AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 2003
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 JUNE 30, 2003
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 July 22, 2003, the registrant had 55,184,128 shares of common stock, $.001
par value, issued and outstanding.
Transitional small business disclosure format (check one): Yes ____ No __X__
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. Page No.
--------
Balance Sheet F-3
Statements of Operations F-4
Statement of Stockholders' Equity F-5
Statements of Cash Flows F-9
Notes to Financial Statements F-11
2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - JUNE 30, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 113,038
Prepaid expenses 79,620
----------------
Total current assets $ 192,658
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 261,855
OTHER ASSETS:
Software licensing, net of accumulated amortization 3,967
Software development costs, net of accumulated amortization 590,667
Deposits 36,897
Trademarks, net of accumulated amortization 77,182
Patents 68,030
----------------
Total other assets 776,743
---------------
$ 1,231,256
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
accounts payable and accrued expenses $ 653,674
LONG TERM LIABILITIES -
security deposits 12,522
4% CONVERTIBLE NOTE PAYABLE, due December 30, 2004 $ 150,000
Less unamortized discount (74,356)
----------------
75,644
4% CONVERTIBLE NOTE PAYABLE, due April, 10, 2005 600,000
Less unamortized discount (533,333)
----------------
66,667
4% CONVERTIBLE NOTE PAYABLE, due June 27, 2005 300,000
Less unamortized discount (167,534)
----------------
132,466
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding -
Common stock; $.001 par value, 50,000,000 shares
authorized, 54,833,876 shares issued and outstanding 54,833
Additional paid-in capital 29,663,583
Deficit accumulated during development stage (29,428,133)
----------------
Total stockholders' equity 290,283
---------------
$ 1,231,256
===============
The accompanying notes form an integral part of these financial statements.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED FROM INCEPTION ON
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JANUARY 1, 1999 TO
2003 2002 2003 2002 JUNE 30, 2003
----------------------------------------------------------------------------------------
REVENUES $ -- $ 284,931 $ -- $ 306 $ 650,321
COST OF REVENUES -- 30,185 -- -- 199,675
----------------------------------------------------------------------------------------
GROSS PROFIT -- 254,746 -- 306 450,646
----------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES 2,901,097 3,998,943 1,469,690 2,110,846 29,878,779
----------------------------------------------------------------------------------------
NET LOSS $ (2,901,097) $ (3,744,197) $ (1,469,690) $ (2,110,540) $(29,428,133)
========================================================================================
NET LOSS PER SHARE, basic and diluted $ (0.06) $ (0.13) $ (0.03) $ (0.07)
=====================================================================
WEIGHTED AVERAGE COMMON EQUIVALENT
SHARES OUTSTANDING - BASIC AND DILUTED 45,870,000 28,013,414 51,880,000 30,222,468
=====================================================================
The accompanying notes form an integral part of these financial statements.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Deficit
Accumulated
Common Stock Additional During Total
------------ Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
Balance at January 1, 1999 12,720,000 $ 12,720 $ - $ - $ 12,720
Net proceeds from issuance of
common stock in connection
with merger 7,000,000 7,000 106,236 - 113,236
Net proceeds from issuance of
common stock 1,500,000 1,500 2,544,422 - 2,545,922
Net issuance of common stock in
exchange for services 150,000 150 299,850 - 300,000
Redemption of common stock (10,000,000) (10,000) (10,000)
Net loss for the year ended
December 31, 1999 - - - (1,782,215) (1,782,215)
--------------- --------------- ---------------- ---------------- ---------------
Balance at December 31, 1999 11,370,000 11,370 2,950,508 (1,782,215) 1,179,663
Net proceeds from issuance of
common stock and warrants 312,500 313 1,779,523 - 1,779,836
Net proceeds from issuance of
common stock and warrants 988,560 988 12,145,193 - 12,146,181
Issuance of warrants in exchange
for services - - 55,000 - 55,000
Issuance of options in exchange
for services - - 199,311 - 199,311
Issuance of warrants in connection
with financing - - 1,576,309 - 1,576,309
Net loss for the year ended
December 31, 2000 - - - (9,397,620) (9,397,620)
--------------- --------------- ---------------- ---------------- ---------------
Balance at December 31, 2000 12,671,060 12,671 18,705,844 (11,179,835) 7,538,680
(Continued)
The accompanying notes form an integral part of these financial statements.
