As Filed with the Securities and Exchange Commission on May 15, 2002
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 2002
COMMISSION FILE NO. 0-27589
-----------------------
ONE VOICE TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 95-4714338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6333 GREENWICH DRIVE, STE. 240, SAN DIEGO, CA 92122
(Address of Principal Executive Offices)
(858) 552-4466
(Issuer's Telephone Number)
(858) 552-4474
(Issuer's Facsimile Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of May 14, 2002, the registrant had 31,722,758 shares of common stock, $.001
par value, issued and outstanding.
Transitional small business disclosure format (check one): Yes [ ] No [X]
================================================================================
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Page No.
--------
Balance Sheet F-3
Statements of Operations F-4
Statement of Stockholders' Equity F-5
Statements of Cash Flows F-8
Notes to Financial Statements F-10
F-2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - MARCH 31, 2002
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 809,557
Accounts receivable, net of allowance for bad debt 184,645
Inventory 79,387
Prepaid expenses 222,095
----------------
Total current assets $ 1,295,684
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 662,792
OTHER ASSETS:
Software licensing, net of accumulated amortization 6,478
Software development costs, net of accumulated amortization 1,001,493
Deposits 52,053
Trademarks, net of accumulated amortization 144,360
Patents 65,374
----------------
Total other assets 1,269,758
---------------
$ 3,228,234
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES -
accounts payable and accrued expenses $ 570,137
4% CONVERTIBLE NOTE PAYABLE, due January 7, 2004 $ 488,925
Less unamortized discount (427,809)
----------------
61,116
4% CONVERTIBLE NOTE PAYABLE, due January 7, 2004 582,500
Less unamortized discount (509,688)
----------------
72,812
STOCKHOLDERS' EQUITY:
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding -
Common stock; $.001 par value, 50,000,000 shares
authorized, 26,752,725 shares issued and outstanding 26,753
Additional paid-in capital 24,089,187
Deficit accumulated during development stage (21,591,771)
---------------
Total stockholders' equity 2,524,169
---------------
$ 3,228,234
===============
See accompanying notes to unaudited financial statements.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
From inception on
Three months ended Three months ended January 1, 1999 to
March 31, 2002 March 31, 2001 March 31, 2002
-------------- -------------- --------------
NET REVENUES $ 284,625 $ 63,698 $ 547,175
COST OF REVENUES 30,185 20,651 169,375
---------------- ------------------ ----------------
GROSS PROFIT 254,440 43,047 377,800
GENERAL AND ADMINISTRATIVE EXPENSES 1,888,097 2,291,763 21,969,571
---------------- ------------------ ----------------
NET LOSS $ (1,633,657) $ (2,248,716) $ (21,591,771)
================ ================== ================
NET LOSS PER SHARE, basic and diluted $ (0.06) $ (0.17)
================ =================
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 25,779,814 12,907,355
================ =================
See accompanying notes to unaudited financial statements.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
accumulated
Common stock Additional during Total
------------ paid-in development stockholders'
Shares Amount capital stage equity
------ ------ ------- ----- ------
Balance at January 1, 1999 12,720,000 $ 12,720 $ $ $ 12,720
Net proceeds from issuance of
common stock in connection
with merger 7,000,000 7,000 106,236 113,236
Net proceeds from issuance of
common stock 1,500,000 1,500 2,544,422 2,545,922
Net issuance of common stock in
exchange for services 150,000 150 299,850 300,000
Redemption of common stock (10,000,000) (10,000) (10,000)
Net loss for the year ended
December 31, 1999 (1,782,215) (1,782,215)
--------------- --------------- ---------------- ---------------- ---------------
Balance at December 31, 1999 11,370,000 11,370 2,950,508 (1,782,215) 1,179,663
Net proceeds from issuance of
common stock and warrants 312,500 313 1,779,523 1,779,836
Net proceeds from issuance of
common stock and warrants 988,560 988 12,145,193 12,146,181
Issuance of warrants in exchange
for services 55,000 55,000
Issuance of options in exchange
for services 199,311 199,311
Issuance of warrants in connection
with financing 1,576,309 1,576,309
Net loss for the year ended
December 31, 2000 (9,397,620) (9,397,620)
--------------- --------------- ---------------- ---------------- ---------------
Balance at December 31, 2000 12,671,060 12,671 18,705,844 (11,179,835) 7,538,680
(Continued)
See accompanying notes to unaudited financial statements.
