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As filed with the Securities and Exchange Commission on November 14, 2000
REGISTRATION NO. 333-44194
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IPVoice.com, Inc.
(Name of small business issuer in its charter)
Nevada 4813 65-0729900
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial incorporation or Classification Code Identification
organization) Number) No.)
7585 East Redfield Road, Suite 202, Scottsdale, Arizona 85260, (480) 948-1895
(Address and telephone number of principal executive offices
and principal place of business)
Barbara Will
President and Chief Operating Officer
7585 East Redfield Road, Suite 202
Scottsdale, Arizona 85260
(480) 948-1895
(Name, address and telephone number of agent for service)
With Copies to:
I. Douglas Dunipace
Jennings, Strouss & Salmon, P.L.C.
Two North Central, Suite 1600
Phoenix, Arizona 85004-2393
Telephone: (602) 262-5832
Fax: (602) 253-3255
Approximate date of proposed sale to the public: as soon as practicable from
time to time after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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(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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES DOLLAR AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF REGISTRATION
TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE(1) FEE
-------------------------------- ------------------- --------------------------- ----------------------
<S> <C> <C> <C>
Common stock $.001 Par Value (2) $13,817,996 $ .875 $ 3,192.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on
the average of the closing bid and asked prices for our common stock, $.001 par
value, reported on the OTC Bulletin Board on August 14, 2000. With respect to
the 350,000 shares issuable upon exercise of the warrants, the registration
price per share is based on the average exercise price of the warrants.
(2) Pursuant to Rule 416 promulgated under the Securities Act, this registration
statement also registers such number of additional shares of common stock that
may be offered or issued for dividends on the Series B Convertible preferred
stock, $.001 par value, exercise of the warrants or option of the selling
stockholders and for other adjustments or to prevent dilution resulting from
stock splits, stock dividends or similar transactions in connection with such
Series B preferred stock, warrants and options.
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 index for exhibits is on page II-7.
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IPVOICE.COM, INC.
15,287,595 SHARES OF COMMON STOCK, $.001 PAR VALUE
The selling stockholders listed under "Selling Stockholders" on page 35 of this
prospectus are selling up to 15,287,595 shares of common stock. This total
includes 1,415,990 shares presently owned, up to 600,000 shares registered for
sale upon the exercise of outstanding warrants, up to 7,098,765 shares
registered for sale upon the conversion of outstanding shares of Series B
Convertible preferred stock and accrued dividends, and up to 6,172,840 shares
registered for sale upon exercise of outstanding options to purchase common
stock. We will not receive any of the proceeds from the sale of securities by
the selling stockholders.
The selling stockholders' shares may be offered from time to time by the selling
stockholders directly to purchasers or to or through broker-dealers who may act
as agents or principals. The selling stockholders intend to sell the shares into
the public market from time to time. The selling stockholders will negotiate
with the market makers for common stock to determine the prices for each sale.
They expect each sale price to be near the market price at the time of the sale.
The selling stockholders will pay all brokerage commissions and discounts
attributable to the sale of the shares plus brokerage fees and expenses relating
to the registration of their shares. We are responsible for all other costs,
expenses and fees incurred in registering the shares offered by this prospectus.
Our common stock is traded under the symbol IPVC on the OTC Bulletin Board. The
last reported sale price on the OTC Bulletin Board for our common stock on
__________ ___, 2000 was $_______ per share.
INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 2.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This date of this Prospectus is __________ ___, 2000
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TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................................................... 1
Risk Factors............................................................ 2
Forward-Looking Statements.............................................. 9
Use Of Proceeds......................................................... 9
Dividend Policy......................................................... 9
Capitalization.......................................................... 10
Market Price Of The Registrant's Common Equity And Related Stockholder 11
Matters.................................................................
Selected Financial Data................................................. 11
Plan Of Operations...................................................... 12
Business................................................................ 12
Management.............................................................. 24
Securities Ownership of Certain Beneficial Owners and Management........ 28
Certain Relationships And Related Transactions.......................... 29
Selling Stockholders.................................................... 31
Description Of Securities............................................... 32
Plan Of Distribution.................................................... 35
Legal Matters........................................................... 36
Experts................................................................. 36
Additional Information.................................................. 36
Financial Statements.................................................... F-1
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PROSPECTUS SUMMARY
READ THIS ENTIRE PROSPECTUS CAREFULLY. THE FOLLOWING SUMMARY IS QUALIFIED
BY THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS", APPEARING ELSEWHERE
IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERMS "WE," "US," "OUR" OR "COMPANY" MEAN IPVOICE.COM, INC. AND
ITS SUBSIDIARY, IPVOICE COMMUNICATIONS, INC.
The Company
We were incorporated in February 1997 as Nova Enterprises, Inc. We acquired
our wholly-owned subsidiary, IPVoice Communications, Inc., in a corporate
reorganization in March 1998 and changed our name to IPVoice.com, Inc. in April
1999.
Since 1998, we have been developing our MultiCom business management
software for use in Internet Protocol, or IP, telephony applications, including
telephone, fax, data, images and video over the Internet. MultiCom is a
component of our gateway products, including TrueConnect, SuperConnect and
UltraConnect. Our gateways, MultiCom, and our other proprietary technology and
products are generally referred to as the IPVoice System.
Access through our gateways is presently available in limited markets in
the United States and in the United Kingdom. We generally enter into contracts
with selected agents to operate our gateways and sell our products and services.
We have also received revenue from the sale of prepaid calling cards and
TruePartners Programs. It is our intention
- to continue to market our gateway products;
- to conduct research to further develop our gateway products; and
- to develop further "add-ons" which will enhance and expand the gateway
products.
Our Location
Our executive offices are located 7585 East Redfield Road, Suite 202,
Scottsdale, Arizona 85260. Our telephone number is (480) 948-1895 and our
facsimile number is (480) 948-1213. Our Internet web site is located at
www.ipvoice.net.
The Offering
The selling stockholders are using this prospectus to sell shares of common
stock to the public.
<TABLE>
<S> <C>
Common stock offered by selling stockholders 15,287,595 shares (1)
Common stock outstanding................. 18,566,384 shares (2)
Use of Proceeds.......................... We will not receive any proceeds from the
sale of the shares of common stock by the selling
stockholders. However, we may receive
proceeds from the exercise of warrants, options
and rights to purchase common stock and plan to use
such proceeds, if any, for sales and marketing
of our products and services, service of our
products, deployment of the IPVoice System,
continued research and development, working
capital, and other general corporate purposes.
OTC Bulletin Board Symbol................ IPVC
</TABLE>
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(1) The number of shares actually offered and sold may vary depending upon
conversion and exercise prices. This is the estimated maximum number of
shares.
(2) Based on the number of shares outstanding on the date of this prospectus,
which does not include:
- 1,000,000 shares reserved for issuance upon exercise of options
outstanding or available for future grant under our 2000 Executive
Incentive Plan,
- shares issuable upon the exercise of certain outstanding warrants and
options and other rights to purchase shares of common stock, or
- shares issuable upon the occurrence of certain default events and
resulting conversion of shares of our Senior Convertible
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preferred stock.
EXCEPT AS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO THE
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING DO NOT INCLUDE THE FOREGOING
SHARES.
Summary Financial Information
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<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------- -------------------------------
STATEMENT OF OPERATIONS DATA:
1999 1998 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 321,279 $ 41,254 $ 114,193 $ 50,700
Gross Profit 15,845 41,254 8,447 1,560
Loss from operations (1,881,239) (507,685) (2,221,897) (1,429,114)
Other income (expense) (92,595) 0 (19,482) (20,998)
Net Loss (1,973,834) (507,685) (2,241,379) (1,450,112)
Loss per share $ (0.13) $ (0.04) $ (0.13) $ (0.10)
----------- ----------- ----------- -----------
Weighted average shares
Outstanding 15,413,751 11,620,451 17,815,927 15,248,436
BALANCE SHEET DATA:
Current Assets $ 256,348 $ 153,888 $ 835,301 $ 256,348
Total assets 633,903 191,513 1,724,343 633,903
Current Liabilities 406,339 307,129 326,319 406,339
Long-term debt 1,145,400 0 385,950 1,145,400
Total liabilities 1,551,739 307,129 712,269 1,551,739
Stockholders equity (deficiency) (917,836) (115,616) 1,012,074 (917,836)
</TABLE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS HIGHLY SPECULATIVE, INVOLVES A HIGH
DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY THOSE PERSONS WHO ARE ABLE TO
AFFORD A LOSS OF THEIR ENTIRE INVESTMENT. IN EVALUATING OUR BUSINESS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN
ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS.
RISKS RELATING TO OUR FINANCIAL CONDITION
We have a history of losses and expect that losses will continue in the future.
We have substantial and recurring losses and negative cash flow since our
inception in February 1997. For the nine months ending September 30, 2000 and
1999, we had revenues of $114,000 and $51,000, respectively and operating
expenses of $2,230,000, and $1,431,000, respectively. We expect to continue to
generate losses until our revenues increase or our expenses decrease.
Specifically, we must be able to generate substantial sales of our TrueConnect,
SuperConnect, and UltraConnect gateways and increase the licensing of our
software. There is no assurance that we can increase our revenue sources and it
is unlikely we can lower our expenses. We may never earn a profit. If we
continue to lose money over a period of time, we may be forced to discontinue
our operations.
We have been unable to fund our operations with internally generated funds. We
will need to generate funds internally or raise additional capital to fund
operations through fiscal year 2001.
We have required and continue to require substantial capital to fund our
business operations. Our future capital requirements will depend upon many
factors, including the expansion of the IPVoice System, requirements to maintain
adequate telecommunications capabilities, the progress of our research and
development activities, expansion of our marketing and sales efforts and the
status of competitive products and services.
As of September 30, 2000, our total assets were $1,724,000, consisting,
principally, of $690,000 in cash, $146,000 in prepaid expenses and deposits and
$690,000 in property and equipment. Because of our limited assets and a
cumulative net loss, in the amount of $4,746,000, as of September 30, 2000, we
only had working capital of $509,000 even after receipt of net proceeds from the
sale of $2,500,000 of Series B preferred stock in May 2000. These funds will not
be adequate to finance our intended operations for more than twelve months.
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Our revenues are negligible and we have financed our operation primarily through
sales of equity and debt securities. We expect to enter into additional
financial transactions, which could result in significant dilution or
substantial indebtedness.
As of the date of the prospectus, we have no commitments, agreements or
understandings regarding additional financings and we may be unable to obtain
additional financing on satisfactory terms or at all. If the selling
stockholders exercise their warrants and option rights, we could receive up to
approximately $3,248,000. We cannot be assured that all or any of their warrant
or option rights will be exercised in the near future or at all. We expect to
pursue additional financing through private placement of debt or equity. If
additional funds are raised by issuing equity securities, further dilution to
the existing stockholders will result. We may also incur or assume substantial
indebtedness. If adequate funds are not available, we may be required to delay,
scale back or eliminate our research and development, marketing or expansion
efforts or obtain funds through arrangements with partners or others. These
arrangements may require us to relinquish rights to certain of our existing or
potential products or other assets. Accordingly, the inability to obtain such
financing could have a material adverse effect on our business, financial
condition and results of operations.
Our future revenue and operating results are unpredictable and may fluctuate.
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 quarterly 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:
- The timing and receipt of license and other fees;
- The amount of traffic over our gateways and the IPVoice System;
- The amount and timing of operating costs and capital expenditures
relating to the growth of our business;
- The costs to develop and introduce new products and services in
response to changing market conditions and customer preferences; and
- The announcement or introduction of new or enhanced products or
services by our competitors.
In view of such fluctuations, we believe that quarterly comparisons of our
financial results are not necessarily meaningful and should not be relied upon
as a measure of future performance. Our operating results in the first
three-quarters of fiscal year 2000 were significantly affected by the costs of
entering into strategic alliances and other arrangements with new distributors
in additional markets in the United States and markets in foreign countries.
Comparisons of our operating results for each period do not indicate our
future performance. It is likely that our operating results in some periods will
fall short of market expectations. If this occurs, the price of our common stock
may decline.
RISKS RELATING TO OUR BUSINESS
Our business prospects are difficult to evaluate because our current operations
are new.
We are considered a development stage company. We only recently have
commenced operations of the IPVoice System and have not begun generating any
significant revenues from the IPVoice System. Accordingly, we have only a
limited operating history upon which you can evaluate our prospects and us. We
are subject to all the risks inherent in the operation of a development stage
business and cannot assure you that we will be successful in addressing these
risks.
Our business depends on one form of technology. If we are not able to expand our
sales of IPVoice System technology, we are unlikely to become profitable.
Our revenues are, and for the foreseeable future will be, based on the
market acceptance of products and services utilizing the basic IPVoice System
technology. If we are unable to expand the demand for those products and
services, whether because of competition, technology changes or other reasons,
our ability to continue in business will be adversely affected. We believe that
the basic IPVoice System technology has certain features, such as carrier-grade
back office capabilities, that make it attractive to various segments of the IP
telephony market. However, we have not had the opportunity to test the appeal of
our technology to those additional market segments which include Internet
providers, resellers and independent telephone companies, also know as ITC's. We
have undertaken limited efforts to date to take advantage of these capabilities
of the IPVoice System but we have not had the resources to systematically market
the IPVoice System to other potential users. The IPVoice System technology also
requires development time and additional costs to interface or overlay with top
switching vendors. These limitations may make our technology less attractive to
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potential users. Though we continue to work on upgrades and enhancements, we
cannot be certain that our technology will be well received in the broader
marketplace.
Our principal competitors in the IP telephony market are already established
telecommunications enterprises. They have a substantial advantage because of
their experience, resources, existing distribution channels and name
recognition.
The telecommunications market and, in particular the IP telephony market,
is intensely and increasingly competitive. Many major internet backbone
companies and telephone carriers are involved in one or more aspects of the IP
telephony market. These include AT&T, MCI WorldCom, Cisco and Qwest, which offer
a variety of products from switching platforms to least cost routes and long
distance. We must compete with these larger enterprises in international,
national, regional and local markets. In addition, we may encounter substantial
competition from new market entrants. Most of our competitors or potential
competitors have significantly greater name recognition and have greater
marketing, financial and other resources than we do. They also have established
distribution channels that give them an advantage in reaching prospective
customers for IP telephony services. There can be no assurance that we will be
able to compete effectively against them in the future.
We plan to expand, in part, through acquisitions. We have not yet acquired any
other companies and do not know if we will be able to implement this aspect of
our future plans.
We plan to expand our business, in part, through acquisitions. Although we
will continuously review potential acquisition candidates, we have not entered
into any agreement or commitment with respect to any additional acquisitions at
this time. We do not know if we will be able to successfully identify suitable
acquisition candidates, complete acquisitions on favorable terms, or at all, or
integrate acquired businesses into our operations. Moreover, acquisitions may
have a material adverse effect on our operating results, particularly in the
fiscal quarters immediately following the consummation of such transactions,
while the operations of the acquired business are being integrated into our
operations. Once integrated, acquisitions may not achieve comparable levels of
revenues, profitability or productivity as our existing products and services or
otherwise perform as expected. We are unable to predict whether or when any
prospective acquisition candidate will become available or the likelihood that
any acquisitions will be completed. We will be competing for acquisition and
expansion opportunities with entities that have substantially greater resources
than we have. In addition, acquisitions involve a number of special risks, such
as diversion of management's attention, difficulties in the integration of
acquired operations and retention of personnel, unanticipated problems or legal
liabilities, and tax and accounting issues, some or all of which could have a
material adverse effect on our results of operations and financial condition.
Our pricing advantage on long distance service could disappear.
Our rates for long distance telephone calls are generally competitive with,
and in some cases less than, the telephone charges for the same long-distance
service that the customer would pay to a primary seller of those services. Our
ability to undersell the primary sellers is a result of the use of the Internet
to transmit long distance telephone calls. The narrowing or elimination of the
differential between the rates charged to our customers and the cost of long
distance telecommunications services provided by competitors or traditional long
distance carrier's customers would have a significant adverse effect on us.
The success of our operations depends on certain key personnel and consultants.
Our success depends to a significant extent on the continued services of
Barbara Will, our president, Harry Bowman, our executive vice president, and
Michael Scott, our vice president for sales and marketing, and the availability
of Anthony Welch, one of our founders, as a consultant. Virtually all decisions
concerning the marketing, distribution and sales of our products and services
will be made or significantly influenced by Ms. Will, Mr. Bowman and Mr. Scott.
Mr. Welch has created much of our technological infrastructure and continues to
provide his expertise through a consulting arrangement. The loss of services of
any of these persons would adversely affect the conduct of our business and our
prospects for the future.
Our growth and future success will depend in large part upon our ability to
continue to hire, motivate and retain these and other qualified employees. The
competition for persons with comparable experience is intense and the loss of
key employees could have an adverse effect on us. Although Ms. Will, Mr. Scott
and Mr. Bowman have entered into employment agreements with us, there can be no
assurance that we will be able to retain them or other key employees in the
future.
We need to expand our customer and distributor base in order to attain
profitability.
To date, a limited number of customers and distributors have accounted for
substantially all of our revenues with respect to
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product sales. Although we have entered into several TruePartner agreements,
most of them have not yet generated sustained revenues. There is no assurance
that we will be able to obtain adequate distribution of our products to a large
number of intended end users. Our ability to achieve revenues in the future will
depend in significant part upon our ability to obtain additional gateway
outlets, maintain relationships with, and provide support to, existing and new
distributors. As a result, any cancellation, reduction or delay may materially
adversely affect our business, financial condition and results of operations.
There can be no assurance that we will be able to support or attract additional
customers.
Our industry is new and is changing rapidly.
Telecommunications technology, and IP telephony in particular, are rapidly
changing. Our market is also characterized by frequent new product and service
introductions, short development cycles and evolving industry standards. The
recent growth of the Internet and intense competition in our industry exacerbate
these market characteristics. The development of new products involves
considerable expenditures and can take from several months to several years.
Accordingly, new product development requires a long-term forecast of market
trends and customer needs and often a substantial commitment of capital
resources with no assurance that such products or enhancements will be
commercially viable.
Our future success will depend significantly on our ability to enhance the
current IPVoice System capabilities or develop new technology that meets the
changing market demands on a timely and cost-effective basis. We must maintain
and improve the performance features and reliability of our services and
continue to meet emerging industry standards and other technological changes. We
may experience technical difficulties that could delay or prevent the successful
development, introduction or marketing of new products and services. In
addition, any new enhancements to our products and services must meet the
requirements of our current and prospective users. We could incur substantial
costs to modify our services to adapt to rapid technological change.
We do not know if we will be successful in enhancing the existing IPVoice
System or developing new products on a timely basis or if such new or enhanced
products will achieve market acceptance or sustain such acceptance for any
significant period. Our failure to anticipate or respond adequately to changes
in technology and customer requirements and preferences, or any significant
delay in development of enhanced or new products, will have a material and
adverse effect on our business, financial condition and results of operations.
Our business depends on our ability to protect our intellectual property.
The IPVoice System is based upon a core technology encompassing a
combination of hardware and proprietary software which enables users to conduct
two-way voice communications via the Internet. Our ability to compete
effectively depends in large part on our ability to maintain the proprietary
nature of the essential parts of our technology. To protect our proprietary
rights, we rely on a combination of the copyright and trademark laws, trade
secret protection, confidentiality procedures, limited physical access, and
contractual provisions, including nondisclosure agreements with employees and
others. We intend to enforce aggressively our intellectual property rights. Even
so, this may not preclude competitors from developing products with similar
features and there can be no assurance that protection will be available or be
enforceable in any particular instance of competition.
We also do not know if we will have the financial resources necessary to
enforce our trade secret or other intellectual property rights which may be
infringed. Our inability to enforce such rights could materially decrease the
expected benefits from our technology. To date, we have applied for but not
obtained registration of our service marks in the U.S. Confidentiality and
nondisclosure agreements with employees and others may not provide adequate
protection for our proprietary information in the event of any unauthorized use
or disclosure of such proprietary information. We are aware that the laws of
some foreign countries do not protect our proprietary rights to the same extent
as the laws of the United States. In addition, we have not sought or received
patent protection in any jurisdiction nor trademark protection for our service
mark in any foreign jurisdiction. Litigation may be necessary to protect our
intellectual property rights and trade secrets. Should we decide to litigate
such claims, the litigation could be extremely expensive and time consuming and
could materially adversely affect our business, financial condition and results
of operations, regardless of the outcome of the litigation.
If the market for IP telephony fails to grow, our revenues will not grow. We
don't know if our IP telephony products and services will be widely accepted.
Even if they are, we may be limited in our ability to expand our IP telephony
infrastructure. We do not have enough experience to know if our estimates of
future activity are attainable or sustainable.
Our success will depend in large part on the continued growth in the use of
the Internet for our IPVoice System. Our future operating results depend to a
significant extent upon the continued development of IP telephony products and
services deemed
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necessary, useful, convenient, affordable and competitive. We do not have
control over the expansion of the Internet, and to the extent that the market
for IP telephony does not increase, our potential customer base and revenues
will not grow. If IP telephony gains in popularity, we can expect fierce
competition from companies more established and better financed than we are.
In addition, critical and unresolved issues concerning the commercial use
of the Internet may affect the development of the market for the IPVoice System
and our other products and services, including:
- the ability of users, distributors and other intermediaries to conduct
communications without interruption and on a secure basis;
- the reliability and quality of the Internet for communications;
- the availability of low-cost access to the Internet for users;
- availability of sufficient telecommunications bandwidth to consumers
to enhance their ability to conduct communications over the Internet;
and
- the possible imposition of sales, use or transaction privilege taxes
on Internet use.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth and its performance and
reliability may decline. In addition, a number of Internet-based businesses have
experienced interruptions in their services as a result of outages and other
delays occurring throughout the Internet. If outages or delays occur frequently
in the future, Internet usage, as well as electronic commerce and the usage of
our products and services, could grow more slowly or decline. This could have an
adverse effect on our business.
We may be required to expand and adapt our IP telephony infrastructure as
the number of users and the amount of information they wish to transfer
increases. The expansion and adaptation of our IPVoice System will require
substantial financial, operational and management resources. We cannot be
certain that we will be able to expand or adapt our infrastructure to meet
additional demand or subscribers' changing requirements on a timely basis, at a
commercially reasonable cost, or at all. Nor do we know if we will be able to
deploy successfully any necessary infrastructure expansion. Any failure to
expand our infrastructure, as needed, on a timely basis or to adapt to changing
subscriber requirements or evolving industry standards could have a material
adverse effect on our overall business, financial condition and results of
operations.
We rely heavily on other businesses to supply our equipment and promote our
products and services.
Though we conduct final assembly of the gateway components at our
Scottsdale, Arizona facility, many of the components are manufactured to our
specifications by other firms. We have little ability to control the quality,
reliability and availability of the equipment we purchase to integrate into the
IPVoice System. We are dependent upon these other firms for the accurate
manufacturing and timely delivery of necessary components. Because we are not
presently a large customer of any of our suppliers, we are not generally able to
negotiate favorable prices or limit future price increases. Frequently there is
a substantial waiting period between the placing of an order and the receipt of
finished products. This can have an adverse effect on our ability to open a new
market on short notice. To date, we have not experienced any unexpected delays
in obtaining components for the gateways. If, however, any supplier is unable to
provide products on a timely basis because of labor disputes, shortages in raw
materials or other reasons, such delays would significantly impair our ability
to open new markets or to provide additional or upgraded equipment in existing
markets.
The ability of the IPVoice System to operate is dependent upon maintaining
operating agreements and good relations with the companies offering multiple
services in each market. Presently, these companies are primarily vendors.
Should any of the local or long distance carriers currently providing access to
multiple services in a market terminate that relationship, we, our TruePartners
or our customers will be required to establish a new relationship for that
market. We cannot predict whether a satisfactory new relationship can be
established or that, if established, it can be done without an interruption in
the availability of the IPVoice System in that market. Entry into each
additional market will require new contracts with carriers. We cannot be assured
that such contracts can be attained upon terms which are acceptable to us or our
TruePartners in a particular market.
Our results may be adversely affected by our future international operations.
We anticipate that international sales will, as a result of several
existing TruePartner distribution agreements, account for an increasing
percentage of our revenues for the foreseeable future. While there are
substantial areas of commonality in Internet-based technology and practices
worldwide, there are special risks associated with international activities,
including:
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<PAGE> 11
- availability of suitable export financing;
- availability and timing of export licenses;
- restrictive tariff and other trade barriers;
- unexpected changes in regulatory requirements;
- difficulties in staffing and managing foreign operations;
- political and economic instability;
- potentially adverse business customs and practices;
- differences in accounting practices;
- potentially adverse tax consequences;
- fluctuations in currency exchange rates;
- longer payment cycles; and
- difficulties in collecting accounts receivable.
Some of our purchase, distributor and other agreements may be governed by
foreign laws, which may differ significantly from U.S. laws. Therefore, we may
be limited in our ability to enforce our rights under such agreements and to
collect damages, if awarded. These factors may have a material adverse effect on
our business, financial condition and results of operations.
Regulatory authorities could become more actively involved with IP technology.
Presently, the Federal Communication Commission in the United States does
not regulate companies that provide IP telephony services because they are not
considered to be common carriers or telecommunications service providers.
Notwithstanding the current state of the rules, the FCC's potential jurisdiction
over the Internet is broad because the Internet relies on wire and radio
communications facilities and services over which the FCC has long-standing
authority. Similarly, IP telephony services are not extensively regulated in
most foreign countries. The regulatory environment in which we operate is
subject to change. Regulatory changes, which are affected by political, economic
and technical factors, could significantly impact our operations by:
- restricting our development efforts;
- limiting our customer base;
- making current products obsolete;
- adding to the cost of delivering IP Products; or
- increasing the opportunity for additional competition.
