AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUG 16, 2004
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 2004
COMMISSION FILE NO. 0-27589
ONE VOICE TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 95-4714338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6333 GREENWICH DRIVE, STE. 240, SAN DIEGO, CA 92122
(Address of Principal Executive Offices)
(858) 552-4466
(Issuer's Telephone Number)
(858) 552-4474
(Issuer's Facsimile Number)
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 the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of November 8, 2004, the registrant had 224,943,088 shares of common stock,
$.001 par value, issued and outstanding.
Transitional small business disclosure format (check one): Yes ____ No __X__
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. Page No.
-----------
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-7
2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
2004 2003
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 122,271 $ 53,709
Other receivables 6,274 137,000
Prepaid expenses 58,993 37,698
---------------- ---------------
Total current assets 187,538 228,407
PROPERTY AND EQUIPMENT, net 182,129 214,351
OTHER ASSETS:
Software licensing, net 1,336 2,839
Software development costs, net 102,961 393,857
Deposits 2,157 9,926
Trademarks, net 17,182 47,668
Patents, net 87,270 78,186
---------------- ---------------
Total assets $ 580,573 $ 975,234
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,301,993 $ 910,029
LONG-TERM DEBT:
6.00% convertible notes payable -- 70,955
7.00% convertible notes payable 28,225 --
7.75% convertible notes payable 64,126 6,957
8.00% note payable 104,000 104,000
---------------- ---------------
Total liabilities 1,498,344 1,091,941
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding - --
Common stock; $.001 par value, 250,000,000 shares
authorized, 222,790,662 and 107,130,615 shares
issued and outstanding in 2004 and 2003, respectively 222,790 107,131
Additional paid-in capital 34,625,951 32,235,170
Deficit accumulated during development stage (35,766,512) (32,459,008)
---------------- ---------------
Total stockholders' equity (deficit) (917,771) (116,707)
---------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 580,573 $ 975,234
================ ===============
See accompanying notes.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
January 1, 1999
Three Months Ended Nine Months Ended (Inception) to
Sept 30, 2004 Sept 30, 2003 Sept 30, 2004 Sept 30, 2003 Sept 30, 2004
------------- ------------- ------------- ------------- -------------
Revenues $ 2,060 $ 50,000 $ 2,060 $ 50,000 $ 702,381
Cost of revenues 1,930 6,000 1,930 6,000 207,605
------------- ------------- ------------- ------------- -------------
Gross profit 130 44,000 130 44,000 494,776
------------- ------------- ------------- ------------- -------------
General and
administrative
expenses 1,022,471 1,699,466 3,307,623 4,600,565 36,261,277
------------- ------------- ------------- ------------- -------------
Net loss $ (1,022,341) $ (1,655,466) $ (3,307,493) $ (4,556,565) $(35,766,501)
============= ============= ============= ============= =============
Net loss per share,
basic and diluted $ (0.01) $ (0.02) $ (0.02) $ (0.08)
============= ============= ============= =============
Weighted average
common equivalent
shares outstanding
basic and diluted 217,587,000 80,350,000 174,775,000 53,974,000
============= ============= ============= =============
See accompanying notes.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
January 1, 1999
For the Nine Months Ended (Inception) to
September 30, September 30,
2004 2003 2004
------------------ --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,307,493) $ (4,556,565) $ (35,766,501)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 438,026 511,071 4,274,823
Loss on disposal of assets - - 23,340
Amortization of discount on note payable 530,846 1,809,301 6,187,347
Options issued in exchange for services - 12,543 459,393
Warrants issued in exchange for services - - 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Other receivable 130,726 (20,112) (6,274)
Prepaid expenses (21,296) 13,479 (58,993)
Deposits 7,769 9,975 (2,157)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 391,964 337,326 1,301,993
------------------- ---------------- ----------------
Net cash used in operating activities (1,829,458) (1,882,982) (23,365,379)
------------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (43,007) (12,977) (1,472,027)
Software licensing - - (1,145,322)
Software development costs (22,080) (70,481) (1,675,601)
Trademarks - (262) (242,731)
Patents (26,915) (35,312) (136,692)
Loan fees - - (200,000)
------------------- ---------------- ----------------
Net cash used in investing activities (92,002) (119,032) (4,872,373)
------------------- ---------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net - - 18,465,151
Retirement of common stock, net - - (10,000)
Payments on loans payable, officer-stockholder - - (200,000)
Proceeds from loans payable - 100,000 304,000
Proceeds from convertible note payable 620,975 1,312,750 8,431,825
Proceeds from warrant exercise 1,369,047 1,369,047
------------------- ---------------- ----------------
Net cash provided by financing activities 1,990,022 1,412,750 28,360,023
------------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH 68,562 (589,264) 122,271
CASH AND CASH EQUIVALENTS, beginning of period 53,709 745,155 -
------------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 122,271 $ 155,891 $ 122,271
=================== ================ ================
See accompanying notes.
