AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 2005
COMMISSION FILE NO. 0-27589
ONE VOICE TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 95-4714338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6333 GREENWICH DRIVE, STE. 240, SAN DIEGO, CA 92122
(Address of Principal Executive Offices)
(858) 552-4466
(Issuer's Telephone Number)
(858) 552-4474
(Issuer's Facsimile Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check whether the registrants is a shell company (as defined in
rule 12b of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of November 9, 2005, the registrant had 352,963,107 shares of common stock,
$.001 par value, issued and outstanding.
Transitional small business disclosure format (check one): Yes [ ] No [X]
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. Page No.
--------
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2005 2004
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 322,679 $ 535,642
Accounts receivable 29,161 --
Other receivables -- 6,274
Inventories 13,117 9,724
Other current assets 49,212 27,756
------------ ------------
Total current assets 414,169 579,396
PROPERTY AND EQUIPMENT, net 132,393 177,949
OTHER ASSETS:
Software development costs, net 47,763 77,865
Software licensing costs, net -- 835
Trademarks, net 6,100 13,310
Patents, net 101,798 118,569
Deposits 21,111 2,157
Deferred debt issue costs 101,844 96,954
------------ ------------
Total assets $ 825,178 $ 1,067,035
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 70,323 $ 162,625
Accrued expenses 112,877 72,887
Security deposits 5,230 12,522
License agreement liability 960,000 1,050,000
Current portion of convertible notes payable, net 151,192 92,044
------------ ------------
Total current liabilities 1,299,622 1,390,078
LONG-TERM DEBT:
Long term portion of notes payable 100,000 100,000
Long term portion of convertible notes payable 158,968 32,656
------------ ------------
Total liabilities 1,558,590 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, 312,336,001 and 246,467,927 shares
issued and outstanding at September 30, 2005 and
December 31, 2004, respectively 312,336 246,468
Additional paid-in capital 41,106,969 37,139,319
Deficit accumulated during development stage (42,152,717) (37,841,486)
------------ ------------
Total stockholders' equity (deficit) (733,412) (455,699)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 825,178 $ 1,067,035
============ ============
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
January 1, 1999
Three Months Ended Nine Months Ended (Inception) to
Sept 30, 2005 Sept 30, 2004 Sept 30, 2005 Sept 30, 2004 Sept 30, 2005
------------- ------------- ------------- ------------- -------------
Revenue $ 48,139 $ 2,060 $ 82,440 $ 2,060 $ 784,866
Cost of revenue 11,636 1,930 16,489 1,930 224,094
------------- ------------- ------------- ------------- -------------
Gross profit 36,503 130 65,951 130 560,772
General and
administrative
expenses 1,115,531 1,022,471 4,377,182 3,307,623 42,713,489
------------- ------------- ------------- ------------- -------------
Net loss $ (1,079,028) $ (1,022,341) $ (4,311,231) $ (3,307,493) $ (42,152,717)
============= ============= ============= ============= =============
Net loss per share,
basic and diluted $ (0.01) $ (0.01) $ (0.02) $ (0.02)
============= ============= ============= =============
Weighted average
common equivalent
shares outstanding
basic and diluted 309,881,000 217,587,000 283,973,000 174,775,000
============= ============= ============= =============
See accompanying notes.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
January 1, 1999
Nine Months Ended (Inception) to
Sept 30, Sept 30,
2005 2004 2005
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,311,231) $ (3,307,493) $(42,152,717)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 138,764 438,026 4,474,840
Loss on disposal of assets -- -- 23,340
Amortization of discount on notes payable 1,945,442 530,846 9,388,071
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:
Receivables (22,887) 130,726 (29,161)
Inventories (3,393) -- (13,117)
Other current assets (21,456) (21,296) (49,212)
Deposits (18,954) 7,769 (21,111)
Deferred debt issue costs (4,890) -- (101,844)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable (92,302) 391,964 70,323
Accrued expenses 39,990 -- 112,877
License agreement liability (90,000) -- 960,000
Security deposit (7,292) -- 5,230
------------ ------------ ------------
