-----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, NzRizZOAs+8tm7GRGQ/K6u/oHGDBZOAnEP6qbTYMKSCYkLAo2olgyThYWZrCILL7 q0nDBd+xBDfzOONPV5Ou4w== 0000922423-05-002015.txt : 20051219 0000922423-05-002015.hdr.sgml : 20051219 20051219172736 ACCESSION NUMBER: 0000922423-05-002015 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 20051219 DATE AS OF CHANGE: 20051219 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 SEC ACT: 1933 Act SEC FILE NUMBER: 333-130472 FILM NUMBER: 051273570 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 1 kl12026_sb2.txt SB-2 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on December 19, 2005 Registration No. ______________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- 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 of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification No.) 750 Highway 34 Matawan, New Jersey 07747 (732) 441-7700 (Address and telephone number of Principal Executive Offices and Principal Place of Business) Jerome R. Mahoney 750 Highway 34 Matawan, New Jersey 07747 (732) 441-7700 (Name, address and telephone number of agent for service) with copies to: Scott Rosenblum, Esq. Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 (212) 715-9100 Telecopier: (212) 715-8000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| --------------- --------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- Proposed Title of Each Class Maximum of Securities to be Amount to be Aggregate Amount of Registered Registered (1) Offering Price (2) Registration Fee - -------------------------------------------------------------------------------- Class A Common Stock, no par value per share 1,053,506,579 $11,904,624.34 $1,274 - -------------------------------------------------------------------------------- (1) Includes 1,052,631,579 shares of Class A Common Stock issuable pursuant to an equity line of credit, 325,000 shares of Class A Common Stock issuable pursuant to a structuring fee, 150,000 shares of Class A Common Stock issuable pursuant to a commitment fee and 400,000 shares of Class A Common Stock issued pursuant to a placement agent fee. (2) Estimated price in accordance with Rule 457(c) and based upon the average quotation of the high and low price of our Class A Common Stock on the OTC Bulletin Board on December 16, 2005. (3) Previously paid in connection with the Registrant's Form SB-2 Registration Statement File No. 333-120608, filed on November 18, 2004. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8 (a), may determine. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. Subject to completion, dated December 19, 2005 iVoice Technology, Inc. 1,053,506,579 Shares of Class A Common Stock This prospectus relates to the offering of up to 1,052,781,579 shares of our Class A Common Stock by Cornell Capital Partners, LP, up to 325,000 shares of our Class A Common Stock by Yorkville Advisors Management, LLC, and up to 400,000 shares of our Class A Common Stock by Monitor Capital, Inc. iVoice Technology is not selling any shares of Class A Common Stock in this offering and therefore will not receive any proceeds from this offering. iVoice Technology will, however, receive proceeds from the sale of Class A Common Stock under an equity line of credit pursuant to a Standby Equity Distribution Agreement with Cornell Capital Partners, L.P. The shares of our Class A Common Stock are being offered for sale by Cornell Capital Partners, Yorkville Advisors Management and Monitor Capital at prices established on the Over-the-Counter Bulletin Board or in negotiated transactions during the term of this offering. This offering will terminate 24 months after the accompanying registration statement is declared effective by the Securities and Exchange Commission. Our Class A Common Stock is quoted on the Over-the-Counter Bulletin Board under the symbol "IVOT". On December 16, 2005, the last reported closing sale price of our Class A Common Stock was $0.0104 per share. These securities are speculative and involve a high degree of risk. Please refer to "Risk Factors" beginning on page 8. Cornell Capital Partners, LP is an "underwriter" within the meaning of the Securities Act of 1933, as amended, in connection with its purchase of shares of iVoice Technology's Class A Common Stock under the Standby Equity Distribution Agreement at a 5% discount to the prevailing market price of such common stock. In addition, iVoice Technology has agreed to permit Cornell Capital to retain 6% of the proceeds received by iVoice Technology under each advance pursuant to the Standby Equity Distribution Agreement, which, together with the preceding 5% discount, results in an aggregate discount to the market price of approximately 20%. In addition, iVoice Technology has paid to Cornell Capital Partners in shares of iVoice Technology Class A Common Stock a one-time commitment fee of 1.5% of the initial outstanding shares of Class A Common Stock. Yorkville Advisors Management, LLC is an "underwriter" within the meaning of the Securities Act of 1933, as amended, in connection with the sale of Class A Common Stock that it has received for its services in structuring the equity line of credit between iVoice Technology and Cornell Capital Partners. In addition, iVoice Technology has agreed to pay Yorkville Advisors Management a structuring fee of five hundred dollars ($500) directly out of the gross proceeds of each advance under the equity line of credit. Monitor Capital, Inc. is an "underwriter" within the meaning of the Securities Act of 1933, as amended, in connection with the sale of Class A Common Stock that it has received as a placement agent fee from iVoice Technology in connection with the private placement of iVoice Technology's Class A Common Stock pursuant to its equity line of credit with Cornell Capital Partners. The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is ____________ ___, 2005. TABLE OF CONTENTS PROSPECTUS SUMMARY...........................................................1 SUMMARY OF THE OFFERING......................................................2 SUMMARY CONDENSED FINANCIAL INFORMATION......................................5 POTENTIAL DILUTION DUE TO CONVERSION AT BELOW MARKET PRICE...................6 RISK FACTORS.................................................................8 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...................23 SELLING STOCKHOLDERS........................................................23 USE OF PROCEEDS.............................................................26 EQUITY LINE OF CREDIT.......................................................27 PLAN OF OFFERING............................................................28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION.............................................................31 OUR BUSINESS................................................................42 IVOICE TECHNOLOGY'S MANAGEMENT..............................................47 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................52 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS.............................................54 DESCRIPTION OF SECURITIES...................................................57 CHANGES IN ACCOUNTANTS......................................................61 PART II INFORMATION NOT REQUIRED IN PROSPECTUS..............................2 i PROSPECTUS SUMMARY Overview iVoice Technology, Inc., which we refer to in this prospectus as "iVoice Technology," "we", "us" or "the Company," was incorporated in New Jersey on November 10, 2004 as a wholly-owned subsidiary of iVoice, Inc. ("iVoice"). While iVoice has been engaged in the speech recognition software and computerized telephony business since 1997, iVoice management seeks to leverage the value of underutilized developed technology and believes that the transition to an independent company will provide iVoice Technology with greater access to capital. This should provide needed financial resources to potentially penetrate the market and distribute the product. In connection with the reorganization of iVoice, immediately prior to the distribution by dividend by iVoice to all of its stockholders of 10,013,984 shares of the Company's Class A Common Stock (the "Distribution") on August 5, 2005, iVoice transferred to iVoice Technology its Interactive Voice Response (IVR) software business and related liabilities, including all intellectual property of iVoice relating to the IVR software business. As such, iVoice Technology now owns and operates iVoice's IVR software business. iVoice has retained cash assets of approximately $11.1 million, no part of which was or will be transferred to iVoice Technology and operating assets consisting of its iVoiceMail software and its portfolio of patents and patent rights. iVoice will also continue to seek additional operating income opportunities through potential acquisitions or investments. iVoice Technology is a development stage company. iVoice Technology may seek to expand its operations through additional sales and marketing activity and the acquisition of additional businesses. Any potential acquired additional businesses may be outside the current field of operations of iVoice Technology. iVoice Technology may not be able to identify, successfully integrate or profitably manage any such businesses or operations. Currently, iVoice Technology has no plans, proposals or arrangements, either orally or in writing, regarding any proposed acquisitions and is not considering any potential acquisitions. iVoice Technology intends to continue to develop, market and license the IVR line of computerized telephony software. The IVR software is designed to enable a caller to obtain requested information in voice form from a local or non-local database and allow information in PC databases to be accessed from a standard touch-tone telephone using a telephone keypad or voice command. About Us iVoice Technology was incorporated in New Jersey on November 10, 2004 as a wholly-owned subsidiary of iVoice, Inc. iVoice Technology received by assignment all of the interests in and rights and title to, and assumed all of the obligations of, all of the agreements, contracts, understandings and other instruments of iVoice Technology, Inc., a Nevada corporation and affiliate of iVoice Technology. These agreements, contracts, understandings and other instruments consisted of financing documentation, employment agreements and an administrative services agreement with iVoice. Since this assignment, iVoice Technology Nevada has no operating business, assets or known liabilities, and is currently in the process of being dissolved. When we refer to or describe any agreement, contract or other written instrument of iVoice Technology in this prospectus, such references may be to an agreement, contract or other written instrument that had been entered into by iVoice Technology Nevada and assigned to iVoice Technology. Our principal office is located at 750 Highway 34, Matawan, New Jersey 07747. Our telephone number is (732) 441-7700. Our company website is located at www.ivoicetechnology.com. SUMMARY OF THE OFFERING This offering relates to the sale of Class A Common Stock by certain persons who are, or will become, stockholders of iVoice Technology. The selling stockholders consist of: o Cornell Capital Partners, LP, as investor under the Standby Equity Distribution Agreement, who intends to sell an aggregate of up to 1,052,781,579 shares of Class A Common Stock; o Yorkville Advisors Management, LLC, as a holder of shares of Class A Common Stock, who intends to sell an aggregate of up to 325,000 shares of Class A Common Stock o Monitor Capital, Inc., as a holder of shares of Class A Common Stock, who intends to sell an aggregate of up to 400,000 shares of Class A Common Stock. On August 12, 2004, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners, L.P. (the "2004 Standby Equity Distribution Agreement"). On February 28, 2005, the Standby Equity Distribution Agreement was terminated. On March 9, 2005, we obtained a non-binding letter of commitment from Cornell Capital Partners to provide a $10 million standby equity line of credit. On September 22, 2005, we entered into a Standby Equity Distribution Agreement with Cornell Capital Partners, L.P., which was amended and restated on December 12, 2005. Pursuant to the Standby Equity Distribution Agreement, we may, at our discretion, periodically issue and sell to Cornell Capital Partners shares of Class A Common Stock for a total purchase price of $10.0 million. The maximum amount of each advance amount is $600,000 per advance notice. A minimum of five trading days must pass between each advance notice. Cornell Capital Partners, L.P. will purchase the shares of Class A Common Stock for a 5% discount to the prevailing market price of our common stock. In addition, Cornell Capital Partners will retain 6% of each advance under the equity line of credit, and Cornell Capital was paid a one-time commitment fee equal to 150,000 shares of iVoice Technology Class A Common Stock. The obligation of Cornell Capital Partners to purchase shares under the equity line of credit terminates upon the suspension of the effectiveness of the registration statement of which this prospectus is a part for an aggregate of fifty trading days or the failure of iVoice Technology to remedy a material breach of the Standby Equity Distribution Agreement within thirty days of receipt of notice. The initial closing under the Standby Equity Distribution Agreement and each subsequent closing of a purchase and sale of shares are conditioned upon the satisfaction of customary conditions. 2 On August 12 and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in secured convertible debentures, with interest payable at 5% per annum, to Cornell Capital Partners L.P. The debentures were convertible at the option of the holder only after our Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. On February 28, 2005, iVoice Technology's obligations under the secured convertible debentures were terminated and replaced with a secured promissory note representing the same principal amount, which note accrues interest at a rate of 12% per annum, but is not convertible into any equity security of iVoice Technology. On February 28, 2005, iVoice Technology borrowed an additional $140,000, included as part of the same note representing iVoice Technology's former obligations under the secured convertible debentures. In connection with the issuances of the secured convertible debentures, iVoice Technology paid a fee to Cornell Capital Partners equal to 10% of the aggregate principal amount of the debentures. When the secured convertible debentures were terminated, iVoice Technology received a credit for fees that would otherwise have been payable upon the issuance of the $560,000 in replacement notes. iVoice Technology paid Cornell Capital a fee of $14,000 in connection with its $140,000 borrowing. iVoice Technology's obligations under the secured promissory note issued to Cornell Capital Partners are secured by a first priority security interest in substantially all of its assets. iVoice has also guaranteed the payment of all amounts payable by iVoice Technology pursuant to the secured promissory note. Pursuant to the Standby Equity Distribution Agreement with Cornell Capital Partners, iVoice Technology paid Yorkville Advisors Management a structuring fee equal to 325,000 shares of iVoice Technology Class A Common Stock and will pay Yorkville Advisors Management an additional structuring fee of five hundred dollars ($500) directly out of the gross proceeds of each advance under the equity line of credit. Yorkville Advisors Management has been paid and may in the future be paid structuring fees for its services in structuring the equity line of credit between iVoice Technology and Cornell Capital Partners. Yorkville Advisors Management has informed us that it intends to sell the shares received as the structuring fee at the then prevailing market price. In August 2004, iVoice Technology entered into an agreement with Sloan Securities Corporation for Sloan Securities to act as an agent for the private placement of shares of our Class A Common Stock to Cornell Capital Partners pursuant to the 2004 Standby Equity Distribution Agreement. On February 28, 2005, the placement agent agreement was terminated. On September 22, 2005, we entered into a placement agent agreement with Monitor Capital, Inc., which was amended and restated on December 12, 2005. Pursuant to the placement agent agreement, we engaged Monitor Capital to review the agreements with respect to the equity line of credit with Cornell Capital Partners and to advise the Company on the advisability of the terms contained in such agreements. Pursuant to the placement agent agreement, we issued to Monitor Capital 400,000 shares of iVoice Technology Class A Common Stock, representing a placement agent fee. This prospectus relates to the shares of Class A Common Stock to be issued to Cornell Capital Partners under the equity line of credit and the shares that were issued to Cornell as a commitment fee, the shares of Class A Common Stock issued to Yorkville Advisors Management as a structuring fee, and the shares of Class A Common Stock issued to Monitor Capital as a placement agent fee. 3 Class A Common Stock Offered 1,053,506,579 shares by selling stockholders Offering Price Market price Class A Common Stock Outstanding 10,013,984 shares of Class A Common Before the Offering Stock Use of Proceeds We will not receive any proceeds of the shares offered by the selling stockholders. Any proceeds we receive from the sale of common stock under the equity line of credit will be used for sales and marketing, payment of administrative services, working capital purposes, acquisitions and repayment of the secured promissory note that we issued to Cornell Capital Partners on February 28, 2005. See "Use of Proceeds." Risk Factors The securities offered hereby involve a high degree of risk and immediate substantial dilution. You should read carefully the factors discussed under "Risk Factors" beginning on page 8. Several of the most significant risk factors include: o Future sales by our stockholders may adversely affect our stock price and our ability to raise funds in new stock offerings. o Existing stockholders will experience significant dilution from our sale of shares under the equity line of credit. o The selling stockholders have informed us that they intend to sell their shares of common stock in the public market, which sales may cause our stock price to decline. o The sale of our stock under our equity line of credit could encourage short sales by third parties, which could contribute to the further decline of our stock price. o iVoice has in the past, and iVoice Technology may in the future, sell or issue additional unregistered convertible securities which are convertible into common shares of iVoice Technology, without limitations on the number of common shares the securities are convertible into, which could dilute the 4 value of your holdings and could have other negative impacts on your investment. SUMMARY CONDENSED FINANCIAL INFORMATION The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the company as a going concern. iVoice Technology has traditionally operated as a non-reporting component of iVoice and accordingly these financial statements have been derived from the consolidated financial statements and accounting records of iVoice, and reflect significant assumptions and allocations. iVoice allocated operating costs to iVoice Technology. These allocations are reflected in the selling, general and administrative, cost of revenue and/or research and development line items in our statements of operations. The general corporate expense allocation is primarily for cash management, selling expense, legal, accounting, tax, insurance, public relations, advertising, and human resources. Other general categories of operating expense, as well as other income and expense, have been allocated to iVoice Technology by iVoice based upon a ratio of revenue of iVoice Technology over total iVoice revenue for the applicable periods. Management believes that although the financial information was prepared on a pro forma basis, the cost of these services charged are a reasonable representation of the costs that would have been incurred if iVoice Technology had performed these functions as a stand-alone company. iVoice Technology relies on iVoice for administrative and other services. These financial statements do not necessarily reflect the financial position, results of operations, and cash flows of iVoice Technology had it been a stand-alone company.
SUMMARY CONDENSED FINANCIAL INFORMATION --------------------------------------- For the Nine For the Nine For the For the Year Months Ended Months Ended Year Ended Ended September 30, September 30, December December 31, 2005 2004 31, 2004 2003 ----------------------------------------------------------------------- Statements of Operation Data: Sales $ 94,756 $ 177,484 $ 239,114 $ 303,756 - ------------------------------------------------------------------------------------------------------ Cost of sales 738 59,263 72,870 123,091 - ------------------------------------------------------------------------------------------------------ Gross Profit 94,018 118,221 166,244 180,665 - ------------------------------------------------------------------------------------------------------ Selling, general, and administrative Expenses 473,706 693,810 863,456 965,341 - ------------------------------------------------------------------------------------------------------ Loss from operations (379,688) (575,589) (697,212) (784,676) - ------------------------------------------------------------------------------------------------------ Other (Expense) (67,066) (719,748) (780,915) (346,744) - ------------------------------------------------------------------------------------------------------ Net Loss $ (446,754) $(1,295,337) $(1,478,127) $(1,131,420) - ------------------------------------------------------------------------------------------------------
5
September 30, December 31, December 31, 2005 2004 2003 ------------------------------------------------------------- Balance Sheet Data: - ----------------------------------------------------------------------------------------------------- Current Assets $ 332,376 $ 378,332 $ 52,077 - ----------------------------------------------------------------------------------------------------- Intangibles -- -- 45,400 - ----------------------------------------------------------------------------------------------------- Liabilities 1,215,158 623,747 23,662 - ----------------------------------------------------------------------------------------------------- Stockholders' equity (deficiency) (880,932) (240,678) 73,815 - -----------------------------------------------------------------------------------------------------
POTENTIAL DILUTION DUE TO CONVERSION AT BELOW MARKET PRICE The net tangible book value of iVoice Technology as of September 30, 2005 was ($880,932) or ($.08797) per share of Class A Common Stock. Net tangible book value per share is determined by dividing the tangible book value of iVoice Technology (total tangible assets less total liabilities) by the number of outstanding shares of our common stock. Since no proceeds from this offering will be paid to iVoice Technology, our net tangible book value will be unaffected by this offering. Our net tangible book value, however, will be impacted if and when common stock is issued under the proposed equity line of credit. The amount of dilution will depend on the offering price and number of shares to be issued under the equity line of credit. The following example shows the dilution to new investors at an offering price of $0.01 per share. If we assume that iVoice Technology will issue 1,052,631,579 shares of Class A Common Stock under its equity line of credit at an assumed offering price of $0.01 per share (i.e., the maximum number of shares needed in order to raise a total of $10.0 million under the equity line of credit, excluding the commitment fee and the structuring fee), less a retention fee of $600,000, offering expenses of $282,990, and $782,075 repayment of the promissory note plus interest, our net tangible book value as of September 30, 2005 would have been $7,454,003 or $0.00686 per share. Such an offering would represent an immediate increase in net tangible book value to existing stockholders of $0.09483 per share and an immediate dilution to new stockholders of $0.00314 per share, or 31.4%. 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 ($.08797) Increase attributable to new investors $.09483 -------- Net tangible book value per share after this offering $ 0.00686 --------- Dilution per share to new stockholders $ 0.00314 ========= 6 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 the Cornell conversion of $10,000,000, Mr. Mahoney converts $190,000 of indebtedness, and taking into account issuance of the commitment fee of 150,000 shares, of the structuring fee of 325,000 shares and the placement agent fee of 400,000 shares: - ------------------------------------------------------------------------------ Assumed Market No. of Shares to Dilution per Share Price be issued (1) to New Investors - ------------------------------------------------------------------------------ $0.0100 1,077,256,579 $0.00314 - ------------------------------------------------------------------------------ $0.0075 1,436,050,439 $0.00235 - ------------------------------------------------------------------------------ $0.0050 2,153,638,158 $0.00155 - ------------------------------------------------------------------------------ $0.0025 4,306,401,316 $0.00077 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 7 RISK FACTORS You should carefully consider each of the following risk factors and all of the other information in this information statement. The following risks relate principally to the offering and iVoice Technology's business. If any of the following risks and uncertainties develops into actual events, the business, financial condition or results of operations of iVoice Technology could be materially adversely affected. If that happens, the trading price of iVoice Technology shares could decline significantly. The risk factors below contain forward-looking statements regarding the offering and iVoice Technology. Actual results could differ materially from those set forth in the forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements" below. Risks Related to Our Business iVoice Technology will face many of the difficulties that companies in the early stage may face. As a result of the Company's limited operating history, the currently difficult economic conditions of the telecommunications marketplace and the emerging nature of the interactive voice response industry, it may be difficult for you to assess our growth and earnings potential. The Company believes that due primarily to the relatively brief time IVR has been available to the general public, there has not yet been developed, implemented and demonstrated a commercially viable business model from which to successfully operate any form of business that relies on the products and services that we intend to market, sell, and distribute. Therefore, we have faced many of the difficulties that companies in the early stages of their development in new and evolving markets often face, as they are described herein. We may continue to face these difficulties in the future, some of which may be beyond our control. If we are unable to successfully address these problems, our future growth and earnings will be negatively affected. iVoice Technology has no operating history as an independent public company and may be unable to operate profitably as a stand-alone company. Although iVoice has operated as a reporting public company since 2000 and has sold computerized telephony software since 1997, iVoice Technology does not have an operating history as an independent public company. Historically, since the businesses that comprise each of iVoice Technology and iVoice have been under one ultimate parent, they have been able to rely, to some degree, on the earnings, assets, and cash flow of each other for capital requirements. Now that the Distribution has occurred, iVoice Technology is able to rely only on the IVR software business for such requirements. iVoice operated the IVR software business from the fourth quarter of 1999 until August 5, 2005. The IVR software business has operated at a loss in the past for iVoice, and as an independent company such losses may continue or increase. Additionally, iVoice Technology's business has relied on iVoice for financial, administrative and managerial expertise in conducting its operations. Now that the Distribution has occurred, iVoice Technology will maintain its own credit and banking relationships and 8 perform its own financial and investor relations functions. iVoice Technology may not be able to successfully put in place the financial, administrative and managerial structure necessary to operate as an independent public company, and the development of such structure will require a significant amount of management's time and other resources. iVoice's operations demonstrate a history of net losses and cash flow shortfalls and iVoice Technology's likely will as well. iVoice, of which iVoice Technology was a part, has incurred recurring operating losses. The IVR software business had net losses of approximately $1,478,000 and $1,131,000 for the years ended December 31, 2004 and 2003, respectively, and cash used in operations of approximately $1,372,000 and $927,000 during the years ended December 31, 2004 and 2003, respectively. iVoice has been and may, in the future, be dependent upon outside and related party financing to develop and market their software products, perform their business development activities, and provide for ongoing working capital requirements. During the year ended December 31, 2004 and the nine months ending September 30, 2005, substantially all of this financing was provided by iVoice, Inc. and Cornell Capital Partners. There can be no assurance that iVoice Technology will have operations separately that fare any better than those of iVoice. Our historical information has limited relevance to our results of operations as a separate company. The historical financial information we have included in this prospectus does not reflect what our results of operations, financial position and cash flows would have been had we been a separate, stand-alone entity during the periods presented or what our results of operations, financial position and cash flows will be in the future. This is because iVoice did not account for us as, and we were not operated as, a single stand-alone business for the periods presented. For more information about the preparation of our financial statements from the financial statements of iVoice, see "Summary Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition or Plan of Operation." 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 9 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; 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 10 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 promissory notes to obtain working capital and may continue to do so in the future. As of the date of the registration statement of which this prospectus is a part, however, we have outstanding convertible obligations. The $190,000 promissory note owing to Mr. Mahoney provides that, at Mr. Mahoney's option, principal and interest due on the note can be converted into shares of the Company's Class B Common Stock which is convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price of at which iVoice Technology had ever issued its Class A Common Stock. There is no limit upon the number of shares that we may be required to issue upon conversion of any of these obligations. In order to obtain working capital in the future, we intend to issue additional equity securities and convertible obligations. In the event that the price of our Class A Common Stock decreases, and our convertible obligations (or any other convertible obligations we may issue) are converted into shares of our Class A Common Stock: o the percentage of shares outstanding that will be held by these holders upon conversion will increase accordingly, o increased share issuance, in addition to a stock overhang of an indeterminable amount, may depress the price of our Class A Common Stock, o the sale of a substantial amount of convertible debentures to relatively few holders could effectuate a possible change in control of the Company, and o in the event of our voluntary or involuntary liquidation while the secured convertible debentures are outstanding, the holders of those securities will be entitled to a preference in distribution of our property. In addition, if the market price declines significantly, we could be required to issue a number of shares of Class A Common Stock sufficient to result in our current stockholders not having an effective vote in the election of directors and other corporate matters. In the event of a change in control of the Company, it is possible that the new majority stockholders may take actions that may not be consistent with the objectives or desires of our current stockholders. We are required to convert our existing convertible obligations based upon a formula that varies with the market price of our common stock. As a result, if the market price of our Class A Common Stock increases after the issuance of our convertible obligations, it is possible, that, 11 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 Mark Meller, our Non-Executive Chairman of the Board and our President, Chief Executive Officer and Chief Financial Officer, respectively. The loss of any of our key personnel could materially harm our business because of the cost and time necessary to retain and train a replacement. Such a loss would also divert management attention away from operational issues. To minimize the effects of such loss, iVoice Technology has entered into employment contracts with Jerome Mahoney and Mark Meller. However, Mr. Meller's employment agreement has a term of only one year. Our potential future business acquisitions may be unpredictable and may cause our business to suffer. iVoice Technology may seek to expand its operations through the acquisition of additional businesses. These potential acquired additional businesses may be outside the current field of operations of iVoice Technology. iVoice Technology may not be able to identify, successfully integrate or profitably manage any such businesses or operations. The proposed expansion may involve a number of special risks, including possible adverse effects on iVoice Technology's operating results, diversion of management attention, inability to retain key personnel, risks associated with unanticipated events and the financial statement effect of potential impairment of acquired intangible assets, any of which could have a materially adverse effect on iVoice Technology's business, financial condition and results of operations. In addition, if competition for acquisition candidates or assumed operations were to increase, the cost of acquiring businesses or assuming customers' operations could increase materially. The inability of iVoice Technology to implement and manage its expansion strategy successfully may have a material adverse effect on the business and future prospects of iVoice Technology. Furthermore, through the acquisition of additional businesses, iVoice Technology may effect a business acquisition with a target business which may be financially unstable, under-managed, or in its early stages of development or growth. While iVoice Technology may, under certain circumstances, seek to effect business acquisitions with more than one target business, as a result of its limited resources, iVoice Technology, in all likelihood, will have the ability to effect only a single business acquisition at one time. Currently, iVoice Technology has no plans, proposals or 12 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. Mr. Mahoney, a member of the board of directors, owns iVoice shares and has the right to convert $190,000 of indebtedness into 190,000 shares of iVoice Technology Class B Common Stock which are convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price at which the Company had ever issued its Class A Common Stock. In addition, Mr. Mahoney has the right to convert the amount of all accrued and unpaid interest on such indebtedness into 1 share of iVoice Technology Class B Common Stock for each dollar of accrued and unpaid interest. As of September 30, 2005, accrued and unpaid interest on this indebtedness was $1,327. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. In addition, Mr. Mahoney, the Non-Executive Chairman of the Board of iVoice Technology serves as the Chairman of the Board and Chief Executive Officer of iVoice and we anticipate that he will continue to serve in such capacities. These relationships could create, or appear to create, potential conflicts of interest when iVoice Technology's directors and management are faced with decisions that could have different implications for iVoice Technology and iVoice. For example, Mr. Mahoney may experience conflicts of interest with respect to the allocation of his time, services and functions among iVoice, iVoice Technology and any other projects. Other examples could include potential business acquisitions that would be suitable for either iVoice Technology or iVoice, activities undertaken by iVoice in the future that could be in direct competition with iVoice Technology, or the resolution of disputes arising out of the agreements governing the relationship between iVoice and iVoice Technology following the Distribution. Also, the appearance of conflicts, even if such conflicts do not materialize, might adversely affect the public's perception of iVoice Technology following the Distribution. Furthermore, iVoice Technology does not have any formal procedure for resolving such conflicts of interest should they arise following the Distribution. iVoice Technology's industry is characterized by rapid technological change and failure to adapt our product development to these changes may cause our products to become obsolete. We participate in a highly dynamic industry characterized by rapid change and uncertainty relating to new and emerging technologies and markets. Future technology or market changes may cause some of our products to become obsolete more quickly than expected. iVoice Technology stockholders may experience significant dilution if future equity offerings are used to fund operations or acquire businesses. On September 22, 2005, we entered into a Standby Equity Distribution Agreement with Cornell Capital Partners (which was amended and restated on December 12, 2005) to provide a $10 million standby equity line of credit. If working capital or future acquisitions are financed 13 through the issuance of equity securities, such as through the sale of our Class A Common Stock on the terms of the Standby Equity Distribution Agreement with Cornell Capital Partners, L.P. (see "Certain Relationships and Related Transactions" beginning on page 52), iVoice Technology stockholders would experience significant dilution. In addition, the conversion of outstanding debt obligations into equity securities would have a dilutive effect on iVoice Technology shareholders. Further, securities issued in connection with future financing activities or potential acquisitions may have rights and preferences senior to the rights and preferences of the iVoice Technology Class A Common Stock. Except for the potential sale of our Class A Common Stock to Cornell Capital Partners on the terms of the Standby Equity Distribution Agreement, iVoice Technology currently has no expectations or plans to conduct future equity offerings. Management believes that if the transactions contemplated by the Standby Equity Distribution Agreement are consummated, the Company will have sufficient capital resources to conduct its business as currently planned over the 12-month period following the effectiveness of the registration statement of which this prospectus is a part. Cornell Capital Partners is under no obligation to purchase shares of Class A Common Stock under the Standby Equity Distribution Agreement unless certain conditions are satisfied by iVoice Technology, including having the registration statement relating to such Class A Common Stock and of which this prospectus is a part declared effective. If iVoice Technology cannot satisfy the requirements for Cornell Capital Partners to purchase the Class A Common Stock under the terms of the Standby Equity Distribution Agreement, we will not have sufficient capital resources to conduct our business on a long-term basis, which would have a material adverse effect on us and our financial condition. Management believes that its going-forward expenses over the next 12 months will be approximately $431,000 and, assuming that iVoice Technologies has no revenues, iVoice Technologies expects to have aggregate liabilities of approximately $432,000, which includes salaries for iVoice Technology's officers and employees for the year ending December 31, 2005. Management has no current plan to hire additional employees, perform additional research and development or purchase additional equipment or services beyond the requirements of the administrative services agreement with iVoice. Management believes that the deficiency between the Company's expenses and net revenues will be more than covered by the cash available from the proceeds of the secured promissory note. If there are additional deficiencies that are in excess of the proceeds of the secured promissory note, and iVoice Technology is unable to obtain funds from the equity line of credit, management believes that iVoice Technology can limit its operations, defer payments to management and maintain its business at nominal levels until it can identify alternative sources of capital. The trend toward consolidation in iVoice Technology's industry may impede its ability to compete effectively. As consolidation in the software industry continues, fewer companies dominate particular markets, changing the nature of the market and potentially providing consumers with fewer choices. Also, many of these companies offer a broader range of products than us, ranging from desktop to enterprise solutions. We may not be able to compete effectively against these competitors. Furthermore, we may use strategic acquisitions, as necessary, to acquire 14 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, 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 15 iVoice Technology under any circumstances. Such policies may deter resellers and end users from purchasing our products in a competitive and quickly evolving marketplace, and have a material adverse effect on our ability to remain competitive with similar products. iVoice Technology does not have any material relationship with any single distributor or reseller. iVoice Technology does not have any material relationship with any single distributor or reseller. iVoice Technology may depend on distribution by resellers and distributors for a significant portion of revenues. We may distribute some of our products through resellers and distributors. We intend to assume iVoice's existing relationships and contractual relationships with its resellers and distributors. To effectively do so, we must establish and maintain good working relationships with these resellers and distributors. If we are unsuccessful in establishing and maintaining relationships with iVoice's existing resellers and distributors or with new resellers and distributors, or if these resellers and distributors are unsuccessful in reselling our products, our future net revenues and operating results may be adversely affected. iVoice Technology does not have any material relationship with any single distributor or reseller. The limited scope of results of iVoice Technology's research and development may limit the ability of iVoice Technology to expand or maintain its sales and products in a competitive marketplace. iVoice Technology currently has no plans to engage in research and development of new products or improvements on existing technologies. Failure to engage in such research and to develop new technologies or products or upgrades, enhancements, applications or uses for existing technologies may place iVoice Technology at a competitive disadvantage in the marketplace for its products. As no current research and development program currently exists within iVoice Technology, any future research and development programs could cause us to incur substantial fixed costs which may result in such programs being prohibitively expensive to initiate without substantial additional financing being obtained on favorable terms. Also, the lack of any current research and development program may result in an extended launch period for a research and development program at a point in our business when time is of the essence. These delays could have a material adverse effect on the amount and timing of future revenues. Such limited research and development may also adversely affect the ability of iVoice Technology to test any new technologies which may be established in the future in order to determine if they are successful. If they are not technologically successful, our resulting products may not achieve market acceptance and our products may not compete effectively with products of our competitors currently in the market or introduced in the future. If iVoice Technology must restructure its operations, valuable resources will be diverted from other business objectives. We intend to continually evaluate our product and corporate strategy. We have in the past undertaken, and will in the future undertake, organizational changes and/or product and marketing strategy modifications. These organizational changes increase the risk that objectives will not be met due to the allocation of valuable limited resources to implement changes. Further, 16 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 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. 