Any such regulatory changes could have a material adverse effect on our
business, financial condition and results of operations. We might deem it
necessary or advisable to alter or modify our products to operate in compliance
with such regulations. Such modifications could be very expensive and,
especially if subject to regulatory review and approval, time-consuming.
OTHER RISKS
There is a limited public market for our common stock and the price is subject
to substantial fluctuations. You may be unable to sell your common stock quickly
at the current market price.
Our common stock has been publicly traded on the OTC Bulletin Board only
since July 1998 so there is a limited history of prices. During that time, the
price of our common stock has been highly volatile, ranging as high as $7.50 and
as low as $.10. The low trading volume may adversely affect our stockholders'
ability to sell shares of our common stock quickly or at the current market
price. Attempts to buy or sell relatively small amounts of our common stock
could cause the market price to fluctuate significantly. Because of the limited
trading market, the price of our common stock could be adversely affected by the
sale of shares by the selling stockholders pursuant to this offering. Other
sales of substantial amounts of our common stock, or the perception that such
sales might occur, would also likely adversely affect the market prices for our
common stock.
The trading price of the common stock could also be subject to significant
fluctuations in response to variations in our quarterly results of operations,
announcements of technological innovations or new products or services of our
competitors, developments or disputes with respect to proprietary rights,
general trends in the telecommunications industry and overall markets conditions
and other factors. The market for securities of early-stage, technology-based,
small market capitalization companies has been highly volatile in recent years,
often as a result of factors unrelated to a company's operations.
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<PAGE> 12
Sales of restricted shares could lower the market price of our common stock and
affect our ability to obtain equity financing.
Future sales of common stock by existing stockholders under exemptions from
registration or through the exercise of outstanding registration rights could
materially adversely affect the market price of our common stock and could
materially impair our future ability to raise capital through an offering of
equity securities. A substantial number of shares of common stock are, or will
be in the near future, available for sale under exemptions from registration or
are being registered in this offering pursuant to registration rights. We are
unable to predict the effect, if any, that market sales of these shares or the
availability of these shares for future sale will have on the market price of
our common stock prevailing from time to time. After the completion of this
registration, up to approximately 15,288,000 shares of previously restricted
common stock will be freely transferable without restriction or further
registration under the Securities Act, by persons other than our "affiliates."
Approximately 9,500,000 shares of the remaining common stock issued by the us
prior to this offering will still be "restricted securities" and may be publicly
sold only if registered under the Securities Act or sold in accordance with an
applicable exemption from registration, such as Rule 144. Sales of substantial
amounts of shares in the public market following the expiration of restrictions
imposed by Rule 144, or the prospect of such sales, could adversely affect the
market price of the common stock and discourage other equity investment in us
for the foreseeable future.
The exercise or conversion of warrants and other securities into common stock
will dilute other stockholders and affect the market price of our common stock.
As of September 30, 2000, we had outstanding options, warrants and other
rights to acquire as many as 7,000,000 shares of our common stock. This includes
rights held by the selling stockholders to acquire shares of common stock.
Additional shares of common stock may be issuable upon certain default events in
connection with the Senior Convertible preferred stock. More options will be
granted in the future under our 2000 Executive Incentive Plan. The exercise or
conversion of outstanding stock options, warrants or other convertible
securities will dilute the percentage ownership of our other stockholders. In
addition, any sales in the public market of shares of our common stock issuable
upon the exercise or conversion of such stock options, warrants or convertible
securities, or the perception that such sales could occur, may adversely affect
the prevailing market price of our common stock. We lack control over the timing
of any exercise or the number of shares offered or sold if exercises occur.
We are subject to the Penny Stock Rules.
Our common stock is subject to the Penny Stock Rules promulgated under the
Securities Exchange Act of 1934. The Penny Stock Rules regulate broker-dealer
practices in connection with transactions in penny stocks. Penny stocks
generally are equity securities with a price less than $5.00, other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system. These
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized disclosure document
prepared by the Securities and Exchange Commission that provides information
about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with the current bid and offer
quotations for the penny stocks, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker-dealer and salesperson compensation
information, must be given to the customer in writing before or with the
customer's confirmation.
In addition, the Penny Stock Rules require that, prior to a transaction in
a penny stock not otherwise exempt from such rules, the broker-dealer must make
a special written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser's written agreement to the
transaction. These disclosure and documentation requirements may have the effect
of reducing the trading activity in the secondary market for our securities. The
Penny Stock Rules may make it more difficult for stockholders to sell the common
stock.
State securities laws may limit secondary trading.
Secondary trading in the common stock being sold in this offering will not
be possible in each state until the shares of common stock are qualified for
sale under the applicable securities laws of the state or there is confirmation
that an exemption, such as listing in certain recognized securities manuals, is
available for secondary trading in the state. There can be no assurance that we
will be successful in registering or qualifying the common stock for secondary
trading, or identifying an available exemption for secondary trading in our
common stock, in every state. If we fail to register or qualify, or to obtain or
verify an exemption for the secondary trading of, the common stock in any
particular state, the shares of common stock could not be offered or sold to, or
purchased by, a resident of that state. In the event that a significant number
of states refuse to permit secondary trading in our common stock, the
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<PAGE> 13
market for the common stock could be adversely affected. We are listed in
Standard and Poor's Standard Corporation Records.
Costs related to pending litigation matters could adversely affect our financial
condition.
We are involved in litigation with two former officers and with the
shareholders of a former acquisition candidate that could affect our financial
condition. Such litigation can be expensive and time consuming to defend. We
believe that our pending litigation matters, in the aggregate, could have a
material adverse effect on our financial condition if resolved against us.
Because they involve controversies over our failure to issue certain securities,
they could also result in dilution of the interest of our other stockholders.
We are not likely to receive any financial benefit from this offering.
This offering is for the selling stockholders. Therefore, except for any
amounts we receive from the exercise by the selling stockholders of the warrants
or other rights to purchase common stock, we will not receive any financial
benefit from this offering. We have agreed to pay for all offering expenses,
except sales commissions, whether or not we receive any benefits.
Certain members of our management hold a significant amount of our common stock.
Our current officers and directors and their affiliates beneficially own or
have the voting control over approximately 46.89% of the outstanding common
stock. Accordingly, these individuals have the ability to influence the election
of the directors and effectively control most corporate actions. This
concentration of ownership may also have the effect of delaying, deterring or
preventing a change in control. If all shares being offered under this
prospectus are issued, then the current officers and directors will beneficially
own approximately 26.84% of the outstanding common stock.
We have never paid dividends and do not expect to pay dividends in the near
future. An investor should not rely on dividends to be paid on the common stock
as a source of income.
We have never paid cash dividends on the common stock and do not anticipate
paying cash dividends on the common stock in the foreseeable future. Payment of
dividends on the common stock is at the discretion of the board of directors.
Payment of dividends is contingent upon, among other things, our future
earnings, if any, and our financial condition, and capital requirements, general
business conditions and other factors which cannot be predicted. A potential
purchaser should not expect to receive dividends on the common stock as a source
of income.
FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus and registration statement, including
without limitation information set forth under "Plan of Operations" contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements concern our
expectations, beliefs, estimates, intentions, and strategies about the future
and are generally identified by the context of the statement and use of words
such as, "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," or variations of such words and similar expressions which are
intended to identify such forward-looking statements, but their absence does not
mean the statement is not forward-looking. Such information contained in such
statements is difficult to predict. Actual results may differ materially from
those expressed or forecasted. We desire to avail ourself of certain safe harbor
provisions of the Reform Act and is therefore including this special note to
enable us to do so. Such forward-looking statements are subject to certain risks
and uncertainties, including those described in the section captioned "Risk
Factors" above.
USE OF PROCEEDS
The primary purpose of this offering is to register the shares issuable to
the selling stockholders. We do not expect to receive any proceeds. However, if
all of the outstanding warrants and other rights to purchase shares by the
selling stockholders are exercised, we will receive approximately $3,248,000 or
approximately $3,053,000 after deducting estimated offering expenses excluding
any commissions. We expect to use such amounts, if any, for sales and marketing
of our products, and services, service of our products, deployment of our
IPVoice System, continued research and development, working capital and general
corporate purposes.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend
to retain earnings for future growth and, therefore, do not anticipate paying
any cash dividends in the foreseeable future. The declaration of dividends on
our common stock in the future
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<PAGE> 14
will be at the election of our board of directors and will depend upon our
earnings, capital requirements, financial position, general economic conditions
and other relevant factors.
CAPITALIZATION
The following table shows our capitalization at September 30, 2000 on an
actual basis and as adjusted to give effect to our proposed issuance of shares
of common stock to be issued upon the conversion of the outstanding shares of
Series B preferred stock, including shares issuable as dividends on the Series B
preferred stock, and shares issuable upon exercise of warrants and other rights
to acquire common stock that were issued in connection with the sale of the
Series B preferred stock and our receipt of the net proceeds from the exercise
of such warrants and rights. The table assumes no exercise of options to
purchase 355,000 shares of common stock pursuant to the 2000 Executive Incentive
Plan and no exercise of warrants to purchase 196,875 shares of common stock. The
options under the 2000 Executive Incentive Plan do not vest and become
exercisable until July 2001. You should read this table in conjunction with "Use
of Proceeds" and our financial statements.
<TABLE>
<CAPTION>
SEPTEMBER 30,2000
----------------------------------------------------
ACTUAL ADJUSTMENT(1) AS ADJUSTED
------ ------------- -----------
<S> <C> <C> <C>
Long-term debt:
Notes payable to stockholders (secured by Senior
Convertible Preferred Stock) $ 199,200 $ 199,200(2)
Notes payable to stockholders (secured by assets) 186,750 186,750
----------- -----------
Total long-term debt 385,950 385,950
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized Series A, 200 shares issued and outstanding and as
adjusted 1 0 1(2)
Series B, 2,500 shares issued and outstanding, 0 as adjusted 2 (2) 0(3)
Common stock, $.001 par value, 50,000,000 shares
authorized, 18,566,384 issued and outstanding, 25,204,965 as
adjusted 18,566 $ 6,639 25,205(3)
Additional paid in capital 5,579,719 4,168,046 9,747,765(4)
Beneficial conversion feature discount 833,333 (833,333) 0
Deficit accumulated in the development stage (5,419,547) (93,750) (5,513,297)
----------- ----------- -----------
Total stockholders' equity 1,012,074 3,247,600 4,259,674
----------- ----------- -----------
Total capitalization $ 1,398,024 $ 3,247,600 $ 4,645,624
=========== =========== ===========
</TABLE>
(1) The following table represents the adjustments to our Series B preferred
stock, common stock, additional paid in capital, beneficial conversion feature
discount, stockholders' equity and total capitalization upon the conversion of
the Series B preferred stock, exercise of warrants, options and other equity
rights, and payment of Series B preferred stock dividends.
<TABLE>
<CAPTION>
PREFERRED COMMON
STOCK STOCK TOTAL COMMON PREFERRED BENEFICIAL
ISSUANCE ADDITIONAL ADDITIONAL ADDITIONAL STOCK STOCK CONVERSION
OF COMMON PAID IN PAID IN PAID IN PAR PAR FEATURE
STOCK CAPITAL CAPITAL CAPITAL VALUE VALUE DISCOUNT DEFICIT PROCEEDS
----------- ---------- ---------- ---------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Conversion of
Series B Preferred $3,086,420 $(1,323,907) $2,154,156 $ 830,249 $ 3,086 $ (2) $(833,333) $ $
Stock
Options 3,086,420 2,496,913 2,496,913 3,087 2,500,000
Dividends 115,741 93,634 93,634 116 (93,750)
Warrants to Funds 250,000 533,750 533,750 250 534,000
Warrants to Delano 100,000 213,500 213,500 100 213,600
-------- --------- -------- --------- ----- -- ------- -------- ----------
$ 6,638,581 $(1,323,907) $5,491,953 $4,168,046 $ 6,639 $ (2) $ (833,333) $(93,750) $3,247,600
========= =========== ========= ========= ===== == ======== ======== ==========
</TABLE>
(2) Series A preferred stock, referred to elsewhere as Senior Convertible
preferred stock, is not convertible unless we fail to make timely payments of
interest and principal on $199,200 of promissory notes due to certain
stockholders. Interest on these notes is payable quarterly at a rate of 9% per
annum and the principal is due in May 2001. Upon payment of the notes, the
Series A preferred stock will be fully redeemed. If we fail to pay these notes
in a timely manner, the holders will be entitled to convert their shares of
Series A preferred stock into the number of shares of common stock as will equal
approximately 8.87% of the then issued and outstanding shares of common stock on
a fully diluted basis. We intend to pay this obligation in a timely manner.
(3) This data assumes that all 2,500 shares of Series B preferred stock will be
converted, that the dividends on the Series B preferred stock will be paid in
shares of common stock, that the holders of the Series B preferred stock will
fully exercise their rights to acquire one (1) additional share of common stock
for each share of common stock acquired upon conversion, and that the holders of
the warrants issued in connection with the issuance of the Series B preferred
stock will exercise all their warrants.
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<PAGE> 15
(4) For purposes of this table, we have assumed that the warrants issued in
connection with the issuance of the Series B preferred stock will be exercised
at a price of $2.136 per share and that the exercise price for the Series B
preferred stock will be $0.81 per share of common stock.
MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our common stock currently is quoted on the OTC Bulletin Board under the
symbol "IPVC" and has been since July 1998. The high, low and average bid
information for each quarter since July 1998 to the present are presented below.
The quotations are interdealer prices without adjustment for retail markups,
markdowns or commissions and do not necessarily represent actual transactions.
These prices may not necessarily be indicative of any reliable market value.
<TABLE>
<CAPTION>
QUARTER HIGH LOW AVERAGE
<S> <C> <C> <C>
1998
Third Quarter. $ 1.17 $ 0.55 $ 0.86
Fourth Quarter $ 0.56 $ 0.10 $ 0.24
1999
First Quarter. $ 1.38 $ 0.19 $ 0.95
Second Quarter $ 7.50 $ 0.75 $ 3.13
Third Quarter. $ 3.06 $ 1.50 $ 2.17
Fourth Quarter $ 4.06 $ 1.44 $ 2.01
2000
First Quarter. $ 4.81 $ 2.00 $ 3.37
Second Quarter $ 3.19 $ 1.00 $ 1.80
Third Quarter $ 1.69 $ .44 $ 1.05
</TABLE>
On ___________, 2000, the last reported sale price of the common stock on
the OTC Bulletin Board was $________ per share.
As of the date of this prospectus, there were 18,566,384 shares of common
stock held of record by 102 holders, 10,918,055 of which are restricted Rule 144
shares and 7,648,329 of which are free-trading. Excluding the warrants and the
senior convertible preferred stock, as of this date, we had outstanding options
to purchase 355,000 shares of common stock. We also had 200 shares of senior
convertible preferred stock outstanding and 2,500 shares of Series B preferred
stock outstanding.
SELECTED FINANCIAL DATA
Our selected financial data below for the years ended December 31, 1998 and
1999 have been derived from our financial statements audited by Durland &
Company, CPAs, P.A., Palm Beach, Florida. The selected financial data for the
nine-months ended September 30, 1999 and 2000 have been derived from our
unaudited financial records which, in our opinion, contain all adjustments,
consisting of only normal recurring adjustments, which we consider necessary to
present fairly the financial position and results of operations for these
periods. The selected financial information below should be read with our
financial statements and notes attached as an exhibit to this prospectus.
Results of operations for an interim period should not be considered indicative
of results for a full year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
STATEMENT OF OPERATIONS DATA:
1999 1998 2000 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 321,279 $ 41,254 $ 114,193 $ 50,700
Gross Profit 15,845 41,254 8,447 1,560
Loss from operations (1,881,239) (507,685) (2,221,897) (1,429,114)
Other income (expense) (92,595) 0 (19,482) (20,998)
Net Loss (1,973,834) (507,685) (2,241,379) (1,450,112)
Loss per share $ (0.13) $ (0.04) $ (0.13) $ (0.10)
----------- ----------- ----------- -----------
Weighted average shares
Outstanding 15,413,751 11,620,451 17,815,927 15,248,436
BALANCE SHEET DATA:
Current Assets $ 256,348 $ 153,888 $ 835,301 $ 256,348
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C>
Total assets 633,903 191,513 1,724,343 633,903
Current Liabilities 406,339 307,129 326,319 406,339
Long-term debt 1,145,400 0 385,950 1,145,400
Total liabilities 1,551,739 307,129 712,269 1,551,739
Stockholders equity (deficiency) (917,836) (115,616) 1,012,074 (917,836)
</TABLE>
PLAN OF OPERATIONS
We estimate that our current cash and the cash flow from operations over
the next 12 months will not alone be sufficient to continue our operations and
to cover our operational expenses. We believe it will be necessary to raise
additional equity capital, incur debt or take other actions of a financial
nature to sustain our operations.
We plan to continue to make material investments in our product research
and development. We anticipate making material purchases of equipment and
leasing new facilities. We anticipate increasing our number of employees over
the next 12 months to include clerical and other administrative services, sales
and technical personnel.
Until we achieve a sustained level of profitability, we must be considered
a start-up entity. We remain dependent on financing resources for cash flows to
meet certain operating expenses and no assurance of our financial success or
economic survival can be given during this period.
As a start up entity, we have and will necessarily continue to incur
certain types of start up costs, including costs related to the commencement of
business, legal and accounting fees, initial filing fees, and advertising and
marketing fees which may not constitute ongoing fees; or, if ongoing, may not be
incurred at the same level or percentage of revenues as experienced in the
initial start-up period.
This general discussion of operations is limited by and should be
considered within the context of our financial statements and notes.
BUSINESS
General
IPVoice.com, Inc., the parent corporation, was formed in February 1997 and
had essentially no operations until March 1998, when it acquired IPVoice
Communications, Inc., the subsidiary. At the time of the acquisition, the
subsidiary principally was involved in developing its MultiCom business
management software. Such software was developed by Anthony Welch, our former
senior vice president of research and development and currently a consultant.
With the agreement to acquire Independent Network Services, doing business
as Satlink 3000, in April 1999, we intended to gain licenses to provide
telecommunications services. At that time, INS was licensed in thirty-one states
and the District of Columbia and had a pending tariff licensing in one other
state. INS was a switchless reseller of long distance telephone services. At the
time of the acquisition of INS, we believed that we were acquiring the Carrier
Identification Code, or CIC Code, designated 10-10-460. An audit showed that INS
may not have had title to the CIC Code. Further investigation determined that
there was no clear link between the ownership of the CIC Code and INS. Therefore
we elected to unwind the transaction and to rescind the issuances made under the
acquisition and the related agreements. Had the CIC Code been operational, it
would have allowed us to diversify into distinct segments of the long distance
market not currently provided by us. The INS shareholders have instituted a suit
against us.
Today, we primarily focus on Internet Protocol telephony or IP telephony.
In the fast moving world of communications, especially IP telephony, the
companies with systems in the market are currently establishing both open and
closed systems. We have developed an open system that we believe will have an
edge on closed systems. In a closed system, the provider is limited to receiving
calls only. In an open system, the provider can both send and receive calls from
any other telephone carrier in the market.
With the growth of the Internet we believe that IP telephony can provide
cost savings to the consumer when such telephony services are provided by a
small IP telephony company. Smaller companies are able to compete with large
established telecommunications companies in this market because it is easier for
them to assimilate new technology and to adapt and make changes. We believe that
our billing, management network and marketing programs will allow us to compete
effectively.
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<PAGE> 17
IP Telephony
Traditional telephone networks give every call a nailed-down circuit. This
means that a dedicated circuit must be utilized for the full time that the call
is connected. This circuitry underutilizes resources. Only one person can talk
at a time and there are breaks in the conversation. In a normal conversation,
one person speaks while the other listens, using half of the capacity of the
dedicated circuit. At best, a traditional telephone network uses 25% of capacity
for each call. This significantly inflates the costs of making telephone calls.
Internet Protocol is the most significant of the communication methods on
which the Internet is based. IP telephony or the hardware technology to route
calls over the Internet has existed for several years. It allows a packet of
information, such as voice, video, e-mail, and data, to cross multiple networks
on its way to its final destination. Thus, instead of having one dedicated
circuit for a call, the entire network is shared. The conversation or packet of
information is split into many small packets and each packet is sent down
whichever path is open at that time. Packets are reassembled at the destination.
Until recently, packet switching was very slow. New technology can zip packets
around networks at lightning speed. Fast packet networks will make voice sound
as good as, and possibly better than, the circuit-switched voice networks used
currently.
Significant improvements have occurred in the compression and transmission
of voice over the Internet over the last several years. The quality of service
of IP telephony is now capable of being equivalent to that of a digital cellular
phone connection. IP telephony technology is evolving continuously and it is
expected that further improvements will allow it to rival conventional telephony
networks. The gateway equipment we deploy utilizes digital signal processing and
error correction technologies for improved voice sampling and compression and
reduced latency. Latency is the time spent waiting for a signal to travel from
one gateway to another and it is affected by network conditions between the
gateways as well as the processing time required to create the signal for
transmission. These technologies enable us to provide high quality, commercial
voice services with carrier grade reliability. Carrier grade reliability is
determined by how often the system is operational - 99.999% availability of
service.
The business of telephone companies is to sell minutes. Blocks of minutes
represent the commodity of the industry. The more minutes you can switch through
your network switches, the more money you can make. For example, under
traditional phone networks, a call from the suburbs to New York City will pass
through switches belonging to a local provider near the suburbs, a regional
provider, a national provider, a second regional provider and the local provider
on the other end. Each provider benefits from the per minute charge. IP
telephony provides the ability to leapfrog the middle men, creating faster and
more direct service. These factors ultimately result in cheaper call cost than
traditional telephone networks.
The deregulation of the telephone industry has allowed independent
companies access to the telephone market. We have proprietary rights in advanced
software and hardware solutions which we believe can competitively bridge the
gap between the telephone and the Internet. Our technology includes billing,
management network and marketing programs. We anticipate our technology can
achieve significant savings over circuit-switched voice for both domestic and
international calls. The potential market for IP telephony appears to be broad.
Products
Our products are designed at our facilities in Scottsdale, Arizona and by
personnel located in Denver, Colorado. Our products are comprised of software we
have designed and hardware we have configured together with components purchased
from a few major suppliers.
The keys to our IP Voice System are the gateways, incorporating
carrier-grade switching capabilities, which bridge the public telephone system
to the Internet. It is our goal to have at least the same if not better
reliability as those systems commonly used by the large telecommunications
companies such as AT&T and MCI. The core software behind the gateways is our
MultiCom business management system. In combination, our products enable users
to conduct real-time, full duplex, high quality two-way voice communications
over the Internet. Both the gateways and MultiCom are described more
specifically in the following sections.
Gateways and Current Locations
Gateways operate as a transporter between the incoming or access carrier
and the outgoing or egress termination. The gateways can be installed in
customer locations or under co-location agreement. W may construct some of our
own locations.
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<PAGE> 18
Our original gateway product was TrueConnect which was deployed for beta
testing in Hong Kong in the first quarter of 1999 and is now installed in
London, New York, Atlanta, Dallas, Phoenix, Miami and Chicago. The launch of our
TrueConnect gateways followed three years of extensive research and development
and field-testing.
We have recently completed the development of our next generation of
gateways which we call SuperConnect. SuperConnect provides fax and softphone
capabilities as well as phone to phone calling. Softphone is software within a
computer that allows the placement of calls without a telephone through the use
of a microphone and speaker.
Our newest gateway is UltraConnect which offers the same features as
SuperConnect but is designed to handle a higher volume of traffic. This permits
a smaller number of gateways to handle more minutes of calling time. Currently,
the UltraConnect gateway is operating only in Phoenix.
We have entered into various TruePartner and other agreements to develop
markets for our gateways. Our TruePartner Master Distributors purchase our
gateways and may also market our services directly or through agents. At the
present time, we have the following arrangements:
- A March 1999 TruePartner Agreement with Telco Services International,
Inc. granting exclusive rights to market, advertise and sell our
gateways and other products and services in Nicaragua, El Salvador,
Guatemala, and Honduras. The agreement also originally included
Guatemala and China but Telco has relinquished those territories. The
agreement will expire in March 2001 unless renewed.
- A March 1999 TruePartner Agreement with Billion Telecommunications
Services, Ltd. granting exclusive rights to market, advertise and sell
certain of our products and services in Hong Kong and Taiwan. Billion
also has first right to sell in China. The first beta version gateway
was delivered to Billion in Hong Kong in 1999 but is no longer in
operation. The agreement will expire in March 2002 unless renewed
- A May 1999 agreement with FirstNet Telephony, Ltd granting the
exclusive right to market, advertise and sell our products and
services in London and Manchester, England. FirstNet also received a
first right of refusal for the remainder of the United Kingdom.
FirstNet took delivery of a gateway in October 1999 and that gateway
is in operation in London. The agreement will expire in May 2001
unless renewed.
We intend to retain the rights for all domestic sites not licensed to other
parties. We will set up our own switches or partner with a local twitching
business and take a percentage of the minutes. We installed the gateways in New
York and Los Angeles. At present, these are used primarily as demonstration
sites for the sale of our products and services. Three gateways, including New
York and Los Angeles, were initially financed in January 2000 through a lease
from International Investment Partners (Delaware). We have since purchased the
gateways for $120,000 and terminated the lease arrangement.
Our gateways can route calls over the Internet in areas where our network
is established, or use traditional phone lines when necessary or desirable.