Net cash used in operating activities (2,448,209) (1,829,458) (26,651,438)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (28,136) (43,007) (1,520,199)
Software licensing -- -- (1,145,322)
Software development costs -- (20,080) (1,675,601)
Trademarks -- -- (242,731)
Patents (10,154) (26,915) (185,649)
Loan fees -- -- (200,000)
------------ ------------ ------------
Net cash used in investing activities (38,290) (92,002) (4,969,502)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock 309,600 -- 18,774,748
Retirement of common stock, net -- -- (10,000)
Proceeds from loans payable -- -- 100,000
Proceeds from issuance of convertible
notes payable 1,854,976 620,975 11,600,867
Proceeds from warrant exercises 108,960 1,369,047 1,478,004
------------ ------------ ------------
Net cash provided by financing activities 2,273,536 1,990,022 31,943,619
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH (212,963) 68,562 322,679
CASH AND CASH EQUIVALENTS, beginning of period 535,642 53,709 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 322,679 $ 122,271 $ 322,679
============ ============ ============
F-5
January 1, 1999
Nine Months Ended (Inception) to
Sept 30, Sept 30,
2005 2004 2005
---------------- ---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 59,727 $ 56,497 $ 140,171
================ ================ ================
Income taxes paid $ 800 $ 800 $ 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 $ 1,399,637 $ 322,793 $ 6,971,340
================ ================ ================
Beneficial conversion feature of convertible debt $ 600,363 $ 298,182 $ 4,965,601
================ ================ ================
Common stock issued in exchange for debt $ 1,614,945 $ 505,301 $ 9,902,672
================ ================ ================
See accompanying notes.
F-6
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. 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.
Located in San Diego, California, the Company has 11 full-time
employees and 5 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:
STOCK BASED COMPENSATION:
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which was amended by SFAS
148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123", encourages but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at
the date of the grant over the amount an employee must pay to acquire
the stock. Had compensation cost for the Company's stock option awards
been determined based upon the fair value at the grant date and
recognized on a straight-line basis over the related vesting period,
in accordance with the provisions of SFAS No. 123, the Company's net
loss and loss per share would have been increased to the pro forma
amounts indicated below
Three Months Ended Nine Months Ended
Sept 30, 2005 Sept 30, 2004 Sept 30, 2005 Sept 30, 2004
------------- ------------- ------------- -------------
Net loss, as reported $ (1,079,028) $ (1,022,341) $ (4,311,231) $ (3,307,493)
Deduct: total stock based
employee compensation expense
determined under fair value based
methods for all options, net of (400) (7,600) (700) (45,600)
related tax effects -- -- -- --
------------- ------------- ------------- -------------
Pro forma net loss $ (1,079,428) $ (1,029,941) $ (4,311,931) $ (3,353,093)
============= ============= ============= =============
Earnings per share:
Basic- as reported $ (0.01) $ (0.01) $ (0.02) $ (0.02)
============= ============= ============= =============
Basic- pro forma $ (0.01) $ (0.01) $ (0.02) $ (0.02)
============= ============= ============= =============
Weighted average
common equivalent
shares outstanding
basic and diluted 309,881,000 217,587,000 283,973,000 174,775,000
============= ============= ============= =============
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The pro forma compensation costs presented above were determined using
the weighted average fair values of options granted under the
Company's stock option plans. The fair value of the grants were
estimated using the Black-Scholes option pricing model with the
following weighted-average assumptions:
Expected life 3 Years
Risk-free interest rate 5.5%
Dividend yield -
Volatility 100%
INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements include all adjustments 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
$4,311,231 during the nine months ended September 30, 2005 and through
September 30, 2005 had an accumulated deficit of $42,152,717. The
Company had negative working capital of $885,453 at September 30, 2005.
