AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment No. 3)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 2006
COMMISSION FILE NO. 0-27589
ONE VOICE TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 95-4714338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4275 EXECUTIVE SQUARE, STE. 200, LA JOLLA, CA 92037
(Address of Principal Executive Offices)
(858) 552-4466
(Issuer's Telephone Number)
(858) 552-4474
(Issuer's Facsimile Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of May 11, 2006, the registrant had 471,507,020 shares of common stock, $.001
par value, issued and outstanding.
Transitional small business disclosure format (check one): Yes [ ] No [X]
EXPLANATORY NOTE
One Voice Technologies, Inc. is filing this amended Quarterly Report on Form
10-QSB/A to amend the Quarterly Report on Form 10-QSB initially filed with the
Securities and Exchange Commission on May 22, 2006 to update the Controls and
Procedures section with disclosure as to why certain material weaknesses
identified by our former auditor did not have effect on our financial results or
any restatements that occurred.
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) F-1 - F-12
Item 2. Management's Discussion and Analysis or Plan of Operation 13
Item 3. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 20
SIGNATURES 21
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. Page No.
--------
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
ONE VOICE TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2006 2005
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 518,451 $ 338,811
Accounts receivable 23,952 42,696
Inventories 10,462 5,254
Other current assets 50,143 40,574
------------ ------------
Total current assets 603,008 427,335
PROPERTY AND EQUIPMENT, net 73,821 84,703
Software dev, net 33,341 40,552
Trademarks, net 4,452 5,517
Patents, net 102,085 94,200
Deposits 18,665 18,665
Deferred debt issue costs 74,666 69,970
------------ ------------
Total assets $ 910,038 $ 740,942
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable 98,824 128,630
Accrued expenses 134,657 147,305
Settlement agreement liability 800,500 920,000
License agreement liability 900,000 930,000
Warrant derivative liability 6,424,006 2,032,299
Current portion of convertible debt, net -- --
------------ ------------
Total current liabilities 8,357,987 4,158,234
LONG TERM DEBT:
Long term portion of notes payable 100,000 100,000
Long term portion of convertible debt, net 90,605 221,850
Deferred rent 3,841 --
------------ ------------
Total liabilities 8,552,433 4,480,084
STOCKHOLDERS' DEFICIT:
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock; $.001 par value, 990,000,000 shares
authorized, 468,523,025 and 363,590,152 shares issued
and outstanding at March 31, 2006 and December
31, 2005, respectively 468,523 363,590
Additional paid-in capital 40,369,813 38,561,381
Accumulated deficit (48,480,731) (42,664,113)
------------ ------------
Total stockholders' deficit (7,642,395) (3,739,142)
------------ ------------
Total liabilities and stockholders' deficit $ 910,038 $ 740,942
============ ============
See accompanying notes
F-3
ONE VOICE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31, 2006 March 31, 2005
------------- -------------
REVENUE $ 61,298 $ 10,363
COST OF REVENUE 20,509 1,128
------------- -------------
GROSS PROFIT 40,789 9,235
GENERAL AND ADMINISTRATIVE EXPENSES 990,975 1,017,302
------------- -------------
NET LOSS FROM OPERATIONS (950,186) (1,008,067)
OTHER INCOME (EXPENSES)
Interest expense (893,305) (1,057,096)
Settlement expense (100,500) --
Gain (loss) on warrant derivative (3,877,509) --
Other, net 4,883 347
------------- -------------
NET LOSS $ (5,816,617) $ (2,064,816)
============= =============
NET LOSS PER SHARE, basic and diluted $ (0.01) $ (0.01)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 409,119,000 261,139,944
============= =============
See accompanying notes.
F-4
ONE VOICE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31, March 31,
2006 2005
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,816,617) $(2,064,816)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation and amortization 31,387 50,782
Amortization of debt discount and debt issue costs 865,147 1,059,482
(Gain)loss on warrant derivative liability 3,877,509 --
Share based compensation expense 155,209 --
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable 18,744 2,696
Inventories (5,208) (3,293)
Prepaid expenses and other assets (9,569) (14,789)
Deposits -- 975
Deferred rent 3,840 --
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable (29,806) 45,210
Accrued expenses 38,918 13,845
Settlement agreement liability 100,500 --
License agreement liability (30,000) 95,000
Deposit (7,292)
----------- -----------
Net cash used in operating activities (799,946) (822,200)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,100) (16,566)
Patents (18,014) (1,200)
----------- -----------
Net cash used in investing activities (20,114) (17,766)
----------- -----------
F-5
(Continued)
Three Months Ended
March 31, March 31,
2006 2005
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 60,000 --
Proceeds from convertible debt 700,000 919,988
Payments for debt issue costs (60,500) --
Proceeds from warrant exercise 300,200 --
--------- ---------
Net cash provided by financing activities 999,700 919,988
--------- ---------
NET INCREASE IN CASH 179,640 80,022
CASH AND CASH EQUIVALENTS, beginning of period 338,811 535,642
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 518,451 $ 615,664
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 10,000 $ 26,603
========= =========
Income taxes paid $ 800 $ 800
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Issuance of warrant derivative in connection
with private placement and debt financing $ 457,198 $ 724,305
========= =========
Beneficial conversion feature of debt $ 242,802 $ 275,695
========= =========
Common Stock issued upon conversion of debt $ 992,138 $ 959,858
========= =========
Common Stock issued in connection $ 220,000 $ --
with reduction of settlement liability ========= =========
See accompanying notes.
F-6
ONE VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
One Voice Technologies, Inc. is incorporated under the laws of the
State of Nevada. The Company develops voice recognition software and it
commenced operations in 1999.
Prior to the fourth quarter of 2005, the Company's financial statements
had been prepared and presented as those of a development stage
enterprise. Based on the commercialization of its Mobile Voice product
during 2005, the Company believes that such presentation is no long
necessary.
Located in San Diego, California, the Company has 12 full-time
employees and 5 consultant/part-time employees. The company is traded
on the NASD OTC Electronic Bulletin Board ("OTCBB") under the symbol
ONEV.OB. One Voice commenced operations on July 14, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements include all adjustments 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, 2006. The financial statements should be
read in conjunction with the financial statements included in the
Company's annual report on Form 10-KSB for the year ended December 31,
2005.
