Advanced Voice Recognition Systems, Inc - Quarter Report: 2018 March (Form 10-Q)

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 May 8, 2018 253,520,268 shares of Advanced Voice Recognition Systems, Inc. common stock, $0.001 par value, were outstanding.

Advanced Voice Recognition Systems, Inc.

Table of Contents

Advanced Voice Recognition Systems, Inc.

Balance Sheets

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

Advanced Voice Recognition Systems, Inc.

Statements of Operations

(Unaudited)

 *less than $0.01 per share

Advanced Voice Recognition Systems, Inc.

Statements of Cash Flows

(Unaudited)

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

(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 140 million 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 has currently engaged a firm to investigate and asserting claims relating to certain patents including negotiating licensing agreements and the filing and prosecution of lawsuits.

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.

Stock Purchase Agreements

During the year ended December 31, 2017 the Company entered into Stock Purchase Agreements for the private sale to thirteen persons or entities of an aggregate of 13,525,000 shares of the common stock for aggregate proceeds of $60,000, full payment of which was received in the period. During the three months ended March 31, 2018, the Company entered into Stock Purchase Agreements for the private sale of an aggregate of 6,800,000 shares of the common stock for aggregate proceeds of $15,850, full payment of which was received in the period.

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.

Commitments and Contingencies

On April 20, 2015 Advanced Voice Recognition Systems, Inc. (AVRS) entered into a Material Letter Agreement with an unrelated third party  (Third Party) in which they promise to pay to patent legal counsel funds to continue prosecuting Patents on behalf of AVRS.  AVRS promises to pay to the Third Party, or to such other holder of this promissory note (Note) as designate, the principal, together with any additional amounts owed pursuant to the terms set forth in this Note.  Interest at 2% was accrued and reported at March 31, 2018.

On August 20, 2015, Advanced Voice Recognition Systems, Inc. (AVRS) entered into a letter agreement with unrelated third party (Third Party) pursuant to which the Third Party will provide strategic advisory services to AVRS to support the common goal of the acquisition, sale, licensing, prosecution, enforcement, and settlement with respect to AVRS’s intellectual property, including patents held by AVRS. The Third Party has agreed to advance costs recommended by it, including court filing fees, discovery and other litigation costs, and patent prosecution costs, up to an aggregate of $10,000,000.   AVRS will be responsible for costs not recommended by the Third Party, as well as travel and ordinary business expenses incurred by AVRS.  Except for the advanced costs by the Third Party, AVRS will be responsible for any contingency payments to law firms.  Any and all advanced costs will only become liabilities if successful.  On June 28, 2017 AVRS and the Third Party agreed to terminate the August 20, 2015 Letter Agreement.  AVRS did not incur any material early termination penalties in connection of the early termination of the agreement.

On November 1, 2016, Advanced Voice Recognition Systems, Inc. (“AVRS”) entered into a Contingent Fee Agreement (the “Agreement”) with Legal Representation pursuant to which they will represent AVRS in connection with investigating and asserting claims relating to certain patents, including the negotiation of license agreements and the filing and prosecution of lawsuits, against any potential infringers of rights associated with such patents (the “Patent Rights”)  Legal representation will handle licensing and litigation activities under the Agreement on a contingent fee basis.  The fee will depend upon whether AVRS recovers any sums by way of licensing, settlement, trial or otherwise with respect to the Patent Rights.  On June 6, 2017 AVRS and Legal Representation revised the Contingent Fee Agreement as it related to the termination of the August 20, 2015 Letter Agreement.

On November 6, 2017 Advanced Voice Recognition Systems, Inc (AVRS) received notice that Meyers & Associates, LLC filed Complaint number 2017CV32482 in Arapahoe County District Court on October 30, 2017. The Complaint relates to purported legal fees owed by AVRS.  On January 31, 2018 AVRS entered into a Settlement Agreement and Promissory Note with Meyers & Associates, LLC.  AVRS promises to pay the principal sum of Fifty-Two Thousand Three Hundred Eighty-Five Dollars and Forty-Six Cents ($52,385.46) as well as accrued interest. AVRS shall pay $1,000 per month on the first day of each month beginning February 1, 2018 and continuing through July 1, 2018 and pay all remaining unpaid principal and accrued interest (12% annual) on August 1, 2018.  The February, March April and May payments have been made.

Advanced Voice Recognition Systems, Inc (AVRS) is in discussion with two potential litigation funding sources.

