As filed with the Securities and Exchange Commission on July 15, 2003
An Exhibit List can be found on page II-3.
Registration No. 333-105061
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
AMENDMENT NO. 2
TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ONE VOICE TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
NEVADA 7372 95-4714338
- ------------------------------- ---------------------------- -------------------
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
6333 GREENWICH DRIVE, SUITE 240
SAN DIEGO, CALIFORNIA 92122
(858) 552-4466
(Address and telephone number of principal executive offices and
principal place of business)
DEAN WEBER, PRESIDENT
ONE VOICE TECHNOLOGIES, INC.
6333 GREENWICH DRIVE, SUITE 240
SAN DIEGO, CALIFORNIA 92122
(858) 552-4466
(Name, address and telephone number of agent for service)
Copies to:
Gregory Sichenzia, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Flr.
New York, New York 10018
(212) 930-9700
(212) 930-9725 (fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
============================================= ================= ==================== ===================== ==============
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SECURITY(1) PRICE FEE
- --------------------------------------------- ----------------- -------------------- --------------------- --------------
Shares of common stock, $.001 par value (2) 18,000,000 $0.10 $1,800,000.00 $165.601
Shares of common stock, $.001 par value (3) 350,004 $0.10 $ 35,000.40 $ 3.22
Total 18,350,004 $1,835,000.40 $168.82*
============================================= ================= ==================== ===================== ==============
* Previously paid
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of 1933,
using the average of the high and low price as reported on the Over-the-Counter
Bulletin Board on July 14, 2003.
(2) Represents shares underlying convertible debentures.
(3) Represents shares underlying warrants exercisable at $.1272 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 15, 2003
The information in this prospectus is not complete and may be changed.
ONE VOICE TECHNOLOGIES, INC.
18,350,004 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholder of 18,350,004
shares of our common stock, based on current market prices. The selling
stockholders may sell common stock from time to time in the principal market on
which the stock is traded at the prevailing market price or in negotiated
transactions. The selling stockholder may be deemed an statutory underwriters of
the shares of common stock, which they are offering.
We will pay the expenses of registering these shares.
Our common stock is registered under Section 12(g) of the Securities Exchange
Act of 1934 and is listed on the NASD Over-The-Counter Bulletin Board under the
symbol "ONEV." The last reported sales price per share of our common stock as
reported by the NASD Over-The-Counter Bulletin Board on July 11, 2003 was $.19.
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE _.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is July __, 2003.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS
PROSPECTUS IS INCLUDED IN THE REGISTRATION STATEMENT THAT WAS FILED BY ONE VOICE
TECHNOLOGIES, INC., WITH THE SECURITIES AND EXCHANGE COMMISSION. THE SELLING
STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN THE SECURITIES. BEFORE MAKING AN INVESTMENT
DECISION, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE "RISK
FACTORS" SECTION, THE FINANCIAL STATEMENTS AND THE NOTES TO THE FINANCIAL
STATEMENTS.
ONE VOICE TECHNOLOGIES, INC.
We are a developer of 4th generation voice solutions for the telecom,
telematics, television and Internet appliance, and personal computer markets.
Our Intelligent Voice(TM) solutions employ patented and patent pending
technology that allows people to use their voice to compose, send and receive
messages, purchase products, access information, and control devices.
Our technology allows people to talk with computers and wireless devices, such
as cellular phones and personal digital assistants, in a way that has not been
seen in any commercial product to date. Our technology engine allows worldwide
consumers to talk, as if they were speaking to another person, and
instantaneously access and interact with content on the World Wide Web. Internet
users can talk with any website to search and find information through an
interactive and entertaining experience.
Our development efforts are focused on MobileVoice Messaging in the wireless
market. This sector has both business and consumer market applications.
MobileVoice Messaging is the only solution available that gives wireless phone
users the ability to address, compose and send e-mail, phone to phone and paging
messages using only their voice.
Our initial product is the first in our line of intelligent voice interactive
solutions. Our software is based on artificial intelligence that allows people
to talk with their computers and wireless devices through everyday common
speech. Our artificial intelligence technology is so advanced that it
understands not only simple phrases but advanced linguistic concepts such as
topic, subject and synonym relationships. By asking the user relevant questions,
our software system can help clarify and learn from the user's requests.
The Offering
Common stock offered by selling stockholders Up to 18,350,004 shares, based
(includes warrants and 200% of the shares on current market prices and
underlying convertible notes................ assuming full conversion of the
convertible note, with interest
for two years. This number
represents 27.58% of our current
outstanding stock.
Common stock to be outstanding after the
offering.................................... Up to 69,349,370 shares
Use of proceeds............................. We will not receive any proceeds
from the sale of the common
stock.
Over-The-Counter Bulletin Board ............ ONEV
The above information is based on 50,999,366 shares of common stock outstanding
as of July 11, 2003 and assumes the subsequent conversion of our issued
convertible note, with interest, and exercise of warrants by our selling
stockholder. The amount of shares outstanding after this offering does not
include up to 19,595,276 shares of common stock that may be sold pursuant to our
registration statement on Form SB-2 filed on December 4, 2002.
2
RISK FACTORS
THIS INVESTMENT HAS A HIGH DEGREE OF RISK. BEFORE YOU INVEST YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE HARMED AND THE
VALUE OF OUR STOCK COULD GO DOWN. THIS MEANS YOU COULD LOSE ALL OR A PART OF
YOUR INVESTMENT.
RISKS RELATING TO OUR CURRENT FINANCING AGREEMENT:
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE NOTES, AND
WARRANTS THAT ARE BEING REGISTERED IN THIS PROSPECTUS SALE AND THE SALE OF THESE
SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
As of June 11, 2003, we had approximately 50,999,366 shares of common stock
issued and we are registering in this prospectus shares of common stock
underlying convertible promissory notes that may be converted into an estimated
18,350,004 shares of common stock at current market prices, and warrants to
purchase 350,004 share of common stock. As sequential conversions and sales take
place, the price of our securities may decline and if so, our convertible note
holders would be entitled to receive an increasing number of shares, which could
then be sold, triggering further price declines and conversions for even larger
numbers of shares, to the detriment of the investors in this offering. All of
the shares, including all of the shares issuable upon conversion of the note and
upon exercise of our warrants, may be sold without restriction. The sale of
these shares may adversely affect the market price of our common stock.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE NOTES
COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES, WHICH WILL
CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of our convertible securities is
essentially limitless. As sequential conversions and sales take place, the price
of our securities may decline and if so, our convertible note holders would be
entitled to receive an increasing number of shares, which could then be sold,
triggering further price declines and conversions for even larger numbers of
shares, to the detriment of the investors in this offering. All of the shares,
including all of the shares issuable upon conversion of the note and upon
exercise of our warrants, may be sold without restriction. The sale of these
shares may adversely affect the market price of our common stock.
The following is an example of the amount shares of our common stock that is
issuable, upon conversion of our convertible notes, based on market prices 25%,
50% and 75% below the market price, as of July 10, 2003 of $0.10.
With Percentage of
% Below Market Price Per Share Discount of 20% Number of Shares Issuable Outstanding Stock
- -------------- --------------- --------------- ------------------------- -----------------
25% $.075 $.060 10,000,000 17.19%
50% $.050 $.040 15,000,000 23.74%
75% $.025 $.020 30,000,000 38.37%
As illustrated, the number of shares of common stock issuable upon conversion of
our convertible notes being registered in this prospectus will increase if the
market price of our stock declines, which will cause dilution to our existing
stockholders.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE NOTE AND EXERCISE OF
OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR
EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the convertible note and exercise of
warrants may result in substantial dilution to the interests of other
stockholders since the selling stockholder may ultimately convert and sell the
full amount issuable on conversion. Although the selling stockholder may not
convert their convertible note and/or exercise their warrants if such conversion
or exercise would cause them to own more than 9.99% of our outstanding common
stock, this restriction does not prevent the selling stockholder from converting
and/or exercising some of their holdings and then converting the rest of their
holdings. In this way, the selling stockholder could sell more than this limit
while never holding more than this limit. If this 9.99% limitation is waived
there is no upper limit on the number of shares that may be issued which will
have the effect of further diluting the proportionate equity interest and voting
power of holders of our common stock , including investors in this offering, and
may result in a change of control of One Voice.
3
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK,
WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
The convertible debentures are convertible into shares of our common stock at a
20% discount to the trading price of the common stock prior to the conversion.
The significant downward pressure on the price of the common stock as the
selling stockholder converts and sells material amounts of common stock could
encourage short sales by investors. This could place further downward pressure
on the price of the common stock. The selling stockholder could sell common
stock into the market in anticipation of covering the short sale by converting
their securities, which could cause the further downward pressure on the stock
price. In addition, not only the sale of shares issued upon conversion or
exercise of debentures, warrants and options, but also the mere perception that
these sales could occur, may adversely affect the market price of the common
stock.
RISKS RELATED TO OUR BUSINESS:
WE HAVE LOST MONEY SINCE INCEPTION. WE EXPECT FUTURE LOSSES AND WE MAY NEVER
BECOME PROFITABLE.
Since inception, we have incurred significant losses. We expect to continue to
incur net losses until sales generate sufficient revenues to fund our continuing
operations. We may fail to achieve significant revenues from sales or achieve or
sustain profitability. There can be no assurance of when, if ever, we will be
profitable or be able to maintain profitability.
IF WE DO NOT BECOME PROFITABLE WE MAY NOT BE ABLE TO CONTINUE OUR OPERATIONS.
Our future sales and profitability depend in part on our ability to demonstrate
to prospective customers the potential performance advantages of using voice
interface software. To date, commercial sales of our software have been limited.
A lack of a proven market or market studies for our product means that while we,
software engineers and software magazine writers may believe the public will
enthusiastically accept voice interface software, the true market for this
product may be minor or nonexistent. This could result in little or no sales
revenue without which we will not be able to continue our operations
indefinitely.
WE HAVE A LIMITED OPERATING HISTORY WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS.
Our current corporate entity commenced operations in 1999 and has a limited
operating history. We have limited financial results on which you can assess our
future success. Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by growing companies in new and rapidly
evolving markets, such as voice recognition software, media delivery systems and
electronic commerce.
To address the risks and uncertainties we face, we must:
- -- establish and maintain broad market acceptance of our products and services
and convert that acceptance into direct and indirect sources of revenues;
- -- maintain and enhance our brand name;
- -- continue to timely and successfully develop new products, product features
and services and increase the functionality and features of existing
products;
- -- successfully respond to competition from Microsoft and others, including
emerging technologies and solutions; and
- -- develop and maintain strategic relationships to enhance the distribution,
features and utility of our products and services.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING OUR BUSINESS OPERATIONS WILL BE
HARMED.
We believe that our available short-term assets and investment income will be
sufficient to meet our operating expenses and capital expenditures through the
end of fiscal year 2003. We do not know if additional financing will be
available when needed, or if it is available, if it will be available on
acceptable terms. Insufficient funds may prevent us from implementing our
business strategy or may require us to delay, scale back or eliminate certain
contracts for the provision of voice interface software.
4
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.
As a result of our limited operating history and the rapidly changing nature of
the markets in which we compete, our quarterly and annual revenues and operating
results are likely to fluctuate from period to period. These fluctuations may be
caused by a number of factors, many of which are beyond our control. These
factors include the following, as well as others discussed elsewhere in this
section:
- -- how and when we introduce new products and services and enhance our existing
products and services;
- -- our ability to attract and retain new customers and satisfy our customers'
demands;
- -- the timing and success of our brand-building and marketing campaigns;
- -- our ability to establish and maintain strategic relationships;
- -- our ability to attract, train and retain key personnel;
- -- the demand for voice recognition Internet search software applications;
- -- the emergence and success of new and existing competition;
- -- varying operating costs and capital expenditures related to the expansion of
our business operations and infrastructure, domestically and internationally,
including the hiring of new employees;
- -- technical difficulties with our products, system downtime, system failures or
interruptions in Internet access;
- -- changes in the mix of products and services that we sell to our customers;
- -- costs and effects related to the acquisition of businesses or technology and
related integration; and
- -- costs of litigation and intellectual property protection.
In addition, because the market for our products and services is relatively new
and rapidly changing, it is difficult to predict future financial results.
For these reasons, you should not rely on period-to-period comparisons of our
financial results, if any, as indications of future results. Our future
operating results could fall below the expectations of public market analysts or
investors and significantly reduce the market price of our common stock.
Fluctuations in our operating results will likely increase the volatility of our
stock price.
WE ARE A DEVELOPMENT-STAGE COMPANY AND UNEXPECTED OR UNCONTROLLABLE BUSINESS OR
ECONOMIC FORCES ARE MORE LIKELY TO HARM US.
We are in the development or starting stages of our business plan and are
therefore more vulnerable to unexpected or uncontrollable business and economic
forces. We lack any loyalty and brand name recognition from potential customers
and business partners. Unknown software errors may not be corrected in time to
develop a sustainable customer base. Unfavorable product reviews or news reports
could squelch early sales efforts. A competitor may quickly release a better
version of a similar product before we can complete our development efforts.
Economic conditions such as a national or world recession, international trade
restrictions on computer product sales, or a slowdown in new technology growth
could reduce our revenues below financially-healthy levels. The risks of a
development-stage company include a lack of job security for employees and the
possible loss of all investment funds by investors
OUR CURRENT AND POTENTIAL COMPETITORS, SOME OF WHOM HAVE GREATER RESOURCES AND
EXPERIENCE THAN WE DO, MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAY CAUSE
DEMAND FOR, AND THE PRICES OF, OUR PRODUCTS TO DECLINE.
A number of companies have developed, or are expected to develop, products that
compete with our products. Competitors in the voice interface software market
include IBM, Lernout and Hauspie Speech Products, SpeechWorks and Nuance. We
expect additional competition from other companies such as Microsoft, who has
recently made investments in, and acquired, voice interface technology
companies. Furthermore, our competitors may combine with each other, and other
companies may enter our markets by acquiring or entering into strategic
relationships with our competitors. Current and potential competitors have
established, or may establish, cooperative relationships among themselves or
with third parties to increase the abilities of their advanced speech and
language technology products to address the needs of our prospective customers.
5
Many of our current and potential competitors have longer operating histories,
significantly greater financial, technical, product development and marketing
resources, greater name recognition and larger customer bases than we do. Our
present or future competitors may be able to develop products comparable or
superior to those we offer, adapt more quickly than we do to new technologies,
evolving industry trends and standards or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and future competition may harm our business.
ANY INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY COULD HARM OUR
ABILITY TO COMPETE.
Our future success and ability to compete depends in part upon our proprietary
technology and our trademarks, which we attempt to protect with a combination of
patent, copyright, trademark and trade secret laws, as well as with our
confidentiality procedures and contractual provisions. These legal protections
afford only limited protection and are time-consuming and expensive to obtain
and/or maintain. Further, despite our efforts, we may be unable to prevent third
parties from infringing upon or misappropriating our intellectual property.
We have recently been issued our first patent. In addition we have received a
notice of allowance regarding a second and third patent. Any patents that are
issued to us could be invalidated, circumvented or challenged. If challenged,
our patents might not be upheld or their claims could be narrowed. Our
intellectual property may not be adequate to provide us with competitive
advantage or to prevent competitors from entering the markets for our products.
