As filed with the Securities and Exchange Commission on June 3, 2005
An Exhibit List can be found on page II-3.
Registration No. 333-124132
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ONE VOICE TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
NEVADA 0-27589 95-4714338
- ------------------------------- ---------------- -------------------
(State or other Jurisdiction of (Commission File (I.R.S. Employer
Incorporation or Organization) No.) Identification No.)
7372
(Primary Standard Industrial
Classification Code Number)
6333 GREENWICH DRIVE, SUITE 240
SAN DIEGO, CALIFORNIA 92122
(858) 552-4466
(Address and telephone number of principal executive offices and
principal place of business)
DEAN WEBER, PRESIDENT
ONE VOICE TECHNOLOGIES, INC.
6333 GREENWICH DRIVE, SUITE 240
SAN DIEGO, CALIFORNIA 92122
(858) 552-4466
(Name, address and telephone number of agent for service)
Copies to:
Darrin M. Ocasio, 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 any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434 please
check the following box [ ]
CALCULATION OF REGISTRATION FEE
=========================================== ============== ================== ================== ============
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(1) FEE
- ------------------------------------------- -------------- ------------------ ------------------ ------------
Shares of common stock, $.001 par value (2) 106,635,071 $ 0.038 $ 4,052,132.70 $ 476.94
- ------------------------------------------- -------------- ------------------ ------------------ ------------
Shares of common stock, $.001 par value (3) 58,139,536 $ 0.038 $ 2,209,302.37 $ 260.03
- ------------------------------------------- -------------- ------------------ ------------------ ------------
Shares of common stock, $.001 par value (4) 44,367,244 $ 0.038 $ 1,685,955.27 $ 198.21
- ------------------------------------------- -------------- ------------------ ------------------ ------------
Total 209,141,851 $ 935.18*
=========================================== ============== ================== ================== ============
*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 April 15, 2005.
(2) Represents 150% of the shares of common stock underlying 6% convertible
promissory notes. The holders of the convertible notes have the right to
require that some, none or all future interest accrued under the note be
paid in the form of shares of common stock. We are not registering shares
of our common stock issuable upon conversion of any future accrued and
unpaid interest under the convertible note.
(3) Represents 100% of the shares of common stock underlying Class A warrants.
(4) Represents 100% of the shares of common stock underlying Class A and Class
B warrants issued pursuant to the second closing of the December 2004
private placement.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
2
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 3, 2005
ONE VOICE TECHNOLOGIES, INC.
209,141,851 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholders of an
aggregate of 209,141,851 shares of our common stock, par value $.001 per share,
based on current market prices, including up to (i) 106,635,071 shares issuable
upon conversion of our 6% convertible promissory notes, (iii) 58,139,536 shares
issuable upon exercise of our Class A common stock purchase warrants, and (iii)
44,367,244 shares issuable upon exercise of our Class A and Class B common stock
purchase warrants issued to certain of the selling stockholders pursuant to the
second closing of our December 2004 private placement. The holders of the
convertible notes have the right to require that some, none or all future
interest accrued under the note be paid in the form of shares of common stock.
We are not registering shares of our common stock issuable upon conversion of
any future accrued and unpaid interest under the convertible note.
The shares of common stock are being registered to permit the selling
stockholders to sell the shares from time to time in the public market. The
stockholders may sell the shares through ordinary brokerage transactions,
directly to market makers of our shares or through any other means described in
the section entitled "Plan of Distribution" beginning on page 31. The selling
stockholders may be deemed to be a statutory underwriter of the shares of common
stock, which they are offering. We cannot assure you that the selling
stockholders will sell all or any portion of the shares offered in this
prospectus.
We will pay the expenses of registering these shares. We will not receive any
proceeds from the sale of shares of common stock in this offering. All of the
net proceeds from the sale of our common stock will go to the selling
stockholders. However, we will receive the exercise price of any common stock we
issue to the selling stockholders upon exercise of the warrants. We expect to
use the proceeds received from the exercise of their warrants, if any, for
general working capital purposes.
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 April 15, 2005 was
$0.038.
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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 June _, 2005.
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.
3
TABLE OF CONTENTS
PAGE
----
Prospectus Summary 5
Description of Securities Being Registered 6
Risk Factors 8
Use of Proceeds 12
Market for Common Equity and Related Stockholder Matters 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Business 19
Description of Property 21
Legal Proceedings 22
Management 23
Executive Compensation 26
Security Ownership of Certain Beneficial Owners and Management 27
Description of Our Capital Stock 28
Indemnification for Securities Act Liabilities 29
Selling Stockholders 30
Plan of Distribution 31
Legal Matters 32
Experts 33
Available Information 33
Index to Consolidated Financial Statements 34
Part II. Information Not Required in Prospectus 69
Indemnification of Directors and Officers 69
Other Expenses of Issuance and Distribution 69
Recent Sales of Unregistered Securities 69
Exhibits 73
Undertakings 77
Signatures 78
4
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 voice recognition technology company with over $30 million invested in
Research and Development and deployment of more than 20 million products
worldwide in seven languages. To date, our customers include: ABS Computer
Technologies, Golden State Cellular, Inland Cellular, Niveus Media, Panhandle
Telephone Cooperative, Plateau Wireless, Tata Infotech, Telispire PCS, Walt
Disney Internet Group, Warner Home Video and West Central Wireless. Based on our
patented technology, we offer voice solutions for the Telecom and Interactive
Multimedia markets. Our telecom solutions allow business and consumer phone
users to Voice Dial, Group Conference Call, Read and Send E-Mail and Instant
Message, all by voice. We offer PC OEM's the ability to bundle a complete voice
interactive computer assistant which allows PC users to talk to their computers
to quickly play digital media (music, videos, DVD) along with read and send
e-mail messages, SMS text messaging to mobile phones, PC-to-Phone calling (VoIP)
and PC-to-PC audio/video. We feel we are strongly positioned across these
markets with our patented voice technology.
We were incorporated under the laws of the State of Nevada in 1999. Located in
San Diego, California, we have 11 full-time employees and 6 consultant/part-time
employees. We are traded on the NASD OTC Electronic Bulletin Board ("OTCBB")
under the symbol ONEV.OB. One Voice commenced operations on July 14, 1999.
The Offering
Common stock offered by selling stockholders Up to 209,141,851 shares, based
(includes warrants and 150% of the shares on current market prices and
underlying 6% convertible notes............. assuming full conversion of the
6% convertible promissory notes,
exercise of the Class A
warrants, and exercise the Class
A and Class B warrants issued
pursuant to the second closing
of the December 2004 private
placement.
This number represents 43.19% of
outstanding stock after the
offering.
Common stock to be outstanding after the
offering.................................... Up to 484,245,450 shares
Use of proceeds............................. We will not receive any proceeds
from the sale of the common
stock. However, we will receive
the exercise price of any common
stock we issue to the selling
stockholders upon exercise of
the warrants. We expect to use
the proceeds received from the
exercise of their warrants, if
any, for general working capital
purposes.
Over-The-Counter Bulletin Board ............ ONEV
The above information is based on 275,103,599 shares of common stock outstanding
as of April 18, 2005 and assumes the subsequent conversion of our issued 6%
convertible promissory notes, exercise of our Class A warrants and exercise of
our Class A and Class B warrants issued pursuant to the second closing of our
December 2004 private placement by our selling stockholders.
5
DESCRIPTION OF SECURITIES BEING REGISTERED
MARCH 2005 SUBSCRIPTION AGREEMENT
On March 18, 2005, we held our first closing pursuant to a Subscription
Agreement we entered into with several accredited investors dated as of March
18, 2005, pursuant to which the investors subscribed to purchase an aggregate
principal amount of $2,000,000 in 6% convertible promissory notes, and 100 Class
A and Class B common stock purchase warrants for each 100 shares which would be
issued on each closing date assuming full conversion of the convertible notes
issued on each such closing date. We issued the aforementioned securities to the
investors pursuant to Rule 506 of Regulation D as promulgated under the
Securities Act of 1933, as amended (the "Act"), and/or Section 4(2) of the Act.
$1,000,000 of the purchase price was paid to us by the investors on the initial
closing date of March 18, 2005 and $1,000,000 of the purchase price will be paid
to us pursuant to the second closing, which will take place on the 5th day after
the actual effectiveness of the registration statement which we are required to
file with the Securities and Exchange Commission registering the shares of our
common stock, par value $.001 per share, issuable upon conversion of the
promissory notes and exercise of the warrants.
6% CONVERTIBLE PROMISSORY NOTES
The convertible notes bear simple interest at 6% per annum payable upon each
conversion, June 1, 2005 and semi-annually thereafter and mature 3 years after
the date of issuance. Each investor shall have the right to convert the
convertible notes after the date of issuance and at any time, until paid in
full, at the election of the investor into fully paid and nonassessable shares
of our common stock. The conversion price per share shall be the lower of (i)
$0.047 or (ii) 80% of the average of the three lowest closing bid prices for our
common stock for the 30 trading days prior to, but not including, the conversion
date as reported by Bloomberg, L.P. on any principal market or exchange where
our common stock is listed or traded. The conversion price is adjustable in the
event of any stock split or reverse stock split, stock dividend,
reclassification of common stock, recapitalization, merger or consolidation. In
addition, the conversion price of the convertible notes will be adjusted in the
event that we spin off or otherwise divest ourselves of a material part of our
business or operations or dispose all or a portion of our assets.
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 $2,000,000 of notes, on April 13, 2005, a conversion price of $0.0281 per
share, the number of shares issuable upon conversion would be:
$2,000,000/$.0281 = 71,174,377
The conversion price is calculated by taking 80% the average of the three lowest
closing prices for the 30 trading days prior to conversion.
CLASS A AND CLASS B COMMON STOCK PURCHASE WARRANTS
We issued an aggregate of 29,069,768 Class A common stock purchase warrants and
29,069,768 Class B common stock purchase warrants to the investors, representing
100 Class A and Class B warrants issued for each 100 shares which would be
issued on the initial closing date assuming full conversion of the convertible
notes issued on each such closing date. We will issue an additional aggregate of
29,069,768 Class A common stock purchase warrants and 29,069,768 Class B common
stock purchase warrants to the investors, representing 100 Class A and Class B
warrants issued for each 100 shares which would be issued on the second closing
date. The Class A warrants are exercisable until four years from the initial
closing date at an exercise price of $0.045 per share. The Class B warrants are
exercisable until four years from the initial closing date at an exercise price
of $0.06 per share. The holder of the Class B warrants will be entitled to
purchase one share of common stock upon exercise of the Class B warrants for
each share of common stock previously purchased upon exercise of the Class A
warrants. The exercise price of the Class A and Class B warrants will be
adjusted in the event of any stock split or reverse stock split, stock dividend,
reclassification of common stock, recapitalization, merger or consolidation. In
addition, the exercise price of the warrants will be adjusted in the event that
we spin off or otherwise divest ourselves of a material part of our business or
operations or dispose all or a portion of our assets.
REGISTRATION RIGHTS
We are obligated to file a registration statement registering 150% of the shares
of our common stock issuable upon conversion of the promissory notes and 100% of
the shares of our common stock issuable upon exercise of the Class A warrants no
later than 45 days after the initial closing date and cause it to be effective
within 90 days after the initial closing date. If we do not meet the
aforementioned filing and effectiveness deadlines, we shall pay to each investor
an amount equal to 1% for the first 30 days or part thereof of the pendency of
such non-registration event and 2% for each 30 days or part thereof, thereafter
of the purchase price of the notes remaining unconverted and purchase price of
the shares of our common stock issued upon conversion of the notes. We have
granted piggy-back registration rights with respect to the shares issuable upon
exercise of the Class B warrants. We are not registering any of the shares of
our common stock underlying the Class B warrants in this prospectus. The holders
of the convertible notes have the right to require that some, none or all future
interest accrued under the note be paid in the form of shares of common stock.
We are not registering shares of our common stock issuable upon conversion of
any future accrued and unpaid interest under the convertible note.
6
DECEMBER 2004 SECURITIES PURCHASE AGREEMENT
On December 23, 2004, we held our second closing pursuant to a Subscription
Agreement with Alpha Capital Aktiengesellschaft, Stonestreet Limited
Partnership, Ellis International Ltd., and Momona Capital Corp. (the
"Investors") dated October 28, 2004 pursuant to which the Investors purchased an
aggregate principal amount of $1,490,000 in 7% convertible promissory notes, and
100 Class A and Class B common stock purchase warrants for each 100 shares which
would be issued on each closing date assuming full conversion of the convertible
notes issued on each such closing date. The aforementioned securities were
issued to the Investors by us pursuant to Rule 506 of Regulation D as
promulgated under the Securities Act of 1933, as amended (the "Act"), and/or
Section 4(2) of the Act.
CLASS A AND CLASS B COMMON STOCK PURCHASE WARRANTS (SECOND CLOSING)
We are registering an aggregate of 44,367,244 shares of our common stock
issuable upon exercise of our Class A and Class B common stock purchase warrants
in this prospectus, representing 100 Class A and Class B warrants for each 100
shares which were issued on the second closing date assuming full exercise of
the Class A and Class B warrants issued on the second closing date.
The warrants expire five years from the date of issuance and are exercisable at
a price of $0.07 per share. 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.
7
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 MARCH 18, 2005 SUBSCRIPTION 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 April 18, 2005, we had 275,103,599 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 106,635,071 shares of
common stock at current market prices, and warrants to purchase 102,506,780
shares 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 current conversion price, as of April 18, 2005 of $0.035.
With Percentage of
% Below Market Price Per Share Discount of 20% Number of Shares Issuable Outstanding Stock
- -------------- --------------- --------------- ------------------------- -----------------
25% $.0264 $.0211 94,786,730 25.63%
50% $.0176 $.0141 142,180,095 34.07%
75% $.0088 $.0070 284,360,190 50.83%
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 stockholders may ultimately convert and sell the
full amount issuable on conversion. Although the selling stockholders 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 stockholders from
converting and/or exercising some of their holdings and then converting the rest
of their holdings. In this way, the selling stockholders could sell more than
this limit while never holding more than this limit. 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 our company.
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 average of the three lowest closing prices during the 30
days prior to the conversion. The significant downward pressure on the price of
the common stock as the selling stockholders 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
stockholders 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.
8
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES. WE EXPECT TO CONTINUE TO INCUR LOSSES, AND WE MAY
NEVER ACHIEVE AND SUSTAIN PROFITABILITY.
Since inception, we have incurred significant losses and have negative cash
flows from operations. These factors, among others discussed in Note 1 to the
financial statements, raise substantial doubt about the ability to continue as a
going concern. 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.
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:
o establish and maintain broad market acceptance of our products and
services and convert that acceptance into direct and indirect sources of
revenues;
o maintain and enhance our brand name;
o continue to timely and successfully develop new products, product features
and services and increase the functionality and features of existing
products;
o successfully respond to competition, including emerging technologies and
solutions; and
o 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 2005. 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.
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:
o how and when we introduce new products and services and enhance our
existing products and services;
o our ability to attract and retain new customers and satisfy our customers'
demands;
o the timing and success of our brand-building and marketing campaigns;
o our ability to establish and maintain strategic relationships;
o our ability to attract, train and retain key personnel;
o the demand for voice recognition applications;
o the emergence and success of new and existing competition;
o 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;
o technical difficulties with our products, system downtime, system failures
or interruptions in Internet access;
o changes in the mix of products and services that we sell to our customers;
o costs and effects related to the acquisition of businesses or technology
and related integration; and
o costs of litigation and intellectual property protection.
9
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. 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 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, Scansoft and Nuance. We expect additional competition from other
companies such as Microsoft, who has recently made investments in, and acquired,
voice interface technology companies. Furthermore, our competitors may combine
with each other, and other companies may enter our markets by acquiring or
entering into strategic relationships with our competitors. Current and
potential competitors have established, or may establish, cooperative
relationships among themselves or with third parties to increase the abilities
of their advanced speech and language technology products to address the needs
of our prospective customers.
Many of our current and potential competitors have longer operating histories,
significantly greater financial, technical, product development and marketing
resources, greater name recognition and larger customer bases than we do. Our
present or future competitors may be able to develop products comparable or
superior to those we offer, adapt more quickly than we do to new technologies,
evolving industry trends and standards or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and future competition may harm our business.
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 three patents covering the United States,
Australia, China and parts of Europe. 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.
10
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.
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:
o the ability of our products and technologies to meet and adapt to the
needs of our target markets;
o the performance and price of our products as compared to our competitors'
products;
o our ability to deliver customer service directly and through our
resellers; and
o the ability of our customers to utilize our product.
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.
11
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
IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET
Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13 in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely affected by
limiting the ability of broker-dealers to sell our securities and the ability of
stockholders to sell their securities in the secondary market.
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 stockholders of our company. There will be
no proceeds to our company from the sale of shares of common stock in this
offering. However, we will receive the exercise price of any common stock we
issue to the selling stockholders upon exercise of the warrants. We expect to
use the proceeds received from the exercise of their warrants, if any, for
general working capital purposes.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the NASDAQ SmallCap Market on October 24,
2000, under the symbol ONEV. Our common stock previously traded on the OTC
Electronic Bulletin Board under the same symbol. The OTC Electronic Bulletin
Board is sponsored by the National Association of Securities Dealers (NASD) and
is a network of security dealers who buy and sell stocks. Our common stock is
currently traded on NASD OTC Electronic Bulletin Board under the symbol ONEV.OB.
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
----- -------
2003
First Quarter .07 .17
Second Quarter .08 .11
Third Quarter .03 .10
Fourth Quarter .03 .07
2004
First Quarter .02 .05
Second Quarter .01 .22
Third Quarter .08 .16
Fourth Quarter .01 .12
2005
First Quarter .08 .04
As of April 18, 2005, our common stock is held by 175 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.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR PLAN OF OPERATION SHOULD BE READ IN
CONJUNCTION WITH THE FINANCIAL STATEMENTS AND THE RELATED NOTES. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934
WHICH ARE BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES,
SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. OUR ACTUAL RESULTS
AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE SET FORTH UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS
PROSPECTUS. SEE "RISK FACTORS."
OVERVIEW
We are a voice recognition technology company with over $30 million invested in
Research and Development and deployment of more than 20 million products
worldwide in seven languages. To date, our customers include: ABS Computer
Technologies, Golden State Cellular, Inland Cellular, Niveus Media, Panhandle
Telephone Cooperative, Plateau Wireless, Tata Infotech, Telispire PCS, Walt
Disney Internet Group, Warner Home Video and West Central Wireless. Based on our
patented technology, we offer voice solutions for the Telecom and Interactive
Multimedia markets. Our telecom solutions allow business and consumer phone
users to Voice Dial, Group Conference Call, Read and Send E-Mail and Instant
Message, all by voice. We offer PC OEM's the ability to bundle a complete voice
interactive computer assistant which allows PC users to talk to their computers
to quickly play digital media (music, videos, DVD) along with read and send
e-mail messages, SMS text messaging to mobile phones, PC-to-Phone calling (VoIP)
and PC-to-PC audio/video. We feel we are strongly positioned across these
markets with our patented voice technology.
