AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 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 JUNE 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 the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of August 11, 2005, the registrant had 311,136,312 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)
June 30, December 31,
2005 2004
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 154,098 $ 535,642
Other receivables 10,537 6,274
Inventories 5,255 9,724
Other current assets 37,139 27,756
------------ ------------
Total current assets 207,029 579,396
PROPERTY AND EQUIPMENT, net of
Accumulated depreciation and amortization 151,780 177,949
OTHER ASSETS:
Software development costs, net 54,974 77,865
Software licensing costs, net -- 835
Trademarks, net 8,432 13,310
Patents, net 108,435 118,569
Deposits 16,182 2,157
Deferred debt issue costs 61,191 96,954
------------ ------------
Total assets $ 608,023 $ 1,067,035
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 155,273 $ 162,625
Accrued expenses 109,504 72,887
Security deposits 5,230 12,522
License agreement liability 990,000 1,050,000
Current portion of convertible notes payable, net 131,476 92,044
------------ ------------
Total current liabilities 1,391,483 1,390,078
LONG-TERM DEBT:
Long term portion of notes payable, net 100,000 100,000
Long term portion of convertible notes payable 73,999 32,656
------------ ------------
Total liabilities 1,565,482 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, 301,608,056 and 246,467,927 shares
issued and outstanding at June 30, 2005 and
December 31, 2004, respectively 301,607 246,468
Additional paid-in capital 39,814,619 37,139,319
Deficit accumulated during development stage (41,073,685) (37,841,486)
------------ ------------
Total stockholders' equity (deficit) (957,459) (455,699)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 608,023 $ 1,067,035
============ ============
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, 2005 June 30, 2004 June 30, 2005 June 30, 2004 June 30, 2005
------------- ------------- ------------- ------------- -------------
Revenue $ 23,937 $ -- $ 34,300 $ -- $ 736,726
Cost of revenue 3,725 -- 4,853 -- 212,458
------------- ------------- ------------- ------------- -------------
Gross profit 20,212 -- 29,447 -- 524,268
General and
administrative
expenses 1,187,581 1,042,697 3,261,632 2,285,154 41,597,953
------------- ------------- ------------- ------------- -------------
Net loss $ (1,167,369) $ (1,042,697) $ (3,232,185) $ (2,285,154) $ (41,073,685)
============= ============= ============= ============= =============
Net loss per share,
basic and diluted $ (0.01) $ (0.01) $ (0.01) $ (0.01)
============= ============= ============= =============
Weighted average
common equivalent
shares outstanding
basic and diluted 280,726,000 199,064,000 270,987,000 153,097,000
============= ============= ============= =============
See accompanying notes.
F-4
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
January 1, 1999
Six Months Ended (Inception) to
June 30, June 30,
2005 2004 2005
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,232,185) $ (2,285,154) $(41,073,685)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Depreciation and amortization 95,746 296,019 4,431,822
Loss on disposal of assets -- -- 23,340
Amortization of discount on notes payable 1,782,253 471,908 9,224,894
Options issued in exchange for services -- -- 459,393
Warrants issued in exchange for services -- -- 221,650
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Other receivables (4,263) 131,153 (10,537)
Inventories 4,469 -- (5,255)
Other current assets (9,383) (10,183) (37,139)
Deposits (14,025) 7,769 (16,182)
Deferred debt issue costs 35,763 -- (61,191)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable (7,353) 249,879 155,274
Accrued expenses 36,617 -- 109,504
License agreement liability (60,000) -- 990,000
Security deposit (7,292) -- 5,230
------------ ------------ ------------
Net cash used in operating activities (1,379,653) (1,138,609) (25,582,882)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (23,316) (28,675) (1,515,379)
Software licensing -- -- (1,145,322)
Software development costs -- (20,575) (1,675,601)
Trademarks -- -- (242,731)
Patents (7,523) (6,768) (183,018)
Loan fees -- -- (200,000)
------------ ------------ ------------
Net cash used in investing activities (30,839) (56,018) (4,962,051)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock, net -- -- 18,465,148
Retirement of common stock, net -- -- (10,000)
Proceeds from loans payable -- -- 100,000
Proceeds from convertible note payable 919,988 -- 10,665,879
Proceeds from warrant exercise 108,960 1,309,864 1,478,004
------------ ------------ ------------
Net cash provided by financing activities 1,028,948 1,309,864 30,699,031
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH (381,544) 115,237 154,098
CASH AND CASH EQUIVALENTS, beginning of period 535,642 53,709 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 154,098 $ 168,946 $ 154,098
============ ============ ============
F-5
January 1, 1999
Six Months Ended (Inception) to
June 31, June 30,
2005 2004 2005
---------------- ---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 44,727 $ -- $ 125,171
================ ================ ================
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 $ 724,305 $ -- $ 6,296,008
================ ================ ================
Beneficial conversion feature of convertible debt $ 275,695 $ -- $ 4,640,933
================ ================ ================
Common stock issued in exchange for debt $ 1,410,266 $ 490,901 $ 9,697,993
================ ================ ================
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. We feel we are
strongly positioned across these markets with our patented voice
technology.