Additionally, our competitors could independently develop non-infringing
technologies that are competitive with, equivalent to, and/or superior to our
technology. Monitoring infringement and/or misappropriation of intellectual
property can be difficult, and there is no guarantee that we would detect any
infringement or misappropriation of our proprietary rights. Even if we do detect
infringement or misappropriation of our proprietary rights, litigation to
enforce these rights could cause us to divert financial and other resources away
from our business operations. Further, we license our products internationally,
and the laws of some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the United States.
OUR PRODUCTS MAY INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS AND
RESULTING CLAIMS AGAINST US COULD BE COSTLY AND REQUIRE US TO ENTER INTO
DISADVANTAGEOUS LICENSE OR ROYALTY ARRANGEMENTS.
The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement and
the violation of intellectual property rights. Although we attempt to avoid
infringing upon known proprietary rights of third parties, we may be subject to
legal proceedings and claims for alleged infringement by us or our licensees of
third-party proprietary rights, such as patents, trade secrets, trademarks or
copyrights, from time to time in the ordinary course of business. Any claims
relating to the infringement of third-party proprietary rights, even if not
successful or meritorious, could result in costly litigation, divert resources
and management's attention or require us to enter into royalty or license
agreements which are not advantageous to us. In addition, parties making these
claims may be able to obtain injunctions, which could prevent us from selling
our products. Furthermore, former employers of our employees may assert that
these employees have improperly disclosed confidential or proprietary
information to us. Any of these results could harm our business. We may be
increasingly subject to infringement claims as the number of, and number of
features of, our products grow.
IF THE STANDARDS WE HAVE SELECTED TO SUPPORT ARE NOT ADOPTED AS THE STANDARDS
FOR SPEECH-ACTIVATED SOFTWARE, BUSINESSES MIGHT NOT USE OUR SPEECH-ACTIVATED
SOFTWARE PLATFORM FOR DELIVERY OF APPLICATIONS AND SERVICES, AND OUR REVENUE
GROWTH COULD BE NEGATIVELY AFFECTED.
The market for speech-activated services software is new and emerging. Certain
industry software standards have, however, been established but may change as
the technology evolves. We may not be competitive unless our products support
changing industry software standards. The emergence of industry standards other
than those we have selected to support, whether through adoption by official
standards committees or widespread usage, could require costly and time
consuming redesign of our products. If these standards become widespread and our
products do not support them, our clients and potential clients may not purchase
our products, and our revenue growth could be adversely affected. Multiple
standards in the marketplace could also make it difficult for us to design our
products to support all applicable standards, which could also result in
decreased sales of our products.
6
OUR FAILURE TO RESPOND TO RAPID CHANGE IN THE MARKET FOR SPEECH-ACTIVATED
SERVICES SOFTWARE COULD CAUSE US TO LOSE REVENUE AND HARM OUR BUSINESS.
The speech-activated services software industry is relatively new and rapidly
evolving. Our success will depend substantially upon our ability to enhance our
existing products and to develop and introduce, on a timely and cost-effective
basis, new products and features that meet changing end-user requirements and
incorporate technological advancements. If we are unable to develop new products
and enhanced functionalities or technologies to adapt to these changes, or if we
cannot offset a decline in revenue from existing products with sales of new
products, our business will suffer.
Commercial acceptance of our products and technologies will depend, among other
things, on:
- -- the ability of our products and technologies to meet and adapt to the needs
of our target markets;
- -- the performance and price of our products as compared to our competitors'
products;
- -- our ability to deliver customer service directly and through our resellers;
and
- -- the ability of our customers to utilize our product.
OUR PRODUCTS MAY NOT BE 100% ACCURATE AT RECOGNIZING SPEECH OR AUTHENTICATING
SPEAKER IDENTITIES AND WE COULD BE SUBJECT TO CLAIMS RELATED TO THE PERFORMANCE
OF OUR PRODUCTS. ANY CLAIMS, WHETHER SUCCESSFUL OR UNSUCCESSFUL, COULD RESULT IN
SIGNIFICANT COSTS AND COULD DAMAGE OUR REPUTATION.
Speech recognition, natural language understanding and authentication
technologies, including our own, are not 100% accurate. Our customers will use
our products to provide important services to their customers. Any
misrecognition of voice commands or incorrect authentication of a user's voice
in connection with these transactions could result in claims against us or our
customers for losses incurred. Although our contracts will typically contain
provisions designed to limit our exposure to liability claims, a claim brought
against us for misrecognition or incorrect authentication, even if unsuccessful,
could be time-consuming, divert management's attention, result in costly
litigation and harm our reputation. Moreover, existing or future laws or
unfavorable judicial decisions could limit the enforceability of the limitation
of liability, disclaimer of warranty or other protective provisions contained in
our contracts.
THERE ARE RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS MADE BY US AND ACTUAL
RESULTS MAY DIFFER.
Some of the information in this Form SB-2 contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
- -- discuss our future expectations; -- contain projections of our future results
of operations or of our financial condition; and
- -- state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there may
be events in the future that we are not able to accurately predict or over which
we have no control. The risk factors listed in this section, as well as any
cautionary language in this prospectus, provide examples of risks, uncertainties
and events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. You should be aware
that the occurrence of the events described in these risk factors could have an
adverse effect on our business, results of operations and financial condition.
7
RISKS RELATING TO OUR COMMON STOCK:
IF WE FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE
MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.
Public market analysts and investors have not been able to develop consistent
financial models for the Internet market because of the unpredictable rate of
growth of Internet use, the rapidly changing models of doing business on the
Internet and the Internet's relatively low barriers to entry. As a result, and
because of the other risks discussed in this prospectus, it may be likely that
our actual results will not meet the expectations of public market analysts and
investors in future periods. If this occurs, the price of our common stock will
likely fall.
OUR COMMON STOCK IS SUBJECT TO "PENNY STOCK" RULES.
The Securities and Exchange Commission (the "Commission") has adopted Rule 15g-9
which establishes the definition of a "penny stock," for the purposes relevant
to us, as any equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require: (i) that a broker or dealer approve a person's account for
transactions in penny stocks; and (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience objectives of the person; and
(ii) make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlight form, (i) sets forth the basis on
which the broker or dealer made the suitability determination; and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks
8
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by the selling stockholder of our company. There will be
no proceeds to our company from the sale of shares of common stock in this
offering.
9
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the NASD Over-The-Counter Bulletin Board under the
symbol "ONEV." The Over-The-Counter Bulletin Board is sponsored by the National
Association of Securities Dealers (NASD) and is a network of security dealers
who buy and sell stocks.
For the periods indicated, the following table sets forth the high and low bid
prices per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
Low High
--- ----
2001
- ----
First Quarter .9375 2.4844
Second Quarter .34 2.75
Third Quarter .45 1.20
Fourth Quarter .20 .82
2002
- ----
First Quarter .37 1.03
Second Quarter .23 .79
Third Quarter .13 .36
Fourth Quarter .15 .25
2003
- ----
First Quarter .09 .17
Second Quarter .07 .12
Third Quarter* .08 .11
*(as of July 11, 2003)
As of July 11, 2003, our common stock shares were held by 164 stockholders of
record. We believe that the number of beneficial owners is substantially greater
than the number of record holders because a significant portion of our
outstanding common stock is held of record in broker "street names" for the
benefit of individual investors. The transfer agent of our common stock is
Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430,
Denver, Colorado 80209.
DIVIDEND POLICY
Our board of directors determines any payment of dividends. We do not expect to
authorize the payment of cash dividends in the foreseeable future. Any future
decision with respect to dividends will depend on future earnings, operations,
capital requirements and availability, restrictions in future financing
agreements, and other business and financial considerations.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR PLAN OF OPERATION SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE RELATED NOTES. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934
WHICH ARE BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES,
SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. OUR ACTUAL RESULTS
AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE SET FORTH UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS
PROSPECTUS. SEE "RISK FACTORS."
OVERVIEW
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.
11
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.
12
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.
SELECTED STATEMENT OF OPERATIONS INFORMATION
12 Months Ended 12 Months Ended
December 31, 2002 December 31, 2001
---------------- ---------------
Net Revenues $ 387,771 $ 185,934
Operating expenses $ 6,896,208 $ 8,938,203
Net loss $ (6,568,922) $ (8,778,279)
Discussion of the twelve months ended December 31, 2002 compared with the twelve
months ended December 31, 2001.
Net revenues totaled $388,000 for the twelve months ended December 31, 2002. Net
revenues of $186,000 were earned for the twelve months ended December 31, 2001.
The recognition of revenues for the year ended 2002 resulted primarily from work
performed in the DVD/Multimedia sector.
Operating expenses decreased to $6,896,000 for the twelve months ended December
31, 2002 from $8,938,000 for the same period in 2001. The decrease in operating
expenses over the same year in 2001 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 $1,445,000 for the twelve months ended December 31, 2002 as
compared to $2,109,000 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
$25,000 for the twelve months ended December 31, 2002 as compared to $388,000
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. Legal and consulting
expenses decreased to $470,000 for the twelve months ended December 31, 2002
from $806,000 for the same period in 2001. Depreciation and amortization
expenses decreased to $848,000 for the twelve months ended December 31, 2002
from $1,275,000 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 increased to $2,074,000,
in 2002, as compared to $1,156,000 in 2001, primarily due to non-cash debt issue
cost from warrants granted, shares issued and beneficial conversion feature.
We had a net loss of $6,569,000 or basic and diluted net loss per share of
$0.21 for the twelve months ended December 31, 2002 compared to $8,778,279 or
basic and diluted net loss per share of $0.59 for the same period in 2001.
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.
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
$19,598,745.
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.
13
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.
At December 31, 2002, we had working capital of $409,000 as compared with
$226,000 at December 31, 2001.
Net cash used for operating activities was $3,621,000 for the year ended
December 31, 2002 compared to $5,080,000 for the year ended December 31, 2001.
From inception on January 1, 1999 to December 31, 2002, net cash used for
operating activities was $18,977,000.
Net cash used for investing activities was $45,000 for the year ended December
31, 2002 compared to net cash provided of $168,000 for the year ended December
31, 2001. From inception on January 1, 1999 to December 31, 2002, net cash used
for investing activities was $4,637,000.
14
Net cash provided by financing activities was $3,675,000 for the year ended
December 31, 2002 compared to $1,596,000 for the year ended December 31, 2001.
From inception on January 1, 1999 to December 31, 2002 net cash provided by
financing activities was $24,359,000.
We incurred a net loss of $6,568,922 during the year ended December 31, 2002,
and had an accumulated deficit of $26,527,036. Our losses through December 2002
included interest expense, amortization of software licensing agreements and
development costs and operational and promotional 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.
In January 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 $1,452,500 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.
In May 2002, the Company entered into an equity financing agreement of up to
$5.8 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 $.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 Company's common 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.
In August 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 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.
In August 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.
In November 2002, we entered into a securities purchase agreement with three
accredited investors, Alpha Capital Aktiengesellschaft, Ellis Enterprises Ltd.
and Bristol Investment Fund, Ltd. for the issuance of 4% convertible debentures
in the aggregate amount of $1,150,000. This amount was broken out into two equal
closings of $575,000. The dates for each closing were November 14, 2002 and
December 30, 2002. The debentures are convertible into common stock at a
15
conversion price of the lower of $ .24 or eighty percent (80%) of the average of
the five lowest closing bid prices for the thirty (30) trading days prior to
conversion. In addition, an aggregate of 670,842 common stock purchase warrants
were issued to the investors, broken out evenly by closing date at 335,421. Each
common stock purchase warrant has an exercise price of $.252 and $.204 for the
respective closing dates of November 14, 2002 and December 31, 2002. Net
proceeds for the closing dates November 14, 2002 and December 31,2002 amounted
to $496,000 and $549,000 respectively. Net value of the warrants amounted to
$92,009 and the beneficial conversion feature amounted to $758,724. Total debt
issue cost of $955,732is being 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.
Notes payable had a face value of $1,235,000 at December 31, 2002. Notes payable
had a face value of $550,000 at December 31, 2001.
Stonestreet Limited Partnership has converted all (principal balance of $1.4
million) of its convertible debt securities and related interest into
approximately 7.2 million shares of One Voice Technologies, Inc.'s common stock.
SUBSEQUENT EVENTS
There are no current plans to purchase or sell any significant amount of fixed
assets.
On April 10, 2003, the Company entered into a securities purchase agreement with
four accredited investors, Alpha Capital Aktiengesellschaft, 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 p urchase 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 $26,000 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.
During April and May 2003, the following note holders converted debt to equity
as follows:
- Alpha Capital Akteingesellschaft converted $178,258 of principal and
accrued interest at an average conversion price of $0.061 into 2,899,406 common
shares.
- Bristol Investment Fund, Limited converted $106,095 of principal and
accrued interest at an average conversion price of $0.053 into 1,994,377 common
shares.
- Ellis Enterprise Limited converted $77,077 of principal and accrued
interest at an average conversion price of $0.054 into 1,418,533 common shares.
16
BUSINESS
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.
Located in San Diego, California, the Company has 12 full-time employees and is
traded on the NASD OTC Electronic Bulletin Board ("OTCBB") under the symbol
ONEV.OB. One Voice commenced operations as Conversational Systems, Inc. on
January 1, 1999 as a privately held California corporation, and on July 14,
1999, merged into Dead On, Inc., a publicly traded company incorporated in
Nevada in 1995. On September 9, 1999, the company officially changed its name to
One Voice Technologies, Inc.
MARKET OPPORTUNITY
- ------------------
The presence of voice technology as an interface in mobile communications is of
paramount importance. Voice interface technology makes portable communications
products mobile, more effective and safer to use. One Voice's development
efforts currently are focused on the Telecom market and more specifically on
mobile communications and mobile messaging. The Messaging market, which has both
business and consumer market applications including: E-mail, Instant Messages,
SMS (Short Message Service), and Paging, is extremely large and is growing at an
astonishing rate. Over six trillion text messages are sent globally every year,
and messaging has also shown the consistent ability to generate significant
revenue. One Voice solutions enable users to send, intelligently route and
receive text messages using voice from any type of phone (wired or wireless)
anywhere in the world.
One Voice's solutions address the entire phone market including analog, digital,
CDMA, TDMA, GSM, iDEN and wired phones, allowing telephony carriers and users to
deploy solutions quickly with little additional effort. Given the growing
competition in the wireless markets and the opportunities presented by the
Mobile Internet, One Voice's 4th Generation Voice Technology is well positioned
for commercialization.
One Voice is focused on communications solutions that are mobile, not just
portable. Devices like PDA's, Laptops and Cell Phones are highly portable
because they are easily transported from location to location, but they are not
necessarily mobile (i.e. easy to use while one is moving). Mobile solutions are
not only portable, but they are easy and safe to operate while moving. Portable
solutions such as cell phones, PDA's and laptops are not easy to operate safely
while operating motor vehicles, especially in crowded and intense traffic. Case
in point, New York has passed legislation requiring hands-free use of cell
phones and any other communication device during the operation of an automobile
citing safety concerns. Currently 42 other states are considering similar
legislation. Additional legislation could significantly increase the immediate
demand for a completely integrated and voice activated mobile communication
solution. One Voice's technology supports hands-free operation and will bring
mobile phones and other devices into compliance with the newly adopted
legislation.
ONE VOICE SERVICES
- ------------------
The MobileVoice Platform was designed based on patented voice technology and
years of research and development. The platform is server-based, so it is easy
to deploy and maintain and because it does not require a mobile device upgrade,
it works with 100% of a carrier's subscriber base. Optimized for mobile
environments, the system uses a modular architecture that is highly reliable,
scalable and redundant and delivers unparalleled performance in terms of
accuracy and functionality.
