Advanced Voice Recognition Systems, Inc - Quarter Report: 2009 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________________
Commission file number: 000-52390
Advanced Voice Recognition Systems, Inc.
(Exact name of registrant as specified in its charter)
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Nevada |
98-0511932 |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
7659 E. Wood Drive
Scottsdale, Arizona 85260
(Address of principal executive offices)
(480) 704-4183
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of August 11, 2009, 165,050,008 shares of Advanced Voice Recognition Systems, Inc. common stock, $.001 par value, were outstanding. * Does not include 16,000,000 shares of registrant’s common stock issued but currently held in escrow by the registrant.
Advanced Voice Recognition Systems, Inc.
Table of Contents
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PART I - FINANCIAL INFORMATION | ||||
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Item 1. |
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Financial Statements |
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Consolidated Balance Sheets as of June 30, 2009 Unaudited and December 31, 2008 |
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Unaudited Condensed Statements of Operations for the three and six months Ended June 30, 2009 and 2008 and from Inception to June 30, 2009 |
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Unaudited Condensed Statement of Stockholders’ Deficit as of June 30, 2009 |
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Unaudited Condensed Statements of Cash Flows for the six months ended June 30, 2009 and 2008 and from Inception through June 30, 2009 |
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Notes to Unaudited Condensed Financial Statements |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4T. |
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Controls and Procedures |
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Exhibits |
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Part I.Financial Information
Advanced Voice Recognition Systems, Inc.
Condensed Balance Sheets
(Unaudited)
JUNE 30,
DECEMBER 31,
2009
(Unaudited)
2008
ASSETS
Current Assets
Cash
$
3,854
$
2,627 Prepaid Expenses (Note 7)
15,000
20,000 Total Current Assets
18,854
22,627 Fixed Assets (Note 3)
Computer Software and Equipment, net
3,935
3,762
Total Fixed Assets
3,935
3,762 Intangible Assets (Note 3)
Patent, net
22,137
24,245 Deferred costs
58,163
54,542 Total Intangible Assets
80,300
78,787 Total Assets
$
103,089
$
105,176
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable
$
102,205
$
68,981 Accrued interest to related party (Note 4)
2,146
2,234 Indebtedness to related parties (Note 4)
222,343
226,344 Total Current Liabilities
326,694
297,559 Stockholders' Deficit (Note 8)
Common stock, $.001 par value;
547,500,000 shares authorized, 181,050,008 and
180,700,008 shares issued, respectively; 165,050,008
and 164,700,008 shares outstanding, respectively
165,050
164,700 Deferred Compensation
(48,247)
— Additional paid-in capital
4,420,975
4,171,784 Deficit accumulated during development stage
(4,761,383 )
(4,528,867 ) Total Stockholders' Deficit
(223,605)
(192,383) Total Liabilities and Stockholders' Deficit
$
103,089
$
105,176
The accompanying notes are an integral part of these financial statements.
1
Advanced Voice Recognition Systems, Inc.
(A Development Stage Company)
Condensed Statements of Operations
(Unaudited)
MARCH 15, 1994
(INCEPTION)
FOR THE THREE MONTHS
FOR THE SIX MONTHS
THROUGH
ENDED JUNE 30
ENDED JUNE 30,
JUNE 30,
2009
2008
2009
2008
2009
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Sales
Cost of goods sold $
—
$
—
$
—
$
—
$
1,241,924
Gross profit
—
—
—
—
379,378
—
—
—
—
862,546
Operating expenses:
Research and development
—
—
—
—
1,189,531
Contributed services (Note 4)
64,613
21,653
109,611
40,042
1,911,844
General and administrative:
Compensation
—
—
—
—
570,000
Compensation Expense
32,934
—
39,253
—
39,253
Professional fees
33,281
93,947
71,040
147,051
787,871
Office
1,014
—
2,425
—
247,368
Rent
—
—
—
—
157,356
Travel
2,573
997
2,573
2,391
132,082
Advertising
—
—
—
—
81,090
Bad debt expense
—
—
—
—
67,217
Other
1,683
5,050
3,293
6,104
380,492
Total operating expenses
136,098
121,647
228,195
195,588
5,564,104
Loss from operations
(136,098)
(121,647)
(121,647)
(195,588)
(4,701,558)
Other income and (expense):
Investment Income
—
—
—
—
5,062
Interest expense
(2,146)
(1,186)
(4,321)
(1,186)
(51,384)
Loss on sale of assets
—
—
—
—
(13,503)
Net other expense
(2,146)
(1,186)
(4,321)
(1,186)
(59,825)
Loss before income taxes
(138,244)
(122,833)
(232,516)
(196,774)
(4,761,383)
Provision for income taxes (Note 5)
—
—
—
—
—
Net Loss
$
(138,244)
$
(122,833)
$
(232,516)
$
(196,774)
$
(4,761,383)
Basic and diluted loss per common share
$
(0)
$
(0)
$
(0)
$
(0)
Weighted average number of common shares outstanding
165,050,008
151,378,655
164,901,113
145,626,113
The accompanying notes are an integral part of these financial statements 2
Advanced Voice Recognition Systems, Inc.
