-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, InmGuRzdg+uybSsdYc9OVFSvvfAhBpZayKzPBn858RE3NWf7JahpKyP+8ThN2F7A pvTN/pi/lI4xj1ANR47URQ== 0001072613-08-002085.txt : 20081119 0001072613-08-002085.hdr.sgml : 20081119 20081119153346 ACCESSION NUMBER: 0001072613-08-002085 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080930 FILED AS OF DATE: 20081119 DATE AS OF CHANGE: 20081119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVOICE, INC /NJ CENTRAL INDEX KEY: 0001105064 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 521750786 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29341 FILM NUMBER: 081200912 BUSINESS ADDRESS: STREET 1: 750 HIGHWAY 34 STREET 2: 210 SOUTH FOURTH AVE CITY: MATAWAN STATE: NJ ZIP: 07747 BUSINESS PHONE: 7324417700 MAIL ADDRESS: STREET 1: 750 HIGHWAY 34 STREET 2: 210 SOUTH FOURTH AVE CITY: MATAWAN STATE: NJ ZIP: 07747 FORMER COMPANY: FORMER CONFORMED NAME: IVOICE, INC /DE DATE OF NAME CHANGE: 20060206 FORMER COMPANY: FORMER CONFORMED NAME: IVOICE COM INC /DE DATE OF NAME CHANGE: 20000426 FORMER COMPANY: FORMER CONFORMED NAME: THIRDCAI INC DATE OF NAME CHANGE: 20000202 10-Q 1 form10q_16169.txt FORM 10-Q FOR THE QUARTER ENDER 9-30-08 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number: 000-29341 IVOICE, INC - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEW JERSEY 51-0471976 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 750 HIGHWAY 34 MATAWAN, NJ 07747 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (732) 441-7700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated files, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the exchange act. Large Accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Number of shares of Class A, common stock, No par value, outstanding as of November 13, 2008: 2,602,170,527 ================================================================================ IVOICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2008 AND 2007 TABLE OF CONTENTS Page No. PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheet - September 30, 2008 (Unaudited) and December 31, 2007 (Audited) 2-3 Condensed Consolidated Statements of Income - For the nine months and three months ended September 30, 2008 and 2007 (Unaudited) 4 Condensed Consolidated Statement of Accumulated Other Comprehensive Loss - For the nine months ended September 30, 2008 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows - For the nine months ended September 30, 2008 and 2007 (Unaudited) 6-8 Notes to Condensed Consolidated Financial Statements (Unaudited) 9-26 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 27-32 Item 4T. Controls and Procedures 32-33 PART II. OTHER INFORMATION Item 5. Other Information 34 Item 6. Exhibits 34 1 IVOICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET
September 30, December 31, 2008 2007 ----------- ----------- (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,213,452 $ 79,919 Marketable securities 5,900,990 10,814,954 Securities available for sale 709,083 676,272 Notes receivable - current portion 241,858 -- Accounts receivable, net of allowance for doubtful accounts $8,250 and $0, respectively 15,745 -- Inventory 6,080 -- Prepaid expenses and other current assets 26,949 194,678 ----------- ----------- Total current assets 10,114,157 11,765,823 ----------- ----------- PROPERTY AND EQUIPMENT, net of accumulated depreciation of $220,569 and $214,721, respectively 7,778 11,285 ----------- ----------- OTHER ASSETS Convertible debentures receivable 908,813 852,447 Notes receivable, net of current maturities 7,179 -- Intangible assets, net of accumulated amortization of $1,424 and and $871, respectively 217,988 170,975 Deposits and other assets 6,666 6,666 ----------- ----------- Total other assets 1,140,646 1,030,088 ----------- ----------- TOTAL ASSETS $11,262,581 $12,807,196 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 2,108,660 $ 1,127,695 Short term loans payable 3,913,032 -- Convertible debentures payable, net of discounts of $289,879 and $1,444,056, respectively 1,063,581 5,004,154 Derivative liability on convertible debentures 1,824,195 4,249,113 Due to related parties 601,275 176,293 Deferred revenues 19,193 -- ----------- ----------- Total current liabilities 9,529,936 10,557,255 ----------- ----------- COMMITMENTS AND CONTINGENCIES MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY -- --
See accompanying notes to condensed consolidated financial statements. 2 IVOICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
September 30, December 31, 2008 2007 ------------ ------------ (Unaudited) (Audited) STOCKHOLDERS' EQUITY Preferred stock, $1 par value; authorized 1,000,000 shares; no shares issued and outstanding -- -- Common stock, Class A, no par value; authorized 10,000,000,000 shares; 2008 - 2,602,173,527 shares issued; 2,602,170,527 shares outstanding 2007 - 420,674,318 shares issued; 420,671,318 shares outstanding 26,110,167 25,325,012 Common stock, Class B, $0.01 par value; authorized 50,000,000 shares; 2008 - 2,204,875 shares issued; 1,512,104 shares outstanding 2007 - 2,204,875 shares issued; 1,552,484 shares outstanding 15,121 15,525 Discount on investment in subsidiary (1,792,325) -- Additional paid-in capital 719,702 719,702 Accumulated other comprehensive loss (1,114,987) (1,096,000) Accumulated deficit (22,176,233) (22,685,498) Treasury stock, 3,000 Class A shares, at cost (28,800) (28,800) ------------ ------------ Total stockholders' equity 1,732,645 2,249,941 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,262,581 $ 12,807,196 ============ ============
See accompanying notes to condensed consolidated financial statements. 3 IVOICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the nine months For the three months Ended September 30, Ended September 30, 2008 2007 2008 2007 ---------------- ---------------- ---------------- ---------------- SALES $ 125,152 $ 1,233,602 $ 46,448 $ 317,825 COST OF SALES -- -- -- -- ---------------- ---------------- ---------------- ---------------- GROSS PROFIT 125,152 1,233,602 46,448 317,825 ---------------- ---------------- ---------------- ---------------- GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses 1,024,529 565,496 324,158 184,247 Amortization of financing costs 72,396 130,313 -- 43,438 Depreciation and amortization 4,738 6,822 1,443 (537) ---------------- ---------------- ---------------- ---------------- Total selling, general and administrative expenses 1,101,663 702,631 325,601 227,148 ---------------- ---------------- ---------------- ---------------- INCOME (LOSS) FROM CONTINUING OPERATIONS (976,511) 530,971 (279,153) 90,677 ---------------- ---------------- ---------------- ---------------- OTHER INCOME (EXPENSE) Other income 461,320 307,333 116,465 42,728 Gain on revaluation of derivatives 3,690,731 1,293,563 65,927 18,434 Amortization of discount on debt (1,840,677) (2,858,845) (81,757) (866,435) Interest expense (825,598) (387,441) (117,618) (128,900) ---------------- ---------------- ---------------- ---------------- Total other income (expense) 1,485,776 (1,645,390) (16,983) (934,173) ---------------- ---------------- ---------------- ---------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES 509,265 (1,114,419) (296,136) (843,496) PROVISION FOR INCOME TAXES -- -- -- -- ---------------- ---------------- ---------------- ---------------- INCOME (LOSS) FROM CONTINUING OPERATIONS 509,265 (1,114,419) (296,136) (843,496) LOSS FROM DISCONTINUED OPERATIONS -- (753,238) -- (132,086) MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY NET INCOME -- -- 11,191 -- ---------------- ---------------- ---------------- ---------------- NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 509,265 $ (1,867,657) $ (284,945) $ (975,582) ================ ================ ================ ================ NET INCOME (LOSS) PER COMMON SHARE Continuing Operations - Basic $ 0.00 $ (0.01) $ (0.00) $ (0.01) ================ ================ ================ ================ Continuing Operations - Diluted $ 0.00 $ -- $ -- $ -- ================ ================ ================ ================ Discontinued Operations - Basic $ 0.00 $ (0.01) $ (0.00) $ (0.01) ================ ================ ================ ================ Discontinued Operations - Diluted $ 0.00 $ -- $ -- $ -- ================ ================ ================ ================ WEIGHTED AVERAGE SHARES OUTSTANDING Basic 1,528,962,327 93,101,624 2,342,834,778 124,387,175 ================ ================ ================ ================ Diluted 10,000,000,000 -- -- -- ================ ================ ================ ================
See accompanying notes to condensed consolidated financial statements. 4 IVOICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2008 2007 ------------ ------------ Balance at beginning of the period $ (1,096,000) $ (376,559) Unrealized (loss) on securities available for sale: Unrealized (loss) arising during the period (9,246) (996,350) Less: reclassification adjustment for gains (losses) included in net income (loss) (9,741) 225,113 ------------ ------------ Net change for the period (18,987) (771,237) ------------ ------------ Balance at end of the period $ (1,114,987) $ (1,147,796) ============ ============
See accompanying notes to condensed consolidated financial statements. 5 IVOICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2008 2007 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 509,265 $(1,114,419) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation of fixed assets and amortization of intangibles 4,504 6,822 Amortization of prepaid finance costs 72,396 130,313 Amortization of discount on debt conversion 1,238,514 2,858,845 Beneficial interest on issuance of stock 293,951 -- (Gain) loss on sales of securities available for sale (10,239) 225,113 Interest and dividends earned on investments (110,659) (100,076) Non-cash consulting revenues earned -- (1,120,000) Gain on revaluation of derivatives (2,591,292) (1,293,563) Issuance of common stock for services 6,000 -- Changes in certain assets and liabilities: (Increase) in accounts and notes receivable (84,588) -- (Increase) in prepaid expenses and other assets (2,397) (42,229) Increase in accounts payable and accrued liabilities 379,085 332,910 (Decrease) in deferred revenues -- (37,500) Increase in related party liabilities 86,331 57,153 ----------- ----------- Total cash (used in) operating activities (209,129) (96,631) ----------- ----------- Net loss from discontinued operations -- (753,238) Net effect on cash flow from spin-off of discontinued operations -- 584,166 ----------- ----------- Total cash (used in) operating activities of discontinued operations -- (169,072) ----------- ----------- Total cash (used in) operating activities (209,129) (265,703) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment -- (4,707) Increase in costs of trademarks and other intangibles (9,160) (7,701) Net proceeds from sales of securities available for sale 20,737 182,378 Investment in securities and loans in unaffiliated companies (77,250) (25,000) Net redemption of principal and interest on marketable securities 4,913,964 (1,079) Net effect on cash flow from consolidation of majority owned investment (622,151) -- ----------- ----------- Total cash provided by investing activities from continuing operations 4,226,140 143,891 ----------- ----------- Adjustments to reconcile total cash (used in) investing activities from discontinued operations -- (6,272) ----------- ----------- Total cash provided by investing activities 4,226,140 137,619 ----------- -----------