17
MOBILEVOICE ACTIVATED DIALING(TM)
Designed from the ground up to meet the unique needs of wireless carriers,
MobileVoice Activated Dialing is server-based and delivers higher levels of
accuracy and reliability than any solution on the market today. It has higher
capacity for contact lists, more functionality such as synchronization and
import tools that interface with Microsoft Outlook and Lotus Notes, and requires
less setup time than other solutions. It is designed to meet the challenges of
mobile environments with high accuracy for native and non-native speaking
individuals.
MOBILECONFERENCE(TM)
On-the-fly group conferencing is a powerful new addition to One Voice's
MobileVoice solution. MobileConference allows users to quickly connect up to 64
people on a single conference call just by speaking their name, group name or
phone number.
MOBILEVOICE EMAIL(TM)
The Telecom industry's only Voice-to-Text Email solution let's subscribers send
free-form email messages while on the road. Designed for high levels of accuracy
in a mobile environment, MobileVoice Email sets the standard for mobile
communications.
MOBILEVOICE SMS(TM)
Short Message Service (SMS) has gained wide popularity in Europe and is now
hitting the streets in North America. MobileVoice SMS is the Telecom industry's
only Voice-to-Text SMS solution that let's subscribers send free-form messages
from phone-to-phone with only their voice. No need to Tap or WAP, MobileVoice
SMS truly enables mobility and communications to a 100% addressable phone
market. With MobileVoice SMS subscribers can send messages within network or
even to subscribers on other networks. Now, voice based inter-carrier SMS is
available today with MobileVoice SMS.
MOBILEVOICE INSTANT MESSAGING(TM)
Instant Messaging has long been a popular way for friends and colleagues to
communicate on their computers. MobileVoice Instant Messaging now takes Instant
Messaging mobile, letting people chat and send quick messages with only their
voice. Targeted at subscribers and enterprise customers, MobileVoice Instant
Messaging sets the standard for voice based instant communications, anytime,
anywhere.
MOBILEVOICE VOICE MAIL(TM)
A popular way to leave messages, MobileVoice Voice Mail let's subscribers record
and send messages in their own voice. The voice recording of your message will
be sent as an Email attachment to the recipient or group of recipients for quick
retrieval from any computer or any phone.
MOBILEVOICE EMAIL READER(TM)
We have designed MobileVoice Email Reader to be the most powerful and versatile
solution on the market. With MobileVoice Email Reader, subscribers take full
control of their Email accounts from any phone. Subscribers can easily find
important messages and respond to one person or many in seconds. Need to forward
a message on to others? No problem! MobileVoice Email Reader offers full Reply
and Forward capabilities. Need access to your home and work Email accounts?
MobileVoice Email Reader delivers - giving users access to personal and
corporate Email accounts from any phone.
18
TECHNOLOGY OVERVIEW
- -------------------
To date, widespread applications of voice technology for use in mobile
communication have been very basic, recognizing a limited number of words and
using rigid menu systems delivering a constrained amount of content. One Voice's
technology positions itself uniquely in the Voice Market. The Company's
Intelligent Voice Platform(TM) (IVP) uses patented Artificial Intelligence and
Natural Language Processing, which is highly intelligent, with the ability to
identify individual users, tap into a database of user specific information, and
dynamically learn and leverage a vocabulary of over 300,000 words. The
technology employs a flexible architecture, allowing it to reside and operate on
a device itself, in a server-based architecture or a mix of both, making it
extremely adaptable to different usage models. The IVP also provides
anytime/anywhere access to information, reduces training time and lowers costs
for both consumers and businesses. The technology is functionally superior and
extremely easy to use. Users can simply download information into the One Voice
server from e-mail applications directly, and the Voice Activated Dialing (VAD)
system is operational with no voice training needed.
One Voice has also developed several other technologies that enhance the
offerings of the IVP. MultiSite(TM) is a proprietary context-based searching
technology that finds multiple websites for any category and retrieves them
simultaneously. It is particularly helpful when performing Internet searching on
devices such as mobile phones. VoiceSite(TM) is a proprietary technology that
makes websites voice interactive. It allows companies to voice enable their
sites quickly and easily, as well as suggestively create a customized experience
for visitors.
COMPETITIVE LANDSCAPE
- ---------------------
One Voice is the industry's first and only provider of 4th Generation voice
technology. The evolution of speech technology can be broken into four
generations as follows:
GENERATION 1 systems require minimal processing power and storage and are often
used in embedded devices. These solutions can typically recognize 20-30 words or
less and are usually founded embedded in electronic devices such as phones,
toys, etc. Due to its limitations, this technology is typically used for limited
command & control functions or applications. Companies focused in this space
include Conversay and IBM among others.
GENERATION 2 systems expand the recognition capabilities seen in Generation 1
increasing the vocabulary to potentially hundreds of words. These systems
frequently use menus to support the delivery of content as seen in Interactive
Voice Response (IVR) systems for airline reservations, banking and Voice
Portals. Due to the use of menus, these systems can typically deliver a maximum
of 6-8 areas of content horizontally and 3-4 layers down in the menu trees
before running the risk of "user overload." Companies focused in this space
include Speechworks International, Nuance Communications, Preferred Voice,
HeyAnita, Bevocal and TellMe among others.
GENERATION 3 systems expand the recognition capabilities significantly to
hundreds of thousands of words. The systems can support continuous, free-form
transcription of voice into text. These systems are typically used for desktop
dictation applications running on PC's in the sectors of word processing,
medical and legal transcription. Companies focused in this space include IBM,
ScanSoft and Philips.
GENERATION 4 systems take the capabilities of all the previous generations and
adds powerful expert systems and Artificial Intelligence capabilities to allow
the solutions to not only recognize words, but also understand their meaning.
This opens the doors to higher degrees of personalization, more robust system
interaction and more advanced applications such as Voice-to-Text Messaging on a
phone and full Internet searching. One Voice is currently the only company in
the voice technology sector that offers 4th Generation voice technology.
19
MAJOR MARKET ADVANTAGES
- -----------------------
WIRELESS CARRIERS looking to drive incremental revenue could utilize One Voice's
technology to expand mobile messaging offerings. One Voice services apply to
100% of the addressable market, where extensive research clearly indicates
strong demand. One Voice can add significant fundamental value by creating
revenue opportunities through: 1) mobile use minutes, 2) recurring fees for
subscription services, 3) m-commerce transactions and 4) license fees for
voice-enabling content. One Voice's solutions can also play a key role in
helping wireless carriers differentiate their brand and service offerings,
attracting new users and reducing churn. Additionally, the interoperability of
One Voice's technology gives it the ability to link multiple wireless carrier
networks, creating greater flexibility and driving consumer demand.
INSTANT AND UNIFIED MESSAGING: OPERATORS of Instant Messaging and Unified
Messaging systems could significantly expand market share and drive revenues
through integration of the Company's technology with its messaging capabilities.
With One Voice, a mobile phone can be used to send instant messages, similar to
a PC or PDA. This ability provides a differentiation for the service and thus
drives additional revenue from other channels, such as Internet and e-mail
services.
INFRASTRUCTURE PROVIDERS: Many of the leading mobile device hardware
manufacturers also provide infrastructure services to wireless carriers. One
Voice's technology provides a point of differentiation which could be bundled
with infrastructure. Wireless carriers could then offer the technology to their
subscribers, driving mobile phone minutes and increasing revenues.
VOICE TECHNOLOGY THROUGH PLATFORM INDEPENDENCE: A key advantage of the One Voice
technology is that it is platform independent. The technology is adaptable and
highly intelligent allowing it to operate on a device itself, in a server
environment or a combination of the two. This creates expansive market
opportunities including usage in mobile phones, PC's, wired and wireless
handheld devices and other consumer electronics products.
EMPLOYEES
At December 31, 2002, we employed 12 full-time employees and 6
consultant/part-time employees. None of these employees is subject to a
collective bargaining agreement, and there is no union representation within our
company. We maintain various employee benefit plans and believe our employee
relations are good.
DESCRIPTION OF PROPERTIES
The Company's headquarters are located at 6333 Greenwich drive, suite 240 in San
Diego, California.
The Company leases its facilities under leases that expire at various times
through October 2005. The following is a schedule by years of future minimum
rental payments required under operating leases that have noncancellable lease
terms in excess of one year as of December 31, 2002:
Year ending December 31,
2003 $ 304,615
2004 313,291
2005 266,053
----------
883,959
Less sublease income 280,000
----------
$ 603,959
==========
Rent expense, net of sublease income, amounted to $162,169 and $233,974 for the
years ended December 31, 2002 and 2001, respectively.
20
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION
- ---- --- --------
Dean Weber 40 Chairman of the Board, President, Chief
Executive Officer, Director
Rahoul Sharan 41 Chief Financial Officer, Secretary, Treasurer
and Director
Bradley J. Ammon 39 Director
Directors serve until the next annual meeting and until their successors are
elected and qualified. Officers are appointed to serve for one year until the
meeting of the board of directors following the annual meeting of stockholders
and until their successors have been elected and qualified, although Dean Weber
has an employment agreement and Rahoul Sharan's company has a personal service
agreement with us. There are no family relationships between any of our
directors or officers.
Dean Weber brings an extensive background to One Voice with over 20 years of
technology and management experience. He is responsible for developing the
company's strategic vision and pioneering its products, patented technology and
business strategies. He was elected to our Board of Directors in July of 1999 as
Chairman.
Before founding One Voice in 1998, Mr. Weber played key roles in many high
profile technology companies including the B2 Stealth Bomber project at
Northrop, Space Station contracts at United Technologies and advanced user
interfaces at Xerox. Throughout his career, Mr. Weber has developed a
comprehensive knowledge of Human Computer Interaction, Cognitive Science,
Artificial Intelligence and Natural Language Processing. Mr. Weber currently has
numerous patents in Artificial Intelligence, Natural Language Processing and
other related technologies.
As CEO of One Voice, Mr. Weber has been instrumental in the growth and
development of the company, successfully raising over $26 million of
institutional funding, taking One Voice public, winning the Deloitte and Touche
Technology Fast 50 award, and has been featured in Forbes, Time, and on CNN. Mr.
Weber holds a Bachelor of Science degree in Computer Science from Central
Connecticut State University.
RAHOUL SHARAN brings over 18 years of finance and accounting experience to One
Voice. He is responsible for managing all of One Voice's accounting and
financial matters. He was elected to our Board of Directors in July of 1999.
Prior to joining the One Voice team, Mr. Sharan was a partner of the S&P Group,
which specializes in investment financing for venture capital projects, real
estate development and construction. At S&P Group, Mr. Sharan led the successful
financing efforts for over 15 companies in several industries.
Mr. Sharan was also the President of KJN Management Ltd., which provides a broad
range of administrative, management and financial services. He also worked in
public accounting for six years with Coopers & Lybrand. At C&L, Mr. Sharan
worked in both the tax and audit groups for a wide variety of large and small
clients.
Mr. Sharan holds a Bachelor of Commerce degree from the University of British
Columbia and is a member of the Institute of Chartered Accountants of British
Columbia.
21
BRADLEY J. AMMON is a tax attorney in the San Diego law firm of Ernest S. Ryder
& Associates, Inc. Mr. Ammon specializes in international tax planning,
including restructuring of international operations, domestic mergers and
acquisitions, and developing business plans to minimize worldwide taxation.
Prior to joining the firm, Mr. Ammon was with SAIC as an International Tax
Manager. He previously was with KPMG, LLP in the International Corporate
Services department since 1998 where his principal practice consisted of clients
in the information, communications and entertainment ("ICE") industry. Prior to
joining KPMG, Mr. Ammon worked from 1995 to 1998 at Deloitte & Touche, LLP in
their tax services department where he provided corporate, partnership, and
personal tax and business planning services to clients. Mr. Ammon also worked
several years as a staff accountant where his responsibilities included the
compilation and consolidation of monthly financial statements for multiple
subsidiaries. Mr. Ammon has a Juris Doctor and a Master's of Law in taxation
(LL.M.) from the University of San Diego, and received his undergraduate degree
from the University of California, San Diego. He is admitted to the California
Bar. Mr. Ammon is a member of our Audit Committee and Compensation Committee and
was appointed to our Board on June 9, 2000.
CODE OF ETHICS
The Company has adopted its Code of Ethics and Business Conduct for Officers,
Directors and Employees that applies to all of the officers, directors and
employees of the Company.
EXECUTIVE COMPENSATION
The following tables set forth certain information regarding our CEO and each of
our executive officers whose total annual salary and bonus for the fiscal year
ending December 31, 2002, 2001 and 2000 exceeded $100,000:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other
Annual Restricted Options LTIP All Other
Name & Principal Salary Bonus Compen- Stock SARs Payouts Compen-
Position Year ($) ($) sation ($) awards (#)(1) ($) sation
- --------------------- ------ -------- ----------- ---------- ------------ --------- --------- ---------
Dean Weber, 2002 252,000 0 0 0 0 0
CEO 2001 246,098 0 0 0 0 0 0
2000 252,000 75,000 0 0 0 0 0
Rahoul Sharan, 2002 142,500 0 0 0 0 0
CFO 2001 137,654 0 0 0 0 0 0
2000 180,000 75,000(1) 0 0 0 0 0
(1) This payment was made through KJN Management Ltd.
22
EMPLOYMENT AGREEMENT
We entered into a three-year employment agreement (the Weber Employment
Agreement) with Dean Weber, our Chairman, Chief Executive Officer and President,
commencing in July 1999. The Weber Employment Agreement provides that, in
consideration for Mr. Weber's services, he is to be paid an annual salary of
$180,000. The salary was changed to $252,000 annually in April 2000. The last
bonus earned was paid in 2000.
PERSONAL SERVICE AGREEMENT
We entered into a three-year personal service agreement with KJN Management
Ltd., commencing in July 1999 for the services of its CFO, Rahoul Sharan, which
provided for the payment of a fee by the Company to KJN Management Ltd. of
$120,000 per year. The service fee was increased to $180,000 per year in 2000
and subsequently been reduced in 2001 and 2002. The last bonus earned was paid
in 2000.
COMPENSATION OF DIRECTORS
Non-employee directors receive $1,000 for each Board of Directors meeting
attended. The Company pays all out-of-pocket expenses of attendance.
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
Our Amended and Restated 1999 Stock Option Plan (the 1999 Plan) authorizes us to
grant to our directors, employees, consultants and advisors both incentive and
non-qualified stock options to purchase shares of our Common Stock. As of
December 31, 2001, our Board of Directors had reserved 3,000,000 shares for
issuance under the 1999 Plan, of which 2,078,625 shares were subject to
outstanding options and 921,375 shares remained available for future grants. Our
Board of Directors or a committee appointed by the Board (the Plan
Administrator) administers the 1999 Plan. The Plan Administrator selects the
recipients to whom options are granted and determines the number of shares to be
awarded. Options granted under the 1999 Plan are exercisable at a price
determined by the Plan Administrator at the time of the grant, but in no event
will the option price for any incentive stock option be lower than the fair
market value for our Common Stock on the date of the grant. Options become
exercisable at such times and in such installments as the Plan Administrator
provides in the terms of each individual option agreement. In general, the Plan
Administrator is given broad discretion to issue options and to accept a wide
variety of consideration (including shares of our Common Stock and promissory
notes) in payment for the exercise price of options. The 1999 Plan was
authorized by the Board of Directors and stockholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our chief executive officer, Mr. Weber, advanced $4,500 to us for the purchase
of a computer. Our chief financial officer, Mr. Sharan, advanced $10,000 to us
for travel expenses. Both of these cash advances were recorded on our financial
statements as current liabilities with no written or verbal agreement regarding
loan terms of repayment or stated interest rate. The advances were repaid by us
on July 14, 2000.
