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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NO. 0-27589
_______________________
ONE VOICE TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
Nevada 95-4714338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6333 Greenwich Drive, Ste. 240, San Diego, CA 92122
(Address of Principal Executive Offices)
(858) 552-4466
(Issuer's Telephone Number)
(858) 552-4474
(Issuer's Facsimile Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.
As of October 25, 2000, the registrant had 12,671,060 shares of common stock,
$.001 par value, issued and outstanding.
Transitional small business disclosure format (check one): Yes ___ No X
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash $ 6,740,098
Cash - restricted 200,000
Inventory 98,038
Prepaid advertising 190,556
Prepaid expenses 644,765
-----------
Total current assets $ 7,873,457
Property and equipment, net of
accumulated depreciation and amortization 1,066,535
Other assets:
Software licensing 518,053
Software development costs 879,979
Deposits 27,866
Trademark 144,540
Patent 42,133
-----------
Total other assets 1,612,571
-----------
$10,552,563
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 497,424
Loan payable 200,000
-----------
Total current liabilities $ 697,424
Stockholders' equity:
Preferred stock; $.001 par value, 10,000,000 shares
authorized, no shares issued and outstanding
Common stock; $.001 par value, 50,000,000 shares --
authorized, 12,671,060 shares issued and outstanding 12,671
Additional paid-in capital 17,075,046
Deficit accumulated during development stage (7,232,578)
-----------
Total stockholders' equity 9,855,139
-----------
$10,552,563
===========
</TABLE>
See accompanying notes to financial statements.
1
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ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Three months ended From inception on
September 30, September 30, January 1, 1999 to
2000 1999 2000 1999 September 30, 2000
---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ - $ 25,423 $ - $ - $ 25,423
Cost of revenues - 2,790 - - 2,790
----------- ----------- ----------- ----------- ------------------
Gross profit - 22,633 - - 22,633
General and administrative expenses 5,450,363 721,938 2,222,451 698,438 7,255,211
----------- ----------- ----------- ----------- ------------------
Net loss $(5,450,363) $ (699,305) $(2,222,451) $ (698,438) $(7,232,578)
=========== =========== =========== =========== ==================
Net loss per share, basic and diluted $(0.44) $(0.06) $ (0.18) $ (0.06)
=========== =========== =========== ===========
Weighted average shares outstanding,
basic and diluted 12,338,181 12,422,198 12,671,060 11,136,848
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
2
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ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during Total
Common stock paid-in development stockholders'
-----------------------
Shares Amount capital stage equity
------------ --------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 12,720,000 $ 12,720 $ 12,720
Issuance of common stock in
connection with merger 7,000,000 7,000 106,236 113,236
Net proceeds from issuance of
common stock 1,500,000 1,500 2,544,422 2,545,922
Net issuance of common stock in
exchange for services 150,000 150 299,850 300,000
Redemption of common stock (10,000,000) (10,000) (10,000)
Net loss for the year
ended December 31, 1999 (1,782,215) (1,782,215)
Net proceeds from issuance of
common stock and warrants 312,500 313 1,779,523 1,779,836
Net proceeds from issuance of
common stock and warrants 988,560 988 12,184,132 12,185,120
Stock options issued in exchange
for services 160,883 160,883
Net loss for the nine months
ended September 30, 2000 (5,450,363) (5,450,363)
----------- -------- ----------- ----------- ------------
Balance at September 30, 2000 12,671,060 $ 12,671 $17,075,046 $(7,232,578) $ 9,855,139
=========== ======== =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
3
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ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Three months ended From inception on
September 30, September 30, January 1, 1999 to
2000 1999 2000 1999 September 30, 2000
---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used for) operating activities:
Net loss $(5,450,363) $(699,305) $(2,222,451) $(698,438) $ (7,232,578)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 686,570 5,564 291,176 5,564 812,825
Stock options issued for services 160,883 - 160,883 - 160,883
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Inventory (98,038) - (2,426) - (98,038)
Prepaid advertising (190,556) - 40,833 - (190,556)
Prepaid expenses (644,651) - (138,062) - (644,765)
Deposits (21,085) (40,055) (115) (40,055) (27,866)
Increase (decrease) in liabilities -
accounts payable and accrued expenses 90,531 79,184 (162,021) 79,184 497,424
----------- --------- ----------- --------- ----------------
Net cash used for operating activities (5,466,709) (654,612) (2,032,183) (653,745) (6,722,671)
