As filed with the Securities and Exchange Commission on January 3, 2002
REGISTRATION NO. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ONE VOICE TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
Nevada 7372 95-4714338
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
6333 Greenwich Drive, Suite 240
San Diego, California 92122
(858) 552-4466
(Address and telephone number of principal executive
offices and principal place of business)
Dean Weber, President
ONE VOICE TECHNOLOGIES, INC.
6333 Greenwich Drive, Suite 240
San Diego, California 92122
(858) 552-4466
(Name, address and telephone number of agent for service)
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Copies to:
Dennis J. Doucette, Esq.
Luce, Forward, Hamilton & Scripps LLP
11988 El Camino Real, Suite 200
San Diego, CA 92130
(858) 720-6300
(858) 720-6306 (fax)
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Approximate date of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to rule 415 under the securities act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Per Aggregate Registration
to be Registered Registered Security/(1)/ Offering Price Fee
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Shares of common stock, $.001 par value 110,000 $0.54 $59,400
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Shares of common stock, $.001 par value/(2)/ 300,000 $1.50-2.00 $525,000
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Shares of common stock, $.001 par value/(3)/ 3,400,000 $0.54 $1,836,000
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Shares of common stock, $.001 par value/(4)/ 35,286 $9.76 $344,391
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Shares of common stock, $.001 par value/(5)/ 40,000 $0.40 $16,000
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Total/(6)/ 3,885,286 $2,780,791 $664.61
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of
1933, using the average of the high and low price as reported on the Nasdaq
SmallCap Market on December 31, 2001.
(2) Represents 300,000 shares of common stock issuable upon the exercise of
outstanding warrants issued on September 1, 2001, at an exercise price of
$1.50 per share for 150,000 warrants and $2.00 per share for 150,000
warrants.
(3) Represents shares issuable upon conversion of the Company's 5% Convertible
Debentures. The Company has agreed to registered 200% of the estimated
remaining conversion amount of the shares to provide for the possibility of
a reduction in the market price for the shares prior to the conversion of
the 5% Convertible Debentures. Approximately 1.7 million shares would be
issued if the remaining $400,000 of 5% Convertible Debentures
were converted on January 2, 2002.
(4) Represents 35,286 shares of common stock issuable upon the exercise of
outstanding warrants issued on March 14, 2001 at an exercise price of $9.76
per share.
(5) Represents 40,000 shares of common stock issuable upon the exercise of
outstanding warrants issued on November 20, 2001 at an exercise price of
$.40 per share.
(6) Pursuant to Rules 416 and 457 under the Securities Act of 1933, additional
shares as may be issuable pursuant to the anti-dilution provisions of the
debentures are also being registered.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. This
prospectus is included in the registration statement that was filed by One Voice
Technologies, Inc., with the Securities and Exchange Commission. The Selling
Stockholders may not sell these securities until the registration statement
becomes effective. This prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
PRELIMINARY PROSPECTUS Subject To Completion, Dated January 3, 2002
The information in this prospectus is not complete and may be changed.
One Voice Technologies, Inc.
3,885,286 Shares of
Common Stock
This prospectus relates to the resale by selling stockholders of
3,885,286 shares of our common stock, based on current market prices. The
selling stockholders may sell common stock from time to time in the principal
market on which the stock is traded at the prevailing market price or in
negotiated transactions. Each selling stockholder is deemed an underwriter of
the shares of common stock which they are offering.
We will pay the expenses of registering these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Nasdaq SmallCap Market under the
symbol "ONEV." The last reported sales price per share of our common stock as
reported by the Nasdaq SmallCap Market on January 2, 2002, was $0.81.
_________________________________
Investing in these securities involves significant risks.
See "Risk Factors" beginning on page 4.
_________________________________
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is January __, 2002.
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "Risk
Factors" section, the financial statements and the notes to the financial
statements.
One Voice Technologies, Inc.
We are a developer of 4th generation voice solutions for the telecom,
telematics, television and Internet appliance, and personal computer markets.
Our Intelligent VoiceTM solutions employ patent-pending technology that allows
people to use their voice to compose, send and receive messages, purchase
products, access information, and control devices.
Our technology allows people to talk with computers and wireless
devices, such as cellular phones and personal digital assistants, in a way that
has not been seen in any commercial product to date. Our technology engine
allows worldwide consumers to talk, as if they were speaking to another person,
and instantaneously access and interact with content on the World Wide Web.
Internet users can talk with any website to search and find information through
an interactive and entertaining experience.
Our development efforts are focused on MobileVoice Messaging in the
wireless market. This sector has both business and consumer market applications.
MobileVoice Messaging is the only solution available that gives wireless phone
users the ability to address, compose and send e-mail, phone to phone and paging
messages using only their voice.
Our initial product is the first in our line of intelligent voice
interactive solutions. Our software is based on artificial intelligence that
allows people to talk with their computers and wireless devices through everyday
common speech. Our artificial intelligence technology is so advanced that it
understands not only simple phrases but advanced linguistic concepts such as
topic, subject and synonym relationships. By asking the user relevant questions,
our software system can help clarify and learn from the user's requests.
The Offering
Common stock offered by selling stockholders Up to 3,885,286 shares, based on current
(including shares underlying convertible debentures and warrants) market prices and assuming full conversion
of the convertible debentures, with interest
for two years. This number represents
39.99% of our current outstanding stock.
Common stock to be outstanding after the offering Up to 22,605,474 shares
Use of proceeds General corporate purposes*
Nasdaq SmallCap Market Symbol ONEV
* We will receive no proceeds from the issuance of shares of common stock upon
the conversion of the 5% Convertible Debentures. If exercised, we may receive
proceeds from the sale of shares issuable upon the exercise of warrants by
the selling stockholders. However, if the cashless exercise provision of any
of the warrants is used, we will not receive proceeds from the exercise of
those warrants.
The above information is based on 18,720,188 shares of common stock
outstanding as of December 3, 2001, and assumes the subsequent conversion of our
issued convertible debentures, with interest, and exercise of warrants by our
selling stockholders, and excludes:
-- up to 3,000,000 shares of common stock issuable upon exercise
of employee stock options;
-- 2,158,186 shares of common stock issuable upon exercise of
outstanding warrants, other than the ones listed in this
prospectus; and
-- 4,583,333 shares of common stock issuable upon conversion of
outstanding convertible notes (estimated).
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NOTICE ABOUT FORWARD-LOOKING STATEMENTS
To the extent that the information presented in this prospectus
discusses financial projections, information or expectations about our business
plans, results of operations, products or markets, or otherwise makes statements
about future events, such statements are forward-looking. Such forward-looking
statements can be identified by the use of words such as "intends,"
"anticipates," "believes," "estimates," "projects," "forecasts," "expects,"
"plans," and "proposes." Although we believe that the expectations reflected in
these forward-looking statements are based on reasonable assumptions, there are
a number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements. These include, among others,
the cautionary statements in the "Risk Factors" section of this prospectus.
These cautionary statements identify important factors that could cause actual
results to differ materially from those described in the forward-looking
statements. When considering forward-looking statements in this prospectus, you
should keep in mind the cautionary statements in the "Risk Factors" section and
other sections of this prospectus.
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RISK FACTORS
This investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks actually occur,
our business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment.
Risks Related To Our Business:
We have lost money since inception. We expect future losses and we may never
become profitable.
Since inception, we have incurred significant losses. Net loss for the
nine months ended September 30, 2001, totaled $6,367,522 and we had an
accumulated deficit of $17,547,357 at September 30, 2001. We expect to continue
to incur net losses until sales generate sufficient revenues to fund our
continuing operations. We may fail to achieve significant revenues from sales or
achieve or sustain profitability. There can be no assurance of when, if ever, we
will be profitable or be able to maintain profitability. On February 27, 2001,
our independent auditors, Stonefield Josephson, Inc. provided us with a "going
concern" opinion in connection with our Annual Report on Form 10-KSB for the
year ended December 31, 2000. Specifically, Stonefield Josephson, Inc. stated
that they had substantial doubt about our ability to continue as a going concern
in light of our recurring operating losses and negative cash flows from
operations.
If we do not become profitable we may not be able to continue our operations.
Our future sales and profitability depend in part on our ability to
demonstrate to prospective customers the potential performance advantages of
using voice interface software. To date, commercial sales of our software have
been limited. A lack of a proven market or market studies for our product means
that while we, software engineers and software magazine writers may believe the
public will enthusiastically accept voice interface software, the true market
for this product may be minor or nonexistent. This could result in little or no
sales revenue without which we will not be able to continue our operations
indefinitely.
Our current and potential competitors, some of whom have greater resources and
experience than we do, may develop products and technologies that may cause
demand for, and the prices of, our products to decline.
A number of companies have developed, or are expected to develop,
products that compete with our products. Competitors in the voice interface
software market include IBM, Lernout and Hauspie Speech Products, SpeechWorks
and Nuance. We expect additional competition from other companies such as
Microsoft, who has recently made investments in, and acquired, voice interface
technology companies. Furthermore, our competitors may combine with each other,
and other companies may enter our markets by acquiring or entering into
strategic relationships with our competitors. Current and potential competitors
have established, or may establish, cooperative relationships among themselves
or with third parties to increase the abilities of their advanced speech and
language technology products to address the needs of our prospective customers.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products comparable
or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends and standards or customer requirements,
or devote greater resources to the development, promotion and sale of their
products than we do. Accordingly, we may not be able to compete effectively in
our markets, competition may intensify and future competition may harm our
business.
We have a limited operating history which makes it difficult to evaluate our
business.
Our current corporate entity commenced operations in 1999 and has a
limited operating history. We have limited financial results on which you can
assess our future success. Our prospects must be considered in light of the
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risks, expenses and difficulties frequently encountered by growing companies in
new and rapidly evolving markets, such as voice recognition software, media
delivery systems and electronic commerce.
To address the risks and uncertainties we face, we must:
-- establish and maintain broad market acceptance of our products and
services and convert that acceptance into direct and indirect sources
of revenues;
-- maintain and enhance our brand name;
-- continue to timely and successfully develop new products, product
features and services and increase the functionality and features of
existing products;
-- successfully respond to competition from Microsoft and others,
including emerging technologies and solutions; and
-- develop and maintain strategic relationships to enhance the
distribution, features and utility of our products and services.
If we are unable to obtain additional funding our business operations will be
harmed.
We believe that our available short-term assets and investment income will
be sufficient to meet our operating expenses and capital expenditures through
the end of fiscal year 2001. We do not know if additional financing will be
available when needed, or if it is available, if it will be available on
acceptable terms. Insufficient funds may prevent us from implementing our
business strategy or may require us to delay, scale back or eliminate certain
contracts for the provision of voice interface software, we may be unable to
implement our business strategy or we may be unable to continue our operations.
Our operating results are likely to fluctuate significantly.
As a result of our limited operating history and the rapidly changing
nature of the markets in which we compete, our quarterly and annual revenues and
operating results are likely to fluctuate from period to period. These
fluctuations may be caused by a number of factors, many of which are beyond our
control. These factors include the following, as well as others discussed
elsewhere in this section:
-- how and when we introduce new products and services and enhance our
existing products and services;
-- our ability to attract and retain new customers and satisfy our
customers' demands;
-- the timing and success of our brand-building and marketing campaigns;
-- our ability to establish and maintain strategic relationships;
-- our ability to attract, train and retain key personnel;
-- the demand for voice recognition Internet search software
applications;
-- the emergence and success of new and existing competition;
-- varying operating costs and capital expenditures related to the
expansion of our business operations and infrastructure, domestically
and internationally, including the hiring of new employees;
-- technical difficulties with our products, system downtime, system
failures or interruptions in Internet access;
-- changes in the mix of products and services that we sell to our
customers;
-- costs and effects related to the acquisition of businesses or
technology and related integration; and
-- costs of litigation and intellectual property protection.
In addition, because the market for our products and services is relatively
new and rapidly changing, it is difficult to predict future financial results.
For these reasons, you should not rely on period-to-period comparisons of
our financial results, if any, as indications of future results. Our future
operating results could fall below the expectations of public market analysts or
investors and significantly reduce the market price of our common stock.
Fluctuations in our operating results will likely increase the volatility of our
stock price.
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We are a development-stage company and unexpected or uncontrollable business or
economic forces are more likely to harm us.
We are in the development or starting stages of our business plan and are
therefore more vulnerable to unexpected or uncontrollable business and economic
forces. We lack any loyalty and brand name recognition from potential customers
and business partners. Unknown software errors may not be corrected in time to
develop a sustainable customer base. Unfavorable product reviews or news reports
could squelch early sales efforts. A competitor may quickly release a better
version of a similar product before we can complete our development efforts.
Economic conditions such as a national or world recession, international trade
restrictions on computer product sales, or a slowdown in new technology growth
could reduce our revenues below financially-healthy levels. The risks of a
development-stage company include a lack of job security for employees and the
possible loss of all investment funds by investors
Any inability to adequately protect our proprietary technology could harm our
ability to compete.
Our future success and ability to compete depends in part upon our
proprietary technology and our trademarks, which we attempt to protect with a
combination of patent, copyright, trademark and trade secret laws, as well as
with our confidentiality procedures and contractual provisions. These legal
protections afford only limited protection and are time-consuming and expensive
to obtain and/or maintain. Further, despite our efforts, we may be unable to
prevent third parties from infringing upon or misappropriating our intellectual
property.
We do not currently have any issued patents. We currently have three
pending patent applications, but there is no guarantee that patents will be
issued with respect to our current or future patent applications. Any patents
that are issued to us could be invalidated, circumvented or challenged. If
challenged, our patents might not be upheld or their claims could be narrowed.
Our intellectual property may not be adequate to provide us with competitive
advantage or to prevent competitors from entering the markets for our products.
Additionally, our competitors could independently develop non-infringing
technologies that are competitive with, equivalent to, and/or superior to our
technology. Monitoring infringement and/or misappropriation of intellectual
property can be difficult, and there is no guarantee that we would detect any
infringement or misappropriation of our proprietary rights. Even if we do detect
infringement or misappropriation of our proprietary rights, litigation to
enforce these rights could cause us to divert financial and other resources away
from our business operations. Further, we license our products internationally,
and the laws of some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the United States.
Our products may infringe upon the intellectual property rights of others and
resulting claims against us could be costly and require us to enter into
disadvantageous license or royalty arrangements.
The software industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement
and the violation of intellectual property rights. Although we attempt to avoid
infringing upon known proprietary rights of third parties, we may be subject to
legal proceedings and claims for alleged infringement by us or our licensees of
third-party proprietary rights, such as patents, trade secrets, trademarks or
copyrights, from time to time in the ordinary course of business. Any claims
relating to the infringement of third-party proprietary rights, even if not
successful or meritorious, could result in costly litigation, divert resources
and management's attention or require us to enter into royalty or license
agreements which are not advantageous to us. In addition, parties making these
claims may be able to obtain injunctions, which could prevent us from selling
our products. Furthermore, former employers of our employees may assert that
these employees have improperly disclosed confidential or proprietary
information to us. Any of these results could harm our business. We may be
increasingly subject to infringement claims as the number of, and number of
features of, our products grow.
If the standards we have selected to support are not adopted as the standards
for speech-activated software, businesses might not use our speech-activated
software platform for delivery of applications and services, and our revenue
growth could be negatively affected.
The market for speech-activated services software is new and emerging.
Certain industry software standards have, however, been established but may
change as the technology evolves. We may not be competitive
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unless our products support changing industry software standards. The emergence
of industry standards other than those we have selected to support, whether
through adoption by official standards committees or widespread usage, could
require costly and time consuming redesign of our products. If these standards
become widespread and our products do not support them, our clients and
potential clients may not purchase our products, and our revenue growth could be
adversely affected. Multiple standards in the marketplace could also make it
difficult for us to design our products to support all applicable standards,
which could also result in decreased sales of our products.
Our failure to respond to rapid change in the market for speech-activated
services software could cause us to lose revenue and harm our business.
The speech-activated services software industry is relatively new and
rapidly evolving. Our success will depend substantially upon our ability to
enhance our existing products and to develop and introduce, on a timely and
cost-effective basis, new products and features that meet changing end-user
requirements and incorporate technological advancements. If we are unable to
develop new products and enhanced functionalities or technologies to adapt to
these changes, or if we cannot offset a decline in revenue from existing
products with sales of new products, our business will suffer.
Commercial acceptance of our products and technologies will depend, among
other things, on:
-- the ability of our products and technologies to meet and adapt to the
needs of our target markets;
-- the performance and price of our products as compared to our
competitors' products;
-- our ability to deliver customer service directly and through our
resellers; and
-- the ability of our customers to utilize our product.