Since the beginning of 2004, we have made solid progress in closing deals with
several telecom carriers and select PC OEM's. Both Golden State Cellular and
Inland Cellular have launched our MobileVoice service, to their subscribers, in
December 2004 and we anticipate West Central Wireless to launch our MobileVoice
service, to their subscribers, in April, 2005. These three carrier launches of
our MobileVoice product show the commercial readiness along with the start of
revenue generation from our MobileVoice product.
Additionally, since the beginning of 2004 we have been awarded two patents in
China and two patents covering 18 European countries. These patents extend our
Intellectual Property (IP) coverage from the United States, Australia, China and
throughout select European countries, giving us added protection of our
technology.
Our corporate focus for 2004 and 2005 is to generate monthly recurring revenue
from our MobileVoice product in the telecom sector and to generate sales from
our Media Center Communicator product in the PC sector. As a small company with
limit resources, we have not actively focused on contracts that will not
generate substantial revenue. Accordingly, we have cancelled our contract with
San Diego State University (SDSU) since SDSU did not provide adequate on-campus
marketing as agreed upon. We could not provide on-campus marketing/sales support
so it was in our best interest to discontinue the agreement. Our company's focus
must remain on substantial revenue bearing deals where our partners (such as a
telecom carrier or PC OEM) will actively market our products and services to
their customers/subscribers. In addition, we have not pursued Montan Telecom nor
carriers in Mexico since these opportunities will likely not generate
substantial revenue in the near-term. We feel this strategy is in the best
interest of our shareholders. Therefore, we will continue to focus efforts on
domestic telecom carriers and PC OEM's for our products sales/distribution. We
anticipate that by the end of 2005, we will have contracts with telecom carriers
with an aggregate base of over 2 million subscribers domestically.
In 2004, we were selected by Tata Infotech, a leading Indian IT company and part
of the Tata Group, India's most trusted and best-known industrial group, to
co-develop a customized MobileVoice solution for the high growth Indian telecom
market. We have subsequently worked closely with members of their team to tune
our MobileVoice platform to increase voice recognition rates for English
speaking Indian users. Our mutual goal is to perform a pilot test of our
MobileVoice platform to telecom providers in India in 2005 with a potential
launch in 2006. The wireless industry in India is one of the fastest growing
markets globally and we hope to position our products to align with this growth.
We see a tremendous opportunity to generate substantial revenue with Tata and
will continue to apply resources to make this a successful venture in the Indian
market.
We are very excited to have been selected by Microsoft in May 2004 to be
showcased in their Windows Hardware Showcase at the 2004 Windows Hardware
Engineering Conference (WinHEC). At WinHEC, Microsoft demonstrated our Media
Center Communicator product running on their Windows XP Media Center Edition
2004 operating system. Since Microsoft's recent, October 12, 2004, launch of
their updated Windows XP Media Center Edition 2005 product, we have finalized
and launched our Media Center Communicator product which now works with this
update to Windows XP Media Center 2005. Our Communicator product adds
voice-recognition capabilities to the Windows XP Media Center 2005 product. In
January, 2005 our Media Center Communicator was demonstrated by both Microsoft
and Intel at the annual Consumer Electronics Show (CES) held in Las Vegas,
Nevada. Additionally, our Media Center Communicator product was demonstrated by
Intel on a nationwide media tour which included several on-air news broadcasts.
Intel recently demonstrated our Media Center Communicator at their annual Intel
Developers Forum (IDF) held in San Francisco, CA. We were also selected by the
CTIA Wireless organization to showcase our Media Center Communicator in their
Wireless Home at the annual CTIA Wireless 2005 tradeshow.
13
In summary, since the beginning of 2004 we have closed several contracts with
telecom carriers and we will begin seeing revenue generated starting with the
launch by Golden State Cellular, Inland Cellular and West Central Wireless. We
were selected by Microsoft to showcase our Media Center Communicator at both
WinHEC and CES and Intel showcased our Media Center Communicator at CES and
Intel Developer Forum. Additionally, we have launched our Media Center
Communicator product to add voice recognition to the Windows XP Media Center
operating system. Our focus is to generate revenue and we are committed to
building shareholder value in our company.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based upon our 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 us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to impairment
of property, plant and equipment, intangible assets, deferred tax assets and
fair value computation using Black Scholes option pricing model. We base our
estimates on historical experience and on various other assumptions, such as the
trading value of our common stock and estimated future undiscounted cash flows,
that we believe 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; however,
we believe that our estimates, including those for the above-described items,
are reasonable.
RESULTS OF OPERATIONS
THE FOLLOWING TABLE SETS FORTH SELECTED INFORMATION FROM THE STATEMENTS OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004.
SELECTED STATEMENT OF OPERATIONS INFORMATION
Three Months Ended
March 31,
2005 2004
------------ ------------
Gross revenues $ 10,363 $ --
Cost of sales (1,128) --
General and administrative expenses (2,074,051) (1,242,434)
------------ ------------
Net loss $ (2,064,816) $ (1,242,434)
============ ============
DISCUSSION OF THE THREE MONTHS ENDED MARCH 31, 2005 COMPARED WITH THE THREE
MONTHS ENDED MARCH 31, 2004.
We had revenues of $10,363 for the three months ended March 31, 2005. There were
no revenues for the three months ended March 31, 2004.
General and administrative expenses increased to $2,074,051 for the three months
ended March 31, 2005 from $1,242,434 for the same period in 2004. The increase
in general and administrative expenses over the same quarter in 2004 was due
primarily to the amortization of debt discounts during the first quarter. Salary
and wage expense was $327,500 for the three months ended March 31, 2005 as
compared to $277,000 for the same period in 2004. The increase in 2005 as
compared to 2004 arose primarily from an increase in our labor force. Legal and
consulting expenses increased to $89,000 for the three months ended March 31,
2005 as compared to $61,000 for the same period in 2004. Depreciation and
amortization expenses decreased to $51,000 for the three months ended March 31,
2004 from $150,000 for the same period in the prior year, primarily due to the
retirement of fixed assets. Amortization and Depreciation expenses consisted of
patent and trademarks, computer equipment and software development fees.
Interest expense increased to $1,057,000 in 2005, as compared to $345,000 in
2004, primarily due to amortization of debt discounts.
We had a net loss of $2,064,816, or basic and diluted net loss per share of
$0.01, for the three months ended March 31, 2005 compared to $1,242,434, or
basic and diluted net loss per share of $0.01, for the same period in 2004.
LIQUIDITY AND CAPITAL RESOURCES FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND
2004.
At March 31, 2005, we had a negative working capital of $885,539 as compared to
negative working capital of $1,124,263 at March 31, 2004.
Net cash used in operating activities was $822,200 for the quarter ended March
31, 2005 compared to $341,766 for the quarter ended March 31, 2004. We believe
that our average monthly cash requirements approximate $260,000. From inception
on January 1, 1999 to March 31, 2005, net cash used for operating activities was
$25,025,429.
14
Net cash used in investing activities was $17,766 for the quarter ended March
31, 2005 compared to $19,487 for the quarter ended March 31, 2004. During the
three months ended March 31, 2005, cash was primarily used for capitalized
computer equipment and patents. From inception on January 1, 1999 to March 31,
2005, net cash used for investing activities was $4,948,978.
Net cash provided by financing activities was $919,988 for the quarter ended
March 31, 2005 compared to $325,000 for the quarter ended March 31, 2004. From
inception on January 1, 1999 to March 31, 2005 net cash provided by financing
activities was $30,590,071.
We incurred a net loss of $2,064,816 during the quarter ended March 31, 2005,
and had an accumulated deficit of $39,906,302. Our losses through March 31, 2005
included interest expense, development costs and operational and promotional
expenses.
We anticipate maintaining a cash balance through our financial partners that
will sustain operations up to December 2005. We continue to rely heavily on our
current method of convertible debt and equity funding, which has financed us
since 2001, until we are operationally breakeven. The losses through the quarter
ended March 31, 2005 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 beneficial conversion features. 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.
DISCUSSION OF THE YEAR ENDED DECEMBER 31, 2004 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 2003.
Revenues totaled $2,105 for the year ended December 31, 2004. Revenues of
$50,000 were earned for the year ended December 31, 2003. The recognition of
revenues for the year ended 2003 resulted primarily from work performed in the
DVD/Multimedia sector.
Operating expenses decreased to $5,382,653 for the year ended December 31, 2004
from $5,975,907 for the same period in 2003. The decrease in operating expenses
over the same period in 2003 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 $1,229,002 for the year ended December 31, 2004 as compared to
approximately $1,195,000 for the same period in 2003. The increase in 2004 as
compared to 2003 arose primarily from the addition of a marketing employee.
Advertising and promotion expense totaled $27,262 for the year ended December
31, 2004 as compared to $11,770 for the same period in 2003. Advertising and
promotion expense increase resulted from our increase in our travel budget.
Legal and consulting expenses decreased to approximately $263,000 for the year
ended December 31, 2004 from approximately $314,000 for the same period in 2003.
Depreciation and amortization expenses decreased to approximately $499,000 for
the year ended December 31, 2004 from approximately $664,000 for the same period
in the prior year. Amortization and Depreciation expenses consisted of patent
and trademarks, computer equipment, consultant fees, and tradeshow booth.
Interest expense decreased to approximately $1,650,000 in 2004, as compared to
approximately $2,297,000 in 2003, primarily due to a decrease in the number of
convertible debenture financings that we engaged in and the conversion of
previously outstanding debt into common stock.
We had a net loss of $5,382,478 or basic and diluted net loss per share of $0.03
for the year ended December 31, 2004 compared to a net loss of $5,931,972 or
basic and diluted net loss per share of $0.09 for the same period in 2003.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004, we had a working capital deficit of $810,682 as compared
with a working capital deficit of $791,776 at December 31, 2003.
Net cash used for operating activities was $2,671,305 for the year ended
December 31, 2004 compared to $2,559,083 for the year ended December 31, 2003.
From inception on January 1, 1999 to December 31, 2004, net cash used for
operating activities was $24,203,229.
Net cash used for investing activities was $150,844 for the year ended December
31, 2004 compared to net cash used of $143,213 for the year ended December 31,
2003. From inception on January 1, 1999 to December 31, 2004, net cash used for
investing activities was $4,931,212.
Net cash provided by financing activities was $3,304,082 for the year ended
December 31, 2004 compared to $2,006,850 for the year ended December 31, 2003.
From inception on January 1, 1999 to December 31, 2004 net cash provided by
financing activities was $29,670,083.
We incurred a net loss of $5,382,478 during the year ended December 31, 2004 and
had an accumulated deficit of $37,841,486. Our losses through December 2004
included interest expense, amortization of software licensing agreements and
development costs and operational and promotional expenses. Sales of our
convertible debt securities have allowed us to maintain a positive cash flow
balance from financing activities.
15
On April 10, 2003, we 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 in excess of 100%), 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 is due upon default under the terms of
convertible notes. In addition, we 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 $25,000
using Black Scholes option pricing model and the beneficial conversion feature
of approximately $515,000 have been amortized over the life of the debt using
the interest method. Upon conversion of the debt, any unamortized debt issue
costs was charged to interest expense.
On June 30, 2003, we entered into a Securities Purchase Agreement with two
accredited investors, Alpha Capital Aktiengesellschaft, and Bristol Investment
Fund Limited, for the issuance of 4% convertible debentures in the aggregate
amount of $500,000. The notes bear interest at 4% (effective interest rate in
excess of 100% on the aggregate amount), mature on June 20, 2005, and are
convertible into our common stock, at the holders' option, at the lower of (i)
$0.1023 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 June 30, 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, we issued an aggregate of 291,670 warrants to
the investors. The warrants are exercisable until June 30, 2008 at a purchase
price of $.1116 per share. Net proceeds amounted to approximately $437,500, net
of debt issue cash cost of $62,500. The fair value of the warrants of $11,000
using Black Scholes option pricing model and the beneficial conversion feature
of approximately $143,000 was amortized as interest expense over the life of the
debt using the interest method. Upon conversion of the debt, any unamortized
debt issue costs was charged to interest expense.
On September 17, 2003, we entered into a Securities Purchase Agreement with
three accredited investors, Alpha Capital Aktiengesellschaft, Bristol Investment
Fund Limited and Ellis Enterprises Ltd for the issuance of 6% convertible
debentures in the amount of $375,000. The notes bear interest at 6% (effective
interest rate of 80% on the aggregate amount), mature on September 17, 2004, and
are convertible into our common stock, at the holders' option, at the lower of
(i) $0.0474 or (ii) 78% of the average of the three 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 September 17, 2004 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, we issued 4,746,837 warrants to the investors.
The warrants are exercisable until September 17, 2010 at a purchase price of
$.0474 per share. Net proceeds amounted to approximately $334,500, net of debt
issue cash cost of $40,500. The relative value (limited to the face amount of
the debt) of all the warrants of $164,000 using Black Scholes option pricing
model, cash cost of $40,500 and the beneficial conversion feature of
approximately $170,500 will be amortized over the life of the debt using the
interest method. Upon conversion of the debt mentioned above, any unamortized
debt issue costs will be charged to expense.
On November 10, 2003, we entered into a Securities Purchase Agreement with three
accredited investors, Alpha Capital Aktiengesellschaft, Bristol Investment Fund
Limited and Ellis Enterprises Ltd for the issuance of 6% convertible debentures
in the amount of $375,000. The notes bear interest at 6% (effective interest
rate of 80% on the aggregate amount), mature on November 10, 2004, and are
convertible into our common stock, at the holders' option, at the lower of (i)
$0.0474 or (ii) 78% of the average of the three 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 November 10, 2004 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, we issued 4,746,837 warrants to the investors.
The warrants are exercisable until November 10, 2010 at a purchase price of
$.0474 per share. Net proceeds amounted to approximately $345,000, net of debt
issue cash cost of $30,000. The relative value (limited to the face amount of
the debt) of all the warrants of $127,000 using Black Scholes option pricing
model, cash cost of $30,000 and the beneficial conversion feature of
approximately $211,000 will be amortized over the life of the debt using the
interest method. Upon conversion of the debt mentioned above, any unamortized
debt issue costs will be charged to expense.
On December 12, 2003, we entered into a Securities Purchase Agreement with La
Jolla Cove Investors, Inc. for the issuance of a 7.75% convertible debenture in
the aggregate amount of $250,000. The note bears interest at 7.75%, matures on
December 12, 2005, and is convertible into our common stock, at the holders'
option. The number of common shares this debenture may be converted is equal to
the dollar amount of the debenture being converted multiplied by eleven, minus
the product of the Conversion Price multiplied by ten times the dollar amount of
the Debenture being converted, and the entire forgoing result shall be divided
by the Conversion Price. The Conversion Price is defined as the lower of (i)
$0.25 or (ii) 80% of the average of the three lowest volume weighted average
prices during the twenty (20) trading days prior to Holder's election to
convert. Beginning in the first full calendar month after the Registration
Statement is declared effective, Holder shall convert at least 7%, but no more
than 15% (such 15% maximum amount to be cumulative from the deadline), of the
face value of the debenture per calendar month into our common shares, provided
that the common shares are available, registered and freely tradable. In
addition, we issued an aggregate of 2,500,000 warrants to the investors. The
warrants are exercisable until December 12, 2006 at a purchase price of $1.00
per share. Holder will exercise at least 7%, but no more than 15% (such 15%
maximum amount to be cumulative from the Deadline), of the Warrants per calendar
month, provided that the Common Shares are available, registered and freely
tradable. The 15% monthly maximum amount shall not be applicable if the Current
Market Price of the Common Stock at anytime during the applicable month is
higher than the Current Market Price of the Common Stock on the Closing Date. In
the event Holder does not exercise at least 7% of the Warrants in any particular
16
calendar month, Holder shall not be entitled to collect interest on the
Debenture for that month. The fair value of the warrants of $18,000 using Black
Scholes option pricing model and the beneficial conversion feature of
approximately $219,000 will be amortized as interest expense over the life of
the debt using the interest method. Upon conversion of the debt mentioned here,
any unamortized debt issue costs will be charged to expense. As of December 31,
2003 the principal balance amounted to $250,000 and the unamortized debt
discount amounted to approximately $243,000.
On August 18, 2004, we entered into a Securities Purchase Agreement with four
accredited investors, Alpha Capital Aktiengesellschaft, Greenwich Growth Fund
Limited, Whalehaven Capital, LP and Whalehaven Fund Limited for the issuance of
7% convertible debentures in the aggregate amount of $700,000. The notes bear
interest at 7% (effective interest rate of 146% on the aggregate amount), mature
on August 18, 2007, and are convertible into our common stock, at the holders'
option, at the lower of (i) $0.085 or (ii) 80% of the average of the three
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 August 18, 2007 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, we issued an aggregate of
7,063,774 warrants to the investors (3,531,887 Class A warrants and 3,531,887
Class B warrants). The Class A warrants are exercisable until August 18, 2009 at
a purchase price of $.0935 per share. The Class B warrants are exercisable until
August 18, 2009 at a purchase price of $.10625 per share. Net proceeds amounted
to approximately $621,000, net of debt issue cash cost of $79,000. The fair
value of the warrants of $323,000 using Black Scholes option pricing model and
the beneficial conversion feature of approximately $298,000 will be amortized
over the life of the debt using the interest method. Upon conversion of the
debt, unamortized debt issue costs are charged to expense.
On October 28, 2004, we entered into a securities purchase agreement with four
accredited investors, Alpha Capital Aktiengesellschaft, Stonestreet Limited
Partnership, Ellis International Ltd. and Momona Capital Corp. for the issuance
of 7% convertible debentures in the aggregate amount of $596,000. The notes bear
interest at 7% (effective interest rate of 100% on the aggregate amount), mature
on October 28, 2007 and are convertible into our common stock, at the holders'
option, at the lower of (i) $0.074 or (ii) 80% of the average of the three
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 October 28, 2007 without the consent of the
holder. The full principal amount of the convertible note is due upon default
under the terms of convertible notes. In addition, we issued an aggregate of
11,825,398 Class A warrants and 11,825,398 Class B warrants to the investors.
The warrants are exercisable until October 28, 2009 at a purchase price of $0.07
per share. Net proceeds amounted to approximately $532,000, net of debt issue
cash cost of $64,000. The relative value (limited to the face amount of the
debt) of all the warrants of $276,000 using Black Scholes option pricing model
and the beneficial conversion feature of approximately $319,000 will be
amortized over the life of the debt using the interest method. As of December
31, 2004, the balance owed was $266,000 and the unamortized discount amounted to
$250,000. Upon conversion of the debt mentioned above, any unamortized debt
issue costs will be charged to expense.
