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FILED PURSUANT TO RULE 424(b)(3)
FILE NUMBER 333-50256
PROSPECTUS
ONE VOICE TECHNOLOGIES, INC.
2,475,494 Shares
Common Stock
We are registering the following shares:
-- 2,117,294 shares of Common Stock issuable upon the conversion of 5%
Convertible Debentures issued and issuable to the Selling Stockholders;
-- 231,884 shares of Common Stock issuable upon exercise of warrants held
by the Selling Stockholders; and
-- 126,316 shares of Common Stock issuable upon exercise of warrants
which may be issued to the Selling Stockholders.
We will pay the expenses of registering these shares.
Our Common Stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Nasdaq SmallCap Market under the
symbol "ONEV." The last reported sales price per share of our Common Stock as
reported by the Nasdaq SmallCap Market on November 14, 2000, was $4.75.
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Investing in these securities involves significant risks.
See "Risk Factors" beginning on page 3.
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The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is December 1, 2000.
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PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "Risk
Factors" section, the financial statements and the notes to the financial
statements. Some of the statements made in this prospectus discuss future
events and developments, including our future business strategy and our ability
to generate revenue, income and cash flow. These forward-looking statements
involve risks and uncertainties which could cause actual results to differ
materially from those contemplated in these forward-looking statements.
THE COMPANY
We are a language technology company with solutions for the personal
computer, Internet and wireless markets targeting business-to-business revenue
models. Our target market segment is global Internet users and electronic
commerce websites worldwide.
Our technology allows people to talk with computers in a way that has not
been seen in any commercial product to date. We are currently developing
projects that apply our technologies to the wireless and telephony segments.
Our flagship technology engine allows worldwide consumers to talk, as if they
were speaking to another person, and instantaneously access and interact with
content on the World Wide Web. Internet users can talk with any website to
search and find information through an interactive and entertaining experience.
Our flagship product is the first in our line of intelligent voice
interactive solutions. Our software is based on artificial intelligence that
allows people to talk with their computers through everyday common speech. Our
artificial intelligence technology is so advanced that it understands not only
simple phrases but advanced linguistic concepts such as topic, subject and
synonym relationships. By asking the user relevant questions, our software
system can help clarify and learn from the user's requests.
Our goal is to lower the barrier to entry in obtaining information on the
Internet, while at the same time increasing productivity by using spoken natural
language to obtain this information. We believe that most people have a
difficult time conveying their thoughts to a computer. Our technology will help
users communicate with their computers and goes beyond other voice products
currently on the market as it does not restrict the user to certain phraseology
or a pre-defined list of phrases, but adapts and understands the user's language
patterns.
We offer our software directly to consumers for personal and small
office/home office use and to other businesses for use on their hardware
personal computer products and their Internet sites. Our search mechanisms will
also offer businesses the opportunity to advertise to users who target products
through their searches.
THE OFFERING
Common Stock Offered for Resale: 2,475,494 shares
Use of Proceeds: Working capital and general corporate
purposes*
Nasdaq SmallCap Market Symbol: ONEV
* We will receive no proceeds from the issuance of shares of Common Stock upon
the conversion of the 5% Convertible Debentures. If exercised, we may receive
proceeds from the sale of shares issuable upon the exercise of warrants by the
Selling Stockholders. However, if the cashless exercise provision of any of the
warrants is used, we will not receive proceeds from the exercise of those
warrants.
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RISK FACTORS
This investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks actually occur,
our business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment.
There are risks associated with forward-looking statements made by us and actual
results may differ.
Some of the information in this Form SB-2 contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
-- discuss our future expectations;
-- contain projections of our future results of operations or of our
financial condition; and
-- state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there
may be events in the future that we are not able to accurately predict or over
which we have no control. The risk factors listed in this section, as well as
any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. You should
be aware that the occurrence of the events described in these risk factors could
have an adverse effect on our business, results of operations and financial
condition.
We have lost money since inception. We expect future losses and we may never
become profitable.
Since inception, we have incurred significant losses. Net loss for the nine
months ended September 30, 2000, totaled $5,450,363 and we had an accumulated
deficit of $7,232,578 at September 30, 2000. We expect to continue to incur net
losses until sales generate sufficient revenues to fund our continuing
operations. We may fail to achieve significant revenues from sales or achieve or
sustain profitability. There can be no assurance of when, if ever, we will be
profitable or be able to maintain profitability.
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 recognition Internet search software. To date, commercial sales of
our software have been limited. A lack of a proven market or market studies for
our product means that while we, software engineers and software magazine
writers may believe the public will enthusiastically accept voice recognition
software, the true market for this product may be minor or nonexistent. This
could result in little or no product sales without which we will not be able to
continue our operations indefinitely.
Our voice recognition Internet search software is novel and unproven.
We will be successful only if Internet users adopt our voice recognition search
services as their primary method of navigating the Internet. Internet users have
a variety of search techniques, such as search engines, available to them to
navigate the Internet. Users can also rely on methods, such as call centers,
chat rooms and e-mail, rather than difficult-to-navigate corporate websites, to
obtain information on products and services. It is difficult to predict the
extent and rate of user adoption of our question-answering service. We cannot
assure you that widespread acceptance of our products or services has occurred
or will occur. Users may try voice-recognition access once or twice and then
revert to traditional search techniques to navigate the Internet or choose new
search techniques.
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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 from Microsoft and others,
including emerging technologies and solutions; and
-- 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 believe that our available short-term assets and investment income will
be sufficient to meet our operating expenses and capital expenditures through
the end of fiscal year 2001. 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 recognition Internet search 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. These factors include the following, as well as others discussed
elsewhere in this section:
-- how and when we introduce new products and services and enhance our
existing products and services;
-- our ability to attract and retain new customers and satisfy our
customers' demands;
-- the timing and success of our brand-building and marketing campaigns;
-- our ability to establish and maintain strategic relationships;
-- our ability to attract, train and retain key personnel;
-- the demand for voice recognition Internet search software applications;
-- the emergence and success of new and existing competition;
-- varying operating costs and capital expenditures related to the
expansion of our business operations and infrastructure, domestically
and internationally, including the hiring of new employees;
-- technical difficulties with our products, system downtime, system
failures or interruptions in Internet access;
-- changes in the mix of products and services that we sell to our
customers;
-- costs and effects related to the acquisition of businesses or
technology and related integration; and
-- costs of litigation and intellectual property protection.
In addition, because the market for our products and services is relatively
new and rapidly changing, it is difficult to predict future financial results.
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For these reasons, you should not rely 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.
We are a development-stage company and unexpected or uncontrollable business or
economic forces are more likely to harm us.
We are in the development or starting stages of our business plan and are
therefore more vulnerable to unexpected or uncontrollable business and economic
forces. We lack any loyalty and brand name recognition from potential customers
and business partners. Unknown software errors may not be corrected in time to
develop a sustainable customer base. Unfavorable product reviews or news
reports could squelch early sales efforts. A competitor may quickly release a
better version of a similar product before we can complete our development
efforts. Economic conditions such as a national or world recession,
international trade restrictions on computer product sales, or a slowdown in
Internet usage growth could reduce our revenues below financially-healthy
levels. The risks of a development-stage company include a lack of job security
for employees and the possible loss of all investment funds by investors
Our current and potential competitors, some of whom have greater resources and
experience than we do, may develop products and technologies that may cause
demand for, and the prices of, our products to decline.
A number of companies have developed, or are expected to develop, products
that compete with our products. Competitors in the voice interface software
market include IBM, Conversational Computing Corporation, Grover Industries,
Dragon Systems, IMSI, ITT Industries, Lernout and Hauspie Speech Products, Locus
Dialogue, Lucent Technologies, Philips Electronics, SpeechWorks International
and T-NETIX. We expect additional competition from other companies such as
Microsoft, who has recently made investments in, and acquired, voice interface
technology companies. Furthermore, our competitors may combine with each other,
and other companies may enter our markets by acquiring or entering into
strategic relationships with our competitors. Current and potential competitors
have established, or may establish, cooperative relationships among themselves
or with third parties to increase the abilities of their advanced speech and
language technology products to address the needs of our prospective customers.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products comparable
or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends and standards or customer requirements,
or devote greater resources to the development, promotion and sale of their
products than we do. Accordingly, we may not be able to compete effectively in
our markets, competition may intensify and future competition may harm our
business.
Our industry is experiencing consolidation that may intensify competition.
The Internet industry has recently experienced substantial consolidation
and a proliferation of strategic transactions. We expect this consolidation and
strategic partnering to continue. Acquisitions or strategic relationships could
harm us in a number of ways. For example:
-- a competitor could be acquired by a party with significant resources
and experience that could increase the ability of the competitor to
compete with our products and services; and
-- other companies with related interests could combine to form new,
formidable competition, which could preclude us from obtaining access
to certain markets or content, or which could dramatically change the
market for our products and services.
Any inability to adequately protect our proprietary technology could harm our
ability to compete.
Our future success and ability to compete depends in part upon our
proprietary technology and our trademarks, which we attempt to protect with a
combination of patent, copyright, trademark and trade secret laws, as well as
with our
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confidentiality procedures and contractual provisions. These legal protections
afford only limited protection and are time-consuming and expensive to obtain
and/or maintain. Further, despite our efforts, we may be unable to prevent
third parties from infringing upon or misappropriating our intellectual
property.
We do not currently have any issued patents. We currently have 3 pending
patent applications, but there is no guarantee that patents will be issued with
respect to our current or future patent applications. Any patents that are
issued to us could be invalidated, circumvented or challenged. If challenged,
our patents might not be upheld or their claims could be narrowed. Our
intellectual property may not be adequate to provide us with competitive
advantage or to prevent competitors from entering the markets for our products.
Additionally, our competitors could independently develop non-infringing
technologies that are competitive with, equivalent to, and/or superior to our
technology. Monitoring infringement and/or misappropriation of intellectual
property can be difficult, and there is no guarantee that we would detect any
infringement or misappropriation of our proprietary rights. Even if we do detect
infringement or misappropriation of our proprietary rights, litigation to
enforce these rights could cause us to divert financial and other resources away
from our business operations. Further, we license our products internationally,
and the laws of some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the United States.
Our products may infringe upon the intellectual property rights of others and
resulting claims against us could be costly and require us to enter into
disadvantageous license or royalty arrangements.
The software industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement
and the violation of intellectual property rights. Although we attempt to avoid
infringing upon known proprietary rights of third parties, we may be subject to
legal proceedings and claims for alleged infringement by us or our licensees of
third-party proprietary rights, such as patents, trade secrets, trademarks or
copyrights, from time to time in the ordinary course of business. Any claims
relating to the infringement of third-party proprietary rights, even if not
successful or meritorious, could result in costly litigation, divert resources
and management's attention or require us to enter into royalty or license
agreements which are not advantageous to us. In addition, parties making these
claims may be able to obtain injunctions, which could prevent us from selling
our products. Furthermore, former employers of our employees may assert that
these employees have improperly disclosed confidential or proprietary
information to us. Any of these results could harm our business. We may be
increasingly subject to infringement claims as the number of, and number of
features of, our products grow.
Third parties could obtain licenses from IBM and/or Philips Speech Processing
("Philips") relating to voice interface technologies and develop technologies to
compete with our products, which could cause our sales to decline.
In September 1999, we received a two-year license from IBM and, in March
2000, received a three-year license from Philips for speech recognition software
"platforms." These licenses are not exclusive. As a result, IBM and/or Philips
may license its speech recognition software platforms to our competitors. If a
license from IBM and/or Philips were to enable third parties to enter the
markets for our products and services or to compete more effectively, we could
lose market share and our business could suffer.
Failure to add corporate customers or retain new corporate customers may have an
adverse effect on our revenues.