Our products may not be 100% accurate at recognizing speech or authenticating
speaker identities and we could be subject to claims related to the performance
of our products. Any claims, whether successful or unsuccessful, could result in
significant costs and could damage our reputation.
Our speech recognition, natural language understanding and authentication
technologies are not 100% accurate. We believe that none of our competitors'
products are 100% accurate either. Nevertheless, because our customers will use
our products to provide important services to their customers, any
misrecognition of voice commands or incorrect authentication of a user's voice
by our products could result in claims against us or our customers for losses
incurred. Although our contracts will typically contain provisions designed to
limit our exposure to liability claims, a claim brought against us for
misrecognition or incorrect authentication, even if unsuccessful, could be
time-consuming, divert management's attention, result in costly litigation and
harm our reputation. Moreover, existing or future laws or unfavorable judicial
decisions could limit the enforceability of the limitation of liability,
disclaimer of warranty or other protective provisions contained in our
contracts.
There are risks associated with forward-looking statements made by us and actual
results may differ.
Some of the information in this Form SB-2 contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
-- discuss our future expectations;
-- contain projections of our future results of operations or of our
financial condition; and
-- state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there
may be events in the future that we are not able to accurately predict or over
which we have no control. The risk factors listed in this section, as well as
any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. You should
be aware that the occurrence of the events described in these risk factors could
have an adverse effect on our business, results of operations and financial
condition.
7
Risks Relating To Our Current Financing Agreements:
There are a large number of shares underlying our convertible note, and warrants
that may be available for future sale and the sale of these shares may depress
the market price of our common stock.
As of December 3, 2001, we had 18,720,188 shares of common stock issued and
outstanding and convertible promissory notes outstanding that may be converted
into 3,701,690 shares of common stock at current market prices, and outstanding
options and warrants to purchase 2,832,825 shares of common stock. In addition,
the number of shares of common stock issuable upon conversion of the outstanding
convertible note may increase significantly if the market price of our stock
declines. All of the shares, including all of the shares issuable upon
conversion of the debentures and upon exercise of our warrants, may be sold
without restriction. The sale of these shares may adversely affect the market
price of our common stock.
The issuance of shares upon conversion of the convertible debentures and notes
and exercise of outstanding warrants may cause immediate and substantial
dilution to our existing stockholders.
The issuance of shares upon conversion of the convertible debentures and
exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion. Although certain selling
stockholders may not convert their convertible debentures and/or exercise their
warrants if such conversion or exercise would cause them to own more than 4.99%
of our outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings and then
converting the rest of their holdings. In this way, the selling stockholders
could sell more than this limit while never holding more than this limit. There
is no upper limit on the number of shares that may be issued which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.
Risks Relating To Our Common Stock:
Our directors and executive officers beneficially own approximately 41.34% of
our stock; their interests could conflict with yours; significant sales of stock
held by them could have a negative effect on our stock price; stockholders may
be unable to exercise control.
As of September 30, 2001, our executive officers, directors and affiliated
persons beneficially own approximately 41.34% of our common stock. Dean Weber,
our chief executive officer and chairman of the board, beneficially owns
approximately 37.9% of our common stock. As a result, our executive officers,
directors and affiliated persons will have significant influence to:
-- elect or defeat the election of our directors;
-- amend or prevent amendment of our articles of incorporation or bylaws;
-- effect or prevent a merger, sale of assets or other corporate
transaction; and
-- control the outcome of any other matter submitted to the stockholders
for vote.
As a result of their ownership and positions, our directors and executive
officers collectively are able to significantly influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, sales of significant amounts of
shares held by our directors and executive officers, or the prospect of these
sales, could adversely affect the market price of our common stock. Management's
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of us, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our stock
price.
Our Stock Price Has Been and May Continue to Be Volatile.
The trading price of our common stock has been and is likely to continue to
be highly volatile. For example, during the 52-week period ended September 30,
2001, the price of our common stock ranged from $9.75 to $0.25 per share. Out
stock price could be subject to wide fluctuations in response to factors such
as:
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-- actual or anticipated variations in quarterly operating results;
-- announcements of technological innovations, new products or services
by us or our competitors;
-- changes in financial estimates or recommendations by securities
analysts;
-- the addition or loss of strategic relationships or relationships with
our key customers;
-- conditions or trends in the Internet and online commerce markets,
including the provision of related speech-activated services;
-- changes in the market valuations of other Internet, online service or
software companies;
-- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
-- legal, regulatory or political developments;
-- additions or departures of key personnel;
-- sales of our common stock by insiders or stockholders; and
-- general market conditions.
The historical volatility of our stock price may make it more difficult for
you to resell shares when you want at prices you find attractive. In addition,
the stock market in general, and the Nasdaq SmallCap Market and the market for
Internet and technology companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of these companies. These broad market and industry
factors may reduce our stock price, regardless of our operating performance.
We have been advised by The Nasdaq Stock Market that we fail to meet its
continued listing criteria; the loss of our Nasdaq listing could negatively
impact the price of our common stock and make it more difficult to dispose of.
In August 2001, we received a letter from Nasdaq notifying us that since
the bid price of our common stock had fallen below $1.00 per share, our common
stock would be delisted from Nasdaq within 90 days, unless the price increased
above $1.00 prior to that time. In October 2001, Nasdaq announced that it was
delaying the review of companies that failed to meet the minimum bid price
requirement. Nasdaq has since announced, pending SEC approval, that it intends
to allow companies that do not meet the minimum per share requirement up to one
year to regain compliance prior to delisting.
If we fail to comply with the continued listing requirements, our common
stock will be delisted from Nasdaq and will commence trading on the
over-the-counter electronic bulletin board. The effect of the foregoing would be
to make the purchase and sale of our common stock more difficult and would
likely depress the price of the stock.
If we fail to meet the expectations of public market analysts and investors, the
market price of our common stock may decrease significantly.
Public market analysts and investors have not been able to develop
consistent financial models for the Internet market because of the unpredictable
rate of growth of Internet use, the rapidly changing models of doing business on
the Internet and the Internet's relatively low barriers to entry. As a result,
and because of the other risks discussed in this prospectus, it may be likely
that our actual results will not meet the expectations of public market analysts
and investors in future periods. If this occurs, the price of our common stock
will likely fall.
Our common stock is subject to "penny stock" rules.
The Securities and Exchange Commission (the "Commission") has adopted Rule
15g-9 which establishes the definition of a "penny stock," for the purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience objectives of the person;
and (ii) make a reasonable determination that the
9
transactions in penny stocks are suitable for that person and the person has
sufficient knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks. The broker or dealer must
also deliver, prior to any transaction in a penny stock, a disclosure schedule
prepared by the Commission relating to the penny stock market, which, in
highlight form, (i) sets forth the basis on which the broker or dealer made the
suitability determination; and (ii) that the broker or dealer received a signed,
written agreement from the investor prior to the transaction. Disclosure also
has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
10
RECENT FINANCINGS
On September 7, 2001, we entered into a subscription agreement with Laurus
Master Fund, Ltd., a Cayman Island corporation, for the sale of (i) a $600,000
convertible note and (ii) warrants to purchase 100,000 shares of our common
stock. At this time, $100,000 of the note remains unconverted.
The note bears interest at 8% and is convertible into our common stock at
the lesser of:
a) $0.51; or
b) 80% of the average of the three lowest closing prices of our common
stock for the thirty trading days immediately prior to the conversion
date. Because this note has no minimum conversion price, the number of
shares of common stock which may be issuable pursuant to conversion of
this note will increase as the market price of the common stock goes
below $0.6375 per share as 80% of $0.6375 is equal to $0.51.
The closing price of our common stock as of November 30, 2001, was $0.30.
Assuming an average price of $0.30, the conversion price would be $0.24 and the
$600,000 face amount of this note would be convertible into approximately
2,500,000 shares of common stock. This share amount does not include interest
and is potentially convertible into a higher number of shares of common stock
according to the above formula as there is no minimum conversion price. The
unconverted portion of the note is due September 7, 2003.
The warrants have an exercise price of:
a) $0.82; or
b) 120% of the three lowest closing price of our common stock for the ten
trading days prior to the exercise of the warrant.
On September 28, 2001, we entered into a subscription agreement with
Stonestreet Limited Partnership, an Ontario limited partnership, for the sale of
(i) a $500,000 convertible note and (ii) warrants to purchase 83,333 shares of
our common stock. This note has been fully converted.
11
USE OF PROCEEDS
This prospectus relates to 3,885,286 shares of our common stock that may be
offered and sold from time to time by the selling stockholders of our company.
We will not receive any part of the proceeds of the sale of common stock
included in this prospectus. We will receive approximately $885,391 if the
selling stockholders exercise, for cash, all of the warrants covering common
stock included in this prospectus. Any proceeds received by us from the exercise
of such warrants, less our share of the estimated expenses of the cost of this
offering, will be used by us for general corporate purposes. However, if the
cashless exercise provisions contained in the warrants are used, we will receive
no cash proceeds from any such exercise.
12
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the Nasdaq SmallCap Market on October
24, 2000, under the symbol "ONEV." Our common stock previously traded on the OTC
Electronic Bulletin Board under the same symbol. The OTC Electronic Bulletin
Board is sponsored by the National Association of Securities Dealers (NASD) and
is a network of security dealers who buy and sell stocks.
For the periods indicated, the following table sets forth the high and
low bid prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
Low High
--------------- -----------------
1999
First Quarter .13 .60
Second Quarter .16 5.88
Third Quarter 4.00 10.00
Fourth Quarter 4.00 8.50
2000
First Quarter 8.00 27.75
Second Quarter 9.00 24.00
Third Quarter 6.56 17.25
Fourth Quarter 1.13 9.75
2001
First Quarter .9375 2.48
Second Quarter .34 2.75
Third Quarter .45 1.20
Fourth Quarter .20 0.820
------ ------
As of October 2, 2001, our common stock shares were held by 3,035
stockholders of record. We believe that the number of beneficial owners is
substantially greater than the number of record holders because a significant
portion of our outstanding common stock is held of record in broker "street
names" for the benefit of individual investors. The transfer agent of our common
stock is Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite
430, Denver, Colorado 80209.
DIVIDEND POLICY
Our board of directors determines any payment of dividends. We do not
expect to authorize the payment of cash dividends in the foreseeable future. Any
future decision with respect to dividends will depend on future earnings,
operations, capital requirements and availability, restrictions in future
financing agreements, and other business and financial considerations.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of our plan of operation should
be read in conjunction with the financial statements and the related notes. This
prospectus contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 which are based upon current expectations that involve risks and
uncertainties, such as our plans, objectives, expectations and intentions. Our
actual results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors," "Business" and
elsewhere in this prospectus. See "Risk Factors."
Overview
We are an early growth stage company and plan to be a leading provider
of voice recognition applications for messaging, access to content and mobile
commerce on wireless devices.
We are a developer of fourth generation voice solutions for the
telecom, telematics, television, Internet appliance, and personal computer
markets. Our Intelligent Voice(TM) solutions employ patent-pending technology
that allows people to use their voice to compose, send and receive messages,
purchase products, access information, and control devices.
Our development efforts are focused on MobileVoice Messaging in the
wireless market. This sector has both business and consumer market applications.
The MobileVoice Messaging solution gives wireless phone users the ability to
address, compose and send e-mail, phone to phone and paging messages using only
their voice.
Our initial product is the first in our line of intelligent voice
interactive solutions. Our software is based on artificial intelligence that
allows people to talk with their computers and wireless devices through everyday
common speech. We believe that our artificial intelligence technology is so
advanced that it understands not only simple phrases, but advanced linguistic
concepts such as topic, subject and synonym relationships. By asking the user
relevant questions, our system can help clarify and learn from the user's
requests.
Our software will be licensed to other businesses such as local, long
distance and wireless carriers, e-mail and Internet service providers and large
corporations wanting to provide their customers with access to e-mail, SMS, and
Instant Messaging from mobile devices. It will also be licensed to corporations
wanting to provide mobile access to enterprise information. Our solutions are
highly customizable for a variety of different applications, depending on
customer needs. These solutions are very unique in the market and have an
opportunity to provide important new ways for people to communicate and do
business anytime, anywhere.
Management's Discussion and Analysis
As planned, we launched and began testing our MobileVoice Messaging
system with several major wireless carriers in August 2001. This testing process
allows for carriers to provide feedback on product usability and performance. We
are continuing to work closely with these carriers to develop features and
product characteristics that meet the market needs. This product refinement
process will continue over the course of the next few months with a goal for a
market trial and a subsequent nationwide rollout in 2002.
In the last quarter, our company's Mobile Voice Platform has been selected
to be featured in Ericsson's CDMA Solutions Center. This new facility has
attracted top wireless carriers from around the world to experience the latest
in wireless technology. Our company's voice-enabled mobile applications will
continue to be showcased in demonstrations at this new state of the art
facility.
In the telecom sector, we plan to license our technology to wireless
carriers to provide voice-activated services for their subscribers allowing for
increased revenue streams. Although we intend to sell our services primarily
through wireless carriers, we believe there are also significant opportunities
to offer these services to corporations directly. We continue to consider
strategic initiatives in order to achieve our objectives with this goal.
14
In September 2001, we began working closely with a Unified
Messaging/Presence Management company to develop a wireless voice interface to
their Unified Messaging system. Once completed, this will allow for wide access
to the user's contact list for composing Instant Messages through a wireless
phone. Our goal is to work jointly with this company and to offer this solution
to their current wireless carrier customers.
In October 2001, we entered into a marketing agreement with a third
party for representation of the IVAN Desktop product for the purpose of sourcing
various retail opportunities including QVC, The Home Shopping Network and
Q-Direct. Our goal is to work closely with this third party to create wide
exposure to consumers through these various sales channels.
The telematics sector encompasses voice-activated devices, which could
be installed in a motor vehicle to access information on the Internet. Voice
capabilities of these in-car devices are vital since they allow users to remain
focused on driving, therefore supporting new safety initiatives. We plan to
pursue this sector following the launch and acceptance of our MobileVoice
Messaging system.
In September 2001, we entered into a securities purchase agreement with
the Laurus Master Fund, Ltd. for the issuance of a $600,000 8% convertible note
and 100,000 common stock purchase warrants in reliance on Section 4(2) of the
Act and Rule 506. Each warrant entitles the holder to purchase one share of
common stock at an exercise price of $.515. The commission for the transaction
was 10% ($60,000). Proceeds amounted to $511,750, which is net of debt issue
costs of $88,250.
In September 2001, we entered into a securities purchase agreement with
the Stonestreet Limited Partnership for the issuance of a $500,000 8%
convertible note and 83,333 common stock purchase warrants in reliance on
Section 4(2) of the Act and Rule 506. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $.515. The commission
for the transaction was 10% ($50,000). and a common stock purchase warrant for
83,333 shares of our stock at an exercise price per share of $.515. Proceeds
amounted to $444,250, which is net of debt issue costs of $55,750.
We maintain a cash balance that we believe will sustain operations into
2002. We continue to explore all possibilities in securing financing sufficient
to cover operating expenses until such time the company reaches profitability.
The losses through the quarter ended September 30, 2001 were due to minimal
revenue and our operating expenses, with the majority of expenses in the areas
of: salaries, legal fees, consulting fees, as well as amortization expense
relating to software development, debt issue costs and licensing costs. We face
considerable risk in completing each of our business plan steps, including, but
not limited to: a lack of funding or available credit to continue development
and undertake product rollout; potential cost overruns; a lack of interest in
its solutions in the market on the part of wireless carriers or other customers;
potential reduction in wireless carriers which could lead to significant delays
in consummating revenue bearing contracts; and/or a shortfall of funding due to
an inability to raise capital in the securities market. Since further funding is
required, and if none is received, we would be forced to rely on our existing
cash in the bank or secure short-term loans. This may hinder our ability to
complete our product development until such time as necessary funds could be
raised. In such a restricted cash flow scenario, we would delay all cash
intensive activities including certain product development and strategic
initiatives described above.
Facilities
Our principal executive office address is 6333 Greenwich Drive, Suite
240, San Diego, California 92122. We lease our facilities under leases that
expire at various times through November 2005. Our rent expense was $183,231 for
the year ended December 31, 2000. We also sublease certain space to third
parties.
15
The following table sets forth selected information from the statements
of operations for the three months ended September 30, 2001 and 2000.
Three Months Ended Three Months Ended
Sept. 30, 2001 Sept. 30, 2000
--------------------------------- ---------------------------------
Net Revenues $ 60,818 $ --
Operating expenses $ 2,402,994 $ 2,222,451
Net loss $ 2,344,146 $ 2,222,451
Discussion of the three months ended September 30, 2001 compared with the three
months ended September 30, 2000.
