As Filed with the Securities and Exchange Commission on August 14, 2001
================================================================================
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, 2001
COMMISSION FILE NO. 000-27589
_______________________
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 13, 2001, the registrant had 14,549,651 shares of common stock,
$.001 par value, issued and outstanding.
Transitional small business disclosure format (check one): Yes No X
----- -----
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Page No.
--------
Balance Sheet F-1
Statements of Operations F-2
Statement of Stockholders' Equity F-3
Statements of Cash Flows F-5
Notes to Financial Statements F-7
1
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - JUNE 30, 2001
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,771,768
Cash - restricted 200,000
Licensing revenue receivable 1,844
Inventory 109,545
Prepaid advertising 83,331
Prepaid mailing lists 750,000
Prepaid expenses 402,139
------------
Total current assets $3,318,627
Property and equipment, net of
accumulated depreciation and amortization 926,527
Other assets:
Software licensing, net of accumulated
amortization 91,435
Software development costs, net of accumulated
amortization 1,287,635
Deposits 48,302
Trademarks, net of accumulated amortization 162,855
Patents 55,350
Loan fees, net of accumulated amortization 150,000
------------
Total other assets 1,795,577
----------
$6,040,731
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 646,388
Deferred revenue 268,750
Loan payable, related parties 200,000
------------
Total current liabilities $1,115,138
5% convertible note payable, due October 3, 2003 1,175,000
Less unamortized discount (836,778)
------------
338,222
Stockholders' equity:
Preferred stock; $.001 par value, 10,000,000
shares authorized, no shares issued and
outstanding -
Common stock; $.001 par value, 50,000,000
shares authorized, 14,272,285 shares issued
and outstanding 14,272
Additional paid-in capital 19,776,311
Deficit accumulated during development stage (15,203,212)
-----------
Total stockholders' equity 4,587,371
----------
$6,040,731
==========
See accompanying notes to financial statements.
F-1
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, January 1, 1999 to
2001 2000 2001 2000 June 30, 2001
----------- ----------- ----------- ----------- ------------------
Net revenues $ 124,860 $ - $ 61,162 $ - $ 201,476
Cost of revenues 23,980 - 3,329 - 137,160
----------- ----------- ---------- ---------- -----------
Gross profit 100,880 - 57,833 - 64,316
General and administrative expenses 4,124,257 3,227,912 1,832,494 2,135,024 15,267,528
----------- ----------- ---------- ---------- -----------
Net loss $(4,023,377) $(3,227,912) $(1,774,661) $(2,135,024) $(15,203,212)
=========== =========== =========== =========== ============
Net loss per share, basic and diluted $ (0.31) $ (0.27) $ (0.13) $ (0.17)
=========== =========== =========== ===========
Weighted average shares outstanding,
basic and diluted 13,106,333 12,169,912 13,301,047 12,671,060
=========== =========== =========== ===========
See accompanying notes to financial statements.
F-2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Deficit
accumulated
Common stock Additional during Total
------------------------ paid-in development stockholders'
Shares Amount capital stage equity
------------ --------- ----------- ------------- --------------
Balance at January 1, 1999 12,720,000 $ 12,720 $ $ $ 12,720
Net proceeds from issuance of
common stock in connection
with merger 7,000,000 7,000 106,236 113,236
Net proceeds from issuance of
common stock 1,500,000 1,500 2,544,422 2,545,922
Net issuance of common stock in
exchange for services 150,000 150 299,850 300,000
Redemption of common stock (10,000,000) (10,000) (10,000)
Net loss for the year ended
December 31, 1999 (1,782,215) (1,782,215)
------------ -------- ----------- ------------ -------------
Balance at December 31, 1999 11,370,000 11,370 2,950,508 (1,782,215) 1,179,663
Net proceeds from issuance of
common stock and warrants 312,500 313 1,779,523 1,779,836
Net proceeds from issuance of
common stock and warrants 988,560 988 12,145,193 12,146,181
Issuance of warrants in exchange
for services 55,000 55,000
Issuance of options in exchange
for services 199,311 199,311
Issuance of warrants in connection
with financing 1,576,309 1,576,309
Net loss for the year ended
December 31, 2000 (9,397,620) (9,397,620)
------------ -------- ----------- ------------ -------------
Balance at December 31, 2000 12,671,060 12,671 18,705,844 (11,179,835) 7,538,680
See accompanying notes to financial statements.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
(UNAUDITED)
Deficit
accumulated
Common stock Additional during Total
-------------------- paid-in development stockholders'
Shares Amount capital stage equity
---------- ------- ----------- ------------- --------------
