet of the Company as of the close of such fiscal year, the statement of earnings and retained earnings of the Company as of the close of such fiscal year, and statement of cash flows for the Company for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct and accompanied by a certificate of the chief executive and chief financial officers of the Company, stating that the Company has kept, observed, performed and fulfilled each covenant, term and condition of this Agreement during such fiscal year and that no Event of Default hereunder has occurred and is continuing, or if an Event of Default has occurred and is continuing, specifying the nature of same, the period of existence of same and the action the Company proposes to take in connection therewith; 7 (b) within thirty (30) days of the end of each calendar month, a balance sheet of the Company as of the close of such month, and statement of earnings and retained earnings of the Company as of the close of such month, all in reasonable detail, and prepared substantially in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct; and (c) promptly upon receipt thereof, copies of all accountants' reports and accompanying financial reports submitted to the Company by independent accountants in connection with each annual examination of the Company. Section 6.3. Accounts and Reports. The Company shall maintain a standard system of accounting in accordance with generally accepted accounting principles consistently applied and provide, at its sole expense, to the Secured Party the following: (a) as soon as available, a copy of any notice or other communication alleging any nonpayment or other material breach or default, or any foreclosure or other action respecting any material portion of its assets and properties, received respecting any of the indebtedness of the Company in excess of $15,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in excess of $15,000, including any received from any person acting on behalf of the Secured Party or beneficiary thereof; and (b) within fifteen (15) days after the making of each submission or filing, a copy of any report, financial statement, notice or other document, whether periodic or otherwise, submitted to the shareholders of the Company, or submitted to or filed by the Company with any governmental authority involving or affecting (i) the Company that could have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Property; or (iv) any of the transactions contemplated in this Agreement or the Loan Instruments. Section 6.4. Maintenance of Books and Records; Inspection. The Company shall maintain its books, accounts and records in accordance with generally accepted accounting principles consistently applied, and permit the Secured Party, its officers and employees and any professionals designated by the Secured Party in writing, at any time to visit and inspect any of its properties (including but not limited to the collateral security described in the Transaction Documents and/or the Loan Instruments), corporate books and financial records, and to discuss its accounts, affairs and finances with any employee, officer or director thereof. Section 6.5. Maintenance and Insurance. (a) The Company shall maintain or cause to be maintained, at its own expense, all of its assets and properties in good working order and condition, making all necessary repairs thereto and renewals and replacements thereof. 8 (b) The Company shall maintain or cause to be maintained, at its own expense, insurance in form, substance and amounts (including deductibles), which the Company deems reasonably necessary to the Company's business, (i) adequate to insure all assets and properties of the Company, which assets and properties are of a character usually insured by persons engaged in the same or similar business against loss or damage resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and other tort claims that may be incurred by the Company; (iii) as may be required by the Transaction Documents and/or applicable law and (iv) as may be reasonably requested by Secured Party, all with adequate, financially sound and reputable insurers. Section 6.6. Contracts and Other Collateral. The Company shall perform all of its obligations under or with respect to each instrument, receivable, contract and other intangible included in the Pledged Property to which the Company is now or hereafter will be party on a timely basis and in the manner therein required, including, without limitation, this Agreement. Section 6.7. Defense of Collateral, Etc. The Company shall defend and enforce its right, title and interest in and to any part of: (a) the Pledged Property; and (b) if not included within the Pledged Property, those assets and properties whose loss could have a Material Adverse Effect, the Company shall defend the Secured Party's right, title and interest in and to each and every part of the Pledged Property, each against all manner of claims and demands on a timely basis to the full extent permitted by applicable law. Section 6.8. Payment of Debts, Taxes, Etc. The Company shall pay, or cause to be paid, all of its indebtedness and other liabilities and perform, or cause to be performed, all of its obligations in accordance with the respective terms thereof, and pay and discharge, or cause to be paid or discharged, all taxes, assessments and other governmental charges and levies imposed upon it, upon any of its assets and properties on or before the last day on which the same may be paid without penalty, as well as pay all other lawful claims (whether for services, labor, materials, supplies or otherwise) as and when due Section 6.9. Taxes and Assessments; Tax Indemnity. The Company shall (a) file all tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency, (b) pay and discharge all taxes, assessments and governmental charges or levies imposed upon the Company, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that the Company in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect thereto. 9 Section 6.10. Compliance with Law and Other Agreements. The Company shall maintain its business operations and property owned or used in connection therewith in compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises, indentures and mortgages to which the Company is a party or by which the Company or any of its properties is bound. Without limiting the foregoing, the Company shall pay all of its indebtedness promptly in accordance with the terms thereof. Section 6.11. Notice of Default. The Company shall give written notice to the Secured Party of the occurrence of any default or Event of Default under this Agreement, the Transaction Documents or any other Loan Instrument or any other agreement of Company for the payment of money, promptly upon the occurrence thereof. Section 6.12. Notice of Litigation. The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings wherein the amount at issue is in excess of $50,000, instituted by any persons against the Company, or affecting any of the assets of the Company, and (b) any dispute, not resolved within fifteen (15) days of the commencement thereof, between the Company on the one hand and any governmental or regulatory body on the other hand, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of the Company. ARTICLE 7. NEGATIVE COVENANTS ------------------ The Company covenants and agrees that, from the date hereof until the Obligations have been fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise in writing: Section 7.1. Indebtedness. The Company shall not directly or indirectly permit, create, incur, assume, permit to exist, increase, renew or extend on or after the date hereof any indebtedness on its part, including commitments, contingencies and credit availabilities, or apply for or offer or agree to do any of the foregoing. Section 7.2. Liens and Encumbrances. The Company shall not directly or indirectly make, create, incur, assume or permit to exist any assignment, transfer, pledge, mortgage, security interest or other lien or encumbrance of any nature in, to or against any part of the Pledged Property