f10q0909_onevoice.htm
WASHINGTON, D.C. 20549
FORM
10-Q
[X] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
COMMISSION FILE NUMBER
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.)
|
|
7825 Fay Ave. Suite 200, La Jolla CA
92037
(Address
of principal Executive Offices) (Zip Code)
|
(866) 823-1432
|
|
(858) 754-1276
|
|
|
(Issuer's
Telephone Number)
|
|
(Issuer's
Facsimile Number)
|
|
Securities
registered under Section 12(b) of the Exchange Act:
None.
Securities
registered under Section 12(g) of the Exchange Act:
COMMON STOCK-$.001 PAR
VALUE
(Title
of Class)
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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o Noo
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
definitions of "large accelerated filer," "accelerated filed," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated
filer o |
Accelerated
filer o |
Non-accelerated
filer o
(Do not
check if a smaller reporting company)
|
Smaller reporting
company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yeso Nox
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a
court. Yeso
Noo
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
As of
November 23, 2009 the registrant had 74,799,175 shares of common stock, $.001
par value, issued and outstanding.
TABLE
OF CONTENTS
|
Page
|
|
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
Item
1. Financial Statements (Unaudited)
|
1 |
|
|
Item
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
|
27 |
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
36 |
|
|
Item
4T. Controls and Procedures
|
36 |
|
|
PART
II - OTHER INFORMATION
|
|
|
|
Item
1. Legal Proceedings
|
37 |
|
|
Item
1A. Risk Factors
|
37 |
|
|
Item
2. Unregistered Sales of Equity
Securities
|
39 |
|
|
Item
3. Defaults Upon Senior Securities
|
40 |
|
|
Item
4. Submission of Matters to a Vote of
Security
|
40 |
|
|
Item
5. Other Information
|
40 |
|
|
Item
6. Exhibits
|
40 |
|
|
SIGNATURES
|
41 |
FINANCIAL
INFORMATION
One
Voice Technologies, Inc
|
|
Balance
Sheet
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(UNAUDITED)
|
|
|
(AUDITED)
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
- |
|
|
$ |
666 |
|
Accounts
receivable, net
|
|
|
47,243 |
|
|
|
95,840 |
|
Inventories
|
|
|
20,213 |
|
|
|
20,479 |
|
Prepaid
expenses
|
|
|
0 |
|
|
|
41,130 |
|
Total
Current Assets
|
|
|
67,456 |
|
|
|
158,115 |
|
|
|
|
|
|
|
|
|
|
Fixed
and Intangible assets
|
|
|
|
|
|
|
|
|
Property
and Equipment, net of accumulated depreciation
|
|
|
38,935 |
|
|
|
26,455 |
|
Intangible
assets, net of accumulated amortization
|
|
|
11,837 |
|
|
|
26,024 |
|
Total
Fixed and Intangible Assets
|
|
|
50,772 |
|
|
|
52,479 |
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
4,732 |
|
|
|
4,732 |
|
Total
Other Assets
|
|
|
4,732 |
|
|
|
4,732 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
122,960 |
|
|
$ |
215,326 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
$ |
10,234 |
|
|
$ |
- |
|
Accounts
payable
|
|
|
563,935 |
|
|
|
539,562 |
|
Accrued
expenses
|
|
|
1,100,404 |
|
|
|
821,452 |
|
Settlement
agreement liability
|
|
|
177,185 |
|
|
|
173,091 |
|
License
agreement liability
|
|
|
1,371,000 |
|
|
|
1,267,500 |
|
Current
notes payable
|
|
|
193,606 |
|
|
|
133,264 |
|
Debt
derivative liability
|
|
|
1,281,856 |
|
|
|
1,805,482 |
|
Warrant
derivative liability
|
|
|
25,572 |
|
|
|
31,266 |
|
Convertible
notes payable, net
|
|
|
546,000 |
|
|
|
546,000 |
|
Revolving
line of credit
|
|
|
2,752,683 |
|
|
|
2,374,621 |
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
8,022,475 |
|
|
|
7,692,238 |
|
|
|
|
|
|
|
|
|
|
Long
term notes payable
|
|
|
7,400 |
|
|
|
67,742 |
|
Total
Liabilities
|
|
|
8,029,875 |
|
|
|
7,759,980 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
Deficit
|
|
|
|
|
|
|
|
|
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 10,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
no
shares issued and outstanding
|
|
|
- |
|
|
|
- |
|
Common
stock, $0.001 par value; 1,290,000,000 shares authorized;
68,549,175
|
|
|
|
|
|
|
|
|
and
60,929,085 issued and outstanding as of September 30, 2009
and
|
|
|
1,325,182 |
|
|
|
1,218,582 |
|
December
31, 2008 respectively
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
43,973,781 |
|
|
|
43,920,439 |
|
Escrow
Shares
|
|
|
(713,087 |
) |
|
|
(713,087 |
) |
Accumulated
deficit
|
|
|
(52,492,791 |
) |
|
|
(51,970,588 |
) |
Total
Stockholders' Deficit
|
|
|
(7,906,915 |
) |
|
|
(7,544,654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
|
$ |
122,960 |
|
|
$ |
215,326 |
|
|
|
|
|
|
|
|
|
|
THE
ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL
STATEMENTS.
One
Voice Technologies, Inc
|
|
|
|
|
|
|
|
Statements
of Operations
|
|
|
|
|
|
|
|
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE
MONTHS ENDED
|
|
|
NINE
MONTHS ENDED
|
|
|
|
SEPTEMBER
30,
|
|
|
SEPTEMBER
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
|
|
$ |
79,243 |
|
|
$ |
147,593 |
|
|
$ |
246,475 |
|
|
$ |
481,717 |
|
Cost
of good sold
|
|
|
53,659 |
|
|
|
99,870 |
|
|
|
160,420 |
|
|
|
294,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
25,584 |
|
|
|
47,723 |
|
|
|
86,055 |
|
|
|
187,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
324,370 |
|
|
|
603,144 |
|
|
|
944,038 |
|
|
|
2,454,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
324,370 |
|
|
|
603,144 |
|
|
|
944,038 |
|
|
|
2,454,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(298,786 |
) |
|
|
(555,421 |
) |
|
|
(857,983 |
) |
|
|
(2,267,139 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(73,675 |
) |
|
|
(134,880 |
) |
|
|
(189,440 |
) |
|
|
(629,358 |
) |
Gains
(loss) from change in derivative liability
|
|
|
2,771,046 |
|
|
|
64,315 |
|
|
|
529,320 |
|
|
|
1,967,089 |
|
Other
income (expense)
|
|
|
(10,476 |
) |
|
|
10,231 |
|
|
|
(4,100 |
) |
|
|
10,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Expense)
|
|
|
2,686,895 |
|
|
|
(60,334 |
) |
|
|
335,780 |
|
|
|
1,347,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before taxes
|
|
|
2,388,109 |
|
|
|
(615,755 |
) |
|
|
(522,203 |
) |
|
|
(919,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$ |
2,388,109 |
|
|
$ |
(615,755 |
) |
|
$ |
(522,203 |
) |
|
$ |
(919,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.03 |
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares used in calculation of loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted (Adjusted for impact of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-for-20
reverse split)
|
|
|
68,525,711 |
|
|
|
50,389,200 |
|
|
|
65,647,738 |
|
|
|
43,645,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE
ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL
STATEMENTS.
One
Voice Technologies, Inc
|
|
Statements
of Cash Flows
|
|
(UNAUDITED)
|
|
|
|
NINE
MONTH ENDED
|
|
|
|
SEPTEMBER
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(522,203 |
) |
|
$ |
(919,977 |
) |
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
25,352 |
|
|
|
156,154 |
|
Debt
issue costs and debt discount amortization
|
|
|
- |
|
|
|
439,358 |
|
(Gain)
loss on debt derivative liability
|
|
|
(523,626 |
) |
|
|
261,754 |
|
(Gain)
loss on warrant derivative liability
|
|
|
(5,694 |
) |
|
|
(2,252,843 |
) |
Common
stock issued for services rendered
|
|
|
11,040 |
|
|
|
552,408 |
|
Common
stock issued for liquidated damages
|
|
|
- |
|
|
|
24,000 |
|
Stock
based compensation
|
|
|
43,308 |
|
|
|
75,484 |
|
Non
cash assets placed in service for India Launch
|
|
|
(23,645 |
) |
|
|
- |
|
Settlement
liability
|
|
|
4,094 |
|
|
|
- |
|
License
agreement liability
|
|
|
103,500 |
|
|
|
86,500 |
|
|
|
|
|
|
|
|
|
|
Changes
in certain assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
48,597 |
|
|
|
(96,904 |
) |
Inventory
|
|
|
266 |
|
|
|
(19,506 |
) |
Prepaid
expenses
|
|
|
41,130 |
|
|
|
(24,815 |
) |
Accounts
payable
|
|
|
24,373 |
|
|
|
246,945 |
|
Accrued
expenses
|
|
|
291,108 |
|
|
|
449,958 |
|
Deferred
rent
|
|
|
- |
|
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
Net
Cash Used in Operating Activities
|
|
|
(482,400 |
) |
|
|
(1,019,658 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
- |
|
|
|
(3,221 |
) |
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Investing Activities
|
|
|
- |
|
|
|
(3,221 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
|
10,234 |
|
|
|
8,000 |
|
Proceeds
from revolving line
|
|
|
471,500 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Financing Activities
|
|
|
481,734 |
|
|
|
1,008,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(666 |
) |
|
|
(14,879 |
) |
Cash
and Cash Equivalents - Beginning of Year
|
|
|
666 |
|
|
|
14,879 |
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - End of Year
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
Paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
- |
|
|
$ |
- |
|
Income
taxes paid
|
|
|
- |
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued upon conversion of debt
|
|
$ |
105,594 |
|
|
$ |
1,264,710 |
|
|
|
|
|
|
|
|
|
|
THE
ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE FINANCIAL
STATEMENTS.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF
BUSINESS
One Voice
Technologies, Inc. is a voice recognition technology company with over $43
million invested in Research and Development and deployment of products in both
the telecom and PC multi-media markets. To date, our customers include:
Telefonos de Mexico, S.A.B. de C.V. (TELMEX), Intel Corporation, Inland
Cellular, Nex-Tec Wireless and several additional telecom service providers
throughout the United States. Our telecom solutions allow business and consumer
phone users to Voice Dial, Group Conference Call, Read and Send E-Mail and
Instant Message, all by voice. We offer PC Original Equipment Manufacturers
(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 reading and sending 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.
The
Company is traded on the NASD OTC Bulletin Board ("OTCBB") under the symbol
OVOE. One
Voice is incorporated in the State of Nevada and commenced operations on July
14, 1999.
Effective
June 16, 2009, the Company completed a 1-for-20 reverse split of its common
stock as approved by a majority vote of the Company's stockholders on May 22,
2009. As of June 16, 2009 the Company’s shares began trading on a
split adjusted basis under the new symbol OVOE. See Note 13 to the
financial statements.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
INTERIM FINANCIAL
STATEMENTS:
The
accompanying audited financial statements represent the financial activity of
One Voice Technologies, Inc. These financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and note disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been included or omitted pursuant to such rules and
regulations. These financial statements and the accompanying notes are unaudited
and should be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2008. In the opinion of management, the financial statements herein
include adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of the Company's financial position as of September 30,
2009, and results of operations for the three and nine months ended September
30, 2009 and 2008. The results of operations for the three and nine months ended
September 30, 2009 are not necessarily indicative of the operating results to be
expected for the full fiscal year or any future periods.
ORGANIZATION
AND BASIS OF PRESENTATION
One Voice
Technologies, Inc., ("The Company"), is incorporated under the laws of the State
of Nevada. The Company develops voice recognition software and it commenced
operations in 1999. The Company's telecom solutions allow business and consumer
phone users to Voice Dial, Group Conference Call, Read and Send E-Mail and
Instant Message, all by voice. We offer PC Original Equipment Manufacturers
(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 reading and sending e-mail messages, SMS text
messaging to mobile phones, PC-to-Phone calling (VoIP) and PC-to-PC
audio/video.
GOING
CONCERN
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company has incurred significant losses since inception of $52,492,791 and used
cash from operations of $482,400 during the nine months ended September 30,
2009. The Company also has a working capital deficit of $7,955,019 of
which $1,307,428 represents non-cash warrant and debt derivative
liabilities.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The
Company also has a stockholders' deficit of $7,906,915 as of September 30, 2009.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management has instituted a cost reduction program that
included a reduction in labor and fringe costs. Historically, management has
been able to obtain capital through either the issuance of equity or debt, and
is currently seeking such financing. There can be no assurance as to the
availability or terms upon which such financing and capital might be available.
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.
USE
OF ESTIMATES
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the amount of revenue and expense reported during
the period. Significant estimates include valuation of derivative and warrant
liabilities. Actual results could differ from those estimates.
CASH
AND CASH EQUIVALENTS
For
purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.