F-5
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
Deficit
accumulated
Common stock Additional during Total
------------ paid-in development stockholders'
Shares Amount capital stage equity
------ ------ ------- ----- ------
Conversion of debt to equity, net
Of unamortized debt discount 3,220,765 3,220 571,867 575,087
Issuance of options in exchange
for services 58,864 58,864
Issuance of stock and warrants in
Connection with settlement 110,000 110 247,940 248,050
Proceeds from sale of common stock
and warrants, net of offering costs 702,350 702 839,318 840,020
Issuance of warrants in connection
with debt financing 92,400 92,400
Beneficial conversion feature
embedded in debt securities 417,450 417,450
Conversion of debt to
equity - Laurus Master Fund 3,402,600 3,403 595,399 598,802
Conversion of debt to equity -
Stonestreet Capital 2,973,780 2,974 506,137 509,111
Net loss for the year ended
December 31, 2001 (8,778,279) (8,778,279)
--------------- --------------- ---------------- ---------------- ---------------
Balance at December 31, 2001 23,080,555 23,080 22,035,219 (19,958,114) 2,100,185
Conversion of debt to equity 2,624,447 2,625 309,940 312,565
Issuance of warrants in connection
with debt financing 361,346 361,346
Beneficial conversion feature
embedded in debt securities 964,655 964,655
Issuance of options in exchange
for services 38,000 38,000
(Continued)
See accompanying notes to unaudited financial statements.
F-6
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
Deficit
accumulated
Common stock Additional during Total
------------ paid-in development stockholders'
Shares Amount capital stage equity
------ ------ ------- ----- ------
Issuance of stock in exchange
of debt - Laurus Master Fund 551,329 551 210,524 211,075
Issuance of stock in exchange
of debt - Stonestreet Capital 496,394 497 169,503 170,000
Net loss for the three months ended
March 31, 2002 (1,633,657) (1,633,657)
--------------- --------------- ---------------- ---------------- ---------------
Balance at March 31, 2002 (unaudited) 26,752,725 $ 26,753 $ 24,089,187 $ (21,591,771) $ 2,524,169
=============== =============== ================ ================ ===============
See accompanying notes to unaudited financial statements.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Three months ended Three months ended January 1, 1999 to
March 31, 2002 March 31, 2001 March 31, 2002
-------------- -------------- --------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net loss $ (1,633,657) $ (2,248,716) $ (21,591,771)
--------------- --------------- ---------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 211,301 352,857 2,535,630
Loss on disposal of assets 114 - 500,114
Amortization of discount on note payable 569,037 30,260 1,824,062
Options issued in exchange for services 38,000 7,841 377,574
Warrants issued in exchange for services - - 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, trade (184,100) - (184,100)
Licensing revenue receivable - 323,542 (250,000)
Advertising revenue receivable - - 249,455
Inventory 30,064 6,242 (79,387)
Prepaid advertising - 50,000 -
Prepaid mailing lists - - (750,000)
Prepaid expenses (155,456) (319,920) (222,096)
Deposits (3,751) (315) (52,053)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses (116,308) (21,411) 570,137
Deferred revenue - (18,750) 250,000
--------------- --------------- ---------------
Total adjustments 388,901 410,346 4,990,986
--------------- --------------- ---------------
Net cash used for operating activities (1,244,756) (1,838,370) (16,600,785)
--------------- --------------- ---------------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment 782 (42,184) (1,397,884)
Software licensing - - (1,139,309)
Software development costs - (201,911) (1,560,223)
Trademarks (1,602) (5,603) (236,783)
Patents (6,356) - (65,374)
Loan fees - - (200,000)
--------------- --------------- ---------------
Net cash used for investing activities (7,176) (249,698) (4,599,573)
--------------- --------------- ---------------
(Continued)
See accompanying notes to unaudited financial statements.