GOING CONCERN:
The accompanying financial statements have been prepared assuming 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 has incurred significant losses since
inception of $48,481,000 and used cash for operations of $800,000
during the quarter ended March 31, 2006. The Company also has a working
capital deficit of $7,755,000 and a stockholders' deficit of $7,542,000
as of March 31, 2006. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management is
currently seeking additional equity or debt financing and is pursuing
revenue-bearing contracts utilizing various applications of its
technology including wireless technology. The financial statements do
not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
RECENT ACCOUNTING PRONOUNCEMENTS:
In February 2006, the Financial Accounting Standards Board ("FASB")
released Statement No. 155, Accounting for Certain Hybrid Financial
Instruments, ("SFAS No. 155") was released. SFAS No.155 is an amendment
of Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities , and Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS
No. 155 establishes, among other items, the accounting for certain
derivative instruments embedded within other types of financial
instruments; and, eliminates a restriction on the passive derivative
instruments that a qualifying special-purpose entity may hold.
Effective for the Company beginning January 1, 2007, SFAS No. 155 is
not expected to have any impact on the Company's financial position,
results of operations or cash flows.
In March 2006, the FASB released Statement No. 156, Accounting for
Servicing of Financial Assets, an amendment of FASB Statement No. 140,
("SFAS No. 156") was released. SFAS No. 156 amends SFAS No. 140 to
require that all separately recognized servicing assets and liabilities
in accordance with SFAS No. 140 be initially measured at fair value, if
practicable. Furthermore, this standard permits, but does not require,
fair value measurement for separately recognized servicing assets and
liabilities in subsequent reporting periods. SFAS No. 156 is also
effective for the Company beginning January 1, 2007; however, the
standard is not expected to have an impact on the Company's financial
position, results of operation or cash flows.
F-7
ONE VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
In the first quarter of 2006, the Company adopted Statement No. 154,
Accounting for Changes and Error Corrections--a replacement of APB
Opinion No. 20 and FASB Statement No. 3, ("SFAS No. 154") which changed
the requirements for the accounting for and reporting of a voluntary
change in accounting principle. The Company also adopted Statement No.
151, Inventory Costs--an amendment of ARB No. 43, Chapter 4 ("SFAS No.
151") which, among other changes, requires certain abnormal
expenditures to be recognized as expenses in the current period versus
capitalized as a component of inventory. The adoption of SFAS No. 154
did not impact the results presented and the impact on any future
periods will depend on the nature and significance of any future
accounting changes subject to the provisions of the statement. The
adoption of SFAS No. 151 did not have any impact on the Company's
financial position, results of operations or cash flows.
(3) SETTLEMENT AGREEMENT LIABILITY:
On January 6, 2006, the Company entered into a Settlement Agreement and
Mutual Release (the "Settlement Agreement") with La Jolla Cove
Investors, Inc. ("La Jolla") in which the Company and La Jolla agreed
to forever settle, resolve and dispose of all claims, demands and
causes of action asserted, existing or claimed to exist between the
parties because of or in any way related to the Action. Under the
Settlement Agreement, La Jolla and the Company agreed that each shall
bear their own costs and attorney's fees associated with the Action and
that the outstanding principle balance of convertible notes payable and
accrued interest owed to La Jolla in the aggregate amount $159,613,
would be extinguished. In addition, the Company agreed to pay to La
Jolla:
o 10,000,000 restricted shares of the Company's common stock on
January 6, 2006
o $300,000, which was paid on May 5, 2006; and
o $400,000 within 150 days of the date of the Settlement
Agreement
Interest shall accrue on the $700,000 unpaid balance at 8% per annum
commencing on the date of the Settlement Agreement until paid in full.
If any payment is not made within 30 days of its due date, La Jolla may
enter a judgment against the Company for the then unpaid balance, plus
accrued interest and $100,000, upon the filing of a declaration of
default by La Jolla. As of March 31, 2006, the outstanding balance due
under the Settlement Agreement was $700,000.
(4) LICENSE AGREEMENT LIABILITY:
In March 2000 the Company entered into a Software License Agreement
("License Agreement") with Philips Speech Processing, a division of
Philips Electronics North America ("Philips"). Pursuant to the License
Agreement, the Company received a world-wide, limited, nonexclusive
license to certain speech recognition software owned by Philips. The
initial term of the License Agreement was three (3) years, and the
License Agreement included an extended term provision under which the
License Agreement was automatically renewable for successive one (1)
year periods, unless terminated by either party upon a minimum of sixty
(60) days written notice prior to the expiration of the initial term or
any extended term.
F-8
ONE VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The License Agreement provides for the Company to pay a specified
commission on revenues from products incorporating licensed software,
and includes minimum royalty payment obligations over the initial three
(3) year term of the License Agreement in the aggregate amount of
$1,100,000.
Under an amendment to the License Agreement entered into in March 2002,
the initial term of the License Agreement was extended for two (2)
years, and the aggregate minimum royalty payment was increased to
$1,500,000. The amendment also included a revised payment schedule of
the minimum royalty payment obligation that provided for semi-annual
payments of $250,000, through December 31, 2004(due on June 30th and
December 31st of each year). In lieu of scheduled payments, in May,
2003, based on a verbal agreement with Philips, the Company began
making monthly payments of $15,000, of which $10,000 is being applied
against the remaining minimum royalty payment due and $5,000 is being
applied as interest. The Company is currently in discussions with
Philips to restructure the agreement and settle past due balances. As
of March 31, 2006 and December 31,2005, the outstanding minimum royalty
obligations pursuant to the License Agreement were $900,000 and
$930,000 respectively.