Condensed Statement of Stockholders’ Deficit
(Unaudited)
The accompanying notes are an integral part of these financial statements.
3
Advanced Voice Recognition Systems, Inc.
Condensed Statements of Cash Flows
(Unaudited)
The accompanying notes are an integral part of these financial statements.
4
Advanced Voice Recognition Systems, Inc.
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
Note 1 Nature of Operations
The operations of Advanced Voice Recognition Systems, Inc. (“AVRS” or the “Company”) commenced in 1994 with a predecessor entity called NCC, Inc. NCC, Inc. was incorporated on March 15, 1994 in the State of Ohio. NCC, Inc. operated as a software and hardware development company that marketed voice recognition and transcription products for commercial applications.
In May 2000, WG Investments, LLC acquired the assets of NCC, Inc. and subsequently changed its name to NCC, LLC. NCC, LLC (also a predecessor to AVRS) continued the operations of NCC, Inc. until approximately December 31, 2001, when shifts in the industry’s markets caused NCC, LLC to suspend its operations.
AVRS was incorporated in the State of Colorado on July 7, 2005. In September 2005, the members of NCC, LLC transferred all of their membership interests in NCC, LLC to AVRS in exchange for 93,333,333 shares (post-recapitalization) of AVRS common stock. In December 2005, the Board of Directors approved a 1.5-to-1 stock split issuing 46,666,667 common shares (post-recapitalization), which increased the number of common shares outstanding to 140,000,000 shares (post-capitalization). Following the incorporation of AVRS, the Company initiated a new business plan and intends to continue its operations in the voice recognition and transcription industry.
AVRS specializes in creating interface and application solutions for speech recognition technologies. AVRS has successfully obtained patent protection of its proprietary technology (refer to Note 3, Intangible Assets). The Company is focusing its technologies for the medical profession because of the profession’s present extensive use of dictation and its need for multiple applications of speech recognition technology in the generation of reports, documents and medical bills.
The Company is a development stage enterprise in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by Development Stage Enterprises”. The Company has been in the development stage since inception.
On April 28, 2008, the Company entered into a Stock Exchange Agreement with Samoyed Energy Corp., a Nevada corporation (“Samoyed”), which resulted in a reverse acquisition.
The Stock Exchange Agreement provided for the reorganization of AVRS with Samoyed. In connection with the Stock Exchange Agreement, Samoyed acquired all of the issued and outstanding common shares of AVRS in exchange for 140,000,000 shares of Samoyed’s common stock. At the closing of the Stock Exchange Agreement, the former shareholders of AVRS owned approximately 85% of the outstanding common stock of Samoyed, resulting in a change in control.
For accounting purposes, this acquisition has been treated as a reverse acquisition and recapitalization of AVRS, with Samoyed the legal surviving entity. Since Samoyed had, prior to the recapitalization, minimal assets and limited operations, the recapitalization has been accounted for as the sale of 24,700,008 shares of AVRS common stock for the net liabilities of Samoyed. Therefore, the historical financial information prior to the date of the recapitalization is the financial information of AVRS. Costs of the transaction have been charged to the period in which they are incurred.
