AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUG 16, 2004
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 2004
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 August 4, 2004, the registrant had 222,790,662 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
F-2
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
JUNE 30, 2004 AND DECEMBER 31, 2003
2004 2003
(UNAUDITED) (AUDITED)
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 168,946 $ 53,709
Other receivables 5,847 137,000
Prepaid expenses 47,882 37,698
------------- -------------
Total current assets 222,675 228,407
PROPERTY AND EQUIPMENT, net 192,577 214,351
OTHER ASSETS:
Software licensing, net 1,837 2,839
Software development costs, net 206,181 393,857
Deposits 2,157 9,926
Trademarks, net 22,856 47,668
Patents, net 73,449 78,186
------------- -------------
Total assets $ 721,732 $ 975,234
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,159,909 $ 910,029
LONG-TERM DEBT:
6.00% convertible notes payable -- 70,955
7.75% convertible notes payable 47,810 6,957
8.00% note payable 104,000 104,000
------------- -------------
Total liabilities 1,311,719 1,091,941
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock; $.001 par value, 250,000,000 shares
authorized, 205,939,600 and 107,130,615 shares
issued and outstanding in 2004 and 2003, respectively 205,938 107,131
Additional paid-in capital 33,948,248 32,235,170
Deficit accumulated during development stage (34,744,173) (32,459,008)
------------- -------------
Total stockholders' equity (deficit) (589,987) (116,707)
------------- -------------
Total liabilities and stockholders' equity (deficit) $ 721,732 $ 975,234
============= =============
See accompanying notes.
F-3
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
January 1, 1999
Three Months Ended Six Months Ended (Inception) to
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003 June 30, 2004
-------------- -------------- -------------- -------------- --------------
Revenues $ -- $ -- $ -- $ -- $ 700,321
Cost of revenues -- -- -- -- 205,675
-------------- -------------- -------------- -------------- --------------
Gross profit -- -- -- -- 494,646
General and
administrative
expenses 1,042,697 1,469,690 2,285,154 2,901,097 35,238,808
-------------- -------------- -------------- -------------- --------------
Net loss $ (1,042,697) $ (1,469,690) $ (2,285,154) $ (2,901,097) $ (34,744,162)
============== ============== ============== ============== ==============
Net loss per share,
basic and diluted $ (0.01) $ (0.03) $ (0.01) $ (0.06)
============== ============== ============== ==============
Weighted average
common equivalent
shares outstanding
basic and diluted 199,064,000 51,880,000 153,097,000 45,870,000
============== ============== ============== ==============
See accompanying notes.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
January 1, 1999
For the Six Months Ended (Inception) to
June 30, June 30,
2004 2003 2004
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,285,154) $ (2,901,097) $(34,744,162)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 296,019 356,896 4,132,816
Loss on disposal of assets -- -- 23,340
Amortization of discount on note payable 471,908 944,308 6,128,410
Options issued in exchange for services -- 11,271 459,393
Warrants issued in exchange for services -- -- 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Other receivable 131,153 29,846 (5,847)
Prepaid expenses (10,183) (16,023) (47,882)
Deposits 7,769 10,000 (2,157)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses 249,879 236,538 1,159,909
------------- ------------- -------------
Net cash used in operating activities (1,138,609) (1,328,261) (22,674,530)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (28,675) (18,784) (1,457,695)
Software licensing -- -- (1,145,322)
Software development costs (20,575) (67,094) (1,674,096)
Trademarks -- (262) (242,731)
Patents (6,768) (14,466) (116,545)
Loan fees -- -- (200,000)
------------- ------------- -------------
Net cash used in investing activities (56,018) (100,606) (4,836,389)
------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net -- -- 18,465,151
Retirement of common stock, net -- -- (10,000)
Payments on loans payable, officer-stockholder -- -- (200,000)
Proceeds from loans payable -- -- 304,000
Proceeds from convertible note payable -- 796,750 7,810,850
Proceeds from warrant exercise 1,309,864 -- 1,309,864
------------- ------------- -------------
Net cash provided by financing activities 1,309,864 796,750 27,679,865
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 115,237 (632,117) 168,946
CASH AND CASH EQUIVALENTS, beginning of period 53,709 745,155 --
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 168,946 $ 113,038 $ 168,946
============= ============= =============
See accompanying notes.