(5) WARRANT DERIVATIVE LIABILITY
During the period ended March 31, 2006 the Company issued warrants in
connection with convertible debt agreements and private placements
that required analysis in accordance with EITF 00-19. EITF 00-19
specifies the conditions which must be met in order to classify
warrants issued in a company's own stock as either equity or as a
derivative liability. Evaluation of these conditions under EITF 00-19
resulted in the determination that these warrants should be classified
as a derivative liability. In accordance with EITF 00-19, warrants
which are determined to be classified as derivative liabilities are
marked-to-market each reporting period, with a corresponding non-cash
gain or loss charged to the current period. The Company valued all
warrant derivative liabilities as of March 31, 2006 using a
Black-Scholes option pricing model using the following assumptions:
expected dividend yield of 0.0%, expected stock price volatility of
110%, risk free interest rate of 4.83% and a remaining contractual
life ranging from 1.40 years to 4.00 years. The Company valued all
warrant derivative liabilities as of December 31, 2005 using a
Black-Scholes option pricing model using the following assumptions:
expected dividend yield of 0.0%, expected stock price volatility of
100%, risk free interest rate of 4.35% and a remaining contractual
life ranging from 0.30 years to 4.00 years. The valuation conducted as
of March 31, 2006 resulted in a non-cash loss of $3,877,509 with a
corresponding increase in the warrant derivative liability. As of
March 31, 2006, the fair value of the warrant derivative liability was
$6,424,006 respectively.
(6) NOTES PAYABLE:
On August 8, 2003 the Company entered into a note payable in the amount
of $100,000, with principal and interest at 8.0% per annum, due on
August 8, 2008. At March 31, 2006 the balance on the note payable was
$100,000.
(7) CONVERTIBLE NOTES PAYABLE:
On March 17, 2006, we completed a private placement pursuant to a
Subscription Agreement which we entered into with several institutional
investors, pursuant to which the investors subscribed to purchase an
aggregate principal amount of $700,000 in 6% secured convertible
promissory notes and one Class A common stock purchase warrant for each
one share which would be issued on the closing date assuming full
conversion of the secured convertible notes issued on the closing date.
F-9
ONE VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The secured convertible notes bear simple interest at 6% per annum
payable June 1, 2006 and semi-annually thereafter, and mature 2 years
after the date of issuance. Each investor shall have the right to
convert the secured convertible notes after the date of issuance and at
any time, until paid in full into shares of our common stock. The
conversion price per share shall be the lower of (i) $0.043 or (ii) 80%
of the average of the three lowest closing bid prices for our common
stock for the 30 trading days prior to, but not including, the
conversion date as reported by Bloomberg, L.P. on any principal market
or exchange where our common stock is listed or traded. The conversion
price is adjustable in the event of any stock split or reverse stock
split, stock dividend, reclassification of common stock,
recapitalization, merger or consolidation. In addition, the conversion
price of the secured convertible notes will be adjusted in the event
that we spin off or otherwise divest ourselves of a material part of
our business or operations or dispose all or a portion of our assets.
Our obligation to repay all principal and accrued and unpaid interest
under the convertible notes is secured by all of our assets pursuant to
a certain Security Agreement dated February 16, 2006, which also
secures the remaining principal amount of our convertible notes in the
aggregate amount of $1,115,000 which we issued on March 18, 2005 and
July 13, 2005 to certain of the investors participating in this new
private placement.
We issued an aggregate of 50,972,111 Class A common stock purchase
warrants to the investors, representing one Class A warrant issued for
each one share which would be issued on the closing date assuming full
conversion of the secured convertible notes issued on the closing date.
The Class A warrants are exercisable until four years from the closing
date at an exercise price of $0.045 per share. The exercise price of
the Class A warrants will be adjusted in the event of any stock split
or reverse stock split, stock dividend, reclassification of common
stock, recapitalization, merger or consolidation. In addition, the
exercise price of the warrants will be adjusted in the event that we
spin off or otherwise divest ourselves of a material part of our
business or operations or dispose all or a portion of our assets. The
fair value of the warrants of $457,000 using the Black Scholes option
pricing model is recorded as a derivative liability. The beneficial
conversion feature of approximately $243,000 will be amortized over the
life of the debt using the interest method.
During the three months ended March 31, 2006, $992,000 of notes payable
was converted into approximately 71,383,000 shares of the Company's
common stock at an average conversion price of $0.014 per share.
Convertible notes payable at March 31, 2006 consists of the
following:
Due Principal Unamortized Net
Date Amount Discount Balance
----------------- ----------------- ---------------- --------------
LONG-TERM PORTION
Stonestreet Limited
Partnership December 23, 2007 $ 10,000 $ (6,039) $ 3,961
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft March 18, 2008 $ 25,000 $ (17,070) $ 7,930
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft July 13, 2008 $ 275,000 $ (209,453) $ 65,547
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft March 17, 2008 $ 250,000 $ (245,296) $ 4,704
----------------- --------------- --------------
Ellis International
Limited March 17, 2008 $ 100,000 $ (98,118) $ 1,882
----------------- --------------- --------------
Whalehaven Capital
Fund Limited March 17, 2008 $ 250,000 $ (245,296) $ 4,704
----------------- --------------- --------------
Momona Capital
Corp. March 17, 2008 $ 100,000 $ (98,123) $ 1,877
----------------- --------------- --------------
TOTAL LONG TERM PORTION $ 1,010,000 $ (919,395) $ 90,605
================= ================ ==============
F-10
ONE VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(8) COMMON STOCK:
During the three months ended March 31, 2006, Alpha Capital
Akteingesellschaft converted approximately $291,000 of notes payable
into approximately 21,196,000 shares of the Company's common stock at
an average conversion price of $0.014. During the same period, Alpha
Capital Akteingesellschaft exercised warrants to purchase 14,300,000
shares of common stock for cash in the amount of $200,200.
During the three months ended March 31, 2006, Whalehaven Fund, Limited
converted approximately $583,000 of notes payable into approximately
41,030,000 shares of the Company's common stock at an average
conversion price of $0.014.
During the three months ended March 31, 2006, Ellis International Ltd.
converted approximately $75,000 of notes payable into approximately
5,855,000 shares of the Company's common stock at an average conversion
price of $0.013. During the same period, Ellis International Ltd.
exercised warrants to purchase 6,250,000 shares of common stock for
cash in the amount of $100,000.
During the three months ended March 31, 2006, Omega Capital Small Cap
Fund converted approximately $27,500 of notes payable into
approximately 2,167,000 shares of the Company's common stock at an
average conversion price of $0.013.