F-5
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
Deficit
Accumulated
Common Stock Additional During Total
------------ Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
Conversion of debt to equity, net
of unamortized debt discount 3,220,765 3,220 571,867 - 575,087
Issuance of options in
exchange for services - - 58,864 - 58,864
Issuance of stock and warrants
in connection with settlement 110,000 110 247,940 - 248,050
Proceeds from sale of common stock
and warrants, net of offering costs 702,350 702 839,318 - 840,020
Issuance of warrants in connection
with debt financing - - 92,400 - 92,400
Beneficial conversion feature
embedded in debt securities - - 417,450 - 417,450
Conversion of debt to equity -
Laurus Master Fund 3,402,600 3,403 595,399 - 598,802
Conversion of debt to equity -
Stonestreet Capital 2,973,780 2,974 506,137 - 509,111
Net loss for the year ended
December 31, 2001 - - - (8,778,279) (8,778,279)
--------------- --------------- ---------------- ---------------- ---------------
Balance at December 31, 2001 23,080,555 23,080 22,035,219 (19,958,114) 2,100,185
Conversion of debt to equity 2,624,447 2,624 309,714 - 312,338
Issuance of warrants in connection
with debt financing - - 577,879 - 577,879
Beneficial conversion feature
embedded in debt securities - - 1,948,765 - 1,948,765
Issuance of options in exchange
for services - - 107,276 - 107,276
(Continued)
The accompanying notes form an integral part of these financial statements.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
Deficit
Accumulated
Common Stock Additional During Total
------------ Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
Issuance of common stock 2,666,667 2,667 721,166 - 723,833
Cashless exercise of warrants 10,512 11 (11) - -
Exercise of warrants for cash 20,000 20 3,380 - 3,400
Re-pricing adjustment for
warrants outstanding - - 9,000 - 9,000
Shares issued in re-pricing-
Stonestreet Capital 833,334 833 174,167 - 175,000
Conversion of debt to equity -
Laurus Master Fund 2,110,129 2,110 703,345 - 705,455
Conversion of debt to equity -
Stonestreet Capital 4,294,596 4,294 899,405 - 903,699
Conversion of debt to
equity - Alpha Capital 2,767,752 2,768 342,232 - 345,000
Conversion of debt to
equity - Ellis Enterprise 300,842 301 39,699 - 40,000
Conversion of debt to
equity - Bristol Investments 225,699 226 29,774 - 30,000
Net loss for the year ended
December 31, 2002 - - - (6,568,922) (6,568,922)
--------------- --------------- ---------------- ---------------- ---------------
Balance at December 31, 2002 38,934,533 38,934 27,901,010 (26,527,036) 1,412,908
Issuance of options in exchange - - 11,271 - 11,271
for services
Conversion of debt to
equity - Alpha Capital 9,116,879 9,117 608,533 - 617,650
(Continued)
The accompanying notes form an integral part of these financial statements.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
Deficit
Accumulated
Common Stock Additional During Total
------------ Paid-in Development Stockholders'
Shares Amount Capital Stage Equity
------ ------ ------- ----- ------
Conversion of debt to
equity - Ellis Enterprise 3,055,292 3,055 209,022 - 212,077
Conversion of debt to
equity - Bristol Investments 3,727,172 3,727 268,761 - 272,488
Issuance of warrants in connection
with debt financing - - 33,777 - 33,777
Beneficial conversion feature
embedded in debt securities - - 631,209 - 631,209
Net loss for the six months
June 30, 2003 - - - (2,901,097) (2,901,097)
--------------- --------------- ---------------- ---------------- --------------
Balance at June 30, 2003 54,833,876 $ 54,833 $ 29,663,583 $ (29,428,133) $ 290,283
=============== =============== ================ ================ ==============
The accompanying notes form an integral part of these financial statements.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From Inception On
Six Months Ended Six Months Ended January 1, 1999 to