See accompanying notes to condensed consolidated financial statements. 6 IVOICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(CONTINUED) FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2008 2007 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short term borrowings 5,660,000 -- Repayment of short term borrowings (1,746,968) -- Repayment of convertible debentures (4,796,510) -- ----------- ----------- Total cash (used in) financing activities (883,478) -- ----------- ----------- Adjustments to reconcile total cash provided by financing activities from discontinued operations -- 154,000 ----------- ----------- Total cash provided by (used in) financing activities (883,478) 154,000 ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,133,533 25,916 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 79,919 31,235 ----------- ----------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,213,452 $ 57,151 =========== =========== CASH PAID DURING THE PERIOD FOR: Interest expense $ 36,825 $ -- =========== =========== Income taxes $ -- $ -- =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION: a) On March 12, 2008, the Company acquired 1,444.44 shares of iVoice Technology, Inc.'s Series A 10% Convertible Preferred Stock for $1,444,444. This transaction was eliminated in consolidation. b) The Company exchanged $75,535 of amounts due from iVoice Technology, Inc. and B Green Innovations, Inc. into Convertible Promissory Notes of the same amount. These transactions were eliminated in consolidation. See accompanying notes to condensed consolidated financial statements. 7 IVOICE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(CONTINUED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: For the nine months ended September 30, 2008: - --------------------------------------------- a) The Company issued 1,805,499,209 shares of Class A common stock to YA Global Investments, LP as repayment of principal on outstanding convertible debentures, valued at $778,751. b) The Company issued 316,000,000 shares of Class A Common upon the conversion of 40,380 shares of Class B Common Stock. c) The Company received 99,600,000 shares of Thomas Pharmaceuticals, Ltd. Class A common stock on conversion of $10,167 of convertible debentures receivable. d) The Company exchanged $80,198 of amounts due from SpeechSwitch, Inc. into a Convertible Promissory Note of the same amount. e) The Company received 151,000,000 shares of SpeechSwitch, Inc. Class A common stock on conversion of $12,080 of convertible notes receivable. f) The Company received 42,000,000 shares of iVoice Technology, Inc. Class A common stock on conversion of $13,440 of convertible notes receivable. This transaction was eliminated in consolidation. g) The Company exchanged $59,302 of amounts due from Thomas Pharmaceuticals, Ltd. into a Convertible Promissory Note of the same amount. h) The Company issued 60,000,000 shares of Class A common stock to Kenneth Glynn for legal services, valued at $6,000, related to continuation of work on patent prosecution. For the nine months ended September 30, 2007: - --------------------------------------------- a) The Company issued 94,127,258 shares of Class A common stock to YA Global Investments, LP. (f/k/a Cornell Capital Partners) as repayment of principal on outstanding convertible debentures, valued at $290,250. b) The Company received 4,000,000 shares of Class A common stock of Deep Field Technologies as compensation for consulting services to be provided pursuant to the terms of the Consulting Agreement entered into on February 13, 2007. The value of the agreement was determined to be $1,120,000 and is being amortized over six months ending August 13, 2007. c) The Company issued 2,012,651 shares of Class A Common upon the conversion of 10,863 shares of Class B Common Stock See accompanying notes to condensed consolidated financial statements. 8 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - --------------------- The accompanying unaudited condensed consolidated financial statements include the accounts of iVoice, Inc. (the "Company" or "iVoice") and its wholly owned subsidiary, iVoice Innovations, Inc. and its majority owned public company, iVoice Technology, Inc. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. It is suggested that these condensed consolidated financial statements be read in conjunction with the December 31, 2007 audited financial statements and the accompanying notes thereto. Between February 11, 2004 and August 5, 2005, the Company completed the transfer of certain business segments and their related assets and liabilities to its four wholly owned subsidiaries Trey Resources, Inc, SpeechSwitch, Inc, iVoice Technology, Inc and Deep Field Technologies, Inc. These companies were then spun-off from iVoice as special dividends of the shares of Class A common Stock of the respective companies to the iVoice stockholders. Effective with the spin-off of the four subsidiaries, SpeechSwitch, iVoice Technology, Trey Resources and Deep Field Technologies now operate as independent publicly traded entities. On March 12, 2008, the Company acquired 1,444.44 shares of iVoice Technology, Inc.'s Series A 10% Convertible Preferred Stock for $1,444,444. The holder of each share of Series A Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. In addition, the holders of the Series A Preferred Stock shall not have in the aggregate more than seventy percent (70%) of the total votes of all classes of voting stock of the Corporation that would vote at a meeting of shareholders. Based on this voting formula, it was determined that iVoice, Inc. has voting rights equal to 70% of the voting stock of iVoice Technology and as such, according to APB Opinion No. 18 "THE EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS IN COMMON STOCK", iVoice, Inc. is required to consolidate the results of operations of iVoice Technology with those of iVoice and its other subsidiary. The Company is publicly traded and is currently traded on the Over The Counter Bulletin Board ("OTCBB") under the symbol "IVOI". 9 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 Principles of Consolidation - --------------------------- The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, iVoice Innovations, Inc. and its majority owned public company, iVoice Technology, Inc. ("iVoice Technology"). All significant inter-company transactions and balances have been eliminated in consolidation. Use of Estimates - ---------------- The preparation of financial statements are in conformity with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition - ------------------- The parent Company obtains its income primarily from the sales or licensing of its patents and patent applications. Revenues for the sales of our patents are recorded upon transfer of title. The patent revenues are reported net of any broker fees or commissions. The Company also is reporting revenues for iVoice Technology which derives its revenues from the licensing of its software product and optional customer support (maintenance) service. iVoice Technology's standard license agreement provides for a one-time fee for use of the company's product in perpetuity for each computer or CPU in which the software will reside. iVoice Technology's software application is fully functional upon delivery and implementation and does not require any significant modification or alteration. iVoice Technology also offers customers an optional annual software maintenance and support agreement for the subsequent one-year periods. Cash and Cash Equivalents - ------------------------- The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company had cash and cash equivalents at September 30, 2008 and December 31, 2007 of $3,213,452 and $79,919, respectively. Concentration of Credit Risk - ---------------------------- The Company maintains cash balances at a financial institution that is insured by the Federal Deposit Insurance Corporation up to $250,000. The cash equivalents are not insured. The Company has uninsured cash balances at September 30, 2008 and December 31, 2007 of $2,673,629 and $29,148, respectively. Marketable Securities - --------------------- Marketable securities consist of auction rate securities with auction reset periods less than 12 months and are stated at fair value. The cost of securities sold is based on specific identification. The Company had marketable securities at September 30, 2008 and December 31, 2007 of $5,900,990 and $10,814,954, respectively. 10 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 Securities Available-for-sale - ----------------------------- The Company has evaluated its investment policies consistent with FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in Stockholders' Equity under the caption Accumulated Other Comprehensive Income (Loss). The Company had securities available for sale at September 30, 2008 and December 31, 2007 of $709,083 and $676,272, respectively. Fair Value of Financial Instruments - ----------------------------------- The Company estimates that the fair value of all financial instruments at September 30, 2008 and December 31, 2007, as defined in FAS 107, does not differ materially from the aggregate carrying values of its financial instruments recorded in the accompanying condensed consolidated balance sheet. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. Earnings (Loss) Per Share - ------------------------- FAS No. 128, "Earnings Per Share" requires presentation of basic earnings per share ("basic EPS") and diluted earnings per share ("diluted EPS"). The computation of basic EPS is computed by dividing income available to common stockholders by the weighted average number of outstanding Common shares during the period. Diluted earnings per share gives effect to all dilutive potential Common shares outstanding during the period. The computation of diluted EPS for the nine months ended September 30, 2008 does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings. Common stock equivalents for the nine months ended September 30, 2007, were not included in the computation of diluted EPS when the Company reported a loss because to do so would be anti-dilutive. The shares used in the computations are as follows:
Nine months ended September 30, 2008 2007 -------------- -------------- Net income (loss) from continuing operations $ 509,265 $ (1,114,419) ============== ============== Net income (loss) from discontinued operations $ -- $ (753,238) ============== ============== Minority interest in net income $ -- $ -- ============== ============== Net income (loss) applicable to common shares $ 509,265 $ (1,867,657) ============== ============== Weighted average shares outstanding - basic 1,528,962,327 93,101,624 ============== ============== Weighted average shares outstanding - diluted (see note) 10,000,000,000 -- ============== ============== Net income (loss) per common share outstanding: Continuing operations - basic $ 0.00 $ (0.01) ============== ============== Continuing operations - diluted $ 0.00 $ -- ============== ============== Discontinued operations - basic $ 0.00 $ (0.01) ============== ============== Discontinued operations - diluted $ 0.00 $ -- ============== ==============
11 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 The Company had common stock equivalents in excess of its authorized capital at September 30, 2008. As such, the maximum authorized shares of 10,000,000,000 is shown for diluted earnings per common share calculations. The Company had common stock equivalents of 50,302,311,111 at September 30, 2008. Comprehensive Income (Loss) - --------------------------- FAS No. 130, "Reporting Comprehensive Income", establishes standards for the reporting and display of comprehensive income (loss) and its components in the financial statements. The items of other comprehensive income (loss) that are typically required to be displayed are foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. As of September 30, 2008 and 2007, the Company has several items that represent comprehensive loss, and thus, has included a statement of comprehensive loss. Reclassification of accounts in the prior period financial statements The Company has reclassified certain accounts in the statements of operations and statements of cash flows for the nine months ended September 30, 2007 to reflect the Spin-off of Thomas Pharmaceuticals, Ltd. The statements reflect the reclassification of these operations to below the line as discontinued operations in accordance with the provisions of FAS No. 144, "Accounting for the Impairment or Disposal of Long Lived Assets". There has been no effect on net loss for the nine months ended September 30, 2007. The Company has also reclassified the auction rate securities of $10,823,432 from Cash equivalents to Marketable Securities at September 30, 2007. This reclassification has no effect on the total assets of $12,978,830 at September 30, 2007 or total cash (used in) operating activities of continuing operations of $96,631 for the nine months ended September 30, 2007. Derivative Liabilities - ---------------------- During April 2003, the Financial Accounting Standards Board issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The statement requires that contracts with comparable characteristics be accounted for similarly and clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS 149 is effective for contracts entered into or modified after September 30, 2003, except in certain circumstances, and for hedging relationships designated after September 30, 2003. The financial statements for the nine months ended September 30, 2008 include the recognition of the derivative liability on the underlying securities issuable upon conversion of the YA Global Convertible Debentures (f/k/a/ Cornell Convertible Debentures). Recent Accounting Pronouncements - -------------------------------- In December 2007, the FASB issued SFAC No 141(R), "Business Combinations." This statement provides new accounting guidance and disclosure requirements for business combinations. SFAS No 141(R) is effective for business combinations which occur in the first fiscal year beginning on or after December 15, 2008. 12 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 In December 2007, the FASB finalized the provisions of the Emerging Issues Task Force (EITF) Issue No. 07-1, "Accounting for Collaborative Arrangements." This EITF Issue provides guidance and requires financial statement disclosures for collaborative arrangements. EITF Issue No. 07-1 is effect for financial statements issued for fiscal years beginning after December 15, 2008. The Company is currently assessing the effect of EITF Issue No. 07-1 on its financial statements, but it is not expected to be material. In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"), which clarifies the definition of fair value whenever another standard requires or permits assets or liabilities to be measured at fair value. Specifically, the standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 does not expand the use of fair value to any new circumstances, and must be applied on a prospective basis except in certain cases. The standard also requires expanded financial statement disclosures about fair value measurements, including disclosure of the methods used and the effect on earnings. In February 2008, FASB Staff Position ("FSP") FAS No. 157-2, "Effective Date of FASB Statement No. 157" ("FSP No. 157-2") was issued. FSP No. 157-2 defers the effective date of SFAS No. 157 to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Examples of items within the scope of FSP No. 157-2 are nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods), and long-lived assets, such as property, plant and equipment and intangible assets measured at fair value for an impairment assessment under SFAS No. 144. The partial adoption of SFAS No. 157 on January 1, 2008 with respect to financial assets and financial liabilities recognized or disclosed at fair value in the financial statements on a recurring basis did not have a material impact on the Company's financial statements. See Note 3 for the fair value measurement disclosures for these assets and liabilities. The Company is in the process of analyzing the potential impact of SFAS No. 157 relating to its planned January 1, 2009 adoption of the remainder of the standard. On January 1, 2008, the Company adopted SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value, which are not otherwise currently required to be measured at fair value. Under SFAS No. 159, the decision to measure items at fair value is made at specified election dates on an instrument-by-instrument basis and is irrevocable. Entities electing the fair value option are required to recognize changes in fair value in earnings and to expense upfront costs and fees associated with the item for which the fair value option is elected. The new standard did not impact the Company's Condensed Consolidated Financial Statements, as the Company did not elect the fair value option for any instruments existing as of the adoption date. However, the Company will evaluate the fair value measurement election with respect to financial instruments the Company enters into in the future. 13 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements -- an amendment of ARB No. 51 ("SFAS 160"). SFAS 160 requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements within equity, but separate from the parent's equity. It also requires once a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 will be effective beginning January 1, 2009. Management anticipates that the adoption of SFAS 160 will not have a material impact on the Company's financial statements. In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133" ("SFAS 161"), which modifies and expands the disclosure requirements for derivative instruments and hedging activities. SFAS 161 requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation and requires quantitative disclosures about fair value amounts and gains and losses on derivative instruments. It also requires disclosures about credit-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of SFAS 161 is not expected to have a material impact on our consolidated financial condition or results of operations. In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets. FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS 142, Goodwill and Other Intangible Assets, and adds certain disclosures for an entity's accounting policy of the treatment of the costs, period of extension, and total costs incurred. FSP 143-3 must be applied prospectively to intangible assets acquired after January 1, 2009. The Company is currently evaluating the impact that FSP 142-3 will have on its financial position or results of operations. In May 2008, the Financial Accounting Standards Board (the "FASB") issued FAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("FAS 162"). This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in accordance with GAAP. With the issuance of this statement, the FASB concluded that the GAAP hierarchy should be directed toward the entity and not its auditor, and reside in the accounting literature established by the FASB as opposed to the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." This statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The adoption of FAS 162 is not expected to have a material impact on the Company's results from operations or financial position. 14 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 NOTE 2 - DISCONTINUED OPERATIONS On November 21, 2007, iVoice completed the distribution of Thomas Pharmaceuticals through the issuance of one share of Thomas Pharmaceuticals Class A common stock for every share of iVoice Class A common stock held on the record date of November 14, 2007. The summarized results of operations for the nine months ended September 30, 2007 are as follows: Revenues $ 26,707 Cost of revenues 90,976 ----------- Gross profit (64,269) Operating expenses 577,464 ----------- Operating loss (641,733) Other expense 111,505 Provision for income taxes -- ----------- Net loss $ (753,238) =========== NOTE 3 - FAIR VALUE MEASUREMENTS On January 1, 2008, the Company adopted SFAS No. 157 "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, provides a consistent framework for measuring fair value under Generally Accepted Accounting Principles and expands fair value financial statement disclosure requirements. SFAS 157's valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. SFAS 157 classifies these inputs into the following hierarchy: Level 1 Inputs- Quoted prices for identical instruments in active markets. Level 2 Inputs- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 Inputs- Instruments with primarily unobservable value drivers. The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2008. 