As filed with the Securities and Exchange Commission on December 4, 2002
An Exhibit List can be found on page II-3.
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ONE VOICE TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
NEVADA 7372 95-4714338
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
6333 GREENWICH DRIVE, SUITE 240
SAN DIEGO, CALIFORNIA 92122
(858) 552-4466
(Address and telephone number of principal executive offices and
principal place of business)
DEAN WEBER, PRESIDENT
ONE VOICE TECHNOLOGIES, INC.
6333 GREENWICH DRIVE, SUITE 240
SAN DIEGO, CALIFORNIA 92122
(858) 552-4466
(Name, address and telephone number of agent for service)
________________________
Copies to:
Gregory Sichenzia, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Flr.
New York, New York 10018
(212) 930-9700
(212) 930-9725 (fax)
________________________
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
________________________
CALCULATION OF REGISTRATION FEE
============================================= ================= ==================== ===================== ==============
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SECURITY(1) PRICE FEE
--------------------------------------------- ----------------- -------------------- --------------------- --------------
Shares of common stock, $.001 par value (2) 18,924,434 $0.23 $4,352,619.82 $400.44
Shares of common stock, $.001 par value (3) 670,842 $0.23 $ 154,293.66 $ 14.20
Total 19,595,276 $4,506,913.48 $414.64
============================================= ================= ==================== ===================== ==============
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of
1933, using the average of the high and low price as reported on the
Over-the-Counter Bulletin Board on December 2, 2002.
(2) Represents shares underlying convertible debentures. (3) Represents shares
underlying warrants exercisable at $.27 per share.
________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 3, 2002
The information in this prospectus is not complete and may be changed.
One Voice Technologies, Inc.
19,595,276 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholder of
19,595,276 shares of our common stock, based on current market prices. The
selling stockholder may sell common stock from time to time in the principal
market on which the stock is traded at the prevailing market price or in
negotiated transactions. The selling stockholder is deemed an underwriter of the
shares of common stock, which they are offering.
We will pay the expenses of registering these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the NASD Over-The-Counter Bulletin Board
under the symbol "ONEV." The last reported sales price per share of our common
stock as reported by the NASD Over-The-Counter Bulletin Board on December 2,
2002, was $.23.
_____________________
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE _.
_____________________
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is December __, 2002.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS
PROSPECTUS IS INCLUDED IN THE REGISTRATION STATEMENT THAT WAS FILED BY ONE VOICE
TECHNOLOGIES, INC., WITH THE SECURITIES AND EXCHANGE COMMISSION. THE SELLING
STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN THE SECURITIES. BEFORE MAKING AN INVESTMENT
DECISION, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK
FACTORS" SECTION, THE FINANCIAL STATEMENTS AND THE NOTES TO THE FINANCIAL
STATEMENTS.
ONE VOICE TECHNOLOGIES, INC.
We are a developer of 4th generation voice solutions for the telecom,
telematics, television and Internet appliance, and personal computer markets.
Our Intelligent Voice(TM) solutions employ patented and patent pending
technology that allows people to use their voice to compose, send and receive
messages, purchase products, access information, and control devices.
Our technology allows people to talk with computers and wireless
devices, such as cellular phones and personal digital assistants, in a way that
has not been seen in any commercial product to date. Our technology engine
allows worldwide consumers to talk, as if they were speaking to another person,
and instantaneously access and interact with content on the World Wide Web.
Internet users can talk with any website to search and find information through
an interactive and entertaining experience.
Our development efforts are focused on MobileVoice Messaging in the
wireless market. This sector has both business and consumer market applications.
MobileVoice Messaging is the only solution available that gives wireless phone
users the ability to address, compose and send e-mail, phone to phone and paging
messages using only their voice.
Our initial product is the first in our line of intelligent voice
interactive solutions. Our software is based on artificial intelligence that
allows people to talk with their computers and wireless devices through everyday
common speech. Our artificial intelligence technology is so advanced that it
understands not only simple phrases but advanced linguistic concepts such as
topic, subject and synonym relationships. By asking the user relevant questions,
our software system can help clarify and learn from the user's requests.
The Offering
Common stock offered by selling stockholders Up to 19,595,276 shares, based
(includes warrants and 200% of the shares on current market prices and
underlying convertible notes................ assuming full conversion of the
convertible note, with interest
for two years. This number
represents 34.12% of our current
outstanding stock
Common stock to be outstanding after the
offering.................................... Up to 57,424,257 shares
Use of proceeds............................. We will not receive any proceeds
from the sale of the common
stock.
Over-The-Counter Bulletin Board ............ ONEV
The above information is based on 37,828,981 shares of common stock
outstanding as of November 19, 2002 and assumes the subsequent conversion of our
issued convertible note, with interest, and exercise of warrants by our selling
stockholder
2
RISK FACTORS
THIS INVESTMENT HAS A HIGH DEGREE OF RISK. BEFORE YOU INVEST YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE HARMED AND THE
VALUE OF OUR STOCK COULD GO DOWN. THIS MEANS YOU COULD LOSE ALL OR A PART OF
YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS:
WE HAVE LOST MONEY SINCE INCEPTION. WE EXPECT FUTURE LOSSES AND WE MAY NEVER
BECOME PROFITABLE.
Since inception, we have incurred significant losses. We expect to
continue to incur net losses until sales generate sufficient revenues to fund
our continuing operations. We may fail to achieve significant revenues from
sales or achieve or sustain profitability. There can be no assurance of when, if
ever, we will be profitable or be able to maintain profitability.
IF WE DO NOT BECOME PROFITABLE WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONS.
Our future sales and profitability depend in part on our ability to
demonstrate to prospective customers the potential performance advantages of
using voice interface software. To date, commercial sales of our software have
been limited. A lack of a proven market or market studies for our product means
that while we, software engineers and software magazine writers may believe the
public will enthusiastically accept voice interface software, the true market
for this product may be minor or nonexistent. This could result in little or no
sales revenue without which we will not be able to continue our operations
indefinitely.
WE HAVE A LIMITED OPERATING HISTORY WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS.
Our current corporate entity commenced operations in 1999 and has a
limited operating history. We have limited financial results on which you can
assess our future success. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by growing companies in
new and rapidly evolving markets, such as voice recognition software, media
delivery systems and electronic commerce.
To address the risks and uncertainties we face, we must:
-- establish and maintain broad market acceptance of our products
and services and convert that acceptance into direct and
indirect sources of revenues;
-- maintain and enhance our brand name;
-- continue to timely and successfully develop new products,
product features and services and increase the functionality
and features of existing products;
-- successfully respond to competition from Microsoft and others,
including emerging technologies and solutions; and
-- develop and maintain strategic relationships to enhance the
distribution, features and utility of our products and
services.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING OUR BUSINESS OPERATIONS WILL BE
HARMED.
We believe that our available short-term assets and investment income
will be sufficient to meet our operating expenses and capital expenditures
through the end of fiscal year 2002. We do not know if additional financing will
be available when needed, or if it is available, if it will be available on
acceptable terms. Insufficient funds may prevent us from implementing our
business strategy or may require us to delay, scale back or eliminate certain
contracts for the provision of voice interface software.
3
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.
As a result of our limited operating history and the rapidly changing
nature of the markets in which we compete, our quarterly and annual revenues and
operating results are likely to fluctuate from period to period. These
fluctuations may be caused by a number of factors, many of which are beyond our
control. These factors include the following, as well as others discussed
elsewhere in this section:
-- how and when we introduce new products and services and
enhance our existing products and services;
-- our ability to attract and retain new customers and satisfy
our customers' demands;
-- the timing and success of our brand-building and marketing
campaigns;
-- our ability to establish and maintain strategic relationships;
-- our ability to attract, train and retain key personnel;
-- the demand for voice recognition Internet search software
applications;
-- the emergence and success of new and existing competition;
-- varying operating costs and capital expenditures related to
the expansion of our business operations and infrastructure,
domestically and internationally, including the hiring of new
employees;
-- technical difficulties with our products, system downtime,
system failures or interruptions in Internet access;
-- changes in the mix of products and services that we sell to
our customers;
-- costs and effects related to the acquisition of businesses or
technology and related integration; and
-- costs of litigation and intellectual property protection.
In addition, because the market for our products and services is
relatively new and rapidly changing, it is difficult to predict future financial
results.
For these reasons, you should not rely on period-to-period comparisons
of our financial results, if any, as indications of future results. Our future
operating results could fall below the expectations of public market analysts or
investors and significantly reduce the market price of our common stock.
Fluctuations in our operating results will likely increase the volatility of our
stock price.
WE ARE A DEVELOPMENT-STAGE COMPANY AND UNEXPECTED OR UNCONTROLLABLE BUSINESS OR
ECONOMIC FORCES ARE MORE LIKELY TO HARM US.
We are in the development or starting stages of our business plan and
are therefore more vulnerable to unexpected or uncontrollable business and
economic forces. We lack any loyalty and brand name recognition from potential
customers and business partners. Unknown software errors may not be corrected in
time to develop a sustainable customer base. Unfavorable product reviews or news
reports could squelch early sales efforts. A competitor may quickly release a
better version of a similar product before we can complete our development
efforts. Economic conditions such as a national or world recession,
international trade restrictions on computer product sales, or a slowdown in new
technology growth could reduce our revenues below financially-healthy levels.
The risks of a development-stage company include a lack of job security for
employees and the possible loss of all investment funds by investors
OUR CURRENT AND POTENTIAL COMPETITORS, SOME OF WHOM HAVE GREATER RESOURCES AND
EXPERIENCE THAN WE DO, MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAY CAUSE
DEMAND FOR, AND THE PRICES OF, OUR PRODUCTS TO DECLINE.
A number of companies have developed, or are expected to develop,
products that compete with our products. Competitors in the voice interface
software market include IBM, Lernout and Hauspie Speech Products, SpeechWorks
and Nuance. We expect additional competition from other companies such as
Microsoft, who has recently made investments in, and acquired, voice interface
technology companies. Furthermore, our competitors may combine with each other,
and other companies may enter our markets by acquiring or entering into
strategic relationships with our competitors. Current and potential competitors
have established, or may establish, cooperative relationships among themselves
or with third parties to increase the abilities of their advanced speech and
language technology products to address the needs of our prospective customers.
4
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products comparable
or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends and standards or customer requirements,
or devote greater resources to the development, promotion and sale of their
products than we do. Accordingly, we may not be able to compete effectively in
our markets, competition may intensify and future competition may harm our
business.
ANY INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY COULD HARM OUR
ABILITY TO COMPETE.
Our future success and ability to compete depends in part upon our
proprietary technology and our trademarks, which we attempt to protect with a
combination of patent, copyright, trademark and trade secret laws, as well as
with our confidentiality procedures and contractual provisions. These legal
protections afford only limited protection and are time-consuming and expensive
to obtain and/or maintain. Further, despite our efforts, we may be unable to
prevent third parties from infringing upon or misappropriating our intellectual
property.
We have recently been issued our first patent. In addition we have
recieived a notice of allowance regarding a second and third patent. Any patents
that are issued to us could be invalidated, circumvented or challenged. If
challenged, our patents might not be upheld or their claims could be narrowed.
Our intellectual property may not be adequate to provide us with competitive
advantage or to prevent competitors from entering the markets for our products.
Additionally, our competitors could independently develop non-infringing
technologies that are competitive with, equivalent to, and/or superior to our
technology. Monitoring infringement and/or misappropriation of intellectual
property can be difficult, and there is no guarantee that we would detect any
infringement or misappropriation of our proprietary rights. Even if we do detect
infringement or misappropriation of our proprietary rights, litigation to
enforce these rights could cause us to divert financial and other resources away
from our business operations. Further, we license our products internationally,
and the laws of some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the United States.
OUR PRODUCTS MAY INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS AND
RESULTING CLAIMS AGAINST US COULD BE COSTLY AND REQUIRE US TO ENTER INTO
DISADVANTAGEOUS LICENSE OR ROYALTY ARRANGEMENTS.
The software industry is characterized by the existence of a large
number of patents and frequent litigation based on allegations of patent
infringement and the violation of intellectual property rights. Although we
attempt to avoid infringing upon known proprietary rights of third parties, we
may be subject to legal proceedings and claims for alleged infringement by us or
our licensees of third-party proprietary rights, such as patents, trade secrets,
trademarks or copyrights, from time to time in the ordinary course of business.
Any claims relating to the infringement of third-party proprietary rights, even
if not successful or meritorious, could result in costly litigation, divert
resources and management's attention or require us to enter into royalty or
license agreements which are not advantageous to us. In addition, parties making
these claims may be able to obtain injunctions, which could prevent us from
selling our products. Furthermore, former employers of our employees may assert
that these employees have improperly disclosed confidential or proprietary
information to us. Any of these results could harm our business. We may be
increasingly subject to infringement claims as the number of, and number of
features of, our products grow.
IF THE STANDARDS WE HAVE SELECTED TO SUPPORT ARE NOT ADOPTED AS THE STANDARDS
FOR SPEECH-ACTIVATED SOFTWARE, BUSINESSES MIGHT NOT USE OUR SPEECH-ACTIVATED
SOFTWARE PLATFORM FOR DELIVERY OF APPLICATIONS AND SERVICES, AND OUR REVENUE
GROWTH COULD BE NEGATIVELY AFFECTED.
The market for speech-activated services software is new and emerging.
Certain industry software standards have, however, been established but may
change as the technology evolves. We may not be competitive unless our products
support changing industry software standards. The emergence of industry
standards other than those we have selected to support, whether through adoption
by official standards committees or widespread usage, could require costly and
time consuming redesign of our products. If these standards become widespread
and our products do not support them, our clients and potential clients may not
purchase our products, and our revenue growth could be adversely affected.
Multiple standards in the marketplace could also make it difficult for us to
design our products to support all applicable standards, which could also result
in decreased sales of our products.
5
OUR FAILURE TO RESPOND TO RAPID CHANGE IN THE MARKET FOR SPEECH-ACTIVATED
SERVICES SOFTWARE COULD CAUSE US TO LOSE REVENUE AND HARM OUR BUSINESS.
The speech-activated services software industry is relatively new and
rapidly evolving. Our success will depend substantially upon our ability to
enhance our existing products and to develop and introduce, on a timely and
cost-effective basis, new products and features that meet changing end-user
requirements and incorporate technological advancements. If we are unable to
develop new products and enhanced functionalities or technologies to adapt to
these changes, or if we cannot offset a decline in revenue from existing
products with sales of new products, our business will suffer.
Commercial acceptance of our products and technologies will depend,
among other things, on:
-- the ability of our products and technologies to meet and adapt
to the needs of our target markets;
-- the performance and price of our products as compared to our
competitors' products;
-- our ability to deliver customer service directly and through
our resellers; and
-- the ability of our customers to utilize our product.
OUR PRODUCTS MAY NOT BE 100% ACCURATE AT RECOGNIZING SPEECH OR AUTHENTICATING
SPEAKER IDENTITIES AND WE COULD BE SUBJECT TO CLAIMS RELATED TO THE PERFORMANCE
OF OUR PRODUCTS. ANY CLAIMS, WHETHER SUCCESSFUL OR UNSUCCESSFUL, COULD RESULT IN
SIGNIFICANT COSTS AND COULD DAMAGE OUR REPUTATION.
Speech recognition, natural language understanding and authentication
technologies, including our own, are not 100% accurate. Our customers will use
our products to provide important services to their customers. Any
misrecognition of voice commands or incorrect authentication of a user's voice
in connection with these transactions could result in claims against us or our
customers for losses incurred. Although our contracts will typically contain
provisions designed to limit our exposure to liability claims, a claim brought
against us for misrecognition or incorrect authentication, even if unsuccessful,
could be time-consuming, divert management's attention, result in costly
litigation and harm our reputation. Moreover, existing or future laws or
unfavorable judicial decisions could limit the enforceability of the limitation
of liability, disclaimer of warranty or other protective provisions contained in
our contracts.
THERE ARE RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS MADE BY US AND ACTUAL
RESULTS MAY DIFFER.
Some of the information in this Form SB-2 contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
-- discuss our future expectations;
-- contain projections of our future results of operations or of
our financial condition; and
-- state other "forward-looking" information.
We believe it is important to communicate our expectations. However,
there may be events in the future that we are not able to accurately predict or
over which we have no control. The risk factors listed in this section, as well
as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. You should
be aware that the occurrence of the events described in these risk factors could
have an adverse effect on our business, results of operations and financial
condition.
6
RISKS RELATING TO OUR CURRENT FINANCING AGREEMENT:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE NOTES, AND
WARRANTS THAT ARE BEING REGISTERED IN THIS PROSPECTUS SALE AND THE SALE OF THESE
SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
As of November 20, 2002, we had approximately 37,828,981 shares of
common stock issued and outstanding and convertible promissory notes that may be
converted into an estimated 18,924,434 shares of common stock at current market
prices, and outstanding options and warrants to purchase 670,842 share of common
stock. In addition, the number of shares of common stock issuable upon
conversion of the outstanding convertible note may increase if the market price
of our stock declines. All of the shares, including all of the shares issuable
upon conversion of the note and upon exercise of our warrants, may be sold
without restriction. The sale of these shares may adversely affect the market
price of our common stock.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE NOTES
COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES, WHICH WILL
CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of our convertible
securities is essentially limitless.
The following is an example of the amount shares of our common stock
that is issuable, upon conversion of our convertible notes, based on market
prices 25%, 50% and 75% below the market price, as of November 20, 2002 of
$0.23.
