SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the year ended December 31, 2007
COMMISSION FILE NUMBER 0-27589
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ONE VOICE TECHNOLOGIES, INC.
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(Name of Small Business Issuer in its Charter)
NEVADA 95-4714338
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4250 Executive Square, Ste 770, La Jolla CA 92037
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(Address of principal Executive Offices) (Zip Code)
(858) 552-4466 (858) 552-4474
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(Issuer's Telephone Number) (Issuer's Facsimile Number)
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK-$.001 PAR VALUE
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
had been subject to such filing requirements for the past 90 days. Yes [X] No [
]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The issuer's revenues for the year ended December 31, 2007 were $702,430.
The approximate aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 14, 2008, based on the average of the
closing bid of $0.0095 of one share of the Common Stock of the Company was
$7,361,209.
As of December 31, 2007 the issuer had 738,246,749 shares of common stock
outstanding.
As of March 25, 2008 the issuer had 777,674,886 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
-1-
TABLE OF CONTENTS
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PAGE
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Part I
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Item 1. Description of Business 3 - 6
Item 2. Description of Property 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
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Item 5. Market for Common Equity and Related Stockholder Matters 8 - 10
Item 6. Management's Discussion and Analysis or Plan of Operation 11 - 19
Item 7. Financial Statements 20
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure 21
Item 8A. Controls and Procedures 21
Item 8B. Other Information 21
Part III
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Item 9. Directors, Executive Officers, Promoters, Control Persons and
Corporate Governance; Compliance With Section 16(a) of
the Exchange Act 22 - 25
Item 10. Executive Compensation 25 - 27
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 28
Item 12. Certain Relationship and Related Transactions, and Director
Independence 28
Item 13. Exhibits 29 - 32
Item 14. Principal Accountant Fees and Services 33
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PART 1
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ITEM 1. DESCRIPTION OF BUSINESS
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INTRODUCTION
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One Voice Technologies, Inc. is a voice recognition technology company with over
$43 million invested in Research and Development and deployment of products in
both the telecom and PC multi-media markets. To date, our customers include:
Telefonos de Mexico, S.A.B. de C.V. (TELMEX), Intel Corporation, the Government
of India, Fry's Electronics, Inland Cellular, Nex-Tec Wireless, Mohave Wireless
and several additional telecom service providers throughout the United States.
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
reading and sending 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.
The Company is traded on the NASD OTC Bulletin Board ("OTCBB") under the symbol
ONEV. One Voice is incorporated in the State of Nevada and commenced operations
on July 14, 1999.
ONE VOICE OFFERINGS
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Network and Enterprise - Messaging
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Email Access
One Voice's email access is designed to be the most powerful and versatile
solution on the market. With email access, users take full control of their
email account from any phone worldwide. They can easily find important
messages and respond to one person or groups in seconds. Works with 100% of
all handsets for immediate deployment to your entire subscriber base or
enterprise workforce. Supports all major email providers including: Yahoo!
Mail, Hotmail, Gmail, AOL Mail, POP3 and IMAP.
Voice-to-SMS
One Voice's Voice-to-SMS solution allows wireless and wireline operators
along with enterprises to offer true mobility for outbound generated text
messaging services. The industry's first completely hand-free text
messaging service leads the way for driver safety legislation with fast
accurate message delivery keeping the drivers eyes on the road at all
times. Compose an SMS message by voice to anyone in your personal address
book or corporate directory, simply speak the message and send it as an SMS
text message to a single or multiple phone(s).
Voicemail-to-SMS
One Voice's Voicemail-to-SMS solution allows wireless and wireline
operators along with enterprises to offer immediate message delivery of
inbound voicemail audio messages converted to text and sent as an SMS to
your phone. Never miss an important message again!
Network and Enterprise - Voice Communications
---------------------------------------------
Voice Dialing
One Voice's Voice Dialing solution allows wireless and wireline operators
along with enterprises to offer 100% hands-free voice dialing of any
contacts in your personal address book. Syncs with Outlook and Lotus Notes
allowing for thousands of contacts to be setup in minutes.
-3-
Group Calling
One Voice's Group Calling solution allows wireless and wireline operators
along with enterprises to offer spontaneous group calling for up to 64
participants in a preset group. Targeted for the youth market for easy
group chat with powerful full-duplex acoustic echo-canceling technology for
crystal clear calling.
Spontaneous Audio Conferencing
One Voice's Group Calling solution allows wireless and wireline operators
along with enterprises to offer spontaneous group calling for up to 64
participants. Features include: customizable message greeting; moderator
touch-tone control; moderator dial-out during conference; up to 64
participants; available anytime. Targeted for the mobile professional for
reservationless on-the-fly conferencing to business colleagues, anywhere,
anytime with powerful full-duplex acoustic echo-canceling technology for
crystal clear calling.
Network and Enterprise - Directory Assistance
---------------------------------------------
One Voice's directory assistance is the industry's most powerful
411-business and residential lookup along with corporate enterprise names
directory lookup. Our solution is the only commercially available telephony
directory assistance in-use today that allows for residential names lookup
(White Pages). One Voice's powerful 411 solutions allow for complex name
searches, such as: "The Smith Family", "Jim and Mary Smith", "James Smith",
"Mary and Jim Smith" and "J and M Smith". No other company has the power of
our patented voice search technology to handle both Yellow and White Pages
automated search.
Digital Home - Media Center Communicator
----------------------------------------
Imagine walking into your home and simply speaking to play music, watch TV, read
and send e-mail, call to order a pizza and more. Now, with Media Center
Communicator(, you have full control of your Digital Home using only your voice.
Voice-Activated Music
Works with iTunes and Windows Media Player.
Voice-Activated Photos
Command your photos to come alive by simply saying the album name.
Voice-Activated TV and Movies
Instantly access your recorded shows and movie collection using only your voice.
Voice-Activated Skype
Works with Skype to place calls anywhere in the world.
Voice-Activated Email
Works with most popular email providers.
Media Center Communicator (MCC) is software, designed specifically for Windows
Vista Media Center, that allows users to simply speak to access the content they
desire using voice recognition. MCC requires No Voice Training and No
Programming so it is ready to use right out of the box.
MSRP $79.95 and available through the following retailers: Fry's Electronics,
Target.com, Walmart.com, Dell.com, Amazon.com, J&R, Newegg and Micro Center.
Digital Home - VoiceTunes
-------------------------
VoiceTunes(TM) is the ultimate companion to your digital music collection!
It works directly with your existing iTunes and Windows music libraries.
Just speak commands like "Play Artist The Rolling Stones" or "Play Rock
Music" to enjoy your music without clicking through menus and folders.
VoiceTunes installs quickly and works right out of the box with no voice
training required!
MSRP $29.95.
Mobility - Intel Based Mobile Internet Device (MID)
---------------------------------------------------
One Voice has developed a complete suite of voice activated solutions for
the new sector of Mobile Internet Device (MIDs) allowing consumers to play
music, view photos, videos and full Internet searching all through voice
control. One Voice is currently working with Intel and jointly presenting
this solution to several OEM's for mass consumer distribution in 2008.
Mobility - MobileVoice for StreetDeck
-------------------------------------
One Voice has developed a complete voice solution add-on for StreetDeck.
StreetDeck is a leading navigation and infotainment solution for mobile
PC's and Ultra Mobile PC's (UMPC's).
MSRP $29.95 with beta testing beginning in April, 2008 and general
availability July, 2008.
-4-
INTELLECTUAL PROPERTY AND PATENT PROTECTION
We own exclusive rights to three United States patents on our software. We have
filed for international patent protection as well. These patents define the
primary features and unique procedures that comprise our products and solutions.
Patent protection is important to our business. The patent position of companies
in the hi-technology field generally is highly uncertain, involves complex legal
and factual questions, and can be subject of much litigation.
Our future success and ability to compete depends in part upon the proprietary
technology and 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.
Additionally, there can be no assurance that others will not develop market and
sell products substantially equivalent to our products or utilize technologies
similar to those used by us. Although we believe that our products do not
infringe on any third-party patents and our patents offer sufficient protection,
there can be no assurance that we will not become involved in litigation
involving patents or proprietary rights. Patent and proprietary rights
litigation entails substantial legal and other costs, and there can be no
assurance that we will have the necessary financial resources to defend or
prosecute our rights in connection with any litigation. Responding to and
defending or bringing claims, related to our intellectual property rights may
require our management to redirect its resources to address these claims, this
could have a material adverse effect on our business, financial condition and
results of operations.
It is possible that other parties have conducted or are conducting research and
could develop processes that would precede any of our processes.
Our competitive position is also dependent upon unpatented trade secrets. We
intend to implement a policy of requiring our employees, consultants and
advisors to execute proprietary information and invention assignment agreements
upon commencement of employment or consulting relationships with us. These
agreements will provide that all confidential information developed or made
known to the individual during the course of their relationship with us must be
kept confidential, except in specified circumstances. However, we cannot assure
you that these agreements will provide meaningful protection for our trade
secrets or other proprietary information in the event of unauthorized use or
disclosure of confidential information. Additionally, we cannot assure you that
others will not independently develop equivalent proprietary information and
techniques or otherwise gain access to our trade secrets, that such trade
secrets will not be disclosed, or that we can effectively protect our rights to
unpatented trade secrets.
EMPLOYEES
---------
As of December 31, 2007, we have 6 full-time employees and 5 consultant/part-
time employees. We have no collective bargaining agreements with our employees
and believe our relations with our employees are strong and committed to the
best interest of the company. We consider our relations with our employees to be
good.
RISK FACTORS
------------
This section summarizes certain risks regarding our business and industry. The
following information should be considered in conjunction with the other
information included and incorporated by reference in this report on Form 10-KSB
before purchasing shares of our common stock.
WE HAVE A HISTORY OF LOSSES. WE MAY CONTINUE TO INCUR LOSSES, AND WE MAY NEVER
ACHIEVE AND SUSTAIN PROFITABILITY.
Since inception, we have incurred significant losses and have negative cash
flows from operations. For the year ended December 31, 2007 and 2006, the
Company incurred a net loss of $4,049,133 and $4,418,844 respectively, a
decrease of $369,711 or 8%.
As a result of 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.
-5-
For these reasons, you should not rely solely 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.
The Company has aggressively sought measures to reduce their monthly operating
expenditures. Overall cost reduction has come from a series of measures
including reduction in head-count by eliminating all part-time workers, placing
some full-time employees on part-time status, reducing license agreement costs
and reducing additional operating overhead. Given these cost cutting measures,
the Company feels it can better reach operationally break-even by decreasing
operating expenses while increasing our revenue stream by acquiring additional
customers contracts.
RISKS RELATING TO OUR COMMON STOCK
IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange 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:
o That a broker or dealer approves a person's account for transactions
in penny stocks.
o The broker or dealer receives 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:
o Obtain financial information and investment experience objectives of
the person.
o 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 prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o Sets forth the basis on which the broker or dealer made the
suitability determination.
o That the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
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.
-6-
ITEM 2. DESCRIPTION OF PROPERTY
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FACILITIES
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The Company's headquarters are located at 4250 Executive Square, Suite 770, La
Jolla, California. The Company leases its facility under a lease that expires in
December 2010. The size of our office is 5,162 square feet. Rent expense, net of
sublease income, amounted to $147,738 and $220,908 for the years ended December
31, 2007 and 2006 respectively. We believe that our current office space and
facilities are sufficient to meet our present needs and do not anticipate any
difficulty securing alternative or additional space, as needed, on terms
acceptable to us.
ITEM 3. LEGAL PROCEEDINGS
-------------------------
From time to time, we may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm business. Except as disclosed
below we are currently not aware of any such legal proceedings or claims that
will have, individually or in the aggregate, a material adverse affect on
business, financial condition or operating results. There has been no
bankruptcy, receivership or similar proceedings.
On August 23, 2007, the Company entered into a Settlement Agreement and Mutual
Release with La Jolla Cove Investors, Inc. ("LJCI") pursuant to which we agreed
with LJCI 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 a legal proceeding in the San Diego County
Superior Court (the "Court") entitled La Jolla Cove Investors, Inc. vs. One
Voice Technologies, Inc., Case No. GIC850038 (the "Action") for a total amount
owed of $408,594.48 (the "Owed Amount"). Under the Settlement Agreement dated
August 23, 2007, the parties reached a final resolution with respect to such
Owed Amount whereby (i) LJCI shall receive $200,000 within 15 days of the date
of the Agreement and (ii) the difference between the Owed Amount and $200,000
shall be payable at a later date (the "Remaining Owed Amount"). The payment of
the Remaining Owed Amount shall be made to LJCI in the following manner:
o Concurrently with the execution of the Agreement, the Company shall
transfer to an independent escrow agent, on behalf of LJCI, all
right, title and interest to 30,000,000 shares of Common Stock of
the Company (the "Escrow Shares"), issued in 30 increments of
1,000,000 shares. On the one year anniversary of the Agreement,
1,000,000 Escrow Shares shall be released to LJCI whereby LJCI shall
be able to sell such shares in open market transactions provided
such sales do not exceed more than 14% of the corresponding daily
volume of such shares on the trading market on which the Company's
securities are sold. LJCI shall continue to receive the Escrow
Shares, provided they satisfy the volume limitation set forth above
and LJCI's ownership of the Company's common stock does not exceed
4.99% of the Company's then issued and outstanding shares of common
stock, until the Remaining Owed Amount is satisfied;
o Upon notice from LJCI that the Remaining Owed Amount has been
satisfied by the sale of the Escrow Shares either (i) Alpha Capital
Ansalt ("Alpha") shall have the ability within 15 business days to
purchase any remaining Escrow Shares at a 20% discount to the
current market price of the shares or (ii) if Alpha does not
exercise its right to purchase the shares, the Company shall have
the ability to redeem the remaining Escrow Shares within 5 business
days.
o At anytime while the Remaining Owed Amount is outstanding, the
Company or Alpha may pay in cash to LJCI an amount equal to the
Remaining Owed Amount and either (i) Alpha shall have the ability
within 15 business days to purchase any remaining Escrow Shares at a
20% discount to the current market price of the shares or (ii) if
Alpha does not exercise its right to purchase the shares, the
Company shall have the ability to redeem the remaining Escrow Shares
within 5 business days.
LJCI has contractually agreed to restrict their ability to exercise the
Escrow Shares such that the number of shares of the Company common stock held by
it does not exceed 4.99% of the Company's then issued and outstanding shares of
common stock.
Upon receipt of the Owed Amount, LJCI will file a Satisfaction of Judgment
in the appropriate court and grant the Company a release from any and all
actions related to the Action.
ITEM 4. SUBMISSION FOR MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
-7-
PART II
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
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Our common stock is quoted on the OTC Electronic Bulletin Board (OTC BB) under
the symbol ONEV. The OTC BB is sponsored by the National Association of
Securities Dealers (NASD) and is a network of security dealers who buy and sell
stocks.
The following table sets forth the high and low bid prices per share of common
Stock in the quarters indicated. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
Low High
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2006
First Quarter .02 .22
Second Quarter .01 .04
Third Quarter .01 .02
Fourth Quarter .01 .02
2007
First Quarter .01 .05
Second Quarter .02 .04
Third Quarter .02 .03
Fourth Quarter .01 .03
2008
First Quarter* .09 .016
*Through March 25, 2008
As of March 14, 2008, our common stock shares were held by 122 stockholders of
record and we had 774,864,069 shares of common stock issued and outstanding. 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.
The holders of common stock do not have cumulative voting rights and are
entitled to one vote per share on all matters to be voted upon by the
stockholders. Our common stock is not entitled to preemptive rights and is not
subject to redemption (including sinking fund provisions) or conversion. Upon
our liquidation, dissolution or winding-up, the assets (if any) legally
available for distribution to stockholders are distributable ratably among the
holders of our common stock. All outstanding shares of our common stock are
validly issued, fully-paid and non assessable. The rights, preferences and
privileges of the holders of our common stock are subject to the preferential
rights of all classes or series of preferred stock that we may issue in the
future.
DIVIDEND POLICY
---------------
We have not declared any dividends to date. We have no present intention of
paying any cash dividends on our common stock in the foreseeable future, as we
intend to use earnings, if any, to generate growth. The payment, by us, of
dividends, if any, in the future, rests within the discretion of our Board of
Directors and will depend on, among other things, our earnings, our capital
requirements and our financial condition, as well as other relevant factors.
There are no restrictions in our articles of incorporation or bylaws that
restrict us from declaring dividends.
-8-
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
-------------------------------------------
Our Amended and Restated 1999 Stock Option 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 1,900,500 shares were subject to outstanding options and
1,099,500 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.
2005 INCENTIVE STOCK PLAN
-------------------------
On July 29, 2005 the Company adopted the 2005 Stock Incentive Plan and reserved
60,000,000 shares of the Company's common stock for issuance under the 2005
Plan. Two types of options may be granted under the 2005 Plan: (1) Incentive
Stock Options (also known 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. In addition, Stock Awards and
restricted Stock Purchase Offers may be granted under the 2005 Stock Incentive
Plan.
UNREGISTERED SALES OF EQUITY SECURITIES
---------------------------------------
The securities described below represent our securities sold by us for the
period starting January 1, 2007 and ending December 31, 2007 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.
SALES OF WARRANTS FOR CASH
--------------------------
During the year ended December 31, 2007 a total of 39,126,855 warrants were
exercised at an average price of $0.006. As a result the Company received cash
proceeds of $253,360. The shares were issued pursuant to an exemption under
Section 4(2) of the Securities Act of 1933.
All proceeds from the above transactions were used to fund normal operating
expenses incurred by the Company.
ISSUANCE OF WARRANTS ON A CASHLESS BASIS
----------------------------------------
From time to time warrants can be exercised on a cashless basis if certain
conditions exist. If warrants are held for a certain period of time and there is
no effective registration statement for these warrants, the holder of these
warrants may exercise them on a cashless basis. The result is the Company
issuing restricted shares pursuant to rule 144 or 144K, no cash is received by
the Company. The number of shares issued are discounted according the
subscription agreement formula. EX: The Company issues 1,000,000 restricted
shares and the holder forfeits 1,500,000 of their warrants.
During the year ended December 31, 2007 approximately 23,971,458 warrants were
issued on a cashless basis and 34,566,902 warrants were forfeited. The shares
were issued pursuant to an exemption under Section 4(2) of the Securities Act of
1933.
-9-
SHARES IN ESCROW
----------------
On August 23, 2007, the Company issued 30,000,000 shares of the Company's
restricted common stock valued at $600,000. The shares were put into an
independent 3rd party escrow account on behalf of La Jolla Cove Investors Inc.