We expect that revenues associated with corporate customers will be
comprised primarily of corporations with large, difficult-to-navigate websites.
If we do not complete sales to a sufficient number of customers, our future
revenues will be harmed.
If we are unable to offer value to our customers during the term of their
contracts, or if our customers choose a competitor's service over our service,
or if such customers decide to use their own proprietary technology to develop
services similar to ours, such customers may not renew their contracts. If we do
not obtain a sufficient number of contract renewals or if such renewal contracts
are obtained on terms less favorable than the original contracts, our business
could be seriously harmed.
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If we do not successfully develop new products and services it will harm our
business.
Our business and operating results would be harmed if we fail to develop
products and services that achieve widespread market acceptance or that fail to
generate significant revenues to offset development costs. We may not timely
and successfully identify, develop and market new product and service
opportunities. When we introduce our new products and services, they may not
attain broad market acceptance or contribute meaningfully to our revenues or
profitability.
Delays and cost overruns in developing our products could affect our
ability to respond to technological changes, evolving industry standards,
competitive developments or customer requirements. Our products also may
contain undetected errors that could cause increased development costs, loss of
revenues, adverse publicity, reduced market acceptance of the products or
lawsuits by customers.
The growth of our business depends on the increased use of the Internet for
communications, electronic commerce and advertising.
The growth of our business depends on the continued growth of the Internet
as a medium for communications, electronic commerce and advertising. Our
business will be harmed if Internet usage does not continue to grow,
particularly as a source of media information and entertainment and as a vehicle
for commerce in goods and services. Our success also depends on the efforts of
third parties to develop the infrastructure and complementary products and
services necessary to maintain and expand the Internet as a viable commercial
medium.
In addition, we believe that other Internet-related issues, such as
security, privacy, reliability, cost, speed, ease of use and access, quality of
service and necessary increases in bandwidth availability, remain largely
unresolved and may affect the amount of business that is conducted over the
Internet.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by such growth, specifically the demands of
delivering high-quality media content. As a result, its performance and
reliability may decline. In addition, websites have experienced interruptions
in service as a result of outages, system attacks and other delays occurring
throughout the Internet network infrastructure. If these outages, attacks or
delays occur frequently or on a broad scale in the future, Internet usage, as
well as the usage of our products, services and websites, could grow more slowly
or decline.
The limited experience of our management may adversely affect our business.
The limited experience of our management in developing a new product from
inception through a fully tested, market usable status for national and world-
wide consumer use may result in critical business judgment errors as we grow in
size and sales volume. In a product rollout of the magnitude of our business
plan, management errors not timely corrected could result in excessive costs and
expenses, poor quality products, inability to deliver products on time,
detrimental business contract terms, and other significant errors which could
impede our business plan.
We may be unable to implement our business plan, which may harm our business.
Although we intend to implement our business plan through the foreseeable
future and will do our best to mitigate the risks associated with our business
plan, there can be no assurance that such efforts will be successful.
Currently, we are concentrating on advancing our business plan. We have no
liquidation plans should we require additional cash and be unable to receive
funding. Should we be unable to implement our business plan, we would
investigate all options available to retain value for our stockholders. Among
the options that would be considered are: the sale of the rights to the patents,
acquisition of another product or technology, or a merger or acquisition (as a
parent or target) of another business entity that has revenue and/or long-term
growth potential. There are no pending arrangements, understandings or
agreements with outside entities for acquisitions or mergers. While the
mentioned risks are presented as worst-case scenarios, employees and
stockholders should be aware that there are no guarantees that we will achieve
any of our business plan goals or be successful.
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If the standards we have selected to support are not adopted as the standards
for speech-activated software, businesses might not use our speech-activated
software platform for delivery of applications and services, and our revenue
growth could be negatively affected.
The market for speech-activated services software is new and emerging.
Certain industry software standards have, however, been established but may
change as the technology evolves. We may not be competitive unless our products
support changing industry software standards. The emergence of industry
standards other than those we have selected to support, whether through adoption
by official standards committees or widespread usage, could require costly and
time consuming redesign of our products. If these standards become widespread
and our products do not support them, our clients and potential clients may not
purchase our products, and our revenue growth could be adversely affected.
Multiple standards in the marketplace could also make it difficult for us to
design our products to support all applicable standards, which could also result
in decreased sales of our products.
We depend on two primary suppliers for software integrated into our system, the
loss of which could adversely affect our business.
IBM and Philips supply the primary speech recognition software platforms
that are integrated into our software system. We cannot guarantee that we will
be able to continue to license the platforms after the current licenses expire
or that alternative platforms appropriate for use in our product will be
available at that time. Without the ability to integrate the necessary software
platforms, we may be unable to produce our product.
Our failure to respond to rapid change in the market for speech-activated
services software could cause us to lose revenue and harm our business.
The speech-activated services software industry is relatively new and
rapidly evolving. Our success will depend substantially upon our ability to
enhance our existing products and to develop and introduce, on a timely and
cost-effective basis, new products and features that meet changing end-user
requirements and incorporate technological advancements. If we are unable to
develop new products and enhanced functionalities or technologies to adapt to
these changes, or if we cannot offset a decline in revenue from existing
products with sales of new products, our business will suffer.
Commercial acceptance of our products and technologies will depend, among
other things, on:
-- the ability of our products and technologies to meet and adapt to the
needs of our target markets;
-- the performance and price of our products as compared to our
competitors' products;
-- our ability to deliver customer service directly and through our
resellers; and
-- the ability of our customers to utilize our product.
The loss of any of our key managers could adversely affect our business,
including our ability to develop and market our products.
We depend to a considerable degree on a limited number of key personnel.
The loss of the services of key members of our management team could harm our
business. Our success will also depend, among other factors, on our ability to
attract, retain and motivate highly-skilled employees. Competition for
employees in our industry is intense. Additionally, it is often more difficult
to attract employees once a company's stock is publicly traded because the
exercise price of equity awards such as stock options are based on the public
market, which is highly volatile. We may be unable to attract, assimilate or
retain other highly-qualified employees in the future. We have experienced, and
we expect to continue to experience in the future, difficulty in hiring and
retaining highly-skilled employees with appropriate qualifications.
We need to expand our sales and support organizations to successfully compete.
We plan to implement advertising sales, licensing and corporate sales
operations and marketing efforts to increase market awareness and sales of our
products and services. We will need to increase our staff to support new
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customers and their expanding needs. Competition for highly-qualified sales
personnel is intense, and we may not be able to hire the kind and number of
sales personnel we are targeting. Hiring highly-qualified customer service and
account management personnel is very competitive in our industry due to the
limited number of people available with the necessary technical skills and
understanding of the Internet.
New government regulation and the resolution of current legal uncertainties
could harm our business.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could decrease the demand for our services,
increase the cost of doing business or otherwise seriously harm our business.
There is, and will likely continue to be, an increasing number of laws and
regulations pertaining to the Internet. These laws or regulations may relate to
liability for information retrieved from or transmitted over the Internet,
online content regulation, user privacy, taxation and the quality of products
and services. Furthermore, the growth and development of electronic commerce
may prompt calls for more stringent consumer protection laws that may impose
additional burdens on electronic commerce companies as well as companies like us
that provide electronic commerce services.
We file tax returns in such states as required by law based on principles
applicable to traditional businesses. However, one or more states could seek to
impose additional income tax obligations or sales tax collection obligations on
out-of-state companies, such as ours, which engage in or facilitate electronic
commerce. A number of proposals have been made at state and local levels that
could impose such taxes on the sale of products and services through the
Internet or the income derived from such sales. Such proposals, if adopted,
could substantially impair the growth of electronic commerce and seriously harm
our profitability.
Legislation limiting the ability of the states to impose taxes on Internet-
based transactions recently has been enacted by the United States Congress.
However, this legislation, known as the Internet Tax Freedom Act, imposes only a
three-year moratorium, which commenced October 1, 1998 and ends on October 21,
2001, on state and local taxes on electronic commerce, where such taxes are
discriminatory, and Internet access, unless such taxes were generally imposed
and actually enforced prior to October 1, 1998. It is possible that the tax
moratorium could fail to be renewed prior to October 21, 2001. Failure to renew
this legislation would allow various states to impose taxes on Internet-based
commerce. The imposition of such taxes could seriously harm our ability to
become profitable.
In addition, we are not certain how our business may be affected by the
application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. The vast majority of such laws were
adopted prior to the advent of the Internet. As a result, they do not
contemplate or address the unique issues of the Internet and related
technologies. Changes in laws intended to address such issues could create
uncertainty in the Internet market. Such uncertainty could reduce demand for
our services or increase the cost of doing business as a result of litigation
costs or increased service delivery costs.
We may encounter difficulties in managing our growth, which could prevent us
from executing our business strategy.
Our rapid growth has placed, and continues to place, a significant strain
on our resources. To accommodate this growth, we must continue to upgrade a
variety of operational and financial systems, procedures and controls and hire
additional employees to support increased business and product development
activity. This has resulted in increased responsibilities for our management.
Our systems, procedures and controls may not be adequate to support our
operations. If we fail to improve our operational, financial and management
information systems, or to hire, train, motivate or manage our employees, our
business could be harmed.
Our products may not be 100% accurate at recognizing speech or authenticating
speaker identities and we could be subject to claims related to the performance
of our products. Any claims, whether successful or unsuccessful, could result
in significant costs and could damage our reputation.
Speech recognition, natural language understanding and authentication
technologies, including our own, are not 100% accurate. Our customers will use
our products to provide important services to their customers. Any
misrecognition of voice commands or incorrect authentication of a user's voice
in connection with these transactions
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could result in claims against us or our customers for losses incurred. Although
our contracts will typically contain provisions designed to limit our exposure
to liability claims, a claim brought against us for misrecognition or incorrect
authentication, even if unsuccessful, could be time-consuming, divert
management's attention, result in costly litigation and harm our reputation.
Moreover, existing or future laws or unfavorable judicial decisions could limit
the enforceability of the limitation of liability, disclaimer of warranty or
other protective provisions contained in our contracts.
Any software defects in our products could harm our business and result in
litigation.
Complex software products such as ours may contain errors, defects and
bugs. With the planned release of any product, we may discover errors, defects
and bugs and, as a result, our products may take longer than expected to
develop. A lack of independent market testing of our products increases the
possibility that our products may not perform to reasonable commercial standards
under normal use. This could result in unexpected performance failures, a
significant product return rate and a material reduction in product demand. In
addition, we may discover that remedies for errors or bugs may be
technologically unfeasible. Delivery of products with undetected production
defects or reliability, quality, or compatibility problems could damage our
reputation. Errors, defects or bugs could also cause interruptions, delays or a
cessation of sales to our customers. We could be required to expend significant
capital and other resources to remedy these problems. In addition, customers
whose businesses are disrupted by these errors, defects and bugs could bring
claims against us which, even if unsuccessful, would likely be time-consuming
and could result in costly litigation and payment of damages.
We may be subject to legal liability for the provision of third-party products,
services or content.
We plan to enter into arrangements to offer direct verbal links to Internet
sellers' sites as "preferred" websites. We may be subject to claims concerning
these products, services or content by virtue of our involvement in marketing,
branding, broadcasting or providing access to them, even if we do not ourselves
host, operate, provide, or provide access to these products, services or
content. While our agreements with these parties will provide that we will be
indemnified against such liabilities, such indemnification may not be adequate.
It is also possible that, if any information provided directly by us contains
errors or is otherwise negligently provided to users, third parties could make
claims against us, including, for example, for defamation, negligence, copyright
or trademark infringement, unlawful activity, or tort, including personal
injury, fraud, or other theories based on the nature and content of information
to which we provide links. Investigating and defending any of these types of
claims is expensive, even to the extent that the claims do not result in
liability. If the claims do result in liability, we could be required to pay
damages of other penalties, which could harm our business.