With Percentage of
% Below Market Price Per Share Discount of 20% Number of Shares Issuable Outstanding Stock
-------------- --------------- --------------- ------------------------- -----------------
25% $.173 $.138 6,826,086 15%
50% $.115 $.092 10,239,130 21%
75% $.058 $.046 20,478,260 35%
As illustrated, the number of shares of common stock issuable upon conversion of
our convertible notes will increase if the market price of our stock declines,
which will cause dilution to our existing stockholders.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE NOTE AND EXERCISE OF
OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR
EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the convertible note and
exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholder may ultimately convert and sell
the full amount issuable on conversion. Although the selling stockholder may not
convert their convertible note and/or exercise their warrants if such conversion
or exercise would cause them to own more than 4.99% of our outstanding common
stock, this restriction does not prevent the selling stockholder from converting
and/or exercising some of their holdings and then converting the rest of their
holdings. In this way, the selling stockholder could sell more than this limit
while never holding more than this limit. There is no upper limit on the number
of shares that may be issued which will have the effect of further diluting the
proportionate equity interest and voting power of holders of our common stock,
including investors in this offering.
7
RISKS RELATING TO OUR COMMON STOCK:
OUR DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWN APPROXIMATELY 15.96% OF
OUR STOCK; THEIR INTERESTS COULD CONFLICT WITH YOURS; SIGNIFICANT SALES OF STOCK
HELD BY THEM COULD HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE; STOCKHOLDERS MAY
BE UNABLE TO EXERCISE CONTROL.
As of November 19, 2002, our executive officers, directors and
affiliated persons beneficially own approximately 15.96% of our common stock.
Dean Weber, our chief executive officer and chairman of the board, beneficially
owns approximately 14.69% of our common stock. As a result, our executive
officers, directors and affiliated persons will have significant influence to:
-- elect or defeat the election of our directors;
-- amend or prevent amendment of our articles of incorporation or
bylaws;
-- effect or prevent a merger, sale of assets or other corporate
transaction; and
-- control the outcome of any other matter submitted to the
stockholders for vote.
As a result of their ownership and positions, our directors and
executive officers collectively are able to significantly influence all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions. In addition, sales of significant amounts
of shares held by our directors and executive officers, or the prospect of these
sales, could adversely affect the market price of our common stock. Management's
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our stock
price.
IF WE FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE
MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.
Public market analysts and investors have not been able to develop
consistent financial models for the Internet market because of the unpredictable
rate of growth of Internet use, the rapidly changing models of doing business on
the Internet and the Internet's relatively low barriers to entry. As a result,
and because of the other risks discussed in this prospectus, it may be likely
that our actual results will not meet the expectations of public market analysts
and investors in future periods. If this occurs, the price of our common stock
will likely fall.
OUR COMMON STOCK IS SUBJECT TO "PENNY STOCK" RULES.
The Securities and Exchange Commission (the "Commission") has adopted
Rule 15g-9 which establishes the definition of a "penny stock," for the purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading and about the commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks
8
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by the selling stockholder of our company.
There will be no proceeds to our company from the sale of shares of common stock
in this offering.
9
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the NASD Over-The-Counter Bulletin Board
under the symbol "ONEV." The Over-The-Counter Bulletin Board is sponsored by the
National Association of Securities Dealers (NASD) and is a network of security
dealers who buy and sell stocks.
For the periods indicated, the following table sets forth the high and
low bid prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
Low High
--- ----
2000
----
First Quarter 8.00 27.75
Second Quarter 9.00 24.00
Third Quarter 6.56 17.25
Fourth Quarter 1.13 9.75
2001
----
First Quarter .9375 2.4844
Second Quarter .34 2.75
Third Quarter .45 1.20
Fourth Quarter .20 .82
2002
----
First Quarter .37 1.03
Second Quarter .23 .79
Third Quarter .13 .36
Fourth Quarter* .18 .29
*(as of November 19, 2002)
As of November 20, 2002, our common stock shares were held by 3,035
stockholders of record. We believe that the number of beneficial owners is
substantially greater than the number of record holders because a significant
portion of our outstanding common stock is held of record in broker "street
names" for the benefit of individual investors. The transfer agent of our common
stock is Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite
430, Denver, Colorado 80209.
DIVIDEND POLICY
Our board of directors determines any payment of dividends. We do not
expect to authorize the payment of cash dividends in the foreseeable future. Any
future decision with respect to dividends will depend on future earnings,
operations, capital requirements and availability, restrictions in future
financing agreements, and other business and financial considerations.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR PLAN OF OPERATION SHOULD
BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE RELATED NOTES. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934 WHICH ARE BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. OUR
ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS," "BUSINESS" AND
ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS."
OVERVIEW
With millions of PC-based voice products deployed globally, One Voice
is one of the voice sectors top technology providers behind Microsoft. One Voice
has the products and technology to develop voice driven user interfaces for the
Telecom, Interactive Multimedia and Telematics markets.
Our sales goals are divided into both near-term and long-term
objectives. In the near-term, we are heavily targeting the Interactive
Multimedia sector. This sector includes Home Video DVD revenue by integrating
our voice technology on DVD-ROM content. Our product, called One Voice DVD(TM),
allows motion picture studios to add voice technology to their DVD-ROM special
features. This allows viewers to voice navigate the DVD-ROM, play interactive
voice driven games, and much more. The One Voice DVD product is a creative tool
for content developers and works seamlessly with standard tools including HTML,
JavaScript and Macromedia Flash. To date, we have generated revenue from three
DVD-ROM titles in up to six languages for worldwide distribution. Our first
premier customer in this sector was Warner Home Video who selected One Voice to
create a spellbinding experience for their super blockbuster hit Harry Potter
and the Sorcerer's Stone. One Voice DVD(TM) allows viewers to talk to the Harry
Potter character to voice navigate the DVD-ROM special features and is included
on all Harry Potter and the Sorcerer's Stone DVD's sold globally. Subsequently,
we have generated sales from two additional DVD titles. We see this segment of
the business will continue to grow as voice gains exposure in the Home
Entertainment sector. We feel One Voice is in a strong position to prosper from
growth in this industry by having the Warner Home Video account and our strong
partnership with InterActual, a leading technology provider and integrator in
this sector. We are currently in talks with several other major motion picture
studios regarding our voice solutions for their DVD-ROM content.
Additional near-term revenue goals in our Interactive Multimedia
segment include bundling our IVAN technology with PC and Tablet PC
manufacturers. We are currently in talks with several major PC manufacturers to
bundle our technology on their PC's. We feel the need for powerful voice
solutions in this sector has never been higher. Today, the vast majority of new
PC's are multimedia enabled which means they ship with a microphone, speakers,
high-end CPU and sound card. Our IVAN product and technology is the only product
in the voice sector to offer free-form, natural conversational input allowing
for a dynamic human-to-computer interaction and free-form natural languages
searching. We believe this segment of the business will grow and eventually lead
to revenue generation due to renewed interest from PC manufacturers and the
recent launch of the new Tablet PC market. The Tablet PC market is strongly
supported by Microsoft, which recently launched Windows XP Tablet PC Edition. We
announced a partnering with Philips Electronics (NYSE: PHG) to jointly develop
voice-enabled applications for the Tablet PC sector. Our partnering with Philips
will accelerate our technological development of voice solutions in multiple
languages with support in up to 20 languages.
Our long-term sales goals are in the Telecom sector to develop voice
subscriber services for wireless and wireline carriers. Our MobileVoice(TM)
Platform consists of a comprehensive suite of voice services which include:
Voice-Dialing, E-Mail Reading, E-Mail Sending and Voice-to-Text Messaging. One
Voice is the first and only company to offer free-form Voice-to-Text Email, SMS,
Instant Messaging and Paging from any phone, all by voice. This technology was
designed based on years of R&D and patented technology. MobileVoice delivers
high accuracy performance in mobile environments. It operates in a speaker
independent mode for services including Voice-Activated Dialing, Email Readback
and Voice Mail. For Voice-to-Text messaging the system can be trained to
recognize the user's speech in just seven minutes. Once training is completed,
the system allows subscribers to send free-form SMS, E-Mail and Paging messages
to anyone, anytime and from any phone. We see tremendous revenue opportunity and
growth potential for our solutions in this sector and are currently in the
proposal stage with two large carriers. Additionally, we are in talks with
wireline and digital telephone cable operators along with several wireless
11
carriers. The market for voice subscriber services is growing but the sales
cycle is longer than the Interactive Multimedia segment of our business. This is
due to many factors including the slowdown in the Telecom sector and the
multi-decision, multi-departmental sales process typical with carriers.
Recently, we announced a partnering with Philips Electronics to offer
speech-enabled telephony solutions to European carriers. Our partnering with
Philips has proven to be very successful resulting in several introductions and
on-going discussions with carriers in Europe. We also announced a partnering
with IBM where IBM has funded testing of our MobileVoice solutions in their
in-house labs. This has resulted in the qualification of MobileVoice on IBM
xSeries servers and the development of joint sales/marketing materials for both
companies.
To further support our near-term and long-term sales goals we are
finalizing additional funding with our current investors. This latest round of
funding is anticipated to close shortly and will give us working capital for the
next five months. We anticipate our working capital will increase with
additional revenue that we feel can be generated during this timeframe. It is
our goal to become operationally breakeven over the next 12 months and feel
confident our investors will fund us to achieve this goal.
In July 2002, we announced impressive results from a major quantitative
research study among current mobile phone subscribers in the U.S. The study was
conducted with subscribers from carriers including: Verizon, Cingular, AT&T
Wireless, Sprint PCS and Nextel. As representative of the entire subscriber base
of these carriers, the results were overwhelming in terms of demand and
willingness to pay for One Voice's MobileVoice Activated Dialing, MobileVoice
Send and MobileVoice Read services. The study was performed by the independent
firm Harris Interactive, one of the world's largest and most respected market
research firms and creator of the well-known Harris Poll(TM). The study
delivered results that are highly accurate (+/- 4%) in terms of representation
of the entire customer base and the ability to project the results. The study
also showed that an overwhelming majority (over 75%) of mobile phone users were
interested in MobileVoice and were willing to pay an average of $20 per month
incremental to their current phone bill. Specifically, the percentages of mobile
phone users indicating interest in MobileVoice were as follows: MobileVoice
Activated Dialing (76%), MobileVoice Send - sending E-Mail, Instant and SMS
messages (63%) and MobileVoice Read - E-Mail reader (49%). These results
highlight the opportunity for the MobileVoice services and the ability to
generate incremental revenue, with high margins, for carriers who are under
increasing profit pressure and are looking for ways to generate incremental
revenue from their existing infrastructure and handsets, while minimizing
capital expenditures. The MobileVoice services utilize existing infrastructure
equipment, require little upfront carrier cost and can be offered to 100% of a
carrier's subscriber base immediately, regardless of the phone make, model or
technology (GSM, CDMA, TDMA, iDEN).
In July 2002, we announced we had joined Microsoft, Cisco, Intel,
Comverse and several other industry leading companies in the SALT (Speech
Application Language Tags) Forum. The SALT Forum is chartered with developing an
open, platform-independent solution for telephony and multimodal speech
applications. This Forum brings together a diverse group of companies sharing a
common interest in developing and promoting speech technologies for multimodal
applications.
In July 2002, we were selected by The Kelsey Group, a leading research
firm focused on wireless and next-generation communications networks, to
demonstrate our MobileVoice solutions at the Cool Demo Lounge portion of the
VOX2002 conference. We were selected as one of a small number of industry
leaders to demonstrate breakthrough wireless applications. The Kelsey Group
expects voice-activation of `everyday' services to have a much needed multiplier
effect on telecommunications carriers' top line revenues. The conference focused
on voice and wireless applications and their use in a variety of markets.
Attendees include telecommunications operators, unified messaging vendors and
corporations interested in applying voice technology in a variety of different
solutions. The Cool Demo Lounge event focused on hot new applications that solve
real world problems and drive return on investment in the wireless
telecommunications industry. During our presentation, we sent a Voice-to-Text
E-Mail, SMS and Paging message consisting of "The Pledge of Allegiance" spoken
into a mobile phone and sent as a text message to multiple wireless devices.
This demonstration was significant as it showcased our outstanding technology to
the voice industry and highlighted the fact that we are the first and only
company with Voice-to-Text mobile capabilities that addresses real-world
solutions for mobile text messaging by voice.
In July 2002, we were selected by SAIC (Science Applications
International Corporation), a leading technology integrator for the government
and telecommunications industries, to be included in their Request For
Information (RFI) for a telematics solution for a large automotive manufacturer.
12
We were selected for inclusion in this RFI based on our technology and expertise
in the voice sector. SAIC assembled a team of companies, including One Voice, to
provide a telematics solution for the requesting automotive manufacturer. Our
position on the team would be to create the voice interface for the project.
Subsequently, we were informed that SAIC was not awarded this contract.
In July 2002, we were selected by an educational software company to
develop a prototype voice driven PC based application. Both companies jointly
agreed to work together to add our voice technology into one of their existing
PC based educational titles. This prototype was completed in August 2002 and
will be evaluated for full deployment in their educational titles. If accepted,
we anticipate this project to be royalty based with domestic distribution. We
are in continued talks with this company to identify appropriate titles for
voice interactivity if their decision is to move forward with this project.
In August 2002, we announced that we received a Nasdaq Staff
Determination on August 14, 2002 that we failed to comply with the Minimum Bid
Price requirement for continued listing as set forth in Marketplace Rule
4310(c)(4). As a result, the common stock of One Voice was removed from The
Nasdaq SmallCap Market and listed on the Over-the-Counter Bulletin Board on
August 22, 2002.
In August 2002, we announced that we have been awarded a patent by the
U.S. Patent and Trademark Office. Specifically, U.S. Patent No. 6,434,524 was
issued covering "Object Interactive User Interface Using Speech Recognition and
Natural Language Processing. The patent was filed in October 1999 and is the
first of a series of patents filed on One Voice's 4th Generation voice
technology covering human to computer interaction with Natural Language
Processing (NLP) intelligence and Speech Recognition input from desktop,
embedded and wireless devices. This is another critical step in establishing our
position in the voice technology market for the wireless and desktop computer
industries. It is a strong validation of our efforts to-date and will pave the
way for advances of our innovative technology in the market.
In September 2002, we announced that One Voice and Philips Electronics'
Speech Processing business unit, a leading provider of speech recognition
technology, will work closely to offer speech-enabled telephony solutions to the
European carrier markets. These solutions will combine technology from both
companies to create European language versions of One Voice's MobileVoice(TM)
E-mail, MobileVoice SMS and MobileVoice InstantMessenger, allowing wireless
phone users the ability to send free-format voice-to-text messages from any
phone, make or model, by using only their voice. Under the partnership, Philips
will provide core speech technology in major European languages and assistance
with integration into One Voice's MobileVoice Platform. MobileVoice is the
industry's only free-format voice-to-text solution available that enables
wireless phone users to compose and send e-mail, SMS (Short Message Service) and
Instant Messaging - using only their voice. This partnership will accelerate the
development of MobileVoice in Spanish, French, German and Italian.
While billions of SMS messages are sent phone-to-phone each year in
Europe, the major obstacle has always been tapping messages on the 10-digit
keypad. A simple message such as "send the sales proposal" takes over 50
keystrokes to enter, while using MobileVoice Messaging you simply speak the
message and it's sent in seconds. The benefits in terms of time, efficiency,
ease of use and hands-free mobility are tremendous and the opportunities to
capture a percentage of the European SMS traffic has large revenue potential for
wireless carriers.
In September 2002, we announced a partnership with IBM to deliver
high-performance, telco-grade solutions for carriers and enterprise customers
around the world. The terms of the partnership include extensive support from
IBM for One Voice's MobileVoice(TM) Platform. This support was funded by IBM and
included rigorous IBM in-house testing of One Voice's MobileVoice Platform and
optimization of the architecture for large-scale deployment in telco and
enterprise environments. IBM will also offer hosting services, integration
support and provide technical assistance as a core part of One Voice's services.
These efforts will provide carriers and enterprise customers with One Voice's
telco-ready solutions, running on IBM's latest xSeries Servers, and will help
accelerate the penetration of these solutions in the carrier and enterprise
markets. Additionally, the two companies will develop joint sales and marketing
plans to maximize MobileVoice's impact in the market.
In September 2002, we announced the completion of the second voice
interactive DVD title for the Warner Home Video box office hit Scooby-Doo: The
Movie. The street date for the DVD was October 11, 2002. We are seeing
tremendous demand for our voice technology in the entertainment industry and
look forward to additional titles in the future. One Voice is in a unique
position currently as the only provider of voice recognition technology for
DVD-ROM titles.
13
In September 2002, we announced that we had received a Notice of
Allowance from the U.S. Patent and Trademark Office regarding its patent
entitled "Interactive User Interface Using Speech Recognition and Natural
Language Processing". This patent, filed in September 1998, is the core and
initial patent in a series of 4th Generation voice technology patents covering
human-to-computer interaction with Natural Language Processing (NLP)
intelligence and Speech Recognition input from desktop, embedded and wireless
devices. One Voice is now entering the final patent stage by filing the
appropriate issuance documents and fees and anticipates formal issuance in the
coming months.
