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EXCEL - IDEA: XBRL DOCUMENT - Advanced Voice Recognition Systems, IncFinancial_Report.xls
EX-31 - EX-31.2 - Advanced Voice Recognition Systems, Incexhibit312.htm
EX-32 - EX-32.1 - Advanced Voice Recognition Systems, Incexhibit321.htm
EX-31 - EX-31.1 - Advanced Voice Recognition Systems, Incexhibit311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended      December 31, 2012      

Or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

 

Commission file number 000-52390

 

ADVANCED VOICE RECOGNITION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

NEVADA

98-0511932

State or other jurisdiction of incorporation or

organization

(I.R.S. Employer Identification No.)

 

 

 

7659 E. Wood Drive

Scottsdale, Arizona

85260

(Address of principal executive offices)

(Zip Code)

 

 

 

Registrant's telephone number, including area code is (480) 704-4183

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class: NONE                        Name of each exchange on which registered: NONE

 

Securities registered pursuant to section 12(g) of the Act

 

Common Stock $0.001 Par Value

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: o  Yes    x  No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o  Yes    x  No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x  Yes    o  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes    o  No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one)

 

 

 

 

Large accelerated filer o

Accelerated filer o

 

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company x

 

 

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o  Yes    x  No

 

The aggregate market value of the outstanding common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was approximately $3,047,134 based upon the last reported sales price on the OTCBB for such date. For purposes of this disclosure, shares of Common Stock held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive.

 

The number of shares of the registrant’s common stock, as of March 1, 2013 was 204,282,865.

 



ADVANCED VOICE RECOGNITION SYSTEMS, INC.

 

 

TABLE OF CONTENTS

 

 

PAGE

 

 

 

 

PART I

 

 

 

 

 

 

 

Item 1.

Business

 

 

1

 

Item 2.

Property

 

 

4

 

Item 3.

Legal Proceedings

 

 

5

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

5

 

 

 

 

 PART II

 

 

 

 

 

 

 

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

 

6

 

Item 6.

Selected Financial Data

 

 

6

 

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operation

 

 

6

 

Item 8.

Financial Statements and Supplementary Data

 

 

9

 

Item 9.

Controls and Procedures

 

 

26

 

 

 

 

 PART III

 

 

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

 

28

 

Item 11.

Executive Compensation

 

 

29

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

 

30

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

 

 

32

 

Item 14.

Principal Accounting Fees and Services

 

 

32

 

 

 

 

 PART IV

 

 

 

 

 

 

 

Item 15

Exhibits, Financial Statement Schedules

 

 

33

 

 

 

 

 

 

 

EX 31.1 

 

 

EX 31.2

EX 32.1

 

 



 Cautionary Statement Regarding Forward Looking Statements

 

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

 

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

 


 

PART I

 Item 1. Business.

 

General Overview.

 

Advanced Voice Recognition Systems, Inc. (the “Company”, “we” or “us”), was incorporated in the State of Nevada on August 31, 2005 as Samoyed Energy Corp., an oil and gas company. In May 2008, we consummated a stock exchange with the shareholders of Advanced Voice Recognition Systems, Inc., a Colorado corporation (“AVRS”), and consequently, AVRS became our wholly-owned subsidiary. In May 2008, we also transferred our oil and gas assets to Stone Canyon Resources, Inc. In June 2008, AVRS merged with and into us and we changed our name to “Advanced Voice Recognition Systems, Inc.” As a result of the stock exchange and the transfer of our oil and gas assets, our current operations are those of AVRS, and our fiscal year became that of AVRS and now ends on December 31st.

 

Our common stock has been quoted on the Over-the-Counter Bulletin Board, also referred to as the OTCBB, since April 2007. Prior to June 19, 2008, our ticker symbol was “SMYD”, and on June 19, 2008, following our name change, our ticker symbol changed to “AVOI”. Our website is located at www.avrsys.com.

 

AVRS was incorporated on July 7, 2005. In May 2000, WG Investments, LLC, a Colorado limited liability company formed that same year, acquired all of the assets of NCC, Inc., an Ohio corporation, and all rights, title and interests in and to U.S. Patent #5,960,447. Promptly following the acquisition, the members of WG Investments, LLC voted to change its name to NCC, LLC. In 2005, the members of NCC, LLC exchanged their membership interests in NCC, LLC for shares of common stock of AVRS.

 

On March 25, 2009, we entered into an Agreement and Plan of Merger (“Agreement and Plan of Merger”) with our wholly-owned subsidiary, NCC, LLC, a Colorado limited liability company, whereby NCC, LLC merged with and into us pursuant to Section 92A.180 of the Nevada Business Corporations Act. Upon consummation of the Agreement and Plan of Merger; (i) NCC, LLC ceased to exist; (ii) our member interests in NCC, LLC automatically were canceled or retired and ceased to exist, without any consideration delivered in exchange thereof; (iii) the title to all estate, property rights privileges, powers and franchise assets and/or other rights owned by NCC, LLC became vested in us without reversion or impairment; and (iv) all liabilities of any kind of NCC, LLC became vested in us.

