As Filed with the Securities and Exchange Commission on August 14, 2002
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NO. 0-27589
-----------------------
ONE VOICE TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 95-4714338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6333 GREENWICH DRIVE, STE. 240, SAN DIEGO, CA 92122
(Address of Principal Executive Offices)
(858) 552-4466
(Issuer's Telephone Number)
(858) 552-4474
(Issuer's Facsimile Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of August 12, 2002, the registrant had 33,650,076 shares of common stock,
$.001 par value, issued and outstanding.
Transitional small business disclosure format (check one): Yes [ ] No [X]
================================================================================
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Page No.
--------
Balance Sheet F-2
Statements of Operations F-3
Statement of Stockholders' Equity F-4
Statements of Cash Flows F-7
Notes to Financial Statements F-9
F-1
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - JUNE 30, 2002
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 770,236
Accounts receivable 305
Inventory 79,387
Prepaid expenses 177,688
-------------
Total current assets $ 1,027,616
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 567,550
OTHER ASSETS:
Software licensing, net of accumulated amortization 9,800
Software development costs, net of accumulated amortization 904,959
Deposits 52,068
Trademarks, net of accumulated amortization 131,958
Patents 61,990
-------------
Total other assets 1,160,775
-------------
$ 2,755,941
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
accounts payable and accrued expenses $ 623,184
4% CONVERTIBLE NOTE PAYABLE, due January 7, 2004 $ 8,427
Less unamortized discount (6,320)
-------------
2,107
4% CONVERTIBLE NOTE PAYABLE, due January 7, 2004 152,500
Less unamortized discount (114,375)
-------------
38,125
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, 32,336,792 shares issued and outstanding 32,512
Additional paid-in capital 25,762,324
Deficit accumulated during development stage (23,702,311)
-------------
Total stockholders' equity 2,092,525
-------------
$ 2,755,941
-------------
See accompanying notes to financial statements.
F-2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED FROM INCEPTION ON
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JANUARY 1, 1999 TO
2002 2001 2002 2001 JUNE 30, 2002
------------- ------------- ------------- ------------- -------------
REVENUES $ 284,931 $ 124,860 $ 306 $ 61,162 $ 547,481
COST OF REVENUES 30,185 23,980 -- 3,329 169,375
------------- ------------- ------------- ------------- -------------
GROSS PROFIT 254,746 100,880 306 57,833 378,106
------------- ------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE EXPENSES 3,998,943 4,124,257 2,110,846 1,832,494 24,080,417
------------- ------------- ------------- ------------- -------------
NET LOSS $ (3,744,197) $ (4,023,377) $ (2,110,540) $ (1,774,661) $(23,702,311)
============= ============= ============= ============= =============
NET LOSS PER SHARE, basic and diluted $ (0.13) $ (0.31) $ (0.07) $ (0.13)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON EQUIVALENT
SHARES OUTSTANDING - BASIC AND DILUTED 28,013,414 13,106,333 30,222,468 13,301,047
============= ============= ============= =============
See accompanying notes to financial statements.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Deficit
accumulated
Common stock Additional during Total
----------------------------- paid-in development stockholders'
Shares Amount capital stage equity
------------- ------------- ------------- ------------- -------------
Balance at January 1, 1999 12,720,000 $ 12,720 $ -- $ -- $ 12,720
Net proceeds from issuance of
common stock in connection
with merger 7,000,000 7,000 106,236 -- 113,236
Net proceeds from issuance of
common stock 1,500,000 1,500 2,544,422 -- 2,545,922
Net issuance of common stock in
exchange for services 150,000 150 299,850 -- 300,000
Redemption of common stock (10,000,000) (10,000) -- -- (10,000)
Net loss for the year ended
December 31, 1999 -- -- -- (1,782,215) (1,782,215)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 11,370,000 11,370 2,950,508 (1,782,215) 1,179,663
Net proceeds from issuance of
common stock and warrants 312,500 313 1,779,523 -- 1,779,836
Net proceeds from issuance of
common stock and warrants 988,560 988 12,145,193 -- 12,146,181
Issuance of warrants in exchange
for services -- -- 55,000 -- 55,000
Issuance of options in exchange
for services -- -- 199,311 -- 199,311
Issuance of warrants in connection
with financing -- -- 1,576,309 -- 1,576,309
Net loss for the year ended
December 31, 2000 -- -- -- (9,397,620) (9,397,620)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 2000 12,671,060 12,671 18,705,844 (11,179,835) 7,538,680
(Continued)
See accompanying notes to financial statements.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Deficit
accumulated
Common stock Additional during Total
----------------------------- paid-in development stockholders'
Shares Amount capital stage equity
------------- ------------- ------------- ------------- -------------
Conversion of debt to equity, net
of unamortized debt discount 3,220,765 3,220 571,867 -- 575,087
Issuance of options in exchange
for services -- -- 58,864 -- 58,864
Issuance of stock and warrants in
Connection with settlement 110,000 110 247,940 -- 248,050
Proceeds from sale of common stock
and warrants, net of offering costs 702,350 702 839,318 -- 840,020
Issuance of warrants in connection
with debt financing -- -- 92,400 -- 92,400
Beneficial conversion feature
embedded in debt securities -- -- 417,450 -- 417,450
Conversion of debt to
equity - Laurus Master Fund 3,402,600 3,403 595,399 -- 598,802
Conversion of debt to equity -
Stonestreet Capital 2,973,780 2,974 506,137 -- 509,111
Net loss for the year ended
December 31, 2001 -- -- -- (8,778,279) (8,778,279)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 2001 23,080,555 23,080 22,035,219 (19,958,114) 2,100,185
Conversion of debt to equity 2,624,447 2,624 309,941 -- 312,565
Issuance of warrants in connection
With debt financing -- -- 361,345 -- 361,345
Beneficial conversion feature
embedded in debt securities -- -- 964,655 -- 964,655
Issuance of options in exchange
for services -- -- 76,138 -- 76,138
(Continued)
See accompanying notes to financial statements.