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
From inception on
Three months ended Three months ended January 1, 1999 to
March 31, 2002 March 31, 2001 March 31, 2002
-------------- -------------- --------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net - - 17,737,915
Retirement of common stock, net - - (10,000)
Proceeds from loans payable, officer-stockholder - - (200,000)
Proceeds from loans payable - - 200,000
Proceeds from convertible note payable 1,326,000 - 4,282,000
--------------- --------------- ---------------
Net cash provided by financing activities 1,326,000 - 22,009,915
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH 74,068 (2,088,068) 809,557
CASH AND CASH EQUIVALENTS, beginning of year 735,489 4,387,622 -
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of year $ 809,557 $ 2,299,554 $ 809,557
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ - $ 1,266 $ 453,401
=============== =============== ===============
Income taxes paid $ 800 $ - $ 5,023
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Options issued in exchange for services $ 38,000 $ 7,841 $ 296,174
=============== =============== ===============
Warrants issued for settlement $ - $ - $ 221,650
=============== =============== ===============
Warrants issued in connection with financing $ 1,326,000 $ - $ 2,994,709
=============== =============== ===============
Conversion of debt to equity $ 693,640 $ 129,383 $ 2,376,640
=============== =============== ===============
See accompanying notes to unaudited financial statements.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2002
(1) ORGANIZATION:
One Voice Technologies, Inc. (formerly Conversational Systems,
Inc.) was incorporated under the laws of the State of
California on April 8, 1991. The Company commenced operations
in 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in
the opinion of management, necessary for a fair presentation
of the results of operations for the periods presented.
Interim results are not necessarily indicative of the results
to be expected for the full year ending December 31, 2002. The
financial statements should be read in conjunction with the
financial statements included in the annual report of One
Voice Technologies, Inc. (the "Company") on Form 10-KSB for
the year ended December 31, 2001.
BUSINESS ACTIVITY:
One Voice Technologies, Inc. is a developer of 4th Generation
voice solutions for the wireless, Telematics, TV/Internet
appliance and Interactive Multimedia markets.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2002
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REVENUE RECOGNITION:
The Company recognizes revenues when earned in the period in
which the service is provided. The Company's revenue
recognition policies are in compliance with all applicable
accounting regulations, including American Institute of
Certified Public Accountants ("AICPA") Statement of Position
("SOP") 97-2, Software Revenue Recognition, as amended by SOP
98-4 and SOP 98-9. Any revenues from software arrangements
with multiple elements are allocated to each element of the
arrangement based on the relative fair values using specific
objective evidence as defined in the SOPs. If no such
objective evidence exists, revenues from the arrangements are
not recognized until the entire arrangement is completed and
accepted by the customer. Once the amount of the revenue for
each element is determined, the Company recognizes revenues as
each element is completed and accepted by the customer. For
arrangements that require significant production, modification
or customization of software, the entire arrangement is
accounted for by the percentage of completion method, in
conformity with Accounting Research Bulletin ("ARB") No. 45
and SOP 81-1.
Service and license fees are deferred and recognized over the
life of the agreement. Revenues from the sale of products are
recognized upon shipment of the product.
NONMONETARY TRANSACTIONS:
The Company accounts for nonmonetary transactions based on the
fair values of the assets or services involved in accordance
with APB No. 29, "Accounting for Nonmonetary Transactions."
The cost of a nonmonetary asset acquired in exchange for
another nonmonetary asset is the fair value of the asset
surrendered to obtain it.
