|
|
462.01
|
8.89
|
1804.925
|
0.255
|
2.92
|
55.09
|
0.345
|
0.153
|
0001010412-01-500204SB-2 WIZZARD SOFTWARE CORP /CO 2001102620011026155538155517155517 0
0001010412-01-500204
SB-2
26
20011026
WIZZARD SOFTWARE CORP /CO
0001074909
8200
870575577
CO
1231
SB-2
33
333-72276
1767656
000 XXXX XXX
XXXXXXXXXX
XX
00000
8014241624
0000 XXXXX XXXXXXXX XX. XXXXX X
XXXX XXXX XXXX
XX
00000
BALANCED LIVING INC
19981208
SB-2
1
sb2.txt
As filed with the Securities and Exchange Commission on October 25, 2001.
==============================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WIZZARD SOFTWARE CORPORATION
----------------------------
(Name of small business issuer in its charter)
Colorado 7372 00-0000000
-------- ---- ---------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
000 Xxxx Xxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
(412) 621-0902
--------------
(Address and telephone number of principal executive offices)
000 Xxxx Xxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
------------------------------
(Address of principal place of business
or intended principal place of business)
Xxxxxxxxxxx X. Xxxxxxx
000 Xxxx Xxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
(412) 621-0902
--------------
(Name, address and telephone number of agent for service)
Copies to:
Xxxxxxx X. Xxxxxxxxxx, Esq.
000 Xxxx 000 Xxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
(801) 363-7411
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
==============================================================================
CALCULATION OF REGISTRATION FEE
Title of
Each Proposed Proposed
Class of Maximum Maximum
Securities Amount of Offering Aggregate Amount of
to be shares to be Price per Offering Registration
Registered Registered Share (1) Price (1) Fee
==============================================================================
Common Stock (1) 4,649,238 $1.65 $ 7,671,242 $1,917.81
Common Stock (1)(2)(3) 100,000 $0.82 $ 82,000 $ 20.50
Common Stock (1)(2)(4) 40,000 $0.25 $ 10,000 $ 2.50
Common Stock (1)(2)(5) 500,000 $0.50 $ 250,000 $ 62.50
Common Stock (1)(2)(6) 675,000 $1.00 $ 675,000 $ 168.75
Common Stock (1)(2)(7) 65,000 $1.25 $ 81,250 $ 20.31
Common Stock (1)(2)(8) 408,076 $1.50 $ 612,114 $ 153.03
Common Stock (1)(2)(9) 600,000 $2.00 $ 1,200,000 $ 300.00
TOTALS 7,037,314 $10,581,606 $2,645.40
==============================================================================
(1) These shares are registered on behalf of the selling stockholders and the
offering price and gross offering proceeds are estimated solely for the
purpose of calculating the registration fee in accordance with Rule 457
under the Securities Act on the basis of the average of the bid and asked
prices of our common stock as quoted on the OTC Electronic Bulletin Board of
the National Association of Securities Dealers, Inc. or the NASD on the
business day immediately prior to the filing of this registration statement.
(2) In accordance with Rule 416 promulgated under the Securities Act, a
presently undeterminable number of shares of common stock are also being
registered hereunder which may be issued in the event that the anti-dilution
provisions of our warrants becomes operative.
(3) Represents the maximum number of shares issuable to Xxxxxxx X. Xxxxxxxxxx,
Esq. for legal services rendered and to be rendered during fiscal 2001 at 50%
of the last five day average bid prices of our common stock at the end of each
monthly billing cycle.
(4) Represents shares issuable upon the exercise of warrants issued by us
having an exercise price of $0.25 per share as outlined in our warrant table
in the description of our securities.
(5) Represents the maximum number of shares issuable upon the conversion of
$250,000 in Series 2001-A Eight Percent (8%) Convertible Notes as outlined in
our description of securities.
(6) Represents shares issuable upon the exercise of warrants issued by us
having an exercise price of $1.00 per share as outlined in our warrant table.
(7) Represents shares issuable upon the exercise of warrants issued by us
having an exercise price of $1.25 per share as outlined in our warrant table.
(8) Represents shares issuable upon the exercise of warrants issued by us
having an exercise price of $1.50 per share as outlined in our warrant table.
(9) Represents shares issuable upon the exercise of warrants issued by us
having an exercise price of $2.00 per share as outlined in our warrant table.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
CROSS REFERENCE SHEET
Form SB-2 Item No. and Caption Prospectus Caption
------------------------------ ------------------
Item 1. Front of Registration Statement and Outside Front Cover
Outside Front Cover Page of Prospectus
Item 2. Inside Front and Outside Back Cover Pages Inside Front and Outside
of Prospectus Back Cover Pages
Item 3. Summary Information and Risk Factors Prospectus Summary; Risk
Factors
Item 4. Use of Proceeds Use of Proceeds
Item 5. Determination of Offering Price Outside Front Cover
Item 6. Dilution Dilution
Item 7. Selling Security Holders Selling Stockholders
Item 8. Plan of Distribution Outside Front Cover Page;
Plan of Distribution
Item 9. Legal Proceedings Legal Proceedings
Item 10.Directors, Executive Officers, Promoters Directors, Executive
and Control Persons Officers, Promoters
and Control Persons
Item 00.Xxxxxxxx Ownership of Certain Beneficial Security Ownership of
Owners and Management Certain Beneficial
Owners and Management
Item 12.Description of Securities Outside Front Cover Page;
Description of Securities
Item 13.Interest of Named Experts and Counsel Interest of Named Experts
and Counsel
Item 14.Disclosure of Commission Position on Disclosure of Commission
Indemnification for Securities Act on Indemnification for
Liabilities Securities Act
Liabilities
Item 15.Organization Within the Last Five Years Description of Business
Item 16.Description of Business Prospectus Summary;
Description of Business
Item 00.Xxxxxxxxxx's Discussion and Analysis Management's Discussion
or Plan of Operation and Analysis or Plan of
Operation
Item 18.Description of Property Prospectus Summary;
Description of Business;
Item 19.Certain Relationships and Certain Relationships and
Transactions Related Transactions
Item 00.Xxxxxx for Common Equity and Related Market for Common Equity
Stockholder Matters and Related Stockholder
Matters
Item 21.Executive Compensation Executive Compensation
Item 00.Xxxxxxxxx Statements Financial Statements
Item 23.Changes in and Disagreements with Not Applicable
Accountants on Accounting
and Financial Disclosure
PROSPECTUS
WIZZARD SOFTWARE CORPORATION
7,037,314 Shares of Common Stock Offered by Selling Stockholders
This prospectus covers an aggregate of 7,037,314 shares of our common
stock that the selling stockholders may sell. We have filed it with the
Securities and Exchange Commission as part of a registration statement that
you may examine in the Securities and Exchange Commission's XXXXX Archives.
Our common stock is quoted on the OTC Bulletin Board of the NASD under
the symbol "WIZD." On October 25, 2001, the day of the filing of this
registration statement, the average trading price of our common stock as
quoted on the OTC Bulletin Board was $1.65.
These securities involve a high degree of risk. See the caption "Risk
Factors," beginning on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved any of these securities or passed upon
the adequacy or accuracy of the prospectus. Any representation to the
contrary is a criminal offense.
The date of this prospectus is __________, 2001.
1
TABLE OF CONTENTS
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Forward-Looking Information . . . . . . . . . . . . . . . . . . . . . .14
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Determination of Offering Price and Dilution. . . . . . . . . . . . . .15
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . 15
Lock-Up/Leak-Out and Other Resale Limitations . . . . . . . . . . . . .19
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 22
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Directors, Executive Officers, Promoters and Control Persons . . . . . 24
Security Ownership of Certain Beneficial Owners and Management . . . . 28
Description of Securities . . . . . . . . . . . . . . . . . . . . . . .30
Interest of Named Experts and Counsel . . . . . . . . . . . . . . . . .36
Disclosure of Commission Position on Indemnification for Securities . .36
Act Liabilities
Description of Business . . . . . . . . . . . . . . . . . . . . . . . 37
Management's Discussion and Analysis or Plan of Operation . . . . . . .46
Certain Relationships and Related Transactions . . . . . . . . . . . . 48
Market for Common Equity and Related Stockholder Matters . . . . . . . 48
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 50
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 51
Changes in and Disagreements with Accountants on Accounting and . . . .105
Financial Disclosure
Available Information . . . . . . . . . . . . . . . . . . . . . . . . .105
Dealer Prospectus Delivery Obligations . . . . . . . . . . . . . . . . 105
2
PROSPECTUS SUMMARY
WIZZARD SOFTWARE CORPORATION
----------------------------
The Company
-----------
You should carefully read our entire prospectus and consolidated
financial statements and related notes. Unless the context requires
otherwise, "we," "us," "our" and similar terms, as well as references to
"Wizzard," refer to Wizzard Software Corporation, a Colorado corporation, and
our 96%-owned subsidiary, Wizzard Software Corporation, a Delaware
corporation, or "Wizzard Delaware." We became a successor to the business
operations of Wizzard Delaware following the completion of a reorganization on
February 7, 2001.
Our business includes computer products that focus on speech recognition
technology to make computers listen and respond to users through verbal
communications.
Our principal executive offices consist of approximately 3,500 square
feet of office space located at 000 Xxxx Xxx, Xxxxxxxxxx, Xxxxxxxxxxxx. Our
telephone number is (000) 000-0000. We also maintain a research and
development facility consisting of approximately 1,000 square feet at 0000
Xxxxxxx Xxxxxx, in Pittsburgh, Pennsylvania.
The Offering
------------
Securities offered by us . . . .None.
Securities that may be sold
by our stockholders . . . . . . 7,037,314 shares of our common stock.
Use of proceeds . . . . . . . . We will not receive any money from the
selling stockholders when they sell shares of
our common stock; however, we may receive up
to $2,578,364 from the exercise of
outstanding warrants to acquire shares
underlying warrants that are being registered
and legal services for up to 100,000 shares
valued at 50% of the last five day average bid
prices of our common stock at the end of each
monthly billing cycle. As of the date of this
prospectus, none of these warrants had been
exercised, and none of these shares had been
issued.
Offering Price . . . . . . . . .Market prices prevailing at the time of sale,
at prices related to the prevailing market
prices, at negotiated prices or at fixed
prices, all of which may change.
Transfer Agent . . . . . . . . .Interwest Transfer Company, 0000 Xxxx Xxxxxx-
Xxxxxxxx Xxxx, Xxxx Xxxx Xxxx, Xxxx 00000,
Telephone No. 000-000-0000, serves as the
3
transfer agent and registrar for our
outstanding securities.
We have agreed to pay all costs and expenses relating to the registration
of our common stock. The selling stockholders will only be responsible for
any commissions, taxes, attorney's fees and other charges relating to the
offer or sale of these securities. The selling stockholders may sell their
common stock through one or more broker/dealers, and these broker/dealers may
receive customary compensation in the form of underwriting discounts,
concessions or commissions from the selling stockholders as they shall agree.
RISK FACTORS
------------
Our present and intended business operations are highly speculative and
involve substantial risks. Only investors who can bear the risk of losing
their entire investment should consider buying our shares. Among the risk
factors that you should consider are the following:
We Face Risks Related to Our Business
-------------------------------------
We have a history of losses and expect to incur losses in the future, and
we may never achieve profitability.
-----------------------------------
We had a net loss for the six months ended June 30, 2001, of $(401,509),
a decrease of $318,547 or 44% as compared with $(720,056) for the six month
ended June 30, 2000. Losses for the year ended December 31, 2000, were
$(1,382,243) on revenues of $189,625, compared to losses of $(626,253) on
revenues of $241,601 for the year ended December 31, 1999. We have not
generated significant revenues from operations because we have only recently
commercially released our speech recognition programming tools and our
Interactive Voice Assistant product, or IVA. We have not achieved
profitability in the course of our pre-commercial development activities for
our speech recognition programming tools or IVA applications and other speech
recognition products, and we expect to continue to incur net losses for at
least the balance of fiscal 2001. Because we need to establish our brand and
service, we expect to incur increasing sales and marketing, product
development and administrative expenses. As a result, we will need to
generate significant revenues to achieve and maintain profitability. We
cannot assure you that we will ever be able to operate profitably.
Also, the value of our common stock underlying our warrants issued for
services, and any difference between the determined value of our shares of
common stock and the exercise price of our warrants on the dates of our grants
of warrants for services will be an expense against our income, further
affecting our outlook for profitability.
We cannot accurately forecast our future revenues and operating results,
which may fluctuate.
--------------------
Our short operating history and the rapidly changing nature of the
market in which we compete make it difficult to accurately forecast our
revenues and operating results. Furthermore, we expect our revenues and
operating results to fluctuate in the future due to a number of factors,
including the following:
4
* the timing of sales of our products and services;
* the timing of product implementation, particularly large
design projects;
* unexpected delays in introducing new products and services;
* increased expenses, whether related to sales and marketing,
product development, or administration;
* deferral of revenue recognition in accordance with applicable
accounting principles, due to the time required to complete
projects;
* the mix of product license and services revenue; and
* costs related to possible acquisitions of technology or
businesses.
Because the voice-recognition business is in its infancy, our prospects
are even more uncertain.
------------------------
We face the difficulties frequently encountered by companies in the
early stage of development in new and evolving markets. These potential
difficulties include the following:
* substantial delays and expenses related to testing and
developing of our new products;
* marketing and distribution problems with new and existing
products and technologies;
* competition from larger and more established companies;
* delays in reaching our marketing goals;
* difficulty in recruiting qualified employees for management
and other positions;
* our lack of sufficient customers, revenues and cash flow; and
* our limited financial resources.
We may continue to face these and other difficulties in the future. Some
of these problems may be beyond our control. If we are unable to successfully
address them, our business will suffer.
We have not yet shown that our speech recognition technologies are
commercially viable.
--------------------
Wizzard, in assessing our future potential, places great importance on
the successful development of our speech recognition programming tools and our
IVA product and other speech recognition application technologies. These
technologies are still in their early stages. They have only recently become
marketable and have been made generally available only in their intended
market. We have not yet demonstrated that our products can attract sufficient
5
commercial interest or, if they do, that we can market them successfully.
Competitors with far greater financial resources than we have may create and
market competing products. If management's expectations for our products do
not materialize for any reason, our overall expectations will be seriously
compromised.
If we do not achieve the brand recognition necessary to succeed in the
speech recognition technology markets, our business will suffer.
----------------------------------------------------------------
We must quickly build our Wizzard brand to gain market acceptance for
speech recognition programming tools and our IVA and other speech recognition
products and services. We believe that our long-term success will require
that we obtain significant market share for our products and services before
other competitors enter the market. We must spend large amounts on product
development, strategic relationships and marketing initiatives in order to
establish our brand awareness. We cannot be certain that we will have enough
resources to build our brand and to obtain commercial acceptance of our
products and services. If we do not gain market acceptance for our speech
recognition programming tools, our IVA and related speech recognition
products, our business will suffer dramatically.
If we do not expand our product and service offerings, our business may
not grow.
---------
We have pursued, and may continue to pursue, strategic alliances with
new or complementary businesses in an effort to enter into new business
areas, diversify our sources of revenue and expand our speech recognition
applications products and services. If we pursue strategic alliances with new
or complementary businesses, we may not be able to expand our product or
service offerings and related operations in a cost-effective or timely way.
We may experience increased costs, delays and diversions of management's
attention when beginning any new businesses or services. Also, any new
business or service that users do not favorably receive could damage our
reputation and brand name in the speech recognition applications technology
markets. We also cannot be certain that we will get enough revenues from any
expanded products or services to offset related costs. Any expansion of our
operations may require additional expenses. These efforts may strain our
management, financial and operational resources.
If we cannot effectively manage our growth, our ability to provide
products and services will suffer.
----------------------------------
We have a limited basis upon which to evaluate our systems' ability to
handle controlled or full commercial availability of our products and
services. We anticipate that we will expand our operations significantly
in the near future, and we will have to expand further to address the
anticipated growth in our user base and market opportunities. To manage the
expected growth of operations and personnel, we will need to improve existing,
and implement new, systems, procedures and controls. In addition, we will
need to expand, train and manage an increasing employee base. We will also
need to expand our finance, administrative and operations staff. We may not
be able to effectively manage this growth. Our planned expansion in the near
future will place, and we expect our future expansion to continue to place, a
significant strain on our managerial, operational and financial resources.
Our planned personnel, systems, procedures and controls may be inadequate to
6
support our future operations. If we can not manage growth effectively
or if we experience disruptions during our expansion, our business will suffer
and our financial condition and results of operations will be seriously
affected.
We may be unable to obtain component products from our vendors.
---------------------------------------------------------------
We purchase major components of our products from outside suppliers. At
any given time we may find ourselves unable to obtain those components, which
could prevent us from meeting customer demand.
If we can not compete successfully, our revenues and operating results
will suffer.
------------
The market for computer software, and specifically speech recognition
technology products and services is highly competitive. Current competitors
include One Voice Technologies, MindMaker and IBM. In addition, competitors
may be developing speech recognition products and services that we may not be
aware of. Many of our current and potential competitors have much greater
financial, technical, marketing, distribution and other resources. They also
have greater name recognition and market presence, longer operating histories
and lower cost structures than we have. As a result, they may be able to
adapt more quickly to new or emerging technologies and changes in customer
requirements. Our ability to compete successfully in the rapidly evolving
speech recognition market will depend upon certain factors, many of which are
beyond our control and that may affect our ability to compete successfully.
We may also face competition from a number of indirect competitors that
specialize in electronic commerce and other companies with substantial
customer bases in the computer field and other technical fields.
Additionally, companies that control access to transactions through a network
or Web browser could promote our competitors or charge us a substantial fee
for similar access or promotion. Our competitors may also be acquired by,
receive investments from or enter into other commercial relationships with
larger, better-established and better-financed companies as use of speech
recognition products and services increases.
We may be unable to compete successfully against current and potential
competitors, and the competitive pressures we face could seriously harm our
business.
Our business would be seriously impaired if our rights in our technology
were compromised in any way.
----------------------------
Wizzard licenses the speech recognition engines upon which its products
operate from Dragon, Lernout & Hauspie, Philips, IBM and Microsoft. We rely
on non-disclosure, confidentiality and non-competition agreements with our
employees to protect many of our rights in our technology. If our employees
breach these agreements, we may incur significant expenses to enforce our
contractual restrictions and protect our rights. Management believes that
Wizzard has proprietary rights to its products, including copyright and
trademark protection that will discourage others from replicating our
products. However, while we have sought patent protection for certain
proprietary components of our speech recognition programming tools, our IVA
and other speech recognition application technologies, we have not obtained
7
opinions from independent intellectual property counsel that the copyrights
and trademarks are valid or, if valid, that their issuance, together with such
other proprietary rights that we own will be sufficient to protect us from
those who would try to capitalize on our success through imitation. Our
patent applications remain pending at this point. Our business plan and
strategy are to commercialize various speech recognition application
technologies. Termination of our relationship by our licensors of speech
recognition engines for any reason, or unauthorized disclosure of our
application technologies to third parties, would cause serious harm to our
business, financial position and results of operations.
We depend on five primary suppliers for software integrated into our
system, and the loss of any could adversely affect our business.
----------------------------------------------------------------
Dragon, Lernout & Hauspie, Philips, IBM and Microsoft supply the primary
speech recognition engines that are used with our products. We cannot
guarantee that we will be able to continue to license these speech recognition
engines after the current licenses expire or that alternative speech
recognition engines appropriate for use with our products will be available at
that time. If we can not retain these or comparable licenses, we may be
unable to produce our products.
We may unintentionally infringe on the proprietary rights of others.
--------------------------------------------------------------------
Many software companies bring lawsuits alleging violation of intellectual
property rights. In addition, a large number of patents have been awarded in
the voice-recognition area. Although we do not believe that we are infringing
any patent rights, patent holders may claim that we are doing so. Any such
claim would likely be time-consuming and expensive to defend, particularly if
we are unsuccessful, and could prevent us from selling products or services.
We may also be forced to enter into costly and burdensome royalty and
licensing agreements.
If we do not respond effectively to technological change, our products
and services could become obsolete and our business will suffer.
----------------------------------------------------------------
The development of our products and services and other technology entails
significant technical and business risks. To remain competitive, we must
continue to improve our products' responsiveness, functionality and features.
High technology industries are characterized by:
* rapid technological change;
* changes in user and customer requirements and preferences;
* frequent new product and services introductions embodying new
technologies; and
* the emergence of new industry standards and practices.
The evolving nature of the Internet could render our existing technology
and systems obsolete. Our success will depend, in part, on our ability to:
* license or acquire leading technologies useful in our
business;
8
* develop new services and technologies that address our users'
increasingly sophisticated and varied needs; and
* respond to technological advances and emerging industry and
regulatory standards and practices in a cost-effective and
timely way.
Future advances in technology may not be beneficial to, or compatible
with, our business. Furthermore, we may not use new technologies effectively
or adapt our technology and systems to user requirements or emerging industry
standards in a timely way. In order to stay technologically competitive, we
may have to spend large amounts of money and time. If we do not adapt to
changing market conditions or user requirements in a timely way, our business,
financial condition and results of operations could be seriously harmed.
We may fail to develop new products, or we may incur unexpected expenses
or delays.
----------
Although we currently have fully developed products available for sale,
we are also developing various products and technologies that we will rely on
to remain competitive. Due to the risks in developing new products and
technologies, limited financing, competition, obsolescence, loss of key
personnel and other factors, we may fail to develop these technologies and
products, or we may experience lengthy and costly delays in doing so.
Although we may be able to license some of our technologies in their current
stage of development, we cannot assure you that we will be able to do so.
Our technologies and products could contain defects.
----------------------------------------------------
Voice-recognition products are not currently accurate in every instance,
and may never be. We could inadvertently release products and technologies
that contain defects. In addition, third-party technology that we include in
our products could contain defects. Even though our licensing agreement with
users contains language that is intended to protect us from liability for
defects, clients who are not satisfied with our products or services could
bring claims against us for substantial damages. These claims could cause us
to incur significant legal expenses and, if successful, could result in the
claimants being awarded significant damages.
Our growth and operating results could be impaired if we are unable to
meet our future capital requirements.
-------------------------------------
We currently require additional capital of from $2,000,000 to $5,000,000
to allow us to fund our operations for at least the next 18 months to two
years. We will also require substantial additional working capital to fund
our business in the long term. Accordingly, we need to raise capital promptly
to meet our short-term needs. If we succeed in raising this capital, we will
also seek additional funding, in the form of equity, debt or a combination of
both, in approximately 12 months to meet our long-term requirements. We
cannot be certain that funds will be available on satisfactory terms when
needed, or if at all. Our future capital needs depend on many factors,
including:
* the timing of our development efforts;
9
* market acceptance of our products;
* the level of promotion and advertising required to launch our
services; and
* changes in technology.
The various elements of our business and growth strategies, including our
plans to support fully the commercial release of our speech recognition
programming tools, our IVA product and related speech application services,
our introduction of new products and services and our investments in
infrastructure, will require money. If we are unable to raise the necessary
money now or in the future, we may have to significantly curtail our
operations or obtain funding through the relinquishment of significant
technology or markets. Also, raising additional equity capital may
substantially dilute the value of present stockholders' holdings in our
company.
We depend on our key personnel and need additional personnel to grow our
business.
---------
We depend to a large extent on the abilities of our key management and
technical personnel, in particular Xxxxxxxxxxx X. Xxxxxxx, our President, and
Xxxxx Xxxxxxxx, our Chief Technology Officer. The loss of any key employee or
our inability to attract or retain other qualified employees could seriously
impair our results of operations and financial condition.
Our future success depends on our ability to attract, retain and motivate
highly skilled technical, marketing, management, accounting and administrative
personnel. We plan to hire additional personnel in all areas of our business.
Competition for qualified personnel is intense. As a result, we may be unable
to attract, assimilate or retain qualified personnel. We may also be unable
to retain the employees that we currently employ or to attract additional
technical personnel. The failure to retain and attract the necessary
personnel could seriously harm our business, financial condition and results
of operations.
System and online security failures could harm our business and
operating results.
------------------
The operation of our business depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. Our systems
and operations will be vulnerable to damage or interruption from many sources,
including fire, flood, power loss, telecommunications failure, break-ins,
earthquakes and similar events. Our servers will also be vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions.