We may be liable for our links to third-party websites.
We could be exposed to liability with respect to the selection of third-
party websites that may be accessible through our voice recognition search
mechanisms. These claims might include, among others, that by linking to
websites operated by third parties, we may be liable for copyright or trademark
infringement or other unauthorized actions by these third-party websites. Other
claims may be based on errors or false or misleading information provided by our
software, including information deemed to constitute professional advice such as
legal, medical, financial or investment advice. Other claims may be based on
our links to sexually explicit websites and the provision of sexually explicit
advertisements when this content is displayed. Our business could be seriously
harmed due to the cost of investigating and defending these claims, even to the
extent these claims do not result in liability. Implementing measures to reduce
our exposure to this liability may require us to spend substantial resources and
limit the attractiveness of our service to users.
Certain aspects of the 5% Convertible Debenture financing transaction may have a
negative impact on our business.
On October 3, 2000, we entered into a Securities Purchase Agreement with
the Selling Stockholders. As part of the agreement we issued and will issue 5%
Convertible Debentures and warrants. Substantial dilution of our stock will
occur upon the conversion of the debentures and warrants which have been issued
and which may be issued in the future
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under the terms of the agreement. The extent of the possible dilution will
depend upon the price (which is determined by reference to the trading price of
our stock) at which the Debentures are convertible to our Common Stock. The
agreement also prevents us from entering into certain transactions involving our
stock for a 270-day period. The potential and/or actual dilution and agreement
terms which prevent certain future transactions may negatively impact our stock
price and our ability to obtain additional financing, if needed.
Our directors and executive officers beneficially own approximately 47.2% of our
stock; their interests could conflict with yours; significant sales of stock
held by them could have a negative effect on our stock price; stockholders may
be unable to exercise control.
As of November 14, 2000, our executive officers, directors and affiliated
persons beneficially own approximately 47.2% of our Common Stock. Dean Weber,
our chief executive officer and chairman of the board, beneficially owns
approximately 44.2% of our Common Stock. As a result, our executive officers,
directors and affiliated persons will have significant influence to:
-- elect or defeat the election of our directors;
-- amend or prevent amendment of our articles of incorporation or bylaws;
-- effect or prevent a merger, sale of assets or other corporate
transaction; and
-- control the outcome of any other matter submitted to the stockholders
for vote.
As a result of their ownership and positions, our directors and executive
officers collectively are able to significantly influence all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, sales of significant amounts
of shares held by our directors and executive officers, or the prospect of these
sales, could adversely affect the market price of our Common Stock. Management's
stock ownership may discourage a potential acquirer from making a tender offer
or otherwise attempting to obtain control of the Company, which in turn could
reduce our stock price or prevent our stockholders from realizing a premium over
our stock price.
Provisions in our Articles of Incorporation, Bylaws and Nevada Corporate Law may
have the effect of delaying or preventing a change of control.
A number of provisions of our Amended and Restated Articles of
Incorporation and Bylaws and of the Nevada general corporation law relating to
matters of corporate governance, certain rights of directors, and the issuance
of preferred stock without stockholder approval, may have the effect of making
more difficult, and thereby discourage, a merger, tender offer, proxy contest or
assumption of control and change of incumbent management, even when stockholders
other than our management or principal stockholders consider such a transaction
to be in their best interest.
Our Stock Price Has Been and May Continue to Be Volatile.
The trading price of our Common Stock has been and is likely to continue to
be highly volatile. For example, during the 52-week period ended November 14,
2000, the price of our Common Stock ranged from $3.0625 to $27.75 per share.
Our stock price could be subject to wide fluctuations in response to factors
such as:
-- actual or anticipated variations in quarterly operating results;
-- announcements of technological innovations, new products or services by
us or our competitors;
-- changes in financial estimates or recommendations by securities
analysts;
-- the addition or loss of strategic relationships or relationships with
our key customers;
-- conditions or trends in the Internet and online commerce markets,
including the provision of related speech-activated services;
-- changes in the market valuations of other Internet, online service or
software companies;
-- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
-- legal, regulatory or political developments;
-- additions or departures of key personnel;
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-- sales of our Common Stock by insiders or stockholders; and
-- general market conditions.
The historical volatility of our stock price may make it more difficult for
you to resell shares when you want at prices you find attractive. Sharp
increases in our stock price could have a negative impact on our financial
condition.
In addition, the stock market in general, and the Nasdaq SmallCap Market
and the market for Internet and technology companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of these companies. These
broad market and industry factors may reduce our stock price, regardless of our
operating performance. The trading prices of the stocks of many technology
companies are at or near historical highs and reflect price-earnings ratios
substantially above historical levels. These trading prices and price-earnings
ratios may not be sustained.
If we fail to meet the expectations of public market analysts and investors, the
market price of our Common Stock may decrease significantly.
Public market analysts and investors have not been able to develop
consistent financial models for the Internet market because of the unpredictable
rate of growth of Internet use, the rapidly changing models of doing business on
the Internet and the Internet's relatively low barriers to entry. As a result,
and because of the other risks discussed in this prospectus, it may be likely
that our actual results will not meet the expectations of public market analysts
and investors in future periods. If this occurs, the price of our Common Stock
will likely fall.
Future sales of stock could affect our stock price.
If our stockholders sell substantial amounts of our Common Stock, including
shares issued upon the exercise of outstanding options, in the public market,
the market price of our Common Stock could fall.
We do not anticipate paying dividends.
We have never paid any cash dividends on our Common Stock and we do not
anticipate paying cash dividends on our Common Stock in the foreseeable future.
The future payment of dividends is directly dependent upon our future earnings,
capital requirements, financial requirements and other factors to be determined
by our Board of Directors. For the foreseeable future, it is anticipated that
earnings, if any, generated by our operations will be used to finance our
growth.
We maintain cash with various banks in excess of federally-insured limits.
The Federal Deposit Insurance Corporation (FDIC) insures deposits up to
$100,000 in virtually all United States banks and savings associations. In the
event an FDIC-insured bank fails and depositors lose their money, the FDIC pays
depositors up to $100,000 of the money lost. Although our funds are deposited in
accounts with FDIC-insured banks, the amounts of cash in these accounts
sometimes exceed federally-insured limits. In the event of a failure of one of
our banks where our funds were lost, we could only recover from the FDIC up to
$100,000 of the funds lost. The loss of the excess funds could have a material
adverse effect on our business.
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USE OF PROCEEDS
We will receive no proceeds from the sale by the Selling Stockholders of
Common Stock issued upon the conversion of the 5% Convertible Debentures. We
may sell the Selling Stockholders $8,000,000 of additional 5% Convertible
Debentures under the Securities Purchase Agreement described below. $2,263,188
may be received if the Selling Stockholders exercise warrants to purchase Common
Stock issued pursuant to the Initial Debenture. In addition, upon exercise of
its warrants to purchase additional debentures, the Investor will receive
additional warrants having an exercise price equal to 115% of the average of the
closing prices of our Common Stock for the 10 trading days immediately preceding
the closing date. However, if the cashless exercise provision of any of the
warrants is used, we will not receive proceeds from the exercise of those
warrants. Net proceeds are determined after deducting all expenses of the
offering (estimated to be approximately $45,000).
We intend to use the net proceeds from this offering, if any, for working
capital and general corporate purposes.
The amount and timing of working capital expenditures may vary significantly
depending upon numerous factors, such as:
-- revenues generated from existing and anticipated licensing and service
agreements and advertising;
-- the development of marketing and sales resources;
-- administrative and legal expenses; and
-- other requirements not now known or estimable.
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock began trading on the Nasdaq SmallCap Market on October 24,
2000, under the symbol "ONEV." Our Common Stock previously traded on the OTC
Electronic Bulletin Board under the same symbol. The OTC Electronic Bulletin
Board is sponsored by the National Association of Securities Dealers (NASD) and
is a network of security dealers who buy and sell stocks.
For the periods indicated, the following table sets forth the high and low
bid prices per share of Common Stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Low High
---------------
<S> <C> <C>
1998
----
First Quarter .00 .00
Second Quarter .00 .00
Third Quarter .00 .00
Fourth Quarter .50 .66
1999
----
First Quarter .13 .60
Second Quarter .16 5.88
Third Quarter 4.00 10.00
Fourth Quarter 4.00 8.50
2000
----
First Quarter 8.00 27.75
Second Quarter 9.00 24.00
Third Quarter 6.56 17.25
Fourth Quarter* 3.06 9.75
*as of November 14, 2000
</TABLE>
As of November 14, 2000, our Common Stock shares were held by 117
stockholders of record. We believe that the number of beneficial owners is
substantially greater than the number of record holders because a significant
portion of the Company's outstanding Common Stock is held of record in broker
"street names" for the benefit of individual investors. The transfer agent of
our Common Stock is Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive
South, Suite 430, Denver, Colorado 80209.
DIVIDEND POLICY
Our Board of Directors determines any payment of dividends. We do not
expect to authorize the payment of cash dividends in the foreseeable future. Any
future decision with respect to dividends will depend on future earnings,
operations, capital requirements and availability, restrictions in future
financing agreements, and other business and financial considerations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of our plan of operation should be
read in conjunction with the financial statements and the related notes. This
prospectus 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 which are based upon current expectations that involve risks and
uncertainties, such as our plans, objectives, expectations and intentions. Our
actual results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors," "Business" and
elsewhere in this prospectus. See "Risk Factors."
OVERVIEW
We are an early growth stage company and plan to be a leading provider of
voice recognition software for instant access and interaction with content on
the Internet.
Our technology is based on artificial intelligence that allows people to
talk with their computers through everyday common speech. Our artificial
intelligence technology understands not just simple commands but advanced
linguistic concepts such as topic, subject and synonym relationships. Our
inference capabilities and adaptive learning allow the computer to ask the user
relevant questions to help clarify and learn the user's requests.
Our software will be licensed to other businesses such as computer
manufacturers, Internet service providers and electronic commerce and other
content sites. We will also enter into service agreements with our business
customers to create interactive voice-maps for their websites and will sell
advertising opportunities available via our search results.
We also plan to sell an upgraded retail version of our software directly to
consumers and through other retailers and electronic commerce. We will also
offer consumers Internet service for a monthly charge after an initial free
period as part of our software distribution.
We have a limited operating history on which to base an evaluation of our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development. To address these risks, we must establish, maintain and
expand our customer base, implement and successfully execute our business and
marketing strategy, provide superior customer service, anticipate and respond to
competitive developments and attract, retain and motivate qualified personnel.
We cannot assure that we will be successful in addressing these risks, and our
failure to do so could have a negative impact on our business, operating results
and financial condition.
PLAN OF OPERATION
We maintain a cash balance that we believe is sufficient to sustain
corporate operations until December 31, 2001. The losses through the quarter
ended September 30, 2000 were due to our operating expenses. Continued sales of
our equity and debt securities have allowed us to maintain a positive cash flow
balance.
We completed final testing of our initial product called myIVAN(TM) during
our third quarter. This product, is now available at no charge for direct
download from our website, http://www.myivan.com, as well as by mail order
directed to us.
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, we plan to begin a nationwide advertising
campaign to create public awareness and branding of our myIVAN(TM) online
products. This campaign is expected to continue through the fourth quarter of
2001. We have 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.
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We are continuing localization efforts of our 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. We anticipate releasing the initial localized product, UK
English, in the first quarter 2001. We will work on the development of one
language version at a time, with continued marketing of released language
versions.