Net revenues totaled $60,818 for the quarter ended September 30, 2001,
primarily from barter transactions. No revenue was earned for the quarter ended
September 30, 2000. The recognition of revenues resulted primarily from product
licensing in exchange for advertising and sales of our initial Ivan desktop
software product.
Operating expenses increased to $2,402,994 for the quarter ended
September 30, 2001 from $2,222,451 for the same quarter in 2000. The increase in
operating expenses was a direct result of inclusion of non-cash expenses
totaling $1,117,866 which covered entries for: depreciation and amortization;
amortization of discount on Note Payable; options/shares issued for services;
and impairment loss related to customer lists. Salary and wage expense was
$437,284 for the third quarter of 2001 compared to $582,758 for the third
quarter in 2000. The decrease reflects our new direction into the telecom,
telematics and TV/Internet appliance initiatives with a restructured work force.
Advertising and promotion expense totaled $92,335 for the three months ended
September 30, 2001 from $195,519 for the same quarter in 2000. The decrease in
advertising and promotion expense results from the limited marketing activities
related to the new products which are in development stage for the telecom,
telematics and TV/Internet appliance markets. Legal and consulting expenses
decreased to $258,638 for the three months ended September 30, 2001 from
$279,601 for the same quarter in 2000. Depreciation and amortization expenses
increased to $303,047 for the quarter ended September 30, 2001 from $291,176 for
the same period in the prior year.
We had a net loss of $2,344,146 or basic and diluted net loss per share
of $0.16 for the three months ended September 30, 2001 compared to $2,222,451 or
basic and diluted net loss per share of $0.18 for the same quarter in 2000.
Discussion of the nine months ended September 30, 2001 compared with the nine
months ended September 30, 2000.
Net revenues totaled $185,678 for the nine months ended September 30,
2001, primarily from barter transactions. No revenues were earned for the nine
months ended September 30, 2000. The recognition of revenues resulted primarily
from product licensing in exchange for advertising and sales of our initial Ivan
desktop software product.
Operating expenses increased to $6,527,250 for the nine months ended
September 30, 2001 from $5,450,363 for the same period in 2000. The increase in
operating expenses was a direct result of inclusion of non-cash expenses
totaling $1,906,710 for the nine months ended September 30, 2001 as compared to
$847,453 for the same period in 2000, which covered entries for: depreciation
and amortization; amortization of discount on Note Payable; options/shares
issued for services; and impairment loss related to customer lists. Salary and
wage expense was $1,677,305 for the nine months ended September 30, 2001 as
compared to $1,383,066 for the same period in 2000. The increase in 2001 as
compared to 2000 arose primarily from the increased labor force during the first
and second quarters of 2001, which we have restructured to accommodate our new
direction into the telecom, telematics and TV/Internet appliance initiatives.
Advertising and promotion expense totaled $499,594 for the nine months ended
September 30, 2001 as compared to $493,281 for the same period in 2000.
Advertising and promotion expense resulted from the limited marketing activities
related to the new products which are in development stage for the telecom,
telematics and TV/Internet appliance markets. Legal and consulting expenses
decreased to $574,104
16
for the nine months ended September 30, 2001 from $783,321 for the same period
in 2000. Depreciation and amortization expenses increased to $958,896 for the
nine months ended September 30, 2001 from $686,570 for the same period in the
prior year, primarily due to increased capitalized costs which were non-existent
in 2000.
We had a net loss of $6,367,522 or basic and diluted net loss per share
of $0.46 for the nine months ended September 30, 2001 compared to $5,450,363 or
basic and diluted net loss per share of $0.44 for the same period in 2000.
Liquidity And Capital Resources
At September 30, 2001, we had working capital of $1,410,935 as compared
with $7,176,033 at September 30, 2000.
Notes payable had a face value of $2,000,000 at December 31, 2000.
Notes payable had a face value of $1,000,000 at September 30, 2001 as a result
of a partial conversion to stock of the notes described below.
In July 2001, $175,000 of the outstanding note payable was converted to
277,366 shares of our common stock at an average rate of $0.63 per share.
Month of Conversion Principal Converted Shares Converted To Avg. rate per share
------------------------- ------------------------- ----------------------- ----------------------
March 2001 $ 500,000 383,732 $ 1.30
May 2001 40,000 61,471 0.65
May 2001 135,000 215,639 0.63
May 2001 100,000 158,541 0.63
June 2001 50,000 79,492 0.63
July 2001 175,000 277,366 0.63
In September 2001, we entered into a securities purchase agreement with
the Laurus Master Fund, Ltd. for the issuance of a $600,000 8% convertible note
and 100,000 common stock purchase warrants in reliance on Section 4(2) of the
Act and Rule 506. Each warrant entitles the holder to purchase one share of
common stock at an exercise price of $.515. The commission for the transaction
was 10% ($60,000). Proceeds amounted to $511,750, which is net of debt issue
costs of $88,250.
In September 2001, we entered into a securities purchase agreement with
the Stonestreet Limited Partnership for the issuance of a $500,000 8%
convertible note and 83,333 common stock purchase warrants in reliance on
Section 4(2) of the Act and Rule 506. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $.515. The commission
for the transaction was 10% ($50,000). Proceeds amounted to $444,250, which is
net of debt issue costs of $55,750.
On August 3, 2001, we entered into a settlement agreement with Dominick
& Dominick LLC, to be effective September 1, 2001, pursuant to which we issued
110,000 shares of common stock and 300,000 common stock purchase warrants. We
relied on Section 4(2) of the Act as a basis of exemption from registration. The
Settlement Agreement was entered into in order to settle a dispute regarding a
financial consulting agreement which we had entered into with Dominick &
Dominick LLC as of May 30, 2000. Such shares and warrants were subsequently
transferred to Dominick & Dominick Financial Corp., a Delaware corporation.
17
BUSINESS
OVERVIEW
We are a developer of 4th generation voice solutions for the telecom,
telematics, TV/Internet appliance and PC markets. One Voice's Intelligent
Voice(TM) solutions employ, patent-pending technology that allows people to use
their voice to compose/send/receive messages, purchase products, access
information and control devices.
We commenced operations as Conversational Systems, Inc. on January 1,
1999, and on July 14, 1999, merged into Dead On, Inc., a company originally
incorporated in Nevada on August 23, 1995 as Belridge Holdings Corporation. On
August 28, 1995, Belridge Broadcasting of Portland, Inc., a company originally
incorporated in Delaware on February 4, 1987, merged into Belridge Holdings
Corporation. Belridge Holdings Corporation was dormant until March 9, 1998, when
it filed a Disclosure Statement pursuant to Rule 15c2-11 with the National
Association of Securities Dealers in order to allow trading of its securities on
the OTC Electronic Bulletin Board.
On July 30,1998, Belridge Holdings Corporation acquired the assets,
liabilities and operating business of Dead On, LLC in order to manufacture
sporting goods equipment and apparel. On September 15, 1998, Belridge Holdings
Corporation changed its name to Dead On, Inc. On December 31, 1998, Dead On,
Inc. discontinued all business related to the manufacture of sporting goods
equipment and apparel.
On June 16, 1999, a special meeting of the stockholders of Dead On,
Inc. approved the divestiture of the assets and liabilities of the discontinued
sporting goods equipment and apparel manufacturing business. On July 9, 1999, a
special meeting of the stockholders of Dead On, Inc. approved the merger of Dead
On, Inc. and Conversational Systems, Inc. in order to develop and market a new
software system, and approved the name change of Dead On, Inc. to ConversIt.com,
Inc. On September 9, 1999, a special meeting of the stockholders of
ConversIt.com approved the name change of ConversIt.com, Inc. to One Voice
Technologies, Inc.
There have been no bankruptcy, receivership or similar proceedings.
There have been no material reclassifications, mergers, consolidations,
or purchase or sale of a significant amount of assets not in the ordinary course
of business.
INDUSTRY BACKGROUND
Wireless & Messaging Growth. The proliferation of mobile wireless
devices and services makes it clearly one of the fastest growing segments and
arguably the largest consumer segment in the High Technology market today.
Despite having over 700 million people using mobile phones today, the numbers
continue to grow at double digit rates. Messaging in all its forms (e-mail, SMS,
paging) has also become one of the core drivers of growth not only of wireless
services but also the Internet as a whole. Over 500 billion e-mail messages will
be sent this year from computers around the world and over 350 billion SMS
messages will be sent from mobile phones. Both of these figures are expected to
grow significantly in the years to come as messaging becomes a critical method
of communication for businesses and consumers.
Voice Technology. The use of voice technology is a natural for mobile
products and services because it makes them more mobile. By not requiring users
to look at small screens or use arrow keys to navigate, voice makes products
simpler, more intuitive and easier to use anytime, anywhere. Industry analysts
expect voice technology usage to grow significantly as people use these products
and services for work and pleasure. The vast majority of the market is currently
focused on 2nd generation, menu-based voice technology. This technology works
well for simple applications, but has some major inherent limitations that don't
allow it to address more advanced applications such as messaging.
The need for easy access to personalized, relevant information. As the
amount of information available has grown, it has became more difficult for
users to access and find the information that is most useful and relevant to
their needs especially in a mobile environment. With access to the Internet
being provided primarily by computers today, the potential for access is
significantly lower than it could be with mobile phone access.
18
A variety of companies have started to provide access to the Mobile
Internet from devices, but the methods of using these devices is cryptic and
frustrating. Endless menus, small screens, arrow keys and stylus's promise to
keep these services from meeting their true market potential.
OUR SOLUTION
One Voice Technologies, Inc. is a developer of 4th generation voice
solutions for the telecom, telematics, TV/Internet appliance and PC markets. One
Voice's Intelligent VoiceTM solutions employ, patent-pending technology that
allows people to use their voice to compose/send/receive messages, purchase
products, access information and control devices.
Our development efforts are focused on the wireless market, where our
services are particularly attractive to wireless carriers. One opportunity in
this sector is MobileVoice Messaging, which has both business and consumer
market applications. MobileVoice Messaging is the only solution available that's
gives wireless phone users the ability to address, compose and send e-mail,
phone to phone and paging messages using only their voice.
The primary features of the voice recognition system are:
-- utilizing commercially available speech recognition that
relies on how words sound in order to match those sounds to
words in a dictionary;
-- analyzing words to determine their meaning;
-- allowing the computer to listen and then talk back to the
-- user; and
-- processing speech at very high speed.
As the user speaks with the system, it continues to "learn" the meaning
of what the user says. It asks questions of the user when it is unsure what the
user wants. It uses a conversational manner to quickly process information while
it keeps the user informed as it is performing requested tasks. As an example,
if the system is searching the Internet for the best price available for a
particular type of automobile purchase, it will describe its search process and
any problems it encounters, such as the unavailability of a needed web page due
to heavy Internet demand. It will then ask the user if it should try again. It
will offer suggestions, such as using a different time or searching in a
different geographical location. We believe that our "two-way" technology built
on top of continuous speech technology and operating between the application and
the user is an entirely new class of application that allows the user to
communicate with the application to refine what the application produces. Our
system will automatically "adapt" to the user with each interaction.
We have taken the following steps in our product development:
-- raised capital through the sale of securities;
-- leased additional commercial office space in San Diego,
California;
-- filled the following management positions - VP Sales, VP
Operations, and VP Engineering;
-- filled the following types of staff positions - sales,
marketing, engineering, information technology (IT),
information services (IS), administrative and human resources;
and
-- continued development of our software product.
We have completed the development and testing phase of our working
prototype of our product and are in the process of establishing agreements with
entities for the production, marketing, and distribution of our product.
OUR STRATEGY
Our goal is to provide wireless service providers with important new
ways to generate incremental revenue from their user bases. substantially lower
the barrier to entry in obtaining information on the Internet, while at the same
time increasing productivity through the use of spoken natural language
(everyday conversation). Key elements of our strategy include:
19
Offer superior voice-technology products and services. We seek to
provide a superior user experience through distinct and innovative technologies
and services. Our future success will depend on our ability to compete and to
offer products and services that the wireless community perceives to be superior
to our competitors. We will continually strive to find, hire, train and keep
qualified personnel to design our products. We will also try to enhance and add
to the products and services we offer to keep pace with changing technologies
and customer preferences and to seek additional strategic partnerships that will
allow us to offer new and improved services.
Leveraging Our First to Market Position. We believe that our position
in the current market is a major potential advantage for the company to leverage
in the future. The market for voice services will grow significantly and our
services are the first of their kind. Our development team brings extensive
experience with advanced voice solutions and our core technology is at the
forefront of the industry. We intend to increase brand awareness through a
combination of online and offline advertising and promotional activities.
Minimize expenses and maximize revenue through business to
business(B2B) model. Our revenues, if any, will come from the licensing of
products and services we offer to wireless carriers and enterprise customers.
This approach allows us to leverage the market strength of the carriers and
supply them with leading edge solutions that can help them differentiate their
brands and generate incremental revenue.
Expand to international markets. We plan to expand our operations to
international markets to take advantage of the massive opportunities for voice
solutions in markets around the world.
PRODUCTS AND SERVICES
Our services offer the following key features using our advanced voice
technology:
-- Continuous, free format input for messaging of all kinds;
-- Access to large amounts of personal information stored in Expert
System databases;
-- High levels of security;
-- Access to Internet content using only your voice;
-- Access to more content than competing systems;
-- Faster access to content through advanced recognition;
-- Ability to purchase products using only voice; and
-- Mixed initiative dialogs that give user a conversational
experience on the phone.
We also offer the creation of interactive voice-maps for our licensed
business customers' websites to permit them to use our software for interaction
with their customers/users.
CUSTOMERS
We intend to sell our services primarily through wireless carriers.
There are also significant opportunities to offer the services to corporations
directly.
Business to business. We intend to market our product through a
business-to-business model of distribution. Our target customers include
wireless carriers such as Verizon, Cingular, AT&T, Sprint, Nextel, Alltel and
Voicestream. These carriers can then offer the services to their customer bases.
We have also had significant interest expressed from Long Distance phone service
providers and large corporations
SALES AND MARKETING
Our sales efforts target wireless carriers. To reach potential clients, our
sales department seeks out wireless service providers and manages relationships
with key service provider departments in order to secure market trials and
eventual service rollout.
20
DISTRIBUTION
We use multiple distribution channels to market our products and services
including:
-- our website;
-- manufacturers and distributors;
-- direct outbound sales efforts; and
-- co-marketing opportunities.
COMPETITORS
The size and financial strengths of our competitors, such as Tellme,
Bevocal and Hey Anita are substantially greater than ours. However, we believe
that we can effectively compete with these other companies because of the unique
nature of our product. Our product's uniqueness is primarily its ability to
direct computers to follow commands through the use of free format requests
using conversational speech. We believe this unique feature will allow our
product to compete effectively in the market. None of our competitors currently
offer voice interaction using conversational speech. None of our competitors
have announced any plans to offer software for voice interaction using
conversational speech. We are not aware of any significant barriers to our entry
into the speech recognition market; however, we have no market share of the
speech recognition product category at this time.
STRATEGIC BUSINESS PARTNERSHIPS
We plan to develop alliances and partnerships with various companies that
offer services and products we believe will assist in the distribution of our
products and provide valuable co-marketing opportunities and exposure. We
currently have established such a partnerships with Ericsson and Philips.
In addition to these specific partnerships, we have oral and written
agreements related to our products and services with various other entities such
as Monster.com, Autobytel.com and Samsonite Corp.
SUPPLIERS
One Voice's suppliers consist primarily of hardware manufacturers for key
components of our system architecture. This includes companies such as Natural
Micro Systems (NMS), Dell, Cisco and AT&T.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We own exclusive rights to three pending United States patents for our
software pursuant to the merger agreement on July 9, 1999, between Dead On, Inc.
and Conversational Systems, Inc. As of the date of this filing, these patents
are still pending. These patents are broad-based with one key patent defining
the primary features and unique procedures that comprise our product. Our
intellectual property also includes pending trademark applications. We believe
that our intellectual property is important to our success, and we try to
protect it. We feel that strong name brand recognition through trademark
registration and market awareness will make our products stand out and become
the recognized name that people think of when they think of voice technology.
We have also hired legal counsel to help us better protect our intellectual
property. However, the steps we take to protect our intellectual property may be
inadequate. Unauthorized parties may try to disclose, obtain or use our
proprietary information, which could harm our business. Others may also claim
that we have violated their proprietary rights. This could subject us to
significant liability for damages and invalidate our proprietary rights. Any
efforts to protect or defend our rights could be time-consuming and costly.
Other parties may also independently develop similar or competing technology.