Any substantial interruptions in the future could result in the loss of data
and could destroy our ability to generate revenues from operations.
The secure transmission of confidential information over public networks
is a significant barrier to electronic commerce and communications. Anyone
who can circumvent our security measures could misappropriate confidential
information or cause interruptions in our operations. We may have to spend
large amounts of money and other resources to protect against potential
security breaches or to alleviate problems caused by any breach.
10
We face risks related to the Internet industry.
-----------------------------------------------
Our products will enhance the use of the Internet, and we will focus our
initial marketing efforts of our products through the Internet. The success
of our business will depend on the continued growth of the Internet and the
acceptance by consumers of the Internet as a medium for advertising, commerce
and communications.
Our success depends in part on widespread acceptance and use of the
Internet as a medium for advertising, commerce and communications. This
process is at an early stage, and long-term market acceptance, though
generally anticipated, is uncertain. We cannot predict the extent to
which users will be willing to shift their habits from traditional media to
online media. To be successful, our users must accept and use electronic
commerce to satisfy their product needs. Our future revenues and profits, if
any, substantially depend upon the acceptance and use of the Internet and
other online services as an effective medium of commerce by our target users.
The Internet may not become a viable long-term commercial marketplace
due to potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements. The commercial acceptance and use of the Internet may not
continue to develop at historical rates. Our business, financial condition
and results of operations could be harmed if:
* use of the Internet and other online services does not
continue to increase or increases more slowly than expected;
* the infrastructure for the Internet and other online services
does not effectively support future expansion of electronic
commerce;
* concerns over security and privacy inhibit the growth of the
Internet; or
* the Internet and other online services do not become a viable
commercial marketplace.
Our operating results could be impaired if we become subject to
burdensome government regulation and legal uncertainties.
---------------------------------------------------------
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally. However, due to the increasing popularity and use of the Internet,
it is possible that a number of laws and regulations may be adopted with
respect to the Internet, relating to:
* user privacy;
* pricing;
* content;
* copyrights;
* distribution; and
11
* characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease the
expansion of the Internet. A decline in the growth of the Internet could
decrease demand for our products and services and increase our cost of
doing business. Moreover, the applicability of existing laws to the Internet
is uncertain with regard to many issues, including property ownership, export
of specialized technology, sales tax, libel and personal privacy. Our
business, financial condition and results of operations could be seriously
harmed by any new legislation or regulation. The application of laws and
regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services, could also harm our business.
We plan to offer our speech recognition products over the Internet in
multiple states and foreign countries. These jurisdictions may claim that we
are required to qualify to do business as a foreign corporation in each state
or foreign country. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties. Other states and foreign countries may also attempt to regulate
our business or prosecute us for violations of their laws. Further, we might
unintentionally violate the laws of foreign jurisdictions and those laws may
be modified and new laws may be enacted in the future.
The United States Congress has enacted legislation limiting the ability
of the states to impose taxes on Internet-based transactions. However, this
legislation, known as the Internet Tax Freedom Act, imposes only a three-year
moratorium, which commenced October 1, 1998 and ended on October 21, 2001, on
state and local taxes on electronic commerce, where such taxes are
discriminatory, and Internet access, unless the taxes were generally imposed
and actually enforced prior to October 1, 1998. Current published reports
indicate that the tax moratorium could fail to be renewed. Failure to renew
this legislation will allow various states to impose taxes on Internet-based
commerce. The imposition of these taxes could seriously adversely affect
Internet commerce and hinder our ability to become profitable.
Our industry is experiencing consolidation that may intensify
competition.
------------
The Internet industry has recently experienced substantial consolidation.
We expect this consolidation to continue. Acquisitions could harm us in a
number of ways. For example:
* a competitor could be acquired by a party with significant
resources and experience that could increase the ability of
the competitor to compete with our products and services; and
* other companies with related interests could combine to form
new, formidable competition, which could preclude us from
obtaining access to certain markets or content, or which could
dramatically change the market for our products and services.
There Are Substantial Risks Related to Our Common Stock and Management's
Percentage of Ownership of Our Common Stock
--------------------------------------------
12
Due to the instability in our common stock price, you may not be able to
sell your shares at a profit.
-----------------------------
The public market for our common stock is limited and volatile. As with
the market for many other companies new and emerging industries, any market
price for our shares is likely to continue to be very volatile. In addition,
factors such as the following may significantly affect our stock price:
* actual or anticipated variations in quarterly operating
results;
* announcements of technological innovations, new products or
services by us or our competitors;
* changes in financial estimates or recommendations by
securities analysts;
* the addition or loss of strategic relationships or
relationships with our key customers;
* conditions or trends in the Internet and online commerce
markets including the provision of related speech-activated
services;
* changes in the market valuations of other Internet, online
service or software companies;
* announcements by us or our competitors of significant
acquisitions, strategic partnerships, joint ventures or
capital commitments;
* legal, regulatory or political developments;
* additions or departures of key personnel;
* sales of our common stock by insiders or stockholders;
* general market conditions; and
* Catastrophic events.
The historical volatility of our stock price may make it more difficult
for you to resell shares when you want at prices you find attractive.
In addition, the stock market in general and the market for Internet and
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of these companies. These broad market and industry
factors may reduce our stock price, regardless of our operating performance.
The sale of already outstanding shares of our common stock could hurt our
common stock market price.
--------------------------
Approximately 597,967 shares of our common stock are presently publicly
traded. This number will be increased by the 4,649,238 presently outstanding
shares that may be offered by this prospectus, along with the 1,788,076 shares
13
underlying the warrants, the 500,000 shares that may be issued on conversion
of the Series 2001-A Eight Percent (8%) Convertible Notes and the 100,000
shares that may be issued for legal services that also may be offered by this
prospectus. We have agreed to acquire by registration or an available
exemption from the registration requirements of the Securities Act all of the
remaining outstanding shares of Wizzard Delaware, our 96%-owned subsidiary.
This would increase our outstanding shares by an additional 588,082 shares.
In addition, 11,978,831 shares of our common stock will have satisfied the one
year holding period for limited resales under Rule 144 on or after February 7,
2002. This substantial increase in the number of shares that may be available
for public trading from 597,967 shares to 7,635,281 shares on the effective
date of our registration statement and the availability of these other shares
for future public sale under Rule 144 or in exchange for our 96%-owned
subsidiary's shares may dramatically reduce the price of our common stock on
the basis of supply and demand alone.
Our directors', executive officers' and affiliated persons' beneficial
ownership of approximately 34.8% of our common stock creates certain
conflicts.
----------
As of the business day immediately prior to the filing of our
registration statement, our executive officers, directors and affiliated
persons beneficially own approximately 34.8% of our common stock. As a
result, our executive officers, directors and affiliated persons will have
significant influence to:
* elect or defeat the election of our directors;
* amend or prevent amendment of our articles of incorporation or
bylaws;
* effect or prevent a merger, sale of assets or other corporate
transaction; and
* control the outcome of any other matter submitted to the
stockholders for vote.
By their ownership and positions, our directors, executive officers and
affiliated persons collectively are able to significantly influence all
matters requiring stockholder approval, including the election of directors
and the approval of significant corporate transactions. In addition, sales of
significant amounts of shares held by these persons, or the prospect of these
sales, could adversely affect the market price of our common stock.
Management's stock ownership may discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of our company, which
in turn could reduce our stock price or prevent our stockholders from
realizing a premium over the price they paid for our stock.
FORWARD-LOOKING INFORMATION
---------------------------
This prospectus contains forward-looking information within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements contained in this prospectus involve known and unknown risks,
uncertainties and other factors that could cause actual results, financial or
operating performance to differ from the future results, financial or
14
operating performance or achievements expressed or implied by these
forward-looking statements. You should carefully read the this prospectus and
the risks factors outlined above, along with the more detailed information,
financial statements and the notes to the financial statements appearing
elsewhere in this prospectus before you decide whether to purchase the common
stock described in or offered by this prospectus.
USE OF PROCEEDS
---------------
We will not receive any part of the proceeds from sale of our common
stock. However, we will receive, if all of the warrants are exercised,
$2,578,364; and legal services for up to 100,000 shares valued at 50% of the
last five day average bid prices of our common stock at the end of each
monthly billing cycle. As of the date of this prospectus, none of these
warrants had been exercised, and none of these shares had been issued.
DETERMINATION OF OFFERING PRICE AND DILUTION
--------------------------------------------
We will not receive any money from the selling stockholders when they
sell their shares of common stock, although we will receive funds from any
exercise of the warrants. The selling stockholders may sell all or any part
of their shares in private transactions or in the over-the-counter market at
prices related to the prevailing prices of our common stock at the time of
negotiation. Because we cannot accurately predict the prices of these sales,
we cannot accurately estimate the amount of any dilution that may result from
the purchase price of any of these shares. Dilution is the difference
between the price paid for the shares and our net tangible book value. The
net tangible book value of our common stock on June 30, 2001, was $457,800 or
$0.027 per share, based upon 16,855,791 outstanding shares. Net tangible book
value per share is determined by subtracting our total liabilities from our
total tangible assets and dividing the remainder by the number of shares of
common stock outstanding. These computations do not include the estimated
expenses of this offering of approximately $50,000. The offer and sale by the
selling stockholders of outstanding common stock, or of those shares
underlying the warrants, will not affect the net tangible book value of our
common stock, excluding computations taking into account the issuance of the
shares underlying the warrants and any payment for the exercise of the
warrants.
We can not assure you that any public market for our common stock will
equal or exceed the sales prices of the shares of common stock that our
stockholders sell. Purchasers of our shares face the risk that their shares
will not be worth what they paid for them.
SELLING SECURITY HOLDERS
------------------------
The following table shows the following information about the
selling stockholders:
* the number of shares of our common stock that each selling
stockholder beneficially owned as of the business day
immediately prior to the filing of our registration statement;
* the number of shares covered by this prospectus; and
15
* the number of shares to be retained after this offering, if
any.
Common Stock (1)
----------------
Number of Shares Number of Shares Number of Shares
Name of Selling Owned Prior to Registered in Beneficially Owned
Stockholder the Offering the Offering after the Offering
----------- ------------ ------------ ------------------
Xxxxxxxxxxx 2,888,167 320,000 2,568,167
X. Xxxxxxx (3)
Xxxxx Xxxxxxxx 2,889,194 320,000 2,569,194
(3)
Xxxxxx Xxxxx (3) 513,634 50,000 463,634
Voice Recognition 3,431,078 320,000 3,111,078
Investment, L. P.
(2)&(3)
Xxxx and Xxxxx 2,912,307 320,000 2,592,307
Xxxxxxx (3)
Xxxxx Xxxxxxx (3) 513,634 50,000 463,634
Xxxx Xxxxxx (3) 256,817 25,000 231,817
Xxxxxx X. Xxxxxxx 15,000 15,000 -0-
III Revocable Trust
Maricopa Equity 570,000 570,000 -0-
Management Corp.
(2),(4)&(8)
J. Xxxxxx Xxxxx (4) 10,000 10,000 -0-
Corporate Capital 409,823 300,000 109,823
Management, LLC
(2),(4)&(5)
Great North 196,678 196,678 -0-
Distributors, Inc.
(2),(4)&(5)
Xxxx X. Xxxx (4) 30,000 30,000 -0-
Xxxxxxxxx Xxxxx (4) 15,000 15,000 -0-
Xxxxxxx X. Xxxxxx (4) 20,000 20,000 -0-
Xxxx Xxxxxx 4) 30,000 30,000 -0-
Syndenham Holding 15,000 15,000 -0-
Ltd. (2)&(4)
Xxxx Xxxxxx (4) 20,000 20,000 -0-
16
Xxx X. Xxxxxx (4) 5,000 5,000 -0-
Xxx Xxxxx (4) 9,000 9,000 -0-
Xxxxxxx X. Xxxxx (4) 12,000 12,000 -0-
Xxxx L. and Xxxx 15,000 15,000 -0-
A, XxXxxxxx (4)
Xxxxxx Xxxxxxxxx (4) 25,000 25,000 -0-
Xxxxxx X. Xxxxxx (4) 25,000 25,000 -0-
The Xxxxxx Group 5,000 5,000 -0-
(2)&(4)
Xxxxx and Xxxxxxxx 6,500 6,500 -0-
Xxxxxxx (4)
Xxxx Xxxxxx Gilece (4) 10,000 10,000 -0-
Power Fuel & 10,000 10,000 -0-
Transport, LLC
(2)&(4)
Xxxxx X. Xxxx 10,000 10,000 -0-
and Merrell
B. Dick (4)
Xxxxx X. Xxxxxxx (4) 14,000 14,000 -0-
Savage Holdings, 560,000 560,000 -0-
Inc. (2)&(7)
DMG, Inc. (2)&(7) 258,449 258,449 -0-
Xxxx X. Xxxxxxxx (7) 149,627 149,627 -0-
Xxxxx X. Xxxxxx 262,060 262,060 -0-
(5)&(7)
Xxxxxx Services, 1,340,000 1,340,000 -0-
Inc. (2),(5)&(7)
Xxxxxxx X. 189,100 160,000 29,100
Xxxxxxxxxx, Esq.
(5),(7)&(9)
Noble House of 390,000 290,000 100,000
Boston, Inc. (2)&(7)
Xxxx XxXxxxx 20,000 20,000 -0-
Xxxx Xxxxxx 15,000 15,000 -0-
Ori Pessach 5,000 5,000 -0-
Xxxx Xxxxx 11,000 11,000 -0-
17
Xxxxx Xxxxxxx 11,000 11,000 -0-
Xxxx Xxxxxx 5,000 5,000 -0-
Xxxx Land 5,000 5,000 -0-
Xxxxx Xxxxxx 10,000 10,000 -0-
Johan de Muinck 10,000 10,000 -0-
Keizer
Xxxxxxx Xxxxxxx 5,000 5,000 -0-
Xxxx Xxxxxxx (3) 403,000 403,000 -0-
Corporate Image Bureau 35,000 7,000 28,000
(2)
JKD Cayman Island 20,000 20,000 -0-
Trust (2)&(6)
Xxxxx Xxxxxxxx 2,000 2,000 -0-
Xxxxx Xxxxxxx 600,000 600,000 -0-
Financial (2),(6),(7)
&(10)
Xxxx Xxxx (6)&(7) 20,000 20,000 -0-
Xxxxx Xxxxxxxxx 75,000 75,000 -0-
(6)&(7)
Xxxxx Xxxxxxxxx (7) 20,000 20,000 -0-
(1) We assume no purchase in this offering by the selling stockholders of
any shares of our common stock.
(2) No director, advisory director, executive officer or any associate
of any director, advisory director or executive officer has any interest,
direct or indirect, by security holdings or otherwise, in any, and
specifically, in these corporate selling stockholders.
(3) Resales are subject to certain limitations set by the Board of
Directors and outlined herein for shares of directors, executive officers or
affiliated persons.
(4) Resales are subject to certain limitations set by the Board of
Directors and outlined herein for shares purchased on the Wizzard Delaware
reorganization private offering.
(5) Resales are subject to certain limitations agreed upon by the holders
and outlined herein for shares of certain persons who were our principal
stockholders at the time closing of the Wizzard Delaware reorganization.
(6) Resales are subject to certain limitations set by the Board of
Directors and agreed upon by these selling stockholders as outlined herein.
(7) Includes the following shares underlying warrants that are described
18
in the warrant table in our description of our securities, and assumes that
all warrants are exercised and all common stock owned or received on the
exercise of the warrants are sold: Savage Holdings, 65,000; DMG, 258,449; Xxxx
X. Xxxxxxxx, 149,627; Xxxxxx Services, 540,000; Xxxxxxx X. Xxxxxxxxxx, Esq.,
60,000; Noble House of Boston, 100,000; Xxxx Xxxx, 20,000; Xxxxx Xxxxxxxxx,
75,000; Xxxxx Xxxxxxx Financial, 500,000; and Xxxxx Xxxxxxxxx, 20,000.
(8) Includes the maximum number of shares issuable upon the conversion of
$250,000 in Series 2001-A Eight Percent (8%) Convertible Notes.
(9) Includes the maximum number of shares issuable to Xxxxxxx X.
Xxxxxxxxxx, Esq. (100,000) for legal services rendered and to be rendered
during fiscal 2001 at 50% of the last five day average bid prices of our
common stock at the end of each monthly billing cycle.
(10) Xxxxx Xxxxxxx Financial is a registered broker/dealer.
LOCK-UP/LEAK-OUT CONDITIONS AND OTHER RESALE LIMITATIONS
--------------------------------------------------------
Certain shares of the selling stockholders are subject to lock-up/leak-
out conditions or other resale limitations. The following is a summary of
these resale limitations:
Members of Management and other Principal Stockholders.
-------------------------------------------------------
As a condition to including the shares of members of management and
certain of our principal stockholders in our registration statement, the Board
of Directors resolved that resales by these persons in accordance with our
registration statement and this prospectus must be made under the limitations
of Rule 144(e), which limits the sales by each person to no more than one
percent of our outstanding securities; and that no resales by any of these
persons can be made for the 15-day period before or after we are required to
file any report with the Securities and Exchange Commission; or during any
period of time that we are conducting any material negotiations or there is
any material non-public information about us that may, if disclosed, have a
material effect on the public trading price of our common stock.
The following stockholders are subject to these resale conditions:
* Xxxxxxxxxxx X. Xxxxxxx, our President and a director;
* Xxxxx Xxxxxxxx, our Assistant Secretary and a director;
* Xxxxxx Xxxxx, a director;
* Xx. Xxxx Xxxxxxx, a director;
* Xxxx and Xxxxx Xxxxxxx, the parents of Xxxxxxxxxxx X. Xxxxxxx;
and
* Voice Recognition Investment, L.P.
Each of these stockholders holds shares for their own account, and each
has represented that none intends to sell their shares in concert with any of
these other stockholders. Based upon the foregoing, these stockholders could
sell an aggregate of 1,011,342 shares in any quarter following the effective
19
date of our registration statement, based upon 1% of the number of shares
outstanding on June 30, 2001, which was 16,855,791 shares.
Private Offering Stockholders.
------------------------------
The subscription documents to the private offering that we conducted as
a condition to the closing of the Wizzard Delaware reorganization provided
that no investors acquiring shares of our common stock shall, for a period of
18 months from the closing of the reorganization (February 7, 2001), sell more
than 10% of such holder's common stock holdings during any three month period;
provided, however, that if less than 10% of a holder's common stock had been
sold during any covered three month period, then the difference between the
holder's 10% and the amount actually sold could be added to and sold during
any successive three month period, provided that all computations for resales,
except the period of 18 months, were to commence on the effective date of the
registration statement that we were required to file.
As a result of the foregoing, these stockholders could sell a total of
67,150 shares in any quarter following the effective date of our registration
statement. These lock-up/leak-out conditions expire 18 months after the
closing of the Wizzard Delaware reorganization on February 7, 2001, which is
August 6, 2002.
Pre-Wizzard Delaware Reorganization principal stockholders and others.
----------------------------------------------------------------------
As a condition to including in our registration statement certain shares
of Corporate Capital Management, LLC, Xxxxx X. Xxxxxx and his consulting firm,
Xxxxxx Services, Inc., and Xxxxxxx X. Xxxxxxxxxx, Esq., all pre-Wizzard
Delaware reorganization stockholders of our company, were required to execute
and deliver a Lock-Up/Leak-Out Agreement. Great North Distributors, Inc.,
which subsequently acquired "restricted securities" in a private transaction
from Corporate Capital Management, was also required to execute the Lock-
Up/Leak-Out Agreement as a condition to the acquisition of its shares.
This Agreement provides for the following lock-up/leak-out conditions:
* no shareholder other than Corporate Capital Management, Great
North Distributors, Xx. Xxxxxx, Xxxxxx Services or Xx.
Xxxxxxxxxx may sell any shares covered by the lock-up unless
the parties agree otherwise in writing. For the purposes of
these restrictions, Corporate Capital Management, Great
Northern Distributors, Xx. Xxxxxx, Xxxxxx Services and Xx.
Xxxxxxxxxx are collectively considered to be one stockholder;
* each stockholder is allowed to sell shares in blocks of 5,000
shares or less per transaction;
* the shares may be sold only at the offer or ask price stated
by the relevant market maker, and each stockholder has agreed
that they will not sell shares at the bid price;
* after a stockholder sells 5,000 shares, the stockholder may
not sell any other shares unless the offer or asked price of
the common stock has increased by .25 basis points above the
stockholder's last sales price;
20
* notwithstanding the foregoing, if, after a stockholder sells
5,000 shares, a market/maker in the common stock, other than
the market/maker involved in the first transaction, continues
to show an offer or ask price at the same price as the first
5,000 share transaction, the stockholder may, on one occasion
only, sell an additional 5,000 shares at that price;
* the shares may not be sold at a price below $2.00 per share,
as recently reduced by us from $5.00 per share;
* each stockholder shall be allowed to sell up to 15% of their
shares that can be sold during each three month period;
provided, however, that if any stockholder does not sell his
full 15% during any three-month period, the stockholder may
sell the difference between 15% of the shares held and the
shares actually sold during the three-month period in the next
successive three-month period; and
* the stockholders have agreed that they will not engage in any
short selling of these shares or other shares of our common
stock that are included in our registration statement.
We can waive any or all of these conditions under the Lock-Up/Leak-Out
Agreement if we determine in our sole discretion that the waiver will promote
a fair and orderly market in our common stock.
Xxxx Xxxx, JKD Cayman Island Trust, Xxxxx Xxxxxxxxx and Xxxxx Xxxxxxx
Financial have also executed a Lock-Up/Leak-Out Agreement that is effective
for a period of 12 months from the effective date of our registration
statement and provides:
* each stockholder is allowed to sell shares in blocks of 5,000
shares or less per transaction;
* the shares may be sold only at the offer or ask price stated
by the relevant market maker, and each stockholder has agreed
that they will not sell shares at the bid price;
* after a stockholder sells 5,000 shares, the stockholder may
not sell any other shares unless the offer or asked price of
the common stock has increased by .25 basis points above the
stockholder's last sales price;
* notwithstanding the foregoing, if, after a stockholder sells
5,000 shares, a market/maker in the common stock, other than
the market/maker involved in the first transaction, continues
to show an offer or ask price at the same price as the first
5,000 share transaction, the stockholder may, on one occasion
only, sell an additional 5,000 shares at that price;
* the shares may not be sold at a price below $1.00 per share;
and
* the stockholders have agreed that they will not engage in any
short selling of these shares or other shares of our common
stock that are included in our registration statement.
All 100,000 shares that have been issued to Xxxxx Xxxxxxx Financial are
21
subject to these lock-up conditions; however, none of the shares underlying
the warrants that have been issued to Xxxxx Xxxxxxx Financial are subject to
these lock-up conditions.
We can waive any or all of these conditions under the Lock-Up/Leak-Out
Agreement if we determine in our sole discretion that the waiver will promote
a fair and orderly market in our common stock.
PLAN OF DISTRIBUTION
--------------------
We are registering the shares of our common stock covered by this
prospectus.
We will pay the costs, expenses and fees of registering our common stock.
All of the selling stockholders will be responsible for any commissions,
taxes, attorney's fees and other charges that each may incur in the offer or
sale of these securities.
The selling stockholders may sell our common stock at market prices
prevailing at the time of the sale, at prices related to the prevailing market
prices, at negotiated prices or at fixed prices, any of which may change.
They may sell some or all of their common stock through:
* ordinary broker's transactions, which may include long or
short sales (no short sales can be made by selling
stockholders that are subject to the lock-up conditions or the
holder of the Series 2001-A Eight Percent (8%) Convertible
Notes);
* purchases by brokers, dealers or underwriters as principal and
resale by those purchasers for their own accounts under this
prospectus;
* market makers or into an existing market for our common stock;
* transactions in options, swaps or other derivatives; or
* any combination of the selling options described in this
prospectus, or by any other legally available means.
In addition, the selling stockholders may enter into hedging transactions
with broker/dealers, who may engage in short sales (except those selling
stockholders who are subject to the lock-up conditions or the holders of the
Series 2001-A Eight Percent (8%) Convertible Notes sales) of our common stock
in the course of hedging the positions they assume. Finally, they may enter
into options or other transactions with broker/dealers that require the
delivery of our common stock to those broker/dealers. Subsequently, the
shares may be resold under this prospectus.