ACCOUNTS
RECEIVABLE
Trade
accounts receivable are stated at amounts billed to and due from clients, net of
an allowance for doubtful accounts. Credit is extended based on evaluation of a
client’s financial condition, and collateral is not required. In determining the
adequacy of the allowance, management identifies specific receivables for which
collection is not certain and estimates the potentially uncollectible amount
based on the most recently available information. The Company writes off
accounts receivable when they are determined to be uncollectible, and payments
subsequently received on such receivables are credited to the allowance for
doubtful accounts. As of September 30, 2009 and December 31, 2008, the Company
had a reserve for doubtful accounts of $277,177 and $135,289,
respectively.
CONCENTRATION
OF CUSTOMER
The
Company generated 82% of total revenues from three major customers in
the nine month period ended September 30, 2009. The
accounts receivable balance for these customers at September 30, 2009
represented 72% of the total net accounts receivable.
REVENUE
RECOGNITION
The
Company recognizes revenue when persuasive evidence of a sale arrangement
exists, delivery has occurred or services have been rendered, the sales price is
fixed or determinable, and collectability is reasonably assured.
In most
cases, revenue from hardware and software product sales is recognized when title
passes to the customer. Based upon the Company's standard shipping terms, FOB
The Company, title passes upon shipment to the customer. The Company ships
a portion of its hardware and software products on consignment. Revenue for
these products is recognized when title passes to the end consumer. These
products are included in the Company’s inventory totals for the nine months
ended September 30, 2009 and year ended December 31, 2008.
Revenue
is recognized on service contracts using the proportional-performance method.
The Company uses the proportional-performance method when a service contract
involves an unspecified number of acts over a fixed time period for
performance. Revenue is recognized over the period during which the
acts will be performed by using the straight-line method.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRADEMARKS
AND PATENTS
The
Company's trademark costs consist of legal fees paid in connection with
trademarks. The Company amortizes trademarks using the straight-line method over
the period of estimated benefit, generally four years. The Company's patent
costs consist of legal fees paid in connection with patents pending. The Company
amortizes patents using the straight-line method over the period of estimated
benefit, generally five years. Yearly patent renewal fees are expensed in the
year incurred.
The
Company evaluates its operations to ascertain if a triggering event has occurred
which would impact the value of finite-lived intangible assets (e.g., patents).
Examples of such triggering events include a significant disposal of a portion
of such assets, an adverse change in the market involving the business employing
the related asset, a significant decrease in the benefits realized from an
asset
As of
September 30, 2009, no such triggering event has occurred. An impairment test
involves a comparison of undiscounted cash flows against the carrying value of
the asset as an initial test. If the carrying value of such asset exceeds the
undiscounted cash flow, the asset would be deemed to be impaired. Impairment
would then be measured as the difference between the fair value of the fixed or
amortizing intangible asset and the carrying value to determine the amount of
the impairment. The Company determines fair value generally by using the
discounted cash flow method. To the extent that the carrying value is greater
than the asset's fair value, an impairment loss is recognized for the
difference.
CONVERTIBLE
NOTES AND FINANCIAL INSTRUMENTS WITH EMBEDDED FEATURES
The
Company accounts for conversion options embedded in convertible notes in
accordance with "Accounting for Derivative Instruments and Hedging Activities",
as codified in ASC 815 and ASC 460 "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" ("ASC
815, 460”). ASC 815 generally requires Companies to bifurcate conversion
features embedded in convertible notes from their host instruments and to
account for them as free standing derivative financial instruments in accordance
with ASC 460. ASC 815 provides for an exception to this rule when convertible
notes, as host instruments, are deemed to be conventional as that term is
described in the implementation guidance under Appendix A to ASC 815 and further
clarified in ASC 815 "The Meaning of "Conventional Convertible Debt Instrument"
in ASC 815, 460.
The
Company accounts for convertible notes (if deemed conventional) in accordance
with the provisions of ASC 470 "Accounting for Convertible Securities with
Beneficial Conversion Features," ("ASC 470"), ASC 260, 470 "Application of ASC
470 to Certain Convertible Instruments," Accordingly, the Company records, as a
discount to convertible notes, the intrinsic value of such conversion options
based upon the differences between the fair value of the underlying common stock
at the commitment date of the note transaction and the effective conversion
price embedded in the note. Debt discounts under these arrangements are
amortized over the term of the related debt to their earliest date of
redemption.
The
Company’s convertible notes do host conversion features and other features that
are deemed to be embedded derivatives financial instruments or beneficial
conversion features based on the commitment date fair value of the underlying
common stock.
COMMON
STOCK PURCHASE WARRANTS AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS
The
Company accounts for the issuance of common stock purchase warrants issued and
other free standing derivative financial instruments in accordance with the
provisions of ASC 815, 460. Based on the provisions of ASC 815, 460, the Company
classifies as equity any contracts that (i) require physical settlement or
net-share settlement or (ii) gives the Company a choice of net-cash settlement
or settlement in its own shares (physical settlement or net-share settlement).
The Company classifies as assets or liabilities any contracts that (i) require
net-cash settlement (including a requirement to net cash settle the contract if
an event occurs and if that event is outside the control of the Company) (ii)
give the counterparty a choice of net-cash settlement or settlement in shares
(physical settlement or net-share settlement).
See notes
9 and 10 in
the accompanying footnotes to the financial statements for additional
details.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET
LOSS PER COMMON SHARE
Basic
earnings per share ("EPS") is calculated using the weighted-average number of
outstanding common shares during the period. Diluted earnings per share is
calculated using the weighted-average number of outstanding common shares and
dilutive common equivalent shares outstanding during the period, using either
the as-converted method for convertible notes and convertible preferred stock or
the treasury stock method for options and warrants.
The net
(loss) per common share for the nine months ended September 30, 2009 and 2008 is
based on the weighted average number of shares of common stock outstanding
during the periods. Potentially dilutive securities include options, warrants
and convertible debt.
The
following table is a reconciliation of the numerator (net income / (loss)) and
the denominator (number of shares) used in the basic and diluted EPS
calculations and sets forth potential shares of common stock that are not
included in the diluted net loss per share calculation as the effect is
antidilutive:
|
|
NINE
MONTHS ENDED
|
|
|
|
SEPTEMBER
30,
|
|
|
|
2009
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
2008
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
NUMERATOR
- basic net income
|
|
$ |
(522,203 |
) |
|
$ |
(919,977 |
) |
DENOMINATOR-
BASIC
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
65,647,738 |
|
|
|
43,645,050 |
|
DENOMINATOR-DILUTIVE
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
TOTAL
BASIC AND DILUTED SHARES
|
|
|
65,647,738
|
|
|
|
43,645,050 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE- BASIC
|
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE- DILUTED
|
|
$ |
(0.01 |
) |
|
$ |
(0.02 |
) |
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
NET
LOSS PER COMMON SHARE (CONTINUED)
|
|
NINE
MONTHS ENDED
SEPTEMBER
30,
|
|
|
|
2009
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
2008
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
POTENTIAL
DILUTIVE COMMON SHARES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debentures
|
|
344,740,804 |
|
|
74,152,263 |
|
Options
|
|
2,859,850 |
|
|
3,146,700 |
|
Warrants
|
|
9,907,467 |
|
|
13,795,345 |
|
Escrow
shares
|
|
2,093,945 |
|
|
0 |
|
|
|
|
|
|
|
|
TOTAL
POTENTIAL DILUTIVE SHARES
|
|
359,602,066 |
|
|
91,094,308 |
|
ACCOUNTING
FOR STOCK-BASED COMPENSATION
On
January 1, 2006 the Company adopted ASC 505, 718 (Revised 2004), "Share Based
Payment," ("ASC 505, 718"), using the modified prospective method. In accordance
with ASC 505, 718, the Company measures the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award. That cost is recognized over the period during which an
employee is required to provide service in exchange for the award - the
requisite service period. The Company determines the grant-date fair value of
employee share options using the Black-Scholes option-pricing
model.
During
the nine months ended September 30, 2009 and 2008, the Company recorded $43,308
and $75,484 respectively, in non-cash charges for stock based
compensation.
The fair
value of stock options at date of grant was estimated using the Black-Scholes
model with the following assumptions: expected volatility of 120.5% and 90.9%,
respectively, expected term of 2.0 years, risk-free interest rate of 4.74% and
an expected dividend yield of 0%. Expected volatility is based on the historical
volatilities of the Company's common stock. The expected life of employee stock
options is determined using guidance from SAB 107. As such, the expected life of
the options and warrants is the average of the vesting term and the full
contractual term of the options and warrants. The risk free interest rate is
based on the U.S. Treasury notes for the expected life of the stock
option.
COMPREHENSIVE
INCOME
The
Company has adopted ASC 220, "Reporting
Comprehensive Income," which establishes standards for reporting comprehensive
income and its components in the financial statements. Comprehensive income
consists of net income and other gains and losses affecting shareholders' equity
that, under generally accepted accounting principles are excluded from net
income. For the nine months ended September 30, 2009 and 2008, the Company's
comprehensive income (loss) had equaled its net income (loss). Accordingly, a
statement of comprehensive loss is not presented.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT
ACCOUNTING PRONOUNCEMENTS
In June
2009, the Financial Accounting Standards Board ("FASB") established the FASB
Accounting Standards Codification (the "Codification") to become the source of
authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants. The Codification was effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Codification superseded all then-existing non-SEC accounting and
reporting standards on July 1, 2009, and all other non-grandfathered
non-SEC accounting literature not included in the Codification became
nonauthoritative. The adoption of the Codification did not have a material
impact on our consolidated financial statements and results of
operations.
In
April 2009, the FASB amended its existing standards for accounting and
disclosures related to certain financial instruments including:
(a) providing additional rules for estimating fair value when the
volume and level of activity for the asset or liability has significantly
decreased; (b) identifying circumstances that indicate a transaction is not
orderly; (c) amending the other-than-temporary impairment rules for
debt securities to make it more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements; and (d) requiring enhanced disclosures about the
fair value of financial instruments on an interim basis in addition to the
annual disclosure requirements (Note 10). The new standards were required
to be adopted for interim periods ending after June 15, 2009.
Implementation of this standard does not have a material impact on our financial
statements.
In
April 2009, the FASB issued accounting standards under ASC Topic “Financial
Instruments” (previously FASB Staff Position (“FSP”) SFAS No. 107-1 and
Accounting Principles Board (“APB”) Opinion No. 28-1) which extend the
annual financial statement disclosure requirements for financial instruments to
interim reporting periods of publicly traded companies. Implementation of this
standard does not have a material impact on our financial
statements.
In April
2009, the FASB issued guidance that applies to investments in debt securities
for which other-than-temporary impairments may be recorded. If an entity’s
management asserts that it does not have the intent to sell a debt security and
it is more likely than not that it will not be required to sell the security
before recovery of its cost basis, then an entity may separate other-than
temporary impairments into two components: (i) the amount related to credit
losses (recorded in earnings) and (ii) all other amounts (recorded in other
comprehensive income). Implementation of this standard does not have a material
impact on our financial statements.
The
Company has adopted all recently issued accounting pronouncements. The adoption
of the accounting pronouncements, including those not yet effective, is not
anticipated to have a material effect on the financial position or results of
operations of the Company.
In
December 2007, the Financial Accounting Standards Board (FASB) amended its
existing standards for noncontrolling interests in consolidated financial
statements, which was effective for interim and annual fiscal periods beginning
after December 15, 2008. The new standard established accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
accounting for future ownership changes with respect to those
subsidiaries. The new standard defined a noncontrolling interest,
previously called a minority interest, as the portion of equity in a subsidiary
not attributable, directly or indirectly, to a parent. The new standard
required, among other items, that a noncontrolling interest be included in the
consolidated balance sheet within equity, separate from the parent’s equity;
consolidated net income to be reported at amounts inclusive of both the parent’s
and noncontrolling interest’s shares and, separately, the amounts of
consolidated net income attributable to the parent and noncontrolling interest
all on the consolidated statements of income; and if a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be measured at fair value and a gain or loss be recognized in net
income based on such fair value. The adoption of these provisions did not have a
material effect on our financial statements.
In
March 2008, the FASB amended its existing standards for disclosures about
derivative instruments and hedging activities, which was effective for interim
and annual fiscal periods beginning after November 15, 2008. The new
standards require enhanced
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
disclosures
about a company’s derivative and hedging activities. For additional
information regarding derivative instruments and hedging activities, (see Note
9).
In
June 2009, the FASB amended its existing standards for subsequent events,
which was effective for interim and annual fiscal periods ending after
June 15, 2009, and established general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. The new
standard established the period after the balance sheet date during which the
Company should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, the circumstances under
which we should recognize events or transactions occurring after the balance
sheet date and the disclosures that should be made about events or transactions
that occurred after the balance sheet date. The adoption of these
provisions did not have a material effect on our financial
statements.
The
Company evaluates events that occur subsequent to the balance sheet date of
periodic reports, but before financial statements are issued for periods ending
on such balance sheet dates, for possible adjustments to such financial
statements or other disclosure. This evaluation generally occurs
through the date at which the Company’s financial statements are electronically
prepared for filing with the SEC. For the financial statements as of
and for the periods ending September 30, 2009, this date was November 19,
2009.
Effective
at the start of a reporting entity's first fiscal year beginning after
November 15, 2009, or January 1, 2010, for a calendar year-end entity,
the Codification will require more information about transfers of financial
assets, including securitization transactions, and transactions where entities
have continuing exposure to the risks related to transferred financial assets.