21
GOVERNMENT REGULATION
Due to the increasing popularity and use of the Internet, the United States
government and the governments of various states and foreign countries may
attempt to regulate activities on the Internet. They may adopt new laws and
regulations or try to apply existing laws to Internet activities. A number of
laws and regulations may be adopted to cover issues such as user privacy,
advertising, intellectual property, pricing, content and quality of goods and
services, taxation and information security. New tax regulations, if adopted,
may increase our sales, use and income taxes. Due to the global nature of the
Internet, it is possible that, although we principally operate our business in
California, the governments of other states and foreign countries may try to
regulate our business and may require that we qualify to do business as a
foreign corporation in their state or country. The growth of the Internet and
the volume of business transacted on the Internet may also prompt stricter
consumer protection laws. Some states have already proposed new laws to limit
the use of personal user information obtained online or to require online
services to establish privacy policies.
The applicability of existing laws to the Internet is also uncertain. Many
laws that may be relevant to our business were adopted before wide use of the
Internet. These laws do not contemplate or address the unique issues of the
Internet and related technologies. Because of the rapidly evolving and uncertain
regulatory environment, we cannot predict how new or existing laws and
regulations might affect our business. These uncertainties make it more
difficult to ensure compliance with the laws and regulations that govern our
business and the Internet. They may also decrease the growth of the Internet and
the demand for our products and services and could increase our costs or force
us to change how we do business.
RESEARCH AND DEVELOPMENT COSTS
Since inception, our primary focus related to the research and development
of our proprietary products, most of which we intend to recoup from customers
through normal business operations, fees and markups. We expect to continue to
commit significant resources to research and development in the future. The
market for our products and services is characterized by rapid technological
change, frequent new product and service introductions, and rapidly changing
customer needs and industry standards. To be successful in the future, we must
be able to anticipate changes, enhance our current products and services,
develop and introduce new products and services that keep pace with changing
Internet technologies and address the increasingly sophisticated needs of our
customers.
EMPLOYEES
At December 3, 2001, we employed 13 full-time employees and four consultant
or part-time employees. None of these employees is subject to a collective
bargaining agreement, and there is no union representation within our company.
We maintain various employee benefit plans and believe our employee relations
are good.
FACILITIES
Our principal executive office address is 6333 Greenwich Drive, Suite 240,
San Diego, California 92122. We lease our facilities under leases that expire at
various times through November 2005. Our rent expense was $183,231 for the year
ended December 31, 2000. We also sublease certain space to third parties.
22
The following is a schedule by years of future minimum rental payments
required under operating leases that have non-cancelable lease terms in excess
of one year as of September 30, 2001:
Year ending December 31,
2001 $ 74,034
2002 299,232
2003 306,396
2004 313,560
2005 293,663
---------------
1,286,885
Less sublease income 674,750
---------------
$ 612,135
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position
---- --- --------
Dean Weber 39 Chairman of the Board, President, Chief
Executive Officer, Director
George H. Kaelin, III 35 Director
Rahoul Sharan 40 Chief Financial Officer, Secretary, Treasurer
and Director
Bradley J. Ammon 38 Director
Directors serve until the next annual meeting and until their successors
are elected and qualified. Officers are appointed to serve for one year until
the meeting of the board of directors following the annual meeting of
stockholders and until their successors have been elected and qualified,
although Dean Weber has an employment agreement and Rahoul Sharan's company has
a personal service agreement with us. There are no family relationships between
any of our directors or officers.
Dean Weber holds a B.S. in Computer Science from the Central Connecticut
State University. With over 19 years of technology experience, Mr. Weber has
worked for top IT companies such as United Technologies, Northrop and Xerox.
From 1984 to 1987, Mr. Weber was an engineer for United Technologies in
Hartford, Connecticut, where he designed and developed real-time software
systems for NASA and U.S. Navy projects. Mr. Weber was then employed by Northrop
Corporation in Pico Rivera, California, from 1987 to 1989, where he led an
engineering team for the B2 Stealth Bomber project. From 1989 to 1991, Mr. Weber
was an independent senior consultant to various companies including Xerox and
Rockwell Technologies. From 1991 to 1998, Mr. Weber founded and was President of
EditPro Corporation in San Diego, California. At EditPro, Mr. Weber developed
and marketed one of the original and first Microsoft Windows based development
environment tools for both the English and Japanese marketplaces. In 1996 and
1997, Mr. Weber began developing the origins of the current IVAN program. In
1998, Mr. Weber founded Conversational Systems, Inc., now One Voice
Technologies, Inc., in San Diego, California, where he has served as our
President since that time. Recently, Mr. Weber was nominated as chairperson and
keynote speaker of the Voice-Based Commerce tradeshow held in Chicago in
September 2000, where participants included IBM, Lucent, Nuance and Speechworks.
Mr. Weber was elected to our Board of Directors in July of 1999 as Chairman.
23
George H. Kaelin, III, received a B.B.A. degree summa cum laude with an
emphasis in Business Economics from the University of San Diego, California. Mr.
Kaelin also has a Juris Doctor degree from the University of California, Davis,
where he received the American Jurisprudence Award for excellence in Advanced
Business Organizations Law. Mr. Kaelin has clerked for the U.S. District Court,
Eastern District, for the Honorable Milton L. Schwartz. He also worked with the
Alaska Legislature in drafting the Alaskan Non-Profit Corporations Code. Mr.
Kaelin is a partner in the San Diego law firm of Endeman, Lincoln, Turek &
Heater where he has worked since 1994. He specializes in business and real
estate issues. Mr. Kaelin is admitted to practice before all state and federal
courts in California and has served as a member of the Enright Inn of Court. Mr.
Kaelin serves as a member of our Audit and Compensation Committees and was
elected to the Board in 1999.
Rahoul Sharan holds a Bachelor of Commerce degree from the University of
British Columbia and is a member of the Institute of Chartered Accountants of
British Columbia. Mr. Sharan was employed by Coopers & Lybrand (now
Pricewaterhouse Coopers) from 1984 to 1989. Since 1989, Mr. Sharan has been
President and a Director of KJN Management Ltd., a private company which
provides a broad range of administrative, management and financial services to
both private and public companies. Mr. Sharan has been a partner in S & P Group,
a company which specializes in investment financing for venture capital projects
and real estate development and construction, since 1988. Mr. Sharan was also a
director of Pacific Northern Ventures, Ltd. from 1989 to 1995, and is President
and a Director of Bell Coast Capital Corp., an inactive public company to which
Mr. Sharan devotes less than 1% of his time. Mr. Sharan was elected to the Board
in 1999.
Bradley J. Ammon is a tax attorney in the San Diego law firm of Ernest S.
Ryder & Associates, Inc. Mr. Ammon specializes in international tax planning,
including restructuring of international operations, domestic mergers and
acquisitions, and developing business plans to minimize worldwide taxation.
Prior to joining the firm, Mr. Ammon was with SAIC as an International Tax
Manager. He previously was with KPMG, LLP in the International Corporate
Services department since 1998 where his principal practice consisted of clients
in the information, communications and entertainment ("ICE") industry. Prior to
joining KPMG, Mr. Ammon worked from 1995 to 1998 at Deloitte & Touche, LLP in
their tax services department where he provided corporate, partnership, and
personal tax and business planning services to clients. Mr. Ammon also worked
several years as a staff accountant where his responsibilities included the
compilation and consolidation of monthly financial statements for multiple
subsidiaries. Mr. Ammon has a Juris Doctor and a Master's of Law in taxation
(LL.M.) from the University of San Diego, and received his undergraduate degree
from the University of California, San Diego. He is admitted to the California
Bar. Mr. Ammon is a member of our Audit Committee and Compensation Committee and
was appointed to our Board on June 9, 2000.
EXECUTIVE COMPENSATION
The following tables set forth certain information regarding our CEO and
each of our most highly-compensated executive officers whose total annual salary
and bonus for the fiscal year ending December 31, 1999 and 2000 exceeded
$100,000:
Annual Compensation
Other
Annual Restricted Options LTIP All Other
Name & Principal Salary Bonus Compensation Stock SARs Payouts Compensation
Position Year ($) ($) ($) Awards (#)/(1)/ ($) ($)
---------------------- ------ ---------- --------- --------------- ------------ ----------- ---------- -------------
Dean Weber, CEO 2000 252,000 75,000 0 0 0 0 0
1999 180,000 0 0 0 0/(2)/ 0 0
Rahoul Sharan, CFO 2000 180,000 75,000/(3)/ 0 0 0 0 0
1999 120,000/(3)/ 0 0 0 50,000 0 0
(1) Options were granted pursuant to our 1999 Stock Option Plan.
(2) 75,000 options previously granted to Mr. Weber were repudiated by Mr.
Weber.
(3) This payment was made through KJN Management Ltd. See "Personal Service
Agreement" below.
24
EMPLOYMENT AGREEMENT
We entered into a three-year employment agreement with Dean Weber, our
Chairman, Chief Executive Officer and President, commencing in July 1999. The
Weber employment agreement provides that, in consideration for Mr. Weber's
services, he is to be paid an annual salary of $180,000. His salary was
increased to $252,000 annually in April 2000, with a $75,000 bonus paid on April
10, 2000.
PERSONAL SERVICE AGREEMENT
We entered into a three-year personal service agreement with KJN Management
Ltd. commencing in July 1999 for the services of its CFO, Rahoul Sharan, which
provided for the payment of a fee by the Company to KJN Management Ltd. of
$120,000 per year. The service fee was increased to $180,000 per year on April
10, 2000, and we paid $75,000 bonus to KJN Management on April 10, 2000.
COMPENSATION OF DIRECTORS
Non-employee directors receive $1,000 for each board of directors meeting
attended. We pay all out-of-pocket expenses of attendance.
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
September 30, 2001, our board of directors had reserved 3,000,000 shares for
issuance under the 1999 Plan, of which 1,427,025 shares were subject to
outstanding options and 1,572,975 shares remained available for future grants.
Our board of directors or a committee appointed by the board administers the
1999 Plan. The administrators select the recipients to whom options are granted
and determine the number of shares to be awarded. Options granted under the 1999
Plan are exercisable at a price determined by the administrators 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
administrators provides in the terms of each individual option agreement. In
general, the administrators are 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 originally authorized by our board of directors and stockholders.
Stockholder authorization of an increase of shares reserved for issuance under
the plan to 3,000,000 shares is being sought at the annual meeting scheduled for
December 20, 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our chief executive officer, Mr. Weber, advanced $4,500 to us for the
purchase of a computer. Our chief financial officer, Mr. Sharan, advanced
$10,000 to us for travel expenses. Both of these cash advances were recorded on
our financial statements as current liabilities with no written or verbal
agreement regarding loan terms of repayment or stated interest rate. The
advances were repaid by us on July 14, 2000.
In May 1999, a group of officers, directors and stockholders of Dead On,
Inc., our former corporate entity formed a new company, Dead On Acquisition
Company, a California corporation. Subsequent to the formation of Dead On
Acquisition Company, the group transferred 6,075,000 shares of our common stock
to Dead On Acquisition Company in exchange for shares of Dead On Acquisition
Company stock.
On July 14, 1999, 150,000 restricted shares of our common stock were issued
as a commission to Compass Investment Management, a non-affiliated entity, for
services rendered in connection with the July 1999 private placement.
On May 14, 1999, we sold all of our operating assets and liabilities
relating to the discontinued operations of our apparel, accessory, and sports
equipment division to Dead On Acquisition Company for $1.00 per an
25
agreement for acquisition resulting in a gain of $91,785 and a provision for
operating losses of $110,788, equaling a net financial statement loss of
$19,003.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of September 30, 2001 (i) by each person who is
known by us to beneficially own more than 5% of our common stock; (ii) by each
of our officers and directors; and (iii) by all of our officers and directors as
a group. Each person's address is c/o One Voice Technologies, Inc., 6333
Greenwich Drive, Suite 240, San Diego, California 92122.
Shares Beneficially Owned/(1)/
-------------------------------
Name and Address of Beneficial Owner Number Percent
------------------------------------------------------------------------------------------------------------
Dean Weber, CEO, President and Chairman of the Board/(2)/ 5,558,000/(3)/ 37.9
IVantage, Inc./(2)/ 1,600,200 10.9%
Rahoul Sharan, CFO, Secretary, Treasurer and Director 60,000/(4)/ *
George H. Kaelin, III, Director 345,600/(5)/ 2.4%
Bradley J. Ammon, Director 75,000/(6)/ *
Total securities held by officers and directors as a group (4 people): 6,060,600/(7)/ 41.34%
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days of September 30, 2001 are deemed outstanding
for computing the percentage of the person holding such option or warrant
but are not deemed outstanding for computing the percentage of any other
person. Percentages are based on a total of 14,659,651 shares of common
stock outstanding on September 30, 2001, and the shares issuable upon the
exercise of options and warrants exercisable on or within 60 days of
September 30, 2001, as described below.
(2) iVantage, Inc. is wholly owned by Dean Weber, Chairman of the Board, CEO,
and President of One Voice Technologies, Inc. Mr. Weber is the beneficial
owner of the 1,600,200 shares in the name of iVantage, Inc. and those
shares are also included in the amount presented in this table for Mr.
Weber.
(3) Includes 1,600,200 shares owned indirectly through iVantage, Inc.
(4) Represents options to purchase (i) 50,000 shares at an exercise price of
$6.080 per share; and (ii) 10,000 shares at an exercise price of $2.00 per
share. These options are currently exercisable.
(5) Includes options to purchase (i) 50,000 shares at an exercise price of
$6.080 per share; (ii) 10,000 shares at an exercise price of $2.00 per
share; and (iii) 15,000 shares at an exercise price of $1.75. These options
are currently exercisable.
(6) Includes options to purchase (i) 50,000 shares at an exercise price of
$8.750 per share; and (ii) 25,000 shares at an exercise price of $2.00 per
share. These options are currently exercisable.
(7) Includes options to purchase 210,000 shares as they are currently
exercisable.
* Less than 1%
DESCRIPTION OF SECURITIES
The following description of our capital stock is a summary and is
qualified in its entirety by the provisions of our Articles of Incorporation,
with amendments, all of which have been filed as exhibits to our registration
statement of which this prospectus is a part.
Our Articles of Incorporation authorize the issuance of 50,000,000 shares
of common stock, $.001 par value per share, and 10,000,000 shares of preferred
stock, $.001 par value per share. Stockholder authorization of an increase of
authorized shares to 100,000,000 shares of common stock is being sought at the
annual meeting scheduled for December 20, 2001. Holders of shares of common
stock are entitled to one vote for each share on all matters to be voted on by
the stockholders. Holders of common stock have cumulative voting rights. Holders
of shares of common stock are entitled to share ratably in dividends, if any, as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefor. In the event of a liquidation,
26
dissolution, or winding up of the Company, the holders of shares of common stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities. Holders of common stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. The Board of Directors, from time to
time in its sole discretion, has the authority to fix the powers, rights,
qualifications, limitations, and restrictions pertaining to the preferred stock.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under the Nevada General Corporation Law and our Articles of Incorporation,
as amended, and our Bylaws, our directors will have no personal liability to us
or our stockholders for monetary damages incurred as the result of the breach or
alleged breach by a director of his "duty of care." This provision does not
apply to the directors' (i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) acts or omissions
that a director believes to be contrary to the best interests of the corporation
or its stockholders or that involve the absence of good faith on the part of the
director, (iii) approval of any transaction from which a director derives an
improper personal benefit, (iv) acts or omissions that show a reckless disregard
for the director's duty to the corporation or its stockholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
corporation or its stockholders, (v) acts or omissions that constituted an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its stockholders, or (vi) approval of an unlawful
dividend, distribution, stock repurchase or redemption. This provision would
generally absolve directors of personal liability for negligence in the
performance of duties, including gross negligence.
The effect of this provision in our Articles of Incorporation and Bylaws is
to eliminate the rights of our Company and our stockholders (through
stockholder's derivative suits on behalf of our Company) to recover monetary
damages against a director for breach of his fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (vi) above.
This provision does not limit nor eliminate the rights of our Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, our Bylaws
provide that if the Nevada General Corporation Law is amended to authorize the
future elimination or limitation of the liability of a director, then the
liability of the directors will be eliminated or limited to the fullest extent
permitted by the law, as amended. The Nevada General Corporation Law grants
corporations the right to indemnify their directors, officers, employees and
agents in accordance with applicable law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act" or "Securities Act") may be permitted to directors, officers
or persons controlling our Company pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
-- ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
-- block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
-- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
-- an exchange distribution in accordance with the rules of the
applicable exchange;
-- privately-negotiated transactions;
-- short sales;
-- broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
-- a combination of any such methods of sale; and
-- any other method permitted pursuant to applicable law.