F-5
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
------------- ------------- ------------- ------------- -------------
Issuance of common stock 2,666,667 2,667 721,166 -- 723,833
Cashless exercise of warrants 10,512 -- -- -- --
Conversion of debt to
equity - Laurus Master Fund 2,067,629 2,254 694,774 -- 697,028
Conversion of debt to
equity - Stonestreet Capital 1,886,982 1,887 599,086 -- 600,973
Net loss for the six months ended
June 30, 2002 -- -- -- (3,744,197) (3,744,197)
------------- ------------- ------------- ------------- -------------
Balance at June 30, 2002 32,336,792 $ 32,512 $ 25,762,324 $(23,702,311) $ 2,092,525
============= ============= ============= ============= =============
See accompanying notes to financial statements.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Six months ended Six months ended January 1, 1999 to
June 30, 2002 June 30, 2001 June 30, 2002
------------- ------------- -------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net loss $ (3,744,197) $ (4,023,377) $ (23,702,311)
--------------- ----------------- ----------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 424,517 705,849 2,748,846
Loss on disposal of assets 114 - 500,115
Amortization of discount on note payable 1,430,404 67,313 2,685,429
Options issued in exchange for services 38,000 15,682 377,574
Warrants issued in exchange for services - - 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Licensing revenue receivable 240 323,156 (249,760)
Advertising revenue receivable - - 249,455
Inventory 30,066 6,330 (79,387)
Prepaid advertising - 100,000 -
Prepaid mailing lists - - (750,000)
Prepaid expenses (111,049) (148,883) (177,689)
Deposits (3,766) (315) (52,068)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses (63,261) (152,286) 623,184
Deferred revenue - (37,500) 250,000
--------------- ----------------- ----------------
Total adjustments 1,745,265 879,346 6,347,349
--------------- ----------------- ----------------
Net cash used for operating activities (1,998,932) (3,144,031) (17,354,962)
--------------- ----------------- ----------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment 782 (50,362) (1,397,884)
Software licensing (6,013) - (1,145,322)
Software development costs (980) (255,878) (1,561,203)
Trademarks (3,585) (5,603) (238,766)
Patents (6,358) - (65,374)
Loan fees - - (200,000)
--------------- ----------------- ----------------
Net cash used for investing activities (16,154) (311,843) (4,608,549)
--------------- ----------------- ----------------
(Continued)
See accompanying notes to financial statements.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Six months ended Six months ended January 1, 1999 to
June 30, 2002 June 30, 2001 June 30, 2002
------------- ------------- -------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net 723,833 840,020 18,461,747
Proceeds from loans payable - - 200,000
Proceeds from convertible note payable 1,326,000 - 4,282,000
Payments on loan payable officer stockholder - - (200,000)
Retirement of common stock, net - - (10,000)
--------------- ----------------- ----------------
Net cash provided by financing activities 2,049,833 840,020 22,733,747
--------------- ----------------- ----------------
NET INCREASE (DECREASE) IN CASH 34,747 (2,615,854) 770,236
CASH AND CASH EQUIVALENTS, beginning of year 735,489 4,387,622 -
--------------- ----------------- ----------------
CASH AND CASH EQUIVALENTS, end of year $ 770,236 $ 1,771,768 $ 770,236
=============== ================= ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ - $ 1,266 $ 1,791,475
=============== ================= ================
Income taxes paid $ 800 $ - $ 5,023
=============== ================= ================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Options issued in exchange for services $ 76,138 $ 15,682 $ 334,312
=============== ================= ================
Warrants issued for settlement $ - $ - $ 221,650
=============== ================= ================
Warrants issued in connection with financing $ 1,326,000 $ 302,000 $ 2,994,709
=============== ================= ================
Common Stock issued in exchange for debt $ - $ 216,366 $ 216,366
=============== ================= ================
Conversion of debt to equity $ 1,604,138 $ - $ 3,287,138
=============== ================= ================
See accompanying notes to financial statements.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2002
(1) ORGANIZATION:
One Voice Technologies, Inc. (formerly Conversational Systems,
Inc.) was incorporated under the laws of the State of
California on April 8, 1991. The Company commenced operations
in 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in
the opinion of management, necessary for a fair presentation
of the results of operations for the periods presented.
