Advanced Voice Recognition Systems, Inc - Quarter Report: 2012 September (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 September 30, 2012

OR

o TRANSITION 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)  

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).

Yeso      No x [Files not required.]

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 November 1, 2012, 201,682,865 shares of Advanced Voice Recognition Systems, Inc. common stock, $0.001 par value, were outstanding.

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Advanced Voice Recognition Systems, Inc.

Table of Contents

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Part I. Financial Information

Item 1. Financial Statements

Advanced Voice Recognition Systems, Inc.

Balance Sheets

Development Stage Company

The accompanying notes are an integral part of these financial statements.

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Advanced Voice Recognition Systems, Inc.

Statements of Operations

Development Stage Company

(Unaudited)

 *less than $0.01 per share

The accompanying notes are an integral part of these financial statements

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Advanced Voice Recognition Systems, Inc.

Statement of Stockholders’ Equity / (Deficit)

Development Stage Company

(Unaudited)

The accompanying notes are an integral part of these financial statements.

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Advanced Voice Recognition Systems, Inc.

Statements of Cash Flows

Development Stage Company

(Unaudited)

The accompanying notes are an integral part of these financial statements.

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Advanced Voice Recognition Systems, Inc.

(A Development Stage Company)

Notes to Unaudited Financial Statements

Note 1.     Nature of Operations

Company Overview

The operations of Advanced Voice Recognition Systems, Inc. (“AVRS” or the “Company”), http://www.avrsys.com, 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 140million 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 is a software development company specializing in speech recognition technologies. AVRS has successfully obtained patent protection of its proprietary technology (refer to Note 3, Intangible Assets). The Company plans to focus 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. Additionally the Company plans to focus on server based dictation and transcription, visual voicemail and the voicemail to text market.

The Company is a development stage enterprise in accordance with Financial Accounting Standards Board’s Accounting Standards Codification 915 “Development Stage Entities”. The Company has been in the development stage since Inception (March 15, 1994).

Stock Exchange Agreement

On April 28, 2008, the Company entered into a Stock Exchange Agreement (“the Agreement”) with Samoyed Energy Corp., a Nevada corporation (“Samoyed”), which resulted in a reverse acquisition.  The Agreement provided for the reorganization of AVRS with Samoyed. In connection with the Agreement, Samoyed acquired all of the issued and outstanding common shares of AVRS in exchange for 140 million shares of Samoyed’s common stock.  On May 19, 2008 at the closing of the 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.

In connection with the Agreement, a shareholder of Samoyed holding an aggregate of 3.5 million shares of Samoyed’s common stock made payments totaling $565,651 since 2008 in lieu of tendering shares to the Company.  The Company received the final payment of $6,000 on February 15, 2012.

Agreement and Plan of Merger

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.

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Stock Purchase Agreements

During the year ended December 31, 2010, the Company entered into Stock Purchase Agreements for the sale of its Common Stock.  Pursuant to these Agreements, the Company sold during 2010 and 2011 an aggregate of 22,867,857 shares for aggregate proceeds of $1,570,000.  All of these Agreements have been fulfilled or terminated.

During the year ended December 31, 2011, the Company entered into a Stock Purchase Agreement for the private sale of 4,375,000 restricted shares of its common stock for $350,000, all of which was received in full in 2011.

During the nine months ended September 30, 2012, the Company entered into Stock Purchase Agreements for the private sale of an aggregate of 9,040,000 shares of the common stock for aggregate proceeds of $402,000, all of which was received in full during the period.  

Stock Based Compensation

During the period since Inception (March 15, 1994) the Company issued 700,000 restricted shares of the Company’s common stock for services rendered by outside consultants.

Note 2.     Significant Accounting Policies

Unaudited Financial Information

The accompanying financial information at September 30, 2012 and for the nine months ended September 30, 2012 and 2011, and the period from March 15, 1994 (Inception) through September 30, 2012, 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 atSeptember 30, 2012 and its operating results for the three and nine months ended September 30, 2012 and 2011 and the period from March 15, 1994 (Inception) through September 30,, 2012, have been made.  Certain information and footnote data necessary for a fair presentation of financial position and results of operations in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is therefore suggested that these financial statements be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2011.  The results of operations for the three and nine months ended September 30, 2012 are not necessarily an indication of operating results to be expected for the year ending December 31, 2012.