We plan to spend an additional $750,000 to finish programming of our
existing software product which began in the third quarter of 2000 and plan 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. We face
considerable risk in completing each of our business plan steps, such as
potential cost overruns, a lack of interest in our product in the market on the
part of our anticipated computer manufacturer partners, Internet service
provider partners, and/or consumers, and a shortfall of funding due to our
inability to raise capital in the securities market. If further funding is
required, and no funding is received during the next twelve months, we would be
forced to rely on our existing cash in the bank or short-term bridge loans.
While management believes our current cash balance is sufficient for the
completion of our product and initial marketing prior to receiving significant
cash flow from sales pursuant to our business plan, we may be unable to complete
our product development until such time as necessary funds could be raised in
the equity market. In such a restricted cash flow scenario, we 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. Our business plan provides for an increase of eight employees
during the next twelve months.
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BUSINESS
OVERVIEW
Our product is a software system that allows a computer user to interact
with a computer through speech rather than a keyboard or mouse. The essence of
this system is to allow the computer user to speak directly to the computer in
order to access the Internet. Utilizing colloquial or conversational English,
the computer user does not have to learn menu commands, does not need to be
familiar with operating systems, and is not dependent on typing speed.
We commenced operations as Conversational Systems, Inc. on January 1, 1999,
and on July 14, 1999, merged into Dead On, Inc., a company originally
incorporated in Nevada on August 23, 1995 as Belridge Holdings Corporation. On
August 28, 1995, Belridge Broadcasting of Portland, Inc., a company originally
incorporated in Delaware on February 4, 1987, merged into Belridge Holdings
Corporation. Belridge Holdings Corporation was dormant until March 9, 1998,
when it filed a Disclosure Statement pursuant to Rule 15c2-11 with the National
Association of Securities Dealers in order to allow trading of its securities on
the OTC Electronic Bulletin Board.
On July 30,1998, Belridge Holdings Corporation acquired the assets,
liabilities and operating business of Dead On, LLC in order to manufacture
sporting goods equipment and apparel. On September 15, 1998, Belridge Holdings
Corporation changed its name to Dead On, Inc. On December 31, 1998, Dead On,
Inc. discontinued all business related to the manufacture of sporting goods
equipment and apparel.
On June 16, 1999, a special meeting of the stockholders of Dead On, Inc.
approved the divestiture of the assets and liabilities of the discontinued
sporting goods equipment and apparel manufacturing business. On July 9, 1999, a
special meeting of the stockholders of Dead On, Inc. approved the merger of Dead
On, Inc. and Conversational Systems, Inc. in order to develop and market a new
software system, and approved the name change of Dead On, Inc. to ConversIt.com,
Inc. On September 9, 1999, a special meeting of the stockholders of
ConversIt.com approved the name change of ConversIt.com, Inc. to One Voice
Technologies, Inc.
There have been no bankruptcy, receivership or similar proceedings.
There have been no material reclassifications, mergers, consolidations, or
purchase or sale of a significant amount of assets not in the ordinary course of
business.
INDUSTRY BACKGROUND
Internet growth. The Internet has become one of the fastest-growing means
of communication, reaching consumers and businesses worldwide. The Internet
allows millions of users to obtain and share information, interact with each
other and conduct business electronically. Industry surveys recently estimated
that there will be about 320 million Internet users worldwide at year-end 2000
and over 720 million users by year-end 2005. Lower computer prices, faster,
easier and cheaper Internet access, improvements in the performance and speed of
personal computers and modems, and an increase in the information and services
available on the Internet are among the factors fueling the growth of Internet
users.
The widespread adoption and interactive nature of the Internet have created
new opportunities for conducting business online and are changing the way
companies do business. Many businesses have begun to realize the commercial
potential the Internet offers. For example, advertisers are using the Internet
to reach consumers in a new way. More recently, technological advances have made
commercial transactions over the Internet possible, creating the opportunity for
business-to-business and business-to-consumer electronic commerce.
The need for easy access to personalized, relevant information. As the
amount of information available on the Internet has grown, it has became more
difficult for users to access and find the information that is most useful and
relevant to their needs. Today, only computer literate individuals can
effectively navigate the World Wide Web and even these people find it extremely
frustrating and time-consuming. For individuals less computer literate, it can
be an exercise in futility.
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A variety of companies are delivering keyboard-based products that attempt
to improve the "search" process by leveraging existing search engines (i.e.,
Yahoo, Alta Vista, etc.). These products definitely help, but they are still
geared toward computer professionals who are primarily concerned with market
research. Even these systems are just too complex, and often too expensive, for
the home or small office/home office (SOHO) user.
Speech recognition technology. Speech recognition is becoming a very large
market. Enabled by new generations of low-cost 400+ MHz PCs and memory costs at
less than $1 per megabyte, industry experts predict that the combined market of
discrete and continuous speech recognition will reach $4.3 billion by the year
2001. In the discrete speech market, command and control applications such as
directory assistance over the telephone dominate. It is expected that discrete
speech recognition will invade nearly every appliance, including our
automobiles, over the next few years. The main application for continuous speech
recognition is expected to be dictation.
While 300,000 discrete products shipped in 1996, Voice Information
Associates estimates that approximately 65 million will ship by the year 2001.
And while only 2,000 continuous speech units shipped in 1996 and 300,000 units
shipped in 1997, analysts estimate that 20 million will ship by 2001.
OUR SOLUTION
Our product is a software system that allows a computer user to interact
with a computer through speech rather than a keyboard or mouse. The essence of
this system is to allow the computer user to speak directly to the computer in
order to access the Internet. Using colloquial or conversational English, the
computer user does not have to learn menu commands, does not need to be familiar
with operating systems, and is not dependent on typing speed.
The primary features of this system are:
-- utilizing commercially available speech recognition that relies on how
words sound in order to match those sounds to words in a dictionary;
-- analyzing words to determine their meaning;
-- allowing the computer to listen and then talk back to the user; and
-- processing speech at very high speed.
As the user speaks with the computer, it continues to "learn" the meaning
of what the user says. It asks questions of the user when it is unsure what the
user wants. It uses a conversational manner to quickly process information while
it keeps the user informed as it is performing requested tasks. As an example,
if the system is searching the Internet for the best price available for a
particular type of automobile purchase, it will describe its search process and
any problems it encounters, such as the unavailability of a needed web page due
to heavy Internet demand. It will then ask the user if it should try again. It
will offer suggestions, such as using a different time or searching in a
different geographical location. We believe that our "two-way" technology built
on top of continuous speech technology and operating between the application and
the user is an entirely new class of application that allows the user to
communicate with the application to refine what the application produces. Our
system will automatically "adapt" to the user with each interaction.
We have taken the following steps in our product development:
-- raised capital through the sale of securities;
-- leased additional commercial office space in San Diego, California;
-- filled the following management positions - VP Sales, VP Operations, VP
Engineering, Quality Assurance Manager and Customer Service Manager;
-- filled the following types of staff positions - sales, marketing,
engineering, information technology (IT), information services (IS),
quality assurance, client services, administrative and human
resources; and
-- continued development of our software product.
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We have completed the development and testing phase of our working
prototype of our product and are in the process of establishing agreements with
entities for the production, marketing, and distribution of our product.
OUR STRATEGY
Our goal is to substantially lower the barrier to entry in obtaining
information on the Internet, while at the same time increasing productivity
through the use of spoken natural language (everyday conversation). Key elements
of our strategy include:
Offer superior software products and services. We seek to provide a
superior user experience through distinct and innovative technologies and
services. Our future success will depend on our ability to compete and to offer
products and services that the Internet community perceives to be superior to
our competitors. We will continually strive to find, hire, train and keep
qualified personnel to design our products. We will also try to enhance and add
to the products and services we offer to keep pace with changing technologies
and customer preferences and to seek additional strategic partnerships that will
allow us to offer new and improved services.
Build brand awareness. We believe that building increased brand recognition
is critical to our ability to add to our current sales of our software and to
increase our attractiveness to manufacturers, service providers and advertisers.
We intend to increase brand awareness through a combination of online and
offline advertising and promotional activities. Specifically, our sales and
marketing strategy entails the continuation of our nationwide, consumer-focused
advertising campaign using both print and web-based advertisements.
Diversify revenue streams across business-to-business and business-to-
consumer models. Our revenues, if any, will come from the sale and licensing of
products and services we offer, the development of interactive voice-maps for
licensees' websites, revenue sharing arrangements and advertising. We will also
sell our software directly to consumers and through retailers and electronic
commerce merchants. On our software installation discs, we will also offer
Internet access for a monthly charge following an initial free access period.
Expand to international markets. We plan to expand our operations to
international markets to take advantage of the Internet's global opportunities.
PRODUCTS AND SERVICES
Our software offers the following key features using our voice-access
technology:
-- Internet searches using top search engines;
-- easy access to preinstalled favorite Internet sites;
-- assistance in finding the best prices on popular web products;
-- capability to allow Internet content providers to voice-enable their
websites;
-- navigation to any website URL link by speaking the URL link;
-- ability to launch desktop games, business and productivity
applications;
-- an alert mechanism for stock price changes and incoming emails which
will advise the user's computer, provide an email to the user's pager
and call the user's cell phone;
-- full-text searching ability to locate files in all of the most popular
file formats;
-- dictation into any word processing or email program;
-- restriction of family members' access to inappropriate web content as
well as restricting time usage; and
-- interaction with a voice modem to dial out or notify the user of an
incoming call.
We also offer the creation of interactive voice-maps for our licensed
business customers' websites to permit them to use our software for interaction
with their customers/users.
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Banner and voice advertising and preferred site status are other services
we offer via our search results. These services allow advertisers to maximize
the visibility of their products by placing ads in strategic locations and by
receiving preferential treatment in a user's search results.
CUSTOMERS
We intend to sell our products through a variety of computer manufacturers
and Internet service providers and will not depend on any one or a few major
customers.
Business to business. We intend to market our product through a business-
to-business model of distribution through computer manufacturers such as
Gateway, Dell, IBM, Sony, Toshiba, NEC, Compaq and eMachines(TM). We intend to
license our software directly to our anticipated major computer manufacturer
distributors so that they may include the software with the sale of their
hardware products to the general public. In addition, our software will be
licensed to anticipated Internet service providers such as AOL, Time Warner,
EarthLink and Mindspring for the direct Internet use of their subscribers. We
intend to earn a license fee every time the manufacturer or ISP delivers our
software to its customers. We will also seek service agreements to provide in-
depth voice interactive features to major companies that provide Internet
content through their own websites. This will allow Internet customers to use
conversational speech to speak directly with a website in order to complete a
variety of tasks, such as asking questions and hearing immediate answers about
items offered at an auction site, or asking for help about how to assemble a
product. Enhanced service agreements will be available for a monthly fee to
larger Internet websites that will allow the licensed site programmers and
webmasters to change their site's conversational speech software to fit their
changing needs.
Business to consumer. We are initially providing a version of our software
to consumers for free via direct download from our and others' Internet sites,
by the distribution of CDs containing our software and by preinstalling our
software on new PCs. We will then offer an upgrade version directly to consumers
and through retailers and electronic commerce merchants. On our software
installation discs, we will also offer Internet access for a monthly charge
following an initial free access period. We also sell headset units for use with
our software directly to consumers.
SALES AND MARKETING
Our sales efforts target corporate clients and retail consumers. To reach
potential corporate clients, we use a dedicated, in-house sales team. This team
seeks out PC hardware manufacturers, Internet service and content providers and
electronic commerce sites that may be interested in our software and related
services. We reach retail consumers through portal, content and electronic
commerce websites, through advertisements and partnerships with electronic
commerce merchants and through retail sales outlets.
DISTRIBUTION
We use multiple distribution channels to market our products and services
including:
-- our website;
-- manufacturers and distributors;
-- direct outbound sales efforts;
-- co-marketing opportunities; and
-- portal, content and electronic commerce websites.