F-5
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
January 1, 1999
For the Nine Months Ended (Inception) to
September 30, September 30,
2004 2003 2004
------------------ --------------- ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 56,497 $ 31,510 $ 62,320
================== =============== ===============
Income taxes paid $ 800 $ 800 $ 7,487
================== =============== ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Options issued in exchange for services $ - $ 12,543 $ 377,933
================== =============== ===============
Shares Issued for re-pricing of conversion rate $ - $ - $ 175,000
================== =============== ===============
Common shares and warrants issued for
settlement $ - $ $ 303,050
================== =============== ===============
Warrants issued in connection with financing $ 322,793 $ 197,471 $ 4,612,946
================== =============== ===============
Beneficial conversion feature of convertible debt $ 298,182 $ 823,403 $ 3,955,962
================== =============== ===============
Common stock issued in exchange for debt $ 505,301 $ 2,341,990 $ 7,238,817
================== =============== ===============
See accompanying notes.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION:
One Voice Technologies, Inc. (the "Company") (formerly Conversational
Systems, Inc.), a California corporation, was incorporated on April 8,
1999. The operations of the Company began in 1999.
On June 22, 1999 pursuant to a Merger Agreement and Plan of
Reorganization Dead On, Inc. exchanged 7,000,000 shares of common stock
for 100% of the outstanding shares of common stock of Conversational
Systems, Inc. The exchange has been accounted for as a reverse merger,
under the purchase method of accounting. In July 1999, in contemplation
of the merger between Dead On, Inc. and Conversational Systems, Inc.,
the Company repurchased and retired 10,000,000 shares of common stock.
The combination and retirement of the common stock has been recorded as
a recapitalization of stockholders' equity. Conversational Systems,
Inc. was liquidated and Dead On, Inc. changed its legal name to One
Voice Technologies, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results
of operations for the periods presented. Interim results are not
necessarily indicative of the results to be expected for the full year
ended December 31, 2004. The financial statements should be read in
conjunction with the financial statements included in the annual report
of One Voice Technologies, Inc. (the "Company") on Form 10-KSB for the
year ended December 31, 2003.
GOING CONCERN:
The Company's financial statements have been presented on the basis
that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company incurred a net loss of
$1,022,341 during the three months ended September 30, 2004 and had an
accumulated deficit of $35,766,512.The Company had negative working
capital of $1,114,455 at September 30, 2004. Cash flows used for
operations amounted to $1,770,275for the nine months ended September
30, 2004. These factors raise substantial doubt about the Company's
ability to continue as a going concern unless the Company enters into a
significant revenue-bearing contract. Management is currently seeking
additional equity or debt financing. Additionally, management is
currently pursuing revenue-bearing contracts utilizing various
applications of its technology including wireless technology. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
BUSINESS ACTIVITY:
The Company develops and markets computer software using Intelligent
Voice Interactive Technology (IVIT(TM)) to website owners in the United
States and other countries.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REVENUE RECOGNITION:
The Company recognizes revenues when earned in the period in which the
service is provided or product shipped. Service and license fees are
deferred and recognized over the life of the agreement.