These shares relate to a legal settlement on August 23, 2007 between the Company
and La Jolla Cove Investors Inc. The shares were issued pursuant to an exemption
under Section 4(2) of the Securities Act of 1933.
See Item 3 Legal Proceedings for additional details.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
During the year ended December 31, 2007, the Company issued a total of
11,443,921 Shares of restricted common stock to in exchange for services
rendered. The services are related to monthly licensing fees, outside consulting
fees and interest owed. The services were valued at approximately $220,534. The
shares were issued pursuant to an exemption under Section 4(2) of the Securities
Act of 1933.
The above transactions were granted in lieu of cash payment to satisfy the debt.
-10-
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
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OPERATION
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FORWARD-LOOKING STATEMENTS
--------------------------
The information in this report contains forward-looking statements. All
statements other than statements of historical fact made in this report are
forward looking. In particular, the statements herein regarding industry
prospects and future results of operations or financial position are
forward-looking statements. These forward-looking statements can be identified
by the use of words such as "believes," "estimates," "could," "possibly,"
"probably," anticipates," "projects," "expects," "may," "will," or "should" or
other variations or similar words. No assurances can be given that the future
results anticipated by the forward-looking statements will be achieved.
Forward-looking statements reflect management's current expectations and are
inherently uncertain. Our actual results may differ significantly from
management's expectations.
The following discussion and analysis should be read in conjunction with our
financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents only the best
present assessment of our management.
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:
Telefonos de Mexico, S.A.B. de C.V. (TELMEX), Intel Corporation, the Government
of India, Fry's Electronics, Mohave Wireless, Inland Cellular, Nex-Tec Wireless,
Rural Independent Networks and several additional telecom service providers
throughout the United States.
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 messages, 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.
The Company believes 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 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.
-11-
TELECOM SECTOR
--------------
In the Telecom sector, we believe that 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. One Voice solutions enable users to send, 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 Directory
Assistance 411 service.
In 2006, the Company signed a deployment contract with the residential group
within TELMEX for deployment of One Voice's MobileVoice solutions to the over 19
million TELMEX subscribers throughout Mexico. The MobileVoice service was
launched to TELNOR subscribers, a TELMEX subsidiary, in October, 2007 as a
TELNOR branded service called IRIS. For information on IRIS visit
http://www.yosoyiris.com or http://www.telnor.com. The MobileVoice (IRIS)
service has tested and performed very well as anticipated. We are working
closely with TELNOR to ensure the IRIS service is very successful and the
feedback to date has been very positive. We are now working with both the
residential and small, medium business (SMB) groups within TELMEX for coordinate
a national launch for IRIS in both groups. We are confident this national launch
will happen in the coming months. The revenue generated from of a national
launch with TELMEX should have a material impact on the Company.
In October 2007 both the Company and Mantec Consultants ("Mantec") entered into
a contract with Mahanagar Telephone Nigam Ltd. ("MTNL") of India to provide
MobileVoice services to MTNL's over 6 million subscribers. Mantec is One Voice's
local sales associate in India. MTNL is owned and operated by the Government of
India. The Company and Mantec are currently working on deployment of hardware
and systems integration with MTNL. According to MTNL, the MobileVoice service
will be made available to MTNL's existing 6.13 million subscribers for
MobileVoice email by phone service and the total expected customers for this
service is .92 million within the first two years. MTNL has set the monthly
subscription price of $1.25 USD monthly per subscriber out of which the Company
has a 30% share. We anticipate the MTNL revenue stream to grow as we launch
additional MobileVoice services including voice dialing, group call and
voice-to-SMS services. In order to expedite the launch with MTNL we decided to
initially launch email by phone and the revenue projections given by the
marketing department of MTNL reflect the email by phone service only. We
anticipate this revenue projection to grow as additional MobileVoice services
are launched to MTNL subscribers. We are planning on having our service ready
for testing by MTNL in early May, 2008. MTNL will then have a 3 month testing
period after which revenue generation to the Company will commence. The revenue
generated from this launch with MTNL should have a material impact on the
Company.
The Company recently signed an agreement to deploy MobileVoice services with
Mohave Wireless. This service was launched to Mohave Wireless subscribers in
February of 2008. The MobileVoice service will be included as a standard service
for all Mohave Wireless subscribers.
The Company recently signed a Teaming Agreement with Motorola to work together
to broaden Motorola's offerings to Motorola customers. These offering could
include solutions such as One Voice's MobileVoice along with media control and
voice search. We are currently working with Motorola on joint proposals to
Motorola carrier customers along with adding voice search capabilities to
existing Motorola multi-media products for access to a mobile phone users' music
library from their mobile phone.
The Company is currently in a test phase with a national yellow pages provider
that is evaluating our automated 411 voice search service for automated
directory lookup. The target launch of this service would be this year if
selected.
EMBEDDED SECTOR
---------------
On August 15, 2007 the Company signed a Memorandum of Understanding ("MOU") with
Intel Corporation in which both companies will work together to add One Voice's
voice technology to a Linux based handheld device. The Company sees a potential
opportunity with this mass consumer electronics (CE) device and will apply the
necessary resources to co-develop this project. We have been working closely
with Intel engineers to add voice control to their Moblin operating system. We
have recently demonstrated this capability in the Intel booth at the 2008
Consumer Electronics Show, Mobile World Congress and the upcoming Intel
Developers Forum. We have also ported our software to RedFlag Linux. Both
RedFlag Linux and Moblin are the primary operating systems used on Mobile
Internet Devices (MIDs). Both One Voice and Intel have jointly presented our
voice solution to several MID OEM's and we have initial confirmation that our
software will be bundled on a major OEM's MID for launch in Q4 of 2008.
-12-
PC SECTOR
---------
In the PC sector, we believe that 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. We believe that 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 and Microsoft Windows Vista 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. The company recently launched a new retail
product called VoiceTunes. VoiceTunes allows users to voice control their entire
music library including Apple iTunes and Windows Media. This product is similar
to our flagship product Media Center Communicator but is very focused on music.
The feedback from retailers has been very positive and we are now preparing for
have VoiceTunes available on retail store shelves by this summer.
In summary, since the beginning of 2007, the Company has deployed services with
telecom carriers and began recognizing a recurring revenue stream. Management
believes the Company's transition into the revenue recognition phase is very
important as it signifies acceptance of our solutions and the value they deliver
to the customer and their subscribers.
The management team remains committed to generating short and long-term revenues
significant enough to fund daily operations, expand the intellectual property
portfolio and development of cutting edge solutions and applications for the
emerging speech recognition market sector which should build shareholder value.
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, fair
value of derivative liabilities and fair value of options or warrants
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.
The following is a discussion that relates to certain financial transactions and
the results of operations for the year ended December 31, 2007 and 2006.
-13-
RESULTS OF OPERATION FOR THE YEAR ENDED DECEMBER 31, 2007 AND 2006.
ONE VOICE TECHNOLOGIES INC.
SELECTED STATEMENT OF OPERATIONS INFORMATION
YEAR ENDED FAV/ (UN FAV) PERCENTAGE
DECEMBER 31, DECEMBER 31, CHANGE CHANGE
2007 2006
----------- ----------- ----------- ----------
Net Revenue $ 702,430 $ 690,540 $ 11,890 2%
Cost of goods sold 392,581 162,682 (229,899) -141%
----------- ----------- ----------- ----------
GROSS PROFIT 309,849 527,858 (218,009) -41%
General and administrative expenses 2,548,963 3,515,336 966,373 27%
Other (expense) (1,809,219) (1,430,566) (378,653) -26%
----------- ----------- ----------- ----------
NET LOSS BEFORE INCOME TAX (4,048.333) (4,418,044) 369,711 8%
Income tax expense 800 800 -- 0%
----------- ----------- ----------- ----------
Net loss $(4,049,133) $(4,418,844) $ 369,711 8%
=========== =========== =========== ==========
REVENUES
--------
Net revenues totaled $702,430 and $690,540 for the year ended December 31, 2007
and 2006, respectively. Increased revenues of $11,890 or 2%.
COST OF GOODS SOLD
------------------
Cost of goods sold for the year ended December 31, 2007 and 2006 totaled
$392,581 and $162,682, respectively. The increase in cost of goods sold of
$229,899 or 141% between the two periods was due to the reclassification of
expenses during 2007 that previously had been recorded as general and
administrative expenses. These expenses specifically relate to licensing
agreements and telecommunication expenses that allow the voice recognition
products offered to be functional. The increase in cost of goods sold in 2007 is
offset by a corresponding decrease in general and administrative expenses in
2007.
GENERAL AND ADMINISTRATIVE EXPENSE
----------------------------------
General and administrative expenses totaled $2,548,963 and $3,515,336 for the
year ended December 31, 2007 and 2006, respectively. The decrease of $966,373 or
27% between the two periods was due to overall budget reductions in 2007 and the
reclassification of operating expenses to cost of goods sold as mentioned above.
SALARY AND COMPENSATION
-----------------------
Salary and wage expenses totaled $1,183,612 and $1,529,329 for the year ended
December 31, 2007 and 2006, respectively. The decrease of $345,717 or 23%
between the two periods was due to headcount reductions, which increased the
overall efficiency of the Company.
ACCOUNTING AND LEGAL
--------------------
The Company incurred accounting and legal fees related to being a public entity
of $322,545 and $239,606 for the year ended December 31, 2007 and 2006,
respectively. The increase of $82,939 or 35% between the two periods was due
registration statement filing fees and the under accrual of 2006 audit fees due
to transitioning from audit firms.
OTHER INCOME (EXPENSE)
----------------------
Other expense totaled ($1,809,219) and ($1,430,566) for the year ended December
31, 2007 and 2006, respectively. A expense increase of $378,653 or 26%.
-14-
Other income (expense) consist of:
o Interest expense
o Settlement expense
o Gain (loss) on warrant / debt derivative liability
o Other misc.
See details below.
OTHER INCOME / (EXPENSE) SUMMARY
YEAR ENDED
December 31, DECEMBER 31,
2007 2006
----------- -----------
Interest (expense) $(1,151,648) $(1,579,327)
Settlement (expense) -- (100,500)
Gain (loss) on warrant and debt derivative (679,584) 242,970
Other income / (expense) 22,013 6,291
----------- -----------
TOTAL OTHER (EXPENSE) $(1,809,219) $(1,430,566)
INTEREST EXPENSE
----------------
INTEREST EXPENSE SUMMARY
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
---------------- ----------------
Debt issue cost $ 357,896 $ 151,690
Discount amortization 614,016 1,296,327
Accrued interest 174,000 127,783
Other / penalties 5,736 3,527
---------------- ----------------
TOTAL $ 1,151,648 $ 1,579,327
For year ended December 31, 2007 and 2006, interest expense was $1,151,648
compared to $1,579,327 respectively. The decrease of $427,679 or 27% between the
two periods was due to:
o The amount and timing of debt conversions into equity which effect
both issue cost and discount amortization expenses. Conversions of
debt accelerate the amortization of both the issue cost and discount.
Upon conversion of convertible debt into equity, both the debt issue cost and
discount costs associated are prorated accordingly and expensed immediately. If
no conversions occur, the debt issue cost and discount costs are expensed over
the life of the convertible debt using the straight line method.
Interest expense is composed of three very distinct transactions, which vary in
their financial treatment. Below is a brief explanation of the nature and
treatment of these expenses.
1. Monthly amortization of debt issue costs related to securing convertible debt
Financing (legal fees etc...).
This represents a cash related transaction.
For the year ended December 31, 2007 and 2006, interest expense related to debt
issue costs was $357,896 compared to $151,690, respectively.
2. Monthly amortization of the embedded discount features within convertible
debt financing.
This represents a non-cash transaction.
For the year ended December 31, 2007, and 2006, interest expense related to the
amortization of discount was $614,016 compared to $1,296,327 respectively.
3. Monthly accrued interest related to notes payable and convertible notes
payable financing.
-15-
This represents a future cash transaction if the convertible interest accrued is
not converted into common stock. No accrued interest related to convertible
notes payable has been paid in cash during the year ended December 31,2007 and
2006.
For the year ended December 31, 2007 and 2006, interest expense related to notes
payable and convertible notes payable was $174,000 compared to $127,783,
respectively.
4. Other / misc. expense for the year ended December 31, 2007 and 2006, was
approximately $5,736 compared to $3,527 respectively.
(LOSS) ON DEBT DERIVATIVES
--------------------------
For the year ended December 31, 2007 and 2006, losses recorded on debt
derivatives were ($1,323,521) and ($12,461) respectively.
See Note 9 in the accompanying notes to the financial statements for a full
description of the nature of debt derivative transactions.
GAIN ON WARRANT DERIVATIVES
---------------------------
For the year ended December 31, 2007 and 2006, gains recorded on warrant
derivatives were $643,937, compared to a gain of $255,431 respectively.
See Note 10 in the accompanying notes to the financial statements for a brief
description of the nature of warrant derivative transactions.
OTHER INCOME EXPENSE
----------------------
For the year ended December 31, 2007 and 2006, other income net was
approximately $22,013 compared to other income of $6,291 respectively. The
increase over the prior period was due to gain on the sale of assets.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
NON-CASH EXPENSES EFFECTING THE COMPANYS NET (LOSS)
------------------------------------------------
Non-cash related expense items of $1,985,133 and 1,677,044 are reflected in the
year ended December 31, 2007 and 2006 respectively, consisted of the following
items:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
----------- ------------
Depreciation and amortization 79,183 123,236
Stock compensation expense 208,913 272,168
Stock issuance for exchange of debt and other obligations 220,534 100,500
Stock issuance for interest conversion 8,903 --
Amortization of note discount 614,016 1,296,327
Interest payable related to convertible debt 174,000 127,783
Loss on warrant and debt derivatives 679,584 (242,970)
----------- ----------
TOTAL NON-CASH RELATED EXPENSES 1,985,133 1,677,044
The above information is intended to illustrate the impact that these specific
expenses have on the Company's net (loss). There are no cash transactions that
related to these expenses. More specifically, this table is shown to demonstrate
the impact that the re-valuation of warrant and debt derivatives have on the
income statement. Please note that this table is not in conformity with auditing
standards generally accepted in the United States of America.
-16-
At December 31, 2007, the Company had a working capital deficit of $7,412,770 as
compared with a working capital deficit of $5,101,162 at December 31, 2006. The
increase in working capital deficit of $2,311,608 consists primarily of the
following:
o Increase in derivative liability of $1,372,562
o (Decrease) in warrant derivative liability of $(490,568)
o Increase in revolving line of credit of $1,256,462
o Increase in license agreement liability of $182,000
Net cash used for operating activities is $1,495,417 for the year ended December
31, 2007 compared to $2,677,609 for the year ended December 31, 2006.
Net cash used for investing activities is $15,772 for the year ended December
31, 2007 compared to $155,303 for the year ended December 31, 2006.
Net cash provided by financing activities is $1,491,483 for the year ended
December 31, 2007 compared to $2,528,686 for the year ended December 31, 2006.
See financing transaction details below.
FINANCING TRANSACTIONS
----------------------
The following is a discussion that summarizes the net financing and conversion
activities for the year ended December 31, 2007 and 2006.
NET CASH PROCEEDS RECEIVED DUE TO FINANCING ACTIVITY
----------------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
Private placement $ -- $ 332,000
Warrant exercise 253,360 300,200
Convertible debt financing 195,000 1,984,000
Revolving line of credit net of pay down 1,256,462 240,000
------------ ------------
TOTAL FINANCING ACTIVITY $ 1,704,822 $ 2,856,200
============ ============
ISSUANCE OF CONVERTIBLE NOTES PAYABLE SUMMARY
---------------------------------------------
YEAR ENDED
ISSUANCE SUMMARY
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
Principal $ 420,000 $ 2,005,000
Warrants issued A&B 10,000,000 140,917,090
YEAR ENDED
CONVERSION SUMMARY
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
Principal and interest Converted $ 481,359 $ 1,745,162
Shares converted 49,190,842 160,373,521
Average share conversion price $ 0.010 $ 0.011
See Note 13 a. in the accompanying notes to the financial statements for
additional detail.
-17-
COMMON STOCK
------------
The following is a summary of transactions that had an impact on equity:
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
AVERAGE AVERAGE
SHARES SHARE SHARES SHARE
ISSUED PRICE VALUE ISSUED PRICE VALUE
----------- ------ --------- ----------- ------ ---------
Debt conversions 49,190,842 0.010 481,359 160,373,521 0.011 1,745,162
Issuance of stock in exchange for services 11,443,921 0.019 220,534 20,000,000 0.017 232,000
Stock to be issued in exchange for interest conversion -- -- 8,903 -- -- --
Warrant exercise 39,126,855 0.006 253,360 20,550,000 0.015 300,200
Warrant exercise cashless 23,971,458 -- -- -- -- --
Private placement -- -- -- 20,000,000 0.014 375,500
Shares in escrow 30,000,000 0.020 600,000 -- -- --
----------- ------ --------- ----------- ------ ---------
Total 153,733,076 0.013 1,564,156 220,923,521 0.012 2,652,862
See Note 13 a. in the accompanying notes to the financial statements for
additional detail.
REVOLVING CREDIT NOTE PAYABLE
-----------------------------
On December 21, 2006, the Company completed a private placement pursuant to a
Revolving Credit Note Agreement which the Company entered into with several
institutional investors, pursuant to which the Investors subscribed to advance
up to a maximum amount of $640,000 bearing an interest rate of 7%. The term of
the agreement shall be effective as of December 21, 2006 and shall be in full
force and effect until the earliest to occur of (a) 12 months from December 21,
2006 (B) a date not less than thirty days after Lender gives notice of
termination to the Company.
The original Revolving Credit Note agreement has been amended seven times during
the year ended December 31, 2007. The amendments increased the maximum borrowing
by the Company to an amount of $1,580,000.
Since inception the Company has borrowed $1,555,000 against the revolving note.
During the same period the Company paid $58,538 against the outstanding balance
for a total net borrowing of $1,496,462 since inception. As of December 31, 2007
the Company has $83,538 available to borrow against in the future. All
borrowings are used to cover recurring operating expenses by the Company.
As of December 31, 2007 the outstanding principal amount owed to the Investors
is $1,496,462. Interest accrued on the outstanding principal is $58,284 as of
December 31, 2007.
See Note 11 in the accompanying notes to the financial statements for additional
detail.