During the three months ended March 31, 2006, Osher Capital Inc.
converted approximately $15,600 of notes payable into approximately
1,134,000 shares of the Company's common stock at an average conversion
price of $0.014.
During the three months ended March 31, 2006, an accredited investor
purchased an aggregate of 3,000,000 shares of restricted common stock
for a total purchase price of $60,000. In addition, the investor
received an aggregate of 3,000,000 Class A and 3,000,000 Class B common
stock purchase warrants with an exercise price of $0.045 and $0.06 per
share respectively.
(9) ACCOUNTING FOR STOCK-BASED COMPENSATION
On January 1, 2006 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No.123 (Revised 2004), "Share Based
Payment," ("SFAS 123"), using the modified prospective method. In
accordance with SFAS No. 123, the Company measures the cost of
employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. That cost
is recognized over the period during which an employee is required to
provide service in exchange for the award - the requisite service
period. The Company determines the grant-date fair value of employee
share options using the Black-Scholes option-pricing model.
Under the modified prospective approach, SFAS 123 applies to new
awards and to awards that were outstanding on January 1, 2006 that are
subsequently modified, repurchased or cancelled. Under the modified
prospective approach, compensation cost recognized for the first
quarter of fiscal 2006 includes compensation cost for all share-based
payments granted prior to, but not yet vested on, January 1, 2006,
based on the grant-date fair value estimated in accordance with the
pro forma provisions of SFAS 123, and compensation cost for all
share-based payments granted subsequent to January 1, 2006, based on
the grant-date fair value estimated in accordance with the provisions
of SFAS 123R. Prior periods were not restated to reflect the impact of
adopting the new standard. During the period ended March 31, 2006, the
Company recorded $155,000 in non-cash charges for the implementation
of SFAS 123R. As of March 31, 2006, there was approximately $317,000
of total unrecognized compensation costs related to unvested options.
The fair value of stock options at date of grant was estimated using
the Back-Scholes model with the following assumptions: expected
volatility of 90.9%, expected term of 2.0 years, risk-free interest
rate of 5.27%, and expected dividend yield of 0%. Expected volatility
is based on the historical volatilities of the Company's common stock.
The expected life of employee stock options is determined using
historical data of employee exercises and represents the period of
time that stock options are expected to be outstanding. The risk free
interest rate is based on the U.S. Treasury Moody AAA for the expected
life of the stock option.
F-11
ONE VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the stock option transactions during the three
months ended March 31, 2006:
March 31, 2006
-----------------------------------------------------
Weighted
average
Weighted remaining
average contractual
exercise life
Shares price (in years)
-------- ------------------ ----------
Options outstanding 1/1/2006 1,921,500 $ 1.47 5.63
Options granted 57,700,000 $ 0.016 9.82
Options exercised -- -- --
Options terminated -- -- --
Options outstanding 3/31/2006 59,521,500 $ .06 9.71
Options exercisable 3/31/2006 20,848,583 $ .15
Prior to January 1, 2006, the Company accounted for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Had compensation cost for the plan been determined based on the
fair value of the options at the grant dates consistent with the method of SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure -
an Amendment of SFAS No. 123," the Company's net earnings and earnings per share
would have been:
For the three months
--------------------
Ended
March 31, 2005
--------------
Net income as reported $(2,064,816)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects $ (100)
-----------
Pro forma income net income $(2,064,916)
===========
Basic and diluted loss per share $ (.01)
Pro forma basic and diluted loss per share $ (.01)
The pro forma compensation costs presented above were determined using the
weighted average fair values of options granted under the Company's stock option
plans. The fair value of the grants was estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions. See the 2005
assumptions below:
Expected life 3 Years
Risk-free interest rate 5.0%
Dividend yield -
Volatility 100%
(10) SUBSEQUENT EVENTS:
On May 5, 2006, we voluntarily determined to reduce the exercise prices
of 19,968,783 Class A warrants and 67,531,305 Class B warrants issued
pursuant to the March 2005 Subscription Agreement from an exercise
price of $0.016 to $0.013 per share.
On May 5, 2006, the Company held a closing pursuant to a subscription
agreement it entered into with several accredited investors as of May
5, 2006, pursuant to which the investors subscribed to purchase an
aggregate principal amount of $324,000 in 6% convertible promissory
notes. The Company received $299,500 of the purchase price on May 5,
2006. The convertible notes bear simple interest at 6% per annum
payable June 1, 2006 and semi-annually thereafter and mature 2 years
after the date of issuance. Each investor shall have the right to
convert the convertible notes after the date of issuance at any time,
until paid in full, into shares of our common stock. The conversion
price per share shall be the lower of (i) $0.043 or (ii) 80% of the
average of the three lowest closing bid prices for our common stock for
the 30 trading days prior to, but not including, the conversion date.
F-12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED HEREIN ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FORWARD LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO STATEMENTS CONCERNING ANTICIPATED
TRENDS IN REVENUES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS. THERE IS ABSOLUTELY NO ASSURANCE
THAT WE WILL ACHIEVE THE RESULTS EXPRESSED OR IMPLIED IN FORWARD LOOKING
STATEMENTS.
OVERVIEW OF THE BUSINESS
One Voice Technologies, Inc. is a voice recognition technology company with over
$43 million invested in Research and Development and deployment of more than 20
million products worldwide in seven languages. To date, our customers include:
Walt Disney Internet Group, Warner Home Video, Golden State Cellular, Inland
Cellular, Eloqui Wireless, Cell One of Amarillo, Panhandle Telephone
Cooperative, Panhandle Telecommunication Systems, Inc, DTC Wireless (formerly
Advantage Cellular Systems, Inc.), Nex-Tech Wireless, Plateau Wireless, West
Central Wireless, Telispire PCS, NewEgg.com, PC Alchemy, CompUSA, Dell.com and
Cannon PC. Based on our patented technology, One Voice offers voice solutions
for the Telecom and Interactive Multimedia markets. Our telecom solutions allow
business and consumer phone users to Voice Dial, Group Conference Call, Read and
Send E-Mail and Instant Message, all by voice. We offer PC Original Equipment
Manufacturers (OEM's) the ability to bundle a complete voice interactive
computer assistant which allows PC users to talk to their computers to quickly
play digital media (music, videos, DVD) along with read and send e-mail
messages, SMS text messaging to mobile phones, PC-to-Phone calling (VoIP) and
PC-to-PC audio/video. We feel we are strongly positioned across these markets
with our patented voice technology.