In May 1999, a group of officers, directors and stockholders of Dead On, Inc.,
our former corporate entity formed a new company, Dead On Acquisition Company, a
California corporation. Subsequent to the formation of Dead On Acquisition
Company, the group transferred 6,075,000 shares of our common stock to Dead On
Acquisition Company in exchange for shares of Dead On Acquisition Company stock.
On July 14, 1999, 150,000 restricted shares of our common stock were issued as a
commission to Compass Investment Management, a non-affiliated entity, for
services rendered in connection with the July 1999 private placement.
On May 14, 1999, we sold all of our operating assets and liabilities relating to
the discontinued operations of our apparel, accessory, and sports equipment
division to Dead On Acquisition Company for $1.00 per an agreement for
acquisition resulting in a gain of $91,785 and a provision for operating losses
of $110,788, equaling a net financial statement loss of $19,003.
23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of July 14, 2003 (i) by each person who is
known by us to beneficially own more than 5% of our common stock; (ii) by each
of our officers and directors; and (iii) by all of our officers and directors as
a group. Each person's address is c/o One Voice Technologies, Inc., 6333
Greenwich Drive, Suite 240, San Diego, California 92122.
Shares Beneficially Owned(1)
----------------------------
Name and Address of Beneficial Owner Number Percent
- ---------------------------------------------------------------------- --------------- ------------
Dean Weber, CEO, President and Chairman of the Board(2) 5,558,000(3) 11.53%
IVantage, Inc. (2) 1,600,200 3.32%
Rahoul Sharan, CFO, Secretary, Treasurer and Director 60,000(4) *
Bradley J. Ammon, Director 75,000(5) *
Alpha Capital Atiengesellschaft 3,895,835(6) 7.64%
Ellis Enterprises Ltd. 3,116,668(7) 6.11%
Total securities held by officers and directors as a group (3 people): 5,693,000(8) 11.81%
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of July 14, 2003 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) iVantage, Inc. is wholly owned by Dean Weber, Chairman of the Board, CEO,
and President of One Voice Technologies, Inc. Mr. Weber is the beneficial owner
of the 1,600,200 shares in the name of iVantage, Inc. and those shares are also
included in the amount presented in this table for Mr. Weber.
(3) Includes 1,600,200 shares owned indirectly through iVantage, Inc.
(4) Represents options to purchase (i) 50,000 shares at an exercise price of
$6.080 per share; and (ii) 10,000 shares at an exercise price of $2.00 per
share. These options are currently exercisable.
(5) Includes options to purchase (i) 50,000 shares at an exercise price of
$8.750 per share; and (ii) 25,000 shares at an exercise price of $2.00 per
share. These options are currently exercisable.
(6) Represents shares underlying convertible notes, convertible at $0.072 per
share, and 350,004 shares underlying warrants that are currently exercisable at
an exercise price of $0.27 per share. Konrad Ackerman may be deemed a control
person of the shares owned by such entity. The selling stockholder has
contractually agreed to restrict its ability to convert or exercise its warrants
and receive shares of our common stock such that the number of shares of common
stock held by it and its affiliates after such conversion or exercise does not
exceed 9.99% of the then issued and outstanding shares of common stock. If the
selling stockholder did not have such limitation, the maximum number and
percentage of shares the selling stockholder would be able to acquire, as of
July 14, 2003 is 3,895,835 and 7.64%, respectively. Because the number of shares
of common stock issuable upon conversion of the convertible note is dependent in
part upon the market price of the common stock prior to a conversion, the actual
number of shares of common stock that will be issued upon conversion will
fluctuate daily and cannot be determined at this time. If the market price of
the common stock declines, the selling stockholder will receive a greater number
of shares based on a lower conversion price.
(7) Represents shares underlying convertible notes, convertible at $0.072 per
share, and 145,836 shares underlying warrants that are currently exercisable at
an exercise price of $0.27 per share. Dr. Julian Ungar, an unaffiliated third
party, has investment power over the shares owned by such entity. The selling
stockholder has contractually agreed to restrict its ability to convert or
exercise its warrants and receive shares of our common stock such that the
number of shares of common stock held by it and its affiliates after such
conversion or exercise does not exceed 9.99% of the then issued and outstanding
shares of common stock. If the selling stockholder did not have such limitation,
the maximum number and percentage of shares the selling stockholder would be
able to acquire, as of July 14, 2003 is 3,116,668 and 6.11%, respectively.
Because the number of shares of common stock issuable upon conversion of the
convertible note is dependent in part upon the market price of the common stock
prior to a conversion, the actual number of shares of common stock that will be
issued upon conversion will fluctuate daily and cannot be determined at this
time. If the market price of the common stock declines, the selling stockholder
will receive a greater number of shares based on a lower conversion price.
(8) Includes options to purchase 210,000 shares as they are currently
exercisable.
24
DESCRIPTION OF SECURITIES
THE FOLLOWING DESCRIPTION OF OUR CAPITAL STOCK IS A SUMMARY AND IS QUALIFIED IN
ITS ENTIRETY BY THE PROVISIONS OF OUR ARTICLES OF INCORPORATION, WITH
AMENDMENTS, ALL OF WHICH HAVE BEEN FILED AS EXHIBITS TO OUR REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
Our Amended Articles of Incorporation authorize the issuance of 100,000,000
shares of common stock, $.001 par value per share, and 10,000,000 shares of
preferred stock, $.001 par value per share. Holders of shares of common stock
are entitled to one vote for each share on all matters to be voted on by the
stockholders. Holders of common stock have cumulative voting rights. Holders of
shares of common stock are entitled to share ratably in dividends, if any, as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefor. In the event of a liquidation,
dissolution, or winding up of the Company, the holders of shares of common stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities. Holders of common stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to such shares. The Board of Directors, from time to
time in its sole discretion, has the authority to fix the powers, rights,
qualifications, limitations, and restrictions pertaining to the preferred stock.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under the Nevada General Corporation Law and our Articles of Incorporation, as
amended, and our Bylaws, our directors will have no personal liability to us or
our stockholders for monetary damages incurred as the result of the breach or
alleged breach by a director of his "duty of care." This provision does not
apply to the directors' (i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) acts or omissions
that a director believes to be contrary to the best interests of the corporation
or its stockholders or that involve the absence of good faith on the part of the
director, (iii) approval of any transaction from which a director derives an
improper personal benefit, (iv) acts or omissions that show a reckless disregard
for the director's duty to the corporation or its stockholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
corporation or its stockholders, (v) acts or omissions that constituted an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its stockholders, or (vi) approval of an unlawful
dividend, distribution, stock repurchase or redemption. This provision would
generally absolve directors of personal liability for negligence in the
performance of duties, including gross negligence.
The effect of this provision in our Articles of Incorporation and Bylaws is to
eliminate the rights of our Company and our stockholders (through stockholder's
derivative suits on behalf of our Company) to recover monetary damages against a
director for breach of his fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (vi) above. This provision does not
limit nor eliminate the rights of our Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. In addition, our Bylaws provide that if the Nevada
General Corporation Law is amended to authorize the future elimination or
limitation of the liability of a director, then the liability of the directors
will be eliminated or limited to the fullest extent permitted by the law, as
amended. The Nevada General Corporation Law grants corporations the right to
indemnify their directors, officers, employees and agents in accordance with
applicable law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act" or "Securities Act") may be permitted to directors, officers or
persons controlling our Company pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
25
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
- -- ordinary brokerage transactions and transactions in which the broker-dealer
solicits the purchaser;
- -- block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- -- purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
- -- an exchange distribution in accordance with the rules of the applicable
exchange;
- -- privately-negotiated transactions;
- -- short sales;
- -- broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
- -- a combination of any such methods of sale; and
- -- any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling stockholders defaults on
a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
The selling stockholders may also engage in short sales against the box, puts
and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades. None
of the selling stockholders currently have open positions in One Voice.
Broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. If
any such arrangements are entered into, this prospectus will be amended to
disclose the arrangements and name of the broker-dealer participating in the
offering.
In addition, the selling stockholders should be aware that the anti-manipulation
provisions of Regulation M under the Securities Exchange Act of 1934 will apply
to purchases and sales of shares of common stock by the selling stockholders and
that there are restrictions on market-making activities by persons engaged in
the distribution of the shares. Under Regulation M, the selling stockholders or
their agents may not bid for, purchase, or attempt to induce any person to bid
for or purchase, shares of our common stock while they are distributing shares
covered by this prospectus. Accordingly, the selling stockholders are not
permitted to cover short sales by purchasing shares while the distribution is
taking place. We will advise the selling stockholder that if a particular offer
of common stock is to be made on terms materially different from the information
set forth in this Plan of Distribution, then a post-effective amendment to the
accompanying registration statement must be filed with the Securities and
Exchange Commission.
The selling stockholders may be deemed to be an "underwriter" within the meaning
of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling stockholders,
but excluding brokerage commissions or underwriter discounts. We and the selling
stockholders have agreed to indemnify each other against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.
26
PENNY STOCK
The Securities and Exchange Commission (the "Commission") has adopted Rule 15g-9
which establishes the definition of a "penny stock," for the purposes relevant
to us, as any equity security that has a market price of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require: (i) that a broker or dealer approve a person's account for
transactions in penny stocks; and (ii) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person's
account for transactions in penny stocks, the broker or dealer must (i) obtain
financial information and investment experience objectives of the person; and
(ii) make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlight form, (i) sets forth the basis on
which the broker or dealer made the suitability determination; and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
27
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares of
common stock by the selling stockholders. We will not receive any proceeds from
the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the selling stockholders, none of the selling stockholders
will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
- --------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
Total
Total Shares Percentage
of Common Stock of Common Shares of Beneficial Percentage
Issuable Upon Stock, Common Stock Beneficial Percentage of Ownership of Common
Conversion of Assuming Included in Ownership Common Stock After the Stock Owned
Notes and/or Full Prospectus Before the Owned Before Offering After Offering
Name Warrants* Conversion (1) Offering* Offering (1) (6) (6)
- --------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
Alpha Capital 3,895,835 7.64% Up to 3,895,835 7.64% -- --
Atiengesellschaft (2) 7,645,835
shares of
common stock
- --------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
Ellis Enterprises 3,116,668 6.11% Up to 3,116,668 6.11% -- --
Ltd. (3) 6,116,668
shares of
common stock
- --------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
Greenwich Growth 1,558,334 3.06% Up to 1,558,334 3.06% -- --
Fund, Ltd. (4) 3,058,334
shares of
common stock
- --------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
01144 Limited (5) 779,167 2.02% Up to 779,167 2.02% -- --
1,529,167
shares of
common stock
- --------------------- ----------------- -------------- -------------- ------------ --------------- ----------- ---------------
* Based on a conversion price of $.072 per share at July 11, 2003.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares, which the selling stockholder has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the convertible preferred stock is subject to adjustment depending
on, among other factors, the future market price of the common stock, and could
be materially less or more than the number estimated in the table.
28
(1) Includes 200% of the shares issuable upon conversion of the convertible
notes, based on current market prices. Because the number of shares of common
stock issuable upon conversion of the convertible note is dependent in part upon
the market price of the common stock prior to a conversion, the actual number of
shares of common stock that will be issued upon conversion will fluctuate daily
and cannot be determined at this time. However the selling stockholder has
contractually agreed to restrict its ability to convert or exercise its warrants
and receive shares of our common stock such that the number of shares of common
stock held by it and its affiliates after such conversion or exercise does not
exceed 9.99% of the then issued and outstanding shares of common stock.
(2) Includes 145,835 shares underlying warrants that are currently exercisable
at an exercise price of $0.1272 per share. In accordance with rule 13d-3 under
the securities exchange act of 1934, Konrad Ackerman may be deemed a control
person of the shares owned by such entity.
(3) Includes 116,668 shares underlying warrants that are currently exercisable
at an exercise price of $0.1272 per share. Dr. Julian Ungar , an unaffiliated
third party, has investment power over the shares owned by such entity.
(4) Includes 58,334 shares underlying warrants that are currently exercisable at
an exercise price of $0.1272 per share. Greenwich Growth Fund Limited is a
private investment fund that is owned by its investors and managed by Meridian
Fund Management. The directors of Meridian Fund Management are Arthur Jones,
Jonathan Walk and Jennifer Kelly.
(5) Includes 29,167 shares underlying warrants that are currently exercisable at
an exercise price of $0.1272 per share. 01144 Limited is a private investment
fund that is majority-owned by Ian McKinnon.
(6) Assumes that all securities registered will be sold.
OUR SECURITIES PURCHASE AGREEMENT
To obtain funding for our ongoing operations, we entered into a Subscription
Agreement with the selling stockholders on April 10, 2003 for the sale of an
aggregate of (i) $600,000 in convertible notes and (ii) a warrants to purchase
350,004 shares of our common stock. The following is a list of the principal
amount of notes held and proportionate share by each selling stockholder:
Alpha Capital Aktiengesellschaft - $250,000 - 41.67%
Ellis Enterprises - $200,000 - 33.33%
Greenwich Growth Fund Limited - $100,000 - 16.67%
01144 Limited - $50,000 - 8.33%
All of the convertible notes were paid for by the investors and issued at
closing on April 10, 2003.
The selling stockholders agreed that provided no event of default has occurred,
then until 180 days after the effective date of this prospectus, that each will
not, without our prior approval, sell in open market transactions on any trading
day an amount of our common stock in excess of their proportionate share of
25%of the reported trading volume of our common stock for such trading day. In
the event the selling stockholder does not sell their full proportionate share
on the subsequent trading day, then the unsold portion may be sold thereafter on
any trading day without regard to this limitation.
The securities purchase agreement also contains covenants and representations
and warranties of the selling stockholders and us that are customary in
transactions of this type. In particular, we have agreed to have authorized a
sufficient number of shares of our common stock to provide for the full
conversion of the debentures and exercise of the warrants then outstanding and
to have reserved at all times for issuance at least 1.5 times the number of
shares that is the actually issuable upon full conversion of the debentures and
full exercise of the warrants. Moreover, our common stock must remain listed on
the OTCBB or an equivalent exchange, and must remain eligible to file a Form
SB-2 or S-1 Registration Statement and we are prohibited from merging or
consolidating with or into another company or transferring all or substantially
all of our assets to another company.
We are be obligated to pay a penalty of $6,000 per day to the selling
stockholders if we fail to deliver the shares of our common stock issuable upon
a conversion of the debentures within three business days following the receipt
of the selling stockholders' notice of conversion.
In the event we are prohibited from issuing shares of our common stock, or fail
to timely deliver shares of our common stock or upon the occurrence of any event
of default, then at the selling stockholders election, we must pay to the
selling stockholder, a sum of money determined by (i) multiplying up to the
outstanding principal amount of the note by 130%, or (ii) multiplying the number
of shares otherwise deliverable upon conversion of an amount of note principal
and/or interest at the then conversion price that would be in effect by the
highest closing price of the common stock until the day prior to the receipt of
the mandatory redemption payment, whichever is greater, together with accrued
but unpaid interest.
29
4% CONVERTIBLE NOTES
- --------------------
The notes bear interest at 4% mature on April 10, 2005, and are convertible into
our common stock, at the selling stockholders' 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.