Issuance of stock in exchange
for debt 383,732 384 128,999 129,383
Issuance of options in exchange
for services 7,841 7,841
Issuance of stock in exchange
for debt 515,143 515 86,468 86,983
Net proceeds from issuance of
common stock and warrants 702,350 702 839,318 840,020
Issuance of options in exchange
for services 7,841 7,841
Net loss for the six months ended
June 30, 2001 (4,023,377) (4,023,377)
---------- ------- ----------- ------------ -----------
Balance at June 30, 2001 14,272,285 $14,272 $19,776,311 $(15,203,212) $ 4,587,371
========== ======= =========== ============ ===========
See accompanying notes to financial statements.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Six months ended Six months ended January 1, 1999 to
June 30, 2001 June 30, 2000 June 30, 2001
----------------- ----------------- -------------------
Cash flows provided by (used for)
operating activities:
Net loss $(4,023,377) $(3,227,912) $(15,203,212)
----------- ----------- ------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 705,849 395,394 1,862,094
Amortization of discount on note payable 67,313 - 130,896
Options issued in exchange for services 15,682 - 214,993
Warrants issued in exchange for services - - 55,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Licensing revenue receivable 323,156 - 73,156
Advertising revenue receivable - - (75,000)
Inventory 6,330 (95,612) (109,545)
Prepaid advertising 100,000 (231,389) (83,331)
Prepaid mailing lists - - (750,000)
Prepaid expenses (148,883) (506,589) (402,139)
Deposits (315) (20,970) (48,302)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (152,286) 252,552 646,388
Deferred revenue (37,500) - 268,750
----------- ----------- ------------
Total adjustments 879,346 (206,614) 1,782,960
----------- ----------- ------------
Net cash used for operating activities (3,144,031) (3,434,526) (13,420,252)
----------- ----------- ------------
Cash flows used for investing activities:
Purchase of property and equipment (50,362) (714,236) (1,373,823)
Software licensing - (202,913) (1,139,309)
Software development costs (255,878) (408,449) (1,553,824)
Trademarks (5,603) (145,714) (213,589)
Patents - (7,248) (55,350)
Loan fees - - (200,000)
Increase in escrow account - - (200,000)
----------- ----------- ------------
Net cash used for investing activities (311,843) (1,478,560) (4,735,895)
----------- ----------- ------------
Cash flows provided by (used for) financing
activities:
Proceeds from issuance of common stock, net 840,020 13,964,956 17,737,915
Proceeds from convertible note payable - - 2,000,000
Retirement of common stock, net - - (10,000)
Proceeds from loans payable - - 200,000
----------- ----------- ------------
Net cash provided by financing activities 840,020 13,964,956 19,927,915
----------- ----------- ------------
(Continued)
See accompanying notes to financial statements.
F-5
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Six months ended Six months ended January 1, 1999 to
June 30, 2001 June 30, 2000 June 30, 2001
----------------- ---------------- ------------------
Net increase (decrease) in cash (2,615,854) 9,051,870 1,771,768
Cash and cash equivalents, beginning of year 4,387,622 904,485 -
----------- ---------- ----------
Cash and cash equivalents, end of year $ 1,771,768 $9,956,355 $1,771,768
=========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 1,266 $ 46 $ 19,043
=========== ========== ==========
Income taxes paid $ - $ 1,600 $ 3,423
=========== ========== ==========
Supplemental disclosure of non-cash financing
activities:
Warrants issued in exchange for services $ - $ - $ 55,000
=========== ========== ==========
Options issued in exchange for services $ 15,682 $ - $ 214,993
=========== ========== ==========
Common stock issued in exchange for debt $ 216,366 $ - $ 216,366
=========== ========== ==========
Warrants issued in connection with financing $ 302,000 $ - $1,878,309
=========== ========== ==========
See accompanying notes to financial statements.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2001
(1) Organization:
Conversational Systems, Inc. was incorporated under the laws of the
State of California on April 8, 1991. The Company commenced
operations in 1999.
Effective June 22, 1999, pursuant to a Merger Agreement and Plan of
Reorganization between Dead On, Inc. ("acquiree") and Conversational
Systems, Inc. a California corporation ("acquiror" or the "Company"),
Dead On, Inc. has been reversed merged into Conversational Systems,
Inc. The Company accounted for the acquisition of Dead On, Inc. using
the purchase method of accounting. The shares of Conversational
Systems were exchanged for 7,000,000 newly issued shares of Dead On,
Inc. Because the former shareholders of Conversational Systems, Inc.
then became the majority shareholders of Dead On, Inc., Conversational
Systems was treated as the acquiror under APB Opinion No. 16,
"Business Combinations."