In September 2002, we announced the commercial availability of our
MobileVoice Sync(TM) product - a powerful addition to our portfolio of
server-based messaging applications. MobileVoice Sync(TM) works seamlessly with
Microsoft Outlook(TM) on any user's PC, allowing them to setup their MobileVoice
Voice-Activated Dialing and Email address books with potentially thousands of
names and numbers. Synchronization tools are critical for the adoption and
retention of users to quickly and easily import their contacts. With MobileVoice
Sync(TM), One Voice offers a complete solution from voice services to
synchronization tools.
In October 2002, we announced we would open testing of our MobileVoice
E-Mail services to interested users. We encouraged people of all wireline and
wireless networks (GSM, iDEN, CDMA and TDMA) to participate using any telephone
make or model.
In October 2002, we announced that we have completed extensive testing
of the MobileVoice system at IBM's in-house testing facility. The tests were
completed using IBM's xSeries servers in both a large and small-scale system
configurations. The testing results demonstrated that MobileVoice is capable of
handling millions of subscribers in real-world usage. These results are critical
for carriers looking to deploy large-scale solutions.
In October 2002, we announced that we were awarded a contract to
provide voice interactivity for a third DVD title. The details of the DVD title
will be disclosed at a later date. The potential use of voice technology in the
DVD market as a premium add-on is significant. The major players in the market
are searching for ways to differentiate and add-value in new and exciting ways
to a variety of content. Voice technology is a natural fit, because it adds a
new dimension of interactivity to dynamic DVD content.
In October 2002, we announced that we have completed the development of
our MobileVoice platform in Spanish. The project was started in conjunction with
testing to begin with several carriers in Latin America. This is the first
localization effort of the MobileVoice platform in another language with
full-scale carrier testing to begin shortly. We are leveraging strategic
partnerships with Philips and IBM to open the doors to carriers and enterprise
customers in markets outside the U.S. We have already had several discussions
with carriers outside the U.S. through introductions from our partners. We are
focused on working closely with Philips and IBM to accelerate the penetration
with these carriers.
In November 2002, we announced that we will work closely with Philips
Electronics to offer voice enabled solutions for the Tablet PC market. These
solutions will be targeted at Tablet PC manufacturers as a core component of
their Tablet PC's and will add features including voice navigation, application
launching, Internet browsing, Outlook integration along with e-mail and letter
dictation.
14
RESULTS OF OPERATIONS
The following table sets forth selected information from the statements of
operations for the three months ended September 30, 2002 and 2001.
SELECTED STATEMENT OF OPERATIONS INFORMATION
--------------------------------------------
Quarter Ended Quarter Ended
----------------------------------------------------------------------
September 30, 2002 September 30, 2001
----------------------------------------------------------------------
----------------------------------------------------------------------
Net Revenues $ 30,000 $ 60,818
----------------------------------------------------------------------
Operating expenses $ 1,551,538 $ 2,402,994
----------------------------------------------------------------------
Net loss $(1,521,718) $(2,344,146)
----------------------------------------------------------------------
DISCUSSION OF THE THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THE THREE
MONTHS ENDED SEPTEMBER 30, 2001.
Net revenues totaled $30,000 for the three months ended September 30, 2002. Net
revenues of $60,818 were earned for the three months ended September 30,
2001.The recognition of revenues in the third quarter of 2002 resulted primarily
from work performed in the DVD/Multimedia sector.
Operating expenses decreased to $1,551,538 for the three months ended September
30, 2002 from $2,402,994 for the same period in 2001. The decrease in operating
expenses over the same quarter in 2001 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 $355,606 for the three months ended September 30, 2002 as
compared to $437,284 for the same period in 2001. The decrease in 2002 as
compared to 2001 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
$14,597 for the three months ended September 30, 2002 as compared to $92,335 for
the same period in 2001. Advertising and promotion expense reduction resulted
from the company discontinuing all direct to consumer marketing campaigns and
focusing on other distribution channels. Legal and consulting expenses decreased
to $60,208 for the three months ended September 30, 2002 from $258,638 for the
same period in 2001. Depreciation and amortization expenses decreased to
$213,082 for the three months ended September 30, 2002 from $303,047 for the
same period in the prior year, primarily due to the IBM License having been
fully amortized in the prior period. Amortization and Depreciation expenses
consisted of patent and trademarks, computer equipment, consultant fees, and
tradeshow booth. Interest expense increased to $440,000 in 2002, as compared to
$276,000 in 2001, primarily due to non-cash debt issue cost from warrants
granted, shares issued and beneficial conversion feature.
We had a net loss of $1,521,718 or basic and diluted net loss per share of $0.05
for the three months ended September 30, 2002 compared to $2,344,146 or basic
and diluted net loss per share of $0.16 for the same period in 2001.
15
SELECTED STATEMENT OF OPERATIONS INFORMATION
--------------------------------------------
9 Months Ended 9 Months Ended
----------------------------------------------------------------------
September 30, 2002 September 30, 2001
----------------------------------------------------------------------
----------------------------------------------------------------------
Net Revenues $ 314,931 $ 185,678
----------------------------------------------------------------------
Operating expenses $ 5,550,482 $ 6,527,250
----------------------------------------------------------------------
Net loss $(5,265,915) $(6,367,522)
----------------------------------------------------------------------
DISCUSSION OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THE NINE
MONTHS ENDED SEPTEMBER 30, 2001.
Net revenues totaled $314,931 for the nine months ended September 30, 2002. Net
revenues of $185,678 were earned for the nine months ended September 30, 2001.
The recognition of revenues in the first nine months of 2002 resulted primarily
from work performed for Warner Home Video. The recognition of revenues in the
first nine months of 2001 resulted primarily from product licensing in exchange
for advertising.
Operating expenses decreased to $5,550,482 for the nine months ended September
30, 2002 from $6,527,250 for the same period in 2001. Although non-cash interest
expense associated with debt financing increased over the same period as
compared to the prior year, the majority of all other expense categories
decreased, resulting in an overall reduction in operating expenses for the nine
months ended September 30, 2002 as compared to 2001. Salary and wage expense was
$1,100,075 for the nine months ended September 30, 2002 as compared to
$1,677,305 for the same period in 2001. The decrease in 2002 as compared to 2001
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 $14,597 for the
nine months ended September 30, 2002 as compared to $499,594 for the same period
in 2001. Advertising and promotion expense reduction resulted from the company
discontinuing all direct to consumer marketing campaigns and focusing on other
distribution channels. Legal and consulting expenses decreased to $365,122 for
the nine months ended September 30, 2002 from $574,104 for the same period in
2001. Depreciation and amortization expenses decreased to $637,600 for the nine
months ended September 30, 2002 from $958,896 for the same period in the prior
year, primarily due to the IBM License having been fully amortized in the prior
period. Amortization and Depreciation expenses consisted of patent and
trademarks, computer equipment, consultant fees, and tradeshow booth. Interest
expense increased to $1,870,000 in 2002, as compared to $343,000 in 2001,
primarily due to non-cash debt issue cost from warrants granted, shares issued
and beneficial conversion feature.
We had a net loss of $5,265,915 or basic and diluted net loss per share of $0.18
for the nine months ended September 30, 2002 compared to $6,367,522 or basic and
diluted net loss per share of $0.46 for the same period in 2001.
16
The following table sets forth selected information from the statements of
operations for the twelve months ended December 31, 2001 and 2000.
SELECTED STATEMENT OF OPERATIONS INFORMATION
Year Ended Year Ended
Dec. 31, 2001 Dec. 31, 2000
----------------- -----------------
-----------------------------------------------------------------
Net Revenues $ 185,934 $ 51,193
-----------------------------------------------------------------
Operating expenses $ 8,938,203 $ 9,338,423
-----------------------------------------------------------------
Net loss $(8,778,279) $(9,397,620)
-----------------------------------------------------------------
DISCUSSION OF TWELVE MONTHS ENDED DECEMBER 31, 2001 COMPARED WITH THE TWELVE
MONTHS ENDED DECEMBER 31, 2000.
Net revenues totaled $185,934 for the twelve months ended December 31,
2001, primarily from barter transactions. Net revenues of $51,193 were earned
for the twelve months ended December 31, 2000. The recognition of revenues
resulted primarily from product licensing in exchange for advertising.
Operating expenses decreased to $8,938,203 for the twelve months ended
December 31, 2001 from $9,338,423 for the same period in 2000. The decrease in
operating expense was a direct result of a decrease in salaries and wages,
managements efforts to cut costs primarily from reduced promotional activities
such as tradeshows and a reduction in costly outside services including
consultant activities. Salary and wage expense was $2,109,488 for the twelve
months ended December 31, 2001 as compared to $2,242,508 for the same period in
2000. The decrease in 2001 as compared to 2000 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 $387,844 for the twelve months ended
December 31, 2001 as compared to $689,973 for the same period in 2000.
Advertising and promotion expense reduction resulted from the limited marketing
activities related to the new products which are in development test stage for
the telecom, telematics and TV/Internet appliance markets. Legal and consulting
expenses decreased to $805,929 for the twelve months ended December 31, 2001
from $974,601 for the same period in 2000. Depreciation and amortization
expenses increased to $1,229,215 for the twelve months ended December 31, 2001
from $1,029,990 for the same period in the prior year, primarily due to
amortization of patent and trademarks, computer equipment, consultant fees, and
tradeshow booth.
We had a net loss of $8,778,279 or basic and diluted net loss per share
of $0.59 for the twelve months ended December 31, 2001 compared to $9,397,620 or
basic and diluted net loss per share of $0.76 for the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002 we had working capital of $179,255 as compared
with $1,410,936 at September 30, 2001.
Net cash used for operating activities was $740,658 for the quarter
ended September 30, 2002 compared to $1,171,116 for the quarter ended September
30, 2001. From inception on January 1, 1999 to September 30, 2002, net cash used
for operating activities was $17,898,012.
17
Net cash used for investing activities was $8,427 for the quarter ended
September 30, 2002 compared to net cash provided of $177,724 for the quarter
ended September 30, 2001. From inception on January 1, 1999 to September 30,
2002, net cash used for investing activities was $4,811,184.
Net cash provided by financing activities was $580,400 for the quarter
ended September 30, 2002 compared to $756,000 for the quarter ended September
30, 2001. From inception on January 1, 1999 to September 30, 2002 net cash
provided by financing activities was $23,310,747.
We incurred a net loss of $1,521,718 during the quarter ended September
30, 2002, and had an accumulated deficit of $25,224,029. Our losses through
September 2002 included 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.
Cash flow from sales began in the first quarter 2002.
On August 8, 2002, we entered into securities purchase agreement with
two accredited investor, Stonestreet Limited Partnership and Alpha Capital
Aktiengesellschaft for the issuance of 4% convertible debentures in the
aggregate amount of $650,000. The debentures are convertible into common stock
at a conversion price of the lower of $.242 or 80% of the average of the five
lowest closing bid prices for the common stock thirty days prior to conversion.
In addition, an aggregate of 491,400 common stock purchase warrants were issued
to the investors. Each common stock purchase warrant has an exercise price of
$.252. The commission for the transaction was 8%. 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 August 8, 2002, we repriced Stonestreet's May 2002 investment and
issued them 833,334 shares of common stock. In addition, we repriced
Stonestreet's common stock purchase warrants exercise price to $.20 per share.
The losses through the quarter ended September 30, 2002 were due to
minimal revenue and our operating expenses, with the majority of expenses in the
areas of: debt issue costs, salaries, legal fees, consulting fees, insurance,
licensing cost, as well as amortization expense relating to software
development. 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
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.
SUBSEQUENT EVENT
On November 18, 2002, we entered into securities purchase agreement
with three accredited investor, Ellis Enterprises Ltd., Bristol Investment Fund,
Ltd. and Alpha Capital Aktiengesellschaft for the issuance of 4% convertible
debentures in the aggregate amount of $1,150,000. We have received $575,000 on
November 18, 2002 and will receive an additional $575,000 within five days of
this prospectus being declared effective by the Securities and Exchange
Commission. The debentures are convertible into common stock at a conversion
price of the lower of $.2475 or 80% of the average of the five lowest closing
bid prices for the common stock thirty days prior to conversion. In addition, an
aggregate of 491,400 common stock purchase warrants were issued to the
investors. Each common stock purchase warrant has an exercise price of $.252.
The commission for the transaction was 8%. This prospectus covers the resale by
the selling stockholder of the shares of common stock issuable upon conversion
of the above-referenced debentures and upon exercise of the above-referenced
warrants. 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.
18
BUSINESS
OVERVIEW
One Voice Technologies, Inc. is the industry's founder of 4th Generation voice
solutions for the Telecom, Telematics, TV/Internet and Interactive Multimedia
markets. One Voice's technology allows people to use everyday speech to send and
receive e-mail, instant messages and SMS (Short Message Service), control
devices, access information and purchase products. The Company's solutions have
the opportunity to revolutionize the way people use phones (wired and wireless),
PC's, PDA's, TV's, Internet appliances and automobiles by making them more
mobile, convenient, safer and easier to use. Located in San Diego, California,
the Company has 13 full-time employees and is traded on the NASD
Over-The-Counter Bulletin Board under the symbol "ONEV." One Voice commenced
operations as Conversational Systems, Inc. on January 1, 1999 as a privately
held California corporation, and on July 14, 1999, merged into Dead On, Inc., a
publicly traded company incorporated in Nevada in 1995. On September 9, 1999,
the company officially changed its name to One Voice Technologies, Inc.
One Voice's solutions can be server-based or embedded in devices, each of which
incorporates the most sophisticated 4th Generation Voice Technology in the
market today. Over the past six years, One Voice's engineers have developed
their Intelligent Voice Platform(TM) (IVP) based on patented and patent-pending
speech technology. Designed from the ground up, the system has been optimized
for high performance in any environment and can handle accents, background noise
and data communication limitations that are common in mobile environments around
the world. One Voice's suite of applications offers the only mobile, completely
integrated messaging and Voice Activated Dialing solution. This suite offers
users a comprehensive, voice-based messaging and dialing solution that is
completely hands-free and much faster and easier to use than competitive
products.
MARKET OPPORTUNITY
------------------
The presence of voice technology as an interface in mobile communications is of
paramount importance. Voice interface technology makes portable communications
products mobile, more effective and safer to use. One Voice's development
efforts currently are focused on the Telecom market and more specifically on
mobile communications and mobile messaging. The Messaging market, which has both
business and consumer market applications including: E-mail, Instant Messages,
SMS (Short Message Service), and Paging, is extremely large and is growing at an
astonishing rate. Over six trillion text messages are sent globally every year,
and messaging has also shown the consistent ability to generate significant
revenue. One Voice solutions enable users to send, intelligently route and
receive text messages using voice from any type of phone (wired or wireless)
anywhere in the world.
One Voice's solutions address the entire phone market including analog, digital,
CDMA, TDMA, GSM, iDen and wired phones, allowing telephony carriers and users to
deploy solutions quickly with little additional effort. Given the growing
competition in the wireless markets and the opportunities presented by the
Mobile Internet, One Voice's 4th Generation Voice Technology is well positioned
for commercialization.
One Voice is focused on communications solutions that are mobile, not just
portable. Devices like PDAs, Laptops and Cell Phones are highly portable because
they are easily transported from location to location, but they are not
necessarily mobile (i.e. easy to use while one is moving). Mobile solutions are
not only portable, but they are easy and safe to operate while moving. Portable
solutions such as cell phones, PDAs and laptops are not easy to operate safely
while operating motor vehicles, especially in crowded and intense traffic. Case
in point, New York has passed legislation requiring hands-free use of cell
phones and any other communication device during the operation of an automobile
citing safety concerns. Currently 42 other states are considering similar
legislation. Additional legislation could significantly increase the immediate
demand for a completely integrated and voice activated mobile communication
solution. One Voice's technology supports hands-free operation and will bring
mobile phones and other devices into compliance with the newly adopted
legislation.
ONE VOICE SERVICES
------------------
The MobileVoice Platform was designed based on patented voice technology and
years of research and development. The platform is server-based, so it is easy
to deploy and maintain and because it does not require a mobile device upgrade,
it works with 100% of a carrier's subscriber base handsets. Optimized for mobile
environments, the system uses a modular architecture that is highly reliable,
scalable and redundant and delivers unparalleled performance in terms of
accuracy and functionality.
19
MOBILEVOICE ACTIVATED DIALING(TM)
Designed from the ground up to meet the unique needs of wireless carriers,
MobileVoice Activated Dialing is server-based and delivers higher levels of
accuracy and reliability than any solution on the market today. It has higher
capacity for contact lists, more functionality and requires less setup time than
other solutions. It is designed to meet the challenges of mobile environments
with high accuracy for native and non-native speaking individuals.
MOBILEVOICE EMAIL(TM)
The Telecom industry's only Voice-to-Text Email solution let's subscribers send
free-form email messages while on the road. Designed for high levels of accuracy
in a mobile environment, MobileVoice Email sets the standard for mobile
communications.
MOBILEVOICE SMS(TM)
Short Message Service (SMS) has gained wide popularity in Europe and is now
hitting the streets in North America. MobileVoice SMS is the Telecom industry's
only Voice-to-Text SMS solution that let's subscribers send free-form messages
from phone-to-phone with only their voice. No need to Tap or WAP, MobileVoice
SMS truly enables mobility and communications to a 100% addressable phone
market. With MobileVoice SMS subscribers can send messages within network or
even to subscribers on other networks. Now, voice based inter-carrier SMS is
available today with MobileVoice SMS.
MOBILEVOICE INSTANT MESSAGING(TM)
Instant Messaging has long been a popular way for friends and colleagues to
communicate on their computers. MobileVoice Instant Messaging now takes Instant
Messaging mobile, letting people chat and send quick messages with only their
voice. Targeted at subscribers and enterprise customers, MobileVoice Instant
Messaging sets the standard for voice based instant communications, anytime,
anywhere.
