AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 2003
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 MARCH 31, 2003
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 May 6, 2003, the registrant had 48,189,437 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-3
Statements of Operations F-4
Statement of Stockholders' Equity F-5
Statements of Cash Flows F-9
Notes to Financial Statements F-11
F-2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - MARCH 31, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 84,428
Prepaid expenses 47,051
----------------
Total current assets $ 131,479
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 302,896
OTHER ASSETS:
Software licensing, net of accumulated amortization 4,635
Software development costs, net of accumulated amortization 645,685
Deposits 46,897
Trademarks, net of accumulated amortization 91,939
Patents 68,416
----------------
Total other assets 857,572
---------------
$ 1,291,947
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
accounts payable and accrued expenses $ 559,781
4% CONVERTIBLE NOTES PAYABLE, due November 14, 2004 $ 265,000
Less unamortized discount (215,312)
----------------
49,688
4% CONVERTIBLE NOTES PAYABLE, due December 30, 2004 480,000
Less unamortized discount (277,703)
----------------
202,297
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding -
Common stock; $.001 par value, 100,000,000 shares
authorized, 44,704,444 shares issued and outstanding 44,704
Additional paid-in capital 28,393,920
Deficit accumulated during development stage (27,958,443)
----------------
Total stockholders' equity 480,181
---------------
$ 1,291,947
===============
The accompanying notes form an integral part of these financial statements.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
From inception on
Three months ended Three months ended January 1, 1999 to
March 31, 2003 March 31, 2002 March 31, 2003
-------------- -------------- ---------------
NET REVENUES $ - $ 284,625 $ 650,321
COST OF REVENUES - 30,185 199,675
---------------- ---------------- ----------------
GROSS PROFIT - 254,440 450,646
GENERAL AND ADMINISTRATIVE
EXPENSES 1,431,407 1,888,097 28,409,089
---------------- ---------------- ----------------
NET LOSS $ (1,431,407) $ (1,633,657) $ (27,958,443)
================ ================ ================
NET LOSS PER SHARE, basic and diluted $ (0.03) $ (0.06)
================ ================
WEIGHTED AVERAGE SHARES
OUTSTANDING,
basic and diluted 41,632,000 25,780,000
================ ================
The accompanying notes form an integral part of these 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
------ ------ ------- ----- ------
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)
The accompanying notes form an integral part of these financial statements.
F-5
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
Deficit
accumulated
Common stock Additional during Total
------------ paid-in development stockholders'
Shares Amount capital stage equity
------ ------ ------- ----- ------
Conversion of debt to equity, net
of unamortized debt discount 3,220,765 3,220 571,867 - 575,087
Issuance of options in
exchange for services - - 58,864 - 58,864
Issuance of stock and warrants
in connection with settlement 110,000 110 247,940 - 248,050
Proceeds from sale of common stock
and warrants, net of offering costs 702,350 702 839,318 - 840,020
Issuance of warrants in connection
with debt financing - - 92,400 - 92,400
Beneficial conversion feature
embedded in debt securities - - 417,450 - 417,450
Conversion of debt to equity -
Laurus Master Fund 3,402,600 3,403 595,399 - 598,802
Conversion of debt to equity -
Stonestreet Capital 2,973,780 2,974 506,137 - 509,111
Net loss for the year ended
December 31, 2001 - - - (8,778,279) (8,778,279)
--------------- --------------- ---------------- ---------------- ---------------
Balance at December 31, 2001 23,080,555 23,080 22,035,219 (19,958,114) 2,100,185
Conversion of debt to equity 2,624,447 2,624 309,714 - 312,338
Issuance of warrants in connection
with debt financing - - 577,879 - 577,879
Beneficial conversion feature
embedded in debt securities - - 1,948,765 - 1,948,765
Issuance of options in exchange
for services - - 107,276 - 107,276
(Continued)
The accompanying notes form an integral part of these financial statements.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
Deficit
accumulated
Common stock Additional during Total
------------ paid-in development stockholders'
Shares Amount capital stage equity
------ ------ ------- ----- ------
Issuance of common stock 2,666,667 2,667 721,166 - 723,833
Cashless exercise of warrants 10,512 11 (11) - -
Exercise of warrants for cash 20,000 20 3,380 - 3,400
Re-pricing adjustment for
warrants outstanding - - 9,000 - 9,000
Shares issued in re-pricing-
Stonestreet Capital 833,334 833 174,167 - 175,000
Conversion of debt to equity -
Laurus Master Fund 2,110,129 2,110 703,345 - 705,455
Conversion of debt to equity -
Stonestreet Capital 4,294,596 4,294 899,405 - 903,699
Conversion of debt to
equity - Alpha Capital 2,767,752 2,768 342,232 - 345,000
Conversion of debt to
equity - Ellis Enterprise 300,842 301 39,699 - 40,000
Conversion of debt to
equity - Bristol Investments 225,699 226 29,774 - 30,000