June 30, 2003 June 30, 2002 June 30, 2003
------------- ------------- -------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net loss $ (2,901,097) $ (3,744,197) $(29,428,133)
------------- ------------- -------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 356,896 424,517 3,529,391
Loss on disposal of assets -- 114 523,340
Amortization of discount on note payable 944,308 1,430,404 4,340,838
Options issued in exchange for services 11,271 38,000 458,121
Warrants issued in exchange for services -- -- 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, trade 29,846 -- 29,846
Licensing revenue receivable -- 240 (279,343)
Advertising revenue receivable -- -- 249,455
Inventory -- 30,066 --
Prepaid mailing lists -- -- (750,000)
Prepaid expenses (16,023) (111,049) (79,548)
Deposits 10,000 (3,766) (36,897)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 224,016 (63,261) 653,662
Security deposits 12,522 -- 12,522
Deferred revenue -- 250,000
------------- ------------- -------------
Total adjustments 1,572,836 1,745,265 9,123,037
------------- ------------- -------------
Net cash used for operating activities (1,328,261) (1,998,932) (20,305,096)
------------- ------------- -------------
(Continued)
The accompanying notes form an integral part of these financial statements.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From Inception On
Six Months Ended Six Months Ended January 1, 1999 to
June 30, 2003 June 30, 2002 June 30, 2003
------------- ------------- -------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment (18,784) 782 (1,416,603)
Software licensing -- (6,013) (1,145,322)
Software development costs (67,094) (980) (1,644,177)
Trademarks (262) (3,585) (242,731)
Patents (14,466) (6,358) (88,931)
Loan fees -- -- (200,000)
------------- ------------- -------------
Net cash used for investing activities (100,606) (16,154) (4,737,764)
------------- ------------- -------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net -- 723,833 18,465,148
Retirement of common stock, net -- -- (10,000)
Proceeds from loans payable, officer-stockholder -- -- (200,000)
Proceeds from loans payable -- -- 200,000
Proceeds from convertible note payable 796,750 1,326,000 6,700,750
------------- ------------- -------------
Net cash provided by financing activities 796,750 2,049,833 25,155,898
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (632,117) 34,747 113,038
CASH AND CASH EQUIVALENTS, beginning of period 745,155 735,489 --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 113,038 $ 770,236 $ 113,038
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ -- $ -- $ 453,401
============= ============= =============
Income taxes paid $ 800 $ 800 $ 6,623
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Options issued in exchange for services $ 11,271 $ 76,138 $ 376,721
============= ============= =============
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 $ 33,777 $ 1,326,000 $ 3,939,675
============= ============= =============
Beneficial conversion feature of convertible debt $ 631,209 $ -- $ 2,997,424
============= ============= =============
Common stock issued in exchange for debt $ 1,102,215 $ 1,604,138 $ 5,121,707
============= ============= =============
The accompanying notes form an integral part of these financial statements.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003
(1) ORGANIZATION:
One Voice Technologies, Inc. (formerly Conversational Systems,
Inc.) was incorporated under the laws of the State of
California on April 8, 1991. The Company commenced operations
in 1999.
(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 ending December 31, 2003. 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, 2002.
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 $2,901,097 during the six months ended
June 30, 2003 and had an accumulated deficit of $29,428,133.