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COMPETITORS
The size and financial strengths of our competitors, such as IBM,
Microsoft, Conversational Computing Corporation and Grover Industries, are
substantially greater than ours. However, we believe that we can effectively
compete with these other companies because of the unique nature of our product.
Our product's uniqueness is primarily its ability to direct computers to follow
commands through the use of free format requests using conversational speech. We
believe this unique feature will allow our product to compete effectively in the
market. None of our competitors currently offer voice interaction with computers
using conversational speech. None of our competitors have announced any plans to
offer software for voice interaction with computers using conversational speech.
We are not aware of any significant barriers to our entry into the computer
speech recognition market; however, we have no market share of the computer
speech recognition product category at this time.
STRATEGIC BUSINESS PARTNERSHIPS
We plan to develop alliances and partnerships with various companies that
offer services and products we believe will assist in the distribution of our
products and provide valuable co-marketing opportunities and exposure. We
currently have established such a partnership with Encyclopaedia Britannica.
In addition to these specific partnerships, we have oral and written
agreements related to our products and services with various other entities such
as Monster.com, Autobytel.com and Samsonite Corp.
SUPPLIERS
IBM Viavoice Runtime and Dragon Naturally Speaking Runtime are the two
primary suppliers of commercially available speech recognition software licensed
for use by advanced software application companies such as us. We integrate our
advanced proprietary software systems with these basic commercially-available
speech recognition software "platforms." On September 21, 1999, we signed a
twenty-four-month Original Equipment Manufacturer Software Agreement with IBM in
order for us to be a licensee for the IBM Viavoice Runtime system. The license
cost is $450,000 per year. On March 3, 2000, we signed a thirty-six-month
Software License Agreement with Philips for a license to distribute their speech
recognition software as part of our product. We will pay a royalty to Philips
based upon each product we sell that uses their software, with a minimum payment
of $200,000 for the first contract year, and $400,000 and $500,000 per year for
each successive contract year, respectively. This contract will automatically
renew for one-year terms unless terminated by either of us.
Blank recordable CD-ROM discs are readily available through computer
wholesalers or retail stores throughout the Unites States. We intend to transfer
our software to CD-ROM discs at our own facilities at a cost not to exceed $2.00
per disc. We anticipate transferring only one to two hundred software copies to
master CD-ROM discs for our direct licensing program. Headsets are also readily
available through a large number of suppliers. We will not require formal
contracts with any suppliers or manufacturers of physical products.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We own exclusive rights to three pending United States patents for our
software pursuant to the merger agreement on July 9, 1999, between Dead On, Inc.
and Conversational Systems, Inc. As of the date of this filing, these patents
are still pending. These patents are broad-based with one key patent defining
the primary features and unique procedures that comprise our product. Our
intellectual property also includes pending trademark applications. We believe
that our intellectual property is important to our success, and we try to
protect it. We feel that strong name brand recognition through trademark
registration and market awareness will make our products stand out and become
the recognized name that people think of when they think of voice interaction
with the Internet.
We have also hired legal counsel to help us better protect our intellectual
property. However, the steps we take to protect our intellectual property may be
inadequate. Unauthorized parties may try to disclose, obtain or use our
proprietary information, which could harm our business. Others may also claim
that we have violated their proprietary rights. This could subject us to
significant liability for damages and invalidate our proprietary rights. Any
efforts to
21
<PAGE>
protect or defend our rights could be time-consuming and costly. Other parties
may also independently develop similar or competing technology.
GOVERNMENT REGULATION
Due to the increasing popularity and use of the Internet, the United States
government and the governments of various states and foreign countries may
attempt to regulate activities on the Internet. They may adopt new laws and
regulations or try to apply existing laws to Internet activities. A number of
laws and regulations may be adopted to cover issues such as user privacy,
advertising, intellectual property, pricing, content and quality of goods and
services, taxation and information security. New tax regulations, if adopted,
may increase our sales, use and income taxes. Due to the global nature of the
Internet, it is possible that, although we principally operate our business in
California, the governments of other states and foreign countries may try to
regulate our business and may require that we qualify to do business as a
foreign corporation in their state or country. The growth of the Internet and
the volume of business transacted on the Internet may also prompt stricter
consumer protection laws. Some states have already proposed new laws to limit
the use of personal user information obtained online or to require online
services to establish privacy policies.
The applicability of existing laws to the Internet is also uncertain. Many
laws that may be relevant to our business were adopted before wide use of the
Internet. These laws do not contemplate or address the unique issues of the
Internet and related technologies. Because of the rapidly evolving and uncertain
regulatory environment, we cannot predict how new or existing laws and
regulations might affect our business. These uncertainties make it more
difficult to ensure compliance with the laws and regulations that govern our
business and the Internet. They may also decrease the growth of the Internet and
the demand for our products and services and could increase our costs or force
us to change how we do business.
RESEARCH AND DEVELOPMENT COSTS
We spent $910,597 on research and development during the period from
inception through September 30, 2000, most of which we intend to recoup from
customers through normal business operations, fees and markups. We expect to
continue to commit significant resources to research and development in the
future. The market for our products and services is characterized by rapid
technological change, frequent new product and service introductions, and
rapidly changing customer needs and industry standards. To be successful in the
future, we must be able to anticipate changes, enhance our current products and
services, develop and introduce new products and services that keep pace with
changing Internet technologies and address the increasingly sophisticated needs
of our customers.
YEAR 2000 COMPLIANCE
To our knowledge, as of the date of filing of our registration statement of
which this prospectus is a part, we are not aware of any Year 2000 compliance
problems adversely affecting us or our suppliers or customers. However, there
can be no assurance that our business will not be negatively affected by Year
2000 problems experienced by us, our suppliers or customers. If there is a
failure in Year 2000 compliance by us or one of our suppliers or customers, we
could suffer major disruptions in our business.
EMPLOYEES
At November 14, 2000, we employed 40 full-time employees. None of these
employees is subject to a collective bargaining agreement, and there is no union
representation within our company. We maintain various employee benefit plans
and believe our employee relations are good.
FACILITIES
Our principal executive office address is 6333 Greenwich Drive, Suite 240,
San Diego, California 92122. The lease payments for our office space are
divided into four separate prices as follows: Area A (8,705 square feet), Area B
(3,241 square feet), Area C (2,222 square feet) and Area D (1,930 square feet).
Our current lease commitment is for Areas A and B, a total of 11,946 square
feet, and we are obligated to lease Areas C and/or D, if the landlord is able to
recapture them from current tenants, for an additional 4,152 square feet, with a
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<PAGE>
total office space of 16,098 square feet. If the landlord does not recapture
Areas C and/or D by May 29, 2001, our obligation to lease whichever or both of
the areas which are not recaptured will expire. The lease payment amounts
provided below commence on October 1, 2000, for Areas A and B, and will commence
for Areas C and D when and if those areas become available to us. The payments
for year one for Areas B, C and D described below will be extended for the time
period in which we are waiting to obtain Areas C and D. If we obtain neither
Area C nor D, there will not be an extension period of year one. If we obtain
both Areas C and D, the extension time period will end at the date we obtain
both of the areas. If we obtain either of Area C or D, but not both, the
extension time period ends on the date we obtained either of the areas.
Commencing October 1, 2000, the lease payments for Area A will be $208,479
in year one, $213,702 in year two, $218,376 in year three, $219,006 per year for
years four and five, and $146,935 for the 240-day period ending May 29, 2006, if
the lease extends that far based upon the time it takes to obtain Areas C and/or
D. The lease payments for Area B will be $81,673 in year one, $83,618 in year
two, $85,562 in year three, $87,507 in year four and $89,452 in year five. The
lease payments for Area C will be $53,328 in year one, $54,661 in year two,
$55,994 in year three, $57,328 in year four and $58,661 in year five. The lease
payments for Area D will be $46,320 in year one, $47,478 in year two, $48,636 in
year three, $49,794 in year four and $50,952 in year five.
If we do not obtain Areas C and D, we may need to obtain additional office
space to replace those areas. With Areas C and D, our office space arrangements
should be adequate for current and short-term estimated growth.
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<PAGE>
LEGAL PROCEEDINGS
On May 14, 1999, the Board signed an agreement which was ratified in a
stockholder meeting, with Dead On Acquisition Company, a California company, to
consummate the divestiture of the assets and liabilities of our discontinued
sporting goods equipment and apparel manufacturing business. Dead On Acquisition
Company, assumed all the assets and liabilities of Dead On, Inc. Dead On
Acquisition Company is currently insolvent. Former officers involved in the
discontinued business have placed $200,000 in an account controlled by us to be
used for settlement of all claims made against us associated with the
discontinued business, with any funds remaining after settlement of legal
matters to be returned to the former officers. Eight suits were filed against
Dead On, Inc. and one of its officers in 1998 and 1999. The total amount
involved in these suits is less than $80,000, with individual amounts ranging
from $2,810 to $22,000. A complaint was brought by a Chapter 7 bankruptcy
trustee in July 2000 against Dead On, Inc. and two of its officers in the amount
of approximately $120,000 for transfers made by the bankruptcy debtor to Dead
On, Inc. We have not been named in any of these lawsuits. We continue to
investigate the legal liabilities associated with the discontinued operations
and, based upon advice of legal counsel, believe the settlement of the legal
liabilities related to the discontinued operations will not have a material
adverse effect on our financial position.
24
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position
---- --- --------
Dean Weber 38 Chairman of the Board, President, Chief
Executive Officer, Director
George H. Kaelin, III 34 Director
Rahoul Sharan 37 Chief Financial Officer, Secretary, Treasurer
and Director
Bradley J. Ammon 37 Director
Directors serve until the next annual meeting and until their successors
are elected and qualified. Officers are appointed to serve for one year until
the meeting of the Board of Directors following the annual meeting of
stockholders and until their successors have been elected and qualified,
although Dean Weber has an employment agreement and Rahoul Sharan's company has
a personal service agreement with the Company. There are no family relationships
between any directors or officers of the Company.
Dean Weber holds a B.S. in Computer Science from the Central Connecticut
State University. With over 19 years of technology experience, Mr. Weber has
worked for top IT companies such as United Technologies, Northrop and Xerox.
From 1984 to 1987, Mr. Weber was an engineer for United Technologies in
Hartford, Connecticut, where he designed and developed real-time software
systems for NASA and U.S. Navy projects. Mr. Weber was then employed by Northrop
Corporation in Pico Rivera, California, from 1987 to 1989, where he led an
engineering team for the B2 Stealth Bomber project. From 1989 to 1991, Mr. Weber
was an independent senior consultant to various companies including Xerox and
Rockwell Technologies. From 1991 to 1998, Mr. Weber founded and was President of
EditPro Corporation in San Diego, California. At EditPro, Mr. Weber developed
and marketed one of the original and first Microsoft Windows based development
environment tools for both the English and Japanese marketplaces. In 1996 and
1997, Mr. Weber began developing the origins of the current IVAN program. In
1998, Mr. Weber founded Conversational Systems, Inc., now One Voice
Technologies, Inc., in San Diego, California, where he has served as our
President since that time. Recently, Mr. Weber was nominated as chairperson and
keynote speaker of the Voice-Based Commerce tradeshow held in Chicago in
September 2000, where participants included IBM, Lucent, Nuance and Speechworks.
Mr. Weber was elected to our Board of Directors in July of 1999 as Chairman.
George H. Kaelin, III, received a B.B.A. degree summa cum laude with an
emphasis in Business Economics from the University of San Diego, California. Mr.