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 (March 15, 1994). These factors, among others, may indicate that the Company may be unable to continue as a going concern for a 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 years ended December 31, 2011 and 2010, the Company’s President 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.   During the twelve months ended December 31, 2010, the Company received an aggregate of $ 1,420,000 from the sale of shares in private offerings of its common stock.  During the twelve months ended December 31, 2011 the Company received $500,000 from the sale of shares in private offerings of its common stock. During the nine months ended September 30, 2012 the Company received an aggregate of $402,000 from the sale of shares in private offerings of its common stock.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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.

Basis of Consolidation

The consolidated financial statements include our accounts and those of NCC, LLC which merged with and into AVRS, Inc. March 25, 2009. Intercompany transactions and balances have been eliminated. The accounts, results of operations and cash flows of acquired companies are included from their respective acquisition dates.

Cash and Cash Equivalents

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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 at September 30, 2012 of $42,376, and $13,405 cash at December 31, 2011.  No amounts resulted from cash equivalents.

Financial Instruments

The carrying amounts of cash, receivables and current liabilities approximate fair value due to the short-term maturity of the instruments.

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.

Revenue Recognition

Revenue from the sale of inventory is recognized on the date of sale, title and risk of loss have transferred to the purchaser, the fees are fixed or determinable and collection is reasonably assured. Revenue from the performance of services is recognized when services have been completed and collection is probable. There are no multiple element sales and no history of material returns. The revenue recognition policies relate to operations performed prior to the Company’s reverse acquisition.

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.  The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flow.  Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.  The Company did not record a cumulative effect adjustment related to the adoption of ASC 740.

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 twenty years.

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” now referred to as ASC 360-10 Property, Plant, and Equipment – “Impairment or Disposal of Long Lived Assets” subsections” . ASC 306-10 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.  The Company’s last impairment analysis was completed effective December 31, 2011.  Impairment recorded for each of the nine months ended September 30, 2012 and 2011 was $-0-.  See Note 3.

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 September 30, 2012 and 2011, there were no variances between the basic and diluted loss per share as there were no potentially dilutive securities outstanding.

Fair Value of Financial Instruments

The carrying amounts of cash and current liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect these estimates.  We do not hold or issue financial instruments for trading purposes, nor do we utilize derivative instruments.

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The FASB Accounting Standards Codification (ASC) clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Subsequent Events

The Company has evaluated all subsequent events through the date the financial statements were available to be issued (see Note 9). Other than those set out above, there have been no subsequent events after September 30, 2012 for which disclosure is required.

Note 3.     Intangible and Fixed Assets

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.

On July 7, 2009, Patent No.: US 7,558,730 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.  The deferred fees were capitalized during the quarter ended September 30, 2009 and the Company began amortization.

On March 9, 2010 the United States Patent and Trademark Office declared interference between the Company as Senior Party and Allvoice Developments, US LLC as Junior Party.  Interference is a proceeding before the Board of Patent Appeals and Interference (“BPAI”) in instances where two or more parties claim patent rights to the same technology. The U.S. patent system awards patents to the first party to invent a particular technology.  In an interference, the primary purpose is to determine which party invented the technology first, and to award the patent to that party.  The Company has been a party to the patent interference proceedings since March 2010.  Due to the absence of a decision by the end of 2010, in the 4^th quarter of 2010, AVRS impaired 100% of the deferred costs associated with the interference, resulting in a $1,068,860 impairment loss.  The expense in 2011 was $44,007, and the cost for the nine months ended September 30, 2012 was $40,330.  On April 27, 2012, the BPAI entered a judgment that all of the claims in the application of AVRS are unpatentable.  On May 29, 2012, AVRS filed a Request for Rehearing in the BPAI.  No decision on the Request for Rehearing has been received by AVRS.

On May 24, 2011 Patent No. US 7,949,534 was issued by the United States Patent and Trademark Office. In accordance with 35 USC 154, the patent shall be for a term beginning May 24, 2011 and ending 20 years from the application date of the parent application (US Patent No. #7,558,730) of November 27, 2001.  The patent will expire on November 27, 2021.  The deferred fees were capitalized during the quarter ended June 30, 2011 and the Company began amortization.

On March 6, 2012 Patent No. US 8,131,557 was issued by the United States Patent and Trademark Office.  In accordance with 35 USC 154, the patent shall be for a term beginning March 6, 2012 and ending 20 years from the application date of the parent application (US Patent No. 7,558,730) of November 27, 2001.  The patent will expire on November 27, 2021.  The deferred fees were capitalized during the quarter ended March 31, 2012 and the Company began amortization.