or of the Company's capital stock, or offer or agree to do so, or own or acquire or agree to acquire any asset or property of any 10 character subject to any of the foregoing encumbrances (including any conditional sale contract or other title retention agreement), or assign, pledge or in any way transfer or encumber its right to receive any income or other distribution or proceeds from any part of the Pledged Property or the Company's capital stock; or enter into any sale-leaseback financing respecting any part of the Pledged Property as lessee, or cause or assist the inception or continuation of any of the foregoing. Section 7.3. Certificate of Incorporation, By-Laws, Mergers, Consolidations, Acquisitions and Sales. Without the prior express written consent of the Secured Party, except as otherwise permitted in the Promissory Note between the parties of even date herewith, the Company shall not: (a) Amend its Certificate of Incorporation or By-Laws; (b) issue or sell its stock, stock options, bonds, notes or other corporate securities or obligations; (c) be a party to any merger, consolidation or corporate reorganization, (d) purchase or otherwise acquire all or substantially all of the assets or stock of, or any partnership or joint venture interest in, any other person, firm or entity, (e) sell, transfer, convey, grant a security interest in or lease all or any substantial part of its assets, nor (f) create any subsidiaries nor convey any of its assets to any subsidiary. Section 7.4. Management, Ownership. The Company shall not materially change its executive staff or management without the prior written consent of the Secured Party. The executive staff and management of the Company are material factors in the Secured Party's willingness to institute and maintain a lending relationship with the Company. Section 7.5. Dividends, Etc. The Company shall not declare or pay any dividend of any kind, in cash or in property, on any class of its capital stock, nor purchase, redeem, retire or otherwise acquire for value any shares of such stock, nor make any distribution of any kind in respect thereof, nor make any return of capital to shareholders, nor make any payments in respect of any pension, profit sharing, retirement, stock option, stock bonus, incentive compensation or similar plan (except as required or permitted hereunder), without the prior written consent of the Secured Party. Section 7.6. Guaranties; Loans. The Company shall not guarantee nor be liable in any manner, whether directly or indirectly, or become contingently liable after the date of this Agreement in connection with the obligations or indebtedness of any person or persons, except for (i) the indebtedness currently secured by the liens identified on the Pledged Property identified on Exhibit A hereto and (ii) the endorsement of negotiable instruments payable to the Company for deposit or collection in the ordinary course of business. The Company shall not make any loan, advance or extension of credit to any person other than in the normal course of its business. 11 Section 7.7. Debt. The Company shall not, without the prior written consent of the Secured Party, create, incur, assume or suffer to exist any additional indebtedness of any description whatsoever in an aggregate amount in excess of Three Hundred Thousand Dollars ($300,000) (excluding any indebtedness of the Company to the Secured Party, trade accounts payable and accrued expenses incurred in the ordinary course of business and the endorsement of negotiable instruments payable to the Company, respectively for deposit or collection in the ordinary course of business). Notwithstanding the foregoing, the Company may incur indebtedness equal to One Hundred Ninety Thousand Dollars ($190,000) payable to Jerome Mahoney. Section 7.8. Conduct of Business. The Company will continue to engage, in an efficient and economical manner, in a business of the same general type as conducted by it on the date of this Agreement. Section 7.9. Places of Business. The location of the Company's chief place of business is 750 Highway 34, Matawan, NJ 07747. The Company shall not change the location of its chief place of business, chief executive office or any place of business disclosed to the Secured Party or move any of the Pledged Property from its current location without thirty (30) days' prior written notice to the Secured Party in each instance. ARTICLE 8. MISCELLANEOUS ------------- Section 8.1. Notices. All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on: (a) the date of delivery, if delivered in person, by nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the continental United States by certified mail, return receipt requested to the party entitled to receive the same: If to the Secured Party: Cornell Capital Partners, LP. 101 Hudson Street-Suite 3700 Jersey City, New Jersey 07302 Attention: Mark Angelo Portfolio Manager Telephone: (201) 986-8300 Facsimile: (201) 985-8266 With a copy to: David Gonzalez, Esq. 101 Hudson Street - Suite 3700 Jersey City, NJ 07302 Telephone: (201) 985-8300 Facsimile: (201) 985-8266 12 And if to the Company: iVoice Technology, Inc. 750 Highway 34 Matawan, NJ 07747 Attention: Jerome R. Mahoney Telephone: (732) 441-7700 Facsimile: (732) 441-9895 With a copy to: Meritz & Muenz LLP 2021 O Street, NW Washington, DC 20036 Attention: Lawrence A. Muenz, Esq. Telephone: (202) 787-1964 Facsimile: (202) 787-3909 Any party may change its address by giving notice to the other party stating its new address. Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such party's address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement. Section 8.2. Severability. If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. Section 8.3. Expenses. In the event of an Event of Default, the Company will pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur in connection with: (i) the custody or preservation of, or the sale, collection from, or other realization upon, any of the Pledged Property; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by the Company to perform or observe any of the provisions hereof. 13 Section 8.4. Waivers, Amendments, Etc. The Secured Party's delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waiver, affect, or diminish any right of the Secured Party under this Agreement to demand strict compliance and performance herewith. Any waiver by the Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Secured Party. Section 8.5. Continuing Security Interest. This Agreement shall create a continuing security interest in the Pledged Property and shall: (i) remain in full force and effect until payment in full of the Obligations; and (ii) be binding upon the Company and its successors and heirs and (iii) inure to the benefit of the Secured Party and its successors and assigns. Upon the payment or satisfaction in full of the Obligations, the Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall not have been sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the terms hereof. Section 8.6. Independent Representation. Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and responsibilities with regard to the substance of this Agreement. Section 8.7. Applicable Law: Jurisdiction. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph. Section 8.8. Waiver of Jury Trial. AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION. 14 Section 8.9. Entire Agreement. This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or understanding among them with respect to the subject matter hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 15 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. COMPANY: iVOICE TECHNOLOGY, INC. By: /s/ Jerome R. Mahoney ------------------------------ Name: Jerome R. Mahoney Title: Chairman SECURED PARTY: CORNELL CAPITAL PARTNERS, LP By: Yorkville Advisors, LLC Its: General Partner By: /s/ Mark Angelo ----------------------------- Name: Mark Angelo Title: Portfolio Manager 16 EXHIBIT A DEFINITION OF PLEDGED PROPERTY ------------------------------ For the purpose of securing prompt and complete payment and performance by the Company of all of the Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party a continuing security interest in and to, and lien upon, the following Pledged Property of the Company: (a) all goods of the Company, including, without limitation, machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and description, now or hereafter owned by the Company or in which the Company may have or may hereafter acquire any interest, and all replacements, additions, accessions, substitutions and proceeds thereof, arising from the sale or disposition thereof, and where applicable, the proceeds of insurance and of any tort claims involving any of the foregoing; (b) all inventory of the Company, including, but not limited to, all goods, wares, merchandise, parts, supplies, finished products, other tangible personal property, including such inventory as is temporarily out of Company's custody or possession and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing; (c) all contract rights and general intangibles of the Company, including, without limitation, goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture interests, patents and patent applications, copyrights, deposit accounts whether now owned or hereafter created; (d) all documents, warehouse receipts, instruments and chattel paper of the Company whether now owned or hereafter created; (e) all accounts and other receivables, instruments or other forms of obligations and rights to payment of the Company (herein collectively referred to as "Accounts"), together with the proceeds thereof, all goods represented by such Accounts and all such goods that may be returned by the Company's customers, and all proceeds of any insurance thereon, and all guarantees, securities and liens which the Company may hold for the payment of any such Accounts including, without limitation, all rights of stoppage in transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of which the Company represents and warrants will be bona fide and existing obligations of its respective customers, arising out of the sale of goods by the Company in the ordinary course of business; (f) to the extent assignable, all of the Company's rights under all present and future authorizations, permits, licenses and franchises issued or granted in connection with the operations of any of its facilities; (g) all products and proceeds (including, without limitation, insurance proceeds) from the above-described Pledged Property. A-1 EX-10 11 kl00336_ex10-21.txt EXHIBIT 10.21 GUARANTY Exhibit 10.21 GUARANTY This GUARANTY dated as of February 28, 2005 (the "Guaranty"), is given by iVOICE INC., a New Jersey corporation ("Guarantor") in favor of the CORNELL CAPITAL PARTNERS, LP., a Delaware limited partnership (the "Lender"). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the following documents: (1) Promissory Note by and between iVOICE TECHNOLOGY, INC. (a "Company"), a New Jersey corporation and the Lender; (2) the Promissory Note by and between DEEP FIELD TECHNOLOGIES, INC., a New Jersey corporation (a "Company") and the Lender; and (3) the Promissory Note by and between SPEECHSWITCH, INC., a New Jersey corporation (a "Company") and the Lender, all dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time (collectively the "Promissory Notes," and individually the "Promissory Note") (each Company shall be referred to as a "Company" and collectively as the "Companies".) WHEREAS: -------- A. Each Company and the Lender wish to provide for the funding contemplated under the Promissory Note in the amounts set forth in each respective Promissory Note of even date herewith. B. To induce the Lender to enter into the Promissory Notes, the Guarantor has agreed to provide a full and unconditional guaranty of the payment and performance obligations of each Company under each respective Promissory Note and Security Agreement, all of even date herewith (the "Transaction Documents"). C. The Guarantor is a Delaware corporation and the Guarantor acknowledges that without this Guaranty, the Lender would not be willing to enter into the Promissory Notes. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Guarantor hereby agrees as follows: 1. Guaranty. 1.1 Guaranty. The Guarantor, as direct obligor and not merely as a surety, hereby unconditionally, absolutely, and irrevocably guarantees to the Lender (i) the full and prompt performance and payment of all of each Company's obligations under the Promissory Notes and the other Transaction Documents, (collectively, the "Obligations") and (ii) if any Company should default in the payment or performance of any of the Obligations, the Guarantor, as direct obligor and not merely as a surety, shall forthwith pay or perform such Obligations upon five (5) business days written notice or demand by the Lender in the manner and on the day required by this Guaranty. In order to effectuate repayment of the Obligations the Guarantor may take an advance or advances, as may be necessary, from the Standby Equity Distribution Agreement by and between the Guarantor and Cornell Capital Partners, LP, dated November 25, 2003 (the "Standby Equity Distribution Agreement"). 1.2 Continuing Guaranty. The Guarantor agrees that the obligations pursuant to this Section 1 are unconditional, absolute, and irrevocable and shall not be released, discharged or affected in any way by any circumstances or condition, including without limitation: (a) any amendment or modification or other change to any of the Transaction Documents; (b) any failure, omission or delay on the part of any Company to conform or comply with any term of any of the Transaction Documents; (c) any release or discharge by operation of law of any Company or any Guarantor from any obligation or agreement contained in any of the Transaction Documents or this Guaranty; and (d) any other occurrence, circumstance, happening or event, whether similar or dissimilar to the foregoing and whether foreseen or unforeseen, which otherwise might constitute a legal or equitable defense or discharge of the liabilities of a guarantor or surety or which otherwise might limit recourse against the Company or the Guarantor. 1.3 Discharge. The Guarantor covenants and agrees that this Guaranty will not be discharged, except by complete performance of the obligations contained herein. Notwithstanding anything to the contrary herein, so long as the outstanding principal amount of the Promissory Notes is zero or would be made zero simultaneously with the termination hereof, the Guarantor shall have the right to terminate this Guaranty at any time by providing written notice of such termination to the Lender. Notwithstanding any to the contrary, this Guaranty shall be discharged and terminated upon each of the Company's registration statements being declared effective by the U.S Securities and Exchange Commission. 1.4 Representations and Warranties. The Guarantor hereby represents and warrants to the Lender as follows: (a) the Guarantor has full power, right and authority to enter into and perform his obligations under this Guaranty, and this Guaranty has been duly executed and delivered by the Guarantor and constitutes the valid and binding obligation of the Guarantor and is enforceable against the Guarantor in accordance with its terms. No permits, approvals or consents of or notifications to (a) any governmental entities, or (b) any other persons or entities are necessary in connection with the execution, delivery and performance by the Guarantor of this Guaranty and the consummation by the Guarantor of the transactions contemplated hereby. Neither the execution nor delivery of this Guaranty by the Guarantor nor the performance by it of the transactions contemplated hereby will: (i) violate or conflict with or result in a breach of any provision of any law, statute, rule, regulation, order, permit, judgment, ruling, injunction, decree or other decision (collectively, "Rules") of any court or other tribunal or any governmental entity or agency binding on the Guarantor or his properties, or conflict with or cause an event of default under any contract or agreement of the Guarantor; or 2 (ii) require any authorization, consent, approval, exemption or other action by or notice to any court, administrative or governmental body, person, entity or any other third party. 