The Codification eliminates the concept of a "qualifying special-purpose
entity," changes the requirements for derecognizing financial assets, and
requires additional disclosures about an entity's involvement with variable
interest entities and any significant changes in risk exposure due to that
involvement. A reporting entity will be required to disclose how its involvement
with a variable interest entity affects the reporting entity's financial
statements. We do not expect the adoption of these Codification updates to have
a material impact on our consolidated financial statements and results of
operations.
In
April 2009, the FASB amended its existing standards for accounting and
disclosures related to certain financial instruments including:
(a) providing additional rules for estimating fair value when the
volume and level of activity for the asset or liability has significantly
decreased; (b) identifying circumstances that indicate a transaction is not
orderly; (c) amending the other-than-temporary impairment rules for
debt securities to make it more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements; and (d) requiring enhanced disclosures about the
fair value of financial instruments on an interim basis in addition to the
annual disclosure requirements (Note 10). The new standards were required
to be adopted for interim periods ending after June 15, 2009 and did not
impact the Company’s financial statements.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PREPAID EXPENSES
|
|
NINE
MONTHS
|
|
|
|
|
|
|
ENDED
|
|
|
YEAR
ENDED
|
|
|
|
September
30, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
Rents |
|
|
-- |
|
|
|
8,514 |
|
Business
and health insurance
|
|
|
-- |
|
|
|
8,971 |
|
Assets
held for use in 2009 launch
|
|
|
-- |
|
|
|
23,645 |
|
TOTAL
|
|
$ |
-- |
|
|
$ |
41,130 |
|
4. PROPERTY, EQUIPMENT AND INTANGIBLE
ASSETS
|
|
NINE
MONTHS
|
|
|
|
|
|
|
ENDED
|
|
|
YEAR
ENDED
|
|
|
|
September
30, 2009
|
|
|
December
31, 2008
|
|
Computer
equipment
|
|
|
754,993 |
|
|
|
731,281 |
|
Website
development
|
|
|
38,524 |
|
|
|
38,524 |
|
Equipment
|
|
|
1,565 |
|
|
|
1,565 |
|
Furniture
and fixtures
|
|
|
9,430 |
|
|
|
9,430 |
|
Telephone
equipment
|
|
|
5,365 |
|
|
|
5,365 |
|
Molds
and tooling
|
|
|
120,217 |
|
|
|
120,214 |
|
TOTAL
|
|
|
930,094 |
|
|
|
906,379 |
|
Less
accumulated depreciation
|
|
|
(891,159 |
) |
|
|
(879,924 |
) |
NET
PROPERTY AND EQUIPMENT
|
|
$ |
38,935 |
|
|
$ |
26,455 |
|
|
|
NINE
MONTHS
|
|
|
|
|
|
|
|
ENDED
|
|
|
YEAR
ENDED
|
|
|
|
September
30, 2009
|
|
|
December
31, 2008
|
|
Patents
|
|
|
212,063 |
|
|
$ |
212,062 |
|
Trademarks
|
|
|
243,259 |
|
|
|
243,259 |
|
Software
licensing
|
|
|
1,145,322 |
|
|
|
1,145,322 |
|
Software
development costs
|
|
|
1,675,601 |
|
|
|
1,675,601 |
|
TOTAL
|
|
|
3,276,245 |
|
|
|
3,276,244 |
|
Less
accumulated amortization
|
|
|
(3,264,408 |
) |
|
|
(3,250,220 |
) |
NET
INTANGIBLE ASSETS
|
|
$ |
11,837 |
|
|
$ |
26,024 |
|
Depreciation
and amortization expense totaled $25,352 and $156,154 for the nine months ended
September 30, 2009 and 2008, respectively.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED EXPENSES
|
|
NINE
MONTHS
|
|
|
|
|
|
|
ENDED
|
|
|
YEAR
ENDED
|
|
|
|
September
30, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
Accrued
salaries
|
|
$ |
360,706 |
|
|
$ |
260,154 |
|
Accrued
vacation & 401k
|
|
|
81,516 |
|
|
|
101,468 |
|
Accrued
interest
|
|
|
562,414 |
|
|
|
385,129 |
|
Accrued
commission
|
|
|
1,026 |
|
|
|
1,026 |
|
Accrued
taxes
|
|
|
46,983 |
|
|
|
25,917 |
|
Accrued
payables (other)
|
|
|
47,759 |
|
|
|
47,758 |
|
TOTAL
|
|
$ |
1,100,404 |
|
|
$ |
821,452 |
|
6. SETTLEMENT AGREEMENT
LIABILITY
On August
23, 2007, One Voice Technologies, Inc. (the "Company") entered into a Settlement
Agreement and Mutual Release with La Jolla Cove Investors, Inc. ("LJCI")
pursuant to which the Company agreed with LJCI to forever settle, resolve and
dispose of all claims, demands and causes of action asserted, existing or
claimed to exist between the parties because of or in any way related to a legal
proceeding in the San Diego County Superior Court (the "Court") entitled La
Jolla Cove Investors, Inc. vs. One Voice Technologies, Inc., Case No. GIC850038
(the "Action"). LJCI received a judgment in its favor against the Company in
connection with the Action whereby the Company owes LJCI an amount equal to
$408,594.48 (the "Owed Amount"). Under the Settlement Agreement, the parties
reached a final resolution with respect to such Owed Amount whereby (i) LJCI
shall receive $200,000 within 15 days of the date of the Agreement and (ii) the
difference between the Owed Amount and $200,000 shall be payable at a later date
(the "Remaining Owed Amount"). The payment of the Remaining amount owed of
$208,594 shall be made to LJCI in the following manner:
·
|
Concurrently
with the execution of the Agreement, the Company shall transfer to an
independent escrow agent, on behalf of LJCI, all right, title and interest
to 30,000,000 shares of Common Stock of the Company (the "Escrow Shares"),
issued in 30 increments of 1,000,000 shares. On the one year anniversary
of the Agreement, 1,000,000 Escrow Shares shall be released to LJCI
whereby LJCI shall be able to sell such shares in open market transactions
provided such sales do not exceed more than 14% of the corresponding daily
volume of such shares on the trading market on which the Company's
securities are sold. LJCI shall continue to receive the Escrow Shares,
provided they satisfy the volume limitation set forth above and LJCI's
ownership of the Company's common stock does not exceed 4.99% of the
Company's then issued and outstanding shares of common stock, until the
Remaining Owed Amount is satisfied;
|
·
|
Upon
notice from LJCI that the Remaining Owed Amount has been satisfied by the
sale of the Escrow Shares either (i) Alpha Capital Ansalt ("Alpha") shall
have the ability within 15 business days to purchase any remaining Escrow
Shares at a 20% discount to the current market price of the shares or (ii)
if Alpha does not exercise its right to purchase the shares, the Company
shall have the ability to redeem the remaining Escrow Shares within 5
business days.
|
·
|
At
anytime while the Remaining Owed Amount is outstanding, the Company or
Alpha may pay in cash to LJCI an amount equal to the Remaining Owed Amount
and either (i) Alpha shall have the ability within 15 business days to
purchase any remaining Escrow Shares at a 20% discount to the current
market price of the shares or (ii) if Alpha does not exercise its right to
purchase the shares, the Company shall have the ability to redeem the
remaining Escrow Shares within 5 business
days.
|
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SETTLEMENT AGREEMENT LIABILITY
(CONTINUED)
LJCI has
contractually agreed to restrict their ability to exercise the Escrow Shares
such that the number of shares of the Company common stock held by it does not
exceed 4.99% of the Company's then issued and outstanding shares of common
stock.
Upon
receipt of the Owed Amount, LJCI will file a Satisfaction of Judgment in the
appropriate court and grant the Company a release from any and all actions
related to the Action. The current balance owed to LJCI is
$177,185.
7. LICENSE AGREEMENT
LIABILITY
In March
2000 the Company entered into a Software License Agreement ("License Agreement")
with Philips Speech Processing, a division of Philips Electronics North America
("Philips"). Pursuant to the License Agreement, the Company received a
world-wide, limited, nonexclusive license to certain speech recognition software
owned by Philips. The initial term of the License Agreement was three (3) years,
and the License Agreement included an extended term provision under which the
License Agreement was automatically renewable for successive one (1) year
periods, unless terminated by either party upon a minimum of sixty (60) days
written notice prior to the expiration of the initial term or any extended
term.
The
License Agreement provides for the Company to pay a specified commission on
revenues from products incorporating licensed software, and includes minimum
royalty payment obligations over the initial three (3) year term of the License
Agreement in the aggregate amount of $1,100,000.
The
License Agreement has been amended as follows:
The first
amendment to the License Agreement was entered into during March
2002.
o
|
The
initial term of the License Agreement was extended for two (2)
years.
|
o
|
The
aggregate minimum royalty payment was increased from $1,100,000 to
$1,500,000.
|
The
amendment also included a revised payment schedule of the minimum royalty
payment obligation due that provided for semi-annual payments of $250,000 (due
on March 31th and December 31st of each year). In lieu of scheduled payments, in
May, 2003, based on a verbal agreement with the Company and Philips, the Company
began making monthly payments of $15,000, of which $10,000 is being applied
against the remaining minimum royalty payment due and $5,000 is being applied as
interest.
The
second amendment to the License Agreement was entered into on February 1,
2007.
The
following payment terms are as follows:
The 2006
past due amounts owed by the Company of $70,000 were allocated as
follows:
o
|
The
Company paid $20,000 on February 23, 2007 to
Philips.
|
o
|
The
remaining balance of $50,000 is to be paid in the form of a non-interest
bearing note payable to Philips Speech
Processing.
|
o
|
During
the period of January 1, 2007 thru March 31, 2008 the following payments
were allocated as follows: $6,000 paid monthly by the Company to Philips
Speech Processing. The monthly remaining balance of $11,500 due
to Philips Speech Processing is to be paid by the Company in the form of a
non-interest bearing note payable to Philips Speech
Processing.
|
As of
September 30, 2009 the note payable balance due Philips Speech Processing was
$1,371,000.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. NOTES PAYABLE
On June
8, 2007 the Company entered into agreement with Maguire Properties-Regents
Square LLC. ("Landlord"). The agreement relates to past due office rents owed by
the Company to the Landlord. The landlord has agreed to accept payment in the
form of a promissory note for $103,605.59. The promissory note has a term of 42
months and bears an interest rate of 10.0% per annum, due December 1, 2010.
Monthly payments of $2,933.78 are to be paid to the Landlord. All rent expenses
related to the note have been fully expensed in the proper periods.
As of
September 30, 2009 the short term note payable balance due Maguire
Properties-Regents Square LLC was $93,606 with the remaining balance classified
as long term notes payable. The Company
has not made any payments towards this note, but has continued to accrue
interest at the stated rate of 10% per annum.
As of
September 30, 2009 the long term notes payable balance due Maguire
Properties-Regents Square LLC. was $7,400.
At
September 30, 2009 and December 31, 2008 the principal balance on the long term
portion of notes payable was $7,400 and $67,742, respectively. Accrued interest
as of September 30, 2009 is $13,075.
On August
8, 2003 the Company entered into a note payable in the amount of $100,000 with
an interest rate of 8% per annum. The note matured on August 8, 2008, but
remains outstanding in full at September 30, 2009. As of September
30, 2009, the Company is on default on this note.
9. DEBT DERIVATIVE LIABILITY
Since
inception, the Company has entered into several convertible debt financing
agreements with several institutional investors. Embedded within these
convertible financing transactions are derivatives which require special
treatment pursuant with ASC 815 and ASC 460. The derivatives include but are not
limited to the following characteristics:
o |
Beneficial
conversion features |
o |
Early redemption
option |
o |
Registration rights
and associated liquidated damage clauses |
As a
result of the valuation conducted as of September 30, 2009 the Company has
incurred a net non-cash loss of $523,626 for the nine months ended September
30, 2009.
The
liability valuation calculated at September 30, 2009 and December 31, 2008, resulted in the
fair value of the debt derivative liability being $1,281,856 and $1,805,482
respectively.
10. WARRANT DERIVATIVE
LIABILITY
Since
inception, the Company has issued warrants in connection with convertible debt
financing agreements and private placements that required analysis in accordance
with ASC 815 and ASC 460. ASC 815 and ASC 460 specifies the conditions which
must be met in order to classify warrants issued in a company's own stock as
either equity or as a derivative liability. Evaluation of these conditions under
ASC 815 and ASC 460 resulted in the determination that these warrants are
classified as a derivative liability. In accordance with ASC 815 and ASC 460,
warrants which are determined to be classified as derivative liabilities are
marked-to-market each reporting period, with a corresponding non-cash gain or
loss charged to the current period. The Company valued all warrant derivative
liabilities as of September 30, 2009 using a Black-Scholes option pricing model
using the following assumptions: expected dividend yield of 0.0%, expected stock
price volatility of 256%, risk free interest rate of 1.45% and a remaining
contractual life ranging from 0.1 years to 1.9 years.
As a
result of the valuation conducted, the Company incurred net non-cash gain of
$5,694 for the nine months ended September 30, 2009.