The Company's revenue recognition policies are in compliance with all
applicable accounting regulations, including American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP")
97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP
98-9. Any revenues from software arrangements with multiple elements
are allocated to each element of the arrangement based on the relative
fair values using specific objective evidence as defined in the SOPs.
If no such objective evidence exists, revenues from the arrangements
are not recognized until the entire arrangement is completed and
accepted by the customer. Once the amount of the revenue for each
element is determined, the Company recognizes revenues as each element
is completed and accepted by the customer. For arrangements that
require significant production, modification or customization of
software, the entire arrangement is accounted for by the percentage of
completion method, in conformity with Accounting Research Bulletin
("ARB") No. 45 and SOP 81-1.
(3) NOTES PAYABLE:
CONVERTIBLE NOTES PAYABLE:
--------------------------
On August 18, 2004, the Company entered into a securities purchase
agreement with four accredited investors, Alpha Capital
Aktiengesellschaft, Greenwich Growth Fund Limited, Whalehaven Capital,
LP and Whalehaven Fund Limited for the issuance of 7% convertible
debentures in the aggregate amount of $700,000. The notes bear interest
at 7% (effective interest rate of 146% on the aggregate amount), mature
on August 18, 2007, and are convertible into the Company's common
stock, at the holders' option, at the lower of (i) $0.085 or (ii) 80%
of the average of the three lowest closing bid prices for the common
stock on a principal market for the 30 trading days before but not
including the conversion date. The note may not be paid, in whole or in
part, before August 18, 2007 without the consent of the holder. The
full principal amount of the convertible notes is due upon default
under the terms of convertible notes. In addition, the Company issued
an aggregate of 7,063,774 warrants to the investors (3,531,887 Class A
warrants and 3,531,887 Class B warrants).The Class A warrants are
exercisable until August 18, 2009 at a purchase price of $.0935 per
share. The Class B warrants are exercisable until August 18, 2009 at a
purchase price of $.10625 per share. Net proceeds will amount to
approximately $621,000, net of debt issue cash cost of $79,000.
Pursuant to this offering, the Company has already received $621,000.
The fair value of the warrants of $323,000 using Black Scholes option
pricing model and the beneficial conversion feature of approximately
$298,000 will be amortized over the life of the debt using the interest
method. Upon conversion of the debt, unamortized debt issue costs are
charged to expense.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) NOTES PAYABLE, CONTINUED:
Conversion of Debt
------------------
During the nine months ended September 30, 2004 approximately $505,301
of notes payable were converted into approximately 103,727,165 shares
of the Company's common stock at an average conversion price of $0.01
per share.
A summary of convertible notes payable is as follows:
Due Principal Unamortized Net
Date Amount Discount Balance
----------------- ------------------- ---------------- ----------------
La Jolla Cove
Investors, Inc. December 12, 2005 $ 157,728 $ (93,602) $ 64,126
------------------ ---------------- ---------------
Alpha Capital
Aktiengesellschaft August 18, 2007 $ 350,000 $ (335,887) $ 14,113
------------------ ---------------- ---------------
Whalehaven
Capital, LP August 18, 2007 $ 125,000 $ (119,960) $ 5,040
------------------ ---------------- ---------------
Whalehaven Fund
Limited August 18, 2007 $ 125,000 $ (119,960) $ 5,040
------------------ ---------------- ---------------
Greenwich Growth
Fund Limited August 18,2007 $ 100,000 $ (95,968) $ 4,032
------------------ ---------------- ---------------
NOTE PAYABLE:
-------------
On August 8, 2003 the Company entered into a note payable in the amount
of $100,000, with interest at 8.0% per annum, due on August 8, 2008. At
September 30, 2004 and December 31, 2003 the balance on the note
payable was $104,000, including a lending fee of 4% which is being
amortized to interest expense over the term of the note.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) COMMON STOCK:
During the nine months ended September 30, 2004, Ellis Enterprise
Limited exercised warrants to purchase 2,198,734 shares of common stock
for cash in the amount of $79,254 and its convertible note payable in
the amount of $55,000 was converted at an average conversion price of
$0.023 into 2,364,575 of the Company's common stock.