Cash flows used for operations amounted to $2,448,209 for the nine
months ended September 30, 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.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) RECENT ACCOUNTING PRONOUNCEMENTS
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
issued a revised SFAS 123, "Accounting for Share-Based Payment, Revised
Statement ("SFAS 123(R)"). SFAS 123(R) supersedes APB 25 and amends
SFAS 95, "Statement of Cash Flow". SFAS 123(R) requires all share-based
payments to employees, including grants of employee stock options, to
be recognized in the financial statements based on their fair values,
and pro forma disclosure in no longer an alternative to financial
statement recognition. SFAS 123(R) is effective for public companies at
the beginning of the first interim or annual reporting period that
begins after December 15, 2005. The Company has not assessed the impact
the adoption of SFAS 123(R) may have on its results of operations or
overall financial position.
(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 September 30, 2005 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 Philips Speech Processing, a division of
Philips Electronics North America ("Philips"). Pursuant to the License
Agreement, the Company received a world-wide, limited, nonexclusive
license to certain speech recognition software owned by Philips. 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 term.
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, through December 31, 2004(due on June 30th and
December 31st of each year). In lieu of scheduled payments, in May,
2003, based on a verbal agreement with Philips, 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. The Company is currently in discussions with
Philips to restructure the agreement and settle past due balances.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) CONVERTIBLE NOTES PAYABLE:
On July 13, 2005, we held our second 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.
On the second closing date, the Company received approximately
$935,000, net of debt issue cash cost of approximately $65,000. 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) $0.043 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 Company issued an aggregate of 38,461,537 Class A common stock
purchase warrants and 38,461,537 Class B common stock purchase warrants
to their investors. 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 fair
value of the warrants of approximately $675,000 using Black Scholes
option pricing model and the beneficial conversion feature of
approximately $325,000 will be amortized over the life of the debt
using the interest method.
During the nine months ended September 30, 2005, $1,615,000 of notes
payable was converted into approximately 50,344,000 shares of the
Company's common stock at an average conversion price of $0.032 per
share.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Convertible notes payable at September 30, 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 $ (6,536) $ 151,192
================= ================ ==============
LONG-TERM PORTION
Stonestreet Limited
Partnership December 23, 2007 $ 10,000 $ (7,706) $ 2,294
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft March 18, 2008 $ 350,000 $ (297,317) $ 52,683
----------------- --------------- --------------
Ellis International
Limited March 18, 2008 $ 56,744 $ (48,202) $ 8,542
----------------- --------------- --------------
Whalehaven Capital
Fund Limited March 18, 2008 $ 160,000 $ (135,914) $ 24,086
----------------- --------------- --------------
Omega Capital Small
Cap Fund March 18, 2008 $ 5,000 $ (4,247) $ 753
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft July 13, 2008 $ 400,000 $ (371,326) $ 28,674
----------------- --------------- --------------
Ellis International
Limited July 13, 2008 $ 125,000 $ (116,039) $ 8,961
----------------- --------------- --------------
Whalehaven Capital
Fund Limited July 13, 2008 $ 400,000 $ (371,326) $ 28,674
----------------- --------------- --------------
Omega Capital Small
Cap Fund July 13, 2008 $ 45,000 $ (41,774) $ 3,226
----------------- --------------- --------------
Osher Capital,
Inc. July 13, 2008 $ 15,000 $ (13,925) $ 1,075
----------------- --------------- --------------
TOTAL LONG TERM PORTION $ 1,566,744 $ (1,407,776) $ 158,968
================= ================ ==============
(7) COMMON STOCK:
During the nine months ended September 30, 2005, Alpha Capital
Akteingesellschaft converted approximately $559,000 of notes payable
into approximately 16,550,000 shares of the Company's common stock at
an average conversion price of $0.034. During the same period, Alpha
Capital Akteingesellschaft exercised warrants to purchase 2,000,000
shares of common stock for cash in the amount of $48,000.
F-11
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the nine months ended September 30, 2005, Stonestreet Limited
Partnership converted approximately $456,000 of notes payable into
approximately 13,822,000 shares of the Company's common stock at an
average conversion price of $0.030.