FUTURE CAPITAL OUTLOOK
----------------------
The Company will continue to rely heavily on our current method of convertible
debt and equity funding, proceeds borrowed from the revolving line of credit and
the sale of warrants. The losses through the year ended December 31, 2007 are
due to minimal revenues and recurring operating expenses, with a majority of
expenses in the areas of: salaries, accounting fees, legal fees, licensing costs
along with a majority of expense incurred being non-cash related. The Company
faces 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, collection of monthly accounts receivable 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.
-18-
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.
RISK FACTORS
------------
This section summarizes certain risks regarding our business and industry. The
following information should be considered in conjunction with the other
information included and incorporated by reference in this report on Form 10-KSB
before purchasing shares of our stock.
WE HAVE A HISTORY OF LOSSES. WE MAY TO CONTINUE TO INCUR LOSSES, AND WE MAY
NEVER ACHIEVE AND SUSTAIN PROFITABILITY.
Since inception, we have incurred significant losses and have negative cash
flows from operations. For the years ended December 31, 2007 and 2006, we
incurred a net loss of $4,049,133 and $4,418,844, respectively. A large part of
the losses are due to non-cash related expenses of $1,985,133 and 1,677,044
respectively.
As a result of 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.
For these reasons, you should not rely solely 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.
-19-
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
ONE VOICE TECHNOLOGIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2007 AND 2006
CONTENTS
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRMS F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' (Deficit) F-4 - F-5
Consolidated Statements of Cash Flows F-6 - F-7
Notes to Financial Statements F-8 - F-43
-20-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
One Voice Technologies, Inc.
La Jolla, California
We have audited the accompanying consolidated balance sheets of One Voice
Technologies, Inc. ("One Voice") as of December 31, 2007 and 2006, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the fiscal years ended December 31, 2007 and 2006. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statement(s) are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
One Voice Technologies, Inc. as of December 31, 2007 and 2006 and the
consolidated results of their operations and their consolidated cash flows for
the fiscal years ended December 31, 2007 and 2006 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 discussed in Note 1 to the financial statements, the
Company has reported recurring losses from operations aggregating $50,906,612
and had a working capital deficit of $7,412,770. These factors raise substantial
doubt about One Voice's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PMB Helin Donovan, LLP
PMB Helin Donovan, LLP
San Francisco, California
March 24, 2008
F-1
ONE VOICE TECHNOLOGIES INC.
BALANCE SHEETS
--------------
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 14,879 $ 34,585
Accounts Receivable 97,242 99,111
Inventories 1,200 4,841
Prepaid expenses 24,172 28,785
------------ ------------
TOTAL CURRENT ASSETS 137,493 167,322
Property and equipment, net 164,294 164,389
Patents and trademarks, net 51,273 92,650
------------ ------------
TOTAL FIXED AND INTANGIBLE ASSETS 215,567 257,039
Deposits 22,180 18,665
Deferred debt issue costs 31,939 344,835
------------ ------------
TOTAL ASSETS $ 407,179 $ 787,861
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 337,711 $ 444,088
Accrued expenses 419,097 239,593
Settlement agreement liability 208,594 350,000
License agreement liability 1,112,000 930,000
Note payable 29,602 --
Debt derivative liability 1,629,057 256,495
Warrant derivative liability 2,317,740 2,808,308
Revolving line of credit 1,496,462 240,000
------------ ------------
TOTAL CURRENT LIABILITIES 7,550,263 5,268,484
------------ ------------
LONG TERM LIABILITIES:
Note payable 169,070 100,000
Convertible notes payable, net 1,136,801 982,972
Deferred rent 2,721 12,017
------------ ------------
TOTAL LIABILITIES 8,858,855 6,363,473
------------ ------------
STOCKHOLDERS' DEFICIT:
Preferred stock; $.001 par value, 10,000,000
shares authorized, no shares issued and
outstanding
Common stock; $.001 par value, 1,290,000,000
shares authorized, 738,246,749 and
584,513,673 shares issued and outstanding at
December 31, 2007 and December 31, 2006,
respectively 738,247 585,327
Additional paid-in capital 42,316,689 40,696,540
Escrow shares (600,000) --
Accumulated deficit (50,906,612) (46,857,479)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (8,451,676) (5,575,612)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 407,179 $ 787,861
============ ============
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
ONE VOICE TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
------------- -------------
Net Revenue $ 702,430 $ 690,540
Cost of goods sold 392,581 162,682
------------- -------------
Gross profit 309,849 527,858
------------- -------------
General and administrative expenses 2,548,963 3,515,336
------------- -------------
Net loss from operations (2,239,114) (2,987,478)
Other income / (expense)
Interest expense (1,151,648) (1,579,327)
Settlement expense, net -- (100,500)
Gain / (Loss) on warrant and debt derivatives (679,584) 242,970
Other income 21,213 5,491
------------- -------------
Total other income / (expense) (1,810,019) (1,431,366)
------------- -------------
Net loss $ (4,049,133) $ (4,418,844)
============= =============
Basic loss per share $ (0.01) $ (0.01)
============= =============
Basic weighted average shares outstanding 661,398,000 485,469,000
============= =============
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
ONE VOICE TECHNOLOGIES INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
COMMON STOCK ADDITIONAL ACCUMULATED TOTAL STOCKHOLDERS'
SHARES AMOUNT PAID IN CAPITAL ESCROW SHARES (DEFICIT) (DEFICIT)
------ ------ --------------- ------------- ----------- ------------------
Balance at December 31, 2005 (restated) 363,590,152 $ 363,590 $ 38,026,356 -- $ (42,438,635) $ (4,048,689)
Issuance of common stock in connection
with private placement 20,000,000 20,000 355,500 375,500
Exercise of warrants for cash 20,550,000 20,550 279,650 300,200
Expenses incurred in connection
with stock option compensation 239,059 239,059
Expenses incurred in connection
with securing financing agreements 20,000,000 20,000 212,000 232,000
Conversion of debt to
equity - Alpha Capital 46,750,254 46,750 425,452 472,202
Conversion of debt to
equity - Momona Capital 11,652,219 11,652 90,807 102,459
Conversion of debt to
equity - Ellis International Limited 17,381,205 17,381 160,062 177,443
Conversion of debt to
equity - Omega Capital 14,425,710 14,426 122,822 137,248
Conversion of debt to
equity - Whalehaven Capital 69,030,045 69,844 770,391 840,235
Conversion of debt to
equity - Osher Capital 1,134,088 1,134 14,441 15,575
Net loss for the year ended
December 31, 2006 (4,418,844) (4,418,844)
----------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2006 584,513,673 $ 585,327 $ 40,696,540 -- $ (46,857,479) $ (5,575,612)
========================================================================================
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
ONE VOICE TECHNOLOGIES INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
COMMON STOCK ADDITIONAL ACCUMULATED TOTAL STOCKHOLDERS'
SHARES AMOUNT PAID IN CAPITAL ESCROW SHARES (DEFICIT) (DEFICIT)
------ ------ --------------- ------------- ----------- ------------------
AT DECEMBER 31, 2006 584,513,673 $ 585,327 $ 40,696,540 -- $ (46,857,479) $ (5,575,612)
Issuance of common stock in connection
for exchange of services rendered
and other obligations 11,443,921 10,631 209,903 220,534
Issuance of common stock in connection
with interest conversion -- -- 8,903 8,903
Cashless exercise of warrants 23,971,458 23,971 (23,971) --
Exercise of warrants for cash 39,126,855 39,127 214,233 253,360
Expenses incurred in connection
with stock option compensation 208,913 208,913
Conversion of debt to
equity - Alpha Capital 30,465,592 30,466 210,267 240,733
Conversion of debt to
equity - Bristol Investments 12,465,754 12,466 155,315 167,781
Conversion of debt to
equity - Centurion Microcap 782,289 782 7,980 8,762
Conversion of debt to
equity - Osher Capital 5,477,207 5,477 58,606 64,083
Escrow shares issued to
La Jolla Cove Investors 30,000,000 30,000 570,000 (600,000) --
Net loss for the year ended
December 31, 2007 (4,049,133) (4,049,133)
-------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2007 738,246,749 $ 738,247 $ 42,316,689 (600,000) $ (50,906,612) $ (8,451,676)
===========================================================================================
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
ONE VOICE TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,049,133) $(4,418,844)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
Depreciation and amortization 79,183 123,236
Amortization of debt discount and debt issue costs 941,912 1,783,252
(Gain) loss on debt derivative liability 1,372,562 (12,342)
(Gain) loss on warrant derivative liability (490,568) (230,628)
Common stock issued in exchange for services 220,534 --
Share based compensation expense 208,913 272,168
Issuance of common stock interest conversion 8,903 --
Gain on sale of equipment (21,940) --
Accrued License agreement (accounts payable converted into note payable) 138,000 --
CHANGES IN CERTAIN ASSETS AND LIABILITIES
Accounts receivable 1,869 (56,415)
Inventories 3,641 413
Prepaid expenses 4,613 11,789
Deposits (3,515) --
Accounts payable 47,229 315,458
Accrued expenses 193,082 92,287
Settlement agreement liability (141,406) (570,000)
Deferred rent (9,296) 12,017
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,495,417) (2,677,609)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment (40,772) (130,641)
Proceeds from sale of property & equipment 25,000 --
Purchase of intangible assets -- (24,662)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (15,772) (155,303)
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
ONE VOICE TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock - convertible notes -- 1,984,000
Issuance of common stock - private funding -- 432,500
Proceeds from warrant exercise 253,360 300,200
Proceeds from convertible notes net of issue cost 195,000 --
Payment for debt issue cost (202,405) (428,014)
Proceeds from revolving credit line, net of repayment 1,256,462 240,000
Repayment of note payable (10,934) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,491,483 2,528,686
Net increase (decrease) in cash (19,706) (304,226)
Cash and cash equivalents, beginning of period 34,585 338,811
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,879 $ 34,585
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 934 $ --
=========== ===========
Income taxes paid $ 800 $ 800
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
--------------------------------------------------------
Issuance of warrant derivative in connection
with private placement and debt financing, initial valuation $ 153,369 $ 941,331
=========== ===========
Beneficial conversion feature of convertible debt, initial valuation $ 170,604 $ --
=========== ===========
Common stock issued upon conversion of debt and interest $ 481,359 $ 1,745,162
=========== ===========
Shares in escrow issued in connection with a legal settlement $ 600,000 $ --
=========== ===========
Note payable (accounts payable converted into note payable ST and LT) $ 98,672 $ --
=========== ===========
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
ONE VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
-----------------------------
ITEM 1a. DESCRIPTION OF BUSINESS
--------------------------------
INTRODUCTION
------------
One Voice Technologies, Inc. is a voice recognition technology company with over
$43 million invested in Research and Development and deployment of products in
both the telecom and PC multi-media markets. To date, our customers include:
Telefonos de Mexico, S.A.B. de C.V. (TELMEX), Intel Corporation, Alltel
Wireless, Inland Cellular, Nex-Tec Wireless and several additional telecom
service providers throughout the United States. 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 reading and sending 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.
The Company is traded on the NASD OTC Bulletin Board ("OTCBB") under the symbol
ONEV. One Voice is incorporated in the State of Nevada and commenced operations
on July 14, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
One Voice Technologies, Inc., ("The Company"), is incorporated under the laws of
the State of Nevada. The Company develops voice recognition software and it
commenced operations in 1999. The Company's 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 reading and sending e-mail messages, SMS text
messaging to mobile phones, PC-to-Phone calling (VoIP) and PC-to-PC audio/video.
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 $50,906,612 and used
cash from operations of $1,495,417 during the year ended December 31, 2007. The
Company also has a working capital deficit of $7,412,770 of which $3,946,797
represents non-cash warrant and debt derivative liabilities.
F-8
ONE VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
The Company also has a stockholders' deficit of $8,451,676 as of December 31,
2007. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management has instituted a cost reduction program
that included a reduction in labor and fringe costs. Historically, management
has been able to obtain capital through either the issuance of equity or debt,
and is currently seeking such financing. There can be no assurance as to the
availability or terms upon which such financing and capital might be available.
Additionally, management is currently pursuing revenue-bearing contracts
utilizing various applications of its technology including wireless technology.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to prior year's amounts to conform to
current year classifications. These reclassifications did not have an effect on
the previously reported results of operations or retained earnings.
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 the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the amount of revenue and expense reported during
the period. Significant estimates include valuation of derivative and warrant
liabilities. Actual results could differ from those estimates.
FAIR VALUE
----------
The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable, accounts payable, notes payable and
convertible debt. The carrying value of cash and cash equivalents, accounts
receivable and accounts payable, approximates their fair value due to their
short term nature. The carrying value of notes payable and convertible debt
approximate their fair value, as interest approximates market rates.
CASH AND 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.
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 revenue when persuasive evidence of a sale arrangement
exists, delivery has occurred or services have been rendered, the sales price is
fixed or determinable, and collectability is reasonably assured in accordance
with SEC Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements" ("SAB 104").
When a customer order contains multiple items such as hardware, software, and
services which are delivered at varying times, the Company determines whether
the delivered items can be considered separate units of accounting as prescribed
under Emerging Issues Task Force ("EITF") Issue No. 00-21, "Revenue Arrangements
with Multiple Deliverables" ("EITF 00-21"). EITF 00-21 states that delivered
items should be considered separate units of accounting if delivered items have
value to the customer on a standalone basis, there is objective and reliable
evidence of the fair value of undelivered items, and if delivery of undelivered
items is probable and substantially in the Company's control.
F-9
ONE VOICE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
In these circumstances, the Company allocates revenue to each element based on
its relative vendor specific objective evidence of fair value ("VSOE"). VSOE for
products and software is established based on the Company's approved pricing
schedules. To establish VSOE for services, the Company uses standard billing
rates based on said services. Generally, the Company is able to establish VSOE
for all elements of the sales order and bifurcate the customer order or contract
accordingly. In these instances, sales are recognized on each element
separately. However, if VSOE cannot be established or if the delivered items do
not have stand alone value to the customer without additional services provided,
the Company recognizes revenue on the contract as a whole based on either the
completed-performance or proportional-performance methods as described below.
In most cases, revenue from hardware and software product sales is recognized
when title passes to the customer. Based upon the Company's standard shipping
terms, FOB The Company, title passes upon shipment to the customer.
Revenue is recognized on service contracts using either the completed-
performance or proportional-performance method depending on the terms of the
service agreement. When the amount of services to be performed in the last
series of acts is so significant in relation to the entire service contract that
performance is deemed not to have occurred until the final act is completed or
when there are acceptance provisions based on customer-specified subjective
criteria, the completed-performance method is used. Once the last significant
act has been performed, revenue is recognized. The Company uses the
proportional-performance method when a service contract specifies a number of
acts to be performed and the Company has the ability to produce reasonable
estimates. The estimates used on these contracts are periodically updated during
the term of the contract and may result in the Company's revision of recognized
sales in the period in which they are identified.
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.
The Company's patent costs consist of legal fees paid in connection with patents
pending. The Company amortizes patents using the straight-line method over the
period of estimated benefit, generally five years. Yearly patent renewal fees
are expensed in the year incurred.
In accordance with SFAS No. 142, the Company evaluates its operations to
ascertain if a triggering event has occurred which would impact the value of
finite-lived intangible assets (e.g., patents). Examples of such triggering
events include a significant disposal of a portion of such assets, an adverse
change in the market involving the business employing the related asset, a
significant decrease in the benefits realized from an asset
As of December 31, 2007, no such triggering event has occurred. An impairment
test involves a comparison of undiscounted cash flows against the carrying value
of the asset as an initial test. If the carrying value of such asset exceeds the
undiscounted cash flow, the asset would be deemed to be impaired. Impairment
would then be measured as the difference between the fair value of the fixed or
amortizing intangible asset and the carrying value to determine the amount of
the impairment. The Company determines fair value generally by using the
discounted cash flow method. To the extent that the carrying value is greater
than the asset's fair value, an impairment loss is recognized for the
difference.
F-10
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
CONVERTIBLE NOTES AND FINANCIAL INSTRUMENTS WITH EMBEDDED FEATURES
------------------------------------------------------------------
The Company accounts for conversion options embedded in convertible notes in
accordance with Statement of Financial Accounting Standard ("SFAS) No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") and
EITF 00-19 "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock" ("EITF 00-19"). SFAS 133
generally requires Companies to bifurcate conversion features embedded in
convertible notes from their host instruments and to account for them as free
standing derivative financial instruments in accordance with EITF 00-19. SFAS
133 provides for an exception to this rule when convertible notes, as host
instruments, are deemed to be conventional as that term is described in the
implementation guidance under Appendix A to SFAS 133 and further clarified in
EITF 05-2 "The Meaning of "Conventional Convertible Debt Instrument" in Issue
No. 00-19.
The Company accounts for convertible notes (if deemed conventional) in
accordance with the provisions of Emerging Issues Task Force Issue ("EITF")98-5
"Accounting for Convertible Securities with Beneficial Conversion Features,"
("EITF 98-5"), EITF 00-27 "Application of EITF 98-5 to Certain Convertible
Instruments," Accordingly, the Company records, as a discount to convertible
notes, the intrinsic value of such conversion options based upon the differences
between the fair value of the underlying common stock at the commitment date of
the note transaction and the effective conversion price embedded in the note.
Debt discounts under these arrangements are amortized over the term of the
related debt to their earliest date of redemption.
The Companys convertible notes do host conversion features and other features
that are deemed to be embedded derivatives financial instruments or beneficial
conversion features based on the commitment date fair value of the underlying
common stock.
COMMON STOCK PURCHASE WARRANTS AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS
-------------------------------------------------------------------------
The Company accounts for the issuance of common stock purchase warrants issued
and other free standing derivative financial instruments in accordance with the
provisions of EITF 00-19. Based on the provisions of EITF 00-19, the Company
classifies as equity any contracts that (i) require physical settlement or
net-share settlement or (ii) gives the Company a choice of net-cash settlement
or settlement in its own shares (physical settlement or net-share settlement).
The Company classifies as assets or liabilities any contracts that (i) require
net-cash settlement (including a requirement to net cash settle the contract if
an event occurs and if that event is outside the control of the Company) (ii)
give the counterparty a choice of net-cash settlement or settlement in shares
(physical settlement or net-share settlement).
DEFERRED DEBT ISSUE COST
------------------------
The costs relating to obtaining and securing debt financing are capitalized and
is expensed over the term of the debt instrument. In the event of settlement in
part or whole of such debt in advance of the maturity date, an expense is
recognized for the remaining unamortized deferred debt issue cost.
For the year ended December 31, 2007 and the year ended December 31, 2006, the
estimated fair value of the Company's deferred debt issue cost
were $31,939 and $344,835 respectively.