During the nine months ended September 30, 2004, Bristol Investments
Fund, Limited exercised warrants to purchase 4,630,810 shares of common
stock for cash in the amount of $216,429 and its convertible note
payable in the amount of $101,025 and related interest was converted at
an average conversion price of $0.023 into 4,317,308 common shares.
During the nine months ended September 30, 2004, the Alpha Capital
Akteingesellschaft exercised warrants to purchase 3,897,469 shares of
common stock for cash in the amount of $134,014 and its convertible
note payable in the amount of $257,004 was converted at an average
conversion price of $0.014 into 18,558,840 shares of the Company's
common stock.
During the nine months ended September 30, 2004, La Jolla Cove
Investors, Inc. exercised warrants to purchase 922,720 shares of common
stock for cash in the amount of $922,720 and converted $92,272 of the
7.75% convertible note into 78,427,262 shares of common stock at an
average exercise and conversion price of $0.001 per share.
During the nine months ended September 30, 2004, Greenwich Growth Fund
Limited exercised warrants to purchase 58,334 shares of common stock
for cash in the amount of $2,707.
During the nine months ended September 30, 2004, Stonestreet Capital
exercised warrants to purchase 300,000 shares of common stock for cash
in the amount of $13,920.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN:
Pro forma information regarding the effect on operations as required by
SFAS 123 and SFAS 148, has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that statement. Pro forma information using the Black-Scholes method at
the date of grant based on the following assumptions:
Expected life 3 Years
Risk-free interest rate 5.0%
Dividend yield -
Volatility 100%
This option valuation model requires input of highly subjective
assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing
model does not necessarily provide a reliable single measure of fair
value of its employee stock options.
For purposes of SFAS 123 pro forma disclosures, the estimated fair
value of the options is amortized to expense over the option's vesting
period. The Company's pro forma information is as follows:
Three Months Ended Nine Months Ended
Sept. 30, 2004 Sept. 30, 2003 Sept. 30, 2004 Sept. 30, 2003
-------------- -------------- -------------- --------------
Net loss, as reported $ (1,022,341) $ (1,655,466) $ (3,307,493) $ (4,556,565)
Deduct: total stock based employee
compensation expense determined
under fair value based methods for
all options, net of related tax effects (7,600) (97,600) (45,600) (360,000)
-------------- -------------- -------------- --------------
Pro forma net loss $ (1,029,941) $ (1,753,066) $ (3,353,093) $ (4,916,565)
Earnings per share:
Basic - as reported $ (0.01) $ (0.02) $ (0.02) $ (0.08)
============== ============== ============== ==============
Basic - pro forma $ (0.01) $ (0.03) $ (0.02) $ (0.09)
============== ============== ============== ==============
Weighted average
common equivalent
shares outstanding
basic and diluted 217,587,000 80,350,000 174,775,,000 53,974,000
============== ============== ============== ==============
F-11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED HEREIN ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FORWARD LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO STATEMENTS CONCERNING ANTICIPATED
TRENDS IN REVENUES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS. THERE IS ABSOLUTELY NO ASSURANCE
THAT WE WILL ACHIEVE THE RESULTS EXPRESSED OR IMPLIED IN FORWARD LOOKING
STATEMENTS.
OVERVIEW
One Voice Technologies, Inc. is a voice recognition technology company with over
$30 million invested in Research and Development and deployment of more than 20
million products worldwide in seven languages. To date, our customers include:
ABS Computer Technologies, Golden State Cellular, Inland Cellular, Montan
Telecom, Niveus Media, Panhandle Telephone Cooperative, San Diego State
University, Tata Infotech, Telispire PCS, Walt Disney Internet Group, Warner
Home Video and West Central Wireless with strong technology and business
partnerships with Philips Electronics and IBM. Based on our patented technology,
One Voice offers voice solutions for the Telecom, Enterprise, PC and Interactive
Multimedia markets. Our telecom solutions allow business and consumer phone
users to Voice Dial, Group Conference Call, Read and Send E-Mail and Instant
Message, all by voice. We offer PC OEM's the ability to bundle a complete voice
interactive computer assistant which allows PC users to talk to their computers
to quickly play digital media (music, videos, DVD) along with read and send
e-mail messages, SMS text messaging to mobile phones, PC-to-Phone calling (VoIP)
and PC-to-PC audio/video. We feel we are strongly positioned across these
markets with our patented voice technology.