DEBT WITH STOCK PURCHASE WARRANTS:
The proceeds received from debt issued with stock purchase
warrants is allocated between the debt and the warrants, based
upon the relative fair values of the two securities, and the
balance of the proceeds is accounted for as additional paid-in
capital. The resulting debt discount is amortized to expense
over the term of the debt instrument, using the interest
method. In the event of settlement of such debt in advance of
the maturity date, an expense is recognized based upon the
difference between the then carrying amount (i.e., face amount
less unamortized discount) and amount of payment.
F-11
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2002
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. Inasmuch as
all debt instruments that were entered into prior to November
16, 2000 and all of the debt discount relating to the
beneficial conversion feature was previously recognized as
expense in accordance with EITF 98-5, there is no impact on
these financial statements.
F-12
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2002
(3) CONVERTIBLE NOTE PAYABLE:
During January 2002, the Company entered into a new
convertible debt financing agreement with Stonestreet Limited
Partnership and Laurus Master Fund, Ltd. for an aggregate of
$1.45 million. The stated interest rate is 4% per annum
(effective interest rate of 52%) and the unpaid principal and
interest balance is due in full by January 7, 2004. Net
proceeds to the Company amounted to approximately $1.32
million, which is net of debt issue costs. The Company issued
500,000 warrants to acquire 500,000 shares of the Company's
common stock at an exercise price of $0.96 (valued at $395,500
using the Black Scholes option pricing model). 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. In addition, since this debt is
convertible into equity at the option of the note holder at
beneficial conversion rates, an embedded beneficial conversion
feature will be recorded as a debt discount and amortized
using the effective interest rate over the life of the debt in
accordance with EITF 00-27. Total cost of beneficial
conversion feature, debt discount and cost of warrants issued
exceed the face value of the notes payable, therefore, only
$1.45 million, the face amount of the note, is recognizable as
debt discount, and is being amortized over the life of the
notes payable. Any unamortized debt discount and beneficial
conversion feature will be charged to expense upon conversion,
as interest expense.
F-13
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2002
(4) SUBSEQUENT EVENT:
Equity Financing
----------------
Subsequent to March 31, 2002, on May 7, 2002 the Company closed a
non-exclusive equity financing agreement for up to $5.8 million with
Stonestreet Limited Partnership ("Stonestreet"), with an initial put
demand by the Company for $800,000 which funded at closing. The initial
$800,000 was in exchange for 2,666,666 shares of the Company's common
stock at a price of $0.30 per share. In addition, at closing, the
Company issued 300,000 warrants to purchase shares of the Company's
common stock at an exercise price of $0.43 per share. The Company also
paid a one-time finder's fee of $48,000 and issued 75,000 warrants with
an exercise price of $0.43 per share. For the remaining $5 million, on
a monthly basis, the Company can exercise its right to require
Stonestreet to purchase a discretionary amount of the Company's Common
Stock, as determined by the Company, subject to the terms of the
agreement. The monthly amount the Company can require Stonestreet to
purchase is between $100,000 and $400,000, depending on average volume
levels and price, from which the offering price of the Company's common
stock is determined on a formula as set forth in the agreement.
Conversion of Debt
------------------
During April 2002, approximately $740,000 of notes payable was
converted into 2,200,000 shares of the Company's common stock at an
average conversion price of $0.34 per share.
F-14
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.
With soon to be millions of PC-based voice products deployed globally, One Voice
is one of the voice sectors top technology providers behind Microsoft. One Voice
has the products and technology to develop voice driven user interfaces to allow
the Home Video Entertainment industry to deliver to their end users a "Voice
Experience". A "Voice Experience" integrates the latest voice technology and
multi-media content to allow users to interact with their computers in a
multitude of new ways. Users can now navigate through content, surf the
Internet, ask questions, participate in two-way conversations, search for
information and play games by engaging their computers in an interactive spoken
dialogue.