----------- --------- ----------- --------- ----------------
</TABLE>
(Continued)
4
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ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Three months ended From inception on
September 30, September 30, January 1, 1999 to
2000 1999 2000 1999 September 30, 2000
---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C>
Cash flows used for investing activities:
Purchase of property and equipment (1,086,755) (128,163) (372,519) (76,306) (1,240,717)
Software licensing (667,231) (450,000) (464,318) (450,000) (1,127,226)
Software development (727,646) - (319,197) - (895,664)
Increase in escrow account - (100,338) - (338) (200,000)
Trademark (158,325) - (12,611) - (158,325)
Patents (8,177) (33,956) (929) (22,251) (42,133)
----------- ---------- ----------- ----------- -----------
Net cash used for investing
activities (2,648,134) (712,457) (1,169,574) (548,895) (3,664,065)
----------- ---------- ----------- ----------- -----------
Cash flows provided by (used for) financing
activities:
Proceeds from issuance of common stock, net 13,964,956 2,971,878 - 12,720 16,936,834
Retirement of common stock, net - (10,000) - (10,000) (10,000)
Proceeds from (payments on) loan payable,
officer-stockholder (4,500) 4,500 (4,500) - -
Proceeds from (payments on) loan payable,
officer (10,000) 10,000 (10,000) - -
Proceeds from loan payable - 100,000 - - 200,000
----------- ---------- ----------- ----------- -----------
Net cash provided by (used for)
financing activities 13,950,456 3,076,378 (14,500) 2,720 17,126,834
----------- ---------- ----------- ----------- -----------
Net increase (decrease) in cash 5,835,613 1,709,309 (3,216,257) (1,199,920) 6,740,098
Cash, beginning of period 904,485 - 9,956,355 2,909,229 -
----------- ---------- ----------- ----------- -----------
Cash, end of period $ 6,740,098 $1,709,309 $ 6,740,098 $ 1,709,309 $ 6,740,098
=========== ========== =========== =========== ===========
Supplemental disclosure of cash flow
information:
Interest paid $ 66 $ 17,124 $ 20 $ 17,124 $ 17,190
=========== ========== =========== =========== ===========
Income taxes paid $ 1,600 $ 1,823 $ - $ 1,823 $ 3,423
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
5
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ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(1) Summary of Significant Accounting Policies:
Interim Financial Statements:
The accompanying financial statements include all adjustments
(consisting of only normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the
results of operations for the periods presented. Interim results are
not necessarily indicative of the results to be expected for a full
year. The financial statements should be read in conjunction with the
financial statements included in the annual report of One Voice
Technologies, Inc. (the "Company") on Form 10-KSB for the year ended
December 31, 1999.
Business Activity:
The Company develops and markets computer software using Intelligent
Voice Interactive Technology (IVIT(TM)) to website owners in the
United States and other countries.
(2) Common Stock:
In January 2000, the Company entered into a Subscription Agreement with an
unrelated foreign party providing for the sale of 312,500 shares of the
Company's common stock at $6.40 per share and 156,250 common stock purchase
warrants. Each warrant entitles the holder to purchase one share of common
stock at an exercise price of $8.00. The value of the warrants amount to
$13,750 and is included in additional paid-in capital. The warrants expire
on January 5, 2001. Net proceeds raised from the shares and warrants total
approximately $1,800,000.
In March 2000, the Company commenced a private placement of approximately
1,000,000 units consisting of 1 share of the company's common stock and
1/2 common stock purchase warrant for each unit purchased. The Company
raised net proceeds totaling approximately $12,185,000 from the issuance of
988,560 shares of common stock and 494,280 common stock purchase warrants.
Each warrant entitles the holder to purchase one share of common stock at
an exercise price of $18.00. The value of the warrants amount to
approximately $96,800 and is included in additional paid-in capital. The
warrants expire at various times through April 2001. Net proceeds raised
from the shares and warrants total approximately $12,185,000.
6
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Item 2. Management's Plan of Operations.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in this
report, the Company's Annual Report on Form 10-KSB and other reports and
documents that the Company files with the Securities and Exchange Commission.
The Company maintains a cash balance that it believes is sufficient to sustain
corporate operations until December 31, 2001. The losses through the quarter
ended September 30, 2000 were due to operating expenses of the Company.
Continued sales of the Company's equity and debt securities have allowed the
Company to maintain a positive cash flow balance.