In their selling activities, the selling stockholders will have to comply
with applicable provisions of the Securities Exchange Act of 1934, and its
rules and regulations, including Regulation M. The Exchange Act and these
rules and regulations may limit the timing of purchases and sales of our
common stock by the selling stockholders.
The selling stockholders and any broker/dealers involved in the sale or
resale of our common stock may qualify as underwriters within the meaning of
22
Section 2(11) of the Securities Act. In addition, the broker/dealers'
commissions, discounts or concessions may qualify as underwriters'
compensation under the Exchange Act. If any broker/dealer or selling
stockholder qualifies as an underwriter, it will have to deliver our
prospectus as required by Rule 154 of the Securities and Exchange Commission.
In addition, any broker/dealer that participates in a distribution of these
shares will not be able to bid for, purchase or attempt to induce any person
to bid for or purchase any of these shares as long as the broker/dealer is
participating in the distribution. The ability of participating
broker/dealers to stabilize the price of our shares will also be restricted.
If the selling stockholders sell our shares to or through brokers,
dealers or agents, they may agree to indemnify these brokers, dealers or
agents against liabilities arising under the Securities Act or the Exchange
Act. We do not know of any existing arrangements between the selling
stockholders and any other stockholder, broker, dealer, underwriter or agent
relating to the sale or distribution of our common stock.
In addition to selling their common stock under this prospectus, the
selling stockholders may:
* transfer their common stock in other ways not involving market
makers or established trading markets, including by gift,
distribution or other transfer; or
* sell their common stock under Rule 144 of the Securities and
Exchange Commission, if the transaction meets the requirements
of Rule 144.
We have advised the selling stockholders that during the time they are
engaged in the distribution of our common stock that they own, they must
comply with Rule 10b-5 and Regulation M promulgated by the Securities and
Exchange Commission under the Exchange Act. They must do all of the following
under this Rule and Regulation:
* not engage in any stabilization activity in connection with
our common stock;
* furnish each broker who may be offering our common stock on
their behalf the number of copies of this prospectus required
by each broker;
* not bid for or purchase any of our common stock or attempt to
induce any person to purchase any of our common stock, other
than as permitted under the Exchange Act;
* not use any device to defraud;
* not make any untrue statement of material fact or fail to
state any material fact; and
* not engage in any act that would operate as a fraud or deceit
upon any person in connection with the purchase or sale of our
shares.
To the extent that any selling stockholder may be an affiliated
purchaser as defined in Regulation M, he, she or it has been further advised
of the requirements of Rule 10b-1, and that he, she or it must coordinate his,
23
her or its sales under this prospectus with us for the purposes of Regulation
M.
To the extent required by the Securities Act, a supplemental prospectus
will be filed, disclosing:
* the name of any broker/dealers;
* the number of securities involved;
* the price at which the securities are to be sold;
* the commissions paid or discounts or concessions allowed to
the broker/dealers, where applicable;
* that the broker/dealers did not conduct any investigation to
verify the information set out in this prospectus, as
supplemented; and
* other facts material to the transaction.
There is no guarantee that any selling stockholder will sell any of our
common stock.
LEGAL PROCEEDINGS
-----------------
We are not a party to any pending material legal proceeding. To the
knowledge of management, no federal, state or local governmental agency is
presently contemplating any proceeding against us. No director, executive
officer or other person who may be deemed to be our affiliate or who is the
owner of record or beneficially of more than five percent of our common stock
is a party adverse to us or has a material interest adverse to us in any
proceeding.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------------------------------------------------------------
The following table sets forth the names of all of our current directors
and executive officers. These persons will serve until the next annual
meeting of our stockholders or until their successors are elected
or appointed and qualified, or their prior resignations or terminations.
Directors and Executive Officers.
---------------------------------
Date of Date of
Positions Election or Termination
Name Held Designation or Designation
---- ---- ----------- --------------
Xxxxxxxxxxx X. Director and President 2/07/01 *
Xxxxxxx
24
Xxxxx Xxxxxxxx Director and Assistant 2/07/01 *
Secretary
Xxxxxx Xxxxx Director 2/07/01 *
Xxxx Xxxxxxx Director 6/04/01 *
* Presently serving in these capacities.
Xxxxxxxxxxx X. Xxxxxxx, Chairman and CEO.
-----------------------------------------
Xx. Xxxxxxx, age 32, has served as our Chief Executive Officer, President
and as a director of Wizzard since February 7, 2001, and of our subsidiary,
Wizzard Delaware, since its formation in 1995. Xx. Xxxxxxx has been
responsible for our overall direction since our inception and has been
instrumental in leading us to our current position in the speech recognition
industry. Xx. Xxxxxxx was recently nominated as one of fifty top visionaries
in the speech recognition industry by Speech Technology Magazine. Through Xx.
Xxxxxxx'x efforts, we have successfully obtained financing of approximately
$3,600,000 to date. These funds have helped us complete the development of our
IVA product and our variety of programming tools. Xx. Xxxxxxx also sits on
the Board of Directors of Cennoid Technologies, a software company that
develops encryption and compression software for the Internet.
From 1994 until 1996, Xx. Xxxxxxx founded and worked for ChinaWire, Inc.,
a high-technology company engaged in financial remittance between
international locations and China. Xx. Xxxxxxx'x efforts were responsible for
ChinaWire's exclusive contract with the Ministry of Posts and
Telecommunications of the People's Republic of China. Xx. Xxxxxxx was also
responsible for raising over $3,500,000 for the venture.
Xx. Xxxxxxx worked for Lotto USA, Inc. from 1992-1994, where he was
founder and Chief Executive Officer for the Pennsylvania computer networking
company. Besides assisting in designing the technology, Xx. Xxxxxxx helped
Lotto USA implement an additional $1.00 service charge for every out-of-state
lottery ticket sold in the State of Pennsylvania, which substantially
increased the revenues of this company.
From 1990 until 1992, Xx. Xxxxxxx worked for Xxxx Valiant, Inc., and was
responsible for business concept development and obtaining financing. Xx.
Xxxxxxx'x efforts combined an effective advertising/promotions campaign with
proper timing in the young adult/college restaurant/nightclub market. Xxxx
Valiant was sold for a profit in 1992 after successfully operating three
revenue-generating divisions.
Xx. Xxxxxxx attended West Virginia University from 1987-1990.
Xxxxx Xxxxxxxx, Director and Chief Technical Officer.
-----------------------------------------------------
Xx. Xxxxxxxx, age 32, co-founded and has served as Chief Technical
Officer, Assistant Secretary, and a director of Wizzard Delaware since its
inception and of Wizzard since February 7, 2001. Xx. Xxxxxxxx has spearheaded
the development of our IVA product, and is responsible for all of our
technical decisions regarding the software code and other attributes of our
products and services.
25
Xx. Xxxxxxxx has extensive software development knowledge and experience.
In 1995, he created custom software for an industrial furnace control company.
In 1994, Xx. Xxxxxxxx was the lead developer of a money transfer service
software system for ChinaWire, Inc.; he also created custom software packages
for warehouse inventory, a project which included over fifteen large databases
for reporting, accounts payable/receivable, and complete auditing control
functions.
In 1993, Xx. Xxxxxxxx helped create a custom software package for medical
claims processing that provided communications between offices and System One.
From 1988 until 1992, Xx. Xxxxxxxx was part of a large project developing
accounting, economic development and financial software to be sold to several
large Russian corporations. In 1988, he was engaged in software development
for the Russian version of Novell, designed to assist students in math and
statistics.
Xx. Xxxxxxxx received his B.S. in Computer Science from the University of
Moscow in 1990.
Xxxxxx Xxxxx, Director and VP Business Development.
---------------------------------------------------
Xx. Xxxxx, age 61, has served as a director of Wizzard since February 7,
2001, and of Wizzard Delaware since 1997. Xx. Xxxxx is involved in all of our
business, corporate and financial decisions, serving as a guide and counsel
for the executive officers and Board of Directors. Since 1990, Xx. Xxxxx has
been a consultant to a variety of businesses, assisting them in the areas of
sales, marketing and strategic planning. From 1985-1990, Xx. Xxxxx was Vice
President of Sales/Marketing for Champion Commercial Industry, a
multi-division manufacturer of metal products, where Xx. Xxxxx increased the
firm's revenues by 60% while developing several new product lines.
From 1980-1985, Xx. Xxxxx was Vice President for Trundle Consultants,
Inc., where he specialized in all areas of sales and marketing, dealing
primarily with firms having sales of less than $100 million annually. From
1974-1979, Xx. Xxxxx ran IMI, a sole proprietorship specializing in venture
capital and business consulting. IMI was subsequently merged with Trundle
Consultants Inc.
From 1963-1974, Xx. Xxxxx worked in manufacturing for Electric Products
Company, and concluded his tenure as Division Manager and member of the
Executive Committee.
Xx. Xxxxx attended Cornell University and received his Bachelor's degree
in Industrial Management from Georgia Tech in 1962.
Xxxx Xxxxxxx, M.D., Director and VP Custom Solutions.
-----------------------------------------------------
Xx. Xxxxxxx, age 51, was the President, CEO and founder of Speech
Solutions, Inc., a Florida-based speech recognition software company, from
1993 until 2001. He was responsible for that company's overall business
strategy, technical development and for developing vendor relationships. He
also was responsible for the development of the award-winning ActiveX Voice
Tools product, under three separate IBM development contracts, which was
acquired by Wizzard Software in May 2001.
From 1985-1993, Xx. Xxxxxxx practiced as a Doctor of Chiropractic
26
Medicine in Philadelphia, Pennsylvania. During this period, he implemented
computer office management systems; created office networks for doctors'
insurance/business offices and treatment rooms; and developed an automatic
progress notes software called ProNotes, which allowed for the easy creation
of medical progress notes directly in the computer system using a digitizer
board as interface and WordPerfect as the software environment. He used this
product to develop ProNotes, Inc., the predecessor of Speech Solutions, Inc.
From 1973-1994, he was the President of numerous seasonal retail
establishments that operated profitably for 21 years, employing more than 30
people.
He received his Doctor of Medicine and Surgery Degree from Universidad
CETEC, Santo Domingo, in 1982; and his Doctor of Chiropractic Degree from
Cleveland Chiropractic College, Kansas City, Missouri, in 1985.
Xxxx Xxxx, Strategic Advisory Board Member.
-------------------------------------------
Xxxx Xxxx, age 38, has worked in Microsoft's speech product group
(Xxxxxx.Xxx) since its formation, and has managed development and product
integration for all Microsoft releases that employ speech technologies,
including WindowsXP, OfficeXP, AutoPC, MS Agent, Encarta and Sidewinder. While
serving as Program Manager for Voice Output Technologies at Microsoft, Mr.
Lord drove product development for several major product releases that feature
speech recognition and synthesis capabilities. He has managed Microsoft's key
vendors, established partnerships and negotiated license agreements with
numerous speech industry companies. In his fifteen-year software career, Mr.
Lord has worked both in the U.S. and internationally and helped commercialize
a number of cutting-edge technologies, including applications for multimedia
language instruction, AI-based financial risk analysis, wearable digital
photonics and browser-based training systems.
He completed his undergraduate studies in International Business and
Computer Science at Xxxxxxx Xxxxx University prior to attending the University
of Washington for a Master's Degree in Business Administration. Mr. Lord
plans to us on a full-time basis once we have secured additional financing.
Xxxxx Xxxxx, Strategic Advisory Board Member.
---------------------------------------------
Xxxxx Xxxxx, age 37, is currently an Adjunct Professor of International
and Public Affairs with Columbia University. He attended the Xxxxxxx Business
School at the University of Pennsylvania in 1978 and did his graduate work at
the Xxxxxxx Xxxxxx School of International Affairs in addition to receiving a
Masters Degree from the London School of Economics. Currently, Xx. Xxxxx is
the CEO of DMG, Inc., a strategic and communications consultancy, and the
Managing Partner of Core Strategy Group. Xx. Xxxxx represents numerous
foreign leaders and governments including Xxx Xxx Xxxx, Xxxxx Xxxxxxx, and
Xxxxxxx Xxxxxx.
Family Relationships.
---------------------
There are no family relationships between any of our directors or
executive officers.
Involvement in Certain Legal Proceedings.
-----------------------------------------
27
During the past five years, none of our present or former directors,
executive officers or persons nominated to become directors or executive
officers:
* was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the
time of the bankruptcy or two years prior to that time;
* was convicted in a criminal proceeding or named subject to a
pending criminal proceeding, excluding traffic violations and
other minor offenses;
* was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; or
* was found by a court of competent jurisdiction in a civil
action, the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed,
suspended or vacated.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following tables set forth the share holdings of our directors and
executive officers and those persons who own more than five percent of our
common stock as of the date of this prospectus:
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Number of Shares Percent
Name and Address Title Beneficially Owned of Class*
---------------- ----- ------------------ ---------
Xxxxxxxxxxx X. Xxxxxxx Director and 2,888,167 15.0%
0000 Xxxx Xxx Xx. Xxxxxxxxx
Xxxxxxxxxx, XX 00000
Xxxxx Xxxxxxxx Director and 2,889,194 15.0%
0000 Xxxxxxx Xx. Xxxxxxxxx
Xxxxxxxxxx, XX 00000 Secretary
Xxxxxx Xxxxx Director 513,634 2.7%
0000 Xxxxxxxxxx
Xx. Xxxxxx, XX 00000
Xxxx Xxxxxxx Director 403,000 2.1%
0000 Xxxxxxxx Xxxxx
Xxxxxx Xxxxx, XX 00000
28
All officers and directors
as a group (4 persons) 6,693,995 34.8%
* Based upon 19,243,867 outstanding shares, and assumes that
1,788,076 shares underlying the warrants, the 500,000
shares that may be issued on conversion of the Series 2001-A
Eight Percent (8%) Convertible Notes and the 100,000 shares
that may be issued for legal services have been issued and
are outstanding, though none of these warrants has been
exercised, none of the Series 2001-A Eight Percent (8%)
Convertible Notes has been converted and none of the shares
issuable for legal services has been issued.
FIVE PERCENT STOCKHOLDERS
-------------------------
Number of Shares Percent
Name and Address Title Beneficially Owned of Class(1)
---------------- ----- ------------------ -----------
Xxxxxxxxxxx X. Xxxxxxx (2) Director and 2,888,167 15.0%
0000 Xxxx Xxx Xx. Xxxxxxxxx
Xxxxxxxxxx, XX 00000
Xxxxx Xxxxxxxx Director and 2,889,194 15.0%
0000 Xxxxxxx Xx. Xxxxxxxxx
Xxxxxxxxxx, XX 00000 Secretary
Voice Recognition Stockholder 3,431,078 17.8%
Investment, L.P.
000 Xxxxxxx Xx.
Xxxxxx Xxxx, XX 00000
Xxxx and Xxxxx Xxxxxxx (2) Stockholders 2,912,307 15.1%
0000 Xxxxxx Xxxx Xxxx
Xxxxxxx Xxxxxxx, XX 00000
Xxxxx X. Xxxxxx (3) Stockholder 1,602,060 8.3%
0000 Xxxxx 000 Xxxx, 000
Xxxx Xxxx Xxxx, XX 00000
Xxxx Xxxxxx (4) Stockholder 969,823 5.0%
0000 Xxxxx Xxxxxxxx Xx. ---------- -----
Xxxxx 000
Xxxxxxxxxx, XX 00000
Total: 14,692,629 76.3%
(1) Based upon 19,243,867 outstanding shares, and assumes that
1,788,076 shares underlying the warrants, the 500,000
shares that may be issued on conversion of the Series 2001-A
Eight Percent (8%) Convertible Notes and the 100,000 shares
that may be issued for legal services have been issued and
are outstanding, though none of these warrants has been
29
exercised, none of the Series 2001-A Eight Percent (8%)
Convertible Notes has been converted and none of the shares
issuable for legal services has been issued.
(2) Xxxx and Xxxxx Xxxxxxx are the parents of Xxxxxxxxxxx X.
Xxxxxxx.
(3) Includes the personal holdings of Xxxxx X. Xxxxxx and his
consulting firm and shares underlying warrants that are owned by
Xxxxxx Services.
(4) Includes the holdings of Corporate Capital Management and Savage
Holdings which are owned by Xxxx Xxxxxx.
Changes in Control.
-------------------
To our knowledge, there are no present arrangements or pledges of our
securities which may result in a change in control of our company.
DESCRIPTION OF SECURITIES
-------------------------
Common Stock.
-------------
Our authorized capital stock consists of 50,000,000 shares of common
stock, $0.001 par value per share. On June 30, 2001, there were 16,855,791
outstanding shares of our common stock.
Holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders and may not cumulate votes for
the election of directors. Common stock holders have the right to receive
dividends when, as, and if declared by the Board of Directors from funds
legally available therefor. Upon liquidation, holders of common stock
are entitled to share pro rata in any assets available for the distribution to
shareholders after payment of all obligations. Holders of common stock have
no preemptive rights and have no rights to convert their common stock into any
other securities.
Our Articles of Incorporation and Bylaws do not contain any provision
that would delay, defer or prevent a change in the control of our company.
Registration Rights
-------------------
We have granted piggy-back or other registration rights for all shares
included in our registration statement and offered for resale by this
prospectus; however, only the holders of the 671,500 shares that were offered
and sold in our private offering that was completed as a condition to the
closing of the Wizzard Delaware reorganization and the holder of the Series
2001-A Eight Percent (8%) Convertible Notes have registration rights that are
covered by a written agreement and that accord them any damages if our
registration statement is not timely filed or does not become effective within
a specified time.
In accordance with our agreement with our private offering stockholders,
our registration statement must become effective within 180 days of May 30,
30
2001, or by November 27, 2001, or we will be liable to these persons, pro
rata, for 1% of the amount of their investment, for every 30 days thereafter
during which our registration statement has not become effective. These
damages would amount to $6,715 for each 30 day period.
In accordance with our agreement with the holder of our Series 2001-A
Eight Percent (8%) Convertible Notes, such holder was to be paid 3% of the
$250,000 purchase price of these securities if the registration statement
was not filed by October 15, 2001; the holder has extended this period until
October 30, 2001, without penalty. If this registration statement does not
become effective by March 14, 2002, we will be liable to this holder for 3% of
the $250,000 purchase price of these securities, and 4% the $250,000 purchase
price of these securities for every 30 days thereafter until the registration
statement is granted an effective date.
Preferred Stock.
----------------
We have 10,000,000 shares of preferred stock authorized, none of which
are currently issued and outstanding. The Board of Directors is permitted to
issue preferred stock in series with differing preferences and rights.
Warrants.
---------
Warrant Table
-------------
The following is a description of our outstanding warrants:
Per Share
Date of Number of Exercise
Holders Grant Term Shares Price
------- ----- ---- ------ -----
Savage Holdings, 8/10/2000 5 years 65,000 $1.25
Inc. (1)
DMG, Inc. (2) 1/1/2001 3 years 258,449 $1.50
Xxxx X. Marwence 1/1/2001 3 years 149,627 $1.50
(3)
Xxxxxx Services, 2/6/2001 18 months 270,000 $1.00
Inc. (4)
Xxxxxxx X. 2/6/2001 18 months 30,000 $1.00
Xxxxxxxxxx, Esq.
(5)
Xxxxxx Services, 2/6/2001 12-18 months 270,000 $1.00
Inc. (4)
Xxxxxxx X. 2/6/2001 12-18 months 30,000 $1.00
Xxxxxxxxxx, Esq.(5)
31
Noble House of 4/17/2001 5/30/2006 100,000 $2.00
Boston, Inc. (6)
Xxxx Xxxx (7) 10/18/01 3 years 20,000 $0.25
Xxxxx Xxxxxxxxx (7) 10/18/01 3 years 75,000 $1.00
Xxxxx Xxxxxxx
Financial (8) 10/18/01 18 months 500,000 $2.00
Xxxxx Xxxxxxxxx (7) 10/18/01 3 years 20,000 $0.25
(1) Callable if our common stock trades on any recognized national
medium at $20.00 or higher for 30 consecutive trading days at a
volume of more than 30,000 shares per day; piggy-back
registration rights; non-voting; no rights as a stockholder; and
anti-dilution provisions regarding re-capitalizations or the
right to convert to common stock prior to any merger or
reorganization. The underlying shares are subject to lock-up
conditions until August 7, 2001. These warrants were issued in
consideration of a bridge loan to Wizzard Delaware.
(2) Piggy-back registration rights; non-voting; no rights as a
stockholder; and anti-dilution provisions regarding re-
capitalizations or the right to convert to common stock prior to
any merger or reorganization. These warrants were issued in
consideration of consulting services to Wizzard Delaware.
(3) Piggy-back registration rights; non-voting; no rights as a
stockholder; and anti-dilution provisions regarding re-
capitalizations or the right to convert to common stock prior to
any merger or reorganization. Xx. Xxxxxxxx is associated with
DMG, and these warrants were issued in consideration of
consulting services rendered by DMG to Wizzard Delaware.
(4) Piggy-back registration rights; non-voting; no rights as a
stockholder; and anti-dilution provisions regarding re-
capitalizations or the right to convert to common stock prior to
any merger or reorganization. With respect to the 12-18 month
warrants, these warrants are exercisable no sooner than twelve
months from the date of grant. If the 90 day average trading
price of our common stock on any recognized national medium
equals $8.00 at any time during the 12 month period commencing
six months from the date grant and ending 18 months from the
date of grant, these warrants will be canceled to our
treasury, without further consideration. These warrant are
being held in escrow by Interwest Stock Transfer, our transfer
agent or its successors or assigns, pending a determination of
whether this condition is applicable. The underlying shares are
subject to lock-up conditions until August 7, 2001. These
warrants were issued in consideration of services related to the
Wizzard Delaware reorganization.
(5) Piggy-back registration rights; non-voting; no rights as a
stockholder; and anti-dilution provisions regarding re-
capitalizations or the right to convert to common stock prior to
any merger or reorganization. With respect to the 12-18 month
32
warrants, these warrants are exercisable no sooner than twelve
months from the date of grant. If the 90 day average trading
price of our common stock on any recognized national medium
equals $8.00 at any time during the 12 month period commencing
six months from the date grant and ending 18 months from the
date of grant, these warrants will be canceled to our
treasury, without further consideration. These warrant are
being held in escrow by Interwest Stock Transfer, our transfer
agent or its successors or assigns, pending a determination of
whether this condition is applicable. The underlying shares are
subject to lock-up conditions until August 7, 2001. These
warrants were issued in consideration of services related to the
Wizzard Delaware reorganization.
(6) Piggy-back registration rights; non-voting; no rights as a
stockholder; and anti-dilution provisions regarding re-
capitalizations or the right to convert to common stock prior to
any merger or reorganization. These warrants were issued in
consideration of advertising and promotional services.
(7) Piggy-back registration rights; non-voting; no rights as a
stockholder; and anti-dilution provisions regarding re-
capitalizations. The underlying shares are subject to lock-up
conditions until 12 months from the effective date of the
registration statement. These warrants were issued in
consideration of various services.
(8) Piggy-back registration rights; non-voting; no rights as a
stockholder; and anti-dilution provisions regarding re-
capitalizations. These warrants were issued in
consideration of various services. Xxxxx Xxxxxxx Financial is a
registered broker/dealer.
Series 2001-A Eight Percent (8%) Convertible Notes.
---------------------------------------------------
On September 14, 2001, Wizzard and Maricopa Equity Management Corp.,
a Minnesota corporation, executed a Securities Purchase Agreement under which
we sold Maricopa Series 2001-A Eight Percent (8%) Convertible Notes in the
aggregate principal amount of $250,000, due August 31, 2011.