Since the beginning of 2004, One Voice has made solid progress in closing deals
with telecom carriers and PC OEM's. All of these contracts are revenue bearing
and we will begin seeing revenue generated once our products are sold-through to
our customer's subscriber base. We anticipate revenue to begin before year-end
starting with the upcoming launch of our MobileVoice(TM) product by Golden State
Cellular who is targeting a launch date on November 20, 2004. The Golden State
Cellular launch will be followed quickly by similar launches from Inland
Cellular to their subscribers, which is targeted for November 26, 2004 and with
West Central Wireless, which we anticipate their subscriber launch in December,
2004. These three carrier launches of our MobileVoice product show the
commercial readiness along with the start of revenue generation from our
MobileVoice product.
Additionally, since the beginning of 2004 One Voice has been awarded two patents
in China and two patents covering 18 European countries. These patents extend
our Intellectual Property (IP) coverage from the United States, Australia, China
and throughout Europe giving us added protection of our unique technology.
We are very excited to have been selected by Microsoft in May 2004 to be
showcased in their Windows Hardware Showcase at the 2004 Windows Hardware
Engineering Conference (WinHEC). At WinHEC, Microsoft demonstrated our Media
Center Communicator product running on their Windows XP Media Center Edition
2004 operating system. Since Microsoft's recent, October 12, 2004, launch of
their updated Windows XP Media Center Edition 2005 product, One Voice is
finalizing our Media Center Communicator product to work with this update to
Windows XP Media Center 2005. Our Communicator product, to be introduced in late
November 2004, will add voice-recognition capabilities to the Windows XP Media
Center 2005 product.
In summary, since the beginning of 2004 One Voice has closed 9 revenue-bearing
deals and we will begin seeing additional revenue generated starting with the
upcoming launch by Golden State Cellular and quickly followed by Inland Cellular
and West Central Wireless. We were selected by Microsoft to showcase voice
recognition at their WinHEC conference. We were also selected by Tata Infotech,
a leading Indian IT company and part of the Tata Group, India's most trusted and
best-known industrial group, to co-develop a customized MobileVoice solution for
the high growth Indian telecom market. We are finalizing our Media Center
Communicator product to add voice recognition to the Windows XP Media Center
operating system. We continue to work hard to launch our products and we are
committed to building shareholder value in our company.
12
RESULTS OF OPERATIONS
The following table sets forth selected information from the statements of
operations for the three months ended September 30, 2004 and 2003.
SELECTED STATEMENT OF OPERATIONS INFORMATION
For the Three Months Ended
September 30,
2004 2003
---------------- ---------------
Gross profit $ 130 $ 44,000
Operating expenses (1,022,471) (1,699,466)
----------------- ----------------
Net loss $ (1,022,341) $ (1,655,466)
================= ================
THIRD QUARTER 2004 COMPARED TO THIRD QUARTER 2003.
Revenues amounted to $2,060 and $50,000 for the three months ended September 30,
2004 and 2003, respectively.
Operating expenses decreased to $1,022,471 for the three months ended September
30, 2004 from $1,699,466 for the same period in 2003. The decrease in operating
expenses over the same quarter in 2003 was a direct result of a decrease of all
major expense categories for the period as compared to the year prior. Salary
and wage expense was $303,909 for the three months ended September 30, 2004 as
compared to $268,225 for the same period in 2003. The increase in 2004 as
compared to 2003 arose primarily from an increase in our sales force, which we
have restructured to accommodate our new direction into the telecom, telematics
and TV/Internet appliance initiatives. Legal and consulting expenses increased
to $80,616 for the three months ended September 30, 2004 as compared to $52,579
for the same period in 2003. Depreciation and amortization expenses decreased to
$142,008 for the three months ended September 30, 2004 from $159,983 for the
same period in the prior year, primarily due to the retirement of fixed assets.