F-5
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
January 1, 1999
For the Six Months Ended (Inception) to
June 30, June 30,
2004 2003 2004
----------------- ----------------- -----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ -- $ -- $ 89,426
================= ================= =================
Income taxes paid $ 800 $ 800 $ 7,487
================= ================= =================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Options issued in exchange for services $ -- $ 11,271 $ 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 $ -- $ 33,777 $ 4,290,153
================= ================= =================
Beneficial conversion feature of convertible debt $ -- $ 631,209 $ 3,657,750
================= ================= =================
Common stock issued in exchange for debt $ 490,901 $ 1,102,215 $ 7,223,417
================= ================= =================
See accompanying notes.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION:
One Voice Technologies, Inc. (the "Company") (formerly Conversational
Systems, Inc.), a California corporation, was incorporated on April 8,
1999. The operations of the Company began in 1999.
On June 22, 1999 pursuant to a Merger Agreement and Plan of
Reorganization Dead On, Inc. exchanged 7,000,000 shares of common stock
for 100% of the outstanding shares of common stock of Conversational
Systems, Inc. The exchange has been accounted for as a reverse merger,
under the purchase method of accounting. In July 1999, in contemplation
of the merger between Dead On, Inc. and Conversational Systems, Inc.,
the Company repurchased and retired 10,000,000 shares of common stock.
The combination and retirement of the common stock has been recorded as
a recapitalization of stockholders' equity. Conversational Systems,
Inc. was liquidated and Dead On, Inc. changed its legal name to One
Voice Technologies, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results
of operations for the periods presented. Interim results are not
necessarily indicative of the results to be expected for the full year
ended December 31, 2004. 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, 2003.
GOING CONCERN:
The Company's financial statements have been presented on the basis
that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company incurred a net loss of
$1,042,697 during the three months ended June 30, 2004 and had an
accumulated deficit of $34,744,162.The Company had negative working
capital of $937,234 at June 30, 2004. Cash flows used for operations
amounted to $1,138,609 for the six months ended June 30, 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 and markets computer software using Intelligent
Voice Interactive Technology (IVIT(TM)) to website owners in the United
States and other countries.
F-7
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, 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 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.
(3) NOTES PAYABLE:
CONVERTIBLE NOTES PAYABLE:
--------------------------
Conversion of Debt
------------------
During the six months ended June 30, 2004 approximately $490,901 of
notes payable was converted into approximately 86,876,103 shares of the
Company's common stock at an average conversion price of $0.01 per
share.
A summary of convertible notes payable is as follows:
Due Principal Unamortized Net
Date Amount Discount Balance
---------------- ---------------- ----------------
La Jolla Cove
Investors, Inc. December 12, 2005 $ 172,128 $ (124,318) $ 47,810
---------------- ---------------- ----------------
F-8
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE PAYABLE:
On August 8, 2003 the Company entered into a note payable in the amount
of $100,000, with interest at 8.0% per annum, due on August 8, 2008. At
June 30, 2004 and December 31, 2003 the balance on the note payable was
$104,000, including a lending fee of 4% which is being amortized to
interest expense over the term of the note.
(4) COMMON STOCK:
During the six months ended June 30, 2004, Ellis Enterprise Limited
exercised warrants to purchase 2,198,734 shares of common stock for
cash in the amount of $79,254 and its convertible note payable in the
amount of $55,000 was converted at an average conversion price of
$0.023 into 2,364,575 of the Company's common stock. During the six
months ended June 30, 2004, Bristol Investments Fund, Limited exercised
warrants to purchase 4,630,810 shares of common stock for cash in the
amount of $216,429 and its convertible note payable in the amount of
$101,025 and related interest was converted at an average conversion
price of $0.023 into 4,317,308 common shares.
During the six months ended June 30, 2004, the Alpha Capital
Akteingesellschaft exercised warrants to purchase 3,897,469 shares of
common stock for cash in the amount of $134,014 and its convertible
note payable in the amount of $257,004 was converted at an average
conversion price of $0.014 into 18,558,840 shares of the Company's
common stock.
During the six months ended June 30, 2004, La Jolla Cove Investors,
Inc. exercised warrants to purchase 863,540 shares of common stock for
cash in the amount of $863,540 and converted $77,872 of the 7.75%
convertible note into 61,635,380 shares of common stock at an average
exercise and conversion price of $0.001 per share.