In July 1999, the Company repurchased and retired 10,000,000 shares of
its common stock, $.001 par value per share. Due to the retirement of
shares, the former shareholders of Conversational Systems, Inc. have
significant control in Dead On, Inc.
Due to the contemplation and timing of the merger between Dead On,
Inc. and Conversational Systems, Inc. and the retirement of 10,000,000
shares of the Company's common stock, these events were accounted for
as a single transaction.
Conversational Systems, Inc. was liquidated with and into Dead On,
Inc., which then changed its legal name to One Voice Technologies,
Inc.
(2) Summary of Significant Accounting Policies:
Interim Financial Statements:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the
results of operations for the periods presented. Interim results are
not necessarily indicative of the results to be expected for a full
year. The financial statements should be read in conjunction with the
financial statements included in the annual report of One Voice
Technologies, Inc. (the "Company") on Form 10-KSB for the year ended
December 31, 2000.
Business Activity:
The Company develops and markets computer software using Intelligent
Voice Interactive Technology (IVIT(TM)) to website owners in the
United States and other countries.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2001
(2) Summary of Significant Accounting Policies, Continued:
Revenue Recognition:
The Company recognizes revenues when earned in the period in which the
service is provided. Service fees are deferred and recognized over the
life of the service agreement. Initial distribution fees are
recognized when the software is delivered.
(3) Convertible Note Payable:
In March 2001, $500,000 of the outstanding note payable was converted to
383,732 shares of the Company's common stock at an average rate of $1.30
per share.
In May 2001, $40,000 of the outstanding note payable was converted to
61,471 shares of the Company's common stock at an average rate of $0.65 per
share.
In May 2001, $135,000 of the outstanding note payable was converted to
215,639 shares of the Company's common stock at an average rate of $0.63
per share.
In May 2001, $100,000 of the outstanding note payable was converted to
158,541 shares of the Company's common stock at an average rate of $0.63
per share.
In June 2001, $50,000 of the outstanding note payable was converted to
79,492 shares of the Company's common stock at an average rate of $0.63 per
share.
(4) Common Stock:
In June 2001, the Company raised proceeds of approximately $840,000, which
is net of offering costs of approximately $73,000, from the issuance of
702,350 shares through a private placement offering of its restricted
stock. The offering price was $1.30 per share. The Company also issued
702,350 warrants (valued using the Black-Scholes method at the date of
grant) to the investors, which have an exercise price of $0.86 per share
and expire on June 30, 2002.
F-8
Item 2. Management's Plan of Operations.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements are often, but not always, made through the use of
words or phrases such as "will," "will likely result," "expect," "anticipate,"
"estimate," and believe. Accordingly, these statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in such statements. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors set forth in this report, our Annual Report on Form 10-KSB and
other reports and documents that we file with the Securities and Exchange
Commission.
As planned, we have launched and begun testing our MobileVoice Messaging system
with several wireless carriers in August 2001. The goal of this testing process
is for carriers to provide feedback on product usability and performance over
the course of the next few months with a subsequent goal for a market trial
targeted to begin in the fourth quarter of 2001 and eventually a nationwide
rollout in the first quarter of 2002. We have recently bolstered our management
team with the addition of Mr. James Edson who joins us to head business
development worldwide for One Voice. Mr. Edson brings knowledge and experience
in the wireless telecom sector with such companies as Qualcomm, Ericsson and
Motorola.
During the second quarter of 2001, we raised an additional $912,943 through a
private placement equity offering of restricted stock in June 2001. The offering
price was $1.30 per share. We also issued 702,350 warrants to these investors
after the initial placement was secured. These warrants were issued at a one to
one ratio with the stock with an exercise price of $0.86 per share and expire on
June 30, 2002. During this same quarter we continued the development and
internal testing of the initial MobileVoice Messaging product, which is based on
our IVP Intelligent Voice Platform. This IVP Platform has been developed over
the course of several years, and there are several patents pending on this
technology. Our MobileVoice Messaging product utilizing the IVP Platform was
further developed and taken on the road for demonstrations to industry analysts
and potential customers in the United States and European communities. We
received valuable feedback and moved forward in the process of integrating
suggested product features.
We continue to talk to PC manufacturers and makers of other computing platforms
for distribution of the IVAN Desktop product, but our main emphasis and focus is
on the development of our MobileVoice Messaging solution and its integration
into the wireless telecommunications sector and their packaged offerings.
Assuming we are able to raise additional funds, we plan to spend additional
resources to continue to develop and deploy our MobileVoice Solutions for the
wireless (cellular telephone) and PDA (Personal Digital Assistant) markets. Due
to the current financial uncertainty, management has not determined a budget or
timeline for new product research, development, and deployment at this time.