In the telecommunications sector, One Voice has developed a server-based,
scalable voice technology platform that targets the mobile communications
market. The MobileVoice(TM) Platform operates, delivers and supports a
comprehensive suite of text messaging and two-way voice service applications,
i.e., all using voice interface. One Voice is the first and only company to
offer free-form Voice-to-Text Email, SMS, Instant Messaging and Paging from any
phone all by voice. It was designed based on years of voice technology research
and development and patented technology. The platform is easy to support and
maintain and supports all digital and analog mobile handsets. The system
delivers high accuracy performance in all mobile modes and environments. The
system operates in a speaker independent mode for several services including
Voice-Activated Dialing, Email Readback and Voice Mail. For Voice-to-Text
messaging the system can be trained to recognize the user's speech in just seven
minutes. Once training is completed, the system allows subscribers to send
free-form SMS, Email and Paging messages to anyone, anytime.
On January 7, 2002, we closed a financing with the Laurus Master Fund, Ltd. and
Stonestreet Limited Partnership for $1.45 million principal amount of 4%
convertible notes and a total of 500,000 warrants to purchase shares of our
common stock at an exercise price of $0.96 per share. Subsequently, on May 7,
2002, due to an additional financing, these warrants were repriced at $0.90 per
share pursuant to the terms of this financing agreement.
On 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 $1,452,500 principal amount of 4% convertible notes and an
aggregate of 500,000 common stock purchase warrants.
On January 9, 2002, we announced a partnering with OZ Communications Inc., a
Unified Messaging/Presence Management company, to co-develop advanced solutions
for the wireless and enterprise markets. The partnership promises to leverage
each company's core competences to bring new, state-of-the-art Presence and
Instant Messaging solutions to markets around the world. This announcement also
marked the completion of our integration with the OZ platform creating a
complete PC-to-Phone instant messaging solution for enterprise and wireless
carriers. Subsequently, OZ and One Voice have participated in joint
demonstrations and customer proposals.
On January 16, 2002, we announced our membership in Wireless Village, the Mobile
Instant Messaging and Presence Services (IMPS) Initiative. Founded in 2001 by
Telecom industry leaders Ericsson, Motorola and Nokia, Wireless Village has
gathered industry experts and leading companies in Instant Messaging to generate
pre-standards specifications, provide interoperability and to build a community
of supporting organizations. The membership will give One Voice an opportunity
to participate in the definition and evaluation of standards including the use
of its voice technology in all forms of Instant Messaging. One Voice plans to
incorporate these key standards into its MobileVoice(TM) services for wireless
carriers.
On February 5, 2002, we received a Notice of Allowance from the U.S. Patent and
Trademark Office regarding our patent entitled "Object Interactive User
Interface Using Speech Recognition and Natural Language Processing". This
patent, filed in October 1999, is the first of a series of 4th Generation voice
technology patents covering human to computer interaction with Natural Language
Processing (NLP) intelligence and Speech Recognition input from desktop,
embedded and wireless devices. One Voice is now entering the final patent stage
by filing the appropriate issuance documents and fees and anticipates formal
issuance in the coming months. Upon issuance, the patent will be available for
viewing on both the One Voice and the U.S. Patent and Trademark Office web
sites.
15
On March 18, 2002, we announced the launch and general availability of our
MobileVoice(TM) Platform for Wireless Carriers. The MobileVoice Platform
consists of a suite of carrier-grade voice subscriber services including;
MobileVoice Activated Dialing, MobileVoice Email, MobileVoice SMS, MobileVoice
Instant Messaging, MobileVoice Voice Mail and MobileVoice Email Reader. We
currently have several major domestic carriers, including Sprint, Verizon, AT&T,
Cingular and Nextel, evaluating our services for inclusion in their subscriber
services. Since the initial Beta testing, beginning in August 2001, our services
have grown from sending Voice-to-Text messages only to now encompassing a wide
array of subscriber ready voice services. During the Beta process we worked
closely with groups within the above carriers to tune and optimize our services
for their networks. We are now entering the proposal stage with the goal of
launching a market trial of one or more MobileVoice services. If selected, the
duration of a market trial could be several months with the subsequent goal of a
national rollout of these same services.