The Company had a working capital deficit of $461,016 at June
30, 2003. Cash flows used for operations amounted to
$1,328,261 for the six months ended June 30, 2003. 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:
One Voice Technologies, Inc. is a developer of 4th Generation
voice solutions for the Wireless, Telematics, TV/Internet
appliance and Interactive Multimedia markets.
11
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2003
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REVENUE RECOGNITION:
The Company recognizes revenues when earned in the period in
which the service is provided. 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.
Service and license fees are deferred and recognized over the
life of the agreement. Revenues from the sale of products are
recognized upon shipment of the product.
INCENTIVE AND STOCK NONQUALIFIED 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, is 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. No expense was recognized under APB
25. The Company's proforma information is as follows:
12
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2003
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCENTIVE AND STOCK NONQUALIFIED OPTION PLAN, CONTINUED:
JUNE 30, 2003 JUNE 30, 2002
------------ ------------
Net loss, as reported $(2,901,097) $(3,744,197)
------------ ------------
Stock compensation calculated under SFAS 123 $ (240,000) $ (300,000)
------------ ------------
Pro forma net loss $(3,141,097) $(4,044,197)
------------ ------------
Basic and diluted historical loss per share $ (0.06) $ (0.13)
------------ ------------
Pro forma basic and diluted loss per share $ (0.07) $ (0.14)
------------ ------------
RECENT ACCOUNTING PRONOUNCEMENTS:
During April 2003, the FASB issued SFAS 149 - "Amendment of Statement
133 on Derivative Instruments and Hedging Activities", effective for
contracts entered into or modified after June 30, 2003, except as
stated below and for hedging relationships designated after June 30,
2003. In addition, except as stated below, all provisions of this
Statement should be applied prospectively. The provisions of this
Statement that relate to Statement 133 Implementation Issues that have
been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective
effective dates. In addition, paragraphs 7(a) and 23(a), which relate
to forward purchases or sales of WHEN-ISSUED securities or other
securities that do not yet exist, should be applied to both existing
contracts and new contracts entered into after June 30, 2003. The
Company does not participate in such transactions, however, is
evaluating the effect of this new pronouncement, if any, and will adopt
FASB 149 within the prescribed time.
During May 2003, the FASB issued SFAS 150 - "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity", effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a freestanding financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. Some of the provisions of this Statement are consistent with
the current definition of liabilities in FASB Concepts Statement No. 6,
Elements of Financial Statements. The Company is evaluating the effect
of this new pronouncement and will adopt FASB 150 within the prescribed
time.
13
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2003
(3) CONVERTIBLE NOTES PAYABLE:
ISSUANCE OF DEBT
----------------
On April 10, 2003, the Company entered into a securities purchase
agreement with four accredited investors, Alpha Capital
Aktiengesellschaft, Ellis Enterprises Ltd., Greenwich Growth Fund
Limited, and 01144 Limited for the issuance of 4% convertible
debentures in the aggregate amount of $600,000. The notes bear interest
at 4% (effective interest rate of 60%), mature on April 10, 2005, and
are convertible into the Company's common stock, at the holders'
option, at the lower of (i) $0.1166 or (ii) 80% of the average of the
five 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 April 10,
2005 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
350,004 warrants to the investors. The warrants are exercisable until
April 10, 2008 at a p urchase price of $.1272 per share. Net proceeds
amounted to approximately $540,000, net of debt issue cash cost of
$60,000. The fair value of the warrants of $26,000 using Black Scholes
option pricing model and the beneficial conversion feature of
approximately $514,000 will be amortized over the life of the debt
using the interest method. Upon conversion of the debt, any unamortized
debt issue costs will be charged to expense.
On June 30, 2003, the Company entered into a securities purchase
agreement with two accredited investors, Alpha Capital
Aktiengesellschaft, and Bristol Investment Fund Limited for the
issuance of 4% convertible debentures in the aggregate amount of
$500,000. The notes bear interest at 4% (effective interest rate of 80%
on the aggregate amount), mature on June 20, 2005, and are convertible
into the Company's common stock, at the holders' option, at the lower
of (i) $0.1023 or (ii) 80% of the average of the five 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 June 30, 2005 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 291,670 warrants to the
investors. The warrants are exercisable until June 30, 2008 at a
purchase price of $.1116 per share. Net proceeds will amount to
approximately $450,000, net of debt issue cash cost of $50,000.