On December 23, 2004, we entered into a securities purchase agreement with Alpha
Capital Aktiengesellschaft, Stonestreet Limited Partnership, Ellis International
Ltd. and Momona Capital Corp. for the issuance of 7% convertible debentures in
the aggregate amount of $894,000. The notes bear interest at 7% (effective
interest rate of 100% on the aggregate amount), mature on December 23, 2007 and
are convertible into our common stock, at the holders' option, at the lower of
(i) $0.074 or (ii) 80% of the average of the three 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 December 23, 2007 without the consent of the holder. The full principal
amount of the convertible note is due upon default under the terms of
convertible notes. In addition, we issued an aggregate of 22,183,622 Class A
warrants and 22,183,622 Class B warrants to the investors. The warrants are
exercisable until December 23, 2009 at a purchase price of $0.07 per share. Net
proceeds amounted to approximately $835,000, net of debt issue cash cost of
$59,000. The relative value (limited to the face amount of the debt) of all the
warrants of $682,000 using Black Scholes option pricing model and the beneficial
conversion feature of approximately $210,000 will be amortized over the life of
the debt using the interest method. As of December 31, 2004, the balance owed
was $854,000 and the unamortized discount amounted to $848,000. Upon conversion
of the debt mentioned above, any unamortized debt issue costs will be charged to
expense.
Notes payable had a face value of $1,317,000 at December 31, 2004. Notes payable
had a face value of $655,000 at December 31, 2003.
17
We anticipate maintaining a cash balance through our financial partner that will
sustain operations up to December 2005. We continue to rely heavily on our
current method of convertible debt and equity funding, which have financed us
since 2001, until we are operationally breakeven. The losses through the year
ended December 31, 2004 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.
SUBSEQUENT EVENTS
Subsequent to December 31, 2004, the following note holders converted principal
into common shares. Alpha Capital Akteingesellschaft converted $350,000 of note
principal into 9,724,106 common shares at an average conversion price of $0.037.
Whalehaven Fund Ltd. converted $40,000 of note principal into 1,026,466 common
shares at an average conversion price of $0.039. Ellis International Limited
converted $84,500 of note principal into 2,097,779 common shares at an average
conversion price of $0.04. Stonestreet Limited Partnership converted $200,000 of
note principal into 5,928,797 common shares at an average conversion price of
$0.034. Momona Capital Corp. converted $75,000 of note principal into 1,938,262
common shares at an average conversion price of $0.038.
On March 18, 2005, we held our first closing pursuant to a Subscription
Agreement we entered into with several accredited investors dated as of March
18, 2005, pursuant to which the investors subscribed to purchase an aggregate
principal amount of $2,000,000 in 6% convertible promissory notes, and 100 Class
A and Class B common stock purchase warrants for each 100 shares which would be
issued on each closing date assuming full conversion of the convertible notes
issued on each such closing date. We issued the aforementioned securities to the
investors pursuant to Rule 506 of Regulation D as promulgated under the
Securities Act of 1933, as amended (the "Act"), and/or Section 4(2) of the Act.
$1,000,000 of the purchase price was paid to us by the investors on the initial
closing date of March 18, 2005 and $1,000,000 of the purchase price will be paid
to us pursuant to the second closing, which will take place on the 5th day after
the actual effectiveness of the registration statement which we are required to
file with the Securities and Exchange Commission registering the shares of our
common stock, par value $.001 per share, issuable upon conversion of the
promissory notes and exercise of the warrants.
The convertible notes bear simple interest at 6% per annum payable upon each
conversion, June 1, 2005 and semi-annually thereafter and mature 3 years after
the date of issuance. Each investor shall have the right to convert the
convertible notes after the date of issuance and at any time, until paid in
full, at the election of the investor into fully paid and nonassessable shares
of our common stock. The conversion price per share shall be the lower of (i)
$0.047 or (ii) 80% of the average of the three lowest closing bid prices for our
common stock for the 30 trading days prior to, but not including, the conversion
date as reported by Bloomberg, L.P. on any principal market or exchange where
our common stock is listed or traded.
We issued an aggregate of 29,069,768 Class A common stock purchase warrants and
29,069,768 Class B common stock purchase warrants to the investors, representing
100 Class A and Class B warrants issued for each 100 shares which would be
issued on the each closing date assuming full conversion of the convertible
notes issued on each such closing date. The Class A warrants are exercisable
until four years from the initial closing date at an exercise price of $0.045
per share. The Class B warrants are exercisable until four years from the
initial closing date at an exercise price of $0.06 per share. The holder of the
Class B warrants will be entitled to purchase one share of common stock upon
exercise of the Class B warrants for each share of common stock previously
purchased upon exercise of the Class A warrants.
18
BUSINESS
We are a voice recognition technology company with over $30 million invested in
Research and Development and deployment of more than 20 million products
worldwide in seven languages. To date, our customers include: ABS Computer
Technologies, Golden State Cellular, Inland Cellular, Niveus Media, Panhandle
Telephone Cooperative, Plateau Wireless, Tata Infotech, Telispire PCS, Walt
Disney Internet Group, Warner Home Video and West Central Wireless. Based on our
patented technology, we offer voice solutions for the Telecom and Interactive
Multimedia markets. Our telecom solutions allow business and consumer phone
users to Voice Dial, Group Conference Call, Read and Send E-Mail and Instant
Message, all by voice. We offer PC OEM's the ability to bundle a complete voice
interactive computer assistant which allows PC users to talk to their computers
to quickly play digital media (music, videos, DVD) along with read and send
e-mail messages, SMS text messaging to mobile phones, PC-to-Phone calling (VoIP)
and PC-to-PC audio/video. We feel we are strongly positioned across these
markets with our patented voice technology.
Located in San Diego, California, we have 11 full-time employees and 6
consultant/part-time employees. We are traded on the NASD OTC Electronic
Bulletin Board ("OTCBB") under the symbol ONEV.OB. We commenced operations on
July 14, 1999.
MARKET OPPORTUNITY
The presence of voice technology as an interface in mobile communications and PC
computing is of paramount importance. Voice interface technology makes portable
communications products mobile, more effective and safer to use and it makes
communicating with your PC to play your digital content, such as music, videos
and photos, easier for consumers. Our development efforts currently are focused
on the Telecom and PC multimedia markets and more specifically on mobile
communications from a cell phone and in-home digital media access.
In the Telecom sector, the Mobile Messaging market, which has both business and
consumer market applications including: E-mail, Instant Messages, and SMS (Short
Message Service), 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. Our 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.
In the PC sector, digital in-home entertainment is rapidly growing with the wide
acceptance of digital photography, MP3 music and videos, along with plasma and
LCD TV's. Companies including Apple, Microsoft and Intel are actively creating
products and technology, which allows consumers to experience the next
generation of digital entertainment. Our Media Center Communicator product works
with Microsoft Windows XP Media Center Edition 2005 to add voice-navigation and
a full suite of communication features allowing consumers to talk to their Media
Center PC to play music, view photo slideshows, watch and record TV, place
Voice-Over-IP (VoIP) phone calls, read and send e-mail and Instant Message
friends and family, all by voice.
ONE VOICE PRODUCTS
MOBILEVOICE PLATFORM
Our messaging and voice-activated dialing applications are built on our
MobileVoice(TM) platform, which combines the power of natural language speech
processing with the scalability, redundancy and fault-tolerance of a server
based, telco-ready architecture. The result is a completely integrated solution
that allows people to:
o Send free-format voice-to-text messages
o Make voice-activated dialing calls to thousands of contacts in minutes
o Access their E-mail - using only their voice.
Now users can send and receive E-mail, SMS and Paging messages without touching
a key.
MOBILEVOICE ACTIVATED DIALING(TM)
Designed 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 our 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.
19
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 lets 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. If users need
to forward a message on to others, MobileVoice Email Reader offers full Reply
and Forward capabilities. MobileVoice Email Reader gives users access to
personal and corporate Email accounts from any phone.
MEDIACENTER COMMUNICATOR
Media Center Communicator revolutionizes the digital home experience by allowing
users to talk to their Media Center PC. Media Center Communicator offers users
the ability to transform their living room into the most advanced entertainment,
multimedia and communications center imaginable.
o Voice Navigate Windows XP Media Center Edition 2005
o Send E-Mail
o Read E-Mail
o SMS Text Messaging
o Text Instant Messaging
o Unlimited FREE PC-to-PC calls
o Unlimited FREE Video calls
o PC-to-Phone calling
COMMUNICATOR VOICE NAVIGATION
Imagine walking into your family room and speaking to play music, watch TV, read
and send E-mail, call to order a pizza or Instant Message a friend. With Media
Center Communicator you can do all of these things using only your voice!
Want to hear your favorite music? With voice navigation there is no longer a
need to click your way through menus or even turn on your TV. Simply say, for
example, "Play THE BEATLES" or "Play ABBEY ROAD ALBUM" to quickly begin playing
your favorite music. Want to read your E-Mail? Just say "Read E-Mail" and your
e-mail messages will be spoken to you. Why click your way through menus when you
can just say what you want and make it happen?
Media Center Communicator transforms your home into the most advanced
entertainment experience imaginable. Your friends will be amazed when you speak
and your TV responds to your voice commands. Media Center Communicator will
revolutionize the digital home entertainment experience!
With Communicator's open microphone solution you have the ability to control
your Media Center without even using a remote control! Simply walk into the room
and start talking. Your microphone is constantly scanning the room for a keyword
that you set. The keyword is a personalized system name used whenever you wish
to make a command. The default is "One Voice." Example: "One Voice, play artist
The Rolling Stones."
20
COMMUNICATOR E-MAIL
Our easy-to-use E-Mail reader allows you to read your E-Mail messages in a great
new way. Now, from the comfort of your living room, Media Center will speak your
E-Mail messages to you, as you kick back and control everything using only your
voice. Works with popular E-Mail accounts, including, but not limited to, Yahoo,
EarthLink, Lycos and SBC.
COMMUNICATOR PC-TO-PHONE
Order a pizza, call your family and friends - the options are unlimited with
Media Center Communicator's PC-to-phone calling. Enjoy full-duplex, high quality
phone calling.
COMMUNICATOR INSTANT MESSENGER
Chat with your buddies online using Media Center Communicator's Instant
Messenger on our network. Text message, talk or video chat using our high
quality, full-duplex PC-to-PC audio and video. Enjoy unlimited FREE PC-to-PC
audio and video calls. Never before has communicating with your friends been so
convenient, easy and fun.
COMMUNICATOR SMS TEXT MESSAGING
Need to send a quick message to someone on the road? Text messaging is the
perfect way to do it, and Media Center Communicator(TM) is the perfect way to
send that text message. Now you can send SMS text messages to cellular
telephones with ease. Simply say the name of a contact or enter the cellular
phone number, enter or speak a message, and say Send.
PATENT PROTECTION
We own exclusive rights to three United States patents on our software. We have
filed for international patent protection as well. These patents define the
primary features and unique procedures that comprise our products and solutions.
Our future success and ability to compete depends in part upon the proprietary
technology and 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.
Additionally, there can be no assurances that others will not develop market and
sell products substantially equivalent to our products or utilize technologies
similar to those used by us. Although we believe that our products do not
infringe on any third-party patents and our patents offer sufficient protection,
there can be no assurance that we will not become involved in litigation
involving patents or proprietary rights. Patent and proprietary rights
litigation entails substantial legal and other costs, and there can be no
assurance that we will have the necessary financial resources to defend or
prosecute our rights in connection with any litigation. Responding to, defending
or bringing claims related to our rights to our intellectual property may
require our management to redirect its resources to address these claims, which
could have a material adverse effect on our business, financial condition and
results of operations.
EMPLOYEES
At April 18, 2005, we employed 11 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 PROPERTY
Our headquarters are located at 6333 Greenwich Drive, Suite 240, San Diego,
California 92122.
We lease our 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, 2004:
Year ending December 31,
2005 191,500
----------
Less sublease income 60,000
----------
$ 131,500
==========
Rent expense, net of sublease income, amounted to $197,844 for the year ended
December 31, 2004.
21
LEGAL PROCEEDINGS
There has been no bankruptcy, receivership or similar proceedings.
There have been no material reclassifications, mergers, consolidations, or
purchase or sale of a significant amount of assets not in the ordinary course of
business.
As of the April 18, 2005, we are aware of six claims asserted against us that
may result in litigation. The first is a claim by Genuity Inc. ("Genuity") for
alleged failure to pay for a functioning dial-up service for a virtual ISP
product we had planned on offering in the fall of 2000. The initial Genuity
claim was for $231,935.36. That claim dropped to $102,816.00 when we provided
Genuity with evidence that Genuity never delivered the promised service and we
received no benefit from the contract. We have offered nothing to settle the
claim. Approximately two years have passed since the last communication to us on
this matter. No litigation has been commenced. It is difficult to determine the
likelihood of the matter being pursued by Genuity or the probability of success
should it be pursued.
The second claim is by Penton Media for cancellation fees related to the
following trade shows: Spring Internet World 2001; Wireless West 2001; and
Wireless East 2002. We signed up for and paid $60,000.00 for Spring Internet
World 2001. We changed the scope of its presence at that show (i.e., used a much
smaller space) and reached a verbal agreement to have the balance of the $60,000
to be used as payment toward space at the remaining two shows. We and Penton
were never able to come to terms regarding the credit to be applied for those
shows, booth size, or location. The necessary additional agreements were not
signed. We did not use any space at the two subsequent shows. We have been
contacted by Penton claiming a balance due of $19,980.00. We have attempted to
have Penton provide information to substantiate its claim in light of the fact
that we used considerably less space than it actually paid to use. We will
further investigate this claim to determine if the amount claimed is owed or
whether we are due a refund. There has been no contact or activity related to
this matter during the past two fiscal years.
The third claim involves Alpha Tech Stock Transfer Company ("Alpha Tech"). Alpha
Tech has asserted a claim against us in the amount of $200,000.00. Alpha Tech
clarified that the claim was actually $150,000.00. The nature of the claim is as
follows: Alpha Tech is our former transfer agent. We sued Alpha Tech. That claim
was settled and Alpha Tech has now made a claim against us pursuant to a letter
dated May 16, 2003. In that claim, Alpha Tech contends that we should cover its
litigation costs from the prior proceeding. Alpha Tech's claim appears to center
around an indemnity agreement signed by Dean Weber on behalf of us requesting
that Alpha Tech replace lost shares of one of our shareholders. Alpha Tech has
indicated that the action had nothing to do with such re-issuance. Moreover, we
investigated Alpha Tech and learned that Alpha Tech has been removed as a stock
transfer agent by the SEC for prior illegal conduct. Alpha Tech had been the
transfer agent for our predecessor corporation and we found a new transfer
agent. This appears to be a matter related to activities of our shareholders and
shareholders of our predecessor corporation and of the transfer agent. We cannot
at this time give an evaluation of this matter. It is difficult to determine if
Alpha Tech will pursue the matter further. There has been no activity on this
claim in well over a year.
The fourth claim involves a request for indemnity from Warner Brothers regarding
the Harry Potter DVD. We provided technology as part of a "special feature" for
the Harry Potter DVD. Under the agreement between us and Warner Brothers, we
agreed to indemnify Warner Brothers if a claim was made that the technology
licensed by us to Warner Brothers infringed on some third party's rights. A
claim was made to Warner Brothers regarding infringement. Warner Brothers
contacted us to make it aware of the claim. Our counsel contacted the claimant
who contended that it was not our technology which was infringing. Warner
Brothers' counsel explained that he did not feel that there was any infringement
and that this was a nuisance claim. He stated that he intended to settle the
matter for a nuisance payment and then would look to us for contribution. It is
hard to estimate the extent of liability, if any. There has been no activity on
this matter in nearly two years.
The fifth claim is by Cash Flow Solutions, Inc. for unpaid legal fees related to
a patent infringement lawsuit filed by us. Cash Flow Solutions has represented
that it will settle the claim with a fee reduction. Our corporate counsel,
George Kaelin, is investigating the claim. It appears as if the law firm
claiming the fee filed the action in the wrong venue twice and the case was
dismissed without prejudice as a result. Much of the unpaid bill relates to time
spent on pursuing the case in the wrong forum. Cash Flow Solutions has agreed in
principle to subtract billing for such time. It is difficult to predict the
likelihood of success on this claim. However, it does appear that a resolution
is likely.
The sixth claim is by La Jolla Cove Investors, Inc. ("LJCI") for $2.4 million in
damages. LJCI holds convertible debentures related to past financings. LJCI
contends that we failed to honor its conversion notices resulting in damages. It
has been explained to LJCI that there is an ambiguity on the date of our
conversion obligation and that damages are speculative. A part of that dispute
has been resolved by our settlement agreement to register 8,425,531 shares to
honor the past conversion notice and an additional 8,425,531 shares pursuant to
such agreement. A lawsuit was filed but is currently stayed by stipulation while
the parties work out a resolution. It is difficult to access the potential
liability or likelihood of success of such a claim. It does appear that a
resolution involving registration of additional stock in favor of LJCI is
probable. An Interim Settlement agreement was entered into between LJCI and us
on July 29, 2004 and further amended on August 13, 2004. The parties agreed that
we shall include 16,851,062 shares of its common stock, on behalf of LJCI, in
the next registration statement which was filed by us. Such registration
statement went effective with the Securities and Exchange Commission on October
15, 2004. In addition, the Interim Settlement Agreement includes a provision
whereby LJCI will never institute any action or suit at law or in equity against
any other parties with whom we may enter into financing transactions provided
that we comply with the Interim Settlement Agreement.
22
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION
---- --- --------
Dean Weber 42 Chairman of the Board, President, Chief
Executive Officer, Director
Rahoul Sharan 43 Chief Financial Officer, Director
Bradley J. Ammon 41 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. 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 Northrop, United Technologies and
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 $30 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.
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.
CODE OF ETHICS AND BUSINESS CONDUCT FOR OFFICERS, DIRECTORS AND EMPLOYEES OF ONE
VOICE TECHNOLOGIES, INC.
1. TREAT IN AN ETHICAL MANNER THOSE TO WHOM ONE VOICE TECHNOLOGIES, INC. HAS AN
OBLIGATION
The officers, directors and employees of ONE VOICE TECHNOLOGIES, INC. (the
"Company") are committed to honesty, just management, fairness, providing a safe
and healthy environment free from the fear of retribution, and respecting the
dignity due everyone. For the communities in which we live and work we are
committed to observe sound environmental business practices and to act as
concerned and responsible neighbors, reflecting all aspects of good citizenship.