MOBILEVOICE VOICE MAIL(TM)
A popular way to leave messages, MobileVoice Voice Mail let's subscribers record
and send messages in their own voice. The voice recording of your message will
be sent as an Email attachment to the recipient or group of recipients for quick
retrieval from any computer or any phone.
MOBILEVOICE EMAIL READER(TM)
We have designed MobileVoice Email Reader to be the most powerful and versatile
solution on the market. With MobileVoice Email Reader, subscribers take full
control of their Email accounts from any phone. Subscribers can easily find
important messages and respond to one person or many in seconds. Need to forward
a message on to others? No problem! MobileVoice Email Reader offers full Reply
and Forward capabilities. Need access to your home and work Email accounts?
MobileVoice Email Reader delivers - giving users access to personal and
corporate Email accounts from any phone.
TECHNOLOGY OVERVIEW
-------------------
To date, widespread applications of voice technology for use in mobile
communication have been very basic, recognizing a limited number of words and
using rigid menu systems delivering a constrained amount of content. One Voice's
technology positions itself uniquely in the Voice Market. The Company's
Intelligent Voice Platform(TM) (IVP) uses patented Artificial Intelligence and
Natural Language Processing, which is highly intelligent, with the ability to
identify individual users, tap into a database of user specific information, and
dynamically learn and leverage a vocabulary of over 300,000 words. The
technology employs a flexible architecture, allowing it to reside and operate on
a device itself, in a server-based architecture or a mix of both, making it
extremely adaptable to different usage models. The IVP also provides
anytime/anywhere access to information, reduces training time and lowers costs
for both consumers and businesses. The technology is functionally superior and
extremely easy to use. Users can simply download information into the One Voice
server from e-mail applications directly, and the Voice Activated Dialing (VAD)
system is operational with no voice training needed.
20
One Voice has also developed several other technologies that enhance the
offerings of the IVP. MultiSite(TM) is a proprietary context-based searching
technology that finds multiple websites for any category and retrieves them
simultaneously. It is particularly helpful when performing Internet searching on
devices such as mobile phones. VoiceSite(TM) is a proprietary technology that
makes websites voice interactive. It allows companies to voice enable their
sites quickly and easily, as well as suggestively create a customized experience
for visitors.
COMPETITIVE LANDSCAPE
---------------------
One Voice is the industry's first and only provider of 4th Generation voice
technology. The evolution of speech technology can be broken into four
generations as follows:
GENERATION 1 systems require minimal processing power and storage and are often
used in embedded devices. These solutions can typically recognize 20-30 words or
less and are usually founded embedded in electronic devices such as phones,
toys, etc. Due to its limitations, this technology is typically used for limited
command & control functions or applications. Companies focused in this space
include Conversay and IBM among others.
GENERATION 2 systems expand the recognition capabilities seen in Generation 1
increasing the vocabulary to potentially hundreds of words. These systems
frequently use menus to support the delivery of content as seen in Interactive
Voice Response (IVR) systems for airline reservations, banking and Voice
Portals. Due to the use of menus, these systems can typically deliver a maximum
of 6-8 areas of content horizontally and 3-4 layers down in the menu trees
before running the risk of "user overload." Companies focused in this space
include Speechworks International, Nuance Communications, i3 Mobile, Preferred
Voice, HeyAnita, Bevocal and TellMe among others.
GENERATION 3 systems expand the recognition capabilities significantly to
hundreds of thousands of words. The systems can support continuous, free-form
transcription of voice into text. These systems are typically used for desktop
dictation applications running on PC's in the sectors of word processing,
medical and legal transcription. Companies focused in this space include IBM,
ScanSoft and Philips.
GENERATION 4 systems take the capabilities of all the previous generations and
adds powerful expert systems and Artificial Intelligence capabilities to allow
the solutions to not only recognize words, but also understand their meaning.
This opens the doors to higher degrees of personalization, more robust system
interaction and more advanced applications such as Voice-to-Text Messaging on a
phone and full Internet searching. One Voice is currently the only company in
the voice technology sector that offers 4th Generation voice technology.
MAJOR MARKET ADVANTAGES
-----------------------
WIRELESS CARRIERS looking to drive incremental revenue could utilize One Voice's
technology to expand mobile messaging offerings. One Voice services apply to
100% of the addressable market, where extensive research clearly indicates
strong demand. One Voice can add significant fundamental value by creating
revenue opportunities through: 1) mobile use minutes, 2) recurring fees for
subscription services, 3) m-commerce transactions and 4) license fees for
voice-enabling content. One Voice's solutions can also play a key role in
helping wireless carriers differentiate their brand and service offerings,
attracting new users and reducing churn. Additionally, the interoperability of
One Voice's technology gives it the ability to link multiple wireless carrier
networks, creating greater flexibility and driving consumer demand.
INSTANT AND UNIFIED MESSAGING: OPERATORS of Instant Messaging and Unified
Messaging systems could significantly expand market share and drive revenues
through integration of the Company's technology with its messaging capabilities.
With One Voice, a mobile phone can be used to send instant messages, similar to
a PC or PDA. This ability provides a differentiation for the service and thus
drives additional revenue from other channels, such as Internet and e-mail
services.
INFRASTRUCTURE PROVIDERS: Many of the leading mobile device hardware
manufacturers also provide infrastructure services to wireless carriers. One
Voice's technology provides a point of differentiation which could be bundled
with infrastructure. Wireless carriers could then offer the technology to their
subscribers, driving mobile phone minutes and increasing revenues.
21
VOICE TECHNOLOGY THROUGH PLATFORM INDEPENDENCE: A key advantage of the One Voice
technology is that it is platform independent. The technology is adaptable and
highly intelligent allowing it to operate on a device itself, in a server
environment or a combination of the two. This creates expansive market
opportunities including usage in mobile phones, PC's, wired and wireless
handheld devices and other consumer electronics products.
EMPLOYEES
At November 19, 2002, we employed 13 full-time employees and 2
consultant/part-time employees. None of these employees is subject to a
collective bargaining agreement, and there is no union representation within our
company. We maintain various employee benefit plans and believe our employee
relations are good.
DESCRIPTION OF PROPERTIES
Our headquarters are located at 6333 Greenwich drive, suite 240 in San
Diego, California.
We lease our 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 December 31, 2001:
Year ending December 31,
2002 $ 294,849
2003 304,615
2004 313,291
2005 266,053
-----------------
1,178,808
Less sublease income 370,333
-----------------
$ 808,475
=================
Rent expense, net amounted to $233,974 and $183,231 for the years ended
December 31, 2001 and 2000, respectively.
22
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION
---- --- --------
Dean Weber 40 Chairman of the Board,
President, Chief
Executive Officer,
Director
Rahoul Sharan 41 Chief Financial Officer,
Secretary, Treasurer
and Director
Bradley J. Ammon 39 Director
Directors serve until the next annual meeting and until their
successors are elected and qualified. Officers are appointed to serve for one
year until the meeting of the board of directors following the annual meeting of
stockholders and until their successors have been elected and qualified,
although Dean Weber has an employment agreement and Rahoul Sharan's company has
a personal service agreement with us. There are no family relationships between
any of our directors or officers.
DEAN WEBER holds a B.S. in Computer Science from the Central
Connecticut State University. With over 19 years of technology experience, Mr.
Weber has worked for top IT companies such as United Technologies, Northrop and
Xerox. From 1984 to 1987, Mr. Weber was an engineer for United Technologies in
Hartford, Connecticut, where he designed and developed real-time software
systems for NASA and U.S. Navy projects. Mr. Weber was then employed by Northrop
Corporation in Pico Rivera, California, from 1987 to 1989, where he led an
engineering team for the B2 Stealth Bomber project. From 1989 to 1991, Mr. Weber
was an independent senior consultant to various companies including Xerox and
Rockwell Technologies. From 1991 to 1998, Mr. Weber founded and was President of
EditPro Corporation in San Diego, California. At EditPro, Mr. Weber developed
and marketed one of the original and first Microsoft Windows based development
environment tools for both the English and Japanese marketplaces. In 1996 and
1997, Mr. Weber began developing the origins of the current IVAN program. In
1998, Mr. Weber founded Conversational Systems, Inc., now One Voice
Technologies, Inc., in San Diego, California, where he has served as our
President since that time. Recently, Mr. Weber was nominated as chairperson and
keynote speaker of the Voice-Based Commerce tradeshow held in Chicago in
September 2000, where participants included IBM, Lucent, Nuance and Speechworks.
Mr. Weber was elected to our Board of Directors in July of 1999 as Chairman.
RAHOUL SHARAN holds a Bachelor of Commerce degree from the University
of British Columbia and is a member of the Institute of Chartered Accountants of
British Columbia. Mr. Sharan was employed by Coopers & Lybrand (now
Pricewaterhouse Coopers) from 1984 to 1989. Since 1989, Mr. Sharan has been
President and a Director of KJN Management Ltd., a private company which
provides a broad range of administrative, management and financial services to
both private and public companies. Mr. Sharan has been a partner in S & P Group,
a company which specializes in investment financing for venture capital projects
and real estate development and construction, since 1988. Mr. Sharan was also a
director of Pacific Northern Ventures, Ltd. from 1989 to 1995, and is President
and a Director of Bell Coast Capital Corp., an inactive public company to which
Mr. Sharan devotes less than 1% of his time. Mr. Sharan was elected to the Board
in 1999.
23
BRADLEY J. AMMON is a tax attorney in the San Diego law firm of Ernest
S. Ryder & Associates, Inc. Mr. Ammon specializes in international tax planning,
including restructuring of international operations, domestic mergers and
acquisitions, and developing business plans to minimize worldwide taxation.
Prior to joining the firm, Mr. Ammon was with SAIC as an International Tax
Manager. He previously was with KPMG, LLP in the International Corporate
Services department since 1998 where his principal practice consisted of clients
in the information, communications and entertainment ("ICE") industry. Prior to
joining KPMG, Mr. Ammon worked from 1995 to 1998 at Deloitte & Touche, LLP in
their tax services department where he provided corporate, partnership, and
personal tax and business planning services to clients. Mr. Ammon also worked
several years as a staff accountant where his responsibilities included the
compilation and consolidation of monthly financial statements for multiple
subsidiaries. Mr. Ammon has a Juris Doctor and a Master's of Law in taxation
(LL.M.) from the University of San Diego, and received his undergraduate degree
from the University of California, San Diego. He is admitted to the California
Bar. Mr. Ammon is a member of our Audit Committee and Compensation Committee and
was appointed to our Board on June 9, 2000.
24
EXECUTIVE COMPENSATION
The following tables set forth certain information regarding our CEO
and each of our most highly-compensated executive officers whose total annual
salary and bonus for the fiscal year ending December 31, 1999, 2000 and 2001
exceeded $100,000:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other
Annual Restricted Options LTIP
Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other
Position Year ($) ($) sation ($) awards (#)(1) ($) Compensation
--------------------- --------- ------------ ----------- ------------ -------------- ----------- ------------ --------------
Dean Weber, 2001 246,098 0 0 0 0 0
CEO 2000 252,000 75,000 0 0 0 0 0
1999 180,000 0 0 0 0/(2) 0 0
Rahoul Sharan, 2001 137,654 0 0 0 0 0
CFO 2000 180,000 75,000(3) 0 0 0 0 0
1999 120,000(3) 0 0 0 50,000 0 0
(1) Options were granted pursuant to the Company's 1999 Stock Option Plan.
(2) 75,000 options previously granted to Mr. Weber were rescinded by Mr. Weber.
(3) This payment was made through KJN Management Ltd.
EMPLOYMENT AGREEMENT
We entered into a three-year employment agreement (the Weber Employment
Agreement) with Dean Weber, our Chairman, Chief Executive Officer and President,
commencing in July 1999. The Weber Employment Agreement provides that, in
consideration for Mr. Weber's services, he is to be paid an annual salary of
$180,000. His salary was increased to $252,000 annually in April 2000, with a
$75,000 bonus. Subsequently, no bonus was paid in the year 2001.
The contract has lapsed and we are currently in the process of evaluating a new
employment agreement.
PERSONAL SERVICE AGREEMENT
We entered into a three-year personal service agreement with KJN Management
Ltd., commencing in July 1999 for the services of its CFO, Rahoul Sharan, which
provided for the payment of a fee by the Company to KJN Management Ltd. of
$120,000 per year. The service fee was increased to $180,000 per year, plus a
$75,000 bonus. Subsequently, no bonus was paid in the year 2001. The contract
has lapsed and we are currently in the process of evaluating a new service
agreement.
COMPENSATION OF DIRECTORS
Non-employee directors receive $1,000 for each Board of Directors meeting
attended. The Company pays all out-of-pocket expenses of attendance.
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
Our Amended and Restated 1999 Stock Option Plan (the 1999 Plan)
authorizes us to grant to our directors, employees, consultants and advisors
both incentive and non-qualified stock options to purchase shares of our Common
Stock. As of December 31, 2001, our Board of Directors had reserved 3,000,000
shares for issuance under the 1999 Plan, of which 2,078,625 shares were subject
to outstanding options and 921,375 shares remained available for future grants.
Our Board of Directors or a committee appointed by the Board (the Plan
Administrator) administers the 1999 Plan. The Plan Administrator selects the
recipients to whom options are granted and determines the number of shares to be
awarded. Options granted under the 1999 Plan are exercisable at a price
determined by the Plan Administrator at the time of the grant, but in no event
will the option price for any incentive stock option be lower than the fair
market value for our Common Stock on the date of the grant. Options become
exercisable at such times and in such installments as the Plan Administrator
provides in the terms of each individual option agreement. In general, the Plan
Administrator is given broad discretion to issue options and to accept a wide
variety of consideration (including shares of our Common Stock and promissory
notes) in payment for the exercise price of options. The 1999 Plan was
authorized by the Board of Directors and stockholders.
25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our chief executive officer, Mr. Weber, advanced $4,500 to us for the
purchase of a computer. Our chief financial officer, Mr. Sharan, advanced
$10,000 to us for travel expenses. Both of these cash advances were recorded on
our financial statements as current liabilities with no written or verbal
agreement regarding loan terms of repayment or stated interest rate. The
advances were repaid by us on July 14, 2000.
In May 1999, a group of officers, directors and stockholders of Dead
On, Inc., our former corporate entity formed a new company, Dead On Acquisition
Company, a California corporation. Subsequent to the formation of Dead On
Acquisition Company, the group transferred 6,075,000 shares of our common stock
to Dead On Acquisition Company in exchange for shares of Dead On Acquisition
Company stock.
On July 14, 1999, 150,000 restricted shares of our common stock were
issued as a commission to Compass Investment Management, a non-affiliated
entity, for services rendered in connection with the July 1999 private
placement.
On May 14, 1999, we sold all of our operating assets and liabilities
relating to the discontinued operations of our apparel, accessory, and sports
equipment division to Dead On Acquisition Company for $1.00 per an agreement for
acquisition resulting in a gain of $91,785 and a provision for operating losses
of $110,788, equaling a net financial statement loss of $19,003.
26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of November 20, 2002 (i) by each person who is
known by us to beneficially own more than 5% of our common stock; (ii) by each
of our officers and directors; and (iii) by all of our officers and directors as
a group. Each person's address is c/o One Voice Technologies, Inc., 6333
Greenwich Drive, Suite 240, San Diego, California 92122.
Shares Beneficially Owned(1)
----------------------------
Name and Address of Beneficial Owner Number Percent
------------------------------------------------------------------------ ------------------ ------------------
Dean Weber, CEO, President and Chairman of the Board(2) 5,558,000(3) 14.69%
IVantage, Inc. (2) 1,600,200 4.23%
Rahoul Sharan, CFO, Secretary, Treasurer and Director 60,000(4) *
Bradley J. Ammon, Director 75,000(5) *
Alpha Capital Atiengesellschaft 4,198,550(6) 9.99%
Ellis Enterprises Ltd. 2,131,130(7) 5.63%
Bristol Investment Fund, Ltd. 2,667,310(8) 7.05%
Total securities held by officers and directors as a group (4 people): 5,693,000(9) 15.05%
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of November 20, 2002 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) iVantage, Inc. is wholly owned by Dean Weber, Chairman of the Board, CEO,
and President of One Voice Technologies, Inc. Mr. Weber is the beneficial owner
of the 1,600,200 shares in the name of iVantage, Inc. and those shares are also
included in the amount presented in this table for Mr. Weber.
(3) Includes 1,600,200 shares owned indirectly through iVantage, Inc.
(4) Represents options to purchase (i) 50,000 shares at an exercise price of
$6.080 per share; and (ii) 10,000 shares at an exercise price of $2.00 per
share. These options are currently exercisable.
(5) Includes options to purchase (i) 50,000 shares at an exercise price of
$8.750 per share; and (ii) 25,000 shares at an exercise price of $2.00 per
share. These options are currently exercisable.
(6) Includes 350,004 shares underlying warrants that are currently exercisable
at an exercise price of $0.27 per share. In accordance with rule 13d-3 under the
securities exchange act of 1934, Konrad Ackerman may be deemed a control person
of the shares owned by such entity.
(7) Includes 145,836 shares underlying warrants that are currently exercisable
at an exercise price of $0.27 per share. Dr. Julian Ungar, an unaffiliated third
party, has investment power over the shares owned by such entity.