15 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 Assets Level I Level II Level III Total ---------- ---------- ---------- ---------- Marketable securities $5,900,990 $ -- $ -- $5,900,990 Securites available for sale 709,083 -- -- 709,083 Notes receivable -- 249,037 -- 249,037 Convertible debentures -- 908,813 -- 908,813 ---------- ---------- ---------- ---------- Total Assets $6,610,073 $1,157,850 $ -- $7,767,923 ========== ========== ========== ========== Short term loans $ -- $3,913,032 $ -- $3,913,032 Convertible debentures -- 1,063,581 -- 1,063,581 Derivative liabilities -- 1,824,195 -- 1,824,195 ---------- ---------- ---------- ---------- Total Liabilities $ -- $6,800,808 $ -- $6,800,808 ========== ========== ========== ========== NOTE 4 - MARKETABLE SECURITIES At various times since 2004, the Company had deposited proceeds from debt financing into short-term securities with our Investment broker. During 2006 and 2007, these short-term securities were exchanged for auction rate preferred shares ("ARPS") which provided greater returns on our investments. ARPS have long-term maturity with the interest rate being reset through Dutch auctions that are typically held every 7, 28 or 35 days. The securities trade at par and are callable at par on any interest payment date at the option of the issuer. Interest is paid at the end of each auction period. Our auction rate securities are all AAA rated. The Company had marketable securities at September 30, 2008 and December 31, 2007 of $5,900,990 and $10,814,954, respectively. NOTE 5 - SECURITIES AVAILABLE FOR SALE On January 6, 2006 and April 27, 2006, iVoice, Inc. purchased an aggregate of $550,000 of Thomas NJ Series B Convertible Preferred Stock. The initial value of each share is $1,000 and is subject to adjustment for stock dividends, combinations, splits, recapitalizations and the like. The holders of these shares are entitled to receive dividends at a rate of 10% per annum based on the initial value of the shares outstanding. Upon liquidation, the holders of these shares will receive up to 125% of the initial value of the shares plus accumulated and unpaid dividends, but following the distribution to any senior debt or senior equities. The holders of these shares may convert their shares into Class A Common Stock at the price per share equal to eighty percent (80%) of the lowest closing bid price of the Common Stock for the five (5) trading days immediately preceding the conversion date, but cannot be converted into more than 9.99% of the total Class A Common Stock at that time of conversion. The holders of these shares shall have one vote for each shares of Class A Common Stock into which each shares of Series B Preferred Shares could be converted assuming a conversion price of eighty percent (80%) of the lowest closing bid price of the Common Stock for the five (5) trading days immediately preceding the record date, but are limited to voting rights to no more than 9.99% of the total voting rights of the aggregate of the Series B Preferred Stock, Class A Common Stock and Class B Common Stock shareholders. The accounts are valued at the initial stated value 16 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 plus earned dividends. At September 30, 2008 and December 31, 2007, the total balance is $693,552 and $652,264, respectively. On February 13, 2007, the Company received 4,000,000 shares for Deep Field Technologies Class A Common Stock as compensation pursuant to the Consulting Agreement with Deep Field Technologies, valued at $1,120,000. The Company provided "general corporate finance advisory and other similar consulting services" for a period of six (6) months from the date of the agreement. At September 30, 2008, the book value of these securities is $1,120,000 and the market value is $3,600. The cumulative unrealized loss of $1,116,400 is included in the Other Comprehensive Income (Loss). During the nine months ended September 30, 2008, the Company received an aggregate of 99,600,000 shares of Thomas Pharmaceuticals, Ltd. Class A Common Stock upon conversion of $8,928 of 10% Secured Convertible Debentures receivable dated January 6, 2006. During the nine months ended September 30, 2008, the Company sold 71,240,000 shares for a net proceeds of $13,304. The book value of the remaining shares is $2,269 and the market value is $2,836. The unrealized gain of $567 is included in the Other Comprehensive Income (Loss). On March 10, 2008 and May 21, 2008, the Company received an aggregate of 151,000,000 shares of SpeechSwitch, Inc. Class A Common Stock upon conversion of $12,080 of Convertible Promissory Note receivable dated March 5, 2008. During the nine months ended September 30, 2008, the Company sold 68,304,970 shares for a net proceeds of $8,149. The book value of the remaining shares is $6,615 and the market value is $8,270 at September 30, 2008. The unrealized gain of $1,655 is included in the Other Comprehensive Income (Loss). On March 10, 2008 and March 18, 2008, the Company received an aggregate of 42,000,000 shares of iVoice Technology, Inc. Class A Common Stock upon conversion of $13,440 of Convertible Promissory Note receivable dated March 5, 2008. During the nine months ended September 30, 2008, the Company sold 1,556,700 shares for a net proceeds of $910. The book value of the remaining shares is $12,942 and the market value is $12,133 at September 30, 2008. The unrealized loss of $809 is included in the Other Comprehensive Income (Loss). Cash receipts from the sales of the securities are deposited in short term money market funds at our broker. Periodically these funds are transferred to our operating cash account. At September 30, 2008, the unremitted balance in the money market fund at our broker was $1,634. As of September 30, 2008, the aggregate book value of these securities was $1,837,012 before elimination, the market value was $709,083 and the cumulative unrealized loss was $1,114,987. At September 30, 2008, the balance of the iVoice Technology securities are eliminated in consolidation. NOTE 6 -PROMISSORY NOTES RECEIVABLE On February 4, 2008, iVoice Technology advanced $30,000 to Atire Technologies, Inc., an acquisition candidate, in the form of a Promissory Note, due February 4, 2010, at an interest of 8% per annum. The terms of the note provided deferred payments of interest only starting on July 4, 17 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 2008 and principal and interest payments starting on October 4, 2008. As of September 30, 2008, the remaining principal balance due on the note is $28,290 plus accrued interest of $592. On March 5, 2008, the Company converted its outstanding accounts due from SpeechSwitch, Inc. for unpaid administrative services in the amount of $50,652 into a convertible promissory note at the rate of prime plus 1 percent per annum (6% at September 30, 2008). During the nine months ended September 30, 2008, additional amounts were added to this note based on any unpaid administrative service fees and will accrue interest at the above specified rate from date of advance until paid. The principal and interest shall be due and payable as follows: (a) interest shall accrue monthly on the unpaid balance and shall be paid annually, and (b) principal shall be payable on demand. On March 10, 2008 and May 21, 2008, the Company received an aggregate of 151,000,000 shares of SpeechSwitch, Inc. Class A Common Stock upon conversion of $12,080 of Promissory Notes Receivable. At September 30, 2008, the balance of the note is $69,976, which included accrued interest of $1,857. On June 12, 2008, the Company converted its outstanding accounts due from Thomas Pharmaceuticals, Ltd. for unpaid administrative services in the amount of $47,302 into a convertible promissory note at the rate of prime plus 1 percent per annum (6% at September 30, 2008). Additional amounts may be added to this note based on any unpaid administrative service fees and will accrue interest at the above specified rate from date of advance until paid. The principal and interest shall be due and payable as follows: (a) interest shall accrue monthly on the unpaid balance and shall be paid annually, and (b) principal shall be payable on demand. At September 30, 2008, the balance of the note is $60,077, which included accrued interest of $775. On June 13, 2008, the Company invested $77,250 in Small Cap Advisor, Inc, a wholly owned subsidiary of Thomas Pharmaceuticals, Ltd., in the form of a Promissory Note, at an interest of prime plus 1 percent per annum (6% at September 30, 2008). Additional amounts may be added to this note based on any unpaid administrative service fees and will accrue interest at the above specified rate from date of advance until paid. The principal and interest shall be due and payable as follows: (a) interest shall accrue monthly on the unpaid balance and shall be paid annually, and (b) principal shall be payable on demand. As of September 30, 2008, the balance due on the note is $90,694, which included accrued interest of $1,444. The amounts due at September 30, 2008 are as follows: Atire Technologies, Inc. $ 28,290 SpeechSwitch, Inc. 69,976 Thomas Pharmaceuticals, Ltd. 60,077 Small Cap Advisors, Inc. 90,694 --------- Total amounts due 249,037 Less long term portion (7,179) --------- Total current portion $ 241,858 ========= 18 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 NOTE 7 - CONVERTIBLE DEBENTURES RECEIVABLE During 2006 and 2007, the Company purchased an aggregate of $710,000 of Thomas NJ Secured Convertible Debentures. The holders of these debentures are entitled to receive interest of 10%, compounded quarterly. Thomas NJ can redeem a portion or all amounts outstanding under the Convertible Debentures at any time upon thirty (30) business days advanced written notice. The redemption price shall be equal to one hundred twenty-five percent (125%) multiplied by the portion of the principal sum being redeemed, plus any accrued and unpaid interest. The Company may, at its discretion, convert the outstanding principal and accrued interest, in whole or in part, into a number of shares of Thomas Pharmaceuticals Class A Common Stock at the price per share equal to eighty percent (80%) of the lowest closing bid price of the Common Stock for the five (5) trading days immediately preceding the conversion date, but they cannot be converted into more than 9.99% of the total Class A Common Stock at that time of conversion. During the nine months ended September 30, 2008, the Company converted $8,928 of principal into 99,600,000 shares of Thomas Pharmaceuticals Class A Common Stock at a conversion price of $.00008. The debentures are valued at the principal value plus accumulated interest. At September 30, 2008, the total balance is $908,813, which includes accrued interest. NOTE 8 - CONSOLIDATION OF MAJORITY OWNED SUBSIDIARY AND MINORITY INTEREST On March 12, 2008, the Company acquired 1,444.44 shares of iVoice Technology's Series A 10% Convertible Preferred Stock for $1,444,444. The holder of each share of Series A Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. In