Net loss for the year ended
December 31, 2002 - - - (6,568,922) (6,568,922)
--------------- --------------- ---------------- ---------------- ---------------
Balance at December 31, 2002 38,934,533 38,934 27,901,010 (26,527,036) 1,412,908
Issuance of options in exchange
for services - - 3,638 - 3,638
Conversion of debt to
equity - Alpha Capital 2,400,357 2,400 191,249 - 193,649
(Continued)
The accompanying notes form an integral part of these financial statements.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
Deficit
accumulated
Common stock Additional during Total
------------ paid-in development stockholders'
Shares Amount capital stage equity
------ ------ ------- ----- ------
Conversion of debt to
equity - Ellis Enterprise 1,636,759 1,637 133,363 - 135,000
Conversion of debt to
equity - Bristol Investments 1,732,795 1,733 164,660 - 166,393
Net loss for the three months ended
March 31, 2003 - - - (1,431,407) (1,431,407)
--------------- --------------- ---------------- ---------------- ---------------
Balance at March 31, 2003 44,704,444 $ 44,704 $ 28,393,920 $ (27,958,443) $ 480,181
=============== =============== ================ ================ ===============
The accompanying notes form an integral part of these financial statements.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Three months ended Three months ended January 1, 1999 to
March 31, 2003 March 31, 2002 March 31, 2003
-------------- -------------- --------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net loss $ (1,431,407) $ (1,633,657) $ (27,958,443)
--------------- ----------------- ----------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 183,237 211,301 3,355,732
Loss on disposal of assets - 114 523,340
Amortization of discount on note payable 446,100 569,037 3,842,630
Stock issued in exchange of debt - - -
Options issued in exchange for services 3,638 38,000 450,488
Warrants issued in exchange for services - - 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, trade 29,846 (184,100) 29,846
Licensing revenue receivable - (279,343)
Advertising revenue receivable - - 249,455
Inventory - 30,064 -
Prepaid advertising - - -
Prepaid mailing lists - - (750,000)
Prepaid expenses 16,574 (155,456) (46,995)
Deposits - (3,751) (46,897)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 130,102 (116,308) 559,792
Deferred revenue - - 250,000
--------------- ----------------- ----------------
Total adjustments 809,497 388,901 8,359,698
--------------- ----------------- ----------------
Net cash used for operating activities (621,910) (1,244,756) (19,598,745)
--------------- ----------------- ----------------
(Continued)
The accompanying notes form an integral part of these financial statements.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Three months ended Three months ended January 1, 1999 to
March 31, 2003 March 31, 2002 March 31, 2003
-------------- -------------- --------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment (7,737) 782 (1,405,556)
Software licensing - - (1,145,322)
Software development costs (20,292) - (1,597,375)
Trademarks (262) (1,602) (242,731)
Patents (10,526) (6,356) (84,991)
Loan fees - - (200,000)
--------------- ----------------- ----------------
Net cash used for investing activities (38,817) (7,176) (4,675,975)
--------------- ----------------- ----------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net - - 18,465,148
Retirement of common stock, net - - (10,000)
Proceeds from loans payable, officer-stockholder - - (200,000)
Proceeds from loans payable - - 200,000
Proceeds from convertible note payable - 1,326,000 5,904,000
--------------- ----------------- ----------------
Net cash provided by financing activities - 1,326,000 24,359,148
--------------- ----------------- ----------------
NET INCREASE (DECREASE) IN CASH (660,727) 74,068 84,428
CASH AND CASH EQUIVALENTS, beginning of period 745,155 735,489 -
--------------- ----------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 84,428 $ 809,557 $ 84,428
=============== ================= ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ - $ 434,354 $ 453,401
=============== ================= ================
Income taxes paid $ 800 $ 800 $ 5,823
=============== ================= ================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Options issued in exchange for services $ 3,638 $ - $ 369,088
=============== ================= ================
Shares issued for re-pricing of conversion rate $ - $ - $ 175,000
=============== ================= ================
Common shares and warrants issued for
settlement $ - $ - $ 303,050
=============== ================= ================
Warrants issued in connection with financing $ - $ - $ 3,905,898
=============== ================= ================
Beneficial conversion feature of convertible debt $ - $ - $ 2,366,215
=============== ================= ================
Common stock issued in exchange for debt $ 495,000 $ - $ 4,514,492
=============== ================= ================
The accompanying notes form an integral part of these financial statements.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003
(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, 2003. 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, 2002.