For our shareholders we are committed to pursuing sound growth and earnings
objectives and to exercising prudence in the use of our assets and resources.
23
For our suppliers and partners we are committed to fair competition and the
sense of responsibility required of a good customer and teammate.
2. PROMOTE A POSITIVE WORK ENVIRONMENT
All employees want and deserve a workplace where they feel respected, satisfied,
and appreciated. We respect cultural diversity and will not tolerate harassment
or discrimination of any kind -- especially involving race, color, religion,
gender, age, national origin, disability, and veteran or marital status.
Providing an environment that supports honesty, integrity, respect, trust,
responsibility, and citizenship permits us the opportunity to achieve excellence
in our workplace. While everyone who works for the Company must contribute to
the creation and maintenance of such an environment, our executives and
management personnel assume special responsibility for fostering a work
environment that is free from the fear of retribution and will bring out the
best in all of us. Supervisors must be careful in words and conduct to avoid
placing, or seeming to place, pressure on subordinates that could cause them to
deviate from acceptable ethical behavior.
3. PROTECT YOURSELF, YOUR FELLOW EMPLOYEES, AND THE WORLD WE LIVE IN
We are committed to providing a drug-free, safe and healthy work environment,
and to observing environmentally sound business practices. We will strive, at a
minimum, to do no harm and where possible, to make the communities in which we
work a better place to live. Each of us is responsible for compliance with
environmental, health and safety laws and regulations.
4. KEEP ACCURATE AND COMPLETE RECORDS
We must maintain accurate and complete Company records. Transactions between the
Company and outside individuals and organizations must be promptly and
accurately entered in our books in accordance with generally accepted accounting
practices and principles. No one should rationalize or even consider
misrepresenting facts or falsifying records. It will not be tolerated and will
result in disciplinary action.
5. OBEY THE LAW
We will conduct our business in accordance with all applicable laws and
regulations. Compliance with the law does not comprise our entire ethical
responsibility. Rather, it is a minimum, absolutely essential condition for
performance of our duties. In conducting business, we shall:
A. STRICTLY ADHERE TO ALL ANTITRUST LAWS
Officer, directors and employees must strictly adhere to all antitrust laws.
Such laws exist in the United States and in many other countries where the
Company may conduct business. These laws prohibit practices in restraint of
trade such as price fixing and boycotting suppliers or customers. They also bar
pricing intended to run a competitor out of business; disparaging,
misrepresenting, or harassing a competitor; stealing trade secrets; bribery; and
kickbacks.
B. STRICTLY COMPLY WITH ALL SECURITIES LAWS
In our role as a publicly owned company, we must always be alert to and comply
with the security laws and regulations of the United States and other countries.
I. DO NOT ENGAGE IN SPECULATIVE OR INSIDER TRADING
Federal law and Company policy prohibits officers, directors and employees,
directly or indirectly through their families or others, from purchasing or
selling company stock while in the possession of material, non-public
information concerning the Company. This same prohibition applies to trading in
the stock of other publicly held companies on the basis of material, non-public
information. To avoid even the appearance of impropriety, Company policy also
prohibits officers, directors and employees from trading options on the open
market in Company stock under any circumstances.
Material, non-public information is any information that could reasonably be
expected to affect the price of a stock. If an officer, director or employee is
considering buying or selling a stock because of inside information they
possess, they should assume that such information is material. It is also
important for the officer, director or employee to keep in mind that if any
trade they make becomes the subject of an investigation by the government, the
trade will be viewed after-the-fact with the benefit of hindsight. Consequently,
officers, directors and employees should always carefully consider how their
trades would look from this perspective.
Two simple rules can help protect you in this area: (1) Do not use non-public
information for personal gain. (2) Do not pass along such information to someone
else who has no need to know.
This guidance also applies to the securities of other companies for which you
receive information in the course of your employment at the Company.
24
II. BE TIMELY AND ACCURATE IN ALL PUBLIC REPORTS
As a public company, the Company must be fair and accurate in all reports filed
with the United States Securities and Exchange Commission. Officers, directors
and management of The Company are responsible for ensuring that all reports are
filed in a timely manner and that they fairly present the financial condition
and operating results of the Company.
Securities laws are vigorously enforced. Violations may result in severe
penalties including forced sales of parts of the business and significant fines
against the Company. There may also be sanctions against individual employees
including substantial fines and prison sentences.
The principal executive officer and principal financial Officer will certify to
the accuracy of reports filed with the SEC in accordance with the Sarbanes-Oxley
Act of 2002. Officers and Directors who knowingly or willingly make false
certifications may be subject to criminal penalties or sanctions including fines
and imprisonment.
6. AVOID CONFLICTS OF INTEREST
Our officers, directors and employees have an obligation to give their complete
loyalty to the best interests of the Company. They should avoid any action that
may involve, or may appear to involve, a conflict of interest with the Company.
Officers, directors and employees should not have any financial or other
business relationships with suppliers, customers or competitors that might
impair, or even appear to impair, the independence of any judgment they may need
to make on behalf of the Company.
HERE ARE SOME WAYS A CONFLICT OF INTEREST COULD ARISE:
o Employment by a competitor, or potential competitor, regardless of the
nature of the employment, while employed by the Company.
o Acceptance of gifts, payment, or services from those seeking to do
business with the Company.
o Placement of business with a firm owned or controlled by an officer,
director or employee or his/her family.
o Ownership of, or substantial interest in, a company that is a competitor,
client or supplier.
o Acting as a consultant to a the Company customer, client or supplier.
o Seeking the services or advice of an accountant or attorney who has
provided services to the Company.
Officers, directors and employees are under a continuing obligation to disclose
any situation that presents the possibility of a conflict or disparity of
interest between the officer, director or employee and the Company. Disclosure
of any potential conflict is the key to remaining in full compliance with this
policy.
7. COMPETE ETHICALLY AND FAIRLY FOR BUSINESS OPPORTUNITIES
We must comply with the laws and regulations that pertain to the acquisition of
goods and services. We will compete fairly and ethically for all business
opportunities. In circumstances where there is reason to believe that the
release or receipt of non-public information is unauthorized, do not attempt to
obtain and do not accept such information from any source.
If you are involved in Company transactions, you must be certain that all
statements, communications, and representations are accurate and truthful.
8. AVOID ILLEGAL AND QUESTIONABLE GIFTS OR FAVORS
The sale and marketing of our products and services should always be free from
even the perception that favorable treatment was sought, received, or given in
exchange for the furnishing or receipt of business courtesies. Officers,
directors and employees of the Company will neither give nor accept business
courtesies that constitute, or could be reasonably perceived as constituting,
unfair business inducements or that would violate law, regulation or policies of
the Company, or could cause embarrassment to or reflect negatively on the
Company's reputation.
9. MAINTAIN THE INTEGRITY OF CONSULTANTS, AGENTS, AND REPRESENTATIVES
Business integrity is a key standard for the selection and retention of those
who represent the Company. Agents, representatives and consultants must certify
their willingness to comply with the Company's policies and procedures and must
never be retained to circumvent our values and principles. Paying bribes or
kickbacks, engaging in industrial espionage, obtaining the proprietary data of a
third party without authority, or gaining inside information or influence are
just a few examples of what could give us an unfair competitive advantage and
could result in violations of law.
10. PROTECT PROPRIETARY INFORMATION
Proprietary Company information may not be disclosed to anyone without proper
authorization. Keep proprietary documents protected and secure. In the course of
normal business activities, suppliers, customers and competitors may sometimes
divulge to you information that is proprietary to their business. Respect these
confidences.
25
11. OBTAIN AND USE COMPANY ASSETS WISELY
Personal use of Company property must always be in accordance with corporate
policy. Proper use of Company property, information resources, material,
facilities and equipment is your responsibility. Use and maintain these assets
with the utmost care and respect, guarding against waste and abuse, and never
borrow or remove Company property without management's permission.
12. FOLLOW THE LAW AND USE COMMON SENSE IN POLITICAL CONTRIBUTIONS AND
ACTIVITIES
The Company encourages its employees to become involved in civic affairs and to
participate in the political process. Employees must understand, however, that
their involvement and participation must be on an individual basis, on their own
time and at their own expense. In the United States, federal law prohibits
corporations from donating corporate funds, goods, or services, directly or
indirectly, to candidates for federal offices -- this includes employees' work
time. Local and state laws also govern political contributions and activities as
they apply to their respective jurisdictions.
13. BOARD COMMITTEES.
The Company shall establish an Audit Committee empowered to enforce this CODE OF
ETHICS. The Audit Committee will report to the Board of Directors at least once
each year regarding the general effectiveness of the Company's CODE OF ETHICS,
the Company's controls and reporting procedures and the Company's business
conduct.
The company does have an independent board member who is represented to be a
financial expert as defined by the SEC.
14. DISCIPLINARY MEASURES.
The Company shall consistently enforce its CODE OF ETHICS and Business Conduct
through appropriate means of discipline. Violations of the Code shall be
promptly reported to the Audit Committee. Pursuant to procedures adopted by it,
the Audit Committee shall determine whether violations of the Code have occurred
and, if so, shall determine the disciplinary measures to be taken against any
employee or agent of the Company who has so violated the Code.
The disciplinary measures, which may be invoked at the discretion of the Audit
Committee, include, but are not limited to, counseling, oral or written
reprimands, warnings, probation or suspension without pay, demotions, reductions
in salary, termination of employment and restitution.
Persons subject to disciplinary measures shall include, in addition to the
violator, others involved in the wrongdoing such as (i) persons who fail to use
reasonable care to detect a violation, (ii) persons who if requested to divulge
information withhold material information regarding a violation, and (iii)
supervisors who approve or condone the violations or attempt to retaliate
against employees or agents for reporting violations or violators.
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, 2004, 2003 and 2002 exceeded $100,000:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
Other
Annual Restricted LTIP
Name & Principal Salary Bonus Compensation Stock Options Payouts
Position Year ($) ($) ($) awards SARs ($)
- ---------------- ---- -------- ----- ------------ ---------- ------- -------
Dean Weber, CEO 2004 252,000 -- -- -- -- --
CEO 2003 241,629 -- -- -- -- --
2002 252,000 -- -- -- -- --
Rahoul Sharan, CFO 2004 68,450 -- -- -- -- --
2003 84,636 -- -- -- -- --
2002 142,500 -- -- -- -- --
OPTIONS/SAR GRANTS IN THE LAST FISCAL YEAR
No individual grants of stock options, whether or not in tandem with stock
appreciation rights ("SARs") and freestanding SARs have been made to any
executive officer or any director during our fiscal year ended December 31,
2004.
26
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
No individual exercises of stock options, whether or not in tandem with stock
appreciation rights ("SARs") and freestanding SARs have been made by executive
officer or any director during our fiscal year ended December 31, 2004.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
We had no long-term incentive plans and made no stock awards during our fiscal
year ended December 31, 2004.
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 1,900,500 shares were subject to
outstanding options and 1,099,500 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of April 18, 2005 (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) 4,858,000 (3) 2.00%
IVantage, Inc. (2) 900,200 *
Rahoul Sharan, CFO, Secretary, Treasurer
and Director 60,000 (4) *
Bradley J. Ammon, Director 75,000 (5) *
Jocobo Kaloyan 14,000,000 (6) 5.87%
Total securities held by officers and directors
as a group (3 people): 4,993,000 2.00%
(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 February 28, 2005 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 900,200 shares in the name of IVantage, Inc. and those shares
are also included in the amount presented in this table for Mr. Weber.
27
(3) Includes 900,200 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) Jocobo Kaloyan is an individual investor.
* Less than 1%
DESCRIPTION OF OUR CAPITAL STOCK
Our Amended Articles of Incorporation authorize the issuance of 990,000,000
shares of common 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.
In addition, our Amended Articles of Incorporation authorize the issuance of
10,000,000 shares of preferred stock, $.001 par value per share. The shares of
preferred stock may be issued in series, and shall have such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issuance of such stock adopted from time to time
by the board of directors. Our board of directors are expressly vested with the
authority to determine and fix in the resolution or resolutions providing for
the issuances of preferred stock the voting powers, designations, preferences
and rights, and the qualifications, limitations or restrictions thereof, of each
such series to the full extent now or hereafter permitted by the laws of the
State of Nevada.
28
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.
29
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. We expect to use the proceeds
received from the exercise of their warrants, if any, for general working
capital purposes. Assuming all the shares registered below are sold by the
selling stockholders, the selling stockholders will not 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.
None of the selling shareholders are registered broker-dealers or affiliated
with a registered broker-dealer.
- -------------------- --------------- ----------- -------------- ------------ -------------- ----------- -----------
Total
Total Shares of Percentage Percentage
Common Stock of Common Shares of Beneficial of Common
Issuable Upon Stock, Common Stock Beneficial Percentage of Ownership Stock Owned
Conversion of Assuming Included in Ownership Common Stock After the After
Name Notes Full Prospectus Before the Owned Before Offering Offering
and/or Warrants Conversion Offering Offering (2) (2)
- -------------------- --------------- ----------- -------------- ------------ -------------- ----------- -----------
Alpha Capital 80,798,180 29.37% Up to 27,482,849 9.99% 0 --
Atiengesellschaft(3) 80,798,180(1)
shares of
common stock
- -------------------- --------------- ----------- -------------- ------------ -------------- ----------- -----------
Whalehaven Capital 65,909,842 23.96% Up to 27,482,849 9.99% 0 --
Fund Limited(4) 65,909,842(1)
shares of
common stock
- -------------------- --------------- ----------- -------------- ------------ -------------- ----------- -----------
Ellis International, 26,552,160 9.65% Up to 26,552,160 9.65% 0 --
Ltd.(5) 26,552,160(1)
shares of
common stock
- -------------------- --------------- ----------- -------------- ------------ -------------- ----------- -----------
Omega Capital Small 7,414,858 2.70% Up to 7,414,858 2.70% 0 --
Cap Fund(6) 7,414,858(1)
shares of
common stock
- -------------------- --------------- ----------- -------------- ------------ -------------- ----------- -----------
Osher Capital, Inc. 4,943,238 1.80% Up to 4,943,238 1.80% 0 --
(7) 4,943,238(1)
shares of
common stock
- -------------------- --------------- ----------- -------------- ------------ -------------- ----------- -----------
Stonestreet Limited 20,843,672 7.58% Up to 20,843,672 7.58% 0 --
Partnership(8) 20,843,672
shares of
common stock
- -------------------- --------------- ----------- -------------- ------------ -------------- ----------- -----------
Momona Capital 2,679,900 1.00% Up to 2,679,900 1.00% 0 --
Corp.(9) 2,679,900
shares of
common stock
- -------------------- --------------- ----------- -------------- ------------ -------------- ----------- -----------
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 stockholders has sole or shared voting power or investment power and
also any shares, which the selling stockholders 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.
(1) Includes 150% of the shares issuable upon conversion of the convertible
promissory notes and 100% of the shares issuable upon exercise of Class A
warrants, 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 stockholders has contractually agreed to restrict its
ability to convert or exercise its notes or 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 holders of
the convertible notes have the right to require that some, none or all
future interest accrued under the note be paid in the form of shares of
common stock. We are not registering shares of our common stock issuable
upon conversion of any future accrued and unpaid interest under the
convertible note.
(2) Assumes that all securities registered will be sold.
30
(3) Includes (i) 21,327,014 shares of common stock underlying a $400,000
convertible note pursuant to our first closing; (ii) 21,327,014 shares of
common stock underlying a $400,000 convertible note pursuant to our second
closing; (iii) 23,255,814 shares underlying Class A warrants pursuant to
our first and second closings; (iv) 7,444,169 shares underlying Class A
warrants issued pursuant to our second closing of the December 2004
private placement; and (v) 7,444,169 shares underlying Class B warrants
issued pursuant to our second closing of the December 2004 private
placement. In accordance with rule 13d-3 under the securities exchange act
of 1934, Alpha Capital Atiengesellschaft is a private investment fund that
is owned by all of its investors and managed by Konrad Ackerman. Mr.
Konrad Ackerman may be deemed a control person of the shares owned by such
entity, with final voting power and investment control over such shares.
(4) Includes (i) 21,327,014 shares of common stock underlying a $400,000
convertible note pursuant to our first closing; (ii) 21,327,014 shares of
common stock underlying a $400,000 convertible note pursuant to our second
closing; and (iii) 23,255,814 shares underlying Class A warrants pursuant
to our first and second closings. In accordance with rule 13d-3 under the
securities exchange act of 1934, Whalehaven Capital Fund Limited is a
private investment fund that is owned by all of its investors and managed
by Michael Finkelstein and Bhavesh Singh. Evan Schemenauer, Arthur Jones
and Jennifer Kelly may be deemed control persons of the shares owned by
such entity, with final voting power and investment control over such
shares.
(5) Includes (i) 6,664,692 shares of common stock underlying a $125,000
convertible note pursuant to our first closing; (ii) 6,664,692 shares of
common stock underlying a $125,000 convertible note pursuant to our second
closing; (iii) 7,267,442 shares underlying Class A warrants pursuant to
our first and second closings; (iv) 2,977,667 shares underlying Class A
warrants issued pursuant to our second closing of the December 2004
private placement; and (v) 2,977,667 shares underlying Class B warrants
issued pursuant to our second closing of the December 2004 private
placement. In accordance with rule 13d-3 under the securities exchange act
of 1934, Ellis International Ltd. is a private investment fund that is
owned by all of its investors and managed by Ms. Libby Leonard and Mr.
Michael Finkelstein. Ms. Libby Leonard and Mr. Michael Finkelstein may be
deemed Control persons of the shares owned by such entity, with final
voting power and investment control over such shares.
(6) Includes (i) 2,399,289 shares of common stock underlying a $45,000
convertible note pursuant to our first closing; (ii) 2,399,289 shares of
common stock underlying a $45,000 convertible note pursuant to our second
closing; and (iii) 2,616,280 shares underlying Class A warrants pursuant
to our first and second closings. In accordance with rule 13d-3 under the
securities exchange act of 1934, Omega Capital Small Cap Fund is a private
investment fund that is owned by all of its investors and managed by
Herman Segal. Herman Segal may be deemed a control person of the
shares owned by such entity, with final voting power and investment
control over such shares.
(7) Includes (i) 1,599,526 shares of common stock underlying a $30,000
convertible note pursuant to our first closing; (ii) 1,599,526shares of
common stock underlying a $30,000 convertible note pursuant to our second
closing; and (iii) 1,744,186 shares underlying Class A warrants pursuant
to our first and second closings. In accordance with rule 13d-3 under the
securities exchange act of 1934, Osher Capital, Inc. is a corporation that
is owned by all of its shareholders and managed by Yisroel Kluger.
Yisroel Kluger may be deemed a control person of the shares owned by such
entity, with final voting power and investment control over such shares.