addition, the holders of the Series A Preferred Stock shall not have in the aggregate more than seventy percent (70%) of the total votes of all classes of voting stock of the Corporation that would vote at a meeting of shareholders. Based on this voting formula, it was determined that iVoice, Inc. has voting rights equal to 70% of the voting stock of iVoice Technology and as such, according to APB Opinion No. 18 "THE EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS IN COMMON STOCK", iVoice, Inc. is required to consolidate the results of operations of iVoice Technology with those of iVoice and its other subsidiary. iVoice Technology had a deficit net worth prior to consolidation with iVoice and as such, iVoice was required to record a discount on investment in subsidiary in the amount of $1,792,325 in consolidation. iVoice is also required to recognize the minority shareholders' interest in net income equal to 30% of the net profit of iVoice Technology. For the nine months ended September 30, 2008, iVoice Technology reported an accumulated net loss of $145,759 and as such, there is no minority shareholders' interest in net income for the period. NOTE 9 - SHORT TERM LOANS PAYABLE On March 7, 2008 and May 8, 2008, the Company received an aggregate of $5,660,000 from two Express Creditline Loans from Smith Barney that are collateralized by the proceeds available from the 19 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 sales of the auction rate preferred shares ("ARPS") discussed in Note 3. The interest rate charged on the loan is tied to the dividend rates earned on the ARPSs. When an ARPS is sold, a portion of the proceeds is applied to pay down the short term loan and the balance is forwarded to the Company. During the nine months ended September 30, 2008, $5,275,000 of the ARPSs were sold of which approximately $1,752,000 was applied to the outstanding loan and accrued interest and the balance was remitted to the Company. As of September 30, 2008 the remaining balance of the loan is $3,913,032. NOTE 10 - CONVERTIBLE DEBENTURES PAYABLE On May 11, 2006 the Company issued to YA Global a $5,544,110 secured convertible debenture due on May 11, 2008 bearing interest of 7.5% (see Note 15). This debenture replaced a promissory note with a principal balance of $5,000,000 and $544,110 of accrued interest due to YA Global from June 15, 2005. During the period of January 1, 2008 until May 12, 2008, we issued 882,165,877 shares of Class A common stock, with a value of $529,640, as repayment of $401,700 of principal. The difference of $127,940 is charged to the Statement of Operations as beneficial interest. On May 12, 2008, the remaining principal balance of $4,796,510 was repaid in cash from the proceeds of the Smith Barney short term loans and sales of the ARPSs discussed above. As of September 30, 2008, the unpaid balance of accrued interest was $799,139. On May 25, 2006, the Company issued to YA Global a $1,250,000 secured convertible debenture due on May 25, 2008 bearing interest of 7.5% per annum pursuant to a Securities Purchase Agreement entered into between us and YA Global. On February 21, 2008, this debenture was amended to extend the maturity date until May 25, 2010 and to raise the interest rate to 15% per annum. During the nine months ended September 30, 2008, we issued 923,333,332 shares of Class A common stock, with a value of $249,111, as repayment of $83,100 of principal. The difference of $166,011 is charged to the Statement of Operations as beneficial interest. As of September 30, 2008, the unpaid principal balance on the secured convertible debenture is $1,166,900 plus accrued interest of $274,185. On October 31, 2007, the Company executed a waiver agreement with YA Global that provides that if the Company reduces the debt to $141,523 that YA Global will waive its rights to any future payments and will consider the account paid in full. This waiver agreement was executed to compensate the Company for losses incurred on the sales of the Corporate Strategies investments. On April 16, 2007, iVoice Technology issued a Secured Convertible Debenture dated March 30, 2007 to YA Global Investments for the sum of $700,000 in exchange for a previously issued note payable for the same amount. The Debenture has a term of three years, and pays interest at the rate of 5% per annum. YA Global has the right to convert a portion or the entire outstanding principal into iVoice Technology's Class A Common Stock at a Conversion Price equal to eighty percent (80%) of the lowest closing Bid Price of the Common Stock during the five (5) trading days immediately preceding the Conversion Date. YA Global may not convert the Debenture into shares of Class A Common Stock if such conversion would result in YA Global beneficially owning in excess of 4.9% of the then issued and outstanding shares of Class A Common Stock. On March 14, 2008, iVoice Technology and YA Global Investments agreed that iVoice Technology would redeem all amounts outstanding under the Debenture, except for the $186,557 of the outstanding interest remaining on the original notes payable that were originally exchanged for the Debenture. The amount redeemed was 20 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 $691,021, consisting of the remaining balance of the Debenture of $572,815, accrued interest of $32,284, and a redemption premium of $85,922. The Debenture was amended to change amount to $186,557 with a due date of March 14, 2009. The Debenture shall accrue interest at the rate of 15% per annum, and shall be convertible at a conversion price equal to 70% of the lowest closing bid price of iVoice Technology's common stock during the 30 trading days immediately preceding the conversion date. No conversions can be made prior to November 1, 2008. As of September 30, 2008, the outstanding balance on the Convertible Debenture was $186,557, plus accrued interest of $15,333. The aggregate principal value of the remaining debentures at September 30, 2008 is $1,353,457. This amount is shown on the balance sheet net of the unamortized portion of the discount on conversion of $289,876. This discount is being amortized over the life of the debenture and is being amortized as debt discount on the statement of operations. NOTE 11 - DERIVATIVE LIABILITY In accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" and EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock", the conversion feature associated with the YA Global Secured Convertible Debentures represents embedded derivatives. As such, the Company had recognized embedded derivatives in the amount of $6,908,078 as a derivative liability in the accompanying condensed consolidated balance sheet, and it is now measured at its estimated fair value of $1,657,821. The estimated fair value of the embedded derivative has been calculated based on a Black-Scholes pricing model using the following assumptions: At Issue At 9/30/08 -------- ---------- Fair market value of stock $0.096 - $0.125 $ 0.00010 Exercise price $0.086 - $0.113 $ 0.00007 Dividend yield 0.00% 0.00% Risk free interest rate 5.47% 5.47% Expected volatility 195.36% - 196.54% 310.52% Expected life 2.00 years 3.00 years On the iVoice Technology debentures, iVoice Technology determined that the conversion feature met the criteria of an embedded derivative, and therefore the conversion feature of their Debenture needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 5.6%; expected dividend yield: 0%: expected life: 3 years; and volatility: 383.29%. The conversion feature of the debenture was recorded as a derivative liability. As such, in March 2007 the Company recorded the conversion options as a liability, recorded a debt discount of $700,000, and charged Loss on Valuation of Derivative for $492,403, resulting primarily from calculation of the conversion price. On March 14, 2008, a substantial portion of this debenture was redeemed and as of September 30, 2008, the estimated fair value is $166,374. 21 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 Changes in the fair value of the embedded derivatives are calculated at each reporting period and recorded in gain on revaluation of derivatives in the condensed consolidated statements of operations. During the nine months ended September 30, 2008, there was a change in the fair value of the embedded derivatives, which resulted in a gain of $3,690,731. In accordance with SFAS 133, SFAS 150, "Accounting for Certain Financials Instruments With Characteristics of Both Liabilities and Equity" and EITF 00-19, the fair market value of the derivatives and warrants are bifurcated from the convertible debentures as a debt discount. The debt discount of is being amortized over the life of the convertible debentures. Amortization expense on the debt discount on the convertible debentures for the nine months ended September 30, 2008 was $1,840,677, which includes the acceleration of the debt discount on the redeemed debenture in iVoice and iVoice Technology. NOTE 12 - RELATED PARTY ACCOUNTS From time to time, the Company has entered into various loan agreements and employment agreements with Jerome R. Mahoney, President and Chief Executive Officer of the Company. As of September 30, 2008, the balances due to Mr. Mahoney where: a) loan of $2,295; b) accrued interest of $5,191; and c) deferred compensation is $255,138. The loan accrues interest at 9.5% per year on the unpaid balance. Balances due to Mr. Mahoney are convertible into either (i) one Class B common stock share of iVoice, Inc., $.01 par value, for each dollar owed, or (ii) the number of Class A common stock shares of iVoice, Inc. calculated by dividing (x) the sum of the principal and interest that the Note holder has decided to prepay by (y) fifty percent (50%) of the lowest issue price of Series A common stock since the first advance of funds under this Note, whichever the Note holder chooses, or (iii) payment of the principal of this Note, before any repayment of interest. The Board of Directors of the Company maintains control over the issuance of shares and may decline the request for conversion of the repayment into shares of the Company. In August 2005, iVoice Technology had assumed an outstanding promissory demand note in the amount of $190,000 payable to Jerome Mahoney, then, the Non-Executive Chairman of the Board of iVoice Technology. The note bears interest at the rate of prime plus 2.0% per annum (7% at September 30, 2008) on the unpaid balance until paid. Under the terms of the Promissory Note, at the option of the Note holder, principal and interest can be converted into either (i) one share of Class B Common Stock of iVoice Technology, Inc., par value $.01, for each dollar owed, (ii) the number of shares of Class A Common Stock of iVoice Technology, Inc. calculated by dividing (x) the sum of the principal and interest that the Note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of Class A Common Stock since the first advance of funds under this Note, or (iii) payment of the principal of this Note, before any repayment of interest. The Board of Directors of iVoice Technology maintains control over the issuance of shares and may decline the request for conversion of the repayment into shares of the iVoice Technology. As of September 30, 2008, the outstanding balance was $141,708, plus accrued interest of $79,867. 