During the nine months ended September 30, 2005, Whalehaven Fund,
Limited converted $286,000 of notes payable into approximately
10,136,000 shares of the Company's common stock at an average
conversion price of $0.033.
During the nine months ended September 30, 2005, Ellis International
Ltd. converted approximately $153,000 of notes payable into
approximately 4,670,000 shares of the Company's common stock at an
average conversion price of $0.032. During the same period, Ellis
International Ltd. exercised warrants to purchase 1,540,000 shares of
common stock for cash in the amount of $36,960.
During the nine months ended September 30, 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. During the same period, Momona Capital exercised
warrants to purchase 1,000,000 shares of common stock for cash in the
amount of $24,000.
During the nine months ended September 30, 2005, Omega Capital Small
Cap Fund converted $40,000 of notes payable into approximately
1,515,000 shares of the Company's common stock at an average conversion
price of $0.027.
During the nine months ended September 30, 2005, Osher Capital Inc.
converted approximately $45,000 of notes payable into approximately
1,715,000 shares of the Company's common stock at an average conversion
price of $0.027.
During the nine months ended September 30, 2005, an accredited investor
purchased an aggregate of 11,000,000 shares of restricted common stock
for a total purchase price of $309,600. In addition, the investor
received an aggregate of 11,000,000 Class A and 11,000,000 Class B
common stock purchase warrants with an exercise price of $0.045 and
$0.06 per share respectively.
(8) SUBSEQUENT EVENTS:
During October 2005, Ellis International Ltd. converted notes payable
in the amount of $31,700 at an average conversion price of $0.025 into
approximately 1,284,000 common shares.
During October 2005, Alpha Capital AG converted notes payable in the
amount of $50,000 at an average conversion price of $0.025 into
approximately 2,000,000 common shares.
On October 13, 2005, the Company held its first closing with one
accredited investor pursuant to which the investor subscribed to
purchase an aggregate of 6,000,000 shares of restricted common stock
for a total purchase price of $196,800. In addition, the investor
received an aggregate of 6,000,000 Class A common stock purchase
warrants and 6,000,000 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.
The Company received $98,400 of the purchase price on the initial
closing date of October 13, 2005 and received an additional $98,400 of
the purchase price pursuant to the second closing, which took place on
October 25, 2005.
On October 27, 2005, Whalehaven Capital Fund Limited exercised warrants
to purchase approximately 27,000,000 shares of common stock for cash in
the amount of approximately $540,000.
F-12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED HEREIN ARE
FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FORWARD LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO STATEMENTS CONCERNING ANTICIPATED
TRENDS IN REVENUES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS
DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS. THERE IS ABSOLUTELY NO ASSURANCE
THAT WE WILL ACHIEVE THE RESULTS EXPRESSED OR IMPLIED IN FORWARD LOOKING
STATEMENTS.
OVERVIEW
One Voice Technologies, Inc. is a voice recognition technology company with over
$40 million invested in Research and Development and deployment of more than 20
million products worldwide in seven languages. Based on our patented technology,
One Voice offers voice solutions for the Telecom and Interactive Multimedia PC
markets.
Since the beginning of 2005, One Voice has launched our new Alternative to
Directory Assistance( (ADA() telephony service with Panhandle Telephone and
launched our MobileVoice( telephony service with West Central Wireless and
Eloqui Wireless. Our telephony services are now bundled in many of our carrier
partners' standard rate plans. We anticipate closing and announcing additional
carriers and launching both Cellular One of Amarillo and Ztar Mobile along with
launching a pilot of our MobileVoice service in India with Tata. Recently, our
focus has shifted to larger, less rural, carriers and we intend to focus our
resources to these opportunities.
Additionally, since the summer of 2005,One Voice has launched our Media Center
Communicator product on Newegg.com, CompUSA, Dell.com, RicaVision, PCAlchemy,
ABS Computer Technologies and Cannon PC. In October 2005 we were invited by
Microsoft to participate as a launch partner for their new version of Windows XP
Media Center Edition 2005 where One Voice announced our new mceSpeechTools
product. mceSpeechTools allows third party Media Center developers to add voice
recognition to their new or existing Media Center applications. Media Center
Communicator currently supports the latest version of Microsoft Windows XP Media
Center Edition 2005 Update Rollup 2 and will support Windows Vista when
available.