17 We may not be able to access sufficient funds when needed. We are dependent on external financing to fund our operations. Our financing needs are expected to be provided through the possible sale of our Class A Common Stock on the terms of the Standby Equity Distribution Agreement with Cornell Capital Partners. However, Cornell Capital Partners is under no obligation to purchase any shares of our Class A Common Stock under the Standby Equity Distribution Agreement, unless we satisfy certain conditions, including the registration statement relating to such Class A Common Stock having been declared effective. See "Management's Discussion and Analysis of Financial Condition or Plan of Operation - Liquidity and Capital Resources." If iVoice Technology cannot satisfy the conditions for drawing on the equity line of credit, we will not have sufficient capital resources to operate our business, and we have no current plans to obtain other financing. We cannot assure you that we will be able to access financing under the Standby Equity Distribution Agreement in sufficient amounts or at all when needed. Our inability to obtain sufficient financing would have an immediate material adverse effect on us, our financial condition and our business. Our obligations under the secured promissory note are secured by substantially all of our assets. Our obligations under the secured promissory note issued to Cornell Capital Partners are secured by substantially all of our assets. As a result, if we default under the terms of the secured promissory note, Cornell Capital Partners could foreclose its security interest and liquidate all of our assets. This would cause operations to cease. Jerome Mahoney, the Non-Executive Chairman of the Board of iVoice Technology, may have control over the management and direction of iVoice Technology. Mr. Mahoney will have the right to convert $190,000 of indebtedness, together with any accrued but unpaid interest on the indebtedness, into 190,000 shares (plus shares receivable upon conversion of accrued and unpaid interest on the promissory note) of iVoice Technology Class B Common Stock, which Class B Common Stock is convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price at which the Company had ever issued its Class A Common Stock. Interest accrues on the outstanding principal balance of the note at a rate of 2% per annum. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. Each share of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. If Mr. Mahoney converts his indebtedness into 190,000 shares of Class B Common Stock, he will have voting rights equal to 19,000,000 shares of Class A Common Stock and will have control over the management and direction of iVoice Technology, including the election of directors, appointment of management and approval of actions requiring the approval of stockholders. In addition, Mark Meller, our President, Chief Executive Officer and Chief Financial Officer, has granted an irrevocable proxy to Jerome Mahoney (or his designee) to vote and 18 exercise all voting and related rights with respect to certain shares of our Common Stock that are owned at any time by Mr. Meller. iVoice Technology's management team is new and its working relationships are untested. We have only recently assembled our management team as part of the Distribution and changes in our operating structure. Some members of our management team have worked with each other in the past, although at this time we cannot assess the effectiveness of their working relationships after the Distribution. As a result, we may be unable to effectively develop and sell our software products and iVoice Technology, as a business, may fail. iVoice Technology relies on intellectual property and proprietary rights which may not remain unique to iVoice Technology. We regard our software as proprietary and underlying technology as proprietary. We seek to protect our proprietary rights through a combination of confidentiality agreements and copyright, patent, trademark and trade secret laws. We do not have any patents or statutory copyrights on any of our proprietary technology that we believe to be material to our future success. Our future patents, if any, may be successfully challenged and may not provide us with any competitive advantages. We may not develop proprietary products or technologies that are patentable and other parties may have prior claims. In selling our products, we rely primarily on shrink-wrap licenses that are not signed by licensees. Therefore, such licenses may be unenforceable under the laws of some jurisdictions. In addition, existing copyright laws afford limited practical protection. Furthermore, the laws of some foreign countries do not offer the same level of protection of our proprietary rights as do the laws of the United States. Patent, trademark and trade secret protection is important to us because developing and marketing new technologies and products is time-consuming and expensive. We do not own any U.S. or foreign patents or registered intellectual property. We may not obtain issued patents or other protection from any future patent applications owned by or licensed to us. Our competitive position is also dependent upon unpatented trade secrets. Trade secrets are difficult to protect. Our competitors may independently develop proprietary information and techniques that are substantially equivalent to ours or otherwise gain access to our trade secrets, such as through unauthorized or inadvertent disclosure of our trade secrets. There can be no assurance that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology substantially equivalent or superseding proprietary technology. Furthermore, there can be no assurance that any confidentiality agreements between us and our employees will provide meaningful protection of our proprietary information, in the event of any unauthorized use or disclosure thereof. As a consequence, any legal action that we may bring to protect proprietary information could be expensive and may distract management from day-to-day operations. 19 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 who claim that our products infringe the intellectual property rights of others. This risk is exacerbated by the fact that the validity and breadth of claims covered in technology patents involve complex legal and factual questions for which important legal principles are unresolved. Any litigation or claims against us, whether valid or not, could result in substantial costs, place a significant strain on our financial resources, divert management resources and harm our reputation. Such claims could result in awards of substantial damages, which could have a material adverse impact on our results of operations. In addition, intellectual property litigation or claims could force us to: o cease licensing, incorporating or using any of our products that incorporate the challenged intellectual property, which would adversely effect our revenue; o obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; and o redesign our products, which would be costly and time-consuming. iVoice Technology may incur increased expenses after the administrative services agreement with iVoice is terminated. In connection with its spin-off, iVoice Technology entered into an administrative services agreement with iVoice. Under this agreement, iVoice is providing iVoice Technology with services in such areas as inventory purchasing, material and inventory control, employee benefits administration, payroll, financial accounting and reporting, and other areas where iVoice Technology needs assistance and support. The agreement will continue on a month-to-month basis. Upon termination of the agreement, iVoice Technology will be required to obtain such services from a third party or increase its headcount to provide such services. This could be more expensive than the fees which iVoice Technology has been required to pay under the administrative services agreement. Risks related to this Offering Future sales by our stockholders may adversely affect our stock price and our ability to raise funds in new stock offerings. Sales of our common stock in the public market following this offering could lower the market price of our Class A Common Stock. Sales may also make it more difficult for us to sell 20 equity securities or equity-related securities in the future at a time and price that our management deems acceptable or at all. Upon issuance of the maximum number of shares being registered in connection with the equity line of credit, and taking into account the structuring fee, the commitment fee and the placement agent fee, there will be an additional 1,053,506,579 shares of Class A Common Stock outstanding. All of these shares of our Class A Common Stock may be immediately resold in the public market upon effectiveness of the registration statement of which this prospectus is a part. Our common stock is deemed to be "penny stock" which may make it more difficult for investors to sell their shares due to suitability requirements. Our common stock is deemed to be "penny stock" as that term is defined in Rule 3A51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are stock: o with a price of less than $5.00 per share; o that are not traded on a "recognized" national exchange; o whose prices are not quoted on the Nasdaq automated quotation system (Nasdaq listed stock must still have a price of not less than $5.00 per share); or o in issuers with net tangible assets of less than $2.0 million (if the issuer has been in continuous operation for at least three years) or $5.0 million (if in continuous operation for less than three years), or with average revenues of less than $6.0 million for the last three years. Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether in investment in a penny stock is a suitable investor for a prospective investor. These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline. If we are able to sell shares of our Class A Common Stock to Cornell Capital Partners, stockholders would experience significant dilution from such sale of shares. Under the terms our equity line of credit with Cornell Capital Partners, if we satisfy the conditions therein, iVoice Technology may issue and sell to Cornell Capital Partners shares of Class A Common Stock for a total purchase price of up to $10.0 million. As stated above under " -- We may not be able to access sufficient funds when needed," our agreement with Cornell Capital Partners provides that our ability to obtain funds will be subject to the satisfaction of certain conditions that we may not be able to satisfy. See also "Management's Discussion and Analysis of Financial Condition or Plan of Operation - Liquidity and Capital Resources." If we are able to sell such shares of Class A Common Stock to Cornell Capital Partners, such sale of shares will have a dilutive impact on our stockholders. As a result, our net income per share could decrease in future periods, and the market price of our Class A Common Stock could 21 decline. In addition, if our stock price declines, the price at which we sell such shares to Cornell Capital Partners could decrease, and we would need to issue a greater number of shares of our Class A Common Stock under the Standby Equity Distribution Agreement. If our stock price is lower, then iVoice Technology stockholders would experience greater dilution. The investor under the line of credit will pay less than the then-prevailing market price of our Class A Common Stock. The Class A Common Stock to be issued under the equity line of credit will be issued at a 5% discount to the lowest closing bid price for the five days immediately following the notice date of an advance. These discounted sales could cause the price of our common stock to decline. Further, because the investor under the equity line of credit will acquire our Class A Common Stock at a discount, it will have an incentive to sell immediately in order to realize a gain on the difference. This incentive to sell immediately into the public market to realize a gain on the difference accelerates if the market price of our Class A Common Stock declines. The selling stockholders intend to sell their shares of Class A Common Stock in the public market, which sales may cause our stock price to decline. The selling stockholders intend to sell the shares of Class A Common Stock being registered in this offering in the public market. That means that up to 1,053,506,579 shares of Class A Common Stock, the number of shares being registered in this offering, may be sold. Such sales may cause our stock price to decline. The sale of our stock under our equity line of credit could encourage short sales by third parties, which could contribute to the further decline of our stock price. The significant downward pressure on the price of our Class A Common Stock caused by the sale of material amounts of Class A Common Stock under the equity line of credit could encourage short sales by third parties. Such an event could place further downward pressure on the price of our common stock. Prior to the Distribution, there was no trading market for our Class A Common Stock, it may be relatively thinly traded and we cannot predict the extent to which a trading market will develop. Prior to the Distribution, our Class A Common Stock was not traded on any market. We expect that, if and when a trading market develops in our Class A Common Stock, it will be thinly traded compared to larger more widely known companies. Thinly traded Class A Common Stock can be more volatile than common stock trading in an active public market. We cannot predict the extent to which an active public market for the Class A Common Stock will develop or be sustained after the Distribution and this offering. 22 The price you pay in this offering will fluctuate and may be higher or lower than the prices paid by other people participating in this offering. The price in this offering will fluctuate based on the prevailing market price of the Class A Common Stock on the Over-the-Counter Bulletin Board. Accordingly, the price you pay in this offering may be higher or lower than the prices paid by other people participating in this offering. The issuance of shares of Class A Common Stock in connection with this offering could result in a change of control. We are registering 1,053,506,579 shares of Class A Common Stock in this offering. These shares represent more than 99% of our outstanding Class A Common Stock, and we anticipate all such shares will be sold in this offering. If all or any significant block of these shares are held by one or more stockholders working together, then such stockholder or stockholders would have enough shares to assume control of iVoice Technology by electing its or their own directors. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Information included in this prospectus may contain forward-looking statements. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend" or "project" or the negative of these words or other variations on these words or comparable terminology. This prospectus contains forward-looking statements, including statements regarding, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. These statements may be found under "Management's Discussion and Analysis of Financial Condition or Plan of Operation" and "Our Business," as well as in this prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in this prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this prospectus will in fact occur. SELLING STOCKHOLDERS The following table presents information regarding the selling stockholders. The table identifies the selling stockholders. None of the selling stockholders have held a position or office, or had any other material relationship, with iVoice Technology, except as follows: Cornell Capital Partners has outstanding loans to iVoice Technology in the aggregate amount of $700,000 as of February 28, 2005, which is evidenced by a secured promissory note. 23 The secured promissory note is secured by a first priority security interest in substantially all of the assets of iVoice Technology. On August 12, 2004, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners, L.P. On February 28, 2005, the Standby Equity Distribution Agreement was terminated. On March 9, 2005, we obtained a non-binding letter of commitment from Cornell Capital Partners to provide a $10 million standby equity line of credit. On September 22, 2005, we entered into a Standby Equity Distribution Agreement with Cornell Capital Partners, L.P., which was amended and restated on December 12, 2005. Pursuant to the Standby Equity Distribution Agreement, we may, at our discretion, periodically issue and sell to Cornell Capital Partners shares of Class A Common Stock for a total purchase price of $10.0 million. The maximum amount of each advance amount is $600,000 per advance notice. A minimum of five trading days must pass between each advance notice. Cornell Capital Partners, L.P. will purchase shares of our Class A Common Stock for a 5% discount to the prevailing market price of our Class A Common Stock. In addition, Cornell Capital Partners will retain 6% of each advance under the equity line of credit, and Cornell Capital was paid a one-time commitment fee equal to 150,000 shares of iVoice Technology Class A Common Stock. Cornell Capital Partners has informed us that it intends to sell any shares purchased under the equity line of credit or received as the commitment fee at the then prevailing market price. The obligation of Cornell Capital Partners to purchase shares under the equity line of credit terminates upon the suspension of the effectiveness of the registration statement of which this prospectus is a part for an aggregate of fifty trading days or the failure of iVoice Technology to remedy a material breach of the Standby Equity Distribution Agreement within thirty days of receipt of notice. The initial closing under the Standby Equity Distribution Agreement and each subsequent closing of a purchase and sale of shares is subject to satisfaction of customary conditions. iVoice Technology will be entitled to commence drawing funds under this agreement when the Class A Common Stock issuable under the equity line of credit is registered for resale by Cornell Capital Partners with the Securities and Exchange Commission and the authorization for quotation on the National Association of Securities Dealers Over-the-Counter Bulletin Board is obtained and maintained, and the equity line of credit will remain outstanding for two years thereafter. Cornell Capital Partners is a private limited partnership whose business operations are conducted through its general partner, Yorkville Advisors, LLC. All investment decisions of Cornell Capital Partners are made by its general partner, Yorkville Advisors, LLC. Mark Angelo, the managing partner of Yorkville Advisors, makes the investment decisions on behalf of Yorkville Advisors. Pursuant to the Standby Equity Distribution Agreement with Cornell Capital Partners, iVoice Technology paid Yorkville Advisors Management, LLC a structuring fee equal to 325,000 shares of iVoice Technology Class A Common Stock and will pay Yorkville Advisors Management an additional structuring fee of five hundred dollars directly out of the gross proceeds of each advance under the equity line of credit. Yorkville Advisors Management has been paid and may in the future be paid structuring fees for its services in structuring the equity line of credit between iVoice Technology and Cornell Capital Partners. Yorkville Advisors Management has informed us that it intends to sell the shares received as the structuring fee at the then prevailing market price. All investment decisions of Yorkville Advisors Management, LLC are made by 24 Mark Angelo, a member of Yorkville Advisors Management. In August 2004, iVoice Technology entered into an agreement with Sloan Securities to act as an agent for the private placement of shares of our Class A Common Stock to Cornell Capital Partners pursuant to the August 12, 2004 Standby Equity Distribution Agreement. On February 28, 2005, the placement agent agreement was terminated. On September 22, 2005, iVoice Technology entered into a placement agent agreement with Monitor Capital, which was amended and restated on December 12, 2005. Pursuant to the placement agent agreement, iVoice Technology engaged Monitor Capital to review the agreements with respect to the equity line of credit with Cornell Capital Partners and to advise the Company on the advisability of the terms contained in such agreements. In consideration of the services provided by Monitor Capital, we issued to Monitor Capital, pursuant to the placement agent agreement, 400,000 shares of iVoice Technology Class A Common Stock as a placement agent fee. The table follows:
Percentage of Shares to be Acquired Outstanding Shares Shares Beneficially under the Line of Shares to be Sold in Beneficially Owned Selling Stockholder Owned Before Offering Credit the Offering After Offering ------------------- --------------------- --------------------- -------------------- ------------------ Cornell Capital Partners, LP 150,000 1,052,631,579 1,052,781,579 0% Yorkville Advisors 325,000 0 325,000 0% Management, LLC Monitor Capital, Inc. 400,000 0 400,000 0% Total 875,000 1,052,631,579 1,053,506,579 0%
25 USE OF PROCEEDS This prospectus relates to shares of our Class A Common Stock that may be offered and sold from time to time by certain selling stockholders. There will be no proceeds to us from the sale of shares of Class A Common Stock by the selling stockholders in this offering. However, we will receive the proceeds from the sale of shares of Class A Common Stock to Cornell Capital Partners under the proposed equity line of credit. Under the terms of the proposed equity line of credit, the purchase price of the shares under the equity line of credit will be equal to 95% of the lowest closing bid price of our common stock on the Over-the-Counter Bulletin Board for the five trading days immediately following the date of a notice from iVoice Technology to Cornell Capital Partners requiring it to advance funds to us under the proposed equity line of credit. Under the terms of the proposed equity line of credit, Cornell Capital Partners will retain 6% of each advance made to us and we will pay a structuring fee to Yorkville Advisors Management, LLC of an amount equal to $500 out of the gross proceeds of each advance. For illustrative purposes, iVoice Technology has set forth below its intended use of proceeds for the range of net proceeds indicated below to be received under the equity line of credit. For the purposes of this table, iVoice Technology assumes a purchase price per share of Class A Common Stock of $.0095, equal to 95% of an assumed market price of $.01 per share (526,315,789 and 1,052,631,579 shares of Class A Common Stock, respectively). The table assumes estimated offering expenses of $282,990, repayment of a secured promissory note issued to Cornell Capital of approximately $782,075 (including accrued and unpaid interest), plus the 6% retainage fee. Gross Proceeds $5,000,000 $10,000,000 Net Proceeds 4,417,010 9,117,010 - ------------------------------------------------------------------------------- Use of Proceeds: Amount Amount - ------------------------------------------------------------------------------- Sales and Marketing $500,000 $1,000,000 Repayment of secured promissory notes 782,075 782,075 Working Capital and general corporate 3,134,935 7,134,935 purposes which include employee salaries, cost of --------- ---------- additional personnel, support and management systems, legal and professional costs, and capital costs for computers, related equipment, and, potentially, acquisitions of other companies Total $4,417,010 $9,117,010 ========== ========== Except for the equity line of credit and the issuance of secured promissory notes, the Company has no other significant sources of working capital or cash commitments. In addition, management cannot be certain that it will generate significant revenue from product sales. No assurance can be given that iVoice Technology will raise sufficient funds from such financing arrangements, or that the Company will ever produce sufficient revenues to sustain its operations or, that a market will develop for its common stock upon which a significant amount of the Company's financing is dependant. If iVoice Technology is unable to recognize sufficient proceeds from these arrangements, however, management believes that iVoice Technology can 26 limit its operations, defer payments to management and maintain its business at nominal levels until it can identify alternative sources of capital. In such event, assuming the receipt of the minimum $600,000 proceeds from the equity line of credit, management believes that iVoice Technology could maintain its operations for 12 months. EQUITY LINE OF CREDIT Summary On August 12, 2004, we entered into a Standby Equity Distribution Agreement with Cornell Capital Partners, L.P. On February 28, 2005, the Standby Equity Distribution Agreement was terminated. On March 9, 2005, we obtained a non-binding letter of commitment from Cornell Capital Partners to provide a $10 million standby equity line of credit. On September 22, 2005, we entered into a Standby Equity Distribution Agreement with Cornell Capital Partners, which was amended and restated on December 12, 2005. Pursuant to the Standby Equity Distribution Agreement, we may, at our discretion, periodically sell to Cornell Capital Partners shares of Class A Common Stock for a total purchase price of up to $10.0 million. For each share of Class A Common Stock purchased under the equity line of credit, Cornell Capital Partners will pay 95% of the lowest closing bid price on the Over-the-Counter Bulletin Board or other principal market on which our Class A Common Stock is traded during the five trading days following the date that iVoice Technology delivers to Cornell Capital Partners a notice requiring it to advance funds to us. Further, Cornell Capital Partners will retain 6% of each advance under the equity line of credit as a commitment fee and we will pay Yorkville Advisors Management a structuring fee of five hundred dollars ($500) directly out of the gross proceeds of each advance under the equity line of credit. The sale of the shares under the equity line of credit is conditioned upon us registering the shares of Class A Common Stock with the Securities and Exchange Commission. The costs associated with this registration will be borne by us. Equity Line of Credit Explained Pursuant to the Standby Equity Distribution Agreement, we may periodically sell shares of Class A Common Stock to Cornell Capital Partners, L.P. to raise capital to fund our working capital needs. The periodic sale of shares is known as an advance. We may request an advance every five trading days. A closing will be held four trading days after such written notice at which time we will deliver shares of Class A Common Stock to Cornell Capital Partners and Cornell Capital Partners will pay the advance amount. We may request advances under the equity line of credit once the underlying shares are registered with the Securities and Exchange Commission. Thereafter, we may continue to request advances until Cornell Capital Partners has advanced $10.0 million or two years after the effective date of the accompanying registration statement, whichever occurs first. The maximum amount of each advance amount is $600,000 per advance notice. The amount available under the equity line of credit is not dependent on the price or volume of our Class A Common Stock. Cornell Capital Partners may not own more than 9.9% of our 27 outstanding common stock at any time. Because Cornell Capital Partners can repeatedly acquire and sell shares, this limitation does not limit the potential dilutive effect or the total number of shares that Cornell Capital Partners may receive under the equity line of credit. We cannot predict the actual number of shares of Class A Common Stock that will be issued pursuant to the equity line of credit, in part, because the purchase price of the shares will fluctuate based on prevailing market conditions and we have not determined the total amount of advances we intend to draw. Nonetheless, we can estimate the number of shares of our Class A Common Stock that will be issued using certain assumptions. For example, if iVoice Technology issued 1,052,784,076 shares of Class A Common Stock to Cornell Capital Partners (i.e., the number of shares needed to raise the maximum amount available under the equity line of credit at a price of $0.01 per share, plus the commitment fee) for gross proceeds of $10,000,000, these shares would represent greater than 99% of our outstanding Class A Common Stock upon issuance. iVoice Technology is registering for resale by Cornell Capital Partners a total of 1,052,631,579 shares of Class A Common Stock issuable under the equity line of credit. The issuance of the shares under the equity line of credit may result in a change of control. If all or a significant block of these shares are held by one or more stockholders working together, then such stockholder or stockholders would have enough shares to assume control of iVoice Technology by electing its or their own directors. This could happen, for example, if Cornell Capital Partners sold the shares purchased under the equity line of credit to the same purchaser. Proceeds used under the equity line of credit will be used in the manner set forth in the "Use of Proceeds" section of this prospectus. We cannot predict the total amount of proceeds to be raised in this transaction because we have not determined the total amount of the advances we intend to draw. We expect to incur expenses of approximately $282,990 consisting primarily of professional fees incurred in connection with this registration. In addition, Cornell Capital Partners will retain 6% of each advance and we will pay Yorkville Advisors Management a structuring fee of five hundred dollars ($500) directly out of the gross proceeds of each advance. In connection with the equity line of credit, iVoice Technology has paid to Cornell Capital Partners a one-time commitment fee equal to 150,000 and has paid to Yorkville Advisors Management a structuring fee of 325,000. PLAN OF OFFERING The selling stockholders have advised us that the sale or distribution of iVoice Technology's Class A Common Stock owned by the selling stockholders may be effected directly to purchasers by the selling stockholders or by pledgees, donees, transferees or other successors in interest, as principals or through one or more underwriters, brokers, dealers or agents from time to time in one or more transactions (which may involve crosses or block transactions) (i) on the over-the-counter market or in any other market on which the price of iVoice Technology's shares of Class A common stock are quoted or (ii) in transactions otherwise than on the over-the-counter market or in any other market on which the price of iVoice Technology's shares of Class A Common Stock are quoted. However, the selling stockholders 28 are advised that the registration statement of which this prospectus is a part may not cover sales by pledgees or transferees of the selling stockholders and if this prospectus is to be used in connection with the resale of any of the shares acquired by Cornell Capital Partners, a post-effective amendment to the registration statement of which this prospectus is a part must be filed to include disclosure required by Item 507 of Regulation S-B with respect to additional selling stockholders and such post-effective amendment must be declared effective prior to its use. Any transactions by the selling stockholders may be effected at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at varying prices determined at the time of sale or at negotiated or fixed prices, in each case as determined by the selling stockholders or by agreement between the selling stockholders and underwriters, brokers, dealers or agents, or purchasers. If the selling stockholders effect such transactions by selling their shares of iVoice Technology's Class A Common Stock to or through underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or agents may receive compensation in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of Class A Common Stock for whom they may act as agent (which discounts, concessions or commissions as to particular underwriters, brokers, dealers or agents may be in excess of those customary in the types of transactions involved). The selling stockholders and any brokers, dealers or agents that participate in the distribution of our Class A Common Stock may be deemed to be underwriters, and any profit on the sale of our Class A Common Stock by them and any discounts, concessions or commissions received by any such underwriters, brokers, dealers or agents may be deemed to be underwriting discounts and commissions under the Securities Act. Cornell Capital Partners is an "underwriter" within the meaning of the Securities Act in connection with the sale of Class A Common Stock under the equity line of credit. Under the terms of the equity line of credit, Cornell Capital Partners will pay iVoice Technology 95% of the lowest closing bid price of iVoice Technology's Class A Common Stock on the Over-the-Counter Bulletin Board or other principal trading market on which our Class A Common Stock is traded during the five trading days following the date that iVoice Technology delivers to Cornell Capital Partners a notice requiring it to advance funds to us. In addition, Cornell Capital Partners will retain 6% of the proceeds of each advance received by iVoice Technology under the equity line of credit. The 5% discount, the 6% retained amount, and the one-time commitment fee are underwriting discounts. Cornell Capital Partners was formed in February 2000 as a Delaware limited partnership. Cornell Capital Partners is a domestic hedge fund in the business of investing in and financing public companies. Cornell Capital Partners does not intend to make a market in iVoice Technology's stock or to otherwise engage in stabilizing or other transactions intended to help support the stock price. Prospective investors should take these factors into consideration before purchasing iVoice Technology's common stock. Yorkville Advisors Management is an "underwriter" within the meaning of the Securities Act in connection with the sale of Class A Common Stock that it has received as a structuring fee from iVoice Technology in connection with the equity line of credit. Under the terms of the Standby Equity Distribution Agreement, iVoice Technology has paid Yorkville Advisors 29 Management a structuring fee of 325,000 shares and has agreed to pay Yorkville Advisors Management a structuring fee of five hundred dollars ($500) directly out of the gross proceeds of each advance under the equity line of credit. The structuring fees are underwriting discounts. Yorkville Advisors Management is a Delaware limited liability company. Yorkville Advisors Management is the investment manager to Cornell Capital Partners and its general partner Yorkville Advisors, LLC. Yorkville Advisors Management does not intend to make a market in iVoice Technology's stock or to otherwise engage in stabilizing or other transactions intended to help support the stock price. Prospective investors should take these factors into consideration before purchasing iVoice Technology's common stock. Monitor Capital is an "underwriter" within the meaning of the Securities Act of 1933, as amended, in connection with the sale of Class A Common Stock that it has received as a placement agent fee from iVoice Technology in connection with the private placement of shares of our Class A Common Stock to Cornell Capital Partners under the equity line of credit. Under the placement agent agreement, iVoice Technology agreed to issue to Monitor Capital a number of shares of Class A Common Stock equal to $10,000 divided by the lowest closing bid price of the Class A Common Stock on the fifth (5th) trading day of iVoice Technology's Common Stock after the listing of such shares on a principal market. Any discount to market price is an underwriting discount. Monitor Capital is a privately owned investment bank and brokerage firm. Monitor Capital does not intend to make a market in iVoice Technology's stock or to otherwise engage in stabilizing or other transactions intended to help support the stock price. Prospective investors should take these factors into consideration before purchasing iVoice Technology's common stock. Under the securities laws of certain states, shares of our Class A Common Stock may be sold in such states only through registered or licensed brokers or dealers. The selling stockholders are advised to ensure that any underwriters, brokers, dealers or agents effecting transactions on behalf of the selling stockholders are registered to sell securities in all fifty states. In addition, in certain states the shares of our Class A Common Stock may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. We will pay all the expenses incident to the registration, offering and sale of the shares of common stock to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers and agents. We estimate that the expenses of the offering to be borne by us will be approximately $282,990, as well as retention of 6% of the gross proceeds received under the equity line of credit and payment of five hundred dollars ($500) as a structuring fee for each advance under the equity line of credit. The estimated offering expenses consist of: a SEC registration fee of $1,240, printing expenses of $25,000, accounting fees of $16,750, legal fees of $200,000 and miscellaneous expenses of $40,000. We will not receive any proceeds from the sale of any of the shares of common stock by the selling stockholders. We will, however, receive proceeds from the sale of our Class A Common Stock under the equity line of credit. 30 The selling stockholders should be aware that the anti-manipulation provisions of Regulation M under the Securities Exchange Act of 1934 will apply to purchases and sales of shares of our Class A Common Stock by the selling stockholders, and that there are restrictions on market-making activities by persons engaged in the distribution of the shares. Under Regulation M, the selling stockholders or their agents may not bid for, purchase, or attempt to induce any person to bid for or purchase, shares of our Class A Common Stock of iVoice Technology while such selling stockholders are distributing shares covered by this prospectus. Accordingly, except as noted below, the selling stockholders are not permitted to cover short sales by purchasing shares while the offering is taking place. Cornell Capital Partners can cover any short positions only with shares received from iVoice Technology under the equity line of credit. The selling stockholders are advised that if a particular offer of Class A Common Stock is to be made on terms constituting a material change from the information set forth above with respect to this Plan of Distribution, then, to the extent required, a post-effective amendment to the accompanying registration statement must be filed with the Securities and Exchange Commission. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION 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 and Plan of Operation Prior to August 5, 2005, the Company's previous financial results and operations were reflected in the consolidated financial statements and accounting records of iVoice, and reflected significant assumptions and allocations. These financial statements do not necessarily reflect the financial position, results of operations and cash flows of iVoice Technology had it been a stand-alone entity. iVoice Technology seeks to leverage the value of underutilized developed technology and believes that the transition to an independent company will provide iVoice Technology with greater access to capital. This should provide needed financial resources to potentially penetrate the market and distribute the product. As such, iVoice Technology's business was formed from the contribution by iVoice of certain assets and related liabilities on August 5, 2005. In connection with the spin-off of iVoice Technology by iVoice, iVoice assigned and conveyed 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 elected not to transfer any part of its working cash balance to iVoice Technology. Based upon the current intention of iVoice Technology not to conduct any research and development or hire additional employees and instead focus on the sale of the existing IVR technology, the board has determined that, on balance, iVoice Technology has the ability to satisfy its working capital needs as a whole. The board and management of iVoice also determined that iVoice Technology 31 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 makes 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 has developed and maintained its own credit and banking relationships and performs its own financial and investor relations functions. However, iVoice Technology may not be able to successfully maintain the financial, administrative and managerial structure necessary to operate as an independent public company, and the development of such structure will require a significant amount of management's time and other resources. iVoice Technology has received a going concern opinion from its auditors. Its continuation as a going concern is dependent upon obtaining the financing necessary to operate its business. The financing of our working capital needs are expected to be provided, in large part, from the sale of Class A Common Stock to Cornell Capital Partners pursuant to the terms of the Standby Equity Distribution Agreement. However, Cornell Capital Partners is under no obligation to purchase any shares of our Class A Common Stock unless certain conditions are met by iVoice Technology, including having the registration statement of which this prospectus is a part declared effective by the SEC. See "- Liquidity and Capital Resources." If iVoice Technology cannot fund its working capital needs under the Standby Equity Distribution Agreement with Cornell Capital Partners, we will be unable to obtain sufficient capital resources to operate our business since we currently have no other plans to obtain alternative financing. We cannot assure you that we will be able to access any financing in sufficient amounts or at all when needed. Our inability to obtain sufficient working capital funding will have an immediate material adverse effect upon our financial condition and our business. Separation from iVoice iVoice Technology was incorporated under the laws of the State of New Jersey on November 10, 2004, as a wholly-owned subsidiary of iVoice. iVoice Technology will have no material assets or activities until the contribution of the IVR software business described in this prospectus. As a result of the Distribution, iVoice Technology is now an independent public company, with iVoice having no continuing ownership interest in iVoice Technology. 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. These agreements, contracts, understandings and other instruments consisted of the documentation relating to the issuance of the secured convertible debentures and the equity line of credit, the employment agreements with Mr. Mahoney and, our former Chief Executive Officer and President, Arie Seidler and the administrative services agreement. Since this assignment, iVoice Technology Nevada has no operating business, assets or known liabilities, and has been dissolved. When we refer to or 32 describe any agreement, contract or other written instrument of iVoice Technology in this prospectus, such references may be to an agreement, contract or other written instrument that had been entered into by iVoice Technology Nevada and assigned to iVoice Technology. iVoice Technology's financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and reflect the historical financial position, results of operations, and cash flows of the business transferred to iVoice Technology by iVoice as part of the Distribution. The financial information included in this prospectus, however, is not necessarily indicative of what iVoice Technology's results of operations or financial position would have been had it operated as an independent company during the periods presented, nor is it necessarily indicative of its future performance as an independent company. iVoice Technology operates the IVR software business. iVoice Technology intends to use a portion of the proceeds from any financing arrangements, on sales and marketing efforts for IVR. It is unclear whether such efforts will result in a reasonably successful operating business due to iVoice's previous lack of sales and marketing efforts on IVR, iVoice Technology's lack of operating history, the current economic environment and, more specifically, the uncertainty of the telecommunications market. As of August 5, 2005, iVoice Technology assigned, contributed and conveyed to iVoice Technology the iVoice corporate assets, liabilities and expenses related to the IVR software business, including the IVR software and all intellectual property of iVoice relating to the IVR software business and the assignment of iVoice's existing agreements and arrangements with dealers and resellers. This assignment, contribution and conveyance of assets, liabilities and expenses was based on an estimate of the proportion of such amounts allocable to iVoice Technology, utilizing such factors as total revenues, employee headcount and other relevant factors. iVoice Technology believes that these allocations have been made on a reasonable basis. iVoice Technology believes that all costs allocated to iVoice Technology are a reasonable representation of the costs that iVoice Technology would have incurred if iVoice Technology had performed these functions as a stand-alone company. In conjunction with the separation of the IVR software business from iVoice, iVoice Technology entered into an administrative services agreement with iVoice for the provision of certain services by iVoice to iVoice Technology following the Distribution. This agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. See "Relationship Between iVoice and iVoice Technology Following the Distribution" for a description of the administrative services agreement. Following termination of the administrative services agreement, we expect that iVoice Technology will operate on a completely stand-alone basis from iVoice and there will be no business or operating relationship between iVoice and iVoice Technology. iVoice Technology has no current intention to terminate the administrative services agreement, seek replacement services or provide services for itself in the near future. iVoice announced in September 2004 its intention to distribute its shares of our Class A Common Stock to its stockholders upon effectiveness of required Securities and Exchange 33 Commission filings. Our shares of Class A Common Stock were distributed to iVoice's stockholders on or about August 10, 2005. Year Ended December 31, 2004 as Compared with the Year Ended December 31, 2003 All revenues reported by iVoice Technology are derived from the sale or license of our interactive voice response software products, which enable a caller to obtain requested information in voice form from a local or non-local database. Total revenues for the year ended December 31, 2004 and December 31, 2003 were $239,114 and $303,756 respectively. The $64,642 decrease in revenue between the year ended December 31, 2004 and the year ended December 31, 2003 was the result of fewer units being sold in 2004 as compared to 2003, reflecting a weaker demand for the product offset by increases in other revenue. The IVR business has only operated as a division and/or a subsidiary of iVoice and has never operated on a stand-alone basis. The low sales volume of the IVR business is attributable to the minimal resources made available by iVoice for the sales and marketing of the interactive voice response software products. Management feels that the sales of the interactive voice response software products may increase if greater financial and operational resources were made available for the sales and marketing of the products. If iVoice Technology can obtain funds under the proposed equity line of credit, iVoice Technology will be able to devote more resources to operating the business. See -- "Liquidity and Capital Resources." Gross margin for the year ended December 31, 2004 and December 31, 2003 was $166,244 (69.5%) and $180,665 (59.5%), respectively. The increase in gross margin is a result of a change in the products and services mix being sold. At times, contracts require iVoice Technology to provide more service in a sale than might otherwise be typical, resulting in a change in gross margin. In the year ending December 31, 2004, iVoice Technology provided more consulting and maintenance services, which have higher gross margins than the sale of software products. Total operating expenses decreased to $863,456 for the year ended December 31, 2004 from $965,341 for the year ended December 31, 2003, a decrease of $101,885 or 10.6%. This decrease in the current year is primarily attributable to reductions in research and development and amortization expenses offset by increases in accrued professional and consulting fees in connection with financing the operation of the business and the anticipated registration of shares of iVoice Technology. The reductions in research and development expense reflect a decrease in the number of employees performing research and development functions. 