Amortization at June 30, 2012 is as follows:

SCHEDULE OF INTANGIBLE ASSETS

Amortization expense totaled $7,220 and $6,837 for the nine months ended September 30, 2012 and 2011, respectively.  Estimated aggregate amortization expense for each of the next five years is as follows:

SCHEDULE OF FUTURE AMORTIZATION

Fixed Assets

Assets disposed of during the nine months ended September 30, 2011 include a laptop costing $900 and having accumulated depreciation of $405.  A loss of $495 was recognized.  Depreciation expense totaled $880 and $1,197 for the nine months ended September 30, 2012 and 2011 respectively.

PROPERTY PLANT AND EQUIPMENT

Note 4.     Related Party Transactions

Contributed Services

During the years from 2000 through 2011 the Company’s officers and employees contributed management services and administrative services. The fair value of those services totaling $2,317,982 was recorded in the accompanying financial statements based on the prevailing rates for such services, with a corresponding credit to Additional paid-in capital. AVRS currently pays salaries to its two employees.

Indebtedness to Related Parties

During the years from 2000 through 2011, certain officers advanced the Company working capital to maintain the Company’s operations. The Company owed the officers $5,800 at September 30, 2012 and December 31, 2011.

The Company’s President advanced the Company working capital of $225,544 which was converted into a promissory note in May 2008. On March 7, 2011 the Company repaid the note in full.

During 2009, the Company’s President advanced the Company working capital of $80,000 which was converted into a second promissory note in October 2009. As of December 31, 2011 the Company repaid the note in full.

Note 5.     Income Taxes

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The Company is considered a start-up company for income tax purposes. As of September 30, 2012, 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 September 30, 2012.

INCOME TAXES

Note 6 .    Concentration of Risk

Beginning March 31, 2010, through September 30, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions.  On September 30, 2012, the Company had cash balances at one FDIC insured financial institution of $42,376 in non-interest bearing accounts that were fully insured by the FDIC.

Note 7.     Prepaid Expenses

On March 12, 2010, the Company paid a $65,000 retainer to a law firm in connection with the patentability phase of the interference proceedings that is to be applied to the final billing.  On November 9, 2011 the retainer was applied to the outstanding balance reducing the accounts payable.

On April 6, 2010 the Company paid a second $65,000 retainer to a law firm for representation in anticipation of discovery request in connection with a lawsuit between Allvoice Developments, US, LLC and Microsoft Corporation.  The retainer is to be applied to the final billing. On November 9, 2011 the retainer was applied to the outstanding balance reducing the accounts payable.

Note 8.

Stockholder Equity / (Deficit)   

The Company has issued shares of its common stock pursuant to certain agreements as described in Note 1.

Note 9.     Subsequent Events

The Company has evaluated subsequent events through the date the financial statements were available to be issued.  Other than those set out above, there have been no subsequent events after September 30, 2012 for which disclosure is required.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The statements contained in this Quarterly Report that are not historical are “forward-looking statements”, which can be identified by use of terms such as “may”, “could”, “should”, “expect”, “plan”, “project”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential”, “pursue”, “target” or “continue”, the negative of such terms or other comparable terminology, although some forward-looking statements may be expressed differently.

The forward-looking statements contained in this 10-Q are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this 10-Q are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to various factors listed in this Quarterly Report. All forward-looking statements speak only as of the date of this 10-Q. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Overview

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.  We currently have limited capital resources.  We are not currently engaged in marketing any products.  Our principal assets are our patents.  Our business strategy will be to attempt to interest other companies in entering into license agreements or other strategic relationships and to support and defend our patents through infringement and interference proceedings, as appropriate.

Results of Operations

We completed a stock exchange on May 19, 2008 and changed our business model. We have not generated any revenue since the stock exchange and do not have any cash generating product or licensing sales. We are a development stage enterprise that has incurred losses since Inception (March 15, 1994).

At September 30, 2012, we had current assets of $42,376, and current liabilities of $222,484, as compared to $176,399 current assets and $371,799 in current liabilities at September 30, 2011. Our decrease in current assets is attributable to our payments of accounts payable. Our decrease in current liabilities primarily is due to the decreased professional fees incurred in connection with  a material interference proceeding conducted by the Board of Patent Appeals and Interference of the U.S. Patent and Trademark Office (the “USPTO”).  We incurred substantial legal fees and costs in connection with the interference proceeding.  A decision was rendered earlier in 2012 that was adverse to us.  We have requested a rehearing, but there is no assurance of a positive outcome of our request for a rehearing.  The associated costs and fees may ultimately not be recoverable.