On May 19, 2008, pursuant to the Stock Exchange Agreement, the Company’s shareholders exchanged with, and transferred to Samoyed, all of the issued and outstanding shares of their capital stock. In exchange, Samoyed exchanged with, and issued to, the Company’s shareholders 85% (140,000,000 shares) of Samoyed’s common stock. In connection with the closing of the Stock Exchange Agreement: •
A shareholder of Samoyed holding an aggregate of 3,500,000 shares of Samoyed’s common stock agreed to pay to Samoyed an amount equal to $1,750,000 within 90 days of the closing of the Stock Exchange Agreement, or in the alternative, tender to Samoyed for cancellation two shares of Samoyed’s common stock for every $1 not paid. On September 29, 2008, the Company and the shareholder agreed to modify this arrangement to provide that the shareholder would deliver to the Company an aggregate of $1,400,000 on or before November 15, 2008, or in the alternative, tender to the Company for cancellation two and one-half shares (2 ½) of the Company’s common stock for every $1 not paid. On January 13, 2009, the Company and the shareholder agreed to further modify this arrangement such that the shareholder is required to deliver to the Company an aggregate of $875,000 on or before March 31, 2009 or in the alternative tender to the Company for cancellation four shares of the Company’s stock for every $1 not paid. On May 26, 2009 the Company and the shareholder agreed to modify the agreement such that the shareholder is required to deliver to the Company an aggregate of $790,945 on or before August 31, 2009, or in the alternative tender to the Company for cancellation four (4) shares of Company’s common stock for every $1 not paid. As of June 30, 2009, the shareholder has paid $53,430and has not tendered any of the shares of the Company’s common stock held by him for cancellation. •
Certain shareholders of Samoyed holding shares of Samoyed’s common stock agreed that, commencing on the date the Stock Exchange Agreement closed, and ending on a date one year later, the shareholders will not, without the written consent of Samoyed, (i) sell, offer to sell, contract or agree to sell, hypothecate, hedge, pledge, grant any option to purchase, make any short sale or otherwise dispose of or agree to dispose of, directly or indirectly, certain of their shares of Samoyed’s common stock owned directly by them, or with respect to which they have beneficial ownership within the rules and regulations of the U.S. Securities and Exchange Commission, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of those shares of Samoyed’s common stock owned directly by them, or with respect to which they have beneficial ownership within the rules and regulations of the U.S. Securities and Exchange Commission. On May 19, 2009, one year from the closing date of the Stock Exchange Agreement, the Company released the shares of those certain stock holders.
The Company entered into a Purchase Agreement dated September 24, 2008 with Lion Share Capital, LLC, a Kansas limited liability company, pursuant to which Lion Share made a promissory note to the Company in the amount of $5,000,000 in exchange for 16,000,000 shares of the Company’s common stock. Pursuant to the Purchase Agreement, Lion Share is required to pay the principal amount of the promissory note, together with all interest thereon in three installments. Lion Share pledged to the Company the shares of common stock issued to it pursuant to the Purchase Agreement as collateral to secure Lion Share’s satisfaction of its obligations under the promissory note. Portions of the shares of common stock pledged as collateral are to be released to Lion Share Capital upon the Company’s receipt of the periodic principal and interest payments. As of June 30, 2009, no funds have been received from Lion Share Capital, and the 16,000,000 shares remain held by the Company. Lion Share Capital has informed the Company that it intends to make a payment to the Company, but there is no assurance that this will occur. The 16,000,000 shares are not considered outstanding for financial statement purposes at June 30, 2009.
On March 25, 2009, the Company entered into an Agreement and Plan of Merger (“Agreement and Plan of Merger”) with its wholly-owned subsidiary, NCC, LLC, a Colorado limited liability company, whereby NCC, LLC merged with and into the Company pursuant to Section 92A.180 of the Nevada Business Corporations Act. Upon consummation of the Agreement and Plan of Merger: (i) NCC, LLC ceased to exist; (ii) the Company’s membership interests in NCC, LLC automatically were canceled or retired and ceased to exist, without any consideration delivered in exchange thereof; (iii) the title to all estate, property rights privileges, powers and franchise assets and/or other rights owned by NCC, LLC became vested in the Company without reversion or impairment; and (iv) all liabilities of any kind of NCC, LLC became vested in the Company.