1.5 Full Rights of Subrogation. The Guarantor shall be entitled to full rights of subrogation under this Guaranty. 2. Miscellaneous. 2.1 Notices, Consents, etc. Any notices, consents, waivers or other communications required or permitted to be given under the terms hereof must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to Guarantor: iVoice, Inc. 750 Highway 34 Matawan, NJ 07747 Attention: Jerome R. Mahoney President and Chief Executive Officer Telephone: (732) 441-7700 Facsimile: (732) 441-9895 With Copy to: Lawrence A. Muenz, Esquire Meritz & Muenz LLP 2021 O Street, NW Washington, DC 20036 Telephone: (202) 787-1964 Facsimile: (202) 787-3909 If to the Lender: Cornell Capital Partners, LP. 101 Hudson Street-Suite 3700 Jersey City, New Jersey 07302 Attention: Mark Angelo Portfolio Manager Telephone: (201) 986-8300 Facsimile: (201) 985-8266 or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) trading days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of 3 such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. 2.2 Severability. The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision. 2.3 Indulgence. Failure of party to exercise any right or remedy under this Guaranty or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. 2.4 Modification. The terms of this Guaranty may be changed, waived, discharged or terminated only by a written instrument executed by the party against which enforcement of the change, waiver, discharge or termination is sought. 2.5 Headings. The subject headings of Articles and Sections of this Guaranty are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions. 2.6 Assignment. This Guaranty will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but will not be assignable or delegable by either the Guarantor or the Lender. 2.7 Entire Agreement. This Guaranty (including the recitals hereto), and the Transaction Documents set forth the entire understanding of the parties with respect to the subject matter hereof, and shall not be modified or affected by any offer, proposal, statement or representation, oral or written, made by or for any party in connection with the negotiation of the terms hereof, and may be modified only by instruments signed by all of the parties hereto. 2.8 Third Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity, other than the stated beneficiaries of this Guaranty and their respective permitted successors and assigns, any rights or remedies under or by reason of this Guaranty. 2.9 No Strict Construction. The language used in this Guaranty will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. 2.10 Event of Default. For purposes of this Guaranty, an event of default shall be deemed to have occurred hereunder: (a) If any Company should default in the payment or performance of any of the Obligations, the Guarantor shall fail for any reason or for no reason, to forthwith pay or perform 4 such Obligations after notice or demand by the Lender in the manner and on the day requested by the Lender; or (b) if the Guarantor makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Guarantor bankrupt or insolvent; or any order for relief with respect to the Guarantor is entered under any bankruptcy or insolvency laws; or the Guarantor petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Guarantor of any substantial part of the assets of the Guarantor, or commences any proceeding relating to the Guarantor under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against the Guarantor. 2.11 Governing Law; Jurisdiction; Jury Trial. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws. The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Guaranty and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 5 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be signed as of the date first written above. GUARANTOR: iVOICE INC. By: /s/ Jerome R. Mahoney ---------------------------------- Name: Jerome R. Mahoney Title: President and Chief Executive Officer 6 EX-10 12 kl00336_ex10-22.txt EXHIBIT 10.22 NON-BINDING LETTER Exhibit 10.22 March 9, 2005 iVoice Technology, Inc. 750 Highway 34 Matawan, NJ 07747 Attention: Arie Seidler, CEO Re: iVoice Technology, Inc. / Cornell Capital Partners, LP Dear Mr. Seidler: This letter shall confirm that Cornell Capital Partners, LP (herein "Cornell") has made a non-binding offer to iVoice Technology, Inc. (the "Company") to enter into a Standby Equity Distribution Agreement (the "SEDA") with the Company upon the terms detailed below: Commitment Amount: Cornell shall commit to purchase up to Ten Million Dollars ($10,000,000) (the "Commitment Amount") of the Company's common stock (the "Common Stock") over the course of twenty-four (24) months after an effective registration of the shares (collectively referred to as the SEDA). Securities: Common Stock of the Company issued under the securities laws of the United States under Regulation D. Conditions: Cornell's commitment hereunder is subject to (i) the negotiation, execution and delivery of definitive documentation with respect to the SEDA reasonably satisfactory to Cornell, (ii) obtaining any necessary government approvals, (iii) satisfactory completion of due diligence review and (iv) the effectivenes of the Company's Registration Statement on Form SB-2 (SEC File No. ) Advance Notice Date: Date Cornell receives an Advance Notice requesting an Advance (individually referred to as an "Advance" collectively referred to as "Advances") by the Company for a portion of the SEDA. Advance Amount: The timing and amounts of the Advances shall be at the discretion of the Company. The maximum amount of any Advance shall be Five Hundred Thousand Dollars ($500,000). Market Price: The lowest closing bid price of the Company's Common Stock during the Pricing Period. Pricing Period: The five (5) consecutive trading day period beginning on the first (1st) trading day after an Advance Notice Date. Purchase Prices: The purchase price shall be set at ninety-five percent (95%) of the Market Price. Advance Restrictions: There will be a minimum of seven (7) trading days between Advances. No Advance will be made until there is an effective registration statement of the shares to be sold pursuant to the SEDA. Fees and Expenses: Upon the initial Advance and all subsequent Advances, Cornell shall receive directly from escrow cash compensation equal to six percent (6%) of the gross proceeds of the Advance. Furthermore, the Company shall issue to Cornell shares of the Company's common stock in an amount qual to one and one-half percent (1.5%) of the Company's outstanding Common Stock on a fully diluted basis, but excluding any shares of common Stock to be received by Cornell under the terms of the SEDA The Company shall issue to Yorkville Advisors Management LLC ("Yorkville") a number of shares equivalent to fifteen thousand dollars ($15,000) divided by the closing bid price of the Company's Common Stock on the first day the Company's Common Stock is traded on the Principal Market. On each Advance Date, the Company shall pay to Yorkville a structuring fee of five hundred dollars ($500). It is understood that this letter is a non-binding mutual expression of intent and no party has any obligation or agreement with the other party with respect to the subject matter of this letter. Very truly yours, CORNELL CAPITAL PARTNERS, LP /s/ David Gonzalez ----------------------------------- David Gonzalez Managing Partner and General Counsel EX-10 13 kl00336_ex10-23.txt EX. 10.23 AMENDMENT NO. 1 TO EMPLOYMENT AGREE Exhibit 10.23 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment dated April 1, 2005 hereby amends the Employment Agreement dated August 1, 2004, by and between iVoice Technology, Inc., a New Jersey corporation (hereinafter referred to as the "Company"), having an office at 750 Highway 34, Matawan, New Jersey 07747 and Jerome Mahoney, having his office at 750 Rt. 34, Matawan, NJ 07747 (hereinafter referred to as the "Executive"). W I T N E S S E T H : WHEREAS, the Company and the Executive mutually desire to amend the Employment Agreement; and NOW, THEREFORE, in consideration of the premises, the parties agree as follows: 1. The Employment Agreement dated August 1, 2004 was initially executed between the Executive and iVoice Technology, Inc., a Nevada corporation. However, all assets and liabilities were assigned and assumed by iVoice Technology, Inc., a New Jersey corporation. Therefore, this Amendment confirms that both parties: (i) agree to abide by the terms of the August 1, 2004 Employment Agreement and (ii) both parties agree that all terms of the Employment Agreement are in full force and effect. 