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. 34 Total expenses for the year ended December 31, 2004 were $780,915 as compared to $346,744 for the year ended December 31, 2003, an increase of $434,171. During the year ended December 31, 2004, iVoice Technology recorded $31,487 of interest expense and $850,555 of financing costs. Of the financing costs, $794,555 was attributed to allocations from the parent for stock issued and fees paid to Cornell Capital for initial and additional financing arrangements during 2004 and $56,000 was paid to Cornell Capital for fees related to the issuance of $560,000 of secured convertible debentures. Interest expense included accrued interest on the secured debentures of $7,044 in 2004. A significant portion of iVoice, Inc.'s interest expense was allocated to iVoice Technology in 2004 and 2003 as a result of the funding for the loss from operations. These amounts are $24,443 and $516,719, respectively. Other income primarily consists of $57,237 related to the write-off of certain accounts payable and $52,337 in interest income. In future periods, iVoice Technology will incur additional interest expense and additional fees related to the borrowings from the promissory note issued in replacement of the convertible debentures and the anticipated sale of shares under the equity line of credit to fund working capital needs. There is no assurance that iVoice Technology will be able to raise funds by selling its common stock. Nine months ended September 30, 2005 compared to nine months ended September 30, 2004 All revenues reported by iVoice Technology are derived from the sale or license of our interactive voice response software products, which enable a caller to obtain requested information in voice form from a local or non-local database. Total revenues for the nine months ended September 30, 2005 and September 30, 2004 were $94,756 and $177,484, respectively. The $82,728 decrease in revenue between the nine months ended September 30, 2005 and the nine months ended September 30, 2004 was the result of fewer turn-key systems being sold in 2005 as compared to 2004. Until August 5, 2005, the IVR business only operated as a division of iVoice and had never operated on a stand-alone basis. The low sales volume of the IVR business is attributable to the minimal resources made available by iVoice for the sales and marketing of the interactive voice response software products. Management feels that the sales of the interactive voice response software products may increase if greater financial and operational resources were made available for the sales and marketing of the products. If iVoice Technology can obtain funds under the Standy Equity Distribution Agreement with Cornell Capital, iVoice Technology will be able to devote more resources to operating the business. See "Liquidity and Capital Resources." Gross margin for the nine months ended September 30, 2005 and September 30, 2004 was $94,018 (99.2%) and $118,221 (66.6 %), respectively. Revenues in the nine months ended September 30, 2005 contained very little hardware and had very little direct costs. Software and maintenance revenue has a very low direct cost content. The increase in gross margin rate is a result of a change in the hardware and software mix being sold as compared to the same period in the prior year. The decrease in gross margin dollars is the result of lower sales. Total operating expenses decreased to $ 473,706 for the nine months ended September 30, 2005 from $693,810 for the nine months ended September 30, 2004, a decrease of $220,104 or (31.7 %). This decrease in the current nine months period is primarily attributable to reductions in the allocated costs from iVoice. In the nine months ended September 30, 2004, 35 iVoice accrued professional and consulting fees in connection with financing the operation of the business and the anticipated registration of shares of iVoice Technology. The reductions in allocated selling and research and development expenses reflect a decrease in the number of employees performing these functions. As of September 30, 2005, iVoice Technology had one full-time employee and two part-time employees. The loss from continuing operations before other income (expense) for the nine months ended September 30, 2005 was $379,688 compared to a loss of $575,589 for the nine months ended September 30, 2004, a decrease in the loss of $195,901. As discussed above, this decrease was primarily attributable to reductions in allocated, selling, research and development and accrued professional and consulting fees incurred in connection with financing the operation of the business and the anticipated registration of shares of iVoice Technology. Total other income (expense) for the nine months ended September 30, 2005 were an expense of $67,066 as compared to an expense of $719,748 for the nine months ended September 30, 2004, a decrease of $652,682. During the nine months ended September 30, 2005, iVoice Technology recorded $14,000 for financing costs, $56,449 of interest expense and $3,383 of interest income. In the nine months ended September 30, 2004, iVoice, Inc allocated $794,555 for financing costs, $26,321 for interest expenses and $101,128 for other income to iVoice Technology. The allocated finance costs were for fees paid to Cornell Capital Partners for initial and additional financing arrangements. The allocated other income was primarily from interest earned on the cash accounts. The allocated interest expense was for accrued interest on related party debts. Net loss for the nine months ended September 30, 2005 was $446,754 as compared to a loss of $1,295,337 for the nine months ended September 30, 2004. The decrease in net loss of $848,583 was the result of the factors discussed above. Liquidity and Capital Resources To date, iVoice Technology has incurred substantial losses, and will require financing for working capital to meet its operating obligations. We anticipate that we will require financing on an ongoing basis for the foreseeable future. On August 12 and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in secured convertible debentures, with interest payable at 5% per annum, to Cornell Capital Partners. On February 28, 2005, iVoice Technology's obligations under the secured convertible debentures were terminated and replaced with a secured promissory note of the same principal amount, with an additional loan of $140,000 bringing the promissory note to an aggregate principal amount of $700,000. The promissory note accrues interest at rate of 12% per annum, but is not convertible into any equity security of iVoice Technology. In connection with the issuances of the secured convertible debentures, iVoice Technology paid a fee to Cornell Capital Partners equal to 10% of the aggregate principal amount of the debentures. When the secured convertible debentures were terminated, iVoice Technology received a credit for fees that would otherwise have been payable upon the issuance of the $560,000 in replacement notes. 36 iVoice Technology paid Cornell Capital a fee of $14,000 in connection with its $140,000 additional borrowing. The Company's obligations under the secured promissory note issued to Cornell Capital Partners are secured by a first priority security interest in substantially all of our assets. iVoice has also guaranteed the payment of all amounts payable by iVoice Technology pursuant to the secured promissory note. This guaranty terminated on August 5, 2005. On March 9, 2005, iVoice Technology received a non-binding letter of intent from Cornell Capital whereby Cornell Capital offered, subject to satisfaction of certain conditions, to purchase shares of iVoice Technology's common stock upon the terms set forth in the non-binding letter of intent and the definitive documentation to be executed after satisfaction of those closing conditions. On September 22, 2005, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital, pursuant to which iVoice Technology may, from time to time, issue and sell to Cornell Capital Partners our Class A Common Stock for a total purchase price of up to $10.0 million. The purchase price for the shares is 95% of the market price, which is defined as the lowest closing bid price of the Class A Common Stock during the five trading days following the date that iVoice Technology delivers to Cornell Capital Partners a notice requiring it to advance funds to us. A cash fee equal to six percent (6%) of the cash proceeds of the draw down is also be payable at the time of funding. In addition, Cornell Capital Partners received, as additional compensation, 150,000 shares of Class A Common Stock as a commitment fee pursuant to the Standby Equity Distribution Agreement. However, Cornell Capital Partners is under no obligation to purchase any shares of Class A Common Stock unless certain conditions are met by iVoice Technology, including having the registration statement relating to the Standby Equity Distribution Agreement declared effective. If iVoice Technology cannot satisfy the requirements for Cornell Capital Partners to purchase the Class A Common Stock under the terms of the Standby Equity Distribution Agreement, we will not be able to obtain sufficient capital resources to operate our business, and we have no current plans to obtain alternative financing. We cannot assure you that we will be able to access any financing in sufficient amounts or at all when needed. Our inability to obtain sufficient financing would have an immediate material adverse effect on us, our financial condition and our business. Management believes that its going-forward expenses for the twelve months following the date of this prospectus will be approximately $432,000, which includes salaries for iVoice Technology's officers and employees, and assuming iVoice Technologies has no revenues in such period, iVoice Technology expects to incur liabilities, for the year ended 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. If there are additional deficiencies that are in excess of the proceeds of the secured promissory note, and iVoice Technology is unable to obtain funds from the sale of our Class A Common Stock to Cornell Capital Partners, management believes that iVoice Technology can limit its operations, defer payments to management and maintain its business at nominal levels until it can identify alternative sources of capital. Except for these two financing agreements, the Company currently has no other significant sources of working capital or cash commitments. However, no assurance can be given that iVoice Technology will raise sufficient funds from such financing arrangements, or that iVoice Technology will ever produce sufficient revenues to sustain its operations, or that a 37 market will develop for its common stock for which a significant amount of iVoice Technology's financing is dependent upon. On August 5, 2005, iVoice Technology assumed an aggregate of $190,000 in liabilities from iVoice and iVoice assigned to iVoice Technology assets having an aggregate book value of $10,000. See "Selected Historical and Pro Forma Financial Information" contained in the financial statements of iVoice Technology at the back of this prospectus. iVoice Technology believes that the fair value of these assets may be greater than the book value, although it has not undertaken an appraisal. The assumed obligations are described below. iVoice Technology assumed from iVoice outstanding indebtedness in the amount of $190,000 payable to Jerry Mahoney. This amount is related to funds that had been loaned to iVoice in July 2000 that were used to develop the IVR software business. The amount of $190,000 includes approximately $32,110 for interest on the original loan from Jerry Mahoney to iVoice. Pursuant to the terms of the promissory note representing such obligation, iVoice Technology, for value received, will pay to Mr. Mahoney the principal sum of $190,000 that will bear interest at the prime rate plus 2% per annum on the unpaid balance until paid or until default. Interest payments will be due annually. All accrued interest becomes due on the date of any payment of the promissory note. At the time of default (if any) the interest rate shall increase to 20% until the principal balance has been paid. Under the terms of the promissory note, at the option of the note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of iVoice Technology, par value $0.01, for each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice Technology calculated by dividing (x) the sum of the principal and interest that the note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of Class A Common Stock since the first advance of funds under this note, or (iii) payment of the principal of this note, before any repayment of interest. During the nine months ended September 30, 2005, the Company had a net decrease in cash of $ 33,829. The Company's principal sources and uses of funds were as follows: Cash used by operating activities. The Company used $ 172,747 in cash for operating activities in the nine months ended September 30, 2005. This was primarily the result of the cash used to fund the loss from current operating activities. Cash provided by financing activities. Financing activities in the nine months ended September 30, 2005 provided a total of $ 138,918 in cash. This consisted of net proceeds from the issuance of the secured promissory note under the financing with Cornell Capital Partners. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial 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 38 our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We have identified below the accounting policies, revenue recognition and software costs, related to what we believe are most critical to our business operations and are discussed throughout Management's Discussion and Analysis of Financial Condition or Plan of Operation 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 39 maintenance period. It is also the Company's policy not to provide direct customers (as opposed to resellers and dealers) the right to refund any portion of its license fees. The Company accepts Visa and MasterCard as well as company checks. Customers may license the Company's products through our telesales organization and through promotions or reseller agreements with independent third parties. iVoice Technology only permits returns from authorized dealers and resellers of unused inventory, subject to the consent of the Company and a twenty-five percent restocking fee. End users who purchaser products directly from iVoice Technology may not return such products to iVoice Technology under any circumstances. Accordingly, the Company records a provision for product returns and allowances against product revenue in the same period the revenue is recorded. The estimates are based on historical sales returns and other known data as well as market and economic conditions. Our current products are not sold through retail distribution channels. Current reseller agreements provide for a limited contractual right of return and do not provide for future price concessions, minimum inventory commitments nor is payment contingent upon the reseller's future sales or our products. Revenues generated from products licensed through marketing channels where the right of return exists, explicitly or implicitly, is reduced by reserves for estimated product returns. Such reserves are estimates based on returns history and current economic and market trends. Software Costs Software license costs are recorded at cost, which approximates fair market value as of the date of purchase. These costs represent the purchase of various exploitation rights to certain software, pre-developed codes and systems developed by a non-related third party. These costs are capitalized pursuant to Statement of Financial Accounting Standards ("SFAS") 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed". The Company has adopted SFAS No. 121. The carrying value of software license costs are regularly reviewed by the Company and a loss would be recognized if the value of the estimated undiscounted cash flow benefit related to the asset falls below the unamortized cost. The Company develops software for licensing to its customers and capitalizes software development costs when technological feasibility has been established. Software development costs not qualifying for capitalization are expensed and classified as research and development expenses in the statements of operations. Research and development expenses and the capitalization rate will fluctuate from period to period depending upon the number and status of software development projects that are in process and the related number of people assigned to those projects. Purchased software and capitalized software development costs are amortized using the greater of the revenue method or the straight-line method with useful lives ranging from three to five years. Amortization expense is classified in costs of revenue on the statements of operations. Our products operate on or with other third party software and operating systems. When determining the useful life of a product we consider factors such as the current state of the 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 40 our products. We make an assessment of the useful lives of our products at each balance sheet date. If that assessment determines that a shortened product life has occurred, we amortize the remaining unamortized balances over the new estimated useful life of the product and provide disclosure regarding a change in estimate in the notes to the financial statements pursuant to Accounting Principles Board Opinion No. 20 "Accounting Changes." The Company evaluates the estimated net realizable value of each software product at each balance sheet date. The estimate is based on historical and forecasted net revenue for each product. Net revenue is the product revenue reduced by the estimated costs of revenue and, if in development, the estimated cost to complete the development of the product. When the net book value exceeds the estimate of net realizable value, the Company records a write-down to net realizable value on each product affected. Management's ability to achieve its revenue forecast is subject to judgment, competitive pressures, market and economic conditions and management's ability to successfully license its products to its customers. A change in one or more of these factors may influence management's estimates. Accordingly, currently estimated net realizable values are subject to being reduced resulting in corresponding charges for impairment in the future. In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which requires variable interest entities to be consolidated by the primary beneficiary of the entity if certain criteria are met. FIN 46 is effective for all new variable interest entities created after January 31, 2003. For variable interest entities created or acquired before February 1, 2003, the provisions of FIN 46 become effective for the Company on September 1, 2003. The Company does not expect that the adoption of FIN 46 will have a material impact on its financial position, results of operations or cash flows. In April, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." Except as noted below, the Company is required to adopt this statement by the first quarter of the fiscal year, 2004. Certain provisions of this statement relating to SFAS No. 133 implementation issues that have been effective for prior fiscal quarters will continue to be applied in accordance with their respective effective dates. The Company does not expect that the adoption of SFAS No. 149 will have a material impact on its financial position, results of operations or cash flows. In May, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for the Company on September 1, 2003. The Company does not expect that the adoption of SFAS No. 150 will have a material impact on the Company's financial position, results of operations or cash flows. 41 OUR BUSINESS Background iVoice Technology, Inc. (the "Company") was incorporated in New Jersey on November 10, 2004 as a wholly-owned subsidiary of iVoice, Inc. It is engaged in the design, manufacture, and marketing of specialized telecommunication equipment. As of September 30, 2005, the Company employed one full-time employee and two part-time employees. iVoice Technology may seek to expand its operations through additional sales and marketing activity and the acquisition of additional businesses. Any potential acquired additional businesses may be outside the current field of operations of iVoice Technology. iVoice Technology may not be able to identify, successfully integrate or profitably manage any such businesses or operations. Currently, iVoice Technology has no plans, proposals or arrangements, either orally or in writing, regarding any proposed acquisitions and is not considering any potential acquisitions. The following description of our business is intended to provide an understanding of our product and the direction of our initial marketing strategy. As the Company is in its developmental stages, any focus described in the following pages may change and different initiatives may be pursued, at the discretion of Management. Products Our flagship product is IVR, an application generator that allows full connectivity to many databases, including Microsoft Access, Microsoft Excel, Microsoft Fox Pro, DBase, Btrieve, and Paradox, or to standard text files. IVR can be used to read information from, and write information to, databases, as well as query databases and return information. The IVR software is sold as an application generator that gives the end user the ability to develop their own customized IVR application or as a customized turnkey system. IVR performs over 40 different customizable commands. Examples of IVR range from simply selecting announcements from a list of options stored in the computer (also known as audio text) to more complex interactive exchanges such as querying a database for information. Properties can be set up for each command, as if the commands were being executed manually. IVR links a phone system to a database to provide customers with 24-hour immediate access to account information, via telephone. With IVR, polished IVR applications are quick and easy to install. No knowledge of computer programming and minimal database knowledge is needed. IVR will execute any created application when a caller dials in. Using DTMF (touch-tone telephones) or speech activation allows callers to interact with the system. Advanced database technology permits reading, writing, appending, searching and seeking database information. A user can record product inventory, set up games, keep a record of patients or customers, and perform other applications. The advanced, innovative technology, backed by a simple, easy-to-use drag-and-drop interface, makes writing applications simple. The IVR software also incorporates an Internet access tool, which can be either connected to the IVR system or run as a standalone. This IVR system also has a graphical user interface and provides for Internet access to the system. Once logged onto the Internet, a user can gain access to the IVR system by clicking on a hypertext link for the user's browser. Upon 42 entering the IVR system, the response prompts are in text form rather than voice form. The user can enter selections and get information by clicking on icons or choosing items from menus. Some of the Internet applications available are order processing and transactions, database integration, questions and queries, account status, delivery information, funds transfer, and claims information. We are in the process of rolling out Version 3.0 of the IVR software, which incorporates certain upgrades designed to improve stability and performance of the software. Only minor changes are being made to the user interface, and there are no material new features that are readily apparent to the end user. We currently have no plans to engage in future research and development or to launch any additional versions of the IVR software or other products. Distribution As a product line of iVoice, Inc., IVR has produced sales revenues for the past three fiscal years. In the past, iVoice devoted limited resources to the marketing of IVR. The Company's future revenues depend on its ability to develop a customer base through the establishment of a reseller channel using various marketing and sales promotions. iVoice Technology will market its products directly, with a sales force, and through more than 100 domestic and international re-sellers. iVoice Technology intends to enter into arrangements with resellers to broaden distribution channels and to increase its sales penetration to specific markets and industries. Distributors will be selected based on their access to the markets, industries and customers that are candidates for the products. Competition The Company competes generally with a number of other manufacturers of supplemental telecommunications software, telecommunications integrators, as well as application service providers (ASPs), which provide IVR software to other businesses and organizations either through internet servers or telecommunication servers. System design and engineering, application technical features, built-in speech recognition capabilities and simplicity of user implementation and administration are the principal characteristics of our IVR that differentiates it from competing products. The markets in which we compete are the IVR enterprise market, in which the customers are generally direct end users and smaller clients with limited capacity requirements and revenue per contract, and the IVR enhanced services market, which consists primarily of service providers and other large organizations who require a greater level of capacity and features. The IVR enterprise market is fragmented and highly competitive. The Company's major competitors in this market are Avaya Inc., IBM Corporation, Nortel Networks Limited, Aspect Communications Corporation and Security First Corp. (formerly Edify Corporation). The principal competitive factors in this market include breadth and depth of solution, product features, product scalability and reliability, client services, the ability to implement solutions, and the creation of a referenceable customer base. The Company believes that its product line of solutions, combined with its professional and technical services and its extensive customer base, allow it to compete favorably in this market. However, this market is evolving rapidly, and the 43 Company anticipates intensified competition not only from traditional IVR vendors but also from emerging vendors with non-traditional technologies and solutions. Competition in the IVR enhanced network services market ranges from large telecommunication suppliers offering turnkey, multi-application solutions to "niche" companies that specialize in a particular enhanced service such as prepaid or voicemail. The Company's primary competitors in this market are suppliers such as Comverse Technology, Inc., Unisys Corporation and Lucent Technologies Inc. that provide a suite of enhanced services. Smaller niche players that compete with the Company in various geographies and/or products include GlenAyre Electronics Inc. The Company anticipates that competition will continue from existing and new competitors, some of which have greater financial, technological and marketing resources and greater market share than the Company. No assurance can be given that our competitors will not develop new technologies or enhancements to their existing products or introduce new products that will offer superior price or performance features. We expect our competitors to offer new and existing products at prices necessary to gain or retain market share. Certain of our competitors have substantial financial resources, which may enable them to withstand sustained price competition or a market downturn better than us. There can be no assurance that we will be able to compete successfully in the pricing of our products, or otherwise, in the future. As is customary in the telecommunications industry, the Company produces its products from readily available components purchased from a variety of manufacturers. Printed circuit boards and housings are contracted for manufacture according to Company specifications from among many available suppliers. The business of the Company is not seasonal. The Company maintains no special arrangements relating to working capital items, and as far as it is aware this is standard in the industry. The Company is not subject to environmental protection regulations during the foreseeable future. The Company has spent nothing on research and development in the last three fiscal years. None of the Company's present business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the government. Product Development We are in the process of rolling out Version 3.0 of the IVR software, which incorporates certain upgrades designed to improve stability and performance of the software. Only minor changes are being made to the user interface, and there are no material new features that are readily apparent to the end user. We currently have no plans to engage in future research and development or to launch any additional versions of the IVR software or other products. iVoice Technology considers its current products to be competitive with products offered by others in its industry segment. It does not foresee spending any significant capital on new product development in the foreseeable future. Business Development Business development objectives at iVoice Technology will be to focus on two primary functions as listed below: 44 1. Negotiate and secure strategic alliances related to our IVR products; and 2. Negotiate, secure and manage Original Equipment Manufacturer (OEM) and reseller accounts. Strategic Alliances iVoice Technology's business development efforts will seek to engage and secure strategic alliances with related telecommunications businesses and professional organizations in order to develop co-marketing programs that will expand market share for our products and develop brand recognition. By entering into strategic alliances with companies that offer telecommunications devices or services to businesses or professional organizations whereby appointment setting and scheduling are of vital importance, we will seek to obtain access to an installed customer base as well as new sales opportunities of our products. Manage OEM and Reseller Accounts While we have traditionally sold our product primarily on a direct basis, with our existing officers and employees fulfilling orders received by telephone and the internet, we will seek to obtain new OEM and reseller relationships that will serve as an extension of our sales team which has yet to be hired. We currently have no strategic alliances with any OEMs or resellers other than the existing relationship between iVoice's resellers and iVoice that are being transferred to us by iVoice for our benefit, nor do we have any current material negotiations with any OEM or other reseller. Ideally, an OEM agreement, which provides distribution of our software product along with the manufacturers own telecommunication equipment, could produce the most widespread distribution and acceptance of our product at minimal distribution costs. Many of the OEMs have extensive and established reseller channels that could provide an avenue of distribution for our software. To effectively manage these accounts, we will need to provide these resellers with product literature, pricing, and sales leads as well as technical training and support. Sales and Marketing The IVR enterprise market is characterized by a business environment that has goals to improve customer communication and personalization as well as reduce the costs of customer contact, a historically time-and-money intensive operation. Furthermore, consumers are increasingly taking charge of this important interaction between enterprise and consumer; deciding where, when and how they want this communication. To address this new business paradigm, enterprises are increasingly applying innovative wireless, speech and web technologies to leverage existing customer service infrastructures in the creation of interactive, self-directed service applications. These new applications are designed to put the customer in control of the delivery of the information while allowing the enterprise control of the data. This serves to address the enterprise's objectives of improving the customer experience and reducing operating costs. The Company's strengths are reflected in the IVR enterprise market as part of a suite of offerings that can be delivered as components or as part of a total, turnkey solution. These IVR solutions use the latest in technology to allow enterprises to automate increasingly complex 45 interactions, enabling businesses to provide quick and timely communications with customers and business partners. Such technology enables enterprises to communicate with their customers through voice, web, e-mail, facsimile and other forms of communication on a variety of devices, including telephones, PCs, mobile phones and personal digital assistants ("PDAs"). iVoice Technology will market its products directly and through more than 100 domestic and international re-sellers. The Company intends to enter into arrangements with resellers to broaden distribution channels and to increase its sales penetration to specific markets and industries. Distributors will be selected based on their access to the markets, industries and customers that are candidates for the products. The Company is actively seeking strategic relationships with companies to build its developing partner program. The partner program will be built by establishing relationships in basic areas consisting of software and technology solution partners and system integration partners. These relationships will enhance the Company's technological strength, improve its market position, facilitate shorter time-to-market, enhance its ability to deliver end-to-end solutions, and broaden its market coverage. Developing market possibilities will be crucial to our success. However, we cannot provide any assurance that we will be able to effectively market and sell our products for these uses or that they will be accepted by our perceived market. Intellectual Property Rights We regard some features of our IVR software and documentation to be proprietary intellectual property. We have been and will be dependent in part on our ability to protect our proprietary technology. We will seek to use copyright, trademarks, trade secret laws, confidentiality agreements and other measures if necessary to establish and protect our rights in our proprietary technology. We have not filed any provisional patent applications with respect to some of our application and intellectual property rights. We are currently reviewing our technologies and processes with our patent attorneys to determine if it is possible to obtain any patents or statutory copyrights on any of our proprietary technology which we believe to be material to our future success. If we were to file for any patent or copyright protection, we cannot be certain that others will not develop substantially equivalent or superseding proprietary technology before any patent or copyright protection is awarded to us. Any provisional patent application requires that we file one or more non-provisional patent applications within 12 months from the date of filing to specify the claims asserted for patent protection. Furthermore, there can be no assurance that any confidentiality agreements between our employees and us will provide meaningful protection of our proprietary information in the event of any unauthorized use or disclosure of such proprietary information. There can be no assurance that we will not become the subject of claims of infringement with respect to intellectual property rights associated with our products. In addition, we may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any such claims could be time consuming and could result in costly litigation or lead us to enter into royalty or licensing agreements rather than disputing the merits of such claims. 46 Employees As of September 30, 2005, we had one full-time employee and two part-time employees. We have entered into employment agreements with our President and Chief Executive Officer (Mr. Meller) and our Non-Executive Chairman of the Board (Mr. Mahoney). Messrs. Mahoney and Meller will not provide services to iVoice Technology on a full-time basis. Many services that would be provided by employees are currently being provided to iVoice Technology by iVoice under the administrative services agreement. We do not currently have any plans to hire additional personnel and we expect our current officers and directors to continue to fulfill orders received by telephone and the internet for iVoice Technology products. However, if iVoice Technology can obtain funds under the equity line of credit, iVoice Technology will be able to devote more resources to expanding its personnel. See " Management's Discussion and Analysis of Financial Condition or Plan of Operation -- Liquidity and Capital Resources." Within the industry, competition for key technical and management personnel is intense, and there can be no assurance that we can retain our future key technical and managerial employees or that, should we seek to add or replace key personnel, we can assimilate or retain other highly qualified technical and managerial personnel in the future. Government Regulation We are subject to licensing and regulation by a number of authorities in the state and municipality in which we conduct operations. These may include health, safety, and fire regulations. Our operations are also subject to federal and state minimum wage laws governing such matters as working conditions and overtime. We are not subject to any necessary government approval or license requirement in order to market, distribute or sell our principal or related products other than ordinary federal, state, and local laws that govern the conduct of business in general. Legal Proceedings iVoice Technology is not party to any material legal proceedings, nor to the knowledge of iVoice Technology, is any such proceeding threatened against it. Properties We do not own any real property. We currently co-occupy the same space as iVoice and are subleasing from iVoice some of the office space located at 750 Highway 34, Matawan, New Jersey. The rent payment for the sublease is currently included in the administrative services agreement. Following the Distribution, we intend to continue subleasing such space pursuant to the administrative services agreement and anticipate no relocation of our offices in the foreseeable future. IVOICE TECHNOLOGY'S MANAGEMENT iVoice Technology initially intends to have a board of directors that will consist of two directors. Listed below is certain information concerning individuals who currently serve as 47 directors and executive officers of iVoice Technology. Mr. Mahoney is currently a director of iVoice and we anticipate that Mr. Mahoney will remain a director of both iVoice and iVoice Technology. Position with Director Name Age iVoice Technology, Inc. since ---- --- ------------------------------------ -------- Jerome R. Mahoney 43 Non-Executive Chairman of the Board 2004 Mark Meller 45 President and Chief Executive Officer N/A Frank V. Esser 66 Director 2005 Jerome R. Mahoney. Mr. Mahoney is iVoice Technology's Non-Executive Chairman of the Board. He has been a director of iVoice since May 21, 1999. Mr. Mahoney is also the Chairman of the Board of Trey Resources, Inc. and has been a director of Trey Resources since January 1, 2002. He is also the Non-Executive Chairman of the Board of Deep Field Technologies, Inc. and SpeechSwitch, Inc. and has been a director of Deep Field Technologies and SpeechSwitch since August 2004. Mr. Mahoney started at Executone Information Systems, a telephone systems manufacturer, and was Director of National Accounts from 1988 to 1989. In 1989, Mr. Mahoney founded Voice Express, Inc., a New York company that sold voicemail systems and telephone system service contracts and installed these systems. Mr. Mahoney sold Voice Express Systems in 1993. From 1993 to 1997, Mr. Mahoney was President of IVS Corp., and on December 17, 1997, he established International Voice Technologies, with which iVoice merged on May 21, 1999. Mr. Mahoney received a B.A. in finance and marketing from Fairleigh Dickinson University, Rutherford, N.J. in 1983. Mark Meller. Mr. Meller has been iVoice Technology's President, Chief Executive Officer and Chief Financial Officer since August 29, 2005. Mr. Meller has also been the President, Chief Executive Officer and Chief Financial Officer of Trey Resources, Inc. and a director of Trey Resources, Inc. since September 2003 and the President, Chief Executive Officer and Chief Financial Officer of Deep Field Technologies, Inc. since October 1, 2004. Since 1988, Mr. Meller has been Chief Executive Officer of Bristol Townsend & Co., Inc., a New Jersey-based consulting firm providing merger and acquisition advisory services to middle market companies. From 1986 to 1988, Mr. Meller was Vice President of Corporate Finance and General Counsel of Crown Capital Group, Inc., a New Jersey-based consulting firm providing advisory services for middle market leveraged buy-outs (LBO's). Prior to 1986, Mr. Meller was a financial consultant and practiced law in New York City. He is a member of the New York State Bar. Frank V. Esser. Mr. Esser has served as a director of the Company since June 2005. He has been a director of iVoice since February 2004. Mr. Esser functioned as Transfer Agent and Head Bookkeeper in the Treasury Department of Texaco Inc from 1959 to 1968. As a certified public accountant with Ernst & Young from 1968 to 1981, he participated in the audits of major publicly traded companies such as J.P. Stevens & Co., Dynamics Corporation of America, and Phillips - Van Heusen Corporation, along with law firms, banks, manufacturing companies and other organizations, and also participated in the public offerings of equity and debt and the preparation of SEC filings. In 1981, Mr. Esser accepted the position of Corporate Controller 48 with Grow Group, Inc., a Fortune 500 manufacturer of paints, solvents, and household products and became its Chief Financial Officer in 1987. During 1997 and 1998, Mr. Esser was Chief Financial Officer of a privately-held plastics injection molding company. In 1998, Mr. Esser accepted the position of Senior Associate at Beacon Consulting Associates, adding the title of Vice President in 1999, and has been working in such capacities ever since. Mr. Esser holds a BBA degree from Baruch College of the City University of New York and is a Certified Public Accountant in New York State. In consideration of Mr. Esser's service as a director of the Company, he will receive a fee of $12,000 for each year of service as a director. Compensation of Executive Officers The following table sets forth compensation information for services rendered by certain of our executive officers in all capacities during the last three completed fiscal years. The following information includes the dollar value of base salaries, bonus awards, the number of stock options granted, and certain other compensation, if any, whether paid or deferred.