F-11
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
NET LOSS PER COMMON SHARE
-------------------------
Basic earnings per share ("EPS") is calculated using the weighted-average number
of outstanding common shares during the period. Diluted earnings per share is
calculated using the weighted-average number of outstanding common shares and
dilutive common equivalent shares outstanding during the period, using either
the as-converted method for convertible notes and convertible preferred stock or
the treasury stock method for options and warrants.
The net income / (loss) per common share for the year ended December 31, 2007
and 2006 is based on the weighted average number of shares of common stock
outstanding during the periods. Potentially dilutive securities include options,
warrants and convertible debt; however, such securities have not been included
in the calculation of the net loss per common share as their effect is anti
dilutive.
The following table is a reconciliation of the numerator (net loss) and the
denominator (number of shares) used in the basic and diluted EPS calculations
and sets forth potential shares of common stock that are not included in the
diluted net loss per share calculation as the effect is antidilutive:
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
------------- -------------
Numerator - basic and diluted $ (4,049,133) $ (4,418,844)
============= =============
Denominator - basic or diluted
Weighted average common shares
outstanding 661,398,000 485,469,000
Weighted average unvested common shares
shares subject to repurchase - -
------------- -------------
Total 661,398,000 485,469,000
============= =============
------------- -------------
Net loss per share - basic and diluted $ (0.01) $ (0.01)
============= =============
Potentially dilutive securities for year ended December 31, 2007 and 2006 are:
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
----------- -----------
POTENTIALLY DILUTIVE SECURITIES:
Convertible debentures 287,615,893 223,595,506
Options 62,934,000 58,059,000
Warrants 276,052,744 339,979,838
Escrow shares 30,000,000 --
------------- -------------
TOTAL ANTI-DILUTIVE SHARES 656,602,637 621,634,344
============= =============
F-12
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
INCOME TAXES
------------
Deferred income taxes are reported using the asset/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.
In June 2006, the Financial Accounting Standards Board has published FASB
Interpretation No. 48 (FIN No. 48), "Accounting for Uncertainty in Income
Taxes," to address the non-comparability in reporting tax assets and liabilities
resulting from a lack of specific guidance in FASB Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes," on the
uncertainty in income taxes recognized in an enterprise's financial statements.
Specifically, FIN No. 48 prescribes (a) a consistent recognition threshold and
(b) a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return, and
provides related guidance on derecognition, classification, interest and
penalties, accounting interim periods, disclosure and transition. FIN No. 48
will apply to fiscal years beginning after December 15, 2006, with earlier
adoption permitted.
The Company files federal income tax returns in the U.S. The Company is no
longer subject to U.S. state, or non-U.S. income tax examinations by tax
authorities for years before 2001. Certain U.S. Federal returns for years 1999
and following are not closed by relevant statutes of limitation due to unused
net operating losses reported on those returns.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of
the implementation of FIN 48, the Company had no changes in the carrying value
of its tax assets or liabilities for any unrecognized tax benefits.
F-13
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
ACCOUNTING FOR STOCK-BASED COMPENSATION
---------------------------------------
On January 1, 2006 the Company adopted "SFAS" No.123 (Revised 2004), "Share
Based Payment," ("SFAS 123R"), using the modified prospective method. In
accordance with SFAS No. 123R, 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.
During the year ended December 31, 2007 and 2006, the Company recorded $208,913
and $272,168 respectively in non-cash charges for stock based compensation.
The fair value of stock options at date of grant was estimated using the
Black-Scholes model with the following assumptions: expected volatility of
120.5% and 90.9%, respectively, expected term of 2.0 years, risk-free interest
rate of 4.74% and an 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 guidance from SAB 107. As such,
the expected life of the options and warrants is the average of the vesting term
and the full contractual term of the options and warrants. The risk free
interest rate is based on the U.S. Treasury notes for the expected life of the
stock option.
STOCK WARRANT ACTIVITY
----------------------
The fair value of each option and warrant award is estimated on the date of
grant using the Black-Scholes option-pricing model that uses the assumptions
noted in the following table. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options. In addition,
option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's stock
options and warrants have characteristics significantly different from those of
traded options, and because changes in the subjective assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options and warrants. The expected dividend yield assumption is based on the
Company's expectation of dividend payouts. Expected volatilities are based on
historical volatility of the Company's stock. The average risk-free interest
rate is based on the U.S. treasury yield curve in effect as of the grant date.
The expected life is primarily determined using guidance from SAB 107. As such,
the expected life of the options and warrants is the average of the vesting term
and the full contractual term of the options and warrants.
The Company accounts for stock options and warrants issued to third parties for
services in accordance with the provisions of the Emerging Issues Task Force
("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling Goods or
Services". Under the provisions of EITF 96-18, because none of the Company's
agreements have a disincentive for nonperformance, the Company records a charge
for the fair value of the portion of the stock options and warrants earned from
the point in time when vesting of the stock options and warrants becomes
probable. Final determination of fair value of the stock options and warrants
occurs upon actual vesting.
F-14
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
COMPREHENSIVE INCOME
--------------------
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting
comprehensive income and its components in the financial statements.
Comprehensive income consists of net income and other gains and losses affecting
shareholders' equity that, under generally accepted accounting principles, are
excluded from net income. For the year ended December 31, 2007 and 2006, the
Company's comprehensive income (loss) had equaled its net loss. Accordingly, a
statement of comprehensive loss is not presented.
COMMITMENTS AND CONTINGENCIES
-----------------------------
Certain conditions may exist as of the date the financial statements are issued,
which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company's management and
its legal counsel assess such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or unasserted
claims that may result in such proceedings, the Company's legal counsel
evaluates the perceived merits of any legal proceedings or unasserted claims as
well as the perceived merits of the amount of relief sought or expected to be
sought therein.
If the assessment of a contingency indicates that it is probable that a material
loss has been incurred and the amount of the liability can be estimated, then
the estimated liability would be accrued in the Company's financial statements.
If the assessment indicates that a potentially material loss contingency is not
probable, but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they
involve guarantees, in which case the nature of the guarantee would be
disclosed.
SEGMENT
-------
The Company operates in a single business segment that includes the design and
development of its products.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 2006, the Financial Accounting Standards Board has published FASB
Interpretation No. 48 (FIN No. 48), "Accounting for Uncertainty in Income
Taxes," to address the non-comparability in reporting tax assets and liabilities
resulting from a lack of specific guidance in FASB Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes," on the
uncertainty in income taxes recognized in an enterprise's financial statements.
Specifically, FIN No. 48 prescribes (a) a consistent recognition threshold and
(b) a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return, and
provides related guidance on derecognition, classification, interest and
penalties, accounting interim periods, disclosure and transition. FIN No. 48
will apply to fiscal years beginning after December 15, 2006, with earlier
adoption permitted. The Company has completed its evaluation for the tax years
ended 2004, 2005 and 2006 for the effects of FIN No. 48 and has concluded that
the adoption of FIN No. 48 does not have a material impact on the financial
statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. This
statement is effective on the Company beginning November 15, 2007. The Company
is currently assessing the potential impact that the adoption of SFAS No. 157
will have on its financial statements.
F-15
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities--Including an amendment of FASB
Statement No. 115" ("SFAS 159"). SFAS 159 expands the use of fair value
accounting but does not affect existing standards which require assets or
liabilities to be carried at fair value. Under SFAS 159, a company may elect to
use fair value to measure accounts and loans receivable, available-for-sale and
held-to-maturity securities, equity method investments, accounts payable,
guarantees and issued debt. Other eligible items include firm commitments for
financial instruments that otherwise would not be recognized at inception and
non-cash warranty obligations where a warrantor is permitted to pay a third
party to provide the warranty goods or services. If the use of fair value is
elected, any upfront costs and fees related to the item must be recognized in
earnings and cannot be deferred, e.g., debt issue costs. The fair value election
is irrevocable and generally made on an instrument-by-instrument basis, even if
a company has similar instruments that it elects not to measure based on fair
value. At the adoption date, unrealized gains and losses on existing items for
which fair value has been elected are reported as a cumulative adjustment to
beginning retained earnings. Subsequent to the adoption of SFAS 159, changes in
fair value are recognized in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007 and is required to be adopted by the Company
in the first quarter of fiscal 2008. The Company currently is determining
whether fair value accounting is appropriate for any of its eligible items and
cannot estimate the impact, if any, which SFAS 159 will have on its consolidated
results of operations and financial condition.
In June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No.
06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards." EITF 06-11 provides for the recognition and classification of deferred
taxes associated with dividends or dividend equivalents on nonvested equity
shares or nonvested equity share units (including restricted stock units (RSUs))
that are paid to employees and charged to retained earnings. This issue is
effective for annual periods beginning after September 15, 2007. Also in June
2007, the EITF ratified EITF Issue No. 07-3, "Accounting for Advance Payments
for Goods or Services to Be Used in Future Research and Development Activities."
EITF 07-3 provides that nonrefundable advance payments made for goods or
services to be used in future research and development activities should be
deferred and capitalized until such time as the related goods or services are
delivered or are performed, at which point the amounts would be recognized as an
expense.
This issue is effective for fiscal years beginning after December 15, 2007. The
Company has evaluated the potential impact of these issues and anticipate that
they will have no material impact on our financial position and results of
operations.
In December 2007, the FASB issued SFAS 141 (revised), Business Combinations
("SFAS 141(R)"). The standard changes the accounting for business combinations
including the measurement of acquirer shares issued in consideration for a
business combination, the recognition of contingent consideration, the
accounting for preacquisition gain and loss contingencies, the recognition of
capitalized in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment of acquisition
related transaction costs and the recognition of changes in the acquirer's
income tax valuation allowance. SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008, with early adoption prohibited. The Company
has completed its evaluation and has concluded that SFAS 141(R) does not have an
impact on the financial statements.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 ("SFAS 160"). The
standard changes the accounting for noncontrolling (minority) interests in
consolidated financial statements including the requirements to classify
noncontrolling interests as a component of consolidated stockholders' equity,
and the elimination of "minority interest" accounting in results of operations
with earnings attributable to noncontrolling interests reported as part of
consolidated earnings. Additionally, SFAS 160 revises the accounting for both
increases and decreases in a parent's controlling ownership interest. SFAS 160
is effective for fiscal years beginning after December 15, 2008, with early
adoption prohibited. The Company is currently evaluating the impact that the
pending adoption of SFAS 160 will have on its financial statements.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force ("EITF")), the American Institute of Certified Public
Accountants ("AICPA"), and the SEC did not or are not believed by management to
have a material impact on the Company's present or future financial statements.
F-16
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
3. PREPAID EXPENSES
----------------
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
Rents 9,736 --
Business and health insurance 172 21,373
Engineering 14,264 --
Legal fees -- 4,180
Other -- 3,232
------------ ------------
TOTAL $ 24,172 $ 28,785
============ ============
4. PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
--------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
------------- -------------
Computer equipment $ 728,061 $ 703,099
Website development 38,524 38,524
Equipment 1,562 1,562
Furniture and fixtures 9,430 46,431
Telephone equipment 5,365 5,365
Molds and tooling 120,215 113,835
------------- -------------
TOTAL 903,157 908,816
------------- -------------
Less accumulated depreciation (738,863) (744,427)
------------- -------------
NET PROPERTY AND EQUIPMENT $ 164,294 $ 164,389
============= =============
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
------------- -------------
Patents $ 212,062 $ 212,062
Trademarks 243,259 243,259
Software licensing 1,145,322 1,145,322
Software development costs 1,675,601 1,675,601
------------- -------------
TOTAL 3,276,244 3,276,244
------------- -------------
Less accumulated amortization (3,224,971) (3,183,594)
------------- -------------
NET INTANGIBLE ASSETS $ 51,273 $ 92,650
============= =============
Depreciation and amortization expense totaled $79,183 and $123,236 for the year
ended December 31, 2007 and 2006, respectively.
5. DEFERRED DEBT ISSUE COSTS
-------------------------
These costs relate to obtaining and securing debt financing and financing
agreements. These costs are amortized over the term of the debt agreement using
the straight line method. The Company incurred expenses of $15,000 which were
related to a convertible debt financing agreement entered into dated September
7, 2007. A balance of $31,939 remains as of December 31, 2007.
6. ACCRUED EXPENSES
----------------
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
-------------------- --------------------
Accrued salaries $ 17,594 $ 10,976
Accrued vacation 82,006 57,441
Accrued interest 221,684 118,842
Accrued audit and SOX fees 70,313 50,000
Accrued legal fees 3,500 --
Accrued investor relations fees 7,000 --
Accrued marketing 3,000 2,334
Accrued license fees 14,000 --
-------------------- --------------------
TOTAL $ 419,097 $ 239,593
==================== ====================
F-17
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
7. SETTLEMENT AGREEMENT LIABILITY
------------------------------
On August 23, 2007, One Voice Technologies, Inc. (the "Company") entered
into a Settlement Agreement and Mutual Release with La Jolla Cove Investors,
Inc. ("LJCI") pursuant to which we agreed with LJCI 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 a legal
proceeding in the San Diego County Superior Court (the "Court") entitled La
Jolla Cove Investors, Inc. vs. One Voice Technologies, Inc., Case No. GIC850038
(the "Action"). LJCI received a judgment in its favor against the Company in
connection with the Action whereby the Company owes LJCI an amount equal to
$408,594.48 (the "Owed Amount"). Under the Settlement Agreement, the parties
reached a final resolution with respect to such Owed Amount whereby (i) LJCI
shall receive $200,000 within 15 days of the date of the Agreement and (ii) the
difference between the Owed Amount and $200,000 shall be payable at a later date
(the "Remaining Owed Amount"). The payment of the Remaining amount owed of
$208,594 shall be made to LJCI in the following manner:
o Concurrently with the execution of the Agreement, the Company shall
transfer to an independent escrow agent, on behalf of LJCI, all
right, title and interest to 30,000,000 shares of Common Stock of
the Company (the "Escrow Shares"), issued in 30 increments of
1,000,000 shares. On the one year anniversary of the Agreement,
1,000,000 Escrow Shares shall be released to LJCI whereby LJCI shall
be able to sell such shares in open market transactions provided
such sales do not exceed more than 14% of the corresponding daily
volume of such shares on the trading market on which the Company's
securities are sold. LJCI shall continue to receive the Escrow
Shares, provided they satisfy the volume limitation set forth above
and LJCI's ownership of the Company's common stock does not exceed
4.99% of the Company's then issued and outstanding shares of common
stock, until the Remaining Owed Amount is satisfied;
o Upon notice from LJCI that the Remaining Owed Amount has been
satisfied by the sale of the Escrow Shares either (i) Alpha Capital
Ansalt ("Alpha") shall have the ability within 15 business days to
purchase any remaining Escrow Shares at a 20% discount to the
current market price of the shares or (ii) if Alpha does not
exercise its right to purchase the shares, the Company shall have
the ability to redeem the remaining Escrow Shares within 5 business
days.
o At anytime while the Remaining Owed Amount is outstanding, the
Company or Alpha may pay in cash to LJCI an amount equal to the
Remaining Owed Amount and either (i) Alpha shall have the ability
within 15 business days to purchase any remaining Escrow Shares at a
20% discount to the current market price of the shares or (ii) if
Alpha does not exercise its right to purchase the shares, the
Company shall have the ability to redeem the remaining Escrow Shares
within 5 business days.
LJCI has contractually agreed to restrict their ability to exercise the
Escrow Shares such that the number of shares of the Company common stock held by
it does not exceed 4.99% of the Company's then issued and outstanding shares of
common stock.
Upon receipt of the Owed Amount, LJCI will file a Satisfaction of Judgment
in the appropriate court and grant the Company a release from any and all
actions related to the Action.
F-18
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
8. 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.
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.
The License Agreement has been amended as follows:
The first amendment to the License Agreement was entered into during March 2002.
o The initial term of the License Agreement was extended for two
(2) years.
o The aggregate minimum royalty payment was increased from
$1,100,000 to $1,500,000.
The amendment also included a revised payment schedule of the minimum royalty
payment obligation due that provided for semi-annual payments of $250,000 (due
on June 30th and December 31st of each year). In lieu of scheduled payments, in
May, 2003, based on a verbal agreement with the Company and 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 second amendment to the License Agreement was entered into on February 1,
2007.
The following payment terms are as follows:
The 2006 past due amounts owed by the Company of $70,000 were allocated as
follows:
o The Company paid $20,000 on February 23, 2007 to Philips.
o The remaining balance of $50,000 is to be paid in the form of
a non-interest bearing note payable to Philips Speech
Processing.
o During the period of January 1, 2007 thru December 31, 2007
the following payments will be allocated as follows: $6,000 is
to be paid monthly by the Company to Philips Speech
Processing. The monthly remaining balance of $11,500 due to
Philips Speech Processing is to be paid by the Company in the
form of a non-interest bearing note payable to Philips Speech
Processing.
As of December 31, 2007 the note payable balance due Philips Speech Processing
was $1,112,000.
9. SHORT TERM NOTE PAYABLE
------------------------
On June 8, 2007 the Company entered into agreement with Maguire
Properties-Regents Square LLC. ("Landlord"). The agreement relates to past due
office rents owed by the Company to the Landlord. The landlord has agreed to
accept payment in the form of a promissory note for $103,605.59. The promissory
note has a term of 42 months and bears an interest rate of 10.0% per annum, due
December 1, 2010. Monthly payments of $2,933.78 are to be paid to the Landlord.
All rent expenses related to the note have been fully expensed in the proper
periods.
As of December 31, 2007 the short term note payable balance due Maguire
Properties-Regents Square LLC. was $29,602 with the remaining balance classified
as long term notes payable.
F-19
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
9. DEBT DERIVATIVE LIABILITY
-------------------------
Since inception, the Company has entered into several convertible debt financing
agreements with several institutional investors. Embedded within these
convertible financing transactions are derivatives which require special
treatment pursuant with SFAS No. 133 and EITF 00-19. The derivatives include but
are not limited to the following characteristics:
o Beneficial conversion features
o Early redemption option
o Registration rights and associated liquidated damage clauses
As a result of the valuation conducted as of December 31, 2007 the Company has
incurred a net non-cash loss of ($1,323,521) for the year ended December 31,
2007.
The liability valuation calculated at December 31, 2007 and the year ended
December 31, 2006, resulted in the fair value of the debt derivative liability
being $1,629,057 and $256,495 respectively.
10. WARRANT DERIVATIVE LIABILITY
----------------------------
Since inception, the Company has issued warrants in connection with convertible
debt financing 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 are 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
December 31, 2007 using a Black-Scholes option pricing model using the following
assumptions: expected dividend yield of 0.0%, expected stock price volatility of
96%, risk free interest rate of 3.07% and a remaining contractual life ranging
from .28 years to 3.68 years.