 

We are a software development company headquartered in Scottsdale, Arizona, with an office in Mitchell, South Dakota. We specialize in creating interface and application solutions for speech recognition technologies. Our speech recognition software and related firmware was first introduced in 1994 at an industry trade show.  We currently have limited capital resources.  We are not currently engaged in marketing any products.  We have increased our efforts to monetize our assets.  We are currently engaged in discussions with certain firms dedicated to assisting in the commercialization of intellectual assets.

 

Our principal assets are our patents.  We currently hold four issued patents.  Our first patent, U.S. Patent #5,960,447 entitled “Word Tagging and Editing system for Speech Recognition” includes 42 claims covering an extremely broad base of features applicable to existing ASR products and markets.  Our second patent, U.S. Patent #7,558,730 entitled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols” discloses a system for facilitating speech recognition and transcription among users employing incompatible protocols for generating, transcribing and exchanging speech.  Our third patent U.S. Patent #7,949,534 is an expansion of the coverage of AVRS’s second patent and incorporates speech recognition and transcription among transcription engines employing incompatible protocols.  Our fourth patent U.S. Patent #8,131,557 is an expansion of the coverage of AVRS’s second and third patents and incorporates speech recognition and transcription among transcription engines employing incompatible protocols for generating, transcribing, and exchanging speech among users employing incompatible protocols utilizing peer-to-peer networks, node-to-node networks, and the cloud. Our business strategy will be to attempt to interest other companies in entering into license agreements or other strategic relationships and to enforce and defend our patents through infringement and interference proceedings, as appropriate.

 

 Industry Overview

 

We believe that speech recognition technology has a multitude of potential applications including but not limited to dictation and transcription, mobile messaging (voice to texting), server based web search, customer relations and translation.

 

Speech recognition technology, which provides for the conversion of speech into written text, is the threshold feature of our solutions. Our technology focuses on improving speech recognition technology by increasing speech conversion precision, with the goal of achieving near 100% accuracy and allowing the user to speak naturally. We also focus on improving user productivity and profitability by enabling the user to effectively utilize the written text produced by speech recognition technology (the End-Text) in multiple applications specific to the user’s business purposes and goals.

 

We believe our main competitors are Microsoft, Nuance, Google Voice and Apple. We also will compete with several smaller niche suppliers. We intend to differentiate our solutions from those of our competitors by focusing on efficient correction using methods that will minimize the burden on the user as well as the efficiency and scalability of users having heterogeneous protocols.

 

Principal Proposed Products or Services

 

We are in the development stage and have not achieved any revenues from product sales. In addition, we will need substantial additional capital to achieve our marketing objectives as described below.

 

Speech Recognition Software and Related Firmware

 

Our principal proposed product is speech recognition software and related firmware which allows for dictation into a broad range of applications, including DOS applications running in Windows, UNIX and mainframe applications accessed through terminal emulation programs, various custom applications , and all Windows 3.x, 95, 98, 2000, XP, Vista and Windows 7 programs. Through this product, we seek to provide full functionality including audio proofreading, deferred and delegated correction and additional capabilities that we believe are not available with other products. This product is designed to allow for deferred dictation, where the text is saved with the associated audio, and the users can resume when stopped and can play back dictated content. Similarly, the recognized text and associated audio can be saved to be used when text is corrected.

 

AVRS Enterprise Solutions

 

AVRS patented technology is applicable to many main stream speech enabled applications ranging from traditional desktop applications to mobile and web-based solutions.  The technology reaches beyond simple speech recognition and transcription into many other applications thus enabling the exchange of spoken text transcription amongst numerous users on diverse system platforms, as well as enabling the transcribed text to be utilized by many interface applications.  The key is the recognition of and in many cases the transcription of spoken text in a myriad of applications to allow a seamless interface among users and /or systems having disparate protocols.  Recognition of dictated speech including spoken text and commands, over many platforms provides operations of systems having diverse requirements and capabilities.

 

AVRS patents cover both a method of implementation and a system whereby speech recognition and transcription can be operated upon and exchanged amongst users employing disparate legacy protocols through one or more transaction managers having a systems protocol.  An underlying key factor in all AVRS patented technology lies in its enabling capability whereby any legacy application protocol can be made compatible with speech recognition and transcription engines with or without modification of the application or the protocol upon which the initiating or the receiving application relies.

 

Market

 

We intend to target vertical markets that require individuals and organizations to create reports, letters, e-mail, data entry, manuals, books, and virtually any other document or end product involving written data. These organizations include corporations, hospitals, medical product and service providers, governmental entities, legal professionals, sales and service organizations law enforcement agencies and mobile search and voicemail to text.

 

Original Equipment Manufacturer (OEM)

 

We anticipate that we will work with the OEM markets, targeting both software developers and hardware manufacturers. We may approach the larger OEM companies with a joint marketing approach strategy while using a direct sale basis to approach small and medium-sized OEMs.

 

 

Hardware Manufacturers

 

We also anticipate targeting hardware manufacturers, both on a direct basis and through joint sales and marketing programs. We intend to offer technology and patent licenses to manufacturers of medical devices, digital dictation systems, recorders, workstation PCs, mobile phones, PDAs, WAPs, and intelligent electronics. Alternatively, we may offer these manufacturers limited versions of our speech recognition software and related firmware product line for embedding into hardware. We expect to develop joint sales and marketing programs for mainframe, thin-client, telephony and other large hardware processing systems.