Summary Compensation Table Securities Other Annual Restricted Underlying All Other Name and Position(s) Year Salary($) Bonus Compensation Stock Options Compensation - -------------------- ---- --------- ----- ------------ ---------- ---------- ------------ Jerome R. Mahoney(1) Non-Executive Chairman 2004 $21,250 $0 $0 $0 $0 $0 of the Board 2003 $0 $0 $0 $0 $0 $0 2002 $0 $0 $0 $0 $0 $0 Arie Seidler(2) 2004 $35,417 $0 $0 $0 $0 $0 President and Chief 2003 $0 $0 $0 $0 $0 $0 Executive Officer 2002 $0 $0 $0 $0 $0 $0
(1) Mr. Mahoney has been serving as our Non-Executive Chairman of the Board since August 1, 2004. Mr. Mahoney's salary is unpaid. (2) Mr. Seidler served as our President and Chief Executive Officer until August 26, 2005. Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of Securities Shares Acquired Underlying Unexercised Value of Unexercised on Value Options/SARs at FY-End In-the-Money Options/SARs Exercise Realized (#) at FY-End ($) Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable ---- --------------- -------- ------------------------- ------------------------- None 0 0 0 0 / 0
Employment Agreements Jerome R. 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 49 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 our Class B Common Stock at the option of Mr. Mahoney. In the event Mr. Mahoney's employment agreement is terminated by iVoice Technology for cause or due to Mr. Mahoney's disability or retirement, iVoice Technology will pay him his full base salary for five years from the date of termination at the highest salary level under the agreement. Under his agreement, "cause" means (1) the willful and continued failure of Mr. Mahoney to substantially perform his duties to the Company after written demand for such performance is delivered to Mr. Mahoney by the Company's board of directors, (2) the willful engaging by Mr. Mahoney in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, (3) the conviction of Mr. Mahoney of a felony, which is limited solely to a crime that relates to the business operations of the Company or that results in his being unable to substantially carry out his duties as set forth in the agreement, or (4) the commission of any act by Mr. Mahoney against the Company that may be construed as embezzlement, larceny, and/or grand larceny. However, Mr. Mahoney will not be deemed to have been terminated for cause unless the board of directors determines, by a vote of at least 75% of the members of the board of directors that Mr. Mahoney was guilty of conduct described in items (1), (2) or (4) above. As the board of directors consists solely of Mr. Mahoney and Mr. Esser, Mr. Mahoney, pursuant to his employment agreement, would be required to recuse himself from any discussions or vote regarding any potential termination, Mr. Esser would be required to determine, in accordance with his fiduciary duties as a board member, if Mr. Mahoney should be terminated for cause. In the event Mr. Mahoney's employment agreement is terminated due to Mr. Mahoney's death, iVoice Technology will pay to his estate his full base salary for eight years from the date of termination at the highest salary level under the agreement. In the event Mr. Mahoney's employment agreement is terminated by iVoice Technology within three years following a change in control, as defined in the employment agreement, or by Mr. Mahoney for good reason within three years following a change in control, Mr. Mahoney will be entitled to receive a severance payment equal to three hundred percent (300%), less $100, of the average amount of his gross income for services rendered to iVoice Technology in each of the five prior calendar years (or shorter period during which Mr. Mahoney shall have been employed by iVoice Technology). Under his employment agreement, "good reason" means, among other things, (1) any limitation on Mr. Mahoney's powers as Chairman of the Board, (2) a reduction in compensation, (3) a relocation of the Company outside New Jersey or (4) the failure of the Company to make any required payments under the agreement. The employment agreement restricts Mr. Mahoney from competing with iVoice Technology during the term of the agreement and for one year after he is no longer employed by the Company; provided that Mr. Mahoney is receiving severance or other compensation from the Company pursuant to the employment agreement for at least one year. Mark Meller 50 iVoice Technology entered into a one-year employment agreement with Mr. Meller as of August 29, 2005. Mr. Meller will serve as iVoice Technology's President, Chief Executive Officer and Chief Financial Officer for a term of one year. As consideration, iVoice Technology agreed to pay Mr. Meller an annual base salary of $85,000. Mr. Meller has agreed to forego receipt of $65,000 of such compensation until such time that management believes it has sufficient financing in place to fund this obligation. iVoice Technology also agreed to pay Mr. Meller a bonus for each merger or acquisition completed by the Company equal to six percent (6%) of the gross consideration paid or received by iVoice Technology, net of any debt or other liabilities assumed by the Company, in a merger or acquisition completed by the Company during the term of the agreement. This bonus would be payable in the form of cash, debt or shares of Class B Common Stock at the option of Mr. Meller. In the event Mr. Meller's employment agreement is terminated by iVoice Technology for cause or due to Mr. Meller's disability or retirement, iVoice Technology will pay him his full base salary for five years from the date of termination at the highest salary level under the agreement. Under his agreement, "cause" means (1) the willful and continued failure of Mr. Meller to substantially perform his duties to the Company after written demand for such performance is delivered to Mr. Meller by the Company's board of directors, (2) the willful engaging by Mr. Meller in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, (3) the conviction of Mr. Meller of a felony, which is limited solely to a crime that relates to the business operations of the Company or that results in his being unable to substantially carry out his duties as set forth in the agreement, or (4) the commission of any act by Mr. Meller against the Company that may be construed as embezzlement, larceny, and/or grand larceny. However, Mr. Meller will not be deemed to have been terminated for cause unless the board of directors determines, by a vote of at least 75% of the members of the board of directors that Mr. Meller was guilty of conduct described in items (1), (2) or (4) above. In the event Mr. Meller's employment agreement is terminated due to Mr. Meller's death, iVoice Technology will pay to his estate his full base salary for eight years from the date of termination at the highest salary level under the agreement. In the event Mr. Meller's employment agreement is terminated by iVoice Technology within three years following a change in control, as defined in the employment agreement, or by Mr. Meller for good reason within three years following a change in control, Mr. Meller will be entitled to receive a severance payment equal to three hundred percent (300%), less $100, of the average amount of his gross income for services rendered to iVoice Technology in each of the five prior calendar years (or shorter period during which Mr. Meller shall have been employed by iVoice Technology). Under his employment agreement, "good reason" means, among other things, (1) any limitation on Mr. Meller's powers as Chief Executive Officer, President and Chief Financial Officer, (2) a reduction in compensation, (3) a relocation of the Company outside New Jersey or (4) the failure of the Company to make any required payments under the agreement. The employment agreement restricts Mr. Meller from competing with iVoice Technology during the term of the agreement and for one year after he is no longer employed by the Company; provided that Mr. Meller is receiving severance or other compensation from the Company pursuant to the employment agreement for at least one year. 51 In addition, on August 5, 2005, Mr. Mahoney and Mr. Meller entered into a voting agreement pursuant to which they agree to vote their respective shares in favor of any proposal that is submitted to the Company's shareholders for approval by a unanimous vote or consent of the Board of Directors of the Company. In connection with such voting agreement, Mr. Meller has also granted an irrevocable proxy with a term of ten years to Jerome Mahoney (or his designee) to vote and exercise all voting and related rights with respect to shares of the Company's Class B Common Stock or Class A Common Stock that are owned at any time by Mr. Meller. The irrevocable proxy is terminable only upon the written consent of Jerome Mahoney. Equity Compensation Plans There are no existing equity compensation plans and iVoice Technology has no current plans, proposals or arrangements to establish, or provide any awards under, any such equity compensation plans. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On August 12 and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in secured convertible debentures, with interest payable at 5% per annum, to Cornell Capital Partners L.P. The debentures were intended to be convertible at the option of the holder only after our Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. On February 25, 2005, iVoice Technology's obligations under the secured convertible debentures were terminated and replaced with a secured promissory note of the same principal amount, which note accrues interest at rate of 12% per annum, but is not convertible into any equity security of iVoice Technology. On February 28, 2005, iVoice Technology borrowed an additional $140,000 pursuant to an additional promissory note payable to Cornell Capital Partners. In connection with the issuances of the secured convertible debentures, iVoice Technology paid a fee to Cornell Capital Partners equal to 10% of the aggregate principal amount of the debentures. When the secured convertible debentures were terminated, iVoice Technology received a credit for fees that would otherwise have been payable upon the issuance of the $560,000 in replacement notes. iVoice Technology paid Cornell Capital a fee of $14,000 in connection with its $140,000 borrowing. iVoice Technology's obligations under the secured promissory note issued to Cornell Capital Partners are secured by a first priority security interest in substantially all of our assets. iVoice has also guaranteed the payment of all amounts payable by iVoice Technology pursuant to the secured promissory note. Effective August 12, 2004, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners to obtain an equity line of credit. On February 28, 2005, iVoice Technology entered into a Termination Agreement with Cornell Capital Partners, pursuant to which the equity line transaction was terminated. On March 9, 2005, iVoice Technology received a non-binding letter of intent from Cornell Capital whereby Cornell Capital offered, subject to satisfaction of certain conditions, to purchase shares of iVoice Technology's common stock upon the terms set forth in the non-binding letter of intent and the definitive documentation to be executed after satisfaction of closing conditions. On September 22, 2005, the Company entered into a Standby Equity Distribution Agreement with Cornell Capital, which was amended and restated on December 12, 2005. Pursuant to the Standby Equity Distribution 52 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. The purchase price for the shares is 95% of the market price, which is defined as the lowest closing bid price of our Class A Common Stock during the five trading days following the date that iVoice Technology delivers to Cornell Capital Partners a notice requiring it to advance funds to us. Cornell Capital Partners will retain 6% of each advance under the equity line of credit and iVoice Technology has agreed to pay Yorkville Advisors Management a structuring fee of five hundred dollars ($500) directly out of the gross proceeds of each advance under the equity line of credit. In addition, iVoice Technology issued to Cornell Capital Partners 150,000 shares of Class A Common Stock as additional one-time compensation pursuant to the terms of the Standby Equity Distribution Agreement. However, Cornell Capital Partners is under no obligation to purchase any shares of our Class A Common Stock unless certain conditions being met by iVoice Technology, including having the registration statement relating to the shares sold under the Standby Equity Distribution Agreement declared effective. If iVoice Technology cannot satisfy the requirements for Cornell Capital Partners to purchase our Class A Common Stock under the terms of the Standby Equity Distribution Agreement, we will not be able to obtain sufficient capital resources to operate our business, and we have no current plans to obtain other financing. We cannot assure you that we will be able to access any financing in sufficient amounts or at all when needed. Our inability to obtain sufficient financing would have an immediate material adverse effect on us, our financial condition and our business. On August 5, 2005, iVoice Technology assumed an aggregate of $190,000 in liabilities from iVoice and iVoice assigned to iVoice Technology assets having an aggregate book value of $10,000. See "Selected Historical and Pro Forma Financial Information" contained in the financial statements of iVoice Technology at the back of this prospectus. iVoice Technology believes that the fair value of these assets may be greater than the book value, although it has not undertaken an appraisal. The assumed obligations are described below. In connection with the assumption of assets and liabilities by iVoice Technology from iVoice, iVoice Technology assumed from iVoice $190,000 of outstanding indebtedness from iVoice to Jerry Mahoney. The debt is subject to a promissory note having substantially the same terms as the terms applicable to the indebtedness from iVoice to Mr. Mahoney. On August 5, 2005, iVoice Technology, issued a promissory note in the amount of $190,000 payable to Mr. Mahoney that bears interest at the prime rate plus 2% per annum on the unpaid balance until paid or until default. Interest payments are due and payable annually. Under the terms of the promissory note, at the option of the note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of iVoice Technology, par value $0.01, for each dollar owed, (ii) the number of shares of our Class A Common Stock of iVoice Technology calculated by dividing (x) the sum of the principal and interest that the note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of our Class A Common Stock since the first advance of funds under this note, or (iii) payment of the principal of this note, before any repayment of interest. There is no limitation on the number of shares of our Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. See "Potential Dilution Due to Conversion at Below Market Price." 53 Mr. Mahoney agreed to forego receiving any shares of iVoice Technology's Class A Common Stock or Class B Common Stock he would otherwise have been entitled to receive in the Distribution by virtue of his ownership of either iVoice Class A Common Stock or iVoice Class B Common Stock. iVoice Technology entered into two separate employment agreements with Mr. Mahoney, its Non-Executive Chairman of the Board, and Mr. Seidler, its President and Chief Executive Officer, respectively, as of August 1, 2004. Mr. Seidler resigned his positions as of August 26, 2005 and his employment agreement was terminated. On August 29, 2005, iVoice Technology entered into an employment agreement with Mark Meller, its new Chief Executive Officer, President and Chief Financial Officer. Mr. Mahoney's employment agreement provides for annual compensation of $85,000 per annum with an annual increase based on the Consumer Price Index every year thereafter and Mr. Meller's employment agreement provides for annual compensation of $85,000 per annum. Each of Mr. Mahoney and Mr. Meller will also be entitled to additional incentive compensation based upon mergers and acquisitions completed by iVoice Technology. Mr. Meller has agreed to forego receipt of $65,000 of his annual compensation until such time that management believes that it has sufficient financing in place to fund this obligation. iVoice Technology believes that the compensation provided to each of Mr. Mahoney and Mr. Meller are commensurate with compensation levels paid by other companies to management having equivalent experiences and capabilities. In August 2004, iVoice Technology entered into an administrative services agreement with iVoice. Pursuant to that agreement, iVoice is providing iVoice Technology with physical premises, inventory purchasing services, material and inventory control services, source code management and other personnel and data processing services on a month-to-month basis. For these services iVoice Technology is paying iVoice $7,000 per month during the term of the agreement. The administrative services agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. Following termination of the administrative services agreement, we expect that iVoice Technology will operate on a completely stand-alone basis from iVoice and there will be no business or operating relationship between iVoice and iVoice Technology. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS Our common stock is quoted on the OTC Bulletin Board under the symbol "IVOT." The following table shows the high and low closing prices for the period indicated: 2005 High Low ---- ---- --- Third Quarter $.025 $.015 Fourth Quarter $.030 $.010 (through December 16, 2005) 54 Holders of common equity As of December 12, 2005, there were 727 record holders of our common shares. Dividend information To date, iVoice Technology has never paid a dividend. We have no plans to pay any dividends in the near future. We intend to retain all earnings, if any, for the foreseeable future, for use in our business operations. Security Ownership The following table sets forth, as of September 30, 2005, information with respect to the beneficial ownership of our common stock by (i) persons known by us to beneficially own more than five percent of the outstanding shares, (ii) each director, (iii) each executive officer and (iv) all directors and executive officers as a group.
Common Stock Common Stock Beneficially Beneficially Owned Before Percentage Owned After Percentage Name Title of Class Distribution Ownership Distribution Ownership - ---- -------------- ------------ ---------- ------------ ---------- Jerome R. Mahoney Class A Common Stock 0(1) 0%(1) 0(1) 0%(1) - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Class B Common Stock 190,000(2) 100%(2) 190,000(2) 100%(2) - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Class C Common Stock 0 0% 0 0% - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Frank V. Esser Class A Common Stock 14,351 0% 14,351 0% - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Class B Common Stock 0 0% 0 0% - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Class C Common Stock 0 0% 0 0% - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Mark Meller Class A Common Stock 0 0% 0 0% - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Class B Common Stock 0 0% 0 0% - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Class C Common Stock 0 0% 0 0% - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- All directors and Class A Common Stock 14,351(1) 0%(1) 14,351(1) 0%(1) executive officers as a group (3 persons) - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Class B Common Stock 190,000(2) 100%(2) 190,000(2) 0%(2) - ---------------------------- ------------------------- --------------- --------------- ---------------- -------------- Class C Common Stock 0 0% 0 0% - ---------------------------- ------------------------- --------------- --------------- ---------------- --------------
(1) Does not give effect to the right of Mr. Mahoney pursuant to the promissory note to be executed by iVoice Technology in favor of Mr. Mahoney in the amount of $190,000 to convert $190,000 of indebtedness plus accrued and unpaid interest into more than 190,000 shares of Class B Common Stock which is convertible into the number of shares of our Class A Common Stock, determined by dividing the number of shares of our Class B Common Stock being converted by a 20% discount of the lowest price at which the Company had ever issued its Class A Common Stock. There is no limitation on the number of shares of our Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of this indebtedness. 55 (2) Mr. Mahoney may at his option convert the $190,000 promissory note held by him into Class B Common Stock of iVoice Technology at a rate of one dollar per share. Such Class B Common Stock is convertible at any time into shares of our Class A Common Stock at a rate equal to 80% of the lowest price that iVoice Technology issues shares of Class A Common Stock subsequent to the date of the note. Thus by virtue of Mr. Mahoney's right to convert $190,000 of indebtedness plus accrued and unpaid interest into more than 190,000 shares of our Class B Common Stock, Mr. Mahoney is deemed to beneficially own such shares for the purpose of computing the percentage of ownership by him, but such shares are not treated as outstanding for the purpose of computing the percentage ownership of any other person. 56 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 December 12, 2005, there were 727 record holders of Class A Common Stock and iVoice Technology had 10,888,984 shares of Class A Common Stock outstanding. Class B Common Stock Each holder of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. Holders of Class B Common Stock are entitled to receive dividends in the same proportion as the Class B Common Stock conversion rights have to Class A Common Stock. There are 50,000,000 shares of our Class B Common Stock authorized and 0 shares issued and outstanding as of September 30, 2005. A holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price that iVoice Technology had ever issued its Class A Common Stock. Upon our liquidation, dissolution, or winding-up, holders of Class B Common Stock will be entitled to receive distributions. Class C Common Stock Each holder of our Class C Common Stock is entitled to 1,000 votes for each one share held of record. Holders of our Class C Common Stock have no preemptive, subscription, conversion, or redemption rights. Shares of Class C Common Stock are not convertible into Class A Common Stock. There are 20,000,000 shares authorized and 0 shares issued and outstanding as of September 30, 2005. Upon liquidation, dissolution or winding-up, the holders of Class C Common Stock are not entitled to receive our net assets pro rata. We have not paid any 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. 57 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, 2005, iVoice Technology has not issued any shares of Preferred Stock. iVoice Technology has no current plans to issue any shares of preferred stock. Our board of directors is authorized (by resolution and by filing an amendment to our certificate of incorporation and subject to limitations prescribed by the New Jersey Business Corporation Act) to issue, from to time, shares of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and other rights of the shares of each such series and to fix the qualifications, limitations and restrictions thereon, including, but without limiting the generality of the foregoing, the following: o the number of shares constituting that series and the distinctive designation of that series; o the dividend rate on the shares of that series, whether dividends are cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; o whether that series has voting rights, in addition to voting rights provided by law, and, if so, the terms of those voting rights; o whether that series has conversion privileges, and, if so, the terms and conditions of conversion, including provisions for adjusting the conversion rate in such events as our board of directors determines; o whether or not the shares of that series are redeemable, and, if so, the terms and conditions of redemption, including the dates upon or after which they are redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; o whether that series has a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of that sinking fund; o the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of iVoice Technology, and the relative rights of priority, if any, of payment of shares of that series; and o any other relative powers, preferences and rights of that series, and qualifications, limitations or restrictions on that series. If we liquidate, dissolve or wind up our affairs, whether voluntarily or involuntarily, the holders of Preferred Stock of each series will be entitled to receive only that amount or those 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. 58 Options and Warrants None. Debt On August 12 and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in secured convertible debentures, with interest payable at 5% per annum, to Cornell Capital Partners. The debentures were convertible at the option of the holder only after the Company's Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. Each of the debentures were convertible into shares of Class A Common Stock at a price equal to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the initial bid price of the Class A Common Stock as listed on a principal market (as defined in the debentures), as made by a market maker, submitted on Form 211 to and approved by the NASD or (b) an amount equal to eighty percent (80%) of the lowest closing bid price of the Class A Common Stock for the five trading days immediately preceding the conversion date. The secured convertible debentures had a term of two years with all accrued interest due at the expiration of the term. At our option, these debentures could be redeemed at a 20% premium prior to August 12, 2006. The secured convertible debentures were secured by a first priority security interest in substantially all of the assets of iVoice Technology. On February 28, 2005, the secured convertible debentures were terminated and replaced by a promissory note in the amount of $700,000 ($560,000 representing replacement notes and $140,000 representing new financing). On August 5, 2005, iVoice Technology assumed an aggregate of $190,000 in liabilities from iVoice in exchange for an assignment from iVoice of assets having an aggregate book value of $10,000. In connection with the assumption of assets and liabilities by iVoice Technology from iVoice, iVoice Technology assumed $190,000 of outstanding indebtedness from iVoice to Jerry Mahoney, subject to a promissory note having substantially the same terms as the terms applicable to the indebtedness from iVoice to Mr. Mahoney. The promissory note bears interest at the prime rate plus 2% per annum on the unpaid balance until paid or until default. Interest payments are due and payable annually. Under the terms of the promissory note, at the option of the note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of iVoice Technology, par value $0.01, for each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice Technology calculated by dividing (x) the sum of the principal and interest that the note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of our Class A Common Stock since the first advance of funds under this note, or (iii) payment of the principal of this note, before any repayment of interest. Transfer Agent iVoice Technology's transfer agent is Fidelity Transfer Company. The address for the transfer agent is 1800 South West Temple, Suite 301, Salt Lake City, Utah 84115. The telephone number for the transfer agent is (801) 484-7222. 59 Limitation of Liability: Indemnification Our by-laws include an indemnification provision under which we have agreed to indemnify directors of iVoice Technology to the fullest extent possible from and against any and all claims of any type arising from or related to future acts or omissions as a director of iVoice Technology. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of iVoice Technology pursuant to the foregoing, or otherwise, iVoice Technology has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. Anti-Takeover Effects Of Provisions Of The Certificate Of Incorporation Authorized and unissued stock. The authorized but unissued shares of our capital stock are available for future issuance without our stockholders' approval. These additional shares may be utilized for a variety of corporate purposes including but not limited to future public or direct offerings to raise additional capital, corporate acquisitions and employee incentive plans. The issuance of such shares may also be used to deter a potential takeover of iVoice Technology that may otherwise be beneficial to stockholders by diluting the shares held by a potential suitor or issuing shares to a stockholder that will vote in accordance with iVoice Technology's board of directors' desires. A takeover may be beneficial to stockholders because, among other reasons, a potential suitor may offer stockholders a premium for their shares of stock compared to the then-existing market price. Some of the provisions of iVoice Technology's certificate of incorporation and bylaws may have the effect of making the acquisition of control of iVoice Technology in a transaction not approved by iVoice Technology's board of directors more difficult. Listing and Trading of the iVoice Technology Class A Common Stock iVoice Technology makes no recommendations on the purchase, retention or sale of shares of iVoice Technology Class A Common Stock. You should consult with your own financial advisors, such as your stockbroker, bank or tax advisor. If you do decide to purchase or sell any iVoice Technology shares, the following information may be helpful in discussions with your stockbroker, bank or other nominee. There can be no assurance as to whether the iVoice Technology Class A Common Stock will be actively traded or as to the prices at which the iVoice Technology Class A Common Stock will trade. Unless and until an orderly market develops for shares of iVoice Technology Class A Common Stock, 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, 60 changes in economic conditions in the IVR industry and general economic and market conditions. In addition, the stock market often experiences significant price fluctuations that are unrelated to the operating performance of the specific companies whose stock is traded. Market fluctuations could have a material adverse impact on the trading price of the iVoice Technology Class A Common Stock and/or iVoice common stock. As described elsewhere in this prospectus, iVoice Technology had issued to Cornell Capital Partners $560,000 aggregate principal amount of secured convertible debentures. On February 28, 2005, iVoice Technology's obligations under the secured convertible debentures were terminated and replaced with a secured promissory note of the same principal amount, which note accrues interest at rate of 12% per annum, but is not convertible into any equity security of iVoice Technology. Mr. Mahoney will have the right to convert $190,000 of indebtedness plus accrued and unpaid interest into 190,000 (plus on a dollar per share basis, amounts of accrued and unpaid interest) shares of iVoice Technology Class B Common Stock which is convertible into the number of shares of Class A Common Stock determined by dividing the number of shares of Class B Common Stock being converted by a 20% discount of the lowest price at which the Company had ever issued its Class A Common Stock. There is no limitation on the number of shares of Class A Common Stock we may be required to issue to Mr. Mahoney upon the conversion of these obligations. See "Potential Dilution Due to Conversion at Below Market Price." However, assuming a market price for iVoice Technology Class A Common Stock of $0.01, we would be required to issue 23,750,000 shares of Class A Common Stock to Mr. Mahoney, plus shares attributable to accrued and unpaid interest upon conversion of his promissory note. As of September 30, 2005, there was $1,327 of accrued and unpaid interest on the promissory note. CHANGES IN ACCOUNTANTS On February 23, 2005, iVoice Technology terminated the services of its independent account, Mendlowitz Weitsen, LLP. For the two most recent fiscal years and through the subsequent interim period ending upon such termination, (i) the independent account's report did not contain an adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty, audit scope, or accounting principles and (ii) there were no disagreements with the former accountant, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the former accountant's satisfaction, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report. The decision to change accountants was recommended by iVoice Technology's Audit Committee. On February 23, 2005, iVoice Technology engaged the independent accounting firm of Bagell, Josephs & Company, L.L.C. as principal accountant to audit iVoice Technology's financial statements for the fiscal years ended December 31, 2004 and 2003. 61 EXPERTS The financial statements for the years ended December 31, 2004 and December 31, 2003, included in this prospectus have been audited by Bagell, Josephs & Company, L.L.C., independent certified public accountants to the extent and for the periods set forth in their report (which contains an explanatory paragraph regarding iVoice Technology's ability to continue as a going concern) appearing elsewhere herein and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting. LEGAL MATTERS Meritz & Muenz LLP, Washington, D.C. will pass upon the validity of the shares of common stock offered hereby for us. WHERE YOU CAN FIND MORE INFORMATION iVoice Technology has filed with the Securities and Exchange Commission the registration statement under the Securities Act with respect to the iVoice Technology Class A Common Stock. This document does not contain all of the information set forth in the registration statement and the exhibits and schedules thereto, to which reference is hereby made. Statements made in this document as to the contents of any contract, agreement or other document referred to herein are not necessarily complete. The registration statement and the exhibits thereto filed by iVoice Technology with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such information can be obtained by mail from the Public Reference Branch of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the Commission's website is http://www.sec.gov. iVoice Technology is also 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 is 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. 62 iVOICE TECHNOLOGY, INC. INDEX TO FINANCIAL STATEMENTS Contents Page - -------- ---- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2 AUDITED FINANCIAL STATEMENTS Balance Sheets - December 31, 2004 and 2003 F-3 Statements of Operations - for the years ended December 31, 2004 and 2003 F-4 Statements of Owner's Equity (Deficiency) - for the years ended December 31, 2004 and 2003 F-5 Statements of Cash Flow - for the years ended December 31, 2004 and 2003 F-6 NOTES TO AUDITED FINANCIAL STATEMENTS F-7 UNAUDITED FINANCIAL STATEMENTS Balance Sheet - September 30, 2005 F-19 Condensed Statements of Operations - for the three months and nine months ended September 30, 2005 and 2004 F-20 Statements of Cash Flow - for the nine months ended September 30, 2005 and 2004 F-21 NOTES TO THE UNAUDITED FINANCIAL STATEMENTS F-22 SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION F-32 Condensed Unaudited Pro Forma Balance Sheets at December 31, 2004 F-33 Unaudited Pro Forma Statement of Operations for the year ended December 31, 2004 F-34 Unaudited Pro Forma Statement of Operations for the year ended December 31, 2003 F-35 NOTES TO CONDENSED UNAUDITED PRO FORMA FINANCIAL INFORMATION F-38 F-1 Bagell, Josephs & Company, LLC 200 Haddonfield Berlin Road, Gibbsboro, NJ 08026 Tel: 856.346.2628 Fax: 856.346.2882 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF iVOICE TECHNOLOGY, INC. Matawan, New Jersey We have audited the accompanying balance sheets of the interactive voice response software business of iVoice, Inc. (iVoice Technology, Inc., a wholly owned subsidiary of iVoice, Inc.) as of December 31, 2004 and 2003 and the related statements of operations, owner's equity and cash flows for the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the interactive voice response software business of iVoice, Inc. (iVoice Technology, Inc.) as of December 31, 2004 and 2003 (except for Note 10 as to which such date is August 4, 2005), and the results of its operations and its cash flows for the years ended December 31, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements have been derived from the consolidated financial statements and accounting records of iVoice, Inc., and reflect significant assumptions and allocations. Moreover, as indicated in Note 1, the Company relies on iVoice, Inc. for administrative, management, research and other services. Accordingly, these financial statements do not necessarily reflect the financial position, results of operations, and cash flows of the Company had it been a stand-alone Company. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3, the Company had net losses and negative cash flows from operations for the years ended December 31, 2004 and 2003, and as of those dates had negative working capital, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BAGELL, JOSEPHS & COMPANY, L.L.C. Gibbsboro, New Jersey March 21, 2005 F-2
iVOICE TECHNOLOGY, INC. BALANCE SHEETS December 31, 2004 2003 ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 346,599 $ 0 Accounts receivable 31,733 37,483 Inventory, net 0 11,888 Cost in excess of billing 0 2,706 ----------- ----------- Total current assets 378,332 52,077 PROPERTY AND EQUIPMENT, net Property and equipment, net 4,737 0 OTHER ASSETS Software license costs, net 0 45,400 ----------- ----------- TOTAL ASSETS $ 383,069 $ 97,477 =========== =========== LIABILITIES AND OWNER'S EQUITY (DEFICIENCY) CURRENT LIABILITIES Accounts payable and accrued expenses $ 30,606 $ 0 5% Convertible debentures 560,000 0 Deferred maintenance contracts 33,141 23,662 ----------- ----------- Total current liabilities 623,747 23,662 OWNER'S EQUITY (DEFICIENCY) Common Stock Class A, no par value; Authorized 10,000,000,000 shares; 10,050,000 shares issued and outstanding as of 12/31/04 and 0 shares issued and outstanding as of 12/31/03 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 0 0 outstanding 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 & 863,456 965,341 Administrative expense ----------- ----------- LOSS FROM CONTINUING OPERATIONS (697,212) (784,676) ----------- ----------- OTHER INCOME (EXPENSE) Other income 113,194 100,557 Write off of financing costs (850,555) 0 Gain on sale of securities held for 0 69,418 sale Interest expense (31,487) (516,719) Other expense (12,067) 0 ----------- ----------- Total other expense (780,915) (346,744) ----------- ----------- LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (1,478,127) (1,131,420) ----------- ----------- PROVISION FOR INCOME TAXES 0 0 ----------- ----------- NET LOSS FROM CONTINUING OPERATIONS $(1,478,127) $(1,131,420) =========== =========== NET LOSS PER COMMON SHARE: Basic $ (0.15) $ (0.11) =========== =========== Diluted $ (0.15) $ (0.11) =========== =========== The Notes to Financial Statements are an integral part of these statements. F-4
iVOICE TECHNOLOGY, INC. STATEMENTS OF OWNER'S EQUITY (DEFICIENCY) For the Years Ended December 31, 2004 and 2003 Total Common Common Net Owner's Stock Stock Investment Accumulated Equity Shares Amount iVoice, Inc Deficit (Deficiency) ------ ------ ----------- ----------- ------------ Balance at January 1, 2003 0 0 5,108,396 (4,928,362) 180,034 Net transactions with iVoice, Inc. Net loss for the twelve months ended 1,025,201 -- 1,025,201 December 31, 2003 (1,131,420) (1,131,420) ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2003 0 0 6,133,597 (6,059,782) 73,815 Issuance of common stock 100 0 0 Retroactive treatment of 100,500:1 stock split 10,049,900 0 0 Net transactions with iVoice, Inc. 1,163,634 1,163,634 Net loss for the twelve months ended December 31, 2004 (1,478,127) (1,478,127) ----------- ----------- ----------- ----------- ----------- Balance at December 31, 2004 (As Retroactively Restated) 10,050,000 $ 0 $ 7,297,231 $(7,537,909 $ (240,678) =========== =========== =========== =========== ===========
The Notes to Financial Statements are an integral part of these statements. F-5
iVOICE TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS For The Years December 31, 2004 and 2003 2004 2003 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES Net loss $(1,478,127) $(1,033,500) Depreciation and amortization 45,423 102,480 Changes in operating assets and liabilities Decrease in accounts receivable 5,750 -- Decrease in inventory 11,888 -- Decrease in cost in excess of billing 2,706 -- Increase in accounts payable and accrued expenses 30,606 -- Increase in deferred maintenance contracts 9,479 3,739 ----------- ----------- Net cash (used in) operating activities (1,372,275) (927,281) ----------- ----------- CASH FLOWS FOR INVESTING ACTIVITIES Purchase of property and equipment (4,760) -- ----------- ----------- Net cash used in investing activities (4,760) 0 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Allocation of costs by iVoice 1,163,634 927,281 Sale of convertible debentures 560,000 ----------- ----------- Net cash provided by financing activities 1,723,634 927,281 ----------- ----------- NET INCREASE IN CASH 346,599 0 CASH - beginning 0 0 CASH - end $ 346,599 $ 0 =========== =========== CASH PAID DURING THE YEAR FOR: Interest expense $ 25 $ 516,719 =========== =========== Income taxes $ 0 $ 0 =========== ===========