As a result of the valuation conducted, the Company incurred a net non-cash gain
of $643,937 for the year ended December 31, 2007.
The liability valuation calculated at December 31, 2007 and the year ended
December 31, 2006, resulted in the fair value of the warrant derivative
liability being $2,317,740 and $2,808,308 respectively.
F-20
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
11. REVOLVING CREDIT NOTE PAYABLE
-----------------------------
On December 21, 2006, the Company completed a private placement pursuant to a
Revolving Credit Note Agreement which the Company entered into with several
institutional Investors, pursuant to which the Investors subscribed to advance
up to a maximum amount of $640,000 bearing an interest rate of 7%. The term of
the agreement shall be effective as of December 21, 2006 and shall be in full
force and effect until the earliest to occur of (a) 12 months from December 21,
2006 (B) a date not less than thirty days after Lender gives notice of
termination to the Company. In connection with the Revolving Credit Note
Agreement, the Company also issued 20,000,000 shares of its common stock to the
related investors. Interest shall be calculated daily on the outstanding
principal balance due, and is to be reimbursed to the Investors a monthly basis.
The reimbursement of the interest shall be in the form of the Company's
restricted shares of common stock. The stock is to be valued at the month end
stock closing price. The advances to the Company are to be based on an amount of
up to 75% of the face value of the current and future invoices "Receivables"
submitted for borrowing. All proceeds paid relating to the previously mentioned
invoices are to be deposited into a lockbox account belonging to Investors. The
lockbox proceeds are to be 100% applied towards any outstanding principal amount
owed by the Company. The Company's obligation to repay all principal and accrued
and unpaid interest under the convertible notes is secured by the Company's
assets pursuant to a certain Security Agreement dated February 16, 2006, which
also secures the remaining unconverted principal amount of the Company's
convertible notes in the aggregate amount of $1,114,220 which the Company issued
on March 18, 2005, July 13, 2005, March 17, 2006 May 5, 2006, July 6, 2006 and
August 29, 2006 to certain of the investors participating in this new private
placement.
The original Revolving Credit Note agreement has been amended seven times since
inception. The amendments increased the maximum borrowing by the Company to an
amount of $1,580,000. On the second amendment the principal and interest payment
terms by the Company to the lender had changed. The original note payment terms
were that all outstanding principal and interest were to be paid in cash by the
Company upon maturity of the note.
Second amended payment terms are as follows:
The amendment provided an option to convert the outstanding balance into common
shares of the Company's common stock. The following conversion privileges apply:
The lender may elect to convert at a conversion rate of the lower of (i)$0.015
or (ii)80% of the lowest 3 day trading price of the past 30 trading days.
Since inception the Company has borrowed $1,555,000 against the revolving note.
During the same period the Company paid $58,538 against the outstanding balance
for a total net borrowing of $1,496,462 since inception. As of December 31, 2007
the Company has $83,538 to borrow against in the future. All borrowings are used
to cover recurring operating expenses by the Company.
As of December 31, 2007 the outstanding principal amount owed to the Investors
is $1,496,462. Interest accrued on the outstanding principal is $58,284 as of
December 31, 2007.
F-21
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
12. LONG TERM 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.
On June 8, 2007 the Company entered into agreement with Maguire
Properties-Regents Square LLC. ("Landlord"). The agreement relates to past due
office rents owed by the Company to the Landlord. The landlord has agreed to
accept payment in the form of a promissory note for $103,605.59. The promissory
note has a term of 42 months and bears an interest rate of 10.0% per annum, due
December 1, 2010. Monthly payments of $2,933.78 are to be paid to the Landlord.
All rent expenses related to the note have been fully expensed in the proper
periods. As of December 31, 2007 the long term note payable balance due Maguire
Properties-Regents Square LLC. was $69,070 with the remaining balance classified
as short term notes payable.
At December 31, 2007 and December 31, 2006 the principal balance on the notes
payable was $169,070 and $100,000, respectively. Accrued interest as of December
31, 2007 is $37,068.
13. CONVERTIBLE NOTES PAYABLE SUMMARY
---------------------------------
YEAR ENDED
ISSUANCE SUMMARY
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
Principal $ 420,000 $ 2,005,000
Warrants issued A&B 10,000,000 140,917,090
YEAR ENDED
CONVERSION SUMMARY
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
Principal Converted $ 481,359 $ 1,745,162
Shares converted 49,190,842 160,373,521
Average share conversion price $ 0.010 $ 0.011
F-22
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
13 A. CONVERTIBLE NOTES PAYABLE DETAIL (CONTINUED)
--------------------------------------------
During the year ended December 31, 2007 and 2006, $481,359 and
$1,745,162 of notes payable and accrued interest was converted into
49,190,842 and 160,373,521 shares of the Company's common stock at an
average conversion price of $0.010 and $0.011 per share.
On March 17, 2006, the Company completed a private placement pursuant to
a Subscription Agreement which the Company 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.
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.
The Company 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 effective interest method.
On May 5, 2006, the Company 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 $324,000 in 6% secured convertible
promissory notes. 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.
F-23
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
13 A. CONVERTIBLE NOTES PAYABLE DETAIL
--------------------------------
On July 6, 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 $550,000 in 6% secured convertible
promissory notes and one Class A common stock purchase warrant 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 August 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) $0.015 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 $1,827,354 which we issued on March 18, 2005 July
13, 2005 March 17, 2006 May 5, 2006 July 6, 2006 and August 29, 2006 to
certain of the investors participating in this new private placement.
We issued an aggregate of 48,530,839 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 $0.015 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 $298,000 using the Black Scholes option
pricing model is recorded as a derivative liability. The beneficial
conversion feature of approximately $226,000 will be amortized over the
life of the debt using the interest method.
On August 29, 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 $420,000 in 6% secured convertible
promissory notes and one Class A common stock purchase warrant which
would be issued on the closing date assuming full conversion of the
secured convertible notes issued on the closing date.
F-24
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
13 A. CONVERTIBLE NOTES PAYABLE DETAIL (CONTINUED)
--------------------------------------------
The secured convertible notes bear simple interest at 6% per annum
payable September 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) $0.015 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 $1,827,354 which we issued on March 18, 2005 July
13, 2005 March 17, 2006 May 5, 2006 July 6, 2006 and August 29, 2006 to
certain of the investors participating in this new private placement.
We issued an aggregate of 42,708,334 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 $0.015 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 $186,000 using the Black Scholes option
pricing model is recorded as a derivative liability. The beneficial
conversion feature of approximately $18,000 will be amortized over the
life of the debt using the interest method.
On September 7, 2007, the Company entered into a subscription agreement
(the "Agreement") with accredited investors and/or qualified
institutional investors (the "Investors") pursuant to which the
investors subscribed to purchase an aggregate principal amount of
$420,000 in convertible promissory notes for an aggregate purchase
price of $210,000. The Company also issued 10,000,000 Class A common
stock purchase warrants to the Investors. The Class A warrants are
exercisable until four years from the closing date at an exercise price
of $0.02 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 initial discount of $412,410 will be
expensed over the term of the agreement using the straight line method.
The fair value of the warrants of $153,369 using the Black Scholes
option pricing model is recorded as a derivative liability. The
proceeds of the offering were used to make payment towards a legal
settlement agreement.
F-25
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
13 A. CONVERTIBLE NOTES PAYABLE DETAIL (CONTINUED)
--------------------------------------------
The secured convertible notes mature 1 year 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) $0.015 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.
The Company must file a registration statement (Form SB-2) with the SEC
for all the above financing transactions. Filing date is typically
between 90 and 120 days of the transaction date.
The following as a summary of outstanding convertible debt financing agreements
as of December 31, 2007 and 2006:
A SUMMARY OF CONVERTIBLE DEBT AT DECEMBER 31, 2006 IS AS FOLLOWS:
PRINCIPAL UNAMORTIZED NET
DUE DATE AMOUNT REMAINING DISCOUNT BALANCE
-------- ---------------- -------- -------
STONESTREET LIMITED
PARTNERSHIP DECEMBER 23, 2007 $ 10,000 $ (3,469) $ 6,531
--------------- --------------- ---------------
ALPHA CAPITAL
AKTIENGESELLSCHAFT JULY 13, 2008 135,000 (53,838) 81,162
--------------- --------------- ---------------
ALPHA CAPITAL
AKTIENGESELLSCHAFT MARCH 17, 2008 250,000 (108,727) 141,273
--------------- --------------- ---------------
ALPHA CAPITAL
AKTIENGESELLSCHAFT MAY 5, 2008 108,000 (4,905) 103,095
--------------- --------------- ---------------
WHALEHAVEN CAPITAL
FUND LIMITED MAY 5, 2008 108,000 (4,905) 103,095
--------------- --------------- ---------------
ALPHA CAPITAL
AKTIENGESELLSCHAFT JULY 6, 2008 105,500 (46,089) 59,411
--------------- --------------- ---------------
BRISTOL INVESTMENT FUND
LTD JULY 6, 2008 250,000 (117,363) 132,637
--------------- --------------- ---------------
CENTURION MICROCAP
L.P. JULY 6, 2008 100,000 (46,089) 53,911
--------------- --------------- ---------------
WHALEHAVEN CAPITAL
FUND LIMITED JULY 6, 2008 105,500 (46,089) 59,411
--------------- --------------- ---------------
ALPHA CAPITAL
AKTIENGESELLSCHAFT AUGUST 29, 2008 105,000 (43,305) 61,695
--------------- --------------- ---------------
ELLIS INTERNATIONAL
LIMITED AUGUST 29, 2008 150,000 (64,957) 85,043
--------------- --------------- ---------------
OSHER CAPITAL AUGUST 29, 2008 60,000 (25,983) 34,017
--------------- --------------- ---------------
WHALEHAVEN CAPITAL
FUND LIMITED AUGUST 29, 2008 105,000 (43,310) 61,690
--------------- --------------- ---------------
TOTAL LONG TERM CONVERTIBLE
DEBT DECEMBER 31, 2006 $ 1,592,000 $ (609,028) $ 982,972
=============== =============== ===============
F-26
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ONE VOICE TECHNOLOGIES INC.
CONVERTIBLE DEBT FINANCING SUMMARY (CONTINUED)
----------------------------------------------
A SUMMARY OF CONVERTIBLE DEBT AT DECEMBER 31, 2007 IS AS FOLLOWS:
PRINCIPAL
AMOUNT UNAMORTIZED NET
DUE DATE REMAINING DISCOUNT BALANCE
----------------- ----------- ----------- -----------
STONESTREET LIMITED
PARTNERSHIP DECEMBER 23, 2007 $ 10,000 $ -- $ 10,000
----------- ----------- -----------
ALPHA CAPITAL
AKTIENGESELLSCHAFT MARCH 17, 2008 250,000 (18,516) 231,484
----------- ----------- -----------
ALPHA CAPITAL
AKTIENGESELLSCHAFT MAY 5, 2008 108,000 (1,243) 106,757
----------- ----------- -----------
WHALEHAVEN CAPITAL
FUND LIMITED MAY 5, 2008 108,000 (1,243) 106,757
----------- ----------- -----------
ALPHA CAPITAL
AKTIENGESELLSCHAFT JULY 6, 2008 105,500 (15,551) 89,949
----------- ----------- -----------
BRISTOL INVESTMENT FUND
LTD JULY 6, 2008 82,220 (15,483) 66,737
----------- ----------- -----------
CENTURION MICROCAP
L.P JULY 6, 2008 100,000 (15,551) 84,449
----------- ----------- -----------
WHALEHAVEN CAPITAL
FUND LIMITED JULY 6, 2008 105,500 (15,551) 89,949
----------- ----------- -----------
ELLIS INTERNATIONAL
LIMITED AUGUST 29, 2008 150,000 (25,761) 124,239
----------- ----------- -----------
WHALEHAVEN CAPITAL
FUND LIMITED AUGUST 29, 2008 105,000 (17,176) 87,824
----------- ----------- -----------
ALPHA CAPITAL
AKTIENGESELLSCHAFT SEPTEMBER 7, 2007 110,000 (73,685) 36,315
----------- ----------- -----------
WHALEHAVEN CAPITAL
FUND LIMITED SEPTEMBER 7, 2007 110,000 (73,685) 36,315
----------- ----------- -----------
OSHER CAPITAL SEPTEMBER 7, 2007 100,000 (66,986) 33,014
----------- ----------- -----------
CENTURION MICROCAP
L.P SEPTEMBER 7, 2007 100,000 (66,988) 33,012
----------- ----------- -----------
TOTAL LONG TERM CONVERTIBLE
DEBT DECEMBER 31, 2007 $ 1,544,220 $ (407,419) $ 1,136,801
=========== =========== ===========
F-27
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
14. COMMON STOCK
------------
The following is a summary of transactions that had an impact on equity:
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
AVERAGE AVERAGE
SHARES SHARE SHARES SHARE
ISSUED PRICE VALUE ISSUED PRICE VALUE
----------- ------ ----------- ----------- ------ -----------
Debt conversions 49,190,842 0.010 481,359 160,373,521 0.011 1,745,162
Issuance of stock in exchange for services 11,443,921 0.019 220,534 20,000,000 0.017 232,000
Stock to be issued in exchange for interest conversion -- -- 8,903 -- -- --
Warrant exercise 39,126,855 0.006 253,360 20,550,000 0.015 300,200
Warrant exercise cashless 23,971,458 -- -- -- -- --
Private placement -- -- -- 20,000,000 0.014 375,500
Shares in escrow 30,000,000 0.020 600,000 -- -- --
----------- ------ ----------- ------------ ------ -----------
Total 153,733,076 0.013 1,564,156 220,923,521 0.012 2,652,862
o CONVERTIBLE DEBT CONVERSION BY INVESTOR
---------------------------------------
During the year ended December 31, 2007, Alpha Capital
Akteingesellschaft converted $240,733 of notes payable and accrued
interest into 30,465,592 shares of the Company's common stock at an
average conversion price of $0.008.
During the year ended December 31, 2007, Bristol Investment Fund
converted $167,781 of notes payable and accrued interest into
12,465,754 shares of the Company's common stock at an average
conversion price of $0.013.
During the year ended December 31, 2007, Osher Capital Inc. converted
$64,083 of notes payable and accrued interest into 5,477,207 shares of
the Company's common stock at an average conversion price of $0.012.
During the year ended December 31, 2007, Centurion Microcap LP.
converted $8,762 of notes payable and accrued interest into 782,289
shares of the Company's common stock at an average conversion price of
$0.011.
During the year ended December 31, 2006, Alpha Capital
Akteingesellschaft converted approximately $472,202 of notes payable
and accrued interest into approximately 46,750,254 shares of the
Company's common stock at an average conversion price of $0.01.
During the year ended December 31, 2006, Whalehaven Fund, Limited
converted $840,235 of notes payable and accrued interest into
69,030,045 shares of the Company's common stock at an average
conversion price of $0.012.
During the year ended December 31, 2006, Ellis International Ltd.
converted $177,443 notes payable and accrued interest into 17,381,205
shares of the Company's common stock at an average conversion price of
$0.01.
During the year ended December 31, 2006, Omega Capital Small Cap Fund
converted $137,248 of notes payable and accrued interest into
14,425,710 shares of the Company's common stock at an average
conversion price of $0.01.
During the year ended December 31, 2006, Osher Capital Inc. converted
$15,575 of notes payable and accrued interest into 1,134,088 shares of
the Company's common stock at an average conversion price of $0.014.
During the year ended December 31, 2006, Momona Capital Corp.
converted $102,459 of notes payable and accrued interest into
11,652,219 shares of the Company's common stock at an average
conversion price of $0.009.
F-28
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
14. COMMON STOCK (CONTINUED)
------------------------
o WARRANT EXERCISE FOR CASH
-------------------------
During the year ended December 31, 2007 a total of 39,126,855 warrants
were exercised at an average price of $0.006. As a result the Company
received cash proceeds of $253,360
During the year ended December 31, 2006 a total of 20,550,000 warrants
were exercised at an average price of $0.015. As a result the Company
received cash proceeds of $300,200.
ISSUANCE OF WARRANTS ON A CASHLESS BASIS
----------------------------------------
From time to time warrants can be exercised on a cashless basis if
certain conditions exist. If warrants are held for a certain period of
time and there is no effective registration statement for these
warrants, the holder of these warrants may exercise them on a cashless
basis. The result is the Company issuing restricted shares pursuant to
rule 144 or 144K. The number of warrants issued are discounted
according the subscription agreement formula. EX: The Company issues
1,000,000 restricted shares and the holder forfeits 1,500,000 shares.
During the year ended December 31, 2007 approximately 23,971,458
warrants were issued on a cashless basis and 34,566,902 warrants were
forfeited. Additional warrants of 10,595,444 were forfeited due the
discounted feature embedded in cashless exercise price.
o PRIVATE PLACEMENT
-----------------
During the year ended December 31, 2007 the Company did not engage in
any private placement activity.
During the year ended December 31, 2006, accredited investors
purchased an aggregate of 20,000,000 shares of restricted common stock
valued at $375,500. 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.
o ISSUANCE OF COMMON STOCK IN EXCHANGE OF SERVICES
------------------------------------------------
During the year ended December 31, 2007 the Company issued 11,443,921
shares of its restricted common stock having a market value of
$220,534 in exchange for services rendered.
During the year ended December 31, 2006 the Company issued 20,000,000
shares of its restricted common stock having a market value of
$232,000 in exchange for a settlement of debt.
o SHARES IN ESCROW
----------------
On August 23, 2007 the Company issued 30,000,000 shares of the
Company's restricted common stock valued at $600,000. The shares were
put into an independent 3rd party escrow account on behalf of La Jolla
Cove Investors Inc. These shares relate to a legal settlement on
August 23, 2007 between the Company and La Jolla Cove Investors Inc.
Refer to Note 7 in the accompanying notes to the financial statements
for additional details.
o SHARES TO BE ISSUED IN EXCHANGE FOR INTEREST OWED
------------------------------------------------
During the period of January 1, 2007 thru December 31, 2007 the
investors elected to convert $8,903 in accrued interest related to the
revolving credit note. Approximately 270,000 shares of the Company's
restricted stock are to be issued. As of December 31, 2007 these
shares have not yet been issued.
F-29
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
15. OTHER INCOME (EXPENSE)
----------------------
Other expense totaled ($1,810,019) and ($1,431,366) for the year ended December
31, 2007 and 2006, respectively. A expense increase of $378,653 or 26%.
Other income (expense) consist of:
o Interest expense
o Settlement expense
o Gain (loss) on warrant / debt derivative liability
o Other misc.