(8) Includes 175,002 shares underlying warrants that are currently exercisable
at an exercise price of $0.27 per share. Bristol Investment Fund, Ltd. is a
private investment fund that is owned by its investors and managed by Bristol
DLP, LLC. The managing members of Bristol DLP, LLC are Mr. Paul Kessler and Ms.
Diana Derycz Kessler, who have voting and investment control over the shares
owned by Bristol Investment Fund, Ltd.
(9) Includes options to purchase 210,000 shares as they are currently
exercisable.
* Less than 1%
27
DESCRIPTION OF SECURITIES
THE FOLLOWING DESCRIPTION OF OUR CAPITAL STOCK IS A SUMMARY AND IS
QUALIFIED IN ITS ENTIRETY BY THE PROVISIONS OF OUR ARTICLES OF INCORPORATION,
WITH AMENDMENTS, ALL OF WHICH HAVE BEEN FILED AS EXHIBITS TO OUR REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
Our Amended Articles of Incorporation authorize the issuance of
100,000,000 shares of common stock, $.001 par value per share, and 10,000,000
shares of preferred stock, $.001 par value per share. Holders of shares of
common stock are entitled to one vote for each share on all matters to be voted
on by the stockholders. Holders of common stock have cumulative voting rights.
Holders of shares of common stock are entitled to share ratably in dividends, if
any, as may be declared, from time to time by the Board of Directors in its
discretion, from funds legally available therefor. In the event of a
liquidation, dissolution, or winding up of the Company, the holders of shares of
common stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. Holders of common stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to such shares. The Board of Directors, from time
to time in its sole discretion, has the authority to fix the powers, rights,
qualifications, limitations, and restrictions pertaining to the preferred stock.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under the Nevada General Corporation Law and our Articles of
Incorporation, as amended, and our Bylaws, our directors will have no personal
liability to us or our stockholders for monetary damages incurred as the result
of the breach or alleged breach by a director of his "duty of care." This
provision does not apply to the directors' (i) acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (ii) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its stockholders or that involve the absence of good faith on the
part of the director, (iii) approval of any transaction from which a director
derives an improper personal benefit, (iv) acts or omissions that show a
reckless disregard for the director's duty to the corporation or its
stockholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its stockholders, (v) acts or omissions
that constituted an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its stockholders, or
(vi) approval of an unlawful dividend, distribution, stock repurchase or
redemption. This provision would generally absolve directors of personal
liability for negligence in the performance of duties, including gross
negligence.
The effect of this provision in our Articles of Incorporation and
Bylaws is to eliminate the rights of our Company and our stockholders (through
stockholder's derivative suits on behalf of our Company) to recover monetary
damages against a director for breach of his fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (vi) above.
This provision does not limit nor eliminate the rights of our Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, our Bylaws
provide that if the Nevada General Corporation Law is amended to authorize the
future elimination or limitation of the liability of a director, then the
liability of the directors will be eliminated or limited to the fullest extent
permitted by the law, as amended. The Nevada General Corporation Law grants
corporations the right to indemnify their directors, officers, employees and
agents in accordance with applicable law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling our Company pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
28
PLAN OF DISTRIBUTION
The selling stockholder and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholder may use any one or more of the
following methods when selling shares:
-- ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
-- block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
-- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
-- an exchange distribution in accordance with the rules of the
applicable exchange;
-- privately-negotiated transactions;
-- short sales;
-- broker-dealers may agree with the selling stockholder to sell
a specified number of such shares at a stipulated price per
share;
-- a combination of any such methods of sale; and
-- any other method permitted pursuant to applicable law.
The selling stockholder may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholder may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
The selling stockholder may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades. The
selling stockholder may pledge their shares of common stock to their brokers
under the margin provisions of customer agreements. If a selling stockholder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged shares.
Broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholder do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholder shall be deemed to be an "underwriter" within
the meaning of the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling stockholder, but excluding brokerage commissions or underwriter
discounts. We and the selling stockholder have agreed to indemnify each other
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
29
PENNY STOCK
The Securities and Exchange Commission (the "Commission") has adopted
Rule 15g-9 which establishes the definition of a "penny stock," for the purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading and about the commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
30
SELLING STOCKHOLDER
The table below sets forth information concerning the resale of the
shares of common stock by the selling stockholders. We will not receive any
proceeds from the resale of the common stock by the selling stockholders. We
will receive proceeds from the exercise of the warrants. Assuming all the shares
registered below are sold by the selling stockholders, none of the selling
stockholders will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is
offering the resale of shares of common stock by this prospectus, the number of
shares of common stock beneficially owned by each person, the number of shares
of common stock that may be sold in this offering and the number of shares of
common stock each person will own after the offering, assuming they sell all of
the shares offered.
--------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
Total
Total Shares Percentage
of Common Stock of Common Shares of Beneficial Percentage
Issuable Upon Stock, Common Stock Beneficial Percentage of Ownership of Common
Conversion of Assuming Included in Ownership Common Stock After the Stock Owned
Notes and/or Full Prospectus Before the Owned Before Offering After Offering
Name Warrants (2) Conversion(2) (1) Offering* Offering (5) (5)
--------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
Alpha Capital 5,334,619 12.36% Up to 4,198,550 9.99% -- --
Atiengesellschaft (2) 10,319,235
shares of
common stock
--------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
Ellis Enterprises 2,131,130 5.63% Up to 2,131,130 5.63% -- --
Ltd. (3) 4,116,424
shares of
common stock
--------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
Bristol Investment 2,667,310 7.05% Up to 2,667,310 7.05% -- --
Fund, Ltd. (4) 5,159,617
shares of
common stock
--------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
*Based on a conversion price of .13 per share at November 19, 2002.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares, which the selling stockholder has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the convertible preferred stock is subject to adjustment depending
on, among other factors, the future market price of the common stock, and could
be materially less or more than the number estimated in the table.
(1) Includes 200% of the shares issuable upon conversion of the
convertible notes, based on current market prices. Because the
number of shares of common stock issuable upon conversion of
the convertible note is dependent in part upon the market
price of the common stock prior to a conversion, the actual
number of shares of common stock that will be issued upon
conversion will fluctuate daily and cannot be determined at
this time. However the selling stockholder has contractually
agreed to restrict its ability to convert or exercise its
warrants and receive shares of our common stock such that the
number of shares of common stock held by it and its affiliates
after such conversion or exercise does not exceed 9.99% of the
then issued and outstanding shares of common stock.
(2) Includes 350,004 shares underlying warrants that are currently
exercisable at an exercise price of $0.27 per share. In
accordance with rule 13d-3 under the securities exchange act
of 1934, Konrad Ackerman may be deemed a control person of the
shares owned by such entity.
(3) Includes 145,836 shares underlying warrants that are currently
exercisable at an exercise price of $0.27 per share. Dr.
Julian Ungar , an unaffiliated third party, has investment
power over the shares owned by such entity.
31
(4) Includes 175,002 shares underlying warrants that are currently
exercisable at an exercise price of $0.27 per share. Bristol
Investment Fund, Ltd. is a private investment fund that is
owned by its investors and managed by Bristol DLP, LLC. The
managing members of Bristol DLP, LLC are Mr. Paul Kessler and
Ms. Diana Derycz Kessler, who have voting and investment
control over the shares owned by Bristol Investment Fund, Ltd.
(5) Assumes that all securities registered will be sold.
FINANCING TERMS OF CONVERTIBLE NOTES
To obtain funding for our ongoing operations, we entered into a
Subscription Agreement with the selling stockholders on November 14, 2002 for
the sale of an aggregate of (i) $1,150,000 in convertible notes and (ii) a
warrants to purchase 670,842 shares of our common stock. We have received
$575,000 on November 18, 2002 and will receive an additional $575,000 within
five days of this prospectus being declared effective by the Securities and
Exchange Commission.
The notes bear interest at 4%, mature on November 14, 2004, and are
convertible into our common stock, at the selling stockholders' option, at the
lower of (i) $0.2475 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 November 14, 2004 without the consent of the holder. The full
principal amount of the convertible notes are due upon default under the terms
of convertible notes. The warrants are exercisable until November 14, 2007 at a
purchase price of $.27 per share.
The conversion price of the notes and the exercise price of the
warrants may be adjusted in certain circumstances such as if we pay a stock
dividend, subdivide or combine outstanding shares of common stock into a greater
or lesser number of shares, or take such other actions as would otherwise result
in dilution of the selling stockholder's position.
The selling stockholders has contractually agreed to restrict its
ability to convert or exercise its warrants and receive shares of our common
stock such that the number of shares of common stock held by it and its
affiliates after such conversion or exercise does not exceed 9.99% of the then
issued and outstanding shares of common stock.
A complete copy of the Subscription Agreement and related documents was
filed with the SEC as exhibits to our Form SB-2 relating to this prospectus.
SAMPLE CONVERSION CALCULATION
The number of shares of common stock issuable upon conversion of a note
is determined by dividing that portion of the principal of the note to be
converted and interest, if any, by the conversion price. For example, assuming
conversion of $1,150,000 of notes on November 20, 2002, a conversion price of
$0.13 per share, and the payment of accrued interest in the approximate amount
of $2,152 in additional shares rather than in cash, the number of shares
issuable upon conversion would be:
$1,150,000 + $2,152 = 8,862,707 shares
-------------------
$0.13
32
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be
passed upon for us by Sichenzia Ross Friedman Ference LLP, New York, New York.
EXPERTS
Our financial statements at December 31, 2000 and 2001 appearing in
this prospectus and registration statement have been audited by Stonefield
Josephson, Inc., independent auditors, as set forth on their report thereon
appearing elsewhere in this prospectus, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, relating to the shares of common stock being
offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of One Voice Technologies,
Inc., filed as part of the registration statement, and it does not contain all
information in the registration statement, as certain portions have been omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC").
We are subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") which requires us to file reports,
proxy statements and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information may be
inspected at public reference facilities of the SEC at Judiciary Plaza, 450
Fifth Street N.W., Washington D.C. 20549; Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 5670 Wilshire
Boulevard, Los Angeles, California 90036. Copies of such material can be
obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. Because we file
documents electronically with the SEC, you may also obtain this information by
visiting the SEC's Internet website at http://www.sec.gov.
We furnish our stockholders with annual reports containing audited
financial statements.
33
INDEX TO FINANCIAL STATEMENTS
ONE VOICE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2001 and 2000
REPORT OF INDEPENDENT ACCOUNTANTS F-1
FINANCIAL STATEMENTS
BALANCE SHEET F-2
STATEMENTS OF OPERATIONS F-3
STATEMENT OF STOCKHOLDERS' EQUITY F-4
STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-8 to F-22
INTERIM (UNAUDITED) FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
FINANCIAL STATEMENTS
BALANCE SHEET F-24
STATEMENTS OF OPERATIONS F-25
STATEMENT OF STOCKHOLDERS' EQUITY F-26
STATEMENTS OF CASH FLOWS F-29 to F-30
NOTES TO FINANCIAL STATEMENTS F-31 to F-33
34
INDEPENDENT AUDITORS' REPORT
Board of Directors
One Voice Technologies, Inc.
San Diego, California
We have audited the accompanying balance sheet of One Voice Technologies, Inc.,
a Nevada Corporation (a development stage enterprise) as of December 31, 2001,
and the related statements of operations, stockholders' equity and cash flows
for the years ended December 31, 2001 and 2000, and for the period since
inception on January 1, 1999 to December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of One Voice Technologies, Inc. as
of December 31, 2001, and the results of its operations and its cash flows for
the years ended December 31, 2001 and 2000 and for the period since inception on
January 1, 1999 to December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown on the financial statements,
the Company has incurred net losses from operations and has negative cash flows
from operations. These factors, among others as discussed in Note 1 to the
financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. Managements plans regarding those matters also are
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
/S/ STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
SANTA MONICA, CALIFORNIA
JANUARY 25, 2002
F-1
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - DECEMBER 31, 2001
ASSETS
Current assets:
Cash and cash equivalents $ 735,489
Accounts receivable, net of allowance for bad debt 545
Inventory 109,451
Prepaid expenses 66,639
---------------
Total current assets $ 912,124
Property and equipment, net of
accumulated depreciation and amortization 760,601
Other assets:
Software licensing, net of accumulated amortization 9,001
Software development costs, net of accumulated amortization 1,099,007
Deposits 48,302
Trademarks, net of accumulated amortization 157,110
Patents 59,018
---------------
Total other assets 1,372,438
---------------
$ 3,045,163
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -
accounts payable and accrued expenses $ 686,445
8% convertible note payable, due September 7, 2003 $ 1,198
Less unamortized discount (424)
---------------
774
5% convertible note payable, due October 3, 2003 550,000
Less unamortized discount (292,241)
---------------
257,759
Stockholders' equity:
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding -
Common stock; $.001 par value, 100,000,000 shares
authorized, 23,080,555 shares issued and outstanding 23,080
Additional paid-in capital 22,035,219
Deficit accumulated during development stage (19,958,114)
---------------
Total stockholders' equity 2,100,185
---------------
$ 3,045,163
===============
See accompanying notes to financial statements.
F-2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
From inception on
Year ended Year ended January 1, 1999 to
December 31, 2001 December 31, 2000 December 31, 2001
----------------- ----------------- -----------------
Net revenues $ 185,934 $ 51,193 $ 262,550
Cost of revenues 26,010 110,390 139,190
---------------- ------------------ ----------------
Gross profit (loss) 159,924 (59,197) 123,360
General and administrative expenses 8,938,203 9,338,423 20,081,474
---------------- ------------------ ----------------
Net loss $ (8,778,279) $ (9,397,620) $ (19,958,114)
================ ================== ================
Net loss per share, basic and diluted $ (0.59) $ (0.76)
================ ==================
Weighted average shares outstanding,
basic and diluted 14,823,542 12,421,172
================ ==================
See accompanying notes to financial statements.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
accumulated
Common stock Additional during Total
------------ paid-in development stockholders'
Shares Amount capital stage equity
------ ------ ---------- ------------ --------------
For the period since
inception to 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
See accompanying notes to financial statements.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
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
============ ========= ============ ============= ===============
See accompanying notes to financial statements.
F-5
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended January 1, 1999 to
December 31, 2001 December 31, 2000 December 31, 2001
----------------- ----------------- -----------------
Cash flows provided by (used for) operating activities:
Net loss $ (8,778,279) $ (9,397,620) $ (19,958,114)
--------------- ----------------- ----------------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 1,168,084 1,029,990 2,324,330
Loss on disposal of assets 500,000 - 500,000
Amortization of discount on notes payable 1,191,442 63,583 1,255,025
Options issued in exchange for services 140,263 199,311 339,574
Warrants issued for settlement 166,650 55,000 221,650
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Licensing revenue receivable - (250,000) (250,000)
Advertising revenue receivable 324,455 (75,000) 249,455
Inventory 6,424 (115,875) (109,451)
Prepaid advertising 183,331 (183,331) -
Prepaid mailing lists - (750,000) (750,000)
Prepaid expenses 186,617 (253,256) (66,640)
Deposits (315) (41,091) (48,302)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (112,229) 391,780 686,445
Deferred revenue (56,250) 306,250 250,000
--------------- ----------------- ----------------
Total adjustments 3,698,472 377,361 4,602,086
--------------- ----------------- ----------------
Net cash used for operating activities (5,079,807) (9,020,259) (15,356,028)
--------------- ----------------- ----------------
Cash flows used for investing activities:
Purchase of property and equipment (75,205) (1,169,499) (1,398,666)
Software licensing - (679,314) (1,139,309)
Software development costs (262,278) (1,129,928) (1,560,224)
Trademarks (27,195) (207,986) (235,181)
Patents (3,668) (21,394) (59,018)
Loan fees - (200,000) (200,000)
Increase in escrow account 200,000 - -
--------------- ----------------- ----------------
Net cash used for investing activities (168,346) (3,408,121) (4,592,398)
--------------- ----------------- ----------------
(Continued)
See accompanying notes to financial statements.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended January 1, 1999 to
December 31, 2001 December 31, 2000 December 31, 2001
----------------- ----------------- -----------------
Cash flows provided by (used for) financing activities:
Proceeds from issuance of common stock, net 840,020 13,926,017 17,737,915
Retirement of common stock, net - - (10,000)
Proceeds from (payments on) loan payable,
officer-stockholder (200,000) (4,500) (200,000)
Proceeds from (payments on) loan payable, officer - (10,000) -
Proceeds from loans payable - - 200,000
Proceeds from convertible note payable, net 956,000 2,000,000 2,956,000
--------------- ----------------- ----------------
Net cash provided by financing activities 1,596,020 15,911,517 20,683,915
--------------- ----------------- ----------------
Net increase (decrease) in cash (3,652,133) 3,483,137 735,489
Cash and cash equivalents, beginning of year 4,387,622 904,485 -
--------------- ----------------- ----------------
Cash and cash equivalents, end of year $ 735,489 $ 4,387,622 $ 735,489
=============== ================= ================
Supplemental disclosure of cash flow information:
Interest paid $ 1,270 $ 653 $ 19,047
=============== ================= ================
Income taxes paid $ 800 $ 1,600 $ 4,223
=============== ================= ================
Supplemental disclosure of non-cash financing activities:
Options issued in exchange for services $ 58,863 $ 199,311 $ 258,174
=============== ================= ================
Warrants issued for settlement $ 166,650 $ 55,000 $ 221,650
=============== ================= ================
Warrants issued in connection with financing $ 92,400 $ 1,576,309 $ 1,668,709
=============== ================= ================
Conversion of debt to equity $ 1,683,000 $ $ 1,683,000
=============== ================= ================
See accompanying notes to financial statements.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
(1) Organization:
Conversational Systems, Inc. was incorporated under the laws of the State of
California on April 8, 1991. The Company commenced operations in 1999.