Note 2 Significant Accounting Policies
Unaudited Financial Information
The accompanying financial information as of June 30, 2009 and for the three and six months and ended June 30, 2009 and 2008, and the period from March 15, 1994 (inception) through June 30, 2009, is unaudited. In the opinion of management, all normal and recurring adjustments which are necessary to provide a fair presentation of the Company’s financial position at June 30, 2009 and its operating results for the three and six months ended June 30, 2009 and 2008, and the period from March 15, 1994 (inception) through June 30, 2009, have been made. The results of operations for the three and six months ended June 30, 2009 is not necessarily an indication of the results to be expected for the year.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company is a development stage enterprise with losses since inception and a net capital deficit. These factors, among others, may indicate that the Company will be unable to continue as a going concern for reasonable period of time.
The financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. During the six months ended June 30, 2009 and year ended December 31, 2008, the Company’s president has loaned or advanced the Company funds for working capital on an “as needed” basis. There is no assurance that these loans or advances will continue in the future. As a condition to closing the Stock Exchange Agreement with Samoyed on May 19, 2008, the Company and one of its shareholders agreed that the shareholder would provide funds to the Company, or in the alternative, tender certain of his shares of the Company’s common stock for cancellation. On September 25, 2008 the Company entered into a purchase agreement with Lion Share Capital, LLC to provide funding for its operations. There is no assurance that the Company will be successful in obtaining substantial funding either from this shareholder or from Lion Share Capital.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original maturities of three months or less when acquired to be cash equivalents. The Company had cash and cash equivalents at June 30, 2009 of $3,854 and at December 31, 2008 of $2,627.
Fixed Assets
Fixed assets are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, ranging from three to five years. Expenditures for additions and improvements are capitalized, while repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal.
Fixed assets consist of the following:
June 30,
2009
June 30,
2008
Computer equipment
$
1,650 $
— Computer software
3,640
—
5,290
— Less Accumulated depreciation
(1,355)
—
$
3,935 $
—
Depreciation expense totaled $727 and $-0-, respectively for the six months ended June 30, 2009 and 2008.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes.
Patents, Deferred Costs and Amortization
Patents consist of costs incurred to acquire issued patents. Amortization commences once a patent is granted. Costs incurred to acquire patents that have not been issued are reported as deferred costs. If a patent application is denied or expires, the costs incurred are charged to operations in the year the application is denied or expires. The Company amortizes its patents over an estimated useful life of 15 years. Amortization expense totaled $2,108 for the six months ended June 30, 2009. Estimated aggregate amortization expense for each of the next five years is as follows: Year ending December 31,
2009
4,216
2010
4,216
2011
4,216
2012
4,216
2013
4,216 Thereafter
3,165
$
24,245 7
Impairment and Disposal of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets under the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Statement No. 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying value or fair value, less costs to sell.
Loss per Common Share
The Company reports net loss per share using a dual presentation of basic and diluted loss per share. Basic net loss per share excludes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. At June 30, 2009 and 2008, there were no variances between the basic and diluted loss per share as there were no potentially dilutive securities outstanding.
Note 3 Intangible Assets
On November 13, 1995, the Company filed a patent application with the U.S. Patent and Trademark Office, which was granted on September 28, 1999 as patent #5,960,447, “Word Tagging and Editing system for Speech Recognition”. In accordance with 35 USC 154, the term for the above referenced patent shall be for a period beginning on the date on which the patent issues and ending 20 years from the date on which the application for the patent was filed in the United States. The above referenced U.S. Patent will expire on November 13, 2015.
The Company monitors the anticipated outcome of legal actions, and if it determines that the success of the defense of a patent is probable, and so long as the Company believes that the future economic benefit of the patent will be increased, the Company capitalizes external legal costs incurred in the defense of the patent. Upon successful defense of litigation, the amounts previously capitalized are amortized over the remaining life of the patent.