1
RESULTS OF OPERATIONS
The following table sets forth selected information from the statements of
operations for the three months and nine ended September 30, 2005 and 2004.
SELECTED STATEMENT OF OPERATIONS INFORMATION
Three Months Ended Nine Months Ended
Sept 30, Sept 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Gross revenues $ 48,139 $ 2,060 $ 82,440 $ 2,060
Cost of sales (11,636) (1,930) (16,489) (1,930)
General and administrative expenses (1,115,531) (1,022,471) (4,377,182) 3,307,623
----------- ----------- ----------- -----------
Net loss $(1,079,028) $(1,022,341) (4,311,231) (3,307,493)
=========== =========== =========== ===========
Discussion of the three months ended September 30, 2005 compared with the three
months ended September 30, 2004.
Gross revenues amounted to $48,139 and $2,060 for the three months ended
September 30, 2005 and 2004, respectively.
General and administrative expenses increased to $1,115,534 for the three months
ended September 30, 2005 from $1,022,471 for the same period in 2004. Salary and
wage expense was $301,635 for the three months ended September 30, 2005 as
compared to $303,909 for the same period in 2004. Depreciation and amortization
expenses decreased to $43,018 for the three months ended September 30, 2005 from
$142,008 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 $359,196 in 2005, as compared to $71,109 in 2004, primarily due to
the inclusion in 2005 of debt discount amortization in the amount of $340,964.
We had a net loss of $1,079,026, or basic and diluted net loss per share of
$0.01, for the three months ended September 30, 2005 compared to $1,022,341, or
basic and diluted net loss per share of $0.01, for the same period in 2004.
NINE MONTH PERIOD IN 2005 COMPARED WITH NINE MONTH PERIOD IN 2004
Gross revenue totaled 82,440 for the nine months ended September 30, 2005. Gross
revenues totaled $2,060 for the nine months ended September 30, 2004.
Operating expenses increased to $4,377,182 for the nine months ended September
30, 2005 ("2005 Period") from $3,307,623 for the nine months ended September 30,
2004 ("2004 Period"). The net increase in operating expenses over the 2004
Period was a direct result of the increased non-cash interest expense associated
with debt financings. Non-cash interest expense associated with debt financing
increased to $1,984,475 for the 2005 Period, as compared to $542,450 for the
2004 Period.
Salary and wage expense increased to $975,509 for the 2005 Period as compared to
$888,519 for the 2004 Period. Depreciation and amortization decreased to
$138,764 for the 2005 Period from $438,026 for the 2004 Period.
We had a net loss of $4,311,231 or basic and diluted net loss per share of $0.02
for the nine months ended September 30, 2005 compared to a net loss of
$3,307,493 or basic and diluted net loss per share of $0.02 for the nine months
ended September 30, 2004.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005, we had a negative working capital of $885,453 as compared
to a negative working capital of $810,682 at December 31, 2004.
In October 2005, the Company received $196,800 through a private placement of
6,000,000 shares of common stock and an aggregate of 12,000,000 warrants.
2
In addition, in October 2005, the Company received approximately $540,000 from
the exercise of 27,000,000 warrants.
Net cash used in operating activities was $2,448,209 for the 2005 Period
compared to $1,829,458 for the 2004 Period. We believe that our average monthly
cash requirements approximate $270,000. From inception on January 1, 1999 to
September 30, 2005, net cash used for operating activities was $26,651,438.
Net cash used in investing activities was $38,290 for the 2005 Period compared
to $92,002 for the 2004 Period. During the three months ended September 30,
2005, cash was primarily used for capitalized computer equipment and patents.
From inception on January 1, 1999 to September 30, 2005, net cash used for
investing activities was $4,969,502.