 

Distribution

 

Product development of the speech recognition software and related firmware was the primary focus for the first six years following its introduction into the software market in 1994. Early forms of the speech recognition software and related firmware were marketed through a network of approximately 200 small dealers specializing in speech recognition technology.

 

Our business model has been revised and we plan to collect royalty payments based on actual usage of the speech recognition software and related firmware in various applications.

 

Intellectual Property

 

Our primary assets are United States Patent #5,960,447, United States Patent #7,558,730, United States Patent #7,949,534 and United States Patent #8,131,557.  U.S. Patent #5,960,447 is for a word tagging and editing system for speech recognition filed on November 13, 1995 and issued on September 28, 1999. In accordance with 35 USC 154, the term for the above-referenced patent began on September 28, 1999 and ends 20 years from the date on which the application for the patent was filed in the United States. Therefore, the patent will expire on November 13, 2015.

 

A word tagging and editing system for speech recognition receives recognized speech text from a speech recognition engine, and creates tagging information that follows the speech text as it is received by a word processing program or other program. The body of text to be edited in connection with the word processing program may be selected and cut and pasted and otherwise manipulated, and the tags follow within the audio data file created initially by the speech recognition engine. The sound bite may be replayed to the user through a speaker. The practical results include that the user may confirm the correctness of a particular recognized word, in real time whilst editing text in the word processor. If the recognition is manually corrected, the correction information may be supplied to the engine for use in updating a user profile for the user who dictated the audio that was recognized. Particular tagging approaches are employed depending on the particular word processor or other program being used.

 

U.S. Patent #7,558,730 titled, “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols”, was filed on November 27, 2001 and issued on July 7, 2009.  In accordance with 35 USC 154, the term for the above referenced patent began on July 7, 2009 and ends 20 years from the date on which the application for the patent was filed in the United States.  Therefore, the patent will expire on November 27, 2021.   The invention discloses a system for facilitating speech recognition and transcription among users employing incompatible protocols for generating, transcribing, and exchanging speech. We expect this patent to strengthen our position in voice recognition.

 

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

 

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

 

On March 9, 2010 the United States Patent and Trademark Office (“USPTO”) declared an interference between the Company as Senior Party and Allvoice Developments, US LLC as Junior Party.  The Interference Proceeding is a proceeding conducted by the USPTO in instances where two or more parties claim patent rights to the same technology. The U.S. patent system awards patents to the first party to invent a particular technology.  In an interference, the primary purpose of the USPTO is to determine which party invented the technology first, and to award the patent to that party.  On January 13, 2011 the Board of Patent Appeals and Interferences (“BPAI”) heard oral arguments in the Interference Proceeding.  On April 27, 2012, the BPAI denied the Company’s motions.  On May 28, 2012 the Company filed a request for rehearing in the BPAI.  On December 19, 2012 the BPAI denied the Company’s request for rehearing.  Further options included filing an appeal to the Court of Appeals or filing a civil suit. The Company decided that further litigation would be costly and time-consuming and would divert the attention of our management and key personnel from our business operations.

 

Research and Development

 

During fiscal years 2012 and 2011, we did not incur any expense for research and development activities.

 

Employees

 

We currently have two employees, Diana Jakowchuk our Secretary, Treasurer and Principal Accounting Officer and Walter Geldenhuys, our President, Chief Executive Officer and Chief Financial Officer. We may engage consultants and other service providers in the future to help us carry out our business plan.

 

Available Information

 

We file the following reports with the SEC under Section 13(a) of the Securities Exchange Act of 1934 as a smaller reporting company: Annual Reports on Form 10-K; Quarterly Reports on Form 10-Q; Current Reports on Form 8-K; and any amendments to these reports. You may request a copy of these filings at no cost. Please direct your requests to:

 

Diana Jakowchuk

Secretary, Treasurer, Principal Accounting Officer

AVRS, Inc.

7659 E. Wood Drive

Scottsdale, AZ 85260

 

Our website is located at www.avrsys.comC:\AVRS Documents\10K requirements 12-31-2011\10K Doc\www.avrsys.com. Information contained on our website is not a part of, and is not incorporated into this Annual Report on Form 10-K.  The Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and all amendments to these reports and other information that we file with or furnish to the Securities and Exchange Commission, or the SEC, are accessible free of charge on our website.  We make these documents available as soon as reasonably practicable after we file them with or furnish them to the SEC.  You can also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at www.sec.com that contains our reports, proxy and information statements and other information that we file electronically with the SEC.

 

Item 2. Properties.

 

Our principal executive offices are located at 7659 E. Wood Drive, Scottsdale, Arizona and are provided to us free of charge by Diana Jakowchuk, our Secretary, Treasurer and Principal Accounting Officer.

 

Item 3. Legal Proceedings.

 

On March 9, 2010 the USPTO declared interference between the Company as Senior Party and Allvoice Developments, US LLC as Junior Party.  The Company retained a law firm for representation in the interference.  Oral arguments before a three member panel of judges occurred on January 13, 2011.  On April 27, 2012, the BPAI denied the Company’s motions.  On May 28, 2012 the Company filed a request for rehearing in the BPAI.  On December 19, 2012 the BPAI denied the Company’s request for rehearing.