Located in San Diego, California, the Company has 11 full-time
employees and 6 consultant/part-time employees. The company is traded
on the NASD OTC Electronic Bulletin Board ("OTCBB") under the symbol
ONEV.OB. One Voice commenced operations on July 14, 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN:
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 Six Months Ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
------------- ------------- ------------- -------------
Net loss, as reported $ (1,167,369) $ (1,042,697) $ (3,232,185) $ (2,285,154)
Deduct: total stock based
employee compensation expense
determined under fair value based
methods for all options, net of (200) (15,723) (300) (37,386)
related tax effects -- -- -- --
Pro forma net loss (1,167,569) (1,058,240) (3,232,485) (2,322,540)
Earnings per share:
Basic- as reported $ (0.01) $ (0.01) $ (0.01) $ (0.01)
============= ============= ============= =============
Basic- pro forma $ (0.01) $ (0.01) $ (0.01) $ (0.02)
============= ============= ============= =============
Weighted average
common equivalent
shares outstanding
basic and diluted 280,726,000 199,064,000 270,987,000 153,097,000
============= ============= ============= =============
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
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results
of operations for the periods presented. Interim results are not
necessarily indicative of the results to be expected for the full year
ending December 31, 2005. The financial statements should be read in
conjunction with the financial statements included in the Company's
annual report on Form 10-KSB for the year ended December 31, 2004.
GOING CONCERN:
The Company's financial statements have been presented on the basis
that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company incurred a net loss of
$3,232,185 during the six months ended June 30, 2005 and had an
accumulated deficit of $41,073,685. The Company had negative working
capital of $1,184,454 at June 30, 2005. Cash flows used for operations
amounted to $1,379,653 for the six months ended June 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 annual period after June 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 June 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.
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.
Through March 31, 2005 the Company was accruing technology license expense
in the amount of $41,667 per month based on the revised minimum royalty
payment obligation schedule. Subsequent to March 31, 2005, the Company
determined that the accrual made during the first quarter of 2005 totaling
$125,000 was not necessary, and as a result, reversed this amount during
the quarter ended June 30, 2005.
F-9
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) CONVERTIBLE NOTES PAYABLE:
During the six months ended June 30, 2005, approximately $1,410,000 of
notes payable was converted into approximately 43,000,000 shares of
the Company's common stock at an average conversion price of $0.036
per share.
F-10
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Convertible notes payable at June 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 $ (26,252) $ 131,476
================= ================ ==============
LONG-TERM PORTION
Stonestreet Limited
Partnership December 23, 2007 $ 10,000 $ (8,188) $ 1,812
----------------- --------------- --------------
Alpha Capital
Aktiengesellschaft March 18, 2008 $ 400,000 $ (362,007) $ 37,993
----------------- --------------- --------------
Ellis International
Limited March 18, 2008 $ 125,000 $ (113,127) $ 11,873
----------------- --------------- --------------
Whalehaven Capital
Fund Limited March 18, 2008 $ 160,000 $ (144,803) $ 15,197
----------------- --------------- --------------
Omega Capital Small
Cap Fund March 18, 2008 $ 45,000 $ (40,726) $ 4,274
----------------- --------------- --------------
Osher Capital,
Inc. March 18, 2008 $ 30,000 $ (27,150) $ 2,850
----------------- --------------- --------------
TOTAL LONG TERM PORTION $ 770,000 $ (696,001) $ 73,999
================= ================ ==============
(7) COMMON STOCK:
During the six months ended June 30, 2005, Alpha Capital
Akteingesellschaft converted Approximately $510,000 of notes payable
into approximately 14,620,000 shares of the Company's common stock at
an average conversion price of $0.035. 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 six months ended June 30, 2005, Stonestreet Limited
Partnership converted approximately $460,000 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 six months ended June 30, 2005, Whalehaven Fund, Limited
converted $280,000 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 six months ended June 30, 2005, Ellis International Ltd.