During the six months ended June 30, 2004, Greenwich Growth Fund
Limited exercised warrants to purchase 58,334 shares of common stock
for cash in the amount of $2,707.
During the six months ended June 30, 2004, Stonestreet Capital
exercised warrants to purchase 300,000 shares of common stock for cash
in the amount of $13,920.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) 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 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:
Three Months Ended Six Months Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
-------------- -------------- -------------- --------------
Net loss, as reported $ (1,042,697) $ (1,469,690) $ (2,285,154) $ (2,901,097)
Deduct: total stock based employee
compensation expense determined
under fair value based methods for
all options, net of related tax effects (15,723) (121,827) (37,386) (245,529)
-------------- -------------- -------------- --------------
Pro forma net loss $ (1,058,240) $ (1,591,517) $ (2,322,540) $ (3,146,626)
Earnings per share:
Basic - as reported $ (0.01) $ (0.03) $ (0.01) $ (0.06)
============== ============== ============== ==============
Basic - pro forma $ (0.01) $ (0.03) $ (0.02) $ (0.07)
============== ============== ============== ==============
Weighted average
common equivalent
shares outstanding
basic and diluted 199,064,000 51,880,000 153,097,000 45,870,000
============== ============== ============== ==============
F-10
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
$30 million invested in Research and Development and deployment of more than 20
million products worldwide in seven languages. To date, our customers include
Golden State Cellular, Panhandle Telephone, Montan Telecom, Tata Infotech,
Telispire PCS, Warner Brothers and Disney with strong technology and business
partnerships with Philips Electronics and IBM. Based on our patented technology,
One Voice offers voice solutions for the Telecom, Enterprise, PC and Interactive
Multimedia markets. Our solutions allow business and consumer phone users to
Voice Dial, Group Conference Call, Read and Send E-Mail and Instant Messages all
by voice. We offer these solutions through both domestic and international
wireless and wireline carriers along with reseller channels for corporations
with a mobile workforce. We offer PC manufacturers the ability to bundle a
complete voice interactive computer assistant which allows PC users to talk to
their computers to quickly launch applications, websites, read and send E-mails
and dictate letters. We feel we are strongly positioned across these markets
with our patented voice technology.
In May 2004, we announced that Microsoft demonstrated our soon to be released
Media Center Communicator in their Windows Hardware Showcase at the 2004 Windows
Hardware Engineering Conference (WinHEC). The Windows Hardware Showcase enabled
visitors to see firsthand what the future holds for Windows-based solutions. We
are proud to have been the only voice technology company showcased by Microsoft
at this show.
Our Media Center Communicator, scheduled for release August 2004, seamlessly
integrates with Windows XP Media Center Edition 2004 by adding a complete
communications package including sending and reading E-mail, SMS Text Messaging
to mobile phones, Instant Messaging, PC-to-Phone calling and a full-featured
voice command user interface. In August 2004 we will launch our Communicator
product, with select PC manufacturers, which will contain all the above
communications features without voice commands, followed this fall with a deluxe
Communicator product adding the voice command features. The fall release of our
deluxe version will be timed with Microsoft's release of their next version of
Windows XP Media Center.
In May 2004, we announced that Montan Telecom AG has signed a multi-year
agreement with One Voice to offer the German language version of One Voice's
MobileVoice service to Montan Telecom's subscribers in Germany, Austria and
Liechtenstein. A launch date has not currently been set.
In May 2004, we announced that One Voice and Tata Infotech had entered into a
strategic alliance for technology partnership and reselling of One Voice
products in India. Pursuant to this alliance, Tata Infotech and One Voice will
co-develop a customized version of One Voice's MobileVoice(TM) solution for use
by wireless subscribers in India's telecom market. Additionally, Tata Infotech
will act as a Value Added Reseller of One Voice's MobileVoice solution to
telecom providers in India. We are currently working with Tata Infotech to
evaluate modifications required to MobileVoice for English speaking Indian
users.
In July 2004, we received a Notice of Allowance from the patent office in China
regarding two of One Voice's patents entitled "Interactive User Interface Using
Speech Recognition and Natural Language Processing" and "Network Interactive
User Interface Using Speech Recognition and Natural Language Processing". These
patents cover human-to-computer speech recognition and Natural Language
Processing (NLP) on PC's, embedded and wireless devices. One Voice is now
entering the final patent stage in China by filing the appropriate issuance
documents and anticipates formal issuance in the coming months.