 

Item 4. Submission of Matters to a Vote of Security Holders.

 

None

 

 

 


PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Commencing on June 19, 2008, our common stock has been quoted on the OTCBB under the symbol “AVOI”. The following table sets forth the high and low bid prices per share of our common stock for each full quarterly period in 2012 and 2011. These prices represent inter-dealer quotations without retail markup, markdown or commission and may not necessarily represent actual transactions.

 

 

High

 

Low

 

 

$

$

 

Three Months Ended December 31, 2012

 

0.03

 

0.03

Three Months Ended September 30, 2012

 

0.04

 

0.03

Three Months Ended June 30, 2012

 

0.05

 

0.05

Three Months Ended March 31, 2012

 

0.10

 

0.10

Three Months Ended December 31, 2011

 

0.07

 

0.04

Three Months Ended September 30, 2011

 

0.07

 

0.07

Three Months Ended June 30, 2011

 

0.09

 

0.09

Three Months Ended March 31, 2011

 

0.08

 

0.08

 

Holders

 

As of December 31, 2012, we have approximately 61 holders of record of our common stock and 204,282,865 shares issued and outstanding. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various securities brokers, dealers and registered clearing agencies. The transfer agent of our common stock is Holladay Stock Transfer, 2939 N. 67thPlace, Scottsdale, AZ 85251.

 

Dividends

 

We have not declared any cash dividends, nor do we have any current plans to do so. We are not subject to any legal restrictions respecting the payment of dividends, except that they may not be paid to render us insolvent.  We currently anticipate that we will retain all of our future earnings for use in the expansion and operation of our business and do not anticipate paying any cash dividends in the foreseeable future.

 

Unregistered Sales of Equity Securities

 

We have not sold any equity securities during the period covered by this Annual Report on Form 10-K that were not previously disclosed by us in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

 

Item 6. Selected Financial Data.

 

As a "smaller  reporting  company" as defined by Item 10 of Regulation  S-K, we are not required to provide information required by this Item.

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

 

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This document contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company’s plans, objectives, expectations and intentions. When used in this document, the words “expects”, “anticipates”, “intends” and “plans” and similar expressions are intended to identify certain of these forward-looking statements. The cautionary statements made in this document should be read as being applicable to all related forward-looking statements wherever they appear in this document. Our actual results could differ materially from those discussed in this document.

 

Results of Operation

 

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

 

At December 31, 2012, we had current assets of $76,520, and current liabilities of $215,523, as compared to $13,405 current assets and $276,053 in current liabilities at December 31, 2011. Our increase in current assets is primarily attributable to sales of shares of our Common Stock. Our decrease in current liabilities primarily is due to the decreased professional fees incurred in connection with the interference proceedings in the USPTO.

We had a net loss of $419,900 for the year ended December 31, 2012, as compared to a net loss of $414,330 for the year ended December 31, 2011. The increase in net loss is primarily attributable to the increase in legal and accounting fees during the course of the year ended December 31, 2012.

 

Liquidity and Capital Resources

 

During the year ended December 31, 2012, we used $469,447 of cash in operating activities and $5,438 of cash in investing activities, as we received $538,000 of cash from the sale of shares of our common stock. As a result, for the year ended December 31, 2012, we recognized a $63,115 net increase in cash on hand. For the year ended December 31, 2011, we used $494,950 of cash in operating activities and $25,780 of cash in investing activities, and received net cash of $405,575 provided by financing activities, resulting in a $115,155 decrease in cash on hand for the year.

 

During the years ended December 31, 2012 and 2011, our president has loaned or advanced to us funds for working capital on an “as needed” basis. There is no assurance that these loans or advances will continue in the future. Because of our history of losses, net capital deficit and lack of assurance of additional financing, the audit report on our financial statements contains a “going concern” opinion regarding doubt about our ability to continue as a going concern.

 

In an attempt to address our financing needs, we have made sales of our common stock in private transactions.

 

We entered into Stock Purchase Agreements for the sale of our common stock in 2010 pursuant to which we received $420,000 in 2010 and $150,000 in proceeds.

 

We entered into a Stock Purchase Agreement dated March 9, 2011 with one person who agreed to purchase 4,375,000 restricted shares of the common stock of AVRS for $350,000.  Payment was made in full on March 10, 2011.

 

During the twelve months ended December 31, 2012, we entered into Stock Purchase Agreements for the private sale to four persons or entities of an aggregate of 11,640,000 shares of the common stock for aggregate proceeds of $532,000.  All of the proceeds were paid during the 12 months ended December 31, 2012.

 

If we continue to pursue interference proceedings, or initiate or defend infringement actions, we would expect to incur substantial costs and legal fees that ultimately may not be recoverable.

 

We will require additional debt or equity financing or a combination of both in order to carry out our business plan. We incurred substantial legal fees and costs in connection with the interference proceeding with Allvoice, and we will likely continue to incur expenses in defending our patents and pursuing license agreements.  We plan to raise additional funds through future sales of our securities, until such time as our revenues are sufficient to meet our cost structure, and ultimately achieve profitable operations. There is no assurance we will be successful in raising additional capital or achieving profitable operations. Our board of directors may attempt to use non-cash consideration to satisfy obligations that may consist of restricted shares of our common stock. These actions would result in dilution of the ownership interests of existing shareholders and may further dilute our common stock book value.