22 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 On August 1, 2004, iVoice Technology entered into a five-year employment agreement with Jerome Mahoney to serve as Non-Executive Chairman of the Board of Directors of iVoice Technology with a base salary of $85,000 for the first year with annual increases based on the Consumer Price Index. A portion of Mr. Mahoney's compensation shall be deferred until such time that the Board of Directors of iVoice Technology determines that it has sufficient financial resources to pay his compensation in cash. As of September 30, 2008, iVoice Technology has recorded $186,943 of deferred compensation due to Mr. Mahoney. The Board of iVoice Technology has the option to pay Mr. Mahoney's compensation in the form of Class B Common Stock. Pursuant to the terms of the Class B Common Stock, a holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of Class B Common Stock being converted by a 20% discount of the lowest price for which the Company had ever issued its Class A Common Stock. On August 30, 2006 Mr. Mahoney was elected to the position of President and Chief Executive Officer of iVoice Technology and no longer serves as Non-Executive Chairman of the Board of iVoice Technology. On March 5, 2008, the Company converted its outstanding accounts due from iVoice Technology, Inc. for unpaid administrative services in the amount of $50,652 into a convertible promissory note at the rate of prime plus 1 percent per annum (6% at September 30, 2008). During the nine months ended September 30, 2008 an additional $29,547 was added to this note based on any unpaid administrative services, and will accrue interest at the above specified rate from date of advance until paid. The principal and interest shall be due and payable as follows: (a) interest shall accrue monthly on the unpaid balance and shall be paid annually, and (b) principal shall be payable on demand. On March 10, 2008 and March 18, 2008, the Company received an aggregate of 42,000,000 shares of iVoice Technology, Inc. Class A Common Stock upon conversion of $13,440 of Promissory Notes Receivable. At September 30, 2008, the balance of the note is $68,501 which includes accrued interest of $1,742. This transaction is eliminated in consolidation. On March 11, 2008, the Company entered into a Stock Purchase Agreement with iVoice Technology, Inc. for the purchase of 1,444.44 shares of iVoice Technology's Series A 10% Secured Convertible Preferred Stock valued at $1,444,444. The holders of the stock are entitled to receive dividends at a rate 10% per annum and will have voting rights for each share of Common Stock that the Series A Preferred Stock would be converted into using the applicable conversion price. The holders of the Series A Preferred Stock shall not have in the aggregate more than 70% of the total votes of all classes of voting stock. The Company also received $144,444 in funding fees on the transaction. This transaction is eliminated in consolidation. On March 11, 2008, the Company received a warrant to purchase common stock of iVoice Technology, Inc. pursuant to the terms of the Stock Purchase Agreement. The warrant provides that the Company can purchase shares of Class A common stock at a price calculated by dividing $144,444 by the lowest price that iVoice Technology has ever issued its Class A common stock, provided, that in no event shall the holder be entitled to exercise this Warrant for a number of shares which, upon giving effect to such exercise, would cause the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates to exceed 9.99% of the outstanding shares of the Common Stock following such exercise. 23 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 Mr. Mahoney has a consulting agreement with B Green Innovations for annual compensation of $24,000 and upon every annual anniversary thereafter, at the rate based on the increase in the Consumer Price Index for All Urban Consumers (New York-Northern N.J.-Long Island). Mr. Mahoney agreed to accept compensation pursuant to this Consulting Agreement in the form of Class B Common Stock, par value $.01 per share, in lieu of cash, for as long as the Board of Directors decides in its sole discretion that the Company does not have the financial resources to pay the Consultant in cash. The number of Class B Common Stock shares to be issued to the Consultant pursuant to this Paragraph 2 shall be equal to one share of Class B common stock for every dollar of compensation due and owing the Consultant. As of September 30, 2008, Mr. Mahoney is due $10,000, and no shares have been issued. NOTE 13 - COMMON STOCK Pursuant to the Company's certificate of incorporation, as amended, iVoice, Inc. is authorized to issue 1,000,000 shares of preferred stock, par value of $1.00 per share, 10,000,000,000 shares of Class A common stock, no par value per share, and 50,000,000 shares of Class B common stock, par value $.01 per share. a) Preferred Stock - ------------------ Preferred Stock consists of 1,000,000 shares of authorized preferred stock with $1.00 par value. As of September 30, 2008, no shares were issued or outstanding. b) Class A Common Stock - ----------------------- Class A common stock consists of 10,000,000,000 shares of authorized common stock with no par value. As of September 30, 2008, 2,602,173,527 shares were issued and 2,602,170,527 shares were outstanding. Each holder of Class A common stock is entitled to one vote for each share held of record. Holders of our Class A common stock have no preemptive, subscription, conversion, or redemption rights. Upon liquidation, dissolution or winding-up, the holders of Class A common stock are entitled to receive our net assets pro rata. Each holder of Class A common stock is entitled to receive ratably any dividends declared by our board of directors out of funds legally available for the payment of dividends. The Company has not paid any dividends on its common stock and management does not contemplate doing so in the foreseeable future. The Company anticipates that any earnings generated from operations will be used to finance growth. For the nine months ended September 30, 2008, the Company had the following transactions in its Class A Common Stock: 1) The Company issued 1,805,499,209 shares of Class A common stock to YA Global, valued at $778,751 as repayment of principal on an outstanding convertible debenture valued at $484,800. 2) The Company issued 316,000,000 shares of Class A common stock upon conversion of 40,380 shares of Class B common stock, pursuant to the provisions of Class B common stock. 24 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 3) The Company issued 60,000,000 shares of Class A common stock to Kenneth Glynn, valued at $6,000 for legal services related to the prosecution of the portfolio of patents. c) Class B Common Stock - ----------------------- Class B Common Stock consists of 50,000,000 shares of authorized common stock with $.01 par value. Each share of Class B common stock is convertible into Class A common stock calculated by dividing the number of Class B shares being converted by fifty percent (50%) of the lowest price that the Company had previously issued its Class A common stock since the Class B shares were issued. Each holder of Class B common stock has voting rights equal to the number of Class A shares that would be issued upon the conversion of the Class B shares, had all of the outstanding Class B shares been converted on the record date used for purposes of determining which shareholders would vote. Holders of Class B common stock are entitled to receive dividends in the same proportion as the Class B common stock conversion and voting rights have to Class A common stock. Jerome R. Mahoney is the sole owner of the Class B common stock. As of September 30, 2008, there are 2,204,875 shares issued and 1,512,104 shares outstanding. Pursuant to the conversion terms of the Class B Common stock, on September 30, 2008, the 1,512,104 outstanding shares of Class B common stock are convertible into 33,602,311,111 shares of Class A common stock. d) Treasury Stock - ----------------- On February 11, 2002, the Company repurchased 600,000 shares of Class A common stock from a previous employee for $28,800. Following the reverse stock split on April 27, 2006, the shares were converted into 3,000 shares of Class A common stock. NOTE 14 - GOING CONCERN The Company has incurred substantial accumulated deficits, has an obligation to deliver an indeterminable amount of common stock due on derivative liabilities and has completed the process of spinning out the five operating subsidiaries. These issues raise substantial doubt about the Company's ability to continue as a going concern. Therefore, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn, is dependent upon the Company's ability to raise capital and/or generate positive cash flow from operations. 25 IVOICE, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2008 AND 2007 Since the spinoff of the three operating subsidiaries in 2005, the Company has transitioned itself into a company focused on the development and licensing of proprietary technologies. Following the sales of patents to Lamson Holdings LLC, the Company has 9 remaining patent applications, which have been awarded or are pending. These applications include various versions of the "Wirelessly Loaded Speaking Medicine Container", which is also filed internationally, the "Voice Activated Voice Operated Copier", the "Voice Activated Voice Operational Universal Remote Control", "Wireless Methodology for Talking Consumer Products" which is also filed internationally, "Product Identifier and Receive Spoken Instructions" and "Traffic Signal System with Countdown Signaling with Advertising and/or News Message". The Company also continues to search for potential merger candidates with or without compatible technology and products, which management feels may make financing more appealing to potential investors. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. NOTE 15 - SUBSEQUENT EVENTS During October 2008, the balance ($5.9 million) of the Auction Rate Securities were converted into cash and the proceeds were used to pay down the $3.9 million of short term debt and the balance of the proceeds were transferred into interest bearing accounts at the Company's bank. Management is in discussions with the Company's bank to move the funds into accounts that are highly liquid and that can provide the Company's with a reasonable rate of return. 