The Securities Purchase Agreement and related exhibits provided, among
other provisions, that:
* the Notes are convertible, along with accrued interest, at the
holder's option, into shares of our common stock at the lesser
of$0.50 per share or 75% of the closing bid price of our
common stock on any national medium on which our common stock
is traded;
* the Notes and the stock certificates are "restricted
securities," with registration rights;
* Maricopa's is prohibited from making short sales during the
time that it owns the Notes or the underlying securities;
* there are conversion restrictions that prohibit Maricopa from
owning in excess of 4.99% of our outstanding securities
33
resulting from conversion, except on the occurrence of certain
events;
* we are limited from issuing additional securities without the
consent of Maricopa, except for 500,000 shares per quarter,
that must be issued subject to lock-up/leak-out conditions;
* liquidated damage payments by us for non-timely transfers of
shares on conversion, ranging form $300 commencing on the 6th
day of demand of transfer, increasing by $100 for each of the
next nine days, increasing by $500 on the 10th day and
increasing by $500 every day thereafter;
* the shares that will be issued on conversion of the Notes
shall be registered by us at our sole cost and expense with
the Securities and Exchange Commission as a condition to
conversion (except for the first 40,000 shares, as outlined
below) on or before March 14, 2002, provided, however, that we
will be obligated to register the greater of 500,000 shares or
200% of the maximum number of shares of common stock that
would have been issued had the conversion taken place on
September 14, 2001 or on the filing date of the registration
statement;
* if (i) our registration statement is not filed on or prior to
October 15, 2002 (this date has been extended to October
30, 2001), or is not declared effective by the Securities and
Exchange Commission on or prior to March 14, 2002, we shall
pay in cash as liquidated damages for such failure and not as
a penalty to the holder an amount equal to 3% of the purchase
price paid by the holder for all Notes, or common stock held
by the holder upon conversion or exercise thereof, purchased
and then outstanding pursuant to the Securities Purchase
Agreement for the first 30 day period, and 4% for each
additional 30 day period until the applicable Event has been
cured, which shall be pro rated for such periods less than 30
days; certain other events will also trigger the liquidated
damages penalty, but all primarily relate to registration of
the shares and the ability of the holder to sell them
publicly;
* there are mutual indemnification provisions respecting each
party to the other party concerning information provided by
each for use in the registration statement;
* the Securities Purchase Agreement and all rights thereunder or
in the exhibits are assignable if made under applicable law,
with the written consent of the other party and subject to the
assignee's acknowledgment of certain factual matters similar to
those agreed upon by Maricopa;
* Maricopa shall have the right of specific performance of our
obligations as one of its remedies in the event of default by
us; and
* All proceeds for the purchase of the Notes, along with the
first 40,000 shares that could be issued on conversion of the
Notes, were deposited with an Escrow Agent, together with fully
34
executed copies of the Securities Purchase Agreement and all
related exhibits, at which time disbursement to us were made.
The 40,000 shares so deposited can be purchased by the exercise
of conversion rights prior to the effective date of the
registration statement.
Xxxxx Stock.
------------
Our common stock is "xxxxx stock" as defined in Rule 3a51-1 of the
Securities and Exchange Commission. Xxxxx stocks are stocks:
* with a price of less than five dollars per share;
* that are not traded on a "recognized" national exchange;
* whose prices are not quoted on the NASDAQ automated quotation
system; or
* in issuers with net tangible assets less than $2,000,000, if
the issuer has been in continuous operation for at least three
years, or $5,000,000, if in continuous operation for less than
three years, or with average revenues of less than $6,000,000
for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 of the Securities and
Exchange Commission require broker/dealers dealing in xxxxx stocks to provide
potential investors with a document disclosing the risks of xxxxx stocks and
to obtain a manually signed and dated written receipt of the document before
making any transaction in a xxxxx stock for the investor's account. You are
urged to obtain and read this disclosure carefully before purchasing any of
our shares.
Rule 15g-9 of the Securities and Exchange Commission requires
broker/dealers in xxxxx stocks to approve the account of any investor for
transactions in these stocks before selling any xxxxx stock to that investor.
This procedure requires the broker/dealer to:
* get information about the investor's financial situation,
investment experience and investment goals;
* reasonably determine, based on that information, that
transactions in xxxxx stocks are suitable for the investor and
that the investor can evaluate the risks of xxxxx stock
transactions;
* provide the investor with a written statement setting forth
the basis on which the broker/dealer made his or her
determination; and
* receive a signed and dated copy of the statement from the
investor, confirming that it accurately reflects the
investor's financial situation, investment experience and
investment goals.
Compliance with these requirements may make it harder for our selling
stockholders and other stockholders to resell their shares.
35
INTEREST OF NAMED EXPERTS AND COUNSEL
-------------------------------------
We have included our financial statements as of December 31, 2000 and
1999, in reliance on the report of Xxxxxxxxx, Xxxxx & Xxxxx of Salt Lake City,
Utah, independent certified public accountant. Xxxxxxxxx, Xxxxx & Xxxxx has
no interest, direct or indirect, in our company.
We have included the financial statements of Wizzard Delaware as of
December 31, 2000 and 1999 in reliance on the report of Xxxxxx & Xxxxxx of
Clinton, Maryland, independent certified public accountant. Xxxxxx & Xxxxxx
has no interest, direct or indirect, in our company.
Xxxxxxx X. Xxxxxxxxxx, Esq. and Xxxxxxx X. Xxxxxxxxxx, Esq., lawyers, of
Salt Lake City, Utah, are co-counsel for our company. With the exception that
Xxxxxxx X. Xxxxxxxxxx, Esq. is the owner of 29,100 shares of our common stock,
owns warrants to acquire an additional 60,000 shares of our common stock and
has an option to acquire up to 100,000 shares of our common stock for services
rendered and to be rendered at 50% of the last five day bid price average of
our common stock on the OTC Bulletin Board at the end of each monthly billing
cycle as described in this prospectus, neither has any interest, direct or
indirect, in our company. Messrs. Xxxxxxxxxx and Xxxxxxxxxx have prepared the
registration statement and this prospectus and will provide any legal
opinions required with respect to any related matter.
We have not hired any expert or counsel on a contingent basis. Except as
indicated above, no expert or counsel will receive a direct or indirect
interest in our company, and no such person was a promoter, underwriter,
voting trustee, director, officer or employee of our company.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
-----------
Section 0-000-000 of the Colorado Code authorizes a Colorado corporation
to indemnify any director against liability incurred in any proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
or her conduct was unlawful.
Unless limited by the Articles of Incorporation, Section 0-000-000
authorizes a director to apply for indemnification to the court conducting the
proceeding or another court of competent jurisdiction. Section 0-000-000
extends this right to officers of a corporation as well.
Unless limited by the Articles of Incorporation, Section 0-000-000
requires that a corporation indemnify a director who was wholly successful in
defending any proceeding to which he or she was a party against reasonable
expenses incurred in connection therewith. Unless limited by the Articles of
Incorporation, Section 0-000-000 extends this protection to officers of a
corporation as well.
Pursuant to Section 0-000-000, a corporation may advance a director's
expenses incurred in defending any action or proceeding upon receipt of an
undertaking and a written affirmation of his or her good faith belief that he
or she has met the standard of conduct specified in Section 0-000-000. Unless
36
limited by the Articles of Incorporation, Section 0-000-000 extends this
protection to officers of a corporation as well.
Regardless of whether a director, officer, employee or agent has the
right to indemnity under the Colorado Code, Section 0-000-000 allows the
corporation to purchase and maintain insurance on his or her behalf against
liability resulting from his or her corporate role.
Article VIII of the Company's Bylaws reiterates the provisions of
Section 0-000-000 of the Colorado Code, and extends this protection to
officers and employees of the Company. Article VIII also provides that a
judgment or conviction, whether based upon a plea of guilty or nolo contendere
or its equivalent, or after trial, shall not in and of itself be deemed to be
an adjudication that such director, officer or employee is liable to the
Company for negligence or misconduct in the performance of his or her duties.
This determination can be made, at the option of the director, officer or
employee seeking indemnification in any of the following manners:
* order of the court or administrative agency having
jurisdiction of the action, suit or proceeding;
* resolution of a majority of the non-interested members of the
Board of Directors;
* if there is no quorum after excluding interested directors, by
majority resolution of a committee of non-interested
stockholders and directors appointed by the Board of
Directors;
* resolution of a majority of the quorum directors at any
meeting; or
* an order of any court having jurisdiction over us.
DESCRIPTION OF BUSINESS
-----------------------
Business Development.
---------------------
We were incorporated in Colorado on July 1, 1998, to be a holding company
and financing vehicle for The Balanced Woman, a Colorado corporation, and
other companies or projects.
On July 14, 1998, we acquired all of the outstanding securities of The
Balanced Woman. We then had no other business plan other than to function as
the holding company and to financially support The Balanced Woman.
Until the quarter ended June 30, 2000, we conducted seminars on issues of
primary concern for women and marketed certain products tailored to women
though our wholly-owned subsidiary, The Balanced Woman.
On May 26, 2000, we conveyed all of the outstanding securities of The
Balanced Woman that we then owned to our stockholders in exchange for
outstanding warrants or options to acquire shares of our common stock that
these stockholders and others owned. We accomplished this disposition under
Rule 506 of Regulation D of the Securities and Exchange Commission. This was
done in anticipation of acquiring Wizzard Delaware.
37
On May 30, 2000, we received, accepted and signed a copy of a Letter of
Intent under which we proposed to acquire a 96% interest in Wizzard Delaware.
On June 5, 2000, Xxxxxx Services, Inc., a Utah corporation, purchased
4,125,000 shares of our common stock for $25,000. We used these funds to pay
most of the expenses that we incurred in the Wizzard Delaware reorganization.
On February 7, 2001, we completed a Plan of Reorganization and Stock
Exchange Agreement known as the "Wizzard Delaware reorganization." That
transaction involved us; Xxxxxx Services; Wizzard Delaware; and certain
stockholders of Wizzard Delaware that owned about 96% of Wizzard Delaware's
outstanding securities. Under the Wizzard Delaware reorganization, the
Wizzard Delaware stockholders participating in the reorganization exchanged
their shares of Wizzard Delaware, which amounted to a total of 13,049,000
shares, for shares of our common stock in the ratio of 1.027268907 shares for
each exchanged Wizzard Delaware share. On the completion of the Wizzard
Delaware reorganization, the Wizzard Delaware stockholders who were party to
the reorganization owned 13,404,831 shares of our common stock and Wizzard
Delaware became our 96%-owned subsidiary.
We were required to raise at least $500,000 from the private sale of
shares of our common stock as a condition to the closing of the Wizzard
Delaware reorganization. We sold 531,000 shares of common stock in a
private offering at the closing for gross proceeds of $531,000. The offering
continued until May 30, 2001. We sold a total of 671,500 shares for aggregate
gross proceeds of $671,500.
Xxxxxx Services canceled 3,725,000 of the shares that it owned as a
further condition to the closing of the reorganization. It also agreed to
certain lock-up/leak-out conditions affecting the resale of shares of our
common stock that Xxxxxx Services and its associates and other principal
stockholders retained. We also granted to Xxxxxx Services warrants to acquire
540,000 shares of our common stock at an exercise price of $1.00 per share for
a period of 18 months. One-half of these warrants were subject to
cancellation for no additional consideration under certain conditions as
outlined in the warrant table.
Before the completion of the reorganization, we were required to amend
our Articles of Incorporation to:
reflect a re-capitalization of our common stock from 50,000,000
shares at a par value of $0.001 per share to 100,000,000 shares,
with no change in the par value;
effect a 1.65 for 1 forward split of our outstanding common stock;
and
change our name to "Wizzard Software Corporation."
This forward split is reflected in all computations that are contained in
our registration statement or this prospectus.
On May 22, 2001, we acquired 100% of the outstanding securities of Speech
Systems, Inc., a Florida corporation, in exchange for 500,000 shares of our
common stock. The assets of Speech Systems consisted solely of all right,
title and interest in certain copyrights, patents, trademarks, trade secrets
and other legal protections registered, granted or applied for and relating to
Active X Voice Tools, a programming tool developed by Xx. Xxxx Xxxxxxx. Dr.
38
Costilo received 403,000 of these shares as the principal stockholder of
Speech Systems and was elected to our Board of Directors on June 4, 2001.
On September 14, 2001, Wizzard and Maricopa Equity Management Corp.,
a Minnesota corporation, executed a Securities Purchase Agreement under which
we sold Maricopa Series 2001-A Eight Percent (8%) Convertible Notes in the
aggregate principal amount of $250,000. The material terms of the Notes are
fully discussed in the description of our securities.
Business.
---------
General
-------
Wizzard's goal is to be the first choice for companies wanting to adopt
speech recognition software.
We plan to use speech technology partners as resellers and promoters to
achieve rapid growth for our speech recognition programming tools and
products. By using Wizzard's internal and commercially available programming
tools, libraries and pre-made templates, developers using Visual Basic, Visual
C, Borland Delphi, Java, VB Script and Java Script can add speech recognition
for call centers, telephone information entry and desktop forms and
applications, as well as inventory and transaction processing systems.
In management's opinion, the long-term growth and survival of telephone
Interactive Voice Response or "IVR" and desktop Graphical User Interfaces or
"GUI" depend solely on speech recognition as the primary means of navigation
and data entry. We believe that using speech to enter data is more natural
than entering information with the fingers, one character at a time. Until
now, building Conversational Interactive Voice Response or "CIVR" systems has
been difficult and costly. Wizzard's goal is to make this natural form of
interaction with technology as common as speaking to the person sitting next
to you. Over time, as the performance of speech recognition technology
improves, and as the cost of writing and deploying intelligent CIVR
applications decreases, new CIVR applications will become possible. We
believe that our approach to building and deploying speech recognition
applications and programming tools will make using speech recognition
technology easier, and will allow us to create speech recognition applications
faster and less expensively than our competition.
Wizzard Delaware was founded in 1996 with the goal of becoming a complete
speech recognition solution provider. Using speech recognition technology,
customers can accomplish tasks faster and easier than they could using a
traditional keyboard. While not all computing tasks can be made more
efficient by adding speech recognition technology, the ability to use the most
natural form of communication, one's voice, does improve productivity in many
areas. Increased productivity saves significant time and money for users.
When Wizzard Delaware was founded, the emphasis in the speech recognition
industry was on the accuracy of the speech recognition engine itself. A
company without its own speech recognition engine was not considered to be a
viable industry participant. Our founders, Xxxxx Xxxxxxx and Xxxxx Xxxxxxxx,
however, believed that the future of the industry would not be based on the
actual speech recognition engine, but on how that technology was applied in
the workplace. Our founders believed that having a powerful speech
recognition engine would be desirable, but that if it did not work with the
39
software that businesses use, it would be useless. We anticipated that
speech recognition engines created by entities such as Dragon Systems, IBM,
Lernout & Hauspie, Philips and Microsoft would eventually become just one
piece of a more complex equation. Messrs. Xxxxxxx and Geronian further
predicted that speech recognition engines would become commonplace and that
eventually Microsoft would install a speech recognition engine in its
operating system, making it ubiquitous.
Wizzard's founders believed that how the speech engine interacted with
databases, telephone call centers, customer relationship management software,
order entry applications, forms, patient and client notes would provide the
greatest future growth and revenue possibilities. No two companies are the
same, and their workers use a variety of software to perform their jobs.
Therefore, when the time came, companies would require multiple applications
using customized speech recognition. With this in mind, we set out to build a
large selection of internal development programming tools or building blocks.
These tools would allow Wizzard's programmers to construct speech recognition
applications more efficiently than our competitors by having the majority of
the work already completed. These tools would allow Wizzard to create
applications that work with any speech recognition engine. This would
eliminate our worry about which speech recognition engine manufacturer to
align with, as well as the need for us to have an engine of or own. We
believed that once the accuracy of the speech recognition engines reached a
productive level, primary revenues would come from delivering customized
programming tools and applications using speech recognition.
It was only recently, when IBM, Dragon and other speech recognition
engine manufacturers released the latest version of their engines, that speech
recognition accuracy became productive for desktop users. While still not a
perfect technology, after six years of working and planning, speech
recognition technology is finally at a point where it is poised to become
widely accessible, and where Wizzard's speech recognition enabled applications
and programming tools will show their productivity benefits. Microsoft
recently released speech recognition in its MS OfficeXP product. Now,
OfficeXP users all over the country will soon have a speech recognition engine
that works well, but only allows them to dictate into MS Word, Outlook and
Excel. Because the speech recognition engine included with MS OfficeXP is
based on the open Speech API standard, Wizzard's programming tools and
applications will work with this engine. Microsoft also plans to include a
version of its speech recognition engine in the WindowsXP operating system.
Very soon, almost everyone will have an engine in his or her computer. We
believe that this will open a very large market to us.
Products and Marketing Strategy.
--------------------------------
The general consensus in the software industry is that, out of 120
million total users of Microsoft's Office product, 45 million will upgrade to
the new version in the next 18 months. This translates into 45 million
potential new speech recognition users. Wizzard believes that, once these
users see the benefits of speech recognition interaction with their computers,
there will be an increased demand to add speech recognition to other
applications outside of MS Office. We believe that we are in position to
capitalize on this demand by delivering:
* programming tools;
* customized application development services for businesses;
and
40
* consumer applications.
Programming Tools.
------------------
ActiveX Voice Tools 7.0 -
With so many business workers soon to be using speech recognition with MS
OfficeXP and WindowsXP, Wizzard believes that the demand to expand speech
recognition to other applications beyond MS OfficeXP will increase
significantly. In response, businesses will explore the possibility of adding
speech recognition to other software applications their employees use. When a
software programmer or developer wants to create an application to run on
Windows, they use programming tools. We believe that our programming tools
will allow the most general developer to design and implement low-cost speech
recognition solutions. In preparation for the increased demand for speech
recognition application development, we recently purchased the ActiveX Voice
Tools created by Speech Solutions. The ActiveX Voice Tools have won the
Visual Basic Programmer's Journal Award for being the best speech recognition
programming tools on the market for the last two years. By purchasing the
best commercially available programming tools for speech recognition
application development, and by combining them with Wizzard's internal tools
developed over the last five years, we believe that we now have the best set
of programming tools in the speech recognition industry.
We plan to sell ActiveX Voice Tools 7.0 through our web site, various
programming trade journals such as Programmers' Paradise and Visual Basic
Programmers Journal; value added resellers; and at programming trade shows.
Traditionally, software programmers are very loyal to the tools they use.
Therefore, we believe that our competitors will have difficulty supplanting
our early market penetration. With Wizzard's technical lead, our goal is for
our ActiveX Voice Tools to become the standard by which all speech recognition
applications are created.
MedBuilder ToolKit -
The MedBuilder ToolKit allows medical IT professionals to add speech
recognition to the pharmaceutical order process for major government hospital
information systems or "CHCS" used in most military medical facilities. This
allows doctors to enter pharmaceutical "ICD-9" and "CPT" codes in a much more
productive manner. Future applications of this toolkit will allow medical IT
professionals to speech enable any list-oriented process, such as lab orders,
within CHCS hospital information systems. By adding speech recognition to
this system, and by reducing the amount of keystrokes required to complete
specific repetitive tasks, we believe that doctors can save up to one hour per
day.
This product is a subpart of Wizzard's Voice Tools product. It allows
the average information technology professional or "IT" professional to add
speech recognition to certain areas based on specific job requirements.
Rather than a "one size fits all" application, or using programming tools
which require costly programming resources, the MedBuilder ToolKit can be used
by a non programmer, saving customers time and money. With the power of our
internal programming tool, Wizzard can build these types of customized toolkit
subsets very quickly and can offer this type of product for a wide variety of
enterprises beyond the healthcare market.
41
We expect that MedBuilder 1.0 will retail for $10,000 to $60,000, based
on the number of seats per facility. Simultaneous with the release of the
MedBuilder 1.0 ToolKit, Wizzard has announced the formation of a Tier One
marketing partnership with TrueGrit Information Systems Inc., an IBM certified
speech reseller, to market MedBuilder 1.0 ToolKit to the 175 U.S. military
hospitals and clinics worldwide. In the future, Wizzard plans to sign up
additional resellers and value added resellers to market this product to for-
profit hospitals.
Envox UM Tools
Telephony speech recognition, as opposed to desktop speech recognition,
is a strong growth area in our industry. Envox is a leading maker of software
tools for standard DTMF, or touch tone, call centers. We have formed a
strategic partnership with Envox which we expect to result in our customized
e-mail messaging tools being included on the next version of Envox's
development environment, to be released in early 2002. The resulting
applications developed with these tools will allow mobile workers to call in
and check their Exchange or Outlook e-mail through the telephone, using speech
recognition technology. We expect the inclusion of Wizzard's tools to drive
sales by allowing Envox's approximately 3,000 resellers and developers, in
their established partner channel, to return to previous accounts and
customers and allow them to expand on their current telephone systems. Envox
has been marketing its development platform aggressively, and we believe that
this is the one missing piece of technology that their customers have been
consistently requesting. Wizzard is in the process of filling that need now.
An Alpha version is currently being tested and as soon as we have feedback
from Envox, we will move to Beta stage testing. Wizzard expects to have its
UM tools burned into Envox's CD-ROM, and to begin collecting licensing fees of
approximately $80 per port, by early 2002.
Additional Programming Tools -
In addition to the programming tools mentioned above, Wizzard also has
tools for:
ActiveX/COM DLL SMAPI Objects for IBM ViaVoice speech recognition
engine, which allows Wizzard to deliver solutions using IBM's
ViaVoice engine;
SMAPI Controls ActiveX/COM OCX for the IBM ViaVoice engine, which
allows outside developers to create customized speech recognition
applications using IBM's speech engine;
IVA SDK Script, a scripting language for use by end users to
customize our speech recognition applications so that minimal
behavioral modifications are necessary for the user to
productively use speech recognition. This allows the end user to
easily tailor our application to his or her specific habits and
repetitions.
Custom Development Services.
----------------------------
We come into contact with large numbers of software developers interested
in building speech recognition applications. Most of these developers will be
employed by businesses in the U.S. and will have been instructed to
investigate and develop a speech recognition application for their companies.
42
Because speech recognition application development is relatively new, and
since there are few programmers trained in this process, we will also offer to
create and customize our customers' particular speech enabled applications.
Our programming team has significant experience in this area, and we can
provide consulting services at any stage of the speech recognition application
development process. Wizzard is in position to offer our customers services
ranging from proof of concept modeling, through the design and architecture
phase, to total speech application development, testing and release product
fulfillment. We believe that this will allow clients to save considerable
money over the alternative of employing, training and managing several
programmers to do the job in-house. In addition to customization services,
Wizzard also plans to offer installation, training and ongoing technical
support services that can significantly increase revenues generated on a per
customer basis.
We believe that offering customized solutions across entire industries
will fuel future growth. If we build a custom application for a hospital that
uses a specific software application for patient records, we can then partner
with a consulting firm or value added reseller specializing in the healthcare
industry, and have them sell the solution to hospitals across the country. We
have begun this strategy with our MedBuilder Toolkit we developed the
solution and then formed a marketing partnership with one of the leading sales
organizations in that industry. Wizzard is currently working with established
market leaders within well-defined markets to help them differentiate
themselves from their competition by voice enabling their industry-leading
software applications. Law enforcement, real estate and financial service
industries have been identified as markets with revenue potential for Wizzard.
This model can work with virtually any customized solution we build, with the
potential for revenue growth in both product sales and customization services.
Consumer Applications.
----------------------
Interactive Voice Assistant
We offer an Interactive Voice Assistant, or "IVA," through which a
character appears on the desktop and interacts with the user verbally through
speech recognition and text-to-speech technology, providing the user with a
unique and functional Personal Assistant. Because it supports over 50 of the
most popular software applications, Wizzard's IVA can perform e-mail
functions, surf the web, assist in dictating letters and instant messages, and
much more. Wizzard's IVA product currently uses IBM's ViaVoice speech
recognition engine through a five-year technology and marketing partnership
between IBM and Wizzard. We are now finalizing changes to IVA so that it will
seamlessly plug into the speech recognition engine included with MS OfficeXP;
but beyond this, its speech capabilities have expanded to other software
applications such as AOL, MSN, Internet Explorer, Quicken, Hotmail, Eudora,
Lotus Notes, ICQ, AOL Messenger, DialPad, Global Language Translator, and
ACT!. The product has very limited competition. While this product is not
currently Wizzard's primary focus, in the future we expect it to be the
standard for consumers seeking to expand their speech recognition capabilities
beyond MS OfficeXP. We believe that the market for this type of product is
large and that our IVA is years ahead of any similar product currently
available.