We believe that the presence of voice technology as an interface in mobile
communications and PC computing is of paramount importance. Voice interface
technology makes portable communications products mobile, more effective and
safer to use and it makes communicating with a PC to play digital content, such
as music, videos and photos, easier for consumers. One Voice's development
efforts currently are focused on the Telecom and PC multimedia markets and more
specifically on mobile communications from a cell phone, directory assistance
and in-home digital media access.
TELECOM SECTOR
In the Telecom sector, the Mobile Messaging market, which has both business and
consumer market applications including: E-mail, Instant Messages, and SMS (Short
Message Service), 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 for carriers. 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.
The company's strategy, in the telecom sector, is to continue aggressive sales
and marketing activities for our voice solutions which we believe may result in
increased deployments and revenue stream. The product offerings will encompass
both MobileVoice(TM) suite of solutions as well as our ADA(TM) Alternative to
Directory Assistance(TM).
PC SECTOR
In the PC sector, digital in-home entertainment is rapidly growing with the wide
acceptance of digital photography, MP3 music and videos, along with plasma and
LCD TV's. Companies including Apple, Microsoft and Intel are actively creating
products and technology, which allow consumers to experience the next generation
of digital entertainment. The company's Media Center Communicator(TM) product
works with Microsoft Windows XP Media Center Edition 2005 to add
voice-navigation and a full suite of communication features allowing consumers
to talk to their Media Center PC to play music, view photo slideshows, watch and
record TV, place Voice-Over-IP (VoIP) phone calls, read and send e-mail and
Instant Message friends and family, all by voice.
13
The Company's strategy, in the PC Sector, is to continue its aggressive
marketing efforts to sign-up system integrators, such as those engaged in the
business of home theatre installation and value-added resellers under the
company's reseller program launched in 2005. The company will continue to pursue
OEMs for bundling agreements of its' Media Center Communicator product. These
OEM agreements may include revenue share business models as well as discounted
individual user license fees. The company will continue to use industry
associations, forums and tradeshow events such as CES, CEDIA, EHX and Digital
Life to promote awareness of our products and build strategic alliances.
The company has recently teamed up with Intel Corporation to launch an online
training program for Intel Resellers worldwide. The Intel Reseller Channel
represents hundreds of thousands of certified resellers of Intel products and
solutions. The training program, entitled "How to Sell Intel Digital Home
Platforms" is designed to educated Intel Resellers on the products and solutions
currently available to build the ultimate Digital Home experience. This training
program will also highlight the company's Media Center Communicator(TM) product.
In the first quarter of 2006, the company signed a multi-year contract with
Nex-Tech Wireless; launched MobileVoice(TM) services with Panhandle
Telecommunication Services, Inc.(PTSI), Plateau Telecommunications, Inc. and DTC
Wireless(formerly Advantage Cellular Systems, Inc.); and launched the
Alternative to Directory Assistance(TM) service for PTSI subscribers. The
management team remains committed to generating near and long term revenues
significant enough to fund daily operations, building shareholder value, expand
the intellectual property portfolio and developing cutting edge solutions and
applications for the emerging speech recognition market sector.
Critical Accounting Policies
- ----------------------------
Our discussion and analysis of our financial condition and results of operations
are based upon our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to impairment
of property, plant and equipment, intangible assets, deferred tax assets and
fair value computation using Black Scholes option pricing model. We base our
estimates on historical experience and on various other assumptions, such as the
trading value of our common stock and estimated future undiscounted cash flows,
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions; however,
we believe that our estimates, including those for the above-described items,
are reasonable.
RESULTS OF OPERATIONS
The following table sets forth selected information from the statements of
operations for the three months ended March 31, 2006 and 2005.
SELECTED STATEMENT OF OPERATIONS INFORMATION
Three Months Ended
March 31,
2006 2005
----------- -----------
Gross revenues $ 61,298 $ 10,363
Cost of sales (20,509) (1,128)
General and administrative expenses (990,975) (1,017,302)
Other income (expenses) (4,866,431) (1,056,749)
----------- -----------
Net loss $(5,816,617) $(2,064,816)
=========== ===========
14
DISCUSSION OF THE THREE MONTHS ENDED MARCH 31, 2006 COMPARED WITH THE THREE
MONTHS ENDED MARCH 31, 2005.
Gross revenues amounted to $61,000 and $10,000 for the three months ended March
31, 2006 and 2005, respectively. The increase in revenues compared with the
prior year period resulted from the addition of three MobileVoice customers and
one Alternative to Directory Assistance customer.
General and administrative expenses decreased to $991,000 for the three months
ended March 31, 2006 from $1,017,000 for the same period in 2005. Salary and
wage expense was $382,000 for the three months ended March 31, 2006 as compared
to $327,500 for the same period in 2005. Depreciation and amortization expenses
decreased to $32,000 for the three months ended March 31, 2006 from $51,000 for
the same period in the prior year, primarily due to the retirement of fixed
assets. Amortization and Depreciation expenses consisted of patent and
trademarks, computer equipment and software development fees. Interest expense
decreased to $893,000 in 2006, as compared to $1,057,000 in 2005
We had a net loss of $5,817,000, or basic and diluted net loss per share of
$0.01, for the three months ended March 31, 2006 compared to $2,065,000, or
basic and diluted net loss per share of $0.01, for the same period in 2005.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2006, we had a negative working capital of $7,755,000 as compared
to a negative working capital of $3,731,000 at December 31, 2005.
In March 2006, the Company received $60,000 through a private placement of
3,000,000 shares of common stock and an aggregate of 6,000,000 warrants.
Additionally, in March 2006, we received $700,000 through a private placement of
convertible notes and 50,972,110 Class A warrants.
In addition, for the three months ended March 31, 2006, the Company received
approximately $300,000 from the exercise of 20,550,000 warrants.