Kaelin also has a Juris Doctor degree from the University of California, Davis,
where he received the American Jurisprudence Award for excellence in Advanced
Business Organizations Law. Mr. Kaelin has clerked for the U.S. District Court,
Eastern District, for the Honorable Milton L. Schwartz. He also worked with the
Alaska Legislature in drafting the Alaskan Non-Profit Corporations Code. Mr.
Kaelin is a partner in the San Diego law firm of Endeman, Lincoln, Turek &
Heater where he has worked since 1994. He specializes in business and real
estate issues. Mr. Kaelin is admitted to practice before all state and federal
courts in California and has served as a member of the Enright Inn of Court. Mr.
Kaelin serves as a member of our Audit and Compensation Committees and was
elected to the Board in 1999.
Rahoul Sharan holds a Bachelor of Commerce degree from the University of
British Columbia and is a member of the Institute of Chartered Accountants of
British Columbia. Mr. Sharan was employed by Coopers & Lybrand (now
Pricewaterhouse Coopers) from 1984 to 1989. Since 1989, Mr. Sharan has been
President and a Director of KJN Management Ltd., a private company which
provides a broad range of administrative, management and financial services to
both private and public companies. Mr. Sharan has been a partner in S & P Group,
a company which specializes in investment financing for venture capital projects
and real estate development and construction, since 1988. Mr. Sharan was also a
director of Pacific Northern Ventures, Ltd. from 1989 to 1995, and is President
and a Director of Bell Coast Capital Corp., an inactive public company to which
Mr. Sharan devotes less than 1% of his time. Mr. Sharan was elected to the Board
in 1999.
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<PAGE>
Bradley J. Ammon joined SAIC as an International Tax Manager earlier this
year. He previously was with KPMG, LLP in the International Corporate Services
department since 1998 where his principal practice consisted of clients in the
information, communications and entertainment ("ICE") industry. Mr. Ammon
specializes in international tax planning, including restructuring of
international operations, domestic mergers and acquisitions, and developing
overall plans to minimize worldwide taxation. Prior to joining KPMG, Mr. Ammon
worked from 1995 to 1998 at Deloitte & Touche, LLP in their tax services
department where he provided corporate, partnership, and personal tax and
business planning services to clients. Mr. Ammon also worked several years as a
staff accountant where his responsibilities included the compilation and
consolidation of monthly financial statements for multiple subsidiaries. Mr.
Ammon has a Juris Doctor and a Master's of Law in taxation (LL.M.) from the
University of San Diego, and received his undergraduate degree from the
University of California, San Diego. He is admitted to the California Bar. Mr.
Ammon is a member of the Audit Committee and Compensation Committee of the
Company and was appointed to the Board on June 9, 2000.
26
<PAGE>
EXECUTIVE COMPENSATION
The Company's Chief Executive Officer is now paid a salary of $252,000 per
year (as approved by the Board in April 2000). The Company's chief financial
officer's company is now paid a service fee of $180,000 per year (as approved by
the Board in April 2000). The CEO and CFO were each awarded a $75,000 bonus on
April 10, 2000. The following tables set forth certain information as to the
Company's CEO and each of the Company's four most highly-compensated executive
officers whose total annual salary and bonus for the fiscal year ending December
31, 1999 exceeded $100,000:
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
Other
Name & Annual Restricted Options LTIP All Other
Principal Salary Bonus Compen- Stock SARs Payouts Compen-
Position Year ($) ($) sation ($) awards (#)/(1)/ ($) sation
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dean Weber, 1999 180,000 0 0 0 0 0 0
CEO
Rahoul Sharan, 1999 120,000/(2)/ 0 0 0 0 0 0
CFO
</TABLE>
/(1)/ Options were granted pursuant to the Company's 1999 Stock Option Plan.
/(2)/ This payment was made through KJN Management Ltd.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percentage of Total
Options Granted to
Number of Shares Employees and
Underlying Options Directors in Fiscal Exercise or Base
Name Granted/(1)(2)/ Year Price Per Share Expiration Date
<S> <C> <C> <C> <C>
Dean Weber 75,000 16.71 6.08 July 19, 2009
Rahoul Sharan 50,000 11.14 6.08 July 19, 2009
</TABLE>
/(1)/ None of the reported options were in-the-money at the end of the fiscal
year as a result of the closing price of the Common Stock as reported on the
OTCBB System on December 31, 1999 ($5.313/share) being less than the exercise
price of those options ($6.08/share).
/(2)/ No options were exercised in 1999. All options are fully vested. The
listed options are the number of options exercisable at fiscal year end.
EMPLOYMENT AGREEMENT
We entered into a three-year employment agreement (the Weber Employment
Agreement) with Dean Weber, our Chairman, Chief Executive Officer and President,
commencing in July 1999. The Weber Employment Agreement provides that, in
consideration for Mr. Weber's services, he is to be paid an annual salary of
$180,000. His salary was increased to $252,000 annually in April 2000, with a
$75,000 bonus paid on April 10, 2000.
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<PAGE>
PERSONAL SERVICE AGREEMENT
We entered into a three-year personal service agreement with KJN Management
Ltd. commencing in July 1999 for the services of its CFO, Rahoul Sharan, which
provided for the payment of a fee by the Company to KJN Management Ltd. of
$120,000 per year. The service fee was increased to $180,000 per year on April
10, 2000, and we paid $75,000 bonus to KJN Management on April 10, 2000.
COMPENSATION OF DIRECTORS
Non-employee directors receive $1000 for each Board of Directors meeting
attended. The Company pays all out-of-pocket expenses of attendance.
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
Our Amended and Restated 1999 Stock Option Plan (the "1999 Plan")
authorizes us to grant to our directors, employees, consultants and advisors
both incentive and non-qualified stock options to purchase shares of our Common
Stock. As of November 14, 2000, our Board of Directors had reserved 1,000,000
shares for issuance under the 1999 Plan, of which 814,025 shares were subject to
outstanding options and 185,975 shares remained available for future grants. Our
Board of Directors or a committee appointed by the Board (the "Plan
Administrator") administers the 1999 Plan. The Plan Administrator selects the
recipients to whom options are granted and determines the number of shares to be
awarded. Options granted under the 1999 Plan are exercisable at a price
determined by the Plan Administrator at the time of the grant, but in no event
will the option price for any incentive stock option be lower than the fair
market value for our Common Stock on the date of the grant. Options become
exercisable at such times and in such installments as the Plan Administrator
provides in the terms of each individual option agreement. In general, the Plan
Administrator is given broad discretion to issue options and to accept a wide
variety of consideration (including shares of our Common Stock and promissory
notes) in payment for the exercise price of options. The 1999 Plan was
authorized by the Board of Directors and stockholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our chief executive officer, Mr. Weber, advanced $4,500 to the Company for
the purchase of a computer. Our chief financial officer, Mr. Sharan, advanced
$10,000 to the Company for travel expenses. Both of these cash advances were
recorded on our financial statements as current liabilities with no written or
verbal agreement regarding loan terms of repayment or stated interest rate. The
advances were repaid by the Company on July 14, 2000.
In May 1999, a group of officers, directors and stockholders of Dead On,
Inc., our former corporate entity ("the group"), formed a new company, Dead On
Acquisition Company, a California corporation. Subsequent to the formation of
Dead On Acquisition Company, the group transferred 6,075,000 shares of our
Common Stock to Dead On Acquisition Company in exchange for shares of Dead On
Acquisition Company stock.
On July 14, 1999, 150,000 restricted shares of our Common Stock were issued
as a commission to Compass Investment Management, a non-affiliated entity, for
services rendered in connection with the July 1999 private placement.
On May 14, 1999, we sold all of our operating assets and liabilities
relating to the discontinued operations of our apparel, accessory, and sports
equipment division to Dead On Acquisition Company for $1.00 per an agreement for
acquisition resulting in a gain of $91,785 and a provision for operating losses
of $110,788, equaling a net financial statement loss of $19,003.
Our CEO, Dean Weber, and CFO, Rahoul Sharan, were each awarded a $75,000
bonus on April 10, 2000.
28
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of November 14, 2000 (i) by each person who is
known by us to beneficially own more than 5% of our Common Stock; (ii) by each
of our officers and directors; and (iii) by all of our officers and directors as
a group. Each person's address is c/o One Voice Technologies, Inc., 6333
Greenwich Drive, Suite 240, San Diego, California 92122.
<TABLE>
<CAPTION>
Shares Beneficially Owned/(1)/
Name and Address of -------------------------
Beneficial Owner Number Percent
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dean Weber, CEO, President and Chairman of the Board/(2)/ 5,633,000/(3)/ 44.2
IVantage, Inc./(2)/ 1,600,200 12.6
Rahoul Sharan, CFO, Secretary, Treasurer and Director 50,000/(4)/ *
George H. Kaelin, III, Director 353,100/(5)/ 2.8
Bradley J. Ammon, Director 50,000/(4)/ *
Total securities held by officers and directors as a group (4 people): 6,086,100/(6)/ 47.2
</TABLE>
/(1)/ Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to options or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of November 14, 2000 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person. Percentages are
based on a total of 12,671,060 shares of Common Stock outstanding on November
14, 2000, and the shares issuable upon the exercise of options and warrants
exercisable on or within 60 days of November 14, 2000, as described below.
/(2)/ iVantage, Inc. is wholly owned by Dean Weber, Chairman of the Board, CEO,
and President of One Voice Technologies, Inc. Mr. Weber is the beneficial owner
of the 1,600,200 shares in the name of iVantage, Inc. and those shares are also
included in the amount presented in this table for Mr. Weber.
/(3)/ Includes options to purchase 75,000 shares as they are currently
exercisable.
/(4)/ Represents options to purchase 50,000 shares as they are currently
exercisable.
/(5)/ Includes options to purchase 50,000 shares as they are currently
exercisable.
/(6)/ Includes options to purchase 225,000 shares as they are currently
exercisable.
* Less than 1%
DESCRIPTION OF SECURITIES
The following description of our capital stock is a summary and is
qualified in its entirety by the provisions of our Articles of Incorporation,
with amendments, all of which have been filed as exhibits to our registration
statement of which this prospectus is a part.
Our Articles of Incorporation authorize the issuance of 50,000,000 shares
of Common Stock, $.001 par value per share, and 10,000,000 shares of preferred
stock, $.001 par value per share. Holders of shares of Common Stock are entitled
to one vote for each share on all matters to be voted on by the stockholders.
Holders of Common Stock have cumulative voting rights. Holders of shares of
Common Stock are entitled to share ratably in dividends, if any, as may be
declared, from time to time by the Board of Directors in its discretion, from
funds legally available therefor. In the event of a liquidation, dissolution, or
winding up of the Company, the holders of shares of Common Stock are entitled to
share pro rata all assets remaining after payment in full of all liabilities.
Holders of Common Stock have no preemptive
29
<PAGE>
or other subscription rights, and there are no conversion rights or redemption
or sinking fund provisions with respect to such shares. The Board of Directors,
from time to time in its sole discretion, has the authority to fix the powers,
rights, qualifications, limitations, and restrictions pertaining to the
preferred stock.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under the Nevada General Corporation Law and our Articles of Incorporation,
as amended, and our Bylaws, our directors will have no personal liability to us
or our stockholders for monetary damages incurred as the result of the breach or
alleged breach by a director of his "duty of care." This provision does not
apply to the directors' (i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) acts or omissions
that a director believes to be contrary to the best interests of the corporation
or its stockholders or that involve the absence of good faith on the part of the
director, (iii) approval of any transaction from which a director derives an
improper personal benefit, (iv) acts or omissions that show a reckless disregard
for the director's duty to the corporation or its stockholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
corporation or its stockholders, (v) acts or omissions that constituted an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its stockholders, or (vi) approval of an unlawful
dividend, distribution, stock repurchase or redemption. This provision would
generally absolve directors of personal liability for negligence in the
performance of duties, including gross negligence.