Thanks to a co-marketing agreement between Wizzard and Quixtar, over
400,000 Quixtar distributors can now earn a commission from Quixtar for
marketing our IVA product to their customers. We have created demo CD-ROMs
43
and other sales tools for these distributors, and have been shipping and test
marketing IVA via this channel for two years. Rather than launch this sales
program now, we plan to grow our other product lines prior to the launch of
IVA, and to wait for the proliferation of speech recognition engines through
MS OfficeXP and WindowsXP. We anticipate that additional sales channels for
growth beyond the Quixtar distribution network will be: Wizzard's web site,
retail stores, AOL, The Home Shopping Network and partnerships with companies
whose products we have added a speech recognition interface to, such as
Intuit, AOL and Eudora.
Support-Installation-Training Services.
---------------------------------------
Voice Tools Support: We estimate that 10% of our customers will purchase
a $1,000 Level 3 annual support package from Wizzard.
Envox UM Tools Support: We estimate that 10 new resellers will purchase
Level 3 support per quarter, with that number growing to 20 new resellers per
quarter beginning in the fourth quarter of 2002, and continuing at 20 per
quarter through the third quarter of 2003. The price will be $1,250 per year.
IVA Support: Free to consumers.
MedBuilder Tools Support: We estimate that the customer will make at
least 5 calls for support at $50 per call.
Custom Development Contracts: All custom development contracts will
include a service agreement which will provide for Xxxxx 0 technical support,
training the end users, training the trainer and installation support. These
service agreements typically generate revenue in excess of 25% of the
development contract, but can be much higher if travel and on-site support is
necessary.
Research and Development
------------------------
During the calendar years ended December 31, 1999, and 2000, we spent
$96,421 and $95,325, respectively, on research and development.
Our research and development over the last three years has focused on our
Interactive Voice Assistance product as well as our internal speech
recognition development tools. Our IVA has undergone two major revisions
during this period of time solely based upon customer feedback. We have
created internally hundreds of programming objects and modules which allow our
engineers to create better speech recognition applications, faster and more
efficiently. Our programmers use these modules to create applications without
having to recreate the wheel for every customer. A majority of the customized
product is already completed, and it becomes a factor of piecing the correct
modules together and customizing the interface for the customer by using these
internal programming modules. We plan to port our IVA platform as well as our
programming tools to the SAPI 5.0 standard over the next year. This will
allow our applications to work with any brand of speech recognition engine and
make us less reliant on specific companies. We plan a new release of our IVA
product in the first quarter of 2002, as well as a new set of internal tools
for developers in the fourth quarter of 2001.
Necessary Material
-------------------
44
Beyond basic materials such as CD-ROMs, jewel cases that hold the CD-ROMs
and printing, which are all readily available from multiple sources, we are
dependant upon 3-5 speech recognition companies to license us their speech
recognition engines. It is these engines on which we create our applications.
We do not foresee any difficulty in continuing to license these engines, due
to the competitive market between the manufacturers of the speech recognition
engines. Furthermore, Microsoft is beginning to distribute their new speech
recognition engine for free in upcoming versions of their Windows operation
system and their Office suite of business products. The microphones that we
ship with our products are purchased from Xxxxxx Electronics and Plantronics
and are readily available through other companies in equally acceptable
quality levels due to an extremely competitive market for microphone headsets.
Licenses
--------
We have the following licenses that are integral to our business
operations:
IBM ViaVoice speech recognition engine;
Dragon speech recognition engine; and
Microsoft Agent Technology;
We pay IBM a royalty of $18.00 for every IVA copy that we sell. This
royalty is reduced to $12.00 if we sell more than 10,000 units.
Patents Pending
---------------
We have filed for the following patents, but we cannot assure that any
patents will be issued to us:
Interactive Voice-Driven Training Manual and Process, filed July 12,
2000, Serial No. 60/217,688; and System and Process for Adjusting Device
Operating Characteristics to Improve Software Application Performance, and
System and Method for Handling Hardware Conflicts Generated by Competing
Software Applications, filed July 12, 2000, Serial No. 60/217,739.
Interactive Voice-Driven Training Manual and Process
----------------------------------------------------
This invention relates to an interactive training manual and process and
more particularly to achieve interactive training for multiple third party
software applications. One or more of the interactive characters appear on
the computer screen and may be animated while the Talking Manual generates
speech through speech synthesis and otherwise. In the preferred embodiment,
these interactive characters simulate live characters that generate speech
being broadcast to a trainee. The Talking Manual methodically walks the
trainee through the process of how to use certain software applications or
other trains the user on specified information both visually and verbally.
System and Process for Adjusting Devise Operation Characteristics to
Improve Software Application Performance, and System and Method for
Handling Hardware Conflicts Generated by Competing Software
Applications
------------
45
This invention allows for the automatic adjustment of the volume control
of the sound card on personal computers and laptops. Because certain hardware
and software devices adjust the sound card volume when installed or during
use, the sound card volume may not be at the appropriate level for use with
speech recognition. Therefore, this process allows for the monitoring of the
sound card volume and the adjustment to the appropriate level for use with
speech recognition while the user is in the process of using speech
recognition.
Environmental Compliance
------------------------
We do not believe that there are any material laws, rules or regulations
regarding environmental concerns that are applicable to our present or
intended business operations.
Governmental Regulations
------------------------
There are no present governmental regulations that are likely to affect
our present or proposed business operations. State sales taxes are not
currently required to be collected on Internet sales, but any future sales tax
requirements may affect our customer's purchasing decisions, and some
purchasers may stop ordering products over the Internet. As of October 21,
2001, the United State Congress had not extended its prohibition on state
taxes and regulation of the Internet, and the effects of this cannot yet be
predicted.
Employees
---------
Currently, we have seven full time employees and two part time employees.
We plan to bring this number up to 20 in 2002, if the necessary funding can be
raised to expand our operations. The majority of new employees will come in
the form of day to day management as well as sales personnel. We plan to hire
a Vice President of Operations, as well as a Vice President of Sales and
Marketing, as soon as funds to support these positions become available. We
also plan to hire several sales persons to handle our trade shows as well as
market our customized development services to businesses nationwide.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Plan of Operation.
------------------
Over the next 12 months, we plan to expand our marketing efforts for our
products. Currently, we offer this product through our own web site as well
as through resellers and a few strategic online partners. We plan to grow our
distribution channels to include other high profile companies to expand our
products' reach and exposure. This will include:
* Growing the number of distributors for our consumer products.
We plan to use Xxxxxxx.xxx's 400,000 Independent Business
Operators, who earn commissions selling our product to their
customers, to promote our products, expanding our presence
nationwide;
46
* Acquiring additional distribution partners for our programming
tools; and
* Hiring and training an internal sales force of at least 10
highly motivated, high quality individuals who will blanket
the U. S. Market in search of companies needing speech
recognition solutions for our customization solutions.
We also plan to generate leads for these sales people through various
partnerships and a conservative, extremely targeted print market campaign. We
will need to raise at least $1,000,000 and preferably $3,000,000 to
$5,000,0000 during the next two years to cover intended operations. We are
considering various financing options and anticipate executing one or more of
our financing options in the near future. Currently, our cash on hand will
not last us through the next 12 months, and we may have to curtail operations.
This could have a very adverse effect on our future prospects.
Our Independent Auditor's Report contains a "going concern" qualification
because we have not yet established profitable operations, have incurred
significant losses since our inception, our current liabilities exceed our
current assets at the time of their report and we had a stockholders' deficit
at the time of their report. We still have yet to establish profitable
operations and have and continue to incur losses on our operations, along with
not having sufficient cash on hand for intended operations for the next 12
months.
Results of Operations.
----------------------
Sales for the six months ended June 30, 2001, were $60,146 a decrease of
$70,415 or 54% as compared with $131,564 for the six month ended June 30,
2000. Sales for the year ended December 31, 2000, were $189,625, a decrease
of $51,976 or 22% as compared with $241,601 for the year ended December 31,
1999. The decrease in sales was due to successful market penetration in 1999
which resulted in a smaller opportunity in 2000.
Operating expenses for the six months ended June 30, 2001, were $431,947,
a decrease of $365,440 or 46% as compared with $797,387 for the six month
ended June 30, 2000. The decrease in expenses was due to . Operating
expenses for the year ended December 31, 2000 were $1,503,994, an increase of
$770,266 or 105% as compared with $733,728 for the year ended December 31,
1999. The increase in expenses was due to
The net loss for the six months ended June 30, 2001, was $(401,509), a
decrease of $318,547 or 44% as compared with $(720,056) for the six month
ended June 30, 2000. The decrease in the net loss was primarily
attributable to the decreases in operating expenses, including a reduction in
the number of employees and marketing expenditures related to our customers.
Marketing efforts are now conducted through a few key business partnerships,
resulting in lower marketing costs and fewer employees. The net loss for the
year ended December 31, 2000 was $(1,380,670), an increase of $754,417 or 120%
as compared with a net loss of $626,253 for the year ended December 31, 1999.
The increased net loss was due to increase operating expenses including
Liquidity and Capital Resources.
--------------------------------
For the Six Months Ended June 30, 2001:
---------------------------------------
47
At June 30, 2001, we had cash of $1,111 and working capital of $17,287.
During the six months ended June 30, 2001, we used $407,319 in operations and
used a total of $57,813 in investing activities including purchasing $22,896
in equipment and issuing notes receivable of $34,917, which were offset during
the quarter to acquire rights to a merchant operating understanding.
Financing activities for the six months ended June 30, 2001, provided net
cash of $241,100 through issuance 671,500 shares of common stock in a private
placement for cash of approximately $489,000, $7,100 in advances from a
related party net of $255,000 in payments of long-term obligations.
We also issued during the six months ended June 30, 2001, a total of
1,345,000 shares of common stock net of 532,500 shares returned and canceled,
to purchase all the outstanding shares of Speech Systems, Inc. at $500,000; in
payment of $495,000 in long term obligations; and in connection with entering
into an advertising agreement valued at $350,000.
For the Year Ended December 31, 2000:
-------------------------------------
At December 31, 2000, we had cash of $54,143, net of $171,000 held escrow
that was released during February 2001 upon our meeting the minimum
requirements of the private placement offering to complete the Wizzard
Delaware reorganization, and a working capital deficit of $(683,707). During
the year ended December 31, 2000, we used $1,259,494 in operations and used a
total of $44,832 in investing activities to purchase equipment .
Financing activities provided a net $1,204,804 through issuance shares of
common stock for cash and services of approximately $455,658, the issuance of
$750,000 in notes payable and payment of $854 in stockholder loans.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Transactions with Management and Others.
----------------------------------------
There have been no material transactions, series of similar transactions
or currently proposed transactions, to which our company or any of our
subsidiaries was or is to be a party, in which the amount involved exceeded
$60,000 and in which any director or executive officer, promoter or founder or
any security holder who is known to us to own of record or beneficially more
than five percent of our common stock, or any member of the immediate family
of any of the foregoing persons, or any promoter or founder had a material
interest.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
Market Information.
-------------------
Our common stock is currently traded on the OTC Bulletin Board of the
NASD under the symbol "WIZD." However, the market for our common stock is
extremely limited in volume. We can not guarantee that the present market for
our common stock will continue or be maintained, and the sale of unregistered
and restricted common stock pursuant to Rule 144, or of the shares being
48
registered for resale under this prospectus by the selling stockholders, may
substantially reduce the market price of our common stock.
The quarterly high and low bid prices for our shares of common stock
since public trading of these shares commenced in April, 2000, are as
follows:
Bid
---
Quarter or period ending: High Low
------------------------- ---- ---
June 30, 2000 $1.00 $1.00
September 30, 2000 $4.00 $1.00
December 31, 2000 $3.25 $0.0625
January 2, 2001 through
February 8, 2001 $1.00 $0.625
February 9, 2001 through
March 31, 2001 $5.375* $3.00*
April 2, 2001 through
June 29, 2001 $3.65* $1.65*
July 2, 2001 through
September 28, 2001 $3.15* $1.58*
* Following a 1.65 for one forward split.
These bid prices were obtained from the National Quotation Bureau,
LLC or the NQB, and do not necessarily reflect actual transactions, retail
markups, xxxx xxxxx or commissions.
Resales of Restricted Securities.
---------------------------------
Approximately 597,967 shares of our common stock are publicly traded.
This number will be increased by the 4,127,383 presently outstanding shares
that may be offered by this prospectus, along with the 1,788,076 shares
underlying the warrants, the 500,000 shares into which the Series 2001-A Eight
Percent (8%) Convertible Notes can be converted and the 100,000 shares that
can be issued for legal services that also may be offered by this prospectus.
We have agreed to acquire by registration or an available exemption from the
registration requirements of the Securities Act all of the remaining
outstanding shares of Wizzard Delaware, our 96%-owned subsidiary. This would
increase our outstanding shares by an additional 588,082 shares. In addition,
there are 11,978,831 shares of our common stock that will have satisfied the
one year holding period for limited resales under Rule 144 on or after
February 7, 2002. This substantial increase in the available shares for
publicly trading from 597,967 shares to 7,210,104 shares on the effective date
of our registration statement and the availability of these other shares for
future public sale may dramatically reduce the price of our common stock on
49
the basis of supply and demand alone.
Holders.
--------
As of the date of this prospectus, we have about 83 stockholders. This
figure does not include an indeterminate number of stockholders who may hold
their shares in street name.
Dividends.
----------
We have not declared any cash dividends on our common stock, and do not
intend to declare dividends in the foreseeable future. Management intends to
use all available funds for the development of our plan of operation. There
are no material restrictions limiting, or that are likely to limit, our
ability to pay dividends on our common stock.
EXECUTIVE COMPENSATION
----------------------
Cash Compensation.
------------------
The following table shows the aggregate compensation that we have paid to
directors and executive officers for services rendered during the periods
indicated:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
-----------------------------------------------------------------
Xxxxxxxxxxx 6/30/01 $23247 0 0 0 0 0 0 *
X. Xxxxxxx,12/31/00$101992 0 0 0 0 0 0 *
President 12/31/99 $62992 0 0 0 0 0 0 *
and Director
Xxxxx 6/30/01 $22500 0 0 0 0 0 0 *
Geronian 12/31/00 $60000 0 0 0 0 0 0 *
Asst. Sec. 12/31/99 $61000 0 0 0 0 0 0 *
and Director
Xxxxxx 6/30/01 $13740 0 0 0 0 0 0 0$1500*
50
Xxxxx, 12/31/00 $24676 0 0 0 0 0 0 0$1500*
Director 12/31/99 $ 8676 0 0 0 0 0 0 0$1500*
* Medical insurance is paid as part of Xx. Xxxxxxx'x salary; Xx.
Xxxxxxxx gets his medical insurance paid; and Xx. Xxxxx gets a
$1,500 automobile allowance.
Compensation Pursuant to Plans.
-------------------------------
We have no incentive or bonus plans.
Pension Table.
--------------
We have no pension plans.
Other Compensation.
-------------------
We have no other compensation arrangements with any of our directors or
executive officers.
Compensation of Directors.
--------------------------
We have no compensation for directors.
Employment Contracts.
---------------------
There are presently no employment contracts relating to any member
of management.
Termination of Employment and Change of Control Arrangements.
-------------------------------------------------------------
None; not applicable.
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
We have no securities registered under Section 12 of the Exchange Act.
We file reports under Section 15(d) thereof. Accordingly, our directors,
executive officers and 10% stockholders are not required to file statements of
beneficial ownership of securities under Section 16(a) of the Exchange Act.
FINANCIAL STATEMENTS
--------------------
(i) Financial Statements for the years ended December 31, 2000
and 1999 of Wizzard Software Corporation, a Colorado corporation
Independent Auditors Report
Balance Sheet - December 31, 2000
51
Statements of Operations for the
Years ended December 31, 2000 and 1999 and from
inception on January 26, 1998 through December 31, 2000
Statements of Stockholders' Deficit from the date of
Inception on January 26, 2998 through December 31,
1999
Statement of Cash Flows for the
Years Ended December 31, 2000 and 1999 and from inception
on January 26, 1998 through December 31, 2000
Notes to Financial Statements
(ii) Financial Statements for the years ended December 31, 2000
and 1999 of Wizzard Software Corporation, a Delaware corporation
Independent Auditor's Report
Balance Sheets for the years ended December 31, 2000 and 1999
Statements of Income for the years ended December 31, 2000 and
1999
Statements of Retained Earnings for the years ended December 31,
2000 and 1999
Statements of Cash Flows for the years ended December 31, 2000 and
1999
Notes to Financial Statements
(iii) Supplementary Information of Wizzard Software Corporation,
a Delaware corporation
Independent Auditor's Report on Supplementary Information
Schedule I-Summaries of Cost of Goods Sold
Schedule II-Summaries of Operating Expenses
Schedule III-Summaries of Net Change in Receivables, Payables,
Inventory, Prepaid and Accrued Items
(iv) Pro Forma Financial Information, taking into account the
reorganization between Wizzard Software Corporation, a Colorado
corporation, and Wizzard Software Corporation, a Delaware
corporation.
Pro Forma Condensed Combined Financial Statements
Pro Forma Condensed Combined Balance Sheet
Pro Forma Condensed Combined Statement of Operations
Notes to Pro Forma Condensed Combined Financial Statements
(v) Financial Statements for the period ended June 30, 2001 of Wizzard
52
Software Corporation, a Colorado corporation
Condensed Consolidated Balance Sheet for the period ended June 30,
2001
Condensed Consolidated Statements of Operations for the three months
and six months ended June 30, 2001 and 2000
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000
Notes to Financial Statements
55
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
FINANCIAL STATEMENTS
DECEMBER 31, 2000
56
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
CONTENTS
PAGE
Independent Auditors' Report 1
Balance Sheet, December 31, 2000 2
Statements of Operations, for the years ended
December 31, 2000 and 1999 and from inception
On January 26, 1998 through December 31, 2000 3
Statement of Stockholders' Deficit, from the date of
inception on January 26, 1998 through December 31, 2000 4
Statements of Cash Flows, for the years ended December 31,
2000 and 1999 and from inception on January 26, 1998
through December 31, 2000 5
Notes to Financial Statements 6 - 13
53
INDEPENDENT AUDITORS' REPORT
Board of Directors
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
Salt Lake City, Utah
We have audited the accompanying balance sheet of Wizzard Software
Corporation, (formerly Balanced Living, Inc.) [a development stage company] as
of December 31, 2000, and the related statements of operations, stockholders'
(deficit) and cash flows for the years ended December 31, 2000 and 1999 and
from inception on January 26, 1998 through December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements audited by us present fairly, in all
material respects, the financial position of Wizzard Software Corporation,
(formerly Balanced Living, Inc.) as of December 31, 2000, and the results of
its operations and its cash flows for the year ended December 31, 2000 and
1999 and for the period from inception through December 31, 2000, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 7 to the financial
statements, the Company has not yet established profitable operations, has
incurred significant losses since its inception has current liabilities in
excess of current assets and has a stockholders' deficit. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 7.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
/s/Xxxxxxxxx, Xxxxx & Xxxxx
Salt Lake City, Utah
March 17, 2001
54
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
BALANCE SHEET
ASSETS
December 31,
2000
___________
CURRENT ASSETS:
Cash held in escrow $ 171,000
___________
Total Current Assets 171,000
DEFERRED STOCK OFFERING COST 29,517
___________
$ 200,517
____________
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 32,982
Advances from investors 171,000
___________
Total Current Liabilities 203,982
___________
STOCKHOLDERS' (DEFICIT):
Preferred stock, $.001 par value,
10,000,000 shares authorized,
no shares issued and outstanding -
Common stock, $.001 par value,
100,000,000 shares authorized,
5,721,951 shares issued and outstanding 5,722
Paid in capital 636,140
Deficit accumulated
during the development stage (645,327)
___________
Total Stockholders' (Deficit) (3,465)
___________
$ 200,517
____________
The accompanying notes are an integral part of this financial statement.
55
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
STATEMENTS OF OPERATIONS
From Inception
For the Year Ended on January 26,
December 31, 1998 Through
_____________________ December 31,
2000 1999 2000
____________________________________
REVENUE $ - $ - $ -
COST OF SALES - - -
___________ __________ ___________
GROSS PROFIT (LOSS) - - -
___________ __________ ___________
EXPENSES:
General and administrative 34,465 - 34,465
___________ __________ ___________
OPERATING LOSS (34,465) - (34,465)
OTHER INCOME (EXPENSE):
Interest expense - - -
___________ ___________ ___________
LOSS BEFORE INCOME TAXES (34,465) - (34,465)
CURRENT TAX EXPENSE - - -
DEFERRED TAX EXPENSE - - -
___________ ___________ ___________
LOSS FROM CONTINUING
OPERATIONS (34,465) - (34,465)
___________ ___________ ___________
DISCONTINUED OPERATIONS:
Loss from operations of The
Balanced Woman, Inc. (176,061) (455,676) (909,928)
Gain on disposal of The
Balanced Woman, Inc. 299,067 - 299,067
___________ ___________ ___________
GAIN (LOSS) FROM DISCONTINUED
OPERATIONS 123,006 (455,676) (610,862)
___________ ___________ ___________
NET INCOME (LOSS) $ 88,541 $ (455,676) $ (645,327)
___________ ___________ ___________
INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ (.02)$ - $ (.01)
Discontinued operations $ (.04)$ (.39) $ (.34)
Disposal of operations $ .07 $ - $ .11
___________ ___________ ___________
INCOME (LOSS) PER COMMON SHARE .01 (.39) (.24)
___________ ___________ ___________
The accompanying notes are an integral part of these financial statements.
56
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' DEFICIT
FROM THE DATE OF INCEPTION ON JANUARY 26, 1998
THROUGH DECEMBER 31, 1999
Deficit
Accumulated
Common Stock During the
______________________ Paid in Development
Shares Amount Capital Stage
______________________ ___________ ____________
BALANCE, January 26, 1998 - $ - $ - $ -
Issuance of 165,000 shares
common stock for cash,
February 10, 1998 at $.006
per share 165,000 165 835 -
Effect of reorganization of
the Company through the
issuance of 825,000 shares of
common stock to acquire "The
Balanced Woman, Inc." pursuant
to agreement and plan
reorganization on July 14, 1998 825,000 825 1,175 -
Consideration received for the
grant of 825,000 non-qualified
stock options, at $.006 per
underlying share of stock - - 5,000 -
Consideration received for the
grant of 61,875 stock warrants,
at $.61 per warrant - - 37,500 -
Net loss for the period ended
December 31, 1998 - - - (278,192)
___________ ________ __________ ____________
BALANCE, December 31, 1998 990,000 990 44,510 (278,192)
Non-cash consideration received
for the grant of 49,500 stock
warrants, at $.61 per warrant - - 30,000 -
Issuance of shares common stock
for retirement of debt at $1.21
per share, April 1999 276,951 277 335,085 -
Issuance of 165,000 shares
common stock for cash at $1.21
per share, September 1999 165,000 165 199,835 -
Net loss for the year ended
December 31, 1999 - - - (455,676)
___________ ________ __________ ____________
BALANCE, December 31, 1999 1,431,951 1,432 609,430 (733,868)
Issuance of common stock for
services rendered valued at
$.03 per share, May 2000 165,000 165 4,835 -
Issuance of common stock for
cash at $.006 per share,
May 2000 4,125,000 4,125 20,875 -
Cash contributed by a
shareholder - - 1,000 -
Net loss for the year ended
December 31, 2000 - - - 88,541
___________ ________ __________ ____________
BALANCE, December 31, 2000 5,721,951 $ 5,722 $ 636,140 $ (645,327)
___________ ________ __________ ____________
The accompanying notes are an integral part of this financial statement.