In July 2004, we announced that Telispire PCS has signed a multi-year contract
with One Voice to offer One Voice's MobileVoice service to Telispire PCS
subscribers. We are currently working with Telispire PCS to target their current
customer base which includes major universities in California and Texas.
In August 2004, we announced that Panhandle Telephone Cooperative, Inc. (PTCI)
has signed a multi-year contract with One Voice to offer One Voice's MobileVoice
service to Panhandle Telephone's residential subscribers. Under this contract,
PTCI will launch to all of its subscribers One Voice's voice-enabled alternative
to directory assistance. This voice-enabled directory will be available from any
PTCI telephone via a short code, for example #0, and is equivalent to having the
entire local phone book available from your home, business or mobile telephone.
11
RESULTS OF OPERATIONS
The following table sets forth selected information from the statements of
operations for the three months ended June 30, 2004 and 2003.
SELECTED STATEMENT OF OPERATIONS INFORMATION
For the Three Months Ended
June 30,
2004 2003
------------ ------------
Net revenues $ -- $ --
Operating expenses (1,042,697) (1,469,690)
------------ ------------
Net loss $(1,042,697) $(1,469,690)
============ ============
SECOND QUARTER 2004 COMPARED TO SECOND QUARTER 2003.
There were no revenues for the three months ended June 30, 2004. There were no
revenues for the three months ended June 30, 2003.
Operating expenses decreased to $1,042,697 for the three months ended June 30,
2004 from $1,469,690 for the same period in 2003. The decrease in operating
expenses over the same quarter 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 $307,838 for the three months ended June 30, 2004 as
compared to $332,254 for the same period in 2003. The decrease in 2004 as
compared to 2003 arose primarily from the decreased labor force, which we have
restructured to accommodate our new direction into the telecom, telematics and
TV/Internet appliance initiatives. Legal and consulting expenses decreased to
$60,247 for the three months ended June 30, 2004 as compared to $84,873 for the
same period in 2003. Depreciation and amortization expenses decreased to
$145,578 for the three months ended June 30, 2004 from $173,658 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, consultant fees, and tradeshow booth. Interest expense
decreased to $126,536 in 2004, as compared to $500,726 in 2003, primarily due to
a lack of financings and subsequent beneficial conversion features during the
second quarter of 2004.
We had a net loss of $1,042,697, or basic and diluted net loss per share of
$0.01, for the three months ended June 30, 2004 compared to $1,469,690, or basic
and diluted net loss per share of $0.03, for the same period in 2003.
SIX MONTH PERIOD IN 2004 COMPARED WITH SIX MONTH PERIOD IN 2003.
Net revenues totaled $0 for the six months ended June 30, 2004. Net revenues
totaled $0 for the six months ended June 30, 2003.
Operating expenses decreased to $2,285,154 for the six months ended June 30,
2004 ("2004 Period") from $2,901,097 for six months ended June 30, 2003 ("2003
Period"). The net decrease in operating expenses over the 2003 Period was a
direct result of the decreased non-cash interest expense associated with debt
financings being offset by all other expense categories, which decreased for the
period as compared to the year prior. Non-cash interest expense decreased to
$471,341 for the 2004 Period, as compared to $951,509 for the 2003 Period.
12
Salary and wage expense decreased to $584,610 for the 2004 Period as compared to
$659,622 for the 2003 Period. Legal fees and consulting expenses decreased to
$121,683 for the 2004 Period from $145,638 for the 2003 Period. Depreciation and
amortization expenses decreased to $296,019 for the 2004 Period from $369,747
for the 2003 Period.
We had a net loss of $2,285,154 or basic and diluted net loss per share of $0.01
for the six months ended June 30, 2004 compared to $2,901,097 or basic and
diluted net loss per share of $0.06 for the same period in 2003.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004, we had a negative working capital of $924,234 as compared to
negative working capital of $461,016 in the 2003 Period.
Net cash used in operating activities was $1,138,609 for the 2004 Period
compared to $1,328,261 for 2003 Period. We believe that our average monthly cash
requirements approximate $200,000. From inception on January 1, 1999 to June 30,
2004, net cash used for operating activities was $22,674,530.
Net cash used for investing activities was $56,018 for the 2004 Period compared
to $100,606 for the 2003 Period. During the three months ended June 30, 2004,
cash was primarily used for equipment purchases and software development costs.
From inception on January 1, 1999 to June 30, 2004, net cash used for investing
activities was $4,836,389.