On April 1, 2002, we announced that we were selected by Warner Home Video
("WHV") to incorporate our industry leading voice technology on the upcoming
Harry Potter and the Sorcerer's Stone DVD. Our technology will be distributed on
every Harry Potter and the Sorcerer's Stone DVD globally in six languages. We
estimate the distribution of this title alone to exceed 10 million copies. Under
this agreement, WHV agrees to exclusively utilize One Voice as its preferred
developer of voice technology and to grant us a right of first negotiation for
additional titles. This agreement puts One Voice in a very strong position in
the industry since we currently believe that we have no competitors. In October
2001, The DVD Entertainment Group, representing Hollywood's major studios and
home video publishers, estimated that by the end of 2001 approximately 400
million DVDs would be shipped to retailers - up from roughly 227 million in
2000. Our strategy for the DVD/Home Entertainment industry is to be first to
market with voice interactive technology, establish ourselves as the industry
leader, sign licensing agreements with additional studio houses and be included
on many more DVD titles throughout the year. With this same strategy we are
pursuing PC-based educational learning software and the gaming industries.
On May 7, 2002, we closed a non-exclusive equity financing agreement for up to
$5.8 million with Stonestreet Limited Partnership, with an initial put demand by
us for $800,000 which funded at closing. The initial $800,000 was in exchange
for 2,666,666 shares of the Company's common stock at a price of $0.30 per
share. In addition, at closing, we issued 300,000 warrants to purchase shares of
our common stock at an exercise price of $0.43 per share. We also paid a
one-time finders fee of $48,000 and issued 75,000 warrants with an exercise
price of $0.43 per share. For the remaining $5 million, on a monthly basis, we
can exercise our right to require Stonestreet to purchase a discretionary amount
of our common stock, as determined by us , subject to the terms of the
agreement. The monthly amount we can require Stonestreet to purchase is between
$100,000 and $400,000, depending on average volume levels and price, from which
the offering price of our common stock is determined on a formula as set forth
in the agreement. Given the above funding mechanism and current volume levels
and stock price, management conservatively believes it could begin drawing down
approximately $150,000 per month starting in August 2002. This monthly draw down
can increase depending on an increase in trading volume and/or stock price.
Excluding anticipated ongoing revenues from additional DVD titles or wireless
carrier contracts and given our current cash balance including the above funding
mechanism, management conservatively believes there will be sufficient cash to
sustain current levels of operations, with no anticipated reduction in expenses,
into October 2002. Management feels this date can be extended by either
generating revenue, reducing expenses and/or drawing down more than $150,000 per
month from our May 7, 2002 equity financing agreement.
We incurred a net loss of $1,633,657 during the three months ended March 31,
2002, and had an accumulated deficit of $21,591,771. Our losses through March
2002 included amortization of software licensing agreements and development
costs and operational and promotional expenses. Sales of our equity securities
have allowed us to maintain a positive cash flow balance from financing
activities.
16
Cash flow from sales began in the first quarter 2002.
The following table sets forth selected information from the statements of
operations for the three months ended March 31, 2002 and 2001.
SELECTED STATEMENT OF OPERATIONS INFORMATION
--------------------------------------------
Three Months Three Months
Ended Ended
Mar. 31, 2002 Mar. 31, 2001
------------------- ------------------
Net Revenues $ 284,625 $ 63,698
Operating expenses $ 1,888,097 $ 2,291,763
Net loss $(1,633,657) $(2,248,716)
DISCUSSION OF THE THREE MONTHS ENDED MARCH 31, 2002 COMPARED WITH THE THREE
MONTHS ENDED MARCH 31, 2001.