Pursuant to this offering, the Company has already received $300,000
and anticipates the remaining $200,000 by August 18, 2003. The fair
value of the warrants of $14,000 using Black Scholes option pricing
model and the beneficial conversion feature of approximately $195,000
will be amortized over the life of the debt using the interest method.
Upon conversion of the debt, any unamortized debt issue costs will be
charged to expense.
14
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2003
(3) CONVERTIBLE NOTES PAYABLE, CONTINUED:
During the three months ended June 30, 2003, the following note holders
converted debt to equity as follows:
Alpha Capital Aktiengesellschaft converted approximately $424,000 of
principal and accrued interest at an average conversion price of $0.061
into 6,716,000 common shares.
Bristol Investment Fund, Limited converted $106,000 of principal and
accrued interest at an average conversion price of $0.054 into
1,994,000 common shares.
Ellis Enterprise Limited converted $77,000 of principal and accrued
interest at an average conversion price of $0.057 into 1,419,000 common
shares.
During the three months ended June 30, 2003, approximately $607,000 of
principal and accrued interest was converted into approximately
10,130,000 shares of the Company's common stock at an average
conversion price of $0.06 per share by Alpha Capital
Aktiengesellschaft, Bristol Investments and Ellis Enterprises.
A summary of convertible notes payable at stated interest rate of 4% is
as follows:
Due Principal Unamortized Net
Date Amount Discount Balance
---- ------ -------- -------
Alpha Capital
Aktiengesellschaft December 30, 2004 $ 150,000 $ (74,356) $ 75,644
Alpha Capital
Aktiengesellschaft April 10, 2005 250,000 (222,222) 27,778
Alpha Capital
Aktiengesellschaft June 27, 2005 150,000 (83,767) 66,233
Ellis Enterprise Limited April 10, 2005 200,000 (177,778) 22,222
Greenwich Growth
Fund, Ltd. April 10, 2005 100,000 (88,889) 11,111
O1144 Limited April 10, 2005 50,000 (44,444) 5,556
Bristol Investments
Fund, Limited June 27, 2005 150,000 (83,767) 66,233
---------------- ---------------- ----------------
$ 1,050,000 $ (775,223) $ 274,777
================ ================ ================
15
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2003
(4) COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under leases that expire at various
times through October 2005. The following is a schedule by years of
future minimum rental payments required under operating leases that
have noncancellable lease terms in excess of one year as of June 30,
2003:
Year ending December 31,
2003 $ 152,307
2004 313,291
2005 266,053
-----------------
731,651
Less sublease income 140,000
-----------------
$ 591,651
=================
Rent expense, net of sublease income of $41,500 amounted to $43,000 and
$36,000 for the quarters ended June 30, 2003 and 2002, respectively.
LEGAL MATERS
------------
During 2002, the Company was notified of potential claims aggregating
$160,000. Management believes that it has adequate defense for such
unsubstantiated claims and accordingly, since the amounts are estimable
but highly improbable, these amounts have not been recorded in these
financial statements.
(5) SUBSEQUENT EVENT:
In July 2003, Ellis Enterprise Limited converted approximately $25,000
of principal and accrued interest at an average conversion price of
$0.057 into 368,000 common shares.