Net cash provided by financing activities was $1,309,864 for 2004 Period when
compared to $796,750 for the 2003 Period. From inception on January 1, 1999 to
June 30, 2004 net cash provided by financing activities was $27,679,865.
We incurred a net loss of $2,285,154 during the 2004 Period, and had an
accumulated deficit of $34,744,173. Our losses in the 2004 Period include
interest expense, amortization of software licensing agreements and development
costs and operational and promotional expenses. Sales of our equity securities
have allowed us to maintain a positive cash flow balance from financing
activities.
Cash flow from sales began in the first quarter 2002. There have been no
material cash flows from sales during the current quarter.
We anticipate maintaining a cash balance through our financial partner that will
sustain operations up to December 2004. We continue to rely heavily on our
current method of convertible debt and equity funding, which have financed us
since 2001, until we are operating at breakeven. The losses through the year
ended December 31, 2003 were due to minimal revenue and our operating expenses,
with the majority of expenses in the areas of: salaries, legal fees, consulting
fees, as well as amortization expense relating to software development, debt
issue costs and licensing costs. We face considerable risk in completing each of
our business plan steps, including, but not limited to: a lack of funding or
available credit to continue development and undertake product rollout;
potential cost overruns; a lack of interest in its solutions in the market on
the part of wireless carriers or other customers; potential reduction in
wireless carriers which could lead to significant delays in consummating revenue
bearing contracts; and/or a shortfall of funding due to an inability to raise
capital in the securities market. Since further funding is required, and if none
is received, we would be forced to rely on our existing cash in the bank or
secure short-term loans. This may hinder our ability to complete our product
development until such time as necessary funds could be raised. In such a
restricted cash flow scenario, we would delay all cash intensive activities
including certain product development and strategic initiatives described above.
13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 August 16, 2004, the Company has been notified of potential claims
aggregating $2,600,000. As of August 16, 2004, the Company has not devoted any
substantial resources to defend these unsubstantiated claims. The aggregate of
potential claims consists of the following: 1) an approximate $211,000.00 claim
by Genuity Inc. that One Voice is responsible for cancellation fees despite
Genuity's failure to deliver the agreed upon service. No lawsuit has been filed
in this matter and no communication from Genuity has been received for
approximately two years; 2) the remaining claim is by La Jolla Cove Investors
for $2.4 million in damages. La Jolla Cove is the entity that holds convertible
debentures related to past financings. La Jolla Cove contends that One Voice
failed to honor conversion notices resulting in damages. It has been explained
to La Jolla Cove that there is an ambiguity on the date of One Voice's
conversion obligation and that damages are speculative. A part of that dispute
has been resolved by One Voice's agreement to register shares to honor the past
conversion notice. A lawsuit was filed but is being 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 La Jolla Cove
is probable.
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 June 30, 2004 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
None.
SALES OF DEBT AND WARRANTS FOR CASH
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%
(effective interest rate in excess of 100% on the aggregate amount), matures on
December 12, 2005, and are convertible into the Company's common stock, at the
holder's option, at the lower of (i) $0.25 or (ii) eighty percent (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. 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.
Beginning in the first calendar month after the registration statement is
declared effective; holder shall convert at least 7%, but no more than 15% of
the face value of the debenture per calendar month into common shares of the
company. 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.
Net proceeds amounted to approximately $237,000, net of debt issue cash cost of
$13,000. The relative value (limited to the face amount of the debt) of all the
warrants of $18,030 using Black Scholes option pricing model and the beneficial
conversion feature of approximately $231,970 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.
OPTION GRANTS
There were no option grants during the second quarter of 2004.
ISSUANCES OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
None.
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
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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. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of "disclosure
controls and procedures" in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
An evaluation was carried out under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-14(c) under the Securities
Exchange Act of 1934) as of June 30, 2004. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the design and
operation of these disclosure controls and procedures were effective. No
significant changes were made in our internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.
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) 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
(b) A Form 8-K was filed on April 19, 2004 regarding a change in
accountants.
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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: AUG 16, 2004 BY: /S/ DEAN WEBER
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DEAN WEBER, CHAIRMAN & CHIEF EXECUTIVE OFFICER
DATE: AUG 16, 2004 BY: /S/ RAHOUL SHARAN
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RAHOUL SHARAN, CHIEF FINANCIAL OFFICER
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