27
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholders defaults on
a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades. The
selling stockholders may pledge their shares of common stock to their brokers
under the margin provisions of customer agreements. If a selling stockholder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
Each selling stockholder shall be deemed to be an "underwriter" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, but excluding brokerage commissions or underwriter discounts. We
and the selling stockholders have agreed to indemnify each other against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
28
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the
shares of common stock by the selling stockholders. We will not receive any
proceeds from the resale of the common stock by the selling stockholders. We
will receive proceeds from the exercise of the warrants. Assuming all the shares
registered below are sold by the selling stockholders, none of the selling
stockholders will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is
offering the resale of shares of common stock by this prospectus, the number of
shares of common stock beneficially owned by each person, the number of shares
of common stock that may be sold in this offering and the number of shares of
common stock each person will own after the offering, assuming they sell all of
the shares offered.
Total Shares
of Common
Stock
Issuable,
Including Total
Upon Percentage
Conversion of Common Shares of Beneficial Percentage Percentage
of Stock, Common Stock Ownership of Common Beneficial of Common
Debentures Assuming Included in Before Stock Owned Ownership Stock Owned
and/or Full Prospectus the Before After the After
Name Warrants/(1)/ Conversion/(1)/ /(1)/ Offering Offering Offering/(2)/ Offering/(2)/
--------------- -------------- --------------- -------------- ------------ ------------- ------------- -------------
Dominick &
Dominick
Financial
Corp./(3)/ 410,000 2.19% 410,000 410,000 2.19% 0 0%
Nevelle Up to
Investors LLC 2,292,974/(4)/ 12.25% 7,000,000/(4)/ 313,783/(5)/ 1.68% 0 0&
Liberty
Holding
Corp/(6)/ 27,143 * 27,143 27,143 * 0 0%
Somerset
Capital Group
LLC/(6)/ 10,000 * 10,000 10,000 * 0 0%
WMF
Consultants 37,143 * 37,143 18,572 * 0 0%
--------------------------------------------------------------------------------------------------------------------
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares which the selling stockholder has the right to acquire within 60
days. The actual number of shares of common stock issuable upon the conversion
of the convertible debentures is subject to adjustment depending on, among other
factors, the future market price of the common stock, and could be materially
less or more than the number estimated in the table. Percentages are based on a
total of 18,720,188 shares of common stock outstanding on December 3, 2001.
(1) Because the number of shares of common stock issuable upon conversion of
the convertible debentures is dependent in part upon the market price of
the common stock prior to a conversion, the actual number of shares of
common stock that will be issued upon conversion will fluctuate daily and
cannot be determined at this time. However, the selling stockholder has
contractually agreed to restrict its ability to convert or exercise its
warrants and receive shares of our common stock such that the number of
shares of common stock held by it and its affiliates after such conversion
or exercise does not exceed 4.99% of the then issued and outstanding shares
of common stock.
(2) Assumes that all securities registered will be sold.
29
(3) Includes 110,000 shares of common stock and 300,000 shares underlying
currently exercisable warrants, 150,000 of which are exercisable at $1.50
per share and 150,000 of which are exercisable at $2.00 per share. The
shares and warrants were received by Dominick & Dominick LLC, a Delaware
limited liability company, pursuant to the terms of a settlement agreement.
Such shares and warrants were subsequently transferred to Dominick &
Dominick Financial Corp., a Delaware corporation, in the ordinary course of
business.
(4) Represents shares issuable upon conversion of the Company's 5% Convertible
Debentures at a conversion price of $0.30 as of December 3, 2001. The
Company has agreed to register 200% of the estimated remaining conversion
amount of the shares to provide for the possibility of a reduction in the
market price for the shares prior to the conversion of the 5% Convertible
Debentures.
(5) Excludes shares issuable upon conversion of the Company's 5% Convertible
Debentures and includes 231,884 shares underlying currently exercisable
warrants at $9.76 per share.
(6) Liberty Holding Corp and Somerset Capital Group LLC are affiliated.
SETTLEMENT AGREEMENT
Dominick & Dominick LLC entered into a settlement agreement with us on
August 3, 2001, to be effective as of September 1, 2001, pursuant to which we
issued to Dominick & Dominick LLC 110,000 shares of common stock and warrants
which are exercisable for 300,000 shares of common stock, 150,000 of which are
exercisable at $2.00 per share and 150,000 of which are exercisable at $1.50 per
share. These warrants may also be exercised with respect to up 150,000 shares on
a cashless basis. Both the shares and warrants were subsequently transferred to
Dominick & Dominick Financial Corp., a Delaware corporation, in the ordinary
course of business.
The Settlement Agreement was entered into in order to settle a dispute
regarding a financial consulting agreement which we had entered into with
Dominick & Dominick LLC as of May 30, 2000. Dominick & Dominick LLC alleged that
it was entitled to payment for services relating to a financing undertaken by
the Company in November of 2000. While we did not believe that Dominick &
Dominick LLC's claims were meritorious, we entered into the Settlement
Agreement, among other reasons, to avoid distracting our officers and directors
with matters other than our day-to-day operations and to avoid protracted
litigation that could result in substantial legal expenses.
SECURITIES PURCHASE AGREEMENT
The following description of the Securities Purchase Agreement is a
summary and is qualified in its entirety by the provisions of the agreement and
other supporting documents which were filed with the Securities and Exchange
Commission on November 20, 2000, as exhibits to our Form SB-2 registration
statement relating to the shares issuable upon conversion of the Debentures as
of that date.
On October 3, 2000, we completed a private placement with the selling
stockholder for $2,000,000 worth of 5% Convertible Debentures and warrants to
purchase 231,884 shares of common stock exercisable at $9.76 per share. The
warrants expire on October 3, 2005, and have a cashless exercise provision under
certain circumstances. As part of the transaction, a Conditional Warrant was
also issued which may be exercised at our option or the option of the selling
stockholder for the purchase of up to an additional aggregate principal amount
of $8,000,000 of 5% Convertible Dentures with 30% warrant coverage in four
tranches of $2,000,000 each, pursuant to the terms of the Conditional Warrant
described below. The Conditional Warrant expired on October 3, 2001.
We may be responsible for reimbursing the selling stockholder for
expenses incurred by the selling stockholder due to any action, proceeding or
investigation regarding the transactions covered by the Securities Purchase
Agreement. We must also obtain the prior written consent of the selling
stockholder before entering into any subsequent or further offer or sale of
common stock or securities convertible into common stock with any third party
until 270 days after the filing date of the registration statement of which this
prospectus is a part, with certain exceptions as outlined in the agreement.
30
Registration Rights. The selling stockholder was granted a demand
registration right with respect to the common stock underlying (i) the
conversion of the initial issuance of the 5% Convertible Debentures and the
warrants and (ii) the conversion of the 5% Convertible Debentures and the
warrants issuable in the first tranche under the Conditional Warrant. This
prospectus and registration statement is being filed pursuant to that
registration right and supplements the shares registered in a registration
statement filed on November 20, 2000.
5% Convertible Debentures. Under the 5% Convertible Debentures
("Debentures"), we must pay the selling stockholder the principal amount of the
Debentures on October 3, 2003 or any earlier date as provided under the
Debentures. Interest of 5% per year is due on October 3, 2003, or on any earlier
conversion date and may be paid in cash or in shares of our common stock. If we
default under the terms of the Debentures, the full principal amount of the
Debentures plus interest will be immediately due and payable to the selling
stockholders by us.
The Debentures may be converted in whole or in part by the selling
stockholders at any time after the issuance date. The number of our common stock
shares to be issued upon conversion of the Debentures will be calculated by
dividing the outstanding principal amount of the Debentures to be converted and
the interest then due on that principal amount by the conversion price
established by the Debentures. The conversion price is the lesser of $9.76 or
the average of the lowest 7 closing prices during the 50 trading days
immediately preceding the date of conversion. The Debentures are automatically
convertible into common stock using the above formula on the third anniversary
of the issuance date. The conversion ratio is subject to adjustment in the event
of certain reorganizations of our Company or based on certain issuances of
common stock or options or warrants to purchase common stock by our Company.
Sample Conversion Calculation
The number of shares of common stock issuable upon conversion of
Debentures is determined by dividing that portion of the principal of the
debenture to be converted and interest, if any, by the conversion price. For
example, assuming conversion of $650,000 of debentures on December 3, 2001, a
conversion price of $0.30 per share, and the payment of accrued interest in the
approximate amount of $37,892 in additional shares rather than in cash, the
number of shares issuable upon conversion would be:
$650,000 + $37,892 = 2,292,974 shares
------------------
$0.30
31
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be
passed upon for us by Luce, Forward, Hamilton & Scripps LLP, San Diego,
California.
EXPERTS
Our financial statements at December 31, 1999 and 2000 appearing in
this prospectus and registration statement have been audited by Stonefield
Josephson, Inc., independent auditors, as set forth on their report thereon
appearing elsewhere in this prospectus, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, relating to the shares of common stock being
offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of One Voice Technologies,
Inc., filed as part of the registration statement, and it does not contain all
information in the registration statement, as certain portions have been omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC").
We are subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") which requires us to file reports,
proxy statements and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information may be
inspected at public reference facilities of the SEC at Judiciary Plaza, 450
Fifth Street N.W., Washington D.C. 20549; Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World Trade Center, New
York, New York, 10048; and 5670 Wilshire Boulevard, Los Angeles, California
90036. Copies of such material can be obtained from the Public Reference Section
of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
We furnish our stockholders with annual reports containing audited
financial statements.
32
INDEX TO FINANCIAL STATEMENTS
ONE VOICE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 2000
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
BALANCE SHEET F-2
STATEMENTS OF OPERATIONS F-3
STATEMENT OF STOCKHOLDERS' EQUITY F-4
STATEMENTS OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-7
INTERIM (UNAUDITED) FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
Page
----
FINANCIAL STATEMENTS
BALANCE SHEET F-19
STATEMENTS OF OPERATIONS F-20
STATEMENT OF STOCKHOLDERS' EQUITY F-21
STATEMENTS OF CASH FLOWS F-23
NOTES TO FINANCIAL STATEMENTS F-25
Board of Directors
One Voice Technologies, Inc.
San Diego, California
We have audited the accompanying balance sheet of One Voice Technologies, Inc.,
a Nevada Corporation (a development stage enterprise) as of December 31, 2000,
and the related statements of operations, stockholders' equity and cash flows
for the years ended December 31, 2000 and 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of One Voice Technologies, Inc. as
of December 31, 2000, and the results of its operations and its cash flows for
the years ended December 31, 2000 and 1999, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown on the financial statements,
the Company has incurred net losses from operations and has negative cash flows
from operations. These factors, among others as discussed in Note 1 to the
financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. Managements plans regarding those matters also are
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
February 27, 2001 (except for Note 15, which is
as of March 5, 2001)
F-1
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - DECEMBER 31, 2000
ASSETS
Current assets:
Cash and cash equivalents $ 4,387,622
Cash - restricted 200,000
Licensing revenue receivable 250,000
Advertising revenue receivable 75,000
Inventory 115,875
Prepaid advertising 183,331
Prepaid mailing lists 750,000
Prepaid expenses 253,256
------------
Total current assets $6,215,084
Property and equipment, net of
accumulated depreciation and amortization 1,064,165
Other assets:
Software licensing, net of accumulated amortization 361,974
Software development costs, net of accumulated amortization 1,219,844
Deposits 47,987
Trademarks, net of accumulated amortization 183,141
Patents 55,350
Loan fees, net of accumulated amortization 183,333
------------
Total other assets 2,051,629
----------
$9,330,878
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 798,674
Deferred revenue 306,250
Loan payable, related parties 200,000
------------
Total current liabilities $1,304,924
5% convertible note payable, due October 3, 2003 2,000,000
Unamortized discount 1,512,726
------------
487,274
Stockholders' equity:
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding --
Common stock; $.001 par value, 50,000,000 shares
authorized, 12,671,060 shares issued and outstanding 12,671
Additional paid-in capital 18,705,844
Deficit accumulated during development stage (11,179,835)
------------
Total stockholders' equity 7,538,680
----------
$9,330,878
==========
See accompanying independent auditors' report and notes to financial statements.
F-2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
From inception on
Year ended Year ended January 1, 1999 to
December 31, 2000 December 31, 1999 December 31, 2000
------------------ ------------------ -------------------
Net revenues $ 51,193 $ 25,423 $ 76,616
Cost of revenues 110,390 2,790 113,180
----------- ----------- ------------
Gross profit (59,197) 22,633 (36,564)
General and administrative expenses 9,338,423 1,804,848 11,143,271
----------- ----------- ------------
Net loss $(9,397,620) $(1,782,215) $(11,179,835)
=========== =========== ============
Net loss per share, basic and diluted $ (.76) $ (.15)
=========== ===========
Weighted average shares outstanding,
basic and diluted 12,421,172 12,156,986
=========== ===========
See accompanying independent auditors' report and notes to financial statements.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
accumulated
Common Stock Additional during Total
----------------------- paid-in development stockholders'
Shares Amount capital stage equity
------------ --------- ----------- ------------- --------------
Balance at January 1, 1999 12,720,000 $ 12,720 $ $ $ 12,720
Net proceeds from issuance of
common stock in connection
with merger 7,000,000 7,000 106,236 113,236
Net proceeds from issuance of
common stock 1,500,000 1,500 2,544,422 2,545,922
Net issuance of common stock in
exchange for services 150,000 150 299,850 300,000
Redemption of common stock (10,000,000) (10,000) (10,000)
Net loss for the year ended
December 31, 1999 (1,782,215) (1,782,215)
----------- -------- ----------- ------------ -------------
Balance at December 31, 1999 11,370,000 11,370 2,950,508 (1,782,215) 1,179,663
Net proceeds from issuance of
common stock and warrants 312,500 313 1,779,523 1,779,836
Net proceeds from issuance of
common stock and warrants 988,560 988 12,145,193 12,146,181
Issuance of warrants in exchange
for services 55,000 55,000
Issuance of options in exchange
for services 199,311 199,311
Issuance of warrants in connection
with financing 1,576,309 1,576,309
Net loss for the year ended
December 31, 2000 (9,397,620) (9,397,620)
----------- -------- ----------- ------------ -------------
Balance at December 31, 2000 12,671,060 $ 12,671 $18,705,844 $(11,179,835) $ 7,538,680
=========== ======== =========== ============ =============
See accompanying independent auditors' report and notes to financial statements.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended January 1, 1999 to
December 31, 2000 December 31, 1999 December 31, 2000
------------------ ------------------ -------------------
Cash flows provided by (used for)
operating activities:
Net loss $(9,397,620) $(1,782,215) $(11,179,835)
----------- ----------- ------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,029,990 126,255 1,156,245
Amortization of discount on note payable 63,583 -- 63,583
Options issued in exchange for services 199,311 -- 199,311
Warrants issued in exchange for services 55,000 -- 55,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Licensing revenue receivable (250,000) -- (250,000)
Advertising revenue receivable (75,000) -- (75,000)
Inventory (115,875) -- (115,875)
Prepaid advertising (183,331) -- (183,331)
Prepaid mailing lists (750,000) -- (750,000)
Prepaid expenses (253,256) -- (253,256)
Deposits (41,091) (6,896) (47,987)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 391,780 406,894 798,674
Deferred revenue 306,250 -- 306,250
----------- ----------- ------------
Total adjustments 377,361 526,253 903,614
----------- ----------- ------------
Net cash used for operating activities (9,020,259) (1,255,962) (10,276,221)
----------- ----------- ------------
Cash flows used for investing activities:
Purchase of property and equipment (1,169,499) (153,962) (1,323,461)
Software licensing (679,314) (459,995) (1,139,309)
Software development costs (1,129,928) (168,018) (1,297,946)
Trademarks (207,986) -- (207,986)
Patents (21,394) (33,956) (55,350)
Loan fees (200,000) (200,000)
Increase in escrow account -- (200,000) (200,000)
----------- ----------- ------------
Net cash used for investing activities (3,408,121) (1,015,931) (4,424,052)
----------- ----------- ------------
Cash flows provided by (used for) financing
activities:
Proceeds from issuance of common stock, net 13,926,017 2,971,878 16,897,895
Retirement of common stock, net -- (10,000) (10,000)
Proceeds from (payments on) loan payable,
officer-stockholder (4,500) 4,500 --
Proceeds from (payments on) loan payable, officer (10,000) 10,000 --
Proceeds from loans payable -- 200,000 200,000
Proceeds from convertible note payable 2,000,000 -- 2,000,000
----------- ----------- ------------
Net cash provided by financing activities 15,911,517 3,176,378 19,087,895
----------- ----------- ------------
(Continued)
See accompanying independent auditors' report and notes to financial statements.