Note 2.     Significant Accounting Policies

Unaudited Financial Information

The accompanying financial information at March 31, 2018 and for the three months ended March 31, 2018 and 2017 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 March 31, 2018 and its operating results for the three months ended March 31, 2018 and 2017 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, 2017.  The results of operations for the three months ended March 31, 2018 are not necessarily an indication of operating results to be expected for the year ending December 31, 2018.

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. Liabilities exceed assets and there is a capital deficiency of $262,185 and no significant revenues.  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, 2012 and 2011, 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, 2017 the Company received an aggregate of $60,000 from the sale of shares in private offerings of its common stock.  During the three months ended March 31, 2018 the Company received an aggregate of $15,850 from the sale of shares in private offerings of its common stock.

The Company’s current operations are related to patent monetization and filing of additional patents.  The Company has entered into a letter agreement with Dominion Harbor Group, LLC to provide strategic advisory services to AVRS.  Dominion has agreed to advanced costs up to an aggregate of $10,000,000. On June 28, 2017 the Company and Dominion agreed to terminate August 20, 2015 Letter Agreement.  The Company did not incur any material early termination penalties.  In addition the Company has revised the Contingent Fee Agreement with Buether Joe & Carpenter, LLC which will represent AVRS in connection with investigating and asserting claims to the AVRS patents including licensing and litigation activities. Any and all advanced costs will only become liabilities if successful.  On June 6, 2017 AVRS and BJC revised the Contingent Fee Agreement as it related to the termination of the August 20, 2015 Dominion Harbor Letter Agreement. AVRS is working with BJC to secure the funding for pending litigation.  There is no guarantee that these efforts will be successful or be able to provide the capital required for the Company to continue as a going concern.

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

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 March 31, 2018 of $8,365, $7,257 at December 31, 2017 and $8,595 cash at March 31, 2017.  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.

Research and Development Costs

Research and development costs are expensed in the period incurred.

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. Deferred costs at March 31, 2018 and December 31, 2017 were $4,575 and $3,595 respectively.  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, 2017.  Impairment recorded for each of the three months ended March 31, 2018 and 2017 was $-0-.

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 March 31, 2018 and 2017, 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.

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.

Note 3.     Intangible and Fixed Assets

Intangible Assets

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 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 U.S. Patent #5,960,447, “Word Tagging and Editing System for Speech Recognition”. In accordance with 35 U.S.C. 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 expired on November 13, 2015.

On July 7, 2009, U.S. Patent # 7,558,730, entitled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols,” was issued by the U.S. Patent and Trademark Office.  In accordance with 35 U.S.C. 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, or 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 U.S. Patent and Trademark Office declared interference between the Company as Senior Party and Allvoice Developments, US LLC as Junior Party.  Due to the absence of a decision by the end of 2010, in the fourth quarter of 2010, AVRS impaired 100% of the deferred costs associated with the interference, resulting in a $1,068,860 impairment loss.  On April 27, 2012, the BPAI entered a judgment denying the Company’s motions.  On May 29, 2012, AVRS filed a Request for Rehearing in the BPAI.  On December 19, 2012, the BPAI entered a judgment denying the request for rehearing.  The Company decided not to appeal as additional litigation would be costly and time-consuming and would divert the attention of management and key personnel from business operations.

On May 24, 2011, U.S. Patent #7,949,534, entitled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols,” was issued by the U.S. Patent and Trademark Office. In accordance with 35 U.S.C. 154, the patent shall be for a term beginning May 24, 2011 and ending 20 years from the application date of the parent application (U.S. Patent #7,558,730) of November 27, 2001, or November 27, 2021.  The deferred fees were capitalized during the quarter ended June 30, 2011 and the Company began amortization.

On March 6, 2012, U.S. Patent #8,131,557, entitled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols,” was issued by the U.S. Patent and Trademark Office.  In accordance with 35 U.S.C. 154, the patent shall be for a term beginning March 6, 2012 and ending 20 years from the application date of the parent application (U.S. Patent #7,558,730) of November 27, 2001, or November 27, 2021.  The deferred fees were capitalized during the quarter ended March 31, 2012 and the Company began amortization.

On July 30, 2013, U.S. Patent #8,498,871, entitled “Dynamic Speech Recognition and Transcription Among Users Having Heterogeneous Protocols,” was issued by the U.S. Patent and Trademark Office. In accordance with 35 U.S.C. 154, the patent shall be for a term beginning on July 30, 2013 and ending 20 years from the application date of November 27, 2001, or November 27, 2021.  The deferred fees were capitalized during the quarter ended September 30, 2013 and the Company began amortization.