Simple interest payable on the notes accrue at the annual rate of four percent
(4%) and is payable upon each conversion, June 30, 2003 and quarterly
thereafter, and on the maturity date, accelerated or otherwise, when the
principal and remaining accrued but unpaid interest shall be due and payable, or
sooner if converted in shares of common stock.
The conversion price of the notes and the exercise price of the warrants may be
adjusted in certain circumstances such as if we pay a stock dividend, subdivide
or combine outstanding shares of common stock into a greater or lesser number of
shares, or take such other actions as would otherwise result in dilution of the
selling stockholder's position.
The selling stockholders has contractually agreed to restrict its ability to
convert or exercise its warrants and receive shares of our common stock such
that the number of shares of common stock held by it and its affiliates after
such conversion or exercise does not exceed 9.99% of the then issued and
outstanding shares of common stock.
The conversion price of the notes are subject to equitable adjustments if we
distribute a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions as
would otherwise result in dilution of the selling stockholders' ownership. Also,
the notes fixed conversion price gets lowered in the event we issue shares of
our common stock or any rights, options, warrants to purchase shares of our
common stock at a price less than the market price of our shares as quoted on
the OTCBB. The fixed conversion price gets lowered upon such issuance to the
amount of the consideration per share received by us.
SAMPLE CONVERSION CALCULATION
The number of shares of common stock issuable upon conversion of a note is
determined by dividing that portion of the principal of the note to be converted
and interest, if any, by the conversion price. For example, assuming conversion
of $600,000 of notes, with $50,000 of interest, on July 11, 2003, a conversion
price of $0.072 per share, the number of shares issuable upon conversion
ignoring the 9.99% limitation discussed above, would be:
$650,000/.072 = 9,027,777
The conversion price is calculated by taking 80% the average of the five lowest
closing prices for the 30 days prior to conversion. In this example at July 11,
2003 the five lowest closing prices were $0.09 and 20% of this price equals a
conversion price of $0.072.
The following is an example of the amount shares of our common stock that is
issuable, upon conversion of our convertible notes, based on market prices 25%,
50% and 75% below the market price, as of July 11, 2003 of $0.10.
With Percentage of
% Below Market Price Per Share Discount of 20% Number of Shares Issuable Outstanding Stock
- -------------- --------------- --------------- ------------------------- -----------------
25% $.075 $.060 10,000,000 17.19%
50% $.050 $.040 15,000,000 23.74%
75% $.025 $.020 30,000,000 38.37%
30
DESCRIPTION OF WARRANTS
The warrants purchased by the selling stockholders on April 10, 2003 entitle
them to purchase 350,004 shares of our common stock at an exercise price equal
to $0.1272 per share. In addition the warrants may exercised without cash by
reducing the amount of shares issuable upon exercise by an amount equal to the
exercise price.
The warrants expire five years from the date of issuance. The warrants are
subject to exercise price adjustments upon the occurrence of certain events
including stock dividends, stock splits, mergers, reclassifications of stock or
our recapitalization. The exercise price of the warrants is also subject to
reduction if we issue shares of our common stock on any rights, options or
warrants to purchase shares of our common stock at a price less than the market
price of our shares as quoted on the OTC Bulletin Board.
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be passed
upon for us by Sichenzia Ross Friedman Ference LLP, New York, New York.
EXPERTS
Our financial statements at December 31, 2001 and 2002 appearing in this
prospectus and registration statement have been audited by Stonefield Josephson,
Inc., independent auditors, as set forth on their report thereon appearing
elsewhere in this prospectus, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act of
1933, as amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of One Voice Technologies, Inc., filed as
part of the registration statement, and it does not contain all information in
the registration statement, as certain portions have been omitted in accordance
with the rules and regulations of the Securities and Exchange Commission
("SEC").
We are subject to the informational requirements of the Securities Exchange Act
of 1934 (the "Exchange Act") which requires us to file reports, proxy statements
and other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information may be inspected at public reference
facilities of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C.
20549; Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 5670 Wilshire Boulevard, Los Angeles, California 90036.
Copies of such material can be obtained from the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
We furnish our stockholders with annual reports containing audited financial
statements.
31
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
CONTENTS
Page
----
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Balance Sheet F-2
Statements of Operations F-3
Statement of Stockholders' Equity F-4 - F-6
Statements of Cash Flows F-7 - F-8
Notes to Financial Statements F-9 - F-31
32
INDEPENDENT AUDITORS' REPORT
Board of Directors
One Voice Technologies, Inc.
San Diego, California
We have audited the accompanying balance sheet of One Voice Technologies, Inc.,
a Nevada Corporation (a development stage enterprise) as of December 31, 2002,
and the related statements of operations, stockholders' equity and cash flows
for the years ended December 31, 2002 and 2001, and for the period since
inception on January 1, 1999 to December 31, 2002. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of One Voice Technologies, Inc. as
of December 31, 2002, and the results of its operations and its cash flows for
the years ended December 31, 2002 and 2001 and for the period since inception on
January 1, 1999 to December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
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 $6,568,922 during 2002 and had an accumulated
deficit of $26,527,036. The Company had working capital of $408,921 at December
31, 2002. Cash flows used for operations amounted to $3,620,807 for the year
ended December 31, 2002. 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.
/S/ STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
SANTA MONICA, CALIFORNIA
FEBRUARY 24, 2003
F-1
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - DECEMBER 31, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 745,155
Accounts receivable 29,888
Prepaid expenses 63,524
-------------
Total current assets 838,567
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 359,358
OTHER ASSETS:
Software development costs, net of accumulated amortization 730,365
Deposits 46,897
Trademarks, net of accumulated amortization 106,422
Patents 61,845
-------------
Total other assets 945,529
-------------
$ 2,143,454
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
accounts payable and accrued expenses $ 429,646
4% CONVERTIBLE NOTES PAYABLE, 1,235,000
Less unamortized discount (934,100)
-------------
300,900
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, 38,934,533 shares issued and outstanding 38,934
Additional paid-in capital 27,901,010
Deficit accumulated during development stage (26,527,036)
-------------
Total stockholders' equity 1,412,908
-------------
$ 2,143,454
=============
The accompanying notes form an integral part of these financial statements.
F-2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
From inception
on January 1,
Year ended Year ended 1999 to
December 31, December 31, December 31,
2002 2001 2002
------------- ------------- -------------
NET REVENUE $ 387,771 $ 185,934 $ 650,321
COST OF REVENUE 60,485 26,010 199,675
------------- ------------- -------------
GROSS PROFIT 327,286 159,924 450,646
GENERAL AND ADMINISTRATIVE EXPENSES 6,896,208 8,938,203 26,977,682
------------- ------------- -------------
NET LOSS $ (6,568,922) $ (8,778,279) $(26,527,036)
============= ============= =============
NET LOSS PER SHARE, basic and diluted $ (0.21) $ (0.59)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 31,635,000 14,824,000
============= =============
The accompanying notes form an integral part of these financial statements.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
accumulated
Common stock Additional during Total
----------------------------- paid-in development stockholders'
Shares Amount capital stage equity
------------- ------------- ------------- ------------- -------------
Balance at January 1, 1999 12,720,000 $ 12,720 $ $ $ 12,720
Net proceeds from issuance of
common stock in connection
with merger 7,000,000 7,000 106,236 113,236
Net proceeds from issuance of
common stock 1,500,000 1,500 2,544,422 2,545,922
Net issuance of common stock in
exchange for services 150,000 150 299,850 300,000
Redemption of common stock (10,000,000) (10,000) (10,000)
Net loss for the year ended
December 31, 1999 (1,782,215) (1,782,215)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 11,370,000 11,370 2,950,508 (1,782,215) 1,179,663
Net proceeds from issuance of
common stock and warrants 312,500 313 1,779,523 1,779,836
Net proceeds from issuance of
common stock and warrants 988,560 988 12,145,193 12,146,181
Issuance of warrants in exchange
for services 55,000 55,000
Issuance of options in exchange
for services 199,311 199,311
Issuance of warrants in connection
with financing 1,576,309 1,576,309
Net loss for the year ended
December 31, 2000 (9,397,620) (9,397,620)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 2000 12,671,060 12,671 18,705,844 (11,179,835) 7,538,680
------------- ------------- ------------- ------------- -------------
(Continued)
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 (CONTINUED)
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-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
------------- ------------- ------------- ------------- -------------
Issuance of common stock for cash 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
============= ============= ============= ============= =============
The accompanying notes form an integral part of these financial statements.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception
on January 1,
Year ended Year ended 1999 to
December 31, December 31, December 31,
2002 2001 2002
------------- ------------- -------------
Cash flows provided by (used for)
operating activities:
Net loss $ (6,568,922) $ (8,778,279) $(26,527,036)
------------- ------------- -------------
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 848,165 1,168,084 3,172,495
Loss on disposal of assets 23,340 500,000 523,340
Amortization of discount and finance cost 2,141,505 1,191,442 3,396,530
Options issued in exchange for services 107,276 140,263 446,850
Warrants issued in exchange for services -- 166,650 221,650
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Licensing revenue receivable (29,343) -- (279,343)
Advertising revenue receivable -- 324,455 249,455
Inventory 109,451 6,424 --
Prepaid advertising -- 183,331 --
Prepaid mailing lists -- -- (750,000)
Prepaid expenses 3,115 186,617 (63,525)
Deposits 1,405 (315) (46,897)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (256,799) (112,229) 429,646
Deferred revenue -- (56,250) 250,000
------------- ------------- -------------
Total adjustments 2,948,115 3,698,472 7,550,201
------------- ------------- -------------
Net cash used for operating activities (3,620,807) (5,079,807) (18,976,835)
------------- ------------- -------------
Cash flows used for investing activities:
Sale (Purchase) of property and equipment,
net 847 (75,205) (1,397,819)
Software licensing (6,013) -- (1,145,322)
Software development costs (16,859) (262,278) (1,577,083)
Trademarks (7,288) (27,195) (242,469)
Patents (15,447) (3,668) (74,465)
Loan fees -- -- (200,000)
Increase in escrow account -- 200,000 --
------------- ------------- -------------
Net cash used for investing activities (44,760) (168,346) (4,637,158)
------------- ------------- -------------
(Continued)
The accompanying notes form an integral part of these financial statements.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From inception
on January 1,
Year ended Year ended 1999 to
December 31, December 31, December 31,
2002 2001 2002
------------- ------------- -------------
Cash flows provided by (used for) financing activities:
Proceeds from issuance of common stock, net 727,233 840,020 18,465,148
Proceeds from loans payable -- -- 200,000
Proceeds from convertible note payable, net 2,948,000 956,000 5,904,000
Payments on loan payable officer stockholder -- (200,000) (200,000)
Retirement of common stock, net -- -- (10,000)
------------- ------------- -------------
Net cash provided by financing activities 3,675,233 1,596,020 24,359,148
------------- ------------- -------------
Net increase (decrease) in cash 9,666 (3,652,133) 745,155
Cash and cash equivalents, beginning of year 735,489 4,387,622 --
------------- ------------- -------------
Cash and cash equivalents, end of year $ 745,155 $ 735,489 $ 745,155
============= ============= =============
Supplemental disclosure of cash flow information:
Interest paid $ -- $ 1,270 $ 19,047
============= ============= =============
Income taxes paid $ 800 $ 800 $ 5,023
============= ============= =============
Supplemental disclosure of non-cash financing activities:
Options issued in exchange for services $ 107,276 $ 58,863 $ 365,450
============= ============= =============
Shares issued for re-pricing of conversion rate $ 175,000 $ -- $ 175,000
============= ============= =============
Common shares and warrants issued for settlement $ -- $ 166,650 $ 303,050
============= ============= =============
Warrants issued in connection with financing $ 577,879 $ 92,400 $ 3,905,898
============= ============= =============
Common Stock issued in exchange for debt $ 2,336,492 $ 1,683,000 $ 4,019,492
============= ============= =============
Beneficial conversion feature of debt to equity $ 1,948,765 $ 325,000 $ 2,366,215
============= ============= =============
The accompanying notes form an integral part of these financial statements.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 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., a Nevada
Corporation.
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 $6,568,922 during 2002 and had an accumulated
deficit of $26,527,036. The Company had working capital of $408,921 at December
31, 2002. Cash flows used for operations amounted to $3,620,807 for the year
ended December 31, 2002. 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.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY:
The Company develops and markets computer software using Intelligent Voice
Interactive Technology (IVIT(TM)) to website owners in the United States and
other countries.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
DEVELOPMENT STAGE ENTERPRISE:
The Company is a development stage company as defined by Statement of Financial
Accounting Standards No. 7, "Accounting and Reporting by Development Stage
Enterprises." The Company is devoting substantially all of its present efforts
to establish a new business, which is unrelated to the business of Dead On, and
its planned principal operations have not yet commenced. All losses accumulated
since inception of One Voice Technologies, Inc. have been considered as part of
the Company's development stage activities. Revenues of $387,771 during the year
ended December 31, 2002 is not substantial to the plan of the Company. These
revenues were derived from one project with one customer and currently no
revenue stream exists. The Company is continuing to focus on its development
activities.
FAIR VALUE:
The Company's financial instruments consist principally of accounts payable and
notes payable and accounts receivable as defined by Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments." The carrying value of the financial instruments accounts payable
approximate their fair value due to the short-term nature of these instruments
and for convertible notes, the instruments are valued at the Company's effective
borrowing rate.
CASH:
EQUIVALENTS
-----------
For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CASH, CONTINUED:
CONCENTRATION
-------------
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
REVENUE RECOGNITION:
The Company recognizes 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.
NONMONETARY TRANSACTIONS:
The Company accounts for nonmonetary transactions based on the fair values of
the assets or services involved in accordance with APB No. 29, "Accounting for
Nonmonetary Transactions." The cost of a nonmonetary asset acquired in exchange
for another nonmonetary asset is the fair value of the asset surrendered to
obtain it.
ADVERTISING AND PROMOTION COSTS:
Advertising and promotion costs are expensed as incurred. For the years ended
December 31, 2002 and 2001, advertising and promotion costs approximated $25,000
and $388,000, respectively.
F-11
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
ADVERTISING AND PROMOTION COSTS, CONTINUED:
The Company also engages in barter advertising, which they account for in
accordance with EITF 99-17, determining the fair market value of the barter
advertising based on the fair value of non-barter advertising. The Company books
the revenue and related expenses from barter advertising up to the extent of the
non-barter advertising during the same period. During the year ended December
31, 2002, the Company did not recognize any revenues and expenses for barter
transactions as it did not enter into such transactions. During the year ended
December 31, 2001, the Company recognized $180,000 in revenues and expenses from
barter transactions. Advertising which did not qualify for recognition under
EITF 99-17, and therefore, is not reflected in these statements, totaled $87,500
for the year ended December 31, 2001.
PROPERTY AND EQUIPMENT:
Property and equipment are valued at cost. Depreciation is being provided by use
of the straight-line method over the estimated useful lives of the assets,
ranging from three to seven years.
DEBT WITH STOCK PURCHASE WARRANTS:
The proceeds received from debt issued with stock purchase warrants is allocated
between the debt and the warrants, based upon the relative fair values of the
two securities, and the balance of the proceeds is accounted for as additional
paid-in capital. The resulting debt discount is amortized to expense over the
term of the debt instrument, using the interest method. In the event of
settlement of such debt in advance of the maturity date, an expense is
recognized based upon the difference between the then carrying amount (i.e.,
face amount less unamortized discount) and amount of payment.