Net revenues totaled $284,625 for the three months ended March 31, 2002,
primarily from Warner Home Video. Net revenues of $63,698 were earned for the
three months ended March 31, 2001, representing a 347% increase in revenue over
the past year. The recognition of revenues in the first quarter of 2001 resulted
primarily from product licensing in exchange for advertising.
Operating expenses decreased to $1,888,097 for the three months ended March 31,
2002 from $2,291,763 for the same period in 2001, a decrease of 17.6% in
operating expenses over the past year. The decrease in operating expense was a
direct result of a decrease in salaries and wages, management's efforts to cut
costs primarily from reduced promotional activities such as tradeshows and a
reduction in costly outside services including consultant activities. Salary and
wage expense was $377,032 for the three months ended March 31, 2002 as compared
to $797,756 for the same period in 2001. The decrease in 2002 as compared to
2001 arose primarily from the decreased labor force, which we have restructured
to accommodate our new direction into the telecom, telematics and TV/Internet
appliance initiatives. Advertising and promotion expense totaled $0 for the
three months ended March 31, 2002 as compared to $211,064 for the same period in
2001. Advertising and promotion expense reduction resulted from us discontinuing
all direct to consumer marketing campaigns and focusing on other distribution
channels. Legal and consulting expenses increased to $168,728 for the three
months ended March 31, 2002 from $138,836 for the same period in 2001.
Depreciation and amortization expenses decreased to $211,301 for the three
months ended March 31, 2002 from $352,857 for the same period in the prior year,
primarily due to amortization of patent and trademarks, computer equipment,
consultant fees, and tradeshow booth.
We had a net loss of $1,633,657 or basic and diluted net loss per share of $0.06
for the three months ended March 31, 2002 compared to $2,248,716 or basic and
diluted net loss per share of $0.17 for the same period in 2001.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002 we had working capital of $725,547 as compared with $2,802,393
at March 31, 2001.
Net cash used for operating activities was $1,244,756 for the quarter ended
March 31, 2002 compared to $1,838,370 for the quarter ended March 31, 2001. From
inception on January 1, 1999 to March 31, 2002, net cash used for operating
activities was $16,600,785.
Net cash used for investing activities was $7,176 for the quarter ended March
31, 2002 compared to $249,698 for the quarter ended March 31, 2001. From
inception on January 1, 1999 to March 31, 2002, net cash used for investing
activities was $4,599,573.
Net cash provided by financing activities was $1,326,000 for the quarter ended
March 31, 2002 compared to $0 for the quarter ended March 31, 2001. From
inception on January 1, 1999 to March 31, 2002 net cash provided by financing
activities was $22,009,915.
The losses through the quarter ended March 31, 2002 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
our solutions in the market;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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The securities described below represent our securities sold by us for the
period starting January 1, 2002 and ending May 15, 2002 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 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.
SALES OF DEBT AND WARRANTS FOR CASH
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.
OPTION GRANTS
None.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
All of the above offerings and sales were deemed to be exempt under Regulation D
and Section 4(2) of the Securities Act. No advertising or general solicitation
was employed in offering the securities. The offerings and sales were made to a
limited number of persons, all of whom were accredited investors, business
associates of One Voice or executive officers of One Voice, and transfer was
restricted by One Voice in accordance with the requirements of the Securities
Act of 1933. In addition to representations by the above-referenced persons, we
have made independent determinations that all of the above-referenced persons
were accredited or sophisticated investors, and that they were capable of
analyzing the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange Commission
filings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON 8-K:
(a) None.
(b) No reports on Form 8-K were filed during the fiscal quarter ended March 31,
2002.
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SIGNATURES
In accordance with the requirements of the Exchange Act of 1933, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONE VOICE TECHNOLOGIES, INC.,
a Nevada Corporation
Date: May 15, 2002 By: /s/ Dean Weber
---------------------------------
DEAN WEBER, Chairman &
Chief Executive Officer
Date: May 15, 2002 By: /s/ Rahoul Sharan
---------------------------------
RAHOUL SHARAN, Chief
Financial Officer
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