16
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
$26 million invested in Research and Development and deployment of more than 20
million products worldwide in seven languages. To date, our customers include
T-Mobile and Warner Brothers 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 Motion Picture DVD
Entertainment markets. Our solutions allow business and consumer phone users to
Voice Dial, Group Conference Call, Read and Send E-Mail and Instant Messages all
by voice. We offer these solutions through both domestic and international
wireless and wireline carriers along with reseller channels for corporations
with a mobile workforce. We offer PC manufacturers the ability to bundle a
complete voice interactive computer assistant which allows PC users to talk to
their computers to quickly launch applications, websites, read and send E-mails
and dictate letters. We offer the motion picture industry's only voice
interactive navigation feature for DVD movies included in over 20 million copies
distributed worldwide in seven languages. We are strongly positioned across
these markets with our patented voice technology.
In April 2003, we announced the launch of our MobileVoice(TM) website in Spanish
for carrier operators in Latin America. To access the Spanish website,
MobileVoice users should click on the Account Login button from the One Voice
Technologies home page and select the Spanish option. To listen to a
demonstration of MobileVoice in Spanish, click on
Http://www.onevoicetech.com/mobilevoice/audio/mobilevoicees.mp3
In May 2003, we announced MobileVoice Network News(TM), a comprehensive mobile
news service offering total coverage of breaking news and feature stories from
around the world. With MobileVoice Network News, mobile subscribers can listen
to up-to-the-minute news coverage, including: Top Headlines, Business and
Markets, Sports, Weather, Politics, Technology, Entertainment and Health.
MobileVoice Network News is a powerful addition to the MobileVoice platform and
will be offered in both English and Spanish covering news in North America,
Latin America and around the world.
In May 2003, we announced that we had finalized the development of the
MobileVoice(TM) platform in Austrian German and subsequent upgrade of
MobileVoice at T-Mobile Austria. It is a tremendous next step for our company to
have an Austrian version of MobileVoice at T-Mobile's Future House. We will
continue to work closely with T-Mobile and our partners at Philips to offer the
industry's first mobile Voice-to-Text SMS and E-mail messaging solution in
multiple languages throughout the global marketplace.
17
RESULTS OF OPERATIONS
The following table sets forth selected information from the statements of
operations for the three months ended June 30, 2003 and 2002.
SELECTED STATEMENT OF OPERATIONS INFORMATION
Three Months Ended Three Months Ended
--------------------------------------------------------------
June 30, 2003 June 30, 2002
--------------------------------------------------------------
Net Revenues $ - $ 306
--------------------------------------------------------------
Operating expenses $ 1,469,690 $ 2,110,846
--------------------------------------------------------------
Net loss $(1,469,690) $(2,110,540)
---------------------------------------------------------
Discussion of the three months ended June 30, 2003 compared with the three
months ended June 30, 2002.
Net revenue totaled $0 for the three months ended June 30, 2003. Net revenue of
$306 were earned for the three months ended June 30, 2002.
Operating expenses decreased to $1,469,690 for the three months ended June 30,
2003 from $2,110,846 for the same period in 2002. The decrease in operating
expenses over the same quarter in 2002 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 $332,254 for the three months ended June 30, 2003 as
compared to $367,437 for the same period in 2002. The decrease in 2003 as
compared to 2002 arose primarily from the decreased labor force, which we have
restructured to accommodate our new direction into the telecom, telematics and
TV/Internet appliance initiatives. Legal and consulting expenses decreased to
$84,873 for the three months ended June 30, 2003 from $136,186 for the same
period in 2002. Depreciation and amortization expenses decreased to $173,658 for
the three months ended June 30, 2003 from $213,216 for the same period in the
prior year, primarily due to the full depreciation of some computer equipment in
2002 . Amortization and Depreciation expenses consisted of patent and
trademarks, computer equipment, consultant fees, and tradeshow booth. Interest
expense decreased to $500,726 in 2003, as compared to $820,807 in 2002.
We had a net loss of $1,469,690 or basic and diluted net loss per share of $0.03
for the three months ended June 30, 2003 compared to $2,110,540 or basic and
diluted net loss per share of $0.07 for the same period in 2002.