F-11
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2003
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 $1,431,407 during the three months
ended March 31, 2003 and had an accumulated deficit of
$27,958,443. The Company had a working capital deficit of
$428,302 at March 31, 2003. Cash flows used for operations
amounted to $621,910 for the three months ended March 31,
2003. 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.
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-12
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2003
(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) CONVERTIBLE NOTE PAYABLE:
Conversion of Debt
------------------
During the three months ended March 31, 2003, approximately $495,000 of
notes payable was converted into approximately 5,770,000 shares of the
Company's common stock at an average conversion price of $0.09 per
share.
A summary of convertible notes payable at stated interest rate of 4% is
as follows:
Due Principal Unamortized Net
Date Amount Discount Balance
---- ------ -------- -------
Alpha Capital
Akteingesellschaft November 14, 2004 $ 265,000 $ (215,312) $ 49,688
Alpha Capital
Akteingesellschaft December 30, 2004 300,000 (173,564) 126,436
Ellis Enterprise Limited December 30, 2004 75,000 (43,391) 31,609
Bristol Investments
Fund, Limited December 30, 2004 105,000 (60,748) 44,252
---------------- ---------------- ----------------
$ 745,000 $ (493,015) $ 251,985
================ ================ ================
F-13
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2003
(4) COMMON STOCK:
During the quarter ended March 31, 2003, $193,649 of the Alpha Capital
Akteingesellschaft convertible note payable was converted at an average
conversion price of $0.08 into 2,400,357 shares of the Company's common
stock.
During the quarter ended March 31, 2003, $135,000 of the Ellis
Enterprise Limited convertible note payable was converted at an average
conversion price of $0.08 into 1,636,759 of the Company's common stock.
During the quarter ended March 31, 2003, $166,393 of the Bristol
Investments Fund, Limited convertible note payable and related interest
was converted at an average conversion price of $0.10 into 1,732,795
common shares.
(5) COMMITMENTS AND CONTINGENCIES:
Legal Maters
------------
During 2002, the Company was notified of potential claims aggregating
$160,000. Management believes that it has adequate defense for such
unsubstantiated claims and accordingly, since the amounts are estimable
but highly unprobable, these amounts have not been recorded in these
financial statements.
F-14
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2003
(6) INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN:
Pro forma information regarding the effect on operations as required by
SFAS 123 and SFAS 148, 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, is based on the following assumptions:
Expected life 3 Years
Risk-free interest rate 5.0%
Dividend yield -
Volatility 100%
This option valuation model requires input of highly subjective
assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing
model does not necessarily provide a reliable single measure of fair
value of its employee stock options.