Software
In order to function properly, our gateways require software support. We
have developed several proprietary software products that allow us and our
distributors worldwide to offer a full solution in IP telephony. These products
include:
- MultiCom. MultiCom is our telecommunications and network management
system addressing multiple aspects of operating and managing a
telecommunications network. It provides a low barrier of entry for our
partners and alliances because it does not require special computers
for access. MultiCom is our core software product and provides:
- complete order entry;
- billing;
- customer service;
- agent management; and
- switching network management.
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- AuditRite. This software module add-on to MultiCom allows MultiCom to
read and interpret carrier-supplied data-tapes. This is a powerful
tool for analyzing call patterns and finding possible errors in a
vendor's billings.
In addition to our current software products, we are developing the
following:
- TrueWeb. The Web-browser interface to MultiCom is designed to be a
complete business management system available over the Internet.
Included within its functions is its ability to display and interact
with the user in his or her native language, including specialized
alphabets. We believe the TrueWeb multi-lingual capability is unique
to us. TrueWeb is being introduced in the fourth quarter of 2000.
- A PC Phone Application. This is a software package for softphoning.
- Click'N Speak. This software package will allow visitor's to a
business' website to establish voice communications with the business
by clicking a display button at no cost to the visitor.
Many companies entering the IP industry have concentrated on software that
simply switches minutes across the network. They have not concerned themselves
with how to manage the network, conduct billing and implement feature
functionality. Our software applications control a variety of functions ranging
from routing to billing. MultiCom and our gateways are designed to incorporate
upgrades and service options as future technology develops.
Our proprietary software includes several helpful features:
- Real-Time Billing. Real-time billing allows the customer to secure
reports on the volume of call, locations called, exact amount owed and
other features.
- Full Feature Functionality. We can add services to our software online
and when requested. We can update our international network from our
home base. Traditional phone companies must update each switch
individually across the network at substantial cost and implementation
time.
- Effective Agent Control. A single agent can sit in front of our
gateway terminal and control the operation. We can also directly
access the network from our main office in the U.S. This allows us to
add and service customers from our home base without the need for
onsite installation.
- Multiple Network Access. Our software can switch through multiple
networks, both Internet and traditional, giving it universal
application.
- Open System Access. Our gateways employ an open system. This means the
gateways can both send and receive calls from any other telephone
carrier in the market.
- Prepaid Card Availability. Our MultiCom software has built in
capability that permits the use of prepaid debit card and travel
calling cards.
- System Security. We protect against pirating by randomly changing our
source code for our software up to four times daily.
Research and Development
Research and development was substantially completed prior to the formation
of the subsidiary and our acquisition of it. However, we paid a third-party for
additional testing in fiscal year 1999 at a cost of about $97,000 and $28,000 in
the nine months ended September 30, 2000.
We plan to and currently conduct research and development on a continuing
basis, particularly in connection with our gateways and other products. We do
not expect these activities to require significant expenditures.
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Additional Services
In addition to the sale of the gateways and the licensing of our software,
we plan to derive our revenues from the sale of a variety of pre-paid services:
- flat-rate calling plans such as Flat25, Flat5 and 4 x 4;
- wholesale long distance services for other international carriers;
- prepaid long distance calling card services;
- corporate long distance, fax and data networking services;
- e-commerce communications services for businesses selling products and
services over the Internet; and
- other telecommunications applications and services.
Flat-Rate Calling Plans
We currently offer a flat-rate calling plan option marketed under the name
Flat25, for residential use. Flat25 allows unlimited calling between cities in
which the gateways are installed for a single rate per month of $25 and an
initial registration fee.
In addition, we have designed a pre-paid, flat-rate long distance plan for
calls originating from any of our gateways to be marketed under the name Flat5
which will allow calls from the gateway to anywhere in the mainland United
States and Canada for $.05 per minute. The customer will receive a number to
access our nearest gateway. There will be a one time registration fee of $25 and
the customer may elect from three monthly pre-payment plans.
Further, we have designed a pre-paid flat-rate long distance plan for calls
originating from any of our gateways to be marketed under the name 4 x 4 which
will allow calls from the gateway to anywhere in the mainland United States and
Canada for $.04 per minute plus calls to up to four international countries at a
10% discounted rate. The customer will receive a number to access our nearest
gateway. There will be a one time registration fee of $25 and the customer may
elect from three monthly pre-payment plans.
Wholesale Long Distance Services
We plan to market our IP telephony services to other international long
distance carriers and wholesale customers that have a need for large blocks of
long distance telephone time between selected locations. Although margins at the
wholesale level are lower than retail margins, the sale of blocks of long
distance time to other carriers should enable us to generate revenues with only
a limited number of gateways installed. We are in the process of pre-marketing
our services and have identified several potential wholesale sellers of block
minutes.
Prepaid Calling Cards
We market prepaid calling cards to persons traveling to destinations such
as Mexico, Central and South America, Asia, Europe and other regions where long
distance telephone calls are substantially more expensive than domestic long
distance telephone calls. Through September 30, 2000, we received $114,000 in
revenue from the sale of other parties' wholesale long distance service. We
received $262,000 and $41,000 for the fiscal years ended December 31, 1999 and
1998 respectively from the sale of other parties' wholesale long distance
service. Based upon expressions of interest, we believe that this market could
produce between $10,000 and $50,000 in monthly revenue.
A typical long distance telephone call from Mexico to Vancouver, British
Columbia, made from a public payphone in Mexico can cost more than $2.00 per
minute, and frequently surcharges are levied by third party credit card call
processing companies located outside of Mexico. However, due to competition in
North America, rates for calls from North America to Central and South America
are significantly less expensive than calls made from this area to North
America.
We are marketing our pre-paid calling cards through travel agents, tourist
agencies, airline ticketing offices, tour companies, car rental agencies and
hotel personnel in denominations of $10, $20, $30 and $50. We plan to have an
automated voice response system to enable card holders to add time to their
calling cards by charging their credit card while on the phone.
Our calling card provides instructions for the use of the IPVoice system.
To place a long distance call to North America, the cardholder dials a local
access number or an 800 number if an originating gateway does not exist in the
local calling area and is then
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prompted to dial the destination number as well as the cardholder's calling card
number. The call is then routed to the nearest originating gateway. After
reaching the originating gateway the call is transmitted over our network to the
terminating gateway or the least cost route to the destination number. Once the
call reaches the terminating gateway, the call is then switched to the local
telephone network and is routed to the destination number.
Travelers making long distance calls from local calling areas which do not
have originating gateways will nevertheless be able to use our calling cards.
However, our operating margin will be less since these calls must be routed via
an 800 number to a distant originating gateway. By establishing gateways in
North America and select foreign countries, we believe we can service a large
and identifiable market of travelers with cost-effective prepaid calling cards
to use in placing calls to North America.
Corporate Services
We also plan to market services to corporate customers who need a
cost-effective means of combining long distance voice, fax and video
communications between their international offices. We plan to begin marketing
our corporate IP telephony services in the US and Canada to businesses that
operate branch offices or subsidiaries in the foreign countries in which we
operate our gateways.
E-Commerce Services
Our software also will support "web-to-phone" and "call-me" services.
Click'N Speak connections will enable the users of multimedia PCs to establish a
voice conversation with the owner of the website or their designated customer
service representative. We plan to introduce this new capability to web site
owners and developers in those markets in which we have gateways and demand for
e-commerce services is increasing. We believe that this service will contribute
to the development of sales made through the Internet. Click'N Speak will
provide new capabilities for customers to speak directly with sales people and
reservation agents while they are online and reviewing the content of a
particular web site. Click'N Speak personalizes the experience of shopping over
the Internet and provides a new level of customer service.
A PC Phone Application is our planned software for softphoning. We
anticipate this software will allow users to place telephone calls to any
telephone in the world using their computer and a connection to the Internet.
Marketing
The Market
We view IP telephony to be part of the global telecommunications industry.
According to industry sources, the global telecommunications market could
generate revenues in excess of $250 billion annually. According to International
Data Corporation, or IDC, international switched telecommunications traffic grew
from 28 billion minutes of use in 1989 to 81.8 billion minutes in 1997 and is
projected to reach between approximately 128.7 and 158.6 billion minutes by
2001. Also according to IDC, in the United States, residential long distance
calls represent a $67 billion dollar market. In its infancy today, the IP
telephony services market is estimated to increase to $1.8 billion by the year
2001. Due to deregulation, competition has reduced rates for both business and
residential calls placed within North America. However this is not the case for
international calls to certain countries where higher per minute rates are
common. The international telecommunications industry , in which much of our
effort is focused, is growing rapidly due to:
- deregulation;
- privatization;
- expansion of telecommunications infrastructure;
- technological improvements;
- globalization of the world's economies; and
- free trade.
Our Marketing Plan
Our plan for marketing our products and services contains four primary
elements:
- First, will rely heavily on our TruePartner Master Distributor program
and similar agreements, which include marketing
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elements. Under this program, a TruePartner Master Distributor can
purchase and operate gateways, market our other products and services
and contract with other agents to market our products and services
called TruePartner Agents. A TruePartner Master Distributor serves as
a liaison for us in designated territories, depending on our
agreement. At the present time, we have the following agreements,
which are described in greater detail under Products-Gateways and
Location:
- Telco Services International, Inc. for Nicaragua, El Salvador,
Guatemala and Honduras;
- Billion Telecommunications, Ltd. for Hong Kong and Taiwan with an
option for China; and
- First Net Telephony, Ltd for London and Manchester with an option
for the rest of the United Kingdom.
Ultimately, the IPVoice System needs to have customers to become
profitable. In addition, to our TruePartner relationships, we have entered into
arrangements for the marketing and resale of our services. We have specific
marketing agreements with the following:
- In March 1999, we entered into an agreement with Kenneth M.
Brown. We granted Brown the non-exclusive right to market,
advertise and sell our domestic and international calling
services. As payment for these services, we must pay Brown
commissions on sales of our products and services. The term of
the agreement is for a period of three years.
- In April, 1999, we entered into a marketing and advertising
agreement with Net Genie, or NG, to provide marketing services to
a minimum of 75,000 customers in thirty cities we designate
within a twelve month period in exchange for 100,000 shares of
common stock valued at $103,100 at the time. The shares must be
returned if NG fails to deliver a minimum of eight cities each
for a total of 75,000 customers before December 31, 1999. In
addition, NG could have earned performance bonuses of: 50,000
restricted shares if eight cities are delivered within ninety
days of execution; 50,000 restricted shares if fifteen cities are
delivered within one hundred fifty days; and 10,000 restricted
shares for each additional city thereafter before December 31,
1999 up to thirty cities. Further, NG will be granted warrants to
purchase warrants to purchase 30,000 shares of restricted common
stock exercisable for a period of two years at an exercise price
of $2.50 per share for every block of 5,000 pre-registered
customers up to 75,000 pre-registered customers in a twelve month
period. We plan to renegotiate our agreement with NG this year
since it has been unable to meet the incentive goals in a timely
manner.
- In April 1999, we entered into a marketing agreement with Benae
to market our telephony services and to register a minimum of one
hundred customers in the thirty cities in which we plan to offer
telephony services within twelve months in exchange for 200,000
shares of common stock valued at $206,200. The shares are to be
returned to us if the minimum is not met. We plan to renegotiate
the Benae contract this year since it has been unable to meet the
incentive goals in a timely manner
- In October 2000, we entered into an agreement with Telic
Communications, Inc. for traffic carriage services, including
hardware cross-connect, traffic transport and termination.
- In October 2000, we entered into a sales, marketing and business
management consulting agreement with Marie Peregrim to market our
services throughout Europe (excluding the United Kingdom). The
term is indefinite but may be terminated by either party on
thirty days notice. Payment will be 300,000 shares of our common
stock, valued at $273,330.
- In October 2000, we entered into an agreement with Blueshift
Telecom, Inc. to resell our products, including residential long
distance service in the forty-eight contiguous United States. The
term is for one year, which is automatically renewed for one year
terms unless expressly canceled.
In addition, we have entered into a series of agency agreements for
the sale of our gateways and other products and for assistance in the
acquisition of wholesale minutes, co-locations and carriers. We intend
to seek associations with professional agents who will help promote
our products and services. None of these relationships has yet
produced any significant revenues. We are currently in discussion with
other potential TruePartner Master Distributors and other business
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relationships.
- Second, we currently market our products and services through the
Internet. The IPVoice.com web page describes our products and services
and can receive and process orders. It also explains our TruePartner
programs. At the present time, only a small portion of our sales are
made through the Internet. We do no know if the web page will generate
sufficient interest to be a significant marketing tool.
- Third, we plan to engage reputable telemarket agencies to contact
prospective customers. They are typically paid on a commission basis.
We have not engaged any such firms to date. We are aware that other
telecommunications companies use telemarketing extensively. We do not
know if it will be an effective means of expanding the IPVoice System
user base.
- Finally, we will use our own marketing personnel for strategic
marketing efforts. Both Ms. Will, our president, and Mr. Scott, our
vice president for sales and marketing, have extensive experience in
the communications business.
None of these marketing elements has been in place long enough for us to
evaluate their long term usefulness. We believe, however, that a combination of
these approaches will be sufficient to sustain us for the immediate future.
We intend to obtain a significant market with our products. We believe that
many of our current competitors lack a well-developed component to their
solutions: effective data management and billing. Therefore, we also plan to
market to some of our competitors as our billing and management software has the
potential to communicate with other platforms. We are capable of providing the
following unique features:
- IP Telephony solutions and a mature, real-time billing system for ease
of use, affordability and quality;
- Real-time remote access and manageability of information; and
- IP telephony technology, Internet remote-access technology and an
order-entry and invoicing system.
We have targeted international markets and support our sales efforts by
participating in trade shows targeting the telecommunication industry and large
businesses.
Other Key Relationships
Our products are made from company-designed software and company-configured
hardware. We also purchase materials from a few major suppliers. They include
the following:
- In order to manufacture our TrueConnect gateways, we currently rely upon
an arrangement with Natural Microsystems Corporation. The relationship with NMS
commenced in February 1998 and is on a purchase order basis. For each shipment
ordered under an invoice, we are granted a sixty day evaluation period from the
date we receive from NMS both hardware and the operating software for the
gateways. Within the sixty day period, we purchase the product, or ship it back
to NMS with no further obligation.
Our SuperConnect gateways use a combination of hardware from several
manufacturers.
- In November 1999, for our SuperConnect gateway, we executed a memorandum
of understanding with Telic.net describing a strategic alliance under which
Telic.net will provide enhanced services to us and we will acquire from
Telic.net gateways at Telic.net's cost for use by our customers. Although the
initial term under our agreement has expired, the parties have expressed the
wish to maintain the alliance as long as it is beneficial to each of them. We
retain the right to purchase hardware elsewhere. In addition, we can license
certain of Telic.net's software and acquire certain source codes, Telic.net will
modify our gateways to accommodate our billing system and call flow. It is
intended that Telic.net will provide us with full network support to advance our
timetable for full integration of our network.
Local access/egress carriers provide us the ability to originate and
terminate calls across their traditional telephone networks. In addition, we
purchases wholesale minutes from them. We can acquire such services from a local
Bell company or from an independent provider.
- In June 1999, we entered into an agreement with ITG Telecom Group, Inc.
for local exchange service. The term of the contract is a period of three years,
although it is terminable by us earlier if ITG raises its prices twenty percent
above the amounts
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stated in the contract. In addition, in the event we wish to purchase
telecommunications services from a third party in ITG's areas of service, we
must first offer to purchase like services from ITG.
- In July 1999, we entered into a twelve-month agreement with RSL Com
U.S.A., Inc. for the purchase of wholesale long distance minutes for domestic
and international calls. We have not renewed this agreement and currently are
operating on a month-to-month basis. We are required to purchase a minimum of
100,000 minutes per month.
- In August 1999, we entered into an agreement with Star
Telecommunications, Inc. for telephone communications between its locations in
New York and Los Angeles and the outbound to termination points around the
world. The initial term was for six months with an automatically renewable
month-to-month term, under which we are currently operating.
- In August 1999, we entered into an agreement with ILD Communications,
Inc. for switching services and long distance wholesale minutes. The agreement
is for a term of one year and is automatically renewable unless expressly
canceled. It is our intention not to renew this agreement.
Internet bandwidth provides us with the ability to transmit and receive
information utilizing IP technology.
- In June 1999, we entered into an agreement with Level 3 Communications,
LLC for wholesale bandwidths. The contract is for no defined period of time and
the terms of each order are governed by both a separate customer order form,
which is filled out for each individual order, as well as by the original
agreement signed in June 1999.
- In August 1999, we entered into an agreement with MCI WorldCom
Technologies, Inc. for use of its UUNET network for wholesale bandwidths. The
contract is for a term of three years.
- In December 1999, we entered into an agreement with UUNET to provide
hosting for our website and e-mail facilities. UUNET bills us monthly for these
services. This arrangement replaces the services we previously contemplated
obtaining through INS.
- In June 2000, we entered into a co-location agreement with Intermedia
Communications, Inc for space in Miami, Florida. Certain telecommunications
equipment is located at this site. The term of this agreement is three years.
Competition
Two significant barriers to entry in the traditional long distance
telephone market are size with regard to a minimum efficient scale of operations
and regulatory constraints which preclude smaller companies from gaining
significant market share. IP telephony effectively eliminates or reduces these
barriers since it is presently unregulated and enjoys economies of scope and
scale by using the Internet and private IP networks as a common voice, video and
data network. We believe that IP telephony can decrease barriers to entry and
increase competition in the long distance industry.
We believe that our ability to compete in the IP telephony industry
successfully will depend upon a number of factors including:
- the pricing policies of competitors and suppliers;
- the capacity, reliability, availability and security of the IP
telephony infrastructure;
- marketing strategies;
- the timing of introductions of new products and services into the
industry;
- our ability to support existing and emerging industry standards;
- our ability to balance network demand with the fixed expenses
associated with network capacity; and
- industry and general economic trends.
The market for telecommunications services is extremely competitive and
there is a growing number of competitors in the IP telephony industry. There are
many companies that offer business communications services and which will
compete with us at some level. These include large telecommunications companies
and carriers such as AT&T, MCI WorldCom and Qwest; smaller, regional resellers
of telephone line access; and other existing IP telephony companies. These
companies, as well as others, including manufacturers of hardware and software
used in the business communications industry such as Lucent, could in the future
develop products and services that could compete with our products and services
on a direct basis. Many of these entities have far greater name
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recognition and financial and organizational resources than we have and control
significant market share in their respective industry segments. There is no
assurance that we will be able to successfully compete in the IP telephony
industry.
Certain large public telephone companies are positioning themselves to
enter the IP telephony market to protect their dominant domestic market from
competition. Many of these companies are testing other existing IP telephony
gateway technology which at the present time has limited call volume
capabilities. A number of companies are waiting for gateway manufacturers to
introduce advanced gateways that will be able to handle larger call volumes and
provide better quality and service.
In North America considerable discounting has been experienced in recent
years as competition has increased. While in many countries outside of North
America local telephone companies have begun offering discounts to very large
business and government customers with high call volumes, there are few
discounts available for individuals or small and medium sized companies. We
expect that competition in the United States will be led by carriers providing
low cost but high quality IP telephony services at rates of $0.05 to $0.09 per
minute. Smaller Internet service providers and new carriers are expected to
focus primarily on international or niche markets.
We believe that international markets are attractive to smaller carriers
and new entrants while large carriers may be evaluating the technology and
marketplace and contending with competition and deregulation in their domestic
markets. With international long distance rates in many countries costing well
in excess of $0.50 per minute, we believe that we can earn attractive gross
profit margins while offering service at substantial discounts to currently
available long distance rates.
Although we anticipate that our primary competitors will be other IP
telephony companies which offer phone-to-phone or PC phone services, they have
not yet captured the international market in the manner in which we plan to
pursue it with TruePartner gateway installations and pre-paid calling cards. We
believe that other IP telephony companies have not introduced a full billing and
back office system or integrated product offering containing corporate and
e-commerce communications services as we have.
Effect of Existing or Probable Governmental Regulation on the Business
Federal
We have no current domestic license with the Federal Communications
Commission. We use the Internet for transmission of long distance telephone
calls. Presently, the FCC does not regulate companies that provide IP telephony
services as common carriers or telecommunications service providers.
Notwithstanding the current state of the rules, the FCC's potential jurisdiction
over the Internet is broad because the Internet relies on wire and radio
communications facilities and services over which these regulatory authorities
have long-standing authority.
We have requested our C-LEC and IXC status in the U.S. A C-LEC designation
permits the resale of local telecommunications services and an IXC designation,
which stands for InterExchange carrier, allows for the resale of long distance
telecommunications services. We also have received a 214 international license
from the FCC for international long distance service.
In Canada, the Canadian Radio-Television and Telecommunication Commission
determined in 1998 that IP telephony services providers must pay local
contribution charges for calls terminating on local telephone networks, while
those calls that originate and terminate on computers are not subject to these
charges. The possibility exists that regulatory authorities may one day make a
determination to apply international call termination fees or otherwise tariff
IP telephony.
We also will be required to comply with the regulations regarding the
operation of our business in several foreign jurisdictions and will be subject
to compliance with the requirements of the authorities of these locales
regarding the establishment and operation of our business.
State
We are subject to varying levels of regulation in the states in which we
currently anticipate providing intrastate telecommunications services. The vast
majority of the states require us to apply for certification to provide
intrastate telecommunications services, or at least to register or to be found
exempt from regulation, before commencing intrastate service. The majority of
states also require us to file and maintain detailed tariffs listing our rates
for intrastate service. We have started the process of filing in every state.
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Many states also impose various reporting requirements or require prior
approval for transfers of control of certified carriers, corporate
reorganizations, acquisitions of telecommunications operations, assignments of
carrier assets, including subscriber bases, carrier stock offerings and
incurrence by carriers of significant debt obligations. Certificates of
authority can generally be conditioned, modified, canceled, terminated or
revoked by state regulatory authorities for failure to comply with state law and
the rules, regulations and policies of the state regulatory authorities. Fines
and other penalties, including the return of all monies received for intrastate
traffic from residents of a state, may be imposed for such violations. In
certain states, prior regulatory approval may be required for acquisitions of
telecommunications operations.
We currently are not subject to any State regulation with respect to our
Internet related services. However, there can be no assurances that we will not
be subject to such regulations in the future. Additionally, we are not aware of
any pending legislation that would have a material adverse effect on our
operations.
As we expand our efforts we must remain attentive to relevant federal and
state regulations. FCC rules prohibit switching a customer from one long
distance carrier to another without the customer's consent and specify how that
consent can be obtained. Most states have consumer protection laws that further
define the framework within which our marketing activities must be conducted. We
intend to comply fully with all laws and regulations, and the constraints of
federal and state restrictions could impact the success of direct marketing
efforts.
Future Regulation
Due to the increasing popularity and use of the Internet, it is possible
that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as:
- content,
- privacy,
- access to adult content by minors,
- pricing,
- bulk e-mail,
- encryption standards,
- consumer protection,
- electronic commerce,
- taxation,
- copyright infringement, and
- other intellectual property issues.
We cannot predict the impact, if any, that future regulatory changes or
developments may have on our business, financial condition, or results of
operation. Changes in the regulatory environment relating to the Internet access
industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition from
regional telephone companies or others, could increase our operating costs,
limit our ability to offer services and reduce the demand for our services.
If, as the law in this area develops, we become liable for information
carried on, stored on, or disseminated through our gateways, it may be necessary
for us to take steps to reduce our exposure to this type of liability through
alterations in our equipment, expanded insurance coverage or other methods. This
may require us to spend significant amounts of money for new equipment or
premiums and may also require us to discontinue offering certain of our products
or services.
In a report to Congress, the FCC stated its intention to consider whether
to regulate voice and fax telephony services provided over the Internet as
"telecommunications" even though Internet access itself would not be regulated.
The FCC is also considering whether such Internet-based telephone service should
be subject to universal service support obligations or pay carrier access
charges on the same basis as traditional telecommunications companies.
Local telephone companies assess access charges to long distance companies
for the use of the local telephone network to originate and terminate long
distance calls, generally on a per-minute basis. Access charges have been a
matter of continuing dispute, with long distance companies complaining that the
rates are substantially in excess of cost, and local telephone companies arguing
that access rates are justified to subsidize lower local rates for end users and
other purposes. Local and long distance companies both contend that
Internet-based telephony should be subject to these charges. Since we plan to
continue to install our gateways and to offer
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IP telephony, we could be directly affected by these developments. We cannot
predict whether these debates will cause the FCC to reconsider its current
policy of not regulating Internet service providers.
A governmental body could impose sales and other taxes on the provision of
our services, which could increase the costs of doing business. A number of
state and local government officials have asserted the right or indicated a
willingness to impose taxes on Internet-related services and commerce, including
sales, use and access taxes. No such laws have become effective to date. We
cannot accurately predict whether the imposition of any such taxes would
materially increase our costs of doing business or limit the services which we
provide. It may be possible to pass on some of these costs to the consumer and
continue to remain competitive.
As our services are available over the Internet in multiple states and
foreign countries, these jurisdictions may claim that we are required to qualify
to do business as a foreign corporation in each such state and foreign country.
New legislation or the application of laws and regulations from jurisdictions in
this area could have a detrimental effect upon our business.
Patents, Trademarks and Copyright
We do not hold and have not applied for any patents.
We have filed for service mark protection with the United States Patent and
Trademark Office for the following marks:
- IPVoice,
- MultiCom,
- AuditRite,
- TrueConnect,
- TruePartner,
- 4Com,
- ICB Connect,
- IP Jack (design),
- COMMUNICATIONS OUT OF THE BOX,
- IPVoice.net,
- IPVoice.com,
- FLAT5,
- FLAT25, and
- 4X4.