Amortization and Depreciation expenses consisted of patent and trademarks,
computer equipment, consultant fees, and software development. Interest expense,
which includes the amortization of the discount on notes payable decreased to
$71,109 in 2004, as compared to $874,394 in 2003, primarily due to a lack of
financings and subsequent beneficial conversion features during the third
quarter of 2004.
We had a net loss of $1,022,341, or basic and diluted net loss per share of
$0.01, for the three months ended September 30, 2004 compared to $1,655,466, or
basic and diluted net loss per share of $0.02, for the same period in 2003.
NINE MONTH PERIOD IN 2004 COMPARED WITH NINE MONTH PERIOD IN 2003.
Revenues amounted to $2,060 and $50,000 for the nine months ended September 30,
2004 and 2003, respectively.
13
Operating expenses decreased to $3,307,623 for the nine months ended September
30, 2004 ("2004 Period") from $4,600,565 for nine months ended September 30,
2003 ("2003 Period"). The net decrease in operating expenses over the 2003
Period was a direct result of the decreased non-cash interest expense associated
with debt financings being offset by all other expense categories, which
decreased for the period as compared to the year prior. Interest expense, which
includes the amortization of the discount on notes payable decreased to $542,450
for the 2004 Period, as compared to $1,809,301 for the 2003 Period. Salary and
wage expense decreased to $888,519 for the 2004 Period as compared to $927,847
for the 2003 Period. Legal fees and consulting expenses increased to $189,659
for the 2004 Period from $192,217 for the 2003 Period. Depreciation and
amortization expenses decreased to $438,026 for the 2004 Period from $511,071
for the 2003 Period.
We had a net loss of $3,307,493 or basic and diluted net loss per share of $0.02
for the nine months ended September 30, 2004 compared to $4,556,565 or basic and
diluted net loss per share of $0.08 for the same period in 2003.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, we had a negative working capital of $1,114,455 as
compared to negative working capital of $498,487 in the 2003 Period.
Net cash used in operating activities was $1,829,458 for the 2004 Period
compared to $1,882,982 for 2003 Period. We believe that our average monthly cash
requirements approximate $230,000. From inception on January 1, 1999 to
September 30, 2004, net cash used for operating activities was $23,365,379.
Net cash used for investing activities was $92,002 for the 2004 Period compared
to $119,032 for the 2003 Period. During the three months ended September 30,
2004, cash was primarily used for equipment purchases and software development
costs. From inception on January 1, 1999 to September 30, 2004, net cash used
for investing activities was $4,872,373.
Net cash provided by financing activities was $1,990,022 for 2004 Period when
compared to $1,412,750 for the 2003 Period. From inception on January 1, 1999 to
September 30, 2004 net cash provided by financing activities was $28,360,023.
We incurred a net loss of $3,307,493 during the 2004 Period, and had an
accumulated deficit of $35,766,501. Our losses in the 2004 Period include
interest expense, amortization of software licensing agreements and development
costs and operational and promotional expenses. Sales of our equity securities
have allowed us to maintain a positive cash flow balance from financing
activities.
We anticipate maintaining a cash balance through our financial partners that
will sustain operations up to December 2004. We continue to rely heavily on our
current method of convertible debt and equity funding, which have financed us
since 2001, until we are operating at breakeven. The losses through the year
ended December 31, 2003 were due to minimal revenue and our operating expenses,
with the majority of expenses in the areas of: salaries, legal fees, consulting
fees, as well as amortization expense relating to software development, debt
issue costs and licensing costs. We face considerable risk in completing each of
our business plan steps, including, but not limited to: a lack of funding or
available credit to continue development and undertake product rollout;
potential cost overruns; a lack of interest in its solutions in the market on
the part of wireless carriers or other customers; potential reduction in
wireless carriers which could lead to significant delays in consummating revenue
bearing contracts; and/or a shortfall of funding due to an inability to raise
capital in the securities market. Since further funding is required, and if none
is received, we would be forced to rely on our existing cash in the bank or
secure short-term loans. This may hinder our ability to complete our product
development until such time as necessary funds could be raised. In such a
restricted cash flow scenario, we would delay all cash intensive activities
including certain product development and strategic initiatives described above.