On June 27, 2013, the Company filed two additional continuation applications 13/928/381 and 13/928,383 with the U.S. Patent and Trademark Office entitled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols.”  On August 31, 2015, Application 13/928,381 was abandon by the Company.  Deferred costs were charged to operations the quarter ended September 30, 2015.

On August 10, 2015, the Company filed a continuation application, 14/821,786 with the U.S. Patent and Trademark Office.  Costs of $1,484.67 were deferred during the third quarter of 2015. On January 6, 2017 application 14/821,786 was abandon and application 15/400,732 was filed.  Deferred costs of $1,484.67 were transferred to the current application.  In the period ending March 31, 2018 and December 31, 2017 $980 and $2110 accrued respectively.  Costs will be capitalized in the period that the patent is issued.

On September 22, 2015, U.S. Patent #9,142,217, entitled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols,” was issued by the U.S. Patent and Trademark Office. In accordance with 35 U.S.C. 154, the patent shall be for a term beginning September 22, 2015 and ending 20 years from the application date of the parent application (US Patent No. 7,558,730) of November 27, 2001, or November 27, 2021.  The deferred fees were capitalized during the quarter ended September 30, 2015 and the Company began amortization.

Amortization at March 31, 2018 is as follows:

SCHEDULE OF INTANGIBLE ASSETS

Amortization expense totaled $3,364 for the three months ended March 31, 2018 and 2017.  Estimated aggregate amortization expense for each of the next four years is as follows:

SCHEDULE OF FUTURE AMORTIZATION

Fixed Assets

Fixed assets were fully depreciated in the period ending December 31, 2017. 

PROPERTY PLANT AND EQUIPMENT

Note 4.     Related Party Transactions

Related Parties Transactions and Indebtedness

During the years from 2000 through 2013, certain officers advanced the Company working capital to maintain the Company’s operations. The Company owed the officers $-0- at March 31, 2018 and 2017.  The Company also owed the officers aggregate of $162,382 at March 31, 2018 and December 31, 2017 for accrued payroll.  During the period of three months ending March 31, 2018, and March 31, 2017 the Company paid gross payroll of $69 and $3,325 to the CEO and for payroll expenses.  During the three month period ending March 31, 2018, AVRS completed Stock Purchase Agreements totaling 6,800,000 shares of AVRS stock to one shareholder.  All shares were paid in the period ending March 31, 2018, for a total amount of 15,850.  Prior to the purchase the shareholder owned 1.49% of the issued and outstanding stock. At period ending March 31, 2018 the shareholder owned 4.16% of the issued and outstanding stock. 

Note 5.     Income Taxes

A reconciliation of the U.S. statutory federal income tax rate to the effective rate is as follows.

INCOME TAXES

The Company is considered a start-up company for income tax purposes. As of March 31, 2018, 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 March 31, 2018.

Note 6 .    Concentration of Risk

Beginning March 31, 2010, through March 31, 2018, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of $250,000, at all FDIC-insured institutions.  On March 31, 2018, the Company had cash balances at one FDIC insured financial institution of $8,365 in non-interest bearing accounts that were fully insured by the FDIC.

Note 7.                   Stockholder Equity / (Deficit)

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

Note 8 .    Subsequent Events

AVRS, in conjunction with legal representative Buether, Joe & Carpenter, LLC have identified and are in discussion with two separate litigation funding sources.  When an agreement is finalized it will replace the terminated financing Agreement with Dominion Harbor Group.

Subsequent to the period end, the Company entered into two Stock Purchase Agreements for 2,800,000 restricted shares of Company stock.

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. We are currently engaged in discussions with firms that could assist us in commercialization of our intellectual assets.

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.

At March 31, 2018, we had current assets of $8,365, and current liabilities of $324,965, as compared to $7,257 current assets and $314,800 in current liabilities at December 31, 2017. Our increase in current assets is attributed to increased sales of shares of our common stock. Our increase in current liabilities primarily is due to accrued interest on notes payable.

We had a net loss of $27,291 and $34,969 for the three months ended March 31, 2018 and 2017 respectively. The decrease in net loss is attributable to reduced professional fees incurred in the three months ended March 31, 2018.

Liquidity and Capital Resources

For the three months ended March 31, 2018, we used $13,762 ofcash in operating activities and $980 of cash in investing activities, and we received $15,850 cash from sales of our common stock. As a result, for the three months ended March 31, 2018, we recognized a $1,108 increase in cash on hand. For the three months ended March 31, 2017, 13,859 cash was used in operating activities, $-0- cash in investing activities, and we received $13,000 cash from the sale of our common and stock, resulting in a $859 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. At March 31, 2018 and December 31, 2017, we owed our officers an aggregate of $162,382 for accrued payroll.  Because of our history of losses, and lack of assurance of additional financing, the audit reports on our financial statements at December 31, 2017 and 2016 contained a “going concern” opinion regarding doubt about our ability to continue as a going concern.