The effect of this provision in our Articles of Incorporation and Bylaws is
to eliminate the rights of our Company and our stockholders (through
stockholder's derivative suits on behalf of our Company) to recover monetary
damages against a director for breach of his fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (vi) above.
This provision does not limit nor eliminate the rights of our Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, our Bylaws
provide that if the Nevada General Corporation Law is amended to authorize the
future elimination or limitation of the liability of a director, then the
liability of the directors will be eliminated or limited to the fullest extent
permitted by the law, as amended. The Nevada General Corporation Law grants
corporations the right to indemnify their directors, officers, employees and
agents in accordance with applicable law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act" or "Securities Act") may be permitted to directors, officers
or persons controlling our Company pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
30
<PAGE>
PENNY STOCK
The Securities and Exchange Commission (the "Commission") has adopted Rule
15g-9 which establishes the definition of a "penny stock," for the purposes
relevant to us, as any equity security that has a market price of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require: (i) that a broker or dealer approve a person's
account for transactions in penny stocks; and (ii) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to approve a
person's account for transactions in penny stocks, the broker or dealer must (i)
obtain financial information and investment experience objectives of the person;
and (ii) make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks. The broker or dealer must also deliver, prior to
any transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight form, (i)
sets forth the basis on which the broker or dealer made the suitability
determination; and (ii) that the broker or dealer received a signed, written
agreement from the investor prior to the transaction. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and
in secondary trading and about the commissions payable to both the broker-dealer
and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.
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<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
-- ordinary brokerage transactions and transactions in which the broker-
dealer solicits the purchaser;
-- block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
-- purchases by a broker-dealer as principal and resale by the broker-
dealer for its account;
-- an exchange distribution in accordance with the rules of the applicable
exchange;
-- privately-negotiated transactions;
-- short sales;
-- broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
-- a combination of any such methods of sale; and
-- any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a Selling Stockholder defaults on a
margin loan, the broker may, from time to time, offer and sell the pledged
shares.
The Selling Stockholders may also engage in short sales against the box,
puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares of Common
Stock to their brokers under the margin provisions of customer agreements. If a
Selling Stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders, but excluding brokerage commissions or underwriter
discounts. The Company and the Selling Stockholders have agreed to indemnify
each other against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
32
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders as of November 14, 2000. The Selling Stockholders are not
currently our affiliates, and have not had a material relationship with us
during the past three years, other than as a holder of our securities and the
negotiation of the Securities Purchase Agreement. The Selling Stockholders are
not and have not been affiliated with a registered broker-dealer.
<TABLE>
<CAPTION>
Beneficial Ownership of Maximum Number of Shares Amount and Percentage
Common Stock as of of Common Stock of Common Stock
Name November 14, 2000 Offered for Sale After the Sale
-----------------------
Number %
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nevelle Investors LLC 1,290,531 2,475,494* 0 0
WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
</TABLE>
* Under the terms of the Securities Purchase Agreements, Nevelle Investors LLC
may not convert debentures or warrants which would cause it to hold more than
4.999% of the outstanding shares of the Company's common stock at any time.
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 our registration
statement of which this prospectus is a part.
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
33
<PAGE>
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.
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.
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for us by Luce, Forward, Hamilton and Scripps LLP, San Diego,
California.
34
<PAGE>
EXPERTS
The financial statements of the Company at December 31, 1999 appearing in
this prospectus and registration statement have been audited by Stonefield
Josephson, Inc., independent auditors, as set forth on their report thereon
appearing elsewhere in this prospectus, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of Common Stock being offered by
this prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of One Voice Technologies, Inc., filed as
part of the registration statement, and it does not contain all information in
the registration statement, as certain portions have been omitted in accordance
with the rules and regulations of the Securities and Exchange Commission
("SEC").
We are subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act") which requires us to file reports, proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information may be inspected at public
reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street N.W.,
Washington D.C. 20549; Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; 7 World Trade Center, New York, New York, 10048;
and 5670 Wilshire Boulevard, Los Angeles, California 90036. Copies of such
material can be obtained from the Public Reference Section of the SEC at
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed
rates. Because we file documents electronically with the SEC, you may also
obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
------------------
We furnish our stockholders with annual reports containing audited
financial statements.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ONE VOICE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1999
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
BALANCE SHEET F-2
STATEMENTS OF OPERATIONS F-3
STATEMENT OF STOCKHOLDERS' EQUITY F-4
STATEMENTS OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-6 to 14
INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
FINANCIAL STATEMENTS
BALANCE SHEET F-15
STATEMENTS OF OPERATIONS F-16
STATEMENT OF STOCKHOLDERS' EQUITY F-17
STATEMENTS OF CASH FLOWS F-18 to 19
NOTES TO FINANCIAL STATEMENTS F-20
36
<PAGE>
Stonefield Josephson, Inc.
1620 26th Street, Suite 400 South
Santa Monica, CA 90404-4041
310-453-9400
Board of Directors
One Voice Technologies, Inc.
San Diego, California
We have audited the accompanying balance sheet of One Voice Technologies, Inc.,
a Nevada Corporation (a development stage enterprise) as of December 31, 1999,
and the related statements of operations, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of One Voice Technologies, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ STONEFIELD JOSEPHSON, INC.
-------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
March 16, 2000
F-1
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET - DECEMBER 31, 1999
<TABLE>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 904,485
Cash - restricted 200,000
------------
Total current assets $ 1,104,485
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 141,040
OTHER ASSETS:
Software licensing, net of
accumulated amortization of $113,333 346,662
Software development costs, net of
accumulated amortization 168,018
Deposits 6,896
Patent 33,956
------------
Total other assets 555,532
-----------
$ 1,801,057
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 406,894
Loan payable, related parties 200,000
Loan payable, officer 10,000
Loan payable, officer-stockholder 4,500
------------
Total current liabilities $ 621,394
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, 11,370,000 shares issued and outstanding 11,370
Additional paid-in capital 2,950,508
Deficit accumulated during development stage (1,782,215)
------------
Total stockholders' equity 1,179,663
-----------
$ 1,801,057
===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-2
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
From inception on
Year ended January 1, 1999 to
December 31,1999 December 31, 1999
---------------- ------------------
NET REVENUES $ 25,423 $ 25,423
COST OF REVENUES 2,790 2,790
------------ -----------
GROSS PROFIT 22,633 22,633
GENERAL AND ADMINISTRATIVE
EXPENSES 1,804,848 1,804,848
------------ -----------
NET LOSS $ (1,782,215) $(1,782,215)
============ ===========
NET LOSS PER SHARE, basic and diluted $ (.15)
============
WEIGHTED AVERAGE SHARES OUTSTANDING,
basic and diluted 12,156,986
============
See accompanying independent auditors' report and notes to financial statements.
F-3
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common stock Additional Total
----------------------- paid-in Accumulated stockholders'
Shares Amount capital deficit 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)
----------- -------- ---------- ----------- ----------
Balance at December 31, 1999 11,370,000 $ 11,370 $2,950,508 $(1,782,215) $1,179,663
=========== ======== ========== =========== ==========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-4
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
From inception on
Year ended January 1, 1999 to
December 31, 1999 December 31, 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net loss $(1,782,215) $(1,782,215)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES -
depreciation and amortization 126,255 126,255
CHANGES IN OPERATING ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS -
deposits (6,896) (6,896)
INCREASE (DECREASE) IN LIABILITIES -
accounts payable and accrued expenses 406,894 406,894
----------- -----------
Net cash used for operating activities (1,255,962) (1,255,962)
----------- -----------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment (153,962) (153,962)
Software licensing (459,995) (459,995)
Software development (168,018) (168,018)
Increase in escrow account (200,000) (200,000)
Patents (33,956) (33,956)
----------- -----------
Net cash used for investing activities (1,015,931) (1,015,931)
----------- -----------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 2,971,878 2,971,878
Retirement of common stock, net (10,000) (10,000)
Proceeds from loan payable, officer-stockholder 4,500 4,500
Proceeds from loan payable, officer 10,000 10,000
Proceeds from loans payable 200,000 200,000
----------- -----------
Net cash provided by financing activities 3,176,377 3,176,377
----------- -----------
NET INCREASE IN CASH 904,485 904,485
CASH, beginning of period -- --
----------- -----------
CASH, end of period $ 904,485 $ 904,485
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 17,124 $ 17,124
=========== ===========
Income taxes paid $ 1,823 $ 1,823
=========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-5
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
(1) ORGANIZATION:
Conversational Systems, Inc. was incorporated under the laws of the
State of California on April 8, 1991. The Company commenced
operations in 1999.
Effective June 22, 1999, pursuant to a Merger Agreement and Plan of
Reorganization between Dead On, Inc. ("acquiree") and Conversational
Systems, Inc. a California corporation ("acquiror" or the
"Company"), Dead On, Inc. has been reversed merged into
Conversational Systems, Inc. The Company accounted for the
acquisition of Dead On, Inc. using the purchase method of
accounting. The shares of Conversational Systems were exchanged for
7,000,000 newly issued shares of Dead On, Inc. Because the former
shareholders of Conversational Systems, Inc. then became the
majority shareholders of Dead On, Inc., Conversational Systems was
treated as the acquiror under APB Opinion No. 16, "Business
Combinations."
In July 1999, the Company repurchased and retired 10,000,000 shares
of its common stock, $.001 par value per share. Due to the
retirement of shares, the former shareholders of Conversational
Systems, Inc. have significant control in Dead On, Inc.
Due to the contemplation and timing of the merger between Dead On,
Inc. and Conversational Systems, Inc. and the retirement of
10,000,000 shares of the Company's common stock, these events were
accounted for as a single transaction.
Conversational Systems, Inc. was liquidated with and into Dead On,
Inc., which then changed its legal name to One Voice Technologies,
Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
See accompanying independent auditors' report.
F-6
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
DEVELOPMENT STAGE ENTERPRISE:
The Company is a development stage company as defined in Statement
of Financial Accounting Standards No. 7, "Accounting and Reporting
by Development Stage Enterprises." The Company is devoting
substantially all of its present efforts to establish a new
business, which is unrelated to the business of Dead On, and its
planned principal operations have not yet commenced. All losses
accumulated since inception of One Voice Technologies, Inc. have
been considered as part of the Company's development stage
activities.
FAIR VALUE:
The Company's financial instruments consist principally of accounts
payable and notes payable to an individual and related parties as
defined by Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments." The
carrying value of the financial instruments approximate their fair
value due to the short-term nature of these instruments.
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.
Concentration
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
REVENUE RECOGNITION:
The Company recognizes revenues when earned in the period in which
the service is provided. Service fees are deferred and recognized
over the life of the service agreement. Initial distribution fees
are recognized when the software is delivered.
PROPERTY AND EQUIPMENT:
Property and equipment are valued at cost. Depreciation is being
provided by use of the straight-line method over the estimated
useful lives of the assets.
See accompanying independent auditors' report.
F-7
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROPERTY AND EQUIPMENT, CONTINUED:
The Company has adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121
requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amounts
of the assets exceed the fair values of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this statement did not
materially impact the Company's financial position, results of
operations or liquidity.
SOFTWARE DEVELOPMENT COSTS
The Company has adopted Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," ("SFAS No. 86"). SFAS No. 86 requires
the Company to capitalize the direct costs and allocate overhead
associated with the development of software products. Initial costs
are charged to operations as research prior to the development of a
detailed program design or a working model. Costs incurred
subsequent to the product release, and research and development
performed under contract will be charged to operations. Capitalized
costs are amortized over the estimated product life on the straight
line basis. Unamortized costs are carried at the lower of book value
or net realizable value. The software developed had not been placed
into service at December 31, 1999. Therefore no amortization costs
has been recognized.