2. The Executive hereby agrees to accept compensation pursuant to this Employment Agreement in the form of Class B Common Stock, par value $.01 per share, in lieu of cash, for as long as the Board of Directors decides in its sole discretion that the Company does not have the financial resources to pay the Executive in cash. 3. All other terms of the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date written below. iVoice Technology, Inc. Jerome Mahoney By: /s/ Arie Seidler By: /s/ Jerome Mahoney ------------------------- ------------------------ Title: President ---------------------- Date:__________________ Date:__________________ EX-23 14 kl00336_ex23-1.txt EXHIBIT 23.1 CONSENT Exhibit 23.1 Bagell, Josephs & Company, LLC 200 Haddonfield Berlin Road, Gibbsboro, NJ 08026 Tel: 856.346.2628 Fax: 856.346.2882 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement of iVoice Technology, Inc. on Form SB-2 dated April 7, 2005, of our report dated March 21, 2005 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company's ability to continue as a going concern) for the years ended December 31, 2004 and 2003. /s/ Bagell, Josephs & Company, LLC -------------------------------------- Bagell, Josephs & Company, LLC Gibbsboro, New Jersey April 7, 2005 CORRESP 15 filename15.txt Memorandum of Compliance Outlining Certain Changes Reflected in Amendment No. 2 to Registration Statement on Form SB-2 of iVoice Technology, Inc. Set forth below are the responses of iVoice Technology, Inc. to the comments from the staff of the Division of Corporation Finance (the "Staff") of the Securities and Exchange Commission (the "SEC") with respect to Amendment No.1 to the Registration Statement on Form SB-2 of the Company, which was filed with the SEC on January 11, 2005. For the Staff's convenience, the Staff's comments have been stated below in their entirety, with the responses to a particular comment set out immediately under the comment or comments. The responses described below are contained in Amendment No. 2 to the Registration Statement on Form SB-2 ("Amendment No. 2" or the "registration statement"), which is being filed simultaneously herewith. Capitalized terms used herein are intended to have the meanings ascribed to such terms in the Amendment No. 2. General 1. We note your response to our prior comment no. 1. We acknowledge that you have entered into an agreement. The structure of your `equity line' transaction, however, does not fit the necessary parameters for a valid equity line financing with respect to our guidance concerning such financings. As a result, the agreement you have entered into is not a valid equity line by which you could obtain financing according to its terms. The fundamental basis in our guidance on equity line financings is that a market already exists for the underlying securities. As noted previously, your stock is not listed and a public market does not exist. Therefore, your reference to an `equity line' arrangement is in a manner that suggest it is or will become a source of funding on which you and investors may rely is not appropriate. Please revise the disclosure throughout the filing to remove any implication that the agreement you reference to as an `equity line' provides you with a viable mechanism to obtain needed financing. In this regard, your summary, risk factors and management's discussion and analysis should all be thoroughly revised. In response to the Staff's comment, iVoice Technology and Cornell Capital Partners LLP ("Cornell Capital") entered into a termination agreement dated as of February 28, 2005 pursuant to which the equity line transaction was terminated. On March 9, 2005, iVoice Technology obtained a non-binding commitment from Cornell Capital whereby Cornell Capital has agreed, subject to satisfaction of conditions, to enter into definitive documentation to purchase up to $10 million of iVoice Technology's common stock upon the terms set forth in the commitment letter and the definitive documentation to be executed after satisfaction of stated closing conditions. Each of the termination agreement and commitment letter is being filed as an exhibit to the registration statement concurrently with this filing. In addition, disclosure throughout the filing has been revised to reflect the above-mentioned termination and commitment. Prospectus Summary Overview, pp. 1-3 - ----------------- 2. We note your revised disclosure in response to our prior comment no. 10. Please disclose the cash balance iVoice will be retaining in your discussion of what iVoice's management and board considered in establishing your initial capitalization. Please also supplementally inform us why iVoice will need to expand its research and development efforts in light of your disclosure in the first paragraph which seems to suggest that iVoice's business will merely consist of licensing its current intellectual property assets. Disclosure had been added to p. 2 of the registration statement. Immediately after the Distribution (and the distributions to the stockholders of Deep Field Technology and SpeechSwitch), iVoice anticipates that its business will consist primarily of licensing its current intellectual property assets. However, in the future, iVoice may determine that it is the best interest of the iVoice stockholders to develop new intellectual property or acquire additional companies and/or businesses. Risk Factors 3. Please include a risk factor discussing the penny stock rules and the additional risks classification of the securities as a "penny stock" poses to shareholders. Disclosure has been added to page 27 of the registration statement. 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 holders, pp. 14-15. - -------------------------------------------------------------------------------- 4. We note your new risk factor in response to our prior comment no. 8. Your statement in the second bullet of the risk factor discussing a risk of "increasing the potential profits to the holder when the price per share later increases" does not appear to be a risk to investors. Your current investors would share proportionately in an increasing share price. It appears that the accurate risk is a further depressed stock price as the shares are issued in greater numbers and at a discount to the market price. A sale of such shares in the market would likely result in a depressed stock price. Please revise or otherwise explain to us why this is a risk. We have revised our disclosure on page 15 of the registration statement. iVoice Technology may depend on distribution by resellers and distributions for a significant portion of revenues, p. 19 - -------------------------------------------------------------------------------- 5. Please disclose whether you have a material relationship, if any, with a distributor or reseller. Do you derive a significant amount of your sales from a single distributor or reseller? Additionally, such material agreements, if any, and any related assignment and 2 consent may need to be filed as exhibits to the registration statement. Please see Item 601(b)(10) of Regulation S-K. iVoice Technology does not have any material relationship with any distributor or reseller. We do not derive 10% or more of our sales from any single distributor or reseller. Although we do have contracts with a number of distributors or resellers, those contracts are entered into in the ordinary course of the Company's