14
PART II
OTHER INFORMATION
LEGAL PROCEEDINGS
There has been no bankruptcy, receivership or similar proceedings.
There have been no material reclassifications, mergers, consolidations, or
purchase or sale of a significant amount of assets not in the ordinary course of
business.
As of November 10, 2004, the Company has been notified of potential claims
aggregating $2,600,000. As of November 10, 2004, the Company has not devoted any
substantial resources to defend these unsubstantiated claims. The aggregate of
potential claims consists of the following: 1) an approximate $211,000 claim by
Genuity Inc. that One Voice is responsible for cancellation fees despite
Genuity's failure to deliver the agreed upon service. No lawsuit has been filed
in this matter and no communication from Genuity has been received for
approximately two years; 2) the remaining claim is by La Jolla Cove Investors,
Inc. ("LJCI") for $2.4 million in damages. LJCI holds convertible debentures
related to past financings. LJCI contends that One Voice failed to honor
conversion notices resulting in damages. It has been explained to LJCI that
there is an ambiguity on the date of One Voice's conversion obligation and that
damages are speculative. A part of that dispute has been resolved by One Voice's
settlement agreement to register 8,425,531 shares to honor the past conversion
notice and an additional 8,425,531 shares pursuant to such agreement. A lawsuit
was filed but is being stayed by stipulation while the parties work out a
resolution. It is difficult to access the potential liability or likelihood of
success of such a claim. It does appear that a resolution involving registration
of additional stock in favor of LJCI is probable.
An Interim Settlement agreement was entered into between LJCI. and One Voice
Technologies Inc. on July 29th, 2004 and further amended on August 13, 2004. The
parties agreed that One Voice shall include 16,851,062 shares of One Voice
common stock, on behalf of LJCI, in the next registration statement which was
filed by One Voice and went effective with the Securities and Exchange
Commission on October 15, 2004. In addition, the Interim Settlement Agreement
includes a provision whereby LJCI will never institute any action or suit at law
or in equity against any other parties with whom One Voice may enter into
financing transactions ("Other Financing Sources") provided that One Voice
complies with the Interim Settlement Agreement and LJCI Receives 16,851,062
registered shares of One Voice common stock. At September 30, 2004, a final
settlement has not been reached.
PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS FOR CASH
None.
SALES OF DEBT AND WARRANTS FOR CASH
On August 18, 2004, the Company entered into a securities purchase agreement
with four accredited investors, Alpha Capital Aktiengesellschaft, Greenwich
Growth Fund Limited, Whalehaven Capital, LP and Whalehaven Fund Limited for the
issuance of 7% convertible debentures in the aggregate amount of $700,000. The
notes bear interest at 7% (effective interest rate of 146% on the aggregate
amount), mature on August 18, 2007, and are convertible into the Company's
common stock, at the holders' option, at the lower of (i) $0.085 or (ii) 80% of
the average of the three lowest closing bid prices for the common stock on a
principal market for the 30 trading days before but not including the conversion
date. The note may not be paid, in whole or in part, before August 18, 2007
without the consent of the holder. The full principal amount of the convertible
notes is due upon default under the terms of convertible notes. In addition, the
Company issued an aggregate of 7,063,774 warrants to the investors (3,531,887
15
Class A warrants and 3,531,887 Class B warrants).The Class A warrants are
exercisable until August 18, 2009 at a purchase price of $.0935 per share. The
Class B warrants are exercisable until August 18, 2009 at a purchase price of
$.10625 per share. Net proceeds will amount to approximately $621,000, net of
debt issue cash cost of $79,000. Pursuant to this offering, the Company has
already received $621,000. The fair value of the warrants of $323,000 using
Black Scholes option pricing model and the beneficial conversion feature of
approximately $298,000 will be amortized over the life of the debt using the
interest method. Upon conversion of the debt, unamortized debt issue costs are
charged to expense.