The applications were filed between August 1998 and early 2000. To date, none of
the marks has been accepted for registration. Various office actions have been
issued and responses filed. We cannot predict when, if ever, registration will
be granted.
Employees
At October 31, 2000, we employed fourteen (14) persons all on a full-time
basis. None of these employees are represented by a labor union for purposes of
collective bargaining. We consider our relations with our employees to be
satisfactory.
We have employment agreements with Barbara Will, Harry Bowman, Brian Auchey
and Michael Scott. Ms. Will, Mr. Bowman, Mr. Auchey and Mr. Scott serve as the
president, executive vice president, chief financial officer and vice president,
respectively.
Properties
We maintain our executive offices in leased facilities at 7585 East
Redfield Road, Suite 202, Scottsdale, Arizona 85260. We occupy approximately
6,170 square feet of space.
The lease has a term of three years. Monthly rental payments are as
follows: for the period of time from August 1, 2000 to July 31, 2001,
$10,797.50, plus sales tax; for the period of time from August 1, 2001 to July
31, 2002, $11,229.40, plus sales tax; for the period of time from August 1, 2002
to July 31, 2003, $11,678.58, plus sales tax.
Moreover, as "additional rent" under the terms of the lease, we are
required to pay a percentage share of the building impositions
23
<PAGE> 28
and operating expenses. Under the lease, our percentage share of the expenses is
an amount equal to (a) the amount by which, if any, the property's operating
expenses exceed the annual operating expense base, plus (b) the amount by which,
if any, the property's impositions exceed the annual imposition base. Our
percentage share of these impositions and operating expenses is 25.29%.
We lease a corporate apartment in Phoenix, Arizona which is used by
corporate personnel. The lease is for a term of one year commencing November 1,
1999 and terminating October 31, 2000. We pay monthly rent in the amount of
$866.12 plus a ratable adjustment for taxes. The lease has an automatic month to
month renewal at the end of the term that extends until the landlord receives
30-day notice that the tenant intends to vacate.
Legal Proceedings
On December 22, 1999, Peter Stazzone, our former secretary treasurer, filed
a suit against us in Superior Court of the State of Arizona, County of Maricopa,
No. CV 99-22828. Mr. Stazzone alleges breach of his employment contract, breach
of fiduciary duty by certain advisors, tortious interference by certain
advisors, and intentional and negligent misrepresentation by us. Mr. Stazzone
seeks his salary, liquidated damages, the award of stock and options, interest
and attorneys fees. We intend vigorously to defend such action and believe we
have meritorious defenses. We filed an answer on January 18, 2000. The parties
have exchanged disclosure schedules but no discovery has been undertaken.
On December 17, 1999, Satlink 3000, doing business as Independent Network
Services filed a suit against us in Superior Court of the State of Arizona,
County of Maricopa, No. CV 99-22560. The INS action is seeking actual and
punitive damages as a result of the rescission of our merger with INS. We intend
vigorously to defend such action and believe we have meritorious defenses and
counterclaims against INS. We filed a motion to dismiss on the basis that the
injury claimed was that of the INS stockholders and that the suit had to be in
their names, not the company name. INS conceded this point and filed an amended
complaint in February 2000 listing all but one of its stockholders. We filed a
reply asserting that the amended complaint fails to name all of the
stockholders. The court acknowledged this deficiency and requested that the
parties attempt to resolve the issue. No resolution has yet been reached. In the
meantime, we have received an open extension for filing an answer.
On April 25, 2000, Michael McKim filed a lawsuit against us in United
States District Court, Western District of Kentucky, at Louisville,
3:00CV-229-H, alleging breach of employment contract and fraud. We formerly
employed Mr. McKim in Kentucky as our vice president of research and
development. In addition, for a period of time, Mr. McKim was a member of our
board of directors. As part of his compensation, Mr. McKim was to receive
300,000 shares of common stock, followed by an additional 750,000 shares over a
three-year period, subject to various limitations.
The complaint alleges that we failed to issue the 300,000 shares to Mr.
McKim, which was a breach of our employment contract with him. In addition, the
complaint alleges that in failing to provide the shares to him after having
represented we would, we committed fraud. We filed our answer to the complaint
on June 19, 2000. In the answer, we denied the allegations. Along with our
answer, we filed a counterclaim against Mr. McKim alleging that during the
course of his employment, Mr. McKim engaged in intentional misrepresentation,
breach of fiduciary duty and intentional interference with business
relationships. We intend to vigorously defend the lawsuit, and to aggressively
pursue our counterclaim.
MANAGEMENT
Directors, Executive Officers and Key Employees
The names and ages of our directors, executive officers and key employees
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
-------------------------- ---- ----------------------------------
<S> <C> <C>
James K. Howson 57 Director, Chairman and Chief Executive Officer
Barbara Will 47 Director, President and Chief Operating Officer
Russell Watson 50 Director and Secretary
Anthony Welch 31 Director
Harry R. Bowman 56 Executive Vice President
Brian Auchey 42 Chief Financial Officer
</TABLE>
24
<PAGE> 29
<TABLE>
<S> <C> <C>
Michael Scott 29 Vice President, Sales and Marketing
</TABLE>
Each of our directors is elected at the annual meeting of stockholders and
serves until the next annual meeting and until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal. No
compensation is currently paid to directors for their service on the Board
though the non-officer directors are reimbursed for travel and other direct
expenses in attending meetings of the Board.
James K. Howson has served as Chairman since June 1999 and as Chief
Executive Officer since September 1999. Mr. Howson is an entrepreneur and has
been an investor for thirty years in small businesses and start-up companies in
Europe, Latin American and the United States. From 1991 to 1996, Mr. Howson was
an investor in and consultant to Mid-America Venture Capital Partners, Inc., a
privately held company that provided seed capital to promising young businesses.
Mr. Howson was also an investor in Environmental Systems, Inc. located in
Lancaster, Pennsylvania. Mr. Howson attended Roan College in London England in
1959.
Barbara S. Will has served as a director, president and chief operating
officer since March 1998. She also served as Chairman between March 1998 to June
1999. Ms. Will has over twenty years of experience in all areas of
telecommunications, both domestic and international. Prior to joining us, from
1984 to 1997, Ms. Will was in a senior capacity with MCI and was responsible for
signing some of the largest contracts with a carrier/reseller in MCI's history.
Her extensive industry experience includes international and international
private line; International 800; data; DSO, DSI, DSC, OC3; dedicated in and
outbound; One-Plus; calling and debit cards; Operator Assistance; Internet;
Enhanced Services; and Enhanced Network. During her time at MCI, she received
numerous awards for her outstanding performance. Ms. Will attended Colorado
State University for two years.
Anthony K. Welch has served as a director since March, 1998 and was senior
vice president from March 1998 to August 2000. He continues as a consultant to
us. Mr. Welch is the original designer of the MultiCom, AuditRite, and
TrueConnect platforms and has served as Special Consultant to various
telecommunications organizations. From 1997 to 1998, Mr. Welch was involved in
the our formation and the development of the MultiCom business management
software. From 1991 to 1997, Mr. Welch served as Special Consultant and Project
Design Leader for such organizations as Nation's Bank CS Headquarters, Frito-Lay
Worldwide Headquarters, NEC America Mobile Radio/Cellular/Pager Division
Headquarters, and Southwestern Bell Mobile Cellular/Pager Systems Headquarters.
Mr. Welch has received numerous awards and recognition for his work in
Artificial Intelligence both in military and academic circles and has applied
this experience to creating technology solutions that are both intelligent and
flexible. The technology behind the MultiCom system has received recognition
from several telecom trade magazine publications including Computer Telephony
and Telephony magazines. Mr. Welch obtained first place in the International
Science competition for Artificial Intelligence at the age of 17. Mr. Welch
attended the University of Mississippi and was the first freshman in the history
of the college to be admitted into the artificial intelligence Ph.D. Program.
Russell Watson has served as a director since September 1999. Mr. Watson
also has served as secretary since May 2000. Currently, Mr. Watson is the
business manager for Behrwood Capital Service, Inc., an investment management
company which he joined in 1998. Mr. Watson also has been the secretary for
Redstone Resources, Inc. since December 1999. He previously served as the vice
president of Operations for Venison America, Inc., a meat processor and
distributor during 1999. From 1994 to 1998, Mr. Watson was operations manager
for Mid-Atlantic Snack, Inc., a snack food distributor. Mr. Watson owned and
operated a snack food marketing business from 1993 to 1994. From 1974 to 1993,
Mr. Watson was CFO and operations manager for Weyerhauser Company, Hardwood
Division. Mr. Watson received a B.S. degree from Indiana University of
Pennsylvania in 1971.
Harry R. Bowman has served as executive vice president since November 1999.
Mr. Bowman is an experienced telecommunications operations professional who was
employed by AT&T from 1961 until 1995, when he retired. During his time with
AT&T, Mr. Bowman held various managerial positions, last serving as manager for
Creative Software, where he was responsible for sales, contracts, personnel and
financials. Previously he had served as manager of Technical Services, Date
Center Operations and in other management positions. After spending four years
in retirement, Mr. Bowman was provided with the opportunity to join us as its
executive vice president, which he accepted. Mr. Bowman holds a BS Degree in
Accounting from St. Joseph's University, Philadelphia, Pennsylvania.
Brian Auchey was appointed acting chief financial officer in July 2000 and
was employed as chief financial officer in October 2000. Prior to joining us,
Mr. Auchey had been vice president of Growth Capital Resources.com, LLC, or GCR,
from May 2000 through September 2000 and was serving as our acting chief
financial officer through an agreement with GCR. Prior to GCR, Mr. Auchey had
been vice president of International Investment Partners, Ltd., a Delaware
corporation, with offices in Lancaster, Pennsylvania, from December 1999 to May
2000. In that capacity, he provided financial and management consulting services
for us and became familiar with our financial structure and condition. From 1998
to 1999, Mr. Auchey was a controller with Breuners Home
25
<PAGE> 30
Furnishings Corporation, a national furniture retailer. From 1988 to 1998, he
worked in the Corporate Finance Department of DENTSPLY International Inc., a
worldwide manufacturer and distributor of dental and medical products. Mr.
Auchey began his professional career with KPMG Peat Marwick, LLP in 1980 and
spent nine years working with SEC reporting clients in the manufacturing, retail
and distribution, and financial services industries. Mr. Auchey received a BS in
Accounting from Bloomsburg University and has been a Certified Public Accountant
since 1982.
Michael Scott currently serves as vice president, Sales and Marketing.
Prior to joining us in April 2000, Mr. Scott has held multiple positions within
the sales, marketing and technical support realm. He has worked with a variety
of organizations from start-up firms such as ISOsafe, Inc., to Fortune 500
companies including Ortho Clinical Diagnostics, a Johnson & Johnson Company. Mr.
Scott received a BS in Mechanical Engineering from Clemson University in 1993,
and is currently pursuing his MBA.
Executive Compensation
The following table sets forth certain information concerning compensation
paid to or accrued for the benefit of the CEO, chairman, president, and chief
operating officer, the only executive officers whose total annual compensation
has exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
---------------------------- ------------------------------------ ----------------------------------------- -------------
Annual Compensation Long-Term Compensation
Awards Payouts
Other Annual Restricted Securities
Name and Year Salary Bonus Compensation Stock Underlying LTIP All Other
Principal Position (1) Award(s) Options Payouts Compensation
------------------- -------- ---------- ---------- -------------- -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James K. Howson, 1997 0 0 0 0 0 0
Director, CEO,
Chairman
1998 0 0 $35,000 0 0 0
1999 0 0 $106,500(2) 0 0 0
Anthony Welch, 1997 0 0 0 0 0 0
Director and
Senior Vice
President of
Research and
Development (3)
1998 $48,000 0 0 0 0 0
1999 $106,956 0 0 0 0 0
Barbara Will, 1997 0 0 0 0 0 0
Director,
President and
Chief Operating
Officer
1998 $48,000 0 0 0 0 0
1999 $106,956 0 0 0 0 0
</TABLE>
(1) Other compensation does not include certain health and life insurance
benefits paid by us on behalf of our employees.
(2) Mr. Howson was a consultant prior to becoming the Chief Executive Officer
in June 1999 and continues to be paid under the consulting agreement we
have with Condor which has a six year term ending in November 2003.
(3) As of September 1, 2000, Mr. Welch was no long our employee, but continues
to serve as a consultant to us.
No stock option grants were made and no stock appreciation rights were
granted to any named executive officer for the fiscal year ended December 31,
1999.
None of the executive officers owned any unexercised options as of December
31, 1999. No stock appreciation rights were exercised during such year or were
outstanding at the end of that year.
We have adopted a 2000 Executive Incentive Plan. Both Mr. Bowman and Mr.
Auchey have been granted options to purchase 50,000 shares of common stock. Mr.
Scott has been granted options to purchase 20,000 shares of common stock. These
options will vest over a three-year period so long as the optionee remains
employed by us. The exercise price of the options is $1.21 per share. Russell
Watson, a director, has been granted options to purchase 20,000 shares of common
stock on the same basis. Additional options may be granted in the future under
the 2000 Executive Incentive Plan.
26
<PAGE> 31
Committees
Our bylaws authorize the establishment of committees of the board of
directors. The board of directors, by resolutions, have authorized the formation
of an Executive Committee, an Audit Committee, a Compensation Committee and a
Nominating Committee. We, however, has not adopted an Audit Committee charter.
Usually outside directors serve on these committees. However, we only have one
outside director, Mr. Watson. Prior to this offering, the board of directors has
performed all the duties of these respective committees but anticipates that,
following completion of the offering, it will activate those committees and
assign them certain responsibilities such as designating the Compensation
Committee as the administrator of the 2000 Executive Incentive Plan.
Limitation of Liability and Indemnification Matters
Our articles of incorporation provide that no director shall have personal
liability to us any of our stockholders for monetary damages for breach of any
duty as a director or officers involving any act or omission of any such
director or officer. Such a provision, however, under Nevada law, cannot
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or, which involve intentional misconduct or a
knowing violation of the law, (iii) under applicable Sections of the Nevada
Revised Statutes, (iv) the payment of dividends in violation of the Nevada
Revised Statutes or, (v) for any transactions from which the director derived an
improper personal benefit. Our bylaws provide for indemnification of officers
and directors pursuant to Nevada law.
Compliance with Section 16 of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires our directors and officers and
persons who beneficially own more than ten percent of our common stock to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock. Officers, directors and
greater-than-ten percent stockholders are required by the SEC regulation to
furnish us with copies of all Section 16(a) reports they filed. To our
knowledge, based solely on review of the copies of such reports, if any,
furnished to us certain stockholders, officers and directors have not filed
their reports under Section 16(a).
Employment Agreements
We have employment agreements with Barbara Will, Harry Bowman, Brian Auchey
and Michael Scott, who respectively act as our president, senior vice president,
executive vice president and vice president, sales and marketing.
The agreement with Ms. Will is for a period ending January 1, 2003. Her
base salary is $150,000 per year and she is eligible for bonuses of up to 5
times her base salary upon achieving certain performance goals. No bonuses were
paid in 1999, the first full year of the agreement. During a portion of 1999 and
2000, because of cash flow considerations, Ms. Will voluntarily reduced her base
salary to a rate of $90,000 per year. She is also entitled to an automobile
allowance and other benefits within the general benefit programs provided to all
employees.
After the initial term, the agreement renews automatically on a
year-to-year basis unless we or she gives notice of termination at least 180
days prior to the next renewal date. Additionally, either of us may terminate
without cause upon 60 days' written notice and for cause upon immediately
effective written notice. If Ms. Will is terminated other than for cause, death
or disability or if she terminates for good reason, she is entitled to a lump
sum payment equal to (i) all unpaid salary and bonuses for any prior years, (ii)
the remaining unpaid base salary for the year, (iii) the maximum potential
bonuses for the current year, (iv) an extra bonus equal to 3 times her annual
base salary, and (v) any contributions that would have been made by us to any
employee pension or profit sharing plans. Additionally, she would receive
ongoing benefits for up to two years and outplacement assistance.
The agreement with Mr. Bowman is for a term ending November 22, 2001. It
does not renew automatically. His minimum base salary is $78,000 per year but
has been voluntarily reduced to $70,000. Mr. Bowman is a resident of
Pennsylvania but is required to spend at least 3 weeks each month at the
corporate headquarters in Arizona. We provide travel expenses to Pennsylvania 12
times per year. He also receives an automobile allowance and a subsistence
allowance while in Arizona. He participates in other benefit programs made
available to all employees. Mr. Bowman is also a participant in the 2000
Executive Incentive Plan and has been awarded options to purchase 50,000 shares
of common stock at an exercise price of $1.21 per share. The options vest over
the next three years.
The agreement with Mr. Auchey is for an indefinite term. His base salary is
$75,000. He participates in benefits programs made available to all employees.
Mr. Auchey is also a participant in the 2000 Executive Incentive Plan and has
been awarded options to
27
<PAGE> 32
purchase 50,000 shares of common stock at an exercise price of $1.21 per share.
The options vest over the next three years.
The agreement with Mr. Scott is for an indefinite term and may be
terminated by either us or Mr. Scott upon 30 days' written notice. His base
salary is $85,000 but has been voluntarily reduced to $70,000. He participates
in benefits programs made available to all employees. Mr. Scott is also a
participant in the 2000 Executive Incentive Plan and has been awarded options to
purchase 20,000 shares of common stock at an exercise price of $1.21 per share.
The options vest over the next three years.
Stock Option Plan
On December 9, 1999, our stockholders adopted the 2000 Executive Incentive
Plan, or the option plan, under which 1,000,000 shares of common stock are
reserved. The option plan took effect on January 1, 2000 and terminates on
December 31, 2005. Under the option plan, options can be granted to select
employees, officers, executives, directors and consultant and advisors. It is
intended that all options be granted at fair market value on a particular date
determined by our Compensation and Option Committee which currently is made up
of James Howson, director and Chief Executive Officer and Russell Watson,
director; however, a lesser price may be set by this committee. The exercise
period for the options is determined by the committee but cannot exceed six
years. Pursuant to the terms of the approved option plan, the board of directors
is authorized to alter, amend or modify the option plan under certain
conditions. The board of directors approved a modified option plan on February
28, 2000 that maintains the key features of the approved plan as required. As of
July 31, 2000, options to purchase 355,000 shares at an exercise price of $1.21
per share have been granted to 9 employees, including Mr. Bowman, Mr. Auchey,
and Mr. Scott, and to Mr. Watson, a director.
Options granted under the option plan may qualify as incentive stock
options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, and become exercisable in accordance with the terms approved at the
time of grant. Options may be granted to any employee, including employees who
are also officers or directors, selected by the board of directors in its
discretion.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of October 31, 2000, by (i) each person who is
known to own beneficially more than 5% of the outstanding shares common stock,
(ii) each of our directors and executive officers, and (iii) all directors and
executive officers as a group. The information is determined in accordance with
Rule 13d-3 under the Exchange Act based upon information furnished by the
persons listed or contained in filings made by them with the SEC. Under this
rule, a person is deemed to own beneficially the number of shares issuable upon
exercise of options, warrants or convertible securities it holds that are
exercisable within 60 days. Each beneficial owner's percentage ownership is
determined by assuming that convertible securities, options or warrants that are
held by such person, but not those held by any other person, and which are
exercisable within 60 days have been exercised.
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS
NAME AND ADDRESS OF SHARES BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER(1) TITLE OF CLASS OWNED OWNED(2)
------------------------------ -------------- ------------------------- -------------------
<S> <C> <C> <C>
Barbara S. Will Common 3,000,000 16.16%
Condor Worldwide, Ltd. Common 3,000,000(3) 16.16%
Anthony K. Welch Common 2,706,523 14.58%
International Investment Common 1,486,000 8.00%
Partners,
Ltd., an Irish Corporation
Officers and Directors as a Common 8,706,523 46.89%
group
</TABLE>
----------
(1) Such persons have sole voting and investment power with respect to all
shares of common stock shown as being beneficially owned by them, subject
to community property laws, where applicable, and the information contained
in the footnotes to this table. The address of all stockholders, other than
International Investment Partners, Ltd., is c/o IPVoice.com, Inc., 7585
East Redfield Road, Suite 202, Scottsdale, Arizona 85260. The address of
International Investment Partners, Ltd. is 428 Bay Street, Nassau, Bahamas.
(2) Assumes no exercise of certain outstanding warrants and options held by
others, rights held by employees to acquire up to an
28
<PAGE> 33
aggregate of 305,000 shares and the issuance of approximately 6,986,000
shares upon the exercise by the selling stockholders of the warrants and
other rights to acquire shares of common stock.
(3) These shares are owned of record by Condor Worldwide, Ltd. of which Mr.
James K. Howson is principal owner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1997, prior to its acquisition by us, the subsidiary entered
into a consulting agreement with Condor Worldwide, Inc., in which Condor agreed
to provide certain sales, marketing and public relations services in exchange
for 600,000 shares of our subsidiary's common stock to be issued upon listing of
the subsidiary's stock on the OTC Bulletin Board. Such shares were never issued
and the agreement was amended in July 1998 deleting the issuance of such shares.
The consulting agreement was modified in March 2000 to disclaim all interest in
the shares. The term of the Agreement was for a period of six years and is still
in effect. James K. Howson, our Chairman and CEO, serves as the Chairman and CEO
of Condor and he is the beneficial owner of Condor. The contract initially
provided for a cash fee of $150,000 per year. Effective September 1999, Condor
agreed to reduce its consulting fees to the rate of $90,000 per year.
In March 1998, the parent, or IPVoice.com, Inc., then known as Nova
Enterprises, Inc., entered into a share exchange agreement with the subsidiary,
or IPVoice Communications, a Delaware corporation, and its stockholders in which
the parent issued 9,000,000 shares of its common stock to the subsidiary's
stockholders for all of the subsidiary's outstanding capital stock, which then
became a wholly-owned subsidiary of the parent. In connection with the
agreement, we entered into employment agreements with Barbara Will, our current
Chief Operating Officer and president and a director and with Anthony Welch,
designer of our proprietary software, who currently serves as the senior
vice-president of Research and Development and a director. As part of the
exchange, Ms. Will, Mr. Welch and Condor each received 3,000,000 shares of
common stock. James K. Howson, our Chairman and Chief Executive Officer, is the
beneficial owner of Condor.
In October 1998, we executed a consulting agreement with International
Investment Partners, Ltd., an Irish corporation, or IIP Ireland. IIP Ireland
owns approximately 8.00% of our outstanding common stock and is a selling
stockholder. The consulting agreement memorializes an oral agreement made in
March 1998, to provide financial, consulting and advisory services over a
three-year period in exchange for the issuance of 350,000 shares of common stock
at an agreed value of $35,000, the grant of warrants to purchase an additional
1,600,000 shares of the common stock exercisable without time limitation at an
exercise price of $0.06 per share, the grant of warrants to purchase an
additional 350,000 shares of common stock exercisable without time limitation at
an exercise price of $3.90 per share and, in consideration of $100 cash, the
grant of warrants to purchase up to 5% of our common stock on a fully-diluted
basis at a price of $1.00 per share. In addition, the agreement required us to
pay a monthly fee of $4,000 from September 1998 through March 1999, $6,000 from
April 1999 through March 2000 and $8,000 from April through the end of the
agreement.
In January 1999, IIP Ireland received 93,760 shares of common stock in lieu
of payment for $14,064 in services under the consulting agreement. IIP Ireland
exercised its warrant to purchase 1,600,000 shares in April 1999 at an exercise
price of $96,000. As to the warrant to purchase up to 5% of our common stock, in
January through April 14, 2000, IIP Ireland purchased 506,000 shares of common
stock at an exercise price of $506,000. IIP Ireland retained the right to
purchase additional shares until the full 5% on a fully-diluted basis had been
acquired. Effective May 31, 2000, we and IIP Ireland agreed to terminate the
consulting agreement under terms which excused IIP Ireland from providing any
further services and discontinued our obligation to make the monthly payments
for such services. In addition, IIP Ireland agreed to exchange both outstanding
warrants and terminate the agreement for 700,000 shares of common stock.
At December 31, 1998, we owed Ms. Will $34,268 for reimbursement of
expenses paid on our behalf. During the year ended December 31, 1998, we owed
two of our stockholders, Condor and IIP Ireland, $20,564 for consulting
services. Total consulting fees incurred to these stockholders during the year
ended December 31, 1998 amounted to $31,096. During 1998, additional consulting
fees of $35,000 were paid to Mr. Howson. There were no outstanding amounts owed
respective to these fees as of December 31, 1998. During the year ended December
31, 1998, IIP Ireland advanced funds totally $24,750 for payment of general
operating expenses which was repaid in fiscal 1999.
From December 1998 through January 1999, we sold 896,665 shares of its
common stock to eight investors for $134,500 including 166,667 shares sold to
IIP Ireland for $25,000.
In February 1999, we entered into an agreement with IIP Delaware. We
granted IIP Delaware the non-exclusive right to market,
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<PAGE> 34
advertise and sell our domestic and international calling services. Brian
Auchey, our Acting Chief Financial Officer, was vice president of IIP Delaware
until May 2000 when he joined Growth Capital Resources.com, LLC of Lancaster,
Pennsylvania. The agreement was terminated.