The Company applied for an additional patent on September 15, 2008. On March 6, 2009, the U.S. Patent and Trademark Office issued an allowance for the patent titled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols”. The Company capitalized the additional deferred costs associated with the application and will begin amortization in 2009. As of June 30, 2009, no additional costs have been deferred. The deferred fees will be capitalized in 2009 when the patent is issued. 8
Note 4 Related Party Transactions
Contributed Services
During the years from 2000 through 2008 and for the six months ended June 30, 2009, the Company’s officers and employees contributed research and development services and administrative services. The fair value of those services was recorded in the accompanying financial statements based on the prevailing rates for such services, with a corresponding credit to Additional paid-in capital. Contributed services recorded in the accompanying financial statements consisted of the following:
Year ended December 31,
2000
$
520,000
2001
720,500
2002
50,767
2003
18,749
2004
58,651
2005
158,648
2006
70,189
2007
83,652
2008
121,077
$
1,802,233
Six months ended June 30,
2009
109,611
$
1,911,844
Indebtedness to Related Parties
During the years from 2000 through 2008, and for the six months ended June 30, 2009, certain officers advanced the Company working capital to maintain the Company’s operations. In May 2008, the Company made a promissory note to its president in the original principal amount of $225,544 to reflect the Company’s obligation to repay the working capital advances made by its president. At June 30, 2009, and at December 31, 2008, the Company’s outstanding principal balance of the promissory note was $216,543 and $220,543 respectively. The note carries a 4 percent annual interest rate and matures on July 6, 2009. Accrued interest as of June 30, 2009 is $2,146.
Stock Exchange Agreement
5
Stock Purchase Agreement
Agreement and Plan of Merger
Note 5 Income Taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective rate is as follows:
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June 30, | |
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2009 |
2008 |
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U.S. federal statutory graduated rate |
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25.37% |
28.31% |
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State income tax rate, net of federal benefit |
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0.00% |
0.00% |
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Rent and services |
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-11.96% |
-5.76% |
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NOL's |
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-13.41% |
-22.55% |
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Effective Rate |
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0.00% |
0.00% |
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The Company is considered a start-up company for income tax purposes. As of June 30, 2009, the Company had not commenced its trade operations, so all costs were capitalized under Section 195. Accordingly, the Company had no net operating loss carry forwards at June 30, 2009.
Note 6 Concentration of Risk
On June 30, 2009, the Company had cash balances at one financial institution of $3,854, which amount does not exceed the related federal deposit insurance.
Note 7 Prepaid Expenses
During 2008, the Company paid a $15,000 retainer to a law firm in connection with the Company’s anticipated filing of a patent interference in the third quarter of 2008. This anticipated interference filing involves the Company’s claim of ownership of the subject matter of a third party’s patent. The interference application was filed on December 8, 2008.
Note 8 Stockholder Deficit
On March 18, 2009, the Company entered into an agreement with Equiti-trend Advisors, LLC (“Equiti-trend”), pursuant to which Equiti-trend agreed to provide investor relations services to the Company for a period of six months. The Company issued 350,000 restricted shares of its common stock to Equiti-trend as consideration for Equiti-trend’s services. The transaction was valued based on the closing stock price of $0.25 per share on March 31, 2009, totaling $87,500. Deferred compensation of $48,247 was recorded and $39,253 was expensed at June 30, 2009.
Note 9 Subsequent Events
A shareholder of Samoyed holding an aggregate of 3,500,000 shares of Samoyed’s common stock agreed to pay to Samoyed an amount equal to $1,750,000 within 90 days of the closing of the Stock Exchange Agreement, or in the alternative, tender to Samoyed for cancellation two shares of Samoyed’s common stock for every $1 not paid. On September 29, 2008, the Company and the shareholder agreed to modify this arrangement to provide that the shareholder would deliver to the Company an aggregate of $1,400,000 on or before November 15, 2008, or in the alternative, tender to the Company for cancellation two and one-half shares (2 ½) of the Company’s common stock for every $1 not paid. On January 13, 2009, the Company and the shareholder agreed to modify this arrangement such that the shareholder is required to deliver to the Company an Aggregate of $875,000 on or before March 31, 2009, or in the alternative, tender to Company for cancellation four shares (4) of the Company’s stock for every $1 not paid. On May 26, 2009, the Company and the shareholder agreed to modify this arrangement such that the shareholder is to deliver to the Company an aggregate of $790,945 on or before August 31, 2009, or in the alternative, tender to Company for cancellation four shares (4) of the Company’s stock for every $1 not paid. As of June 30, 2009, the shareholder had paid the company $53,430. No shares have been tendered for cancellation.