Interim results are not necessarily indicative of the results
to be expected for the full year ending December 31, 2002. The
financial statements should be read in conjunction with the
financial statements included in the annual report of One
Voice Technologies, Inc. (the "Company") on Form 10-KSB for
the year ended December 31, 2001.
BUSINESS ACTIVITY:
One Voice Technologies, Inc. is a developer of 4th Generation
voice solutions for the wireless, Telematics, TV/Internet
appliance and Interactive Multimedia markets.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2002
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REVENUE RECOGNITION:
The Company recognizes revenues when earned in the period in
which the service is provided. The Company's revenue
recognition policies are in compliance with all applicable
accounting regulations, including American Institute of
Certified Public Accountants ("AICPA") Statement of Position
("SOP") 97-2, Software Revenue Recognition, as amended by SOP
98-4 and SOP 98-9. Any revenues from software arrangements
with multiple elements are allocated to each element of the
arrangement based on the relative fair values using specific
objective evidence as defined in the SOPs. If no such
objective evidence exists, revenues from the arrangements are
not recognized until the entire arrangement is completed and
accepted by the customer. Once the amount of the revenue for
each element is determined, the Company recognizes revenues as
each element is completed and accepted by the customer. For
arrangements that require significant production, modification
or customization of software, the entire arrangement is
accounted for by the percentage of completion method, in
conformity with Accounting Research Bulletin ("ARB") No. 45
and SOP 81-1.
Service and license fees are deferred and recognized over the
life of the agreement. Revenues from the sale of products are
recognized upon shipment of the product.
(3) STOCKHOLDERS' EQUITY:
Equity Financing
----------------
During May 2002, the Company entered into an equity financing
agreement of up to $5 million, with an initial put demand by
the Company for approximately $800,000 in exchange for
2,666,667 shares of the Company's common stock at a price of
$0.30 per share. Subsequently, on August 8, 2002, $500,000 of
the $800,000 investment was repriced and 833,334 shares of
common stock was issued to the investors so that the average
cost of the initial put was $0.22857 per share. Pursuant to
this agreement, the Company can exercise its right to require
the Investor to purchase a discretionary amount of the
Company's common stock as determined by the Company, subject
to the terms of the agreement. The minimum put amount is
$150,000 and the offering price of the Company's common stock
is determined on a formula, as set forth in the agreement. In
addition, the Company also issued 300,000 warrants to purchase
shares of the Companies commons stock at an exercise price of
$0.43 per share. Subsequently, on August 8, 2002, the Company
adjusted the exercise price on these warrants to $.20 per
share due to a subsequent financing. The Company paid a
finders fee of $48,000 and issued 75,000 warrants with an
exercise price of $0.43, the value of which has been netted
against the gross proceeds.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2002
(3) STOCKHOLDERS' EQUITY, CONTINUED:
Conversion of Debt
------------------
During the three months ended March 31, 2002, approximately
$381,075 of notes payable was converted into 1,047,723 shares
of the Company's common stock at an average conversion price
of $0.36 per share by Laurus Master Fund and Stonestreet
Capital. In addition, Neville converted the remaining
principal balance of $550,000 ($312,565 carrying book value,
net of unamortized debt discount) related to the 5% Note
Payable into 2,624,447 common shares.
During the three months ended June 30, 2002, approximately
$917,000 of notes payable was converted into 2,907,000 shares
of the Company's common stock at an average conversion price
of $0.32 per share by Laurus Master Fund and Stonestreet
Capital.
4) SUBSEQUENT EVENTS:
On August 8, 2002, we entered into securities purchase
agreement with two accredited investors, Stonestreet Limited
Partnership and Alpha Capital Aktiengesellschaft for the
issuance of 4% convertible debentures in the aggregate amount
of $650,000. The debentures are convertible into common stock
at a conversion price of the lower of $.242 or 80% of the
average of the five lowest closing bid prices for the common
stock thirty days prior to conversion. In addition, an
aggregate of 491,400 common stock purchase warrants were
issued to the investors. Each common stock purchase warrant
has an exercise price of $.252. The commission for the
transaction was 8%. The offering of convertible debentures was
exempt from registration under Rule 506 of Regulation D and
under Section 4(2) of the Securities Act. No advertising or
general solicitation was employed in offering the securities.