On April 7, 1999, we entered into a share exchange agreement with Satlink
3000, doing business as Independent Network Services. We exchanged 250,000
shares of our Redeemable Convertible preferred stock valued at $500,000 for all
of the outstanding capital stock of INS. The Redeemable Convertible preferred
stock contained 1 for 1 conversion rights after one year and was redeemable at
$2.00 per share. The president of INS, Peter M. Stazzone, remained as the
president of INS. At the time of the exchange Mr. Stazzone became our Secretary,
Treasurer and Chief Financial Officer under an employment agreement. Also at the
time of the exchange, Mr. Stazzone received 50,000 shares of the Redeemable
Convertible preferred stock. Pursuant to an employment agreement, Mr. Stazzone
received 200,000 shares of common stock, a bonus of 100,000 shares of common
stock deemed earned on the date of the share exchange agreement, but to be
delivered on the earlier of (i) the first anniversary date of his employment, or
(ii) Mr. Stazzone's termination, and options to purchase an additional 200,000
shares of common stock exercisable for a period of three years at an exercise
price of $1.00 per share.
In connection with the exchange, INS and Mr. Stazzone represented that INS
had acquired certain assets, including the rights to the INS name, from the
Bankruptcy Court in the Chapter 11 filing of Telsave. Mr. Stazzone had been the
Chief Financial Officer of Telsave at the time the bankruptcy was filed and the
Bankruptcy Court was provided with disclosure of his involvement with INS prior
to the Court's approval of the sale of certain Telsave assets to INS. At the
time of the acquisition of INS, we believed that it was acquiring the rights to
the "10-10-460" CIC Code. The purchase price was based in part upon an appraisal
of the value of the CIC Code which is loaded in approximately 60% of the
domestic market. However, during the course of our audit for 1999, it was
discovered that clear title may not have passed to INS and subsequently to us.
Therefore, our Board determined that, in the event clear title had not passed to
us, it would be in our best interest to rescind the transaction. We sought a
legal opinion on the status of such title and were advised that there was no
clear link between the ownership of the CIC Code and INS. Therefore the Board
voted to rescind the transaction, to rescind the Redeemable preferred stock,
common stock and warrant issuances made under the acquisition and the employment
agreement and to terminate Mr. Stazzone's employment. The matter is now the
subject of litigation between us and INS and Mr. Stazzone.
On December 9, 1999, the stockholders adopted its 2000 Executive Incentive
Plan under which 1,000,000 shares of common stock are reserved for grants under
the plan. The plan took effect on January 1, 2000 and terminates on December 31,
2005. Under the plan, options can be granted to select employees, officers,
executives, directors and consultants and advisors. It is intended that options
will generally be exercisable at fair market value determined at issuance by the
Compensation and Option Committee which is made up of James Howson, director and
Chief Executive Officer, and Russell Watson, director. However, a lesser price
may be set by this committee. The exercise period for the options is determined
by the committee but cannot exceed six years. Pursuant to the terms of the
approved plan, the board of directors is authorized to alter, amend or modify
the plan under certain conditions. The board of directors approved a modified
plan on February 28, 2000 that maintains the key features of the approved plan
as required, and has now granted options for 355,000 shares to 9 employees,
including Mr. Bowman, Mr. Auchey, and Mr. Scott, and to one director, Mr.
Watson.
At December 31, 1999, we owed Mr. Howson and Ms. Will $17,363 and $40
respectively. During the year ended December 31, 1999, we owed IIP Ireland and
Behrwood Capital $40,000 and $896 respectively. Total consulting fees paid to
IIP Ireland during the year amounted to $131,000. Total consulting fees paid to
Condor and Mr. Bowman were $106,500 and $30,000 respectively. Mr. Bowman
received consulting fees prior to becoming an officer. During 1999, we purchased
for cash approximately $14,000 of furniture and fixtures from Ms. Will at the
fair market value.
In January 2000, we entered into a three year equipment lease with IIP
Delaware. IIP Delaware purchased three gateways from Telic.net for installation
in New York and Los Angeles. We paid IIP Delaware $120,000 to purchase the
gateways and terminate this agreement. Brian Auchey, our Chief Financial
Officer, was vice president of IIP Delaware.
On May 5, 2000, Barbara S. Will, Anthony K. Welch and James K. Howson, in
their individual capacities, and IPVoice Communications, Inc. and Condor
Worldwide Ltd., assigned to us all of the intellectual property in MultiCom
Business Management Software, a telecommunications software program, which uses
an Internet interface with the public telephone system and provides real time
billing, administration and control of the long distance telephone calls,
including any and all modifications and future improvements. Barbara S. Will,
Anthony K. Welch, and James K. Howson constitute three of the four members of
our Board of Directors. James K. Howson is the Chairman and CEO of Condor.
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<PAGE> 35
On June 1, 2000, we entered into a financial and business management
consulting agreement with GCR. GCR was compensated on an hourly basis, plus
out-of-pocket expenses, for time spent by its staff in providing services to us.
We designated Brian Auchey, a vice president of GCR, as our acting chief
financial officer. He devoted such time to our affairs as was deemed
commensurate with that responsibility. GCR was paid $175 per hour, subject to
certain adjustments, for Mr. Auchey's services.
On August 2, 2000, we entered into a TruePartner Master Distributor
Agreement and TruePartner Master Agent Marketing Agreement with GCR. Under these
agreements, GCR is granted nonexclusive rights to market and sell the IPVoice
equipment and services and is paid percentage of sales of equipment and
services. Brian Auchey, our chief financial officer, was a vice president of GCR
until October 2000.
On September 1, 2000, we entered into a research development and technical
consulting contract with Anthony Welch. Under this agreement, Mr. Welch will
provide programming, training, development and technical consulting services for
$7,500 per month. The term is indefinite but may be terminated by either party
with thirty days notice. Prior to September 2000, Mr. Welch was our employee.
That employment agreement was terminated.
SELLING STOCKHOLDERS
The following list of selling stockholders includes: (i) the number of
shares of common stock currently beneficially owned by each selling stockholder;
(ii) the number of shares being offered for resale by this prospectus by each
selling stockholder; and (iii) the number and percentage of shares of common
stock to be held by each selling stockholder after the completion of this
offering, assuming all offered shares are sold.
Except as otherwise indicated in the footnotes to such table, no selling
stockholder has been an officer, director or employee of ours for the past three
years. The registration of the shares does not necessarily mean that the selling
stockholders will sell all or any of the shares.
The selling stockholders provided us with all information with respect to
their share ownership. Because the selling stockholders may sell all or part of
their shares, we are unable to estimate the number of shares that will be held
by any selling stockholders by the termination of any offering. In addition,
beneficial ownership is determined in accordance with SEC rules and generally
includes voting or investment power with respect to securities. Shares of common
stock subject to options, warrants and convertible preferred stock currently
exercisable or convertible, or exercisable or convertible within sixty days, are
counted as outstanding for computing the percentage of the person holding such
options or warrants but are not counted as outstanding for computing the
percentage of any other person.
<TABLE>
<CAPTION>
SHARES HELD AFTER OFFERING(2)
NUMBER OF
BENEFICIAL OWNER(1) CURRENT OWNERSHIP SHARES OFFERED SHARES PERCENTAGE
---------------------------------- ----------------- -------------- -------- ------------
<S> <C> <C> <C> <C>
Augustine Fund, L.P. (7) 3,442,902(3)(4) 3,442,902(5) 0 *%
The Shaar Fund Ltd. (8) 3,442,902(3)(4) 3,442,902(5) 0 *%
International Investment Partners,
Ltd.,
an Irish Corporation (9) 1,486,000 1,312,240 173,760 *%
Delano Group Securities, LLC (10) 100,000(4) 100,000 0 *%
Jeffrey E. S. Packer(6) 75,000 75,000 0 *%
McGinn Smith & Co. Inc. (11) 10,000 10,000 0 *%
Raleigh D. Buckmaster 18,291 9,375 8,916 *%
Robert R. Buckmaster Residual Trust 36,123 9,375 26,748 *%
(12)
</TABLE>
----------
* Less than one percent
(1) Unless otherwise noted, we believe that all persons named have sole voting
and investment power with respect to all shares of common stock shown as
being beneficially owned by them, subject to community property laws, where
applicable.
(2) Assumes no exercise of outstanding warrants held by other stockholders or
options held by employees and directors, but gives effect to the maximum
conversion of the Series B preferred stock and exercise of all outstanding
warrants held by the selling stockholders.
(3) Assumes the Series B preferred stock conversion price is $.81 per share of
common stock and that the selling stockholder converts 1,250 shares of
Series B preferred stock, receives shares of common stock in payment of two
years of dividends on the Series B
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<PAGE> 36
preferred stock, and exercises fully the right to purchase additional
shares of common stock at the time the Series B preferred stock is
converted.
(4) Assumes the warrant exercise price is $2.136 per share and that the selling
stockholder fully exercises its warrants.
(5) Depending on the actual conversion price of the Series B Stock, the number
of shares offered will be adjusted but will not be less than 1,371,174
shares for this selling stockholder. The terms of the registration rights
agreement require us to register 200% of the estimated maximum number of
shares.
(6) Dr. Packer also holds 100 shares of Senior Convertible Stock which in the
event of a default in our payment of a promissory note for $99,600 held by
him, would entitle him to convert those shares into the number of shares of
common stock which would then be equal to approximately 4.35% of the issued
and outstanding common stock on a fully diluted basis. Payments on the
promissory note are current and no conversion right has accrued.
(7) Augustine Fund, L.P. is an Illinois limited partnership and Augustine
Capital Management LLC is its general partner. Augustine Fund, L.P. is
owned by numerous accredited investors.
(8) The Shaar Fund Ltd., a British Virgin Islands corporation, is an investment
company for whom Shaar Advisory Services N.V., serves as the investment
advisor.
(9) International Investment Partners, Ltd., an Irish corporation, or IIP
Ireland, is beneficially owned by Jeremy Feakins, who also is the
beneficial owner of GCR, formerly known as IIP Delaware.
(10) Delano Group Securities, LLC is a Delaware limited liability company and a
registered broker dealer.
(11) McGinn Smith & Co. Inc. is a New York corporation and a registered broker
dealer.
(12) The sole beneficiary of the trust is Grace Buckmaster.
DESCRIPTION OF SECURITIES
The following summary of certain provisions of our capital stock is subject
to, and qualified in its entirety by, the provisions of our Articles of
Incorporation, as amended, and our Bylaws that are referenced as exhibits to
this Registration Statement and by provisions of applicable law.
Common Stock
We are authorized to issue up to 50,000,000 shares of common stock, $.001
par value. As of the date of this prospectus, there were 18,566,384 shares of
common stock outstanding, held of record by 102 stockholders. Except as may be
provided to holders of certain series of preferred stock, holders of common
stock are entitled to receive ratably such dividends as may be declared by the
board of directors out of funds legally available therefor. We have not paid any
dividends to date on our common stock. In the event of our liquidation,
dissolution or winding up, holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation
preference of any outstanding senior securities, subject to the rights of
holders of preferred stock. Holders of common stock have no preemptive rights
and have no rights to convert their common stock into any other securities. The
outstanding shares of common stock are, and the shares of common stock offered
as part of this registration statement will be, when issued, validly issued,
fully paid and nonassessable. The holders of common stock are entitled to one
vote for each share held of same on each matter submitted to a vote of
stockholders.
Preferred Stock
We are presently authorized to issue up to 10,000,000 shares of preferred
stock, $.001 par value per share. Such preferred stock may be issued in one or
more series, on such terms and with such rights, preferences and designations as
our board of directors may determine except to the extent set forth in our
articles of incorporation. The preferred stock may be issued without action by
stockholders. As of July 25, 2000, there were 2,700 shares of preferred stock
outstanding held by 5 stockholders of record. Currently, we have outstanding
shares for two series of preferred stock. Any future issuance of preferred stock
could adversely affect the rights of the holders of common stock, and therefore
reduce the value of our common stock. In particular, specific rights granted to
future
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<PAGE> 37
holders of preferred stock could be used to restrict our ability to merge with,
or sell our assets, to a third-party, which would preserve control by the
present owners.
Senior Convertible Preferred Stock
Initially, 1,150 shares of Senior preferred stock were issued as part of an
offering of units between February and May 1999. Each unit consisted of 25
shares of Senior preferred stock, a promissory note for $24,900 and a warrant to
purchase 18,750 shares of common stock at an exercise price of $.9875 per share.
The Senior preferred stock represented security for the payment of the
promissory notes. They provided that so long as all the shares remained
outstanding, in the event of default in the payment of the promissory notes
which is not seasonably cured, all Senior preferred stock would convert into a
number of shares of common stock which, immediately after issuance, would equal
51% of the issued and outstanding shares of common stock including all warrants
and options to purchase common stock. We also agreed, upon default, to call a
special stockholders meeting to provide the new common stock owners the
opportunity to elect a majority of the board of directors from among persons
nominated by the holders of the promissory notes.
The Senior preferred stock is redeemable at no cost at the time that each
promissory note is fully paid. Upon redemption of each promissory note, the 51%
conversion right reduces proportionately. In a tender offer which concluded on
May 19, 2000, we redeemed 950 shares of Senior preferred stock, which reduced
the conversion right from 51% to approximately 8.87% of the issued and
outstanding common stock on a fully diluted basis. We are current on all
payments due on the promissory notes and do not intend to allow a default to
occur with respect to their payment.
The Senior preferred stock shares have no voting rights and do not pay
dividends.
Series B Convertible Preferred Stock
The 2,500 outstanding shares of Series B preferred stock were issued at a
price of $1,000 per share and carry a 7 1/2 % dividend payable at the time the
shares are converted into common stock or are redeemed. Conversion may occur any
time after the earlier of (i) the effective registration or the common stock or
(ii) 180 days after the issuance of the Series B preferred stock. The dividend
is payable in cash or, at our option, in additional shares of common stock at
the then applicable conversion price. The conversion price is the lower of (i)
110% of the lowest bid price of the common stock on the OTC Bulletin Board for
the 5 trading days prior to the issuance of the Series B preferred stock, or
(ii) 75% of the average of the three lowest closing bid prices during the 30
consecutive trading days prior to the conversion of the Series B preferred stock
to shares of common stock. When the Series B preferred stock was issued on May
22, 2000, the effective conversion price, based on 110% of the lowest bid price
during the 5 preceding trading days would have been $1.96 per share of common
stock. This is the maximum conversion price for the Series B preferred stock. It
is possible that the alternative conversion price, based up prices during the 30
days prior to actual conversion, will be less, resulting in the issuance of a
greater number of shares of common stock upon conversion. The Series B preferred
stock may also be converted in part from time to time which could result in a
variety of actual conversion prices. The holders of the Series B preferred stock
also have the right to purchase, at the time of conversion, one additional share
of common stock for each share of common stock acquired upon conversion. If this
option is exercised, the stockholder will pay the applicable conversion price,
in cash, for each additional share acquired pursuant to this right.
We have the right to redeem the Series B preferred stock prior to its
conversion upon paying $1,275 per share of Series B preferred stock plus all
accrued and unpaid dividends. The redemption must be paid in cash.
Holders of the Series B preferred stock have no voting rights except in the
event of a proposed amendment to our articles of incorporation that would affect
their rights.
Holders of the Series B preferred stock also received a total of 250,000
warrants to purchase common stock which are described below under "Warrants."
In connection with the issuance of the Series B preferred stock, we agreed
to register the common stock which is issuable upon conversion of the Series B
preferred stock, including sufficient shares to cover the shares which may be
issued as dividends, shares that may be issued should the right to acquire
additional shares be exercised, and shares issuable upon exercise of their
warrants. This commitment is the primary reason for this registration.
Redeemable Convertible Preferred Stock
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<PAGE> 38
In connection with the share exchange with Satlink 3000, we issued 300,000
shares of Redeemable Stock to the stockholders of Satlink 300. The Redeemable
Stock is convertible into shares of common stock on a one-for-one basis
beginning April 7, 2000. The Redeemable Stock may be redeemed by the holder at a
price of $2.00 per share. Subsequent to the closing of that transaction, we
learned that material representations made to induce us to enter into the share
exchange were untrue. The board of directors undertook to rescind the
transaction and cancel the shares of Redeemable Stock. We do not deem the
Redeemable Stock to be outstanding at this time. The recipients of the
Redeemable Stock are contesting this action and have filed suit to retain the
Redeemable Stock. The status of that matter is described more fully under
"Business - Legal Proceedings."
Warrants
We have issued warrants to purchase shares of common stock in a variety of
transactions. Generally, warrants may be exercised by surrendering the warrant
agreement to the transfer agent together with the exercise price. Warrants may
be exercised in whole or in part from time to time until they expire or have
been fully exercised. Several previously issued warrants have been exercised or
have expired. As of October 31, 2000, warrant holders holding unexercised
warrants had a right to acquire 546,875 shares of common stock. Included within
this total are the following:
- Warrants for 350,000 shares issued in connection with the sale of the
Series B preferred stock. These are exercisable at a price of $2.136 per
share, subject to adjustment in certain events, and will expire, if not
previously exercised, on May 22, 2005. The shares of common stock issuable
upon exercise of these warrants are included in this registration
statement.
- Warrants for 196,875 shares issued in connection with our offering of units
in 1999. These are exercisable at a price of $.9875 per share and will
expire, if not previously exercised, between May 11 and May 17, 2001.
Options
In addition to the right granted to the holders of Series B preferred
stock, to acquire additional shares of common stock upon conversion of the
Series B preferred stock, described above, we have granted options to 9
employees and one director to purchase a total of 355,000 shares of common stock
pursuant to our 2000 Executive Incentive Plan. One-third of these options will
vest on July 25 in each of the years 2001, 2002 and 2003. The exercise price is
$1.21 which was the average between the closing bid and asked prices of our
common stock on the date of issuance.
In April 1999, in connection with the share exchange with Satlink 3000, we
issued to Peter Stazzone options to purchase 200,000 shares of common stock at
an exercise price of $1.00 per share. These options were exercisable for a
period of three years. Subsequent to the closing of that transaction, we learned
that material representations made to induce us to enter into the share exchange
were untrue. The board of directors undertook to rescind the transaction and
cancel the options issued to Mr. Stazzone along with 300,000 shares of common
stock also issued to Mr. Stazzone. We do not deem the options or shares to be
outstanding at the present time. Mr. Stazzone is contesting this action and has
filed suit to retain the options as well as the common stock. The status of that
matter is described more fully under Business - Legal Proceedings.
Registration Rights
All of the shares offered in connection with this registration were issued
in transactions in which the securities being issued, whether common stock,
preferred stock or warrants, were restricted securities and granting
registration rights to the purchasers of those securities. In most instances,
the registration rights are piggyback rights which only require us to include
the shares for registration if we are otherwise undertaking the filing of a
registration statement. Those piggyback rights generally require only that we
register the number of shares beneficially held by the selling stockholder.
However, in connection with the issuance of the Series B preferred stock,
we agreed that we would register on behalf of those selling stockholders the
greater of (i) 3,000,000 shares of common stock, or (ii) the number of shares
equal to 200% of the shares issuable upon conversion of the Series B preferred
stock, payment of the Series B preferred stock dividends in shares of common
stock, exercise of the right to acquire additional shares of common stock, and
exercise of the warrants held by the Series B preferred stock stockholders.
Because the number of shares issuable to the holders of the Series B preferred
stock will vary with the market price of our common stock, we agreed that we
would determine the number of shares to be registered on the assumption that
they would all have been issued at the conversion or exercise price on the day
this Registration Statement was filed. On that basis, 13,771,605 shares have
been included in this registration for the holders of the Series B preferred
stock.
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<PAGE> 39
Penny Stock
The Securities and Exchange Commission has adopted Rule 15g-9 which
established the definition of a penny stock, for the purposes relevant to us, as
any equity security that has a market price of less than $5.00 per share or with
an exercise price of less than $5.00 per share, subject to certain exceptions.
For any transaction involving a penny stock, unless exempt, the rules require:
(i) that a broker or dealer approve a person's account for transactions in penny
stocks; and (ii) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person's account for
transactions in penny stocks, the broker or dealer must (i) obtain financial
information and investment experience objectives of the person; and (ii) make a
reasonable determination that the transactions in penny stocks are suitable for
that person and the person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prepared by the Commission relating to the penny
stock market, which, in highlight form, (i) sets forth the basis on which the
broker or dealer made the suitability determination; and (ii) that the broker or
dealer received a signed, written agreement from the investor prior to the
transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
Shares Eligible for Future Sale
Future sales of substantial amounts of common stock in the public market
could adversely affect market prices prevailing from time to time. Under the
terms of this offering, the shares of common stock being sold by the selling
stockholders, may be resold without restrictions or further registration under
the Securities Act of 1933, except that any shares purchased by our
"affiliates," as that term is defined under the Securities Act, may generally
only be sold in compliance with the limitations of Rule 144 under the Securities
Act.
Approximately 9,503,000 outstanding shares of common stock not included in
this offering are restricted securities within the meaning of Rule 144 and may
not be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemption from
registration offered by Rule 144. In general, under Rule 144, as currently in
effect, a person who has beneficially owned restricted shares for at least one
year, including a person who may be deemed to be our affiliate, may sell within
any three-month period a number of shares of common stock that does not exceed a
specified maximum number of shares. This maximum is equal to the greater of 1%
of the then outstanding shares of our common stock or the average weekly trading
volume in the common stock during the four calendar weeks immediately preceding
the sale. Sales under Rule 144 are also subject to restrictions relating to
manner of sale, notice and availability of current public information about us.
In addition, under Rule 144(k) of the Securities Act, a person who is not our
affiliate, has not been an affiliate of ours within three months prior to the
sale and has beneficially owned shares for at least two years would be entitled
to sell such shares immediately without regard to volume limitations, manner of
sale provisions, notice or other requirements of Rule 144.
Transfer Agent
The transfer agent and registrar for the common stock is Interwest Transfer
Co., Inc. which is located at 1981 E. Murray Holladay Road, Suite 100, Salt Lake
City, UT 84117, telephone (801) 272-9294, facsimile (801) 277-3147. We serve as
our own transfer agent for the preferred stock.
PLAN OF DISTRIBUTION
The selling stockholders may from time to time sell all or a portion of the
common stock offered by the selling stockholders in transactions at prevailing
market prices on the OTC Bulletin Board, in privately negotiated transactions at
negotiated prices, or in a combination of such methods of sale. The selling
stockholders may sell the securities offered in this registration statement to
purchasers directly or may from time to time offer the securities through
dealers or agents who may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or the purchasers of
the securities for whom they may act as agent. The selling stockholders and any
persons who participate in the sale of the securities offered in this
registration statement may be deemed to be "underwriters" within the meaning of
the Securities Act and any commissions paid or discounts or concessions allowed
to any person and any profits received on resale of the securities offered may
be deemed to be underwriting compensation
35
<PAGE> 40
under the Securities Act.
In order to comply with the securities laws of certain states, if
applicable, the securities offered will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions, the securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from any
registration or qualification requirement is available and the requirements
therefore have been satisfied.
We will receive no proceeds from the sale by the selling stockholders of
the securities offered. However, we will receive cash payments from the selling
stockholders to the extent they exercise their warrants or rights to purchase
additional shares of common stock prior to selling the resulting shares. All of
the expenses incurred in connection with the registration of the securities
offered will be paid by us, except for compensation of brokers or dealers and
any transfer fees incurred in connection with the sale of the securities by the
selling stockholders, which compensation and fees will be paid by the selling
stockholders.
There can be no assurance that the selling stockholders will sell all or
any of the securities offered by them. To the extent required, the specific
securities to be sold by the selling stockholders in connection with a
particular offer will be set forth in an accompanying prospectus supplement.
Before offers and sales of securities are made by the selling stockholders: (a)
to the extent the securities are sold at a fixed price or by option at a price
other than the prevailing market price, the prospectus will be amended to set
forth such price, and (b) if the compensation paid to brokers or dealers is
other than usual and customary discounts, concessions or commissions, this
prospectus will be amended to set forth the terms of the transaction.
LEGAL MATTERS
The validity of the shares of common stock offered will be passed upon for
us by Jennings, Strouss & Salmon, P.L.C., Phoenix, Arizona.
EXPERTS
Our audited financial statements as of December 31, 1999 and the related
statements of operations, stockholders' deficiency and cash flows for the years
ended December 31, 1999 and 1998, included elsewhere in this prospectus, have
been so included in reliance on the report of Durland & Company, CPAs, P.A.,
Palm Beach, Florida, independent certified public accountants, given on the
authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have voluntarily elected to be a reporting company. Beginning January 1,
2000, we have or intend to regularly file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document we file at the SEC's public
reference room at the following locations:
- Main Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
- Regional Public Reference Room
75 Park Place, 14th Floor
New York, New York 10007
- Regional Public Reference Room
Northwestern Atrium Center
500 West Madison Street, Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the SEC's public reference rooms
by calling the SEC at (800) SEC-0330.
We are required to file these documents with the SEC electronically. You can
access the electronic versions of these filings on the Internet at the SEC's web
site, located at http://www.sec.gov.
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<PAGE> 41
We have included this prospectus in our registration statement that we filed
with the SEC. The registration statement provides additional information that we
are not required to include in the prospectus. You can receive a copy of the
entire registration statement as described above. Although this prospectus
describes the material terms of certain contracts, agreements and other
documents filed as exhibits to the registration statement, you should read the
exhibits for a more complete description of the document or matter involved.
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<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report .............................................. F-2
Consolidated Balance Sheets ............................................... F-3
Consolidated Statements of Operations ..................................... F-4
Consolidated Statements of Stockholders' Equity (Deficiency) .............. F-5
Consolidated Statements of Cash Flows ..................................... F-6
Notes to Consolidated Financial Statements ................................ F-7
</TABLE>
38
<PAGE> 43
[DURLAND & COMPANY LETTERHEAD]
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Stockholders
IPVoice.com, Inc.