On July 6, 2009, the Company entered into an Allonge to Promissory Note pursuant to which the Company and Walter Geldenhuys agreed to amend the promissory note made by the Company to Mr. Geldenhuys in May 2008 to extend the date in which all principal and any accrued interest shall be due and payable to October 5, 2009.
On July 7, 2009, Patent No.: US 7,558,730 B2 titled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols” was issued by the United States Patent and Trademark Office. In accordance with 35 USC 154, the patent shall be for a term beginning on July 7, 2009 and ending 20 years from the application date of November 27, 2001. The patent will expire on November 27, 2021. Deferred costs of $58,163 will be capitalized and amortized beginning in the third quarter 2009.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Report on Form 10-Q. This document contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations and intentions. When used in this document, the words “expects”, “anticipates”, “intends” and “plans” and similar expressions are intended to identify certain of these forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Our actual results could differ materially from those discussed in this document.
Overview
Advanced Voice Recognition Systems, Inc., a Nevada corporation (the “Company”, “we” or “us”), was incorporated in the State of Nevada on August 31, 2005 as Samoyed Energy Corp., an oil and gas exploration, development, production and acquisition company. In May 2008, we consummated a stock exchange with the shareholders of Advanced Voice Recognition Systems, Inc., a Colorado corporation (“AVRS”), and consequently, AVRS became our wholly-owned subsidiary. On May 20, 2008, we transferred our oil and gas assets to Stone Canyon Resources, Inc. In June 2008, AVRS merged with and into us and we changed our name to “Advanced Voice Recognition Systems, Inc.” As a result of the stock exchange and the transfer of our oil and gas assets, our current operations are those of AVRS, and our fiscal year became that of AVRS and now ends on December 31 st.
Our common stock has been quoted on the Over-the-Counter Bulletin Board, also referred to as the OTCBB, since April 2007. Prior to June 19, 2008, our ticker symbol was “SMYD”, and on June 19, 2008, following our name change, our ticker symbol changed to “AVOI”.
AVRS was incorporated on July 7, 2005. In May 2000, WG Investments, LLC, a Colorado limited liability company formed that same year, acquired all of the assets of NCC, Inc., an Ohio corporation, and all rights, title and interests in and to U.S. Patent #5,960,447. Promptly following the acquisition, the members of WG Investments, LLC voted to change its name to NCC, LLC. In 2005, the members of NCC, LLC exchanged their membership interests in NCC, LLC for shares of common stock of AVRS.
On March 25, 2009, we entered into an Agreement and Plan of Merger with our wholly-owned subsidiary, NCC, LLC, a Colorado limited liability company, whereby NCC, LLC merged with and into us pursuant to Section 92A.180 of the Nevada Business Corporations Act. Upon consummation of the Agreement and Plan of Merger: (i) NCC, LLC ceased to exist; (ii) our member interests in NCC, LLC automatically were canceled or retired and ceased to exist, without any consideration delivered in exchange thereof; (iii) the title to all estate, property rights privileges, powers and franchise assets and/or other rights owned by NCC, LLC became vested in us without reversion or impairment; and (iv) all liabilities of any kind of NCC, LLC became vested in us. As a result, we own U.S. Patent #5,960,447.
We are a software development company headquartered in Scottsdale, Arizona. We specialize in creating interface and application solutions for speech recognition technologies. Our speech recognition software and related firmware was first introduced in 1994 at an industry trade show.