The
liability valuation calculated at September 30, 2009 and December 31, 2008, resulted in the
fair value of the warrant derivative liability being $25,572 and $31,266,
respectively.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. REVOLVING CREDIT NOTE
PAYABLE
On
December 21, 2006, the Company completed a private placement pursuant to a
Revolving Credit Note Agreement which the Company entered into with several
institutional Investors, pursuant to which the Investors subscribed to advance
up to a maximum amount of $640,000 bearing an interest rate of 7%. The term of
the agreement shall be effective as of December 21, 2008 and shall be in
full force and effect until the earliest to occur of (a) 12 months from December
21, 2006 (B) a date not less than thirty days after Lender gives
notice of termination to the Company. In connection with the Revolving Credit
Note Agreement, the Company also issued 20,000,000 shares of its common stock to
the related investors. Interest shall be calculated daily on the outstanding
principal balance due, and is to be reimbursed to the Investors a monthly basis.
The reimbursement of the interest shall be in the form of the Company's
restricted shares of common stock. The stock is to be valued at the month end
stock closing price. The advances to the Company are to be based on an amount of
up to 75% of the face value of the current and future invoices "Receivables"
submitted for borrowing. All proceeds paid relating to the previously mentioned
invoices are to be deposited into a lockbox [c1] account belonging to Investors.
The lockbox proceeds are to be 100% applied towards any outstanding principal
amount owed by the Company. On January 10, 2008 the lockbox was terminated and
subsequently all future "Receivables" go directly to the Company and the Company
is no longer obligated to apply any Receivables towards paying outstanding
amount owed. In addition, the Company's obligation to repay all
principal and accrued and unpaid interest under the convertible notes is secured
by the Company's assets pursuant to a certain Security Agreement dated February
16, 2006, which also secures the remaining unconverted principal
amount of the Company's convertible notes in the aggregate amount of $1,114,220
which the Company issued on March 18, 2005, July 13, 2005, March
17, 2006 May 5, 2006, July 6, 2006 and August
29, 2006 to certain of the investors participating in this new
private placement.
The
original Revolving Credit Note agreement has been amended twenty-one times since
inception. On the second amendment the principal and interest payment terms by
the Company to the lender had changed. The original note payment terms were that
all outstanding principal and interest were to be paid in cash by the Company
upon maturity of the note.
The
amendment provided an option to convert the outstanding balance into shares of
the Company's restricted common stock. The following conversion privileges
apply:
The
lender may elect to convert at a conversion rate of the lower of (i)$0.015 or
(ii)80% of the lowest 3 day trading price of the past 30 trading
days.
On June
21, 2009, the Company entered into the Third Modification Agreement to increase
the maximum borrowing by the Company and to modify the conversion price
contained in the Second Amendment noted above. In addition, the terms
were extended to June 21, 2011. The Second Amendment was modified as
follows:
“The
foregoing notwithstanding, Interest and principal shall be payable in restricted
shares of Debtor’s Common Stock valued at $0.001.”
Since
inception the Company has borrowed $3,139,000 against the revolving note. During
the same period the Company paid $386,317 against the outstanding balance for a
total net borrowing of $2,752,683 since inception. All borrowings are used to
cover recurring operating expenses by the Company.
As of
September 30, 2009 the outstanding principal amount owed to the Investors is
$2,752,683. Interest accrued on the outstanding principal is $357,253 as of
September 30, 2009.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. CONVERTIBLE NOTES PAYABLE
SUMMARY
ISSUANCE
SUMMARY
|
|
|
|
|
|
|
|
|
NINE
MONTHS
|
|
|
|
|
|
|
ENDED
|
|
|
YEAR
ENDED
|
|
|
|
SEPTEMBER
30,
|
|
|
DECEMBER
31,
|
|
|
|
2009
|
|
|
2008
|
|
Principal
|
|
$ |
- |
|
|
$ |
- |
|
Warrants
issued A&B
|
|
|
- |
|
|
|
- |
|
CONVERSION
SUMMARY
|
|
|
|
|
|
|
|
|
NINE
MONTHS
|
|
|
|
|
|
|
ENDED
|
|
|
YEAR
ENDED
|
|
|
|
SEPTEMBER30,
2009
|
|
|
DECEMBER31,
2008
|
|
|
|
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
(Adjusted
for impact of 1-for-20 reverse split)
|
|
Principal
and interest Converted
|
|
$ |
105,594 |
|
|
$ |
1,304,671 |
|
Shares
converted
|
|
|
6,614,213 |
|
|
|
20,312,535 |
|
Average
share conversion price
|
|
$ |
0.016 |
|
|
$ |
0.06 |
|
On
September 7, 2007, the Company entered into a subscription agreement (the
"Agreement") with accredited investors and/or qualified institutional investors
(the "Investors") pursuant to which the investors subscribed to purchase an
aggregate principal amount of $420,000 in convertible promissory notes for an
aggregate purchase price of $210,000. The Company also issued 10,000,000 Class A
common stock purchase warrants to the Investors. The Class A warrants are
exercisable until four years from the closing date at an exercise price of $0.02
per share. The exercise price of the Class A warrants will be adjusted in the
event of any stock split or reverse stock split, stock dividend,
reclassification of common stock, recapitalization, merger or consolidation. In
addition, the exercise price of the warrants will be adjusted in the event that
we spin off or otherwise divest ourselves of a material part of our business or
operations or dispose all or a portion of our assets. The initial discount of
$412,410 will be expensed over the term of the agreement using the straight line
method. The fair value of the warrants of $25,572 using the Black
Scholes option pricing model is recorded as a derivative liability. The proceeds
of the offering were used to make payment towards a legal settlement
agreement.
The
secured convertible notes mature 1 year after the date of
issuance. Each investor shall have the right to convert the secured
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)
$0.015 or (ii) 80% of the average of the three lowest closing bid prices for our
common stock for the 30 trading days prior to, but not including, the conversion
date as reported by Bloomberg, L.P. on any principal market or exchange where
our common stock is listed or traded. The conversion price is adjustable in the
event of any stock split or reverse stock split, stock dividend,
reclassification of common stock, recapitalization, merger or consolidation. In
addition, the conversion price of the secured convertible notes will be adjusted
in the event that we spin off or otherwise divest ourselves of a material part
of our business or operations or dispose all or a portion of our
assets.
No
convertible debt agreements have been entered into during the nine months ended
September 30, 2009.
The
Company must file a registration statement (Form SB-2) with the SEC for all the
above financing transactions. Filing date is typically between 90 and 120 days
of the transaction date.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. COMMON STOCK
Effective
June 16, 2009, the Company completed a 1-for-20 reverse split of its common
stock as approved by a majority vote of the Company's stockholders on May 22,
2009. As of June 16, 2009 the Company’s shares began trading on a
split adjusted basis under the new symbol OVOE. All references to equity
have been adjusted for the impact of the 1-for-20 reverse
split.
The
following is a summary of transactions that had an impact on
equity:
|
|
NINE
MONTH ENDED
SEPTEMBER 30, 2009
|
|
|
YEAR
ENDED
DECEMBER 31, 2008
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
SHARES
|
|
|
SHARE
|
|
|
|
|
|
SHARES
|
|
|
SHARE
|
|
|
|
|
|
|
ISSUED
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
VALUE
|
|
|
ISSUED
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
VALUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
conversions
|
|
|
6,614,213 |
|
|
|
0.016 |
|
|
|
105,594 |
|
|
|
20,312,535 |
|
|
|
0.064 |
|
|
|
1,304,671 |
|
Issuance
of stock in exchange for services
|
|
|
1,005,875 |
|
|
|
0.025 |
|
|
|
11,040 |
|
|
|
2,960,268 |
|
|
|
0.187 |
|
|
|
552,407 |
|
Stock
issued for liquidated damages
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
150,000 |
|
|
|
0.160 |
|
|
|
24,000 |
|
Shares
in escrow
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
593,945 |
|
|
|
0.190 |
|
|
|
113,087 |
|
Total
|
|
|
7,620,088 |
|
|
|
0.017 |
|
|
|
116,634 |
|
|
|
24,016,748 |
|
|
|
0.083 |
|
|
|
1,994,165 |
|
CONVERTIBLE
DEBT CONVERSION BY INVESTOR
During
the nine months ended September 30, 2009, the Company issued 7,620,088 shares of
its restricted common stock, adjusted for impact of 1-for-20 reverse split, having a market
value of $116,634 as settlement of convertible debt.
14. OTHER INCOME
(EXPENSE)
Other
income totaled $335,780 and $1,347,962 for the nine months ended September 30,
2009 and 2008, respectively.
Other
income consist of:
OTHER INCOME /
(EXPENSE) SUMMARY
|
|
NINE
MONTH ENDED
|
|
|
|
SEPTEMBER 30,
|
|
|
|
2009
|
|
|
2008
|
|
Interest
expense
|
|
$ |
(189,440 |
) |
|
$ |
(629,358 |
) |
Gain
/ (Loss) on warrant and debt derivatives
|
|
|
529,320 |
|
|
|
1,967,089 |
|
Other
income
|
|
|
(4,100 |
) |
|
|
10,231 |
|
Total
other income / (expense)
|
|
$ |
335,780 |
|
|
$ |
1,347,962 |
|
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. OTHER INCOME (EXPENSE)
(CONTINUED)
INTEREST
EXPENSE
INTEREST
EXPENSE SUMMARY
|
|
NINE
MONTH ENDED
|
|
|
|
SEPTEMBER
30,
|
|
|
|
2009
|
|
|
2008
|
|
Debt
issue cost
|
|
|
-- |
|
|
|
31,939 |
|
Discount
amortization
|
|
|
-- |
|
|
|
407,419 |
|
Interest
|
|
|
189,440 |
|
|
|
190,000 |
|
TOTAL
|
|
$ |
189,440 |
|
|
$ |
629,358 |
|
For nine
months ended September 30, 2009 and 2008, interest expense was $189,440 compared
to $629,358 respectively. A decrease of $439,918 or 70%.
Interest
expense is composed of three very distinct transactions, which vary in their
financial treatment. Below is a brief explanation of the nature and treatment of
these expenses.
1.
Monthly amortization of debt issue costs related to securing convertible debt
Financing (legal fees etc...).
This
represents a non-cash related transaction.<?xml:namespace prefix = o ns =
"urn:schemas-microsoft-com:office:office" />
For the
three months ended September 30, 2009 and 2008, interest expense related to debt
issue costs was $0 compared to $31,939,
respectively.
2.
Monthly amortization of the embedded discount features within convertible debt
financing.
This
represents a non-cash transaction.
For the
nine months ended September 30, 2009, and 2008, interest expense related to the
amortization of discount was $0 compared to $407,419 respectively.
3.
Monthly accrued interest related to notes payable and convertible notes payable
financing.
This
represents a future cash transaction if the convertible interest accrued is not
converted into common stock. No accrued interest related to convertible notes
payable has been paid in cash during the nine months ended September 30, 2009 and
2008.
For the
nine months ended September 30, 2009 and 2008, interest expense related to notes
payable and convertible notes payable was $189,440 compared to $190,000,
respectively.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. OTHER INCOME / (EXPENSE)
(CONTINUED)
GAIN
ON DEBT DERIVATIVES
For the
nine months ended September 30, 2009 and 2008, non-cash gains / (losses)
recorded on debt derivatives were $523,626 and ($261,754) respectively.
See Note
9 in the accompanying notes to the financial statements for a full description
of the nature of debt derivative transactions.
LOSS
ON WARRANT DERIVATIVES
For the
nine months ended September 30, 2009 and 2008, non-cash gains recorded on
warrant derivatives were $5,694 and $2,252,843 respectively.
See Note
10 in the
accompanying notes to the financial statements for a brief description of the
nature of warrant derivative transactions.
15. COMMITMENTS AND
CONTINGENCIES
The
Company leases its facilities under a lease that expires in 2009. The Company
does not have future minimum rental payments required under operating leases
that have non cancelable lease terms in excess of one year as of September 30,
2009.
Rent
expense amounted to $37,993 and $102,945 for the nine months ended September 30,
2009 and 2008 respectively. The decrease of $64,952 is attributed to the
relocation of the corporate office in March 2009 to a less expensive
facility
16. INCENTIVE AND NONQUALIFIED STOCK OPTION
PLAN
On July
14, 1999, the Company adopted an Incentive and Nonqualified Stock Option Plan
(the "Plan") for its employees and consultants under which a maximum of
3,000,000 options (Amendment to increase the available shares from 1,500,000 to
3,000,000 approved by the shareholders in December 2001) and approved by the
shareholders may be granted to purchase common stock of the Company. On July 29,
2005 the Company adopted the 2005 Stock Incentive Plan and reserved 60,000,000
shares of the Company's common stock for issuance under the 2005
Plan.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
16. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
(CONTINUED)
Two types
of options may be granted under the 2005 Plan: (1) Incentive Stock Options (also
known as Qualified Stock Options) which may only be issued to employees of the
Company and whereby the exercise price of the option is not less than the fair
market value of the common stock on the date it was reserved for issuance under
the Plan; and (2) Nonstatutory Stock Options which may be issued to either
employees or consultants of the Company and whereby the exercise price of the
option is greater than 85% of the fair market value of the common stock on the
date it was reserved for issuance under the plan. Grants of options may be made
to employees and consultants without regard to any performance measures. All
options issued pursuant to the Plan vest at a rate of at least 20% per year over
a 5-year period from the date of the grant or sooner if approved by the Board of
Directors. All options issued pursuant to the Plan are nontransferable and
subject to forfeiture.