All persons were accredited investors, represented that they
were capable of analyzing the merits and risks of their
investment.
On August 8, 2002, the Company repriced Stonestreet's May 2002
investment and issued them 833,334 shares of common stock. In
addition, the company repriced Stonestreet's common stock
purchase warrants' exercise price to $.20 per share. The
Company will recognize an expense for the additional
consideration given up during the period the transaction
occurred (third quarter of 2002).
F-11
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED HEREIN ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FORWARD LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO STATEMENTS CONCERNING ANTICIPATED
TRENDS IN REVENUES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS. THERE IS ABSOLUTELY NO ASSURANCE
THAT WE WILL ACHIEVE THE RESULTS EXPRESSED OR IMPLIED IN FORWARD LOOKING
STATEMENTS.
With millions of PC-based voice products deployed globally, One Voice is one of
the voice sectors top technology providers behind Microsoft. One Voice has the
products and technology to develop voice driven user interfaces to allow the
Home Video Entertainment industry to deliver to their end users a "Voice
Experience". A "Voice Experience" integrates the latest voice technology and
multi-media content to allow users to interact with their computers in a
multitude of new ways. User's can now navigate through content, surf the
Internet, ask questions, participate in two-way conversations, search for
information and play games by engaging their computers in an interactive spoken
dialogue.
In the telecommunications sector, One Voice has developed a server-based,
scalable voice technology platform that targets the mobile communications
market. The MobileVoice(TM) Platform operates, delivers and supports a
comprehensive suite of text messaging and two-way voice service applications,
i.e., all using voice interface. One Voice is the first and only company to
offer free-form Voice-to-Text Email, SMS, Instant Messaging and Paging from any
phone all by voice. It was designed based on years of voice technology R&D and
patented technology. The platform is easy to support and maintain and supports
all digital and analog mobile handsets. The system delivers high accuracy
performance in all mobile modes and environments. The system operates in a
speaker independent mode for several services including Voice-Activated Dialing,
Email Readback and Voice Mail. For Voice-to-Text messaging the system can be
trained to recognize the user's speech in just seven minutes. Once training is
completed, the system allows subscribers to send free-form SMS, Email and Paging
messages to anyone, anytime.
On April 1, 2002, we announced that we were selected by Warner Home Video
("WHV") to incorporate our industry leading voice technology on the Harry Potter
and the Sorcerer's Stone DVD. Our technology was distributed on every Harry
Potter and the Sorcerer's Stone DVD globally in six languages. We estimate the
distribution of this title alone to exceed 10 million copies. Under this
agreement, WHV agrees to exclusively utilize One Voice as its preferred
developer of voice technology and to grant us a right of first negotiation for
additional titles. This agreement puts One Voice in a very strong position in
the industry since we currently believe that we have no competitors.
Our initial estimates are over 1 million unique installations of our voice
technology have occurred from the Harry Potter and the Sorcerer's Stone DVD with
very positive feedback from WHV regarding the performance and acceptance of our
technology. In July, 2002 we completed a second DVD title for WHV, whose title
is to be announced shortly. We currently have sent proposals, for additional DVD
licensing, out to Columbia TriStar Home Entertainment/Sony Pictures and New Line
Cinema. There are no guarantees that either proposal will be accepted.
On May 21, 2002 we announced that we had signed a sales agreement for our voice
solutions in the Interactive Home Entertainment market with InterActual
Technologies, Inc., a leading developer of digital video entertainment for major
motion picture studios. Under the terms of the agreement, InterActual will
actively sell One Voice's technology in upcoming DVD titles that contain
InterActual's technology. One Voice worked jointly with InterActual to bring
voice technology to the blockbuster DVD Harry Potter and the Sorcerer's Stone
produced by Warner Home Video. InterActual has a very impressive track record
with the major studios and will be a valuable partner in targeting this
fast-growing market.