 

To obtain sufficient funds to meet our future needs for capital, we will from time to time, evaluate opportunities to raise financing through some combination of the private sale of equity, or issuance of convertible debt securities. However, future equity or debt financing may not be available to us at all, or if available, may not be on terms acceptable to us. We do not intend to pay dividends to shareholders in the foreseeable future.

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

 

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

 

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

 

In order for our operations to continue, we will need to generate revenues from our intended operations sufficient to meet our anticipated cost structure. We may encounter difficulties in establishing these operations due to our inability to successfully prosecute any patent enforcement actions or our inability to effectively execute our business plan.

 

If we do not raise additional capital, or we are unable to obtain additional financing, or begin to generate revenues from our intended operations, we may have to scale back or postpone the development and marketing of our products or the enforcement of our patent rights until such financing is available.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.


Item 8. Financial Statements and Supplementary Data.

 

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Advanced Voice Recognition Systems:

 

We have audited the accompanying balance sheets of Advanced Voice Recognition Systems (“the Company”) as of December 31, 2012 and 2011 and the related statements of operations, stockholders’ equity (deficit) 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 audit. 

 

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion. 

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Advanced Voice Recognition Systems, as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States of America.

 

The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company's internal control over financial reporting.  Accordingly, we express no such opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Borgers & Cutler CPA’s PLLC

Borgers & Cutler CPA’s PLLC
Denver, CO
March 5, 2012

 

 

 



 

ADVANCED VOICE RECOGNITION SYSTEMS, INC.

(A Development Stage Company)

Consolidated Balance Sheets

 

DECEMBER 31,

DECEMBER 31,

2012

2011

ASSETS

Current Assets

Cash

$

76,520  

$

13,405  

Prepaid Expenses (Note 7)

—    

—    

Total Current Assets

76,520  

13,405  

Fixed Assets (Note 2)

Computer software and equipment, net

4,333  

1,982  

Total Fixed Assets

4,333  

1,982  

Intangible Assets

Patent, net (Note 3)

56,709  

61,274  

Deferred costs

18,495  

21,826  

Total Intangible Assets

75,204  

83,100  

Total Assets

$

156,057  

$

98,487  

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities

Accounts payable

$

209,702  

$

239,821  

Payroll

21  

30,432  

Accrued interest to related party (Note 4)

—    

—    

Indebtedness to related parties (Note 4)

5,800  

5,800  

Total Current Liabilities

215,523  

276,053  

Stockholders' Deficit (Note 1)

Common stock, $.001 par value; 547,500,000 shares authorized

204,282,865 and 192,642,865, issued and outstanding respectively

$

204,283  

$

192,643  

Additional paid-in capital

7,485,100  

6,958,740  

Deficit accumulated during development stage

(7,748,849)

(7,328,949)

Total Stockholders' Deficit

(59,466)

(177,566)

Total Liabilities and Stockholders' Deficit

$

156,057  

$

98,487  

 

 

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

 

 

 


ADVANCED VOICE RECOGNITION SYSTEMS, INC.

(A Development Stage Company)

Consolidated Statements of Operations

 

FOR THE YEARS ENDED

THROUGH

DECEMBER 31,

DECEMBER 31,

2012

 

2011

 

2012

Sales

$

—    

$

—    

$

1,241,924  

Cost of goods sold

—    

—    

379,378  

Gross profit

—    

862,546  

Operating expenses:

Research and development

—    

—    

1,189,531  

Contributed services (Note 4)

—    

61,536  

2,317,982  

General and administrative:

Compensation

268,610  

176,891  

1,056,674  

Stock Based Compensation

—    

—    

150,500  

Professional fees

116,989  

138,939  

1,551,314  

Office

19,212  

17,174  

315,672  

 Rent

—    

—    

157,356  

Travel

3,336  

6,667  

158,181  

Advertising

—    

—    

81,090  

Bad debt expense

—    

—    

67,217  

Other

11,753  

11,877  

421,362  

Impairment of Deferred Costs

—    

—    

1,068,860  

Total operating expenses

419,900  

413,084  

8,535,739  

Loss from operations

(419,900)

(413,084)

(7,673,193)

Other income and (expense):

Investment Income

—    

—    

5,062  

Interest expense

—    

(1,246)

(67,215)

Loss on sale of assets

—    

—    

(13,503)

Net other expense

—    

(1,246)

(75,656)

Loss before income taxes

(419,900)

(414,330)

(7,748,849)

Provision for income taxes (Note 5)

—    

—    

—    

Net Loss

$

(419,900)

$

(414,330)

$

(7,748,849)

Basic and diluted loss per common share

$

(0)

$

(0)

Weighted average number of common shares outstanding

200,442,427  

191,296,975  

 

 

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

 

 

 


ADVANCED VOICE RECOGNITION SYSTEMS, INC.