Net cash used in operating activities was $800,000 for the 2006 Period compared
to $822,000 for the 2005 Period. We believe that our average monthly cash
requirements approximate $270,000.
Net cash used in investing activities was $20,000 for the 2006 Period compared
to $18,000 for the 2005 Period. During the three months ended March 31, 2005,
cash was primarily used for capitalized computer equipment and patents.
Net cash provided by financing activities was $1,000,000 for the 2006 Period
compared to $920,000 for 2005 Period.
We incurred a net loss of $5,817,000 during the 2006 Period and had an
accumulated deficit of $48,481,000. Our losses through March 31, 2006 included
interest and amortization expenses, development costs and operational and
promotional expenses.
We anticipate maintaining a cash balance through our financial partners that
will sustain operations through August 2006. We continue to rely heavily on our
current method of convertible debt and equity funding, which has financed us
since 2001, until we are operationally cash flow positive. The losses through
the quarter ended March 31, 2006 were due to minimal revenue and our operating
expenses, with the majority of expenses in the areas of: salaries, legal fees,
consulting fees, as well as amortization expense relating to software
development, debt issue costs and beneficial conversion features. We face
considerable risk in completing each of our business plan steps, including, but
not limited to: a lack of funding or available credit to continue development
and undertake product rollout; potential cost overruns; a lack of interest in
its solutions in the market on the part of wireless carriers or other customers;
potential reduction in wireless carriers which could lead to significant delays
in consummating revenue bearing contracts; and/or a shortfall of funding due to
an inability to raise capital in the securities market. Since further funding is
required, and if none is received, we would be forced to rely on our existing
cash in the bank or secure short-term loans. This may hinder our ability to
complete our product development until such time as necessary funds could be
raised. In such a restricted cash flow scenario, we would delay all cash
intensive activities including certain product development and strategic
initiatives described above.
On May 5, 2006, the Company held a closing pursuant to a subscription agreement
it entered into with several accredited investors as of May 5, 2006, pursuant to
which the investors subscribed to purchase an aggregate principal amount of
$324,000 in 6% convertible promissory notes. The Company received $299,500 of
the purchase price on May 5, 2006.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements that are reasonably likely to
have a current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
15
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management,
including its Chief Executive Officer (the principal executive officer) and
Chief Financial Officer (the principal accounting and financial officer),
previously evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule
15d-15(e) of the Exchange Act) as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were effective in
ensuring that the information required to be disclosed is recorded, processed,
summarized and reported, within the time periods specified in the Commission's
rule and forms and is accumulated and communicated to the issuer's management,
including its Chief Executive Officer (the principal executive officer) and
Chief Financial Officer (the principal accounting and financial officer) as
appropriate to allow timely decisions regarding required disclosure.
Subsequent to the original evaluation, the Company's management received a
letter dated March 31, 2006 (the "Letter") from Peterson & Co., LLP, its
independent auditors, addressed to the Chief Executive Officer and Chairman of
the Board of Directors in connection with the audit of our financial statements
as of December 31, 2005, in which the independent auditors identified certain
matters involving internal controls and procedures that they consider to be
significant deficiencies or material weaknesses under the standards of the
Public Company Accounting Oversight Board. These material weaknesses were: (1)
lack of sufficient and knowledgeable personnel to maintain appropriate
accounting and financial reporting organizational structure to support the
activities of the Company; (2) lack of a functioning audit committee and lack of
a majority of outside directors on the Company's board of directors, resulting
in ineffective oversight in the establishment and monitoring of required
internal controls and procedures; (3) inadequate segregation of duties
consistent with control objectives; (4) insufficient written policies and
procedures for accounting and financial reporting with respect to the
requirements and application of US GAAP and SEC disclosure requirements; (5)
ineffective personnel resources and technical accounting expertise within the
accounting function to resolve non-routine or complex accounting matters; (6)
ineffective controls over period end financial close and reporting processes;
and (7) inadequate procedures for appropriately identifying, assessing and
applying accounting principles. The aforementioned material weaknesses were
identified by the Company's independent auditors in connection with the audit of
our financial statements as of December 31, 2005 and communicated to our
management through the Letter.
Management believes that the material weaknesses set forth in items (3), (4) and
(6) above did not have an affect on the Company's financial results or any
restatements which have occurred. Inadequate segregation of duties consistent
with control objectives (item (3)) was due to the fact that the Company did not
have a sufficient number of personnel within the accounting department.
Management believes that this did not have an effect on the most recent and
updated financial statements filed by the company as the adjustments made to the
financial statements were related to the application of technical accounting
guidance and resulted primarily from the lack of accounting department staff
with sufficient technical accounting expertise and experience. We believe that
even if there had been sufficient staff to remedy the segregation of duties
problem, unless one of more of the additional staff members had sufficient
technical accounting expertise, this would not have prevented the adjustments
and restatement. Management believes that the weakness due to insufficient
written policies and procedures (item (4)) did not have an effect on the most
recent and updated fi nancial statements filed by the company as the adjustments
were related to the application of technical accounting guidance and resulted
primarily from the lack of accounting department staff with sufficient technical
accounting expertise and experience. We believe that even if there had been
sufficient written policies and procedures in place, the problem related to the
lack of accounting staff members with sufficient technical accounting expertise
would not have been resolved and this would not have prevented the adjustments
and restatement. Further, we do not feel that improper controls and procedures
over the period end process (item (6)) caused any material effects or
misstatements to the financials filed, as these inefficiencies were more
associated with timely closing, review and filing of financial statements. These
issues were due primarily to the fact that the Company had an insufficient
number of personnel within the accounting department and that it did not have
written policies and procedures to ensure that the financial statement closing
and reporting processes were timely and effective. We believe that even if
stronger controls had been in place related to the period end financial close
and reporting processes, the problem related to the lack of accounting staff
members with sufficient technical accounting expertise would not have been
resolved and this would not have prevented the adjustments and restatement.