SELECTED STATEMENT OF OPERATIONS INFORMATION
Six Months Ended Six Months Ended
--------------------------------------------------------------------------
June 30, 2003 June 30, 2002
--------------------------------------------------------------------------
Net Revenue $ - $ 284,931
--------------------------------------------------------------------------
Operating expenses $ 2,901,097 $ 3,998,943
--------------------------------------------------------------------------
Net loss $(2,901,097) $(3,744,197)
--------------------------------------------------------------------------
18
Discussion of the six months ended June 30, 2003 compared with the six months
ended June 30, 2002.
Net revenue totaled $0 for the six months ended June 30, 2003. Net revenue of
$284,931 were earned for the six months ended June 30, 2002. The recognition of
revenues in the first six months of 2002 resulted primarily from product
licensing and work performed for Warner Home Video.
Operating expenses decreased to $2,901,097 for the six months ended June 30,
2003 from $3,998,943 for the same period in 2002. The net decrease in operating
expenses over the same quarter in 2002 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. Non-cash interest expense decreased to $951,509 for the six months ended
June 30, 2003, as compared to $1,430,404 for the same period in 2002. Salary and
wage expense decreased to $659,622 for the six months ended June 30, 2003 as
compared to $744,468 for the same period in 2002. The decrease in 2003 as
compared to 2002 arose primarily from the decreased labor force, which we have
restructured to accommodate our new direction into the telecom, telematics and
TV/Internet appliance initiatives. Advertising and promotion expense totaled $0
for the six months ended June 30, 2003 as compared to $18,591 for the same
period in 2002. Advertising and promotion expense reduction resulted from the
company discontinuing all direct to consumer marketing campaigns and focusing on
other distribution channels. Professional fees and consulting expenses decreased
to $145,638 for the six months ended June 30, 2003 from $304,914 for the same
period in 2002. Depreciation and amortization expenses decreased to $369,747 for
the six months ended June 30, 2003 from $424,517 for the same period in the
prior year, primarily due to the full amortization of some computer equipment.
Amortization and Depreciation expenses consisted of patent and trademarks,
computer equipment, consultant fees, and tradeshow booth.
We had a net loss of $2,901,097 or basic and diluted net loss per share of $0.06
for the six months ended June 30, 2003 compared to $3,744,197 or basic and
diluted net loss per share of $0.13 for the same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, we had negative working capital of $461,016 as compared with
$404,432 at June 30, 2002.
Net cash used for operating activities was $706,351 for the quarter ended June
30, 2003 compared to $754,176 for the quarter ended June 30, 2002. During the
six months ended June 30, 2003, net cash used for operating activities was
$1,328,261 compared to $1,998,932 for the six months ended June 30, 2002. From
inception on January 1, 1999 to June 30, 2003, net cash used for operating
activities was $20,305,096.
Net cash used for investing activities was $61,789 for the quarter ended June
30, 2003 compared to $8,978 for the quarter ended June 30, 2002. During the six
months ended June 30, 2003, net cash used for investing activities was $100,606
compared to $16,154 for the six months ended June 30, 2002. From inception on
January 1, 1999 to June 30, 2003, net cash used for investing activities was
$4,737,764.
Net cash provided by financing activities was $796,750 for the quarter ended
June 30, 2003 compared to $723,831 for the quarter ended June 30, 2002. During
the six months ended June 30, 2003, net cash provided by financing activities
was $796,750 compared to $2,049,833 for the six months ended June 30, 2002. From
inception on January 1, 1999 to June 30, 2003 net cash provided by financing
activities was $25,155,898.
We incurred a net loss of $1,469,690 during the quarter ended June 30, 2003, and
had an accumulated deficit of $29,428,133. Our losses through June 2003 included
interest expense, amortization of software licensing agreements and development
costs and operational and promotional expenses. Sales of our debt securities
with embedded equity features have allowed us to maintain a positive cash flow
balance from financing activities.