(A Development Stage Company)

Consolidated Statement of Stockholders' Deficit

 

 

Deficit

Accumulated

NCC, LLC

Additional

During

Membership

Common Stock

Paid-in

Development

Deferred

 Interests

 Shares

 Amount

 Capital

 Stage

 Compensation

 Total

Balance at March 15, 1994 (inception)

$

                750

$

1,000

$

                    -

$

                        -

$

                         -

$

            1,000

Net Loss

                     -

                     -

                  -

                    -

               (3,976)

                         -

           (3,976)

Balance at December 31, 1994

                     -

                750

          1,000

                    -

               (3,976)

           (2,976)

Net Loss

                     -

                     -

                  -

                    -

             (38,516)

                         -

         (38,516)

Balance at December 31, 1995

                     -

                750

          1,000

                    -

             (42,492)

         (41,492)

Net Loss

                     -

                     -

                  -

                    -

           (144,843)

                         -

       (144,843)

Balance at December 31, 1996

                     -

                750

          1,000

                    -

           (187,335)

       (186,335)

Net Loss

                     -

                     -

                  -

                    -

               (3,291)

                         -

           (3,291)

Balance at December 31, 1997

                     -

                750

          1,000

                    -

           (190,626)

       (189,626)

Net Loss

                     -

                     -

                  -

                    -

           (537,561)

                         -

       (537,561)

Balance at December 31, 1998

                     -

                750

          1,000

                    -

           (728,187)

       (727,187)

Net Loss

                     -

                     -

 `

                    -

           (512,491)

                         -

       (512,491)

Balance at December 31, 1999

                     -

                750

          1,000

                    -

        (1,240,678)

    (1,239,678)

May 19, 2000, obligations contributed to capital

                     -

                     -

                  -

     1,335,432

                        -

                         -

     1,335,432

May 19, 2000, paid-in capital of NCC, Inc. transferred to NCC, LLC membership interests.

       1,336,432

               (750)

        (1,000)

    (1,335,432)

May 19, 2000, acquisition of NCC, Inc. by  NCC, LLC

          487,500

                     -

                  -

                    -

                        -

                         -

        487,500

Contributed services (Note 4)

          520,000

                     -

                  -

                    -

                        -

                         -

        520,000

Net Loss

                     -

                     -

                  -

                    -

        (1,125,348)

                         -

    (1,125,348)

Balance at December 31, 2000

       2,343,932

                     -

                  -

                    -

        (2,366,026)

                         -

         (22,094)

Contributed services (Note 4)

          720,500

                     -

                  -

                    -

                        -

                         -

        720,500

Net Loss

                     -

                     -

                  -

                    -

           (990,765)

                         -

       (990,765)

Balance at December 31, 2001

       3,064,432

                     -

                  -

                    -

        (3,356,791)

       (292,359)

Various dates, payment of expenses by member

                 257

                     -

                  -

                    -

                        -

                         -

               257

Contributed services (Note 4)

            50,767

                     -

                  -

                    -

                        -

                         -

          50,767

Net Loss

                     -

                     -

                  -

                    -

           (191,542)

                         -

       (191,542)

Balance at December 31, 2002

       3,115,456

                     -

                  -

                    -

        (3,548,333)

       (432,877)

Various dates, payment of expenses by member

                 600

                     -

                  -

                    -

                        -

                         -

               600

Contributed services (Note 4)

            18,749

                     -

                  -

                    -

                        -

                         -

          18,749

Net Loss

                     -

                     -

                  -

                    -

             (19,349)

                         -

         (19,349)

Balance at December 31, 2003

       3,134,805

                     -

                  -

                    -

        (3,567,682)

       (432,877)

December 31, 2004, obligation to member contributed to capital

          378,462

                     -

                  -

                    -

                        -

                         -

        378,462

Contributed services (Note 4)

            58,651

                     -

                  -

                    -

                        -

                         -

          58,651

Net Loss

                     -

                     -

                  -

                    -

             (58,651)

                         -

         (58,651)

Balance at December 31, 2004

       3,571,918

                     -

                  -

                    -

        (3,626,333)

                         -

         (54,415)

July 7, 2005, Incorporation of AVRS from NCC LLC membership interests and subsequent merger with Samoyed Energy Corp (Note 1)

     (3,571,918)

    93,333,333

        93,333

     3,478,585

                        -

                         -

                    -

December 20, 2005 1.5 to 1 stock split

    46,666,667

        46,667

         (46,667)

                         -

Contributed services (Note 4)

                     -

                     -

                  -

        158,648

                        -

                         -

        158,648

Net Loss

                     -

                     -

                  -

                    -

           (241,957)

                         -

       (241,957)

Balance at December 31, 2005

                     -

  140,000,000

      140,000

     3,590,566

        (3,868,290)

       (137,724)

Contributed services (Note 4)

                     -

                     -

                  -

          70,189

                        -

                         -

          70,189

Net Loss

                     -

                     -

                  -

                    -

           (106,867)

                         -

       (106,867)

Balance at December 31, 2006

                     -

  140,000,000

      140,000

     3,660,755

        (3,975,157)

       (174,402)

Contributed services (Note 4)

                     -

                     -

                  -

          83,652

                        -

                         -

          83,652

Net Loss

                     -

                     -

                  -

                    -

           (122,688)

                         -

       (122,688)

Balance at December 31, 2007

                     -

  140,000,000

      140,000

     3,744,407

        (4,097,845)

       (213,438)