See details below.
OTHER INCOME / (EXPENSE) SUMMARY
YEAR ENDED
December 31, DECEMBER 31,
2007 2006
----------- -----------
Interest (expense) $(1,151,648) $(1,579,327)
Settlement (expense) -- (100,500)
Gain (loss) on warrant and debt derivative (679,584) 242,970
Other income / (expense) 21,213 5,491
----------- -----------
TOTAL OTHER (EXPENSE) $(1,810,019) $(1,431,366)
F-30
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
15. OTHER INCOME (EXPENSE) (CONTINUED)
---------------------------------
INTEREST EXPENSE
----------------
INTEREST EXPENSE SUMMARY
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
---------------- ----------------
Debt issue cost $ 357,896 $ 151,690
Discount amortization 614,016 1,296,327
Accrued interest 174,000 127,783
Other / penalties 5,736 3,527
---------------- ----------------
TOTAL $ 1,151,648 $ 1,579,327
For year ended December 31, 2007 and 2006, interest expense was $1,151,648
compared to $1,579,327 respectively. The decrease of $427,679 or 27% between the
two periods was due to:
o The amount and timing of debt conversions into equity which effect
both issue cost and discount amortization expenses. Conversions of
debt accelerate the amortization of both the issue cost and discount.
Upon conversion of convertible debt into equity, both the debt issue cost and
discount costs associated are prorated accordingly and expensed immediately. If
no conversions occur, the debt issue cost and discount costs are expensed over
the life of the convertible debt using the straight line method.
Interest expense is composed of three very distinct transactions, which vary in
their financial treatment. Below is a brief explanation of the nature and
treatment of these expenses.
1. Monthly amortization of debt issue costs related to securing convertible debt
Financing (legal fees etc...).
This represents a cash related transaction.
For the year ended December 31, 2007 and 2006, interest expense related to debt
issue costs was $357,896 compared to $151,690, respectively.
2. Monthly amortization of the embedded discount features within convertible
debt financing.
This represents a non-cash transaction.
For the year ended December 31, 2007, and 2006, interest expense related to the
amortization of discount was $614,016 compared to $1,296,327 respectively.
3. Monthly accrued interest related to notes payable and convertible notes
payable financing.
This represents a future cash transaction if the convertible interest accrued is
not converted into common stock. No accrued interest related to convertible
notes payable has been paid in cash during the year ended December 31,2007 and
2006.
For the year ended December 31, 2007 and 2006, interest expense related to notes
payable and convertible notes payable was $174,000 compared to $127,783,
respectively.
F-31
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
15. OTHER INCOME / (EXPENSE) (CONTINUED)
------------------------------------
4. Other / misc. (expense) for the year ended December 31, 2007 and 2006, was
approximately $5,736 compared to $3,527 respectively.
(LOSS) ON DEBT DERIVATIVES
--------------------------
For the year ended December 31, 2007 and 2006, losses recorded on debt
derivatives were ($1,323,521) and ($12,461) respectively.
See Note 9 in the accompanying notes to the financial statements for a full
description of the nature of debt derivative transactions.
GAIN ON WARRANT DERIVATIVES
---------------------------
For the year ended December 31, 2007 and 2006, gains recorded on warrant
derivatives were $643,937, compared to a gain of $255,431 respectively.
See Note 10 in the accompanying notes to the financial statements for a brief
description of the nature of warrant derivative transactions.
OTHER INCOME
----------------------
For the year ended December 31, 2007 and 2006, other income was approximately
$21,213 compared to other income of $5,491 respectively. The increase over
the prior period was due to a gain on sale of asset.
F-32
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
16. INCOME TAXES
------------
At December 31, 2007 and 2006 the Company had net operating loss carry forwards
available to reduce future taxable income, if any, of approximately $40,375,000
and $37,840,000 respectively, for Federal income tax purposes. It also had net
operating loss carry forwards available to reduce future taxable income, if any,
of approximately $36,716,000 and $34,182,000 for state purposes at December 31,
2007 and 2006 respectively. The Federal and state net operating loss carry
forwards will begin expiring in 2018 and 2009, respectively. The carry forward
may be limited if a cumulative change in ownership of more than 50% occurs
within a three year period.
The provision (benefit) for income taxes in 2007 and 2006 consist of the
following:
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
CURRENT:
Federal $ -- $ --
State 800 800
------------ ------------
TOTALS 800 800
============ ============
DEFERRED:
Federal $ -- $ --
State -- --
------------ ------------
TOTALS -- --
------------ ------------
TOTALS $ -- $ --
============ ============
F-33
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
16. INCOME TAXES (CONTINUED)
------------------------
Significant components of the Company's deferred tax asset and liabilities as of
December 31, 2007 and 2006 are shown below:
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
DEFERRED TAX ASSETS:
Accrued vacation $ 35,277 $ 24,700
Stock compensation expense 104,069 --
Derivative liability 187,744 --
Note discount 264,027 --
Deferred rent 1,170 5,167
Net operating loss 17,031,838 15,223,175
Depreciation and amortization 207,238 --
------------ ------------
TOTALS $ 17,831,363 $ 15,253,042
------------ ------------
DEFERRED TAX LIABILITIES:
Deferred state taxes $ (1,179,860) $ --
Gain on disposal of asset (11,683) --
Fixed assets -- (311,383)
------------ ------------
TOTALS $ (1,191,543) $ (311,383)
Deferred tax asset (liability) $ 16,639,820 $ 14,941,659
Valuation allowance (16,639,820) (14,941,659)
------------ ------------
NET DEFERRED TAX ASSET (LIABILITY) $ -- $ --
============ ============
The reconciliations of the Federal income tax rate to our effective tax rate
as of December 31, 2007 and 2006 are as follows:
DECEMBER 31, DECEMBER 31,
2007 2006
------------ ------------
Federal income tax rate 34.0% 34.0%
Increase (reduction) in taxes:
State and local income taxes,
net of Federal tax benefits 5.9 5.8
Non-deductible entertainment 0.0 (0.3)
Derivative gain 0.0 5.0
Stock based compensation 0.0 (6.2)
Amortization of note discount 0.0 (29.3)
Prior period adjustments 2.0 60.2
Change in deferred tax asset
valuation allowance (41.9) (69.2)
============ ============
Effective tax rate 0.0% 0.0%
17. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company leases its facilities and certain equipment under leases that expire
at various times through 2010. The following is a schedule, by year, of future
minimum rental payments required under operating leases that have non cancelable
lease terms in excess of one year as of December 31, 2007:
2008 106,276
2009 109,618
2010 112,960
----------
$ 328,854
==========
Rent expense including parking, net of sublease income, amounted to $147,738 and
$220,909 for the year ended December 31, 2007 and 2006 respectively.
18. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
--------------------------------------------
On July 14, 1999, the Company adopted 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. On July 29,
2005 the Company adopted the 2005 Stock Incentive Plan and reserved 60,000,000
shares of the Company's common stock for issuance under the 2005 Plan.
Two types of options may be granted under the 2005 Plan: (1) Incentive Stock
Options (also known 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.
F-34
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
Upon termination of employment or service contract, all options vested or
non-vested expire unless the options have been exercised in full, or in part
within 90 days of such event. Management reserves the right to extend vested
options under certain circumstances, given approval by the Board of Directors.
F-35
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
18. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN (CONTINUED)
--------------------------------------------------------
On September 12, 2007 the Company granted 15,000,000 stock options to its
employees and Board of Directors. The stock options issued are pursuant to the
2005 stock option plan.
A total of 10,125,000 options were terminated during the year ended December 31,
2007.
The total intrinsic value of vested options relating to employee and director
compensation at December 31, 2007. The intrinsic value of $0 is due to the
closing stock price at December 31, 2007 of $0.0155 being lower than any vested
option grant price.
For the year ended December 31, 2007 and 2006, there was approximately $208,913
and $272,168 of total compensation expense recorded by the Company related to
share-based compensation.
As of December 31, 2007, there was approximately $133,228 of total unrecognized
compensation cost related to share-based compensation arrangements with
employees, directors and contractors. Of this amount, $89,920 is expected to be
recognized throughout 2008.
The Companys closing stock price reported by NASDAQ listed under symbol ONEV at
December 31, 2007 was $0.0155 per share.
See footnote 17 A. for a description of the Company's share-based Compensation
plan.
STOCK OPTIONS ACTIVITY
The following table is a summary of the activity for the two stock compensation
plans adopted by the Company as of December 31, 2007.
YEAR ENDED
DECEMBER 31, 2007
NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES AVAILABLE
AUTHORIZED OUTSTANDING FOR GRANT
----------------------------------------------------------
Year 1999 plan 3,000,000 3,000,000 --
Year 2005 plan 60,000,000 59,934,000 66,000
----------------------------------------------------------
TOTAL 63,000,000 62,934,000 66,000
==========================================================
F-36
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
18. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN (CONTINUED)
--------------------------------------------------------
A summary of the Company's stock option activity and related information is as
follows for the year ending December 31, 2007 and 2006, respectively.
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
----------------------------------- ----------------------------------
WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE SHARES EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE
----------------- -------------- ---------------- --------------
Outstanding at beginning of year 58,059,000 $ 0.060 1,921,500 $ 1.47
Options granted 15,000,000 0.019 57,200,000 0.02
Options exercised 0 N/A 0 N/A
Options terminated (10,125,000) N/A (1,062,500) N/A
----------------- ----------------
OPTIONS OUTSTANDING AT END OF YEAR 62,934,000 0.054 58,059,000 0.060
----------------- ----------------
OPTIONS EXERCISABLE AT END OF YEAR 37,420,111 $ 0.079 20,499,972 $ 0.060
The following table summarizes the number of options authorized by the plan and
available for distribution as of December 31, 2007 and 2006, respectively.
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
NUMBER OF NUMBER OF
SHARES SHARES
----------- -----------
Beginning options available for grant 4,941,000 61,078,500
Add: Additional options authorized -- --
Less: Options granted (15,000,000) (57,200,000)
Add: Options terminated 10,125,000 1,062,500
----------- -----------
ENDING OPTIONS AVAILABLE FOR DISTRIBUTION 66,000 4,491,000
F-37
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
18. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN (CONTINUED)
--------------------------------------------------------
The following tables summarize the number of option shares, the weighted average
exercise price and the weighted average life (by years) by price range for both
total outstanding options and total exercisable options as of December 31, 2007
and 2006, respectively.
FOR THE YEAR ENDED DECEMBER 31, 2007
---------------------------------------
TOTAL OUTSTANDING TOTAL EXERCISABLE
----------------- -----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
PRICE RANGE # OF SHARES PRICE LIFE # OF SHARES PRICE LIFE
------------- ----------- ---------- ---------- ---------- ---------- ----------
$6.08 - $ 12.80 240,000 $ 7.158 2.63 240,000 $ 7.158 2.63
$0.32 - $2.00 694,000 0.867 3.53 694,000 0.867 3.53
$0.016 - $0.19 62,000,000 0.017 7.23 36,486,111 0.017 7.57
---------- ---------- ---------- ---------- ---------- ----------
TOTAL 62,934,000 $ 0.054 7.17 37,420,111 $ 0.079 7.46
FOR THE YEAR ENDED DECEMBER 31, 2006
---------------------------------------
TOTAL OUTSTANDING TOTAL EXERCISABLE
----------------- -----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
PRICE RANGE # OF SHARES PRICE LIFE # OF SHARES PRICE LIFE
------------- ----------- ---------- ---------- ---------- ---------- ----------
$6.08 - $ 12.80 270,000 $ 7.170 3.90 270,000 $ 7.170 3.90
$0.32 - $2.00 839,000 0.911 4.30 839,000 0.911 4.30
$0.016 - $0.19 56,950,000 0.017 7.77 19,390,972 0.020 7.77
---------- ---------- ---------- ---------- ---------- ----------
TOTAL 58,059,000 $ 0.063 7.70 20,499,972 $ 0.132 7.58
F-38
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
18. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN (CONTINUED)
--------------------------------------------------------
A summary of option activity and the average intrinsic value that relate to
employee, director and contractor compensation as of December 31, 2007 and 2006,
respectively is presented below:
YEAR ENDED
DECEMBER 31,
2007
--------------------------------------------
WEIGHTED
AVERAGE
OPTIONS RELATING TO EMPLOYEE, CONSULTANTS EXERCISE
AND DIRECTOR COMPENSATION SHARES PRICE LIFE
----------------------------------------- ----------- ---------- -----------
Outstanding at beginning of year 58,059,000 $ 0.060 7.17
Options granted 15,000,000 0.019 4.96
Options exercised 0 -- --
Options terminated (10,125,000) N/A N/A
------------ ---------- -----------
OPTIONS OUTSTANDING AT END OF THE YEAR 62,934,000 0.054 7.17
------------ ---------- -----------
OPTIONS EXERCISABLE AT END OF THE YEAR 37,420,111 $ 0.079 7.46
YEAR ENDED
DECEMBER 31,
2006
----------------------------------------
Weighted
Average
Options relating to employee, consultants Exercise
and director compensation Shares Price Life
----------- -------- ----------
Outstanding at beginning of year 1,921,500 $ 1.47 4.1
Options granted 57,200,000 0.02 7.88
Options exercised 0 N/A N/A
Options terminated (1,062,500) 0.05 N/A
----------- -------- ----------
OPTIONS OUTSTANDING AT END OF YEAR 58,059,000 0.06 7.70
=========== ======== ==========
----------- -------- ----------
OPTIONS EXERCISABLE AT END OF YEAR 20,499,972 0.13 7.58
----------- -------- ----------
NOTE: INTRINSIC VALUE ASSUMES ONLY OPTIONS ABOVE WATER ARE TO BE EXERCISED.
CALCULATION IS BASED ON CLOSING STOCK PRICE OF $ 0.0155 and $.0125 PER SHARE
DATED DECEMBER 31, 2007 and 2006, respectively.
A summary of the status of the Company's non-vested option shares relating to
employee and director compensation as of December 31, 2007 and 2006, and changes
during the period ended December 31, 2007 and 2006, respectively is presented
below:
YEAR ENDED
DECEMBER 31,
2007
------------------------------------
WEIGHTED
AVERAGE
NON VESTED OPTIONS RELATING TO EMPLOYEE, GRANT-DATE
CONSULTANTS AND DIRECTOR COMPENSATION SHARES FAIR VALUE
------------------------------------- ----------------- -----------------
Outstanding at beginning of year 58,059,000 $ 0.060
Options granted 15,000,000 0.019
Options exercised -- N/A
Options vested (37,420,111) 0.089
Options terminated (10,125,000) 0.016
----------------- -----------------
NON-VESTED AT END OF YEAR 2007 25,513,889 $ 0.016
F-39
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
YEAR ENDED
DECEMBER 31,
2006
------------------------------------
WEIGHTED
AVERAGE
NON VESTED OPTIONS RELATING TO EMPLOYEE, GRANT-DATE
CONSULTANTS AND DIRECTOR COMPENSATION SHARES FAIR VALUE
---------------------------------------- ----------------- -----------------
Outstanding at beginning of year 1,921,500 $ 1.47
Options granted 57,200,000 0.016
Options exercised -- N/A
Options vested (20,499,972) 0,051
Options terminated (1,062,500) 0.016
----------------- -----------------
NON-VESTED AT END OF YEAR 37,559,028 $ 0.0132
================= ================
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
18 a. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN (CONTINUED)
--------------------------------------------------------
In addition to the assumptions in the above tables, the Company applies a
forfeiture-rate assumption in its estimate of fair value that is primarily based
on historical annual forfeiture rates of the Company.
2007
--------------------
Expected dividend yield 0.00%
Expected volatility 113%
Average risk-free interest rate 4.74%
Expected life (in years) 2.16 to 8.07
The above options carry vesting date's as follows: 1/3 of the options vest on
the grant date, 1/3 of the options vest one year after the grant date, the final
1/3 of the options vest two years after the grant date.
On July 14, 1999, the Company adopted 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. On July 29,
2005 the Company adopted the 2005 Stock Incentive Plan and reserved 60,000,000
shares of the Company's common stock for issuance under the 2005 Plan.
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 as of December 31, 2006, the
Company has 3 stock option plans for the benefit of officers, directors,
employees, independent contractors and consultants of the Company. These plans
include: (i) the 1998 Stock Option Plan, (ii) the 1996 Stock Option Plan, and
(iii) the 1996 Employee Compensatory Stock Option Plan. In addition to these
plans, the Company grants various other stock options, warrants and stock
directly to certain parties. The Company grants all such awards as incentive
compensation to officers, directors, and employees, and as compensation for the
services of independent contractors and consultants of the Company.
Stock options: The Company generally grants stock options to employees at
exercise prices equal to the fair market value of the Company's stock at the
dates of grant. Stock options may be granted throughout the year, vest
immediately, vest based on years of continuous service, or vest upon completion
of specified performance conditions. Stock options granted prior to September
12, 2007
expire 10 years following the initial grant date. Stock options granted on or
after September 12, 2007 expire 5 years following the initial grant date. The
Company recognizes compensation expense for the fair value of the stock options
over the requisite service period for each separate vesting portion of the stock
option award, or, for awards with performance conditions, when the performance
condition is met.
Warrant options: The Company generally grants stock options to directors and
consultants at exercise prices equal to the fair market value of the Company's
stock at the dates of grant. Stock options may be granted throughout the year,
vest immediately, vest based on years of continuous service, or vest upon
completion of specified performance conditions, and expire 10 years following
the initial grant date. The Company recognizes compensation expense for the fair
value of the stock options over the requisite service period for each separate
vesting portion of the stock option award, or, for awards with performance
conditions, when the performance condition is met.
F-40
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
18 a. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN (CONTINUED)
--------------------------------------------------------
The fair value of each option and warrant award is estimated on the date of
grant using the Black-Scholes option-pricing model that uses the assumptions
noted in the following table. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options. In addition,
option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's stock
options and warrants have characteristics significantly different from those of
traded options, and because changes in the subjective assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options and warrants. The expected dividend yield assumption is based on the
Company's expectation of dividend payouts. Expected volatilities are based on
historical volatility of the Company's stock. The average risk-free interest
rate is based on the U.S. treasury yield curve in effect as of the grant date.
The expected life is primarily determined using guidance from SAB 107. As such,
the expected life of the options and warrants is the average of the vesting term
and the full contractual term of the options and warrants.
SFAS 123(R) requires the cash flows resulting from the tax benefits resulting
from tax deductions in excess of the compensation cost recognized for those
options to be classified as financing cash flows. Due to the Company's loss
position, there were no such tax benefits for the years ended December 31, 2007
and 2006. Prior to the adoption of SFAS 123(R), those benefits would have been
reported as operating cash flows had the Company received any tax benefits
related to stock option exercises.