We had a net loss of $328,237 and $337,302 for the nine months ended September 30, 2012 and 2011 respectively. The decrease in net loss is attributable to decreased professional fees incurred in the nine months ended September 30, 2012 in connection with the interference proceedings in the USPTO.

Liquidity and Capital Resources

For the nine months ended September 30, 2012, we used $373,591 of cash in operating activities and $5,438 of cash in investing activities, and we received $408,000 of cash from sales of our common stock. As a result, for the nine months ended September 30, 2012, we recognized a $28,971 net increase in cash on hand. For the nine months ended September 30, 2011, $454,629 cash was used in operating activities, $22,219 cash in investing activities, and we received $512,000 of cash from the sale of our common stock and repaid $117,313 on a promissory note from a shareholder, resulting in a $82,161 decrease in cash on hand for the period.

Historically, our President has loaned or advanced to us funds for working capital on an “as needed” basis. There is no assurance that these loans or advances will continue in the future. Because of our history of losses, and lack of assurance of additional financing, the audit reports on our financial statements at December 31, 2011 and 2010 contained a “going concern” opinion regarding doubt about our ability to continue as a going concern.

We will require additional debt or equity financing or a combination of both in order to carry out our business plan.  We have requested a rehearing of the adverse decision in the interference so additional fees and expenses may be incurred..  In carrying out our business strategy, we will likely continue to incur expenses in defending our patents and pursuing license agreements.  We plan to raise additional funds through future sales of our securities, 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.

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To obtain sufficient funds to meet our future needs for capital, we will from time to time, evaluate opportunities to raise financing through sales of our 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.

U.S. Patent #5,960,447 includes 42 claims that we believe cover an extremely broad base of features applicable to existing Automatic Speech Recognition products and markets.

U.S. Patent #7,558,730 expands an extremely broad base of features in speech recognition and transcription across heterogeneous protocols.  

U.S. Patent #7,949,534 and U.S. Patent #8,131,557 are continuations of U.S. Patent #7,558,730.   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.

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.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

Item 4.   Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer, who also is our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) and pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of September 30, 2012. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms, and that such information is accumulated and is communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on our evaluation, our chief executive officer, who also is our chief financial officer, concluded that our disclosure controls and procedures are designed at a reasonable assurance level and were fully effective as of September 30, 2012 in providing reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated  to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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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PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

The Company has been involved in a material interference proceeding conducted by the USPTO.  On April 27, 2012, a panel of the Board of Patent Appeals and Interferences ("BPAI") entered a judgment that all of the claims in Application No. 09/351,542 (i.e., the application that is involved in Interference No. 105,746 with  U.S. Patent No. 5,799,273 owned by Allvoice Developments US, LLC) are unpatentable.  AVRS filed a request for rehearing on May 29, 2012. No decision on the request has been received by AVRS.  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company issued 2,000,000 shares of restricted common stock during the three months ended September 30, 2012 for cash consideration of $100,000.  Proceeds were used for operating expenses and accounts payable. These issuances are granted based on exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”), and applicable state laws pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D.  These issuances qualified for this exemption from registration because (i) the Investors are “accredited investors” as that term is defined in Regulation D promulgated under the Securities Act; (ii) the Company did not engage in any general solicitation or advertising to market the securities; (iii) the Investors were provided the opportunity to ask questions and receive answers from the Company regarding the issuance; (iv) the securities were issued to persons with knowledge and experience in financial and business matters who are capable of evaluating the merits and risks of an investment in the Company; and (v) the Investors received “ restricted securities.”

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

INDEX

(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 March 23, 2009

(13)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 1, 2009

(14)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 14, 2009

(15)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 30, 2009

(16)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 15, 2009

(17)    Incorporated by reference from the Company’s Quarterly Report on Form 10-Q filed on November 13, 2009

(18)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 23, 2009

(19)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 13, 2009

(20)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 15, 2010

(21)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 16, 2010 

(22)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 6, 2010 

(23)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 12, 2010 

(24)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 12, 2010 

(25)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 10, 2010 

(26)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 30, 2010 

(27)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 2, 2010 

(28)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 9, 2010 

(29)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 10, 2010 

(30)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 27, 2010 

(31)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 25, 2010 

(32)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 26, 2010 

(33)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 1, 2010 

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(34)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 9, 2010 

(35)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 28, 2010 

(36)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 7, 2011 

(37)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 15, 2011 

(38)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 10, 2011 

(39)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 31, 2011 

(40)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 17, 2012

(41)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 30, 2012 

(42)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 21, 2012 

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SIGNATURES

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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