57
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
From Inception
For the Year Ended on January 26,
December 31, 1998 Through
______________________ December 31,
2000 1999 2000
______________________ ____________
Cash Flows Used by Operating Activities:
Net Income (loss) $ 88,541 $ (455,676) $ (645,327)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation 407 738 1,509
Non cash expense 5,000 40,362 82,862
Gain on sale of subsidiary (299,067) - (299,067)
Changes in assets and liabilities:
Increase in inventory 463 8,612 (4,152)
Increase in prepaid assets - 34,795 (600)
Increase in accounts payable 9,152 25,964 40,986
Increase in accrued liabilities 13,732 (4,600) 14,511
____________________________________
Net Cash Used by Operating
Activities (181,772) (349,805) (809,278)
____________________________________
Cash Flows Used by Investing Activities:
Equipment purchases - (1,086) (4,722)
____________________________________
Net Cash Used by Investing Activities - (1,086) (4,722)
____________________________________
Cash Flows Provided by Financing Activities:
Proceeds from options granted - - 5,000
Advances received from investors 171,000 - 171,000
Proceeds from common stock issuance 25,000 200,000 228,000
Proceeds from issuance of warrants
and notes payable 150,000 100,000 580,000
Contributed capital 1,000 - 1,000
____________________________________
Net Cash Provided by Financing
Activities 347,000 300,000 985,000
____________________________________
Net Increase in Cash 165,228 (50,891) 171,000
Cash at Beginning of Period 5,772 56,663 -
____________________________________
Cash at End of Period $ 171,000 $ 5,772 $ 171,000
____________________________________
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest $ - $ 9,400 $ 24,880
Income taxes $ - $ - $ -
Supplemental schedule of Noncash Investing and Financing Activities:
For the year ended December 31, 2000:
The Company issued 165,000 shares of common stock for services rendered
valued at $5,000.
For the year ended December 31, 1999:
The Company issued 49,500 warrants at $.60 per warrant which was charged
to interest expense.
The Company issued 276,951 shares to retire debt in the amount of
$335,362.
The accompanying notes are an integral part of these financial statements.
58
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Balanced Living, Inc. ("Parent") a Colorado corporation, was
organized on July 1, 1998 to reorganize, through a stock for stock
exchange, The Balanced Woman, Inc. ("BWI"). BWI was organized under the
laws of the State of Colorado on January 26, 1998. BWI was engaged in the
business of holding motivational seminars, and selling books and other
motivational products. During June 2000, the Company sold BWI
discontinuing the operations for the cancellation of all outstanding
options and warrants of the Parent.
On February 7, 2001 the Company completed a plan of reorganization and
stock exchange agreement with Wizzard Software Corp. ("WSC") a Delaware
corporation, wherein the Parent issued 13,404,831 shares of Common Stock
for 96% interest in WSC (See Note 8). In Connection with the
reorganization agreement, the Company amended it articles of incorporation
to change the name of the Company to Wizzard Software Corporation, to
effect a 1.65 to 1 forward stock split, and to recapitalize the Company's
authorized common shares from 50,000,000 shares with a par value of $.001
to 100,000,000 shares with a par value of $.001. The effect of these
amendments has been reflected in the financial statements.
The Company has not raised significant revenue from planned principal
operations and is considered a development stage company as defined in SFAS
No. 7. The Company has, at the present time, not paid any dividends and
any dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevant factors.
Loss Per Share - The computation of loss per share is based on the weighted
average number of shares outstanding during the period presented in
accordance with SFAS 128 "Earnings Per Share". Diluted loss per share is
not presented because its effect is antidilutive.
Statement of Cash Flows - For purposes of the statement of cash flows, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported
amount of revenues and expenses during the reported period. Actual results
could differ from those estimated.
Restatement - The financial statements have been restated to reflect the
effect of the 1.65 to 1 forward stock split and the recapitalization of the
Company's authorized common shares from 50,000,000, $.001 par value to
100,000,000 $.001 par value which was effective February 7, 2001.
59
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Recently Enacted Accounting Standards Statement of Financial Accounting
Standards (SFAS) No. 136, "Transfers of Assets to a not for profit
organization or charitable trust that raises or holds contributions for
others", SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities deferral of the effective date of FASB Statement No. 133 (an
amendment of FASB Statement No. 133.),", SFAS No. 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities and
Amendment of SFAS No. 133", SFAS No. 139, "Recission of SFAS No. 53 and
Amendment to SFAS No 63, 89 and 21", and SFAS No. 140, "Accounting to
Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities", were recently issued SFAS No. 136, 137, 138, 139 and 140 have
no current applicability to the Company or their effect on the financial
statements would not have been significant.
NOTE 2 DISCONTINUED OPERATIONS
During the second quarter of 2000 the Company adopted a plan to spin-off
and discontinued the operations of The Balanced Woman, Inc. The Balanced
Woman, Inc. is reported as a discontinued operation for the nine months
ended September 30, 2000. Net sales related to The Balanced Woman, Inc.
for the year ended December 31, 2000 and 1999 were $5,663 and $42,846,
respectively. These amounts have been reclassified to loss from operations
of The Balanced Woman, Inc. in the accompanying statement of operations.
The following is a condensed proforma consolidated statement of operations
that reflects what the presentation would have been for the years ended
December 31, 2000 and 1999 without the reclassifications required by
"discontinued operations" accounting principles:
2000 1999
___________ ___________
Net Sales $ 5,663 $ 42,846
Cost of goods sold (12,244) (44,482)
Other operating expenses (179,673) (379,029)
Other income (expense) (24,272) (75,011)
___________ ___________
Net loss $ (210,526) $ (455,676)
___________ ___________
Loss per share $ (.05) $ (.39)
________________________
60
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE 3 NOTES PAYABLE
During 1999, the Company issued subordinated demand notes payable to a
former officer and a shareholder, of the Company in the amount of $105,000.
The notes bear interest at a rate of 10% per annum with quarterly interest
payments, the notes are due on demand. Note-holders can demand payment of
the unpaid principal plus accrued interest in order to purchase other
equity opportunities in the Company of equal value at any time prior to the
maturity date. During the year ended December 31, 2000 the Company issued
an additional $150,000 in notes. Accrued interest as of June 30, 2000 was
$14,511. The note and related accrued interest were included in the
liabilities of the BWI that was spun off during June 2000 (See Note 2).
NOTE 4 CAPITAL STOCK
On February 7, 2001, in connection with the close of the plan of
reorganization and stock exchange agreement with WSC, the Company issued
13,404,831 shares of Common Stock for 96% interest in WSC, a shareholder
of the Company contributed back to the Company 3,725,000 shares of the
Company's Common stock for cancellation, the Company effected a 1.65 to 1
forward stock split, the Company recapitalized it's Authorized common
shares from 50,000,000, $.001 par value to 100,000,000 $.001 par value, and
had sold 531,000 shares of common stock under a confidential private
placement offering for gross proceeds of $531,000 net of stock offering
cost of approximately 65,000.
Confidential Private Placement Offering - The Company is offering to sell
up to 9,000,000 shares (minimum 500,000 shares) of the Company's common
stock at $1.00 per share under a Confidential Private Offering of Common
Stock. As of December 31, 2000 the Company held $171,000 in escrow
towards the minimum offering and has recorded an investor advances
liability. This offering will continue until the earlier of April 1, 2001
or the sale of the maximum shares.
Common Stock - During May 2000, The Company issued 4,125,000 shares of
common stock for $25,000 and effectively changed control of the company.
The Company also issued 165,000 shares of common stock for services
rendered valued at $5,000.
During November 2000, a shareholder of the Company paid $1,000 for expenses
of the Company which has been accounted for as a contribution to capital.
On July 14, 1998 the Company entered into an Agreement and Plan of
Reorganization wherein Parent acquired all the issued and outstanding
shares of common stock of BWI in a stock for stock exchange. Parent issued
825,000 shares of common stock in the exchange. Parent and BWI had similar
ownership at the time of reorganization and were considered to be entities
under common control. Accordingly, the reorganization has been recorded in
a manner similar to a pooling of interests. BWI had previously been funded
with $2,000.
During January, 1998, the Company issued 165,000 shares of common stock in
connection with the organization of the Company at $.006 per share. Total
proceeds amounted to $1,000.
61
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 4 CAPITAL STOCK [Continued]
Stock Warrants - During 1998, Subsidiary issued 272,250 common stock
warrants to various officers, directors and consultants in conjunction with
the issuance of subordinated notes payable. In connection with the
reorganization of the company, the warrants of Subsidiary were cancelled,
and re-issued under the same terms by Parent during 1998. Each warrant
grants the holder the right to purchase one share of the Company's common
stock at a price of $.60 per share. The warrants may be exercised at any
time prior to March 1, 2003. An additional 49,500 warrants were issued
subsequent to December, 1998. The Company has accrued additional interest
expense for warrants issued after November 1999 as the exercise price of
the warrants were less than the arbitrary value of $1.21 proposed for the
Company's upcoming stock offering. During 1998, $37,500 was capitalized as
prepaid interest expenses and is being amortized over the life of the note.
All amounts were expensed in 1999. An additional $30,000 was expensed in
1999 and will be amortized over the life of the note. During June 2000, the
warrants were cancelled in connection with the spin off of the subsidiary
The Balanced Woman, Inc.
Non-Qualified Stock Options - As of December 31, 2000, the Company has
issued a total of 825,000 options to various officers, directors and
consultants of the Company. These options are exercisable at $.60 per
share, and vest over a five-year period, based upon certain conditions
specified in the option agreement. The options expire five years from the
date of vesting. During June 2000, the options were cancelled in connection
with the spin off of the subsidiary The Balanced Woman, Inc.
Public Offering of Common Stock During February 1998, the Company
filed a registration statement with the United States Securities and
Exchange Commission on Form SB-2 under the Securities Act of 1933. The
Company sold 165,000 "Units" at a price of $1.21 per Unit, which price
was arbitrarily determined by the Company. Each Unit consists of 1.65
share of the Company's $.001 par value common stock sold at $1.21 per
share, 1.65 "Class A Warrant" to purchase one share of common stock at
$1.82 per share, 1.65 "Class B Warrant" to purchase one share of common
stock at $3.03 per share, and 1.65 "Class C Warrant" to purchase one
share of common stock at $6.06 per share. All warrants issued under the
offering will expire on December 31, 2003. The warrants are callable
if, after one year from the issuance date, public trading develops and
trading occurs for at least 20 consecutive days. The warrants are
callable at $.006 per warrant upon 30 days notice by the Company to
warrant holders. The Units will be offered and sold by officers of the
Company, who will receive no sales commissions or other compensation in
connection with the offering, except for reimbursement of expenses
actually incurred on behalf of the Company in connection with the
offering. During June 2000, the warrants were cancelled in connection
with the spin off of the subsidiary The Balanced Woman, Inc.
62
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". SFAS
109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. At December 31, 2000 the
Company has unused operating loss carryforwards of approximately $645,000
which may be applied against future taxable income and which expire in
2020.
These unused operating loss carryforwards have been limited due to the
change in control of the Company. The amount of and ultimate realization of
the benefits from the operating loss carryforwards for income tax purposes
is dependent, in part, upon the tax laws in effect, the future earnings of
the Company, and other future events, the effects of which cannot be
determined. Because of the uncertainty surrounding the realization of the
loss carryforwards the Company has established a valuation allowance equal
to the tax effect of the loss carryforwards and, therefore, no deferred
tax asset has been recognized for the loss carryforwards. The net deferred
tax assets are approximately $220,000 as of December 31, 2000 with an
offsetting valuation allowance of the same amount resulting in a change in
the valuation allowance of approximately $30,000 during 2000.
NOTE 6 LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the periods presented:
From Inception
For the Year Ended on February 26,
December 31, 1998 Through
____________________________ December 31,
2000 1999 2000
_____________ _____________ ______________
Loss from continuing operations
applicable to common
shareholders (Numerator) $ (34,465) $ - $ (34,465)
_____________ _____________ ______________
Loss from operations of The
Balanced Woman, Inc. $ (176,061) $ (455,676)$ (909,928)
_____________ _____________ ______________
Gain on disposal of The
Balanced Woman, Inc. $ 299,067 $ - $ 299,067
_____________ _____________ ______________
Weighted average number of
common shares outstanding used
in loss per share during the
period (Denominator) 3,998,918 1,177,983 2,649,401
_____________ _____________ ______________
Dilutive earnings (loss) per share was not presented, as its effect is
anti-dilutive. Subsequent to the year ended December 31, 2000, the Company
issued 13,935,831 shares of Common stock and Cancelled 3,725,000 in
connection with a plan on reorganization and stock exchange agreement.
63
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 7 GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of
the Company as a going concern. However, the Company, has not yet
established profitable operations, has incurred significant losses since
inception, and has a stockholder's deficit. The Company also has current
liabilities in excess of current assets (a working capital deficiency).
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. In this regard, management is proposing to
raise additional funds through loans and/or through additional sales of its
common stock which funds will be used to assist in establishing on-going
operations. There is no assurance that the Company will be successful in
raising this additional capital or achieving profitable operations. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
NOTE 8 SUBSEQUENT EVENTS
On February 7, 2001, the Company completed the Plan of Reorganization and
Stock Exchange agreement, through the issuance 13,404,831 shares of stock
for 96% of WSC. The merger was accounted for as a recapitalization of the
Subsidiary, wherein WSC became a 96% owned subsidiary of the Parent. In
connection with the agreement 3,725,000 shares of the Company's Common
stock were contributed back and cancelled. The Company also amended it's
articles of incorporation to increase the authorized common shares to
100,000,000, to effect a 1.65 to 1 forward stock split and to change the
name of the Company to Wizzard Software Corporation.
Subsequent to the year ended December 31, 2000, the Company sold the
minimum 500,000 shares in the Company's confidential private placement
offering As of March 13, 2001, the Company had sold 596,000 shares under
the offering for aggregate gross proceeds of $596,000. This offering will
continue until the earlier of April 1, 2001 or the sale of 9,000,000 shares
of the company's Common stock. Costs incurred in connection with the
offering will be deferred and offset against the proceeds of the offering.
At December 31, 2000, $29517 of stock offering cost had been incurred.
64
WIZZARD SOFTWARE CORP.
FINANCIAL STATEMENTS
AND
SUPPLEMENTARY INFORMATION
WITH
INDEPENDENT AUDITOR'S REPORT
YEARS ENDED DECEMBER 31, 2000 AND 1999
65
CONTENTS
PAGE
Independent Auditor's Report 1
Financial statements:
Balance sheets 2-3
Statements of income 4
Statements of retained earnings 5
Statements of cash flows 6-7
Notes to financial statements 8-14
Independent Auditor's Report on supplementary information 15
Supplementary information:
Schedule I - summaries of cost of goods sold 16
Schedule II - summaries of operating expenses 17
Schedule III - summaries of net change in
receivables, payables, inventory, prepaid and
accrued items 18
66
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Wizzard Software Corp.
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
We have audited the accompanying balance sheets of Wizzard Software
Corp. as of December 31, 2000 and 1999, and the related statements of income,
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Wizzard Software
Corp. as of December 31, 2000 and 1999 and the results of its operations and
its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
/s/Xxxxxx & Xxxxxx
Clinton, Maryland
February 19, 2001
67
WIZZARD SOFTWARE CORP.
BALANCE SHEETS
ASSETS
December 31,
2000 1999
Current assets:
Cash (Note 5) $ 54,143 $ 153,665
Inventory (Note 9) 121,023 136,504
Accounts receivable 416 0
Notes receivable (Note 10) 31,310 0
Prepaid expenses 285 0
Total current assets 207,177 290,169
Fixed assets, at cost:
Furniture, fixtures and equipment 181,308 141,386
Leasehold improvements 36,482 36,482
Software 37,449 32,539
255,239 210,407
Less accumulated depreciation and amortization 105,061 66,811
Total fixed assets, net 150,178 143,596
Other assets:
Intangible assets, net of amortization
of $2,739 and $1,535, respectively 8,033 972
Organization cost, net of amortization
of $323 and $405, respectively 11 1,420
Deposits 2,000 2,973
Total other assets 10,044 5,365
Total assets $ 367,399 $ 439,130
See accompanying notes.
68
WIZZARD SOFTWARE CORP.
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
2000 1999
Current liabilities:
Trade accounts payable $ 95,137 $ 35,649
Franchise taxes payable 0 1,100
Note payable (Note 11) 750,000 0
Accrued expenses (Note 11) 45,747 0
Total current liabilities 890,884 36,749
Long-term liabilities:
Stockholder loans (Note 2) 0 854
Total liabilities 890,884 37,603
Stockholders' equity:
Common stock, $.001 par value; 20,000,000 and
14,154,133 shares authorized, respectively;
13,620,472 and 13,508,859 shares issued and
outstanding, respectively (Note 8) 13,620 13,509
Paid-in capital 2,373,837 1,918,290
Retained deficit (2,910,942) (1,530,272)
Total stockholders' equity (deficit) (523,485) 401,527
Total liabilities and stockholders' equity $ 367,399 $ 439,130
See accompanying notes.
69
WIZZARD SOFTWARE CORP.
STATEMENTS OF INCOME
Years ended December 31,
2000 1999
Sales (net of discounts of $10,842 and $17,412,
respectively) $ 189,625 $ 241,601
Cost of goods sold (67,874) (134,126)
Gross profit on sales 121,751 107,475
Operating expenses (1,503,994) (733,728)
Loss from operations (1,382,243) (626,253)
Other income 1,573 0
Net loss $ (1,380,670) $ (626,253)
Loss per common share $ (.10) $ (.05)
See accompanying notes.
70
WIZZARD SOFTWARE CORP.
STATEMENTS OF RETAINED EARNINGS
Years ended December 31,
2000 1999
Retained deficit, January 1 $ (1,530,272) $ (904,019)
Net loss (1,380,670) (626,253)
Retained deficit, December 31 $ (2,910,942) $(1,530,272)
See accompanying notes.
71
WIZZARD SOFTWARE CORP.
STATEMENTS OF CASH FLOWS
Years ended December 31,
2000 1999
Cash flows from operating activities:
Net loss $ (1,380,670) $ (626,253)
Noncash expenses, revenues and losses
included in net loss:
Depreciation and amortization 39,521 30,912
Prior year's amortization recaptured (149) 0
Net (increase) decrease in receivables,
inventory and prepaid items (22,331) 59,023
Net increase in payables
and accrued items 104,135 17,169
Net cash used by operating activities (1,259,494) (519,149)
Cash flows from investing activities:
Purchase of fixed assets (44,832) (24,219)
Cash flows from financing activities:
Decrease in stockholder loans (854) (12,070)
Proceeds from issuance of stock 455,658 406,072
Increase in notes payable 750,000 0
Net cash provided by financing activities 1,204,804 394,002
Net decrease in cash (99,522) (149,366)
Cash at beginning of year 153,665 303,031
Cash at end of year $ 54,143 $ 153,665
See accompanying notes.
72
WIZZARD SOFTWARE CORP.
STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Years ended December 31,
2000 1999
Cash paid for:
Interest $ 0 $ 0
Income taxes $ 0 $ 0
See accompanying notes.
73
WIZZARD SOFTWARE CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. Significant accounting policies
This summary of significant accounting policies of Wizzard
Software Corp. is presented to assist the reader in understanding the
Corporation's financial statements. The Corporation maintains its books
and records on the accrual basis of accounting, under which revenues are
recognized when earned and expenses are recognized when incurred.
History and business activity
Wizzard Software Corp. was incorporated on February 29, 1996 under
the laws of the State of Delaware. The Corporation engages primarily in
the development, sale, and service of computer software products.
Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
amounts.
Cash
For purposes of the statement of cash flows, the Corporation
considers all highly liquid debt instruments with an original maturity
date of three months or less to be cash.
Inventory
Inventory is stated at cost. Cost is determined by the specific
identification method.
Accounts receivable - trade
The Corporation uses the direct write-off method for uncollectible
accounts receivable. Accounts are written off when management deems
them uncollectible. Management is of the opinion that all accounts
receivable as of December 31, 2000 were fully collectible. All accounts
receivable as of December 31, 1999 were fully collected.
74
WIZZARD SOFTWARE CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
1. Significant accounting policies (continued)
Depreciation and amortization
Depreciation of property and equipment and amortization of
software is provided on the straight-line methods over the following
estimated useful lives:
Estimated Life
Furniture, fixtures and equipment 5-10 years
Leasehold improvements 39 years
Software 5-10 years
Depreciation expense for the years ended December 31, 2000 and
1999 was $31,652 and $24,284, respectively. Amortization expense of
software for the years ended December 31, 2000 and 1999 was $6,598 and
$5,936, respectively.
Intangibles, which consist of web page development and domain name
registration, are being amortized on the straight-line method over a
period of 2-5 years. Amortization expense of intangibles for the years
ended December 31, 2000 and 1999 was $1,204 and $476, respectively.
Organizational costs are being amortized on the straight-line
method over a period of 5 years. Amortization expense of organization
costs for the years ended December 31, 2000 and 1999 was $67 and $216,
respectively.
Fair value of financial instruments
The carrying value of cash, receivables and accounts payable
approximates fair value due to the short maturity of these instruments.
The carrying value of short and long-term debt approximates fair value
based upon discounting the projected cash flows using market rates
available for similar maturities.
Advertising and marketing
Advertising and marketing costs, which are principally included in
operating expenses, are expensed as incurred. Advertising and marketing
expenses for the years ended December 31, 2000 and 1999 were $232,438
and $63,606, respectively.
75
WIZZARD SOFTWARE CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
2. Related party transactions
A loan payable in the amount of $854 was due to Xxxxxxxxxxx X.
Xxxxxxx, the President and twenty-one percent stockholder of the
Corporation, at December 31, 1999. The loan was paid in full during the
year ended December 31, 2000.
3. Income tax carryforwards
For income tax reporting purposes, the Corporation has a net
operating loss carryforward as of December 31, 2000 and 1999 of
$2,898,687 and $1,525,117, respectively, which can be used to reduce
taxable income in future years.
Net operating losses generated prior to 1998 may be carried
forward for fifteen years. Net operating losses generated after 1997
may be carried forward for twenty years. The net operating losses shown
above as of December 31, 2000 and 1999 are composed of losses generated
in the following years:
Amount of
Year of origination Year of expiration Loss remaining
1996 2011 $ 159,849
1997 2012 297,383
1998 2018 441,632
1999 2019 626,253
As of December 31, 1999 1,525,117
2000 2020 1,373,570
As of December 31, 2000 $ 2,898,687
The tax benefit from the net operating loss will be limited due
the substantial change in ownership (Note 12).
76
WIZZARD SOFTWARE CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
4. Future minimum rentals
The Corporation has entered into a lease for the use of office
space in Pittsburgh, Pennsylvania. The lease expires June 30, 2001.
After that time, the lease becomes renewable yearly. Minimum future
lease payments related to this lease are as follows:
Year ending December 31, 2001 $ 12,000
Rent expense for the years ended December 31, 2000 and 1999 was
$24,000 per year.
5. Concentration of credit risks
The Corporation maintains its cash balance at one financial
institution located in Pittsburgh, Pennsylvania. Accounts at financial
institutions are insured by the Federal Deposit Insurance Corporation up
to $100,000. At December 31, 2000 and 1999, the Corporation's uninsured
cash balances totaled $0 and $54,186, respectively.
6. Accrued compensated absences
As of December 31, 2000 and 1999, the Corporation had established
no policy regarding the rate at which employees would earn vacation,
sick and other similar leave. As a result, these financial statements
contain no accrual for those items. It is the Corporation's intent that
no amounts will be provided for these items until policies governing the
items are formally established. In addition, the Corporation does not
intend to ever incur an expense for any amounts "earned" prior to
January 1, 2001.
7. Loss per share
Basic and diluted earnings per share is calculated in accordance
with FASB Statement No. 128, Earnings per Share. All earnings per share
amounts for all periods have been presented, and where appropriate,
restated to conform to the requirements of Statement 128.
77
WIZZARD SOFTWARE CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
8. Issuance of common stock
During the year ended December 31, 2000, the Corporation issued an
additional 220,746 shares of common stock as a result of private
offerings. In consideration for these shares, the Corporation received
$412,600. Of that amount, $221 was recorded as common stock and
$412,379 was recorded as paid-in capital. In addition to the private
offerings, Wizzard Software Corp. issued 40,000 shares of common stock
in exchange for services. The stated value of the services was $44,550
and is included in professional fees. The effect on common stock was to
record $40 as common stock and $44,510 as paid-in capital.
During the year ended December 31, 1999, Wizzard Software Corp.
entered into a stock-for-stock exchange and subsequent merger with
Abacus Software Services, Inc. in order to obtain a shareholder base in
preparation for becoming a reporting company.
However, during the year ended December 31, 2000, the Corporation
entered into an agreement to rescind the merger with Abacus Software
Services, Inc. This agreement represents the compromise of disputed
claims between Wizzard Software Corp. and Abacus Software Services, Inc.
As a result of this rescinding agreement, the Corporation made a one-
time rescission payment of $3,000 to Abacus Software Services, Inc.