Effective June 22, 1999, pursuant to a Merger Agreement and Plan of
Reorganization between Dead On, Inc. ("acquiree") and Conversational Systems,
Inc. a California corporation ("acquiror" or the "Company"), Dead On, Inc. has
been reversed merged into Conversational Systems, Inc. The Company accounted for
the acquisition of Dead On, Inc. using the purchase method of accounting. The
shares of Conversational Systems were exchanged for 7,000,000 newly issued
shares of Dead On, Inc. Because the former shareholders of Conversational
Systems, Inc. then became the majority shareholders of Dead On, Inc.,
Conversational Systems was treated as the acquiror under APB Opinion No. 16,
"Business Combinations."
In July 1999, the Company repurchased and retired 10,000,000 shares of its
common stock, $.001 par value per share. Due to the retirement of shares, the
former shareholders of Conversational Systems, Inc. have significant control in
Dead On, Inc.
Due to the contemplation and timing of the merger between Dead On, Inc. and
Conversational Systems, Inc. and the retirement of 10,000,000 shares of the
Company's common stock, these events were accounted for as a single transaction.
Conversational Systems, Inc. was liquidated with and into Dead On, Inc., which
then changed its legal name to One Voice Technologies, Inc., a Nevada
Corporation.
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 $8,778,279 during 2001 and had an accumulated
deficit of $19,958,114. The Company had working capital of $225,679 at December
31, 2001. Cash flows used for operations amounted to $5,079,807 for the year
ended December 31, 2001. 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. See Note 13, Subsequent Events. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(2) Summary of Significant Accounting Policies:
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.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
DEVELOPMENT STAGE ENTERPRISE:
The Company is a development stage company as defined by Statement of Financial
Accounting Standards No. 7, "Accounting and Reporting by Development Stage
Enterprises." The Company is devoting substantially all of its present efforts
to establish a new business, which is unrelated to the business of Dead On, and
its planned principal operations have not yet commenced. All losses accumulated
since inception of One Voice Technologies, Inc. have been considered as part of
the Company's development stage activities.
FAIR VALUE:
The Company's financial instruments consist principally of accounts payable and
notes payable to an individual and related parties as defined by Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments." The carrying value of the financial instruments
approximate their fair value due to the short-term nature of these instruments.
INVENTORY:
Inventory, consisting primarily of finished product, such as headphones, is
valued at lower of cost (first-in, first-out) or market.
CASH:
EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(2) Summary of Significant Accounting Policies, Continued:
CASH, CONTINUED:
CONCENTRATION
-------------
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
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.
NONMONETARY TRANSACTIONS:
The Company accounts for nonmonetary transactions based on the fair values of
the assets or services involved in accordance with APB No. 29, "Accounting for
Nonmonetary Transactions." The cost of a nonmonetary asset acquired in exchange
for another nonmonetary asset is the fair value of the asset surrendered to
obtain it.
ADVERTISING AND PROMOTION COSTS:
Advertising and promotion costs are expensed as incurred and approximated
$388,000 and $690,000 for the years ended December 31, 2001 and 2000,
respectively.
The Company also engages in barter advertising, which they account for in
accordance with EITF 99-17, determining the fair market value of the barter
advertising based on the fair value of non-barter advertising. The Company books
the revenue and related expenses of barter advertising up to the extent of the
non-barter advertising during the same period. During the year ended December
31, 2001, the Company recognized $180,000 in revenues and expenses from barter
transactions. Advertising which did not qualify for recognition under EITF
99-17, and therefore, is not reflected in these statements, totaled $87,500.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(2) Summary of Significant Accounting Policies, Continued:
PROPERTY AND EQUIPMENT:
Property and equipment are valued at cost. Depreciation is being provided by use
of the straight-line method over the estimated useful lives of the assets,
ranging from three to seven years.
DEBT WITH STOCK PURCHASE WARRANTS:
The proceeds received from debt issued with stock purchase warrants is allocated
between the debt and the warrants, based upon the relative fair values of the
two securities, and the balance of the proceeds is accounted for as additional
paid-in capital. The resulting debt discount is amortized to expense over the
term of the debt instrument, using the interest method. In the event of
settlement of such debt in advance of the maturity date, an expense is
recognized based upon the difference between the then carrying amount (i.e.,
face amount less unamortized discount) and amount of payment.
DEBT WITH BENEFICIAL CONVERSION FEATURE:
In January 2001, the Financial Accounting Standards Board Emerging Issues Task
Force issued EITF 00-27 effective for convertible debt instruments issued after
November 16, 2000. This pronouncement requires the use of the intrinsic value
method for recognition of the detachable and embedded equity features included
with indebtedness, and requires amortization of the amount associated with the
convertibility feature over the life of the debt instrument rather than the
period for which the instrument first becomes convertible. Inasmuch as all debt
instruments that were entered into prior to November 16, 2000 and all of the
debt discount relating to the beneficial conversion feature was previously
recognized as expense in accordance with EITF 98-5, there is no impact on these
financial statements.
SOFTWARE DEVELOPMENT COSTS:
The Company accounts for their software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," ("SFAS No. 86").
SFAS No. 86 requires the Company to capitalize the direct costs and allocate
overhead associated with the development of software products. Initial costs are
charged to operations as research prior to the development of a detailed program
design or a working model. Costs incurred subsequent to the product release, and
research and development performed under contract are charged to operations.
Capitalized costs are amortized over the estimated product life of four years on
the straight-line basis. Unamortized costs are carried at the lower of book
value or net realizable value.
Amortization expense totaled $383,115 and $78,102 for the years ended December
31, 2001 and 2000, respectively. Accumulated amortization as of December 31,
2001 amounted to $461,217.
COMPREHENSIVE LOSS:
Comprehensive loss consists of net loss only, and accordingly, a Statement of
Comprehensive Loss is not presented.
F-11
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(2) Summary of Significant Accounting Policies, Continued:
TRADEMARKS AND PATENTS:
The Company's trademark costs consist of legal fees paid in connection with
trademarks. The Company amortizes trademarks using the straight-line method over
the period of estimated benefit, generally four years. Amortization expense
charged for the years ended December 31, 2001 and 2000 totaled $53,226 and
$24,845, respectively. Accumulated amortization as of December 31, 2001 amounted
to $78,071.
The Company's patent costs consist of legal fees paid in connection with patents
pending. The Company will amortize patents using the straight-line method over
the period of estimated benefit, generally five years. There was no amortization
expense charged for the year ended December 31, 2001, as the patents are
pending.
The Company periodically evaluates whether events or circumstances have occurred
that may affect the estimated useful life or the recoverability of the remaining
balance of the patent and trademarks. Impairment of the assets is triggered when
the estimated future undiscounted cash flows do not exceed the carrying amount
of the intangible asset. If the events or circumstances indicate that the
remaining balance of the assets may be permanently impaired, such potential
impairment will be measured based upon the difference between the carrying
amount of the assets and the fair value of such assets, determined using the
estimated future discounted cash flows generated.
NET INCOME (LOSS) PER SHARE:
For the years ended December 31, 2001 and 2000, the per share data is based on
the weighted average number of common and common equivalent shares outstanding,
and are calculated in accordance with Staff Accounting Bulletin of the
Securities and Exchange Commission (SAB) No. 98 whereby common stock, options or
warrants to purchase common stock or other potentially dilutive instruments
issued for nominal consideration must be reflected in basic and diluted per
share calculation for all periods in a manner similar to a stock split, even if
anti-dilutive. Accordingly, in computing basic earnings per share, nominal
issuances of common stock are reflected in a manner similar to a stock split or
dividend. Common stock equivalents, consisting of 2,078,625 and 916,325 stock
options, 1,457,567 and 882,414 stock warrants, and convertible debentures
estimated at 2.7 million shares (2001), using assumed conversion rate of $0.20
have not been included in the computation of diluted weighted average number of
common shares outstanding, as their effect would be anti-dilutive for December
31, 2001 and 2000, respectively.
F-12
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(2) Summary of Significant Accounting Policies, Continued:
INCOME TAXES:
Deferred income taxes are reported using the liability method. Deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
NEW ACCOUNTING PRONOUNCEMENTS:
In July 2001, the FASB issued SFAS No. 141 "Business Combinations." SFAS No. 141
supersedes Accounting Principles Board ("APB") No. 16 and requires that any
business combinations initiated after June 30, 2001 be accounted for as a
purchase; therefore, eliminating the pooling-of-interest method defined in APB
16. The statement is effective for any business combination initiated after June
30, 2001 and shall apply to all business combinations accounted for by the
purchase method for which the date of acquisition is July 1, 2001 or later. The
adoption did not have a material impact to the Company's financial position or
results of operations, since the Company has not participated in such activities
covered under this pronouncement after the effective date.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangibles."
SFAS No. 142 addresses the initial recognition, measurement and amortization of
intangible assets acquired individually or with a group of other assets (but not
those acquired in a business combination) and addresses the amortization
provisions for excess cost over fair value of net assets acquired or intangibles
acquired in a business combination. The statement is effective for fiscal years
beginning after December 15, 2001, and is effective July 1, 2001 for any
intangibles acquired in a business combination initiated after June 30, 2001.
The Company does not expect the adoption to have a material impact to the
Company's financial position or results of operations.
F-13
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(2) Summary of Significant Accounting Policies, Continued:
NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In October 2001, the FASB recently issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires companies to record the fair value of a
liability for asset retirement obligations in the period in which they are
incurred. The statement applies to a company's legal obligations associated with
the retirement of a tangible long-lived asset that results from the acquisition,
construction, and development or through the normal operation of a long-lived
asset. When a liability is initially recorded, the company would capitalize the
cost, thereby increasing the carrying amount of the related asset. The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded amount or the company
incurs a gain or loss. The statement is effective for fiscal years beginning
after June 30, 2002. The Company does not expect the adoption to have a material
impact to the Company's financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". Statement 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets. The statement
provides a single accounting model for long-lived assets to be disposed of. New
criteria must be met to classify the asset as an asset held-for-sale. This
statement also focuses on reporting the effects of a disposal of a segment of a
business. This statement is effective for fiscal years beginning after December
15, 2001. The Company does not expect the adoption to have a material impact to
the Company's financial position or results of operations.
(3) Property and Equipment:
A summary is as follows:
Web host computer equipment $ 443,868
Computer equipment 461,604
Equipment 321,756
Furniture and fixtures 120,243
Website development 35,974
Leasehold improvements 15,222
---------------
1,398,667
Less accumulated depreciation and amortization 638,066
---------------
$ 760,601
===============
Depreciation expense totaled $390,092 and $246,374 for the years ended December
31, 2001 and 2000, respectively.
F-14
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(4) Software Licensing Agreements:
In September and October 1999, the Company entered into a 24-month software
licensing agreement with two software developers. The agreement can be cancelled
by either party by giving 60 days written notice. The asset is being amortized
using the straight-line method over the life of the agreement.
In March 2000, the Company entered into a 36-month software licensing agreement
with a software developer. The agreement can be cancelled by mutual agreement of
the parties at any time. The asset is being amortized using the straight-line
method over the life of the agreement.
Amortization expense related to software licensing agreements totaled $352,973
and $664,002 for the years ended December 31, 2001 and 2000, respectively.
(5) Convertible Note Payable:
5% Convertible Note Payable
---------------------------
In October 2000, the Company entered into a purchase agreement with an
investment company to issue a total of $10,000,000 convertible notes payable
with interest at 5% per annum and 231,884 common stock purchase warrants. Each
warrant entitles the holder to purchase one share of the Company's common stock
at an exercise price of $9.76 per share. In October 2000, the Company issued
$2,000,000 of convertible notes and the warrants. A payment of interest only is
payable on the conversion dates, as defined in the agreement. The remaining
principal balance of the note is payable in full in October 2003, at which time
the remainder of the note will be automatically converted to shares of the
Company's common stock. The note is convertible at the option of the holder at
any time at the lesser of $9.76 per share or the average of the 7 lowest volume
weighted average sales prices of the common stock during the past 50 trading
days immediately preceding the notice of conversion. Included in accrued
expenses is approximately $36,000 of accrued interest related to this note
payable. The fair value of the associated warrant was determined based on the
Black-Scholes pricing method at the date of grant. The value of the warrants
totaled $1,576,309 and is included in paid-in capital at December 31, 2001. The
discount is being amortized to interest expense over the life of the note using
the interest rate method (effective interest of 76%). Amortization of the debt
discount included in interest expense approximated $463,000 and $64,000 for the
years ended December 31, 2001 and 2000, respectively.
Additional notes may be issued in increments of $2,000,000 provided that, among
other items, the per share market value of the Company's common stock is not
less than $10.00 per share.
In 2001, $1,450,000 of the original note balance and accrued interest ($575,087
or $0.18 per share, net of unamortized debt discount) was converted to 3,220,765
shares of the Company's common stock at an average conversion rate of $0.45 per
share.
During January 2002, the remaining balance of $550,000 was converted into
approximately 2,468,000 common shares.
F-15
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(5) Convertible Note Payable, Continued:
8% Convertible Note Payable
---------------------------
On September 7, 2001, the Company entered into a subscription agreement with
Laurus Master Fund, Ltd., a Cayman Island corporation, for the sale of (i) a
$600,000 convertible note and (ii) warrants to purchase 100,000 shares of the
Company's common stock. The Company recorded net proceeds of $511,750.
The note bears interest at 8% and is convertible into common stock at the lesser
of:
a) $0.51; or
b) 80% of the average of the three lowest closing prices of the common stock for
the thirty trading days immediately prior to the conversion date.
The unconverted portion of the note is due September 7, 2003, which as of
December 31, 2001 amounted to $1,198.
The warrants have an exercise price of:
c) $0.82; or
d) 120% of the three lowest closing price of the common stock for the ten
trading days prior to the exercise of the warrant.
Using the Black Scholes Option Pricing Model, the fair value of the warrant
amounted to $0.58 per share or total consideration of $57,800. This amount was
recorded as a discount against the face value of the note payable. In addition,
since this debt is convertible into equity at the option of the note holder at
conversion rates mentioned above, a beneficial conversion feature of $207,800
has been recorded as a debt discount and is being amortized using the effective
interest rate (100%) over the life of the debt in accordance with EITF 00-27.
Unamortized debt discount and beneficial conversion was recognized as interest
expense upon conversion.
In 2001, $598,802 of the original note and related accrued interest was
converted to 3,402,600 shares of the Company's common stock at an average
conversion rate of $0.18 per share.
8% Convertible Note Payable
---------------------------
On September 28, 2001, the Company entered into a subscription agreement with
Stonestreet Limited Partnership, an Ontario limited partnership, for the sale of
(i) a $500,000 convertible note and (ii) warrants to purchase 83,333 shares of
the Company's common stock. The Company recorded net proceeds of $444,250.
The note bears interest at 8% and is convertible into common stock at the lesser
of:
a) $0.34; or
b) 80% of the average of the three lowest closing prices of the common stock for
the thirty trading days immediately prior to the conversion date.
F-16
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(5) Convertible Note Payable, Continued:
8% Convertible Note Payable, Continued
--------------------------------------
The warrants have an exercise price of:
c) $0.515; or
d) 120% of the three lowest closing prices of the common stock for the ten
trading days prior to the exercise of the warrant.
Using the Black Scholes Option Pricing Model, the fair value of the warrant
amounted to $0.42 per share or total consideration of $34,600. This amount was
recorded as debt discount against the face value of the note payable. In
addition, since this debt was convertible into equity at the option of the note
holder at conversion rates mentioned above, a beneficial conversion feature of
$209,650 had been recorded as a debt discount and was being amortized using the
effective interest rate (104%) over the life of the debt in accordance with EITF
00-27. Unamortized debt discount and beneficial conversion was recognized as
interest expense upon conversion.
In 2001, the note balance of $500,000 and related accrued interest was converted
to 2,973,780 shares of the Company's common stock at an average conversion rate
of $0.17 per share.
(6) Common Stock:
PRIVATE PLACEMENTS
------------------
In May 1999, the Company commenced a private placement of 1,500,000 shares of
the Company's common stock at a purchase price of $2.00 per share. The Private
Placement was exempt from the registration provisions of the Act by virtue of
Section 4(2) of the Act, as transactions by an issuer not involving any public
offering. The securities issued pursuant to the Private Placement were
restricted securities as defined in Rule 144. The offering generated proceeds of
approximately $2,846,000, net of offering costs of approximately $154,000. An
additional 150,000 shares of the Company's common stock was issued for services
rendered in connection with this private placement, which was valued at $2.00
per share.
On June 22, 1999, in connection with a Merger Agreement and Plan of
Reorganization with Dead On, Inc., the Company exchanged all of its outstanding
shares of common stock for 7,000,000 newly issued shares of the common stock of
Dead On, Inc. (Note 1).
Pursuant to a plan approved by One Voice Technologies' Board of Directors in
July 1999, the Company repurchased and retired 10,000,000 shares of its common
stock, $.001 par value per share.
During December 2001, the shareholders approved the increase of authorized
number of common stock shares to 100,000,000.