However, management believes that the lack of sufficient and knowledgeable
personnel to maintain appropriate accounting and financial reporting
organizational structure to support the activities of the Company (item (1)),
lack of a functioning audit committee and lack of a majority of outside
directors on the Company's board of directors, resulting in ineffective
oversight in the establishment and monitoring of required internal controls and
procedures (item (2)), ineffective personnel resources and technical accounting
expertise within the accounting function to resolve non-routine or complex
accounting matters (item (5)), and inadequate procedures for appropriately
identifying, assessing and applying accounting principles (item (7)) resulted in
the Company's determination to restate its financial statements for the years
ended December 31, 2004 and 2003. Specifically, the material weaknesses
16
specified in the preceding sentence resulted in management determining that the
Company's previous accounting for its common stock purchase warrants issued from
2003 to 2004 did not comply with Emerging Issues Task Force 00-19, ACCOUNTING
FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN A
COMPANY'S OWN STOCK. As a result, the Company determined that the fair value of
the warrants should have been reclassified from additional paid in capital, to a
current liability, and that the warrant fair value should have been marked to
market as of the balance sheet date with the corresponding non-cash gain or loss
reflected in the results of operations. This resulted in the Company restating
its net loss for the fiscal year ended December 31, 2004 to $(8,752,000)
compared to $(5,383,000) as previously reported, and a net loss for the fiscal
year ended December 31, 2003 to $(5,839,000) compared to $(5,932,000) as
previously reported. In addition, total liabilities for the fiscal year ended
December 31, 2004 and 2003 was restated to $6,464,000 and $1,431,000
respectively, compared to $1,523,000 and $1,140,000, respectively, as previously
reported.
In accordance with Exchange Act Rules 13a-15 and 15d-15, and after receipt of
the Letter, the Company has re-evaluated, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, the effectiveness of the design
and operation of the Company's disclosure controls and procedures as of the end
of the period covered by this report. Based upon this re-evaluation the Chief
Executive Officer and Chief Financial Officer have concluded that the Company's
current disclosure controls and procedures are not effective in ensuring that
the information required to be disclosed is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rule and forms
and is accumulated and communicated to the issuer's management, including its
Chief Executive Officer (the principal executive officer) and Chief Financial
Officer (the principal accounting and financial officer) as appropriate to allow
timely decisions regarding required disclosure.
We are committed to improving our financial organization. As part of this
commitment, we will create a segregation of duties consistent with control
objectives and will increase our personnel resources and technical accounting
expertise within the accounting function by the end of fiscal 2007 to resolve
non-routine or complex accounting matters. In addition, we will take the
following actions to enhance our internal controls, when funds are available to
the Company, which we expect to occur by the end of fiscal 2007:
i) Appointing one or more outside directors to our board of directors
who shall be appointed to the audit committee of the Company resulting in a
fully functioning audit committee who will undertake the oversight in the
establishment and monitoring of required internal controls and procedures. All
compensation paid to board members comes in the form of stock options that
normally carry a value of less than $10,000, which vest over a period of time;
ii) Preparing and implementing sufficient written policies and
checklists which will set forth procedures for accounting and financial
reporting with respect to the requirements and application of US GAAP and SEC
disclosure requirements, which management estimates will cost approximately
$65,000 per annum; and
iii) Hiring additional knowledgeable personnel with technical
accounting expertise to further support the current accounting personnel at the
Company, which management estimates will cost approximately $90,000 per annum.
Management believes that the appointment of one or more outside directors, who
shall be appointed to a fully functioning audit committee, will remedy the lack
of a functioning audit committee and a lack of a majority of outside directors
on the Company's Board. In addition, management believes that preparing and
implementing sufficient written policies and checklists will remedy the
following material weaknesses (i) insufficient written policies and procedures
for accounting and financial reporting with respect to the requirements and
application of US GAAP and SEC disclosure requirements; (ii) ineffective
controls over period end financial close and reporting processes; and (iii)
inadequate procedures for appropriately identifying, assessing and applying
accounting principles. Further, management believes that hiring additional
knowledgeable personnel with technical accounting expertise will remedy the
following material weaknesses: (A) lack of sufficient and knowledgeable
personnel to maintain appropriate accounting and financial reporting
organizational structure to support the activities of the Company; (B)
inadequate segregation of duties consistent with control objectives; and (C)
ineffective personnel resources and technical accounting expertise within the
accounting function to resolve non-routine or complex accounting matters.
Management believes that the hiring of additional personnel who have the
technical expertise and knowledge with the non-routine or technical issues the
Company has encountered in the past will result in both proper recording of
these transactions and a much more knowledgeable finance department as a whole.
Due to the fact that the Company's accounting staff consists of a controller and
an interim CFO, additional personnel will also ensure the proper segregation of
duties and provide more checks and balances within the department. Additional
personnel will also provide the cross training needed to support the Company if
personnel turn over issues within the department occur. This coupled with the
appointment of additional outside directors will greatly decrease any control
and procedure issues the company may encounter in the future.
We will continue to monitor and evaluate the effectiveness of our disclosure
controls and procedures and our internal controls over financial reporting on an
ongoing basis and are committed to taking further action and implementing
additional enhancements or improvements, as necessary and as funds allow.
(b) Changes in Internal Controls
There have been no changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rules
13a-15 or 15d-15 under the Exchange Act that occurred during the small business
issuer's last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
17
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There has been no bankruptcy, receivership or similar proceedings.
There have been no material reclassifications, mergers, consolidations, or
purchase or sale of a significant amount of assets not in the ordinary course of
business.
As previously disclosed to the public in our reports filed with the Securities
and Exchange Commission, we were the subject of a legal proceeding in the San
Diego County Superior Court (the "Court") entitled La Jolla Cove Investors, Inc.
("La Jolla") vs. One Voice Technologies, Inc., Case No. GIC850038 (the "Action")
which was filed with the Court for an unspecified amount of damages. La Jolla
held our convertible debentures related to our past financings. La Jolla claimed
that we failed to honor its conversion notices resulting in damages. La Jolla
filed a similar suit in 2004 and dismissed the suit after we transferred shares
pursuant to conversion notices and an interim settlement agreement. In
particular, we agreed to and did register 8,425,531 shares of our common stock
to honor the past conversion notice and an additional 8,425,531 shares pursuant
to such interim settlement agreement. Part of the resolution of the first
lawsuit restrained La Jolla from tendering additional conversion notices for a
specified period of time. During that time period, La Jolla requested that we
amend the terms of the outstanding debentures, but we refused to do so. We
tendered back the outstanding debenture amounts to La Jolla on two occasions. We
secured alternative financing and did not honor further conversion notices from
La Jolla. The Action was thereafter commenced by La Jolla.