converted approximately $80,000 of notes payable into approximately
2,098,000 shares of the Company's common stock at an average conversion
price of $0.040. 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 six months ended June 30, 2005, Momona Capital Corp.
converted approximately $80,000 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.
(8) SUBSEQUENT EVENTS:
During July 2005, Osher Capital converted notes payable in the amount
of $15,000 at an average conversion price of $0.027 into approximately
557,000 common shares.
During July 2005, Omega Capital converted notes payable in the amount
of $20,000 at an average conversion price of $0.026 into approximately
758,000 common shares.
During July 2005, Ellis International Ltd. converted notes payable of
approximately $43,000 at an average conversion price of $0.027 into
approximately 1,614,000 common shares.
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, we issued an aggregate of (i)
$1,000,000 in 6% convertible promissory notes, (ii) 38,461,537 Class A
common stock purchase warrants and (iii) 38,461,537 Class B common
stock purchase warrants.
The convertible notes bear simple interest at 6% per annum payable
upon each conversion, June 1, 2005 and semi-annually thereafter and
mature 3 years after the date of issuance. Each investor shall have
the right to convert the convertible notes after the date of issuance
and at any time, until paid in full, at the election of the investor
into fully paid and nonassessable shares of our common stock. The
conversion price per share shall be the lower of (i) $0.043 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 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.
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.
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.
In the telecom sector, we have products for both wireless and wireline carriers.
For wireless carriers, our MobileVoice(TM) product offers wireless subscribers
the ability to read and send e-mail, group conference call, voice dial and
generate voice-to-text SMS messages, all by voice. For residential landline
carriers, our Alternative to Directory Assistance (ADA) offers residential
subscribers the ability to call business and residential numbers by simply
speaking the business or resident's name. In the telecom sector, there are over
150 wireless operators in the United States and over 1,200 ILEC's (Incumbent
Local Exchange Carriers) providing landline services to both business and
residential subscribers. Our market strategy has been to contract with local
wireless and landline carriers to quickly generate revenue from our services and
to demonstrate the market demand and readiness for our products. We currently
have several local carriers (each with under 100,000 subscribers) which have
either launched our services or are in the process of launching our services. By
creating market awareness and competition at the local carrier level, we have
begun closing deals with regional carriers, which have under 1,000,000
subscribers, and have also begun focusing on national carriers. During the first
quarter of 2005, we signed an agreement with Rural Cellular Corporation (RCC)
which is a large regional carrier in the eastern United States having
approximately 800,000 subscribers. We anticipate RCC to launch our services to
their subscribers in the fourth quarter of 2005. By partnering with a large
regional carrier, such as RCC, it has already generated competition and market
awareness for our services at the national carrier level. We believe this bottom
up market penetration approach will generate substantial long-term recurring
revenue streams for our company and position One Voice as a dominant leader in
voice services for the telecom industry. Upcoming MobileVoice deployments for
wireless carriers include: Eloqui Wireless, Cell One of Amarillo, Plateau
Wireless, Tata Teleservices in India, RCC and Ztar Mobile (7-Eleven Speak Out
service). Upcoming landline VEDA deployments include: Panhandle Telephone
Cooperative, Hector Communications and Central Texas Telephone Cooperative.
In the PC sector, our Media Center Communicator(TM) (MCC) product allows
consumers to use their voice to play music, view photos and slideshows, read and
send e-mail and place Voice-Over-IP (VoIP) phone calls, all from their in-home
digital entertainment system - using voice commands. Our MCC product was
recently demonstrated by both Microsoft and Intel at the 2005 Consumer
Electronics Show (CES) and is currently showcased for the next 12 months at the
INNOVENTIONS attraction at Epcot at the Walt Disney World Resort in Lake Buena
Vista, Florida. Additionally, at the request of Intel, we have integrated our
MCC product on their next generation mobile PC platform. This platform is
currently being shown by Intel to PC OEM's for future production and
distribution commitments. Our market strategy has been to work with PC OEM's to
either bundle or sell our MCC product as an add-on sale of their Windows XP
Media Center PC's. Our MCC product is currently sold at 20 high traffic CompUSA
stores nationally and we are finalizing details with other large national
distribution channels.