For purposes of SFAS 123 pro forma disclosures, the estimated fair
value of the options is amortized to expense over the option's vesting
period. The Company's proforma information is as follows:
March 31, 2003 March 31, 2002
-------------- --------------
Net loss, as reported $ (1,431,407) $ (1,633,657)
Stock compensation calculated under SFAS 123 $ (120,000) $ (300,000)
Pro forma net loss $ (1,551,407) $ (1,933,657)
Basic and diluted historical loss per share $ (0.03) $ (0.06)
Pro forma basic and diluted loss per share $ (0.04) $ (0.08)
F-15
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2003
(7) SUBSEQUENT EVENTS:
During April 2003, Alpha Capital Akteingesellschaft converted $50,750
of the convertible notes at an average conversion price of $0.054 into
936,056 common shares. During April 2003, Ellis Enterprise Limited
converted $55,000 of the convertible notes at an average conversion
price of $0.054 into 1,014,758 common shares. During April 2003,
Bristol Investments Fund, Limited converted $106,000 of the convertible
notes at an average conversion price of $0.054 into 1,994,377 common
shares.
On April 10, 2003, the Company entered into a securities purchase
agreement with four accredited investors, Alpha Capital
Akteingesellschaft, Ellis Enterprises Ltd., Greenwich Growth Fund
Limited, and 01144 Limited for the issuance of 4% convertible
debentures in the aggregate amount of $600,000. The notes bear interest
at 4% (effective interest rate of 60%), mature on April 10, 2005, and
are convertible into the Company's common stock, at the holders'
option, at the lower of (i) $0.1166 or (ii) 80% of the average of the
five lowest closing bid prices for the common stock on a principal
market for the 30 trading days before but not including the conversion
date. The note may not be paid, in whole or in part, before April 10,
2005 without the consent of the holder. The full principal amount of
the convertible notes is due upon default under the terms of
convertible notes. In addition, the Company issued an aggregate of
350,004 warrants to the investors. The warrants are exercisable until
April 10, 2008 at a purchase price of $.1272 per share. Net proceeds
amounted to approximately $540,000, net of debt issue cash cost of
$60,000. The fair value of the warrants of $26,100 using Black Scholes
option pricing model and the beneficial conversion feature of
approximately $514,000 will be amortized over the life of the debt
using the interest method. Upon conversion of the debt, any unamortized
debt issue costs will be charged to expense.
F-16
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED HEREIN ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FORWARD LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO STATEMENTS CONCERNING ANTICIPATED
TRENDS IN REVENUES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS. THERE IS ABSOLUTELY NO ASSURANCE
THAT WE WILL ACHIEVE THE RESULTS EXPRESSED OR IMPLIED IN FORWARD LOOKING
STATEMENTS.
OVERVIEW
One Voice Technologies is a voice recognition technology company with over $26
Million invested in Research and Development and more than 20 Million products
distributed worldwide in seven languages. To date, our customers include
T-Mobile and Warner Brothers with strong technology and business partnerships
with Philips Electronics and IBM. Based on our patented technology, One Voice
offers voice solutions for the Telecom, Motion Picture DVD Entertainment and PC
markets. Our solutions allow mobile and residential phone users to Voice Dial,
Group Conference Call, Read and Send E-Mail and Instant Messages all by voice.
We offer these solutions through both domestic and international wireless and
wireline carriers. We also offer the motion picture industry's only voice
interactive DVD movies included in over 20 million copies distributed worldwide
in seven languages. We offer PC manufacturers the ability to bundle a complete
voice interactive computer assistant allowing PC users to talk to their
computers to quickly launch applications, websites, read and send E-mails and
dictate letters. We are strongly positioned across the Telecom and PC markets
with our patented technology.
In January 2003, we announced that the upcoming Warner Home Video box office hit
"Harry Potter and the Chamber of Secrets" DVD will contain One Voice DVD voice
technology. One Voice DVD is a DVD-ROM based technology that allows people of
all ages to magically control their computers and interact with today's latest
digital experience of DVD. The street release date for this DVD is scheduled for
April 11, 2003.
In February 2003, we announced that Todd Brinker joined the company as Vice
President of Sales. With 15 years experience in sales and sales management, Mr.
Brinker comes to One Voice most recently from the Scientific Business Unit of
Kimberly-Clark, where he was responsible for sales throughout North America
generating annual revenue of more than $50 Million.
In February 2003, we issued a joint press release with Royal Philips
Electronics' (NYSE: PHG) business unit Speech Processing, a leading provider of
speech recognition technology, that T-Mobile (NYSE: DT) Austria signed an
exclusive agreement to utilize MobileVoice in the T-Mobile Future House, a
product center, showcasing T-Mobile's upcoming wireless subscriber services
located in Vienna, Austria.