F-17
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(6) Common Stock, Continued:
In January 2000, the Company entered into a Subscription Agreement with an
unrelated foreign party providing for the sale of 312,500 shares of the
Company's common stock at $6.40 per share and 156,250 common stock purchase
warrants. Each warrant entitles the holder to purchase one share of common stock
at an exercise price of $8.00. The warrants expired on January 5, 2001. Proceeds
raised from the shares and warrants total approximately $1,800,000, net of
offering costs of approximately $200,000.
In March 2000, the Company commenced a private placement of approximately
1,000,000 units consisting of 1 share of the Company's common stock and 1/2
common stock purchase warrant for each unit purchased. The Company raised
proceeds totaling approximately $12,146,000, net of offering costs of
approximately $902,000, from the issuance of 988,560 shares of common stock and
494,280 common stock purchase warrants. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $18.00. The warrants
expire at various times through April 2001.
In June 2001, the Company raised proceeds of approximately $840,020, which is
net of offering costs of approximately $73,000, from the issuance of 702,350
shares through a private placement offering of its restricted stock. The
offering price was $1.30 per share. The Company also issued 702,350 warrants
(valued using the Black-Scholes method at the date of grant) to the investors,
which have an exercise price of $0.86 per share and expire on June 30, 2002.
SETTLEMENT
----------
During September 2001, the Company entered into an agreement with an investment
banking group to settle a dispute regarding a financial consulting agreement
dated May 30, 2000. While the management did not believe that the claims were
meritorious, the Company entered into the Settlement Agreement, among other
reasons, to avoid distracting management's focus from operations and to minimize
legal expenses. Pursuant to the settlement, the Company issued 110,000 shares of
common stock and 300,000 warrants exercisable into 300,000 shares of common
stock, of which, 150,000 warrants are exercisable at $2.00 per share and 150,000
warrants are exercisable at $1.50 per share. Total consideration given amounted
to $298,050, comprised of $50,000 paid in cash, 110,000 in common stock shares
with a fair value of $81,400 and 300,000 in warrants with a fair value using
Black Scholes model of $166,650, which was recognized into expense during 2001.
(7) Income Taxes:
For federal income tax return purposes, the Company has available net operating
loss carryforwards of approximately $19,000,000, which includes approximately
$323,000 acquired from Dead On, Inc. The net operating loss carryforwards expire
through 2021 and are available to offset future income tax liabilities.
Temporary differences which give rise to deferred tax assets and liabilities at
December 31, 2001 are as follows:
Net operating loss carryforwards $ 7,600,000
Valuation allowance (7,600,000)
-----------------
Net deferred taxes $ -
=================
F-18
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(8) Employment Agreement:
The Company entered into an employment agreement with an officer stockholder of
the Company to pay an annual base salary of $252,000 through July 2002.
Increases are determined annually by the Board of Directors. Under this
agreement, salaries approximated $240,000 and $231,000 (including a bonus of
$75,000 in 2000) for the years ended December 31, 2001 and 2000, respectively.
(9) Consulting Agreement:
The Company entered into a consulting agreement with a personal service
corporation owned by an officer of the Company to pay an annual consulting fee
of $180,000 through July 2002. Increases are determined annually by the Board of
Directors. Consulting fees approximated $135,000 and $240,000 (including a bonus
of $75,000 in 2000) for the years ended December 31, 2001 and 2000,
respectively.
(10) Commitments:
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 December 31, 2001:
Year ending December 31,
2002 $ 294,849
2003 304,615
2004 313,291
2005 266,053
-----------------
1,178,808
Less sublease income 370,333
-----------------
$ 808,475
=================
Rent expense, net amounted to $233,974 and $183,231 for the years ended December
31, 2001 and 2000, respectively.
(11) Incentive and Nonqualified Stock Option Plan:
On July 14, 1999, the Company enacted an Incentive and Nonqualified Stock Option
Plan (the "Plan") for its employees and consultants under which a maximum of
3,000,000 options (Amendment to increase the available shares from 1,500,000 to
3,000,000 approved by the shareholders in December 2001) and approved by the
shareholders may be granted to purchase common stock of the Company.
F-19
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(11) Incentive and Nonqualified Stock Option Plan, Continued:
Two types of options may be granted under the Plan: (1) Incentive Stock Options
(also know as Qualified Stock Options) which may only be issued to employees of
the Company and whereby the exercise price of the option is not less than the
fair market value of the common stock on the date it was reserved for issuance
under the Plan; and (2) Nonstatutory Stock Options which may be issued to either
employees or consultants of the Company and whereby the exercise price of the
option is greater than 85% of the fair market value of the common stock on the
date it was reserved for issuance under the plan. Grants of options may be made
to employees and consultants without regard to any performance measures. All
options issued pursuant to the Plan vest at a rate of at least 20% per year over
a 5-year period from the date of the grant or sooner if approved by the Board of
Directors. All options issued pursuant to the Plan are nontransferable and
subject to forfeiture.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. The Company follows SFAS No. 123 for stock options granted to
non-employees and records a consulting expense equal to the fair value of the
options at the date of grant.
During 2000, the Company granted 53,725 stock options exercisable at an average
exercise price of $10.22 to consultants for professional services provided to
the Company. The options expire at various times through 2003. The options were
valued using the Black-Scholes method at the date of grant.
During 2001, the Company granted 250,000 stock options exercisable at an
exercise price of $0.65 to a consultant for professional services provided and
to be provided to the Company. The options expire at various times through 2004.
The options were valued using the Black-Scholes method at the date of grant.
Compensation expense, recognized over the vesting period, to consultants
pursuant to SFAS No. 123 amounted to $140,263 and $199,311 for the years ended
December 31, 2001 and 2000, respectively.
The number and weighted average exercise prices of options granted under the
plan for the years ended December 31, 2001 and 2000 are as follows:
2001 2000
--------------------- ----------------------
Average Average
Exercise Exercise
Number Price Number Price
------ ----- ------ -----
Outstanding at beginning of the year 916,325 $ 6.51 400,500 $ 6.01
Granted during the year 1,667,920 0.99 563,825 6.86
Terminated during the year 505,620 5.47 48,000 5.85
Exercised during the year - - - -
Outstanding at end of the year 2,078,625 2.33 916,325 6.51
Exercisable at end of the year 645,525 3.94 338,395 6.76
F-20
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(11) Incentive and Nonqualified Stock Option Plan, Continued:
Pro forma information regarding the effect on operations is required by SFAS
123, and 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 155%
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
proforma information is as follows:
December 31, 2001
-----------------
Net loss, as reported $ (8,778,279)
Pro forma net loss $ (9,840,642)
Basic and diluted historical loss per share $ (0.59)
Pro forma basic and diluted loss per share $ (0.66)
(12) Warrants:
At December 31, 2001, the Company had warrants outstanding that allow the
holders to purchase up to 1,457,567 shares of common stock, of which, 231,884
warrants had an exercise price of $9.76 expiring through October 2005 and
1,225,683 warrants had an exercise price ranging from $0.40 to $2.00 per share,
expiring through September 2006.
F-21
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2001 AND 2000
(12) Warrants, Continued:
The number and weighted average exercise prices of the warrants for the years
ended December 31, 2001 and 2000 are as follows:
2001 2000
--------------------- ----------------------
Average Average
Exercise Exercise
Number Price Number Price
------ ----- ------ -----
Outstanding at beginning of the year 882,414 $ 14.06 - $ -
Granted during the year 1,225,683 1.04 882,414 14.06
Exercised during the year - - - -
Terminated during the year 650,530 15.60 - -
Outstanding at end of the year 1,457,567 2.42 882,414 14.06
Exercisable at end of the year 1,457,567 2.42 882,414 14.06
(13) Subsequent Events:
During January 2002, the Company entered into a new convertible debt financing
agreement with Stonestreet Limited Partnership and Laurus Master Fund, Ltd. for
an aggregate of $1.45 million. The stated interest rate is 4% per annum and the
unpaid principal and interest balance is due in full by January 7, 2004. Net
proceeds to the Company amounted to approximately $1.32 million, which is net of
debt issue costs. The Company issued 500,000 warrants to acquire 500,000 shares
of the Company's common stock at an exercise price of $0.96. In addition, since
this debt is convertible into equity at the option of the note holder at
beneficial conversion rates, an embedded beneficial conversion feature will be
recorded as a debt discount and amortized using the effective interest rate over
the life of the debt in accordance with EITF 00-27. Total cost of beneficial
conversion feature, debt discount and cost of warrants issued exceed the face
value of the notes payable, therefore, only $1.45 million, the face amount of
the note, is recognizable as debt discount, and will be amortized over the life
of the notes payable. Any unamortized debt discount and beneficial conversion
feature will be charged to expense upon conversion, as interest expense.
During January 2002, the remaining balance of $550,000 related to the 5% Note
Payable was converted into approximately 2,468,000 common shares.
F-22
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - SEPTEMBER 30, 2002
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 601,551
Accounts receivable 325
Inventory 79,387
Prepaid expenses 94,077
------------
Total current assets $ 775,340
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 475,257
OTHER ASSETS:
Software licensing, net of accumulated
amortization 6,776
Software development costs, net of
accumulated amortization 809,964
Deposits 49,310
Trademarks, net of accumulated amortization 117,407
Patents 62,200
------------
Total other assets 1,045,657
------------
$ 2,296,254
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
accounts payable and accrued expenses $ 596,085
4% CONVERTIBLE NOTE PAYABLE, due August 6, 2004 $ 150,000
Less unamortized discount (91,846)
------------
58,154
4% CONVERTIBLE NOTE PAYABLE, due August 6, 2004 405,000
Less unamortized discount (247,988)
------------
157,012
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, 35,099,849 shares
issued and outstanding 35,099
Additional paid-in capital 26,673,933
Deficit accumulated during development stage (25,224,029)
------------
Total stockholders' equity 1,485,003
------------
$ 2,296,254
============
See accompanying notes to financial statements.
F-24
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
FROM INCEPTION
ON JANUARY 1, 1999
NINE MONTHS ENDED THREE MONTHS ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001 2002
------------- ------------- ------------- ------------- -------------
REVENUE $ 314,931 $ 185,678 $ 30,000 $ 60,818 $ 577,481
COST OF REVENUES 30,364 25,950 180 1,970 169,555
------------- ------------- ------------- ------------- -------------
GROSS PROFIT 284,567 159,728 29,820 58,848 407,926
------------- ------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE EXPENSES 5,550,482 6,527,250 1,551,538 2,402,994 25,631,955
------------- ------------- ------------- ------------- -------------
NET LOSS $ (5,265,915) $ 6,367,522) $ (1,521,718) $ 2,344,146) $(25,224,029)
============= ============= ============= ============= =============
NET LOSS PER SHARE, basic and
diluted $ (0.18) $ (0.46) $ (0.05) $ (0.16)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON EQUIVALENT
SHARES OUTSTANDING - BASIC AND
DILUTED 29,922,324 13,723,297 32,667,295 14,582,506
============= ============= ============= =============
See accompanying notes to financial statements.
F-25
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)
See accompanying notes to financial statements.
F-26
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 2,624 309,941 - 312,565
Issuance of warrants in connection
with debt financing - - 451,716 - 451,716
Beneficial conversion feature
embedded in debt securities - - 1,317,016 - 1,317,016
Issuance of options in exchange
for services - - 107,276 - 107,276
(Continued)
See accompanying notes to financial statements.
F-27
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 - - 6,000 - 6,000
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 2,110 703,344 - 705,454
Conversion of debt to
equity - Stonestreet Capital 3,004,411 3,004 750,469 - 753,473
Conversion of debt to
equity - Alpha Capital 749,794 750 94,250 - 95,000
Net loss for the nine months ended
September 30, 2002 - - - (5,265,915) (5,265,915)
------------- ------------- ------------- ------------- -------------
Balance at September 30, 2002 35,099,849 $ 35,099 $ 26,673,933 $(25,224,029) $ 1,485,003
============= ============= ============= ============= =============
See accompanying notes to financial statements.
F-28
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Nine months ended Nine months ended January 1, 1999 to
September 30, 2002 September 30, 2001 September 30, 2002
------------------ ------------------ ------------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net loss $ (5,265,915) $ (6,367,522) $ (25,224,029)
--------------- --------------- ---------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 637,600 958,896 2,961,929
Loss on disposal of assets 114 500,000 500,115
Amortization of discount and finance cost 1,869,858 342,892 3,124,883
Options issued in exchange for services 107,276 104,922 446,850
Warrants issued in exchange for services - - 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Licensing revenue receivable 219 324,280 (249,739)
Advertising revenue receivable - - 249,455
Inventory 30,067 6,424 (79,387)
Prepaid advertising - 150,000 -
Prepaid mailing lists - - (750,000)
Prepaid expenses (27,438) 52,824 (94,078)
Deposits (1,008) (315) (49,310)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses (90,363) (331,298) 793,649
Deferred revenue - (56,250) 250,000
--------------- --------------- ---------------
Total adjustments 2,526,325 2,052,375 7,326,017
--------------- --------------- ---------------
Net cash used for operating activities (2,739,590) (4,315,147) (17,898,012)
--------------- --------------- ---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment 847 (63,694) (1,397,819)
Software licensing (6,013) - (1,145,322)
Software development costs (3,680) (262,278) (1,563,903)
Trademarks (3,585) (6,357) (238,766)
Patents (12,150) (1,790) (65,374)
Loan fees - - (200,000)
Increase in escrow account - 200,000 (200,000)
--------------- --------------- ---------------
Net cash used for investing activities (24,581) (134,119) (4,811,184)
--------------- --------------- ---------------
(Continued)
See accompanying notes to financial statements.
F-29
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Nine months ended Nine months ended January 1, 1999 to
September 30, 2002 September 30, 2001 September 30, 2002
------------------ ------------------ ------------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net 727,233 840,020 18,461,747
Proceeds from loans payable - - 200,000
Proceeds from convertible note payable 1,903,000 956,000 4,859,000
Payments on loan payable officer stockholder - (200,000) (200,000)
Retirement of common stock, net - - (10,000)
--------------- --------------- ---------------
Net cash provided by financing activities 2,630,233 1,596,020 23,310,747
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH (133,938) (2,853,246) 601,551
CASH AND CASH EQUIVALENTS, beginning of year 735,489 4,387,622 -
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of year $ 601,551 $ 1,534,376 $ 601,551
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ - $ 1,266 $ 1,791,4750
=============== =============== ===============
Income taxes paid $ 800 $ - $ 5,023
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Options issued in exchange for services $ 107,276 $ 23,522 $ 365,450
=============== =============== ===============
Shares issued for re-pricing of conversion rate $ 175,000 $ - $ 175,000
=============== =============== ===============
Warrants issued for settlement $ - $ - $ 221,650
=============== =============== ===============
Warrants issued in connection with financing $ 451,716 $ 394,400 $ 3,085,080
=============== =============== ===============
Common Stock issued in exchange for debt $ 1,860,062 $ 391,365 $ 3,543,062
=============== =============== ===============
Beneficial conversion feature of debt to equity $ 1,317,016 $ 325,000 $ 1,734,466
=============== =============== ===============
Common shares issued for settlement $ - $ 81,400 $ 81,400
=============== =============== ===============
See accompanying notes to financial statements.
F-30
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(1) ORGANIZATION:
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, 2002. 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, 2001.
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.
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.
F-31
(3) STOCKHOLDERS' EQUITY:
CONVERSION OF DEBT
------------------
During the three months ended March 31, 2002, approximately $381,075 of notes
payable was converted into approximately 1,047,000 shares of the Company's
common stock at an average conversion price of $0.36 per share by Laurus Master
Fund and Stonestreet Capital. In addition, Neville converted the remaining
principal balance of $550,000 ($312,565 carrying book value, net of unamortized
debt discount) related to the 5% Note Payable into 2,624,447 common shares.
During the three months ended June 30, 2002, approximately $917,000 of notes
payable was converted into approximately 2,907,000 shares of the Company's
common stock at an average conversion price of $0.32 per share by Laurus Master
Fund and Stonestreet Capital.
During the three months ended September 30, 2002, approximately $255,925 of
notes payable was converted into approximately 1,910,000 shares of the Company's
common stock at an average conversion price of $0.13 per share by Laurus Master
Fund, Stonestreet Capital, and Alpha Capital Aktiengesellschaft.
EQUITY FINANCING
----------------
During May 2002, the Company entered into an equity financing agreement of up to
$5 million, with an initial put demand by the Company for approximately $800,000
in exchange for 2,666,667 shares of the Company's common stock at a price of
$0.30 per share. Subsequently, on August 8, 2002, $500,000 of the $800,000
investment was repriced and 833,334 shares (valued at $175,000) of common stock
was issued to the investors so that the average cost of the initial put was
$0.22857 per share. Pursuant to the original agreement, the Company can exercise
its right to require the Investor to purchase a discretionary amount of the
Company's common stock as determined by the Company, subject to the terms of the
agreement. The minimum put amount is $150,000 and the offering price of the
Company's common stock is determined on a formula, as set forth in the
agreement. The Company recognized an expense of $175,000 from the issuance of
additional 833,334 common shares.