On December 12, 2003 the Company entered into a securities purchase agreement
with La Jolla Cove Investors, Inc. for the issuance of a 7.75% convertible
debenture in the aggregate amount of $250,000. The note bears interest at 7.75%
(effective interest rate of 121% on the aggregate amount), matures on December
12, 2005, and are convertible into the Company's common stock, at the holder's
option, at the lower of (i) $0.25 or (ii) eighty percent (80%) of the average of
the three lowest volume weighted average prices during the twenty (20) trading
days prior to holder's election to convert. In addition, the company issued an
aggregate of 2,500,000 warrants to the investors. The warrants are exercisable
until December 12, 2006 at a purchase price of $1.00 per share. Beginning in the
first calendar month after the registration statement is declared effective;
holder shall convert at least 7%, but no more than 15% of the face value of the
debenture per calendar month into common shares of the company. The 15% monthly
maximum amount shall not be applicable if the current market price of the common
stock at anytime during the applicable month is higher than the current market
price of the common stock on the closing date. Net proceeds amounted to
approximately $237,000, net of debt issue cash cost of $13,000. The relative
value (limited to the face amount of the debt) of all the warrants of $18,030
using Black Scholes option pricing model and the beneficial conversion feature
of approximately $231,970 is being amortized over the life of the debt using the
interest method. Upon conversion of the debt mentioned above, unamortized debt
issue costs are charged to expense.
OPTION GRANTS
There were no option grants during the third quarter of 2004.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
None.
All of the above offerings and sales were deemed to be exempt under Regulation D
and Section 4(2) of the Securities Act. No advertising or general solicitation
was employed in offering the securities. The offerings and sales were made to a
limited number of persons, all of whom were accredited investors, business
associates of One Voice or executive officers of One Voice, and transfer was
restricted by One Voice in accordance with the requirements of the Securities
Act of 1933. In addition to representations by the above-referenced persons, we
have made independent determinations that all of the above-referenced persons
were accredited or sophisticated investors, and that they were capable of
analyzing the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange Commission
filings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
16
ITEM 6. SUBSEQUENT EVENTS
On October 28, 2004, the Company entered into a securities purchase agreement
with four accredited investors, Alpha Capital Aktiengesellschaft, Stonestreet
Limited Partnership, Ellis International Ltd. and Momona Capital Corp. for the
issuance of 7% convertible debentures in the aggregate amount of $1,490,000. The
Company has already received $532,715, net of debt issue costs of $63,285 and
will receive $896,000 less closing costs within five (5) business days of the
effectiveness of the registration statement. The notes bear interest at 7% ,
mature on October 28, 2007, and are convertible into the Company's common stock,
at the holders' option, at the lower of (i) $0.074 or (ii) 80% of the average of
the three lowest closing bid prices for the common stock on a principal market
for the 30 trading days before but not including the conversion date. The note
may not be paid, in whole or in part, before October 28, 2007 without the
consent of the holder. The full principal amount of the convertible notes is due
upon default under the terms of convertible notes. In addition, the Company
issued an aggregate of 23,650,797 warrants to the investors (11,825,398 Class A
warrants and 11,825,399 Class B warrants). Both Class A and Class B warrants are
exercisable until October 28, 2009 at a purchase price of $.07 per share.
ITEM 7. EXHIBITS AND REPORTS ON 8-K:
(a) Exhibits.
Exhibit Number Description
-------------- -----------
31.1 Certification of the Chief Executive Officer of One Voice Technologies,
Inc. Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer of One Voice Technologies,
Inc. Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
32.2 Certification Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) A Form 8-K was filed on April 19, 2004 regarding a change in accountants
17
SIGNATURES
In accordance with the requirements of the Exchange Act of 1933, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONE VOICE TECHNOLOGIES, INC., A NEVADA CORPORATION
DATE: NOV 15, 2004 BY: /S/ DEAN WEBER
----------------------------------------------
DEAN WEBER, CHAIRMAN & CHIEF EXECUTIVE OFFICER
DATE: NOV 15, 2004 BY: /S/ RAHOUL SHARAN
----------------------------------------------
RAHOUL SHARAN, CHIEF FINANCIAL OFFICER
18