On June 26, 2000 we announced the introduction of MobileVoice(TM) Enterprise - a
complete communications and messaging solution designed for small to large
corporate use. This scalable solution includes One Voice's advanced voice
technology for Voice-Activated Dialing, E-Mail, SMS, Instant Messaging and
Paging. One Voice is currently forming distribution partnerships to accelerate
penetration of their services in the Enterprise market. Improving inter-company
2
and intra-company communications is an immediate way for enterprises to reduce
costs, accelerate key business processes and improve workflow. The MobileVoice
Platform is uniquely positioned to deliver powerful and cost-effective solutions
in the corporate sector. It was designed for high availability and reliability,
and can be scaled from a single server solution capable of handling small
companies to a multi-server solution for large geographically dispersed
enterprises. The Enterprise solution, which resides behind the corporate
firewall, offers mobile access to business critical information while
maintaining the highest levels of corporate security. Additionally, the solution
works with any mobile phone make or model and on all wireless carrier networks.
Our efforts in this sector will complement our focus on the wireless and
wireline markets and will be an additional source of revenue for the company.
On July 1, 2002 we announced impressive results from a major quantitative
research study among current mobile phone subscribers in the U.S. The study was
conducted with subscribers from carriers including: Verizon, Cingular, AT&T
Wireless, Sprint PCS and Nextel. As representative of the entire subscriber base
of these carriers, the results were overwhelming in terms of demand and
willingness to pay for One Voice's MobileVoice Activated Dialing, MobileVoice
Send and MobileVoice Read services. The study was paid for by One Voice and
performed by the independent firm Harris Interactive, one of the world's largest
and most respected market research firms and creator of the well-known Harris
Poll(TM). The study delivered results that are highly accurate (+/- 4%) in terms
of representation of the entire customer base and the ability to project the
results. The study also showed that an overwhelming majority (over 75%) of
mobile phone users were interested in MobileVoice and were willing to pay an
average of $20 per month incremental to their current phone bill. Specifically,
the percentages of mobile phone users indicating interest in MobileVoice were as
follows: MobileVoice Activated Dialing (76%), MobileVoice Send - sending E-Mail,
Instant and SMS messages (63%) and MobileVoice Read - E-Mail reader (49%). They
highlight the opportunity for the MobileVoice services and the ability to
generate incremental revenue, with high margins, for telco carriers who are
under increasing profit pressure and are looking for ways to generate
incremental revenue from their existing infrastructure and handsets, while
minimizing capital expenditures. The MobileVoice services utilize existing
infrastructure equipment, require little upfront carrier cost and can be offered
to 100% of a carrier's subscriber base immediately, regardless of the phone
make, model or technology (GSM, CDMA, TDMA, iDEN).
On July 9, 2002, we announced we had joined Microsoft, Cisco, Intel, Comverse
and several other industry leading companies in the SALT (Speech Application
Language Tags) Forum. The SALT Forum is chartered with developing an open,
platform-independent solution for telephony and multimodal speech applications.
This Forum brings together a diverse group of companies sharing a common
interest in developing and promoting speech technologies for multimodal
applications.
On July 22, 2002, we demonstrated our MobileVoice solutions at the Cool Demo
Lounge portion of the VOX2002 conference held at the Hyatt Regency Embarcadero
in San Francisco, California. The Kelsey Group, which hosted the event, selected
One Voice as one of a small number of industry leaders, to demonstrate
breakthrough wireless applications. The Kelsey Group expects voice-activation of
`everyday' services to have a much needed multiplier effect on
telecommunications carriers' top line revenues. The conference focused on voice
and wireless applications and their use in a variety of markets. Attendees
include telecommunications operators, unified messaging vendors and corporations
interested in applying voice technology in a variety of different solutions. The
Cool Demo Lounge event focused on hot new applications that solve real world
problems and drive return on investment in the wireless telecommunications
industry. During our presentation, we sent a voice-to-text message consisting of
"The Pledge of Allegiance" from a mobile phone on stage to multiple mobile
devices in the audience.
In July 2002, we were selected by SAIC (Science Applications International
Corporation), a leading technology integrator for the government and
telecommunications industries, to be included in their Request For Information
(RFI) for a telematics solution for a large automotive manufacturer. We were
selected for inclusion in this RFI based on our technology and expertise in the
voice sector. SAIC has assembled a team of companies, including One Voice, to
provide a telematics solution for the requesting automotive manufacturer. Our
position on the team would be to create the voice interface for the project. The
next step in this process is for SAIC to be selected to submit a proposal, known
as a Request For Proposal or RFP. There is no guarantee that SAIC will be
selected to submit a proposal nor if a proposal is submitted that it will be
accepted.
3
In July 2002 we were selected by an educational software company to develop a
prototype voice driven PC based application. Both companies jointly agreed to
work together to add our voice technology into one of their existing PC based
educational titles. This prototype was completed in August 2002 and will be
evaluated for full deployment in their educational titles. If accepted, we
anticipate this project to be royalty based with domestic distribution. There
are no guarantees that this prototype will lead to a contract nor subsequent
distribution of any kind.
RESULTS OF OPERATIONS
The following table sets forth selected information from the statements of
operations for the three months ended June 30, 2002 and 2001.