(A Development Stage Enterprise)
Phoenix, Arizona
We have reviewed the accompanying balance sheet of IPVoice.com, Inc. as of
September 30, 2000, and the related statements of income, retained earnings,
and cash flows for the nine months then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants. All information included in these financial
statements is the representation of the management of IPVoice.com, Inc.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based upon our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.
/s/ Durland & Company, CPAs, P.A.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
October 31, 2000
F-1
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
IPVoice.com, Inc.
(A Development Stage Enterprise)
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of IPVoice.com,
Inc., a development stage enterprise, (the "Company") as of December 31, 1999
and the related consolidated statements of operations, stockholders' deficiency
and cash flows for the two years ended December 31, 1999 and from February 19,
1997 (Inception) through December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1999 and the results of their operations and their cash flows for
the two years ended December 31, 1999 and from February 19, 1997 (Inception)
through December 31, 1999, in conformity with generally accepted accounting
principles.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
March 7, 2000, except
Paragraph 2 of Note 6, as to which
the date is August 9, 2000
F-2
<PAGE> 45
IPVOICE.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 98,592 $ 689,896
Certificate of deposit - restricted 25,205 25,308
Accounts receivable 108,100 14,550
Inventory 7,586 0
Prepaid expenses and deposits 16,865 105,547
----------- -----------
Total current assets 256,348 835,301
----------- -----------
PROPERTY AND EQUIPMENT
Computer equipment 369,619 730,043
Office equipment 19,019 50,454
Furniture and fixtures 29,445 47,740
----------- -----------
Subtotal property and equipment 418,083 828,237
Less accumulated depreciation (40,528) (139,167)
----------- -----------
Total property and equipment 377,555 689,070
----------- -----------
OTHER ASSETS
Intangible assets 0 199,972
----------- -----------
Total other assets 0 199,972
----------- -----------
Total Assets $ 633,903 $ 1,724,343
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses
Trade $ 326,524 $ 211,623
Officer 17,403 17,683
Related party 40,896 23,825
Accrued payroll taxes 1,005 0
Accrued dividends 0 67,188
Accrued interest - stockholders 12,690 6,000
Deferred revenue 7,821 0
----------- -----------
Total current liabilities 406,339 326,319
----------- -----------
LONG-TERM LIABILITIES
Notes payable 1,145,400 385,950
----------- -----------
Total long-term liabilities 1,145,400 385,950
----------- -----------
Total Liabilities 1,551,739 712,269
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Senior convertible preferred stock, $0.001 par value, authorized
10,000,000 shares; Series A, 1,150 and 200 issued and outstanding
shares, Series B, 0 and 2,500 issued and outstanding shares 1 3
Common stock, $0.001 par value, authorized 50,000,000 shares;
16,422,758 and 18,566,384 issued and outstanding shares 16,423 18,566
Additional paid-in capital 1,570,240 5,579,719
Beneficial conversion feature discount 0 833,333
Deficit accumulated during the development stage (2,504,500) (5,419,547)
----------- -----------
Total stockholders' equity (deficiency) (917,836) 1,012,074
----------- -----------
Total Liabilities and Stockholders' Equity (Deficiency) $ 633,903 $ 1,724,343
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE> 46
IPVOICE.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Nine Months Ended February 19, 1997
Year Ended December 31, September 30, (Inception)
------------------------------ ------------------------------- through
1999 1998 2000 1999 September 30, 2000
------------ ------------ ------------ ------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 321,279 $ 41,254 $ 114,193 $ 50,700 $ 476,726
COST OF SALES 305,434 0 105,746 49,140 411,180
------------ ------------ ------------ ------------ -----------
Gross profit 15,845 41,254 8,447 1,560 65,546
------------ ------------ ------------ ------------ -----------
OPERATING EXPENSES
Compensation
Officers 340,896 140,076 277,759 273,495 762,112
Other 78,522 37,715 182,770 58,024 295,626
Consulting 470,765 0 649,077 0 1,165,192
Consulting - related party 267,564 91,096 430,225 565,517 752,516
General and administrative 605,749 275,709 563,714 524,915 1,445,172
Research and development 97,403 0 28,160 0 125,563
Organization expense - related party 0 0 0 0 14,000
Depreciation and amortization 36,185 4,343 98,639 8,723 139,167
------------ ------------ ------------ ------------ -----------
Total operating expenses 1,897,084 548,939 2,230,344 1,430,674 4,699,348
------------ ------------ ------------ ------------ -----------
Loss from operations (1,881,239) (507,685) (2,221,897) (1,429,114) (4,633,802)
------------ ------------ ------------ ------------ -----------
OTHER INCOME (EXPENSE)
Interest expense (64,387) 0 (56,750) (38,128) (121,137)
Interest income 20,324 0 37,268 17,130 57,592
Write-off of receivable (48,532) 0 0 0 (48,532)
------------ ------------ ------------ ------------ -----------
Total other income (expense) (92,595) 0 (19,482) (20,998) (112,077)
------------ ------------ ------------ ------------ -----------
Net loss $ (1,973,834) $ (507,685) $ (2,241,379) $ (1,450,112) $(4,745,879)
============ ============ ============ ============ ===========
Loss per common share $ (0.13) $ (0.04) $ (0.13) $ (0.10)
============ ============ ============ ===========
Number weighted average common shares
outstanding 15,413,751 11,620,451 $ 17,815,927 $15,248,436
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE> 47
IPVOICE.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Deficit
Accum.
Par Value Bene. During
Number of Shares ------------------ Add'l Stock Conv. the
-------------------- Preferred Common Paid-in Subs. Feature Dev.
Preferred Common Stock Stock Capital Rec. Discount Stage
--------- ------ -------- ------- ------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
February 19, 1997 (Inception) 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
2/97 - founder's serv. ($0.001/sh.) 0 9,000,000 0 9,000 0 0 0 0
397 - cash ($0.01/sh.) 0 1,400,000 0 1,400 12,600 (12,274) 0
Net loss 0 0 0 0 0 0 0 (22,981)
----- ---------- -- -------- ---------- -------- -------- -----------
BALANCE, December 31, 1997 0 10,400,000 0 10,400 12,600 (12,274) 0 (22,981)
3/19 - donated-rel. party
($0.001/sh.) 0 (9,000,000) 0 (9,000) 9,000 0 0 0
3/19 - acquisition ($0.001/sh.) 0 9,000,000 0 9,000 (9,000) 0 0 0
3/20 - cash received 0 0 0 0 0 12,274 0 0
2nd qtr. - cash ($1.00/sh.) 0 144,000 0 144 143,856 0 0 0
3rd qtr. - cash ($1.00/sh.) 0 10,000 0 10 9,990 0 0 0
3rd qtr. - cash ($0.75/sh.) 0 53,333 0 53 39,947 0 0 0
3rd qtr. - cash ($0.50/sh.) 0 20,000 0 20 9,980 0 0 0
3rd qtr. - cash ($0.25/sh.) 0 100,000 0 100 24,900 0 0 0
3rd qtr. - cash ($0.10/sh.) 0 627,000 0 627 62,073 (62,700) 0 0
3rd qtr. - services ($0.10/sh.) 0 473,000 0 473 46,827 0 0 0
4th qtr. - cash ($0.15/sh.) 0 396,666 0 397 59,103 0 0 0
4th qtr. - services ($0.15/sh.) 0 275,000 0 275 40,975 0 0 0
4th qtr. - cash ($0.19/sh.) 0 80,000 0 80 14,920 0 0 0
Net loss 0 0 0 0 0 0 0 (507,685)
----- ---------- -- -------- ---------- -------- -------- -----------
BALANCE, December 31, 1998 0 12,578,999 0 12,579 465,171 (62,700) 0 (530,666)
1st qtr. - cash ($0.22/sh.) 0 687,499 0 687 149,313 0 0 0
1st qtr. - services ($0.87/sh.) 0 493,760 0 494 429,070 0 0 0
2nd qtr. - cash received 0 0 0 0 0 60,000 0 0
2nd qtr. - cash ($4.00/sh.) 1,150 0 1 0 4,599 0 0 0
2nd qtr. - cash ($0.15/sh.) 0 2,005,000 0 2,005 293,995 0 0 0
3rd qtr. - cash ($0.40/sh.) 0 437,500 0 438 174,562 0 0 0
3rd qtr. - cash received 0 0 0 0 0 2,700 0 0
3rd qtr. - services ($1.00/sh.) 0 10,000 0 10 9,990 0 0 0
4th qtr. - services ($0.21/sh.) 0 210,000 0 210 43,540 0 0 0
Net loss 0 0 0 0 0 0 0 (1,973,834)
----- ---------- -- -------- ---------- -------- -------- -----------
BALANCE, December 31, 1999 1,150 16,422,758 1 16,423 1,570,240 0 0 (2,504,500)
1st qtr. - cash ($1.00/sh.) 0 386,000 0 386 385,614 0 0 0
1st qtr. - cash ($.99/sh.) 0 75,000 0 75 73,988 0 0 0
1st qtr. - services/deposits
($2.92/sh.) 0 250,000 0 250 730,528 0 0 0
1st qtr. - services ($2.92/sh.) 0 50,000 0 50 145,950 0 0 0
2nd qtr. - conversion due to tender
offer (950) 543,876 (1) 544 678,208 0 0 0
2nd qtr. - issuance of Series B -
cash 2,500 0 3 0 1,251,035 0 833,333 0
2nd qtr. - cash ($1.00/sh.) 0 120,000 0 120 119,880 0 0 0
2nd qtr. - cash ($0.99/sh.) 0 18,750 0 18 18,496 0 0 0
3rd qtr. - issuance of shares for
warrant 0 700,000 0 700 (700) 0 0 0
Series B preferred stock dividend 0 0 0 0 606,480 0 0 (673,668)
Net loss 0 0 0 0 0 0 (2,241,379)
----- ---------- -- -------- ---------- -------- -------- -----------
ENDING BALANCE, September 30, 2000
(unaudited) 2,700 18,566,384 $3 $ 18,566 $5,579,719 $ 0 $833,333 $(5,419,547)
===== ========== == ======== ========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
(Deficiency)
-------------
<S> <C>
BEGINNING BALANCE,
February 19, 1997 (Inception) $ 0
2/97 - founder's serv. ($0.001/sh.) 9,000
397 - cash ($0.01/sh.) 1,726
Net loss (22,981)
-----------
BALANCE, December 31, 1997 (12,255)
3/19 - donated-rel. party
($0.001/sh.) 0
3/19 - acquisition ($0.001/sh.) 0
3/20 - cash received 12,274
2nd qtr. - cash ($1.00/sh.) 144,000
3rd qtr. - cash ($1.00/sh.) 10,000
3rd qtr. - cash ($0.75/sh.) 40,000
3rd qtr. - cash ($0.50/sh.) 10,000
3rd qtr. - cash ($0.25/sh.) 25,000
3rd qtr. - cash ($0.10/sh.) 0
3rd qtr. - services ($0.10/sh.) 47,300
4th qtr. - cash ($0.15/sh.) 59,500
4th qtr. - services ($0.15/sh.) 41,250
4th qtr. - cash ($0.19/sh.) 15,000
Net loss (507,685)
-----------
BALANCE, December 31, 1998 (115,616)
1st qtr. - cash ($0.22/sh.) 150,000
1st qtr. - services ($0.87/sh.) 429,564
2nd qtr. - cash received 60,000
2nd qtr. - cash ($4.00/sh.) 4,600
2nd qtr. - cash ($0.15/sh.) 296,000
3rd qtr. - cash ($0.40/sh.) 175,000
3rd qtr. - cash received 2,700
3rd qtr. - services ($1.00/sh.) 10,000
4th qtr. - services ($0.21/sh.) 43,750
Net loss (1,973,834)
-----------
BALANCE, December 31, 1999 (917,836)
1st qtr. - cash ($1.00/sh.) 386,000
1st qtr. - cash ($.99/sh.) 74,063
1st qtr. - services/deposits
($2.92/sh.) 730,778
1st qtr. - services ($2.92/sh.) 146,000
2nd qtr. - conversion due to tender
offer 678,751
2nd qtr. - issuance of Series B -
cash 2,084,371
2nd qtr. - cash ($1.00/sh.) 120,000
2nd qtr. - cash ($0.99/sh.) 18,514
3rd qtr. - issuance of shares for
warrant 0
Series B preferred stock dividend (67,188)
Net loss (2,241,379)
-----------
ENDING BALANCE, September 30, 2000
(unaudited) $ 1,012,074
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE> 48
IPVOICE.COM, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Nine Months Ended February 19, 1997
Year Ended December 31, September 30, (Inception)
-------------------------- ------------------------- through
1999 1998 2000 1999 September 30, 2000
----------- --------- ----------- ------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,973,834) $(507,685) $(2,241,379) $(1,408,116) $(4,745,879)
Adjustments to reconcile net loss to net cash used by
operating activities:
Stock issued for services/deposits - related party 34,064 88,550 730,778 0 862,392
Stock issued for services - other 449,250 0 146,000 439,564 595,250
Depreciation 36,185 4,343 98,639 8,723 139,167
Interest credited to certificate of deposit (205) 0 (1,252) 0 (1,457)
Changes in operating assets and liabilities
(Increase) decrease in inventory (7,586) (152,980) 7,586 (106,341) 0
(Increase) decrease in accounts receivable (108,100) 0 93,550 (64,784) (14,550)
(Increase) decrease in prepaid expenses and deposits (16,865) 0 (88,682) 0 (105,547)
Increase (decrease) in accounts payable - trade 134,707 191,817 (114,901) (46,119) 211,623
Increase (decrease) in accounts payable - officers (16,865) 34,268 280 (15,547) 17,683
Increase (decrease) in accounts payable - related
party 20,332 6,564 (17,071) (3,896) 23,825
Increase (decrease) in deferred revenue 7,821 0 (7,821) 0 0
Increase (decrease) in accrued payroll taxes (34,725) 35,730 (1,005) (35,730) 0
Increase (decrease) in accrued interest 12,690 0 (6,690) 11,784 6,000
---------- -------- ---------- ---------- ----------
Net cash used by operating activities (1,463,131) (299,393) (1,401,968) (1,220,462) (3,011,493)
---------- -------- ---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase certificate of deposit (25,000) 0 (25,000) 0 (50,000)
Maturity of certificate of deposit 0 0 26,149 0 26,149
Purchase of property and equipment (223,135) (41,968) (410,154) (47,006) (828,237)
Purchase of intangibles 0 0 (199,972) 0 (199,972)
---------- -------- ---------- ---------- ----------
Net cash used by investing activities (248,135) (41,968) (608,977) (47,006) (1,052,060)
---------- -------- ---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from shareholder advance 0 24,750 0 0 24,750
Proceeds from notes payable 1,145,400 0 0 1,145,400 1,145,400
Common stock issued for cash 621,000 303,500 598,577 446,000 1,524,803
Professional services in connection with Tender
Offer 0 0 (80,699) 0 (80,699)
Repayment of shareholder advances (24,750) 0 0 (24,750) (24,750)
Preferred stock issued for cash, net of expenses 4,600 0 2,084,371 4,600 2,088,971
Proceeds from stock subscription receivable 62,700 12,274 0 237,700 74,974
---------- -------- ---------- ---------- ----------
Net cash provided by financing activities 1,808,950 340,524 2,602,249 1,808,950 4,753,449
---------- -------- ---------- ---------- ----------
Net increase (decrease) in cash 97,684 (837) 591,304 541,482 689,896
CASH, beginning of period 908 1,745 98,592 908 0
---------- -------- ---------- ---------- ----------
CASH, end of period $98,592 $908 $689,896 $542,390 689,896
========== ======== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash $51,697 $0 $63,440 $0 $115,137
========== ======== ========== ========== ==========
NON-CASH FINANCING ACTIVITIES:
Conversion of debt to common stock due to Tender $0 $0 $759,450 $0 $759,450
Offer $0 $0 $759,450 $0 $759,450
========== ======== ========== ========== ==========
Series B preferred stock dividend $0 $0 $673,668 $0 $673,668
========== ======== ========== ========== ==========
Issuance of common stock for warrants $0 $0 $0 $0 $700
========== ======== ========== ========== ==========
Stock subscription receivable $0 $(62,700) $0 $0 $(74,974)
========== ======== ========== ========== ==========
Donated capital - related party $0 $9,000 $0 $0 $9,000
========== ======== ========== ========== ==========
Inventory transferred to property and equipment $152,980 $0 $0 $0 $152,980
========== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE> 49
IPVOICE.COM, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with regard to the nine-month period ending September 30, 2000 and
1999 is unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
THE COMPANY IPVoice.com, Inc., (the "Company"), is a Nevada chartered
development stage corporation which conducts business from its headquarters
in Phoenix, Arizona. The Company was incorporated on February 19, 1997 as
Nova Enterprises, Inc., and changed its name to IPVoice Communications,
Inc. in March 1998, and to IPVoice.com, Inc. in April 1999. The company is
principally involved in the internet telephone industry. The Company is in
the development stage. Although the Company has received revenue, it is not
yet considered material to its intended operations. The Company has
received limited operating revenues and will continue to incur expenses
during its development, possibly in excess of revenue.
The following summarize the more significant accounting and reporting
policies and practices of the Company:
a) USE OF ESTIMATES The consolidated financial statements have been
prepared in conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the statements of financial condition,
and revenues and expenses for the year then ended. Actual results may
differ from those estimates.
b) SIGNIFICANT ACQUISITION In March 1998, IPVoice.com, Inc., a Nevada
corporation, acquired 100% of the issued and outstanding shares of the
common stock of IPVoice Communications, Inc., a Delaware corporation, in a
reverse merger, which was accounted for as a reorganization of the Delaware
company.
c) PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of IPVoice.com, Inc. and its wholly owned subsidiary.
All intercompany balances and transactions have been eliminated.
d) NET LOSS PER SHARE Basic net loss per weighted average common share is
computed by dividing the net loss by the weighted average number of common
shares outstanding during the period.
e) STOCK COMPENSATION FOR SERVICES RENDERED The Company issues shares of
common stock in exchange for services rendered. The costs of the services
are valued according to generally accepted accounting principles and have
been charged to operations.
f) INVENTORY Inventory consists of unused telephone time related to the
prepaid calling cards sold. The Company receives transaction reports by
activated PIN codes from the long distance provider.
g) PROPERTY AND EQUIPMENT All property and equipment is recorded at cost
and depreciated over their estimated useful lives, generally three, five
and seven years, using the straight-line method. Upon sale or retirement,
the costs and related accumulated depreciation are eliminated from their
respective accounts, and the resulting gain or loss is included in the
results of operations. Repairs and maintenance charges which do not
increase the useful lives of the assets are charged to operations as
incurred.
h) REVENUE RECOGNITION The Company currently has two revenue streams:
i) prepaid telephone calling cards and 2) the sale of its "Gateways". The
Company recognizes revenue on the prepaid telephone cards based upon actual
usage, as provided by the service provider in reports detailing usage by
activated PIN codes. Since the Company requires payment in full by the
wholesaler upon PIN code activation, in blocks, the amount received by the
Company in excess of that reported by the provider is classified as
deferred revenue. Revenue from the
F-7
<PAGE> 50
IPVOICE.COM, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
h) REVENUE RECOGNITION (CONTINUED) sale of the Company's "Gateways" is
recognized upon acceptance of the equipment by the purchaser. Although the
accounting for the two revenue streams is different, they are both part of
the Company's single line of business.
i) RESEARCH AND DEVELOPMENT Research and development costs are expensed in
the period incurred.
j) INTANGIBLES In the second quarter of 2000, the Company engaged a law
firm for the preparation and filing of the required applications and
tariffs with the state regulatory authorities in 48 continental United
States, Hawaii, and District of Columbia and FCC at an estimated total cost
of $240,000. Through September 30, 2000, the Company recorded expenditures
of $199,972.
k) INTERIM FINANCIAL INFORMATION The financial statements for the nine
months ended September 30, 2000 and 1999 are unaudited and include all
adjustments, which in the opinion of management are necessary for fair
presentation, and such adjustments are of a normal and recurring nature.
The results for the nine months are not indicative of a full year result.
(2) STOCKHOLDERS' EQUITY The Company has authorized 50,000,000 shares of $0.001
par value common stock and 10,000,000 shares of $0.001 par value preferred
stock. Rights and privileges of the preferred stock are to be determined by
the Board of Directors prior to issuance. The Company had 18,566,384 and
16,422,758 shares of common stock issued and outstanding at September 30,
2000 and December 31, 1999, respectively. The Company had 200 and 1,150
shares of Series A preferred stock issued and outstanding at September 30,
2000 and December 31, 1999, respectively. The Company had 2,500 and 0
shares of Series B preferred stock issued and outstanding at September 30,
2000 and December 31, 1999, respectively. In February 1997, the Company
issued 9,000,000 shares to its founder for services rendered to the Company
valued at par value, or $9,000. In March 1997, the Company completed a
Regulation D Rule 504 Placement for 1,400,000 shares in exchange for
$14,000 cash.
In March 1998, a majority shareholder donated 9,000,000 shares of common
stock to the Company. 9,000,000 shares were simultaneously issued for the
acquisition of IPVoice Communications, Inc., a Delaware corporation, Note
(1)(b). During the second quarter of 1998, the Company issued 144,000
shares of common stock for $144,000 in cash. The Company issued 473,000
shares of common stock for services rendered, valued at the current market
rate of $47,300, during the third quarter of 1998. Also during the third
quarter, the Company issued 183,333 shares of common stock for $85,000 in
cash, and 627,000 shares of common stock for a subscription receivable of
$62,700. In the fourth quarter of 1998, the Company issued 275,000 shares
of common stock for services rendered, valued at the current market rate of
$41,250. In the same quarter, 476,666 shares of common stock were issued
for $121,800 in cash.
In January 1999, the Company issued 93,760 shares of common stock in
exchange for services, valued at $14,064. In January and February 1999, the
Company issued 499,999 shares of common stock in exchange for $75,000 in
cash. In March 1999, the Company issued 187,500 shares of common stock for
$75,000 in cash. These issuances were to then current stockholders. In
March 1999, the Company issued 400,000 shares of common stock for services,
valued at the current market rate of $415,000, to three previously
unrelated entities.
F-8
<PAGE> 51
IPVOICE.COM, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) STOCKHOLDERS' EQUITY (CONTINUED) In April 1999, the Company issued 250,000
shares of common stock to an existing stockholder for $100,000 cash. In
April 1999, an existing stockholder exercised a warrant for 155,000 shares
of common stock by tendering $100,000 cash. In April 1999, an existing
stockholder exercised a warrant for 1,600,000 shares of common stock by
tendering $96,000 in cash. In the second quarter, the Company completed a
Regulation D Rule 506 Private Placement for units, which included the
issuance of 1,150 shares of senior convertible (Series A) preferred stock
in exchange for $4,600 in cash. These senior convertible (Series A)
preferred shares, as a group, were convertible into common shares equaling
51% of the issued and outstanding common shares after conversion, in the
event of an uncured default of the notes payable.
In July 1999, the Company discovered that it had failed to issue and record
10,000 shares of common stock in exchange for legal services, valued at
$10,000 in 1997, as originally contracted. These shares were recorded in
July 1999. In August 1999, the Company issued 437,500 shares of common
stock for $175,000 cash. All common stock shares issued in exchange for
cash, except the two warrant exercises, were subscribed for in January
1999. In November 1999, the Company issued 10,000 shares of common stock in
exchange for services valued at $23,750. In December 1999, the Company
discovered that it had failed to issue and record 200,000 shares of common
stock for services valued at $20,000, which had been contracted for in
October 1998, and were recorded in December 1999.
In first quarter 2000, an existing shareholder exercised warrants for
386,000 shares of common stock for $386,000 cash. In the first quarter
2000, an existing 506 investor exercised his warrants for 75,000 shares of
common stock by tendering $74,063 cash. In the first quarter, the Company
issued 300,000 shares of common stock for services/deposits, valued at the
current market rate of $876,778, to two entities, one related party
($730,778) and the other unrelated ($146,000).
In the second quarter 2000, an existing shareholder exercised warrants for
120,000 shares of common stock for $120,000 cash. In the second quarter
2000, an existing 506 investor exercised his warrants for 18,750 shares of
common stock by tendering $18,514 cash.
In the second quarter 2000, the Company made a Tender Offer to the senior
convertible (Series A) preferred stockholders who were given the option of:
(1) converting all of the units into 17,832 shares of common stock, (2)
converting a portion of the units to shares of common stock and amend the
notes, or (3) retain the units and not to agree to the offer. As a result
of the Tender Offer, the Company issued 543,876 shares of common stock in
exchange for the cancellation of 950 shares of Series A preferred stock and
$759,450 of debt.
During the second quarter of 2000, the Company received $2,084,371, net of
expenses of $415,629, from the issuance of 2,500 shares of convertible
Series B preferred stock with a 7.5% dividend rate. At the election of the
shareholders, the Series B preferred stock may be converted into shares of
common stock by dividing the purchase price by the conversion price. The
conversion price equals the lesser of: (1) 110% of the lowest closing bid
price for the common stock for the five trading days prior to the date of
issuance, or (2) 75% of the average of the three lowest closing bid price
for the common stock for the thirty consecutive trading days preceding the
conversion date. The Company has recorded a beneficial conversion feature
discount on the issuance of convertible Series B preferred stock in the
amount of $833,333 in accordance with EITF Topic D-60. Based on the Series
B preferred stockholders' agreement, the Company is recording the Series B
preferred stock dividend over 180 days from May 22, 2000. Also, on the
conversion date, the Series B preferred stockholders have an option to
acquire up to $2,500,000 of common stock at the conversion price.