1
In 2004, One Voice was selected by Tata Infotech, a leading Indian IT company
and part of the Tata Group, India's most trusted and best-known industrial
group, to co-develop a customized MobileVoice solution for the high growth
Indian telecom market. We have subsequently worked closely with members of their
team to tune our MobileVoice platform to increase voice recognition rates for
English speaking Indian users. Our mutual goal is to perform a pilot test of our
MobileVoice platform to telecom providers in India in the fourth quarter of
2005, with a potential launch in 2006. The wireless industry in India is one of
the fastest growing markets globally and we hope to position our products to
align with this growth. We see a tremendous opportunity to generate substantial
revenue with Tata and will continue to apply resources to make this a successful
venture in the Indian market.
In summary, One Voice has closed several contracts with telecom carriers and we
have begun generating revenue from local carriers including Golden State
Cellular, Inland Cellular and West Central Wireless. We anticipate this revenue
stream to grow rapidly with additional deployments from both local and regional
carriers for our wireless and landline telecom products along with sales from
CompUSA of our Media Center Communicator PC product. Our focus is to generate a
substantial recurring revenue stream and to become operationally break-even in
the first quarter of 2006.
RESULTS OF OPERATIONS
The following table sets forth selected information from the statements of
operations for the three months ended June 30, 2005 and 2004.
SELECTED STATEMENT OF OPERATIONS INFORMATION
Three Months Ended
June 30,
2005 2004
------------ ------------
Gross revenues $ 23,937 $ --
Cost of sales (3,725) --
General and administrative expenses (1,187,581) (1,042,697)
------------ ------------
Net loss $ (1,167,369) $ (1,042,697)
============ ============
Discussion of the three months ended June 30, 2005 compared with the three
months ended June 30, 2004.
We had revenues of $23,937 for the three months ended June 30, 2005. There were
no revenues for the three months ended June 30, 2004.
General and administrative expenses increased to $1,187,581 for the three months
ended June 30, 2005 from $1,042,697 for the same period in 2004. The increase in
general and administrative expenses over the same quarter in 2004 was due
primarily to the amortization of debt discounts during the second quarter of
2005. Salary and wage expense was $346,287 for the three months ended June 30,
2
2005 as compared to $307,838 for the same period in 2004. The increase in 2005
as compared to 2004 arose primarily from an increase in salaries. Depreciation
and amortization expenses decreased to $44,964 for the three months ended June
30, 2005 from $145,578 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 $568,182 in 2005, as compared to $126,536 in 2004,
primarily due to the inclusion in 2005 of debt discount amortization in the
amount of $502,692.
We had a net loss of $1,167,369, or basic and diluted net loss per share of
$0.01, for the three months ended June 30, 2005 compared to $1,042,697, or basic
and diluted net loss per share of $0.01, for the same period in 2004.
SIX MONTH PERIOD IN 2005 COMPARED WITH SIX MONTH PERIOD IN 2004
Net revenue totaled 29,447 for the six months ended June 30, 2005. Net revenues
totaled $0 for the six months ended June 30, 2004.
Operating expenses increased to $3,261,632 for the six months ended June 30,
2005 ("2005 Period") from $2,285,154 for the six months ended June 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 $1,625,279 for the 2005 Period, as compared to $471,341 for the 2004 Period.
Salary and wage expense increased to $673,874 for the 2005 Period as compared to
$584,610 for the 2004 Period. Depreciation and amortization decreased to $95,746
for the 2005 Period from $296,019 for the 2004 Period.
We had a net loss of $3,232,185 or basic and diluted net loss per share of $0.01
For the six months ended June 30, 2005 compared to 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.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2005, we had a negative working capital of $1,184,454 as compared to
a negative working capital of $810,682 at December 31, 2004.
Net cash used in operating activities was $1,379,653 for the 2005 Period
compared to $1,138,609 for the 2004 Period. We believe that our average monthly
cash requirements approximate $250,000. From inception on January 1, 1999 to
June 30, 2005, net cash used for operating activities was $25,582,882.