On March 16, 2015 we entered into a letter agreement with Adapt IP Ventures, LLC (Adapt IP) confirming the retention of Adapt IP to assist us in identifying companies that might be interested in acquiring and / or licensing our patents, to attempt to negotiate financial terms and conditions for acquisition and / or licensing and to assist with collection of compensation from such entities.  Adapt IP will receive a success fee of 15% of net compensation received from such entities based upon Adapt IP’s efforts.  We or Adapt IP may terminate the agreement upon 30 days’ notice to the other party.

On April 20, 2015 we made a Promissory Note to Adapt IP for up to $20,000, and Adapt IP agreed to pay to our patent counsel $19,935 for patent work on our behalf.  The Note matures one year from the date of the Note.  We are obligated to repay the funds advanced by Adapt IP plus a premium of 10% of the principal amount and a percentage of proceeds received by us from any monetization event involving the patents.  If we repay the Note within the six months of the date of the Note, the percentage will be 1%, and it will be 2% after six months.  As of March 31, 2018 $6,479 interest has accrued.

On August 20, 2015, AVRS entered into a letter agreement with Dominion Harbor Group, LLC pursuant to which Dominion will provide strategic advisory services to AVRS to support the common goal of the acquisition, sale, licensing, prosecution, enforcement, and settlement with respect to AVRS’s intellectual property, including patents held by AVRS. On June 28, 2017 AVRS and Dominion agreed to terminate the August 20, 2015 Letter Agreement.  AVRS did not incur any material early termination penalties in connection of the early termination of the agreement.

On November 1, 2016, AVRS entered into a Contingent Fee Agreement with Buether Joe and Carpenter, LLC to represent AVRS in connection with investigating and asserting claims including negotiating license agreements and the filing and prosecution of lawsuits against any potential infringers of the Patent rights. On June 6, 2017 AVRS and Buether Joe and Carpenter, LLC revised the Contingent Fee Agreement as it related to the termination of the August 20, 2015 Dominion Harbor Letter Agreement.

Currently the Company is in discussion with two potential litigating funding sources.

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 or other means, 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 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.

We have increased our efforts to monetize our assets.  We are currently engaged in discussion with certain firms dedicated to assisting in the commercialization of intellectual assets

U.S. Patent #7,558,730 expands an extremely broad base of features in speech recognition and transcription across heterogeneous protocols.  Costs totaling $58,277 have been capitalized and amortization began in the third quarter 2009.

U.S. Patent #7,949,534 is an expansion of the coverage of our second patent and incorporates speech recognition and transcription among transcription engines employing incompatible protocols.  Costs totaling $3,365 have been capitalized and amortization began in the second quarter 2011.

U.S. Patent #8,131,557 is an expansion of our second and third patent.  Costs totaling $5,092 have been capitalized and amortization began in the first quarter 2012.

U.S. 8,498,871 titled “Dynamic Speech Recognition and Transcription Among Users Having Heterogeneous Protocols” was issued July 30, 2013 by the U.S. Patent and Trademark Office. Costs totaling $21,114 have been capitalized and amortization began in the third quarter 2013.

On September 22, 2015, Patent #9,142,217 titled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols” (an expansion of our fourth patent) was issued by the U.S. Patent and Trademark Office.  In accordance with 35 U.S.C. 154, the patent shall be for a term beginning September 22, 2015 and ending 20 years from the application date of the parent application (U.S. Patent No 7,558,730) of November 27, 2001, or November 27, 2021.  Costs totaling $35,068 have been capitalized and amortization began in the third quarter 2015.

On August 10, 2015 continuation application 14/821,786 was filed with the U.S. Patent and Trademark Office.  Costs of $1,484.67 were deferred during the third quarter of 2015.  On January 6, 2017 Patent Application 14/821,786 was abandon and replaced with Patent Application 15/400,732 and deferred costs were transferred.  On November 22, 2017 AVRS received a Notice of Allowance for Application 15/400,732.  The Patent will issue April 3, 2018 and deferred fees will be capitalized in the second quarter 2018.

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.