The Company also issued 300,000 warrants in May 2002, to purchase shares of the
Company's common stock at an exercise price of $0.43 per share. Subsequently, on
August 8, 2002, the Company adjusted the exercise price on these warrants to
$.20 per share due to a subsequent financing. The Company paid a finders fee of
$48,000 and issued 75,000 warrants with an exercise price of $0.43, the value of
which has been netted against the gross proceeds. During the period ended
September 30, 2002, the Company accounted for the change in exercise under
variable accounting and recognized an expense of $6,000 during the period
On August 8, 2002, we entered into securities purchase agreement with two
accredited investors, Stonestreet Limited Partnership and Alpha Capital
Aktiengesellschaft for the issuance of 4% convertible debentures (effective
interest rate of 45%) in the aggregate amount of $650,000. The debentures are
convertible into common stock at a
F-32
conversion price of the lower of $.242 or 80% of the average of the five lowest
closing bid prices for the common stock thirty days prior to conversion. In
addition, an aggregate of 491,400 common stock purchase warrants were issued to
the investors. Each common stock purchase warrant has an exercise price of
$.252. The commission for the transaction was 8%. 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. Net proceeds amounted to $577,000, net of debt issue cash cost of
$73,000. The value of the warrants amounted to $90,371 and the beneficial
conversion feature amounted to $352,361 pursuant to EITF 00-27. Total debt issue
cost of $515,732 is being 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.
(4) SUBSEQUENT EVENT:
During October 2002, Stonestreet Limited Partnership and Alpha Capital
Aktiengesellschaft converted $125,000 and $150,000 into 1,042,000 and 1,290,000
common shares, respectively. The approximate average conversion price was $0.12
per share.
On November 18, 2002, the Company entered into securities purchase agreement
with three accredited investor, Ellis Enterprises Ltd., Bristol Investment Fund,
Ltd. and Alpha Capital Aktiengesellschaft for the issuance of 4% convertible
debentures in the aggregate amount of $1,150,000. The Company received $575,000
on November 18, 2002 and will receive an additional $575,000 within five days of
a prospectus being declared effective by the Securities and Exchange Commission.
The debentures are convertible into common stock at a conversion price of the
lower of $.2475 or 80% of the average of the five lowest closing bid prices for
the common stock thirty days prior to conversion. In addition, an aggregate of
491,400 common stock purchase warrants were issued to the investors. Each common
stock purchase warrant has an exercise price of $.252. The commission for the
transaction was 8%.
F-33
-------------------------------------- -----------------------------------
You should rely only on the
information contained in this
prospectus. We have not
authorized anyone to provide you
with information different from
the information contained in
this prospectus. This document
may only be used where it is UP TO 19,595,276 SHARES
legal to sell the securities. OF OUR
The information in this document OF COMMON STOCK
may only be accurate on the date
of this document.
TABLE OF CONTENTS
Page
----
Prospectus Summary 2
Risk Factors 3
Use Of Proceeds 9
Market For Common Equity And Related
Stockholder Matters 10 ONE VOICE
Management's Discussion And Analysis TECHNOLOGIES, INC.
Or Plan Of Operation 11
Business 17 6333 Greenwich Drive, Suite 240
Management 23 San Diego, California 92122
Certain Relationships And Related (858) 552-4466
Transactions 26
Security Ownership Of Certain
Beneficial Owners
And Management 27
Description Of Securities 28
Plan Of Distribution 29
Selling Stockholders 31
Legal Matters 33
Experts 33 ________________
Available Information 33
Index To Financial Statements 34 PROSPECTUS
________________
December __, 2002
-------------------------------------- -----------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Nevada General Corporation Law and our Articles of
Incorporation, as amended, and our Bylaws, our directors will have no personal
liability to us or our stockholders for monetary damages incurred as the result
of the breach or alleged breach by a director of his "duty of care." This
provision does not apply to the directors' (i) acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (ii) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its stockholders or that involve the absence of good faith on the
part of the director, (iii) approval of any transaction from which a director
derives an improper personal benefit, (iv) acts or omissions that show a
reckless disregard for the director's duty to the corporation or its
stockholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its stockholders, (v) acts or omissions
that constituted an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its stockholders, or
(vi) approval of an unlawful dividend, distribution, stock repurchase or
redemption. This provision would generally absolve directors of personal
liability for negligence in the performance of duties, including gross
negligence.
The effect of this provision in our Articles of Incorporation and
Bylaws is to eliminate the rights of our Company and our stockholders (through
stockholder's derivative suits on behalf of our Company) to recover monetary
damages against a director for breach of his fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (vi) above.
This provision does not limit nor eliminate the rights of our Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, our Bylaws
provide that if the Nevada General Corporation Law is amended to authorize the
future elimination or limitation of the liability of a director, then the
liability of the directors will be eliminated or limited to the fullest extent
permitted by the law, as amended. The Nevada General Corporation Law grants
corporations the right to indemnify their directors, officers, employees and
agents in accordance with applicable law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance and
distribution of the securities being registered:
NATURE OF EXPENSE AMOUNT
----------------- ------
SEC Registration fee 414.64
Accounting fees and expenses 5,000.00*
Legal fees and expenses 8,000.00*
Printing and related expenses 3,000.00*
-----------
TOTAL $16,414.64*
===========
* Estimated.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In January 2000, we offered and sold 312,500 shares of common stock at
$6.40 per share and 156,250 common stock purchase warrants to a non-affiliated
institutional investor raising net proceeds of $1,800,000. Each warrant entitles
the holder to purchase one share of common stock at an exercise price of $8.00.
The institutional investor completed a subscription confirmation letter and
private placement subscription agreement whereby the investor certified that it
was purchasing the shares for its own account and that the investor was
accredited and sophisticated as defined. This offering was not accompanied by
general advertisement or general solicitation. We relied on Section 4(2) of the
Act as the basis of exemption from registration.
In March 2000, we offered approximately 1 million units consisting of
one share of our common stock and one-half common stock purchase warrant for
each unit purchased. We received net proceeds of $12,146,181 from the issuance
of 988,560 shares of common stock and 494,280 common stock purchase warrants in
reliance on Section 4(2) of the Act as the basis of exemption from registration.
Each warrant entitles the holder to purchase one share of our common stock at an
exercise price of $18.00.
In October 2000, we entered into an agreement for the issuance of an
initial amount of $2,000,000 worth of 4% Convertible Debentures and 231,884
common stock purchase warrants with the Selling Stockholders in reliance on
Section 4(2) of the Act and Rule 506. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $9.76. Under the
Securities Purchase Agreement, additional 4% Convertible Debentures and common
stock purchase warrants may be offered to the Selling Stockholders for total
gross proceeds from this offering of up to $10,000,000. The Selling Stockholders
represented to us that they were accredited investors as defined in the Act and
that they were able to protect their own interests in connection with the
investment. The shares underlying this private placement are being registered in
this registration statement. The commission for the transaction was 10%
($200,000) and a common stock purchase warrant for 23,188 shares of our stock at
an exercise price per share of $9.76.
On August 3, 2001, we entered into a settlement agreement with Dominick
& Dominick LLC, to be effective September 1, 2001, pursuant to which we issued
110,000 shares of common stock and 300,000 common stock purchase warrants. We
relied on Section 4(2) of the Act as a basis of exemption from registration. The
Settlement Agreement was entered into in order to settle a dispute regarding a
financial consulting agreement which we had entered into with Dominick &
Dominick LLC as of May 30, 2000. Such shares and warrants were subsequently
transferred to Dominick & Dominick Financial Corp., a Delaware corporation.
In September 2001, we entered into a securities purchase agreement with
the Laurus Master Fund, Ltd. for the issuance of a $600,000 8% convertible
debenture and 100,000 common stock purchase warrants in reliance on Section 4(2)
of the Act and Rule 506. Each warrant entitles the holder to purchase one share
of common stock at an exercise price of $.515. The commission for the
transaction was 10% ($60,000) and a common stock purchase warrant for 100,000
shares of our stock at an exercise price per share of $.515.
In September 2001, we entered into a securities purchase agreement with
the Stonestreet Limited Partnership for the issuance of a $500,000 8%
convertible debenture and 83,333 common stock purchase warrants in reliance on
Section 4(2) of the Act and Rule 506. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $.515. The commission
for the transaction was 10% ($50,000) and a common stock purchase warrant for
83,333 shares of our stock at an exercise price per share of $.515.
In January 2002, we entered into a securities purchase agreement with
the Laurus Master Fund, Ltd. and Stonestreet Limited Partnership for the
issuance of an aggregate of $1,452,500 principal amount of 4% convertible notes
and an aggregate of 500,000 common stock purchase warrants in reliance on
Section 4(2) of the Act and Rule 506. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $.96. The commission
for the transaction was $87,500 and a 4% convertible note in the amount of
$52,500.
On May 7, 2002, we issued 2,666,666 shares of our common stock to
Stonestreet Limited Partnership for $800,000. In addition we issued to
Stonestreet 300,000 warrants exercisable into shares of our common stock at $.43
per share. We paid $48,000 and issued 75,000 warrants exercisable at $.43 per
share as a finder's fee to Stonestreet Corporation. On August 8, 2002, we
repriced Stonestreet's May 2002 investment and issued them 833,334 shares of
common stock. In addition, we repriced Stonestreet's common stock purchase
warrants exercise price to $.20 per share.
II-2
On January 7, 2002, we entered into a securities purchase agreement
with the Laurus Master Fund, Ltd. and Stonestreet Limited Partnership for the
issuance of an aggregate of $1.45 million principal amount of 4% convertible
notes and an aggregate of 500,000 common stock purchase warrants in reliance on
Section 4(2) of the Act and Rule 506. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $.96. The commission
for the transaction was $87,500 and a 4% convertible note in the amount of
$52,500. The notes bear interest at 4%, matures on January 7, 2004, and are
convertible into our common stock, at the holder's option, at the lower of (i)
$0.997 or (ii) 80% of the five lowest VWAPs for the common stock on a principal
market for the 30 trading days before but not including the conversion date.
VWAP means the daily volume weighted average prices of our common stock. The
note may not be paid, in whole or in part, before January 7, 2004 without the
consent of the holder. The full principal amount of the convertible notes are
due upon default under the terms of convertible notes. The warrants are
exercisable until January 5, 2005 at a purchase price of $.96 per share.
Subsequently, on May 7, 2002, due to an additional financing, these warrants
were repriced at $0.90 per share pursuant to the terms of this financing
agreement.
On August 8, 2002, we entered into securities purchase agreement with
two accredited investor, Stonestreet Limited Partnership and Alpha Capital
Aktiengesellschaft for the issuance of 4% convertible debentures in the
aggregate amount of $650,000. The debentures are convertible into common stock
at a conversion price of the lower of $.242 or 80% of the average of the five
lowest closing bid prices for the common stock thirty days prior to conversion.
In addition, an aggregate of 491,400 common stock purchase warrants were issued
to the investors. Each common stock purchase warrant has an exercise price of
$.252. The commission for the transactions were 8%. 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.
During the quarter ended September 30, 2002, we issued an aggregate
total of 850,000 options to employees in recognition of their services to One
Voice. In addition , we issued 50,000 options to a consultant who provided human
resources services. All of the options were pursuant to our stock option plan
and have an exercise price of $0.14 per share.
On November 18, 2002, we entered into securities purchase agreement
with three accredited investor, Ellis Enterprises Ltd., Bristol Investment Fund,
Ltd. and Alpha Capital Aktiengesellschaft for the issuance of 4% convertible
debentures in the aggregate amount of $1,150,000. We have received $575,000 on
November 18, 2002 and will receive an additional $575,000 within five days of
this prospectus being declared effective by the Securities and Exchange
Commission. The debentures are convertible into common stock at a conversion
price of the lower of $.2475 or 80% of the average of the five lowest closing
bid prices for the common stock thirty days prior to conversion. In addition, an
aggregate of 491,400 common stock purchase warrants were issued to the
investors. Each common stock purchase warrant has an exercise price of $.252.
The commission for the transaction was 8%. This prospectus covers the resale by
the selling stockholder of the shares of common stock issuable upon conversion
of the above-referenced debentures and upon exercise of the above-referenced
warrants. 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.
Except as expressly set forth above, the individuals and entities to whom we
issued securities as indicated in this section of the registration statement are
unaffiliated with us.
II-3
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2.
References to "the Company" in this Exhibit List mean One Voice Technologies,
Inc., a Nevada corporation.
Exhibit No. Description
----------- -----------
PLANS OF ACQUISITION
2.1 Merger Agreement and Plan of Reorganization with
Conversational Systems, Inc. dated June 22, 1999 (filed
herewith).
ARTICLES OF INCORPORATION AND BYLAWS
3.1 Articles of Incorporation of Belridge Holdings Corp.
filed with the Nevada Secretary of State on August 23,
1995 (incorporated by reference to Exhibit 3(i) to our
Form 10-SB filed October 7, 1999).
3.2 Certificate of Amendment of Articles of Incorporation of
Belridge Holdings Corp. changing its name to Dead On,
Inc. (incorporated by reference to Exhibit 3(i) to our
Form 10-SB filed October 7, 1999). The Certificate
originally filed on September 25, 1998, was canceled and
re-filed with the Nevada Secretary of State on June 10,
1999.
3.3 Articles of Merger for the merger of Conversational
Systems, Inc. into Dead On, Inc. filed with the Nevada
Secretary of State on July 14, 1999 with supporting
documents (incorporated by reference to Exhibit 2 to our
Form 10-SB, filed October 7, 1999). This document
changed the name of the surviving entity, Dead On, Inc.,
to ConversIt.com, Inc.
3.4 Certificate of Amendment of Articles of Incorporation of
ConversIt.com, Inc. changing its name to One Voice
Technologies, Inc. (incorporated by reference to Exhibit
2 to our Form 10-SB filed October 7, 1999).
3.5 Bylaws of Belridge Holdings Corp. (incorporated by
reference to Exhibit 3(ii) of our Form 10-SB, filed
October 7, 1999).
3.6 Amendment to Bylaws dated July 11, 2000 (excerpted)
(incorporated by reference to Exhibit 4.3 of our Form
S-8, filed October 3, 2000).
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
4.1 Common Stock Purchase Warrant with Veritas SG
Investments from the January 2000 offering (incorporated
by reference to Exhibit 4.1 of our Form SB-2, filed
November 11, 2000).
4.2 Form of Common Stock Purchase Warrant from the March
2000 offering (incorporated by reference to Exhibit 4.1
of our Form SB-2, filed November 11, 2000).
4.3 Securities Purchase Agreement ("SPA") with Nevelle
Investors LLC dated October 3, 2000, and Form of
Debenture (Exhibit A to the SPA), Form of Warrant
(Exhibit B to the SPA), Conditional Warrant dated
October 3, 2000 (Exhibit C to the SPA) and Registration
Rights Agreement dated October 3, 2000 (Exhibit E to the
SPA), each with Nevelle Investors LLC (incorporated by
reference to Exhibit 4 to our Form 10-QSB, filed
November 14, 2000).
II-4
Exhibit No. Description
----------- -----------
OPINION REGARDING LEGALITY
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent
(filed herewith).
MATERIAL CONTRACTS
10.1 Employment Agreement with Dean Weber dated July 14, 1999
(incorporated by reference to Exhibit 10 to our Form
10-SB, filed October 7, 1999). This agreement was
amended on April 10, 2000, to increase Mr. Weber's
annual salary to $252,000.
10.2 Consulting Agreement with KJN Management Ltd. For the
services of Rahoul Sharan dated July 14, 1999
(incorporated by reference to Exhibit 10 to our Form
10-SB, filed October 7, 1999). This agreement was
amended on April 10, 2000, to increase the annual
consulting fee to $180,000.
10.3 Software Agreement with IBM/OEM dated September 21, 1999
(incorporated by reference to Exhibit 4.4 to our Form
SB-2 filed November 20, 2000).
1.04 Software License Agreement with Philips Spech Processing
dated March 3, 2000 (incorporated by reference to
Exhibit 4.4 to our Form SB-2 filed November 20, 2000) .
10.5 Amended and Restated 1999 Stock Option Plan
(incorporated by reference to Exhibit 4.4 to our Form
S-8, Amendment No. 1, filed October 4, 2000).
10.6 Subscription Agreement dated August 8, 2002
(incorporated by reference to our registration statement
on Form SB-2 filed September 12, 2002)
10.7 Alpha Capital Note dated August 8, 2002 (incorporated by
reference to our registration statement on Form SB-2
filed September 12, 2002)
10.8 Alpha Capital Warrant dated August 8, 2002 (incorporated
by reference to our registration statement on Form SB-2
filed September 12, 2002)
10.9 Stonestreet Note dated August 8, 2002 (incorporated by
reference to our registration statement on Form SB-2
filed September 12, 2002)
10.10 Stonestreet Warrant dated August 8, 2002 (incorporated
by reference to our registration statement on Form SB-2
filed September 12, 2002)
10.11 Subscription Agreement dated November 14, 2002
10.12 Alpha Capital Note dated August 8, 2002
10.13 Alpha Capital Warrant dated August 8, 2002
10.14 Ellis Note dated August 8, 2002
10.15 Ellis Warrant dated August 8, 2002
10.16 Bristol Note dated August 8, 2002
10.17 Bristol Warrant dated August 8, 2002
II-5
Exhibit No. Description
----------- -----------
CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of independent auditors (filed herewith).
23.2 Consent of legal counsel (see Exhibit 5).
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement, and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of San
Diego, State of California, on December 4, 2002.
ONE VOICE TECHNOLOGIES, INC.
By: /s/ Dean Weber
----------------------
Dean Weber, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
/s/ Dean Weber Chief Executive Officer and Director December 4, 2002
--------------------------
Dean Weber
/s/ Rahoul Sharan Chief Financial Officer and Director December 4, 2002
--------------------------
Rahoul Sharan
/s/ Bradley J. Ammon Director December 4, 2002
--------------------------
Bradley J. Ammon
II-7