The Notes to Financial Statements are an integral part of these statements. F-6 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 NOTE 1 - BACKGROUND iVoice Technology, Inc. ("iVoice Technology" or the "Company") was incorporated under the laws of New Jersey on November 10, 2004 as a wholly owned subsidiary of iVoice, Inc. ("iVoice"). The Company received by assignment all of the interests in and rights and title to, and assumed all of the obligations of, all of the agreements, contracts, understandings and other instruments of iVoice Technology, Inc., a Nevada corporation and affiliate of the Company. When we refer to or describe any agreement, contract or other written instrument of the Company in these notes, we are referring to an agreement, contract or other written instrument that had been entered into by iVoice Technology Nevada and assigned to the Company. On September 1, 2004, the Board of Directors of iVoice, Inc. resolved to pursue the separation of iVoice software business into three publicly owned companies. iVoice will continue to focus on its own computerized telephony technology and related business development operations. iVoice Technology will continue to develop, market and license the Interactive Voice Response line of computerized telephony software. In September, 2004, iVoice Inc. announced that it intends to distribute to its shareholders all of the iVoice Technologies Class A Common Stock. The spin-off transaction will be accomplished by the distribution of certain intellectual property, representing the software codes of Interactive Voice Response ("IVR"), and certain accrued liabilities and related party debt to iVoice Technology (the "Distribution"), the shares of common stock of which will be distributed to iVoice shareholders in the form of a taxable dividend. In conjunction with the spin-off, iVoice Technology has entered into a temporary administrative services agreement with iVoice. The administrative services agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. iVoice Technology also intends to assume $190,000 in accrued liabilities and related party debt presently outstanding and incurred by iVoice. The debt being assumed will be convertible into Class B Common Stock of iVoice Technology at the option of the holder as later described in these notes. NOTE 2 - BUSINESS OPERATIONS The Company will continue to develop, market and license the Interactive Voice Response line, which was developed by iVoice. The Company's Interactive Voice Response line is designed to read information from and write information to, databases, as well as to query databases and return information. IVR is an application generator that allows full connectivity to many databases, including Microsoft Access, Microsoft Excel, Microsoft Fox Pro, and Paradox, or to standard text files. F-7 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 The IVR software is sold as an application generator that gives the end user the ability to develop their own customized IVR applications or as a customized turnkey system. IVR performs over 40 different customizable commands. Examples of IVR range from simply selecting announcements from a list of options stored in the computer (also known as audio text) to more complex interactive exchanges such as querying a database for information. NOTE 3 - GOING CONCERN The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has traditionally operated as a non-reporting component of iVoice, Inc. and accordingly these financial statements have been derived from the consolidated financial statements and accounting records of iVoice, Inc., and reflect significant assumptions and allocations. The Company relies on iVoice, Inc. for administrative, management, research and other services. These financial statements do not necessarily reflect the financial position, results of operations, and cash flows of the Company had it been a stand-alone Company. As of December 31, 2004, the Company had a net loss, a negative cash flow from operations as well as negative working capital. These matters raise substantial doubt about the Company's ability to continue as a going concern. Therefore, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn, is dependent upon the Company's ability to raise capital and/or generate positive cash flow from operations. In order to provide necessary working capital, in August 2004, the Company entered into a subscription agreement, pursuant to which the Company issued $280,000 of secured convertible debentures in August 2004, and an additional $280,000 of secured convertible debentures, in November 2004, around the time of filing of the registration statement for the Class A Common Stock. The debentures are convertible at the option of the holder only after the Company's Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. Interest on the secured convertible debentures is payable at 5% per annum and the notes are convertible into the Company's Class A Common Stock at a price equal to the lesser of (a) an amount equal to one hundred twenty percent (120%) of the initial bid price of the Class A Common Stock as listed on a principal market (as defined in the debentures), as made by a market maker, submitted on Form 211 to and approved by the NASD, or (b) an amount equal to eighty percent (80%) of the lowest closing bid price of the Class A Common Stock for the five (5) trading days immediately preceding the conversion date. Additionally, the Company had also entered into a Standby Equity Distribution Agreement, subsequently terminated, where the Company could, at its discretion, periodically sell to an investor shares of Class A Common Stock to raise capital to fund working capital needs. These two financing transactions required the Company to register its common stock under Section 12 (g) of the U.S. Securities Exchange Act of 1934 and subsequently register for resale a number of shares to facilitate these financing transactions. F-8 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presentation The accompanying financial statements have been derived from the consolidated financial statements and accounting records of iVoice using the historical results of operations and historical basis of assets and liabilities of the Company's Interactive Voice Response business. Management believes the assumptions underlying the financial statements are reasonable. However, the financial statements included herein may not necessarily reflect the Company's results of operations, financial position, and cash flows in the future or what its results of operations, financial position and cash flows would have had the Company been a stand-alone company during the periods presented. b) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. c) Software License Costs Software license costs are recorded at cost, which approximates fair market value as of the date of purchase. These costs represent the purchase of various exploitation rights to certain software, pre-development codes and systems developed by a non-related third party. These costs are capitalized pursuant to Statement of Financial Accounting Standards ("SFAS") 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed". The Company has adopted SFAS No. 121. The carrying value of software license costs are regularly reviewed by the Company and a loss would be recognized if the value of the estimated un-discounted cash flow benefit related to the asset falls below the unamortized cost. Historically the Interactive Voice Response software technology has produced limited sales revenue. However, management believes that the limited sales generated result from a lack of application of Company sales and marketing resources to the software. It is Management's plan to devote such resources to its software technology to recognize the technology's potential value and therefore, no impairment loss has been recorded. d) Revenue Recognition The Company derives its revenues from the licensing of its software product and optional customer support (maintenance) service. The Company's standard license agreement provides F-9 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 for a one-time fee for use of the Company's product in perpetuity for each computer or CPU in which the software will reside. The Company's software application is fully functional upon delivery and implementation and does not require any significant modification or alteration. The Company also offers customers an optional annual software maintenance and support agreement for the subsequent one-year periods. Such maintenance and support services are free for the first year the product is licensed and is considered the warranty period. The software maintenance and support agreement provides free software updates, if any, and technical support the customer may need in deploying or changing the configuration of the software. Generally, the Company does not license its software in multiple element arrangements whereby the customer purchases a combination of software and maintenance. In a typical arrangement, software maintenance services are sold separately from the software product; are not considered essential to the functionality of the software and are purchased at the customer's option upon the completion of the first year licensed. The Company does not offer any special payment terms or significant discount pricing. Normal and customary payment terms require payment for the software license fees when the product is shipped. Payment for software maintenance is due prior to the commencement of the maintenance period. It is also the Company's policy to not provide customers the right to refund any portion of its license fees. The Company accepts Visa and MasterCard as well as company checks. With respect to the sale of software license fees, the Company recognizes revenue in accordance with Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), as amended, and generally recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists generally evidenced by a signed, written purchase order from the customer, (2) delivery of the software product on Compact Disk (CD) or other means to the customer has occurred, (3) the perpetual license fee is fixed or determinable and (4) collectibility, which is assessed on a customer-by-customer basis, is probable. With respect to customer support services, upon the completion of one year from the date of sale, considered to be the warrantee period, the Company offers customers an optional annual software maintenance and support agreement for subsequent one-year periods. Sales of purchased maintenance and support agreements are recorded as deferred revenue and recognized over the respective terms of the agreements. Three customers generated approximately 69% of the revenue for the Company through one-time contracts that will be unlikely to impact revenues in future periods. e) Product Warranties The Company estimates its warranty costs based on historical warranty claims experience in estimating potential warranty claims. Due to the limited sales of the Company's products, management has determined that warranty costs are immaterial and has not included an accrual for potential warranty claims. Presently, costs related to warranty coverage are expensed as incurred. Warranty claims are reviewed quarterly to verify that warranty liabilities properly F-10 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 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 F-11 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 earnings per share information is being shown on a pro forma basis, only the most recent year has been presented. The shares used in the computation are as follows: As of As of December 31, 2004 December 31, 2003 ----------------- ----------------- Pro Forma Basis and diluted 10,050,000 10,050,000 purposes k) Comprehensive Income SFAS No. 130, "Reporting Comprehensive Income", establishes standards for the reporting and display of comprehensive income and its components in the financial statements. The items of other comprehensive income that are typically required to be displayed are foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities, As of December 31, 2004 and 2003, the Company has no items that represent comprehensive income, and thus, has not included a statement of comprehensive income. l) Recent Accounting Pronouncements In December 2003, the FASB issued Interpretation No. 46-R, "Consolidation of Variable Interest Entities" ("FIN 46-R"). FIN 46-R, which modifies certain provisions and effective dates of FIN No. 46, sets forth criteria to be used in determining whether an investment in a variable interest entity should be consolidated, and is based on the general premise that companies that control another entity through interests other than voting interests should consolidate the controlled entity. The provisions of FIN 46 became effective for the Company during the third quarter of Fiscal 2004. The adoption of this new standard did not have any impact on the Company's financial position, results of operations or cash flows. In December 2003, the FASB issued a revision to SFAS No. 132 "Employers' Disclosures about Pensions and Other Post retirement Benefits." This revised statement requires additional annual disclosures regarding types of pension plan assets, investment strategy, future plan contributions, expected benefit payments and other items. The statement also requires quarterly disclosure of the components of net periodic benefit cost and plan contributions. This currently has no effect on the Company. m) Reclassification Certain amounts in the 2003 financial statements were reclassified to conform to the 2004 presentation. The reclassification in 2003 results in no changes to the net loss for that period. NOTE 5 - INTANGIBLE ASSETS Intangible assets consist of software source codes originally purchased by iVoice for $454,000 in May 1999. The asset is reflected at its original cost net of accumulated amortization of $454,000, from the date acquired by iVoice. The asset was amortized over a 5-year period. F-12 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 In accordance with FAS 142 goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually, and whenever events or changes in circumstances indicate the carrying amounts of the assets may be impaired. We have elected to perform our impairment review during the fourth quarter of each year, in conjunction with our annual planning cycle. At December 31, 2004, we found no impairment of goodwill or other indefinite-lived intangible assets. NOTE 6 - RELATED PARTY TRANSACTIONS During the years ended December 31, 2004 and December 31, 2003 iVoice allocated operating costs of $1,163,634 and $965,341, respectively to iVoice Technology. These allocations are reflected in the selling, general and administrative, cost of revenue and research and development line items in our statements of operations. The general corporate expense allocation is primarily for cash management, selling expense, legal, accounting, tax, insurance, public relations, advertising, and human resources. The amortization of the Interactive Voice Response software has been reflected as cost of sales. Other general categories of operating expense, as well as other income and expense, have been allocated to iVoice Technology by iVoice based upon a ratio of revenue of the Interactive Voice Response software over total iVoice revenue for the applicable periods. Management believes the costs of these services charged are a reasonable representation of the costs that would have been incurred if iVoice Technology had performed these functions as a stand-alone company. In conjunction with the spin-off, iVoice Technology has entered into a temporary administrative services agreement with iVoice. The administrative services agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. NOTE 7 - INCOME TAXES The reconciliation of the effective income tax rate to the Federal Statutory rate is as follows: Federal Income Tax Rate (34.0)% Deferred Tax charge (Credit) 0.0 % Effect on Valuation Allowance 38.1 % State Income Tax, Net of Federal Benefits ( 4.1)% Effective Income Tax Rate 0.0 % Prior to the spin-off, the Company was included as part of iVoice's consolidated federal income tax return. However, the income tax expense presented in these financial statements has been computed on a separate return basis. F-13 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 NOTE 8 - COMMITMENTS AND CONTINGENCIES As discussed in Note 3, the Company has entered into a subscription agreement with certain purchasers for the sale of $700,000 in convertible debentures. The debentures will be convertible into Class A Common Stock at the discretion of the holders only after the Company's Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. Additionally, the Company had entered into a Standby Equity Distribution Agreement whereby the Company, at their discretion, may periodically sell to an investor shares of Class A Common Stock to raise capital to fund its working capital needs. These transactions will require the Company to register its common stock under Section 12(g) of the Securities Exchange Act of 1934 and subsequently register for resale a number of shares to facilitate these financial transactions. On February 28, 2005, the Standby Equity Distribution Agreement was terminated. The Company has obtained a non-binding commitment for a Standby Equity Distribution Agreement whereby the Company, at its discretion, may periodically sell to an investor shares of Class A Common Stock to raise capital to fund its working capital needs. This transaction will require the Company to register its Class A Common Stock for resale to facilitate this financial transaction. On February 28, 2005, convertible debentures equal in principal to $560,000 were terminated and replaced with a secured promissory note of the same value. In addition, on February 28, 2005, iVoice Technology borrowed an additional $140,000 under the promissory note. On February 28, 2005, the Standby Equity Distribution Agreement was terminated. The Company will also assume outstanding indebtedness in the amount of $190,000 payable to Jerry Mahoney, President and Chief Executive Officer of iVoice and Non-Executive Chairman of the Board of iVoice Technology. This amount is related to funds loaned to iVoice and is unrelated to the operations of iVoice Technology. The note representing such obligation will bear interest at the rate of Prime plus 2.0% per annum on the unpaid balance until paid. Under the terms of the Promissory Note, at the option of the Note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of iVoice Technology, Inc., par value $.01, for each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice Technology, Inc. calculated by dividing (x) the sum of the principal and interest that the Note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of iVoice Technology, Inc. Class A Common Stock since the first advance of funds under this Note, or (iii) payment of the principal of this Note, before any repayment of interest. Effective August 1, 2004, the Company entered into a one year employment contract with Arie Seidler, its President and Chief Executive Officer. The Company will pay Mr. Seidler a base salary of $40,000 during the term. Mr. Seidler can earn bonuses based on the Company achieving certain levels of sales and profitability and will also be entitled to certain bonuses based on mergers and acquisitions completed by the Company. The Company entered into a five-year employment agreement with Jerome Mahoney, its Non-Executive Chairman of the Board of Directors, effective August 1, 2004. The Company will compensate Mr. Mahoney with a base salary of $85,000 for the first year with annual F-14 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 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 with iVoice. The administrative services agreement will continue on a month-to- month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. NOTE 9 - CAPITAL STOCK Pursuant to iVoice Technology's certificate of incorporation, as amended, the Company is authorized to issue 10,000,000,000 shares of Class A Common Stock, no par value per share, 50,000,000 shares of Class B Common Stock, par value $0.01 per share, 20,000,000 shares of Class C Common Stock, par value $0.01 per share, and 1,000,000 shares of Preferred Stock, par value of $1.00 per share. Below is a description of iVoice Technology's outstanding securities, including Class A Common Stock, Class B Common Stock, Class C Common Stock, and Preferred Stock. I. Class A Common Stock As of December 31, 2004, there are 10,000,000,000 shares of Class A Common Stock authorized, no par value, and 100 shares were issued and outstanding. Subsequent to December 31, 2004, in connection with the distribution of the Company's Class A Common Stock by iVoice, Inc., the Company's 100,500-for-one stock split retroactively increased the shares to 10, 050,000 (See Note 10). Each holder of Class A Common Stock is entitled to receive ratably dividends, if any, as may be declared by the Board of Directors out of funds legally available for payment of dividends. The Company has never paid any dividends on its common stock and does not contemplate doing so in the foreseeable future. The Company anticipates that any earnings generated from operations will be used to finance its growth objectives. II. Class B Common Stock As of December 31, 2004, there are 50,000,000 shares of Class B Common Stock authorized, par value $.01 per share. Each holder of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. A holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of Class B Common Stock being converted by a 20% discount of the lowest price that iVoice Technology, Inc. had ever issued its Class A Common Stock. Upon our liquidation, dissolution, or winding-up, holders of Class B Common Stock will be entitled to receive distributions. As of December 31, 2004, no shares were issued or outstanding. F-15 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 III. Class C Common Stock As of December 31, 2004, there are 20,000,000 shares of Class C Common Stock authorized, par value $.01 per share. Each holder of Class C Common Stock is entitled to 1,000 votes for each share held of record. Shares of Class C Common Stock are not convertible into Class A Common Stock. Upon liquidation, dissolution or wind-up, the holders of Class C Common Stock are not entitled to receive our net assets pro rata. As of December 31, 2004, no shares were issued or outstanding. IV. Preferred Stock iVoice Technology is authorized to issue 1,000,000 shares of Preferred Stock, par value $1.00 per share. As of December 31, 2004, iVoice Technology has not issued any shares of Preferred Stock. NOTE 10 - SUBSEQUENT EVENTS In September 2005, the Company entered into an agreement with Monitor Capital, Inc. for Monitor Capital to act as an agent for the private placement to Cornell Capital Partners, L.P. Pursuant to the placement agent agreement, we issued to Monitor Capital 400,000 shares of iVoice Technology Class A Common Stock, representing a placement agent fee. Pursuant to the placement agent agreement, we issued to Monitor Capital 400,000 shares of iVoice Technology Class A Common Stock, representing a placement agent fee. 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 as listed on a principal market (as defined in the debentures), as made by a market maker, submitted on Form 211 to and approved by the NASD or (b) an amount equal to eighty percent (80%) of the lowest closing bid price of the Class A Common Stock for the five trading days immediately preceding the conversion date. The secured convertible debentures had a term of two years with all accrued interest due at the expiration of the term. At our option, these debentures may be redeemed at a 20% premium prior to August 12, 2006. The secured convertible debentures were secured by a first priority security interest in substantially all of the assets of iVoice Technology. On February 28, 2005, the Company renegotiated the terms and conditions of its Convertible Debentures with the holders of such debentures. The parties thereto agreed to terminate the $560,000 Convertible Debentures replacing them with a Promissory Note. The Promissory Note was in the amount of $700,000, $560,000 of which replaced the Convertible Debentures in 2004, and $140,000 of which was advanced on February 28, 2005. A commitment fee of 10% of the face amount of the Convertible Debentures was paid at the time of each advance on the Convertible Debentures. Such commitment fees were credited against commitment fees due and owing against the Note. The balance of the commitment fee against the Note was paid on February 28, 2005, at the time that such $140,000 was advanced to the Company. F-16 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 The Promissory Note bears interest at the rate of 12% per annum. Principal on the Note will be amortized in equal weekly installments of $10,000 commencing on July 4, 2005. Payments of interest shall commence on September 1, 2005 and shall continue on the first day of each calendar month thereafter until the principal is paid in full. Payment in full of the principal and interest on the Note is due on or before July 4, 2006. In the event all principal and interest has not been paid by the one year anniversary of the initial payment on July 4, 2005, in accordance with the amortization schedule described above, the Company will make a lump sum payment of all outstanding interest and principal on July 4, 2006. On February 28, 2005, the iVoice, Inc. agreed to provide Cornell Capital Partners a full and unconditional guaranty of the payment and performance obligations of iVoice Technology under the promissory note, which cannot be discharged, except as specifically provided in the promissory note and the related documents. Under the guaranty, if iVoice Technology defaults in payment or performance of any of its obligations under the promissory note, iVoice, Inc. is required to pay or perform such obligations upon two days' written notice or demand by the holders of the promissory notes and to take an advance or advances, as may be necessary, from the Standby Equity Distribution Agreement by and between iVoice and Cornell Capital Partners, LP. This Guaranty was terminated on August 5, 2005. Effective August 12, 2004, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners to obtain an equity line of credit. Under this agreement, iVoice Technology may issue and sell to Cornell Capital Partners Class A Common Stock for a total purchase price of up to $10.0 million. Effective February 28, 2005, iVoice Technology, Inc. terminated its Standby Equity Distribution Agreement, dated August 2004, entered into by and between the Company and Cornell Capital Partners, LLP. On March 9, 2005, the Company executed a non-binding letter agreement with Cornell Capital Partners LLP whereby the parties agreed subject to the satisfaction of certain conditions to enter into a Standby Equity Distribution Agreement following the date that the Company's registration statement on Form SB-2, as filed with the Securities and Exchange Commission on November 2004, is deemed effective by that agency. Subject to various conditions, the non-binding letter of commitment provides that, upon execution of definitive documents and the satisfaction of any conditions that may be set forth in such documents iVoice Technology will be entitled to commence drawing funds under this agreement when the resale of the Class A Common Stock issuable under the equity line of credit is registered with the Securities and Exchange Commission, and the equity line of credit will remain outstanding for two years thereafter. The non-binding letter of commitment provides that purchase price for the shares will be equal to 95% of the market price, which is defined as the lowest closing bid price of the Class A Common Stock during the five trading days following the date that iVoice Technology delivers to Cornell Capital Partners a notice requiring it to advance funds to the Company. A cash fee equal to six percent (6%) of the cash proceeds of the draw down is also payable at the time of funding. In addition, non-binding letter of commitment provides that Cornell Capital Partners will receive, as additional compensation, the number of shares of Class A Common Stock equal to one and one half percent (1.5%) of the initial outstanding shares of iVoice Technology, Inc. Class A Common Stock (exclusive of shares issuable under the equity line of credit or upon conversion of the secured convertible debentures) F-17 iVOICE TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 on a fully diluted basis on the date the iVoice Technology Class A Common Stock was first quoted on a principal market. To date, iVoice Technology has not drawn down on the equity line of credit. According to the registration statement for the distribution of the iVoice Technology Class A Common Stock, a 100,500-for-one stock split will be accomplished by means of a stock dividend and will be effectuated immediately prior to the effective date of the registration statement. The Company has retroactively restated the shares outstanding at December 31, 2004 for this stock split. F-18 iVOICE TECHNOLOGY, INC. CONDENSED BALANCE SHEET (UNAUDITED) SEPTEMBER 30, 2005 ASSETS CURRENT ASSETS Cash and cash equivalents $ 312,770 Accounts receivable 13,085 Prepaid expenses 6,521 ----------- Total current assets 332,376 ----------- PROPERTY AND EQUIPMENT, net of accumulated depreciation of $492 1,850 ----------- TOTAL ASSETS $ 334,226 =========== LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) CURRENT LIABILITIES Accounts payable and accrued expenses $ 233,069 Due to related parties 83,245 Deferred maintenance contracts 8,844 Notes payable to related parties 190,000 Notes Payable 700,000 ----------- Total current liabilities 1,215,158 ----------- COMMITMENTS AND CONTINGENCIES -- STOCKHOLDERS' (DEFICIENCY) Preferred stock, $1 par value; authorized 1,000,000 shares; no shares issued and outstanding -- Common stock, Class A - no par value; authorized 10,000,000,000 shares; 10,013,984 shares issued and outstanding -- Common stock, Class B - $.01 par value; authorized 50,000,000 shares; no shares issued and outstanding -- Common stock, Class C - $.01 par value; authorized 20,000,000 shares; no shares issued and outstanding -- Additional Paid in Capital 7,103,731 Accumulated deficit (7,984,663) ----------- Total stockholders' (deficiency) (880,932) ----------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) $ 334,226 =========== The accompanying notes are an integral part of these condensed financial statements. F-19
iVOICE TECHNOLOGY, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) For the Nine Months Ended For the Three Months Ended September 30, September 30, ---------------------------- ---------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ SALES, net $ 94,756 $ 64,772 $ 23,918 $ 46,478 COST OF SALES 738 26,384 -- 6,445 ------------ ------------ ------------ ------------ GROSS PROFIT 94,018 38,388 23,918 40,033 ------------ ------------ ------------ ------------ SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling and marketing expenses 30,135 51,979 5,500 11,779 General and administrative expenses 413,102 554,786 239,131 92,283 Research and development expenses 30,000 50,787 30,000 9,573 Depreciation and amortization 469 36,258 422 12,086 ------------ ------------ ------------ ------------ Total selling, general and administrative expenses 473,706 693,810 275,053 125,721 ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS (379,688) (575,589) (251,135) (85,688) OTHER INCOME\(EXPENSE) Other income\allocated expenses 3,383 101,128 1,644 40,178 Interest expense (56,449) (26,321) (40,090) (15,571) Write-off of financing costs 14,000 (794,555) -- 93,591 ------------ ------------ ------------ ------------ Total other income\(expense) (67,066) (719,748) (38,446) (118,198) ------------ ------------ ------------ ------------ LOSS (LOSS) FROM OPERATIONS BEFORE INCOME TAXES (446,754) (1,295,337) (289,581) (32,510) PROVISION FOR INCOME TAXES -- -- -- -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (446,754) $ (1,295,337) $ (289,581) $ 32,510 ============ ============ ============ ============ NET INCOME (LOSS) PER COMMON SHARE Basic and diluted $ ( 0.04) $ ( 0.13) $ ( 0.03) $ 0.00 ============ ============ ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic and diluted 10,013,984 10,013,984 10,013,984 10,013,984 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed financial statements. F-20
iVOICE TECHNOLOGY, INC. CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED) For the Nine Months Ended September 30, ------------------------------- 2005 2004 ----------- ----------- CASH FLOW (USED IN) OPERATING ACTIVITIES Net loss $ (446,754) $(1,295,337) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 469 36,258 Changes in certain assets and liabilities: Decrease in accounts receivable 18,648 -- Increase in prepaid expenses (6,522) -- Increase (decrease) in accounts payable and accrued liabilities 202,464 (46,427) Increase in amount due to related parties 83,245 -- Decrease in deferred maintenance contracts (24,297) -- ----------- ----------- Total cash (used in) operating activities (172,747) (1,305,506) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from sales of convertible debentures 140,000 280,000 Net investment (return of capital) by iVoice, Inc. (1,082) 1,161,216 Paid in capital -- 70,000 ----------- ----------- Total cash provided by financing activities 138,918 1,511,216 ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (33,829) 205,710 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 346,599 -- ----------- ----------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 312,770 $ 205,710 =========== =========== CASH PAID DURING THE PERIOD FOR: Interest expense $ 40,090 $ 78,020 =========== =========== Income taxes $ -- $ -- =========== ===========
The accompanying notes are an integral part of these condensed financial statements. F-21 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 NOTE 1 - BACKGROUND The unaudited interim financial statements included herein have been prepared by iVoice Technology, Inc. ("iVoice Technology" or the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as allowed by such rules and regulations, and the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the December 31, 2004 audited financial statements and the accompanying notes thereto. While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later that year. The management of the Company believes that the accompanying unaudited financial statements contain all adjustments (including normal recurring adjustments) necessary to present fairly the operations and cash flows for the periods presented. iVoice Technology was incorporated under the laws of New Jersey on November 10, 2004 as a wholly owned subsidiary of iVoice, Inc. ("iVoice"). The Company received by assignment all of the interests in and rights and title to, and assumed all of the obligations of, all of the agreements, contracts, understandings and other instruments of iVoice Technology, Inc., a Nevada corporation and affiliate of the Company. When we refer to or describe any agreement, contract or other written instrument of the Company in these notes, we may also be referring to an agreement, contract or other written instrument that had been entered into by iVoice Technology Nevada and thereafter assigned to the Company. On September 1, 2004, the Board of Directors of iVoice, the former parent of the Company, resolved to pursue the separation of iVoice software business into three publicly owned companies. iVoice Technology will continue to develop, market and license the Interactive Voice Response line of computerized telephony software. The spin-off transaction was accomplished, on August 5, 2005, by the assignment, contribution and conveyance of certain intellectual property, representing the software codes of Interactive Voice Response ("IVR"), and certain accrued liabilities and related party debt to iVoice Technology (the "Distribution"). The shares of Class A Common Stock of the Company were distributed to iVoice shareholders in the form of a taxable special dividend distribution. In conjunction with the spin-off, iVoice Technology entered into a temporary administrative services agreement with iVoice. The administrative services agreement will continue on a month-to-month basis until iVoice Technology has found replacement F-22 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 services for those services being provided by iVoice or can provide these services for itself. On August 5, 2005, iVoice Technology assumed $190,000 in accrued liabilities and related party debt incurred by iVoice. The debt assumed is convertible into iVoice Technology Class B Common Stock at the option of the holder as later described in these notes. On August 4, 2005, the Company received notice from the SEC that the registration statement to effectuate the spin-off of iVoice Technology from iVoice was declared effective and the Company immediately embarked on the process to spin off iVoice Technology from iVoice. The Company reclassified certain amounts for the nine months ended September 30, 2004 to conform to the presentation of the September 30, 2005 amounts. The reclassifications have no effect on net income for the nine months ended September 30, 2004. NOTE 2 - BUSINESS OPERATIONS The Company will continue to develop, market and license the Interactive Voice Response line, which was developed by iVoice. The Company's Interactive Voice Response line is designed to read information from and write information to, databases, as well as to query databases and return information. IVR is an application generator that allows full connectivity to many databases, including Microsoft Access, Microsoft Excel, Microsoft Fox Pro, and Paradox, or to standard text files. The IVR software is sold as an application generator that gives the end user the ability to develop their own customized IVR applications or as a customized turnkey system. IVR performs over 40 different customizable commands. Examples of IVR range from simply selecting announcements from a list of options stored in the computer (also known as audio text) to more complex interactive exchanges such as querying a database for information. NOTE 3 - GOING CONCERN The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company's previous financial results and operations were reflected in the consolidated financial statements and accounting records of iVoice and reflected significant assumptions and allocations. The Company has relied on iVoice for administrative, management, research and other services. These financial statements do not necessarily reflect the financial position, results of operations, and cash flows of the Company had it been a stand-alone company. As of September 30, 2005, the Company had a net loss, a negative cash flow from operations, as well as negative working capital. These matters raise substantial doubt F-23 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 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. On February 28, 2005, convertible debentures equal in principal to $560,000 were terminated and replaced with a secured promissory note in the amount of $700,000 ($560,000 representing replacement notes and $140,000 representing new financing). The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presentation The accompanying financial statements up through August 5, 2005 have been derived from the consolidated financial statements and accounting records of iVoice, Inc., a publicly traded company, 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) Revenue Recognition The Company derives its revenues from the licensing of its software product and optional customer support (maintenance) service. The Company's standard license agreement provides for a one-time fee for use of the Company's product in perpetuity for F-24 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 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 that are sold separately from the software product; are not considered essential to the functionality of the software and are purchased at the customer's option upon the completion of the first year licensed. The Company does not offer any special payment terms or significant discount pricing. Normal and customary payment terms require payment for the software license fees when the product is shipped. Payment for software maintenance is due prior to the commencement of the maintenance period. It is also the Company's policy to not provide customers the right to refund any portion of its license fees. The Company accepts Visa and MasterCard as well as company checks. With respect to the sale of software license fees, the Company recognizes revenue in accordance with Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), as amended, and generally recognizes revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists generally evidenced by a signed, written purchase order from the customer, (2) delivery of the software product on Compact Disk (CD) or other means to the customer has occurred, (3) the perpetual license fee is fixed or determinable and (4) collectibility, which is assessed on a customer-by-customer basis, is probable. With respect to customer support services, upon the completion of one year from the date of sale, considered to be the warranty period, the Company offers customers an optional annual software maintenance and support agreement for subsequent one-year periods. Sales of purchased maintenance and support agreements are recorded as deferred revenue and recognized over the respective terms of the agreements. d) 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. All warranty claims are reviewed quarterly to verify that warranty liabilities properly reflect any remaining obligation based on the anticipated expenditures over the balance of the obligation period. F-25 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 e) Research and development costs Research and development costs will be charged to operations as incurred. f) 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. g) Income Taxes The Company accounts for income taxes under the Statement of Financial Accounting Standards Board ("FASB") 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. h) Organization Costs Organization costs consist primarily of professional and filing fees relating to the formation of the Company. These costs have been expensed. i) (Loss) Per Share SFAS No. 128, "Earnings Per Share" requires presentation of basic earnings per share ("basic EPS") and diluted earnings per share ("diluted EPS"). The computation of basic pro forma EPS is computed by dividing income available to common shareholders by the number of shares issued in connection with the Company's proposed spin-off from iVoice. Diluted earnings per share gives effect to all dilutive potential Common shares outstanding during the period. The computation of diluted EPS does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings resulting from the Company's net loss position. The shares used in the computation are as follows:
For the nine For the three months ended months ended September September September September 30, 2005 30, 2004 30, 2005 30, 2004 ----------------------- ----------------------- Pro Forma Basis and diluted purposes 10,013,984 10,013,984 10,013,984 10,013,984
F-26 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 j) 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 September 30, 2005 and 2004, the Company has no items that represent comprehensive income, and thus, has not included a statement of comprehensive income. k) 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. On December 16, 2004, the Financial Accounting Standards Board ("FASB") published Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R are effective for small business issuers as of the first interim period that begins after December 15, 2005. Accordingly, the Company will implement the revised standard in the fourth quarter of fiscal year 2005. Currently, the Company accounts for its share-based payment transactions under the provisions of APB 25, which does not necessarily require the recognition of compensation cost in the financial statements (note 3(d)). Management is assessing the implications of this revised standard, which may materially impact the Company's results of operations in the fourth quarter of fiscal year 2005 and thereafter. On December 16, 2004, FASB issued Financial Accounting Standards No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions ("FAS 153"). This statement amends APB Opinion 29 to F-27 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. Under FAS 153, if a non-monetary exchange of similar productive assets meets a commercial-substance criterion and fair value is determinable, the transaction must be accounted for at fair value resulting in recognition of any gain or loss. FAS153 is effective for non-monetary transactions in fiscal periods that begin after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows. NOTE 5 - INTANGIBLE ASSETS Intangible assets consist of software source codes originally purchased by iVoice for $454,000 in May 1999. The asset is reflected at its original cost net of accumulated amortization of $454,000, from the date acquired by iVoice. The asset was amortized over a 5-year period. NOTE 6 - RELATED PARTY TRANSACTIONS During the nine months ended September 30, 2004, iVoice allocated operating costs of $1,163,634 to iVoice Technology. These allocations are reflected in the selling, general and administrative, cost of revenue, research and development, and other income (expense) line items in our statements of operations. The general corporate expense allocation is primarily for cash management, selling expense, legal, accounting, tax, insurance, public relations, advertising, transfer agents, and human resources. The amortization of the Interactive Voice Response software has been reflected as cost of sales. Other general categories of operating expense, as well as other income and expense, have been allocated to iVoice Technology by iVoice based upon a ratio of revenue of the Interactive Voice Response software over total iVoice revenue for the applicable periods. Management believes the costs of these services charged are a reasonable representation of the costs that would have been incurred if iVoice Technology had performed these functions as a stand-alone company. 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-28 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 Prior to the spin-off, the Company was included as part of iVoice's consolidated federal income tax return. The Company has provided for a 100% allowance of its deferred tax assets. NOTE 8 - COMMITMENTS AND CONTINGENCIES As discussed in Note 3, the Company had entered into a subscription agreement with certain purchasers for the sale of $560,000 in convertible debentures. Additionally, the Company had entered into a Standby Equity Distribution Agreement whereby the Company, at their discretion, may periodically sell to an investor shares of Class A Common Stock to raise capital to fund its working capital needs. These transactions will require the Company to register its common stock under Section 12(g) of the Securities Exchange Act of 1934 and subsequently register for resale a number of shares to facilitate these financial transactions. On February 28, 2005, the Standby Equity Distribution Agreement was terminated. On February 28, 2005, convertible debentures equal in principal to $560,000 were terminated and replaced with a secured promissory note in the amount of $700,000 ($560,000 representing replacement notes and $140,000 representing new financing). On August 31, 2005, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners, LP whereby Cornell has agreed to purchase up to $10 million of the Company's Class A Common Stock over a two year period. The shares issued under the Standby Equity Distribution Agreement must be first registered under the Securities Act of 1933, as amended. The purchase price of the Common Stock purchased by Cornell Capital under such agreement shall be at ninety-five percent (95%) of the lowest trading price of the Company's Common Stock during the five consecutive trading day period following the notification by the Company of its request for an advance from Cornell under such agreement. In connection with the Standby Equity Distribution Agreement, the Company entered into an Escrow Agreement, Registration Rights Agreement and Placement Agent Agreement. The Company has assumed an outstanding demand 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. F-29 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 iVoice Technology entered into an employment agreement as of August 1, 2004 with Arie Seidler, which was amended on August 12, 2005. Mr. Seidler resigned as iVoice Technology's President and Chief Executive Officer and his employment agreement was terminated on August 26, 2005. On August 29, 2005, the Company entered into an employment agreement with Mark Meller . Mr. Meller will serve as the Company's President, Chief Executive Officer and Chief Financial Officer for a term of one year. As compensation, the Company will pay Mr. Meller an annual base salary of $85,000. Mr. Meller has agreed to defer all but $20,000 of his compensation until such time that Board of Directors determines, in its sole discretion, that the Company has sufficient financial resources to pay his compensation and the Board of Directors may also elect to pay Mr. Meller the balance of his compensation in the form of Company Class A or Class B Common Stock. Mr. Meller will also be entitled to certain bonuses based on mergers and acquisitions completed by the Company. The Company entered into a five-year employment agreement with Jerome Mahoney to serve as its Non-Executive Chairman of the Board of Directors, effective August 1, 2004. The Company will compensate Mr. Mahoney with a base salary of $85,000 for the first year with annual increases based on the Consumer Price Index. Mr. Mahoney's compensation shall be deferred until such time that the Board of Directors determines that the Company has sufficient financial resources to pay his compensation in cash and presently, Mr. Mahoney's compensation will be paid in the form of Class B Common Stock. Mr. Mahoney will also be entitled to certain bonuses based on mergers and acquisitions completed by the Company. In conjunction with the various spin-offs, iVoice Technology has entered into temporary administrative services agreement with iVoice. The administrative services agreements will continue on a month-to- month basis until these companies have found replacement services for those services being provided by iVoice or can provide these services for itself. NOTE 9 - CAPITAL STOCK Pursuant to iVoice Technology's certificate of incorporation, as amended, the Company is authorized to issue 10,000,000,000 shares of Class A Common Stock, no par value per share, 50,000,000 shares of Class B Common Stock, par value $0.01 per share, 20,000,000 shares of Class C Common Stock, par value $0.01 per share, and 1,000,000 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 September 30, 2005, there were 10,000,000,000 shares of Class A Common Stock authorized, no par value, and 10,013,984 shares were issued and outstanding. F-30 iVOICE TECHNOLOGY, INC. NOTES TO THE UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 2005 AND 2004 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 September 30, 2005, there are 50,000,000 shares of Class B Common Stock authorized, par value $.01 per share. Each holder of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. A holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of Class B Common Stock being converted by a 20% discount of the lowest price that iVoice Technology, Inc. had ever issued its Class A Common Stock. Upon our liquidation, dissolution, or winding-up, holders of Class B Common Stock will be entitled to receive distributions. As of September 30, 2005, no shares were issued or outstanding. c) Class C Common Stock As of September 30, 2005, there are 20,000,000 shares of Class C Common Stock authorized, par value $.01 per share. Each holder of Class C Common Stock is entitled to 1,000 votes for each share held of record. Shares of Class C Common Stock are not convertible into Class A Common Stock. Upon liquidation, dissolution or wind-up, the holders of Class C Common Stock are not entitled to receive our net assets pro rata. As of September 30, 2005, no shares were issued or outstanding. d) Preferred Stock iVoice Technology is authorized to issue 1,000,000 shares of Preferred Stock, par value $1.00 per share. As of September 30, 2005, iVoice Technology has not issued any shares of Preferred Stock. F-31 SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION ------------------------------------------------------- The following unaudited pro forma condensed statements of operations for the years ended December 31, 2004 and 2003 and the unaudited pro forma condensed balance sheets 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 years ended December 31, 2004 and 2003 for the year ended December 31, 2004 with respect to the pro forma consolidated balance sheet. The pro forma adjustments give effect to the spin-off transaction whereby shareholders of the Company's former parent, iVoice Inc., received a pro-rata distribution of the Company's shares in the form of a taxable dividend. Under the spin-off transaction, the Company received certain intellectual property and liabilities of the Company's former parent, iVoice, Inc. In the opinion of management, they include all material adjustments necessary to reflect, on a pro forma basis, the impact of transactions contemplated by the spin-off on the historical financial information of iVoice Technology, Inc. The pro forma financial information is presented for informational purposes and does not purport to represent what our financial position and our results of operations actually would have been had the separation and related transactions occurred on the dates indicated. Actual results might have differed from pro forma results if iVoice Technology had operated independently. The pro forma financial information should not be relied upon as being indicative of results iVoice Technology would have had or of future results after the spin-off. The historical selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition or Plan of Operation" and the combined financial statements and notes thereto included elsewhere in this prospectus. F-32