business and we do not consider any of such contracts to be material under the standards set forth in Item 601(b)(10) of Regulation S-K and, therefore, do not believe it is necessary to file any such contract as an exhibit to the registration statement. Disclosure has been added on page 5 of the registration statement. The Distribution of iVoice Technology Class A Common Stock may result in tax liability to you, p. 26 - -------------------------------------------------------------------------------- 6. We note your response to our prior comment no. 37. The business appears to have historically generated book-basis losses and would appear to do so again in the current fiscal year. Why do you believe these financial accounting results will vary substantially from the tax-basis results? iVoice Technology does not necessarily believe that the financial accounting results will vary substantially from the tax-based results and the disclosure, in fact, provides that iVoice Technology does not have any accumulated earnings and profits. However, it cannot accurately predict at this time whether it will have any current earnings and profits (i.e., earnings and profits for the current year). Moreover, please note that the Distribution itself may give rise to current earnings and profits for iVoice. Notwithstanding your assertion that the transaction is a taxable transaction, the transaction appears to effectively be tax-free and would likely be understood as such by investors in accordance with the tax formulation you present. We respectfully submit that the disclosure clearly provides that the distribution will only be taxable if there are current or accumulated earnings and profits (or the Distribution exceeds the shareholder's basis in its iVoice shares plus its share of any such earnings and profits). The statement that the distribution is a taxable transaction indicates that iVoice shareholders may be required to recognize income or gain. This is to distinguish the tax consequences of this transaction from a tax-free distribution in which shareholders do not recognize gain regardless of the extent of the company's earnings and profits, the value of the shares received and the shareholders' basis in their iVoice shares, all of which are relevant to the extent that an iVoice shareholder is taxed with respect to the receipt of iVoice Technology shares, as the disclosure indicates. Please provide a tax opinion supporting the tax consequences you describe. Our counsel informs us that to the best of their recollection, they have never been required (or asked) to provide a tax opinion with respect to disclosure in this type of transaction, and we do not believe that one is necessary here. That a shareholder may be taxed upon the receipt of a corporate distribution is the normative rule. Section 61(a) of the Internal Revenue Code of 1986, 3 as amended (the "Code"), provides that "gross income means all income from whatever source derived, including ... dividends." It is also black letter law that the portion of the distribution that is treated as a dividend is limited to the distributing corporation's current or accumulated earnings and profits. See Code sections 301 (distribution to shareholders, including fair market value of property distributed, includable in income to the extent treated as a dividend) and 316 (dividend defined to include current or accumulated earnings and profits). Section 301 also sets forth the rules described in the disclosure relating to the treatment of distributions in excess of any earnings and profits. If, on the other hand, the disclosure were to state that the distribution would be governed by a tax-free section of the Code, then an opinion supporting that result would be warranted, but that is not the case here. Please also consider setting forth in your later tax section an example of how a sample stockholder determines their tax liability based on your earnings and profit. We also do not believe that setting forth a specific example is necessary or particularly helpful. The results are relatively straightforward. Moreover, each shareholder's situation may differ and an example that may be relevant to one shareholder may not be helpful to another and could cause confusion rather than clarity. Nonetheless, we set forth below an example which we will include in the disclosure if required. "For example, assume that (i) the fair market value on the date of the Distribution of an iVoice Technology share received is $1.00, (ii) iVoice has no current or accumulated earnings and profits as of the end of the year of the Distribution, and (iii) a shareholder has a $0.60 basis in each of its iVoice shares. The shareholder would not be treated as receiving a dividend, its basis in its iVoice shares would be reduced to zero, it would recognize a capital gain of $0.40 per iVoice Technology share received and its basis in each share received would be $1.00." In light of the fact that your current earnings and profit cannot be determined until year-end and that the determination of such earnings and profit for tax purposes may differ from such determinations for financial reporting purposes, please discuss whether you or iVoice intends to provide such earnings and profit information to your distributee-shareholders when available or otherwise how they may obtain such information. Disclosure has been added to page 60 of the registration statement. Please also clarify your disclosure to indicate whether the earnings and profit for each shareholder are calculated on a pro rata basis as of the date of the distribution. Disclosure has been added to page 60 of the registration statement. Please also discuss in your later tax section the tax implications of a shareholder who sells your stock during the year having not yet received their current earnings and profits information. 4 We do not believe it is necessary to discuss the consequences to a shareholder who sells its iVoice stock before iVoice provides its earnings and profits information to its shareholders, since such a shareholder generally would not need to compute its gain or loss from the sale until after the earnings and profits information is provided. In any event, iVoice will not know the extent of its earnings and profits until the end of its current taxable year. Further, your response states that the governing rule is that the distribution is taxable to the extent of the lesser of (1) the fair market value of the shares and (2) the earnings and profit. Your disclosure, however, seems to suggest that a distributee-shareholder will be taxed on the fair market value of the shares to the extent of any earnings and profit with any excess treated as a tax-free return of capital and thereafter as capital gain. Please explain. The response should have stated that the distribution is taxable as a dividend to the extent of the lesser of (i) the fair market value of the shares received and (ii) the current or accumulated earnings and profits of iVoice. That formulation is the same as the statement in the disclosure that the distribution will be treated as a dividend equal to the fair market value of the shares received to the extent of iVoice's current or accumulated earnings and profits. We note your revised disclosure in your later tax section. Please revise to specify the date upon which the fair market value of the shares received in the distribution will be determined for purposes of determining their basis. Disclosure has been added to page 60 of the registration statement. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview, pp. 26-27 - ------------------- 7. We note your disclosure in your prospectus summary discussing the board's balancing of iVoice's prospective capital requirements with the more likely ability of obtaining financing for the IVR business. Your disclosure in this section starting with the sixth sentence of the last paragraph on page 26 suggests otherwise. Please clarify your disclosure in this paragraph starting from the sixth paragraph. Disclosure has been clarified on page 29 of the registration statement. Separation from iVoice, pp. 27-29 - --------------------------------- 8. With respect to your disclosure regarding the administrative services agreement, do you plan to seek replacement services or provide the services for yourself in the near future? We note your response to our prior comment no. 32 stating your intent to maintain the agreement for the foreseeable future as well as your lack of any current plans to expand personnel. iVoice Technology has no current intention to terminate the administrative services agreement, seek replacement services or provide services for itself in the near future. Disclosure has been added on page 31 of the registration statement. 5 Results of Operations for the Nine Months Ended September 30, 2004 as Compared with the Nine Months Ended September 30, 2003, pp. 29-30 - -------------------------------------------------------------------------------- 9. Please discuss the cause for the $61,822 decrease in revenue between the nine months ended September 30, 2004 and the nine months ended September 30, 2003. The $61,822 decrease in revenue between the nine months ended September 30, 2004 and the nine months ended September 30, 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 decrease in revenue between the year ended December 31, 2004 and the year ended December 31, 2003 resulted from the same cause. Disclosure has been added to page 31 of the registration statement. 10. The discussion of gross margin for the years ended December 31, 2002 and 2003 and the nine months ended September 30, 2003 and 2004 mentions a change in the product and services mix being sold, by providing more consulting and maintenance services. However, the section on critical accounting policies for revenue recognition discloses that the company derives 100% of its revenues from licensing of the company's product and none from optional support services. We note that the financial statements do not disclose that the company has generated revenues from services, or is engaged in consulting. Please revise so as to be consistent. Further, please provide disclosure in your business section with respect to the consulting and maintenance services that you provide. Please also explain to us the basis for attributing the change in gross margin to product/service mix as opposed to price changes. Did price change no longer play a role in your change in gross margin for the nine-month and fiscal year periods? Please also disclose the nature of the change in product mix and why such change occurred. Disclosure has been revised on page 31 of the registration statement. The change in gross margin is attributed to changes in the product/service mix rather than pricing changes. At times, we have contracts that require us to provide more service in connection with a sale than is typical. In these cases, there is a change in gross margin. 11. We note that your statement of operations for the nine months ended September 30, 2004 and 2003 reflect a decrease in your research and development expense of approximately $56,000 which in turn contributed to the period-to-period change in total operating expenses. This decrease offsets the substantial increase in general and administrative expenses of approximately $116,000 which you appear to attribute to professional and consulting fees incurred in connection with financing the operation of the business and the anticipated registration of shares. Please expand your disclosure to discuss the nature of the change that resulted in the decrease in your research and development expense. Disclosure has been expanded on page 32 of the registration statement. 12. Please explain to us how a $616,836 increase in interest expense for the nine-month period can be attributed to $280,000 in convertible debentures. 6 Interest expense shown on the financial statements includes the write off of financing costs. This amounted to $794,554 for the nine months ended September 30, 2004 and $182,956 for the nine months ended September 30, 2003. Results of Operations for the Year Ended December 31, 2003 as Compared with the Year Ended December 31, 2002, pp. 30-31. - -------------------------------------------------------------------------------- 13. Please discuss the cause for the reduction in professional and consulting fees that resulted in a decrease of $230,000 in general and administrative expense. It also appears that a goodwill write-off and bad debt expense contributed to the higher total operating expense in fiscal year 2002. Please discuss. The reduction of $230,000 in general and administrative expense for twelve months ended December 31, 2003 as compared to the twelve months ended December 31, 2002 was the result of reduced professional and consulting fees due to a reduced requirement for professional and consulting services. The write off of goodwill in 2002 reflects the write off certain intangible assets, which was not required in 2003. In 2002 the company recorded $40,007 in bad debt expenses, such write offs were not required in 2003. Liquidity and Capital Resources, pp. 31-34 - ------------------------------------------ 14. Please revise your disclosure in the second paragraph of this section. It does not appear that you are raising any proceeds in this public offering. Further, please file the agreement whereby Mr. Mahoney has agreed to accept Class B common stock in satisfaction of your obligations under the employment agreement. If an oral agreement, please file a written description of the material terms of such agreement. Please also revise your disclosure to discuss the material terms of this agreement. At what price will the Class B common stock be exchanged for your obligations under the employment agreement? Disclosure has been revised on page 33 of the registration statement. Mr. Mahoney's agreement to accept Class B common stock in satisfaction of certain employment agreement obligations is being filed as an exhibit to the registration statement concurrently with this filing. 15. We note your revised disclosure regarding the fee to be paid to Cornell Capital Partners in connection with the convertible debentures. Please disclose whether this fee has and how it will be paid. Disclosure has been added on page 33 of the registration statement. 16. We note your revised disclosure in the second paragraph on page 32. Please disclose the period for which you expect the going-forward expenses of $431,000 to encompass. Please elaborate on the minimum period of planned operations you expect you will be able to fund with the proceeds from the sale of the secured convertible debentures. 7 Disclosure has been added on page 34 of the registration statement. 17. Please supplementally explain to us the basis for the change in aggregate book value of the IVR business assets from $750,000 to $10,000 and when such a change was determined necessary. Was a third-party valuation made of the assets which resulted in the revaluation? The change in the aggregate book value of the IVR business assets from $750,000 to $10,000 occurred when the preferred stock component of the contemplated transactions was removed by management. The $10,000 represents the book value of the assets being transferred to us by our parent, iVoice, Inc. The remaining $740,000 had represented the value of the convertible preferred piece of the transaction. No third-party valuation was made of the assets. Business Business Development, p. 40 - --------------------------- 18. In your revised disclosure you state that you have no material strategic alliances other than the existing relationships that are being transferred to you by iVoice. Are these relationships material as your statement appears to suggest? If so, please discuss the nature and significance of these material relationships. Further, please reconcile your statement that you have sold primarily on a direct basis with your later statement that you have yet to hire a sales team. How have you sold directly without previously having a sales team? We also note your revised disclosure indicating that you do not plan to hire any additional personnel. How will the lack of a sales team affect you given