(8) Includes (i) 10,421,836 shares underlying Class A warrants issued pursuant
to our second closing of the December 2004 private placement; and (ii)
10,421,836 shares underlying Class B warrants issued pursuant to our
second closing of the December 2004 private placement. In accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, Stonestreet Limited
Partnership is a private investment fund that is owned by all its
investors and managed by Ms. Libby Leonard and Mr. Michael Finkelstein.
Ms. Libby Leonard and Mr. Michael Finkelstein may be deemed control
persons of the shares owned by such entity, with final voting power and
investment control over such shares.
(9) Includes (i) 1,339,950 shares underlying Class A warrants issued pursuant
to our second closing of the December 2004 private placement; and (ii)
1,339,950 shares underlying Class B warrants issued pursuant to our second
closing of the December 2004 private placement. In accordance with rule
13d-3 under the securities exchange act of 1934, Momona Capital Corp. is a
private investment fund that is owned by all of its investors and managed
by Arie Rabinowitz. Mr. Arie Rabinowitz may be deemed a control person of
the shares owned by such entity, with final voting power and investment
control over such shares.
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:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o 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;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately-negotiated transactions;
o short sales;
o broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
31
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 stockholders 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.
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.
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.
32
EXPERTS
Our financial statements at December 31, 2004 and 2003 appearing in this
prospectus and registration statement have been audited by Peterson & Co., LLP,
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.
CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
On April 19, 2004, we notified Stonefield Josephson, Inc., ("SJ ") that we had
engaged Peterson & Co., LLP as our auditor and as a consequence, was dismissed
as our auditors. On April 12, 2004, we engaged Peterson & Co., LLP as our
independent auditor for the fiscal year ending December 31, 2004. The action to
engage Peterson & Co., LLP was taken upon the unanimous approval of the Audit
Committee of our Board of Directors.
During the last two fiscal years ended December 31, 2003 and December 31, 2002
and through April 19, 2004, (i) there were no disagreements between us and SJ on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure which, if not resolved to the satisfaction of SJ
would have caused SJ to make reference to the matter in its reports on our
financial statements, and (ii) SJ's reports did not contain an adverse opinion
or a disclaimer of opinion, or was qualified or modified as to uncertainty,
audit scope, or accounting principles. During the last two most recent fiscal
years ended December 31, 2003 and 2002 and through April 19, 2004, there were no
reportable events as the term described in Item 304(a)(1)(iv) of Regulation S-B.
SJ 's opinion in its report on our financial statements for the year ended
December 31, 2002 and 2003, included an explanatory paragraph which expressed
substantial doubt with respect to our ability to continue as a going concern.
During the two most recent fiscal years and through April 12, 2004, we have not
consulted with Peterson & Co., LLP regarding either:
1. the application of accounting principles to any specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on our financial statements, and neither a written report was
provided to us nor oral advice was provided that Peterson & Co., LLP
concluded was an important factor considered by us in reaching a decision
as to the accounting, auditing or financial reporting issue; or
2. any matter that was either subject of disagreement or event, as defined in
Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to
Item 304 of Regulation S-B, or a reportable event, as that term is
explained in Item 304(a)(1)(iv)(A) of Regulation S-B.
We obtained a letter from SJ addressed to the Securities and Exchange Commission
stating whether they agreed with the above statements, as it relates to them. A
copy of such letter, dated April 28, 2004, is filed as Exhibit 16.1 to the Form
8-K filed with the Commission on May 3, 2004 and is hereby incorporated by
reference.
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. 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. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. 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.
33
FINANCIALS STATEMENTS
QUARTER ENDED MARCH 31, 2005 AND 2004
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
March 31, December 31,
2005 2004
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 615,664 $ 535,642
Other receivables 3,578 6,274
Inventories 13,017 9,724
Other current assets 38,759 27,756
------------ ------------
Total current assets 671,018 579,396
PROPERTY AND EQUIPMENT, net of
Accumulated depreciation and amortization 170,050 177,949
OTHER ASSETS:
Software development costs, net 63,384 77,865
Software licensing costs, net 334 835
Trademarks, net 10,780 13,310
Patents, net 110,964 118,569
Deposits 1,182 2,157
Deferred debt issue costs 100,739 96,954
------------ ------------
Total assets $ 1,128,451 $ 1,067,035
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 207,835 $ 162,625
Accrued expenses 86,732 72,887
Security deposits 5,230 12,522
License agreement liability 1,145,000 1,050,000
Current portion of convertible notes payable, net 111,760 92,044
------------ ------------
Total current liabilities 1,556,557 1,390,078
LONG-TERM DEBT:
Long term portion of notes payable, net 100,000 100,000
Long term portion of convertible notes payable 32,550 32,656
------------ ------------
Total liabilities 1,689,107 1,522,734
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock; $.001 par value, 990,000,000 shares
authorized, 272,410,649 and 246,467,927 shares
issued and outstanding at March 31, 2005 and
December 31, 2004, respectively 272,410 246,468
Additional paid-in capital 39,073,236 37,139,319
Deficit accumulated during development stage (39,906,302) (37,841,486)
------------ ------------
Total stockholders' equity (deficit) (560,656) (455,699)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 1,128,451 $ 1,067,035
============ ============
34
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
January 1, 1999
Three Months Ended (Inception) to
March 31, March 31,
2005 2004 2005
------------- ------------- ---------------
REVENUES $ 10,363 $ -- $ 712,789
COST OF REVENUES 1,128 -- 208,733
------------- ------------- ---------------
GROSS PROFIT 9,235 -- 504,056
GENERAL AND ADMINISTRATIVE EXPENSES 2,074,051 1,242,434 40,410,358
------------- ------------- ---------------
NET LOSS $ (2,064,816) $ (1,242,434) $ (39,906,302)
============= ============= ===============
NET LOSS PER SHARE, basic and diluted $ (0.01) $ (0.01)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 261,139,944 124,527,259
============= =============
35
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
January 1, 1999
Three Months Ended (Inception) to
March 31, March 31,
2005 2004 2005
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,064,816) $ (1,242,434) $ (39,906,302)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 50,782 150,440 4,386,858
Loss on disposal of assets -- -- 23,340
Amortization of discount on notes payable 1,059,482 335,889 8,502,111
Options issued in exchange for services -- -- 459,393
Warrants issued in exchange for services -- -- 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Other receivables 2,696 137,000 (3,578)
Inventories (3,293) -- (13,017)
Other current assets (11,004) (596) (38,760)
Deposits 975 7,969 (1,182)
Deferred debt issue costs (3,785) -- (100,739)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable 45,210 269,966 207,835
Accrued expenses 13,845 -- 86,732
License agreement liability 95,000 -- 1,145,000
Security deposit (7,292) -- 5,230
---------------- ---------------- ----------------
Net cash used in operating activities (822,200) (341,766) (25,025,429)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (16,566) (1,777) (1,508,629)
Software licensing -- -- (1,145,322)
Software development costs -- (12,640) (1,675,601)
Trademarks -- -- (242,731)
Patents (1,200) (5,070) (176,695)
Loan fees -- -- (200,000)
---------------- ---------------- ----------------
Net cash used in investing activities (17,766) (19,487) (4,948,978)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net -- -- 18,465,148
Retirement of common stock, net -- -- (10,000)
Proceeds from loans payable -- -- 100,000
Proceeds from convertible note payable 919,988 325,000 10,665,879
Proceeds from warrant exercise -- -- 1,369,044
---------------- ---------------- ----------------
36
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Net cash provided by financing activities 919,988 325,000 30,590,071
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN CASH 80,022 (36,253) 615,664
CASH AND CASH EQUIVALENTS, beginning of period 535,642 53,709 --
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 615,664 $ 17,456 $ 615,664
================ ================ ================
January 1, 1999
Three Months Ended (Inception) to
March 31, March 31,
2005 2004 2005
---------------- ---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 26,603 $ -- $ 107,047
================ ================ ================
Income taxes paid $ 800 $ 804 $ 8,287
================ ================ ================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Options issued in exchange for services $ -- $ -- $ 377,993
================ ================ ================
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 $ 724,305 $ -- $ 6,296,008
================ ================ ================
Beneficial conversion feature of convertible debt $ 275,695 $ -- $ 4,640,965
================ ================ ================
Common stock issued in exchange for debt $ 959,858 $ 341,798 $ 9,247,585
================ ================ ================
See accompanying notes.
37
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
One Voice Technologies, Inc. (the "Company") is a voice recognition technology
company. Based on our patented technology, One Voice offers voice solutions for
the Telecom and Interactive Multimedia markets which allow business and consumer
phone users to voice dial, group conference call, read and send e-mail and
instant message, all by voice. We offer PC OEM's the ability to bundle a
complete voice interactive computer assistant which allows PC users to talk to
their computers to quickly play digital media (music, videos, DVD) along with
read and send e-mail messages, SMS text messaging to mobile phones, PC-to-Phone
calling (VoIP) and PC-to-PC audio/video. We feel we are strongly positioned
across these markets with our patented voice technology.
Located in San Diego, California, the Company has 11 full-time employees and 6
consultant/part-time employees. The company is traded on the NASD OTC Electronic
Bulletin Board ("OTCBB") under the symbol ONEV.OB. One Voice commenced
operations on July 14, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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
pro forma information is as follows:
38
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended
March 31,
2005 2004
----------- -----------
Net loss, as reported $(2,064,816) $(1,242,434)
Stock compensation (100) (21,663)
----------- -----------
Pro forma net loss $(2,064,916) $(1,264,097)
=========== ===========
Basic and diluted historical loss per share $ (0.01) $ (0.01)
Pro forma basic and diluted loss per share $ (0.01) $ (0.01)
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, 2005. The financial statements
should be read in conjunction with the financial statements included in the
Company's annual report on Form 10-KSB for the year ended December 31, 2004.
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 $2,064,816 during the three months ended March
31, 2005 and had an accumulated deficit of $39,906,302. The Company had negative
working capital of $885,539 at March 31, 2005. Cash flows used for operations
amounted to $822,200 for the three months ended March 31, 2005. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management is currently seeking additional equity or debt financing and
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.
39
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION:
The Company recognizes revenues when earned in the period in which the service
is provided or product shipped. Service and license fees are deferred and
recognized over the life of the agreement.
The Company's revenue recognition is in accordance of 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.
(3) NOTES PAYABLE:
On August 8, 2003 the Company entered into a note payable in the amount of
$100,000, with principal and interest at 8.0% per annum, due on August 8, 2008.
At March 31, 2005 the balance on the note payable was $100,000.
(4) LICENSE AGREEMENT LIABILITY:
In March 2000 the Company entered into a Software License Agreement ("License
Agreement")with Phillips Speech Processing, a division of Philips Electronics
North America ("Phillips"). Pursuant to the License Agreement, the Company
received a world-wide, limited, nonexclusive license to certain speech
recognition software owned by Phillips. The initial term of the License
Agreement was three (3) years, and the License Agreement included an extended
term provision under which the License Agreement was automatically renewable for
successive one (1) year periods, unless terminated by either party upon a
minimum of sixty (60) days written notice prior to the expiration of the initial
term or any extended.
The License Agreement provides for the Company to pay a specified commission on
revenues from products incorporating licensed software, and includes minimum
royalty payment obligations over the initial three (3) year term of the License
Agreement in the aggregate amount of $1,100,000.
Under an amendment to the License Agreement entered into in March 2002, the
initial term of the License Agreement was extended for two (2) years, and the
aggregate minimum royalty payment was increased to $1,500,000. The amendment
also included a revised payment schedule of the minimum royalty payment
obligation that provided for semi-annual payments of $250,000 (due on June 30th
and December 31st of each year) during 2002, 2003 and 2004. In lieu of scheduled
40
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
payments, in May, 2003, based on a verbal agreement with Phillips, the Company
began making monthly payments of $15,000, of which $10,000 is being applied
against the remaining minimum royalty payment due and $5,000 is being applied as
interest.
(5) CONVERTIBLE NOTES PAYABLE:
On March 18, 2005, the Company held its first closing pursuant to a subscription
agreement it entered into with several accredited investors as of March 18,
2005, pursuant to which the investors subscribed to purchase an aggregate
principal amount of $2,000,000 in 6% convertible promissory notes, and 100 Class
A and Class B common stock purchase warrants for each 100 shares which would be
issued on each closing date assuming full conversion of the convertible notes
issued on each such closing date.
The Company received $1,000,000 of the purchase price on the initial closing
date of March 18, 2005 and will receive an additional $1,000,000 of the purchase
price pursuant to the second closing, which will take place on the 5th day after
the Company's registration statement registering the shares of our common stock,
issuable upon conversion of the promissory notes and exercise of the warrants is
declared effective by the Securities and Exchange Commission.
The convertible notes bear simple interest at 6% per annum payable June 1, 2005
and semi-annually thereafter and mature 3 years after the date of issuance. Each
investor shall have the right to convert the convertible notes after the date of
issuance at any time, until paid in full, at the election of the investor into
fully paid and nonassessable shares of our common stock. The conversion price
per share shall be the lower of (i) $0.047 or (ii) 80% of the average of the
three lowest closing bid prices for our common stock for the 30 trading days
prior to, but not including, the conversion date.
The Company issued an aggregate of 29,069,768 Class A common stock purchase
warrants and 29,069,768 Class B common stock purchase warrants to the investors,
representing 100 Class A and Class B warrants issued for each 100 shares which
would be issued on each closing date assuming full conversion of the convertible
notes issued on each such closing date. The Class A warrants are exercisable
until four years from the initial closing date at an exercise price of $0.045
per share. The Class B warrants are exercisable until four years from the
initial closing date at an exercise price of $0.06 per share. The holder of the
Class B warrants will be entitled to purchase one share of common stock upon
exercise of the Class B warrants for each share of common stock previously
purchased upon exercise of the Class A warrants.
During the three months ended March 31, 2005, $959,858 of notes payable was
converted into approximately 26,000,000 shares of the Company's common stock at
an average conversion price of $0.036 per share.
41
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Convertible notes payable at March 31, 2005 consists of the following:
Due Principal Unamortized Net
Date Amount Discount Balance
----------------- ----------------- --------------- --------------
CURRENT PORTION
La Jolla Cove
Investors, Inc. December 12, 2005 $ 157,728 $ (45,968) $ 111,760
================= =============== ==============
LONG-TERM PORTION
Stonestreet Limited
Partnership October 28, 2007 $ 40,000 $ (35,766) $ 4,234
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft December 23, 2007 $ 75,000 $ (68,121) $ 6,879
----------------- --------------- --------------
Stonestreet Limited
Partnership December 23, 2007 $ 100,000 $ (90,211) $ 9,789
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft March 18, 2008 $ 400,000 $ (395,341) $ 4,659
----------------- --------------- --------------
Ellis International
Limited March 18, 2008 $ 125,000 $ (123,544) $ 1,456
----------------- --------------- --------------
Whalehaven Capital
Fund Limited March 18, 2008 $ 400,000 $ (395,341) $ 4,659
----------------- --------------- --------------
Omega Capital Small
Cap Fund March 18, 2008 $ 45,000 $ (44,476) $ 524
----------------- --------------- --------------
Osher Capital,
Inc. March 18, 2008 $ 30,000 $ (29,650) $ 350
----------------- --------------- --------------
TOTAL LONG TERM PORTION $ 1,215,000 $ (1,182,450) $ 32,550
================= =============== ==============
42
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) COMMON STOCK:
During the quarter ended March 31, 2005, Alpha Capital Akteingesellschaft
converted Approximately $433,000 of notes payable into approximately 11,928,000
shares of the Company's common stock at an average conversion price of $0.036.
During the quarter ended March 31, 2005, Stonestreet Limited Partnership
converted approximately $326,000 of notes payable into approximately 8,970,000
shares of the Company's common stock at an average conversion price of $0.036.
During the quarter ended March 31, 2005, Whalehaven Fund, Limited converted
$41,000 of notes payable into approximately 1,026,000 shares of the Company's
common stock at an average conversion price of $0.039.
During the quarter ended March 31, 2005, Ellis International Ltd. converted
approximately $84,500 of notes payable into approximately 2,098,000 shares of
the Company's common stock at an average conversion price of $0.04.
During the quarter ended March 31, 2005, Momona Capital Corp. converted
approximately $76,000 of notes payable into approximately 1,938,000 shares of
the Company's common stock at an average conversion price of $0.038.
(7) SUBSEQUENT EVENTS:
During April 2005, Alpha Capital Akteingesellschaft converted notes payable in
the amount of $75,000 at an average conversion price of $0.028 into
approximately 2,693,000 common shares.
On April 22, 2005, the Company held a closing with one accredited investor
pursuant to which the investor subscribed to purchase an aggregate of 5,500,000
shares of restricted common stock for a total purchase price of $145,200. In
addition, the investor received an aggregate of 5,500,000 Class A common stock
purchase warrants and 5,500,000 Class B common stock purchase warrants to the
investor, representing 100 Class A and Class B warrants issued for each 100
shares which were issued on the closing date. The Class A warrants are
exercisable until four years from the closing date at an exercise price of
$0.045 per share. The Class B warrants are exercisable until four years from the
closing date at an exercise price of $0.06 per share. The holder of the Class B
warrants will be entitled to purchase one share of common stock upon exercise of
the Class B warrants for each share of common stock previously purchased upon
exercise of the Class A warrants.
43
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
CONTENTS
Page
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNING FIRM F-1
FINANCIAL STATEMENTS:
Balance Sheets F-2
Statements of Operations F-3
Statements of Stockholders' Equity (Deficit) F-4 - F-7
Statements of Cash Flows F-8 - F-9
Notes to Financial Statements F-10 - F-23
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
One Voice Technologies
We have audited the accompanying balance sheets of One Voice Technologies, Inc.
(a Development Stage Enterprise) as of December 31, 2004 and 2003, and the
related statements of operations, stockholders' equity (deficit), and cash flows
for the years then ended and for the period January 1, 1999 (inception) to
December 31, 2004. 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of One Voice Technologies (a
Development Stage Enterprise) as of December 31, 2004 and 2003, and the results
of its operations and its cash flows for the years then ended and for the period
January 1, 1999 (inception) to December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, One Voice Technologies (a
Development Stage Enterprise) has reported accumulated losses during the
development stage aggregating $37,841,486 and had a working capital deficiency
of $810,682 as of December 31, 2004. These factors raise substantial doubt the
about the Company's ability to continue as a going concern. Management's plans
as to these matters are described in Note 1. The 2004 financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ Peterson & Co., LLP
San Diego, California
March 7, 2005
F-1
ONE VOICE TECHNOLOGIES, INC.