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Liquidity and Capital Resources; Results of Operations
We completed a stock exchange on May 19, 2008 and changed our business model. We have not generated any revenue since inception and do not have any cash generating product or licensing sales. We are a development stage enterprise that has incurred losses since inception.
At June 30, 2009, we had current assets of $18,854 and current liabilities of $326,694, as compared to current assets of $22,627and $297,559 in current liabilities at December 31, 2008. Our decrease in current assets is attributable to a computer purchase and partial repayment of promissory note, as described in note 4 to our financial statements included with this filing. Our increase in current liabilities primarily is due to an increase in accounts payable resulting from ongoing operations.
We had a net loss of $138,244 and $122,833for the three months ended June 30, 2009 and 2008 respectively. The increase in net loss is attributable to increased contributed services and professional fees incurred in conjunction with our efforts to implement our business plan.
During the six months ended June 30, 2009, we used $42,681 of cash in operating activities and $4,522 of cash in investing activities, and received $48,430 of cash provided by financing activities. As a result, for the six months ended June 30, 2009, we recognized a $1,227 net increase in cash on hand. For the six months ended June 30 2008, we used $137,599 of cash in operating activities and no cash in investing activities, and received $273,047 of cash provided by financing activities. We recognized a $135,448 net increase in cash on hand.
During the six months ended June 30, 2009, the funds we received were attributable to a shareholder obligated to provide such funding, or in the alternative, tender certain of his shares of the Company’s common stock for cancellation. Historically, our president has loaned or advanced to us funds for working capital on an “as needed” basis. There is no assurance that these funds, loans or advances will continue in the future. Because of our history of losses, net capital deficit and lack of assurance of additional financing, the audit report on our financial statements contains a “going concern” opinion regarding doubt about our ability to continue as a going concern.
In an attempt to address our financing needs, on September 25, 2008, we entered into an agreement with Lion Share Capital, LLC for the sale to Lion Share Capital of 16,000,000 shares of our common stock, and we received a $5,000,000 promissory note from Lion Share. As of June 30, 2009, no funds have been received from Lion Share Capital, and the 16,000,000 shares remain pledged to us as collateral. Lion Share Capital has informed the Company that it intends to make payments to the Company. If we receive payments on the note, our liquidity may increase. However, there is no assurance that we will be successful in obtaining payments on the note from Lion Share Capital.
U.S. Patent #5,960,447 includes 42 claims that we believe cover an extremely broad base of features applicable to existing ASR products and markets. We intend to use our patent protection to our advantage by licensing or otherwise. If our licensing and other efforts prove successful, our liquidity may increase.
The legal fees associated with current prosecution for enhancing our existing patent rights, which are estimated at approximately $30,000, are currently deferred costs; however, if this activity proves successful, these fees will be capitalized. The associated legal fees for our additional filed U.S. patent application (issued on July 7, 2009) are deferred at June 30, 2009. The deferred costs totaling $58,163 at June 30, 2009 will be capitalized and amortized in the third quarter 2009 when the patent is issued.
We will require additional debt or equity financing or a combination of both in order to carry out our business plan. We plan to raise additional funds through future sales of our common stock, until such time as our revenues are sufficient to meet our cost structure, and ultimately achieve profitable operations. There is no assurance we will be successful in raising additional capital or achieving profitable operations. Our board of directors may attempt to use non-cash consideration to satisfy obligations that may consist of restricted shares of our common stock. These actions would result in dilution of the ownership interests of existing shareholders and may further dilute our common stock book value.
To obtain sufficient funds to meet our future needs for capital, we will from time to time, evaluate opportunities to raise financing through some combination of the private sale of equity, or issuance of convertible debt securities. However, future equity or debt financing may not be available to us at all, or if available, may not be on terms acceptable to us. We do not intend to pay dividends to shareholders in the foreseeable future.
In order for our operations to continue, we will need to generate revenues from our intended operations sufficient to meet our anticipated cost structure. We may encounter difficulties in establishing these operations due to our inability to successfully prosecute any patent enforcement actions or our inability to effectively execute our business plan.