DEBT WITH BENEFICIAL CONVERSION FEATURE:
In January 2001, the Financial Accounting Standards Board Emerging Issues Task
Force issued EITF 00-27 effective for convertible debt instruments issued after
November 16, 2000. This pronouncement requires the use of the intrinsic value
method for recognition of the detachable and embedded equity features included
with indebtedness be valued using the relative fair value approach, and requires
amortization of the amount associated with the convertibility feature over the
life of the debt instrument rather than the period for which the instrument
first becomes convertible. The Company has entered into several transactions
involving debt with beneficial conversion feature, all of which are discussed in
Note 5.
F-12
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
SOFTWARE DEVELOPMENT COSTS:
The Company accounts for their software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," ("SFAS No. 86").
SFAS No. 86 requires the Company to capitalize the direct costs and allocate
overhead associated with the development of software products. Initial costs are
charged to operations as research prior to the development of a detailed program
design or a working model. Costs incurred subsequent to the product release, and
research and development performed under contract are charged to operations.
Capitalized costs are amortized over the estimated product life of four years on
the straight-line basis. Unamortized costs are carried at the lower of book
value or net realizable value.
Amortization expense totaled $390,967 and $383,115 for the years ended December
31, 2002 and 2001, respectively. Accumulated amortization as of December 31,
2002 amounted to $852,183.
COMPREHENSIVE LOSS:
Comprehensive loss consists of net loss only, and accordingly, a Statement of
Comprehensive Loss is not presented.
TRADEMARKS AND PATENTS:
The Company's trademark costs consist of legal fees paid in connection with
trademarks. The Company amortizes trademarks using the straight-line method over
the period of estimated benefit, generally four years. Amortization expense
charged for the years ended December 31, 2002 and 2001 totaled $57,977 and
$53,226, respectively. Accumulated amortization as of December 31, 2002 amounted
to $148,667.
The Company's patent costs consist of legal fees paid in connection with patents
pending. The Company will amortize patents using the straight-line method over
the period of estimated benefit, generally five years. Amortization expense
charged for the year ended December 31, 2002 totaled $12,620. There was no
amortization expense charged for the year ended December 31, 2001.
F-13
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
TRADEMARKS AND PATENTS:
The Company periodically evaluates whether events or circumstances have occurred
that may affect the estimated useful life or the recoverability of the remaining
balance of the patent and trademarks. Impairment of the assets is triggered when
the estimated future undiscounted cash flows do not exceed the carrying amount
of the intangible asset. If the events or circumstances indicate that the
remaining balance of the assets may be permanently impaired, such potential
impairment will be measured based upon the difference between the carrying
amount of the assets and the fair value of such assets, determined using the
estimated future discounted cash flows generated.
NET LOSS PER SHARE:
For the years ended December 31, 2002 and 2001, the per share data is based on
the weighted average number of common (basic) and common equivalent shares
outstanding (diluted), and are calculated in accordance with Common stock
equivalents, consisting of 3,173,625 and 2,078,625 stock options, 3,464,297 and
1,457,567 stock warrants, and convertible notes estimated at 6,175,000 shares
(2002) and 2,700,000 (2001), using assumed conversion rate of $0.20 have not
been included in the computation of diluted weighted average number of common
shares outstanding, as their effect would be anti-dilutive for December 31, 2002
and 2001, respectively.
INCOME TAXES:
Deferred income taxes are reported using the liability method. Deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
F-14
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NEW ACCOUNTING PRONOUNCEMENTS:
In July 2001, the FASB issued SFAS No. 141 "Business Combinations." SFAS No. 141
supersedes Accounting Principles Board ("APB") No. 16 and requires that any
business combinations initiated after June 30, 2001 be accounted for as a
purchase; therefore, eliminating the pooling-of-interest method defined in APB
16. The statement is effective for any business combination initiated after June
30, 2001 and shall apply to all business combinations accounted for by the
purchase method for which the date of acquisition is July 1, 2001 or later. The
adoption did not have a material impact to the Company's financial position or
results of operations, since the Company has not participated in such activities
covered under this pronouncement after the effective date.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangibles."
SFAS No. 142 addresses the initial recognition, measurement and amortization of
intangible assets acquired individually or with a group of other assets (but not
those acquired in a business combination) and addresses the amortization
provisions for excess cost over fair value of net assets acquired or intangibles
acquired in a business combination. The statement is effective for fiscal years
beginning after December 15, 2001, and is effective July 1, 2001 for any
intangibles acquired in a business combination initiated after June 30, 2001. As
of January 1, 2002, the Company implemented the guidance of SFAS 142. There was
no reclassification necessary of intangible assets related to the adoption of
SFAS 142 since all balances were previously classified as intangible assets. The
Company did not have a material impact to the Company's financial position or
results of operations from the adoption of this pronouncement.
In October 2001, the FASB recently issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires companies to record the fair value of a
liability for asset retirement obligations in the period in which they are
incurred. The statement applies to a company's legal obligations associated with
the retirement of a tangible long-lived asset that results from the acquisition,
construction, and development or through the normal operation of a long-lived
asset. When a liability is initially recorded, the company would capitalize the
cost, thereby increasing the carrying amount of the related asset. The
capitalized asset retirement cost is depreciated over the life of the respective
asset while the liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded amount or the company
incurs a gain or loss. The statement is effective for fiscal years beginning
after June 30, 2002. The Company does not expect the adoption to have a material
impact to the Company's financial position or results of operations.
F-15
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". Statement 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets. The statement
provides a single accounting model for long-lived assets to be disposed of. New
criteria must be met to classify the asset as an asset held-for-sale. This
statement also focuses on reporting the effects of a disposal of a segment of a
business. This statement is effective for fiscal years beginning after December
15, 2001. The Company did not have a material impact to the Company's financial
position or results of operations from the adoption of this pronouncement.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements" and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers". This Statement amends FASB Statement No. 13, "Accounting for
Leases", to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The adoption of SFAS No. 145 did not have a material impact on the
Company's financial position or results of operations.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company does not expect the adoption to have a material impact to the Company's
financial position or results of operations.
F-16
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9", which removes acquisitions of financial institutions from
the scope of both Statement 72 and Interpretation 9 and requires that those
transactions be accounted for in accordance with Statements No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition,
this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, to include in its scope long-term customer-relationship
intangible assets of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible assets.
The requirements relating to acquisitions of financial institutions is effective
for acquisitions for which the date of acquisition is on or after October 1,
2002. The provisions related to accounting for the impairment or disposal of
certain long-term customer-relationship intangible assets are effective on
October 1, 2002. The adoption of this Statement did not have a material impact
to the Company's financial position or results of operations as the Company has
not engaged in either of these activities.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure", which amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of Statement
148 are effective for fiscal years ending after December 15, 2002, with earlier
application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The adoption of this
statement did not have a material impact on the Company's financial position or
results of operations as the Company has not elected to change to the fair value
based method of accounting for stock-based employee compensation.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the entity's residual
returns or both. A company that consolidates a variable interest entity is
called the primary beneficiary of that entity. The consolidation requirements of
Interpretation 46 apply immediately to variable interest entities created after
January 31, 2003. The consolidation requirements apply to older entities in the
first fiscal year or interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply in all financial statements issued after
January 31, 2003, regardless of when the variable interest entity was
established. The Company does not expect the adoption to have a material impact
to the Company's financial position or results of operations.
F-17
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(3) PROPERTY AND EQUIPMENT:
A summary is as follows:
Computer equipment $ 463,885
Website development 420,993
Equipment 296,998
Furniture and fixtures 120,243
Web host computer equipment 35,974
Leasehold improvements 15,222
-------------
1,353,315
Less accumulated depreciation and amortization 993,957
-------------
$ 359,358
=============
Depreciation expense totaled $377,051 and $390,092 for the years ended December
31, 2002 and 2001, respectively.
(4) SOFTWARE LICENSING AGREEMENTS:
In March 2000, the Company entered into a 36-month software licensing agreement
with a software developer. The agreement can be cancelled by mutual agreement of
the parties at any time. The asset balance of $5,465, net of accumulated
amortization is being amortized using the straight-line method over the life of
the agreement and is included in software development cost.
Amortization expense related to software licensing agreements totaled $9,550 and
$352,973 for the years ended December 31, 2002 and 2001, respectively.
F-18
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(5) CONVERTIBLE NOTES PAYABLE:
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 August 6, 2004 $ 155,000 $ (79,977) $ 75,023
Alpha Capital Akteingesellschaft November 14, 2004 300,000 (281,547) 18,453
Alpha Capital Akteingesellschaft December 30, 2004 300,000 (198,830) 101,170
Ellis Enterprise Limited November 14, 2004 85,000 (79,670) 5,330
Ellis Enterprise Limited December 30, 2004 125,000 (82,905) 42,095
Bristol Investments Fund, Limited November 14, 2004 120,000 (112,417) 7,583
Bristol Investments Fund, Limited December 30, 2004 150,000 (98,754) 51,246
------------ ----------- ----------
$ 1,235,000 $ (934,100) $ 300,900
============ =========== ==========
4% Convertible Note Payable, Alpha Capital Akteingesellschaft
- -------------------------------------------------------------
During the year ended December 31, 2002, the Company entered into three
subscription agreements with Alpha Capital Akteingesellschaft, for the sale of
(i) an aggregate of $1,100,000 in convertible notes and (ii) warrants to
purchase 728,004 shares of the Company's common stock. The Company recorded net
proceeds of $989,000.
The note bears interest at 4% and is convertible into common stock at the lesser
of:
a) $0.252; or
b) 80% of the average of the three lowest closing prices of the common stock for
the thirty trading days immediately prior to the conversion date.
c) Conversion of debt to common shares is limited to 9.99% of the current
outstanding common shares.
The unconverted portion of the note is due at various times through December 30,
2004, which as of December 31, 2002 amounted to $755,000.
F-19
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(5) CONVERTIBLE NOTES PAYABLE, CONTINUED:
The warrants have an exercise price of: a) Prices ranging from $0.204 to $0.90
b) 120% of the three lowest closing price of the common stock for the ten
trading days prior to the exercise of the warrant.
Using the Black Scholes Option Pricing Model, the average fair value of the
warrants amounted to $0.16 per share or total allocation of $118,000. This
amount was recorded as a discount against the face value of the notes payable.
In addition, since these debts were convertible into equity at the option of the
note holder at conversion rates mentioned above, a beneficial conversion feature
of $596,000 has been recorded as a debt discount and is being amortized using
the effective interest rate (45%) over the life of the debt in accordance with
EITF 00-27. Unamortized debt discount and beneficial conversion is recognized as
interest expense upon conversion.
During the year ended December 31, 2002, $345,000 was converted at an average
conversion price of $0.125 into 2,767,752 common shares.
4% Convertible Note Payable, Ellis Enterprise Limited
- -----------------------------------------------------
During the year ended December 31, 2002, the Company entered into two
subscription agreements with Ellis Enterprise Limited, for the sale of (i) an
aggregate of $250,000 in convertible notes and (ii) warrants to purchase 145,836
shares of the Company's common stock. The Company recorded net proceeds of
$227,000.
The note bears interest at 4% and is convertible into common stock at the lesser
of:
a) $0.242; or
b) 80% of the average of the three lowest closing prices of the common stock for
the thirty trading days immediately prior to the conversion date.
c) Conversion of debt to common shares is limited to 4.99% of the current
outstanding common shares
The unconverted portion of the note is due at various times through December 30,
2004, which as of December 31, 2002 amounted to $210,000.
The warrants have an exercise price of:
a) Prices ranging from $0.204 to $0.252
b) 120% of the three lowest closing price of the common stock for the ten
trading days prior to the exercise of the warrant.
F-20
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(5) CONVERTIBLE NOTES PAYABLE, CONTINUED:
4% Convertible Note Payable, Ellis Enterprise Limited
- -----------------------------------------------------
Using the Black Scholes Option Pricing Model, the fair value of the warrants
amounted to $0.14 per share or total allocation of $20,000. This amount was
recorded as a discount against the face value of the note payable. In addition,
since this debt is convertible into equity at the option of the note holder at
conversion rates mentioned above, a beneficial conversion feature of $165,000
has been recorded as a debt discount and is being amortized using the effective
interest rate (45%) over the life of the debt in accordance with EITF 00-27.
Unamortized debt discount and beneficial conversion is recognized as interest
expense upon conversion.
During the year ended December 31, 2002, $40,000 was converted at an average
conversion price of $0.133 into 300,842 common shares.
4% Convertible Note Payable, Bristol Investments Fund, Limited
- --------------------------------------------------------------
During the year ended December 31, 2002, the Company entered into two
subscription agreements with Bristol Investments Fund, Limited, for the sale of
(i) an aggregate of $300,000 convertible notes and (ii) warrants to purchase
175,002 shares of the Company's common stock. The Company recorded net proceeds
of $273,000.
The note bears interest at 4% and is convertible into common stock at the lesser
of:
1. $0.242
2. 80% of the average of the three lowest closing prices of the common stock for
the thirty trading days immediately prior to the conversion date.
3. Conversion of debt to common shares is limited to 4.99% of the current
outstanding common shares.
The unconverted portion of the note is due at various times through December 30,
2004, which as of December 31, 2002 amounted to $270,000.
The warrants have an exercise price of:
1. Prices ranging from $0.204 to $0.252
2. 120% of the three lowest closing price of the common stock for the ten
trading days prior to the exercise of the warrant.
Using the Black Scholes Option Pricing Model, the fair value of the warrant
amounted to $0.14 per share or total allocation of $24,000. This amount was
recorded as a discount against the face value of the note payable. In addition,
since this debt is convertible into equity at the option of the note holder at
conversion rates mentioned above, a beneficial conversion feature of $199,000
has been recorded as a debt discount and is being amortized using the effective
interest rate (54%) over the life of the debt in accordance with EITF 00-27.
Unamortized debt discount and beneficial conversion is recognized as interest
expense upon conversion.
F-21
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(5) CONVERTIBLE NOTES PAYABLE, CONTINUED:
4% Convertible Note Payable, Bristol Investments Fund, Limited,
- ---------------------------------------------------------------
CONTINUED
During the year ended December 31, 2002, $30,000 were converted at an average
conversion price of $0.133 into 225,699 common shares.
5% Convertible Note Payable
- ---------------------------
In October 2000, the Company entered into a purchase agreement with an
investment company to issue a total of $10,000,000 convertible notes payable
with interest at 5% per annum and 231,884 common stock purchase warrants. Each
warrant entitled the holder to purchase one share of the Company's common stock
at an exercise price of $9.76 per share. In October 2000, the Company issued
$2,000,000 of convertible notes and the warrants. The remaining principal
balance of the note was payable in full in October 2003. The fair value of the
associated warrant was determined based on the Black-Scholes pricing method at
the date of grant. The value of the warrants totaled $1,576,309 and is included
in paid-in capital. The discount is being amortized to interest expense over the
life of the note using the interest rate method (effective interest of 48%).
Amortization of the debt discount included in interest expense approximated
$13,000 and $463,000 for the years ended December 31, 2002 and 2001,
respectively.
In 2001, $1,450,000 of the original note balance and accrued interest ($575,087
or $0.18 per share, net of unamortized debt discount) was converted to 3,220,765
shares of the Company's common stock at an average conversion rate of $0.45 per
share.
In 2002, $550,000 of the original note balance and accrued interest ($312,338 or
$0.12 per share, net of unamortized debt discount) was converted to 2,624,447
shares of the Company's common stock at an average conversion rate of $0.21 per
share.