F-9
<PAGE> 52
IPVOICE.COM, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) STOCKHOLDERS' EQUITY (CONTINUED) The Company is currently evaluating the
financial statement effects of this option. Furthermore, in accordance with
the Series B preferred stockholders' agreement, the Company issued 350,000
warrants to purchase common stock at an exercise price of $2.136 per share.
In July 2000, the Company and International Investment Partners Ltd. (IIP)
agreed to terminate the consulting agreement, effective May 31, 2000, under
terms which excused IIP from providing any further services and
discontinued the Company's obligation to make the monthly payments for such
services. In addition, IIP agreed to exchange both outstanding warrants for
700,000 shares of common stock.
(3) INCOME TAXES Deferred income taxes (benefits) are provided for certain
income and expenses which are recognized in different periods for tax and
financial reporting purposes. The Company had net operating loss
carry-forwards for income tax purposes of approximately $4,746,000, which
expire beginning December 31, 2117. There may be certain limitations on the
Company's ability to utilize the loss carry-forwards in the event of a
change of control resulting from the conversion of the senior convertible
preferred stock, should that occur.
The amount recorded as a deferred tax asset, cumulative as of September 30,
2000, is $1,898,000, which represents the amount of tax benefits of the
loss carry-forwards. The Company has established a valuation allowance for
this deferred tax asset of $1,898,000, as the Company has no history of
profitable operations.
The significant components of the net deferred tax asset are:
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
------------------ --------------------
(unaudited)
<S> <C> <C>
Net operating losses $ 1,002,000 $ 1,898,000
Valuation allowance (1,002,000) (1,898,000)
------------------- --------------------
Net deferred tax asset $ 0 $ 0
==========================================
</TABLE>
(4) RELATED PARTIES At September 30, 2000, the Company owed two of its
officers $17,683 for reimbursement of expenses paid on behalf of the
Company. This amount is represented in Accounts payable - officer. At
September 30, 2000, the Company owed a shareholder $23,825 for consulting
services performed on behalf of the Company. This amount is represented in
Accounts payable - related party. Total consulting fees incurred to a
shareholder during the nine months amounted to $347,800. Consulting fees in
the amount of $82,425 were paid to an officer during the nine months ended
September 30, 2000.
At December 31, 1999, the Company owed two of its officers $17,403 for
reimbursement of expenses paid on behalf of the Company. This amount is
represented in Accounts payable - officer. At December 31, 1999, the
Company owed two of its shareholders $40,896 for consulting services
performed on behalf of the Company. This amount is represented in Accounts
payable - related party. Total consulting fees incurred to a shareholder
during the year amounts to $131,064. Consulting fees in the amount of
$136,500 were paid to two officers, $30,000 of which was paid to one
officer prior to his election. During 1999, the Company purchased for cash
approximately $14,000 of furniture and fixtures from an officer of the
Company at the fair market value.
During the year ended December 31, 1998, one of the Company's shareholders
advanced funds totaling $24,750 for payment of general operating expenses.
This amount was repaid in 1999.
F-10
<PAGE> 53
IPVOICE.COM, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) SIGNIFICANT ACQUISITION On April 7, 1999, the Company acquired all of the
issued and outstanding common stock of SatLink 3000, Inc., d/b/a
Independent Network Services, a Nevada Corporation (INS). The Company
issued 250,000 shares of redeemable convertible preferred shares. Each
share is convertible, on or after one year after Closing, into one share of
the Company's common stock or, at the shareholders' option, redeemable by
the Company at a price of $2 per share, giving a total valuation of
$500,000 to this transaction.
During the course of the audit of the Sat Link 3000, Inc. 1998 financial
statements, certain information was disclosed to the Company. Based upon
this information, the Board of Directors elected, on October 29, 1999, to
rescind the acquisition transaction ab initio and nullify the
above-mentioned agreements with the President and Chief Executive Officer
of SatLink 3000, Inc. These transactions were unwound and, accordingly,
have not been given any accounting recognition in the accompanying
financial statements, except for the assumption of an office space lease
and the writeoff of a receivable of $48,532.
(6) PRIVATE OFFERING OF SECURITIES During the second quarter of 1999, the
Company raised $1,150,000 through the issuance of forty-six investment
units in the amount of $25,000. Each unit consisted of a two-year note in
the principal amount of $24,900, with a maturity of June 3, 2001, with
interest payable quarterly at 9% per annum; a warrant for 18,750 shares of
common stock of the Company; and twenty-five senior convertible (Series A)
preferred shares. These preferred shares, as a group, were convertible into
common shares equaling 51% of the issued and outstanding common shares
after conversion, in the event of an uncured default of the notes payable.
The note payable maturity can be extended for two additional years at the
option of the Company, with no consideration to the unit holders. During
the second quarter of 2000, the Company completed a Tender Offer, which
reduced the debt from $1,145,400 to $385,950 and canceled 950 shares of
senior convertible (Series A) preferred stock.
During the second quarter of 2000, the Company received $2,084,371, net of
expenses of $415,629, from the issuance of 2,500 shares of convertible
Series B preferred stock with a 7.5% dividend rate. At the election of the
shareholders, the Series B preferred stock may be converted into shares of
common stock by dividing the purchase price by the conversion price. The
conversion price equals the lesser of: 1) 110% of the lowest closing bid
price for the common stock for the five trading days prior to the date of
issuance, or 2) 75% of the average of the three lowest closing bid price
for the common stock for the thirty consecutive trading days preceding the
conversion date. Also, on the conversion date, the Series B preferred
stockholders have an option to acquire up to $2,500,000 of common stock at
the conversion price. Furthermore, in accordance with the Series B
preferred stockholders' agreement, the Company issued 350,000 warrants to
purchase common stock at an exercise price of $2.136 per share.
(7) RESTRICTED CERTIFICATE OF DEPOSIT In October 1999, the Company purchased a
$25,000 one-year Certificate of Deposit (CD), which bears interest at the
rate of 4.89%. The Company has pledged this CD as collateral to a Letter of
Credit in the amount of $25,000 issued in favor of the supplier of prepaid
telephone card services as a guarantee of payment. This contract was
canceled in July 2000 and the restriction on the CD was released. In June
2000, the Company purchased a $25,000 one-year CD, which bears interest at
the rate of 4.89%. The Company has pledged this CD as collateral to a
Letter of Credit in the amount of $25,000 issued in favor of the
co-location, PRI lines and Internet connections.
F-11
<PAGE> 54
IPVOICE.COM, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) COMMITMENTS AND CONTINGENCIES
a) CONSULTING AGREEMENTS - RELATED PARTIES In December 1997, the Company
entered into a consulting agreement with a previously unrelated company
controlled by the present Chairman of the Board of Directors of the
Company. This agreement, as amended, called for the payment of $5,000 per
month for six years. This agreement was subsequently amended by verbal
agreement, increasing the payment to $12,500 per month and in September
1999, reduced to $7,500 per month. The Company is obligated to pay a total
of $125,000 in 2000, $150,000 in 2001 and $137,500 in 2002. In September
2000, the Company entered into a consulting agreement with the former
Senior Vice President and current Director. In 2000, the Company paid
$7,500 under this agreement, which may be terminated at any time on thirty
days' notice.
In October 1998, the Company entered into a consulting agreement with a
previously unrelated party. This agreement called for the issuance of
350,000 shares of common stock valued at $35,000, an option for 1,600,000
shares of common stock at an exercise price of $0.06 per share, an option
for 350,000 shares of common stock at an exercise price of $3.90 per share,
a five-year warrant for common stock shares equal to five per cent of the
then issued and outstanding common stock at exercise with a strike price of
$1.00 per share and consulting fees for a 30 month period, beginning in
September 1998, in the amounts of: $4,000 per month for the first 6 months,
$6,000 per month for the next 12 months, and $8,000 for the last 12 months.
At December 31, 1999, fifteen months remain under this agreement. The
Company was obligated for payments totaling $90,000 in 2000, and $24,000 in
2001. This contract was terminated in July 2000 in exchange for the
issuance of 700,000 shares of common stock.
At the end of the first quarter of 1999, the Company entered into three
marketing agreements with three previously unrelated companies. Those
agreements called for the issuance of 100,000, 200,000 and 100,000 shares
of common stock. One agreement also called for the performance-based
issuance of up to 150,000 shares of common stock and the performance-based
issuance of warrants for up to 450,000 shares of common stock with an
exercise price of $2.50 per share.
b) CONSULTING AGREEMENTS - OTHER In June 1999, the Company entered into a
one-year consulting agreement with an unrelated individual which called for
payment of $100,000. In 1999, the Company paid $45,800 of this fee, and is
obligated to pay the $54,200 balance during 2000.
c) LEASES The Company entered into a one-year lease for its office space
beginning in August 1999. The Company is obligated to rental payments
amounting to $27,000 in 2000. The lease expires on July 31, 2000. The
Company and lessor have agreed to extend the lease for an additional month.
In 1999, the Company paid $35,000 in office rent. In July 2000, the Company
entered a three-year lease for new office space. The Company is obligated
to pay $57,409 in year 2000, $140,077 in year 2001, and $146,636 in year
2002. In November 1999, the Company entered into a one-year lease for an
apartment for the Company's use. In 1999, the Company paid $1,700 in rent,
and is obligated to pay $8,700 in 2000. In January 2000, the Company
entered into a financing lease for a telephone system valued at $13,000,
which calls for the Company to make payments totaling $4,500 per year for
four years. In January 2000, the Company entered into a three-year
operating lease with a stockholder of the Company. This lease calls for a
fair market value purchase at lease end. The lease is for the Company's
"Gateway" equipment located in New York City and Los Angeles. The Company
was obligated to the following payments: $36,800 in 2000; $40,000 in 2001;
$40,000 in 2002 and $3,300 in 2003. In July 2000, the Company purchased the
equipment at its fair market value from the lessor. In March of 2000, the
Company leased an automobile for 36 months, with payments totaling $9,000.
In July
F-12
<PAGE> 55
IPVOICE.COM, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) COMMITMENTS AND CONTINGENCIES (CONTINUED) c) LEASES (CONTINUED) 2000, the
Company entered an agreement to lease seven laptop computers for
forty-eight months for a total obligation of $27,000. In July 2000, the
Company signed an agreement to lease furniture for a period of sixty months
for a total obligation of $57,000.
d) LITIGATION In December 1999, SatLink filed a lawsuit alleging breach of
contract as a result of the recission of the acquisition in October 1999,
as discussed in Note 5 above. In December 1999, the former CFO of the
Company filed a lawsuit alleging breach of contract as a result of the
recission of the employment agreement in October 1999, as discussed in Note
5 above.
On April 25, 2000, Michael McKim filed a lawsuit against the Company
alleging breach of employment contract and fraud. The Company formerly
employed Mr. McKim as Vice President of Research and Development. In
addition, for a period of time, he was a member of the Company's Board of
Directors. As a part of his compensation, Mr. McKim was to receive 300,000
shares of common stock, followed by an additional 750,000 shares of common
stock over a three-year period, subject to various limitations.
In his complaint, Mr. McKim alleges that the Company failed to issue the
300,000 shares to him, thereby breaching the employment agreement. In
addition, he alleges that, in failing to provide the shares to him, the
Company committed fraud. The Company filed its answer on June 19, 2000
denying the allegations of the complaint. The Company also filed a
counterclaim against Mr. McKim alleging that, during the course of his
employment, Mr. McKim engaged in intentional misrepresentation, breach of
fiduciary duty and intentional interference with business relationships.
The Company believes these suits have no merit and intends to vigorously
defend them.
e) EMPLOYMENT AGREEMENTS In April 1998, the Company entered into three-year
employment agreements with the President and the Senior Vice President.
These agreements call for salaries in the amount of $150,000 per year for
each of those officers. In September 1999, those officers agreed to reduce
this compensation to $90,000 per year. The reduction agreements do not call
for an accrual and payment of the difference. In September 2000, the Senior
Vice President agreed to terminate the employment agreement. In November
1999, the Company entered into a two-year employment agreement with its
Executive Vice President, (EVP), which calls for a minimum salary of
$78,000 per year, and granted the EVP options for 50,000 shares of common
stock, with an exercise price of $1.21. The Company is obligated to pay a
total of $228,000 in 2000 and $88,000 in 2001 under these employment
agreements.
f) STOCK OPTION PLAN In December 1999, the stockholders adopted an
executive incentive plan, the "Option Plan", (or "2000 Executive Incentive
Plan"), under which 1,000,000 shares of common stock are reserved for
grants under the Option Plan. The Option Plan took effect on January 1,
2000 and terminates on December 31, 2005. Options granted under the Option
Plan may qualify as "incentive stock options" as defined in Section 422 of
the Internal Revenue Code of 1986, as amended, and become exercisable in
accordance with the terms approved at the time of the grant. To be
eligible, a grantee must be an employee, officer, director or consultant of
the Company. It is intended that all options be granted at fair market
value on a particular date determined by the Compensation and Option
Committee of the Board of Directors. As of September 30, 2000, options to
purchase 305,000 shares at an exercise price of $1.21 per share have been
granted to 8 employees and to a director.
F-13
<PAGE> 56
IPVOICE.COM, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) SUBSEQUENT EVENTS In October 2000, the Company entered into an agreement
with Marie Peregrim to provide sales and marketing management consulting
services throughout Europe, excluding the United Kingdom, in exchange for
300,000 shares of common stock. Also, in October 2000, the Company signed
an agreement with Telic Communications, Inc., which will utilize the
IPVoice Gateways for U.S. termination minutes.
F-14
<PAGE> 57
IPVOICE.COM, INC.
FORM SB-2
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of IPVoice.com, Inc., a Nevada corporation,
or the parent, contains a provision that eliminates or limits the personal
liability of the parent's directors or officers to the parent or its
stockholders for breach of fiduciary duty except acts or omissions which include
misconduct or fraud. The Nevada Revised Statutes do not permit elimination or
limitation of personal liability of an officer or director for (i) acts or
omissions which involve intentional misconduct, fraud or knowing violation of
law or (ii) the payment of distributions under Section 78.300 of the Nevada
Revised Statutes.
The parent's Bylaws provide that the parent indemnifies each person,
including the heirs, executors, administrators or estate of such person, who is
or was a director or officer of the parent to the fullest extent permitted or
authorized by current or future legislation or judicial or administrative
decision against all fines, liabilities, costs and expenses, including attorneys
fees, arising out of his or her status as a director, officer, agent, employee
or representative. The rights accruing to any person under this Bylaws provision
do not exclude any other right to which such indemnified person lawfully may be
entitled. The parent's Bylaws also provide that the parent will pay any costs,
charges or expenses, including attorneys' fees, incurred by an indemnified
person in advance of the final disposition of the action if the indemnified
person is obligated to repay all amounts if it is ultimately determined that
such indemnified person is not entitled to indemnification. The parent's Bylaws
provide that the parent shall indemnify such persons to the fullest extent
permitted by the Bylaw provisions have not been invalidated and to the fullest
extent permitted by law.
Section 78.7502 of the Nevada Revised Statutes provides that: (1) a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believes to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; provided the termination
of any action, suit or proceeding by judgment, order settlement, conviction or
upon plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believes to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful and (2) a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys'
fees actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation; provided indemnification may not be made for any claim, issue or
matter as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to be indemnified for such expenses as the court deems proper and (3)
to the extent that a director, officer, employee or agent of a corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (1) and (2) above, or in defense of any
claim, issue or matter therein, the corporation shall indemnify him against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection with the defense.
The NRS also provides that any discretionary indemnification under NRS
78.7502 unless ordered by a court or advanced may be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made: (a) by the stockholders; (b) by
the Board of Directors by majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding; (c) if a majority vote of a
quorum consisting of directors who were not parties to the action, suit or
proceeding so orders, by independent legal counsel
II-1
<PAGE> 58
in a written opinion; or (d) if a quorum consisting of directors who were not
parties to the action, suit or proceeding cannot be obtained, by independent
legal counsel in a written opinion.
The NRS also permits a corporation's articles of incorporation, bylaws or
arrangement to provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation.
The NRS provides that indemnification and advancement of expenses
authorized in or ordered by a court: (1) do not exclude any other rights to
which a person seeking indemnification or advancement of expenses may be
entitled under the articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his official capacity or an action in another capacity while holding his office,
except that indemnification, unless ordered by a court pursuant to NRS 78.7502
or for the advancement of expenses made pursuant to the preceding paragraph, may
not be made to or on behalf of any director if a final adjudication establishes
that his acts or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action and (2) continues
for a person who has ceased to be a director, officer, employee or agent and
inures to the benefit of the heirs, executors and administrators of such a
person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
<TABLE>
<CAPTION>
EXPENSE AMOUNT*
------- -------
<S> <C>
SEC Registration Fee $ 4,076.31
Legal Fees and Expenses $125,000.00*
Accounting Fees and Expenses $ 15,000.00*
Printing and Related Expenses $ 25,000.00*
Blue Sky Fees and Expenses $ 18,000.00*
Federal and State Taxes and Fees $ 0
Transfer Agent's Fees $ 1,500.00*
Miscellaneous $ 6,423.69*
-----------
Total $195,000.00
</TABLE>
----------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
GENERAL INFORMATION.
We relied upon Section 3(a)(9) of the Securities Act of 1933, as amended
for certain of its sales of unregistered securities. In each instance, such
reliance was based upon the following: (i) the securities being issued were
exchanged exclusively with our existing security holders, and (ii) no commission
or remuneration was paid or given directly or indirectly for soliciting such
exchange.
We relied upon Section 3(b) of the Act and Rule 504 for several
transactions regarding the sale of its unregistered securities. In each
instance, such reliance was based on the following: (i) the aggregate offering
price of the offering of the shares of securities did not exceed $1,000,000,
less the aggregate offering price for all other securities sold with the twelve
months before the start of and during the offering of shares in reliance on any
exemption under Section 3(b) or in violation of Section 5(a) of the Act; (ii) no
general solicitation or advertising was conducted by us in connection with the
offering of any of the shares; and (iii) we had not been since its inception (a)
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Act of 1934, as amended, nor (b) an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, nor (c) a development stage
company that either had no specific business plan or purpose or had indicated
that its business plan was to engage in a merger or acquisition with an
unidentified company or companies or other entity or person.
II-2
<PAGE> 59
We relied upon Section 4(2) of the Act and Rule 506 for several
transactions regarding the sale of its unregistered securities. In each
instance, such reliance was based upon the following: (i) the issuance of the
shares did not involve a public offering, (ii) there were no more than
thirty-five investors, excluding accredited investors, (iii) each investor, who
was not an accredited investor either alone or with his purchaser
representative(s), had such knowledge and experience in financial and business
matters that he was capable of evaluating the merits and risks of the
prospective investment, or we reasonably believed immediately prior to making
any sale that such purchaser came within this description, (iv) the offers and
sales were made in compliance with Rules 501 and 502, (v) the securities were
subject to restrictions on resale and (vi) each of the parties was a
sophisticated purchaser and had full access to the information to make an
informed investment decision by virtue of the due diligence conducted by the
purchaser or available to the purchaser prior to the transaction.
SALES OF UNREGISTERED SECURITIES WITHIN THE PAST THREE YEARS.
In March 1998, IPVoice.com, Inc., a Nevada corporation and the registrant
under this Form SB-2, or the Company, then known as Nova Enterprises, Inc.,
entered into a share exchange agreement with IPVoice Communications, a Delaware
corporation, or the Subsidiary, and its stockholders in which the Company issued
9,000,000 shares of its common stock to the Subsidiary's three stockholders for
all of the outstanding capital stock of the Subsidiary, which then became a
wholly-owned subsidiary of the Company. In connection with the agreement, we
entered into employment agreements with Barbara Will, its current Chief
Operating Officer and president and a director, and with Anthony Welch, designer
of our proprietary software, who currently serves as a director and consultant.
In the exchange, Ms. Will, Mr. Welch and Condor Worldwide, Ltd. each received
3,000,000 shares of our restricted common stock. James K. Howson, our Chairman
and Chief Executive Officer, is the beneficial owner of Condor. The issuance of
the shares followed extensive negotiation related to the share exchange during
which the three stockholders were provided with all financial and business
information about the Company. Condor was an accredited investor and Ms. Will
and Mr. Welch were sophisticated investors. For such offering, we relied upon
Section 4(2) of the Act and Rule 506. A Form D was filed with the SEC.
Between April 23 and August 14 1998, we sold 154,000 shares of its common
stock to five accredited investors for $154,000 cash. For such offering, we
relied upon Section 3(b) of the Act and Rule 504. A Form D was filed with the
SEC.
On July 13, 1998, we sold 53,333 shares of its common stock to one investor
affiliated with then legal counsel for the Company for $40,000. For such
offering, we relied upon Section 3(b) of the Act and Rule 504. A Form D was
filed with the SEC.
On July 15, 1998, we entered into three related consulting services
agreements with Calpe, Ltd, The Investor Communications Group, Inc. and
Corporate Imaging. Calpe agreed to provide international sales and public
relations assistance to us for a three-year period ending June 30, 2001 for
which Calpe received 627,000 shares of our common stock in lieu of $62,700 of
commissions on product sales. ICG agreed to provide financial public relations
and direct marketing assistance to us for a period of six months ended January
15, 1999, for which ICG received monthly payments of $12,500, 200,000 shares of
our common stock and 100,000 warrants to purchase common stock at an exercise
price of $2.00 per share. CI agreed to provide media and public relations
management services for us for a two-year period ending July 31, 2000 for which
CI received 23,000 shares of our common stock. For this offering, we relied upon
Section 3(b) of the Act and Rule 504. Three separate Forms D were filed with the
SEC.
On July 23, 1998, we entered into an agreement with Armstrong International
Group, Inc. We granted AIG the non-exclusive right to market, advertise and sell
our domestic and international calling services for a period of three years. As
payment for these services, we agreed to issue warrants to purchase 50,000
shares of our common stock exercisable at a price of $0.75 per share or, and
agreed to pay commissions on sales of our products and services. However, the
services were never begun and no warrants were issued. For such offering, we
intended to rely upon Section 4(2) of Act and Rule 506. A Form D was filed with
the SEC.
In September 1998, we issued 200,000 shares of our common stock to two
investors in three separate sales for an aggregate purchase price of $50,000
cash. For such sales, we relied upon Section 3(b) of the Act and Rule 504. A
Form D was filed with the SEC for each sale.
On October 20, 1998, we executed a consulting agreement with International
Investment Partners, Ltd., an Irish corporation, or IIP Ireland, memorializing
an oral agreement made in March 1998, to provide financial, consulting and
advisory services over a three-year period in exchange for the issuance of
350,000 shares of common stock at an agreed value of $35,000, the grant of
warrants to purchase an additional 1,600,000 shares of the common stock
exercisable without time limitation at an exercise price of $0.06 per share, the
grant of warrants to purchase an additional 350,000 shares of common stock
exercisable without time limitation at an exercise price of $3.90 per share and,
in consideration of $100 cash, the grant of warrants to purchase up to 5% of our
common stock
II-3
<PAGE> 60
on a fully-diluted basis at a price of $1.00 per share. In addition, the
agreement required us to pay a monthly fee of $4,000 from September 1998 through
March 1999, $6,000 from April 1999 through March 2000 and $8,000 from April
through the end of the agreement.
In January 1999, IIP Ireland received 93,760 shares of common stock in lieu
of payment for $14,064 in services under the consulting agreement. IIP Ireland
exercised its warrant to purchase 1,600,000 shares in April 1999 at an exercise
price of $96,000. As to the warrant to purchase up to 5% of our common stock, in
January through April 14, 2000, IIP Ireland purchased 506,000 shares of common
stock at an exercise price of $506,000. IIP Ireland retained the right to
purchase additional shares until the full 5% had been acquired.
Effective May 31, 2000, IIP Ireland agreed with us to terminate the
consulting agreement under terms which excused IIP Ireland from providing any
further services and discontinued our obligation to make the monthly payments
for such services. In addition, IIP Ireland agreed to exchange both outstanding
warrants for 700,000 shares of common stock. IIP Ireland is an accredited
investor. In connection with the initial issuance of 243,760 shares of common
stock and the warrants and the exercise of the warrant for 1,600,000, we relied
upon Section 3(b) of the Act and Rule 504. A Form D was filed with the SEC. In
connection with the issuance of 106,240 shares of the initial common stock, the
shares of common stock in April 1999, and the shares of common stock upon
exercise of the 5% warrant, we relied on Section 4(2) of the Act and Rule 506. A
Form D was filed with the SEC. In connection with the exchange of the
outstanding warrants for common stock, we relied on Section 3(a)(9) of the Act.
On October 13, 1998, we entered into a consulting agreement with
Insidestock.com, Inc. to provide media relations services and consulting advice
to us for a one-year period in exchange for the issuance of 275,000 shares of
common stock and the grant of warrants to purchase an additional 155,000 shares
of common stock exercisable for a period of one year at a price of $0.645 per
share. Insidestock.com, Inc. exercised its warrant to purchase 155,000 shares on
April 30, 1999 at an exercise price of $100,000. In connection with the issuance
of the common stock and warrants, we relied upon Section 3(b) of the Act and
Rule 504. A Form D was filed with the SEC.
From December 1998 through January 1999, we sold 896,665 shares of our
common stock to eight existing stockholders for $134,500 cash. For such
offering, we relied upon Section 3(b) of the Act and Rule 504. A Form D was
filed with the SEC.