On January 6, 2006, La Jolla and the Company entered into a Settlement Agreement
and Mutual Release (the "Settlement Agreement") in which La Jolla and we agreed
to forever settle, resolve and dispose of all claims, demands and causes of
action asserted, existing or claimed to exist between the parties because of or
in any way related to the Action. Under the Settlement Agreement, La Jolla and
the Company agreed that the parties shall bear their own costs and attorney's
fees associated with the Action. In addition, we agreed to pay to La Jolla:
o 10,000,000 restricted shares of our common stock upon the
execution of the Settlement Agreement;
o $300,000 was paid on May 5, 2006; and
o $400,000 within 150 days of the date of the Settlement
Agreement.
Interest shall accrue on the $700,000 unpaid balance at 8% per annum commencing
on the date of the Settlement Agreement until paid in full. If any payment is
not made within 30 days of its due date, La Jolla may enter a judgment against
us for the then unpaid balance, plus accrued interest and $100,000, upon the
filing of a declaration of default by La Jolla.
In exchange for the aforementioned settlement payments, La Jolla shall cause a
request for dismissal with prejudice to be filed with the Court which will
dismiss the Action subject to our compliance with the terms of the Settlement
Agreement.
18
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The securities described below represent our securities sold by us for the
period starting January 1, 2006 and ending March 31, 2006 that were not
registered under the Securities Act of 1933, as amended, all of which were
issued by us pursuant to exemptions under the Securities Act. Underwriters were
involved in none of these transactions.
PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS FOR CASH
On March 13, 2006, the Company held a closing with one accredited investor
pursuant to which the investor subscribed to purchase an aggregate of 3,000,000
shares of restricted common stock for a total purchase price of $60,000. In
addition, the investor received an aggregate of 3,000,000 Class A common stock
purchase warrants and 3,000,000 Class B common stock purchase warrants to the
investor, representing one Class A and one Class B warrants issued for each
share which was issued on the closing date. The Class A warrants are exercisable
until four years from the closing date at an exercise price of $0.045 per share.
The Class B warrants are exercisable until four years from the closing date at
an exercise price of $0.06 per share. The holder of the Class B warrants will be
entitled to purchase one share of common stock upon exercise of the Class B
warrants for each share of common stock previously purchased upon exercise of
the Class A warrants.
SALES OF DEBT AND WARRANTS FOR CASH
On March 17, 2006, we completed a private placement pursuant to a Subscription
Agreement which we entered into with several accredited and/or qualified
institutional investors dated as of dated as of March 17, 2006, pursuant to
which the investors subscribed to purchase an aggregate principal amount of
$700,000 in 6% secured convertible promissory notes and one Class A common stock
purchase warrant for each one share which would be issued on the closing date
assuming full conversion of the secured convertible notes issued on the closing
date.
The secured convertible notes bear simple interest at 6% per annum payable upon
each conversion, June 1, 2006 and semi-annually thereafter, and mature 2 years
after the date of issuance. Each investor shall have the right to convert the
secured convertible notes after the date of issuance and at any time, until paid
in full, at the election of the investor into fully paid and nonassessable
shares of our common stock. The conversion price per share shall be the lower of
(i) $0.043 or (ii) 80% of the average of the three lowest closing bid prices for
our common stock for the 30 trading days prior to, but not including, the
conversion date as reported by Bloomberg, L.P. on any principal market or
exchange where our common stock is listed or traded. The conversion price is
adjustable in the event of any stock split or reverse stock split, stock
dividend, reclassification of common stock, recapitalization, merger or
consolidation. In addition, the conversion price of the secured convertible
notes will be adjusted in the event that we spin off or otherwise divest
ourselves of a material part of our business or operations or dispose all or a
portion of our assets. Our obligation to repay all principal, and accrued and
unpaid interest under the convertible notes is secured by all of our assets
pursuant to a certain Security Agreement dated as of February 16, 2006, which
also secures the remaining principal amount of our convertible notes in the
aggregate amount of $1,115,000 which we issued on March 18, 2005 and July 13,
2005 to certain of the investors participating in this new private placement.
We issued an aggregate of 50,972,111 Class A common stock purchase warrants to
the investors, representing one Class A warrant issued for each one share which
would be issued on the closing date assuming full conversion of the secured
convertible notes issued on the closing date. The Class A warrants are
exercisable until four years from the closing date at an exercise price of
$0.045 per share. The exercise price of the Class A warrants will be adjusted in
the event of any stock split or reverse stock split, stock dividend,
reclassification of common stock, recapitalization, merger or consolidation. In
addition, the exercise price of the warrants will be adjusted in the event that
we spin off or otherwise divest ourselves of a material part of our business or
operations or dispose all or a portion of our assets.
19
OPTION GRANTS
On January 24, 2006, we issued nonstatutory options to purchase an aggregate of
57,200,000 shares of our common stock at a price equal to $0.016 per share to
certain of our employees, directors and consultants. The aforementioned options
were issued pursuant to our 2005 Stock Incentive Plan.
During the quarter ended March 31, 2006, we issued an aggregate total of
57,700,000 options to employees.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
On April 20, 2006, the Company issued 3,000,000 restricted common shares in
exchange for an agreement to provide consulting services and a release on
potential Claims.
On February 7, 2006, we issued 10,000,000 restricted common shares to La Jolla
Cove Investors, Inc. pursuant to a Settlement Agreement entered into on January
6, 2006.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS:
Exhibit Number Description
-------------- -----------
31.1 Certification of the Chief Executive Officer and Interim Chief
Financial Officer of One Voice Technologies, Inc. Pursuant to
18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification Chief Executive Officer and Interim Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
20
SIGNATURES
In accordance with the requirements of the Exchange Act of 1933, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DATE: JULY 27, 2007 BY: /S/ DEAN WEBER
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DEAN WEBER, CHAIRMAN, PRESIDENT, CHIEF
EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE
OFFICER) AND INTERIM CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER)
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