Net cash provided by financing activities was $2,273,536 for the 2005 Period
compared to $1,990,022 for 2004 Period. From inception on January 1, 1999 to
September 30, 2005 net cash provided by financing activities was $31,943,619.
We incurred a net loss of $4,311,231 during the 2005 Period and had an
accumulated deficit of $42,152,717. Our losses through September 30, 2005
included interest and amortization expenses, development costs and operational
and promotional expenses.
We anticipate maintaining a cash balance through our financial partners that
will sustain operations through March 2006. 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 cash flow positive. The losses through
the quarter ended September 30, 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.
Item 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our chief executive officer
and chief financial officer of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
this evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms. There was
no change in our internal controls or in other factors that could affect these
controls during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
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PART II
OTHER INFORMATION
ITEM 1. 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 our fiscal quarter ended September 30, 2005, we are aware of one pending
litigation matter. That matter was filed by La Jolla Cove Investors, Inc.
("LJCI") for an unspecified amount of damages. LJCI holds convertible debentures
related to past financings. LJCI contends that One Voice Technologies, Inc.
failed to honor its conversion notices resulting in damages. La Jolla Cove filed
a similar suit in 2004 and dismissed the suit after the Company transferred
shares pursuant to conversion notices and an interim settlement agreement. In
particular, the Company agreed to and did register 8,425,531 shares to honor the
past conversion notice and an additional 8,425,531 shares pursuant to such
agreement.
Part of the resolution of the first lawsuit restrained La Jolla Cove from
tendering additional conversion notices for a specified period of time. During
that time period, La Jolla Cove requested that we amend the terms of the
outstanding debentures. We refused to do so. We tendered back the outstanding
debenture amounts to LJCI on two occasions. We secured alternative financing and
did not honor further conversion notices from LJCI. LJCI filed a second suit and
unsuccessfully sought an injunction, which was denied by the court, to force the
Company to honor its conversion notices. It is difficult to determine the
potential liability or likelihood of success of such a claim. An adverse
decision in this litigation could materially impact the fiscal operations of the
Company.
As of our fiscal quarter ended September 30, 2005, we are aware of one material
active claim asserted against us that may result in litigation. That claim is by
a Thomas J. Frasier, Sr. Mr. Frasier claims that an unspecified amount of
damages has resulted from allegedly material misrepresentations in the Company's
press releases and previous financial disclosures. We dispute these allegations
and claimed damages. It is difficult to determine whether litigation filed on
this claim could materially impact the fiscal operation of the Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The securities described below represent our securities sold by us for the
period starting July 1, 2005 and ending September 30, 2005 that were not
registered under the Securities Act of 1933, as amended, all of which were
issued by us pursuant to exemptions under the Securities Act. Underwriters were
involved in none of these transactions.
PRIVATE PLACEMENTS OF COMMON STOCK AND WARRANTS FOR CASH
On July 11, 2005, the Company held a closing with one accredited investor
pursuant to which the investor subscribed to purchase an aggregate of 3,000,000
shares of restricted common stock for a total purchase price of $98,400. In
addition, the investor received an aggregate of 3,000,000 Class A common stock
purchase warrants and 3,000,000 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.
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SALES OF DEBT AND WARRANTS FOR CASH
None.
OPTION GRANTS
None.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
None.
5
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS:
Exhibit Number Description
- -------------- -----------
31.1 Certification of the Chief Executive Officer of One Voice
Technologies, Inc. Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of the Chief Financial Officer of One Voice
Technologies, Inc. Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.1 Certification Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
6
SIGNATURES
In accordance with the requirements of the Exchange Act of 1933, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONE VOICE TECHNOLOGIES, INC., A NEVADA CORPORATION
DATE: NOVEMBER 18, 2005 BY: /S/ DEAN WEBER
----------------------------------------------
DEAN WEBER, CHAIRMAN & CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
DATE: NOVEMBER 18, 2005 BY: /S/ RAHOUL SHARAN
----------------------------------------------
RAHOUL SHARAN, CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING AND PRINCIPAL FINANCIAL
OFFICER)
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