BALANCE SHEETS - DECEMBER 31, 2004 & 2003
ASSETS
2004 2003
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 535,642 53,709
Other receivable 6,274 137,000
Inventories 9,724 --
Other current assets 27,756 37,698
-------------- --------------
Total current assets 579,396 228,407
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 177,949 214,351
OTHER ASSETS:
Software development costs, net 77,865 393,857
Software licensing, net 835 2,839
Trademarks, net 13,310 47,667
Patents, net 118,569 78,186
Deposits 2,157 9,926
Deferred debt issue costs 96,954 48,200
-------------- --------------
Total assets $ 1,067,035 $ 1,023,433
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 162,625 $ 173,088
Accrued expense 72,887 58,419
Security deposits 12,522 12,522
License agreement liability 1,050,000 670,000
Current portion of convertible notes payable, net 92,044 106,154
-------------- --------------
Total current liabilities 1,390,078 1,020,183
LONG-TERM DEBT:
Long term portion of notes payable, net 100,000 100,000
Long term portion of convertible notes payable 32,656 19,957
-------------- --------------
Total liabilities 1,522,734 1,140,140
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock; $.001 par value, 10,000,000
shares authorized, no shares issued and
outstanding -- --
Common stock; $.001 par value, 990,000,000
and 250,000,000 Shares authorized at December 31,
2004 and 2003, respectively; 246,467,927 and
107,130,165 shares issued and outstanding at
December 31, 2004 and 2003, respectively 246,468 107,131
Additional paid-in capital 37,139,319 32,235,170
Deficit accumulated during development stage (37,841,486) (32,459,008)
-------------- --------------
Total stockholders' equity (deficit) (455,699) (116,707)
-------------- --------------
Total liabilities and stockholders'
equity (deficit) $ 1,067,035 $ 1,023,433
============== ==============
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,
2004 2003 2004
--------------- -------------- ----------------
REVENUE $ 2,105 $ 50,000 $ 702,426
COST OF REVENUE 1,930 6,000 207,605
--------------- -------------- ----------------
GROSS PROFIT 175 44,000 494,821
GENERAL AND ADMINISTRATIVE EXPENSES 5,382,653 5,975,972 38,336,307
--------------- -------------- ----------------
NET LOSS $ (5,382,478) $ (5,931,972) $ (37,841,486)
=============== ============== ================
NET LOSS PER SHARE, basic and diluted $ (.03) $ (.09)
=============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 188,236,940 65,729,000
=============== ==============
The accompanying notes form an integral part of these financial statements.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Deficit
accumulated
Common stock Additional during Total
------------------------------- paid-in development stockholders'
Shares Amount capital stage equity (deficit)
--------------- -------------- ------------- -------------- -----------------
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)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Deficit
accumulated
Common stock Additional during Total
------------------------------ paid-in development stockholders'
Shares Amount capital stage equity (deficit)
-------------- ------------- ------------- -------------- -----------------
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)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Deficit
accumulated
Common stock Additional during Total
------------------------------ paid-in development stockholders'
Shares Amount capital stage equity (deficit)
-------------- ------------- ------------- ------------- -----------------
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 warrants in connection
with debt financing 384,255 384,255
Beneficial conversion feature
embedded in debt securities 1,291,535 1,291,535
Issuance of options in exchange
For services 12,543 12,543
Conversion of debt to
equity - Alpha Capital 32,644,593 32,645 1,294,342 1,326,987
Conversion of debt to
equity - Bristol Investments 17,340,192 17,341 707,392 724,733
Conversion of debt to
equity - Ellis Enterprise 12,426,253 12,426 497,472 509,898
Conversion of debt to
equity - Greenwich Funds 3,849,278 3,849 97,762 101,611
Conversion of debt to
equity - 0114 Limited 1,935,766 1,936 48,859 50,795
Net loss for the year ended
December 31, 2003 (5,931,972) (5,931,972)
------------ ------------- ------------- ------------- -----------------
Balance at December 31, 2003 107,130,615 $ 107,131 $ 32,235,170 $(32,459,008) $ (116,707)
(Continued)
The accompanying notes form an integral part of these financial statements.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Deficit
accumulated
Common stock Additional during Total
--------------------------- paid-in development stockholders'
Shares Amount capital stage equity (deficit)
------------ ----------- ------------ ------------- -----------------
Issuance of warrants in connection
with debt financing 1,281,550 1,281,550
Beneficial conversion feature
embedded in debt securities 707,488 707,488
Exercise of warrants for cash 12,008,067 12,008 1,368,121 1,380,129
Debt issue costs 120,138 120,138
Conversion of debt to
equity - Alpha Capital 25,720,939 25,721 587,172 612,893
Conversion of debt to
equity - Bristol Investments 4,317,308 4,317 96,708 101,025
Conversion of debt to
equity - Ellis Enterprise 5,229,575 5,230 165,230 170,460
Conversion of debt to
equity - Greenwich Funds 2,541,700 2,542 99,889 102,431
Conversion of debt to
equity - Whalehaven Capital 2,639,175 2,639 124,834 127,473
Conversion of debt to
equity - Whalehaven Fund 2,009,448 2,009 84,787 86,796
Conversion of debt to
equity - Momona Capital 375,994 376 14,777 15,153
Conversion of debt to
equity - Stonestreet Limited 6,067,844 6,068 239,640 245,708
Conversion of debt to
equity - La Jolla Cove 78,427,262 78,427 13,845 92,272
Net loss for the year ended
December 31, 2004 (5,382,478) (5,382,478)
------------ ----------- ------------ ------------- -----------------
Balance at December 31, 2004 246,467,927 $ 246,468 $ 37,139,349 $(37,841,486) $ (455,669)
============ =========== ============ ============= =================
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
From inception
on January 1,
Year ended Year ended 1999 to
December 31, December 31, December 31,
2004 2003 2004
-------------- ------------- ---------------
Cash flows from operating activities:
Net loss $ (5,382,478) $ (5,931,972) $ (37,841,486)
-------------- ------------- ---------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 499,216 664,302 4,336,076
Loss on disposal of assets -- -- 23,340
Amortization of discount and finance cost 1,737,993 2,308,154 7,442,629
Options issued in exchange for services -- 12,543 459,393
Warrants issued in exchange for services -- -- 221,650
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Other receivable 130,726 (107,112) (6,274)
Inventories (9,724) -- (9,724)
Prepaid expenses 9,942 25,849 (27,756)
Deposits 7,769 36,971 (2,157)
Deferred debt issue costs (48,754) (48,200) (96,954)
Increase (decrease) in liabilities:
Accounts payable (10,463) 480,382 162,625
Accrued expenses 14,468 -- 72,887
License agreement liability 380,000 -- 1,050,000
Deposit -- -- 12,522
-------------- ------------- ---------------
Net cash used in operating activities (2,671,305) (2,559,083) (24,203,229)
-------------- ------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (63,046) (31,201) (1,492,063)
Software licensing -- -- (1,145,322)
Software development costs (22,080) (76,438) (1,675,601)
Trademarks (262) (242,731)
Patents (65,718) (35,312) (175,495)
Loan fees -- -- (200,000)
-------------- ------------- ---------------
Net cash used in investing activities (150,844) (143,213) (4,931,212)
-------------- ------------- ---------------
(Continued)
The accompanying notes form an integral part of these financial statements.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
From inception
on January 1,
Year ended Year ended 1999 to
December 31, December 31, December 31,
2004 2003 2004
------------ ------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net -- -- 18,465,148
Proceeds from convertible note payable, net 1,935,038 1,906,850 9,745,891
Proceeds from notes payable -- 100,000 100,000
Proceeds from warrant exercise 1,369,044 -- 1,369,044
Retirement of common stock, net -- -- (10,000)
------------ ------------- ---------------
Net cash provided by financing activities 3,304,082 2,006,850 29,670,083
------------ ------------- ---------------
Net increase (decrease) in cash 481,933 (695,446) 535,642
Cash and cash equivalents, beginning of year 53,709 745,155 --
------------ ------------- ---------------
Cash and cash equivalents, end of year $ 535,642 $ 49,709 $ 535,642
============ ============= ===============
Supplemental disclosure of cash flow information:
Interest paid $ 74,621 $ 35,189 $ 80,444
============ ============= ===============
Income taxes paid $ 800 $ 800 $ 7,487
============ ============= ===============
Supplemental disclosure of non-cash financing activities:
Options issued in exchange for services $ -- $ 12,543 $ 377,993
============ ============= ===============
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 $ 1,281,550 $ 384,255 $ 5,571,703
============ ============= ===============
Beneficial conversion feature of debt $ 707,488 $ 1,291,535 $ 4,365,238
============ ============= ===============
Common Stock issued upon conversion of debt $ 1,554,211 $ 2,714,024 $ 8,287,727
============ ============= ===============
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION:
One Voice Technologies, Inc. is incorporated under the laws of the State of
Nevada. The Company commenced operations in 1999.
GOING CONCERN:
The accompanying financial statements have been prepared assuming 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 has incurred significant losses since inception of $37,841,486 and used
cash for operations of $ 2,671,305 during the year ended December 31, 2004. The
Company also has a working capital deficit of $810,682 and a stockholders'
deficit of $455,699 as of December 31, 2004. 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:
The Company develops voice recognition based software for both the Telecom and
Interactive Multimedia PC sectors.
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." All losses accumulated since inception of One Voice Technologies,
Inc. have been considered as part of the Company's development stage activities.
FAIR VALUE:
The Company's financial instruments consist principally of accounts payable and
notes payable as defined by Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments." The carrying value of
the financial instruments, none of which are held for trading purposes,
approximates their fair value due to the short-term nature of these instruments.
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.
CONCENTRATION:
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 accordance with
the American Institute of Certified Public Accountants ("AICPA") Statement of
Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-4 and
SOP 98-9. 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 will be recognized upon shipment
of the product.
ADVERTISING AND PROMOTION COSTS:
Advertising and promotion costs are expensed as incurred. For the years ended
December 31, 2004 and 2003, advertising and promotion costs were $27,262 and
$11,770 respectively.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded 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.
INVENTORIES:
Inventories are valued at the lower of cost or market based on actual cost.
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, with the balance allocated to warrants being 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, 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 discount is
amortized using the effective interest rate method over the life of the debt.
Upon conversion of the debt, any unamortized debt issue costs will be charged to
expense.
F-11
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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. The Company evaluates for impairment losses annually or
when economic circumstances necessitate. The Company will recognize an
impairment loss if the amount by which the unamortized capitalized cost of a
computer software product exceeds the net realizable value of that asset. No
impairment losses were recognized during the years ended December 31, 2004 and
2003.
Amortization expense totaled $338,072 and $407,481 for the years ended December
31, 2004 and 2003, respectively. Accumulated amortization as of December 31,
2004 amounted to $1,597,736.
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, 2004 and 2003 totaled $34,357 and
$59,017, respectively. Accumulated amortization as of December 31, 2004 amounted
to $229,421.
The Company's patent costs consist of legal fees paid in connection with patents
pending. The Company amortizes patents using the straight-line method over the
period of estimated benefit, generally five years. Amortization expense charged
for the years ended December 31, 2004 and 2003 totaled $25,335 and $18,971,
respectively. Accumulated amortization as of December 31, 2004 amounted to
$56,926.
In accordance with SFAS 142, 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 COMMON SHARE:
Basic earnings per share is calculated using the weighted-average number of
outstanding common shares during the period. Diluted earnings per share is
calculated using the weighted-average number of outstanding common shares and
dilutive common equivalent shares outstanding during the period, using either
the as-converted method for convertible notes and convertible preferred stock or
the treasury stock method for options and warrants.
The net loss per common share for the years ended December 31, 2004 and 2003 is
based on the weighted average number of shares of common stock outstanding
during the periods. Potentially dilutive securities include options, warrants
and convertible preferred stock; however, such securities have not been included
in the calculation of the net loss per common share as their effect is
antidilutive.
F-12
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
INCOME TAXES:
Deferred income taxes are reported using the asset/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.
INCENTIVE AND STOCK BASED COMPENSATION:
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 2.7 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. No expense was
recognized under APB 25. The Company's pro forma information is as follows:
December 31, 2004 December 31, 2003
------------------ ------------------
Net loss, as reported $ (5,382,478) $ (5,931,972)
------------------ ------------------
Stock compensation calculated under SFAS 123 $ (51,500) $ (419,000)
------------------ ------------------
Pro forma net loss $ (5,330,978) $ (6,350,972)
------------------ ------------------
Basic and diluted historical loss per share $ (0.03) $ (0.09)
------------------ ------------------
Pro forma basic and diluted loss per share $ (0.03) $ (0.10)
------------------ ------------------
NEW ACCOUNTING PRONOUNCEMENTS:
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (an interpretation of Accounting Research Bulletin
(ARB) No. 51, Consolidated Financial Statements). Interpretation 46 addresses
consolidation by business enterprises of entities to which the usual condition
of consolidation described in ARB-51 does not apply. The Interpretation changes
the criteria by which one company includes another entity in its consolidated
financial statements. The general requirement to consolidate under ARB-51 is
based on the presumption that an enterprise's financial statements should
include all of the entities in which it has a controlling financial interest
(i.e., majority voting interest). Interpretation 46 requires a variable interest
entity to be consolidated by a company that does not have a majority voting
interest, but nevertheless, is subject to a majority of the risk of loss from
the variable interest entity's activities or entitled to receive 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.
F-13
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
In December 2003 the FASB concluded to revise certain elements of FIN 46,
primarily to clarify the required accounting for interests in variable interest
entities. FIN-46R replaces FIN-46 that was issued in January 2003. FIN-46R
exempts certain entities from its requirements and provides for special
effective dates for entities that have fully or partially applied FIN-46 as of
December 24, 2003. In certain situations, entities have the option of applying
or continuing to apply FIN-46 for a short period of time before applying
FIN-46R. In general, for all entities that were previously considered special
purpose entities, FIN 46 should be applied in periods ending after December 15,
2003. Otherwise, FIN 46 is to be applied for registrants who file under
Regulation SX in periods ending after March 15, 2004, and for registrants who
file under Regulation SB, in periods ending after December 15, 2004. The Company
does not expect the adoption to have a material impact on the Company's
financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after June 30,
2003. The guidance should be applied prospectively. The Company does not expect
the adoption of SFAS No. 149 to have a material impact on its consolidated
financial position, results of operations or stockholders' equity.
In May 2003, the FASB Issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
clarifies the accounting treatment for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003 and otherwise is effective for public entities at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have a material impact on the Company's
financial position, results of operations or stockholders' equity.
In December 2004, the Financial Accounting Standards Board issued SFAS No.
123(R), "Share-Based Payment". SFAS No. 123(R) replaces SFAS No. 123 "Accounting
for Stock-Based Compensation", and supersedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees". SFAS No. 123(R) requires compensation costs
related to share-based payment transactions to be recognized in the financial
statements over the period that an employee provides service in exchange for the
award. SFAS No. 123(R) is effective for period beginning after June 15, 2005.
The Company plans to adopt SFAS No. 123(R) on July 1, 2005, the beginning of its
third fiscal quarter. SFAS 123(R) eliminates the alternative to use the
intrinsic value method of accounting that was provided in SFAS 123 as originally
issued. In accordance with SFAS No. 148, the Company has been disclosing the
impact on net income and earnings per share had the fair value based method been
adopted.
(3) PROPERTY AND EQUIPMENT:
A summary is as follows: 2004 2003
---------- ----------
Computer equipment $ 553,844 $ 495,126
Website development 38,524 35,974
Equipment 197,049 197,048
Furniture and fixtures 122,020 120,243
Web host computer equipment 420,993 420,993
Leasehold improvements 15,222 15,222
Telephone equipment 99,910 99,910
---------- ----------
1,447,562 1,384,516
Less accumulated depreciation and amortization 1,269,612 1,170,165
---------- ----------
$ 177,950 $ 214,351
========== ==========
Depreciation expense totaled $99,448 and $94,866 for the years ended December
31, 2004 and 2003, respectively.
F-14
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) NOTES PAYABLE:
On August 8, 2003 the Company entered into a note payable in the amount of
$100,000, with principal and interest at 8.0% per annum, due on August 8, 2008.
At December 31, 2004 and 2003 the balance on the note payable was $100,000.
(5) LICENSE AGREEMENT LIABILITY
In March 2000 the Company entered into a Software License Agreement ("License
Agreement")with Phillips Speech Processing, a division of Philips Electronics
North America ("Phillips"). Pursuant to the License Agreement, the Company
received a world-wide, limited, nonexclusive license to certain speech
recognition software owned by Phillips. The initial term of the License
Agreement was three (3) years, and the License Agreement included an extended
term provision under which the License Agreement was automatically renewable for
successive one (1) year periods, unless terminated by either party upon a
minimum of sixty (60) days written notice prior to the expiration of the initial
term or any extended.
The License Agreement provides for the Company to pay a specified commission on
revenues from products incorporating licensed software, and includes minimum
royalty payment obligations over the initial three (3) year term of the License
Agreement in the aggregate amount of $1,100,000.
Under an amendment to the License Agreement entered into in March 2002, the
initial term of the License Agreement was extended for two (2) years, and the
aggregate minimum royalty payment was increased to $1,500,000. The amendment
also included a revised payment schedule of the minimum royalty payment
obligation that provided for semi-annual payments of $250,000 (due on June 30th
and December 31st of each year) during 2002, 2003 and 2004. In lieu of scheduled
payments, in May, 2003, based on a verbal agreement with Phillips, the Company
began making monthly payments of $15,000, of which $10,000 is being applied
against the remaining minimum royalty payment due and $5,000 is being applied as
interest.
As of December 31, 2004 and 2003, the outstanding minimum royalty obligations
pursuant to the License Agreement were $1,050,000 and $670,000, respectively.
(6) CONVERTIBLE NOTES PAYABLE:
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 in excess of 100%), 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 $25,000 using Black Scholes option pricing model
and the beneficial conversion feature of approximately $515,000 have been
amortized over the life of the debt using the interest method. Upon conversion
of the debt, any unamortized debt issue costs was charged to interest expense.
On June 30, 2003, the Company entered into a securities purchase agreement with
two accredited investors, Alpha Capital Aktiengesellschaft, and Bristol
Investment Fund Limited for the issuance of 4% convertible debentures in the
aggregate amount of $500,000. The notes bear interest at 4% (effective interest
rate in excess of 100% on the aggregate amount), mature on June 20, 2005, and
are convertible into the Company's common stock, at the holders' option, at the
lower of (i) $0.1023 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 June 30, 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 291,670
warrants to the investors. The warrants are exercisable until June 30, 2008 at a
purchase price of $.1116 per share. Net proceeds amounted to approximately
$437,500, net of debt issue cash cost of $62,500. The fair value of the warrants
of $11,000 using Black Scholes option pricing model and the beneficial
conversion feature of approximately $143,000 was amortized as interest expense
over the life of the debt using the interest method. Upon conversion of the
debt, any unamortized debt issue costs was charged to interest expense.