SELECTED STATEMENT OF OPERATIONS INFORMATION
--------------------------------------------
Quarter Ended Quarter Ended
----------------------------------------------------------------------
June 30, 2002 June 30, 2001
----------------------------------------------------------------------
------------------- ------------------
----------------------------------------------------------------------
Net Revenues $ 306 $ 61,162
----------------------------------------------------------------------
Operating expenses $ 2,110,846 $ 1,832,494
----------------------------------------------------------------------
Net loss $(2,110,540) $(1,774,661)
----------------------------------------------------------------------
DISCUSSION OF THE THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE THREE
MONTHS ENDED JUNE 30, 2001.
Net revenues totaled $306 for the three months ended June 30, 2002. Net revenues
of $61,162 were earned for the three months ended June 30, 2001. The recognition
of revenues in the second quarter of 2001 resulted primarily from product
licensing in exchange for advertising as compared to none during the second
quarter of 2002. The Company currently has one project, which will be recognized
into revenues in the third quarter of 2002.
Operating expenses increased to $2,110,846 for the three months ended June 30,
2002, as compared to $1,832,494 for the same period in 2001. This increase in
operating expenses over the same quarter in 2001 was a direct result of the
increase in the non-cash interest expense associated with debt financings.
Non-cash interest expense increased $824,314 to $861,367 for the three months
ended June 30, 2002, as compared to $37,053 for the same period in 2001. All
other expense categories decreased for the period as compared to the year prior.
Salary and wage expense was $367,437 for the three months ended June 30, 2002 as
compared to $504,765 for the same period in 2001. The decrease in 2002 as
compared to 2001 arose primarily from the decreased labor force, which we have
restructured to accommodate our new direction into the telecom, telematics and
TV/Internet appliance initiatives. Advertising and promotion expense totaled
$11,282 for the three months ended June 30, 2002 as compared to $50,146 for the
same period in 2001. Advertising and promotion expense reduction resulted from
the company discontinuing all direct to consumer marketing campaigns and
focusing on other distribution channels. Professional fees and consulting
expenses decreased to $136,186 for the three months ended June 30, 2002 from
$205,878 for the same period in 2001. Depreciation and amortization expenses
decreased to $213,216 for the three months ended June 30, 2002 from $352,992 for
the same period in the prior year, primarily due to the IBM License having been
fully amortized in the prior period. Amortization and Depreciation expenses
consisted of patent and trademarks, computer equipment, consultant fees, and
tradeshow booth.
We had a net loss of $2,110,540 or basic and diluted net loss per share of $0.07
for the three months ended June 30, 2002 compared to $1,774,661 or basic and
diluted net loss per share of $0.13 for the same period in 2001.
4
SELECTED STATEMENT OF OPERATIONS INFORMATION
--------------------------------------------
6 Months Ended 6 Months Ended
----------------------------------------------------------------------
June 30, 2002 June 30, 2001
----------------------------------------------------------------------
------------------- ------------------
----------------------------------------------------------------------
Net Revenues $ 284,931 $ 124,860
----------------------------------------------------------------------
Operating expenses $ 3,998,943 $ 4,124,257
----------------------------------------------------------------------
Net loss $(3,744,197) $(4,023,377)
----------------------------------------------------------------------
DISCUSSION OF THE SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE SIX MONTHS
ENDED JUNE 30, 2001.
Net revenues totaled $284,931 for the six months ended June 30, 2002. Net
revenues of $124,860 were earned for the six months ended June 30, 2001. The
recognition of revenues in the first six months of 2002 resulted primarily from
product licensing and work performed for Warner Home Video. The recognition of
revenues in the first six months of 2001 resulted primarily from product
licensing in exchange for advertising.
Operating expenses decreased to $3,998,943 for the six months ended June 30,
2002 from $4,124,257 for the same period in 2001. The net decrease in operating
expenses over the same quarter in 2001 was a direct result of the increased
non-cash interest expense associated with debt financings being offset by all
other expense categories, which decreased for the period as compared to the year
prior. Non-cash interest expense increased $1,363,091 to $1,430,404 for the
three months ended June 30, 2002, as compared to $67,313 for the same period in
2001. Salary and wage expense decreased to $744,468 for the six months ended
June 30, 2002 as compared to $1,302,520 for the same period in 2001. The
decrease in 2002 as compared to 2001 arose primarily from the decreased labor
force, which we have restructured to accommodate our new direction into the
telecom, telematics and TV/Internet appliance initiatives. Advertising and
promotion expense totaled $18,591 for the six months ended June 30, 2002 as
compared to $261,210 for the same period in 2001. Advertising and promotion
expense reduction resulted from the company discontinuing all direct to consumer
marketing campaigns and focusing on other distribution channels. Professional
fees and consulting expenses decreased to $304,914 for the six months ended June
30, 2002 from $344,714 for the same period in 2001. Depreciation and
amortization expenses decreased to $424,517 for the six months ended June 30,
2002 from $705,849 for the same period in the prior year, primarily due to the
IBM License having been fully amortized in the prior period. Amortization and
Depreciation expenses consisted of patent and trademarks, computer equipment,
consultant fees, and tradeshow booth.