F-5
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception on
Year ended Year ended January 1, 1999 to
December 31, 2000 December 31, 1999 December 31, 2000
----------------- ----------------- ------------------
Net increase in cash 3,483,137 904,485 4,387,622
Cash and cash equivalents, beginning of year 904,485 -- --
---------- -------- ----------
Cash and cash equivalents, end of year $4,387,622 $904,485 $4,387,622
========== ======== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 653 $ 17,124 $ 17,777
========== ======== ==========
Income taxes paid $ 1,600 $ 1,823 $ 3,423
========== ======== ==========
Supplemental disclosure of non-cash financing
activities:
Options issued in exchange for services $ 199,311 $ -- $ 199,311
========== ======== ==========
Warrants issued in exchange for services $ 55,000 $ -- $ 55,000
========== ======== ==========
Warrants issued in connection with financing $1,576,309 $ -- $1,576,309
========== ======== ==========
See accompanying independent auditors' report and notes to financial statements.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
(1) Organization:
Conversational Systems, Inc. was incorporated under the laws of the
State of California on April 8, 1991. The Company commenced
operations in 1999.
Effective June 22, 1999, pursuant to a Merger Agreement and Plan of
Reorganization between Dead On, Inc. ("acquiree") and Conversational
Systems, Inc., a California corporation ("acquiror" or the "Company"),
Dead On, Inc. was reversed merged into Conversational Systems,
Inc. The Company accounted for the acquisition of Dead On, Inc. using
the purchase method of accounting. The shares of Conversational
Systems were exchanged for 7,000,000 newly issued shares of Dead On,
Inc. Because the former shareholders of Conversational Systems, Inc.
then became the majority shareholders of Dead On, Inc., Conversational
Systems was treated as the acquiror under APB Opinion No. 16,
"Business Combinations."
In July 1999, the Company repurchased and retired 10,000,000 shares of
its common stock, $.001 par value per share. Due to the retirement of
shares, the former shareholders of Conversational Systems, Inc. have
significant control in Dead On, Inc.
Due to the contemplation and timing of the merger between Dead On,
Inc. and Conversational Systems, Inc. and the retirement of 10,000,000
shares of the Company's common stock, these events were accounted for
as a single transaction.
Conversational Systems, Inc. was liquidated with and into Dead On,
Inc., which then changed its legal name to One Voice Technologies,
Inc.
Going Concern:
The Company's financial statements have been presented on the basis
that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company incurred a net loss of
$9,397,620 during the year ended December 31, 2000. The Company had
an accumulated deficit of $11,179,835. The Company had working
capital of $4,910,160 at December 31, 2000 and negative cash flows
from operations totaling $9,020,259 for the year ended December 31,
2000. These factors raise substantial doubt about the Company's
ability to continue as a going concern unless the Company enters into
a significant revenue bearing contract. Management is currently
seeking additional equity or debt financing. Additionally, management
is currently pursuing revenue bearing contracts utilizing various
applications of its technology, including wireless technology. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
(2) Summary of Significant Accounting Policies:
Business Activity:
The Company develops and markets computer software using Intelligent
Voice Interactive Technology (IVIT(TM)) to website owners in the
United States and other countries.
See accompanying independent auditors' report.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(2) Summary of Significant Accounting Policies, Continued:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Development Stage Enterprise:
The Company is a development stage company as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting substantially
all of its present efforts to establish a new business, which is
unrelated to the business of Dead On, and its planned principal
operations have not yet commenced. All losses accumulated since
inception of One Voice Technologies, Inc. have been considered as part
of the Company's development stage activities.
Fair Value:
The Company's financial instruments consist principally of accounts
payable and notes payable to an individual and related parties as
defined by Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments." The carrying
value of the financial instruments approximate their fair value due to
the short-term nature of these instruments.
Inventory:
Inventory, consisting primarily of headphones, is valued at lower of
cost (first-in, first-out) or market.
Cash:
Equivalents
-----------
For purposes of the statement of cash flows, cash equivalents include
all highly liquid debt instruments with original maturities of three
months or less which are not securing any corporate obligations.
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.
See accompanying independent auditors' report.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(2) Summary of Significant Accounting Policies, Continued:
Revenue Recognition:
The Company recognizes revenues when earned in the period in which the
service is provided. Service and license fees are deferred and
recognized over the life of the agreement. Initial distribution fees
are recognized when the software is delivered.
The Company's revenue recognition policies are in compliance with the
American Institute of Certified Public Accountants ("AICPA") Statement
of Position ("SOP") 97-2, Software Revenue Recognition, as amended by
SOP 98-4 and SOP 98-9.
Deferred Revenue:
The Company sells licensing contracts, which in most instances cover a
period of one year or more. The amount of deferred revenue, as
presented in the financial statements, represents licensing contracts
which have not yet been fulfilled.
Nonmonetary Transactions:
The Company accounts for nonmonetary transactions based on the fair
values of the assets or services involved in accordance with APB No.
29, "Accounting for Nonmonetary Transactions." The cost of a
nonmonetary asset acquired in exchange for another nonmonetary asset
is the fair value of the asset surrendered to obtain it, and a gain or
loss is recognized on the exchange. At December 31, 2000, the Company
recognized $25,000 in revenues and expenses resulting from nonmonetary
transactions.
Advertising and Promotion Costs:
Advertising and promotion costs are expensed as incurred and totaled
$899,727 and $80,488 for the years ended December 31, 2000 and 1999,
respectively.
Property and Equipment:
Property and equipment are valued at cost. Depreciation is being
provided by use of the straight-line method over the estimated useful
lives of the assets, ranging from three to seven years.
Debt with Stock Purchase Warrants:
The proceeds received from debt issued with stock purchase warrants is
allocated between the debt and the warrants, based upon the relative
fair values of the two securities and the balance of the proceeds is
accounted for as additional paid-in capital. The resulting debt
discount is amortized to expense over the term of the debt instrument,
using the interest method. In the event of settlement of such debt in
advance of the maturity date, an expense is recognized based upon the
difference between the then carrying amount (i.e., face amount less
unamortized discount) and amount of payment.
See accompanying independent auditors' report.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(2) Summary of Significant Accounting Policies, Continued:
Software Development Costs:
The Company has adopted Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," ("SFAS No. 86"). SFAS No. 86 requires
the Company to capitalize the direct costs and allocate overhead
associated with the development of software products. Initial costs
are charged to operations as research prior to the development of a
detailed program design or a working model. Costs incurred subsequent
to the product release, and research and development performed under
contract are charged to operations. Capitalized costs are amortized
over the estimated product life of four years on the straight line
basis. Unamortized costs are carried at the lower of book value or net
realizable value.
Amortization expense totaled $78,102 and $0 for the years ended
December 31, 2000 and 1999, respectively.
Trademarks and Patents:
The Company's trademark costs consist of legal fees paid in connection
with trademarks pending. The Company amortizes trademarks using the
straight-line method over the period of estimated benefit, generally
four years. Amortization expense charged for the years ended December
31, 2000 and 1999 totaled $24,845 and $0, respectively.
The Company's patent costs consist of legal fees paid in connection
with a patent pending. The Company amortizes patents using the
straight-line method over the period of estimated benefit, generally
five years. There was no amortization expense charged for the year
ended December 31, 2000, as the patents are pending.
The Company periodically evaluates whether events or circumstances
have occurred that may affect the estimated useful life or the
recoverability of the remaining balance of the patent and trademarks.
Impairment of the assets is triggered when the estimated future
undiscounted cash flows do not exceed the carrying amount of the
intangible asset. If the events or circumstances indicate that the
remaining balance of the assets may be permanently impaired, such
potential impairment will be measured based upon the difference
between the carrying amount of the assets and the fair value of such
assets, determined using the estimated future discounted cash flows
generated.
Loan Fees:
Deferred loan costs are being amortized using the straight-line method
over the life of the loan (three years). Accumulated amortization
totaled $16,667 for the year ended December 31, 2000.
See accompanying independent auditors' report.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(2) Summary of Significant Accounting Policies, Continued:
Comprehensive Loss:
Comprehensive loss consists of net loss only.
Net Income (Loss) Per Share:
For the years ended December 31, 2000 and 1999, the per share data is
based on the weighted average number of common and common equivalent
shares outstanding, and are calculated in accordance with Staff
Accounting Bulletin of the Securities and Exchange Commission (SAB)
No. 98 whereby common stock, options or warrants to purchase common
stock or other potentially dilutive instruments issued for nominal
consideration must be reflected in basic and diluted per share
calculation for all periods in a manner similar to a stock split, even
if anti-dilutive. Accordingly, in computing basic earnings per share,
nominal issuances of common stock are reflected in a manner similar to
a stock split or dividend.
Income Taxes:
Deferred income taxes are reported using the liability method.
Deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
New Accounting Pronouncements:
In December 1999, the Securities and Exchange Commission (the
"Commission") issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements, which is to be applied beginning
with the fourth fiscal quarter of fiscal years beginning after
December 15, 1999, to provide guidance related to recognizing revenue
in circumstances in which no specific authoritative literature exists.
Adoption of this pronouncement did not materially impact the Company's
financial statements.
In March 2000, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 44 (Interpretation 44), "Accounting for
Certain Transactions Involving Stock Compensation". Interpretation 44
provides criteria for the recognition of compensation expense in
certain stock-based compensation arrangements that are accounted for
under APB Opinion No. 25, Accounting for Stock-Based Compensation.
Interpretation 44 is effective July 1, 2000, with certain provisions
that are effective retroactively to December 15, 1998 and January 12,
2000. Interpretation 44 is not expected to have an impact on the
Company's financial statements.
See accompanying independent auditors' report.
F-11
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(2) Summary of Significant Accounting Policies, Continued:
New Accounting Pronouncements, Continued:
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 requires the
Company to recognize all derivatives as either assets or liabilities
and measure those instruments at fair value. It further provides
criteria for derivative instruments to be designated as fair value,
cash flow and foreign currency hedges and establishes respective
accounting standards for reporting changes in the fair value of the
derivative instruments. Upon adoption, the Company will be required
to adjust hedging instruments to fair value in the balance sheet and
recognize the offsetting gains or losses as adjustments to be reported
in net income or other comprehensive income, as appropriate. The
Company is evaluating its expected adoption date and currently expects
to comply with the requirements of SFAS 133 in fiscal year 2001. The
Company does not expect the adoption will be material to the Company's
financial position or results of operations since the Company does not
believe it participates in such activities.
(3) Cash Restricted:
In connection with an Escrow Agreement dated July 14, 1999, former officers
of Dead On, Inc. have placed $200,000 in an escrow account. The funds are
to be used for prior obligations of Dead On, Inc. relating to its apparel,
accessory and sports equipment division which was discontinued in December
1998 (Note 1). The funds are restricted through January 2001 or until all
legal matters have been resolved (Note 14). In the case that no claims are
made against the Company for the prior obligation, the funds will be repaid
to the former officers. Accordingly, the amount has been recorded as a
loan payable at December 31, 2000.
(4) Property and Equipment:
A summary is as follows:
Web host computer equipment $ 443,868
Computer equipment 386,399
Equipment 321,755
Furniture and fixtures 120,243
Website development 35,974
Leasehold improvements 15,222
----------
1,323,461
Less accumulated depreciation and amortization 259,296
----------
$1,064,165
==========
Depreciation and amortization expense totaled $246,374 and $12,922 for the
years ended December 31, 2000 and 1999, respectively.
See accompanying independent auditors' report.
F-12
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(5) Software Licensing Agreements:
In September and October 1999, the Company entered into a 24-month software
licensing agreement with two software developers. The agreement can be
cancelled by either party by giving 60 days written notice. The asset is
being amortized using the straight-line method over the life of the
agreement.
In March 2000, the Company entered into a 36-month software licensing
agreement with a software developer. The agreement can be cancelled by
mutual agreement of the parties at any time. The asset is being amortized
using the straight-line method over the life of the agreement.
Amortization expense related to software licensing agreements totaled
$664,002 and $113,333 for the years ended December 31, 2000 and 1999,
respectively.
(6) Convertible Note Payable:
In October 2000, the Company entered into a purchase agreement with an
investment company to issue a total of $10,000,000 convertible notes
payable with interest at 5% per annum and 231,884 common stock purchase
warrants. Each warrant entitles the holder to purchase one share of the
Company's common stock at an exercise price of $9.76 per share. In October
2000, the Company issued $2,000,000 of convertible notes and the warrants.
A payment of interest only is payable on the conversion dates, as defined
in the agreement. The remaining principal balance of the note is payable
in full in October 2003, at which time the remainder of the note will be
automatically converted to shares of the Company's common stock. The note
is convertible at the option of the holder at any time at the lesser of
$9.76 per share or the average of the 7 lowest volume weighted average
sales prices of the common stock during the past 50 trading days
immediately preceding the notice of conversion. Included in accrued
expenses is approximately $24,000 of accrued interest. The fair value of
the associated warrant was determined based on the Black-Scholes pricing
method at the date of grant. The value of the warrants totaled $1,576,309
and is included in paid-in capital at December 31, 2000. The note, net of
discounts, has an effective interest rate of 75.7%. The discount is being
amortized to interest expense over the life of the note using the interest
rate method. Amortization of the discount totaled approximately $64,000 at
December 31, 2000.
Additional notes may be issued in increments of $2,000,000 provided that,
among other items, the per share market value of the Company's common stock
is not less than $10.00 per share.
In January 2001, $400,000 of the outstanding note was converted to 298,078
shares of the Company's common stock at an average rate of $1.36 per share.
See accompanying independent auditors' report.
F-13
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(7) Common Stock:
In May 1999, the Company commenced a private placement of 1,500,000 shares
of the Company's common stock at a purchase price of $2.00 per share. The
Private Placement was exempt from the registration provisions of the Act by
virtue of Section 4(2) of the Act, as transactions by an issuer not
involving any public offering. The securities issued pursuant to the
Private Placement were restricted securities as defined in Rule 144. The
offering generated proceeds of approximately $2,846,000, net of offering
costs of approximately $154,000. An additional 150,000 shares of the
Company's common stock was issued for services rendered in connection with
this private placement, which was valued at $2.00 per share.
On June 22, 1999, in connection with a Merger Agreement and Plan of
Reorganization with Dead On, Inc., the Company exchanged all of its
outstanding shares of common stock for 7,000,000 newly issued shares of the
common stock of Dead On, Inc. (Note 1).
Pursuant to a plan approved by One Voice Technologies' Board of Directors
in July 1999, the Company repurchased and retired 10,000,000 shares of its
common stock, $.001 par value per share.
In January 2000, the Company entered into a Subscription Agreement with an
unrelated foreign party providing for the sale of 312,500 shares of the
Company's common stock at $6.40 per share and 156,250 common stock purchase
warrants. Each warrant entitles the holder to purchase one share of common
stock at an exercise price of $8.00. The warrants expired on January 5,
2001. Proceeds raised from the shares and warrants total approximately
$1,800,000, net of offering costs of approximately $200,000.
In March 2000, the Company commenced a private placement of approximately
1,000,000 units consisting of 1 share of the Company's common stock and
1/2 common stock purchase warrant for each unit purchased. The Company
raised proceeds totaling approximately $12,146,000, net of offering costs
of approximately $902,000, from the issuance of 988,560 shares of common
stock and 494,280 common stock purchase warrants. Each warrant entitles
the holder to purchase one share of common stock at an exercise price of
$18.00. The warrants expire at various times through April 2001.
(8) Income Taxes:
For federal income tax return purposes, the Company has available net
operating loss carryforwards of approximately $11,500,000, which includes
approximately $323,000 acquired from Dead On, Inc. The net operating loss
carryforwards expire through 2019 and are available to offset future income
tax liabilities.
Temporary differences which give rise to deferred tax assets and
liabilities at December 31, 2000 are as follows:
Net operating loss carryforwards $ 4,600,000
Valuation allowance (4,600,000)
-----------
Net deferred taxes $ --
===========
See accompanying independent auditors' report.
F-14
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(9) Employment Agreement:
In July 1999, the Company entered into an employment agreement with an
officer stockholder of the Company to pay an annual base salary of $180,000
through July 2002. In April 2000, the Board of Directors approved an
increase in the annual base salary to $252,000 and a $75,000 bonus paid in
2000. Increases are determined annually by the Board of Directors.
Under this agreement, salaries totaled $230,686 and $104,505 for the years
ended December 31, 2000 and 1999, respectively.
(10) Consulting Agreement:
In July 1999, the Company entered into a consulting agreement with a
personal service corporation owned by an officer of the Company to pay an
annual consulting fee of $120,000 through July 2002. In April 2000, the
Board of Directors approved an increase in the annual consulting salary to
$180,000 per year and a $75,000 bonus paid in 2000.