CONDENSED UNAUDITED PRO FORMA BALANCE SHEET ------------------------------------------- (UNAUDITED) ----------- AS OF DECEMBER 31, 2004 ----------------------- As Pro Forma Reported Adjustments Pro Forma -------- ----------- --------- Current Assets Cash $ 346,599 $ -- $ 346,599 Accounts Receivable 31,733 -- 31,733 --------- --------- --------- Total Current Assets 378,332 -- 378,332 --------- --------- --------- Property and Equipment, net 4,737 -- 4,737 Total Assets $ 383,069 $ -- $ 383,069 ========= ========= ========= Liabilities and Stockholders' Deficit Current Liabilities Accounts payable and accrued liabilities: 30,606 -- 30,606 Due to related party -- 190,000 190,000 Convertible debentures 560,000 -- 560,000 Deferred maint contracts 33,141 -- 33,141 --------- --------- --------- Total current liabilities 623,747 190,000 813,747 Stockholder's deficit (240,678) (190,000) (430,678) --------- --------- --------- Total Liabilities and Stockholder's Deficit $ 383,069 $ -- $ 383,069 ========= ========= =========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information. F-33
PRO FORMA STATEMENT OF OPERATIONS --------------------------------- (UNAUDITED) ----------- YEAR ENDED DECEMBER 31, 2004 ---------------------------- As Pro Forma Reported Adjustments Pro Forma -------- ----------- --------- Sales, net $ 239,114 $ -- $ 239,114 Cost of Sales 72,870 -- 72,870 ----------- ----------- ----------- Gross Profit 166,244 -- 166,244 Selling General and Administrative Expenses 863,456 49,000 912,456 ----------- ----------- ----------- Loss from Operations (697,212) (49,000) (746,212) Other Income (Expense) (780,915) (12,350) (793,265) ----------- ----------- ----------- Loss before Income Taxes (1,478,127) (61,350) (1,539,477) Provision for Income Taxes -- -- -- ----------- ----------- ----------- Net Loss $(1,478,127) $ (61,350) $(1,539,477) =========== =========== =========== Net Loss Per Common Share: Basic $ (0.15) =========== Diluted $ (0.15) ===========
See accompanying Notes to Condensed Unaudited Pro Forma Financial Information. F-34
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-35 NOTES TO CONDENSED UNAUDITED PRO FORMA FINANCIAL INFORMATION NOTE 1. The historical financial statements of iVoice Technology, Inc. reflect periods during which iVoice Technology did not operate as a separate, independent public company. Certain estimates, assumptions and allocations were made in preparing such financial statements. Therefore, the historical financial statements do not necessarily reflect the results of operations or financial position that would have occurred had iVoice Technology been a separate, independent public company during the periods presented, nor are they indicative of future performance. Management believes that the estimates, assumptions and allocations made in preparing the historical financial statements are reasonable. NOTE 2. The pro forma unaudited balance sheet was prepared assuming the distribution occurred on December 31, 2004 and includes "Pro Forma Adjustments" for transactions that occurred subsequent to December 31, 2003 as follows: a) The Company is assuming outstanding indebtedness in the amount of $190,000 payable to Jerry Mahoney, President and Chief Executive Officer of iVoice. The note representing such obligation will bear interest at the rate of prime plus 2.0% per annum on the unpaid balance until paid or until default. Under the terms of the Promissory Note, at the option of the Note holder, principal and interest can be converted into either (i) one Class B common stock share of iVoice Technology, Inc., par value $.01, for each dollar owed, (ii) the number of Class A common stock shares of iVoice Technology, Inc. calculated by dividing (x) the sum of the principal and interest that the Note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of iVoice Technology Class A common stock since the first advance of funds under this Note, or (iii) payment of the principal of this Note, before any repayment of interest. NOTE 3. The pro forma unaudited statement of operations for the year ended December 31, 2004 was prepared assuming the distribution occurred on January 1, 2003 and includes "Pro Forma Adjustments" for transactions that would have occurred subsequent to January 1, 2003 as follows: a) $49,000 in administrative services provided by iVoice, Inc. pursuant to an administrative service agreement between iVoice Technology and iVoice, Inc. b) $12,350 in interest at 6.5% per annum on $190,000 in outstanding amounts due to a related party being assumed by iVoice Technology. The pro forma unaudited statement of operations for the year ended December 31, 2003 was prepared assuming the distribution occurred on January 1, 2003 and includes "Pro Forma F-36 Adjustments" for transactions that would have occurred subsequent to January 1, 2003 as follows: a) $84,000 in administrative services provided by iVoice, Inc. pursuant to an administrative service agreement between iVoice Technology and iVoice, Inc. The administrative services agreement sets forth charges generally intended to allow the providing company to fully recover the allocated direct costs of providing the services, plus all out-of-pocket costs and expenses. In conjunction with the spin-off, iVoice Technology has entered into a temporary administrative service agreement with iVoice. The administrative services agreement will continue on a month to month basis until iVoice Technology has found replacement services for those services being provided by iVoice or can provide these services for itself. b) $12,350 in interest at 6.5% per annum on $190,000 in outstanding amounts due to a related party being assumed by iVoice Technology. NOTE 4. The average number of shares of iVoice Technology common stock used in the computation of basic and diluted net income per share was 10,050,000 for the years ended December 31, 2004 and 2003, based on a distribution ratio of one share of iVoice Technology Class A common stock for every 988 shares of iVoice common stock. Since the Company is in a net loss position, all common stock equivalents are considered anti-dilutive and are therefore not included in the calculation of earnings per share. F-37 ============================================= ============================== All dealers that effect transactions in these securities, whether or not participating in this offering may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscription. The information contained in this prospectus is current only as of its date. iVoice Technology, Inc. ____________________ 1,053,506,579 Shares of Class A Common Stock TABLE OF CONTENTS Page ____________________ ---- Prospectus Summary.................... Summary of the Distribution........... Summary Condensed Financial [LOGO] Information......................... Potential Dilution Due to Conversion at Below Market Price............... Risk Factors.......................... Cautionary Statement Regarding ____________________ Forward-Looking Statements.......... Use of Proceeds....................... Management's Discussion and Analysis of Financial Condition or Plan of Operation........................... Date: ________, 2005 Our Business.......................... iVoice Technology's Management........ Certain Relationships and Related Transactions........................ Principal Stockholders................ Description of Securities ............ The Distribution...................... Federal Income Tax Consequences of the Distribution.................... Reasons for Furnishing this Document............................ Relationship between iVoice and iVoice Technology following the Distribution........................ Where You Can Find More Information Index to Financial Statements......... ============================== F-38 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers iVoice Technology's bylaws provide that it will indemnify a person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of iVoice Technology) by reason of the fact that such person is or was a director or an officer of iVoice Technology against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that that person reasonably believed to be in the best interests of iVoice Technology and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of that person was unlawful. iVoice Technology's bylaws also provide that it will indemnify a person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of iVoice Technology to procure a judgment in its favor by reason of the fact that said person is or was a director or an officer of iVoice Technology against expenses actually and reasonably incurred in connection with the defense or settlement of that action if that person acted in good faith, in a manner that that person reasonably believed to be in the best interests of iVoice Technology and with such care, including reasonable inquiry, that such action would not be deemed grossly negligent on the part of such person. Item 25. Other Expenses of Issuance and Distribution The following table sets forth estimated expenses expected to be incurred in connection with the issuance and distribution of the securities being registered. iVoice Technology will pay all expenses in connection with this offering. Securities and Exchange Commission Registration Fee $1,240 Printing and Engraving Expenses $25,000 Accounting Fees and Expenses $16,750 Legal Fees and Expenses $200,000 Miscellaneous $40,000 -------- TOTAL $282,990 ======== Item 26. Recent Sales of Unregistered Securities In August 2004, the Company entered into an agreement with Sloan Securities Corporation for Sloan Securities to act as an agent for the private placement of secured convertible debentures to Cornell Capital Partners, L.P. Under the placement agent agreement, the Company agreed to issue to Sloan Securities on or about the date of effectiveness of registration statement for such securities a number of shares of Class A Common Stock equal to $10,000 divided by the closing bid price of the Class A Common Stock on the date of effectiveness of the registration statement for such securities. On August 12 and November 19, 2004, iVoice Technology issued an aggregate of $560,000 in secured convertible debentures, II-2 with interest payable at 5% per annum, to Cornell Capital Partners. The debentures were convertible at the option of the holder only after the Company's Class A Common Stock has commenced trading on the Over-the-Counter Bulletin Board. Each of the debentures were convertible into shares of Class A Common Stock at a price equal to the lesser of (a) an amount equal to one hundred twenty percent (120%) as listed on a principal market (as defined in the debentures), as made by a market maker, submitted on Form 211 to and approved by the NASD or (b) an amount equal to eighty percent (80%) of the lowest closing bid price of the Class A Common Stock for the five trading days immediately preceding the conversion date. The secured convertible debentures had a term of two years with all accrued interest due at the expiration of the term. At our option, these debentures could be redeemed at a 20% premium prior to August 12, 2006. The secured convertible debentures were secured by a first priority security interest in substantially all of the assets of iVoice Technology. On February 28, 2005, the placement agent agreement with Sloan Securities was terminated and the secured convertible debentures were terminated and replaced by a promissory note in the amount of $700,000 ($560,000 representing replacement notes and $140,000 representing new financing). Effective August 12, 2004, iVoice Technology entered into a Standby Equity Distribution Agreement with Cornell Capital Partners to obtain an equity line of credit. On February 28, 2005, iVoice Technology entered into a Termination Agreement with Cornell Capital Partners, pursuant to which the equity line transaction was terminated. In September 2005, iVoice Technology and Cornell Capital entered into a Standby Equity Distribution Agreement, which was amended and restated on December 12, 2005. Pursuant to the Standby Equity Distribution Agreement, Cornell Capital agreed has agreed, subject to satisfaction of certain conditions, to purchase shares of iVoice Technology's 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, on December 12, 2005, iVoice Technology issued 150,000 shares of Class A Common Stock to Cornell Capital as a one-time commitment fee under the Standby Equity Distribution Agreement. Pursuant to the Standby Equity Distribution Agreement with Cornell Capital Partners, on December 12, 2005, iVoice Technology paid Yorkville Advisors Management a structuring fee equal to 325,000 shares of iVoice Technology Class A Common Stock and will pay Yorkville Advisors Management an additional structuring fee of five hundred dollars directly out of the gross proceeds of each advance under the equity line of credit. In September 2005, the Company entered into a placement agent agreement with Monitor Capital, Inc., which was amended and restated on December 12, 2005. Pursuant to the placement agent agreement, the Company issued to Monitor Capital 400,000 shares of Class A Common Stock as a placement agent fee. On August 5, 2005, iVoice Technology assumed from iVoice outstanding indebtedness in the amount of $190,000 payable to Jerry Mahoney. This amount is related to funds loaned to iVoice and unrelated to the operations of iVoice Technology. iVoice Technology, for value received, will promise to pay to Mr. Mahoney the principal sum of $190,000 that will bear II-3 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 representing such obligation. At the time of default (if any) the interest rate shall increase to 20% until the principal balance has been paid. Under the terms of the promissory note, at the option of the note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of iVoice Technology, par value $0.01, for each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice Technology calculated by dividing (x) the sum of the principal and interest that the note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of Class A Common Stock since the first advance of funds under this note, or (iii) payment of the principal of this note, before any repayment of interest. iVoice Technology has yet to record this liability on its financial statements, as this indebtedness was not assumed by iVoice Technology until August 5, 2005. We relied upon the exemption provided in Section 4(2) of the Securities Act and/or Rule 506 thereunder, which cover "transactions by an issuer not involving any public offering," to issue securities discussed above without registration under the Securities Act of 1933. iVoice Technology made a determination in each case that the person to whom the securities were issued did not need the protections that registration would afford. The certificates representing the securities issued displayed a restrictive legend to prevent transfer except in compliance with applicable laws, and our transfer agent was instructed not to permit transfers unless directed to do so by iVoice Technology, after approval by our legal counsel. iVoice Technology believes that the investors to whom securities were issued had such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment. iVoice Technology also believes that the investors had access to the same type of information as would be contained in a registration statement. Item 27. Exhibits No. Description - --- ----------- 3.1 Amended and Restated Certificate of Incorporation of iVoice Technology, Inc. (filed as Exhibit 3.1 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) 3.2 By-laws of iVoice Technology, Inc. (filed as Exhibit 3.2 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) 4.1 Form of iVoice Technology, Inc. 5% Secured Convertible Debenture due August 12, 2006 issued to Cornell Capital Partners, LP (filed as Exhibit 4.1 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) II-4 5.1** Opinion of Meritz & Muenz LLP 9.1 Voting Agreement, dated August 5, 2005, between Jerome Mahoney and Mark Meller 9.2 Irrevocable Proxy of Mark Meller, dated August 5, 2005 10.1 Standby Equity Distribution Agreement, dated August 12, 2004, between Cornell Capital Partners, LP and iVoice Technology, Inc. (filed as Exhibit 10.1 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) 10.2 Securities Purchase Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Cornell Capital Partners, LP. (filed as Exhibit 10.2 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) 10.3 Escrow Agreement, dated August 12, 2004, between iVoice Technology, Inc., Cornell Capital Partners, LP and Butler Gonzalez LLP (filed as Exhibit 10.3 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) 10.4 Registration Rights Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Cornell Capital Partners, LP (filed as Exhibit 10.4 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) 10.5 Escrow Agreement, dated August 12, 2004, between iVoice Technology, Inc., Cornell Capital Partners, LP. and Butler Gonzalez LLP (filed as Exhibit 10.5 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) 10.6 Investor Registration Rights Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Cornell Capital Partners, LP (filed as Exhibit 10.6 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) 10.7 Security Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Cornell Capital Partners, LP (filed as Exhibit 10.7 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) II-5 10.8 Placement Agent Agreement, dated August 12, 2004, between iVoice Technology, Inc. and Sloan Securities Corporation (filed as Exhibit 10.8 to iVoice Technology, Inc.'s Amendment No. 1 to Form SB-2 Registration Statement, File No. 333-120490, filed on January 11, 2005, and incorporated herein by reference) 10.9 Employment Agreement, dated as of August 1, 2004, between iVoice Technology, Inc. and Jerome Mahoney (filed as Exhibit 10.9 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.10 Employment Agreement, dated as of August 1, 2004, between iVoice Technology, Inc. and Arie Seidler (filed as Exhibit 10.10 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.11 Administrative Services Agreement, dated August 1, 2004, between iVoice, Inc. and iVoice Technology, Inc. (filed as Exhibit 10.11 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.12 Assignment and Assumption Agreement and Consent, dated November 11, 2004 between iVoice Technology, Inc. (Nevada) and iVoice Technology, Inc. (New Jersey) (filed as Exhibit 10.12 to iVoice Technology, Inc.'s Amendment No. 3 to Form SB-2 Registration Statement, File No. 333-120490, filed on June 24, 2005, and incorporated herein by reference) 10.13 Corporate Contribution and General Conveyance Agreement, dated August 5, 2005 between iVoice, Inc. and iVoice Technology, Inc. 10.14 [Intentionally Omitted.] 10.15 Waiver dated January 6, 2005 of Jerome Mahoney (filed as Exhibit 10.11 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.16 Promissory Note from iVoice Technology, Inc. to Jerome Mahoney, dated August 5, 2005 10.17 Termination Agreement, dated February 28, 2005, between Cornell Capital Partners, LP and iVoice Technology, Inc., with respect to a II-6 Securities Purchase Agreement, Convertible Debentures, Security Agreement, Investor Registration Rights Agreement, an Escrow Agreement and Irrevocable Transfer Agent Instructions, each dated August 13, 2004 (filed as Exhibit 10.17 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.18 Termination Agreement, dated February 28, 2005, between Cornell Capital Partners, LP and iVoice Technology, Inc., with respect to a Standby Equity Distribution Agreement, Registration Rights Agreement, Escrow Agreement and Placement Agent Agreement, each dated August 13, 2004 (filed as Exhibit 10.18 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.19 Promissory Note, dated February 28, 2005, from iVoice Technology, Inc. to Cornell Capital Partners, LP (filed as Exhibit 10.19 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.20 Security Agreement, dated as of February 28, 2005, by and between iVoice Technology, Inc. and Cornell Capital Partners, LP (filed as Exhibit 10.20 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.21 Guaranty of Promissory Note, dated as of February 28, 2005, from iVoice Technology, Inc. to Cornell Capital Partners, LP, made by iVoice, Inc. in favor of Cornell Capital Partners, LP (filed as Exhibit 10.21 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.22 Non-Binding Letter of Intent, dated March 9, 2005, between Cornell Capital Partners, LP and iVoice Technology, Inc. (filed as Exhibit 10.22 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.23 Amendment No. 1 to Employment Agreement, dated April 1, 2005, between iVoice Technology, Inc. and Jerome Mahoney (filed as Exhibit 10.23 to iVoice Technology, Inc.'s Amendment No. 2 to Form SB-2 Registration Statement, File No. 333-120490, filed on April 7, 2005, and incorporated herein by reference) 10.24 Amendment No. 2 to Employment Agreement, dated June 15, 2005, II-7 between iVoice Technology, Inc. and Jerome Mahoney (filed as Exhibit 10.24 to iVoice Technology, Inc.'s Amendment No. 3 to Form SB-2 Registration Statement, File No. 333-120490, filed on June 24, 2005, and incorporated herein by reference) 10.25 Amendment No. 1 to Employment Agreement, dated June 15, 2005, between iVoice Technology, Inc. and Arie Seidler (filed as Exhibit 10.25 to iVoice Technology, Inc.'s Amendment No. 4 to Form SB-2 Registration Statement, File No. 333-120490, filed on July 28, 2005, and incorporated herein by reference) 10.26 Amendment No. 3 to Employment Agreement, dated July 18, 2005, between iVoice Technology, Inc. and Jerome Mahoney (filed as Exhibit 10.26 to iVoice Technology, Inc.'s Amendment No. 4 to Form SB-2 Registration Statement, File No. 333-120490, filed on July 28, 2005, and incorporated herein by reference) 10.27 Amendment No. 2 to Employment Agreement, dated August 12, 2005, between iVoice Technology, Inc. and Arie Seidler 10.28 Employment Agreement, dated August 29, 2005, between iVoice Technology, Inc. and Mark Meller (filed as Exhibit 10.2 to iVoice Technology, Inc.'s Current Report on Form 8-K, filed on August 29, 2005, and incorporated herein by reference) 10.29 Standby Equity Distribution Agreement, dated September 22, 2005, between Cornell Capital Partners, LP and iVoice Technology, Inc. (filed as Exhibit 10.1 to iVoice Technology, Inc.'s Current Report on Form 8-K, filed on September 30, 2005, and incorporated herein by reference) 10.30 Escrow Agreement, dated September 22, 2005, between iVoice Technology, Inc., Cornell Capital Partners, LP. and David Gonzalez, Esq. (filed as Exhibit 10.4 to iVoice Technology, Inc.'s Current Report on Form 8-K, filed on September 30, 2005, and incorporated herein by reference) 10.31 Placement Agent Agreement, dated September 22, 2005, between iVoice Technology, Inc. and Monitor Capital Inc. (filed as Exhibit 10.3 to iVoice Technology, Inc.'s Current Report on Form 8-K, filed on September 30, 2005, and incorporated herein by reference) 10.32 Registration Rights Agreement, dated September 22, 2005, between iVoice Technology, Inc. and Cornell Capital Partners, LP (filed as Exhibit 10.2 to iVoice Technology, Inc.'s Current Report on Form 8-K, filed on September 30, 2005, and incorporated herein by reference) 10.33 Amendment No. 4 to Employment Agreement, dated September 29, 2005, between iVoice Technology, Inc. and Jerome Mahoney II-8 10.34 Amendment No.1 to Employment Agreement, dated September 29, 2005, between iVoice Technology, Inc. and Mark Meller 10.35 Amended and Restated Standby Equity Distribution Agreement, dated December 12, 2005, between Cornell Capital Partners, LP and iVoice Technology, Inc. 10.36 Amended and Restated Placement Agent Agreement, dated December 12, 2005, between iVoice Technology, Inc. and Monitor Capital Inc. 10.37 Amended and Restated Registration Rights Agreement, dated December 12, 2005, between iVoice Technology, Inc. and Cornell Capital Partners, LP 10.38 Termination Agreement, dated December 12, 2005, between iVoice Technology, Inc., and David Gonzalez, Esq., and Cornell Capital Partners, LP 16 Letter of Mendlowitz Weitsen, LLP, dated May 27, 2005, with respect to the change in the Company's principal accountants (filed as Exhibit 16 to iVoice Technology, Inc.'s Amendment No. 3 to Form SB-2 Registration Statement, File No. 333-120490, filed on June 24, 2005, and incorporated herein by reference) 23.1 Consent of Bagell, Josephs, Levine & Company, LLC (formerly Bagell, Josephs & Company, LLC) 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 II-9 the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; (iii) Include any additional or changed material information on the plan of distribution; (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-10 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, on December 19, 2005. IVOICE TECHNOLOGY, INC. By: /s/ Mark Meller ------------------------------------- Name: Mark Meller Title: President, Chief Executive Officer and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Jerome R. Mahoney Non-Executive Chairman of December 19, 2005 - ------------------------- the Board Jerome R. Mahoney /s/ Mark Meller President (Principal December 19, 2005 - ------------------------ Executive Officer), Chief Mark Meller Executive Officer, and Chief Financial Officer (Principal Accounting Officer) /s/ Frank V. Esser Director December 19, 2005 - ----------------------- Frank V. Esser II-11 EX-9 2 kl12026_ex9-1.txt EXHIBIT 9.1 VOTING AGREEMENT Exhibit 9.1 VOTING AGREEMENT This VOTING AGREEMENT (the "Agreement"), dated as of August 5, 2005, is entered by and between Jerome Mahoney ("Mahoney") and Mark Meller ("Meller"), (collectively referred to as the "Parties") WHEREAS, each Mahoney and Meller, from time to time, may own Class A Common Stock shares and Class B Common Stock shares (the "Shares") of iVoice Technology, Inc., a New Jersey corporation, (the "Company") and WHEREAS, the Company may have a shareholders' meeting in the future that will require Mahoney and Meller to vote in favor of all of proposals submitted to the shareholders for approval, and NOW, THEREFORE, in consideration of the foregoing, the agreements set forth below, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows: ARTICLE I VOTING OF SHARES 1. Voting Agreement Each of the Parties hereby agrees to vote, or to cause to be voted, all of his respective Shares at any annual, special or other meeting of the shareholders of the Company, and at any adjournment or adjournments thereof, or pursuant to any consent in lieu of a meeting or in any other circumstances upon which any vote or consent or other approval of the shareholders of the Company is sought, which each of the Parties has the right to so vote: (a) in favor of any proposal that is submitted to the shareholders for approval by a unanimous vote or consent of the Board of Directors; 2. Irrevocable Proxy. Meller hereby irrevocably appoints Mahoney from the date hereof through August 4, 2015 as set forth on the Irrevocable Proxy attached as Exhibit A hereto. Upon the execution of this Agreement, all prior proxies and powers of attorney given by Meller with respect to all of Meller's Shares issued or issuable in respect thereof on or after the date of this Agreement are hereby revoked, and no subsequent proxy or power of attorney shall be given (and if given, shall not be effective) by Meller. Any obligation of Meller shall be binding on the successors and heirs of Meller. Jerome Mahoney Mark Meller By: /s/ Jerome Mahoney By: /s/ Mark Meller -------------------- ------------------ Exhibit A IRREVOCABLE PROXY The undersigned shareholder of iVoice Technology, Inc., a New Jersey corporation (the "Company"), pursuant to the Voting Agreement dated August 5, 2005 (the "Agreement"), hereby irrevocably (to the extent provided for in the New Jersey Business Corporation Act) appoints Jerome Mahoney ("Mahoney"), or any other designee of Mahoney, as the sole and exclusive attorneys and proxies of the undersigned, with full power of substitution and re-substitution, to vote and exercise all voting and related rights (to the full extent that the undersigned is entitled to do so) with respect to the shares of: (i) the Company Class B Common Stock, $.01 par value per share, or (ii) the Company Class A Common Stock, no par value per share, that are beneficially owned or may be beneficially owned anytime in the future by the undersigned (collectively, the "Shares") in accordance with the terms of this Irrevocable Proxy. Upon the undersigned's execution of this Irrevocable Proxy, any and all prior proxies given by the undersigned with respect to any Shares are hereby revoked and the undersigned agrees not to grant any subsequent proxies with respect to the Shares. The term of this Irrevocable Proxy shall commence on August 5, 2005 and terminate on August 4, 2015. The attorneys and proxies named above, and each of them are hereby authorized and empowered by the undersigned, to act as the undersigned's attorney and proxy to vote the Shares, and to exercise all voting and other rights of the undersigned with respect to the Shares (including, without limitation, the power to execute and deliver written consents pursuant to the New Jersey Business Corporation Act), at every annual, special or adjourned meeting of the shareholders of the Company and in every written consent in lieu of such meeting. All authority herein conferred shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. This Irrevocable Proxy shall terminate only upon the written consent of Jerome Mahoney or as set forth in the Agreement. Dated: _______________, _____ Name:____________________________ By:_______________________________ (Signature of Shareholder) EX-9 3 kl12026_ex9-2.txt EXHIBIT 9.2 IRREVOCABLE PROXY Exhibit 9.2 IRREVOCABLE PROXY ----------------- The undersigned shareholder of iVoice Technology, Inc., a New Jersey corporation (the "Company"), pursuant to the Voting Agreement dated August 5, 2005 (the "Agreement"), hereby irrevocably (to the extent provided for in the New Jersey Business Corporation Act) appoints Jerome Mahoney ("Mahoney"), or any other designee of Mahoney, as the sole and exclusive attorneys and proxies of the undersigned, with full power of substitution and re-substitution, to vote and exercise all voting and related rights (to the full extent that the undersigned is entitled to do so) with respect to the shares of: (i) the Company Class B Common Stock, $.01 par value per share, or (ii) the Company Class A Common Stock, no par value per share, that are beneficially owned or may be beneficially owned anytime in the future by the undersigned (collectively, the "Shares") in accordance with the terms of this Irrevocable Proxy. Upon the undersigned's execution of this Irrevocable Proxy, any and all prior proxies given by the undersigned with respect to any Shares are hereby revoked and the undersigned agrees not to grant any subsequent proxies with respect to the Shares. The term of this Irrevocable Proxy shall commence on August 5, 2005 and terminate on August 4, 2015. The attorneys and proxies named above, and each of them are hereby authorized and empowered by the undersigned, to act as the undersigned's attorney and proxy to vote the Shares, and to exercise all voting and other rights of the undersigned with respect to the Shares (including, without limitation, the power to execute and deliver written consents pursuant to the New Jersey Business Corporation Act), at every annual, special or adjourned meeting of the shareholders of the Company and in every written consent in lieu of such meeting. All authority herein conferred shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. This Irrevocable Proxy shall terminate only upon the written consent of Jerome Mahoney or as set forth in the Agreement. Dated: August 5, 2005 Name: Mark Meller By: /s/ Mark Meller --------------------------- (Signature of Shareholder) EX-10 4 kl12026_ex10-13.txt CORP CONTRIBUTION GENERAL CONVEYANCE AGREEMENT Exhibit 10.13 CORPORATE CONTRIBUTION AND GENERAL CONVEYANCE AGREEMENT THIS CORPORATE CONTRIBUTION AND GENERAL CONVEYANCE AGREEMENT (the "Agreement") dated as of August 4, 2005 (the "Effective Date") is entered into by and between iVoice, Inc., a New Jersey corporation (the "Corporation") and iVoice Technology, Inc., a New Jersey corporation (the "Subsidiary"). WITNESSETH: WHEREAS, the Corporation owns one hundred percent (100%) of the issued and outstanding capital stock shares of the Subsidiary; and WHEREAS, the Corporation desires to contribute certain of its intellectual property and patents to the Subsidiary listed on Exhibits A and B herein (collectively referred to hereinafter as the "Intellectual Property"); WHEREAS, the Subsidiary desires to accept such contribution and the Corporation has agreed to convey all of its assets related to certain of its Intellectual Property to the Subsidiary and the Subsidiary has agreed to assume all of the liabilities associated with the Intellectual Property; NOW, THEREFORE, in consideration of the premises contained herein and the sum of Ten Dollars ($10.00) and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: 1. Contribution and Conveyance of Assets. Subject to the terms and conditions herein set forth, the Corporation hereby contributes, conveys, assigns and delivers to the Subsidiary, as of the Effective Date, and the Subsidiary hereby accepts, all of the Corporation's right, title and interest in and to any and all of the assets of the Corporation relating to, and used in connection to the Intellectual Property and specifically set forth on Exhibit A and B herein. 2. Assumption of Liabilities and Obligations. Subject to the terms and conditions herein set forth, the Subsidiary hereby assumes and agrees to perform, observe, satisfy and fulfill all of the duties, liabilities and obligations relating to and arising out of the Intellectual Property, whether direct or indirect, contingent or otherwise, now existing or hereafter arising, under, pursuant to or in connection with all contracts, agreements, arrangements, debts, covenants, accounts indemnities, claims, charges, taxes, suits, actions, damages, executions, judgments, assessments, government review and audits, or other liabilities or obligations of any nature whatsoever of or affecting the Intellectual Property in existence as of the date hereof or arising from or relating to actions or omissions of the Corporation relating to the Intellectual Property prior to the date hereof (collectively referred to as the "Liabilities"). 13 3. Consents and Approvals. The Corporation and Subsidiary agree that the assignments and assumptions represented herein are intended to comply with all applicable laws of federal, state and local governments, and those contracts, agreements and other instruments to which the Corporation or the Subsidiary may be a party. Accordingly, each party agrees to use its best efforts to obtain any and all consents, authorizations and approvals from those governments or other parties whose rights require their consent, authorization or approval to this Agreement. 4. Further Assurances. The Corporation and the Subsidiary agree to execute and deliver all documents and instruments, and to perform or cause to be performed such further acts or things, as may be reasonably necessary to carry out the intended assignments, assumptions and other transactions contemplated by this Agreement. 5. Disclaimer of Warranties. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THIS CONVEYANCE OF THE ASSETS BY THE CORPORATION TO THE SUBSIDIARY IS "AS-IS", "WHERE-IS" WITHOUT ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OR ANY NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, REPRESENTATIONS OR WARRANTIES WITH RESPECT TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR VALUE). THE SUBSIDIAIRY ACCEPTS THE ASSETS SUBJECT TO ANY AND ALL MORTGAGES, CLAIMS, CHARGES, LIENS, EASEMENTS, LIMITATIONS, RESTRICTIONS, COMMITMENTS, SECURITY INTERESTS AND OTHER ENCUMBERANCES OF ANY NATURE WHATSOVER. 6. Amendment. This Agreement shall not be amended, except pursuant to a writing executed by all of the parties hereto. 7. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute a single instrument. 8. Entire Agreement. This Agreement set forth the entire understanding and agreement between the parties as to the matters covered herein and supersedes and replaces any prior understanding, agreement or statement (written or oral) of intent. Except as expressly provided for herein, no provision of this Agreement shall be construed to confer any rights, or remedies on any person other than the Corporation or Subsidiary. 9. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 10. Governing Law. The Agreement shall be construed in accordance with, and governed by the laws of the State of New Jersey. 14 [SIGNATURE PAGES TO FOLLOW] IN WITHNESS WHEREOF, this Agreement has been executed and delivered as of the date first written above. iVoice, Inc. a New Jersey corporation By: /s/ Jerome Mahoney ----------------------------------------- Jerome Mahoney President and Chief Executive Officer iVoice Technology, Inc. a New Jersey corporation By: /s/ Mark Meller ----------------------------------------- Mark Meller President and Chief Executive Officer Exhibit A Patents Awarded and/or Pending ------------------------------ None Exhibit B Intellectual Property --------------------- Software and documentation related to the 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. EX-10 5 kl12026_ex10-16.txt EX 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 iVoice 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: August 31, 2005 -------------------------- ----------------------------- 2 EX-10 6 kl12026_ex10-27.txt EX 10.27 AMENDMENT 2 TO EMPLOYMENT AGREEMENT Exhibit 10.27 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment dated August 12, 2005 hereby amends the Employment Agreement dated August 1, 2004, previously amended pursuant to Amendment No. 1 to Employment Agreement dated June 15, 2005, 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 Arie Seidler, 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 definition of the Expiration Date referenced in Paragraph 2 of the Employment Agreement as "August 1, 2005" is hereby mutually agreed to be revised to read: "July 31, 2006". 2. The Executive and the Company hereby agree that Section 5(a) of the Employment Agreement containing the initial reference to "Eighty-five Thousand Dollars ($85,000)" that was revised pursuant to Amendment No. 1 to the Employment to read "Forty Thousand Dollars ($40,000) shall hereby be revised to read "Twelve Thousand Dollars ($12,000). 3. The Executive and the Company hereby agree that Section 5(d) of the Employment Agreement entitled "Incentive Compensation" is hereby deleted in its entirety. 4. Paragraph 10 is hereby amended with the addition of subparagraph (d) that shall read as follows: "(d) Notwithstanding anything to the contrary, the Company shall have the right to terminate this Employment Agreement for any reason whatsoever during its Term by providing the Executive thirty (30) days advance written notice. Upon such termination, 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." 5. All other terms of the Employment Agreement, as amended, 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. Arie Seidler By: /s/ Jerome Mahoney By: /s/Arie Seidler --------------------- -------------------- Title: Chairman Date:__________________ Date:__________________ EX-10 7 kl12026_ex10-33.txt EX 10.33 AMENDMENT 4 TO EMPLOYMENT AGREEMENT Exhibit 10.33 AMENDMENT NO. 4 TO EMPLOYMENT AGREEMENT This Amendment dated September 29, 2005 hereby amends the Employment Agreement dated August 1, 2004 (the "Employment Agreement"), 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. Subparagraphs 5(a)(ii), 5(b)(i) and 5(d)(v) are hereby deleted in their entirety. 2. The following language appearing as the second to last sentence of Subparagraph 5(b)(iii) shall be deleted: "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." 3. All references within the Employment Agreement to Subparagraph 5(b)(ii) shall hereinafter refer to Subparagraph 5(b)(i). All references within the Employment Agreement to Subparagraph 5(b)(iii) shall hereinafter refer to Subparagraph 5(b)(ii). All references within the Employment Agreement to Subparagraph 5(b)(iv) shall hereinafter refer to Subparagraph 5(b)(iii). 4. 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/ Mark Meller By: /s/ Jerome Mahoney ------------------- ---------------------- Title: President, Chief Executive Officer and Chief Financial Officer Date:__________________ Date:__________________ EX-10 8 kl12026_ex10-34.txt EX 10.34 AMENDMENT 1 TO EMPLOYMENT AGREEMENT Exhibit 10.34 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment dated September 29, 2005 hereby amends the Employment Agreement dated August 29, 2005 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 Mark Meller, having his office at 5 Regent Street, Suite 520, Livingston, NJ 07039 (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 following language appearing in the first sentence of Subparagraph 4(a) shall be deleted: "that shall increase on the anniversary date of October 1, 2005 and upon every annual anniversary thereafter, at the rate based on the Consumer Price Index". 2. Subparagraphs 5(a)(ii), 5(b)(i) and 5(d)(v) are hereby deleted in their entirety. 3. The following language appearing as the second to last sentence of Subparagraph 5(b)(iii) shall be deleted: "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." 4. All references within the Employment Agreement to Subparagraph 5(b)(ii) shall hereinafter refer to Subparagraph 5(b)(i). All references within the Employment Agreement to Subparagraph 5(b)(iii) shall hereinafter refer to Subparagraph 5(b)(ii). All references within the Employment Agreement to Subparagraph 5(b)(iv) shall hereinafter refer to Subparagraph 5(b)(iii). 5. 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. Mark Meller By: /s/ Jerome Mahoney By: /s/ Mark Meller -------------------- ------------------- Title: Non-Executive Chairman of the Board Date:__________________ Date:__________________ EX-10 9 kl12026_ex10-35.txt EXHIBIT 10.35 DISTRIBUTION AGREEMENT Exhibit 10.35 AMENDED AND RESTATED STANDBY EQUITY DISTRIBUTION AGREEMENT THIS AMENDED AND RESTATED AGREEMENT dated as of the 12th day of December 2005 (the "Agreement") between CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the "Investor"), and IVOICE TECHNOLOGY, INC., a corporation organized and existing under the laws of the State of New Jersey (the "Company"). WHEREAS, on September 22, 2005, the parties hereto entered into a Standby Equity Distribution Agreement. This Agreement shall amend and restate the Standby Equity Distribution Agreement dated September 22, 2005 (the "Original Agreement"); WHEREAS, any and all agreements, documents and instruments in connection with the Standby Equity Distribution Agreement dated September 22, 2005, including without limitation the Registration Rights Agreement and Placement Agent Agreement, shall be superseded by this Agreement, the Registration Rights Agreement and Placement Agreement, each of even date herewith; WHEREAS, the Escrow Agreement dated September 22, 2005 has been terminated; WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase from the Company up to Ten Million Dollars ($10,000,000) of the Company's Class A common stock, no par value per share (the "Common Stock"); WHEREAS, such investments will be made in reliance upon the provisions of Regulation D ("Regulation D") of the Securities Act of 1933, as amended, and the regulations promulgated thereunder (the "Securities Act"), and or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments to be made hereunder; and WHEREAS, the Company has engaged Monitor Capital, Inc. (the "Placement Agent"), to act as the Company's exclusive placement agent in connection with the sale of the Company's Common Stock to the Investor hereunder pursuant to the Placement Agent Agreement dated the date hereof by and among the Company, the Placement Agent and the Investor (the "Placement Agent Agreement"). NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I. Certain Definitions Section 1.1. "Advance" shall mean the portion of the Commitment Amount requested by the Company in the Advance Notice. Section 1.2. "Advance Date" shall mean the first (1st) Trading Day after expiration of the applicable Pricing Period for each Advance. Section 1.3. "Advance Notice" shall mean a written notice in the form of Exhibit A attached hereto to the Investor executed by an officer of the Company and setting forth the Advance amount that the Company requests from the Investor. Section 1.4. "Advance Notice Date" shall mean each date the Company delivers to the Investor an Advance Notice requiring the Investor to advance funds to the Company, subject to the terms of this Agreement. No Advance Notice Date shall be less than five (5) Trading Days after the prior Advance Notice Date. Section 1.5. "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 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. Section 1.6. "Closing" shall mean one of the closings of a purchase and sale of Common Stock pursuant to Section 2.3. Section 1.7. "Commitment Amount" shall mean the aggregate amount of up to Ten Million Dollars ($10,000,000) which the Investor has agreed to provide to the Company in order to purchase the Company's Common Stock pursuant to the terms and conditions of this Agreement. Section 1.8. "Commitment Period" shall mean the period commencing on the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the Company and the Investor may mutually agree in writing, and expiring on the earliest to occur of (x) the date on which the Investor shall have made payment of Advances pursuant to this Agreement in the aggregate amount of Ten Million Dollars ($10,000,000), (y) the date this Agreement is terminated pursuant to Section 2.4, or (z) the date occurring twenty-four (24) months after the Effective Date. Section 1.9. "Common Stock" shall mean the Company's Class A common stock, no par value per share. Section 1.10. "Condition Satisfaction Date" shall have the meaning set forth in Section 7.2. Section 1.11. "Damages" shall mean any loss, claim, damage, liability, costs and expenses (including, without limitation, reasonable attorney's fees and disbursements and costs and expenses of expert witnesses and investigation). Section 1.12. "Effective Date" shall mean the date on which the SEC first declares effective a Registration Statement registering the resale of the Registrable Securities as set forth in Section 7.2(a). Section 1.13. Intentionally Omitted. 2 Section 1.14. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Section 1.15. "Material Adverse Effect" shall mean any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement or the Registration Rights Agreement in any material respect. Section 1.16. "Market Price" shall mean the lowest closing Bid Price of the Common Stock during the Pricing Period. Section 1.17. "Maximum Advance Amount" shall be Six Hundred Thousand Dollars ($600,000) per Advance Notice. Section 1.18. "NASD" shall mean the National Association of Securities Dealers, Inc. Section 1.19. "Person" shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. Section 1.20. "Placement Agent" shall mean Monitor Capital, Inc., a registered broker-dealer. Section 1.21. "Pricing Period" shall mean the five (5) consecutive Trading Days after the Advance Notice Date. Section 1.22. "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. Section 1.23. "Purchase Price" shall be set at ninety five percent (95%) of the Market Price during the Pricing Period. Section 1.24. "Registrable Securities" shall mean the shares of Common Stock to be issued hereunder (i) in respect of which the Registration Statement has not been declared effective by the SEC, (ii) which have not been sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") or (iii) which have not been otherwise transferred to a holder who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend. Section 1.25. "Registration Rights Agreement" shall mean the Registration Rights Agreement dated the date hereof, regarding the filing of the Registration Statement for the resale of the Registrable Securities, entered into between the Company and the Investor. Section 1.26. "Registration Statement" shall mean a registration statement on Form S-1 or SB-2 (if use of such form is then available to the Company pursuant to the rules of the SEC 3 and, if not, on such other form promulgated by the SEC for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement and the Registration Rights Agreement, and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act. Section 1.27. "Regulation D" shall have the meaning set forth in the recitals of this Agreement. Section 1.28. "SEC" shall mean the Securities and Exchange Commission. Section 1.29. "Securities Act" shall have the meaning set forth in the recitals of this Agreement. Section 1.30. "SEC Documents" shall mean Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and Proxy Statements of the Company as supplemented to the date hereof, filed by the Company for a period of at least twelve (12) months immediately preceding the date hereof or the Advance Date, as the case may be, until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement. Section 1.31. "Trading Day" shall mean any day during which the New York Stock Exchange shall be open for business. Section 1.32. "VWAP" shall mean the volume weighted average price of the Company's Common Stock as quoted by Bloomberg, LP. ARTICLE II. Advances Section 2.1. Advances. Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII hereof), the Company may request an Advance by the Investor by the delivery of an Advance Notice. The number of shares of Common Stock that the Investor shall purchase pursuant to each Advance shall be determined by dividing the amount of the Advance by the Purchase Price. No fractional shares shall be issued. Fractional shares shall be rounded to the next higher whole number of shares. The aggregate maximum amount of all Advances that the Investor shall be obligated to make under this Agreement shall not exceed the Commitment Amount. Section 2.2. Mechanics. (a) Advance Notice. At any time during the Commitment Period, the Company may deliver an Advance Notice to the Investor, subject to the conditions set forth in Section 7.2; provided, however, the amount for each Advance as designated by the Company in the applicable Advance Notice, shall not be more than the Maximum Advance Amount. The 4 aggregate amount of the Advances pursuant to this Agreement shall not exceed the Commitment Amount. The Company acknowledges that the Investor may sell shares of the Company's Common Stock corresponding with a particular Advance Notice after the Advance Notice is received by the Investor. There shall be a minimum of five (5) Trading Days between each Advance Notice Date. (b) Date of Delivery of Advance Notice. An Advance Notice shall be deemed delivered on (i) the Trading Day it is received by facsimile or otherwise by the Investor if such notice is received prior to 12:00 noon Eastern Time, or (ii) the immediately succeeding Trading Day if it is received by facsimile or otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day which is not a Trading Day. No Advance Notice may be deemed delivered on a day that is not a Trading Day. Section 2.3. Closings. On each Advance Date (i) the Company shall deliver to the Investor shares of the Company's Common Stock, representing the amount of the Advance specified in such Advance Notice pursuant to Section 2.1 herein, registered in the name of the Investor and (ii) simultaneously, the Investor shall deliver to the Company the amount of the Advance specified in the Advance Notice by wire transfer of immediately available funds. In addition, on or prior to the Advance Date, each of the Company and the Investor shall deliver to the other all documents, instruments and writings required to be delivered by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein. The extent the Company has not paid the fees, expenses, and disbursements of the Investor or the Company's counsel in accordance with Section 12.4, the amount of such fees, expenses, and disbursements may be deducted by the Investor (and shall be paid to the relevant party) directly out of the proceeds of the Advance with no reduction in the amount of shares of the Company's Common Stock to be delivered on such Advance Date. Section 2.4. Termination of Investment. The obligation of the Investor to make an Advance to the Company pursuant to this Agreement shall terminate permanently (including with respect to an Advance Date that has not yet occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an aggregate of fifty (50) Trading Days, other than due to the acts of the Investor, during the Commitment Period, or (ii) the Company shall at any time fail materially to comply with the requirements of Article VI and such failure is not cured within thirty (30) days after receipt of written notice from the Investor, provided, however, that this termination provision shall not apply to any period commencing upon the filing of a post-effective amendment to such Registration Statement and ending upon the date on which such post effective amendment is declared effective by the SEC. Section 2.5. Agreement to Advance Funds. The Investor agrees to advance the amount specified in the Advance Notice to the Company after the completion of each of the following conditions and the other conditions set forth in this Agreement: (a) the execution and delivery by the Company, and the Investor, of this Agreement and the Exhibits hereto; (b) The Investor shall have received the shares of Common Stock applicable to the Advance in accordance with Section 2.3. Such shares shall be free of restrictive legends. 5 (c) the Company's Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement shall have been declared effective by the SEC; (d) the Company shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the Registrable Securities, or shall have the availability of exemptions therefrom. The sale and issuance of the Registrable Securities shall be legally permitted by all laws and regulations to which the Company is subject; (e) the Company shall have filed with the Commission in a timely manner all reports, notices and other documents required of a "reporting company" under the Exchange Act and applicable Commission regulations; (f) the fees as set forth in Section 12.4 below shall have been paid or can be withheld as provided in Section 2.3; and (g) the conditions set forth in Section 7.2 shall have been satisfied. (h) the Company shall have provided to the Investor an acknowledgement, from the Company's independent certified public accountants as to its ability to provide all consents required in order to file a registration statement in connection with this transaction; (i) The Company's transfer agent shall be DWAC eligible. Section 2.6. Lock Up Period. On the date hereof, the Company shall obtain from each officer and director a lock-up agreement, as defined below, in the form annexed hereto as Schedule 2.6 agreeing to only sell in compliance with the volume limitation of Rule 144. Section 2.7. Hardship. In the event the Investor sells shares of the Company's Common Stock after receipt of an Advance Notice and the Company fails to perform its obligations as mandated in Section 2.3, and specifically the Company fails to deliver to the Investor on the Advance Date the shares of Common Stock corresponding to the applicable Advance, the Company acknowledges that the Investor shall suffer financial hardship and therefore shall be liable for any and all losses, commissions, fees, or financial hardship caused to the Investor. ARTICLE III. Representations and Warranties of Investor Investor hereby represents and warrants to, and agrees with, the Company that the following are true and correct as of the date hereof and as of each Advance Date: Section 3.1. Organization and Authorization. The Investor is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite power and authority to purchase and hold the securities issuable hereunder. The decision to invest and the execution and delivery of this Agreement by such Investor, the performance by such Investor of its obligations hereunder and the consummation by such Investor of the transactions contemplated hereby have been duly authorized and requires no other 6 proceedings on the part of the Investor. The undersigned has the right, power and authority to execute and deliver this Agreement and all other instruments (including, without limitations, the Registration Rights Agreement), on behalf of the Investor. This Agreement has been duly executed and delivered by the Investor and, assuming the execution and delivery hereof and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms. Section 3.2. Evaluation of Risks. The Investor has such knowledge and experience in financial, tax and business matters as to be capable of evaluating the merits and risks of, and bearing the economic risks entailed by, an investment in the Company and of protecting its interests in connection with this transaction. It recognizes that its investment in the Company involves a high degree of risk. Section 3.3. No Legal Advice From the Company. The Investor acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors. The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction. Section 3.4. Investment Purpose. The securities are being purchased by the Investor for its own account, and for investment purposes. The Investor agrees not to assign or in any way transfer the Investor's rights to the securities or any interest therein and acknowledges that the Company will not recognize any purported assignment or transfer except in accordance with applicable Federal and state securities laws. No other person has or will have a direct or indirect beneficial interest in the securities. The Investor agrees not to sell, hypothecate or otherwise transfer the Investor's securities unless the securities are registered under Federal and applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company, an exemption from such laws is available. Section 3.5. Accredited Investor. The Investor is an "Accredited Investor" as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act. Section 3.6. Information. The Investor and its advisors (and its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information it deemed material to making an informed investment decision. The Investor and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management. Neither such inquiries nor any other due diligence investigations conducted by such Investor or its advisors, if any, or its representatives shall modify, amend or affect the Investor's right to rely on the Company's representations and warranties contained in this Agreement. The Investor understands that its investment involves a high degree of risk. The Investor is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Investor to obtain information from the Company in order to evaluate the merits and risks of this investment. The Investor has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to this transaction. 7 Section 3.7. Receipt of Documents. The Investor and its counsel have received and read in their entirety: (i) this Agreement and the Exhibits annexed hereto; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; and (iii) answers to all questions the Investor submitted to the Company regarding an investment in the Company; and the Investor has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus. Section 3.8. Registration Rights Agreement. The parties have entered into the Registration Rights Agreement dated the date hereof. Section 3.9. No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the shares of Common Stock offered hereby. Section 3.10. Not an Affiliate. The Investor is not an officer, director or a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the Company or any "Affiliate" of the Company (as that term is defined in Rule 405 of the Securities Act). Section 3.11. Trading Activities. The Investor's trading activities with respect to the Company's Common Stock shall be in compliance with all applicable federal and state securities laws, rules and regulations and the rules and regulations of the Principal Market on which the Company's Common Stock is listed or traded. Neither the Investor nor its affiliates has an open short position in the Common Stock of the Company, the Investor agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the Common Stock, provided that the Company acknowledges and agrees that upon receipt of an Advance Notice the Investor has the right to sell the shares to be issued to the Investor pursuant to the Advance Notice during the applicable Pricing Period. ARTICLE IV. Representations and Warranties of the Company Except as stated below, on the disclosure schedules (the "Disclosure Schedules") attached hereto as Exhibit "B," the Company hereby represents and warrants to, and covenants with, the Investor that the following are true and correct as of the date hereof: Section 4.1. Organization and Qualification. The Company is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite corporate power to own its properties and to carry on its business as now being conducted. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect on the Company and its subsidiaries taken as a whole. 8 Section 4.2. Authorization, Enforcement, Compliance with Other Instruments. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and any related agreements, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and any related agreements have been duly executed and delivered by the Company, (iv) this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and assuming the execution and delivery thereof and acceptance by the Investor and any related agreements constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. Section 4.3. Capitalization. As of the date hereof, the authorized capital stock of the Company consists of 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 $.01 per share and 1,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred Stock"), of which 10,050,000 shares of Class A Common Stock and no shares of Class B Common Stock, Class C Common Stock or Preferred Stock were issued and outstanding. All of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as disclosed in the Disclosure Schedules, no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. Except as disclosed in the Disclosure Schedules, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities (iii) there are no outstanding registration statements other than on Form SB-2 and (iv) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement). There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by this Agreement or any related agreement or the consummation of the transactions described herein or therein. The Company has furnished to the Investor true and correct copies of the Company's Certificate of Incorporation, as amended and as in effect on the date hereof (the "Certificate of Incorporation"), and the Company's By-laws, as in effect on the date hereof (the "By-laws"), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto. 9 Section 4.4. No Conflict. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any material property or asset of the Company or any of its subsidiaries is bound or affected and which would cause a Material Adverse Effect. Except as disclosed in the Disclosure Schedules, neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted in violation of any material law, ordinance, regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any fact or circumstance which might give rise to any of the foregoing. Section 4.5. Financial Statements. The financial statements of the Company disclosed in the Disclosure Schedules (the "Financial Statements") complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and, fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Investor which is not included in the Disclosure Schedules contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 10 Section 4.6. 10b-5. The Disclosure Schedules do not include any untrue statements of material fact, nor do they omit to state any material fact required to be stated therein necessary to make the statements made, in light of the circumstances under which they were made, not misleading. Section 4.7. No Default. Except as disclosed in the Disclosure Schedules, the Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it is or its property is bound and neither the execution, nor the delivery by the Company, nor the performance by the Company of its obligations under this Agreement or any of the exhibits or attachments hereto will conflict with or result in the breach or violation of any of the terms or provisions of, or constitute a default or result in the creation or imposition of any lien or charge on any assets or properties of the Company under its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other material agreement applicable to the Company or instrument to which the Company is a party or by which it is bound, or any statute, or any decree, judgment, order, rules or regulation of any court or governmental agency or body having jurisdiction over the Company or its properties, in each case which default, lien or charge is likely to cause a Material Adverse Effect on the Company's business or financial condition. Section 4.8. Absence of Events of Default. Except for matters described in the Disclosure Schedules and/or this Agreement, no Event of Default, as defined in the respective agreement to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (as so defined), has occurred and is continuing, which would have a Material Adverse Effect on the Company's business, properties, prospects, financial condition or results of operations. Section 4.9. Intellectual Property Rights. The Company and its subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company, there is no claim, action or proceeding being made or brought against, or to the Company's knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. Section 4.10. Employee Relations. Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened. None of the Company's or its subsidiaries' employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good. 11 Section 4.11. Environmental Laws. The Company and its subsidiaries are (i) in compliance with any and all applicable material foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval. Section 4.12. Title. Except as set forth in the Disclosure Schedules, the Company has good and marketable title to its properties and material assets owned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than such as are not material to the business of the Company. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. Section 4.13. Insurance. The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole. Section 4.14. Regulatory Permits. The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. Section 4.15. Internal Accounting Controls. The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Section 4.16. No Material Adverse Breaches, etc. Except as set forth in the Disclosure Schedules, neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the 12 Company or its subsidiaries. Except as set forth in the Disclosure Schedules, neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company's officers, has or is expected to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries. Section 4.17. Absence of Litigation. Except as set forth in the Disclosure Schedules, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a Material Adverse Effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) except as expressly disclosed in the Disclosure Schedules, have a Material Adverse Effect on the business, operations, properties, financial condition or results of operation of the Company and its subsidiaries taken as a whole. Section 4.18. Subsidiaries. Except as disclosed in the Disclosure Schedules, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, association or other business entity. Section 4.19. Tax Status. Except as disclosed in the Disclosure Schedules, the Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. Section 4.20. Certain Transactions. Except as set forth in the Disclosure Schedules none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. Section 4.21. Fees and Rights of First Refusal. The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties. 13 Section 4.22. Use of Proceeds. The Company shall use the net proceeds from this offering for general corporate purposes, including, without limitation, the payment of loans incurred by the Company. However, in no event shall the Company use the net proceeds from this offering for the payment (or loan to any such person for the payment) of any judgment, or other liability, incurred by any executive officer, officer, director or employee of the Company, except for any liability owed to such person for services rendered, or if any judgment or other liability is incurred by such person originating from services rendered to the Company, or the Company has indemnified such person from liability. Section 4.23. Further Representation and Warranties of the Company. For so long as any securities issuable hereunder held by the Investor remain outstanding, the Company acknowledges, represents, warrants and agrees that it will maintain the listing of its Common Stock on the Principal Market. Section 4.24. Opinion of Counsel. Investor shall receive an opinion letter from counsel to the Company on the date hereof. Section 4.25. Opinion of Counsel. The Company will obtain for the Investor, at the Company's expense, any and all opinions of counsel which may be reasonably required in order to sell the securities issuable hereunder without restriction. Section 4.26. Dilution. The Company is aware and acknowledges that issuance of shares of the Company's Common Stock could cause dilution to existing shareholders and could significantly increase the outstanding number of shares of Common Stock. ARTICLE V. Indemnification The Investor and the Company represent to the other the following with respect to itself: Section 5.1. Indemnification. (a) In consideration of the Investor's execution and delivery of this Agreement, and in addition to all of the Company's other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Investor, and all of its officers, directors, partners, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Investor Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Investor 14 Indemnitee not arising out of any action or inaction of an Investor Indemnitee, and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Investor Indemnitees. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law. (b) In consideration of the Company's execution and delivery of this Agreement, and in addition to all of the Investor's other obligations under this Agreement, the Investor shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, shareholders, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Company Indemnitees") from and against any and all Indemnified Liabilities incurred by the Company Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Investor in this Agreement, the Registration Rights Agreement, or any instrument or document contemplated hereby or thereby executed by the Investor, (b) any breach of any covenant, agreement or obligation of the Investor(s) contained in this Agreement, the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Investor, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on misrepresentations or due to a breach by the Investor and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnitees. To the extent that the foregoing undertaking by the Investor may be unenforceable for any reason, the Investor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law. (c) The obligations of the parties to indemnify or make contribution under this Section 5.1 shall survive termination. ARTICLE VI. Covenants of the Company Section 6.1. Registration Rights. The Company shall cause the Registration Rights Agreement to remain in full force and effect and the Company shall comply in all material respects with the terms thereof. Section 6.2. Listing of Common Stock. The Company shall maintain the Common Stock's authorization for quotation on the National Association of Securities Dealers Inc.'s Over the Counter Bulletin Board. Section 6.3. Exchange Act Registration. The Company will cause its Common Stock to continue to be registered under Section 12(g) of the Exchange Act, will file in a timely manner all reports and other documents required of it as a reporting company under the Exchange Act and will not take any action or file any document (whether or not permitted by Exchange Act or 15 the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Exchange Act. Section 6.4. Transfer Agent Instructions. Upon effectiveness of the Registration Statement the Company shall deliver instructions to its transfer agent to issue shares of Common Stock to the Investor free of restrictive legends on or before each Advance Date Section 6.5. Corporate Existence. The Company will take all steps necessary to preserve and continue the corporate existence of the Company. Section 6.6. Notice of Certain Events Affecting Registration; Suspension of Right to Make an Advance. The Company will immediately notify the Investor upon its becoming aware of the occurrence of any of the following events in respect of a registration statement or related prospectus relating to an offering of Registrable Securities: (i) receipt of any request for additional information by the SEC or any other Federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other Federal or state governmental authority of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus of any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Investor any such supplement or amendment to the related prospectus. The Company shall not deliver to the Investor any Advance Notice during the continuation of any of the foregoing events. Section 6.7. Consent of Investor to Sell Capital Stock. During the Commitment Period, the Company shall not, without the prior written consent of the Investor, (i) issue or sell any Common Stock or Preferred Stock without consideration or for a consideration per share less than the Bid Price of the Common Stock determined immediately prior to its issuance, (ii) issue or sell any Preferred Stock warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less than such Common Stock's Bid Price determined immediately prior to its issuance, or (iii) file any registration statement on Form S-8, except for the registration of an employee, officer and/or stock option plan. Notwithstanding 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. 16 Section 6.8. Consolidation; Merger. The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all the assets of the Company to another entity (a "Consolidation Event") unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Investor such shares of stock and/or securities as the Investor is entitled to receive pursuant to this Agreement. Section 6.9. Issuance of the Company's Common Stock. The sale of the shares of Common Stock shall be made in accordance with the provisions and requirements of Regulation D and any applicable state securities law. ARTICLE VII. Conditions for Advance and Conditions to Closing Section 7.1. Conditions Precedent to the Obligations of the Company. The obligation hereunder of the Company to issue and sell the shares of Common Stock to the Investor incident to each Closing is subject to the satisfaction, or waiver by the Company, at or before each such Closing, of each of the conditions set forth below. (a) Accuracy of the Investor's Representations and Warranties. The representations and warranties of the Investor shall be true and correct in all material respects. (b) Performance by the Investor. The Investor shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Investor at or prior to such Closing. Section 7.2. Conditions Precedent to the Right of the Company to Deliver an Advance Notice and the Obligation of the Investor to Purchase Shares of Common Stock. The right of the Company to deliver an Advance Notice and the obligation of the Investor hereunder to acquire and pay for shares of the Company's Common Stock incident to a Closing is subject to the fulfillment by the Company, on (i) the date of delivery of such Advance Notice and (ii) the applicable Advance Date (each a "Condition Satisfaction Date"), of each of the following conditions: (a) Registration of the Common Stock with the SEC. The Company shall have filed with the SEC a Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement. As set forth in the Registration Rights Agreement, the Registration Statement shall have previously become effective and shall remain effective on each Condition Satisfaction Date and (i) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the 17 Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC's concerns have been addressed and the Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), and (ii) no other suspension of the use or withdrawal of the effectiveness of the Registration Statement or related prospectus shall exist. The Registration Statement must have been declared effective by the SEC prior to the first Advance Notice Date. (b) Authority. The Company shall have obtained all permits and qualifications required by any applicable state in accordance with the Registration Rights Agreement for the offer and sale of the shares of Common Stock, or shall have the availability of exemptions therefrom. The sale and issuance of the shares of Common Stock shall be legally permitted by all laws and regulations to which the Company is subject. (c) Fundamental Changes. There shall not exist any fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post-effective amendment to the Registration Statement. (d) Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement (including, without limitation, the conditions specified in Section 2.5 hereof) and the Registration Rights Agreement to be performed, satisfied or complied with by the Company at or prior to each Condition Satisfaction Date. (e) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly and adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement. (f) No Suspension of Trading in or Delisting of Common Stock. The trading of the Common Stock is not suspended by the SEC or the Principal Market (if the Common Stock is traded on a Principal Market). The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements of the Principal Market (if the Common Stock is traded on a Principal Market). The Company shall not have received any notice threatening the continued listing of the Common Stock on the Principal Market (if the Common Stock is traded on a Principal Market). (g) Maximum Advance Amount. The amount of an Advance requested by the Company shall not exceed the Maximum Advance Amount. In addition, in no event shall the number of shares issuable to the Investor pursuant to an Advance cause the aggregate number of shares of Common Stock beneficially owned by the Investor and its affiliates to exceed nine and 9/10 percent (9.9%) of the then outstanding Common Stock of the Company. For the purposes of this section beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. (h) No Knowledge. The Company has no knowledge of any event which would be more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective. 18 (i) Executed Advance Notice. The Investor shall have received the Advance Notice executed by an officer of the Company and the representations contained in such Advance Notice shall be true and correct as of each Condition Satisfaction Date. ARTICLE VIII. Due Diligence Review; Non-Disclosure of Non-Public Information Section 8.1. Due Diligence Review. Prior to the filing of the Registration Statement the Company shall make available for inspection and review by the Investor, its advisors and representatives, and any underwriter participating in any disposition of the Registrable Securities on behalf of the Investor pursuant to the Registration Statement, any such registration statement or amendment or supplement thereto or any blue sky, NASD or other filing, all financial and other records, all Disclosure Schedules and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company's officers, directors and employees to supply all such information reasonably requested by the Investor or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Investor and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of the Registration Statement. Section 8.2. Non-Disclosure of Non-Public Information. (a) The Company shall not disclose non-public information to the Investor, its advisors, or its representatives, unless prior to disclosure of such information the Company identifies such information as being non-public information and provides the Investor, such advisors and representatives with the opportunity to accept or refuse to accept such non-public information for review. The Company may, as a condition to disclosing any non-public information hereunder, require the Investor's advisors and representatives to enter into a confidentiality agreement in form reasonably satisfactory to the Company and the Investor. (b) Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading. Nothing contained in this Section 8.2 shall be construed to mean that such persons or entities other than the Investor (without the 19 written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading. ARTICLE IX. Choice of Law/Jurisdiction Section 9.1. Governing Law. 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, New Jersey and the United States District Court of New Jersey, sitting in Newark, New Jersey, for the adjudication of any civil action asserted pursuant to this paragraph. ARTICLE X. Assignment; Termination Section 10.1. Assignment. Neither this Agreement nor any rights of the Company hereunder may be assigned to any other Person. Section 10.2. Termination. The obligations of the Investor to make Advances under Article II hereof shall terminate twenty-four (24) months after the Effective Date. ARTICLE XI. Notices Section 11.1. Notices. Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement 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 a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (iv) one (1) 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 the Company, to: iVoice Technology, Inc. 750 Highway 34 Matawan, NJ 07747 Attention: Mark Meller Telephone: (732) 441-7700 Facsimile: (732) 441-9895 20 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 If to the Investor(s): Cornell Capital Partners, LP 101 Hudson Street -Suite 3700 Jersey City, NJ 07302 Attention: Mark Angelo Portfolio Manager Telephone: (201) 985-8300 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 Each party shall provide five (5) days' prior written notice to the other party of any change in address or facsimile number. ARTICLE XII. Miscellaneous Section 12.1. Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof, though failure to deliver such copies shall not affect the validity of this Agreement. Section 12.2. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Investor, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement. Section 12.3. Reporting Entity for the Common Stock. The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given 21 Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity. Section 12.4. Fees and Expenses. The Company hereby agrees to pay the following fees: (a) Structuring Fees. Each of the parties shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby, except that on the date hereof, the Company shall issue to Yorkville Advisors Management, LLC 325,000 shares of the Company's Common Stock, which shall have "piggy-back" registration rights. Subsequently on each advance date, the Company will pay Yorkville Advisors Management, LLC a structuring fee of Five Hundred Dollars ($500) directly out of the gross proceeds of each Advance. (b) Commitment Fees. (i) On each Advance Date the Company shall pay to the Investor, directly from the gross proceeds of each Advance, an amount equal to six percent (6%) of the amount of each Advance. The Company hereby agrees that if such payment, as is described above, is not made by the Company on the Advance Date, such payment will be made at the direction of the Investor as outlined and mandated by Section 2.3 of this Agreement. (ii) On the date hereof, the Company shall issue to the Investor 150,000 shares of the Company's Common Stock (the "Investor's Shares"). (iii) Fully Earned. The Investor's Shares shall be deemed fully earned as of the date hereof. (iv) Registration Rights. The Investor's Shares will have "piggy-back" registration rights. Section 12.5. Brokerage. Each of the parties hereto represents that it has had no dealings in connection with this transaction with any finder or broker who will demand payment of any fee or commission from the other party. The Company on the one hand, and the Investor, on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any person claiming brokerage commissions or finder's fees on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby. 22 Section 12.6. Confidentiality. If for any reason the transactions contemplated by this Agreement are not consummated, each of the parties hereto shall keep confidential any information obtained from any other party (except information publicly available or in such party's domain prior to the date hereof, and except as required by court order) and shall promptly return to the other parties all schedules, documents, instruments, work papers or other written information without retaining copies thereof, previously furnished by it as a result of this Agreement or in connection herein. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 23 IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Standby Equity Distribution Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above. COMPANY: IVOICE TECHNOLOGY, INC. By: /s/ Mark Meller ------------------------------ Name: Mark Meller Title: CEO INVESTOR: CORNELL CAPITAL PARTNERS, LP By: Yorkville Advisors, LLC Its: General Partner By: /s/ Mark Angelo ----------------------------- Name: Mark Angelo Title: Portfolio Manager 24 EXHIBIT A ADVANCE NOTICE IVOICE TECHNOLOGY, INC. The undersigned, Mark Meller hereby certifies, with respect to the sale of shares of Common Stock of IVOICE TECHNOLOGY, INC. (the "Company"), issuable in connection with this Advance Notice and Compliance Certificate dated ___________________ (the "Notice"), delivered pursuant to the Standby Equity Distribution Agreement (the "Agreement"), as follows: 1. The undersigned is the duly elected CEO of the Company. 2. There are no fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post effective amendment to the Registration Statement. 3. The Company has performed in all material respects all covenants and agreements to be performed by the Company and has complied in all material respects with all obligations and conditions contained in the Agreement on or prior to the Advance Notice Date, and shall continue to perform in all material respects all covenants and agreements to be performed by the Company through the applicable Advance Date. 4. The undersigned hereby represents, warrants and covenants that it has made all filings ("SEC Filings") required to be made by it pursuant to applicable securities laws (including, without limitation, all filings required under the Securities Exchange Act of 1934, which include Forms 10-Q, 10-K, 8-K, etc. All SEC Filings and other public disclosures made by the Company, including, without limitation, all press releases, analysts meetings and calls, etc. (collectively, the "Public Disclosures"), have been reviewed and approved for release by the Company's attorneys and, if containing financial information, the Company's independent certified public accountants. None of the Company's Public Disclosures contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 5. The Advance requested is _____________________. The undersigned has executed this Certificate this ____ day of _________________. IVOICE TECHNOLOGY, INC. By:_______________________________ Name: Mark Meller Title: CEO SCHEDULE 2.6 ------------ IVOICE TECHNOLOGY, INC. ----------------------- The undersigned hereby agrees that for a period commencing on August ___, 2005 and expiring on the later of (a) the date that all amounts owed to Cornell Capital Partners, LP (the "Investor"), or any successors or assigns, under the Promissory Note dated February 28, 2005 issued from iVoice Technology, Inc. (the "Company") to the Investor have been paid or (b) the termination of the Standby Equity Distribution Agreement dated August ___, 2005 between the Company and the Investor (the "Lock-up Period"), he, she or it will not, directly or indirectly, without the prior written consent of the Investor, issue, offer, agree or offer to sell, sell, grant an option for the purchase or sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber or dispose of any securities of the Company, including common stock or options, rights, warrants or other securities underlying, convertible into, exchangeable or exercisable for or evidencing any right to purchase or subscribe for any common stock (whether or not beneficially owned by the undersigned), or any beneficial interest therein (collectively, the "Securities") except in accordance with the volume limitations set forth in Rule 144(e) of the General Rules and Regulations under the Securities Act of 1933, as amended. Notwithstanding 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. In order to enable the aforesaid covenants to be enforced, the undersigned hereby consents to the placing of legends and/or stop-transfer orders with the transfer agent of the Company's securities with respect to any of the Securities registered in the name of the undersigned or beneficially owned by the undersigned, and the undersigned hereby confirms the undersigned's investment in the Company. Dated: _______________, 2005 Signature Name: ____________________________________ Address:__________________________________ City, State, Zip Code:____________________ __________________________________________ Print Social Security Number or Taxpayer I.D. Number 26 EX-10 10 kl12026_ex10-36.txt EX 10.36 AMENDED & RESTATED PLACEMENT AGENT AGR Exhibit 10.36 IVOICE TECHNOLOGY, INC. AMENDED AND RESTATED PLACEMENT AGENT AGREEMENT Dated as of: December 12, 2005 Monitor Capital Inc. 9171 Towne Centre Drive, Suite 465 San Diego, CA 92122 Ladies and Gentlemen: The undersigned, iVoice Technology, Inc., a New Jersey corporation (the "Company"), hereby agrees with Monitor Capital, Inc. (the "Placement Agent") and Cornell Capital Partners, LP, a Delaware Limited Partnership (the "Investor"), as follows: 1. Offering. This Agreement shall amend and restate the Placement Agent Agreement dated September 22, 2005 (the "Original Agreement") by and among the parties hereto. Effective as of September 22, 2005, the Company engaged the Placement Agent to act as its exclusive placement agent in connection with the Standby Equity Distribution Agreement September 22, 2005 (as amended, amended and restated or otherwise modified in writing, the "Standby Equity Distribution Agreement"), pursuant to which the Company shall issue and sell to the Investor, from time to time, and the Investor shall purchase from the Company (the "Offering") up to Ten Million Dollars ($10,000,000) of the Company's Class A common stock (the "Commitment Amount"), no par value per share (the "Common Stock"), at price per share equal to the Purchase Price, as that term is defined in the Standby Equity Distribution Agreement. The Placement Agent services shall consist of reviewing the terms of the Standby Equity Distribution Agreement and advising the Company with respect to those terms. All capitalized terms used herein and not otherwise defined herein shall have the same meaning ascribed to them as in the Standby Equity Distribution Agreement. The Investor will be granted certain registration rights with respect to the Common Stock as more fully set forth in the Registration Rights Agreement between the Company and the Investor dated the date hereof (the "Registration Rights Agreement"). The documents to be executed and delivered in connection with the Offering, including, but not limited, to the Company's latest Quarterly Report on Form 10-QSB as filed with the United States Securities and Exchange Commission, this Agreement, the Standby Equity Distribution Agreement and the Registration Rights Agreement are referred to sometimes hereinafter collectively as the "Offering Materials." The Company's Common Stock purchased by the Investor hereunder is sometimes referred to hereinafter as the "Securities." The Placement Agent shall not be obligated to sell any Securities. 1 2. Compensation. On the date hereof, the Company shall issue to the Placement Agent or its designee shares of the Company's Common Stock in an amount equal to Ten Thousand Dollars ($10,000) divided by the lowest closing bid price of the Company's Common Stock, as quoted by Bloomberg, LP, on the fifth (5th) Trading Day of the Company's Common Stock once it is listed on a Principal Market, as such term is defined in the Standby Equity Distribution Agreement of even date hereof (the "Placement Agent's Shares"). The Placement Agent shall be entitled to "piggy-back" registration rights with respect to the Placement Agent's Shares, which shall be triggered upon registration of any shares of Common Stock by the Company pursuant to the Registration Rights Agreement dated the date hereof. 3. Representations, Warranties and Covenants of the Placement Agent. A. The Placement Agent represents, warrants and covenants as follows: (i) The Placement Agent has the necessary power to enter into this Agreement and to consummate the transactions contemplated hereby. (ii) The execution and delivery by the Placement Agent of this Agreement and the consummation of the transactions contemplated herein will not result in any violation of, or be in conflict with, or constitute a default under, any agreement or instrument to which the Placement Agent is a party or by which the Placement Agent or its properties are bound, or any judgment, decree, order or, to the Placement Agent's knowledge, any statute, rule or regulation applicable to the Placement Agent. This Agreement when executed and delivered by the Placement Agent, will constitute the legal, valid and binding obligations of the Placement Agent, enforceable in accordance with their respective terms, except to the extent that (a) the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, (b) the enforceability hereof or thereof is subject to general principles of equity, or (c) the indemnification provisions hereof or thereof may be held to be in violation of public policy. (iii) Upon receipt and execution of this Agreement, the Placement Agent will promptly forward copies of this Agreement to the Company or its counsel and the Investor or its counsel. (iv) The Placement Agent will not intentionally take any action that it reasonably believes would cause the Offering to violate the provisions of the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934 (the "Exchange Act"), the respective rules and regulations promulgated thereunder (the "Rules and Regulations") or applicable "Blue Sky" laws of any state or jurisdiction. (v) The Placement Agent is a member of the National Association of Securities Dealers, Inc., and is a broker-dealer registered as such under the Exchange Act and under the securities laws of the states in which the Securities will be offered or sold by the Placement Agent unless an exemption for such state registration is available to the Placement Agent. The Placement Agent is in material compliance with the rules and regulations 2 applicable to the Placement Agent generally and applicable to the Placement Agent's participation in the Offering. 