19. WARRANTS
--------
As a normal business practice, the Company grants warrants to Investors who
participate in the financing of the Company. Warrants issued are an additional
incentive to the Investors and also provide additional cashflow for the Company
upon exercise.
At December 31, 2007, the Company had warrants outstanding that allow the
holders to purchase up to 276,052,744 shares of common stock.
At December 31, 2007, the weighted average remaining contractual life of the
warrants was approximately 25 months.
The number and weighted average exercise prices of the warrants for the year
ended December 31, 2007 and 2006 are as follows:
YEAR ENDED
DECEMBER 31, DECEMBER 31,
2007 2006
--------------------------------------- ---------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
----------------- ------------------ ------------------- ---------------
Outstanding at beginning of year 339,979,838 $0.020 215,373,361 $0.10
Warrants granted 10,000,000 0.020 146,917,090 0.05
Warrants exercised / forfeited (73,693,757) 0.005 (20,550,000) 0.02
Warrants terminated (233,337) N/A (1,760,613) N/A
----------------- -------------------
WARRANTS OUTSTANDING AT END OF THE YEAR 276,052,744 $0.014 339,979,838 $0.05
================= ================== =================== ===============
WARRANTS EXERCISABLE AT END OF THE YEAR 276,052,744 $0.014 339,979,838 $0.05
================= ================== =================== ===============
During the year ended December 31, 2007 a total of 63,098,313 warrants were
issued and exercised. As a result the Company received cash proceeds of
$253,360. During the same period a total of 73,693,757 warrants were forfeited,
the difference of 10,595,444 warrants was due to discounted price of warrants
being exercised on a cashless basis.
See Note 14 in the accompanying notes to the financial statements for additional
details.
During the year ended December 31, 2007 and 2006, the Company issued 10,000,000
and 146,917,090 warrants to Stockholders, respectively.
F-41
ONE VOICE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
20. RESTATEMENT OF FINANCIAL STATEMENTS
-----------------------------------
The Company has restated the consolidated financial statements previously issued
on Form 10-QSB for periods ended June 30 and September 30, 2007. The restatement
was due to matters relating to the treatment of the issuance of warrants on a
cashless basis to our investors that occurred during Q2 and Q3 of 2007. The
restatement and valuation is pursuant to the guidance of FASB 123R. The
accompanying financial statements for the period ended June 30, 2007 and
September 30, 2007 have been restated to reflect the corrections. Accumulated
deficit as of September 30, 2007 was decreased by $393,119 as a result of the
adjustments. Previously, the valuation of the cashless warrant exercise was
recorded as other expense in Q2 and Q3 of 2007. Subsequent to further review of
the treatment of the cashless warrant exercise, it was concluded that the
transaction should be recorded as a straight equity transaction.
SIX MONTHS ENDED JUNE 30, 2007
THE FOLLOWING IS A SUMMARY OF THE RESTATEMENTS FOR THE SIX MONTHS ENDED JUNE
30, 2007 (UNAUDITED):
(decrease) in other expense $(169,276)
(decrease) additional paid in capital (169,276)
(decrease) accumulated deficit (169,276)
THE FOLLOWING IS A SUMMARY OF THE RESTATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,
2007 (UNAUDITED):
Total decrease of 2007 net loss $ 169,276
THE EFFECT ON THE COMPANY'S PREVIOUSLY ISSUED JUNE 30, 2007 FINANCIAL
STATEMENTS ARE SUMMARIZED AS FOLLOWS:
PREVIOUSLY
REPORTED CHANGE RESTATED
------------- ----------- -------------
(unaudited) (unaudited)
BALANCE SHEET
-------------
Additional paid in capital 41,299,058 (169,276) 41,129,782
Accumulated deficit (53,021,013) 169,276 (52,851,737)
------------- ----------- -------------
TOTAL STOCKHOLDERS EQUITY (11,721,955) -- (11,721,955)
============= =========== =============
STATEMENT OF OPERATIONS - THREE MONTHS
Other Income / (Expense) (147,310) 169,276 21,966
------------- ----------- -------------
NET INCOME / (LOSS) (147,310) 169,276 21,966
============= =========== =============
STATEMENT OF OPERATIONS - SIX MONTHS
Other Income / (Expense) (148,063) 169,276 21,213
------------- ----------- -------------
NET INCOME / (LOSS) (148,063) 169,276 21,213
============= =========== =============
F-42
NINE MONTHS ENDED SEPTEMBER 30, 2007
THE FOLLOWING IS A SUMMARY OF THE RESTATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2007 (UNAUDITED):
(decrease) in other expense $(393,119)
(decrease) additional paid in capital (393,119)
(decrease) accumulated deficit (393,119)
THE FOLLOWING IS A SUMMARY OF THE RESTATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2007 (UNAUDITED):
Total decrease of 2007 net loss $ 393,119
THE EFFECT ON THE COMPANY'S PREVIOUSLY ISSUED SEPTEMBER 30, 2007 FINANCIAL
STATEMENTS ARE SUMMARIZED AS FOLLOWS:
PREVIOUSLY
REPORTED CHANGE RESTATED
------------- ----------- -------------
(unaudited) (unaudited)
BALANCE SHEET
-------------
Additional paid in capital 42,391,578 (393,119) 41,998,459
Accumulated deficit (52,664,176) 393,119 (52,271,057)
------------- ----------- -------------
TOTAL STOCKHOLDERS EQUITY (10,272,598) -- (10,272,598)
============= =========== =============
STATEMENT OF OPERATIONS - THREE MONTHS
Other Income / (Expense) (223,842) 223,842 --
------------- ----------- -------------
NET INCOME / (LOSS) (223,842) 223,842 --
============= =========== =============
STATEMENT OF OPERATIONS - NINE MONTHS
Other Income / (Expense) (371,906) 393,119 21,213
------------- ----------- -------------
NET INCOME / (LOSS) (371,906) 393,119 21,213
============= =========== =============
21. SUBSEQUENT EVENTS
-----------------
o CONVERTBLE DEBT CONVERSIONS
During the period of January 1, 2008 through March 25, 2008
accredited investors converted $273,582 of convertible debt and
accrued interest into 34,508,528 shares of the Company's common stock.
o SHARES ISSUED IN EXCHANGE FOR SERVICES
During the period of January 1, 2008 through March 25, 2008, the
Company issued a total of 4,919,609 shares of restricted common stock
to in exchange for services rendered. The services are related to
outside consulting fees. The services were valued at approximately
$47,406. The shares were issued pursuant to an exemption under section
4(2) of the Securities Act of 1933.
F-43
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
During the Company's two most recent fiscal years and the subsequent interim
periods through March 31, 2008, there were no disagreements with the current
accountant on any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
ITEM 8A. CONTROLS AND PROCEDURES
--------------------------------
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer ("CEO"),
President, and Chief Financial Officer ("CFO"), has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this Report
(December 31, 2007). Based on such evaluation, our Chief Executive Officer,
President, and Chief Financial Officer have concluded that, as of the end of
such period, the Company's disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act and are effective in ensuring that information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company's management,
including the Company's Chief Executive Officer, President, and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Management of One Voice Technologies, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting. The Company's
internal control over financial reporting has been designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles generally accepted in the United States
of America.
The Company's internal control over financial reporting includes policies and
procedures that pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and dispositions of assets of
the Company; provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that receipts and expenditures are being made only in accordance with
authorization of management and directors of the Company; and provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company's assets that could have a material effect on
the Company's financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over
financial reporting at December 31, 2007. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO") in Internal Control--Integrated Framework. Based on
that assessment under those criteria, management has determined that, at
December 31, 2007, the Company's internal control over financial reporting was
effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the
Exchange Act) during the fourth quarter of 2007 that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
8B. ITEM OTHER INFORMATION
--------------------------
None.
-21-
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
-------------------------------------------------------------------------------
GOVERNANCE; COMPLIANCE WITH SECTION 16 A. OF THE EXCHANGE ACT
-------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Name Age Position
---- --- --------
Dean Weber 45 Chairman of the Board, President, Chief
Executive Officer, Interim Chief Financial
Officer and Director and Secretary
Bradley J. Ammon 43 Director
Rahoul Sharan 45 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. There are no family
relationships between any of our directors or officers.
The principal occupations for the past five years (and, in some instances, for
prior years) of each of our executive officers and directors, followed by our
key employees, are as follows:
Dean Weber - Chairman of the board, president, chief executive officer, interim
chief financial officer and director and Secretary. Dean Weber has served as
Chairman of the board, president, chief executive officer and director since the
inception of the Company in July 1999. Mr. Weber brings an extensive background
to our company with over 20 years of technology and management experience. He is
responsible for developing our strategic vision and pioneering our products,
patented technology and business strategies. He was elected to our Board of
Directors in July of 1999 as Chairman. Before founding our company in 1998, Mr.
Weber played key roles in many high profile technology companies including
Northrop, United Technologies and Xerox. Throughout his career, Mr. Weber has
developed a comprehensive knowledge of Human Computer Interaction, Cognitive
Science, Artificial Intelligence and Natural Language Processing. Mr. Weber
currently has numerous patents in Artificial Intelligence, Natural Language
Processing and other related technologies. As our CEO, Mr. Weber has been
instrumental in the growth and development of the company, successfully raising
over $30 million of institutional funding, taking us public, winning the
Deloitte and Touche Technology Fast 50 award, and has been featured in Forbes,
Time, and on CNN. Mr. Weber holds a Bachelor of Science degree in Computer
Science from Central Connecticut State University.
Bradley J. Ammon - Director, Chairman of both the Audit and Compensation
Committee. Bradley J. Ammon is a tax attorney in the Washington, D.C. office of
Deloitte Tax LLP. 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 was appointed to our Board on June 9, 2000.
Rahoul Sharan - Director. Rahoul Sharan brings over 18 years of finance and
accounting experience to our company. He was elected to our Board of Directors
in July of 1999. Prior to joining our, Mr. Sharan was a partner of the S&P
Group, which specializes in investment financing for venture capital projects,
real estate development and construction. At S&P Group, Mr. Sharan led the
successful financing efforts for over 15 companies in several industries. Mr.
Sharan was also the President of KJN Management Ltd., which provides a broad
range of administrative, management and financial services. He also worked in
public accounting for six years with Coopers & Lybrand. At C&L, Mr. Sharan
worked in both the tax and audit groups for a wide variety of large and small
clients. Mr. 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.
-22-
COMMITTEES OF THE BOARD
-----------------------
Audit Committee
---------------
As set forth in the audit committee charter adopted by the board of directors, a
copy of which is included in our Definitive Proxy Statement filed with the SEC
on November 29, 2001 as Exhibit A. The primary function of the Audit Committee
is to assist the Board of Directors in fulfilling its oversight responsibilities
by reviewing (1) the financial information provided to shareholders and others,
(2) systems of internal controls established by management and the Board of
Directors and (3) the audit process. Mr. Bradley J. Ammon is the chairman the
audit committee and is "independent" as that term is defined in Rule 4200(a)(14)
of the National Association of Securities Dealers' listing standards.
The Audit Committee has reviewed our audited financial statements for the fiscal
Year 2007 and has discussed them with management.
Our independent auditors, PMB Helin Donovan, LLP, have communicated with the
Audit Committee matters such as the auditors' role and responsibility in
connection with an audit of our financial statements, significant accounting
policies, the reasonableness of significant judgments and accounting estimates,
significant audit adjustments, and such other matters as are required to be
communicated with the Audit Committee under generally accepted auditing
standards.
The Audit Committee has received from PMB Helin Donovan, LLP written disclosures
regarding all relationships between PMB Helin Donovan, LLP and its related
entities and us and our related entities that in the professional judgment of
PMB Helin Donovan, LLP may reasonably be thought to bear on independence. PMB
Helin Donovan, LLP has confirmed that, in its professional judgment, it is
independent of the Company within the meaning of the Securities Act of 1933, as
amended, and the Audit Committee has communicated such matters with PMB Helin
Donovan, LLP.
The Audit Committee, based on the review and discussions above, recommended to
the Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2007 for filing with the Securities and Exchange Commission.
Director Bradley J. Ammon serves as the sole member and Chairman of our Audit
Committee. The Board of Directors believes that Mr. Ammon qualifies as an "Audit
Committee Financial Expert" as that term is defined by applicable SEC rules.
Compensation committee:
-----------------------
The primary function of the Compensation Committee is to establish and
administer our executive compensation programs. Mr. Bradley J. Ammon is the
Chairman of the Compensation Committee and is "independent" as that term is
defined in Rule 4200(a)(14) of the National Association of Securities Dealers'
listing standards.
Governance and Nominating Committee:
------------------------------------
The Board of Directors has established a Governance and Nominating Committee for
purposes of nominating directors and for all other purposes outlined in the
Governance and Nominating Committee Charter, including nominees submitted to the
Board of Directors by shareholders. The Governance and Nominating Committee is
composed of Bradley Ammon. The Board has determined that each of the members of
the Governance and Nominating Committee is unrelated, an outside member with no
other affiliation with us and independent as defined by the American Stock
Exchange.
NOMINATION OF DIRECTORS
-----------------------
As provided in its charter and our company's corporate governance principles,
the Governance and Nominating Committee is responsible for identifying
individuals qualified to become directors. The Governance and Nominating
Committee seeks to identify director candidates based on input provided by a
number of sources, including (1) the Governance and Nominating Committee
members, (2) our other directors, (3) our stockholders, (4) our Chief Executive
Officer or Chairman, and (5) third parties such as professional search firms. In
evaluating potential candidates for director, the Nominating and Corporate
Governance Committee considers the entirety of each candidate's credentials.
Qualifications for consideration as a director nominee may vary according to the
particular areas of expertise being sought as a complement to the existing
composition of the Board of Directors. However, at a minimum, candidates for
director must possess:
o high personal and professional ethics and integrity;
o the ability to exercise sound judgment;
o the ability to make independent analytical inquiries;
o a willingness and ability to devote adequate time and resources to
diligently perform Board and committee duties;
o the appropriate and relevant business experience and acumen.
-23-
In addition to these minimum qualifications, the Governance and Nominating
Committee also takes into account when considering whether to nominate a
potential director candidate the following factors:
o whether the person possesses specific industry expertise and
familiarity with general issues affecting our business;
o whether the person's nomination and election would enable the Board to
have a member that qualifies as an "audit committee financial expert"
as such term is defined by the Securities and Exchange Commission (the
"SEC") in Item 401 of Regulation S-K;
o whether the person would qualify as an "independent" director under
the listing standards of the American Stock Exchange;
o the importance of continuity of the existing composition of the Board
of Directors to provide long term stability and experienced oversight;
and
o the importance of diversified Board membership, in terms of both the
individuals involved and their various experiences and areas of
expertise.
Governance and Nominating Committee will consider director candidates
recommended by stockholders provided such recommendations are submitted in
accordance with the procedures set forth below. In order to provide for an
orderly and informed review and selection process for director candidates, the
Board of Directors has determined that stockholders who wish to recommend
director candidates for consideration by the Governance and Nominating Committee
must comply with the following:
o The recommendation must be made in writing to the Corporate Secretary,
Dean Weber.
o The recommendation must include the candidate's name, home and
business contact information, detailed biographical data and
qualifications, information regarding any relationships between the
candidate and the Company within the last three years and evidence of
the recommending person's ownership of our common stock.
o The recommendation shall also contain a statement from the
recommending shareholder in support of the candidate; professional
references, particularly within the context of those relevant to Board
membership, including issues of character, judgment, diversity, age,
independence, expertise, corporate experience, length of service,
other commitments and the like; and personal references.
o A statement from the shareholder nominee indicating that such nominee
wants to serve on the Board and could be considered "independent"
under the Rules and Regulations of the American Stock Exchange and the
Securities and Exchange Commission ("SEC"), as in effect at that time.
All candidates submitted by stockholders will be evaluated by the
Governance and Nominating Committee according to the criteria
discussed above and in the same manner as all other director
candidates.
DIRECTOR COMPENSATION
---------------------
Non-employee directors receive $1,000 for each Board of Directors meeting
attended. The Company will pay all out-of-pocket expenses of attendance. No
compensation was paid out in the year 2007. In lieu of monetary compensation,
the Company issued on September 12, 2007 a total of 2,000,000 common stock
options to the members of the board of directors pursuant to the 2005 stock
option plan.
INDEBTEDNESS OF EXECUTIVE OFFICERS AND DIRECTORS
------------------------------------------------
No executive officer, director or any member of these individuals' immediate
families or any corporation or organization with whom any of these individuals
is an affiliate is or has been indebted to us since the beginning of our last
fiscal year.
FAMILY RELATIONSHIPS
--------------------
There are no family relationships among our executive officers and directors.
LEGAL PROCEEDINGS
-----------------
As of the date of this prospectus, there are no material proceedings to which
any of our directors, executive officers, affiliates or stockholders is a party
adverse to us.
-24-
CODE OF ETHICS
--------------
We have adopted a Code of Ethics within the meaning of Item 406(b) of Regulation
S-B of the Securities Exchange Act of 1934. This Code of Ethics applies to our
chief executive officer and our senior financial officers.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
---------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers and persons who beneficially own more than ten percent of a
registered class of our equity securities to file with the SEC initial reports
of ownership and reports of change in ownership of common stock and other equity
securities of our company. Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and
amendments thereto furnished to us under Rule 16a-3(e) during the fiscal year
ended December 31, 2007, and Forms 5 and amendments thereto furnished to us with
respect to the fiscal year ended December 31, 2007, we believe that during the
year ended December 31, 2007, our executive officers, directors and all persons
who own more than ten percent of a registered class of our equity securities
have complied with all Section 16(a) filing requirements.
ITEM 10. EXECUTIVE COMPENSATION
-------------------------------
The following table sets forth information concerning the total compensation
that the Company has paid or that has accrued on behalf of chief executive
officer and other executive officers with annual compensation exceeding $100,000
during the years ended December 31, 2007 and 2006
SUMMARY COMPENSATION TABLE
--------------------------
Change in
Pension Value
and
Non-Equity Non-Qualified
Name & Bonus Incentive Plan Deferred All Other
Principal Salary Commissions Stock Option Compensation Compensation Compensation
Position Year ($) ($) Awards($) Awards ($) ($) Earnings ($) ($) Total ($)
------------------------------------------------------------------------------------------------------------------------------------
Dean Weber
CEO, President 2007 $340,000 $15,967 $ 38,496(1) -- -- -- $ 394,463
2006 $282,000 $ 7,800 $177,445(2) -- -- -- $ 467,245
James Hadzicki (3)
Former CFO 2006 $161,000 $34,056(3) $ 195,056
1 On September 12, 2007, One Voice Technologies issued Dean Weber, CEO
and President of One Voice Technologies Inc. 8,000,000 common stock
options. To date One Voice Technologies recorded stock compensation
expense of $38,496.