8% Convertible Note Payable
- ---------------------------
On September 7, 2001, the Company entered into a subscription agreement with
Laurus Master Fund, Ltd., a Cayman Island corporation, for the sale of (i) a
$600,000 convertible note and (ii) warrants to purchase 100,000 shares of the
Company's common stock. The Company recorded net proceeds of $511,750.
The note bears interest at 8% and is convertible into common stock at the lesser
of:
a) $0.51; or
b) 80% of the average of the three lowest closing prices of the common stock for
the thirty trading days immediately prior to the conversion date.
F-22
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(5) CONVERTIBLE NOTES PAYABLE, CONTINUED:
The warrants have an exercise price of:
c) $0.82; or
d) 120% of the three lowest closing price of the common stock for the ten
trading days prior to the exercise of the warrant.
Using the Black Scholes Option Pricing Model, the fair value of the warrant
amounted to $0.58 per share or total consideration of $57,800. This amount was
recorded as a discount against the face value of the note payable. In addition,
since this debt is convertible into equity at the option of the note holder at
conversion rates mentioned above, a beneficial conversion feature of $207,800
has been recorded as a debt discount and is being amortized using the effective
interest rate (54%) over the life of the debt in accordance with EITF 00-27.
Unamortized debt discount and beneficial conversion was recognized as interest
expense upon conversion.
In 2002 and 2001, $1,198 and $598,802 of the original note and related accrued
interest was converted to 6,600 and 3,402,600 shares of the Company's common
stock at an average conversion rate of $0.18 and $0.18 per share, respectively.
8% Convertible Note Payable
- ---------------------------
On September 28, 2001, the Company entered into a subscription agreement with
Stonestreet Limited Partnership, an Ontario limited partnership, for the sale of
(i) a $500,000 convertible note and (ii) warrants to purchase 83,333 shares of
the Company's common stock. The Company recorded net proceeds of $444,250.
The note bears interest at 8% and is convertible into common stock at the lesser
of:
a) $0.34; or
b) 80% of the average of the three lowest closing prices of the common stock for
the thirty trading days immediately prior to the conversion date.
The warrants have an exercise price of:
c) $0.515; or
d) 120% of the three lowest closing prices of the common stock for the ten
trading days prior to the exercise of the warrant.
Using the Black Scholes Option Pricing Model, the fair value of the warrant
amounted to $0.42 per share or total consideration of $34,600. This amount was
recorded as debt discount against the face value of the note payable. In
addition, since this debt was convertible into equity at the option of the note
holder at conversion rates mentioned above, a beneficial conversion feature of
$209,650 had been recorded as a debt discount and was being amortized using the
effective interest rate (60%) over the life of the debt in accordance with EITF
00-27. Unamortized debt discount and beneficial conversion was recognized as
interest expense upon conversion.
In 2001, the note balance of $500,000 and related accrued interest was converted
to 2,973,780 shares of the Company's common stock at an average conversion rate
of $0.17 per share.
F-23
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(5) CONVERTIBLE NOTES PAYABLE, CONTINUED:
During January 2002, the Company entered into a new convertible debt financing
agreement for $1,452,500 with Stonestreet Limited Partnership and Laurus Master
Fund, Ltd.. The stated interest rate was 4% per annum (effective interest rate
of 52%) and the unpaid principal and interest balance was due in full by January
7, 2004. Net proceeds to the Company amounted to approximately $1,326,000, which
was net of debt issue costs. The Company issued 500,000 warrants to acquire
500,000 shares of the Company's common stock at an exercise price of $0.96.
Subsequently, in May 2002, due to an additional financing, these warrants were
repriced at $0.90 per share pursuant to the terms of this financing agreement.
In addition, since this debt is convertible into equity at the option of the
note holder at beneficial conversion rates, an embedded beneficial conversion
feature was recorded as a debt discount and amortized using the effective
interest rate over the life of the debt in accordance with EITF 00-27. Total
cost of beneficial conversion feature ($931,000), debt discount ($127,000), and
cost of warrants issued ($395,000) exceeded the face value of the notes payable,
therefore, only $1,452,500, the face amount of the note, was recognized as debt
discount, and was amortized over the life of the notes payable. Any unamortized
debt discount and beneficial conversion feature was charged to expense upon
conversion, as interest expense.
As of December 31, 2002, Laurus Master Fund had converted all of its notes
aggregating $700,000 plus interest into 2,103,529 common shares at an average
conversion price of $0.33 per share.
In August 2002, the Company entered into securities purchase agreement with an
accredited investor, Stonestreet Limited Partnership for the issuance of 4%
convertible notes (effective interest rate of 45%) in the aggregate amount of
$150,000. The notes 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 113,400 common stock purchase warrants were issued to the investor. Each
common stock purchase warrant has an exercise price of $.252. Net proceeds
amounted to $133,000, net of debt issue cash cost of $17,000. In addition, the
value of the warrants ($21,000) and the beneficial conversion feature pursuant
to EITF 00-27 of $60,000 was also recognized. Total debt issue cost of $98,000
was amortized over the life of the debt using the interest method. As of
December 31, 2002, there was no outstanding principal balance.
As of December 31, 2002, Stonestreet Limited Partnership had converted all of
its notes aggregating $902,500 (comprised of $150,000 from August 2002 and
$752,500 from January 2002 financing) plus interest into 4,294,596 common shares
at an average conversion price of $0.21 per share.
F-24
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(6) COMMON STOCK
On June 22, 1999, in connection with a Merger Agreement and Plan of
Reorganization with Dead On, Inc., the Company exchanged all of its outstanding
shares of common stock for 7,000,000 newly issued shares of the common stock of
Dead On, Inc. (Note 1).
Pursuant to a plan approved by One Voice Technologies' Board of Directors in
July 1999, the Company repurchased and retired 10,000,000 shares of its common
stock, $.001 par value per share.
During December 2001, the shareholders approved the increase of authorized
number of common stock shares to 100,000,000.
PRIVATE PLACEMENTS
------------------
In May 1999, the Company commenced a private placement of 1,500,000 shares of
the Company's common stock at a purchase price of $2.00 per share. The Private
Placement was exempt from the registration provisions of the Act by virtue of
Section 4(2) of the Act, as transactions by an issuer not involving any public
offering. The securities issued pursuant to the Private Placement were
restricted securities as defined in Rule 144. The offering generated proceeds of
approximately $2,846,000, net of offering costs of approximately $154,000. An
additional 150,000 shares of the Company's common stock was issued for services
rendered in connection with this private placement, which was valued at $2.00
per share.
In January 2000, the Company entered into a Subscription Agreement with an
unrelated foreign party providing for the sale of 312,500 shares of the
Company's common stock at $6.40 per share and 156,250 common stock purchase
warrants. Each warrant entitles the holder to purchase one share of common stock
at an exercise price of $8.00. The warrants expired on January 5, 2001. Proceeds
raised from the shares and warrants total approximately $1,800,000, net of
offering costs of approximately $200,000.
In March 2000, the Company commenced a private placement of approximately
1,000,000 units consisting of 1 share of the Company's common stock and 1/2
common stock purchase warrant for each unit purchased. The Company raised
proceeds totaling approximately $12,146,000, net of offering costs of
approximately $902,000, from the issuance of 988,560 shares of common stock and
494,280 common stock purchase warrants. Each warrant entitles the holder to
purchase one share of common stock at an exercise price of $18.00. The warrants
expire at various times through April 2001.
In June 2001, the Company raised proceeds of approximately $840,020, 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-25
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(6) COMMON STOCK, CONTINUED:
PRIVATE PLACEMENTS, CONTINUED
-----------------------------
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. 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. 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. Subsequently, on August 8, 2002, $500,000 of the $800,000
investment was repriced and 833,334 additional shares (valued at $175,000) 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.
In connection with the May 2002 transaction, the Company also issued 300,000
warrants in May 2002, to purchase shares of the Company's common 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. During 2002, the Company accounted for the change in
exercise under variable accounting and recognized an expense of $9,000 during
the period. In addition, the Company also recognized an expense of $175,000 from
the issuance of an additional 833,334 common shares referred to above.
SETTLEMENT
----------
During September 2001, the Company entered into an agreement with an investment
banking group to settle a dispute regarding a financial consulting agreement
dated May 30, 2000. While the management did not believe that the claims were
meritorious, the Company entered into the Settlement Agreement, to among other
reasons, avoid distracting management's focus from operations and to minimize
legal expenses. Pursuant to the settlement, the Company issued 110,000 shares of
common stock and 300,000 warrants exercisable into 300,000 shares of common
stock, of which, 150,000 warrants are exercisable at $2.00 per share and 150,000
warrants are exercisable at $1.50 per share. Total consideration given amounted
to $298,050, comprised of $50,000 paid in cash, 110,000 in common stock shares
with a fair value of $81,400 and 300,000 in warrants with a fair value using
Black Scholes model of $166,650, which was recognized into expense during 2001.
F-26
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(7) INCOME TAXES:
For federal income tax return purposes, the Company has available net operating
loss carryforwards of approximately $23,600,000, which includes approximately
$323,000 acquired from Dead On, Inc. The net operating loss carryforwards expire
through 2022 and are available to offset future income tax liabilities.
A reconciliation of the provision for income taxes at statutory rates to the
provision reported in the consolidated financial statements is as follows:
Since
Year ended inception to
December 31, December 31,
2002 2001
------------- -------------
Federal income tax (benefit) at statutory rates 34% 34%
State income taxes (benefit), less federal
income tax benefit 6 6
------------- -------------
Total provision/(benefit) 40 40
Permanent differences (warrant cost and
beneficial conversion feature amortization) (15) (5)
NOL utilized (25) (35)
------------- -------------
Total provision -% -%
============= =============
Temporary differences which give rise to deferred tax assets and liabilities at
December 31, 2002 are as follows:
Net operating loss carryforwards $ 23,600,000
Valuation allowance (23,600,000)
---------------
Net deferred taxes $ --
===============
(8) EMPLOYMENT AGREEMENT:
The Company entered into an employment agreement with an officer stockholder of
the Company to pay an annual base salary of $252,000 through July 2002. No
formal extensions exist as of December 31, 2002. Increases are determined
annually by the Board of Directors. Under this agreement, salaries approximated
$250,000 and $240,000 for the years ended December 31, 2002 and 2001,
respectively.
(9) CONSULTING AGREEMENT:
The Company entered into a consulting agreement with a personal service
corporation owned by an officer of the Company to pay an annual consulting fee
of $143,000 through July 2002. No formal extensions exist as of December 31,
2002. Increases are determined annually by the Board of Directors. Consulting
fees approximated $141,000 and $135,000 for the years ended December 31, 2002
and 2001, respectively.
F-27
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(10) COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under leases that expire at various times
through October 2005. The following is a schedule by years of future minimum
rental payments required under operating leases that have noncancellable lease
terms in excess of one year as of December 31, 2002:
Year ending December 31,
2003 $ 304,615
2004 313,291
2005 266,053
----------
883,959
Less sublease income 280,000
----------
$ 603,959
==========
Rent expense, net of sublease income of $90,000 amounted to $162,169 and
$233,974 for the years ended December 31, 2002 and 2001, respectively.
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.
(11) INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN:
On July 14, 1999, the Company enacted an Incentive and Nonqualified Stock Option
Plan (the "Plan") for its employees and consultants under which a maximum of
3,000,000 options (Amendment to increase the available shares from 1,500,000 to
3,000,000 approved by the shareholders in December 2001) and approved by the
shareholders may be granted to purchase common stock of the Company.
Two types of options may be granted under the Plan: (1) Incentive Stock Options
(also known as Qualified Stock Options) which may only be issued to employees of
the Company and whereby the exercise price of the option is not less than the
fair market value of the common stock on the date it was reserved for issuance
under the Plan; and (2) Nonstatutory Stock Options which may be issued to either
employees or consultants of the Company and whereby the exercise price of the
option is greater than 85% of the fair market value of the common stock on the
date it was reserved for issuance under the plan. Grants of options may be made
to employees and consultants without regard to any performance measures. All
options issued pursuant to the Plan vest at a rate of at least 20% per year over
a 5-year period from the date of the grant or sooner if approved by the Board of
Directors. All options issued pursuant to the Plan are nontransferable and
subject to forfeiture.
F-28
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(5) INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN, CONTINUED:
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. The Company follows SFAS No. 123 for stock options granted to
non-employees and records a consulting expense equal to the fair value of the
options at the date of grant.
During 2000, the Company granted 53,725 stock options exercisable at an average
exercise price of $10.22 to consultants for professional services provided to
the Company. The options expire at various times through 2003. The options were
valued using the Black-Scholes method at the date of grant.
During 2001, the Company granted 250,000 stock options exercisable at an
exercise price of $0.65 to a consultant for professional services provided and
to be provided to the Company. The options expire at various times through 2004.
The options were valued using the Black-Scholes method at the date of grant.
Compensation expense, recognized over the vesting period, to consultants
pursuant to SFAS No. 123 amounted to $107,276 and $140,263 for the years ended
December 31, 2002 and 2001, respectively.
During 2002, the Company granted 1,095,000 stock options exercisable at an
average exercise price of $0.14 to employees of the Company. The options expire
at various times through 2005.
The number and weighted average exercise prices of options granted under the
plan for the years ended December 31, 2002 and 2001 are as follows:
2002 2001
------------------- -------------------
Average Average
Exercise Exercise
Number Price Number Price
---------- ------- ---------- -------
Outstanding at beginning of the year 2,078,625 $ 2.33 916,325 $ 6.51
Granted during the year 1,095,000 .15 1,667,920 .99
Terminated during the year -- -- 505,620 5.47
Exercised during the year -- -- -- --
Outstanding at end of the year 3,173,625 1.58 2,078,625 2.33
Exercisable at end of the year 1,528,625 2.84 645,525 3.94
Pro forma information regarding the effect on operations is required by SFAS
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that statement. Pro forma
information using the Black-Scholes method at the date of grant based on the
following assumptions:
F-29
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(11) INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN, CONTINUED:
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:
December 31, 2002
-----------------
Net loss, as reported $ (6,568,922)
Pro forma net loss $ (7,570,000)
Basic and diluted historical loss per share $ (0.17)
Pro forma basic and diluted loss per share $ (0.24)
(12) WARRANTS:
At December 31, 2002, the Company had warrants outstanding that allow the
holders to purchase up to 3,464,297 shares of common stock, of which, 231,884
warrants had an exercise price of $9.76 expiring through October 2005, 1,300,683
warrants had an exercise price ranging from $0.40 to $2.00 per share, and
1,931,730 have an exercise price ranging from $0.20 to $0.35 expiring through
December 2007.
The number and weighted average exercise prices of the warrants for the years
ended December 31, 2002 and 2001 are as follows:
2002 2001
-------------------- --------------------
Average Average
Exercise Exercise
Number Price Number Price
--------- -------- --------- --------
Outstanding at beginning of the year 1,457,567 $ 2.42 882,414 $ 14.06
Granted during the year 2,037,242 .42 1,225,683 1.04
Exercised during the year 30,512 .11 -- --
Terminated during the year -- -- 650,530 15.60
Outstanding at end of the year 3,464,297 1.26 1,457,567 2.42
Exercisable at end of the year 3,464,297 1.26 1,457,567 2.42
F-30
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002 AND 2001
(13) SUBSEQUENT EVENT (UNAUDITED):
During the three months ended March 31, 2003, note holders converted additional
note principal into common shares as follows:
Principal Average
Amount Converted Exercise
Converted Shares Into Price
----------- ----------- --------
Alpha Capital Akteingesellschaft $ 190,000 2,394,000 $ 0.08
Bristol Investments 165,000 1,733,000 $ 0.10
Ellis Enterprise Limited 135,000 1,637,000 $ 0.08
----------- ----------- --------
$ 490,000 5,764,000 $ 0.09
=========== =========== ========
On April 10, 2003, the Company entered into a securities purchase agreement with
four accredited investors, Alpha Capital Aktiengesellschaft, Ellis Enterprises
Ltd., Greenwich Growth Fund Limited, and 01144 Limited for the issuance of 4%
convertible notes 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 p urchase 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 $26,000 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-31
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. Page No.