26 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Some information included in this Quarterly Report on Form 10-Q and other materials filed by us with the Securities and Exchange Commission, or the SEC, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on behalf of us. For a discussion of material risks and uncertainties that the Company faces, see the discussion in the Form 10-KSB for the fiscal year ended December 31, 2007 entitled "Risk Factors". This discussion and analysis of financial condition and plan of operations should be read in conjunction with our Condensed Consolidated Financial Statements included herein. OVERVIEW - -------- Since 2005, the Company has transitioned itself into a company focused on the development and licensing of proprietary technologies. As an example, in March 2006 we sold four of our voice activated product and item locator patents to Lamson Holdings LLC for net proceeds of $136,000 and on December 6, 2007 we were issued Patent 7,305,344 for a patent for Methodology for Talking Consumer Products with Voice Instructions via Wireless Technology. On January 8, 2008, the Company entered into a Technology Transfer Agreement with GlynnTech to market its recently issued patent. GlynnTech will provide assistance in developing a DVD of the patents capabilities. GlynnTech will also be obligated to solicit licensing opportunities and/or acquisition of the patent. The Company also continues to search for potential merger candidates with or without compatible technology and products, which management feels may make financing more appealing to potential investors. On March 12, 2008, the Company acquired 1,444.44 shares of iVoice Technology, Inc.'s Series A 10% Convertible Preferred Stock for $1,444,444. iVoice Technology, Inc. will use the proceeds from the sale of the stock to fund the repayment of convertible debt to YA Global Investments and to fund their acquisition programs. The holder of each share of iVoice Technology's Series A Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. In addition, the holders of the Series A Preferred Stock shall not have in the aggregate more than seventy percent (70%) of the total votes of all classes of voting stock of the Corporation that would vote at a meeting of shareholders. Based on this voting formula, it was determined that iVoice, Inc. has voting rights equal to 70% of the voting stock of iVoice Technology and as such, according to APB Opinion No. 18 "THE EQUITY METHOD OF ACCOUNTING FOR INVESTMENTS IN COMMON STOCK", iVoice, Inc. is required to consolidate the results of operations of iVoice Technology with those of iVoice and its other subsidiary as of September 30, 2008. 27 RESULTS OF OPERATIONS - --------------------- NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2007 Total sales for the nine months ended September 30, 2008 and 2007 were $125,152 and $1,233,602, respectively. Sales in 2008 include $35,164 of maintenance revenues of iVoice Technology and $89,988 of administrative services agreements. Sales in 2007 include $1,120,000 of consulting revenues earned on the Deep Field agreement and revenues from the administrative services agreements of $113,602. Total operating expenses for the nine months ended September 30, 2008 and 2007, were $1,101,663 and $702,631, respectively, for an increase of $399,032. Of these increases, $361,385 is attributable to the expenses of iVoice Technology and the remaining increase of $37,647 is primarily comprised of increase in professional fees of $89,299 and increases in overhead and office expenses of the parent of $8,349. These increases are offset by decreases in Amortization of finance costs and depreciation expense of $60,001. Total other income (expense) for the nine months ended September 30, 2008 was an income of $1,485,776. This total was primarily comprised of $3,690,731 gain on revaluation of the derivatives and $461,320 of interest income and other income which is offset by $1,840,677 amortization of the discount on debt and $825,598 of accrued interest expense on the YA Global notes and other debt . Total other income (expense) for the nine months ended September 30, 2007 was an expense of $1,645,390. This total was primarily comprised of $2,858,845 amortization of the discount on debt, $387,441 of accrued interest expense on the YA Global notes and other debt and $225,113 loss on sales of securities available for sale. These are offset by $1,293,563 gain on revaluation of the derivatives and $532,446 of interest income on the cash accounts and promissory notes receivable. Net income from continuing operations for the nine months ending September 30, 2008 was $509,265. The net loss from continuing operations for the nine months ending September 30, 2007 was $1,114,419. The increase in net income of $1,623,684 was primarily due to the increased gain on revaluation of derivatives, on the repayment of the underlying debt, and the reduced amortization of the discount on debt offset by lower sales, increased operating expenses and increased interest expenses, as the result of the factors discussed above. Net loss from discontinued operations for the nine months ended September 30, 2007 was $753,238. This operation had been experiencing reduced product sales and had curtailed spending to better manage their available resources. As required by APB Opinion No. 18, the Company is required to record minority shareholders' interest in net income of iVoice Technology. For the nine months ended September 30, 2008, iVoice Technology reported a net loss of $145,759 and as such, the Company recorded no minority shareholders' interest for the period. The total net income for the nine months ended September 30, 2008 was $509,265 as compared to the net loss of $1,867,657 for the nine months ended September 30, 2007. The increase in net income of $2,376,922 was the result of the factors discussed above. 28 THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2007 Total sales for the three months ended September 30, 2008 and 2007 were $46,448 and $317,825, respectively. Sales in 2008 include $9,786 of maintenance revenues of iVoice Technology and $36,662 of administrative services agreements. Sales in 2007 include $280,000 of consulting revenues earned on the Deep Field agreement and revenues from the administrative services agreements of $37,825. Total operating expenses for the three months ended September 30, 2008 and 2007, were $325,601 and $227,148, respectively, for an increase of $98,453. Of these increases, $128,405 is attributable to the expenses of iVoice Technology and an increase in professional fees of $15,853. These increases are offset by net decreases in Amortization of finance costs and depreciation expense of $41,458 and decreases in overhead and office expenses of the parent of $4,347. Total other income (expense) for the three months ended September 30, 2008 was an expense of $16,983. This total was primarily comprised of $117,618 of accrued interest expense on the YA Global notes and other debt and $81,757 amortization of the discount on debt which are offset by $65,927 gain on revaluation of the derivatives and $116,465 of interest and other income. Total other income (expense) for the three months ended September 30, 2007 was an expense of $934,173. This total was primarily comprised of $866,435 amortization of the discount on debt, $128,900 of accrued interest expense on the YA Global notes and other debt and $139,879 loss on sales of securities available for sale. These are offset by and $182,607 of interest income on the cash accounts and convertible debentures receivable and.$18,434 gain on revaluation of the derivatives. Net loss from continuing operations for the three months ending September 30, 2008 and 2007 was $296,136 and $843,496, respectively. The decrease in net loss of $547,360 was primarily due to the decrease in amortization of the discount on debt and increased gain on revaluation of derivatives, on the repayment of the underlying debt, and offset by lower sales and increased operating expenses, as the result of the factors discussed above. Net loss from discontinued operations for the three months ended September 30, 2007 was $132,086. This operation had been experiencing reduced product sales and had curtailed spending to better manage their available resources. As required by APB Opinion No. 18, the Company is required to record minority shareholders' interest in net income of iVoice Technology. For the three months ended September 30, 2008, iVoice Technology reported a net loss of $182,062 and as such, the Company recorded a reversal of prior period minority shareholders' interest income for the current period. The total net loss for the three months ended September 30, 2008 and 2007, was $284,945 and $975,582, respectively. The decrease in net loss of $690,637 was the result of the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- We are currently seeking additional operating income opportunities through potential acquisitions or investments. Such acquisitions or investments may consume cash reserves or require additional cash or equity. Our working capital and additional funding requirements will depend upon numerous factors, including: (i) strategic acquisitions or investments; (ii) an increase to current Company personnel; (iii) the level of resources that we devote to sales and marketing capabilities; (iv) technological advances; and (v) the activities of competitors. 