April 28, 2008, Stock issued in recapitalization with Samoyed (Note 1)

                     -

    24,700,008

        24,700

         (24,700)

                        -

                         -

                    -

Proceeds from shareholder to retain common shares under Stock Exchange Agreement (Note 1)

                     -

                     -

                  -

        331,000

                        -

                         -

        331,000

Contributed services (Note 4)

                     -

                     -

                  -

        121,077

                        -

                         -

        121,077

Net Loss

                     -

                     -

                  -

                    -

           (431,022)

                         -

       (431,022)

Balance at December 31, 2008

                     -

  164,700,008

      164,700

     4,171,784

        (4,528,867)

                         -

       (192,383)

Proceeds from shareholder to retain common shares under Stock Exchange Agreement (Note 1)

                     -

                     -

                  -

          52,430

                        -

                         -

          52,430

March 18, 2009, 350,000 shares of common stock issued for future services and stock based compensation (Note 1)

         350,000

             350

          87,150

                        -

             (81,181)

            6,319

Contributed services (Note 4)

                     -

                     -

                  -

        238,837

                        -

                         -

        238,837

Stock Based Compensation (Note 1)

                     -

                     -

                  -

                    -

               81,181

          81,181

December 8, 2009, 350,000 shares of common stock issued for future services and deferred compensation (Note 1)

         350,000

             350

          62,650

                        -

             (63,000)

                    -

Net Loss

                     -

                     -

                  -

                    -

           (480,390)

                         -

       (480,390)

Balance at December 31, 2009

$

                     -

  165,400,008

$

      165,400

$

     4,612,851

$

        (5,009,257)

$

             (63,000)

$

       (294,006)

Proceeds from shareholder to retain common shares under Stock Exchange Agreement (Note 1)

                     -

                     -

                  -

153,332

                        -

                         -

153,332

March 11,02010 2,000,000 shares of common stock issued for stock purchase agreement

                     -

2,000,000

2,000

98,000

                        -

                         -

100,000

March 15, 2010 1,000,000 shares of common stock issued for stock purchase agreement

                     -

1,000,000

1,000

49,000

                        -

                         -

50,000

Stock Based Compensation

                     -

                     -

                  -

                        -

63,000

63,000

April 19, 2010 1,000,000 shares of common stock issued for stock purchase agreement

                     -

1,000,000

1,000

49,000

                        -

                         -

50,000

May 5, 2010 250,000 shares of common stock issued for stock purchase agreement

                     -

250,000

250

19,750

                        -

                         -

20,000

May 17, 2010 1,000,000 shares of common stock issued for stock purchase agreement

                     -

1,000,000

1,000

49,000

                        -

                         -

50,000

May 19, 2010 1,000,000 shares of common stock issued for stock purchase agreement

                     -

1,000,000

1,000

49,000

                        -

                         -

50,000

July 9, 2010 2,000,000 shares of common stock issued for stock purchase agreement

                     -

2,000,000

2,000

98,000

                        -

                         -

100,000

July 26, 2010 600,000 shares of common stock issued for stock purchase agreement

                     -

600,000

600

49,400

                        -

                         -

50,000

August 28, 2010 1,250,000 shares of common stock issued for stock purchase agreement

                     -

1,250,000

1,250

98,750

                        -

                         -

100,000

September 2, 2010 250,000 shares of common stock issued for stock purchase agreement

                     -

250,000

250

19,750

                        -

                         -

20,000

September 3, 2010 625,000 shares of common stock issued for stock purchase agreement

                     -

625,000

625

49,375

                        -

                         -

50,000

September 24, 2010 375,000 shares of common stock issued for stock purchase agreement

                     -

375,000

375

29,625

                        -

                         -

30,000

October 19, 2010 250,000 shares of common stock issued for stock purchase agreement

                     -

250,000

250

19,750

                        -

                         -

20,000

October 20, 2010 2,142,857 shares of common stock issued for stock purchase agreement

                     -

2,142,857

2,143

147,857

                        -

                         -

150,000

October 27, 2010 5,250,000 shares of common stock issued for stock purchase agreement

                     -

5,250,000

5,250

414,750

                        -

                         -

420,000

November 4, 2010 2,000,000 shares of common stock issued for stock purchase agreement

                     -

2,000,000

2,000

158,000

                        -

                         -

160,000

Contributed services (Note 4)

                     -

                     -

                  -

215,376

                        -

                         -

215,376

Net Loss

 

 

 

 

(1,905,362)

 

(1,905,362)

Balance at December 31, 2010

$

  186,392,865

$

      186,393

$

     6,380,566

$

        (6,914,619)

$

                         -

$

(347,660)

March 9, 2011 4,375,000 shares of common stock issued for stock purchase agreement

4,375,000

4,375

345,625

#

350,000

Proceeds from shareholder to retain common shares under Stock Exchange agreement (Note 1)

22,888

22,888

April 19, 2011 1,875,000 shares of common stock issued for stock purchase agreement

1,875,000

1,875

148,125

150,000

Contributed services (Note 4)

61,536

61,536

Net Loss

 

 

 

 

(414,330)

 

(414,330)

Balance at December 31, 2011

$

  192,642,865

$

      192,643

$

     6,958,740

$

        (7,328,949)

$

                         -

$

(177,566)