2 On January 24, 2006, One Voice Technologies issued Dean Weber, CEO and
President of One Voice Technologies Inc. 24,000,000 common stock
options. To date One Voice Technologies has recorded stock
compensation expense of $177,445.
3 On January 24, 2006, One Voice Technologies issued James Hadzicki CFO
of One Voice Technologies Inc. 7,200,000 common stock options. One
Voice Technologies recorded stock compensation expense of $34,056. On
November 8, 2006, James Hadzicki resigned as our Chief Financial
Officer to pursue other outside ventures. There was no disagreement or
dispute between Mr. Hadzicki and the Company which led to his
resignation.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
--------------------------------------------------
The following table sets forth information with respect to grants of
options to purchase our common stock under the Company's 2005 Stock Incentive
Plan to the named executive officers during the fiscal year ended December 31,
2007 and 2006 respectively.
-25-
Option Awards Stock Awards
-----------------------------------------------------------------------------------------------------------------------------
Equity
Incentive
Equity Plan Awards:
Incentive Market or
Incentive Plan Awards: Payout
Plan Number Value of
Awards: Market of Unearned
Number Number Number Number Value of Unearned Shares,
of of of of Shares Shares or Shares, Units or
Securities Securities Securities or Units Units of Units or Other
Underlying Underlying Underlying of Stock Stock Other Rights Rights
Unexercised Unexercised Unexercised Option That Have That Have That Have That Have
Options Options Unearned Exercise Option Not Not Not Not
(#) (#) Options Price Expiration Vested Vested Vested Vested
Name Exercisable Unexercisable (#) ($) Date (#) ($) (#) ($)
-------------------------------------------------------------------------------------------------------------------------------
(1) Dean Weber 16,000,000 8,000,000 $ 0.016 01/24/2016
CEO, President
(2) Dean Weber 2,666,667 5,333,333 $0.0185 09/12/2012
CEO, President
-26-
1 On January 24, 2006, One Voice Technologies issued Dean Weber, CEO and
President of One Voice Technologies Inc. 24,000,000 common stock
options. To date One Voice Technologies has recorded stock
compensation expense of $177,445.
2 On September 12, 2007, One Voice Technologies issued Dean Weber, CEO
and President of One Voice Technologies Inc. 8,000,000 common stock
options. To date One Voice Technologies has recorded stock
compensation expense of $38,496.
The above options carry vesting date's as follows: 1/3 of the options
vest on the grant date, 1/3 of the options vest one year after the
grant date, the final 1/3 of the options vest two years after the grant
date.
DIRECTOR COMPENSATION
---------------------
The following table sets forth with respect to the named director,
compensation information inclusive of equity awards and payments made in the
year end December 31, 2007.
Change in
Pension Value
and
Non-Equity Nonqualified
Fees Earned Incentive Plan Deferred All Other
or Paid in Stock Option Compensation Compensation Compensation
Name Cash ($) Awards ($) Awards ($) ($) Earnings ($) Total ($)
(a) (b) (c) (d) (e) (f) (g) (h)
----------------------------------------------------------------------------------------------------------------------
Rahoul Sharan (1) $ 4,812 -- $ 4,812
Brad Ammon (2) $ 4,812 -- $ 4,812
(1) On September 12, 2007, One Voice Technologies issued Rahoul Sharan a
member of the Board of Directors of One Voice Technologies Inc.
1,000,000 common stock options. To date, One Voice Technologies has
recorded a total stock compensation expense of $4,812.
(2) On September 12, 2007, One Voice Technologies issued Brad Ammon a
member of the Board of Directors of One Voice Technologies Inc.
1,000,000 common stock options. To date, One Voice Technologies has
recorded a total stock compensation expense of $4,812.
The above options carry vesting date's as follows: 1/3 of the options
vest on the grant date, 1/3 of the options vest one year after the
grant date, the final 1/3 of the options vest two years after the grant
date.
EMPLOYMENT AGREEMENTS
---------------------
On April 1, 2007, we entered into an Employment Agreement with Dean Weber, our
Chief Executive Officer. Pursuant to the Employment Agreement, we will employ
Mr. Weber unless the Agreement is terminated by either party as set forth
therein.
Mr. Weber will be paid the following:
An annual base salary of $340,000 (the "Base Salary")
1. Receive a 3% commission on revenue generating MobileVoice accounts and 8%
commission on other revenue generating products.
In addition, Mr. Weber will be eligible to earn an annual cash bonus
as may be deemed appropriate by our Board of Directors. Further, Mr. Weber may
be awarded incentive stock options pursuant to the Company's stock option plan
as may be deemed appropriate by our Board of Directors.
If the Employment Agreement is terminated as set forth therein, Mr. Weber will
be entitled to a severance package equal to no more than 100% of his Base Salary
for up to two years after the date of termination. In addition, all unvested
stock options shall immediately vest on the date of termination. During the term
of his employment, Mr. Weber will be subject to non-competition and
non-solicitation provisions, subject to standard exceptions.
-27-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
---------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------
The following table sets forth certain information regarding beneficial
ownership of our common stock as of December 31, 2007 (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., 4250
Executive Square, Suite 770, La Jolla, California 92037.
We believe that all persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by them. A
person is deemed to be the beneficial owner of securities that can be acquired
by him within 60 days from December 31, 2007 upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage ownership
is determined by assuming that options, warrants or convertible securities that
are held by him, but not those held by any other person, and which are
exercisable within 60 days of December 31, 2007 have been exercised and
converted.
Note: Applicable percentage ownership is based on 738,246,749 shares outstanding
as of December 31, 2007 and 558,364,818 fully diluted shares assuming 100%
convertible debt conversion and the exercise of 100% of warrants and options
currently held for a total of 1,296,611,567 shares.
Shares Beneficially Owned (1)
Name and Address of Beneficial Owner Number Percent
---------------------------------------- ----------- -------
Dean Weber, CEO, President and Chairman
of the Board 35,957,800 2.80%
Rahoul Sharan, Director 4,900,000 0.40%
Bradley J. Ammon, Director 3,600,000 0.30%
Alpha Capital Akteingesellschaft 227,434,922 17.50%
Whalehaven Capital Fund Limited 159,813,857 12.30%
Bristol Investments Fund Limited 31,118,579 2.40%
Stonestreet Limited Partnership 33,102,373 2.60%
Ellis International 45,610,855 3.50%
Centurion Microcap LLP 27,480,245 2.10%
Osher Capital Partners LLC 8,912,738 0.70%
Momona Capital Corp. 9,171,830 0.70%
Total shares held by officers
and directors (3) persons: 44,457,800 3.40%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
---------------------------------------------------------------------------
INDEPENDENCE
------------
There were no material related party transactions during the year.
-28-
ITEM 13. EXHIBITS
NO. DESCRIPTION
---------------
PLANS OF ACQUISITION
--------------------
2.1 Merger Agreement and Plan of Reorganization with Conversational Systems,
Inc. dated June 22, 1999.
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).
3.7 Certificate of Amendment of Articles of Incorporation increasing One Voice's
common stock to 250,000,000.
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).
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 James
Hadzicki 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. On November 8, 2006 the
agreement was mutually terminated.
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).
10.4 Software License Agreement with Philips Speech 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)
-29-
MATERIAL CONTRACTS (CONTINUED)
------------------------------
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 (incorporated by reference
to our registration statement on Form SB-2 filed September 12, 2002)
10.12 Alpha Capital Note dated August 8, 2002 (incorporated by reference to our
registration statement on Form SB-2 filed September 12, 2002)
10.13 Alpha Capital Warrant dated August 8, 2002 (incorporated by reference to
our registration statement on Form SB-2 filed September 12, 2002)
10.14 Ellis Note dated August 8, 2002 (incorporated by reference to our
registration statement on Form SB-2 filed September 12, 2002)
10.15 Ellis Warrant dated August 8, 2002 (incorporated by reference to our
registration statement on Form SB-2 filed September 12, 2002)
10.16 Bristol Note dated August 8, 2002 (incorporated by reference to our
registration statement on Form SB-2 filed September 12, 2002)
10.17 Bristol Warrant dated August 8, 2002 (incorporated by reference to our
registration statement on Form SB-2 filed September 12, 2002)
10.18 Subscription Agreement dated April 10, 2003 (incorporated by reference to
our registration statement on Form SB-2 filed April 30, 2003)
10.19 Form of Warrant dated June 30, 2003 (incorporated by reference to our
registration statement on Form SB-2 filed April 30, 2003)
10.20 Subscription Agreement dated September 17, 2003 (incorporated by reference
to our registration statement on Form SB-2 filed October 20, 2003)
10.21 Form of convertible note dated September 17, 2003 (incorporated by
reference to our registration statement on Form SB-2 filed October 20, 2003)
10.22 Form of Warrant dated September 17, 2003 (incorporated by reference to our
registration statement on Form SB-2 filed October 20, 2003)
10.23 Security Agreement dated September 17, 2003 (incorporated by reference to
our registration statement on Form SB-2 filed October 20, 2003)
10.24 Modification Agreement dated September 17, 2003 (incorporated by reference
to our registration statement on Form SB-2 filed October 20, 2003)
10.25 La Jolla Convertible Debenture (incorporated by Reference to our
registration statement on Form SB-2 filed December 22, 2003)
10.26 La Jolla Registration Rights Agreement (incorporated by reference to our
registration statement on Form SB-2 filed December 22, 2003)
10.27 La Jolla Letter Agreement (incorporated by reference to our registration
statement on Form SB-2 filed December 22, 2003)
10.28 La Jolla Securities Purchase Agreement (incorporated by reference to our
registration statement on Form SB-2 filed December 22, 2003)
10.29 La Jolla Warrant (incorporated by reference to our registration statement
on Form SB-2 filed December 22, 2003)
10.30 La Jolla Letter Agreement (incorporated by reference to our registration
statement on Form SB-2 filed December 22, 2003)
10.31 Subscription Agreement dated August 18, 2004 (incorporated by reference to
our registration statement on Form SB-2 filed September 7, 2004)
10.32 Form of Convertible Note dated August 18, 2004 (incorporated by reference
to our registration statement on Form SB-2 filed September 7, 2004)
10.33 Form of Class A Warrant dated August 18, 2004 (incorporated by reference
to our registration statement on Form SB-2 filed September 7, 2004)
10.34 Form of Class B Warrant dated August 18, 2004 (incorporated by reference
to our registration statement on Form SB-2 filed September 7, 2004)
10.35 Subscription Agreement, dated October 28, 2004, by and among One Voice
Technologies, Inc., Alpha Capital Aktiengesellschaft, Stonestreet Limited
Partnership, Ellis International Ltd., and Momona Capital Corp. (incorporated by
reference to our current report on Form 8-K filed November 9, 2004)
-30-
MATERIAL CONTRACTS (CONTINUED)
------------------------------
10.36 Fund Escrow Agreement dated October 28, 2004, by and among One Voice
Technologies, Inc., Alpha Capital Aktiengesellschaft, Stonestreet Limited
Partnership, Ellis International Ltd., Momona Capital Corp., and Grushko &
Mittman, P.C. (incorporated by reference to our current report on Form 8-K filed
November 9, 2004)
10.37 Form of Convertible Note issued to Alpha Capital Aktiengesellschaft,
Stonestreet Limited Partnership, Ellis International Ltd., and Momona Capital
Corp. (incorporated by reference to our current report on Form 8-K filed
November 9, 2004)
10.38 Form of Class A Share Purchase Warrant issued to Alpha Capital
Aktiengesellschaft, Stonestreet Limited Partnership, Ellis International Ltd.,
and Momona Capital Corp. (incorporated by reference to our current report on
Form 8-K filed November 9, 2004)
10.39 Form of Class B Share Purchase Warrant issued to Alpha Capital
Aktiengesellschaft, Stonestreet Limited Partnership, Ellis International Ltd.,
and Momona Capital Corp. (incorporated by reference to our current report on
Form 8-K filed November 9, 2004)
10.40 Subscription Agreement, dated March 18, 2005, by and among One Voice
Technologies, Inc. and the investors named on the signature pages thereto.
(incorporated by reference to our current report on Form 8-K filed March 24,
2005)
10.41 Form of Convertible Note of One Voice Technologies, Inc. issued to the
investors named on the signature pages thereto. (incorporated by reference to
our current report on Form 8-K filed March 24, 2005)
10.42 Form of Class A Common Stock Purchase Warrant of One Voice Technologies,
Inc. issued to the investors named on the signature pages thereto. (incorporated
by reference to our current report on Form 8-K filed March 24, 2005)
10.43 Form of Class B Common Stock Purchase Warrant of One Voice Technologies,
Inc. issued to the investors named on the signature pages thereto. (incorporated
by reference to our current report on Form 8-K filed March 24, 2005)
10.44 Subscription Agreement, dated March 17, 2006, by and among One Voice
Technologies, Inc. and the investors named on the signature pages thereto.
(incorporated by reference to our current report on Form 8-K filed March 23,
2006)
10.45 Form of Convertible Note of One Voice Technologies, Inc. issued to the
investors named on the signature pages thereto. (incorporated by reference to
our current report on Form 8-K filed March 23, 2006)
10.46 Form of Class A Common Stock Purchase Warrant of One Voice Technologies,
Inc. issued to the investors named on the signature pages thereto. (incorporated
by reference to our current report on Form 8-K filed March 23, 2006).
10.47 Subscription Agreement, dated May 5, 2006, by and among One Voice
Technologies, Inc. and the investors named on the signature pages thereto.
(incorporated by reference to our registration statement on Form SB-2 filed May
9, 2006)
10.48 Form of Convertible Note of One Voice Technologies, Inc. issued to the
investors named on the signature pages thereto. (incorporated by reference to
our registration statement on Form SB-2 filed May 9, 2006)
10.49 Subscription Agreement, dated July 6, 2006, by and among One Voice
Technologies, Inc. and the investors named on the signature pages thereto.
(incorporated by reference to our current report on Form 8-K filed July 11,
2006)
-31-
10.45 Form of Convertible Note of One Voice Technologies, Inc. issued to the
investors named on the signature pages thereto. (incorporated by reference to
our current report on Form 8-K filed July 11, 2006)
10.46 Form of Class A Common Stock Purchase Warrant of One Voice Technologies,
Inc. issued to the investors named on the signature pages thereto. (incorporated
by reference to our current report on Form 8-K filed July 11, 2006).
10.47 Subscription Agreement, dated August 28, 2006, by and among One Voice
Technologies, Inc. and the investors named on the signature pages thereto.
(incorporated by reference to our current report on Form 8-K filed September 1,
2006).
10.48 Form of Convertible Note of One Voice Technologies, Inc. issued to the
investors named on the signature pages thereto. (incorporated by reference to
our current report on Form 8-K filed September 1, 2006).
10.49 Form of Class A Common Stock Purchase Warrant of One Voice Technologies,
Inc. issued to the investors named on the signature pages thereto. (incorporated
by reference to our current report on Form 8-K filed September 1, 2006).
10.50 Loan Agreement Loan Agreement by and among One Voice Technologies, Inc.
and the investors named on the signature pages thereto (incorporated by
reference to our current report on Form 8-K filed January 3, 2007).
10.51 Form of Revolving Credit Note of One Voice Technologies, Inc.
(incorporated by reference to our current report on Form 8-K filed January 3,
2007).
10.52 Subscription Agreement, dated September 2007, by and among One Voice
Technologies, Inc., and the investors named on the signature pages thereto.
(incorporated by reference to our current report on Form 8-K filed September 17,
2007).
10.53 Form of Convertible Note, of One Voice Technologies, Inc. issued to the
investors named on the signature pages thereto. (incorporated by reference to
our current report on Form 8-K filed September 17, 2007).
10.54 Form of Warrant, of One Voice Technologies, Inc. issued to the investors
named on the signature pages thereto. (incorporated by reference to our current
report on Form 8-K filed September 17, 2007).
10.55 Settlement Agreement and Mutual General Release, dated August 2007, by and
among La Jolla Cove Investors, Inc. and One Voice Technologies, Inc.
(incorporated by reference to our current report on Form 8-K filed September 17,
2007).
31.1 Certification by Chief Executive Officer and Interim Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certificate by Interim Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1 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-
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES UPDATE
------------------------------------------------------
AUDIT FEES
----------
The Company has appointed PMB Helin Donovan, L.L.P. ("PMB"), as its independent
auditors to perform the audit of the Company's financial statements for the year
2007. The estimated audit fees for the audit of the 2007 financial statements
are $51,000 with an additional fee of between $5000 and $10,000 related to a
review of the internal controls "SOX 404". During the year 2007 the Company also
incurred fees of approximately $36,000 relating to the filing of form's 10QSB
for Q1, Q2 and Q3 2007.
AUDIT RELATED FEES
------------------
During the year 2007 the company incurred fees of approximately $9,000 by PMB
that related to the filing of Form POS AM (Post Effective Amendment to Form
SB-2).
SOX 404
-------
The Company has engaged De Joya Griffith & Company LLC. as its independent 3rd
party consultant to assist the Company with 2007 SOX 404 compliance preparation.
The fee is fixed at $40,000.
TAX FEES
--------
The estimated fees for the year 2007 for tax products and services related to
preparation of Company's 2007 state and federal tax returns provided by Burt R.
Shapiro Accountancy Corp. is $7,500.
The Company is not aware that any significant amount of the work done during the
course of the audits of the Company's 2007 and 2006 Financial Statements was
performed by persons other than full-time, permanent and employees of PMB.
The Board of Directors have reviewed and approved 100% the above service
agreements.
-33-
SIGNATURES
----------
Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: APRIL 4, 2008 by: /s/ Dean Weber
------------------------------------------------
Dean Weber, President, Chief Executive Officer
(Principal Executive Officer),
interim Chief Financial Officer
(Principal accounting and financial officer),
Chairman of the Board and Secretary
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 President, Chief Executive Officer APRIL 4, 2008
--------------------- (Principal Executive Officer),
interim Chief Financial Officer
(Principal accounting and financial
officer), Chairman of the Board and
Secretary
/s/ Rahoul Sharan Director APRIL 4, 2008
---------------------
Rahoul Sharan
/s/ Bradley J. Ammon Director APRIL 4, 2008
---------------------
Bradley J. Ammon
-34-