Off-Balance Sheet Arrangements

On August 20, 2015, Advanced Voice Recognition Systems, Inc. (AVRS) entered into a letter agreement with Dominion Harbor Group, LLC (Dominion) pursuant to which Dominion will provide strategic advisory services to AVRS to support the common goal of the acquisition, sale, licensing, prosecution, enforcement, and settlement with respect to AVRS’s intellectual property, including patents held by AVRS. Dominion has agreed to advance costs recommended by it, including court filing fees, discovery and other litigation costs, and patent prosecution costs, up to an aggregate of $10,000,000.   AVRS will be responsible for costs not recommended by Dominion, as well as travel and ordinary business expenses incurred by AVRS.  Except for the advanced costs by Dominion, AVRS will be responsible for any contingency payments to law firms.  On June 28, 2017 AVRS and Dominion agreed to terminate the August 20, 2015 Letter Agreement.  AVRS did not incur any material early termination penalties in connection of the early termination of the agreement.

On November 1, 2016, Advanced Voice Recognition Systems, Inc. (“AVRS”) entered into a Contingent Fee Agreement (the “Agreement”) with Buether Joe & Carpenter, LLC (“BJC”) pursuant to which BJC will represent AVRS in connection with investigating and asserting claims relating to certain patents, including the negotiation of license agreements and the filing and prosecution of lawsuits, against any potential infringers of rights associated with such patents (the “Patent Rights”)  BJC will handle licensing and litigation activities under the Agreement on a contingent fee basis.  BJC’s fee will depend upon whether AVRS recovers any sums by way of licensing, settlement, trial or otherwise with respect to the Patent Rights.  On June 6, 2017 AVRS and BJC revised the Contingent Fee Agreement as it related to the termination of the August 20, 2015 Dominion Harbor Letter Agreement.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are 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 December 31, 2017. 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 March 31, 2018 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.

On November 6, 2017 Advanced Voice Recognition Systems, Inc (AVRS) received notice that Meyers & Associates, LLC filed Complaint number 2017CV32482 in Arapahoe County District Court on October 30, 2017. The Complaint relates to purported legal fees owed by AVRS.  On January 31, 2018 AVRS entered into a Settlement Agreement and Promissory Note with Meyers & Associates, LLC.  AVRS promises to pay the principal sum of Fifty-Two Thousand Three Hundred Eighty-Five Dollars and Forty-Six Cents ($52,385.46) as well as accrued interest. AVRS shall pay $1,000 per month on the first day of each month beginning February 1, 2018 and continuing through July 1, 2018 and pay all remaining unpaid principal and accrued interest on August 1, 2018.  The February, March, April and May payments have been made.

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 Quarterly Report on Form 10-Q filed on February 14, 2008.

(6)     Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 21, 2008.

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

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

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

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

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

(12)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 26, 2012 

(13)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 28, 2012 

(14)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 31, 2013 

(15)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 18, 2013 

(16)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 22, 2013 

(17)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 2, 2013 

(18)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 26, 2013 

(19)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 6, 2013 

(20)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 25, 2013 

(21)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 7, 2013 

(22)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 28, 2013 

(23)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 1, 2013 

(24)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 16, 2013 

(25)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 29, 2014 

(26)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 20, 2014 

(27)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 25, 2014 

(28)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 13, 2014 

(29)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 14, 2014 

(30)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 23, 2014 

(31)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 27, 2014 

(32)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 20, 2014 

(33)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 14, 2014 

(34)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 10, 2014 

(35)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 2, 2014 

(36)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 12, 2015 

(37)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 20, 2015 

(38)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 23, 2015 

(39)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 23, 2015 

(40)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 8, 2015 

(41)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 5, 2015 

(42)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 21, 2015 

(43)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 28, 2015 

(44)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 4, 2015 

(45)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 2, 2015 

(46)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 19, 2015 

(47)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 19, 2015 

(48)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 2, 2015 

(49)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 25, 2016

(50)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 23, 2016

(51)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 1, 2016

(52)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 14, 2016

(53)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 14, 2016

(54)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 22, 2016 

(55)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 19, 2016 

(56)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 17, 2016 

(57)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 25, 2016 

(58)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 7, 2016 

(59)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 21, 2016 

(60)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 14, 2016 

(61)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 13, 2017 

(62)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 8, 2017 

(63)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 27, 2017 

(64)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 3, 2017 

(65)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 28, 2017 

(66)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 4, 2017 

(67)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 18, 2017

(68)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 4, 2017 

(69)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 4, 2017 

(70)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 8, 2017

(71)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 8, 2017  

(72)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 22, 2017

(73)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 28, 2017  

(74)    Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 27, 2017

(75)   Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 13, 2017

(76)   Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 21, 2017

(77)   Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 23, 2018

(78)   Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 23, 2018

(79)   Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 9, 2018

(80)   Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 21, 2018

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.