Consulting fees totaled $240,000 and $76,650 for the years ended December
31, 2000 and 1999, respectively.
(11) Commitments:
The Company leases its facilities under leases that expire at various times
through October 2005. The following is a schedule by years of future
minimum rental payments required under operating leases that have
noncancellable lease terms in excess of one year as of December 31, 2000:
Year ending December 31,
2001 $ 287,681
2002 294,849
2003 304,615
2004 313,291
2005 266,053
----------
1,466,489
Less sublease income 443,545
----------
$1,022,944
==========
Rent expense amounted to $183,231 and $28,280 for the years ended December
31, 2000 and 1999, respectively.
See accompanying independent auditors' report.
F-15
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(12) Incentive and Nonqualified Stock Option Plan:
On July 14, 1999, the Company enacted an Incentive and Nonqualified Stock
Option Plan (the "Plan") for its employees and consultants under which a
maximum of 1,000,000 options may be granted to purchase common stock of the
Company. Two types of options may be granted under the Plan: (1) Incentive
Stock Options (also know as Qualified Stock Options) which may only be
issued to employees of the Company and whereby the exercise price of the
option is not less than the fair market value of the common stock on the
date it was reserved for issuance under the Plan; and (2) Nonstatutory
Stock Options which may be issued to either employees or consultants of the
Company and whereby the exercise price of the option is greater than 85% of
the fair market value of the common stock on the date it was reserved for
issuance under the plan. Grants of options may be made to employees and
consultants without regard to any performance measures. All options issued
pursuant to the Plan vest at a rate of at least 20% per year over a 5-year
period from the date of the grant or sooner if approved by the Board of
Directors. All options issued pursuant to the Plan are nontransferable and
subject to forfeiture.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement 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 FASB Statement No. 123 for stock options granted to non-
employees and records a consulting expense equal to the fair value of the
options at the date of grant.
During 2000, the Company granted 53,725 stock options exercisable at an
average exercise price of $10.22 to consultants for professional services
provided to the Company. The options expire at various times through 2003.
The options were valued using the Black-Scholes method at the date of
grant. The Company recorded consulting service expense totaling $199,311
for the year ended December 31, 2000.
The number and weighted average exercise prices of options granted under
the plan for the years ended December 31, 2000 and 1999 are as follows:
2000 1999
---------------- ----------------
Average Average
Exercise Exercise
Number Price Number Price
-------- ------ -------- ------
Outstanding at beginning of the year 400,500 $6.01 -- $ --
Outstanding at end of the year 916,325 6.51 400,500 6.01
Exercisable at end of the year 338,395 6.76 225,000 6.08
Granted during the year 563,825 6.86 400,500 6.01
Terminated during the year 48,000 5.85 -- --
Exercised during the year -- -- -- --
See accompanying independent auditors' report.
F-16
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(12) Incentive and Nonqualified Stock Option Plan, Continued:
Pro forma information regarding the effect on operations is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. Pro
forma information using the Black-Scholes method at the date of grant based
on the following assumptions:
Expected life 3 Years
Risk-free interest rate 5.88%
Dividend yield -
Volatility 126%
This option valuation model requires input of highly subjective
assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing model does
not necessarily provide a reliable single measure of fair value of its
employee stock options.
For purposes of FASB 123 pro forma disclosures, the estimated fair value of
the options is amortized to expense over the option's vesting period. The
Company's proforma information is as follows:
December 31, 2000
------------------
Net loss, as reported $ (9,397,620)
Pro forma net loss $(10,087,271)
Basic and diluted historical loss per share $ (.76)
Pro forma basic and diluted loss per share $ (.81)
(13) Warrants:
At December 31, 2000, the Company had warrants outstanding that allow the
holders to purchase up to 882,414 shares of common stock at exercise prices
ranging from $8 to $18, expiring through October 2005.
See accompanying independent auditors' report.
F-17
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000
(13) Warrants, Continued:
The number and weighted average exercise prices of the warrants for the
year ended December 31, 2000 are as follows:
2000
------------------
Average
Exercise
Number Price
--------- --------
Outstanding at beginning of the year -- $ --
Outstanding at end of the year 882,414 14.06
Exercisable at end of the year 882,414 14.06
Granted during the year 882,414 14.06
Exercised during the year -- --
Terminated during the year -- --
(14) Contingencies:
During 2000, a financial consulting firm filed a Complaint against the
Company, alleging that the Company entered into an exclusive financing
agreement wherein the plaintiff agreed to assist in the placement of common
stock financing for the Company. The Complaint also alleges that the
Company subsequently consummated a financing with a third party. The
plaintiff alleges that this financing created a duty on the part of the
Company to compensate the plaintiff to the extent provided in the financing
agreement. The Complaint seeks damages of $160,000, and warrants to
purchase 100,000 shares at $16.50 per share of the Company's common stock.
At present, the litigation is in the preliminary stages, and management and
legal counsel are presently unable to predict the outcome.
The Company is party to various legal proceedings arising from the
continued and discontinued operations of the Company. Although the ultimate
disposition of these proceedings is not determinable, management, based on
advice of legal counsel, does not believe that adverse determinations in
any or all of such proceedings will have a material adverse effect on the
financial position of the Company.
(15) Subsequent Event:
In March 2001, $100,000 of the outstanding debenture in Note 6 was
converted to 85,654 shares of the Company's common stock at an average rate
of $1.19 per share.
See accompanying independent auditors' report.
F-18
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - SEPTEMBER 30, 2001
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,534,376
Licensing revenue receivable 721
Inventory 109,451
Prepaid advertising 33,331
Prepaid expenses 200,432
---------------
Total current assets $ 1,878,311
Property and equipment, net of
accumulated depreciation and amortization 843,953
Other assets:
Software licensing, net of accumulated amortization 11,525
Software development costs, net of accumulated amortization 1,196,521
Deposits 48,302
Trademarks, net of accumulated amortization 150,557
Patents 57,140
---------------
Total other assets 1,464,045
--------------
$ 4,186,309
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities -
accounts payable and accrued expenses $ 467,376
8% convertible note payable, due September 7, 2003 600,000
Less unamortized discount (296,050)
---------------
303,950
8% convertible note payable, due September 28, 2003 500,000
Less unamortized discount (265,350)
---------------
234,650
5% convertible note payable, due October 3, 2003 1,000,000
Less unamortized discount (744,533)
---------------
255,467
Stockholders' equity:
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding -
Common stock; $.001 par value, 50,000,000 shares
authorized, 14,659,651 shares issued and outstanding 14,659
Additional paid-in capital 20,457,564
Deficit accumulated during development stage (17,547,357)
---------------
Total stockholders' equity 2,924,866
--------------
$ 4,186,309
==============
See accompanying notes to unaudited financial statements.
F-19
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended Three months ended From inception on
September 30, September 30, January 1, 1999 to
2001 2000 2001 2000 September 30, 2001
---- ---- ---- ---- ------------------
Net revenues $ 185,678 $ - $ 60,818 $ - $ 262,294
Cost of revenues 25,950 - 1,970 - 139,130
---------------- ---------------- --------------- --------------- ----------------
Gross profit 159,728 - 58,848 - 123,164
General and administrative expenses 6,527,250 5,450,363 2,402,994 2,222,451 17,670,521
---------------- ---------------- --------------- --------------- ----------------
Net loss $ (6,367,522) $ (5,450,363) $ (2,344,146) $ (2,222,451) $ (17,547,357)
================ ================ =============== =============== ================
Net loss per share, basic and diluted $ (0.46) $ (0.44) $ (0.16) $ (0.18)
================ ================ =============== ==============
Weighted average shares outstanding,
basic and diluted 13,723,297 12,338,181 14,582,506 12,671,060
================ ================ =============== ===============
See accompanying notes to unaudited financial statements.
F-20
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Deficit
accumulated
Common stock Additional during Total
------------ paid-in development stockholders'
Shares Amount capital stage equity
------ ------ ------- ----- ------
Balance at January 1, 1999 12,720,000 $ 12,720 $ $ $ 12,720
Net proceeds from issuance of
common stock in connection
with merger 7,000,000 7,000 106,236 113,236
Net proceeds from issuance of
common stock 1,500,000 1,500 2,544,422 2,545,922
Net issuance of common stock in
exchange for services 150,000 150 299,850 300,000
Redemption of common stock (10,000,000) (10,000) (10,000)
Net loss for the year ended
December 31, 1999 (1,782,215) (1,782,215)
-------------- -------------- --------------- --------------- --------------
Balance at December 31, 1999 11,370,000 11,370 2,950,508 (1,782,215) 1,179,663
Net proceeds from issuance of
common stock and warrants 312,500 313 1,779,523 1,779,836
Net proceeds from issuance of
common stock and warrants 988,560 988 12,145,193 12,146,181
Issuance of warrants in exchange
for services 55,000 55,000
Issuance of options in exchange
for services 199,311 199,311
Issuance of warrants in connection
with financing 1,576,309 1,576,309
Net loss for the year ended
December 31, 2000 (9,397,620) (9,397,620)
-------------- -------------- --------------- --------------- --------------
Balance at December 31, 2000 12,671,060 12,671 18,705,844 (11,179,835) 7,538,680
See accompanying notes to unaudited financial statements.
F-21
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
Deficit
accumulated
Common stock Additional during Total
------------ paid-in development stockholders'
Shares Amount capital stage equity
------ ------ ------- ----- ------
Issuance of stock in exchange
for debt 383,732 384 128,999 129,383
Issuance of options in exchange
for services 7,841 7,841
Issuance of stock in exchange
for debt 515,143 515 86,468 86,983
Net proceeds from issuance of
common stock and warrants 702,350 702 839,318 840,020
Issuance of options in exchange
for services 7,841 7,841
Issuance of stock from conversion
of debt to equity 277,366 277 174,723 175,000
Issuance of warrants in connection
with financing 92,400 92,400
Beneficial conversion feature of
debt to equity related to financing 325,000 325,000
Issuance of common shares for
legal settlement 110,000 110 81,290 81,400
Issuance of options in exchange
for services 7,840 7,840
Net loss for the nine months ended
September 30, 2001 (6,367,522) (6,367,522)
-------------- -------------- --------------- --------------- --------------
Balance at September 30, 2001 14,659,651 $ 14,659 $ 20,457,564 $ (17,547,357) $ 2,924,866
============== ============== =============== =============== ==============
See accompanying notes to unaudited financial statements.
F-22
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Nine months ended Nine months ended January 1, 1999 to
September 30, 2001 September 30, 2000 September 30, 2001
------------------ ------------------ ------------------
Cash flows provided by (used for)
operating activities:
Net loss $ (6,367,522) $ (5,450,363) $ (17,547,357)
-------------- ---------------- ---------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 958,896 686,570 2,115,141
Amortization of discount on note payable 342,892 - 406,475
Options/shares issued in exchange for services 104,922 160,883 304,233
Warrants issued in exchange for services - - 55,000
Impairment loss related to customer lists 500,000 - 500,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Licensing revenue receivable 324,280 - 74,280
Advertising revenue receivable - - (75,000)
Inventory 6,424 (98,038) (109,451)
Prepaid advertising 150,000 (190,556) (33,331)
Prepaid mailing lists - - (750,000)
Prepaid expenses 52,824 (644,651) (200,432)
Deposits (315) (21,085) (48,302)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (331,298) 90,531 467,376
Deferred revenue (56,250) - 250,000
-------------- ---------------- ---------------
Total adjustments 2,052,375 (16,346) 2,955,989
-------------- ---------------- ---------------
Net cash used for operating activities (4,315,147) (5,466,709) (14,591,368)
-------------- ---------------- ---------------
Cash flows used for investing activities:
Purchase of property and equipment (63,694) (1,086,755) (1,387,155)
Software licensing - (667,231) (1,139,309)
Software development costs (262,278) (727,646) (1,560,224)
Trademarks (6,357) (158,325) (214,343)
Patents (1,790) (8,177) (57,140)
Loan fees - - (200,000)
Increase in escrow account 200,000 - -
-------------- ---------------- ---------------
Net cash used for investing activities (134,119) (2,648,134) (4,558,171)
-------------- ---------------- ---------------
Cash flows provided by (used for) financing
activities:
Proceeds from issuance of common stock, net 840,020 13,964,956 17,737,915
Proceeds from convertible note payable 956,000 - 2,956,000
Retirement of common stock, net - - (10,000)
Proceeds from (payments on) loans payable
including officer-stockholders (200,000) (14,500) -
-------------- ---------------- ---------------
Net cash provided by financing activities 1,596,020 13,950,456 20,683,915
-------------- ---------------- ---------------
(Continued)
See accompanying notes to unaudited financial statements.
F-23
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Nine months ended Nine months ended January 1, 1999 to
September 30, 2001 September 30, 2000 September 30, 2001
------------------ ------------------ ------------------
Net increase (decrease) in cash (2,853,246) 5,835,613 1,534,376
Cash and cash equivalents, beginning of year 4,387,622 904,485 -
-------------- ---------------- ---------------
Cash and cash equivalents, end of year $ 1,534,376 $ 6,740,098 $ 1,534,376
============== ================ ===============
Supplemental disclosure of cash flow information:
Interest paid $ 1,266 $ 66 $ 20,343
============== ================ ===============
Income taxes paid $ - $ 1,600 $ 4,223
============== ================ ===============
Supplemental disclosure of non-cash financing
activities:
Warrants issued in exchange for services $ - $ - $ 55,000
============== ================ ===============
Options/Shares issued in exchange for services $ 23,522 $ 160,883 $ 222,833
============== ================ ===============
Common stock issued in exchange for debt $ 391,365 $ - $ 391,365
============== ================ ===============
Warrants issued in connection with financing $ 394,400 $ - $ 1,970,709
============== ================ ===============
Beneficial conversion feature of debt to equity $ 325,000 $ - $ 325,000
============== ================ ===============
Common shares issued for settlement $ 81,400 $ - $ 81,400
============== ================ ===============
See accompanying notes to unaudited financial statements.
F-24
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2001
(1) Organization:
Conversational Systems, Inc. was incorporated under the laws of
the State of California on April 8, 1991. The Company commenced
operations in 1999.
Effective June 22, 1999, pursuant to a Merger Agreement and Plan
of Reorganization between Dead On, Inc. ("acquiree") and
Conversational Systems, Inc. a California corporation ("acquiror"
or the "Company"), Dead On, Inc. has been reversed merged into
Conversational Systems, Inc. The Company accounted for the
acquisition of Dead On, Inc. using the purchase method of
accounting. The shares of Conversational Systems were exchanged
for 7,000,000 newly issued shares of Dead On, Inc. Because the
former shareholders of Conversational Systems, Inc. then became
the majority shareholders of Dead On, Inc., Conversational
Systems was treated as the acquiror under APB Opinion No. 16,
"Business Combinations."
In July 1999, the Company repurchased and retired 10,000,000
shares of its common stock, $.001 par value per share. Due to the
retirement of shares, the former shareholders of Conversational
Systems, Inc. have significant control in Dead On, Inc.
Due to the contemplation and timing of the merger between Dead
On, Inc. and Conversational Systems, Inc. and the retirement of
10,000,000 shares of the Company's common stock, these events
were accounted for as a single transaction.
Conversational Systems, Inc. was liquidated with and into Dead
On, Inc., which then changed its legal name to One Voice
Technologies, Inc.
(2) Summary of Significant Accounting Policies:
Interim Financial Statements:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the
results of operations for the periods presented. Interim results
are not necessarily indicative of the results to be expected for
a full year. The financial statements should be read in
conjunction with the financial statements included in the annual
report of One Voice Technologies, Inc. (the "Company") on Form
10-KSB for the year ended December 31, 2000.
Business Activity:
The Company develops and markets computer software using
Intelligent Voice Interactive Technology (IVIT(TM)) to website
owners in the United States and other countries.
F-25
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(2) Summary of Significant Accounting Policies, Continued:
Revenue Recognition:
The Company recognizes revenues when earned in the period in
which the service is provided. Service fees are deferred and
recognized over the life of the service agreement. Initial
distribution fees are recognized when the software is delivered.
(3) Convertible Notes Payable:
5% Convertible Note Payable
---------------------------
For the three quarterly periods ended September 30, 2001, listed below
are the principal balances that were converted from debt to equity. The
original debt securities were issued in 2000.