Upon
termination of employment or service contract, all options vested or non-vested
expire unless the options have been exercised in full, or in part within 90 days
of such event. Management reserves the right to extend vested options under
certain circumstances, given approval by the Board of Directors.
On
September 12, 2007 the Company granted 15,000,000 stock options to its employees
and Board of Directors. The stock options issued are pursuant to the 2005 stock
option plan.
The total
intrinsic value of vested options relating to employee and director compensation
at September 30, 2009 was $0. The intrinsic value of $0 is due to the closing
stock price subsequent to the June 16, 2009 1-for-20 reverse stock split at
September 30, 2009 of $0.015 being lower than any vested option grant
price.
For the
nine months ended September 30, 2009 and 2008, there was $43,308 and $75,484 of
total compensation expense recorded by the Company related to share-based
compensation.
As of
September 30, 2009, there was approximately $0 of total
unrecognized compensation cost related to share-based compensation arrangements
with employees, directors and contractors.
The
Company's adjusted closing stock price subsequent to the June 16, 2009 1-for-20
reverse stock split reported by NASDAQ listed under symbol OVOE at September 30,
2009 was $0.015 per share.
STOCK
OPTIONS ACTIVITY
The
following table is a summary for the two stock compensation plans adopted by the
Company as of September 30, 2009.
|
|
NINE
MONTH ENDED SEPTEMBER 30, 2009
|
|
|
|
AUTHORIZED
|
|
|
OUTSTANDING
|
|
|
NUMBER
OF SHARES AVAILABLE
FOR
GRANT
|
|
|
|
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
|
|
|
Year
1999 plan
|
|
|
150,000 |
|
|
|
37,350 |
|
|
|
- |
|
Year
2005 plan
|
|
|
3,000,000 |
|
|
|
2,822,500 |
|
|
|
290,150 |
|
Total
|
|
|
3,150,000 |
|
|
|
2,859,850 |
|
|
|
290,150 |
|
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
16. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
(CONTINUED)
A summary
of the Company's stock option activity and related information is as follows for
the year ended September 30, 2009 and 2008, respectively.
|
|
|
|
|
|
NINE
MONTHS ENDED SEPTEMBER 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
WEIGHTED
|
|
|
|
NUMBER
OF
|
|
|
AVERAGE
|
|
|
NUMBER
OF
|
|
|
AVERAGE
|
|
|
|
SHARES
|
|
|
EXERCISE
|
|
|
SHARES
|
|
|
EXERCISE
|
|
|
|
OUTSTANDING
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
OUTSTANDING
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
3,071,700 |
|
|
$ |
1.10 |
|
|
|
3,146,700 |
|
|
$ |
1.08 |
|
Options
granted
|
|
|
0 |
|
|
|
N/A |
|
|
|
0 |
|
|
|
N/A |
|
Options
exercised
|
|
|
0 |
|
|
|
N/A |
|
|
|
0 |
|
|
|
N/A |
|
Options
terminated
|
|
|
(211,850 |
) |
|
|
N/A |
|
|
|
0 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS
OUTSTANDING AT END OF 3RD QUARTER
|
|
|
2,859,850 |
|
|
|
1.04 |
|
|
|
3,146,700 |
|
|
|
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS
EXERCISABLE AT END OF 3RD QUARTER
|
|
|
2,859,850 |
|
|
$ |
1.04 |
|
|
|
2,646,700 |
|
|
$ |
1.22 |
|
The
following table summarizes the number of options authorized by the plan and
available for distribution as of September 30, 2009 and 2008,
respectively.
|
|
NINE
MONTHS ENDED
|
|
|
|
SEPTEMBER
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
NUMBER
OF
|
|
|
NUMBER
OF
|
|
|
|
SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
Beginning
options available for grant
|
|
|
78,300 |
|
|
|
3,300 |
|
Add:
Additional options authorized
|
|
|
-- |
|
|
|
-- |
|
Less:
Options granted
|
|
|
-- |
|
|
|
-- |
|
Add:
Options terminated
|
|
|
211,850 |
|
|
|
-- |
|
ENDING
OPTIONS AVAILABLE FOR DISTRIBUTION
|
|
|
290,150 |
|
|
|
3,300 |
|
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
16. INCENTIVE AND NONQUALIFIED STOCK OPTION
PLAN (CONTINUED)
The
following tables summarize the number of option shares, the weighted average
exercise price and the weighted average life (by years) by price range for both
total outstanding options and total exercisable options as of September 30, 2009
and 2008, respectively.
|
|
|
NINE
MONTHS ENDED SEPTEMBER 30, 2009
|
|
|
|
|
TOTAL
OUTSTANDING
|
|
|
TOTAL
EXERCISABLE
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
|
|
|
EXERCISE
|
|
|
|
|
|
|
|
|
EXERCISE
|
|
|
|
|
PRICE
RANGE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
LIFE
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
LIFE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
136.00
- $256.00 |
|
|
|
11,250 |
|
|
$ |
137.78 |
|
|
|
0.88 |
|
|
|
11,250 |
|
|
$ |
137.78 |
|
|
|
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.40
- $40.00 |
|
|
|
26,100 |
|
|
|
17.78 |
|
|
|
1.75 |
|
|
|
26,100 |
|
|
|
17.78 |
|
|
|
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0..32
- $3.80 |
|
|
|
2,822,500 |
|
|
|
0.34 |
|
|
|
5.49 |
|
|
|
2,822,500 |
|
|
|
0.34 |
|
|
|
5.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
2,859,850 |
|
|
$ |
1.04 |
|
|
|
5.43 |
|
|
|
2,859,850 |
|
|
$ |
1.04 |
|
|
|
5.43 |
|
|
|
|
NINE
MONTHS ENDED SEPTEMBER 30, 2008
|
|
|
|
|
TOTAL
OUTSTANDING
|
|
|
TOTAL
EXERCISABLE
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
|
|
|
EXERCISE
|
|
|
|
|
|
|
|
|
EXERCISE
|
|
|
|
|
PRICE
RANGE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
LIFE
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
LIFE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
136.00
- $256.00 |
|
|
|
12,000 |
|
|
$ |
143.16 |
|
|
|
2.14 |
|
|
|
12,000 |
|
|
$ |
143.16 |
|
|
|
2.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.40
- $40.00 |
|
|
|
34,700 |
|
|
|
17.34 |
|
|
|
3.03 |
|
|
|
34,700 |
|
|
|
17.34 |
|
|
|
3.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0..32
- $3.80 |
|
|
|
3,100,000 |
|
|
|
0.34 |
|
|
|
6.73 |
|
|
|
2,600,000 |
|
|
|
0.34 |
|
|
|
7.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
3,146,700 |
|
|
$ |
1.08 |
|
|
|
6.67 |
|
|
|
2,646,700 |
|
|
$ |
1.22 |
|
|
|
7.14 |
|
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
16. INCENTIVE AND NONQUALIFIED STOCK OPTION
PLAN (CONTINUED)
A summary
of option activity and the average intrinsic value that relate to employee,
director and contractor compensation as of September 30, 2009 and 2008,
respectively is presented below:
|
|
NINE
MONTHS ENDED SEPTEMBER 30, 2009
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
OPTIONS
RELATING TO EMPLOYEE, CONSULTANTS
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
AVERAGE
|
|
AND
DIRECTOR COMPENSATION
|
|
|
|
|
GRANT-DATE
|
|
|
|
|
|
INTRINSIC
|
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
FAIR
VALUE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
LIFE
|
|
|
VALUE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
3,071,700 |
|
|
$ |
1.04 |
|
|
|
7.17 |
|
|
|
N/A |
|
Options
granted
|
|
|
- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Options
exercised
|
|
|
- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Options
terminated
|
|
|
(211,850 |
) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
OPTIONS
OUTSTANDING AT END OF 3RD QUARTER
|
|
|
2,859,850 |
|
|
$ |
1.04 |
|
|
|
5.43 |
|
|
|
N/A |
|
OPTIONS
EXERCISABLE AT END OF 3RD QUARTER
|
|
|
2,859,850 |
|
|
$ |
1.04 |
|
|
|
5.43 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE
MONTHS ENDED SEPTEMBER 30, 2008
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
OPTIONS
RELATING TO EMPLOYEE, CONSULTANTS
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
AVERAGE
|
|
AND
DIRECTOR COMPENSATION
|
|
|
|
|
GRANT-DATE
|
|
|
|
|
|
INTRINSIC
|
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
FAIR
VALUE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
LIFE
|
|
|
VALUE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
3,146,700 |
|
|
$ |
1.08 |
|
|
|
0.05 |
|
|
|
N/A |
|
Options
granted
|
|
|
- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Options
exercised
|
|
|
- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Options
terminated
|
|
|
- |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
OPTIONS
OUTSTANDING AT END OF 3RD QUARTER
|
|
|
3,146,700 |
|
|
$ |
1.08 |
|
|
|
6.67 |
|
|
|
N/A |
|
OPTIONS
EXERCISABLE AT END OF 3RD QUARTER
|
|
|
2,646,700 |
|
|
$ |
1.22 |
|
|
|
7.14 |
|
|
|
N/A |
|
Note:
Assumes only options above water are to be exercised, the closing stock price is
under the price of any options granted. Calculation is based on closing stock
price of $ 0.015 per share, adjusted for impact of 1-for-20 reverse split, dated September
30, 2009 and $ 0.05 per share, adjusted for impact of 1-for-20 reverse
split, dated
September 30, 2008.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
16. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
(CONTINUED)
A summary
of the status of the Company's non-vested option shares relating to employee and
director compensation as of September 30, 2009 and 2008, and changes during the
periods ended September 30, 2009 and 2008, respectively is presented
below:
|
|
NINE
MONTHS ENDED SEPTEMBER 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
WEIGHTED
|
|
NON
VESTED OPTIONS RELATING TO EMPLOYEE,
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
AVERAGE
|
|
CONSULTANTS
AND DIRECTOR COMPENSATION
|
|
|
|
|
GRANT-DATE
|
|
|
|
|
|
GRANT-DATE
|
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
FAIR
VALUE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
FAIR
VALUE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
241,667 |
|
|
$ |
0.18 |
|
|
|
3,146,700 |
|
|
$ |
0.32 |
|
Options
granted
|
|
|
- |
|
|
|
N/A |
|
|
|
- |
|
|
|
N/A |
|
Options
exercised
|
|
|
- |
|
|
|
N/A |
|
|
|
- |
|
|
|
N/A |
|
Options
vested
|
|
|
(241,667 |
) |
|
|
0.18 |
|
|
|
(2,646,700 |
) |
|
|
0.34 |
|
Options
terminated
|
|
|
- |
|
|
|
N/A |
|
|
|
- |
|
|
|
N/A |
|
NON
VESTED AT END OF 3RD QUARTER
|
|
|
- |
|
|
|
N/A |
|
|
|
500,000 |
|
|
$ |
0.38 |
|
In
addition to the assumptions in the below table, the Company applies a
forfeiture-rate assumption in its estimate of fair value that is primarily based
on historical annual forfeiture rates of the Company.
Expected dividend
yield |
0.00% |
Expected
volatility |
113.00% |
Average risk-free
interest rate |
4.74% |
Expected life (in
years) |
2.16 to
8.07 |
The above
options carry vesting dates as follows: 1/3 of the options vest on the grant
date, 1/3 of the options vest one year after the grant date, the final 1/3 of
the options vest two years after the grant date.
On July
14, 1999, the Company adopted an Incentive and Nonqualified Stock Option Plan
(the "Plan") for its employees and consultants under which a maximum of
3,000,000 options (Amendment to increase the available shares from 1,500,000 to
3,000,000 approved by the shareholders in December 2001) and approved by the
shareholders may be granted to purchase common stock of the Company. On July 29,
2005 the Company adopted the 2005 Stock Incentive Plan and reserved 3,000,000
shares, adjusted for impact of 1-for-20 reverse split, of the Company's common
stock for issuance under the 2005 Plan.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
16. INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
(CONTINUED)
Stock
options: The Company generally grants stock options to employees at exercise
prices equal to the fair market value of the Company's stock at the dates of
grant. Stock options may be granted throughout the year, vest immediately, vest
based on years of continuous service, or vest upon completion of specified
performance conditions. Stock options granted prior to September 12, 2007 expire
10 years following the initial grant date. Stock options granted on or after
September 12, 2007 expire 5 years following the initial grant date. The Company
recognizes compensation expense for the fair value of the stock options over the
requisite service period for each separate vesting portion of the stock option
award, or, for awards with performance conditions, when the performance
condition is met.
Warrant
options: The Company generally grants warrant options to directors and
consultants at exercise prices equal to the fair market value of the Company's
stock at the dates of grant. Stock warrants and options may be granted
throughout the year, vest immediately, vest based on years of continuous
service, or vest upon completion of specified performance conditions, and expire
10 years following the initial grant date. The Company recognizes compensation
expense for the fair value of the stock options over the requisite service
period for each separate vesting portion of the stock option award, or, for
awards with performance conditions, when the performance condition is
met.