--------
Balance Sheet F-33
Statements of Operations F-34
Statement of Stockholders' Equity F-35
Statements of Cash Flows F-39
Notes to Financial Statements F-41
F-32
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-33
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-34
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-35
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-36
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-37
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-38
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-39
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-40
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-41
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-42
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-43
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-44
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-45
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-46
- -------------------------------------- -----------------------------------
You should rely only on the information
contained in this prospectus. We have not
authorized anyone to provide you with
information different from the information UP TO 18,350,004 SHARES
contained in this prospectus. This document OF OUR
may only be used where it is legal to sell COMMON STOCK
the securities. The information in this
document may only be accurate on the date
of this document.
TABLE OF CONTENTS
Page
----
Prospectus Summary 2
Risk Factors 3
Use Of Proceeds 9
Market For Common Equity And Related
Stockholder Matters 10 ONE VOICE
Management's Discussion And Analysis TECHNOLOGIES, INC.
Or Plan Of Operation 11
Business 18 6333 Greenwich Drive, Suite 240
Management 23 San Diego, California 92122
Certain Relationships And Related (858) 552-4466
Transactions 24
Security Ownership Of Certain
Beneficial Owners
And Management 25
Description Of Securities 26
Plan Of Distribution 27
Selling Stockholders 29
Legal Matters 31
Experts 31 ________________
Available Information 31
Index To Financial Statements 32 PROSPECTUS
________________
July __, 2003
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Nevada General Corporation Law and our Articles of Incorporation, as
amended, and our Bylaws, our directors will have no personal liability to us or
our stockholders for monetary damages incurred as the result of the breach or
alleged breach by a director of his "duty of care." This provision does not
apply to the directors' (i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) acts or omissions
that a director believes to be contrary to the best interests of the corporation
or its stockholders or that involve the absence of good faith on the part of the
director, (iii) approval of any transaction from which a director derives an
improper personal benefit, (iv) acts or omissions that show a reckless disregard
for the director's duty to the corporation or its stockholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
corporation or its stockholders, (v) acts or omissions that constituted an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its stockholders, or (vi) approval of an unlawful
dividend, distribution, stock repurchase or redemption. This provision would
generally absolve directors of personal liability for negligence in the
performance of duties, including gross negligence.
The effect of this provision in our Articles of Incorporation and Bylaws is to
eliminate the rights of our Company and our stockholders (through stockholder's
derivative suits on behalf of our Company) to recover monetary damages against a
director for breach of his fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (vi) above. This provision does not
limit nor eliminate the rights of our Company or any stockholder to seek
non-monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. In addition, our Bylaws provide that if the Nevada
General Corporation Law is amended to authorize the future elimination or
limitation of the liability of a director, then the liability of the directors
will be eliminated or limited to the fullest extent permitted by the law, as
amended. The Nevada General Corporation Law grants corporations the right to
indemnify their directors, officers, employees and agents in accordance with
applicable law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses, all of
which we will pay, in connection with the issuance and distribution of the
securities being registered:
NATURE OF EXPENSE AMOUNT
- ----------------- ------
SEC Registration fee 216.13
Accounting fees and expenses 5,000.00*
Legal fees and expenses 8,000.00*
Printing and related expenses 3,000.00*
-----------
TOTAL $16,216.13*
===========
* Estimated.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In January 2000, we offered and sold 312,500 shares of common stock at $6.40 per
share and 156,250 common stock purchase warrants to a non-affiliated
institutional investor raising net proceeds of $1,800,000. Each warrant entitles
the holder to purchase one share of common stock at an exercise price of $8.00.
The institutional investor completed a subscription confirmation letter and
private placement subscription agreement whereby the investor certified that it
was purchasing the shares for its own account and that the investor was
accredited and sophisticated as defined. This offering was not accompanied by
general advertisement or general solicitation. We relied on Section 4(2) of the
Act as the basis of exemption from registration.
In March 2000, we offered approximately 1 million units consisting of one share
of our common stock and one-half common stock purchase warrant for each unit
purchased. We received net proceeds of $12,146,181 from the issuance of 988,560
shares of common stock and 494,280 common stock purchase warrants in reliance on
Section 4(2) of the Act as the basis of exemption from registration. Each
warrant entitles the holder to purchase one share of our common stock at an
exercise price of $18.00.
In October 2000, we entered into an agreement for the issuance of an initial
amount of $2,000,000 worth of 4% Convertible Notes and 231,884 common stock
purchase warrants with the Selling Stockholders in reliance on Section 4(2) of
the Act and Rule 506. Each warrant entitles the holder to purchase one share of
common stock at an exercise price of $9.76. Under the Securities Purchase
Agreement, additional 4% Convertible Notes and common stock purchase warrants
may be offered to the Selling Stockholders for total gross proceeds from this
offering of up to $10,000,000. The Selling Stockholders represented to us that
they were accredited investors as defined in the Act and that they were able to
protect their own interests in connection with the investment. The shares
underlying this private placement are being registered in this registration
statement. The commission for the transaction was 10% ($200,000) and a common
stock purchase warrant for 23,188 shares of our stock at an exercise price per
share of $9.76.
On August 3, 2001, we entered into a settlement agreement with Dominick &
Dominick LLC, to be effective September 1, 2001, pursuant to which we issued
110,000 shares of common stock and 300,000 common stock purchase warrants. We
relied on Section 4(2) of the Act as a basis of exemption from registration. The
Settlement Agreement was entered into in order to settle a dispute regarding a
financial consulting agreement which we had entered into with Dominick &
Dominick LLC as of May 30, 2000. Such shares and warrants were subsequently
transferred to Dominick & Dominick Financial Corp., a Delaware corporation.
In September 2001, we entered into a securities purchase agreement with the
Laurus Master Fund, Ltd. for the issuance of a $600,000 8% convertible debenture
and 100,000 common stock purchase warrants in reliance on Section 4(2) of the
Act and Rule 506. Each warrant entitles the holder to purchase one share of
common stock at an exercise price of $.515. The commission for the transaction
was 10% ($60,000) and a common stock purchase warrant for 100,000 shares of our
stock at an exercise price per share of $.515.
In September 2001, we entered into a securities purchase agreement with the
Stonestreet Limited Partnership for the issuance of a $500,000 8% convertible
debenture and 83,333 common stock purchase warrants in reliance on Section 4(2)
of the Act and Rule 506. Each warrant entitles the holder to purchase one share
of common stock at an exercise price of $.515. The commission for the
transaction was 10% ($50,000) and a common stock purchase warrant for 83,333
shares of our stock at an exercise price per share of $.515.
In January 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 $1,452,500 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.
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.
II-2
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 notes in the aggregate
amount of $650,000. The notes 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 notes
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.
During the quarter ended September 30, 2002, we issued an aggregate total of
850,000 options to employees in recognition of their services to One Voice. In
addition , we issued 50,000 options to a consultant who provided human resources
services. All of the options were pursuant to our stock option plan and have an
exercise price of $0.14 per share.
In November 2002, we entered into a securities purchase agreement with three
accredited investors, Alpha Capital Aktiengesellschaft, Ellis Enterprises Ltd.
and Bristol Investment Fund, Ltd. for the issuance of 4% convertible notes in
the aggregate amount of $1,150,000. This amount was broken out into two equal
closings of $575,000. The dates for each closing were November 14, 2002 and
December 30, 2002. The notes are convertible into common stock at a conversion
price of the lower of $ .24 or eighty percent (80%) of the average of the five
lowest closing bid prices for the thirty (30) trading days prior to conversion.
In addition, an aggregate of 670,842 common stock purchase warrants were issued
to the investors, broken out evenly by closing date at 335,421. Each common
stock purchase warrant has an exercise price of $.252 and $.204 for the
respective closing dates of November 14, 2002 and December 31, 2002. Net
proceeds for the closing dates November 14, 2002 and December 31,2002 amounted
to $496,000 and $549,000 respectively. The offering of convertible notes 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 April 10, 2003, we entered into a securities purchase agreement with
fouraccredited investors, Alpha Capital Aktiengesellschaft, Ellis Enterprises
Ltd., Greenwich Growth Fund Limited, and 01144 Limited for the issuance of 4%
convertible notes 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. This prospectus
covers the resale by the selling stockholder of the shares of common stock
issuable upon conversion of the above-referenced notes and upon exercise of the
above-referenced warrants. The offering of convertible notes 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.
Except as expressly set forth above, the individuals and entities to whom we
issued securities as indicated in this section of the registration statement are
unaffiliated with us.
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ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References to
"the Company" in this Exhibit List mean One Voice Technologies, Inc., a Nevada
corporation.
Exhibit No. Description
- ----------- -----------
PLANS OF ACQUISITION
2.1 Merger Agreement and Plan of Reorganization with
Conversational Systems, Inc. dated June 22, 1999 (filed
herewith).
ARTICLES OF INCORPORATION AND BYLAWS
3.1 Articles of Incorporation of Belridge Holdings Corp.
filed with the Nevada Secretary of State on August 23,
1995 (incorporated by reference to Exhibit 3(i) to our
Form 10-SB filed October 7, 1999).
3.2 Certificate of Amendment of Articles of Incorporation of
Belridge Holdings Corp. changing its name to Dead On,
Inc. (incorporated by reference to Exhibit 3(i) to our
Form 10-SB filed October 7, 1999). The Certificate
originally filed on September 25, 1998, was canceled and
re-filed with the Nevada Secretary of State on June 10,
1999.
3.3 Articles of Merger for the merger of Conversational
Systems, Inc. into Dead On, Inc. filed with the Nevada
Secretary of State on July 14, 1999 with supporting
documents (incorporated by reference to Exhibit 2 to our
Form 10-SB, filed October 7, 1999). This document
changed the name of the surviving entity, Dead On, Inc.,
to ConversIt.com, Inc.
3.4 Certificate of Amendment of Articles of Incorporation of
ConversIt.com, Inc. changing its name to One Voice
Technologies, Inc. (incorporated by reference to Exhibit
2 to our Form 10-SB filed October 7, 1999).
3.5 Bylaws of Belridge Holdings Corp. (incorporated by
reference to Exhibit 3(ii) of our Form 10-SB, filed
October 7, 1999).
3.6 Amendment to Bylaws dated July 11, 2000 (excerpted) (incorporated
by reference to Exhibit 4.3 of our Form S-8, filed October 3,
2000).
INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
4.1 Common Stock Purchase Warrant with Veritas SG Investments from
the January 2000 offering (incorporated by reference to Exhibit
4.1 of our Form SB-2, filed November 11, 2000).
4.2 Form of Common Stock Purchase Warrant from the March 2000
offering (incorporated by reference to Exhibit 4.1 of our Form
SB-2, filed November 11, 2000).
4.3 Securities Purchase Agreement ("SPA") with Nevelle
Investors LLC dated October 3, 2000, and Form of
Debenture (Exhibit A to the SPA), Form of Warrant
(Exhibit B to the SPA), Conditional Warrant dated
October 3, 2000 (Exhibit C to the SPA) and Registration
Rights Agreement dated October 3, 2000 (Exhibit E to the
SPA), each with Nevelle Investors LLC (incorporated by
reference to Exhibit 4 to our Form 10-QSB, filed
November 14, 2000).
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Exhibit No. Description
- ----------- -----------
OPINION REGARDING LEGALITY
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent
(filed herewith).
MATERIAL CONTRACTS
10.1 Employment Agreement with Dean Weber dated July 14, 1999
(incorporated by reference to Exhibit 10 to our Form 10-SB, filed
October 7, 1999). This agreement was amended on April 10, 2000,
to increase Mr. Weber's annual salary to $252,000.
10.2 Consulting Agreement with KJN Management Ltd. For the services of
Rahoul Sharan dated July 14, 1999 (incorporated by reference to
Exhibit 10 to our Form 10-SB, filed October 7, 1999). This
agreement was amended on April 10, 2000, to increase the annual
consulting fee to $180,000.
10.3 Software Agreement with IBM/OEM dated September 21, 1999
(incorporated by reference to Exhibit 4.4 to our Form SB-2 filed
November 20, 2000).
1.04 Software License Agreement with Philips Spech Processing dated
March 3, 2000 (incorporated by reference to Exhibit 4.4 to our
Form SB-2 filed November 20, 2000) .
10.5 Amended and Restated 1999 Stock Option Plan
(incorporated by reference to Exhibit 4.4 to our Form
S-8, Amendment No. 1, filed October 4, 2000).
10.6 Subscription Agreement dated August 8, 2002 (incorporated by
reference to our registration statement on Form SB-2 filed
September 12, 2002)
10.7 Alpha Capital Note dated August 8, 2002 (incorporated by
reference to our registration statement on Form SB-2 filed
September 12, 2002)
10.8 Alpha Capital Warrant dated August 8, 2002 (incorporated by
reference to our registration statement on Form SB-2 filed
September 12, 2002)
10.9 Stonestreet Note dated August 8, 2002 (incorporated by reference
to our registration statement on Form SB-2 filed September 12,
2002)
10.10 Stonestreet Warrant dated August 8, 2002 (incorporated by
reference to our registration statement on Form SB-2 filed
September 12, 2002)
10.11 Subscription Agreement dated November 14, 2002 (incorporated by
reference to our registration statement on Form SB-2 filed April
30, 2003)
10.12 Alpha Capital Note dated November 14, 20002 (incorporated by
reference to our registration statement on Form SB-2 filed April
30, 2003)
10.13 Alpha Capital Warrant dated November 14, 2002 (incorporated by
reference to our registration statement on Form SB-2 filed April
30, 2003)
10.14 Ellis Note dated November 14, 2002 (incorporated by reference to
our registration statement on Form SB-2 filed May 6, 2003)
10.15 Ellis Warrant dated November 14, 2002 (incorporated by reference
to our registration statement on Form SB-2 filed May 6, 2003)
10.16 Bristol Note dated November 14, 2002 (incorporated by reference
to our registration statement on Form SB-2 filed May 6, 2003)
10.17 Bristol Warrant dated November 14, 2002 (incorporated by
reference to our registration statement on Form SB-2 filed April
30, 2003)
10.18 Subscription Agreement dated April 10, 2003
10.19 Form of Convertible Note dated April 10, 2003
10.20 Form of Warrant dated April 10, 2003
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Exhibit No. Description
- ----------- -----------
CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of independent auditors (filed herewith).
23.2 Consent of legal counsel (see Exhibit 5).
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of San
Diego, State of California, on July 15, 2003.
ONE VOICE TECHNOLOGIES, INC.
BY: /S/ DEAN WEBER
----------------------
DEAN WEBER, PRESIDENT
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
/s/ Dean Weber Chief Executive Officer and Director July 15, 2003
- --------------------------
Dean Weber
/s/ Rahoul Sharan Chief Financial Officer and Director July 15, 2003
- --------------------------
Rahoul Sharan
/s/ Bradley J. Ammon Director July 15, 2003
- --------------------------
Bradley J. Ammon
II-7