Month of Conversion Principal Converted Shares Converted To Avg. rate per share
------------------- ------------------- ------------------- -------------------
March 2001 $500,000 383,732 $ 1.30
May 2001 40,000 61,471 0.65
May 2001 135,000 215,639 0.63
May 2001 100,000 158,541 0.63
June 2001 50,000 79,492 0.63
July 2001 175,000 277,366 0.63
8% Convertible Note Payable
---------------------------
On September 7, 2001, the Company entered into a subscription agreement
with Laurus Master Fund, Ltd., a Cayman Island corporation for the sale
of (i) a $600,000 convertible note and (ii) warrants to purchase
100,000 shares of the Company's common stock. The Company recorded net
proceeds of $511,750.
The note bears interest at 8% and is convertible into common stock at
the lesser of:
a) $0.51; or
b) 80% of the average of the three lowest closing prices of the
common stock for the thirty trading days immediately prior
to the conversion date.
The unconverted portion of the note is due September 7, 2003.
The warrants have an exercise price of:
a) $0.82; or
b) 120% of the three lowest closing price of the common stock
for the ten trading days prior to the exercise of the
warrant.
F-26
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(3) Convertible Notes Payable, Continued:
Using the Black Scholes Option Pricing Model, the fair value of the
warrant amounted to $0.578 per share or total consideration of $57,800.
This amount has been recorded as a discount against the face value of
the note payable. In addition, since this debt is convertible into
equity at the option of the note holder at conversion rates mentioned
above, a beneficial conversion feature of $175,000 has been recorded as
a debt discount and is being amortized using the effective interest
rate over the life of the debt in accordance with EITF 00-27.
8% Convertible Note Payable
---------------------------
On September 28, 2001, the Company entered into a subscription
agreement with Stonestreet Limited Partnership, an Ontario limited
partnership, for the sale of (i) a $500,000 convertible note and (ii)
warrants to purchase 83,333 shares of the Company's common stock. The
Company recorded net proceeds of $444,250.
The note bears interest at 8% and is convertible into common stock at
the lesser of:
a) $0.34; or
b) 80% of the average of the three lowest closing prices of the
common stock for the thirty trading days immediately prior
to the conversion date.
The unconverted portion of the note is due September 28, 2003.
The warrants have an exercise price of:
c) $0.515; or
d) 120% of the three lowest closing prices of the common stock
for the ten trading days prior to the exercise of the
warrant.
Using the Black Scholes Option Pricing Model, the fair value of the
warrant amounted to $0.415 per share or total consideration of $34,600.
This amount has been recorded as a discount against the face value of
the note payable. In addition, since this debt is convertible into
equity at the option of the note holder at conversion rates mentioned
above, a beneficial conversion feature of $150,000 has been recorded as
a debt discount and is being amortized using the effective interest
rate over the life of the debt in accordance with EITF 00-27.
(4) Common Stock:
In June 2001, the Company raised proceeds of approximately $840,000,
which is net of offering costs of approximately $73,000, from the
issuance of 702,350 shares through a private placement offering of its
restricted stock. The offering price was $1.30 per share. The Company
also issued 702,350 warrants (valued using the Black-Scholes method at
the date of grant) to the investors, which have an exercise price of
$0.86 per share and expire on June 30, 2002.
Subsequent Events:
During the period from October 1, 2001 to December 7, 2001,
outstanding convertible notes payable and related accrued interest
aggregating $723,938 was converted into 3,870,909 shares of common
stock at conversion rates ranging from $0.1712 to $0.3168 per share.
F-27
================================================================================
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from the
information contained in this prospectus. This document may only be used where
it is legal to sell the securities. The information in this document may
only be accurate on the date of this document.
TABLE OF CONTENTS
Page
----
Prospectus Summary......................................................... 2
Risk Factors............................................................... 4
Use of Proceeds............................................................ 12
Market for Common Equity and Related
Stockholder Matters................................................... 13
Management's Discussion and Analysis or
Plan of Operation..................................................... 14
Business................................................................... 18
Management................................................................. 23
Certain Relationships and Related Transactions............................. 25
Security Ownership of Certain Beneficial
Owners and Management................................................. 26
Description of Securities.................................................. 26
Plan of Distribution....................................................... 27
Selling Stockholders....................................................... 29
Legal Matters.............................................................. 32
Experts.................................................................... 32
Available Information...................................................... 32
Index to Financial Statements.............................................. F-1
3,885,286 SHARES
OF OUR
COMMON STOCK
One Voice
Technologies, Inc.
6333 Greenwich Drive, Suite 240
San Diego, California 92122
(858) 552-4466
________________
PROSPECTUS
________________
December __, 2001
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under the Nevada General Corporation Law and our Articles of
Incorporation, as amended, and our Bylaws, our directors will have no personal
liability to us or our stockholders for monetary damages incurred as the result
of the breach or alleged breach by a director of his "duty of care." This
provision does not apply to the directors' (i) acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law, (ii) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its stockholders or that involve the absence of good faith on the
part of the director, (iii) approval of any transaction from which a director
derives an improper personal benefit, (iv) acts or omissions that show a
reckless disregard for the director's duty to the corporation or its
stockholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its stockholders, (v) acts or omissions
that constituted an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its stockholders, or
(vi) approval of an unlawful dividend, distribution, stock repurchase or
redemption. This provision would generally absolve directors of personal
liability for negligence in the performance of duties, including gross
negligence.
The effect of this provision in our Articles of Incorporation and
Bylaws is to eliminate the rights of our Company and our stockholders (through
stockholder's derivative suits on behalf of our Company) to recover monetary
damages against a director for breach of his fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (vi) above.
This provision does not limit nor eliminate the rights of our Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, our Bylaws
provide that if the Nevada General Corporation Law is amended to authorize the
future elimination or limitation of the liability of a director, then the
liability of the directors will be eliminated or limited to the fullest extent
permitted by the law, as amended. The Nevada General Corporation Law grants
corporations the right to indemnify their directors, officers, employees and
agents in accordance with applicable law.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance and
distribution of the securities being registered:
Nature of Expense Amount
---------------------------------- -----------------
SEC Registration fee $ 737
Accounting fees and expenses 5,000*
Legal fees and expenses 8,000*
Printing and related expenses 3,000*
-----------------
TOTAL $ 16,737
=================
* Estimated.
Item 26. Recent Sales of Unregistered Securities.
In September 1998, we offered and sold 220,000 shares of common stock
at $.25 per share to a non-affiliated investor for net proceeds of $55,000. The
Company relied on an exemption from registration pursuant to Regulation S as the
basis of exemption from registration. Regulation S was available to this
investor as the sale was made outside of the United States to an investor who
was not a U.S. resident, citizen or corporation, nor were any officers or
directors of the investing corporation U.S. residents or citizens.
From the period of approximately May 1, 1999 until July 14, 1999, we
offered and sold 1,500,000 shares of restricted stock at $2.00 per share to
thirty-two non-affiliated private investors. Each investor completed a
II-1
subscription confirmation letter and private placement subscription agreement
whereby the investors certified that they were purchasing the shares for their
own accounts and that the investors were accredited as defined. This offering
was not accompanied by general advertisement or general solicitation. The
Company relied on Section 4(2) of the Securities Act of 1993, as amended (the
"Act") as the basis of exemption from registration. The offering generated
proceeds, net of offering costs, of approximately $2,846,000. An additional
150,000 shares of the Company's common stock was issued for services rendered in
connection with this private placement, which was valued at $2.00 per share.
On June 22, 1999, in connection with a Merger Agreement and Plan of
Reorganization with Dead On, Inc., all of the outstanding shares of common stock
of Conversational Systems, Inc. were exchanged for 7,000,000 newly-issued shares
of our common stock. We relied on Section 4(2) of the Act as the basis of
exemption from registration.
In January 2000, we offered and sold 312,500 shares of common stock at
$6.40 per share and 156,250 common stock purchase warrants to a non-affiliated
institutional investor raising net proceeds of $1,800,000. Each warrant entitles
the holder to purchase one share of common stock at an exercise price of $8.00.
The institutional investor completed a subscription confirmation letter and
private placement subscription agreement whereby the investor certified that it
was purchasing the shares for its own account and that the investor was
accredited and sophisticated as defined. This offering was not accompanied by
general advertisement or general solicitation. We relied on Section 4(2) of the
Act as the basis of exemption from registration.
In March 2000, we offered approximately 1 million units consisting of
one share of our common stock and one-half common stock purchase warrant for
each unit purchased. We received net proceeds of $12,146,181 from the issuance
of 988,560 shares of common stock and 494,280 common stock purchase warrants in
reliance on Section 4(2) of the Act as the basis of exemption from registration.
Each warrant entitles the holder to purchase one share of our common stock at an
exercise price of $18.00.
In October 2000, we entered into an agreement for the issuance of an
initial amount of $2,000,000 worth of 5% Convertible Debentures and 231,884
common stock purchase warrants with the Selling Stockholders in reliance on
Section 4(2) of the Act and Rule 506. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $9.76. Under the
Securities Purchase Agreement, additional 5% Convertible Debentures and common
stock purchase warrants may be offered to the Selling Stockholders for total
gross proceeds from this offering of up to $10,000,000. The Selling Stockholders
represented to us that they were accredited investors as defined in the Act and
that they were able to protect their own interests in connection with the
investment. The shares underlying this private placement are being registered in
this registration statement. The commission for the transaction was 10%
($200,000) and a common stock purchase warrant for 23,188 shares of our stock at
an exercise price per share of $9.76.
On August 3, 2001, we entered into a settlement agreement with Dominick
& Dominick LLC, to be effective September 1, 2001, pursuant to which we issued
110,000 shares of common stock and 300,000 common stock purchase warrants. We
relied on Section 4(2) of the Act as a basis of exemption from registration.
150,000 of the warrants entitle the holder to purchase one share of common stock
at an exercise price of $1.50 and 150,000 of the warrants entitle the holder to
purchase one share of common stock at an exercise price of $2.00.
In September 2001, we entered into a securities purchase agreement with
the Laurus Master Fund, Ltd. for the issuance of a $600,000 8% convertible
debenture and 100,000 common stock purchase warrants in reliance on Section 4(2)
of the Act and Rule 506. Each warrant entitles the holder to purchase one share
of common stock at an exercise price of $.515. The commission for the
transaction was 10% ($60,000) and a common stock purchase warrant for 100,000
shares of our stock at an exercise price per share of $.515.
In September 2001, we entered into a securities purchase agreement with
the Stonestreet Limited Partnership for the issuance of a $500,000 8%
convertible debenture and 83,333 common stock purchase warrants in reliance on
Section 4(2) of the Act and Rule 506. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $.515. The commission
for the transaction was 10% ($50,000) and a common stock purchase warrant for
83,333 shares of our stock at an exercise price per share of $.515.
II-2
Except as expressly set forth above, the individuals and entities to
whom we issued securities as indicated in this section of the registration
statement are unaffiliated with us.
Item 27. Exhibits.
The following exhibits are included as part of this Form SB-2.
References to "the Company" in this Exhibit List mean One Voice Technologies,
Inc., a Nevada corporation.
Exhibit No. Description
----------- -----------
PLANS OF ACQUISITION
2.1 Merger Agreement and Plan of Reorganization
with Conversational Systems, Inc. dated
June 22, 1999 (incorporated by reference to
Exhibit 2.1 of our Form SB-2, filed
November 11, 2001).
ARTICLES OF INCORPORATION AND BYLAWS
3.1 Articles of Incorporation of Belridge
Holdings Corp. filed with the Nevada
Secretary of State on August 23, 1995
(incorporated by reference to Exhibit 3(i)
to our Form 10-SB filed October 7, 1999).
3.2 Certificate of Amendment of Articles of
Incorporation of Belridge Holdings Corp.
changing its name to Dead On, Inc.
(incorporated by reference to Exhibit 3(i)
to our Form 10-SB filed October 7, 1999).
The Certificate originally filed on
September 25, 1998, was canceled and re-
filed with the Nevada Secretary of State on
June 10, 1999.
3.3 Articles of Merger for the merger of
Conversational Systems, Inc. into Dead On,
Inc. filed with the Nevada Secretary of
State on July 14, 1999 with supporting
documents (incorporated by reference to
Exhibit 2 to our Form 10-SB, filed October
7, 1999). This document changed the name of
the surviving entity, Dead On, Inc., to
ConversIt.com, Inc.
3.4 Certificate of Amendment of Articles of
Incorporation of ConversIt.com, Inc.
changing its name to One Voice Technologies,
Inc. (incorporated by reference to Exhibit 2
to our Form 10-SB filed October 7, 1999).
3.5 Bylaws of Belridge Holdings Corp.
(incorporated by reference to Exhibit 3(ii)
of our Form 10-SB, filed October 7, 1999).
3.6 Amendment to Bylaws dated July 11, 2000
(excerpted) (incorporated by reference to
Exhibit 4.3 of our Form S-8, filed October
3, 2000).
INSTRUMENTS DEFINING RIGHTS OF SECURITY
HOLDERS
4.1 Common Stock Purchase Warrant with Veritas
SG Investments from the January 2000
offering (incorporated by reference to
Exhibit 4.1 of our Form SB-2, filed November
11, 2000).
4.2 Form of Common Stock Purchase Warrant from
the March 2000 offering (incorporated by
reference to Exhibit 4.1 of our Form SB-2,
filed November 11, 2000).
II-3
Exhibit No. Description
----------- -----------
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). The Form of Warrant was used for
the warrants issued to Liberty Holding Corp,
Somerset Capital Group LLC, Steven
Fuerbacher and the David Rosenberg
Irrevocable Trust.
4.4 $600,000 8% Convertible Note issued to the
Laurus Master Fund, Ltd. (incorporated by
reference to Exhibit 4.4 to our Form SB-2
filed September 20, 2001).
4.5 Common Stock Purchase Warrant issued to the
Laurus Master Fund, Ltd. (incorporated by
reference to Exhibit 4.4 to our Form SB-2
filed September 20, 2001).
4.6 Securities Purchase Agreement with the
Laurus Master Fund, Ltd. (incorporated by
reference to Exhibit 4.4 to our Form SB-2
filed September 20, 2001).
4.7 $500,000 8% Convertible Note issued to the
Stonestreet Limited Partnership
(incorporated by reference to Exhibit 4.7 to
our Form SB-2 filed September 20, 2001).
4.8 Common Stock Purchase Warrant issued to the
Stonestreet Limited Partnership
(incorporated by reference to Exhibit 4.8 to
our Form SB-2 filed November 20, 2001).
4.9 Securities Purchase Agreement with the
Stonestreet Limited Partnership
(incorporated by reference to Exhibit 4.9 to
our Form SB-2 filed November 20, 2001).
4.10 Settlement Agreement with Dominick &
Dominick LLC (filed herewith).
4.11 Common Stock Purchase Warrant issued to
Dominick & Dominick LLC (filed herewith).
4.12 Agreement as to Registration Rights with
Dominick & Dominick LLC (filed herewith).
OPINION REGARDING LEGALITY
5.1 Luce, Forward, Hamilton & Scripps LLP
Opinion and Consent (filed herewith).
MATERIAL CONTRACTS
10.1 Employment Agreement with Dean Weber dated
July 14, 1999 (incorporated by reference to
Exhibit 10 to our Form 10-SB, filed
II-4
Exhibit No. Description
----------- ------------
October 7, 1999). This agreement was amended
on April 10, 2000, to increase Mr. Weber's
annual salary to $252,000.
10.2 Consulting Agreement with KJN Management
Ltd. For the services of Rahoul Sharan dated
July 14, 1999 (incorporated by reference to
Exhibit 10 to our Form 10-SB, filed October
7, 1999). This agreement was amended on
April 10, 2000, to increase the annual
consulting fee to $180,000.
10.3 Software Agreement with IBM/OEM dated
September 21, 1999 (incorporated by
reference to our Form SB-2 filed on November
20, 2000).
10.4 Software License Agreement with Philips
Speech Processing dated March 3, 2000
(incorporated by reference to our Form SB-2
filed on 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).
CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of independent auditors (filed
herewith).
23.2 Consent of legal counsel (see Exhibit 5).
Item 28. Undertakings.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement, and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-5
(4) For purposes of determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of San
Diego, State of California, on January 3, 2002.
Date: January 3, 2002 ONE VOICE TECHNOLOGIES, INC.
By: /s/ Dean Weber
----------------------------
Dean Weber, President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below hereby constitutes and appoints Dean Weber as his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do them in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or any
of them, or their or his substitute or substitutes, shall do or cause to be done
by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
/s/ Dean Weber Chief Executive Officer and Director January 3, 2002
---------------------------------
Dean Weber
/s/ Rahoul Sharan Chief Financial Officer and Director January 3, 2002
---------------------------------
Rahoul Sharan
/s/ George H. Kaelin, III Director January 3, 2002
---------------------------------
George H. Kaelin, III
/s/ Bradley J. Ammon Director January 3, 2002
---------------------------------
Bradley J. Ammon
II-7