From February 1999 through May 1999, we sold forty-six units to twenty-four
investors for $1,150,000 cash. Each unit consisted of (i) a note payable in two
years with an option for us to extend it for an additional two years in the
principal amount of $24,900 bearing interest at 9% per annum payable quarterly
in cash or, at our option, in shares of common stock; (ii) a warrant to purchase
18,750 shares of common stock exercisable during the period in which the note is
outstanding at an exercise price equal to 125% of the average closing price of
the stock for the thirty trading days immediately prior to February 1, 1999,
which warrants contain piggy-back registration rights; and (iii) twenty-five of
our Senior Convertible preferred shares. In the event of a default in repayment
of the notes, all outstanding Senior Convertible preferred shares shall be
converted into common stock in an amount which will equal 51% of the issued and
outstanding shares, warrants and options. For such offering, we relied upon
Section 4(2) of the Act and Rule 506. Several of the investors were existing
stockholder. The Company believes the purchasers were all accredited investors.
However, every purchaser received a Private Offering Memorandum, dated February
1, 1999, providing business and financial information about the Company. A Form
D was filed with the SEC.
Between April 20 and May 19 2000, we made a tender offer for the
outstanding units pursuant to which we issued 543,876 shares of common stock in
exchange for the surrender of $753,450 in notes, warrants to purchase 571,875
shares of common stock, and 950 shares of Senior Convertible preferred stock.
Additionally, three warrantholders have exercised 93,750 warrants at a price of
$.9875 per share of common stock. The tender offer was made in reliance upon
Section 3(a)(9) of the Act. A tender offer statement was filed with the SEC on
April 21, 2000.
Between March 4 and April 2, 1999, we sold 875,000 shares of its common
stock to one accredited investor for $350,000 cash. For such offering, we relied
upon Section 3(b) of the Act and Rule 504. A Form D was filed was filed with the
SEC.
On March 29, 1999, we entered into a consulting agreement with Buying Power
Network to provide financial public relations consulting services to us for
which we agreed to pay $40,000 for the first month, $30,000 for the second month
and $25,000 for the third, payable in shares of our common stock. The contract
term was through September 1999 and has expired without renewal. In exchange for
services rendered by BPN, we issued 100,000 shares of common stock, valued at
$106,200, to Joyce Research Group, of which BPN is a division. For the fourth,
fifth and sixth months of the contract, we granted Joyce Research Group options
to purchase 150,000 shares of our common stock at an exercise price equal to
60%, 65% and 70% of the market price, respectively. For such
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<PAGE> 61
offering, we relied upon Section 3(b) of the Act and Rule 504. A Form D was
filed with the SEC.
On April 1, 1999, we entered into a marketing agreement with Benae
International, Inc. to market our telephony services and to register a minimum
of one hundred customers in the thirty cities in which we plan to offer
telephony services within twelve months in exchange for 200,000 shares of our
common stock. The shares are to be returned to us if the minimum is not met. For
such offering, we relied upon Section 3(b) of the Act and Rule 504. A Form D was
filed with the SEC.
On April 1, 1999, we entered into a marketing and advertising agreement
with Netgenie.com, or NG, to provide marketing services to a minimum of 75,000
customers in thirty cities designated by the us within a twelve month period in
exchange for 100,000 shares of our common stock, which shares must be returned
if NG fails to deliver a minimum of eight cities for a total of 75,000
customers. In addition, NG could have earned performance bonuses of: 50,000
shares if eight cities are delivered within ninety days of execution; 50,000
shares if fifteen cities are delivered within one hundred fifty days; and 10,000
shares for each additional city thereafter before December 31, 1999 up to thirty
cities. Further, NG was granted warrants to purchase 30,000 shares of our common
stock exercisable for a period of two years at an exercise price of $2.50 per
share for every block of 5,000 pre-registered customers up to 75,000
pre-registered customers in a twelve month period. NG did not satisfy any of the
incentive performance criteria and the right to acquire the additional shares or
exercise the warrants has expired. In connection with negotiating the agreement
and identifying the services to be performed by NG, we provided NG with access
to all of our records and discussed in detail the provision of our business
plan. For such offering, we relied upon Section 4(2) of the Act and Rule 506. A
Form D was filed with the SEC.
On April 7, 1999, we entered into a share exchange agreement with Satlink
3000, doing business as Independent Network Services. We exchanged 250,000
shares of our Redeemable Convertible preferred stock valued at $500,000 for all
of the outstanding capital stock of INS. INS had only seven shareholders. We
believe that most of them were accredited investors. Such Redeemable Convertible
preferred stock contains 1 for 1 conversion rights after one year and is
redeemable at $2.00 per share. Prior to the closing of the share exchange, INS
was given full access to our books, records and business plan. INS conducted an
on-site due diligence examination with full opportunity to review documents and
ask questions of the Company's management. The president of INS, Peter M.
Stazzone, remained with the company as the president of the subsidiary. At the
time of the exchange Mr. Stazzone became our Secretary, Treasurer and Chief
Financial Officer under an employment agreement. Also at the time of the
exchange, Mr. Stazzone received 50,000 shares of our Redeemable Convertible
preferred stock. Pursuant to an employment agreement, Mr. Stazzone received
200,000 shares of our common stock, a stock bonus of 100,000 shares of common
stock deemed earned on the date of an share exchange agreement, but to be
delivered on the earlier of (i) the first anniversary date of his employment, or
(ii) Mr. Stazzone's termination, and options to purchase an additional 200,000
shares of common stock exercisable for a period of three years at an exercise
price of $1.00 per share. For such offering, we relied upon Section 4(2) of the
Act and Rule 506. A Form D was filed with the SEC.
In connection with the exchange, INS and Mr. Stazzone represented that INS
had acquired certain assets, including the rights to INS' name, from the
Bankruptcy Court in the Chapter 11 filing of Telsave. Mr. Stazzone was the Chief
Financial Officer of Telsave at the time the bankruptcy was filed and the
Bankruptcy Court was provided with disclosure of his involvement with INS prior
to the Court's approval of the sale of certain Telsave assets to INS. At the
time of the acquisition of INS, we believed that it was acquiring the rights to
the CIC Code. The purchase price was based in part upon an appraisal of the
value of the CIC Code which is loaded in approximately 60% of the domestic
market. However, during the course of our audit for 1999, it was discovered that
clear title may not have passed to INS and subsequently to us. Therefore, our
Board determined that, in the event clear title had not passed, it would be in
our best interest to rescind the transaction. We sought a legal opinion on the
status of such title and was advised that there was no clear link between the
ownership of the CIC Code and INS. Therefore, the Board voted to rescind the
transaction, to rescind the Redeemable Convertible preferred stock, common stock
and warrant issuances made under the acquisition and the employment agreement
and to terminate Mr. Stazzone's employment. The matter is now the subject of
litigation between us and INS and Mr. Stazzone.
On November 29, 1999, we issued 10,000 shares of common stock to McGinn
Smith & Co. Inc. as a retainer for its services as a financial advisor in
identifying prospective institutional investors. For such offering, we relied
upon Section 4(2) of the Act. McGinn Smith & Co. Inc. is a registered
broker-dealer and an accredited investor.
On May 22, 2000, we issued 1,250 shares of its Series B Senior Convertible
preferred stock, or Series B Stock, at a price of $1,000 per share to each of
the Augustine Fund, L.P. and The Shaar Fund Ltd., for an aggregate price of $2.5
million. Each share of Series B Stock is convertible into shares of common stock
at a price which is the lower of (i) $1.96 per share, or (ii) 75% of the average
of the 3 lowest closing bid prices of the common stock during the 30 trading
days immediately prior to the conversion. Each investor has the further right to
purchase one additional share of common stock at the same price for each share
received upon conversion. In addition,
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<PAGE> 62
we have the right to pay the 7.5% dividend on the Series B Stock in shares of
common stock at the same price. Each investor was also granted warrants to
purchase 125,000 shares of common stock at an exercise price of $2.136 per share
for a period of five years. In addition, we granted registration rights to the
investors, the primary purpose for the filing of this registration statement. In
connection with this offering, we paid fees to Delano Group Securities, LLC, a
registered broker-dealer and an accredited investor, in the amount of $250,000
cash plus a warrant to purchase 100,000 shares of common stock at $2.136 per
share. In issuing these securities, we relied on Section 4(2) of the Act and
Rule 506. A Form D was filed with the SEC.
In July 2000, pursuant to its 2000 Executive Inventive Plan, we issued a
total of 355,000 options to purchase common stock to 9 employees and 1 director.
At the same time, we cancelled the previously authorized but unissued options
for Harry Bowman, our vice president, to purchase 50,000 shares of common stock,
and for Russell Watson, a director, to purchase 20,000 shares of common stock.
In issuing these options, we relied on Section 4(2) of the Act and Rule 506.
Each of the option recipients is an accredited investor or an employee of the
Company directly involved with our activities on a daily basis and having full
access to all of our financial and business information. As soon as practicable,
we intend to register these options and shares on Form S-8.
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<PAGE> 63
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
Item No. Description
-------- -----------
<S> <C> <C>
3.(i).1 [1] Articles of Incorporation of Nova Enterprises, Inc. filed February 19, 1997
3.(i).2 [1] Certificate of Amendment of Articles of Incorporation changing name to IPVoice
Communications, Inc. filed March 24, 1998.
3.(i).3 [1] Certificate of Amendment of Articles of Incorporation changing name to IPVC.com, Inc.
3.(i).4 [1] Certificate of Amendment of Articles of Incorporation changing name to IPVoice.com, Inc.
3.(i).5 [4] Certificate of Correction completing the description of the Senior Convertible Preferred
Shares listed in the Amendment to the Articles of Incorporation filed on April 19, 1999
3.(i).6 [4] Certificate of Amendment of the Articles of Incorporation designating the preferences,
limitations and relative rights of Series B Preferred Stock
3.(ii).1 [1] Bylaws of Nova Enterprises, Inc.
4.1 [1] Form of Private Placement Offering of 1,600,000 common shares at $0.01 per share.
4.2 [1] Form of Private Placement Offering of 992,500 common shares at $1.00 per share.
4.3 [1] Form of Private Placement Offering of 100,000 common shares at $0.50 per share.
4.4 [1] Form of Private Placement Offering of 1,000,000 common shares at $0.15 per
share.
4.5 [1] Form of Private Placement Offering of 1,250,000 common shares at $0.40 per
share.
4.6 [1] Form of Private Placement Offering of 104 Units at $25,000.00 per unit.
4.7 [1] Form of Promissory Note for Private Placement Offering of 104 Units at $25,000 per unit.
4.8 [1] Form of Warrant for Private Placement Offering of 104 Units at $25,000 per unit.
5.1 [7] Opinion of Jennings, Strouss & Salmon P.L.C.
10.1 [1] Agreement dated March 1998 with Nova Enterprises, Inc.
10.2 [1] Agreement dated April 1999 with Independent Network Services.
10.3 [1] Agreement dated February 1998 with Natural MicroSystems Corporation.
10.4 [1] Agreement dated June 1999 with ICG Telecom Group, Inc.
10.5 [1] Agreement dated August 1999 with RSL Com U.S.A., Inc.
10.6 [1] Agreement dated July 1999 with Star Telecommunications, Inc.
10.7 [1] Agreement dated August 1999 with ILD Communications, Inc.
10.8 [1] Agreement dated June 1999 with Level 3 Communications LLC.
10.9 [1] Agreement dated August, 1999 with Worldcom Technologies, Inc.
10.10 [1] Agreement dated March 1999 with Teleco Service International, Inc.
10.11 [1] Agreement dated March 1999 with Billion Telecommunication Services, Ltd.
10.12 [1] Agreement dated May 1999 with Firstnet Telephany Ltd.
10.13 [1] Agreement dated July 1999 with MetroPlus Communication Technology, Inc.
10.14 [1] Agreement dated February 1999 with BlueGrass Net.
10.15 [1] Agreement dated July 1998 with The Armstrong International Group, Inc.
10.16 [1] Agreement dated February 1999 with International Investment Partners, Ltd.
10.17 [1] Agreement dated March 1999 with Kenneth M. Brown
10.18 [1] Agreement dated April 1999 with Netgenie.com LLC
10.19 [1] Agreement dated April 1999 with Benae International Inc.
10.20 [1] Consulting Agreement dated November 1997 with Condor Worldwide, Ltd.
10.21 [1] Consulting Agreement dated July 1998 with Calpe, Ltd.
10.22 [1] Consulting Agreement dated July 1998 with The Investor Communications Group, Inc.
10.23 [1] Consulting Agreement dated July 1998 with Corporate Imaging.
10.24 [1] Consulting Agreement dated September 1998 with First Capital Partners, Inc.
10.25 [1] Consulting Agreement dated October 1998 with International Investment Partners, Ltd.
10.26 [1] Consulting Agreement dated October 1998 with Insidestock.com, Inc.
10.27 [1] Consulting Agreement dated March 1999 with Buying Power Network.
10.28 [1] Employment Agreement dated April 1998 with Barbara S. Will.
10.29 [1] Employment Agreement dated April 1998 with Anthony K. Welch.
</TABLE>
II-7
<PAGE> 64
<TABLE>
<S> <C> <C>
10.30 [1] Employment Agreement dated April 1999 with Peter M. Stazzone.
10.31 [1] Lease effective August 1, 1999 for Phoenix offices
10.32 [1] Employment Agreement dated November 10, 1999 with Harry R. Bowman
10.33 [2] Memorandum of Understanding between the Company and Telic.net dated
November 17, 1999
10.34 [2] Executive Incentive Stock Awards Plan adopted by Shareholders on December 9, 1999
10.35 [3] Engagement Letter dated November 24, 1999 with McGinn, Smith & Co., Inc.
10.36 [3] Engagement Letter dated February 16, 2000 with Delano Group Securities
10.37 [3] UUNET Agreement dated December 15, 1999
10.38 [3] Equipment Lease dated January 20, 2000 with International Investment Partners
10.39 [3] Professional Service Agreement dated October 8, 1999 with Natural Microsystems Corp.
10.40 [3] Apartment Rental Agreement effective November 1, 1999
10.41 [3] Telephone Equipment Lease/Purchase Agreements dated December 10, 1999
10.42 [3] Amended 2000 Stock Plan
10.43 [4] Agreement dated March 30, 2000 with Condor Worldwide, Ltd.
10.44 [4] Promissory Note dated May 5, 2000 and Pledge and Security Agreement
10.45 [4] Agreement dated May 5, 2000 with Condor Worldwide, Ltd., James K. Howson, Anthony Welch,
Barbara Will and IPVoice.com
10.46 [5] Augustine Fund, L.P. - Securities Purchase Agreement including all exhibits
10.47 [5] The Shaar Fund, Ltd. - Securities Purchase Agreement including all exhibits
10.48 [6] Employment Agreement dated April 2000 with J. Michael Scott
10.49 [6] Service Agreement dated May 15, 2000 with Telic Communications, Inc.
10.50 [6] Financial and Business Management Consulting Agreement dated June 1, 2000 with Growth
Capital Resources.com, LLC
10.51 [6] Collocation Agreement dated June 23, 2000 with Intermedia Communications Inc.
10.52 [6] Service Agreement dated June 29, 2000 with Telecom Compliance Services, Inc.
10.53 [7] Office Lease Agreement dated July 10, 2000 with Cornwell Corporation
10.54 [7] Support Agreement dated July 28, 2000 with Sepesi, Inc.
10.55 [8] Traffic Carriage Agreement dated October 16, 2000 with Telic Communications, Inc.
10.56 * Sales, Marketing and Business Management Consulting Contract dated October 1, 2000 with
Marie Peregrim.
10.57 [8] Service Agreement dated November 1, 2000 with Blueshift Telecom, Inc.
23.1 * Consent of Durland & Company, CPAs, P.A.
24.1 * Power of Attorney (included on signature page)
27.1 * Financial Data Sheet
99.1 [5] Press Release issued by the Registrant on May 24, 2000 entitled "IPVoice.com, Inc. Finalizes
$2.5 Million Funding Led by Augustine and Schaar Funds"
</TABLE>
[1] Previously filed with the Company's Form 10SB filed November 3, 1999
[2] Previously filed with the Company's Form 10QSB for the Quarter ended
September 30, 1999
[3] Previously filed with the Company's Form 10KSB/A for the fiscal year ended
December 31, 1999
[4] Previously filed with the Company's Form 10QSB for the Quarter ended March
31, 2000
[5] Previously filed with the Company's Form 8K filed June 16, 2000
[6] Previously filed with the Company's Form 10QSB for the Quarter ended June
30, 2000
[7] Previously filed with the Company's Form SB-2 filed August 21, 2000
[8] REQUESTING CONFIDENTIAL TREATMENT
(* Filed herewith)
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<PAGE> 65
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(1) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(i) To reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
(ii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(iii) To include any additional or changed material information on the plan of
distribution.
(2) For the purpose of determining liability under the Securities Act
of 1933, to treat each post-effective amendment as a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time as the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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 Registrant will, less 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of Phoenix,
State of Arizona, on November 9, 2000.
IPVOICE.COM,INC.
By: /s/ Barbara Will
------------------------------------
Barbara Will
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below hereby authorizes
Barbara Will with full power of substitution to execute in the name of such
person and to file any Amendment or Post-Effective Amendment to this
Registration Statement making such changes in this Registration Statement as the
Company deems appropriate and appoints Barbara Will with full power of
substitution, attorney-in-fact to sign and to file any amendment and
Post-Effective Amendment to this Registration Statement.
II-9
<PAGE> 66
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James K. Howson Director and November 9, 2000
-------------------------- Chief Executive Officer
James K. Howson [Principal Executive Officer]
/s/ Barbara Will Director and President November 9, 2000
--------------------------
Barbara Will
/s/ Brian Auchey Chief Financial Officer November 9, 2000
-------------------------- [Principal Financial
Brian Auchey and Accounting Officer]
Director November __ , 2000
--------------------------
Anthony Welch
/s/ Russell Watson Director November 9, 2000
--------------------------
Russell Watson
</TABLE>
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<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item No. Description
-------- -----------
<S> <C>
3.(i).1 [1] Articles of Incorporation of Nova Enterprises, Inc. filed February 19, 1997
3.(i).2 [1] Certificate of Amendment of Articles of Incorporation changing name to IPVoice
Communications, Inc. filed March 24, 1998.
3.(i).3 [1] Certificate of Amendment of Articles of Incorporation changing name to IPVC.com, Inc.
3.(i).4 [1] Certificate of Amendment of Articles of Incorporation changing name to IPVoice.com, Inc.
3.(i).5 [4] Certificate of Correction completing the description of the Senior Convertible Preferred
Shares listed in the Amendment to the Articles of Incorporation filed on April 19, 1999
3.(i).6 [4] Certificate of Amendment of the Articles of Incorporation designating the preferences,
limitations and relative rights of Series B Preferred Stock
3.(ii).1 [1] Bylaws of Nova Enterprises, Inc.
4.1 [1] Form of Private Placement Offering of 1,600,000 common shares at $0.01 per share.
4.2 [1] Form of Private Placement Offering of 992,500 common shares at $1.00 per share.
4.3 [1] Form of Private Placement Offering of 100,000 common shares at $0.50 per share.
4.4 [1] Form of Private Placement Offering of 1,000,000 common shares at $0.15 per
share.
4.5 [1] Form of Private Placement Offering of 1,250,000 common shares at $0.40 per
share.
4.6 [1] Form of Private Placement Offering of 104 Units at $25,000.00 per unit.
4.7 [1] Form of Promissory Note for Private Placement Offering of 104 Units at $25,000 per unit.
4.8 [1] Form of Warrant for Private Placement Offering of 104 Units at $25,000 per unit.
5.1 [7] Opinion of Jennings, Strouss & Salmon P.L.C.
10.1 [1] Agreement dated March 1998 with Nova Enterprises, Inc.
10.2 [1] Agreement dated April 1999 with Independent Network Services.
10.3 [1] Agreement dated February 1998 with Natural MicroSystems Corporation.
10.4 [1] Agreement dated June 1999 with ICG Telecom Group, Inc.
10.5 [1] Agreement dated August 1999 with RSL Com U.S.A., Inc.
10.6 [1] Agreement dated July 1999 with Star Telecommunications, Inc.
10.7 [1] Agreement dated August 1999 with ILD Communications, Inc.
10.8 [1] Agreement dated June 1999 with Level 3 Communications LLC.
10.9 [1] Agreement dated August, 1999 with Worldcom Technologies, Inc.
10.10 [1] Agreement dated March 1999 with Teleco Service International, Inc.
10.11 [1] Agreement dated March 1999 with Billion Telecommunication Services, Ltd.
10.12 [1] Agreement dated May 1999 with Firstnet Telephany Ltd.
10.13 [1] Agreement dated July 1999 with MetroPlus Communication Technology, Inc.
10.14 [1] Agreement dated February 1999 with BlueGrass Net.
10.15 [1] Agreement dated July 1998 with The Armstrong International Group, Inc.
10.16 [1] Agreement dated February 1999 with International Investment Partners, Ltd.
10.17 [1] Agreement dated March 1999 with Kenneth M. Brown
10.18 [1] Agreement dated April 1999 with Netgenie.com LLC
10.19 [1] Agreement dated April 1999 with Benae International Inc.
10.20 [1] Consulting Agreement dated November 1997 with Condor Worldwide, Ltd.
10.21 [1] Consulting Agreement dated July 1998 with Calpe, Ltd.
10.22 [1] Consulting Agreement dated July 1998 with The Investor Communications Group, Inc.
10.23 [1] Consulting Agreement dated July 1998 with Corporate Imaging.
10.24 [1] Consulting Agreement dated September 1998 with First Capital Partners, Inc.
10.25 [1] Consulting Agreement dated October 1998 with International Investment Partners, Ltd.
10.26 [1] Consulting Agreement dated October 1998 with Insidestock.com, Inc.
10.27 [1] Consulting Agreement dated March 1999 with Buying Power Network.
10.28 [1] Employment Agreement dated April 1998 with Barbara S. Will.
10.29 [1] Employment Agreement dated April 1998 with Anthony K. Welch.
</TABLE>
<PAGE> 68
<TABLE>
<S> <C>
10.30 [1] Employment Agreement dated April 1999 with Peter M. Stazzone.
10.31 [1] Lease effective August 1, 1999 for Phoenix offices
10.32 [1] Employment Agreement dated November 10, 1999 with Harry R. Bowman
10.33 [2] Memorandum of Understanding between the Company and Telic.net dated
November 17, 1999
10.34 [2] Executive Incentive Stock Awards Plan adopted by Shareholders on December 9, 1999
10.35 [3] Engagement Letter dated November 24, 1999 with McGinn, Smith & Co., Inc.
10.36 [3] Engagement Letter dated February 16, 2000 with Delano Group Securities
10.37 [3] UUNET Agreement dated December 15, 1999
10.38 [3] Equipment Lease dated January 20, 2000 with International Investment Partners
10.39 [3] Professional Service Agreement dated October 8, 1999 with Natural Microsystems Corp.
10.40 [3] Apartment Rental Agreement effective November 1, 1999
10.41 [3] Telephone Equipment Lease/Purchase Agreements dated December 10, 1999
10.42 [3] Amended 2000 Stock Plan
10.43 [4] Agreement dated March 30, 2000 with Condor Worldwide, Ltd.
10.44 [4] Promissory Note dated May 5, 2000 and Pledge and Security Agreement
10.45 [4] Agreement dated May 5, 2000 with Condor Worldwide, Ltd., James K. Howson, Anthony Welch,
Barbara Will and IPVoice.com
10.46 [5] Augustine Fund, L.P. - Securities Purchase Agreement including all exhibits
10.47 [5] The Shaar Fund, Ltd. - Securities Purchase Agreement including all exhibits
10.48 [6] Employment Agreement dated April 2000 with J. Michael Scott
10.49 [6] Service Agreement dated May 15, 2000 with Telic Communications, Inc.
10.50 [6] Financial and Business Management Consulting Agreement dated June 1, 2000 with Growth
10.51 [6] Collocation Agreement dated June 23, 2000 with Intermedia Communications Inc.
10.52 [6] Service Agreement dated June 29, 2000 with Telecom Compliance Services, Inc.
10.53 [7] Office Lease Agreement dated July 10, 2000 with Cornwell Corporation
10.54 [7] Support Agreement dated July 28, 2000 with Sepesi, Inc.
10.55 [8] Traffic Carriage Agreement dated October 16, 2000 with Telic Communications, Inc.
10.56 * Sales, Marketing and Business Management Consulting Contract dated October 1, 2000 with
Marie Peregrim.
10.57 [8] Service Agreement dated November 1, 2000 with Blueshift Telecom, Inc.
23.1 * Consent of Durland & Company, CPAs, P.A.
24.1 * Power of Attorney (included on signature page)
27.1 * Financial Data Sheet
99.1 [5] Press Release issued by the Registrant on May 24, 2000 entitled "IPVoice.com, Inc. Finalizes
$2.5 Million Funding Led by Augustine and Schaar Funds"
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[1] Previously filed with the Company's Form 10SB filed November 3, 1999
[2] Previously filed with the Company's Form 10QSB for the Quarter ended
September 30, 1999
[3] Previously filed with the Company's Form 10KSB/A for the fiscal year ended
December 31, 1999
[4] Previously filed with the Company's Form 10QSB for the Quarter ended March
31, 2000
[5] Previously filed with the Company's Form 8K filed June 16, 2000
[6] Previously filed with the Company's Form 10QSB for the Quarter ended June
30, 2000
[7] Previously filed with the Company's Form SB-2 filed August 21, 2000
[8] REQUESTING CONFIDENTIAL TREATMENT
(* Filed herewith)