F-15
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On September 17, 2003, the Company entered into a securities purchase agreement
with three accredited investors, Alpha Capital Aktiengesellschaft, Bristol
Investment Fund Limited and Ellis Enterprises Ltd for the issuance of 6%
convertible debentures in the amount of $375,000. The notes bear interest at 6%
(effective interest rate of 80% on the aggregate amount), mature on September
17, 2004, and are convertible into the Company's common stock, at the holders'
option, at the lower of (i) $0.0474 or (ii) 78% of the average of the three
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 September 17, 2004 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 4,746,837
warrants to the investors. The warrants are exercisable until September 17, 2010
at a purchase price of $.0474 per share. Net proceeds amounted to approximately
$334,500, net of debt issue cash cost of $40,500. The relative value (limited to
the face amount of the debt) of all the warrants of $164,000 using Black Scholes
option pricing model, cash cost of $40,500 and the beneficial conversion feature
of approximately $170,500 will be amortized over the life of the debt using the
interest method. Upon conversion of the debt mentioned above, any unamortized
debt issue costs will be charged to expense.
On November 10, 2003, the Company entered into a securities purchase agreement
with three accredited investors, Alpha Capital Aktiengesellschaft, Bristol
Investment Fund Limited and Ellis Enterprises Ltd for the issuance of 6%
convertible debentures in the amount of $375,000. The notes bear interest at 6%
(effective interest rate of 80% on the aggregate amount), mature on November 10,
2004, and are convertible into the Company's common stock, at the holders'
option, at the lower of (i) $0.0474 or (ii) 78% of the average of the three
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 November 10, 2004 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 4,746,837
warrants to the investors. The warrants are exercisable until November 10, 2010
at a purchase price of $.0474 per share. Net proceeds amounted to approximately
$345,000, net of debt issue cash cost of $30,000. The relative value (limited to
the face amount of the debt) of all the warrants of $127,000 using Black Scholes
option pricing model, cash cost of $30,000 and the beneficial conversion feature
of approximately $211,000 will be amortized over the life of the debt using the
interest method. Upon conversion of the debt mentioned above, any unamortized
debt issue costs will be charged to expense.
On December 12, 2003, the Company entered into a securities purchase agreement
with La Jolla Cove Investors, Inc. for the issuance of a 7.75% convertible
debenture in the aggregate amount of $250,000. The note bears interest at 7.75%,
matures on December 12, 2005, and is convertible into the Company's common
stock, at the holders' option. The number of common shares this debenture may be
converted is equal to the dollar amount of the debenture being converted
multiplied by eleven, minus the product of the Conversion Price multiplied by
ten times the dollar amount of the Debenture being converted, and the entire
forgoing result shall be divided by the Conversion Price. The Conversion Price
is defined as the lower of (i) $0.25 or (ii) 80% of the average of the three
lowest volume weighted average prices during the twenty (20) trading days prior
to Holder's election to convert. Beginning in the first full calendar month
after the Registration Statement is declared effective, Holder shall convert at
least 7%, but no more than 15% (such 15% maximum amount to be cumulative from
the deadline), of the face value of the debenture per calendar month into common
shares of the company, provided that the common shares are available, registered
and freely tradable. In addition, the Company issued an aggregate of 2,500,000
warrants to the investors. The warrants are exercisable until December 12, 2006
at a purchase price of $1.00 per share. Holder will exercise at least 7%, but no
more than 15% (such 15% maximum amount to be cumulative from the Deadline), of
the Warrants per calendar month, provided that the Common Shares are available,
registered and freely tradable. The 15% monthly maximum amount shall not be
applicable if the Current Market Price of the Common Stock at anytime during the
applicable month is higher than the Current Market Price of the Common Stock on
the Closing Date. In the event Holder does not exercise at least 7% of the
Warrants in any particular calendar month, Holder shall not be entitled to
collect interest on the Debenture for that month. The fair value of the warrants
of $18,000 using Black Scholes option pricing model and the beneficial
conversion feature of approximately $219,000 will be amortized as interest
expense over the life of the debt using the interest method. Upon conversion of
the debt mentioned here, any unamortized debt issue costs will be charged to
expense. As of December 31, 2003 the principal balance amounted to $250,000 and
the unamortized debt discount amounted to approximately $243,000.
F-16
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On August 18, 2004, the Company entered into a securities purchase agreement
with four accredited investors, Alpha Capital Aktiengesellschaft, Greenwich
Growth Fund Limited, Whalehaven Capital, LP and Whalehaven Fund Limited for the
issuance of 7% convertible debentures in the aggregate amount of $700,000. The
notes bear interest at 7% (effective interest rate of 146% on the aggregate
amount), mature on August 18, 2007, and are convertible into the Company's
common stock, at the holders' option, at the lower of (i) $0.085 or (ii) 80% of
the average of the three 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 August 18, 2007
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 7,063,774 warrants to the investors (3,531,887
Class A warrants and 3,531,887 Class B warrants).The Class A warrants are
exercisable until August 18, 2009 at a purchase price of $.0935 per share. The
Class B warrants are exercisable until August 18, 2009 at a purchase price of
$.10625 per share. Net proceeds amounted to approximately $621,000, net of debt
issue cash cost of $79,000. The fair value of the warrants of $323,000 using
Black Scholes option pricing model and the beneficial conversion feature of
approximately $298,000 will be amortized over the life of the debt using the
interest method. Upon conversion of the debt, unamortized debt issue costs are
charged to expense.
On October 28, 2004, the Company entered into a securities purchase agreement
with four accredited investors, Alpha Capital Aktiengesellschaft, Stonestreet
Limited Partnership, Ellis International Ltd. and Momona Capital Corp. for the
issuance of 7% convertible debentures in the aggregate amount of $596,000. The
notes bear interest at 7% (effective interest rate of 100% on the aggregate
amount), mature on October 28, 2007 and are convertible into the Company's
common stock, at the holders' option, at the lower of (i) $0.074 or (ii) 80% of
the average of the three 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 October 28, 2007
without the consent of the holder. The full principal amount of the convertible
note is due upon default under the terms of convertible notes. In addition, the
Company issued an aggregate of 11,825,398 Class A warrants and 11,825,398 Class
B warrants to the investors. The warrants are exercisable until October 28, 2009
at a purchase price of $0.07 per share. Net proceeds amounted to approximately
$532,000, net of debt issue cash cost of $64,000. The relative value (limited to
the face amount of the debt) of all the warrants of $276,000 using Black Scholes
option pricing model and the beneficial conversion feature of approximately
$319,000 will be amortized over the life of the debt using the interest method.
As of December 31, 2004, the balance owed was $266,000 and the unamortized
discount amounted to $250,000. Upon conversion of the debt mentioned above, any
unamortized debt issue costs will be charged to expense.
On December 23, 2004, the Company entered into a securities purchase agreement
with Alpha Capital Aktiengesellschaft, Stonestreet Limited Partnership, Ellis
International Ltd. and Momona Capital Corp. for the issuance of 7% convertible
debentures in the aggregate amount of $894,000. The notes bear interest at 7%
(effective interest rate of 100% on the aggregate amount), mature on December
23, 2007 and are convertible into the Company's common stock, at the holders'
option, at the lower of (i) $0.074 or (ii) 80% of the average of the three
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 December 23, 2007 without the consent of the
holder. The full principal amount of the convertible note is due upon default
under the terms of convertible notes. In addition, the Company issued an
aggregate of 22,183,622 Class A warrants and 22,183,622 Class B warrants to the
investors. The warrants are exercisable until December 23, 2009 at a purchase
price of $0.07 per share. Net proceeds amounted to approximately $835,000, net
of debt issue cash cost of $59,000. The relative value (limited to the face
amount of the debt) of all the warrants of $682,000 using Black Scholes option
pricing model and the beneficial conversion feature of approximately $210,000
will be amortized over the life of the debt using the interest method. As of
December 31, 2004, the balance owed was $854,000 and the unamortized discount
amounted to $848,000. Upon conversion of the debt mentioned above, any
unamortized debt issue costs will be charged to expense.
F-17
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of convertible notes payable balance at December 31, 2004 is as
follows:
Due Principal Unamortized Net
Date Amount Discount Balance
----------------- ----------- ------------- --------
CURRENT PORTION
La Jolla Cove
Investors, Inc. December 12, 2005 $ 157,728 $ (65,684) $ 92,044
LONG-TERM PORTION
Whalehaven Fund
Limited August 18, 2007 $ 40,000 $ (30,538) $ 9,462
----------- ------------- --------
Alpha Capital
Aktiengesellschaft October 28, 2007 $ 200,000 $ (186,764) $ 13,236
----------- ------------- --------
Momona Capital
Corp. October 28, 2007 $ 21,000 $ (20,104) $ 896
----------- ------------- --------
Stonestreet Limited
Partnership October 28, 2007 $ 40,000 $ (38,295) $ 1,705
----------- ------------- --------
Ellis International
Limited October 28, 2007 $ 4,841 $ (4,634) $ 207
----------- ------------- --------
Alpha Capital
Aktiengesellschaft December 23, 2007 $ 300,000 $ (297,487) $ 2,513
----------- ------------- --------
Momona Capital
Corp. December 23, 2007 $ 54,000 $ (53,548) $ 452
----------- ------------- --------
Stonestreet Limited
Partnership December 23, 2007 $ 420,000 $ (416,483) $ 3,517
----------- ------------- --------
Ellis International
Limited December 23, 2007 $ 79,700 $ (79,032) $ 668
----------- ------------- --------
TOTAL LONG TERM PORTION $ 1,159,541 $ (1,126,885) $ 32,656
=========== ============= ========
F-18
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) COMMON STOCK:
During the year ended December 31, 2003, the note holders converted the
principal outstanding at December 31, 2002 of $1,235,000 plus accrued interest,
into 19,008,757 common shares.
During the year ended December 31, 2003, Alpha Capital Aktiengesellschaft, Ellis
Enterprises Ltd., Greenwich Growth Fund Limited, and 01144 Limited had converted
all of its April 10, 2003 notes aggregating $700,000 plus interest into
20,675,854 common shares at an average conversion price of $0.03 per share.
During the year ended December 31, 2003, Alpha Capital Aktiengesellschaft and
Bristol Investments had converted all of its June 30, 2003 notes aggregating
$500,000 plus interest into 16,990,200 common shares at an average conversion
price of $0.03 per share.
During the year ended December 31, 2003, Alpha Capital Aktiengesellschaft,
Bristol Investments and Ellis Enterprises had converted $345,000 of principal
from the September 17, 2003 notes plus interest into 11,521,271 common shares at
an average conversion price of $0.03 per share.
During the year ended December 31, 2004, La Jolla Cove Investors, Inc. exercised
warrants to purchase 922,720 shares of common stock for cash in the amount of
$922,720 and converted $92,272 of the 7.75% convertible note into 78,427,262
shares of common stock at an average exercise and conversion price of $0.001 per
share.
During the year ended December 31, 2004, Alpha Capital Aktiengesellschaft had
converted the remaining $100,000 plus interest of its September 17, 2003 note
aggregating $300,000 into 4,385,123 common shares at an average conversion price
of $0.023 per share.
During the year ended December 31, 2004, Alpha Capital Aktiengesellschaft,
Bristol Investments and Ellis Enterprises had converted the remaining $305,000
plus interest of its November 10, 2003 notes aggregating $375,000 into
20,855,601 common shares at an average conversion price of $0.015 per share.
During the year ended December 31, 2004, Alpha Capital Aktiengesellschaft,
Greenwich Growth Fund Limited, Whalehaven Capital and Whalehaven Fund had
converted $660,000 plus interest of its August 18, 2004 notes aggregating
$700,000 into 14,352,422 common shares at an average conversion price of $0.046
per share.
During the year ended December 31, 2004, Stonestreet Limited Partnership, Ellis
Enterprises And Momona Capital had converted $330,160 plus interest of its
October 28, 2004 notes aggregating $396,000 into 8,308,838 common shares at an
average conversion price of $0.04 per share.
During the year ended December 31, 2004, Ellis Enterprises had converted $40,300
of its December 23, 2004 note aggregating $120,000 into 1,000,000 common shares
at an average conversion price of $0.04 per share.
During the year ended December 31, 2004, warrants to purchase 11,085,347 shares
of common stock were exercised for cash in the amount of $1,369,044.
F-19
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(8) RESEARCH AND DEVELOPMENT:
The Company performs internal research and development efforts. Research and
development expense represented $617,648 and $633,176 for the years ended
December 31, 2004 and 2003 respectively.
(9) INCOME TAXES:
At December 31, 2004 and December 31, 2003, the Company had net operating loss
carry forwards available to reduce future taxable income, if any, of
approximately $ 29,500,000 and $27,350,000 for Federal income tax purposes. It
also had net operating loss carry forwards available to reduce future taxable
income, if any, of approximately $ 26,700,000 and $ 24,500,000 for state
purposes. The Federal and state net operating loss carry forwards will begin
expiring in 2020 and 2007, respectively. The carryforwards may be limited if a
cumulative change in ownership of more than 50% occurs within a three year
period.
The expected income tax provision, computed based on the Company's pre-tax
income (loss) and the statutory Federal income tax rate, is reconciled to the
actual tax provision reflected in the accompanying financial statements as
follows:
2004 2003
------------ ------------
Expected tax provision (benefit) at statutory rates $(1,830,043) $(2,016,598)
State taxes, net of Federal benefit 528 528
Meals & Entertainment 2,923 1,119
Change in Valuation Allowance 1,236,748 1,237,704
Amortization of Beneficial Conversion Feature 590,644 788,047
------------ ------------
Totals $ 800 $ 800
The provision (benefit) for income taxes in 2004 and 2003 consists of the
following:
2004 2003
----------- -----------
Current:
Federal $ -- $ --
State 800 800
Totals 800 800
Deferred:
Federal -- --
State -- --
Totals -- --
Totals $ 800 $ 800
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 2004 and December 31, 2003 are shown below:
2004 2003
------------- -------------
Deferred tax assets:
Accrued vacation $ 23,208 $ 19,594
Basis Difference in Fixed Assets 97,713 35,326
Net operating loss 12,398,459 11,469,519
Other 1,716 1,716
------------- -------------
Totals $ 12,521,096 $ 11,526,155
------------- -------------
Deferred tax liabilities:
Deferred State Taxes (813,053) (743,268)
------------- -------------
Deferred tax asset (liability) $ 11,708,044 $ 10,782,887
Valuation Allowance (11,708,044) (10,782,887)
------------- -------------
Net Deferred Tax Asset (Liability) 0 0
F-20
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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, 2004:
Year ending December 31,
2005 191,500
---------
Less sublease income 60,000
---------
$ 131,500
=========
Rent expense, net of sublease income of $60,000 amounted to $198,000 for the
year ended December 31, 2004.
(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.
In October 2003, we held our Annual Shareholders' Meeting. Pursuant to the
meeting, our shareholders voted in favor and approved the Fourth Amended and
Restated Stock Option Plan pursuant to which the number of shares authorized
under the Plan was increased from 3,000,000 to 13,000,000.
F-21
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN, CONTINUED
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.
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 the years ended December 31, 2004 and 2003, the Company granted 0 and
275,000 stock options exercisable respectively at an exercise price of $0.11 to
employees of the Company, of which, 250,000 options were terminated in 2003.
The number and weighted average exercise prices of options granted under the
plan for the years ended December 31, 2004 and 2003 are as follows:
2004 2003
--------------------- ---------------------
Average Average
Exercise Exercise
Number Price Number Price
--------- --------- --------- ---------
Outstanding at beginning of the year 1,900,500 $ 1.54 3,173,625 $ 1.58
Granted during the year -- -- 275,000 0.12
Terminated during the year 179,000 1.12 1,548,125 1.38
Exercised during the year -- -- -- --
Outstanding at end of the year 1,721,500 2.70 1,900,500 1.54
Exercisable at end of the year 1,552,750 2.70 1,534,400 1.85
F-22
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(12) WARRANTS:
At December 31, 2004, the Company had warrants outstanding that allow the
holders to purchase up to 78,494,252 shares of common stock.
The number and weighted average exercise prices of the warrants for the years
ended December 31, 2004 and 2003 are as follows:
2004 2003
--------------------- ---------------------
Average Average
Exercise Exercise
Number Price Number Price
---------- --------- ---------- ---------
Outstanding at beginning of the year 16,099,643 $ 0.46 3,464,297 $ 1.26
Granted during the year 75,081,815 .08 12,635,346 .24
Terminated during the year 179,143 -- -- --
Exercised during the year 12,008,063 .11 -- --
Outstanding at end of the year 78,994,252 0.46 16,099,643 0.46
Exercisable at end of the year 78,994,252 0.46 16,099,643 0.46
(13) SUBSEQUENT EVENT:
On March 18, 2005, the Company held its first closing pursuant to a Subscription
Agreement it entered into with several accredited investors dated as of March
18, 2005, pursuant to which the investors subscribed to purchase an aggregate
principal amount of $2,000,000 in 6% convertible promissory notes, and 100 Class
A and Class B common stock purchase warrants for each 100 shares which would be
issued on each closing date assuming full conversion of the convertible notes
issued on each such closing date.
$1,000,000 of the purchase price was paid to us by the investors on the initial
closing date of March 18, 2005 and $1,000,000 of the purchase price will be paid
to us pursuant to the second closing, which will take place on the 5th day after
the actual effectiveness of the registration statement which we are required to
file with the Securities and Exchange Commission registering the shares of our
common stock, par value $.001 per share, issuable upon conversion of the
promissory notes and exercise of the warrants.
The convertible notes bear simple interest at 6% per annum payable upon each
conversion, June 1, 2005 and semi-annually thereafter and mature 3 years after
the date of issuance. Each investor shall have the right to convert the
convertible notes after the date of issuance and at any time, until paid in
full, at the election of the investor into fully paid and nonassessable shares
of our common stock. The conversion price per share shall be the lower of (i)
$0.047 or (ii) 80% of the average of the three lowest closing bid prices for our
common stock for the 30 trading days prior to, but not including, the conversion
date as reported by Bloomberg, L.P. on any principal market or exchange where
our common stock is listed or traded.
We issued an aggregate of 29,069,768 Class A common stock purchase warrants and
29,069,768 Class B common stock purchase warrants to the investors, representing
100 Class A and Class B warrants issued for each 100 shares which would be
issued on the each closing date assuming full conversion of the convertible
notes issued on each such closing date. The Class A warrants are exercisable
until four years from the initial closing date at an exercise price of $0.045
per share. The Class B warrants are exercisable until four years from the
initial closing date at an exercise price of $0.06 per share. The holder of the
Class B warrants will be entitled to purchase one share of common stock upon
exercise of the Class B warrants for each share of common stock previously
purchased upon exercise of the Class A warrants.