The
fair value of each option and warrant award is estimated on the date of grant
using the Black-Scholes option-pricing model that uses the assumptions noted in
the following table. The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options. In addition, option
valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's stock options and
warrants have characteristics significantly different from those of traded
options, and because changes in the subjective assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options and warrants. The expected dividend yield assumption is based on the
Company's expectation of dividend payouts. Expected volatilities are based on
historical volatility of the Company's stock. The average risk-free interest
rate is based on the U.S. treasury yield curve in effect as of the grant date.
The expected life of the options and warrants is the average of the vesting term
and the full contractual term of the options and warrants.
The cash
flows resulting from the tax benefits resulting from tax deductions in excess of
the compensation cost recognized for those options to be classified as financing
cash flows. Due to the Company's loss position, there were no such tax benefits
for the nine months ended September 30, 2009 and 2008. Prior to the adoption of
ASC 505, 718, those benefits would have been reported as operating cash flows
had the Company received any tax benefits related to stock option
exercises.
17. WARRANTS
As
a normal business practice, the Company grants warrants to investors who
participate in the financing of the Company. Warrants issued are an additional
incentive to the investors and also provide additional cash flow for the Company
upon exercise.
At
September 30, 2009, the Company had warrants outstanding that allow the holders
to purchase up to 9,907,467 shares of common stock, adjusted for impact of
1-for-20 reverse split.
At
September 30, 2009, the weighted average remaining contractual life of the
warrants was approximately 16 months.
ONE VOICE
TECHNOLOGIES, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
17. WARRANTS (CONTINUED)
The
number and weighted average exercise prices of the warrants for the nine months
ended September 30, 2009 and 2008 are as follows:
|
|
NINE
MONTHS ENDED SEPTEMBER 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
EXERCISE
|
|
|
|
|
|
EXERCISE
|
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
#
OF SHARES
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
PRICE
(Adjusted
for impact of 1-for-20 reverse split)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
13,795,345 |
|
|
$ |
0.32 |
|
|
|
13,802,637 |
|
|
$ |
0.28 |
|
Warrants
granted
|
|
|
- |
|
|
|
N/A |
|
|
|
- |
|
|
|
N/A |
|
Warrants
exercised
|
|
|
- |
|
|
|
N/A |
|
|
|
- |
|
|
|
N/A |
|
Warrants
terminated
|
|
|
(3,887,879 |
) |
|
|
N/A |
|
|
|
(7,292 |
) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WARRNATS
OUTSTANDING AT END OF 3rd QUARTER
|
|
|
9,907,466 |
|
|
$ |
0.32 |
|
|
|
13,795,345 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WARRNATS
EXERCISABLE AT END OF 3rd QUARTER
|
|
|
9,907,466 |
|
|
$ |
0.32 |
|
|
|
13,795,345 |
|
|
$ |
0.28 |
|
18. REVERSE STOCK SPLIT
Effective
June 16, 2009, the Company completed a 1-for-20 reverse split of its common
stock as approved by a majority vote of the Company's stockholders on May 22,
2009. As of June 16, 2009 the Company’s shares began trading on a
split adjusted basis under the new symbol OVOE.
As a
result of the reverse stock split, stockholders received one new share of common
stock for every twenty shares. Registered holders received a letter of
transmittal shortly after the effective date with instructions for the exchange
of stock certificates. Stockholders with shares in brokerage accounts were
contacted by their brokers with instructions.
Fractional
or partial shares were not be issued and instead were rounded up to the nearest
whole number of shares.
19. SUBSEQUENT EVENTS
There are
no material subsequent events noted.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
The
information in this report contains forward-looking statements. All statements
other than statements of historical fact made in this report are forward
looking. In particular, the statements herein regarding industry prospects and
future results of operations or financial position are forward-looking
statements. These forward-looking statements can be identified by the use of
words such as "believes," "estimates," "could," "possibly," "probably,"
anticipates," "projects," "expects," "may," "will," or "should" or other
variations or similar words. No assurances can be given that the future results
anticipated by the forward-looking statements will be achieved. Forward-looking
statements reflect management's current expectations and are inherently
uncertain. Our actual results may differ significantly from management's
expectations.
The
following discussion and analysis should be read in conjunction with our
financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents only the best
present assessment of our management.
OVERVIEW
OF THE BUSINESS
One Voice
Technologies, Inc. is a voice recognition technology company with over $43
million invested in Research and Development and deployment of more than 20
million products worldwide in seven languages. To date, our customers include:
Mahanagar Telephone Nigam Ltd. ("MTNL") of India, Telefonos de Mexico, S.A.B. de
C.V. (TELMEX), Intel Corporation, Fry's Electronics, Nex-Tec Wireless, Rural
Independent Networks, Mohave Wireless, Inland Cellular and several additional
telecom service providers throughout the United States.
Based on
our patented technology, One Voice offers voice solutions for the Telecom and
Interactive Multimedia markets. Our telecom solutions allow business and
consumer phone users to voice dial, group conference call, read and send e-mail
and instant messages, all by voice. We offer PC Original Equipment Manufacturers
(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-mailmessages, SMS text messaging
to mobile phones, PC-to-Phone calling (VoIP) and PC-to-PC
audio/video.
The
Company believes that the presence of voice technology as an interface in mobile
communications and PC computing is of paramount importance. Voice interface
technology makes portable communications more effective and safer to use and it
makes communicating with a PC to play digital content, such as music, videos and
photos, easier for consumers. One Voice's development efforts currently are
focused on the Telecom markets and more specifically on mobile communications
from a cell phone and directory assistance.
TELECOM
SECTOR
In
the Telecom sector, we believe that the Mobile Messaging market, which has both
business and consumer market applications including: e-mail, instant messages,
and SMS (Short Message Service), is extremely large and is growing at an
astonishing rate. One Voice solutions enable users to send, route and receive
text messages using voice from any type of phone (wired or wireless) anywhere in
the world.
The
Company's strategy, in the telecom sector, is to continue aggressive sales and
marketing activities for our voice solutions, which we believe, may result in
increased deployments and revenue stream. The product offerings will encompass
both the MobileVoice(TM) suite of solutions as well as our Directory Assistance
411 service.
In 2006,
the Company signed a deployment contract with the residential group within
TELMEX for deployment of One Voice's MobileVoice solutions to the over 19
million TELMEX subscribers throughout Mexico. The MobileVoice service
was
launched to TELNOR subscribers, a TELMEX subsidiary, in October, 2007 as a
TELNOR branded service called IRIS. For information on IRIS visit
http://www.yosoyiris.com or http://www.telnor.com. The MobileVoice (IRIS)
service has tested and performed very well as anticipated. We are working
closely with TELNOR to ensure the IRIS service is very successful and the
feedback to date has been very positive. We are currently working with TELNOR to
relaunch IRIS as a standard bundle in 2010 included with all new and existing
TELNOR Package customers. TELNOR has sent us a new agreement for
services to be launched in 2010 which we are currently in review and anticipate
signing before year-end 2009. Subsequent to this relaunch within
TELNOR, TELMEX will evaluate the results and make a determination regarding a
national launch as a bundle to all TELMEX Package customers.
In
October 2007 both the Company and Mantec Consultants ("Mantec") entered into a
contract with Mahanagar Telephone Nigam Ltd. ("MTNL") of India to provide
MobileVoice services to MTNL's over 7 million subscribers. Mantec is One Voice's
local sales associate in India. MTNL is owned and operated by the Government of
India. The Company and Mantec are currently working on deployment of hardware
and systems integration with MTNL. According to MTNL, the MobileVoice service
will be made available to MTNL's existing subscribers for MobileVoice email by
phone service and the total expected customers for this service is .92 million
within the first 24 months. MTNL has set the monthly subscription price of $Rs.
50/- (Rupees) monthly per subscriber out of which the Company has a 30% share.
We anticipate the MTNL revenue stream to grow as we launch additional
MobileVoice services including voice dialing, group call and voice-to-SMS
services. In order to expedite the launch with MTNL we decided to initially
launch email by phone and the revenue projections given by the marketing
department of MTNL reflect the email by phone service only. We anticipate this
revenue projection to grow as additional MobileVoice services are launched to
MTNL subscribers. We launched our services by MTNL in June, 2009. On
July 31, 2009 MTNL officially launched their marketing campaign to their
subscribers in the Delhi region and to date we have several thousand
subscribers for our service.The revenue generated from this launch with MTNL
should have a material impact on the Company in future periods.
In the
US, the Company has finalized initial system and acceptance testing with a
domestic carrier with over 10 million subscribers. We are currently
in the final testing phase with this carrier and have been working closely with
them to customize our system according to their testing feedback. We
are also negotiating terms and conditions and anticipate a short market trial
with several thousand of their subscribers in early 2010 with set criteria for
determining success to launch the service to their entire subscriber
base.
EMBEDDED
SECTOR
On August
15, 2007 the Company signed a Memorandum of Understanding ("MOU") with Intel
Corporation in which both companies will work together to add One Voice's voice
technology to a Linux based handheld device. The Company sees a potential
opportunity with this mass consumer electronics (CE) device and will apply the
necessary resources to co-develop this project. We have been working closely
with Intel engineers to add voice control to their Moblin operating system. We
have recently demonstrated this capability in the Intel booth at the 2007
Consumer Electronics Show, Mobile World Congress and the upcoming Intel
Developers Forum. We have also ported our software to RedFlag Linux. Both
RedFlag Linux and Moblin are the primary operating systems used on Mobile
Internet Devices (MIDs). Both One Voice and Intel have jointly presented our
voice solution to several MID OEM's worldwide. Currently the MID
market is very small and has not gained enough traction for One Voice to focus
resources on this market. One Voice is currently focusing all our
resources on Telecom launches during 2009 and will wait until the MID market
matures and gains industry acceptance before we readdress this
market. We have evaluated launching applications on the iPhone and
BlackBerry but the current state for voice control applications for these
devices from competitors offering free software is not in line with our focus on
near-term revenue generating opportunities that we currently have in the Telecom
sector.
PC
SECTOR
In the PC
sector, we believe that digital in-home entertainment is rapidly growing with
the wide acceptance of digital photography, MP3 music and videos, along with
plasma and LCD TV's. We believe that companies including Apple, Microsoft and
Intel are actively creating products and technology, which allow consumers to
experience the next-generation of digital entertainment. The Company's Media
Center Communicator(TM) product works with Microsoft Windows XP Media Center
Edition and Microsoft Windows Vista to add voice-navigation and a full suite of
communication features allowing consumers to talk to their Media Center PC to
play music, view photo slideshows, watch and record TV, place Voice-Over-IP
(VoIP) phone calls, read and send e-mail and Instant Message friends and family,
all by voice. The company recently launched a new retail product called
VoiceTunes. VoiceTunes allows users to voice control their entire music library
including Apple iTunes and Windows Media. This product is similar to our
flagship product Media Center Communicator but is very focused on
music. In addition, the Company launched a voice controlled PC gaming
software called Say2Play. Say2Play gives gamers a tremendous
advantage by adding voice command for common game macros while allowing the
gamer to keep their hands and fingers on the keyboard and mouse for rapid motion
movements. Say2Play has recently received several very positive
editorial reviews and is available for purchase online.
The
Company has changed our focus from in-store on-shelf retail sales to only
offering online downloadable retail versions. The Company’s retail
products are now available for immediate purchase and download on the new Dell
Download Store at http://downloadstore.dell.com.
PATENTS
The
Company has retained the services of a patent litigation firm in order to
enforce our patented technology rights throughout the industry. The
Company feels strongly that several companies have launched voice solutions that
are unlawfully using our patented technology. One Voice will
aggressively pursue these companies to enforce our patents.
SUMMARY
The
Company has products and services in several sectors discussed above but we are
now heavily focused on revenue generation in the telecom sector and patent
enforcement. Management believes the Company's deployment of services in the US,
India and Mexico signifies the acceptance of our technology and the value it
delivers to our customers and their subscribers.
The
management team remains committed to generating short and long-term revenues
significant enough to fund daily operations, expand the intellectual property
portfolio and development of cutting edge solutions and applications for the
emerging speech recognition market sector which should build shareholder
value.
CRITICAL
ACCOUNTING POLICIES
Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to impairment
of property, plant and equipment, intangible assets, deferred tax assets, fair
value of derivative liabilities and fair value of options or warrants
computation using Black Scholes option pricing model. We base our estimates on
historical experience and on various other assumptions, such as the trading
value of our common stock and estimated future undiscounted cash flows, that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different
assumptions
or conditions; however, we believe that our estimates, including those for the
above-described items, are reasonable.
The
following is a discussion that relates to certain financial transactions and the
results of operations for the three months ended September 30, 2009 and
2008.
RESULTS
OF OPERATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND
2008.
ONE
VOICE TECHNOLOGIES INC.