29 During the year ended December 31, 2007, we had incurred net losses from continuing operations of $2,383,268 and we used $174,729 is cash for operations. These matters raise doubt about our ability to generate cash flows internally through our current operating activities sufficient enough that its existence can be sustained without the need for external financing. Our primary need for cash is to fund our ongoing operations until such time that we can identify sales opportunities for new products or identify strategic acquisitions that generate enough revenue to fund operations. There can be no assurance as to the receipt or timing of revenues from operations. We anticipate that our operations will require at least $700,000 for the next 12 months. These expenses are anticipated to consist of the following: payroll and benefits of $400,000, occupancy costs of $135,000, professional fees of $60,000, business insurance of $70,000 and miscellaneous administrative expenses of $35,000. We expect to fund these obligations from cash on hand or otherwise from the sale of equity or debt securities. We believe that we have sufficient funds on-hand to fund our operations for at least 12 months. At various times since 2004, the Company had deposited proceeds from debt financing into short-term securities with our Investment broker. During 2006 and 2007, these short-term securities were exchanged for auction rate preferred shares ("ARPS") which provided greater returns on our investments. ARPS have long-term maturity with the interest rate being reset through Dutch auctions that are typically held every 7, 28 or 35 days. The securities trade at par and are callable at par on any interest payment date at the option of the issuer. Interest is paid at the end of each auction period. Our auction rate securities are all AAA rated. Until February 2008, the auction rate securities market was highly liquid. Starting the week of February 11, 2008, a substantial number of auctions "failed," meaning that there was not enough demand to sell the entire issue at auction. The immediate effect of a failed auction is that holders cannot sell the securities and the interest or dividend rate on the security generally resets to a "penalty" rate. In the case of a failed auction, the auction rate security is deemed not currently liquid and in the event we need to access these funds, we will not be able to do so without a loss of principal, unless a future auction on these investments is successful. We do not intend to hold these securities to maturity, but rather to use the interest rate reset feature to provide the opportunity to maximize returns while preserving liquidity. Because of the failed Dutch auctions, the Company was unable to sell these securities to meet current operating obligations. With the assistance of Smith Barney, the Company was able to obtain an Express Creditline Loan which is collateralized by the proceeds available from the sales of the auction rate securities. On March 7, 2008 and May 8, 2008, the Company received $5,660,000 from the Express Creditline account and deposited the funds in our operating bank accounts to ensure current liquidity. During the nine months ended September 30, 2008, $5,275,000 of the ARPSs were sold of which approximately $1,752,000 was applied to the outstanding loan and accrued interest and the balance was remitted to the Company. During the nine months ended September 30, 2008, the Company had a net increase in cash of $3,133,533. The Company's principal sources and uses of funds in the nine months ended September 30, 2008 were as follows: CASH FLOWS FROM OPERATING ACTIVITIES. The Company used $209,129 in cash from continuing operations in the nine months ended September 30, 2008, an increase of $112,498 compared to $96,631 in cash used for continuing operations in the nine months ending September 30, 2007. This increase was primarily attributed to the increase in cash operating expenses offset by favorable changes in accounts payable, deferred revenues and related party accounts. The net effect on cash flows from operating activities by the discontinued operations for the nine months ending September 30, 2007 was a decrease of $169,072 as the operations were struggling with their liquidity. 30 CASH FLOWS FROM INVESTING ACTIVITIES. The Company had a net increase in funds from investing activities of $4,226,140 for the nine months ended September 30, 2008. This was primarily due to the net redemption of marketable securities of $4,913,964. These proceeds are offset by the net effect of the consolidation of iVoice Technology of $622,151. The Company had invested $1.4 million in iVoice Technology's Series A Convertible Preferred Stock and iVoice Technology has used a portion of these proceeds to pay down a portion of the YA Global Convertible Debentures and their investment in B Green Innovations, a wholly owned subsidiary of iVoice Technology. CASH FLOWS FROM FINANCING ACTIVITIES. The Company used $883,478 in cash for financing activities in the nine months ended September 30, 2008. The funds provided from the Smith Barney Credit Line of $5,660,000 were used to pay down the YA Global convertible debentures of $4,796,510. In addition, $1,746,968 of the proceeds of the sales of the ARPSs was used to repay the Smith Barney Credit Line. The net effect on cash flows from financing activities from the discontinued operations was an increase in cash of $154,000 for the nine months ending September 30, 2007. This represented the proceeds from the sale of a $160,000 Promissory note to Thomas Pharmaceuticals Acquisition, Inc. pursuant to the terms of the Extension Agreement with Thomas Pharmaceuticals and Thomas Pharmaceuticals Acquisition. Below is a description of iVoice's principal sources of funding: On May 11, 2006 we issued to YA Global a $5,544,110 secured convertible debenture due on May 11, 2008 with an interest of 7.5%. This debenture replaced a promissory note with a principal balance of $5,000,000 and $544,110 of accrued interest due to YA Global from June 15, 2005. On May 12, 2008, the remaining principal balance of $4,796,510 was repaid in cash from the proceeds of the Smith Barney short term loans. On May 25, 2006, we issued to YA Global a $1,250,000 secured convertible debenture due on May 25, 2008 with an interest of 7.5% per annum pursuant to a Securities Purchase Agreement entered into between us and YA Global. On February 21, 2008, this debenture was amended to extend the maturity date until May 25, 2010 and to raise the interest rate to 15% per annum. On March 7, 2008 and May 8, 2008, the Company received proceeds from an Express Creditline Loan from Smith Barney that is collateralized by the proceeds available from the sales of the auction rate preferred shares ("ARPS") discussed in Note 3. The interest rate charged on the loan is tied to the dividend rates earned on the ARPSs. When an ARPS is sold, a portion of the proceeds is applied to pay down the short term loan and the balance is wired to the Company's savings account. There is no assurance that the future funding, if any, offered by YA Global or from other sources will enable us to raise the requisite capital needed to implement our long-term growth strategy. Current economic and market conditions have made it very difficult to raise required capital for us to implement our business plan. OFF BALANCE SHEET ARRANGEMENTS - ------------------------------ During the nine months ended September 30, 2008, we did not engage in any material off-balance sheet activities nor have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities. 31 CONTRACTUAL OBLIGATIONS - ----------------------- The Company has no material changes in its contractual obligations during the nine months ended September 30, 2008. FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS - ----------------------------------------------- Certain information included in this Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (as well as information included in oral or written statements made by us or on our behalf), may contain forward-looking statements about our current and expected performance trends, growth plans, business goals and other matters. These statements may be contained in our filings with the Securities and Exchange Commission, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. Information set forth in this discussion and analysis contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for forward-looking statements. The reader is cautioned that such forward-looking statements are based on information available at the time and/or management's good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "should," "will," and similar words, although some forward-looking statements are expressed differently. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. ITEM 4T - CONTROLS AND PROCEDURES MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING. Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company had concluded that the Company's disclosure controls and procedures as of the period covered by this Quarterly Report on Form 10-Q were not effective for the following reasons: a) The deficiency was identified as the Company's limited segregation of duties amongst the Company's employees with respect to the Company's control activities. This deficiency is the result of the Company's limited number of employees. This deficiency may affect management's ability to determine if errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures. b) The deficiency was identified in respect to the Company's Board of Directors. This deficiency is the result of the Company's limited number of external board members. This deficiency may give the impression 32 to the investors that the board is not independent from management. Management and the Board of Directors are required to apply their judgment in evaluating the cost-benefit relationship of possible changes in the organization of the Board of Directors. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. Management of the Company has also evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company's internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q and determined that there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 33 PART II - OTHER INFORMATION ITEM 5 OTHER INFORMATION (b) The Company does not have a standing nominating committee or a committee performing similar functions as the Company's Board of Directors consists of only two members and therefore there would be no benefit in having a separate nominating committee that would consist of the same number of members as the full board of directors. Both members of the Board of Directors participate in the consideration of director nominees. ITEM 6 EXHIBITS 31.1 Rule 13a-14(a)/15d-14(a) Certifications. 32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002. 34 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. iVoice, Inc. By: /s/ Jerome R. Mahoney Date: November 19, 2008 --------------------------- Jerome R. Mahoney, President, Chief Executive Officer and Principal Financial Officer INDEX OF EXHIBITS 31.1 Rule 13a-14(a)/15d-14(a) Certifications. 32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002. EX-31.1 2 exhibit31-1_16169.txt 302 CERTIFICATION OF THE C.E.O. EXHIBIT 31.1 ------------ Rule 13a-14(a)/15d-14(a) Certifications. I, Jerome R. Mahoney, certify that: 1) I have reviewed this quarterly report on Form 10-Q of iVoice, Inc.; 2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; (b) Intentionally omitted; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5) I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. /s/ Jerome R. Mahoney --------------------------- Date: November 19, 2008 Jerome R. Mahoney, President, Chief Executive Officer and Principal Financial Officer EX-32.1 3 exhibit32-1_16169.txt 906 CERTIFICATION OF THE C.E.O. EXHIBIT 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jerome R Mahoney, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects the financial condition and results of operations of the Company. Date: November 19, 2008 By /s/ Jerome R Mahoney ------------------------------ Jerome R Mahoney President, Chief Executive Officer and Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----