Subsequent to December 31, 2004, note holders converted additional note
principal into common shares as follows:
Average
Amount Converted Exercise
Converted Shares Into Price
----------- ----------- --------
Alpha Capital Akteingesellschaft $ 350,000 9,724,106 $ 0.037
Whalehaven Fund Ltd. 40,000 1,026,466 $ 0.039
Ellis Enterprise Limited 84,500 2,097,779 $ 0.040
Stonestreet Limited Partnership 200,000 5,928,797 $ 0.034
Momona Capital Corp. 75,000 1,938,262 $ 0.038
----------- ----------- --------
$ 749,500 20,715,410 $ 0.038
=========== =========== ========
F-23
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THE
INFORMATION CONTAINED IN THIS PROSPECTUS. THIS DOCUMENT MAY ONLY BE USED WHERE
IT IS LEGAL TO SELL THE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.
TABLE OF CONTENTS
Page
Prospectus Summary 5
Description of Securities Being Registered 6
Risk Factors 8
Use of Proceeds 12
Market For Common Equity And Related Stockholder
Matters 12
Management's Discussion And Analysis or Plan Of
Operation 13
Business 19
Description of Property 21
Legal Proceedings 22
Management 23
Executive Compensation 26
Security Ownership Of Certain Beneficial Owners
And Management 27
Description of Our Capital Stock 28
Indemnification for Securities Act Liabilities 29
Selling Stockholders 30
Plan of Distribution 31
Legal Matters 32
Experts 33
Available Information 33
Index To Financial Statements 34
UP TO 209,141,851 SHARES
OF OUR
OF COMMON STOCK
One Voice Technologies, Inc.
----------
PROSPECTUS
----------
June 3, 2005
68
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 935.18*
Accounting fees and expenses 5,000.00*
Legal fees and expenses 10,000.00*
-----------
TOTAL $15,935.18*
===========
* Estimated and previously paid.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
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.
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.
69
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 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 in excess of 100%), 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 is due upon default under the terms of
convertible notes. In addition, we 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 $25,000
using Black Scholes option pricing model and the beneficial conversion feature
of approximately $515,000 have been amortized over the life of the debt using
the interest method. Upon conversion of the debt, any unamortized debt issue
costs was charged to interest expense.
On June 30, 2003, we entered into a securities purchase agreement with two
accredited investors, Alpha Capital Aktiengesellschaft, and Bristol Investment
Fund Limited for the issuance of 4% convertible debentures in the aggregate
amount of $500,000. The notes bear interest at 4% (effective interest rate in
excess of 100% on the aggregate amount), mature on June 20, 2005, and are
convertible into our common stock, at the holders' option, at the lower of (i)
$0.1023 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 June 30, 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, we issued an aggregate of 291,670 warrants to
the investors. The warrants are exercisable until June 30, 2008 at a purchase
price of $.1116 per share. Net proceeds amounted to approximately $437,500, net
of debt issue cash cost of $62,500. The fair value of the warrants of $11,000
using Black Scholes option pricing model and the beneficial conversion feature
of approximately $143,000 was amortized as interest expense over the life of the
debt using the interest method. Upon conversion of the debt, any unamortized
debt issue costs was charged to interest expense.
On September 17, 2003, we entered into a securities purchase agreement with
three accredited investors, Alpha Capital Aktiengesellschaft, Bristol Investment
Fund Limited and Ellis Enterprises Ltd for the issuance of 6% convertible
debentures in the amount of $375,000. The notes bear interest at 6% (effective
interest rate of 80% on the aggregate amount), mature on September 17, 2004, and
are convertible into our common stock, at the holders' option, at the lower of
(i) $0.0474 or (ii) 78% of the average of the three 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 September 17, 2004 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, we issued 4,746,837 warrants to the investors.
The warrants are exercisable until September 17, 2010 at a purchase price of
$.0474 per share. Net proceeds amounted to approximately $334,500, net of debt
issue cash cost of $40,500. The relative value (limited to the face amount of
the debt) of all the warrants of $164,000 using Black Scholes option pricing
model, cash cost of $40,500 and the beneficial conversion feature of
approximately $170,500 will be amortized over the life of the debt using the
interest method. Upon conversion of the debt mentioned above, any unamortized
debt issue costs will be charged to expense.
70
On November 10, 2003, we entered into a securities purchase agreement with three
accredited investors, Alpha Capital Aktiengesellschaft, Bristol Investment Fund
Limited and Ellis Enterprises Ltd for the issuance of 6% convertible debentures
in the amount of $375,000. The notes bear interest at 6% (effective interest
rate of 80% on the aggregate amount), mature on November 10, 2004, and are
convertible into our common stock, at the holders' option, at the lower of (i)
$0.0474 or (ii) 78% of the average of the three 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 November 10, 2004 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, we issued 4,746,837 warrants to the investors.
The warrants are exercisable until November 10, 2010 at a purchase price of
$.0474 per share. Net proceeds amounted to approximately $345,000, net of debt
issue cash cost of $30,000. The relative value (limited to the face amount of
the debt) of all the warrants of $127,000 using Black Scholes option pricing
model, cash cost of $30,000 and the beneficial conversion feature of
approximately $211,000 will be amortized over the life of the debt using the
interest method. Upon conversion of the debt mentioned above, any unamortized
debt issue costs will be charged to expense.
On December 12, 2003, we entered into a securities purchase agreement with La
Jolla Cove Investors, Inc. for the issuance of a 7.75% convertible debenture in
the aggregate amount of $250,000. The note bears interest at 7.75%, matures on
December 12, 2005, and is convertible into our common stock, at the holders'
option. The number of common shares this debenture may be converted is equal to
the dollar amount of the debenture being converted multiplied by eleven, minus
the product of the Conversion Price multiplied by ten times the dollar amount of
the Debenture being converted, and the entire forgoing result shall be divided
by the Conversion Price. The Conversion Price is defined as the lower of (i)
$0.25 or (ii) 80% of the average of the three lowest volume weighted average
prices during the twenty (20) trading days prior to Holder's election to
convert. Beginning in the first full calendar month after the Registration
Statement is declared effective, Holder shall convert at least 7%, but no more
than 15% (such 15% maximum amount to be cumulative from the deadline), of the
face value of the debenture per calendar month into our common shares, provided
that the common shares are available, registered and freely tradable. In
addition, we issued an aggregate of 2,500,000 warrants to the investors. The
warrants are exercisable until December 12, 2006 at a purchase price of $1.00
per share. Holder will exercise at least 7%, but no more than 15% (such 15%
maximum amount to be cumulative from the Deadline), of the Warrants per calendar
month, provided that the Common Shares are available, registered and freely
tradable. The 15% monthly maximum amount shall not be applicable if the Current
Market Price of the Common Stock at anytime during the applicable month is
higher than the Current Market Price of the Common Stock on the Closing Date. In
the event Holder does not exercise at least 7% of the Warrants in any particular
calendar month, Holder shall not be entitled to collect interest on the
Debenture for that month. The fair value of the warrants of $18,000 using Black
Scholes option pricing model and the beneficial conversion feature of
approximately $219,000 will be amortized as interest expense over the life of
the debt using the interest method. Upon conversion of the debt mentioned here,
any unamortized debt issue costs will be charged to expense. As of December 31,
2003 the principal balance amounted to $250,000 and the unamortized debt
discount amounted to approximately $243,000.
On August 18, 2004, we entered into a securities purchase agreement with four
accredited investors, Alpha Capital Aktiengesellschaft, Greenwich Growth Fund
Limited, Whalehaven Capital, LP and Whalehaven Fund Limited for the issuance of
7% convertible debentures in the aggregate amount of $700,000. The notes bear
interest at 7% (effective interest rate of 146% on the aggregate amount), mature
on August 18, 2007, and are convertible into our common stock, at the holders'
option, at the lower of (i) $0.085 or (ii) 80% of the average of the three
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 August 18, 2007 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, we issued an aggregate of
7,063,774 warrants to the investors (3,531,887 Class A warrants and 3,531,887
Class B warrants).The Class A warrants are exercisable until August 18, 2009 at
a purchase price of $.0935 per share. The Class B warrants are exercisable until
August 18, 2009 at a purchase price of $.10625 per share. Net proceeds amounted
to approximately $621,000, net of debt issue cash cost of $79,000. The fair
value of the warrants of $323,000 using Black Scholes option pricing model and
the beneficial conversion feature of approximately $298,000 will be amortized
over the life of the debt using the interest method. Upon conversion of the
debt, unamortized debt issue costs are charged to expense.
On October 28, 2004, we entered into a securities purchase agreement with four
accredited investors, Alpha Capital Aktiengesellschaft, Stonestreet Limited
Partnership, Ellis International Ltd. and Momona Capital Corp. for the issuance
of 7% convertible debentures in the aggregate amount of $596,000. The notes bear
interest at 7% (effective interest rate of 100% on the aggregate amount), mature
on October 28, 2007 and are convertible into our common stock, at the holders'
option, at the lower of (i) $0.074 or (ii) 80% of the average of the three
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 October 28, 2007 without the consent of the
holder. The full principal amount of the convertible note is due upon default
under the terms of convertible notes. In addition, we issued an aggregate of
11,825,398 Class A warrants and 11,825,398 Class B warrants to the investors.
The warrants are exercisable until October 28, 2009 at a purchase price of $0.07
per share. Net proceeds amounted to approximately $532,000, net of debt issue
cash cost of $64,000. The relative value (limited to the face amount of the
debt) of all the warrants of $276,000 using Black Scholes option pricing model
and the beneficial conversion feature of approximately $319,000 will be
amortized over the life of the debt using the interest method. As of December
31, 2004, the balance owed was $266,000 and the unamortized discount amounted to
$250,000. Upon conversion of the debt mentioned above, any unamortized debt
issue costs will be charged to expense.
71
On December 23, 2004, we entered into a securities purchase agreement with Alpha
Capital Aktiengesellschaft, Stonestreet Limited Partnership, Ellis International
Ltd. and Momona Capital Corp. for the issuance of 7% convertible debentures in
the aggregate amount of $894,000. The notes bear interest at 7% (effective
interest rate of 100% on the aggregate amount), mature on December 23, 2007 and
are convertible into our common stock, at the holders' option, at the lower of
(i) $0.074 or (ii) 80% of the average of the three 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 December 23, 2007 without the consent of the holder. The full principal
amount of the convertible note is due upon default under the terms of
convertible notes. In addition, we issued an aggregate of 22,183,622 Class A
warrants and 22,183,622 Class B warrants to the investors. The warrants are
exercisable until December 23, 2009 at a purchase price of $0.07 per share. Net
proceeds amounted to approximately $835,000, net of debt issue cash cost of
$59,000. The relative value (limited to the face amount of the debt) of all the
warrants of $682,000 using Black Scholes option pricing model and the beneficial
conversion feature of approximately $210,000 will be amortized over the life of
the debt using the interest method. As of December 31, 2004, the balance owed
was $854,000 and the unamortized discount amounted to $848,000. Upon conversion
of the debt mentioned above, any unamortized debt issue costs will be charged to
expense.
On March 18, 2005, we held our first closing pursuant to a Subscription
Agreement we entered into with several accredited investors dated as of March
18, 2005, pursuant to which the investors subscribed to purchase an aggregate
principal amount of $2,000,000 in 6% convertible promissory notes, and 100 Class
A and Class B common stock purchase warrants for each 100 shares which would be
issued on each closing date assuming full conversion of the convertible notes
issued on each such closing date. We issued the aforementioned securities to the
investors pursuant to Rule 506 of Regulation D as promulgated under the
Securities Act of 1933, as amended (the "Act"), and/or Section 4(2) of the Act.
$1,000,000 of the purchase price was paid to us by the investors on the initial
closing date of March 18, 2005 and $1,000,000 of the purchase price will be paid
to us pursuant to the second closing, which will take place on the 5th day after
the actual effectiveness of the registration statement which we are required to
file with the Securities and Exchange Commission registering the shares of our
common stock, par value $.001 per share, issuable upon conversion of the
promissory notes and exercise of the warrants.
The convertible notes bear simple interest at 6% per annum payable upon each
conversion, June 1, 2005 and semi-annually thereafter and mature 3 years after
the date of issuance. Each investor shall have the right to convert the
convertible notes after the date of issuance and at any time, until paid in
full, at the election of the investor into fully paid and nonassessable shares
of our common stock. The conversion price per share shall be the lower of (i)
$0.047 or (ii) 80% of the average of the three lowest closing bid prices for our
common stock for the 30 trading days prior to, but not including, the conversion
date as reported by Bloomberg, L.P. on any principal market or exchange where
our common stock is listed or traded.
We issued an aggregate of 29,069,768 Class A common stock purchase warrants and
29,069,768 Class B common stock purchase warrants to the investors, representing
100 Class A and Class B warrants issued for each 100 shares which would be
issued on the each closing date assuming full conversion of the convertible
notes issued on each such closing date. The Class A warrants are exercisable
until four years from the initial closing date at an exercise price of $0.045
per share. The Class B warrants are exercisable until four years from the
initial closing date at an exercise price of $0.06 per share. The holder of the
Class B warrants will be entitled to purchase one share of common stock upon
exercise of the Class B warrants for each share of common stock previously
purchased upon exercise of the Class A warrants.
72
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).
3.7 Certificate of Amendment of Articles of Incorporation increasing
One Voice's common stock to 250,000,000.
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).
73
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).
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)
74
10.12 Alpha Capital Note dated November 14, 2002 (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 (incorporated by
reference to our registration statement on Form SB-2 filed April
30, 2003)
10.19 Form of Warrant dated June 30, 2003 (incorporated by reference to
our registration statement on Form SB-2 filed April 30, 2003)
10.20 Subscription Agreement dated September 17, 2003 (incorporated by
reference to our registration statement on Form SB-2 filed October
20, 2003)
10.21 Form of convertible note dated September 17, 2003 (incorporated by
reference to our registration statement on Form SB-2 filed October
20,2003)
10.22 Form of Warrant dated September 17, 2003 (incorporated by
reference to our registration statement on Form SB-2 filed October
20, 2003)
10.23 Security Agreement dated September 17, 2003 (incorporated by
reference to our registration statement on Form SB-2 filed October
20, 2003)
10.24 Modification Agreement dated September 17, 2003 (incorporated by
reference to our registration statement on Form SB-2 filed October
20, 2003)
10.25 La Jolla Convertible Debenture (incorporated by Reference to our
registration statement on Form SB-2 filed December 22, 2003)
10.26 La Jolla Registration Rights Agreement (incorporated by reference
to our registration statement on Form SB-2 filed December 22,
2003)
10.27 La Jolla Letter Agreement (incorporated by reference to our
registration statement on Form SB-2 filed December 22, 2003)
10.28 La Jolla Securities Purchase Agreement (incorporated by reference
to our registration statement on Form SB-2 filed December 22,
2003)
10.29 La Jolla Warrant (incorporated by reference to our registration
statement on Form SB-2 filed December 22, 2003)
10.30 La Jolla Letter Agreement (incorporated by reference to our
registration statement on Form SB-2 filed December 22, 2003)
75
10.31 Subscription Agreement dated August 18, 2004 (incorporated by
reference to our registration statement on Form SB-2 filed
September 7, 2004)
10.32 Form of Convertible Note dated August 18, 2004 (incorporated by
reference to our registration statement on Form SB-2 filed
September 7, 2004)
10.33 Form of Class A Warrant dated August 18, 2004 (incorporated by
reference to our registration statement on Form SB-2 filed
September 7, 2004)
10.34 Form of Class B Warrant dated August 18, 2004 (incorporated by
reference to our registration statement on Form SB-2 filed
September 7, 2004)
10.35 Subscription Agreement, dated October 28, 2004, by and among One
Voice Technologies, Inc., Alpha Capital Aktiengesellschaft,
Stonestreet Limited Partnership, Ellis International Ltd., and
Momona Capital Corp. (incorporated by reference to our current
report on Form 8-K filed November 9, 2004)
10.36 Fund Escrow Agreement dated October 28, 2004, by and among One
Voice Technologies, Inc., Alpha Capital Aktiengesellschaft,
Stonestreet Limited Partnership, Ellis International Ltd., Momona
Capital Corp., and Grushko & Mittman, P.C. (incorporated by
reference to our current report on Form 8-K filed November 9,
2004)
10.37 Form of Convertible Note issued to Alpha Capital
Aktiengesellschaft, Stonestreet Limited Partnership, Ellis
International Ltd., and Momona Capital Corp. (incorporated by
reference to our current report on Form 8-K filed November 9,
2004)
10.38 Form of Class A Share Purchase Warrant issued to Alpha Capital
Aktiengesellschaft, Stonestreet Limited Partnership, Ellis
International Ltd., and Momona Capital Corp. (incorporated by
reference to our current report on Form 8-K filed November 9,
2004)
10.39 Form of Class B Share Purchase Warrant issued to Alpha Capital
Aktiengesellschaft, Stonestreet Limited Partnership, Ellis
International Ltd., and Momona Capital Corp. (incorporated by
reference to our current report on Form 8-K filed November 9,
2004)
10.40 Subscription Agreement, dated March 18, 2005, by and among One
Voice Technologies, Inc. and the investors named on the signature
pages thereto. (incorporated by reference to our current report on
Form 8-K filed March 24, 2005)
10.41 Form of Convertible Note of One Voice Technologies, Inc. issued to
the investors named on the signature pages thereto. (incorporated
by reference to our current report on Form 8-K/A filed June 3,
2005)
10.42 Form of Class A Common Stock Purchase Warrant of One Voice
Technologies, Inc. issued to the investors named on the signature
pages thereto. (incorporated by reference to our current report on
Form 8-K filed March 24, 2005)
76
10.43 Form of Class B Common Stock Purchase Warrant of One Voice
Technologies, Inc. issued to the investors named on the signature
pages thereto. (incorporated by reference to our current report on
Form 8-K filed March 24, 2005)
CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of independent registered public accounting firm (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.
77
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 June 3, 2005.
ONE VOICE TECHNOLOGIES, INC.
BY: /S/ DEAN WEBER
----------------------------
DEAN WEBER, PRESIDENT,
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
& DIRECTOR
BY: /S/ RAHOUL SHARAN
------------------------------
RAHOUL SHARAN, CHIEF FINANCIAL
OFFICER (PRINCIPAL ACCOUNTING
OFFICER) & DIRECTOR
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, Director JUNE 3, 2005
- ---------------------
Dean Weber
/s/ Rahoul Sharan Chief Financial Officer, Director JUNE 3, 2005
- ---------------------
Rahoul Sharan
/s/ Bradley J. Ammon Director JUNE 3, 2005
- ---------------------
Bradley J. Ammon
78