SELECTED
STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
THREE
MONTHS ENDED |
|
|
FAV/
(UN FAV) |
|
|
PERCENTAGE |
|
|
|
SEPTEMBER30,
2009
|
|
|
SEPTEMBER30,
2008
|
|
|
CHANGE |
|
|
CHANGE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue |
|
$ |
79,243 |
|
|
$ |
147,593 |
|
|
|
(68,350 |
) |
|
|
-46 |
% |
Cost of goods
sold |
|
|
53,659
|
|
|
|
99,870 |
|
|
|
46,211 |
|
|
|
46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT |
|
|
25,584 |
|
|
|
47,723 |
|
|
|
(22,139 |
) |
|
|
-46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative expenses |
|
|
(324,370 |
) |
|
|
(603,144 |
) |
|
|
(278,774 |
) |
|
|
-46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense) |
|
|
2,686,895 |
|
|
|
(60,334 |
) |
|
|
2,747,229 |
|
|
|
4,553 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
(LOSS) BEFORE INCOME TAX |
|
|
|
|
|
|
|
) |
|
|
3,003,864 |
|
|
|
488
|
% |
Income tax
expense |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
0 |
% |
Net income /
(loss) |
|
$ |
2,388,109 |
|
|
$ |
(615,755 |
) |
|
|
3,003,864 |
|
|
|
488 |
% |
REVENUES
Net
revenues totaled $79,243 and $147,593 for the three months ended September 30,
2009 and 2008, respectively. The decrease of $68,350 or 46% was due
to certain Telecom contracts expired in 2008 after their initial 3-year
term.
COST
OF GOODS SOLD
Cost of
goods sold for the three months ended September 30, 2009 and 2008 totaled
$53,659 and $99,870, respectively. The decrease of $46,211 or 46% was
primarily due to the decrease in revenues during the year and a decreased
employee headcount. These expenses specifically relate to licensing
agreements and telecommunication expenses that allow the voice recognition
products offered to be functional.
GENERAL
AND ADMINISTRATIVE EXPENSE
General
and administrative expenses totaled $324,370 and $603,144 for the three months
ended September 30, 2009 and 2008, respectively. The decrease of
$278,774 or 46% was primarily due to decreases in salary and compensation , a
decrease in accounting and legal fees, and a decrease in depreciation and
amortization for the three months ended September 30, 2009 as compared to the
three months ended September 30, 2008.
SALARY
AND COMPENSATION
Salary
and wage related expenses totaled $151,183 and $321,435 for the three months
ended September 30, 2009 and 2008, respectively. The decrease of
$170,252 or 53% was primarily due to voluntary reductions in salaries for
current employees, paired with headcount reductions.
ACCOUNTING
AND LEGAL
The
Company incurred accounting and legal fees of $17,558 and $84,673 for the three
months ended September 30, 2009 and 2008, respectively.
DEPRECIATION AND
AMORTIZATION
Depreciation
and amortization expense totaled $8,201 and $10,687 for the three months ended
September 30, 2009 and 2008, respectively. The decrease of $2,486 or
23% is due to the full depreciation and amortization of certain assets during
2008 and additions in June 2009 that had no impact on depreciation and
amortization for the quarter.
OTHER
INCOME
Other
income / (expense) totaled $2,686,895 and $(60,334) for the three months ended
September 30, 2009 and 2008, respectively. The increase in expense of $2,747,229
can be directly related to non cash income / (expense) activity, more
specifically the revaluation of both debt and warrant derivatives.
(LOSS) ON
DERIVATIVES
For the
three months ended September 30, 2009 and 2008, gains (losses) recorded on
derivatives were $2,771,046 and $64,315, respectively.
See Notes
9 and 10 in the accompanying notes to the financial statements for a brief
description of the nature of the debt derivative and warrant derivative
transactions.
LIQUIDITY AND CAPITAL
RESOURCES
NON-CASH ITEMS AFFECTING THE
COMPANY'S NET LOSS
Non-cash
related expense items of $2,748,409 are reflected in the net income for the
three months ended September 30, 2009. In this example the non-cash expense
items are added back, and non cash income items are deducted from the Company's
net income / (loss).
Non-cash
items consisted of the following items:
THREE
MONTHS ENDED
SEPTEMBER
30, 2009
|
Depreciation and
amortization |
|
8,201 |
|
|
Stock compensation
expense |
|
14,436 |
|
|
Loss on warrant and
debt derivatives |
|
(2,771,046) |
|
|
TOTAL NON-CASH
RELATED EXPENSE ITEMS |
|
(2,748,409) |
|
The above
information is intended to illustrate the impact that these specific expenses
have on the Company's net income/(loss). There are no cash transactions that
related to these expenses. More specifically, this table is shown to demonstrate
the impact that the re-valuation of warrant and debt derivatives have on the
income statement. Please note that this table is not in conformity with auditing
standards generally accepted in the United States of America.
The
following is a discussion that relates to certain financial transactions and the
results of operations for the nine months ended September 30, 2009 and
2008.
RESULTS
OF OPERATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2009.
ONE
VOICE TECHNOLOGIES INC.
SELECTED
STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
NINE
MONTHS ENDED |
|
|
|
|
|
|
|
|
|
SEPTEMBER
30,
2009
|
|
|
SEPTEMBER
30,
2008
|
|
|
FAV/
(UN FAV)CHANGE |
|
|
PERCENTAGE
CHANGE
|
|
Net
Revenue |
|
$ |
246,475 |
|
|
$ |
481,717 |
|
|
$ |
(235,242 |
) |
|
|
-49 |
% |
Cost of goods
sold |
|
|
160,420 |
|
|
|
294,080 |
|
|
|
133,660 |
|
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT |
|
|
86,055 |
|
|
|
187,637 |
|
|
|
(101,582 |
) |
|
|
-54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative expenses |
|
|
944,038 |
|
|
|
2,454,776 |
|
|
|
1,510,738 |
|
|
|
62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income |
|
|
335,780 |
|
|
|
1,347,962 |
|
|
|
(1,012,182 |
) |
|
|
-75 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS BEFORE INCOME TAX |
|
|
(522,203 |
) |
|
|
(919,177 |
) |
|
|
396,974 |
|
|
|
43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense |
|
|
-- |
|
|
|
(800 |
) |
|
|
800 |
|
|
|
100 |
% |
Net income /
(loss) |
|
$ |
(522,203 |
) |
|
$ |
(919,97703 |
) |
|
|
397,774 |
|
|
|
43 |
% |
REVENUES
Net
revenues totaled $246,475 and $481,717 for the nine months ended September 30,
2009 and 2008, respectively. The decrease of $235,242 or 49% was due
to certain Telecom contracts expired in 2008 after their initial 3-year
term.
COST OF GOODS
SOLD
Cost of
goods sold for the nine months ended September 30, 2009 and 2008 totaled
$160,420 and $294,080 respectively. The decrease of $133,660 or 45%
was primarily due to the decreases in revenues during the year and a decreased
employee headcount. These expenses specifically relate to licensing
agreements and telecommunication expenses that allow the voice recognition
products offered to be functional.
GENERAL AND ADMINISTRATIVE
EXPENSE
General
and administrative expenses totaled $944,038 and $2,454,776 for the nine months
ended September 30, 2009 and 2008, respectively. The decrease of
$1,510,738 or 62% was primarily due to decreases in salary and compensation, a
decrease in accounting and legal fees, and a decrease in depreciation and
amortization for the nine months ended September 30, 2009 as compared to the
nine months ended September 30, 2008.
SALARY AND
COMPENSATION
Salary
and wage related expenses totaled $486,603 and $923,281 for the nine months
ended September 30, 2009 and 2008, respectively. The decrease of
$436,678 or 47% was primarily due to voluntary reductions in salaries for
current employees, paired with headcount reductions.
ACCOUNTING AND
LEGAL
The
Company incurred accounting and legal fees of $58,091 and $230,651 for the nine
months ended September 30, 2009 and 2008, respectively.
DEPRECIATION AND
AMORTIZATION
Depreciation
and amortization expense totaled $25,352 and $156,154 for the nine months ended
September 30, 2009 and 2008, respectively. The decrease of $130,802
or 84% was due to the full amortization of capitalized costs associated with the
design and development during the nine months ended September 30, 2008 of a
product for which the completion and launch time frame could not be accurately
estimated by management.
OTHER INCOME
(EXPENSE)
Other
income / (expense) totaled $335,780 and $1,347,962 for the nine months ended
September 30, 2009 and 2008, respectively. The increase in the
expense of $1,012,182 can be directly related to non cash (expense) activity,
more specifically the revaluation of both debt and warrant
derivatives.
(LOSS) ON
DERIVATIVES
For the
nine months ended September 30, 2009 and 2008, non-cash gains recorded on debt
and warrant derivatives were $529,320 and 1,967,089 respectively.
See Notes
9 and 10 in the accompanying notes to the financial statements for a brief
description of the nature of debt and warrant derivative
transactions.
OTHER INCOME /
(EXPENSE)
For nine
months ended September 30, 2009 and 2008, the Company incurred ($4,100) compared
to other income of $10,231 respectively.
LIQUIDITY AND CAPITAL
RESOURCES
NON-CASH ITEMS AFFECTING THE
COMPANY'S NET LOSS
Non-cash
related (income) / expense items of items of ($460,660) are reflected in the net
(loss) for the nine months ended September 30, 2009. In this example non-cash
expense items are added back, and non-cash income items are deducted from the
Company's net income / (loss).
Non-cash
items consisted of the following items:
NINE
MONTHS ENDED
SEPTEMBER
30, 2009
|
Depreciation and
amortization |
|
25,352 |
|
|
Stock compensation
expense |
|
43,308 |
|
|
(Gain) on warrant
and debt derivatives |
|
(529,320) |
|
|
TOTAL NON-CASH
RELATED (INCOME) / EXPENSE ITEMS |
|
(460,660) |
|
The above
information is intended to illustrate the impact that these specific expenses
have on the Company's net income/(loss). There are no cash transactions that
related to these expenses. More specifically, this table is shown to demonstrate
the impact that the re-valuation of warrant and debt derivatives have on the
income statement. Please note that this table is not in conformity with auditing
standards generally accepted in the United States of America.
CASH FLOW AND WORKING
CAPITAL
At
September 30, 2009, the Company had a working capital deficit of $7,955,019 as
compared with a working capital deficit of $7,534,123 at December 31,
2008.
Net cash
used for operating activities is $482,400 for the nine months ended September
30, 2009 compared to $1,019,658 for the nine months ended September 30,
2008.
Net cash
used for investing activities is $0 for the nine months ended September 30, 2009
compared to $3,221 for the nine months ended September 30, 2008.
Net cash
provided by financing activities is $481,734 for the nine months ended September
30, 2009 compared to $1,008,000 for the nine months ended September 30,
2008.
See
financing transaction details below.
FINANCING
TRANSACTIONS
The
following is a discussion that summarizes the net financing and conversion
activities for the nine months ended September 30, 2009 and 2008.
NET CASH PROCEEDS RECEIVED
DUE TO FINANCING ACTIVITY
|
|
NINE
MONTHS ENDED |
|
|
NINE
MONTHS ENDED |
|
|
|
SEPTEMBER
30,
2009
|
|
|
SEPTEMBER
30,
2008
|
|
Bank
overdraft |
|
$ |
10,234 |
|
|
$ |
8,000 |
|
Revolving line
of credit net of pay down |
|
|
471,500 |
|
|
|
1,000,000 |
|
TOTAL
FINANCING ACTIVITY |
|
$ |
481,734 $ |
|
|
|
1,008,000 |
|
CONVERTIBLE NOTES PAYABLE
SUMMARY
CONVERSION SUMMARY |
|
NINE
MONTHS ENDED |
|
|
NINE
MONTHS ENDED |
|
|
|
SEPTEMBER
30,
2009
|
|
|
SEPTEMBER
30,
2008
|
|
|
|
(Adjusted
for impact of
1-20
reverse split)
|
|
|
(Adjusted
for impact of
1-20
reverse split)
|
|
Principal and
interest Converted |
|
$ |
105,594 |
|
|
$ |
1,264,710 |
|
Shares
converted |
|
|
6,614,213 |
|
|
|
18,314,462 |
|
Average share
conversion price |
|
$ |
0.016 |
|
|
$ |
0.06 |
|
COMMON
STOCK
The
following is a summary of transactions that had an impact on
equity:
|
|
s(Adjusted for impact of 1-for-20
reverse split) |
|
|
|
NINE
MONTHS ENDED
SEPTEMBER
30, 2009
|
|
|
YEAR
ENDED
DECEMBER
31, 2008
|
|
|
|
|
|
|
AVERAGE |
|
|
|
|
|
|
|
|
AVERAGE |
|
|
|
|
|
|
SHARES
ISSUED
|
|
|
SHARE
PRICE
|
|
|
VALUE |
|
|
SHARES
ISSUED
|
|
|
SHARE
PRICE
|
|
|
VALUE |
|
Debt
conversions |
|
|
6,614,213 |
|
|
$ |
0.016 |
|
|
$ |
105,594 |
|
|
|
20,312,535 |
|
|
$ |
0.064 |
|
|
$ |
1,304,671 |
|
Issuance of
stock in exchange for services |
|
|
1,005,875 |
|
|
$ |
0.025 |
|
|
|
11,040 |
|
|
|
2,960,268 |
|
|
|
0.187 |
|
|
|
552,407 |
|
Stock issued
for liquidated damages |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
150,000 |
|
|
|
0.160 |
|
|
|
24,000 |
|
Shares in
escrow |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
593,945 |
|
|
|
0.190 |
|
|
|
113,087 |
|
Total |
|
|
7,620,088 |
|
|
$ |
0.017 $ |
|
|
|
116,634 |
|
|
|
24,016,748 |
|
|
$ |
0.083 |
|
|
$ |
1,994,165 |
|
On
December 21, 2006, the Company completed a private placement pursuant to a
Revolving Credit Note Agreement which the Company entered into with several
institutional investors, pursuant to which the Investors subscribed to advance
up to a maximum amount of $640,000 bearing an interest rate of 7%. The term of
the agreement shall be effective as of December 21, 2006 and shall be in full
force and effect until the earliest to occur of (a) 12 months from December 21,
2006 (B) a date not less than thirty days after Lender gives notice of
termination to the Company.