In March 2003, we announced the completed installation of MobileVoice Assistant
for pre-purchase, trial use at the corporate headquarters of a Fortune 50
company. The MobileVoice Assistant is a telco-grade hardware and software
solution offering Voice Dialing, On-the-fly Group Conference Calling,
Voice-to-Text SMS Messaging and secure E-Mail access. The MobileVoice Assistant
offers access to mission critical corporate information anytime, anywhere, from
any phone, all by voice. To insure the highest level of data security the
MobileVoice Assistant was installed behind the firewall within the company's
corporate data center.
In April 2003, we announced the launch of our MobileVoice(TM) website in Spanish
for carrier operators in Latin America. To access the Spanish website,
MobileVoice users should click on the Account Login button from the One Voice
Technologies home page and select the Spanish option. To listen to a
demonstration of MobileVoice in Spanish, click on
HTTP://WWW.ONEVOICETECH.COM/MOBILEVOICE/AUDIO/MOBILEVOICEES.MP3
In May 2003, we announced MobileVoice Network News(TM), a comprehensive mobile
news service offering total coverage of breaking news and feature stories from
around the world. With MobileVoice Network News, mobile subscribers can listen
to up-to-the-minute news coverage, including: Top Headlines, Business and
Markets, Sports, Weather, Politics, Technology, Entertainment and Health.
MobileVoice Network News is a powerful addition to the MobileVoice platform and
will be offered in both English and Spanish covering news in North America,
Latin America and around the world.
17
RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to financing operations, and contingencies and litigation. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. The most
significant accounting estimates inherent in the preparation of the Company's
financial statements include estimates as to the appropriate carrying value of
certain assets and liabilities which are not readily apparent from other
sources, primarily accruals for operating costs, and the classification of net
operating loss and tax credit carryforwards. These accounting policies are fully
described at relevant sections in the discussion and analysis and in the notes
to the financial statements included in our Form 10-K report filed on March 31,
2003.
The following table sets forth selected information from the statements of
operations for the three months ended March 31, 2003 and 2002.
SELECTED STATEMENTS OF OPERATIONS INFORMATION
--------------------------------------------
Quarter Ended Quarter Ended
-----------------------------------------------------------------------
March 31, 2003 March 31, 2002
-----------------------------------------------------------------------
Net Revenues $ - $ 284,625
-----------------------------------------------------------------------
Operating expenses $ 1,431,407 $ 1,888,097
-----------------------------------------------------------------------
Net loss $(1,431,407) $(1,633,657)
-----------------------------------------------------------------------
Discussion of the three months ended March 31, 2003 compared with the three
months ended March 31, 2002.
There were no revenues for the three months ended March 31, 2003. Net revenues
of $285,000 were earned for the three months ended March 31, 2002.The
recognition of revenues in the first quarter of 2002 resulted primarily from
work performed in the DVD/Multimedia sector. The Company does not have any
revenue generating contracts currently.
Operating expenses decreased to $1,431,000 for the three months ended March 31,
2003 from $1,888,000 for the same period in 2002. The decrease in operating
expenses over the same quarter in 2002 was a direct result of a decrease of all
major expense categories for the period as compared to the year prior. Salary
and wage expense was $327,000 for the three months ended March 31, 2003 as
compared to $377,000 for the same period in 2002. The decrease in 2003 as
compared to 2002 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. Legal and consulting expenses decreased to
$61,000 for the three months ended March 31, 2003 from $169,000 for the same
period in 2002 The decrease was due primarily from a change in law firms.
Depreciation and amortization expenses decreased to $196,000 for the three
months ended March 31, 2003 from $211,000 for the same period in the prior year,
primarily due to the IBM License having been fully amortized in the prior
period. Amortization and Depreciation expenses consisted of patent and
trademarks, computer equipment, consultant fees, and tradeshow booth. Interest
expense decreased to $451,000 in 2003, as compared to $496,000 in 2002,
primarily due to less notes being converted with higher non cash interest
expense.