that you rely primarily on direct sales and yet do not plan to hire any additional personnel? Please clarify and disclose the portion of your revenue that you derive from primary sales. Disclosure has been added on pages 42 and 44 of the registration statement. iVoice Technology's Management 19. Please identify Mr. Seidler as a director in your table presentation. Mr. Seidler has been identified as a director on the table on page 45 of the registration statement. Employment Agreements, pp 44-45 - ------------------------------- 20. In your revised disclosure with respect to Mr. Mahoney's employment agreement, please elaborate on the fact that there are only two directors, one of which is Mr. Mahoney, and explain how this affects the board's ability to determine that a future termination is for cause. Disclosure has been added on page 46 of the registration statement. Certain Relationships and Related Transactions 8 21. Please provide disclosure with respect to the security agreement with Cornell Capital. Please also include a risk factor discussing the risk to shareholders related to Cornell Capital's security interest in substantially all of your assets. Disclosure with respect to the security agreement has been added on page 48 of the registration statement. The requested risk factor has been included on page 22 of the registration statement. 22. We note your disclosure with respect to Mr. Mahoney's promissory note for $190,000 bearing interest at the prime rate plus 2 percent per annum. The form of promissory note filed as an exhibit, however, states that the interest rate is the prime rate plus 1 percent. Please clarify. Further, please file the executed note as an exhibit and supplementally inform us how the form of note differs from the executed note, if at all. The executed promissory note is being filed as an exhibit to the registration statement concurrently with the filing. The form of note does not differ from the executed note other than that the executed note is signed and reflects the 2% interest rate. The Distribution Results of the Distribution, p. 55 - ---------------------------------- 23. Please supplementally respond to our inquiries in our prior comment no. 62. Do you intend to adjust the distribution ratio so that the 10 million shares will be allocated among the holders? Is this why you have removed the reference to the 1-for-874 share distribution? Please explain how and when you will compute Distribution ratio to achieve the issuance of the desired 10 million shares. Will the shares held in aggregate by nominee holders or will each beneficial owner's shareholdings be used to determine the shares issuable as well as serve as the basis for any rounding determinations. Further, please supplementally provide us with an analysis of what you would do in terms of updating your disclosure, if you were to change the Distribution ratio after the effective date. Would you be able to make this change by prospectus supplement, and, if so, what is the basis for such belief? As is indicated on the back and front cover pages of the prospectus, we have increased the number of shares to be distributed in the Distribution to take into account the possibility that in excess of 10 million share will be necessary to accommodate holders holding less than the amount of shares otherwise necessary to obtain one share of our Class A common stock. We will not be changing the Distribution ratio after the effective date in a manner that would require us to distribute share in excess of those registered pursuant to the registration statement. At this time, we are not certain of the precise number of iVoice, Inc. shares outstanding and accordingly, cannot disclose the precise Distribution ratio. However, we do not anticipate that the Distribution ratio will change after the effective date of the registration statement. At such time as we are in a position to know when the effective date will be, we will request a holder's list, determine how many record stockholders there are and determine the precise number of shares to be distributed in the Distribution, rounding upward as disclosed in the registration statement. We will base the Distribution on a holder's list which will set forth nominee and other record holders. As to our knowledge at least 35 % of iVoice's common stock is held through the 9 Depository Trust Company, we will assume that we will not be able to determine the precise holdings of all beneficial holders. Financial Statements 24. Please advise us supplementally of the reasons that general and administrative expenses and other income have been reduced by $63,256 during the nine months ended September 30, 2004. The reduction of the $63,256 as noted in the statements for the nine months ended September 30, 2004 is the result of a reclassification of administrative fees to the parent that were reclassified to other income. The reclassification had no effect on the net loss or the accumulated deficit for the nine months ended September 30, 2004. In the December 31, 2004 and 2003 financial statements a reclassification footnote is included in the Summary of Significant Accounting Policies on page F-12 as follows: "Certain amounts in the 2003 financial statements were reclassified to conform to the 2004 presentation. The reclassification in 2003 resulted in no changes to the net loss for that period." 25. Your revised disclosure on page 40 states that you have experienced significant post-release errors and bugs in your products, yet Note 4(e) to the financial statements indicates that you have determined that warranty claims have been immaterial based upon its limited sales to date. Please reconcile these disclosures so as to be consistent. Disclosure has been deleted on page 42 of the registration statement. Pro Forma Financial Information 26. Please refer to our prior comment no. 69. It appears that no revision to the historical financial statements has been made to reflect the $740,000 impairment charge previously reported as a pro forma adjustment. Please revise or advise us supplementally of the reasons why such revision should not be made. The lack of an impairment charge in the historical financial statements is due to the removal of a transaction which was to have resulted in issuance of preferred stock in payment for the transfer of assets from the parent. Since this preferred stock is no longer being issued, there is no need for an impairment charge. 27. It appears that Note (e) on page F-37 should be eliminated. Note(e) on page F-37 has been eliminated. 10 COVER 16 filename16.txt KRAMER LEVIN NAFTALIS & FRANKEL LLP 919 THIRD AVENUE NEW YORK, N.Y. 10022 - 3852 (212) 715 - 9100 FAX (212) 715-8000 ------ WRITER'S DIRECT NUMBER (212) 715-9149 April 7, 2005 VIA EDGAR - --------- Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: iVoice Technology, Inc. Registration Statement on Form SB-2 SEC File No. 333-120490 ----------------------------------- Ladies and Gentlemen: On behalf of our client, iVoice Technology, Inc. (the "Company"), we attach herewith for filing with the Securities and Exchange Commission (the "Commission") via EDGAR Amendment No. 2 to the Company's Registration Statement on Form SB-2. We are also filing a Memorandum of Compliance in response to the comments from the staff of the Commission, with respect to the Registration Statement on Form SB-2 which was filed via EDGAR with the Commission on November 15, 2004 and Amendment No. 1 thereto which was filed on January 11, 2005. Amendment No. 2 to the Registration Statement on Form SB-2 contains changes made in response to such comments, as well as other updates and minor changes. In addition, we are sending courtesy copies of the registration statement under separate cover to the persons copied below. If you have any questions, please call the undersigned at (212) 715-9149 or Scott S. Rosenblum at (212) 715-9411. Sincerely, /s/ Marilyn Feuer ------------------------ Marilyn Feuer cc: Mark P. Shumann, Esq. Daniel Lee, Esq. Barbara Jacobs, Esq. Maureen Bauer Tia Jenkins Jerome Mahoney Scott S. Rosenblum, Esq. -----END PRIVACY-ENHANCED MESSAGE-----