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 our solutions in the market on the part of wireless carriers or
other customers; potential reduction in wireless carriers which could lead to
19
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.
We have secured financing that we believe will sustain operations up to
September 2003 and we continue to work closely with our current investors to
secure additional funding. We continue to rely heavily on our current funding
sources, which have financed us since 2001, until we are operationally
breakeven. The losses through the quarter ended June 30, 2003 were due to no
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.
ITEM 3. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
the Company's management, including the Chief Executive Officer and the Chief
Accounting Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the Chief Executive Officer and the Chief
Accounting Officer, concluded that the Company's disclosure controls and
procedures were effective as of June 30, 2003. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls at June 30, 2003.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The securities described below represent our securities sold by us for the
period starting from January 1, 2002 to June 30, 2003 that were not registered
under the Securities Act of 1933, as amended, all of which were issued by us
pursuant to exemptions under the Securities Act. Underwriters were involved in
none of these transactions.
PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS FOR CASH
None.
SALES OF DEBT AND WARRANTS FOR CASH
On April 10, 2003, we entered into a securities purchase agreement with four
accredited investors, Alpha Capital Aktiengesellschaft, Ellis Enterprises Ltd.,
Greenwich Growth Fund Limited, and 01144 Limited for the issuance of 4%
convertible debentures in the aggregate amount of $600,000. The notes bear
interest at 4%, mature on April 10, 2005, and are convertible into our common
stock, at the holders' option, at the lower of (i) $0.1166 or (ii) 80% of the
average of the five 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 April 10, 2005
without the consent of the holder. The full principal amount of the convertible
notes are due upon default under the terms of convertible notes. In addition, we
issued an aggregate of 350,004 warrant to the investors. The warrants are
exercisable until April 10, 2008 at a purchase price of $.1272 per share. The
offering of convertible debentures was exempt from registration under Rule 506
of Regulation D and under Section 4(2) of the Securities Act. No advertising or
general solicitation was employed in offering the securities. All persons were
accredited investors, represented that they were capable of analyzing the merits
and risks of their investment.
On June 30, 2003, the Company entered into a securities purchase agreement with
two accredited investors, Alpha Capital Aktiengesellschaft, and Bristol
Investment Fund Limited for the issuance of 4% convertible debentures in the
aggregate amount of $500,000. The notes bear interest at 4% (effective interest
rate of 80% on the aggregate amount), mature on June 20, 2005, and are
20
convertible into the Company's common stock, at the holders' option, at the
lower of (i) $0.1023 or (ii) 80% of the average of the five 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 June 30, 2005 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 291,670
warrants to the investors. The warrants are exercisable until June 30, 2008 at a
purchase price of $.1116 per share. Net proceeds will amount to approximately
$450,000, net of debt issue cash cost of $50,000. Pursuant to this offering, the
Company has already received $300,000 and anticipates the remaining $200,000 by
August 18, 2003. The offering of convertible debentures was exempt from
registration under Rule 506 of Regulation D and under Section 4(2) of the
Securities Act. No advertising or general solicitation was employed in offering
the securities. All persons were accredited investors, represented that they
were capable of analyzing the merits and risks of their investment.
OPTION GRANTS
During the quarter ended June 30, 2003, we issued an aggregate total of 75,000
options to new employees.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
None.
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.
ITEM 6. EXHIBITS AND REPORTS ON 8-K:
(a) Exhibits.
Exhibit Number Description
-------------- -----------
31.1 Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) No reports on Form 8-K were filed during the fiscal quarter ended June
30, 2003.
21
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: AUGUST 13, 2003 BY: /S/ DEAN WEBER
----------------------------------------------
DEAN WEBER, CHAIRMAN & CHIEF EXECUTIVE OFFICER
DATE: AUGUST 13, 2003 BY: /S/ RAHOUL SHARAN
----------------------------------------------
RAHOUL SHARAN, CHIEF FINANCIAL OFFICER
22