In the telecom sector, we plan to license our technology to wireless carriers to
provide voice-activated services for their subscribers allowing for increased
revenue streams to the carrier. We have considered numerous strategic
initiatives in order to achieve our objectives with this goal. We are trying to
move our technology and experience into the telecommunication markets. Our
initial product, MobileVoice Messaging, allows users to compose and send voice-
to-text messages (SMS, email and page) and read and reply to e-mails and
messages received on the system. The system allows a user to compose an e-mail
and broadcast it to an individual or an entire work group.
The telematics sector encompasses voice-activated devices, which could be
installed in a motor vehicle to access information on the Internet. Voice
capabilities of these in-car devices are vital since they allow users to remain
focused on driving, therefore supporting new safety initiatives. We plan to
pursue this sector following the launch and acceptance of our MobileVoice
Messaging system.
We maintain a cash balance that we believe will sustain operations into the
fourth quarter of 2001. We continue to explore all possibilities in securing
financing sufficient to complete the launch of our MobileVoice Messaging
product. The losses through the quarter ended June 30, 2001 were due to minimal
revenue and our operating expenses, with the majority of expenses in the areas
of: salaries, legal fees, consulting fees, as well as amortization expense
relating to software development 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.
2
The following table sets forth selected information from the statements of
operations for the three months ended June 30, 2001 and 2000.
SELECTED STATEMENT OF OPERATIONS INFORMATION
Three Months ended June 30,
2001 2000
-------------------- --------------------
Net Revenues $ 61,162 $ --
Operating expenses 1,832,494 2,135,024
Net loss (1,774,661) (2,135,024)
REVIEW OF THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THE THREE MONTHS
ENDED JUNE 30, 2000.
Net revenue totaled $61,162 for the quarter ended June 30, 2001, primarily from
barter transactions. No revenue was earned for the quarter ended June 30, 2000.
The recognition of revenues resulted primarily from product licensing in
exchange for advertising and sales of our initial Ivan desktop software product.
Operating expenses decreased to $1,832,494 for the quarter ended June 30, 2001
from $2,135,024 for the same quarter in 2000. Salary and wage expense was
$504,765 for the second quarter of 2001 compared to $478,669 for the second
quarter in 2000. The increase reflects our new direction into the telecom,
telematics and TV/Internet appliance initiatives with a restructured work force.
Salary expense, although higher in the quarter ended June 30, 2001 from the same
quarter 2000, is significantly reduced from the quarter ended December 31, 2000.
Advertising and promotion expense totaled $111,666 for the three months ended
June 30, 2001 from $206,119 for the same quarter in 2000. The decrease in
advertising and promotion expense results from the limited marketing activities
related to the new products which are in development stage for the telecom,
telematics and TV/Internet appliance markets. Legal and consulting expenses
decreased to $157,987 for the three months ended June 30, 2001 from $361,903 for
the same quarter in 2000. Depreciation and amortization expenses increased to
$352,991 for the quarter ended June 30, 2001 from $238,824 for the same period
in the prior year.
The Company had a net loss of $1,774,661 for the three months ended June 30,
2001 compared to $2,135,024 for the same quarter in 2000.
At June 30, 2001 the Company had working capital of $2,203,489 as compared with
$4,910,160 at December 31, 2000.
Notes payable had a face value of $2,000,000 at December 31, 2000. Notes payable
had a face value of $1,175,000 at June 30, 2001 as a result of a partial
conversion to stock of the notes described below.
In March 2001, $500,000 of the outstanding convertible note payable was
converted to 383,732 shares of the Company's common stock at an average rate of
$1.30 per share.
In May 2001, $40,000 of the outstanding note payable was converted to 61,471
shares of the Company's common stock at an average rate of $0.65 per share.
In May 2001, $135,000 of the outstanding note payable was converted to 215,639
shares of the Company's common stock at an average rate of $0.63 per share.
In May 2001, $100,000 of the outstanding note payable was converted to 158,541
shares of the Company's common stock at an average rate of $0.63 per share.
In June 2001, $50,000 of the outstanding note payable was converted to 79,492
shares of the Company's common stock at an average rate of $0.63 per share.
3
PART II
OTHER INFORMATION
Item 1. Not applicable.
Items 2-5. Not applicable.
Item 6. Exhibits and Reports on 8-K:
(a) None.
(b) No reports on Form 8-K were filed during the fiscal quarter
ended June 30, 2001.
4
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, 2001 By: /s/ Dean Weber
--------------------------------------------
DEAN WEBER, Chairman & Chief Executive
Officer
Date: August 14, 2001 By: /s/ Rahoul Sharan
--------------------------------------------
RAHOUL SHARAN, Chief Financial Officer
5