The Company completed final testing of its initial product called myIVAN(TM)
during its third quarter. This product, is now available at no charge for
direct download from the Company's website, http://www.myivan.com, as well as by
mail order directed to the Company.
During the next twelve months, Management's business plan is for the Company to
take the following steps to further develop and market its products: during the
fourth quarter of 2000, the Company plans to begin a nationwide advertising
campaign to create public awareness and branding of its myIVAN(TM) online
products. This campaign is expected to continue through the fourth quarter of
2001. The Company has recently developed an upgrade product that adds additional
features and capabilities to the initial free myIVAN(TM) product. Further
development and marketing of this upgraded product will continue through 2001.
The Company is continuing localization efforts of its product for the following
languages: UK English, Spanish, German, French and Italian. Development of these
additional language versions began in the third quarter 2000 and is expected to
continue into 2001. The Company anticipates releasing the initial localized
product, UK English, in the first quarter 2001. The Company will work on the
development of one language version at a time, with continued marketing of
released language versions.
The Company plans to spend an additional $750,000 to finish programming of its
existing software product which began in the third quarter of 2000 and plans to
begin new product research and development into wireless (cellular telephone)
and PDA (personal digital assistant). Management has not determined a budget or
timeline for new product research and development at this time.
Cash flow from sales is expected to begin in November 2000. The Company faces
considerable risk in completing each of its business plan steps, such as
potential cost overruns, a lack of interest in the Company's product in the
market on the part of its anticipated computer manufacturer partners, Internet
Service Provider partners, and/or consumers, and a shortfall of funding due to
the Company's inability to raise capital in the securities market. If further
funding is required, and no funding is received during the next twelve months,
the Company would be forced to rely on its existing cash in the bank or short-
term bridge loans. While Management believes its current cash balance is
sufficient for the completion of its product and initial marketing prior to
receiving significant cash flow from sales per its business plan, the Company
may be unable to complete its product development until such time as necessary
funds could be raised in the equity market. In such a restricted cash flow
scenario, the Company would delay all cash intensive activities including
certain product development and marketing activities described above.
There are no current plans to purchase or sell any significant amount of fixed
assets. The Company's business plan provides for an increase of eight employees
during the next twelve months.
7
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PART II
OTHER INFORMATION
Item 1. Not applicable.
Items 2-4. Not applicable.
Item 5. Information required in lieu of Form 8-K:
SECURITIES PURCHASE AGREEMENT
The following description of the Securities Purchase Agreement is a summary and
is qualified in its entirety by the provisions of the agreement and other
supporting documents which have been filed as exhibits to this Form 10-QSB.
On October 3, 2000, we completed a private placement with the Selling
Stockholders for $2,000,000 worth of 5% Convertible Debentures and warrants to
purchase 231,884 shares of Common Stock exercisable at $9.76 per share. The
warrants expire on October 3, 2005, and have a cashless exercise provision under
certain circumstances. As part of the transaction, a Conditional Warrant was
also issued which may be exercised at our option or the option of the Selling
Stockholders for the purchase of up to an additional aggregate principal amount
of $8,000,000 of 5% Convertible Dentures with 30% warrant coverage in four
tranches of $2,000,000 each, pursuant to the terms of the Conditional Warrant
described below.
We may be responsible for reimbursing the Selling Stockholders for expenses
incurred by them due to any action, proceeding or investigation regarding the
transactions covered by the Securities Purchase Agreement. We must also obtain
the prior written consent of the Selling Stockholders before entering into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock with any third party until 270 days after the filing date of
the registration statement of which this prospectus is a part, with certain
exceptions as outlined in the agreement.
Registration Rights. The Selling Stockholders were granted a demand
registration right with respect to the Common Stock underlying (i) the
conversion of the initial issuance of the 5% Convertible Debentures and the
warrants and (ii) the conversion of the 5% Convertible Debentures and the
warrants issuable in the first tranche under the Conditional Warrant. This
prospectus and registration statement is being filed pursuant to that
registration right.
Additional demand registration rights apply to the Common Stock underlying the
conversion of the 5% Convertible Debentures and the warrants which may be issued
in the 3 subsequent tranches under the Conditional Warrant. We must file a
registration statement for the Common Stock underlying the securities to be
issued in any of the 3 subsequent tranches in order to require the Selling
Stockholders to exercise the Conditional Warrant as to the respective tranche.