Common stock was decreased by 149,133 shares, which was previously
recorded as $149 of common stock and $1,342 of paid-in capital.
As a result of the rescission of the merger, organization costs
related to the merger were reversed and a portion of the prior year's
amortization was recaptured. The recaptured amortization is included in
other income.
9. Inventory
Inventory as of December 31 consists of the following:
2000 1999
Raw materials $ 49,159 $ 49,159
Finished goods 71,864 87,345
$ 121,023 $ 136,504
78
WIZZARD SOFTWARE CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
10. Notes receivable
During the year ended December 31, 2000, the Corporation received
three separate promissory notes from Speech Solutions, Inc. totaling
$29,999 plus accrued interest at 12.5% per annum, compounded monthly.
Principal and interest are payable to Wizzard on demand. As of December
31, 2000, no payments have been received from Speech Solutions, Inc.,
and $1,311 interest has accrued on these notes.
11.Note payable bridge loan
Wizzard Software Corp. entered into a financing agreement on May
2, 2000 with Salvage Holdings, Inc. Under the terms of the agreement,
the Corporation can borrow up to $1,000,000. As of December 31, 2000,
the Corporation has borrowed $750,000. Principal and interest are due
on August 10, 2001. Interest is calculated at 12.5% per annum. The
note is convertible into the Corporation's common stock, $.001 par
value. As additional consideration, the Corporation issued warrants to
Salvage Holdings, Inc., to purchase 65,000 shares of common stock for
each $500,000 borrowed by the Corporation. As of December 31, 2000,
$45,747 interest has accrued on this note payable.
12. Subsequent event
On February 7, 2001, Wizzard Software Corp. completed a Plan of
Reorganization and Stock Exchange Agreement (the "Wizzard Agreement")
with Xxxxxx Services, Inc. and Balanced Living, Inc. The Company
heretofore known as "Wizzard Software Corp." became known as "Wizzard-
Delaware," effective February 7, 2001. Certain stockholders of
Wizzard-Delaware owning not less than 80% of the outstanding common
stock of Wizzard-Delaware (the "Wizzard-Delaware Stockholders") entered
into the Wizzard Agreement. As a result of the Wizzard Agreement, the
Wizzard Delaware stockholders exchanged their shares in Wizzard-Delaware
for 13,404,831 shares of the reorganized company. The reorganized
company became a 96%-owned subsidiary of Balanced Living, Inc.
79
WIZZARD SOFTWARE CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
12.Subsequent event (continued)
As part of the Wizzard Agreement, Balanced Living, Inc. was
required to amend its Articles of Incorporation to reflect this
recapitalization of its common stock from 50,000,000 shares at a par
value of $0.01 to 100,000,000 shares at $0.01 par value per share; to
effect a 1.65 for 1 forward split of Balanced Living, Inc.'s outstanding
shares of common stock; and the change its name to "Wizzard Software
Corporation".
Two conditions preceding the completion of the Wizzard Agreement
were the cancellation of 3,725,000 of the 4,025,000 shares of Balanced
Living, Inc.'s common stock owned by Xxxxxx Services, Inc.; and the
receipt of an acceptance of subscriptions for the purchase of a minimum
of 500,000 shares of Balanced Living, Inc.'s common stock pursuant to a
Confidential Private Offering Memorandum dated August 1, 2000, at a
price of $1 per share. 531,000 shares of common stock were sold on this
offering at the closing of the Wizzard Agreement for aggregate gross
proceeds of $531,000. This offering will continue until the earlier of
April 1, 2001 or the sale of 9,000,000 shares for aggregate gross
proceeds of $9,000,000.
Wizzard Software Corp. began publicly trading its common stock on
February 9, 2001. Wizzard Software Corp. trades on the NASD Over the
Counter Bulletin Board Market (OTCBB). The initial price offering was
$6 per share.
80
SUPPLEMENTARY INFORMATION
81
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
To the Board of Directors
Wizzard Software Corp.
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Our report on our audits of the basic financial statements of Wizzard
Software Corp. as of and for the years ended December 31, 2000 and 1999
appears on Page 1. Those audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The supplementary
information contained in Schedules I through III for the years ended December
31, 2000 and 1999 is presented for purposes of additional analysis and is not
a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Xxxxxx & Xxxxxx
Clinton, Maryland
February 19, 2001
82
WIZZARD SOFTWARE CORP.
SCHEDULE I SUMMARIES OF COST OF GOODS SOLD
Years ended December 31,
2000 1999
Inventory, January 1 $ 136,504 $ 172,797
Add:
Purchases 52,393 97,833
Total goods available for sale 188,897 270,630
Less inventory - December 31 121,023 136,504
Cost of goods sold $ 67,874 $ 134,126
83
WIZZARD SOFTWARE CORP.
SCHEDULE II - SUMMARIES OF OPERATING EXPENSES
Years ended December 31,
2000 1999
Advertising $ 20,035 $ 8,794
Amortization 7,869 6,628
Auto expense 649 551
Bank charges 7,632 5,453
Broker fees 8,723 5,161
Business promotion 473 1,641
Cleaning services 2,435 2,010
Communications 22,425 16,339
Consulting fees 160,200 0
Contract labor 1,748 3,125
Depreciation 31,652 24,284
Director's fees 24,676 7,676
Dues and subscriptions 864 630
Employee benefits 3,610 0
Equipment rental 11,941 12,412
Insurance 9,419 5,605
Interest 47,244 0
Internet services 10,649 23,524
Licenses and fees 1,025 712
Marketing 212,403 54,812
Meals and entertainment 14,201 4,159
Office supplies 27,548 25,690
Payroll service 1,252 1,106
Postage and delivery 26,168 16,341
Printing and reproduction 24,650 3,490
Professional fees 185,746 50,821
Rent 24,000 24,000
Repairs 103 185
Salaries officers 161,992 123,992
Salaries other 275,511 223,726
Taxes payroll 34,484 29,827
Taxes state franchise 282 200
Trade shows 41,785 5,118
Travel 89,780 42,816
Utilities 3,476 2,900
Web site maintenance 7,344 0
$ 1,503,994 $ 733,728
84
WIZZARD SOFTWARE CORP.
SCHEDULE III - SUMMARIES OF NET CHANGE IN
RECEIVABLES, PAYABLES, INVENTORY, PREPAID AND ACCRUED ITEMS
Years ended December 31,
2000 1999
(Increase) decrease in receivables,
inventory and prepaid items:
Inventory $ 15,481 $ 36,293
Accounts receivable (416) 16,690
Notes receivable (31,310) 0
Intangible assets (6,774) (1,490)
Prepaid expenses (285) 7,530
Deposits 973 0
$ (22,331) $ 59,023
Increase (decrease) in payables and
accrued items:
Trade accounts payable $ 59,488 $ 16,969
Franchise taxes payable (1,100) 200
Accrued expenses 45,747 0
$ 104,135 $ 17,169
85
(b) Proforma Financial Information.
86
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
AND WIZZARD SOFTWARE CORP.
PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
The following unaudited proforma condensed combined balance sheet aggregates
the balance sheet of Wizzard Software Corporation (Formerly Balanced Living,
Inc.) ("PARENT") as of December 31, 2000 and the balance sheet of Wizzard
Software Corp. ("SUBSIDIARY") as of December 31, 2000, accounting for the
transaction as a recapitalization of SUBSIDIARY with the issuance of shares
for the net assets of PARENT (a reverse acquisition) and using the assumptions
described in the following notes, giving effect to the transaction, as if the
transaction had occurred as of the end of the year. The transaction was not
completed until February 7, 2001.
The following unaudited proforma condensed combined statement of operations
combine the results of operations of PARENT for the year ended December 31,
2000 and the results of operations of SUBSIDIARY for the year ended December
31, 2000 as if the transaction had occurred as of the beginning of the period.
The proforma condensed combined financial statements should be read in
conjunction with the separate financial statements and related notes thereto
of PARENT and SUBSIDIARY. These proforma financial statements are not
necessarily indicative of the combined financial position, had the acquisition
occurred on the date indicated above, or the combined results of operations
which might have existed for the periods indicated or the results of
operations as they may be in the future.
87
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
AND WIZZARD SOFTWARE CORP.
PROFORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 2000
ASSETS
[Unaudited]
Wizzard Software
Corporation
(Formerly Balanced Wizzard Software
Living, Inc.) Corp. Proforma
December 31, 2000 December 31, 2000 Increase Proforma
[Parent] [Subsidiary] (Decrease) Combined
_____________________ ________________ __________ ________
ASSETS:
Cash $ 171,000 $ 54,143 [A] $ 298,178 $ 523,321
Accounts receivable - 416 - 416
Inventory - 121,023 - 121,023
Notes receivable - 31,310 - 31,310
Prepaid expenses - 285 - 285
Property and
equipment, net - 150,178 - 150,178
Other assets, net 29,517 10,044 [A] (29,517) 10,044
_________ _________ _________ ________
$ 200,517 $ 367,399 $ 265,196 $ 836,577
See Notes To Unaudited Proforma Condensed Financial Statements.
88
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
AND WIZZARD SOFTWARE CORP.
PROFORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
[Unaudited]
Wizzard Software
Corporation
(Formerly Balanced Wizzard Software
Living, Inc.) Corp. Proforma
December 31, 2000 December 31, 2000 Increase Proforma
[Parent] [Subsidiary] (Decrease) Combined
_____________________ ________________ __________ ________
LIABILITIES:
Notes payable $ - $ 750,000 - $ 750,000
Accounts payable and
Accrued liabilities 32,982 140,884 [A] (29,517) 144,349
Advances from investors 171,000 - [A] (171,000) -
_________ _________ _________ ________
Total Liabilities 203,982 890,884 (203,982) 894,349
_________ _________ _________ ________
STOCKHOLDERS' EQUITY:
Non-controlling
interest in Subsidiary - - [C] - -
[A] 531
[B] (215)
Common Stock 5,722 13,620 [D] (3,725) 15,933
[A] 468,647
[B] 215
Par value in excess of [B] (645,327)
contributed capital 636,140 2,373,837 [D] 3,725 2,837,237
Retained deficit (645,327) (2,910,942)[B] 645,327(2,910,942)
_________ _________ _________ ________
Total Stockholders'
Equity (Deficit) (3,465) (523,485) 469,178 (57,772)
_________ _________ _________ ________
$ 200,517 $ 367,399 $ 265,196 $836,577
_________ _________ _________ ________
See Notes To Unaudited Proforma Condensed Financial Statements.
89
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
AND WIZZARD SOFTWARE CORPORATION
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
[Unaudited]
Wizzard Software
Corporation
(Formerly Balanced Wizzard Software
Living, Inc.) Corp. Proforma
December 31, 2000 December 31, 2000 Increase Proforma
[Parent] [Subsidiary] (Decrease) Combined
_____________________ ________________ __________ ________
REVENUE $ - $ 189,625 - $ 189,625
COST OF SALE - 67,874 - 67,874
___________________ __________ _________ __________
GROSS PROFIT - 121,751 - 121,751
EXPENSES:
General and
administrative 34,465 1,503,994 - 1,538,459
___________________ __________ _________ __________
Total expenses 34,465 1,503,994 - 1,538,459
___________________ __________ _________ __________
(LOSS) FROM
OPERATIONS (34,465) (1,382,243) - (1,416,708)
___________________ __________ _________ __________
OTHER INCOME - 1,573 - 1,573
___________________ __________ _________ __________
(LOSS) BEFORE INCOME
TAXES (34,465) (1,380,670) - (1,415,135)
INCOME TAXES EXPENSE - - - -
___________________ __________ _________ __________
(LOSS) BEFORE
DISCONTINUED
OPERATIONS (34,465) (1,380,670) - (1,415,135)
INCOME FROM
DISCONTINUED
OPERATIONS 123,006 - - 123,006
___________________ __________ _________ __________
NET (LOSS) $ 88,541 $(1,380,670) $ - $(1,292,129)
___________________ __________ _________ __________
BASIC NET (LOSS)
PER COMMON SHARE $ (.08)
__________
90
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
AND WIZZARD SOFTWARE CORPORATION
NOTES TO PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
NOTE 1 WIZZARD SOFTWARE CORPORATION (Formerly Balanced Living, Inc.)
Wizzard Software Corporation [Parent] a Colorado corporation, was
organized on July 1, 1998. The Company has not raised significant
revenue from planned principal operations and is considered a
development stage company as defined in SFAS No. 7. The Company was
engaged in the business of holding motivational seminars, and selling
books and other motivational products. The Company has, at the
present time, not paid any dividends and any dividends that may be
paid in the future will depend upon the financial requirements of the
Company and other relevant factors.
NOTE 2 WIZZARD SOFTWARE CORP
Wizzard Software Corp. [Subsidiary], was incorporated on February 29,
1996 under the laws of the State of Delaware. The Corporation
engages primarily in the development, sale, and service of computer
software products.
NOTE 3 PROFORMA ADJUSTMENTS
On February 7, 2001, the Company completed the Plan of Reorganization and
Stock Exchange agreement, through the issuance 13,404,831 shares of Parents
common stock for 96% of Subsidiary or 13,049,000 of 13,620,472 outstanding
at December 31, 2000. The merger was accounted for as a recapitalization of
the Subsidiary, wherein Subsidiary became a 96% owned subsidiary of the
Parent. In connection with the agreement, 3,725,000 shares of the parent's
common stock were contributed back and canceled. The Company also amended
it's articles of incorporation to increase the authorized number of common
shares to 100,000,000, to effected a 1.65 to 1 forward stock split and to
change the name of the Company to Wizzard Software Corporation.
As of February 7, 2001, 531,000 shares of common stock were sold in
connection with the Company's confidential private placement offering
for aggregate gross proceeds of $531,000. This offering will
continue until the earlier of April 1, 2001 or until the sale of
9,000,000 shares of the company's Common stock.
Proforma adjustments on the attached financial statements include the
following:
[A] To record the sell of 531,000 shares of common stock in connection
with the Company's confidential private placement offering. As of
February 7, 2001, aggregate gross proceeds of $531,000 had been
received of which $171,000 had been recorded as advances from
investors on Parent's December 31, 2000 financial statements. The
remaining $360,000 was recorded as cash receipts net of paying
deferred stock offering cost of $61,822. This offering will
continue until the earlier of April 1, 2001 or the sale of
9,000,000 shares of the company's Common stock.
91
WIZZARD SOFTWARE CORPORATION
(Formerly Balanced Living, Inc.)
AND WIZZARD SOFTWARE CORPORATION
NOTES TO PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
NOTE 3 PROFORMA ADJUSTMENTS [Continued]
[B] To record the acquisition of a 96% interest in the SUBSIDIARY by
PARENT through the issuance of 13,404,831 shares of post-split
common stock for 13,090,000 shares of the subsidiary and eliminate
the retained earned deficit of Parent prior to the date of the
acquisition. The ownership interests of the former owners of
Subsidiary in the combined enterprise will be greater than the
ongoing shareholders of Parent and, accordingly, the management of
Subsidiary will assume operating control of the combined
enterprise. Consequently, the acquisition is accounted for as the
recapitalization of Subsidiary, wherein Subsidiary purchased the
assets of PARENT and accounted for the transaction as a "Reverse
Purchase" for accounting purposes.
[C] No amount has been reflected for the non-controlling interest in
the SUBSIDIARY due to a total stockholder's deficit of $(523,485)
at December 31, 2000. There were approximately 545,938 shares held
by non-controlling individuals or approximately 4% of the
outstanding shares of the Subsidiary.
[D] To record the contribution and cancellation of 3,725,000 shares of
PARENT'S common stock.
NOTE 4 PROFORMA (LOSS) PER SHARE
The proforma (loss) per share is computed based on the number of shares
outstanding, after adjustment for shares issued in the acquisition and the
limited offering, as though all shares issued in the acquisition and
limited offering had been outstanding from the beginning of the periods
presented.
Proforma
Combined
______________
Weighted average shares
considered to be outstanding 15,932,782
______________
92
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
93
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
CONTENTS
PAGE
Unaudited Condensed Consolidated Balance Sheet,
June 30, 2001 2
Unaudited Condensed Consolidated Statements of
Operations, for the three and six months ended June 30,
2001 and 2000 3
Unaudited Condensed Consolidated Statements of Cash
Flows, for the three months ended June 30, 2001
and 2000 4 - 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6 - 11
94
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
JUNE 30,
2001
___________
CURRENT ASSETS:
Cash in bank $ 1,111
Accounts receivable 313
Inventory 122,309
Prepaid Expenses -
___________
Total Current Assets 123,733
___________
PROPERTY & EQUIPMENT, net 153,661
___________
OTHER ASSETS:
Prepaid expenses 291,952
Intangible assets, net 562,771
Deposits 2,000
___________
Total Other Assets 856,723
___________
$ 1,134,117
___________
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 42,819
Accrued expenses 63,627
___________
Total current liabilities 106,446
___________
LONG TERM OBLIGATIONS:
Loans payable related party 7,100
___________
Total liabilities 113,546
___________
NON-CONTROLLING INTEREST IN SUBSIDIARY -
___________
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value,
1,000,000 shares authorized,
no shares issued and outstanding -
Common stock, $.001 par value,
100,000,000 shares authorized,
16,885,791 and shares
issued and outstanding, respectively 16,886
Capital in excess of par value 4,316,136
Retained Deficit (3,312,451)
___________
Total Stockholders' Equity (Deficit) 1,020,571
___________
$ 1,134,117
___________
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
95
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
____________________ ____________________
2001 2000 2001 2000
_________ _________ _________ _________
NET SALES $40,354 $ 82,133 $ 61,146 $ 131,564
COST OF GOOD SOLD 8,253 26,828 14,810 43,853
_________ _________ _________ _________
Gross Profit 32,101 55,305 46,336 87,711
_________ _________ _________ _________
EXPENSES:
General and administrative 168,105 377,343 376,937 655,244
Selling expenses 38,127 115,701 55,010 142,143
_________ _________ _________ _________
Total Expenses 206,232 493,044 431,947 797,387
_________ _________ _________ _________
INCOME (LOSS) FROM OPERATIONS (174,131) (437,739) (385,611) (709,676)
________ _________ _________ _________
OTHER INCOME (EXPENSE):
Other income - 21 1,917 21
Interest expense - (10,401) (17,815) (10,401)
_________ _________ _________ _________
Total Other Income
(Expense) - (10,380) (15,898) (10,380)
_________ _________ _________ _________
INCOME (LOSS) BEFORE INCOME
TAXES (174,131) (448,119) (401,509) (720,056)
CURRENT TAX EXPENSE - - - -
DEFERRED TAX EXPENSE - - - -
_________ _________ _________ _________
NET (LOSS) $(174,131) $(448,119) $(401,509) $(720,056)
_________ _________ _________ _________
(LOSS) PER COMMON SHARE $ (.01) $ (.03) $ (.03) $ (.05)
_________ _________ _________ _________
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
96
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six
Months Ended
JUNE 30,
______________________
2001 2000
__________ ___________
Cash Flows from Operating Activities:
Net loss $ (401,509) $ (720,056)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization expense 30,909 18,786
Change in assets and liabilities:
(Increase) in accounts receivable 31,986 (2,427)
Decrease in Inventory (1,286) 3,767
Increase (decrease) in accounts payable
and accrued expense (67,419) (22,101)
__________ __________
Net Cash Provided (Used) by Operating
Activities (407,319) (722,031)
__________ __________
Cash Flows from Investing Activities:
Purchase of property & equipment (22,896) (25,749)
Increase in notes receivable (34,917) -
__________ __________
Net Cash (Used) by Investing Activities (57,813) (25,749)
__________ __________
Cash Flows from Financing Activities:
Issuance of common stock 489,000 428,759
Payments on long-term obligation (255,000) -
Proceeds from long-term obligation - 500,000
Proceeds from note payable - related party 7,100 -
Payments on note payable - related party - (854)
_________ __________
Net Cash Provided by Financing Activities 241,100 927,905
_________ __________
Net Increase (Decrease) in Cash (224,032) 180,125
Cash at Beginning of Period 225,143 153,665
__________ __________
Cash at End of Period $ 1,111 $ 333,790
__________ __________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ - $ -
Income taxes $ - $ -
97
(Continued)
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Supplemental Schedule of Noncash Investing and Financing Activities:
For the three months ended June 30, 2001:
The Company agreed to release Speech Solutions, Inc. of a $66,227 note
and related accrued interest for rights and benefits of a Merchant
Operating Understanding in regards to developing and distributing speech
tools to be transferred to the Company.
The Company issued 495,000 shares of stock in payment of notes payable
of $495,000.
The Company issued 500,000 shares of stock valued at $500,000 for all
the issued and outstanding shares of Speech Systems, Inc.
The Company issued 531,000 share of common stock for cash of $360,000
and investor advances of $171,000, net of deferred stock offering cost
of $66,527.
For the three months ended June 30, 2000:
None
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
98
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization- Wizzard Software Corporation (Formerly Balance Living, Inc.)
[Parent] a Colorado corporation, was organized on July 1, 1998. The Company
has, at the present time, not paid any dividends and any dividends that may
be paid in the future will depend upon the financial requirements of the
Company and other relevant factors.
Wizzard Software Corp. [Subsidiary], was incorporated on February 29, 1996
under the laws of the State of Delaware. The Corporation engages primarily
in the development, sale, and service of computer software products.
On February 7, 2001, the Company completed the Plan of Reorganization and
Stock Exchange agreement, wherein, Parents acquired 96% of the common stock
of the subsidiary. The merger was accounted for as a recapitalization of
the Subsidiary, wherein Subsidiary became a 96% owned subsidiary of the
Parent.
On May 22, 2001 the Company purchased all of the issued and outstanding
shares of Speech Systems, Inc. in a transactions accounted for as a
purchase.
Consolidation - The financial statements presented reflect the accounts of
Wizzard Software Corporation, Wizzard Software Corp. and Speech Systems,
Inc. as of June 30, 2001 and for the three and six months ended June 30,
2001. All significant inter-company transactions between the parent and
subsidiary have been eliminated in consolidation.
Unaudited Condensed Financial Statements - The accompanying financial
statements have been prepared by the Company without audit. In the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at June 30, 2001 and for all the periods
presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 2000 audited financial
statements. The results of operations for the periods ended June 30, 2001
and 2000 are not necessarily indicative of the operating results for the
full year.
Cash and Cash Equivalents - For purposes of the financial statements, the
Company considers all highly liquid debt investments purchased with a
maturity of three months or less to be cash equivalents.
Inventory - Inventory consists of software and related products and is
carried at the lower of cost or market.
Depreciation - Depreciation of property and equipment is provided on the
straight-line method over the estimated useful lives of the assets of five
years to thirty nine years.
Revenue Recognition - The Company sells software products. Revenue is
recognized, net of discount and allowances, at the time of product
shipment.
99
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangible assets - Intangible assets consist of the rights, interest,
title patents, trademarks and trade secrets of the speech recognition
software ActiveXvoice Tools, purchased in the acquisition of Speech
Systems, Inc., purchased rights to a Merchant Operating Understanding for
the distribution of the Company products and domain name registration and
are being amortized over two to five years on a straight-line basis.
Amortization expense of $11,488 and $1,446 was recorded for the periods
ended June 30, 2001 and 2000.
Loss Per Share - The Company computes loss per share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share," which requires the Company to present basic earnings per share and
dilutive earnings per share when the effect is dilutive (see Note 10).
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This statement requires an asset and liability approach for
accounting for income taxes.
Advertising Costs - Advertising and marketing costs are expensed as
incurred and amounted to $58,423 and $10,051 for the period ending June 30,
2001 and 2000. During June 2001, the Company entered into a year
advertising agreement through the issuance of 350,000 shares of common
stock for $350,000 in advertising services. As of June 30, 2001 the
Company has recorded $291,952 as a prepaid expense.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosures 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 estimated by management.
NOTE 2 - ACQUISITION
On February 7, 2001, the Company completed the Plan of Reorganization and
Stock Exchange agreement, through the issuance 13,404,831 shares of Parents
common stock for 96% of Subsidiary or 13,049,000 of 13,620,472 outstanding
common shares at December 31, 2000. The merger was accounted for as a
recapitalization of the Subsidiary, wherein Subsidiary became a 96% owned
subsidiary of the Parent. In connection with the agreement, 3,725,000
shares of the parent's common stock were contributed back and cancelled.