If we do not raise additional capital, or we are unable to obtain additional financing, or begin to generate revenues from our intended operations, we may have to scale back or postpone the development and marketing of our products or the enforcement of our patent rights until such financing is available.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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Item 4T. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of its management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Our management assessed the effectiveness of its internal control over financial reporting as of June 30, 2009. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on this assessment, our management believes that, as of June 30, 2009, our internal control over financing reporting is effective based on those criteria.
This Form 10-Q does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Form 10-Q.
Changes in internal control over financial reporting.
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
There were no changes in our internal controls over financial reporting that occurred during the period covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Exhibit |
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Description |
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2.1 |
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Stock Exchange Agreement dated April 14, 2008, between Samoyed Energy Corp. and Certain Shareholders of Advanced Voice Recognition Systems, Inc. 1 |
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2.2 |
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Agreement and Plan of Merger between Samoyed Energy Corp. and Advanced Voice Recognition Systems, Inc. 2 |
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2.3 |
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Agreement and Plan of Merger between Advanced Voice Recognition Systems, Inc. and NCC, LLC 12 |
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3.1 |
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Articles of Incorporation 3 |
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3.2 |
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Certificate of Change to Articles of Incorporation 4 |
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3.3 |
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Bylaws 3 |
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10.1 |
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Letter of Intent dated January 1, 2008 between Samoyed Energy Corp. and Advanced Voice Recognition Systems, Inc. 5 |
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10.2 |
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Termination Agreement dated January 22, 2008 between Samoyed Energy Corp. and 313866 Alberta Ltd. 6 |
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10.3 |
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Extension of Letter of Intent dated March 28, 2008 between Samoyed Energy Corp. and Advanced Voice Recognition Systems, Inc. 7 |
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10.4 |
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Purchase and Sale Agreement dated May 15, 2008 between Samoyed Energy Corp. and Stone Canyon Resources, Inc. 8 |
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10.5 |
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Promissory Note dated May 13, 2008 made by Advanced Voice Recognitions, Inc. to Walter Geldenhuys 9 |
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10.6 |
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Form of Lock-Up Agreement 9 |
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10.7 |
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Purchase Agreement dated September 24, 2008 between Advanced Voice Recognition Systems, Inc. and Lion Share Capital LLC 10 |
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10.8 |
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Letter Agreement dated September 29, 2008 between Advanced Voice Recognition Systems, Inc. and Lambert Lavallee 10 |
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10.9 |
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Letter Agreement dated January 13, 2009 between Advanced Voice Recognition Systems, Inc. and Lambert Lavallee 11 |
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10.10 |
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Letter Agreement dated May 26, 2009 between Advanced Voice Recognition Systems, Inc. and Lambert Lavallee 12 |
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10.11 |
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Allonge to Promissory Note dated July 6, 2009 between Advanced Voice Recognition Systems, Inc. and Walter Geldenhuys 13 |
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14.1 |
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Code of Ethics 14 |
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21.1 |
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Subsidiaries of the Registrant 14 |
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31.1 |
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Section 302 Certification – Principal Executive Officer 15 |
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31.2 |
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Section 302 Certification – Principal Financial Officer 15 |
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32.1 |
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Certification Pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15 |
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1 Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 1, 2008. 2 Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 10, 2008. 3 Incorporated by reference from the Company’s Registration Statement on Form SB-2 filed on October 31, 2005. 4 Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 18, 2007. 5 Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 4, 2008. 6 Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on February 14, 2008. 7 Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 31, 2008. 8 Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 21, 2008. 9 Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on August 14, 2008. 10 Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 1, 2008. 11 Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 20, 2009. 12 Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 1, 2009 13 Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 14, 2009 14 Incorporated by reference from the Company’s Annual Report on Form 10-K filed on March 30, 2009. 15 Filed herewith.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Advanced Voice Recognition Systems, Inc.
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Dated: August 12, 2009 |
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/s/ Walter Geldenhuys |
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Walter Geldenhuys |
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President, Chief Executive Officer, and Chief Financial Officer (Principal Executive Officer) |
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Dated: August 12, 2009 |
By: |
/s/ Diane Jakowchuk |
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Diane Jakowchuk |
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Secretary, Treasurer and Principal Accounting Officer (Principal Accounting Officer) |
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15
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