5% Convertible Debentures. Under the 5% Convertible Debentures ("Debentures"),
we must pay the Selling Stockholders the principal amount of the Debentures on
October 3, 2003 or any earlier date as provided under the Debentures. Interest
of 5% per year is due on October 3, 2003, or on any earlier conversion date and
may be paid in cash or in shares of our Common Stock. If we default under the
terms of the Debentures, the full principal amount of the Debentures plus
interest will be immediately due and payable to the Selling Stockholders by us.
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The Debentures may be converted in whole or in part by the Selling Stockholders
at any time after the issuance date. The number of our Common Stock shares to
be issued upon conversion of the Debentures will be calculated by dividing the
outstanding principal amount of the Debentures to be converted and the interest
then due on that principal amount by the conversion price established by the
Debentures. The conversion price is the lesser of $9.76 or the average of the
lowest 7 closing prices during the 50 trading days immediately preceding the
date of conversion. The Debentures are automatically convertible into Common
Stock using the above formula on the third anniversary of the issuance date.
The conversion ratio is subject to adjustment in the event of certain
reorganizations of our Company or based on certain issuances of Common Stock or
options or warrants to purchase Common Stock by our Company.
Conditional Warrant. A Conditional Warrant was issued under the Securities
Purchase Agreement which entitles us to sell additional Debentures to the
Selling Stockholders for up to an aggregate of $8,000,000 in four tranches at
our option over a one-year period ending October 3, 2001. The tranches are
subject to certain conditions outlined in the Conditional Warrant and the
Securities Purchase Agreement.
The first tranche period begins 60 days following the date on which the
registration statement of which this prospectus is a part is declared effective.
During the first tranche period we may sell up to $2,000,000 of Debentures to
the Selling Stockholders by providing them with a written notice between 10 and
20 business days prior to our intended closing date for the tranche. On the
closing date, the Selling Stockholders must then exercise the Conditional
Warrant for any amount from $1,000,000 to the full $2,000,000 available under
the tranche. Each of the 3 subsequent tranche periods will begin on the 90th
day following the closing date of the prior tranche (the second through fourth
tranches).
The Selling Stockholders also have the option of exercising the Conditional
Warrant for an amount from $1,000,000 to the full $2,000,000 available under
each tranche by providing us with a written Election to Purchase which will
establish the dollar amount of Debentures to be purchased and the closing date
for the purchase.
Additional warrants must be issued as part of the closing of each tranche for
the number of our Common Stock shares equal to 30% of the tranche amount
exercised divided by the closing price of our Common Stock on the trading day
prior to the closing date. The exercise price for the warrants will be 115% of
the average of the closing prices of our Common Stock for the 10 trading days
immediately preceding the closing date, and they will have a five-year term. The
warrants may have a cashless exercise provision under certain circumstances.
Certain conditions apply to our right to issue a notice for a tranche closing
and the Selling Stockholders' obligation to exercise the Conditional Warrant for
the tranche amount pursuant to our written notice.
We may terminate our ability and the Selling Stockholders' ability to exercise
the Conditional Warrant by providing them with a written notice of our desire to
terminate any unexercised portion of the Conditional Warrant and delivering
within three business days following our notice a warrant to purchase shares of
our Common Stock. The warrant must be for the number of Common Stock shares
that is 15% of the aggregate unexercised portion of the Conditional Warrant on
the date of the notice divided by the closing price of our Common Stock on the
trading day prior to the date of our notice, with an exercise price per share
that is 110% of that closing price, and a term of five years.
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Item 6. Exhibits and Reports on 8-K:
a) Exhibit 4, Securities Purchase Agreement ("SPA") with Nevelle
Investors LLC dated October 3, 2000, and Form of Debenture
(Exhibit A to the SPA), Form of Warrant (Exhibit B to the SPA),
Conditional Warrant dated October 3, 2000 (Exhibit C to the SPA)
and Registration Rights Agreement dated October 3, 2000 (Exhibit
E to the SPA).
Exhibit 27.1, Financial Data Schedule.
b) No reports on Form 8-K were filed during the fiscal quarter ended
September 30, 2000.
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SIGNATURES
In accordance with the requirements of the Exchange Act of 1933, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONE VOICE TECHNOLOGIES, INC., a Nevada Corporation
Date: November 14, 2000 By: /s/ Dean Weber
------------------- ---------------------------------------------
DEAN WEBER, Chairman & Chief Executive Officer
Date: November 14, 2000 By: /s/ Rahoul Sharan
------------------- ---------------------------------------------
RAHOUL SHARAN, Chief Financial Officer
11
