iPVoice Comm. (fka IPVO)

[Dallas Boy50]

There has been much speculation here on how the Infotel deal may be affecting the common stock dilution of IPVO. I have e-mailed Philip Verges to clarify some of these issues. He has given me permission to post his response here to help clarify some of the issues. His response:

Hi John –



Good to hear from you. Thank you for your ongoing interest.



I apologize for not responding sooner. I was on the road Friday through Monday and did not have good access to email. I took my family with me to my 15 year collage reunion in New York. I left Tuesday morning for Singapore. I am in flight now catching up on several emails. I will be in Singapore the balance of this week working on the Infotel transition. Over the weekend I am heading to Beijing to meet with a number of additional M&A opportunities now that we have solidly established an Asian base of operations. I will return to Singapore the 29th and work through the end of the week returning on the 1st. I should have good communication capabilities while I am here however, should you have any follow up questions.



You seem to have the basics of the Infotel transaction down. I will try to explain here in more detail. SEC filings are not always the easiest read and admittedly this transaction is relatively unusual with a fair degree of complexity. The very details that made this transaction complex explain how IPVoice managed to overcome our competition for this opportunity and at the same time, highlight just exactly how this opportunity is a benefit to IPVoice.



In the SEC filing you will notice Appiant is not a signatory. While Appiant did own Infotel, several Appiant creditors had perfected their interest in the Infotel asset through the US court system in the face of Appiant’s cascading financial failures. These creditors won the right in a court order to force the sale of Infotel and it is these creditors you find as the signatories on the Infotel sale agreement in the SEC Form 8k filing.



While Appiant has struggled and faltered, Infotel has remained a sound systems integration subsidiary. Infotel is a 19 year old company that was acquired by Appaint in the hay day of the dot com boom. Infotel has traditionally been an excellent cash producing business and has historically carried excess cash on the balance sheet. Infotel’s only issues today have resulted from an ailing parent company taking advantage of the subsidiary’s excess cash and leaving Infotel well below there normal cash balance. We are already making progress toward rebuilding the cash on hand. Among other efforts we have just signed a new $1 million contract above and beyond the income we anticipate from residual sales on existing contracts.



IPVoice acquired Infotel for $4m dollars. We have a ninety day look back condition in the agreement that will create an opportunity for us to adjust that price downward based on specific events. I anticipate an overall reduction. Look for related announcements in the 90 day time frame.



The payment terms as they stand now are $700k in cash paid over 12 months and a $3.3 million long-term note secured by Preferred Stock. In the event the price of Infotel is reduced at 90 days, then only the long-term note will be reduced – cash payments will remain the same.



There will be no common shares issued within the next 12 months in conjunction with this sale. In the event the Preferred Stock collateral is converted to common stock to pay the long-term note, then the Preferred Stock will convert to common at the common stock price at the time of conversion. At the time of conversion there will be no discount given to the then current trading price. The trading price will be calculated on a weighted 30 day trading average, not a closing 30 day average. The absence of a conversion discount and the weighted trading average versus the closing average disincentivizes the note holder from exerting any downward pressure on the IPVoice stock to otherwise benefit there potential future conversions.



How many common shares might be issued in compensation for the long-term note? In all candor, that is a question that can not be precisely answered. Preferred Stock falls into the overall category of financing vehicles called convertible debentures. Convertible debentures have received an extraordinary amount of bad press over the last couple of years – some deserved and some not. Convertible debentures can be extraordinary, arguably unfair money makers for the holders and equal extraordinary money loosers for the issuers. The fact of the matter is that small, high-growth companies are limited in there options to access financing. In the absence of a strong IPO market or an angel investor, small cap public markets have virtually no other option than convertible debenture financing.



As a company grows and creates a history of sales and balance sheet stability, than other financing options become available. IPVoice is just starting to enjoy some alternative financing options secured by balance sheet assets other than equity.



Convertible debentures can be powerful tools. High quality lenders engaged under prudent terms can produce excellent appreciation opportunities for small high-growth companies. For instance, not all convertible debenture lenders require registration statements. This means the lender does not have a conversion option for one to two years. This is the sign of a high quality debenture lender. On the other hand some convertible debenture lenders will not even fund until after they have received free trading shares. This is the example of a very low quality lender that absolutely has no interest in the long-term success of the issuer. As you might imagine, there are many convertible debenture lenders that fall between these two extremes.



While the above examples are not the only measures by which to gage a convertible debenture lender, I do believe the examples give some insight into how convertible debentures at large have received an extraordinary amount of bad press – some deserved and some not. There is another notable factor also contributing to the undeserved bad press. There are individuals and groups that try to universally give convertible debentures a bad name in order to either put pressure on the price of a stock by creating panic or to put pressure on the management of a company in hope that they might re-negotiate the terms of an existing convertible debenture. The price pressure benefits those that trade short in a stock. The management pressure creates an opportunity to remove the debenture holders from the current trading activity and give other large shareholder more opportunity to dominate the sales volume. This pressure, either on the price of the stock or the management team hovers in a very gray area in terms of SEC regulations. The end result however, is very unjust bad press regarding convertible debentures. As I have illustrated above, there are enough issues with convertible debenture tools alone with out the self-serving mudsling of nefarious traders.



I have written a good deal here, partially because I have a long airplane trip and partially because I sense you have been wound up like many shareholders in much of the confusion at larger regarding the use of convertible debentures – it gets the best of me too from time to time. Here are some details I can share specifically about IPVoice. Our current long-term convertible debenture holders have never filed a registration statement, nor required a registration statement to be filed. Both (there are only two) have investments well over two years old and far outside the return timeframe they originally committed to. Both have invested in IPVoice again regardless of the poor performance on there investments prior to our refreshed business plan initiated last summer. With the Infotel acquisition we have a new convertible debenture holder that we honestly do not have a long history with. However, they have agreed to terms that include no conversion discount, no upfront registration statement and weighted rather than closing price averages for conversion calculations. I am pleased so far with the strategic nature of there investment.



With the 12 month delay on any conversions associated with the Infotel acquisition, we have the opportunity for the market to realize the new value of IPVoice in conjunction with the acquisition. Ideally the share price will go up and the number of common shares required to payoff the long-term debt over time will be greatly reduce. In any event the issue of new shares will mitigated by the 12 month timeframe prior to the initiation of conversions and the schedule of payments via conversions after the initiation of conversions. Don’t forget, we also have the opportunity to simply pay off the debt in cash.



Given the terms that our convertible debenture holders have agreed to, and the prudent management efforts we are exercising to make the optimal use of the financing vehicles available to small cap public companies, I believe IPVoice has made good use of this type of financing. We are unfortunately subject to both the nefarious practices of short sellers as well as the practices of those sellers trying to put pressure on the IPVoice management team. Our practice has been simply not to recognize such nefarious influences unless they clearly cross legal boundaries, in which case we only utilize our company resources to the extent necessary to report the illegal activity. On the contrary we dedicating our resources toward building a real business enterprise. We remain confident that such efforts will be recognized by the market in the long-term.



Again thank you very much for your interest and your questions. I have cc’d the LCGroup here on my response. Recently we made the commitment to have dedicated investor relations. My schedule can be frustrating to those asking questions, so the LCGroup should be more available though they may not always be able to provide this level of response. Please do not hesitate to continue contacting me with questions, but also feel free to use the LCGroup as an additional resource.



Best Regards,

Philip Verges