We had a net loss of $1,431,407, or basic and diluted net loss per share of
$0.03, for the three months ended March 31, 2003 compared to $1,633,657, or
basic and diluted net loss per share of $0.06, for the same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, we had a negative working capital of $428,302 as compared to
working capital of $725,547 at March 31, 2002.
18
Net cash used for operating activities was $621,910 for the quarter ended March
31, 2003 compared to $1,244,756 for the quarter ended March 31, 2002. We believe
that our average monthly cash requirements approximate $265,000. From inception
on January 1, 1999 to March 31, 2003, net cash used for operating activities was
$15,598,745.
Net cash used for investing activities was $38,817 for the quarter ended March
31, 2003 compared to net cash used of $7,176 for the quarter ended March 31,
2002. During the three months ended March 31, 2003, cash was primarily used for
capitalized software development costs, patents and license. From inception on
January 1, 1999 to March 31, 2003, net cash used for investing activities was
$4,675,975.
Net cash provided by financing activities was $0 for the quarter ended March 31,
2003 compared to $1,326,000 for the quarter ended March 31, 2002. From inception
on January 1, 1999 to March 31, 2003 net cash provided by financing activities
was $24,359,148.
We incurred a net loss of ($1,431,407) during the quarter ended March 31, 2003,
and had an accumulated deficit of ($27,958,443). Our losses through March 2003
included interest expense, amortization of software licensing agreements and
development costs and operational and promotional expenses.
Cash flow from sales began in the first quarter 2002. There has been no material
cash flows from sales during the current quarter.
We maintain a cash balance that we believe will sustain operations up to June
2003. We continue to rely heavily on our current funding sources, which have
financed us since 2001, until we are operationally breakeven. The losses through
the quarter ended March 31, 2003 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.
ITEM 3. CONTROLS AND PROCEDURES
As of March 31, 2003, an evaluation was performed under the supervision and with
the participation of the Company's management, including the Chief Executive
Officer and the Chief Accounting Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the Chief Executive Officer and
the Chief Accounting Officer, concluded that the Company's disclosure controls
and procedures were effective as of March 31, 2003. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to March 31, 2003.
19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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 April 10, 2003 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
None.
SALES OF DEBT AND WARRANTS FOR CASH
On April 10, 2003, we entered into a securities purchase agreement with four
accredited investors, Alpha Capital Akteingesellschaft, Ellis Enterprises Ltd.,
Greenwich Growth Fund Limited, and 01144 Limited for the issuance of 4%
convertible debentures in the aggregate amount of $600,000. The notes bear
interest at 4%, mature on April 10, 2005, and are convertible into our common
stock, at the holders' option, at the lower of (i) $0.1166 or (ii) 80% of the
average of the five lowest closing bid prices for the common stock on a
principal market for the 30 trading days before but not including the conversion
date. The note may not be paid, in whole or in part, before April 10, 2005
without the consent of the holder. The full principal amount of the convertible
notes are due upon default under the terms of convertible notes. In addition, we
issued an aggregate of 350,004 warrant to the investors. The warrants are
exercisable until April 10, 2008 at a purchase price of $.1272 per share. 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
The Company granted 200,000 options to a new employee at an exercise price of
$0.13 per share, which vests over 3 years.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
None.
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
Not Applicable.
20
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 March
31, 2003.
21
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: MAY 15, 2003 BY: /S/ DEAN WEBER
----------------------------------------------
DEAN WEBER, CHAIRMAN & CHIEF EXECUTIVE OFFICER
DATE: MAY 15, 2003 BY: /S/ RAHOUL SHARAN
----------------------------------------------
RAHOUL SHARAN, CHIEF FINANCIAL OFFICER
22
CERTIFICATION
I, Dean Weber, CEO, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of One Voice
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 15, 2003
/S/ DEAN WEBER
-----------------------
DEAN WEBER
CHIEF EXECUTIVE OFFICER
23
CERTIFICATION
I, Rahoul Sharan, CFO, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of One Voice
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 15, 2003
/S/ RAHOUL SHARAN
-----------------------
RAHOUL SHARAN
CHIEF FINANCIAL OFFICER
24