We had a net loss of $3,744,197 or basic and diluted net loss per share of $0.13
for the six months ended June 30, 2002 compared to $4,023,377 or basic and
diluted net loss per share of $0.31 for the same period in 2001.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002 we had working capital of $404,432 as compared with $2,203,489
at June 30, 2001.
Net cash used for operating activities was $754,176 for the quarter ended June
30, 2002 compared to $1,305,661 for the quarter ended June 30, 2001. From
inception on January 1, 1999 to June 30, 2002, net cash used for operating
activities was $17,354,962.
Net cash used for investing activities was $8,976 for the quarter ended June 30,
2002 compared to $62,145 for the quarter ended June 30, 2001. From inception on
January 1, 1999 to June 30, 2002, net cash used for investing activities was
$4,608,549.
5
Net cash provided by financing activities was $723,831 for the quarter ended
June 30, 2002 compared to $840,020 for the quarter ended June 30, 2001. From
inception on January 1, 1999 to June 30, 2002 net cash provided by financing
activities was $22,733,747.
We incurred a net loss of $2,110,540 during the quarter ended June 30, 2002, and
had an accumulated deficit of $23,702,311. Our losses through June 2002 included
amortization of software licensing agreements and development costs, salaries
and wages, interest and general operating expenses. Sales of our equity
securities have allowed us to maintain a positive cash flow balance from
financing activities.
Cash flow from sales began in the first quarter 2002.
On May 7, 2002, we closed a non-exclusive equity financing agreement for up to
$5.8 million with Stonestreet Limited Partnership, with an initial put demand by
us for $800,000 which funded at closing. The initial $800,000 was in exchange
for 2,666,666 shares of our common stock at a price of $0.30 per share. In
addition, at closing, we issued 300,000 warrants to purchase shares of our
common stock at an exercise price of $0.43 per share. We also paid a one-time
finders fee of $48,000 and issued 75,000 warrants with an exercise price of
$0.43 per share. For the remaining $5 million, on a monthly basis, we can
exercise our right to require Stonestreet to purchase a discretionary amount of
our common stock, as determined by us, subject to the terms of the agreement.
The monthly amount we can require Stonestreet to purchase is between $100,000
and $400,000, depending on average volume levels and price, from which the
offering price of our common stock is determined on a formula as set forth in
the agreement.
On August 8, 2002, we repriced Stonestreet's May 2002 investment and issued them
833,334 shares of common stock. In addition, we repriced Stonestreet's common
stock purchase warrants exercise price to $.20 per share.
On August 8, 2002, we entered into securities purchase agreement with two
accredited investor, Stonestreet Limited Partnership and Alpha Capital
Aktiengesellschaft for the issuance of 4% convertible debentures in the
aggregate amount of $650,000. The debentures are convertible into common stock
at a conversion price of the lower of $.242 or 80% of the average of the five
lowest closing bid prices for the common stock thirty days prior to conversion.
In addition, an aggregate of 491,400 common stock purchase warrants were issued
to the investors. Each common stock purchase warrant has an exercise price of
$.252. The commissions for the transactions were 8%. The offering of convertible
debentures was exempt from registration under Rule 506 of Regulation D and under
Section 4(2) of the Securities Act. No advertising or general solicitation was
employed in offering the securities. All persons were accredited investors,
represented that they were capable of analyzing the merits and risks of their
investment.
The losses through the quarter ended June 30, 2002 were due to minimal revenue
and our operating expenses, with the majority of expenses in the areas of: debt
issue costs, salaries, legal fees, consulting fees, insurance, licensing cost,
as well as amortization expense relating to software development. We face
considerable risk in completing each of our business plan steps, including, but
not limited to: a lack of funding or available credit to continue development
and undertake product rollout; potential cost overruns; a lack of interest in
our solutions in the market on the part of wireless carriers or other customers;
potential reduction in wireless carriers which could lead to significant delays
in consummating revenue bearing contracts; and/or a shortfall of funding due to
an inability to raise capital in the securities market. Since further funding is
required, and if none is received, we would be forced to rely on our existing
cash in the bank or secure short-term loans. This may hinder our ability to
complete our product development until such time as necessary funds could be
raised. In such a restricted cash flow scenario, we would delay all cash
intensive activities including certain product development and strategic
initiatives described above.