PATENTS:
The Company's patent costs consist of legal fees paid in connection
with a patent pending. The Company amortizes patents using the
straight-line method over the period of estimated benefit, generally
five years. There was no amortization expense charged for the year
ended December 31, 1999, as the patent is pending.
The Company periodically evaluates whether events or circumstances
have occurred that may affect the estimated useful life or the
recoverability of the remaining balance of the patent. Impairment of
the patent is triggered when the estimated future undiscounted cash
flows do not exceed the carrying amount of the intangible asset. If
the events or circumstances indicate that the remaining balance of
the patent may be permanently impaired, such potential impairment
will be measured based upon the difference between the carrying
amount of the patent and the fair value of such assets, determined
using the estimated future discounted cash flows generated.
COMPREHENSIVE INCOME:
Comprehensive loss consists of net loss only.
See accompanying independent auditors' report.
F-8
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NET INCOME (LOSS) PER SHARE:
The Company has adopted Statement of Financial Accounting Standard
No. 128. Earnings per Shares ("SFAS No. 128"), which is effective
for annual and interim financial statements issued for periods
ending after December 15, 1997. SFAS No. 128 was issued to simplify
the standards for calculating earnings per share ("EPS") previously
in APB No. 15, Earnings Per Share. SFAS No. 128 replaces the
presentation of primary EPS with a presentation of basic EPS. The
new rules also require dual presentation of basic and diluted EPS on
the face of the statement of operations.
For the year ended December 31, 1999, the per share data is based on
the weighted average number of common and common equivalent shares
outstanding, and are calculated in accordance with Staff Accounting
Bulletin of the Securities and Exchange Commission (SAB) No. 98
whereby common stock, options or warrants to purchase common stock
or other potentially dilutive instruments issued for nominal
consideration must be reflected in basic and diluted per share
calculation for all periods in a manner similar to a stock split,
even if anti-dilutive. Accordingly, in computing basic earnings per
share, nominal issuances of common stock are reflected in a manner
similar to a stock split or dividend.
INCOME TAXES:
Deferred income taxes are reported using the liability method.
Deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
RECENT PRONOUNCEMENTS EFFECTIVE SUBSEQUENT TO 1998
In April 1998, Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") was issued. SOP 98-5 provides
guidance on the financial reporting of start-up costs and
organization costs. The SOP is effective for financial statements
for fiscal years beginning after December 15, 1998. The adoption of
this statement did not have a material effect on the Company's
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", the effective date
for which was deferred by SFAS No. 137 until fiscal years beginning
after June 15, 1999. The Company anticipates that due to its limited
use of derivative instruments, the adoption of SFAS No. 133 will not
have a material effect on its financial statements.
See accompanying independent auditors' report.
F-9
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
(3) CASH RESTRICTED:
In connection with an Escrow Agreement dated July 14, 1999, former
officers of Dead On, Inc. have placed $200,000 in an escrow account. The
funds are to be used for prior obligations of Dead On, Inc. relating to
its apparel, accessory and sports equipment division which was
discontinued in December 1998 (Note 1). The funds are restricted through
January 2001. In the case that no claims are made against the Company for
the prior obligation, the funds will be repaid to the former officers.
Accordingly, the amount has been recorded as a loan payable at December
31, 1999.
(4) PROPERTY AND EQUIPMENT:
A summary is as follows:
Equipment $121,592
Furniture and fixtures 32,370
--------
153,962
Less accumulated depreciation and amortization 12,922
--------
$141,040
========
Depreciation and amortization expense totaled $12,922 for the year ended
December 31, 1999.
(5) SOFTWARE LICENSING AGREEMENTS:
In September and October 1999, the Company entered into a 24-month
software licensing agreement with two software developers. A final payment
of $450,000 is due in September 2000. The agreement can be cancelled by
either party by giving 60 days written notice. The asset is being
amortized using the straight-line method over the life of the agreement.
Amortization expense totaled $113,333 for the year ended December 31,
1999.
(6) LOANS PAYABLE, OFFICER AND/OR STOCKHOLDER:
The loans are not collateralized, non-interest bearing and due on demand.
(7) COMMON STOCK:
In May 1999, the Company commenced a private placement of 1,500,000 shares
of the Company's common stock at a purchase price of $2.00 per share. The
Private Placement was exempt from the registration provisions of the Act
by virtue of Section 4(2) of the Act, as transactions by an issuer not
involving any public offering. The securities issued pursuant to the
Private Placement were restricted securities as defined in Rule 144. The
offering generated proceeds, net of offering costs, of approximately
$2,846,000. An additional 150,000 shares of the Company's common stock was
issued for services rendered in connection with this private placement,
which was valued at $2.00 per share.
See accompanying independent auditors' report.
F-10
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
(7) COMMON STOCK, CONTINUED:
On June 22, 1999, in connection with a Merger Agreement and Plan of
Reorganization with Dead On, Inc., the Company exchanged all of its
outstanding shares of common stock for 7,000,000 newly issued shares of
the common stock of Dead On, Inc. (Note 1).
Pursuant to a plan approved by One Voice Technologies' Board of Directors
in July 1999, the Company repurchased and retired 10,000,000 shares of its
common stock, $.001 par value per share.
(8) INCOME TAXES:
For federal income tax return purposes, the Company has available net
operating loss carryforwards of approximately $2,626,000, which includes
approximately $323,000 acquired from Dead On, Inc. The net operating loss
carryforwards expire through 2018 and are available to offset future
income tax liabilities.
Temporary differences which give rise to deferred tax assets and
liabilities at December 31, 1999 are as follows:
Net operating loss carryforwards $ 1,179,500
Valuation allowance (1,179,500)
-----------
Net deferred taxes $ --
===========
(9) EMPLOYMENT AGREEMENT:
In July 1999, the Company entered into an employment agreement with an
officer stockholder of the Company to pay an annual base salary of
$180,000 through July 2002. Annual increases are determined annually by
the Board of Directors.
Under this agreement, salaries totaled $104,505 for the year ended
December 31, 1999.
(10) CONSULTING AGREEMENT:
In July 1999, the Company entered into a consulting agreement with a
personal service corporation owned by an officer of the Company to pay an
annual consulting fee of $120,000 through July 2002.
Consulting fees totaled $76,650 for the year ended December 31, 1999.
(11) COMMITMENTS:
Effective July 1999, the Company leases its office facility under a
noncancellable operating lease expiring March 31, 2003. The lease calls
for a 3% increase on the anniversary of the lease agreement.
See accompanying independent auditors' report.
F-11
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
(11) COMMITMENTS, CONTINUED:
At December 31, 1999, minimum rental payments under the operating lease is
as follows:
Year ending December 31,
2000 $ 70,806
2001 75,291
2002 77,301
2003 19,598
-----------
$ 242,996
===========
Building rental expense totaled $28,280 for the year ended December 31,
1999.
(12) INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN:
On July 14, 1999, the Company enacted an Incentive and Nonqualified Stock
Option Plan (the "Plan") for its employees and consultants under which a
maximum of 500,000 options may be granted to purchase common stock of the
Company. Two types of options may be granted under the Plan: (1) Incentive
Stock Options (also know 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 equally over a three-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.
The number and weighted average exercise prices of options granted under
the plan, for the year ended December 31, 1999 is as follows:
Average
Exercise
Number Price
------- ----------
Outstanding at beginning of the year -- $ --
Outstanding at end of the year 400,500 6.01
Exercisable at end of the year 225,000 6.08
Granted during the year 400,500 6.01
Exercised during the year -- --
See accompanying independent auditors' report.
F-12
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
(12) INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN, CONTINUED:
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding the effect on operations is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. Pro
forma information using the Black-Scholes method at the date of grant
based on the following assumptions:
Expected life 5 Years
Risk-free interest rate 6.75%
Dividend yield --
Volatility 70%
This option valuation model requires input of highly subjective
assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing model does
not necessarily provide a reliable single measure of fair value of its
employee stock options.
For purposes of FASB 123 pro forma disclosures, the estimated fair value
of the options is amortized to expense over the option's vesting period.
The Company's proforma information is as follows:
December 31, 1999
-----------------
Net loss, as reported $(1,782,215)
Pro forma net loss $(2,674,675)
Basic and diluted historical loss per share $ (.15)
Pro forma basic and diluted loss per share $ (.22)
(13) CONTINGENCIES:
The Company is party to various legal proceedings arising from the
discontinued operations of the Company's apparel division. Although the
ultimate disposition of these proceedings is not determinable, management,
based on advice of legal counsel, does not believe that adverse
determinations in any or all of such proceedings will have a material
adverse effect on the financial position of the Company.
See accompanying independent auditors' report.
F-13
<PAGE>
ONE VOICE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999
(14) SUBSEQUENT EVENTS:
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 warrants expire on
January 5, 2001. Net proceeds raised from the shares and warrants total
approximately $1,800,000.
The following pro forma balance sheet assumes that the transaction
occurred at December 31, 1999. The pro forma financial information is
presented for informational purposes only and may not necessarily be
indicative of the results that would have occurred had this transaction
been consummated as of December 31, 1999, nor is it necessarily indicative
of future results.
<TABLE>
<CAPTION>
December 31, Pro forma December 31,
1999 Adjustments 1999
------------ ----------- ------------
(audited) (proforma)
<S> <C> <C> <C>
Current assets $1,104,485 $1,800,000 $2,904,485
Property and equipment 141,040 -- 141,040
Total other assets 555,532 -- 555,532
---------- ---------- ----------
Total assets $1,801,057 $1,800,000 $3,601,057
========== ========== ==========
Current liabilities 621,394 -- 621,394
Shareholders' equity 1,179,663 1,800,000 2,979,663
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,801,057 $1,800,000 $3,601,057
========== ========== ==========
</TABLE>
In March 2000, the Company commenced an offering (the "Offering") of
approximately 750,000 units consisting of 1 share of the company's common
stock and 1/2 common stock purchase warrant for each unit purchased. The
Company plans to raise gross proceeds totaling approximately $5,000,000
and $10,000,000. Pursuant to the Offering statement, the gross proceeds
raised are held in a non-interest bearing escrow account until the private
placement period has ended. Management estimates that closing will take
place in April 2000. As of the date of this report, the Company had raised
gross proceeds totaling approximately $6,745,000 from the issuance of
511,060 shares of common stock and 255,530 common stock purchase warrants.
See accompanying independent auditors' report.
F-14
<PAGE>
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
===========
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.
F-15
<PAGE>
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.
F-16
<PAGE>
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.
F-17
<PAGE>
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)
F-18
<PAGE>
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.
F-19
<PAGE>
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.
F-20
<PAGE>
===============================================================================
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from the
information contained in this prospectus. This document may only be used where
it is legal to sell the securities. The information in this document may only be
accurate on the date of this document.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary 2
Risk Factors 3
Use Of Proceeds 13
Market For Common Equity And Related
Stockholder Matters 14
Management's Discussion And Analysis Or Plan
Of Operation 15
Business 17
Management 25
Certain Relationships And Related Transactions 28
Security Ownership Of Certain Beneficial
Owners And Management 29
Description Of Securities 29
Plan Of Distribution 32
Selling Stockholders 33
Securities Purchase Agreement 33
Legal Matters 34
Experts 35
Available Information 35
Index To Financial Statements 36
</TABLE>
================================================================================
2,475,494 SHARES
OF COMMON STOCK
One Voice
Technologies, Inc.
6333 Greenwich Drive, Suite 240
San Diego, California 92122
(858) 552-4466
________________
PROSPECTUS
________________
December 1, 2000
================================================================================