The
original Revolving Credit Note agreement has been amended twenty-one times
during the term of the agreement including the Third Modification on June 21,
2009 which increased the maximum borrowing by the Company.
Since
inception the Company has borrowed $3,139,000 against the revolving note. During
the same period the Company paid $368,317 against the outstanding balance for a
total net borrowing of $2,752,683 since inception. All borrowings are used to
cover recurring operating expenses by the Company.
As of
September 30, 2009 the outstanding principal amount owed to the Investors is
$2,752,683. Interest accrued on the outstanding principal is $357,253 as of
September 30, 2009.
The
Company will continue to rely heavily on our current method of convertible debt
and equity funding, proceeds borrowed from the revolving line of credit and the
sale of warrants. The (losses) of ($52,492,791) through the period ended
September 30, 2009 are due to minimal revenues and recurring operating expenses,
with a majority of expenses in the areas of: salaries, accounting fees, legal
fees, licensing costs along with a majority of expense incurred being non-cash
related. The Company faces 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, collection of
monthly accounts receivable 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.
OFF BALANCE SHEET
ARRANGEMENTS
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Not
applicable.
ITEM
4T. CONTROLS AND PROCEDURES
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
Our
management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) that is designed to ensure that information required to be
disclosed by the Company in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Pursuant
to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation
with the participation of the Company's management, including Dean Weber, the
Company's Chief Executive Officer and Interim Chief Financial Officer
("CEO/CFO"), of the effectiveness of the Company's disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
three months ended September 30, 2009. Based upon that evaluation, the Company's
CEO /CFO concluded that the Company's disclosure controls and procedures are
ineffective and cannot ensure that information required to be disclosed by the
Company in the reports that the Company files or submits under the Exchange Act,
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 the Company's CEO /CFO,
as appropriate, to allow timely decisions regarding required
disclosure.
CHANGES
IN INTERNAL CONTROLS
Our
management, with the participation the Principal Executive Officer and Principal
Accounting Officer performed an evaluation as to whether any change in our
internal controls over financial reporting occurred during the Quarter ended
September 30, 2009. Based on that evaluation, the Company's CEO/CFO concluded
that no change occurred in the Company's internal controls over financial
reporting during the Quarter ended September 30, 2009 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
controls over financial reporting.
PART
II
OTHER
INFORMATION
From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm business. Except as disclosed below we are
currently not aware of any such legal proceedings or claims that will have,
individually or in the aggregate, a material adverse affect on business,
financial condition or operating results. There has been no bankruptcy,
receivership or similar proceedings.
On August
23, 2007, the Company entered into a Settlement Agreement and Mutual Release
with La Jolla Cove Investors, Inc. ("LJCI") pursuant to which we agreed with
LJCI to forever settle, resolve and dispose of all claims, demands and causes of
action asserted, existing or claimed to exist between the parties because of or
in any way related to a legal proceeding in the San Diego County Superior Court
(the "Court") entitled La Jolla Cove Investors, Inc. vs. One Voice Technologies,
Inc., Case No. GIC850038 (the "Action") for a total amount owed of $408,594.48
(the "Owed Amount"). Under the Settlement Agreement dated August 23, 2007, the
parties reached a final resolution with respect to such Owed Amount whereby (i)
LJCI shall receive $200,000 within 15 days of the date of the Agreement and (ii)
the difference between the Owed Amount and $200,000 shall be payable at a later
date (the "Remaining Owed Amount"). The payment of the Remaining Owed Amount
shall be made to LJCI in the following manner:
o
Concurrently with the execution of the Agreement, the Company shall transfer to
an independent escrow agent, on behalf of LJCI, all right, title and interest to
30,000,000 shares of Common Stock of the Company (the "Escrow Shares"), issued
in 30 increments of 1,000,000 shares. On the one year anniversary of the
Agreement, 1,000,000 Escrow Shares shall be released to LJCI whereby LJCI shall
be able to sell such shares in open market transactions provided such sales do
not exceed more than 14% of the corresponding daily volume of such shares on the
trading market on which the Company's securities are sold. LJCI shall continue
to receive the Escrow Shares, provided they satisfy the volume limitation set
forth above and LJCI's ownership of the Company's common stock does not exceed
4.99% of the Company's then issued and outstanding shares of common stock, until
the Remaining Owed Amount is satisfied;
o Upon
notice from LJCI that the Remaining Owed Amount has been satisfied by the sale
of the Escrow Shares either (i) Alpha Capital Ansalt ("Alpha") shall have the
ability within 15 business days to purchase any remaining Escrow Shares at a 20%
discount to the current market price of the shares or (ii) if Alpha does not
exercise its right to purchase the shares, the Company shall have the ability to
redeem the remaining Escrow Shares within 5 business days.
o At
anytime while the Remaining Owed Amount is outstanding, the Company or Alpha may
pay in cash to LJCI an amount equal to the Remaining Owed Amount and either (i)
Alpha shall have the ability within 15 business days to purchase any remaining
Escrow Shares at a 20% discount to the current market price of the shares or
(ii) if Alpha does not exercise its right to purchase the shares, the Company
shall have the ability to redeem the remaining Escrow Shares within 5 business
days.
LJCI has
contractually agreed to restrict their ability to exercise the Escrow Shares
such that the number of shares of the Company common stock held by it does not
exceed 4.99% of the Company's then issued and outstanding shares of common
stock.
Upon
receipt of the Owed Amount, LJCI will file a Satisfaction of Judgment in the
appropriate court and grant the Company a release from any and all actions
related to the Action.
On June
15, 2009 our former landlord, The Irvine Company LLC, filed a complaint to
collect unpaid rent and future rent in the amount of $249,622. We are
currently disputing this complaint and it is difficult to determine the
likelihood or probable outcome at this point.
ITEM
1A. RISK FACTORS
There
have been no material changes from the risk factors previously disclosed in Part
I, "Risk Factors," of the Company's Annual Report on Form 10-K for the year
ended December 31, 2008, other than to update certain financial information as
of and for the nine months ended September 30, 2009 regarding the following risk
factors.
WE HAVE A
HISTORY OF LOSSES. WE MAY TO CONTINUE TO INCUR LOSSES, AND WE MAY NEVER ACHIEVE
AND SUSTAIN PROFITABILITY.
Since
inception, we have incurred significant losses and have negative cash flows from
operations. For the nine months ended September 30, 2009 and 2008, we incurred a
net (loss) of ($522,203) compared to a net (loss) of ($919,977),
respectively.
IF
WE DO NOT BECOME PROFITABLE WE MAY NOT BE ABLE TO CONTINUE OUR
OPERATIONS.
Our
future sales and profitability depend in part on our ability to demonstrate to
prospective customers the potential performance advantages of using voice
interface software. To date, commercial sales of our software have been
limited.
WE
HAVE A LIMITED OPERATING HISTORY WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS.
Our
current corporate entity commenced operations in 1999 and has a limited
operating history. We have limited financial results on which you can assess our
future success. Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by growing companies in new and rapidly
evolving markets, such as voice recognition software, media delivery systems and
electronic commerce. To address the risks and uncertainties we face, we
must:
|
|
Establish
and maintain broad market acceptance of our products and services and
convert that acceptance into direct and indirect sources of
revenues.
|
|
|
|
|
|
Maintain
and enhance our brand name.
|
|
|
|
|
|
Continue
to timely and successfully develop new products, product features and
services and increase the functionality and features of existing
products.
|
|
|
|
|
|
Successfully
respond to competition, including emerging technologies and
solutions.
|
|
|
|
|
|
Develop
and maintain strategic relationships to enhance the distribution, features
and utility of our products and
services.
|
IF WE ARE
UNABLE TO OBTAIN ADDITIONAL FUNDING OUR BUSINESS OPERATIONS WILL BE
HARMED.
We do not
know if additional financing will be available when needed, or if it is
available, if it will be available on acceptable terms. Insufficient funds may
prevent us from implementing our business strategy or may require us to delay,
scale back or eliminate certain contracts for the provision of voice interface
software.
OUR
OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.
As a
result of our limited operating history and the rapidly changing nature of the
markets in which we compete, our quarterly and annual revenues and operating
results are likely to fluctuate from period to period. These fluctuations may be
caused by a number of factors, many of which are beyond our
control.
As a
result of the rapidly changing nature of the markets in which we compete, our
quarterly and annual revenues and operating results are likely to fluctuate from
period to period. These fluctuations may be caused by a number of factors, many
of which are beyond our control.
For these
reasons, you should not rely solely on period-to-period comparisons of our
financial results, if any, as indications of future results. Our future
operating results could fall below the expectations of public market analysts or
investors and significantly reduce the market price of our common stock.
Fluctuations in our operating results will likely increase the volatility of our
stock price.
UNREGISTERED
SALES OF EQUITY SECURITIES
The
securities described below represent our securities sold by us for the period
starting January 1, 2009 thru September 30, 2009 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.
SALES OF
WARRANTS FOR CASH
During
the year ended December 31, 2008 and the nine months ended September 30,
2009, no warrants were exercised. As a result, the Company received
no cash proceeds in relation to warrants.
ISSUANCE
OF WARRANTS ON A CASHLESS BASIS
From time
to time warrants can be exercised on a cashless basis if certain conditions
exist. If warrants are held for a certain period of time and there is no
effective registration statement for these warrants, the holder of these
warrants may exercise them on a cashless basis. The result is the Company
issuing restricted shares pursuant to rule 144 or 144K, no cash is received by
the Company. The number of shares issued are discounted according the
subscription agreement formula. EX: The Company issues 1,000,000 restricted
shares and the holder forfeits 1,500,000 of their warrants.
During
the year ended December 31, 2008, no warrants were issued on a
cashless basis and no warrants were forfeited
No
cashless warrants were exercised during the nine months ended September 30,
2009.
On August
23, 2007, the Company issued 30,000,000 shares of the Company's restricted
common stock valued at $600,000. The shares were put into an independent 3rd
party escrow account on behalf of La Jolla Cove Investors Inc. These shares
relate to a legal settlement on August 23, 2007 between the Company and La Jolla
Cove Investors Inc. The shares were issued pursuant to an exemption under
Section 4(2) of the Securities Act of 1933.
On May 2,
2008, the company issued 11,878,896 shares of the Company’s
restricted common stock valued at $113,087. The shares were also put into
an independent 3rd party escrow account on behalf of La Jolla Cove Investors
Inc. These shares relate to a legal settlement on August 23, 2007 between the
Company and La Jolla Cove Investors Inc. The shares were issued pursuant to an
exemption under Section 4(2) of the Securities Act of 1933.
See Item
1 Legal Proceedings for additional details.
ISSUANCES
OF STOCK FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS
During
the year ended December 31, 2008, the Company issued a total of 2,960,268 shares
of restricted common stock, adjusted for impact of 1-for-20 reverse split, in
exchange for services rendered. Services included financial advisor fees and
consulting. The services were valued at approximately $552,000.
During
the nine months ended September 30, 2009 the Company did not issue any shares of
restricted common stock in exchange for services rendered.
The above
transactions were granted in lieu of cash payment to satisfy the debt and
obligation.
The
shares were issued pursuant to an exemption under Section 4(2) of the Securities
Act of 1933.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
Not
Applicable.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
None.
Not
Applicable.
ITEM
6. EXHIBITS
10.1
|
Third
Modification Agreement dated June 21, 2009 (Incorporated by reference to
the Company’s Current Report on Form 8-K filed with the SEC on August 5,
2009)
|
10.2
|
Partial
Release of Collateral Agreement dated June 21, 2009 (Incorporated by
reference to the Company’s Current Report on Form 8-K filed with the SEC
on August 5, 2009)
|
31.1
|
Certification
of the Chief Executive Officer and Interim Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
Certification
Chief Executive Officer and Interim Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act of 1933, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
ONE
VOICE TECHNOLOGIES, INC.,
A
NEVADA CORPORATION
|
|
|
|
|
|
Date:
November 23, 2009
|
By:
|
/s/ DEAN
WEBER |
|
|
|
Dean
Weber |
|
|
|
Chairman, Chief Executive Officer |
|
|
|
(Principal
Executive Officer) and
Interim Chief Financial Officer
(Principal Accounting and Financial Officer)
|
|
41