6
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The securities described below represent our securities sold by us for the
period starting January 1, 2002 and ending August 13, 2002 that were not
registered under the Securities Act of 1933, as amended, all of which were
issued by us pursuant to exemptions under the Securities Act. Underwriters were
involved in none of these transactions.
PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS FOR CASH
On May 7, 2002, we issued 2,666,666 shares of our common stock to Stonestreet
Limited Partnership for $800,000. In addition we issued to Stonestreet 300,000
warrants exercisable into shares of our common stock at $.43 per share. We paid
$48,000 and issued 75,000 warrants exercisable at $.43 per share as a finder's
fee to Stonestreet Corporation.
On August 8, 2002, we repriced Stonestreet's May 2002 investment and issued them
833,334 shares of common stock. In addition, we repriced Stonestreet's common
stock purchase warrants exercise price to $.20 per share.
SALES OF DEBT AND WARRANTS FOR CASH
On January 7, 2002, we entered into a securities purchase agreement with the
Laurus Master Fund, Ltd. and Stonestreet Limited Partnership for the issuance of
an aggregate of $1.45 million principal amount of 4% convertible notes and an
aggregate of 500,000 common stock purchase warrants in reliance on Section 4(2)
of the Act and Rule 506. Each warrant entitles the holder to purchase one share
of common stock at an exercise price of $.96. The commission for the transaction
was $87,500 and a 4% convertible note in the amount of $52,500. The notes bear
interest at 4%, matures on January 7, 2004, and are convertible into our common
stock, at the holder's option, at the lower of (i) $0.997 or (ii) 80% of the
five lowest VWAPs for the common stock on a principal market for the 30 trading
days before but not including the conversion date. VWAP means the daily volume
weighted average prices of our common stock. The note may not be paid, in whole
or in part, before January 7, 2004 without the consent of the holder. The full
principal amount of the convertible notes are due upon default under the terms
of convertible notes. The warrants are exercisable until January 5, 2005 at a
purchase price of $.96 per share. Subsequently, on May 7, 2002, due to an
additional financing, these warrants were repriced at $0.90 per share pursuant
to the terms of this financing agreement.
On August 8, 2002, we entered into securities purchase agreement with two
accredited investor, Stonestreet Limited Partnership and Alpha Capital
Aktiengesellschaft for the issuance of 4% convertible debentures in the
aggregate amount of $650,000. The debentures are convertible into common stock
at a conversion price of the lower of $.242 or 80% of the average of the five
lowest closing bid prices for the common stock thirty days prior to conversion.
In addition, an aggregate of 491,400 common stock purchase warrants were issued
to the investors. Each common stock purchase warrant has an exercise price of
$.252. The commission for the transactions were 8%. The offering of convertible
debentures was exempt from registration under Rule 506 of Regulation D and under
Section 4(2) of the Securities Act. No advertising or general solicitation was
employed in offering the securities. All persons were accredited investors,
represented that they were capable of analyzing the merits and risks of their
investment.
OPTION GRANTS
None.
7
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
All of the above offerings and sales were deemed to be exempt under Regulation D
and Section 4(2) of the Securities Act. No advertising or general solicitation
was employed in offering the securities. The offerings and sales were made to a
limited number of persons, all of whom were accredited investors, business
associates of One Voice or executive officers of One Voice, and transfer was
restricted by One Voice in accordance with the requirements of the Securities
Act of 1933. In addition to representations by the above-referenced persons, we
have made independent determinations that all of the above-referenced persons
were accredited or sophisticated investors, and that they were capable of
analyzing the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange Commission
filings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
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 requirements. In February 2002, we received a letter from Nasdaq notifying
us that if we do no meet the minimum bid per share requirement by August 13,
2002, our common stock will be delisted from Nasdaq to the over-the-counter
bulletin board, unless we make an appeal.
ITEM 6. EXHIBITS AND REPORTS ON 8-K:
(a) Exhibits.
Exhibit Number Description
-------------- -----------
99.1 Certification of the Chief Executive Officer of One Voice
Technologies, Inc. Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Certification of the Chief Financial Officer of One Voice
Technologies, Inc. Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) No reports on Form 8-K were filed during the fiscal quarter ended June
30, 2002.
8
SIGNATURES
In accordance with the requirements of the Exchange Act of 1933, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONE VOICE TECHNOLOGIES, INC., a Nevada Corporation
Date: August 14, 2002 By: /s/ Dean Weber
------------------------------------------------
DEAN WEBER, Chairman & Chief Executive Officer
Date: August 14, 2002 By: /s/ Rahoul Sharan
------------------------------------------------
RAHOUL SHARAN, Chief Financial Officer
9