The Company also amended it's articles of incorporation to increase the
authorized number of common shares to 100,000,000, to effect a 1.65 to 1
forward stock split and to change the name of the Company to Wizzard
Software Corporation.
As of May 22, 2001, the Company purchased all of the issued and outstanding
shares of Speech Systems, Inc., with all of the rights, interest, title
patents, trademarks and trade secrets of the speech recognition software
ActiveXvoice Tools, through the issuance of 500,000 shares of the Company's
common stock valued at $500,000. As a result of the acquisition the Company
recorded $500,000 in intangible assets being amortized over five years.
100
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVENTORY
Inventory consisted of the following at June 30, 2001.
June 30,
2001
____________
Raw Materials $ 49,159
Finished Goods 73,150
____________
$ 122,309
____________
NOTE 4 - PROPERTY & EQUIPMENT
The following is a summary of property and equipment:
June 30,
2001
____________
Furniture, fixtures and equipment $ 200,906
Leasehold improvements 36,482
Software 40,743
____________
278,131
Accumulated Deprecation (124,470)
____________
Property & Equipment, net $ 153,661
____________
Depreciation expense for the three months ended June 30, 2001 and 2000 was
$16,881 and $15,417, respectively.
NOTE 5 - NOTE RECEIVABLE
During the three months ended March 31, 2001 and December 31, 2000 the
Company signed four separate unsecured notes with Speech Solutions, Inc.
totaling $61,227, including accrued interest of $3,228. Interest is 12.5%
per annum compounded monthly. Principle and interest are payable to the
Company on demand. During the three months ended June 31, 2001, the Company
agreed to release Speech Solutions, Inc. of the note and related accrued
interest for rights and benefits of a Merchant Operating Understanding in
regards to developing and distributing speech tools to be transferred to
the Company. The Memorandum of Understanding was recorded as a intangible
asset and will be amortized over its estimated useful life of five years.
101
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE
Note Payable - On May 8, 2001 the Company issued 495,000 shares of Common
stock upon the conversion of the $495,000 remaining principal balance on a
financing agreement with Salvage Holdings, Inc. Principal and interest are
due on August 10, 2001. Interest is calculated at 12.5% per annum. As
additional consideration, the Company issued warrants to purchase 65,000
shares of the Company's common stock at $1.25 per share expiring August 10,
2005. As of June 30, 2001, the Company has accrued $63,652 in interest on
this note payable.
Related Party Note Payable - During the three months ended June 30, 2001, a
shareholder loaned the Company $7,100. The demand note is unsecured and
accrues interest at 5% per annum.
NOTE 7 - CAPITAL STOCK
Common stock - On February 7, 2001, the Company completed the Plan of
Reorganization and Stock Exchange agreement, through the issuance
13,404,831 shares of Parents common stock for 96% of Subsidiary or
13,049,000 of 13,620,472 shares outstanding at December 31, 2000. The
merger was accounted for as a recapitalization of the Subsidiary, wherein
Subsidiary became a 96% owned subsidiary of the Parent. In connection with
the agreement, 3,725,000 shares of the parent's common stock were
contributed back and cancelled. The Company also amended it's articles of
incorporation to increase the authorized number of common shares to
100,000,000, to effect a 1.65 to 1 forward stock split and to change the
name of the Company to Wizzard Software Corporation.
The Company offered to sell up to 9,000,000 shares of the Company's common
stock at $1.00 per share under a confidential private offering of Common
Stock. As of June, 30, 2001, 671,500 shares were sold and issued under
this offering. As of June 30, 2001, the Company has offset $66,527 in
costs against the offering.
As of May 22, 2001, the Company purchased all of the issued and outstanding
shares of Speech Systems, Inc. through the issuance of 500,000 shares of
the Company's common stock valued at $500,000.
On May 8, 2001 the Company issued 495,000 shares of Common stock upon the
conversion of the $495,000 remaining principal balance on a financing
agreement with Salvage Holdings, Inc.
During June 2001, the Company entered into a year advertising agreement
through the issuance of 350,000 shares of common stock valued at $350,000
for promotion of the Company advertising services.
During May 2001, the Company received back and cancelled 532,500 shares of
the Company common stock.
102
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK (Continued)
Warrants - During April 2001, the Company issued 100,000 warrants to
purchase the Company's common stock at $2.00 per share for a period of 5
years. As of June 30, 2001, the Company had issued 65,000 warrants in
connection with obtaining debt financing (See Note 6). The warrants are
exercisable at $1.25 per share and expire on August 10, 2005. As of June
30, 2001, none of these warrants had been exercised.
The Company had issued an additional 1,008,076 warrants to purchase common
shares of the Company at prices ranging from $1.00 to $1.50 per share,
expiring August 6, 2002 through January 1, 2004, for services rendered in
connection with the Company's private placement offering. As of June 30,
2001, none of these warrants had been exercised.
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes". SFAS
No. 109 requires the Company to provide a net deferred tax asset/liability
equal to the expected future tax benefit/expense of temporary reporting
differences between book and tax accounting methods and any available
operating loss or tax credit carryforwards. The Company has available at
June 30, 2001 operating loss carryforwards of approximately $3,300,000
which may be applied against future taxable income and which expires in
various years through 2020.
The amount of and ultimate realization of the benefits from the operating
loss carryforward for income tax purposes is dependent, in part, upon the
tax laws in effect, the future earnings of the Company, and other future
events, the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the loss carryforward the
Company has established a valuation allowance equal to the amount of the
loss carryforward and, therefore, no deferred tax asset has been recognized
for the loss carryforward. The net deferred tax asset is approximately
$1,120,000 as of June 30, 2001, with an offsetting valuation allowance of
the same amount. The change in the valuation allowance for the period
ended June 30, 2001 is approximately $148,000.
NOTE 9 - OPERATING LEASES
The Company leases office space under an operating lease agreement. The
lease calls monthly payments of $2,000 and expires on June 31, 2001. The
Company's future minimum rental under this operating lease amounts to $0 at
June 30, 2001. Rent expense for the six months ended June 30, 2001 was
$12,000.
103
WIZZARD SOFTWARE CORPORATION AND SUBSIDIARY
(Formerly Balanced Living, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 LOSS PER SHARE
The following data show the amounts used in computing loss per share and
the weighted average number of shares of common stock outstanding for the
periods presented:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
__________________________________________
2001 2000 2001 2000
____________________ _____________________
Earnings (loss) from continuing
operations available to common
shareholders (numerator) $(174,131) $(448,119) $(401,509)$(720,056)
_________ _________ _________ _________
Weighted average number of common
shares outstanding during the
period used in loss per share
(denominator) 16,239,517 15,401,782 15,681,853 15,401,782
__________ __________ __________ __________
At June 30, 2001, the Company had 1,173,076 warrants outstanding to
purchase common stock of the Company at $1.00 to $2.00 per share (See Note
7), which were not included in the loss per share computation because their
effect would be anti-dilutive.
NOTE 11 - GOING CONCERN
The accompanying condensed financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company has
incurred significant losses in recent years and has current liabilities in
excess of current assets and has not yet been successful in establishing
profitable operations. These factors raise substantial doubt about the
ability of the Company to continue as a going concern. In this regard,
management plans to mitigate this doubt by raising additional funds through
debt and/or equity offerings and by substantially increasing sales. There
is no assurance that the Company will be successful in achieving profitable
operations. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
104
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
----------
On or about May 7, 2001, our Board of Directors engaged Xxxxxx & Xxxxxx,
Certified Public Accountant, of Clinton, Maryland, to audit our financial
statements.
The only reason for the change of accountants was the completion of
the Wizzard Delaware reorganization because Xxxxxx & Xxxxxx were the
independent certified accountants for Wizzard Delaware prior to the completion
of this reorganization.
The engagement of Xxxxxx & Xxxxxx was not accepted by Xxxxxx & Xxxxxx
because that firm has determined that it does not desire to engage in auditing
services for publicly held companies; accordingly, Xxxxxxxxx, Xxxxx & Xxxxx,
Certified Public Accountants, of Salt Lake City, Utah, who audited the
financial statements of the Company for the years ended December 31, 2000 and
1999, have been reinstated as the Company's auditors.
The Company may continue its search for auditors whose business
location is more closely proximate to the principal executive offices and the
location where its principle business operations are conducted in Pittsburgh,
Pennsylvania.
AVAILABLE INFORMATION
---------------------
We file periodic reports with the Securities and Exchange Commission.
You may inspect and copy these documents at the Public Reference Room of the
Commission at Xxxx 0000, Judiciary Plaza, 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx,
X.X. 00000. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for additional information. Our Securities and Exchange
Commission filings are also available on its web site: xxxx://xxx.xxx.xxx.
We have filed a registration statement with the Securities and Exchange
Commission on Form SB-2, under the Securities Act, with respect to the
securities described in this prospectus. This prospectus is filed as part of
the registration statement. It does not contain all of the information set
forth in the registration statement and the exhibits and schedules filed with
it. For further information about us and the common stock described by this
prospectus, we refer you to the registration statement and to the exhibits and
schedules filed with it. You may inspect or copy these documents at the
Public Reference Branch or on the Securities and Exchange Commission's web
site.
DEALER PROSPECTUS DELIVERY OBLIGATION
-------------------------------------
Until _______________, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
105
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors And Officers.
------------------------------------------
Section 0-000-000 of the Colorado Code authorizes a Colorado
corporation to indemnify any director against liability incurred in any
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
Unless limited by the Articles of Incorporation, Section 0-000-000
authorizes a director to apply for indemnification to the court conducting the
proceeding or another court of competent jurisdiction. Section 0-000-000
extends this right to officers of a corporation as well.
Unless limited by the Articles of Incorporation, Section 0-000-000
requires that a corporation indemnify a director who was wholly successful in
defending any proceeding to which he or she was a party against reasonable
expenses incurred in connection therewith. Unless limited by the Articles of
Incorporation, Section 0-000-000 extends this protection to officers of a
corporation as well.
Pursuant to Section 0-000-000, the corporation may advance a
director's expenses incurred in defending any action or proceeding upon
receipt of an undertaking and a written affirmation of his or her good faith
belief that he or she has met the standard of conduct specified in Section 0-
000-000. Unless limited by the Articles of Incorporation, Section 0-000-000
extends this protection to officers of a corporation as well.
Regardless of whether a director, officer, employee or agent has the
right to indemnity under the Colorado Code, Section 0-000-000 allows the
corporation to purchase and maintain insurance on his or her behalf against
liability resulting from his or her corporate role.
Article VIII of the Company's Bylaws reiterates the provisions of
Section 0-000-000 of the Colorado Code, and extends this protection to
officers and employees of the Company. Article VIII also provides that a
judgment or conviction, whether based upon a plea of guilty or nolo contendere
or its equivalent, or after trial, shall not in and of itself be deemed to be
an adjudication that such director, officer or employee is liable to the
Company for negligence or misconduct in the performance of his or her duties.
This determination can be made, at the option of the director, officer or
employee seeking indemnification in any of the following manners: (a) order of
the court or administrative agency having jurisdiction of the action, suit or
proceeding; (b) resolution of a majority of the non-interested members of the
Board of Directors; (c) if there is no quorum after excluding interested
directors, by majority resolution of a committee of non-interested
stockholders and directors appointed by the Board of Directors; (d) resolution
of a majority of the quorum directors at any meeting; or (e) an order of any
court having jurisdiction over the Company.
Item 25. Other Expenses of Issuance And Distribution.
--------------------------------------------
The following table sets forth the expenses which we expect to incur in
connection with the registration of the shares of common stock being
registered by this Registration Statement. All of these expenses, except for
the Commission registration fee, are estimated:
Securities and Exchange Commission registration fee........$ 2,645.40
Legal fees and expenses....................................$50,000.00
Accounting fees............................................$ 3,500.00
Printing and engraving expenses............................$ 1,000.00
Blue Sky Filings...........................................$ 4,000.00
Transfer agent fees........................................$ 500.00
Miscellaneous..............................................$ 500.00
Total.................................................$62,145.00
Item 26. Recent Sales of Unregistered Securities.
----------------------------------------
We have sold the following restricted securities during the past three
calendar years:
Common Stock.
-------------
Name Number of Shares Date Consideration
Per Share
---- ---------------- ---- -------------
Balanced Woman 825,000 7/98 Share Exchange
Stockholders
Five or less 276,951 4/99 $1.21
creditors
Five or less 165,000 9/99 $1.21
creditors
Xxxxxx Services 2,500,000 5/00 $0.006
Wizzard Stockholders 13,404,831 2/01 Share Exchange
Private Offering 671,500 2/01-5/30 $1.00
Noble House of 250,000 4/01 Services(1)
Boston, Inc.
Speech Systems, 500,000 5/01 Acquisition
Inc. Stockholders
Savage Holdings, Inc. 495,000 5/01 Conversion(2)
JKD Cayman Island Trust 20,000 10/01 Services(3)
Xxxxx Xxxxxxxx 2,000 10/01 Services(4)
Xxxxx Xxxxxxx Financial 100,000 10/01 Services(5)
Corporate Image Bureau 35,000 10/01 Services(6)
Sierra Advisors, Inc. 15,000 10/01 Services(7)
Xxxxxxx X. Xxxxxxxxxx, Esq.100,000 10/01 Services(8)
(1) Promotion and advertising services valued at $350,000.
(2) Conversion of the balance of a $495,000 note.
(3) Various consulting services of a value of $15,000 based upon
50% of the average bid price of our common stock on the date of
issuance.
(4) Printing and other related costs valued at $1,500 based upon
50% of the average bid price of our common stock on the date of
issuance.
(5) Various consulting services related to financing, mergers and
acquisitions, capitalization, capital structure and strategic
developments valued at $75,000 based upon 50% of the average
bid price of our common stock on the date of issuance.
(6) Various investor relations services valued at $26,250 based
upon 50% of the average bid price of our common stock on the
date of issuance.
(7) Issued based upon a Settlement Agreement that resolved a claim
for 20,000 shares and $7,000 in costs claimed to be due for
assistance in the Rule 504 offering conducted by our 96%-owned
subsidiary in 1999 and early 2000.
(8) Legal services rendered and to be rendered during fiscal 2001
at 50% of the last five day average bid prices of our common
stock at the end of each monthly billing cycle.
Series 2001-A Eight Percent (8%) Convertible Notes.
---------------------------------------------------
Maricopa Equity
Management Corp. 500,000 9/01 $250,000
Warrants.
---------
Warrant Table
-------------
Per Share
Date of Number of Exercise
Holders Grant Term Shares Price
------- ----- ---- ------ -----
Savage Holdings, 8/10/2000 5 years 65,000 $1.25
Inc. (1)
DMG, Inc. (2) 1/1/2001 3 years 258,449 $1.50
Xxxx X. Marwence 1/1/2001 3 years 149,627 $1.50
(3)
Xxxxxx Services, 2/6/2001 18 months 270,000 $1.00
Inc. (4)
Xxxxxxx X. 2/6/2001 18 months 30,000 $1.00
Xxxxxxxxxx, Esq.
(5)
Xxxxxx Services, 2/6/2001 12-18 months 270,000 $1.00
Inc. (4)
Xxxxxxx X. 2/6/2001 12-18 months 30,000 $1.00
Xxxxxxxxxx, Esq.
(5)
Noble House of 4/17/2001 5/30/2006 100,000 $2.00
Boston, Inc. (6)
Xxxx Xxxx (7) 10/18/2001 3 years 20,000 $0.25
Xxxxx Xxxxxxxxx 10/18/2001 3 years 75,000 $1.00
(8)
Xxxxx Xxxxxxx 10/18/2001 18 months 500,000 $2.00
Financial (9)
Xxxxx Xxxxxxxxx 10/18/2001 3 years 20,000 $0.25
(10)
(1) Issued as partial consideration of a $750,000 bridge loan made
to our 96%-owned subsidiary that was convertible into warrants
of any successor entity of our subsidiary in a reorganization
or merger.
(2) Issued for services that were to have provided various advisory
persons that would have been beneficial to our present and
intended operations. Nominal value was ascribed to these
warrants as the average bid price of our common stock on the
date of issuance was approximately the same as the exercise
price of these warrants.
(3) Was associated with DMG, Inc. Issued for services that were to
have provided various advisory persons that would have been
beneficial to our present and intended operations. Nominal
value was ascribed to these warrants as the average bid price
of our common stock on the date of issuance was approximately
the same as the exercise price of these warrants.
(4) Xxxxxx Services had agreed to cancel 3,725,000 of our shares
that it owned in consideration of the Wizzard Delaware
reorganization, assuming that a minimum of $3,000,000 was
raised at an offering price of $3.00 per share as a condition
to the closing of this reorganization. When the minimum
offering was reduced to $500,000 at an offering price of $1.00
per share to close this reorganization, Xxxxxx Services
negotiated these warrants and the warrants that it conveyed to
Xxxxxxx X. Xxxxxxxxxx, Esq. that are outlined in the following
note as additional consideration for the cancellation of its
shares.
(5) Xxxxxx Services conveyed these warrants to Xx. Xxxxxxxxxx for
nominal consideration. Xx. Xxxxxxxxxx had acted as counsel for
us and Xxxxxx Services in connection with the Wizzard Delaware
reorganization.
(6) Promotion and advertising services valued at $350,000, as
outlined in note (1) above under recent sales of common stock.
These warrants were issued as part of that compensation.
(7) Issued as consideration of serving on our Advisory Board of
Directors and valued at 50% of the average bid price of our
common stock on the date of grant, less the exercise price, or
$10,000.
(8) Issued for miscellaneous services rendered. Nominal value was
ascribed to these warrants as the average bid price of our
common stock on the date of issuance was approximately 25% less
than the exercise price of these warrants.
(9) Issued for Various consulting services valued at $75,000, as
outlined in note (5) above under recent sales of common stock.
These warrants were issued as part of that compensation.
Nominal value was ascribed to these warrants as the average bid
price of our common stock on the date of issuance was
approximately 50% less than the exercise price of these
warrants.
(10) Various services related to working partnerships and
relationships with others. Valued at $10,000, based upon the
average bid price of our common stock being that amount in
excess of the exercise price on the date of the grant.
We issued all of these securities to persons who were either "accredited
investors," or "sophisticated investors" who, by reason of relationship to us,
education, business acumen, experience or other factors, were fully capable of
evaluating the risks and merits of an investment in our company; and each had
prior access to all material information about us. We believe that the offer
and sale of these securities was exempt from the registration requirements of
the Securities Act, pursuant to Sections 4(2) and 4(6) thereof, and Regulation
D of the Securities and Exchange Commission and from various similar state
exemptions.
Item 27. Exhibits
--------
The following exhibits are filed as a part of this Registration
Statement:
Exhibit
Number Description
------ ------------
4.1 Warrant of Savage Holdings, Inc.
4.2 Warrant of DMG, Inc.
4.3 Warrant of Xxxx X. Xxxxxxxx
4.4 Warrant of Xxxxxx Services, Inc.
4.5 Warrant of Xxxxxxx X. Xxxxxxxxxx, Esq.
4.6 Warrant of Xxxxxxx X. Xxxxxxxxxx, Esq.
4.7 Warrant of Xxxxxx Services, Inc.
4.8 Warrant of Noble House of Boston, Inc.
4.9 Warrant Agreement of Xxxxxx Services, Inc. and Xxxxxxx X. Xxxxxxxxxx,
Esq.
4.10 Registration Rights Agreement
4.11 Warrant of Xxxx Xxxx
4.12 Warrant of Xxxxx Xxxxxxxxx
4.13 Warrant of Xxxxx Xxxxxxx Financial
4.14 Warrant of Xxxxx Xxxxxxxxx
4.15 Warrant Agreement for all Warrants Issued October 18, 2001
4.16 Lock-Up/Leak-Out Agreement for Xxxx Xxxx
4.17 Lock-Up/Leak-Out Agreement for Xxxxx Xxxxxxxxx
4.18 Lock-Up/Leak-Out Agreement for Xxxxx Xxxxxxx Financial
4.19 Lock-Up/Leak-Out Agreement for Xxxxx Xxxxxxxxx
5 Opinion of Xxxxxxx X. Xxxxxxxxxx, Esq.
regarding legality
10.1 Engagement Letter of Xxxxxxx X. Xxxxxxxxxx, Esq. regarding the
registration statement
10.2 Engagement Letter of Xxxxxxx X. Xxxxxxxxxx, Esq. regarding miscellaneous
matters.
23.1 Consent of Xxxxxxx X. Xxxxxxxxxx, Esq.
23.2 Consent of Xxxxxxxxx, Xxxxx & Xxxxx, C.P.A.
23.3 Consent of Xxxxxx & Xxxxxx, C.P.A.
99.1 SB-2 Registration Statement filed with the Securities and Exchange
Commission on December 22, 1998*
3.1 Articles of Incorporation*
3.2 By-Laws*
99.2 8-K Current Report dated June 5, 2000*
2 Agreement and Plan of Exchange or Reorganization between the
Registrant and the Balanced Woman, Inc.*
Exhibit A- Registrant Warrant and Option Holders
Exhibit B- Registrant Financial Statements for the
years ended December 31, 1999 and 1998 and the
period ended March 31, 2000
Exhibit C- Exceptions to Registrant's Financial
statements
Exhibit D- Investment Letter
Exhibit E- Registrant's Compliance Certificate
3 Certificate of Amendment to Articles of Incorporation
regarding stockholder action without a Meeting*
10.1 Xxxxxx Services, Inc. Purchase Proposal*
10.2 Letter of Intent regarding Wizzard Software Corporation, a
Delaware corporation*
99 Unanimous Consent of the Sole Director and the Majority
Stockholders of Registrant regarding disposition of the
Balanced Woman*
99.3 8-K Current Report dated February 7, 2001*
2 Plan of Reorganization and Stock Exchange Agreement*
Schedules of Balanced Living, Inc.
Schedules of Wizzard
3 Certificate of Amendment to the Articles of Incorporation
dated February 7, 2001, changing the name to "Wizzard
Software Corporation" and effecting a forward split of 1.65
for 1*
10.1 Amended and Restated Convertible Promissory Note*
10.2 Lock-up/Leak-out Agreement*
99 News Release dated February 7, 2001*
99.4 8-K Current Report dated April 1, 2001, regarding the change in
accountants and the Advertising and Promotional Services Agreement with
Noble House of Boston, Inc.*
10.1 Advertising and Promotional Services Agreement*
16.1 Letter Regarding change in certifying accountants*
16.2 Letter Regarding change in certifying accountants*
99.5 8-K Current Report dated September 14, 2001*
10 Securities Purchase Agreement
Schedule 3(c)
Schedule 3(g)
Schedule 3(h)
Schedule 3(i)
Schedule 3(j)
Exhibit A-Series 2001-A Eight Percent (8%)
Convertible Promissory Note due August 31, 2001
Exhibit B-Registration Rights Agreement
Exhibit C-Escrow Agreement
Exhibit D-Opinion of Counsel for Wizzard
Item 28. Undertakings
------------
We hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and, notwithstanding the foregoing, any increase
or decrease in volume of securities offered, if the total dollar value of
securities offered would not exceed that which was registered, and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, executive officers
and controlling persons the foregoing provisions or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission that
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against
these liabilities, other than our payment of expenses incurred or paid by any
of our directors, executive officers or controlling persons in the successful
defense of any action, suit or proceeding, is asserted by the director,
executive officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of our counsel the matter has
been settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of that issue.
SIGNATURES
----------
In accordance with the requirements of the Securities Act, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing of Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned in the
City of Pittsburgh, State of Pennsylvania, on October 23, 2001.
Wizzard Software Corporation
Date: 10/23/01 /s/ Xxxxxxxxxxx X. Xxxxxxx
-------- --------------------------
CEO, President and
Director
In accordance with the requirements of the Securities Act, this
registration statement was signed by the following persons in the
capacities and on the dates stated.
Wizzard Software Corporation
Date: 10/23/01 /s/ Xxxxxxxxxxx X. Xxxxxxx
-------- --------------------------
CEO, President and
Director
Date: 10/23/01 /s/ Xxxxx Xxxxxxxx
-------- --------------------------
Assistant Secretary
and Director
Date: 10/23/01 /s/ Xxxxxx Xxxxx
-------- --------------------------
Director
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM SB-2 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
WIZZARD SOFTWARE CORPORATION |