4. Representations, Warranties and Covenants of the Company. A. The Company represents, warrants and covenants as follows: (i) The execution, delivery and performance of each of this Agreement, the Standby Equity Distribution Agreement and the Registration Rights Agreement have been or will be duly and validly authorized by the Company and is, or with respect to this Agreement, the Standby Equity Distribution Agreement and the Registration Rights Agreement, will be a valid and binding agreement of the Company, enforceable in accordance with its respective terms, except to the extent that (a) the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, (b) the enforceability hereof or thereof is subject to general principles of equity or (c) the indemnification provisions hereof or thereof may be held to be in violation of public policy. The Securities to be issued pursuant to the transactions contemplated by this Agreement and the Standby Equity Distribution Agreement have been duly authorized and, when issued and paid for in accordance with this Agreement, the Standby Equity Distribution Agreement and the certificates/instruments representing such Securities, will be valid and binding obligations of the Company, enforceable in accordance with their respective terms, except to the extent that (1) the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, and (2) the enforceability thereof is subject to general principles of equity. All corporate action required to be taken for the authorization, issuance and sale of the Securities has been duly and validly taken by the Company. (ii) The Company has a duly authorized, issued and outstanding capitalization as set forth herein and in the Standby Equity Distribution Agreement. The Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the agreements described herein and as described in the Standby Equity Distribution Agreement, dated the date hereof and the agreements described therein. All issued and outstanding securities of the Company, have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission or preemptive rights with respect thereto and are not subject to personal liability solely by reason of being security holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company. (iii) The Common Stock to be issued in accordance with this Agreement and the Standby Equity Distribution Agreement has been duly authorized and, when issued and paid for in accordance with this Agreement and the Standby Equity Distribution Agreement, the certificates/instruments representing such Common Stock will be validly issued, fully-paid and non-assessable; the holders thereof will not be subject to personal liability solely by reason of being such holders; such Securities are not and will not be subject to the preemptive rights of any holder of any security of the Company. 3 (iv) The Company has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property necessary to conduct its business (including, without limitation, any real or personal property stated in the Offering Materials to be owned or leased by the Company), free and clear of all liens, encumbrances, claims, security interests and defects of any material nature whatsoever, other than those set forth in the Offering Materials and liens for taxes not yet due and payable. (v) There is no litigation or governmental proceeding pending or, to the best of the Company's knowledge, threatened against, or involving the properties or business of the Company, except as set forth in the Offering Materials. (vi) The Company has been duly organized and validly exists as a corporation in good standing under the laws of the State of New Jersey. Except as set forth in the Offering Materials, the Company does not own or control, directly or indirectly, an interest in any other corporation, partnership, trust, joint venture or other business entity. The Company is duly qualified or licensed and in good standing as a foreign corporation in each jurisdiction in which the character of its operations requires such qualification or licensing and where failure to so qualify would have a material adverse effect on the Company. The Company has all requisite corporate power and authority, and all material and necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies (domestic and foreign) to conduct its businesses (and proposed business) as described in the Offering Materials. Any disclosures in the Offering Materials concerning the effects of foreign, federal, state and local regulation on the Company's businesses as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact. The Company has all corporate power and authority to enter into this Agreement, the Standby Equity Distribution Agreement and the Registration Rights Agreement to carry out the provisions and conditions hereof and thereof, and all consents, authorizations, approvals and orders required in connection herewith and therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required by the Company for the issuance of the Securities or execution and delivery of the Offering Materials except for applicable federal and state securities laws. The Company, since its inception, has not incurred any liability arising under or as a result of the application of any of the provisions of the Securities Act, the Exchange Act or the Rules and Regulations. (vii) There has been no material adverse change in the condition or prospects of the Company, financial or otherwise, from the latest dates as of which such condition or prospects, respectively, are set forth in the Offering Materials, and the outstanding debt, the property and the business of the Company conform in all material respects to the descriptions thereof contained in the Offering Materials. (viii) Except as set forth in the Offering Materials, the Company is not in breach of, or in default under, any term or provision of any material indenture, mortgage, deed of trust, lease, note, loan or Standby Equity Distribution Agreement or any other material agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected. The Company is not in violation of any provision of its charter or by-laws or in violation of any franchise, license, permit, judgment, decree or order, or in violation of any 4 material statute, rule or regulation. Neither the execution and delivery of the Offering Materials nor the issuance and sale or delivery of the Securities, nor the consummation of any of the transactions contemplated in the Offering Materials nor the compliance by the Company with the terms and provisions hereof or thereof, has conflicted with or will conflict with, or has resulted in or will result in a breach of, any of the terms and provisions of, or has constituted or will constitute a default under, or has resulted in or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or pursuant to the terms of any indenture, mortgage, deed of trust, note, loan or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company may be bound or to which any of the property or assets of the Company is subject except (a) where such default, lien, charge or encumbrance would not have a material adverse effect on the Company and (b) as described in the Offering Materials; nor will such action result in any violation of the provisions of the charter or the by-laws of the Company or, assuming the due performance by the Placement Agent of its obligations hereunder, any material statute or any material order, rule or regulation applicable to the Company of any court or of any foreign, federal, state or other regulatory authority or other government body having jurisdiction over the Company. (ix) Subsequent to the dates as of which information is given in the Offering Materials, and except as may otherwise be indicated or contemplated herein or therein, the Company has not (a) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, or (b) entered into any transaction other than in the ordinary course of business, or (c) declared or paid any dividend or made any other distribution on or in respect of its capital stock. Except as described in the Offering Materials, the Company has no outstanding obligations to any officer or director of the Company. (x) There are no claims for services in the nature of a finder's or origination fee with respect to the sale of the Common Stock or any other arrangements, agreements or understandings that may affect the Placement Agent's compensation, as determined by the National Association of Securities Dealers, Inc. (xi) The Company owns or possesses, free and clear of all liens or encumbrances and rights thereto or therein by third parties, the requisite licenses or other rights to use all trademarks, service marks, copyrights, service names, trade names, patents, patent applications and licenses necessary to conduct its business (including, without limitation, any such licenses or rights described in the Offering Materials as being owned or possessed by the Company) and, except as set forth in the Offering Materials, there is no claim or action by any person pertaining to, or proceeding, pending or threatened, which challenges the exclusive rights of the Company with respect to any trademarks, service marks, copyrights, service names, trade names, patents, patent applications and licenses used in the conduct of the Company's businesses (including, without limitation, any such licenses or rights described in the Offering Materials as being owned or possessed by the Company) except any claim or action that would not have a material adverse effect on the Company; the Company's current products, services or processes do not infringe or will not infringe on the patents currently held by any third party. (xii) Except as described in the Offering Materials, the Company is not under any obligation to pay royalties or fees of any kind whatsoever to any third party with 5 respect to any trademarks, service marks, copyrights, service names, trade names, patents, patent applications, licenses or technology it has developed, uses, employs or intends to use or employ, other than to their respective licensors. (xiii) Subject to the performance by the Placement Agent of its obligations hereunder the offer and sale of the Securities complies, and will continue to comply, in all material respects with the requirements of Rule 506 of Regulation D promulgated by the SEC pursuant to the Securities Act and any other applicable federal and state laws, rules, regulations and executive orders. Neither the Offering Materials nor any amendment or supplement thereto nor any documents prepared by the Company in connection with the Offering will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All statements of material facts in the Offering Materials are true and correct as of the date of the Offering Materials. (xiv) All material taxes which are due and payable from the Company have been paid in full or adequate provision has been made for such taxes on the books of the Company, except for those taxes disputed in good faith by the Company (xv) None of the Company nor any of its officers, directors, employees or agents, nor any other person acting on behalf of the Company, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who is or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) which (A) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, or (B) if not given in the past, might have had a materially adverse effect on the assets, business or operations of the Company as reflected in any of the financial statements contained in the Offering Materials, or (C) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company in the future. (xvi) The Company shall advise the Placement Agent and the Investor of any material adverse change in the Company's financial condition, prospects or business or of any development materially affecting the Company or rendering untrue or misleading any material statement in the Offering Materials occurring at any time as soon as the Company is either informed or becomes aware thereof. (xvii) The Company shall use its commercially reasonable efforts to cause the Common Stock issuable in connection with the Standby Equity Distribution Agreement to be qualified or registered for sale on terms consistent with those stated in the Registration Rights Agreement and under the securities laws of such jurisdictions as the Placement Agent and the Investor shall reasonably request. Qualification, registration and exemption charges and fees shall be at the sole cost and expense of the Company. 6 (xviii) The Company shall comply with the terms of the Offering Materials. (xix) The Company shall ensure that any transactions between or among the Company, or any of its officers, directors and affiliates be on terms and conditions that are no less favorable to the Company, than the terms and conditions that would be available in an "arm's length" transaction with an independent third party. (xx) Upon the effectiveness of a registration statement covering the Standby Equity Distribution Agreement, the Company shall deliver to the Investor and the Placement Agent an opinion from counsel to the Company, dated as of the date thereof, which opinion shall be in form and substance reasonably satisfactory to the Investor, their counsel and the Placement Agent. (xxi) The Company shall furnish to the Investor and the Placement Agent such documents, certificates and opinions as it may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Agreement and the Offering Materials, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained. 5. Representations, Warranties and Covenants of the Investor. A. The Investor represents, warrants and covenants as follows: (i) The Investor has the necessary power to enter into this Agreement and to consummate the transactions contemplated hereby. (ii) The execution and delivery by the Investor of this Agreement and the consummation of the transactions contemplated herein will not result in any violation of, or be in conflict with, or constitute a default under, any agreement or instrument to which the Investor is a party or by which the Investor or its properties are bound, or any judgment, decree, order or, to the Investor's knowledge, any statute, rule or regulation applicable to the Investor. This Agreement when executed and delivered by the Investor, will constitute the legal, valid and binding obligations of the Investor, enforceable in accordance with their respective terms, except to the extent that (a) the enforceability hereof or thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting the rights of creditors generally, (b) the enforceability hereof or thereof is subject to general principles of equity, or (c) the indemnification provisions hereof or thereof may be held to be in violation of public policy. (iii) The Investor will promptly forward copies of any and all due diligence questionnaires compiled by the Investor to the Placement Agent. (iv) The Investor is an Accredited Investor (as defined under the Securities Act). 7 (v) The Investor is acquiring the Securities for the Investor's own account as principal, not as a nominee or agent, for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part and no other person has a direct or indirect beneficial interest in such Securities. Further, the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. (vi) The Investor acknowledges the Investor's understanding that the offering and sale of the Securities is intended to be exempt from registration under the Securities Act by virtue of Section 3(b) of the Securities Act and the provisions of Regulation D promulgated thereunder ("Regulation D"). In furtherance thereof, the Investor represents and warrants as follows: (a) The Investor has the financial ability to bear the economic risk of the Investor's investment, has adequate means for providing for the Inventor's current needs and personal contingencies and has no need for liquidity with respect to the Investor's investment in the Company; and (b) The Investor has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment. The Investor also represents it has not been organized for the purpose of acquiring the Securities. (vii) The Investor has been given the opportunity for a reasonable time prior to the date hereof to ask questions of, and receive answers from, the Company or its representatives concerning the terms and conditions of the Offering, and other matters pertaining to this investment, and has been given the opportunity for a reasonable time prior to the date hereof to obtain such additional information in connection with the Company in order for the Investor to evaluate the merits and risks of purchase of the Securities, to the extent the Company possesses such information or can acquire it without unreasonable effort or expense. The Investor is not relying on the Placement Agent or any of its affiliates with respect to the accuracy or completeness of the Offering Materials or for any economic considerations involved in this investment. 6. Indemnification and Limitation of Liability. A. The Company hereby agrees that it will indemnify and hold the Placement Agent and each officer, director, shareholder, employee or representative of the Placement Agent and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or the SEC's Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Placement Agent or such indemnified person of 8 the Placement Agent may become subject under the Securities Act, the Exchange Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in (a) Section 4 of this Agreement, (b) the Offering Materials (except those written statements relating to the Placement Agent given by the Placement Agent for inclusion therein), (c) any application or other document or written communication executed by the Company or based upon written information furnished by the Company filed in any jurisdiction in order to qualify the Common Stock under the securities laws thereof, or any state securities commission or agency; (ii) the omission or alleged omission from documents described in clauses (a), (b) or (c) above of a material fact required to be stated therein or necessary to make the statements therein not misleading; or (iii) the breach of any representation, warranty, covenant or agreement made by the Company in this Agreement. The Company further agrees that upon demand by an indemnified person, at any time or from time to time, it will promptly reimburse such indemnified person for any loss, claim, damage, liability, cost or expense actually and reasonably paid by the indemnified person as to which the Company has indemnified such person pursuant hereto. Notwithstanding the foregoing provisions of this Paragraph 7(A), any such payment or reimbursement by the Company of fees, expenses or disbursements incurred by an indemnified person in any proceeding in which a final judgment by a court of competent jurisdiction (after all appeals or the expiration of time to appeal) is entered against the Placement Agent or such indemnified person based upon specific finding of fact that the Placement Agent or such indemnified person's gross negligence or willful misfeasance will be promptly repaid to the Company. B. The Placement Agent hereby agrees that it will indemnify and hold the Company and each officer, director, shareholder, employee or representative of the Company, and each person controlling, controlled by or under common control with the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Company or such indemnified person of the Company may become subject under the Securities Act, the Exchange Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon (i) the material breach of any representation, warranty, covenant or agreement made by the Placement Agent in this Agreement, or (ii) any false or misleading information provided to the Company in writing by one of the Placement Agent's indemnified persons specifically for inclusion in the Offering Materials. 9 C. The Investor hereby agrees that it will indemnify and hold the Placement Agent and each officer, director, shareholder, employee or representative of the Placement Agent, and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Placement Agent or such indemnified person of the Placement Agent may become subject under the Securities Act, the Exchange Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon (i) the conduct of the Investor or its officers, employees or representatives in its acting as the Investor for the Offering, (ii) the material breach of any representation, warranty, covenant or agreement made by the Investor in the Offering Materials, or (iii) any false or misleading information provided to the Placement Agent by one of the Investor's indemnified persons. D. The Placement Agent hereby agrees that it will indemnify and hold the Investor and each officer, director, shareholder, employee or representative of the Investor, and each person controlling, controlled by or under common control with the Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or the Rules and Regulations, harmless from and against any and all loss, claim, damage, liability, cost or expense whatsoever (including, but not limited to, any and all reasonable legal fees and other expenses and disbursements incurred in connection with investigating, preparing to defend or defending any action, suit or proceeding, including any inquiry or investigation, commenced or threatened, or any claim whatsoever or in appearing or preparing for appearance as a witness in any action, suit or proceeding, including any inquiry, investigation or pretrial proceeding such as a deposition) to which the Investor or such indemnified person of the Investor may become subject under the Securities Act, the Exchange Act, the Rules and Regulations, or any other federal or state law or regulation, common law or otherwise, arising out of or based upon the material breach of any representation, warranty, covenant or agreement made by the Placement Agent in this Agreement. E. Promptly after receipt by an indemnified party of notice of commencement of any action covered by Section 7(A), (B), (C) or (D), the party to be indemnified shall, within five (5) business days, notify the indemnifying party of the commencement thereof; the omission by one (1) indemnified party to so notify the indemnifying party shall not relieve the indemnifying party of its obligation to indemnify any other indemnified party that has given such notice and shall not relieve the indemnifying party of any liability outside of this indemnification if not materially prejudiced thereby. In the event that any action is brought against the indemnified party, the indemnifying party will be entitled to participate therein and, to the extent it may desire, to assume and control the defense thereof with counsel chosen by it which is reasonably acceptable to the indemnified party. After notice from the indemnifying party to such indemnified party of its election to so assume the defense thereof, the indemnifying party will not be liable to such indemnified party under such Section 7(A), (B), 10 (C), or (D) for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, but the indemnified party may, at its own expense, participate in such defense by counsel chosen by it, without, however, impairing the indemnifying party's control of the defense. Subject to the proviso of this sentence and notwithstanding any other statement to the contrary contained herein, the indemnified party or parties shall have the right to choose its or their own counsel and control the defense of any action, all at the expense of the indemnifying party if (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action at the expense of the indemnifying party, or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying party; provided, however, that the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstance, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No settlement of any action or proceeding against an indemnified party shall be made without the consent of the indemnifying party. F. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in Section 7(A) or 7(B) is due in accordance with its terms but is for any reason held by a court to be unavailable on grounds of policy or otherwise, the Company and the Placement Agent shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with the investigation or defense of same) which the other may incur in such proportion so that the Placement Agent shall be responsible for such percent of the aggregate of such losses, claims, damages and liabilities as shall equal the percentage of the gross proceeds paid to the Placement Agent and the Company shall be responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7(F), any person controlling, controlled by or under common control with the Placement Agent, or any partner, director, officer, employee, representative or any agent of any thereof, shall have the same rights to contribution as the Placement Agent and each person controlling, controlled by or under common control with the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each officer of the Company and each director of the Company shall have the same rights to contribution as the Company. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against the other party under this Section 7(D), notify such party from whom contribution may be sought, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any obligation they may have hereunder or otherwise if the party from whom contribution may be sought is not materially prejudiced thereby. 11 G. The indemnity and contribution agreements contained in this Section 7 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any indemnified person or any termination of this Agreement. H. The Company hereby waives, to the fullest extent permitted by law, any right to or claim of any punitive, exemplary, incidental, indirect, special, consequential or other damages (including, without limitation, loss of profits) against the Placement Agent and each officer, director, shareholder, employee or representative of the placement agent and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or the Rules and Regulations arising out of any cause whatsoever (whether such cause be based in contract, negligence, strict liability, other tort or otherwise). Notwithstanding anything to the contrary contained herein, the aggregate liability of the Placement Agent and each officer, director, shareholder, employee or representative of the Placement Agent and each person controlling, controlled by or under common control with the Placement Agent within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act or the Rules and Regulations shall not exceed the compensation received by the Placement Agent pursuant to Section 2 hereof. This limitation of liability shall apply regardless of the cause of action, whether contract, tort (including, without limitation, negligence) or breach of statute or any other legal or equitable obligation. 7. Payment of Expenses. The Company hereby agrees to bear all of the expenses in connection with the Offering, including, but not limited to the following: filing fees, printing and duplicating costs, advertisements, postage and mailing expenses with respect to the transmission of Offering Materials, registrar and transfer agent fees and the fees of the Company's counsel and accountants, issue and transfer taxes, if any. 8. Termination. This Agreement shall be co-terminus with, and terminate upon the same terms and conditions as those set forth in, the Standby Equity Distribution Agreement. The rights of the Investor and the obligations of the Company under the Registration Rights Agreement, and the rights of the Placement Agent and the obligations of the Company shall survive the termination of this Agreement unabridged. 9. Miscellaneous. A. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all which shall be deemed to be one and the same instrument. B. Any notice required or permitted to be given hereunder shall be given in writing and shall be deemed effective when deposited in the United States mail, postage prepaid, or when received if personally delivered or faxed (upon confirmation of receipt received by the sending party), addressed as follows to such other address of which written notice is given to the others): 12 If to Placement Agent, to: Monitor Capital Inc. 9171 Towne Centre Drive, Suite 465 San Diego, CA 92122 Attention: Hsiao-Wen Kao Telephone: (858) 546-8007 Facsimile: (858) 546-8756 If to the Company, to: iVoice Technology, Inc. 750 Highway 34 Matawan, NJ 07747 Attention: Mark Meller 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 If to the Investor: Cornell Capital Partners, LP 101 Hudson Street - Suite 3700 Jersey City, New Jersey 07302 Attention: Mark A. Angelo Portfolio Manager Telephone: (201) 985-8300 Facsimile: (201) 985-8266 With copies to: David Gonzalez, Esq. 101 Hudson Street - Suite 3700 Jersey City, NJ 07302 Telephone: (201) 985-8300 Facsimile: (201) 985-8266 C. This Agreement shall be governed by and construed in all respects under the laws of the State of New Jersey, without reference to its conflict of laws rules or principles. Any suit, action, proceeding or litigation arising out of or relating to this Agreement shall be brought and prosecuted in such federal or state court or courts located within the State of New Jersey as provided by law. The parties hereby irrevocably and unconditionally consent to the jurisdiction of each such court or courts located within the State of New Jersey and to service of process by registered or certified mail, return receipt requested, or by any other manner provided by applicable law, and hereby irrevocably and unconditionally waive any right to claim that any suit, action, proceeding or litigation so commenced has been commenced in an inconvenient forum. 13 D. This Agreement and the other agreements referenced herein contain the entire understanding between the parties hereto and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. E. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. COMPANY: IVOICE TECHNOLOGY, INC. By: /s/ Mark Meller ---------------------------- Name: Mark Meller Title: CEO PLACEMENT AGENT: MONITOR CAPITAL INC. By: /s/ Hsiao-Wen Kao --------------------------- Name: Hsiao-Wen Kao Title: President INVESTOR: CORNELL CAPITAL PARTNERS, LP By: Yorkville Advisors, LLC Its: General Partner By: /s/ Mark A. Angelo --------------------------- Name: Mark A. Angelo Title: Portfolio Manager 15 EX-10 11 kl12026_ex10-37.txt EX 10.37 AMENDED RESTATED REGISTRATION RIGHTS Exhibit 10.37 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT -------------------------------------------------- THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December 12, 2005, by and between IVOICE TECHNOLOGY, INC., a New Jersey corporation (the "Company"), and CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the "Investor"). WHEREAS: A. In connection with the Amended and Restated Standby Equity Distribution Agreement by and between the parties hereto of even date herewith (the "Standby Equity Distribution Agreement"), the Company has agreed, upon the terms and subject to the conditions of the Standby Equity Distribution Agreement, to issue and sell to the Investor that number of shares of the Company's Class A common stock, no par value per share (the "Common Stock"), which can be purchased pursuant to the terms of the Standby Equity Distribution Agreement for an aggregate purchase price of up to Ten Million Dollars ($10,000,000). Capitalized terms not defined herein shall have the meaning ascribed to them in the Standby Equity Distribution Agreement. B. To induce the Investor to execute and deliver the Standby Equity Distribution Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act"), and applicable state securities laws. C. This Agreement shall amend and restate the Registration Rights Agreement dated September 22, 2005 between the parties hereto. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows: 1. DEFINITIONS. ----------- As used in this Agreement, the following terms shall have the following meanings: a. "Person" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. b. "Register," "registered," and "registration" refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous or delayed basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). c. "Registrable Securities" means the Investor's Shares, as defined in the Standby Equity Distribution Agreement, the 325,000 shares of Common Stock received as a structuring fee pursuant to Section 12.4 of the Standby Equity Distribution Agreement and shares of Common Stock issuable to Investors pursuant to the Standby Equity Distribution Agreement. d. "Registration Statement" means a registration statement under the Securities Act which covers the Registrable Securities. 2. REGISTRATION. ------------ a. Mandatory Registration. The Company shall prepare and file with the SEC a Registration Statement on Form S-1, SB-2 or on such other form as is available. The Company shall cause such Registration Statement to be declared effective by the SEC prior to the first sale to the Investor of the Company's Common Stock pursuant to the Standby Equity Distribution Agreement. b. Sufficient Number of Shares Registered. In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities which the Investor has purchased pursuant to the Standby Equity Distribution Agreement, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefore, if applicable), or both, so as to cover all of such Registrable Securities which the Investor has purchased pursuant to the Standby Equity Distribution Agreement as soon as practicable, but in any event not later than fifteen (15) days after the necessity therefore arises. The Company shall use it best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed "insufficient to cover all of the Registrable Securities" if at any time the number of Registrable Securities issuable on an Advance Notice Date is greater than the number of shares available for resale under such Registration Statement. 3. RELATED OBLIGATIONS. ------------------- a. The Company shall keep the Registration Statement effective pursuant to Rule 415 at all times until the date on which the Investor shall have sold all the Registrable Securities covered by such Registration Statement (the "Registration Period"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of 2 all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company's filing a report on Form 10-KSB, Form 10-QSB or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the Exchange Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement. c. The Company shall furnish to the Investor without charge, (i) at least one copy of such Registration Statement as declared effective by the SEC and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, all exhibits and each preliminary prospectus, (ii) ten (10) copies of the final prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor. d. The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States as the Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w) make any change to its certificate of incorporation or by-laws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify the Investor of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. e. As promptly as practicable after becoming aware of such event or development, the Company shall notify the Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and promptly prepare a supplement or amendment to such Registration 3 Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to each Investor. The Company shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Investor by facsimile on the same day of such effectiveness), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. f. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction within the United States of America and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. g. At the reasonable request of the Investor, the Company shall furnish to the Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as the Investor may reasonably request (i) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investor. h. The Company shall make available for inspection by (i) the Investor and (ii) one firm of accountants or other agents retained by the Investor (collectively, the "Inspectors") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree, and the Investor hereby agrees, to hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the Securities Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector and the Investor has knowledge. The Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. 4 i. The Company shall hold in confidence and not make any disclosure of information concerning the Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Investor and allow the Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. j. The Company shall use its best efforts either to cause all the Registrable Securities covered by a Registration Statement (i) to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or to secure the inclusion for quotation on the National Association of Securities Dealers, Inc. OTC Bulletin Board for such Registrable Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(j). k. The Company shall cooperate with the Investor to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investor may reasonably request and registered in such names as the Investor may request. l. The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities. m. The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement. n. The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder. o. Within two (2) business days after a Registration Statement which covers Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A. 5 p. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to a Registration Statement. 4. OBLIGATIONS OF THE INVESTOR. --------------------------- The Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e), the Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(e) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended certificates for shares of Common Stock to a transferee of the Investor in accordance with the terms of the Standby Equity Distribution Agreement in connection with any sale of Registrable Securities with respect to which the Investor has entered into a contract for sale prior to the Investor's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e) and for which the Investor has not yet settled. 5. EXPENSES OF REGISTRATION. ------------------------ All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers, legal and accounting fees shall be paid by the Company. 6. INDEMNIFICATION. --------------- With respect to Registrable Securities which are included in a Registration Statement under this Agreement: a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls the Investor within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint or several (collectively, "Claims") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("Indemnified Damages"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("Blue Sky Filing"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue 6 statement or alleged untrue statement of a material fact contained in any final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation there under relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). The Company shall reimburse the Investor and each such controlling person promptly as such expenses are incurred and are due and payable, for any legal fees or disbursements or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto; (y) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(e); and (z) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person. b. In connection with a Registration Statement, the Investor agrees to indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement and each Person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each an "Indemnified Party"), against any Claim or Indemnified Damages to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or is based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by the Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), the Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to the Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the prospectus was corrected and such new 7 prospectus was delivered to the Investor prior to the Investor's use of the prospectus to which the Claim relates. c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. d. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. e. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the 8 indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 7. CONTRIBUTION. ------------ To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS UNDER THE EXCHANGE ACT. ------------------------------ With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or any similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("Rule 144") the Company agrees to: a. make and keep public information available, as those terms are understood and defined in Rule 144; b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 6.3 of the Standby Equity Distribution Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and c. furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration. 9. AMENDMENT OF REGISTRATION RIGHTS. -------------------------------- Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only by a written agreement between the Company and the Investor. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon the Investor and the Company. No consideration shall be offered or paid to any Person to amend or consent to a waiver or 9 modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement. 10. MISCELLANEOUS. ------------- a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement 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 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 the Company, to: iVoice Technology, Inc. 750 Highway 34 Matawan, NJ 07747 Attention: Mark Meller 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 If to the Investor, to: Cornell Capital Partners, LP 101 Hudson Street - Suite 3700 Jersey City, New Jersey 07302 Attention: Mark Angelo Portfolio Manager Telephone: (201) 985-8300 Facsimile: (201) 985-8266 10 With a copy to: Cornell Capital Partners, LP 101 Hudson Street - Suite 3700 Jersey City, NJ 07302 Attention: David Gonzalez, Esq. Telephone: (201) 985-8300 Facsimile: (201) 985-8266 Any party may change its address by providing written notice to the other parties hereto at least five 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 courier or overnight courier 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. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. d. The corporate laws of the State of New Jersey shall govern all issues concerning the relative rights of the Company and the Investor. All other 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 jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New Jersey. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the Superior Courts of the State of New Jersey, sitting in Hudson County, New Jersey and the Federal District Court for the District of New Jersey sitting in Newark, New Jersey, for the adjudication of any dispute hereunder or in connection herewith 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. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. 11 e. This Agreement, the Standby Equity Distribution Agreement and the Placement Agent Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Standby Equity Distribution Agreement and the Placement Agent Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. This Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party. k. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 12 IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY: -------- IVOICE TECHNOLOGY, INC. By: /s/ Mark Meller ---------------------------- Name: Mark Meller Title: CEO INVESTOR: --------- CORNELL CAPITAL PARTNERS, LP By: Yorkville Advisors, LLC Its: General Partner By: /s/ Mark Angelo ---------------------------- Name: Mark Angelo Title: Portfolio Manager 13 EXHIBIT A FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT Attention: Re: IVOICE TECHNOLOGY, INC. ----------------------- Ladies and Gentlemen: We are counsel to IVoice Technology, Inc. (the "Company"), and have represented the Company in connection with that certain Standby Equity Distribution Agreement (the "Standby Equity Distribution Agreement") entered into by and between the Company and Cornell Capital Partners, LP (the "Investor") pursuant to which the Company issued to the Investor shares of its Common Stock, no par value per share (the "Common Stock"). Pursuant to the Standby Equity Distribution Agreement, the Company also has entered into a Registration Rights Agreement with the Investor (the "Registration Rights Agreement") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the "Securities Act"). In connection with the Company's obligations under the Registration Rights Agreement, on ____________ ____, the Company filed a Registration Statement on Form ________ (File No. 333-_____________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names the Investor as a selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the Securities Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the Securities Act pursuant to the Registration Statement. Very truly yours, By:_____________________________ cc: Cornell Capital Partners, LP EX-10 12 kl12026_ex10-38.txt EXHIBIT 10.38 TERMINATION AGREEMENT Exhibit 10.38 TERMINATION AGREEMENT --------------------- THIS TERMINATION AGREEMENT (the "Agreement") is made and entered into effective as of December 12, 2005, by and among IVOICE TECHNOLOGY, INC., a New Jersey corporation (the "Company"), DAVID GONZALEZ, ESQ. (the "Escrow Agent") and CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the "Investor"). Recitals: --------- WHEREAS, the Company, the Escrow Agent and the Investor entered into a Standby Equity Distribution Agreement (the "SEDA") and an Escrow Agreement each dated September 22, 2005 (the "Escrow Agreement"). NOW, THEREFORE, in consideration of the promises and the mutual promises, conditions and covenants contained herein and in the Escrow Agreement and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Termination. Each of the parties to this Agreement hereby terminate the Escrow Agreement and the respective rights and obligations contained therein and any rights and obligations with respect to escrow arrangements provided for in the SEDA. As a result of this provision, none of the parties shall have any rights or obligations under or with respect to the Escrow Agreement or the escrow arrangements (including fees) provided for in the SEDA. 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/ Mark Meller By: Yorkville Advisors, LLC ------------------------ Its: General Partner Name: Mark Meller Title: CEO By: /s/ Mark A. Angelo -------------------------------- Name: Mark A. Angelo Title: Portfolio Manager ESCROW AGENT By: /s/ David Gonzalez -------------------------------- Name: David Gonzalez, Esq. EX-23 13 kl12026_23-1.txt EXHIBIT 23.1 CONSENT Exhibit 23.1 Bagell, Josephs, Levine & Company, LLC 200 Haddonfield Berlin Road, Gibbsboro, NJ 08026 Tel: 856.346.2828 Fax: 856.346.2882 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the use 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, in this Registration Statement of iVoice Technology, Inc. on Form SB-2 and Prospectus dated December 19, 2005. /s/ Bagell, Josephs, Levine & Company, LLC Bagell, Josephs, Levine & Company, LLC (formerly Bagell, Josephs & Company, LLC) Gibbsboro, New Jersey December 19, 2005 -----END PRIVACY-ENHANCED MESSAGE-----