Net cash used in investing activities was $30,839 for the 2005 Period compared
to $56,018 for the 2004 Period. During the three months ended June 30, 2005,
cash was primarily used for capitalized computer equipment and patents. From
inception on January 1, 1999 to June 30, 2005, net cash used for investing
activities was $4,962,051.
Net cash provided by financing activities was $1,028,948 for the 2005 Period
compared to $1,309,864 for 2004 Period. From inception on January 1, 1999 to
June 30, 2005 net cash provided by financing activities was $30,699,031.
We incurred a net loss of $3,232,185 during the 2005 Period and had an
accumulated deficit of $41,073,685. Our losses through June 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 December 2005. We continue to rely heavily on
our current method of convertible debt and equity funding, which has financed us
since 2001, until we are operationally breakeven. The losses through the quarter
ended June 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.
3
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 June 30, 2005, we are aware of one pending
litigation matter. That matter was filed by La Jolla Cove Investors, Inc.
("LJCI"). A previous lawsuit filed by LJCI had been dismissed with prejudice.
LJCI filed another lawsuit after dismissing the first one. The most recent case
Claims One Voice failed to honor conversion notices in June of 2005. The lawsuit
claims damages in excess of $75,000 according to proof.
LJCI holds convertible debentures related to past financings. LJCI contends that
One Voice. failed to honor its conversion notices resulting in damages. One
Voice tendered the full amount of the LJCI debenture plus interest to LJCI. At
the time, LJCI was actively litigating the first suit and trying to re-negotiate
the terms of the underlying debenture documents. The parties did not reach an
agreement on the attempted re-negotiation of the terms.
One Voice intends to file a cross-complaint for declaratory relief regarding its
rights and obligations under the debenture documents with LJCI and for damages
caused by LJCI's conduct. It is One Voice's position that LJCI has repudiated
the terms of the debenture documents by its conduct.
It is difficult to access the potential liability or likelihood of success of
such a claim and cross-claim.
As of our fiscal quarter ended June 30, 2005, the Company is not aware of any
claims it believes are likely to result in litigation.
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 March 31, 2005 and ending June 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 April 22, 2005, the Company held a closing with one accredited investor
pursuant to which the investor subscribed to purchase an aggregate of 5,500,000
shares of restricted common stock for a total purchase price of $145,200. In
addition, the investor received an aggregate of 5,500,000 Class A common stock
purchase warrants and 5,500,000 Class B common stock purchase warrants to the
investor, representing 100 Class A and Class B warrants issued for each 100
shares which were issued on the closing date. The Class A warrants are
exercisable until four years from the closing date at an exercise price of
$0.045 per share. The Class B warrants are exercisable until four years from the
closing date at an exercise price of $0.06 per share. The holder of the Class B
warrants will be entitled to purchase one share of common stock upon exercise of
the Class B warrants for each share of common stock previously purchased upon
exercise of the Class A warrants.
On May 6, 2005, the Company held a closing with one accredited investor pursuant
to which the investor subscribed to purchase an aggregate of 2,500,000 shares of
restricted common stock for a total purchase price of $66,000. In addition, the
investor received an aggregate of 2,500,000 Class A common stock purchase
warrants and 2,500,000 Class B common stock purchase warrants to the investor,
representing 100 Class A and Class B warrants issued for each 100 shares which
were issued on the closing date. The Class A warrants are exercisable until four
years from the closing date at an exercise price of $0.045 per share. The Class
B warrants are exercisable until four years from the closing date at an exercise
price of $0.06 per share. The holder of the Class B warrants will be entitled to
purchase one share of common stock upon exercise of the Class B warrants for
each share of common stock previously purchased upon exercise of the Class A
warrants.
4
SALES OF DEBT AND WARRANTS FOR CASH
None.
OPTION GRANTS
During the quarter ended June 30, 2005, we issued an aggregate total of 125,000
options to employees.
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: AUGUST 19, 2005 BY: /S/ DEAN WEBER
----------------------------------------------
DEAN WEBER, CHAIRMAN & CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
DATE: AUGUST 19, 2005 BY: /S/ RAHOUL SHARAN
----------------------------------------------
RAHOUL SHARAN, CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING AND PRINCIPAL FINANCIAL
OFFICER)
7