January 10, 2012 5,000,000 shares of common stock issued for stock purchase agreement

5,000,000

5,000

195,000

200,000

Proceeds from shareholder to retain common shares under Stock Exchange agreement (Note 1)

6,000  

6,000  

January 25, 2012 2,040,000 shares of common stock issued for stock purchase agreement

2,040,000  

2,040  

99,960  

102,000  

August 17, 2012 2,000,000 shares of common stock issued for stock purchase agreement

2,000,000  

2,000  

98,000  

100,000  

November 21, 2012 200,000 shares of common stock issued for stock purchase agreement

200,000  

200  

9,800  

10,000  

November 23, 2012 2,400,000 shares of common stock issued for stock purchase agreement

2,400,000  

2,400  

117,600  

120,000  

Net Loss

 

 

 

 

(419,900)

 

(419,900)

Balance at December 31, 2012

$

  204,282,865

$

      204,283

$

     7,485,100

$

(419,900)

$

                         -

$

(59,466)

 

 

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

 

 


 

ADVANCED VOICE RECOGNITION SYSTEMS, INC.

(A Development Stage Company)

Consolidated Statements of Cash Flows

 

MARCH 15, 1994

(INCEPTION)

FOR THE YEARS ENDED

THROUGH

DECEMBER 31,

DECEMBER 31,

2012

 

2011

2012

Cash Flows from Operating Activities:

Net loss

$

(419,900)

$

(414,330)

$

(7,748,849)

Adjustments to reconcile net loss to net

Cash (used in) operating activities:

Amortization and depreciation

10,983  

10,487  

79,611  

Contributed services

—    

61,536  

2,317,982  

Expenses paid in exchange for shareholder debt

—    

—    

34,047  

Disposal of fixed asset loss

—    

495  

495  

Stock-based compensation expense

—    

—    

150,500  

Changes in operating assets:

Prepaid Expenses

—    

130,000  

—    

Changes in operating liabilities:

Accounts payable

(60,530)

(281,555)

209,723  

Accrued interest related party

—    

(1,583)

—    

Net cash used in operating activities

(469,447)

(494,950)

(4,956,491)

Cash Flows from Investing Activities:

Purchases of computer equipment and software

(3,678)

(2,200)

(11,168)

Payments for patents

(5,092)

(3,365)

(129,981)

Payments for deferred costs

3,332  

(20,215)

(18,494)

Net cash used in investing activities

(5,438)

(25,780)

(159,643)

Cash Flows from Financing Activities:

Proceeds from sale of common stock

538,000  

522,888  

5,220,901  

Payments on advances from shareholder

—    

—    

(34,047)

Payments on promissory note from shareholder

—    

(117,313)

(305,544)

Proceeds from promissory notes and advances

—    

—    

311,344  

Net cash provided by financing activities

538,000  

405,575  

5,192,654  

Net change in cash

63,115  

(115,155)

76,520  

Cash at beginning of period

13,405  

128,560  

—    

CASH AT END OF PERIOD

$

76,520  

$

13,405  

$

76,520  

Supplemental Disclosure of Cash Flow Information:

Cash paid during the period for:

Interest

$

—    

$

2,813  

$

25,816  

Income taxes

$

 

$

—    

$

—    

 

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

 

 

 


ADVANCED VOICE RECOGNITION SYSTEMS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1.     Nature of Operations

 

The operations of Advanced Voice Recognition Systems, Inc. (“AVRS” or the “Company”), http://www.avrsys.com, commenced in 1994 with a predecessor entity called NCC, Inc. NCC, Inc. was incorporated on March 15, 1994 in the State of Ohio. NCC, Inc. operated as a software and hardware development company that marketed voice recognition and transcription products for commercial applications.

 

In May 2000, WG Investments, LLC acquired the assets of NCC, Inc. and subsequently changed its name to NCC, LLC. NCC, LLC (also a predecessor to AVRS) continued the operations of NCC, Inc. until approximately December 31, 2001, when shifts in the industry’s markets caused NCC, LLC to suspend its operations.

 

AVRS was incorporated in the State of Colorado on July 7, 2005. In September 2005, the members of NCC, LLC transferred all of their membership interests in NCC, LLC to AVRS in exchange for 93,333,333 shares (post-recapitalization) of AVRS common stock. In December 2005, the Board of Directors approved a 1.5-to-1 stock split issuing 46,666,667 common shares (post-recapitalization), which increased the number of common shares outstanding to 140million shares (post-capitalization). Following the incorporation of AVRS, the Company initiated a new business plan and intends to continue its operations in the voice recognition and transcription industry.

 

AVRS is a software development company specializing in speech recognition technologies. AVRS has successfully obtained patent protection of its proprietary technology (refer to Note 3, Intangible Assets). The Company plans to focus its technologies for the medical profession because of the profession’s present extensive use of dictation and its need for multiple applications of speech recognition technology in the generation of reports, documents and medical bills. Additionally the Company plans to focus on server based dictation and transcription, visual voicemail and the voicemail to text market.

 

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

 

Stock Exchange Agreement

 

On April 28, 2008, the Company entered into a Stock Exchange Agreement (“the Agreement”) with Samoyed Energy Corp., a Nevada corporation (“Samoyed”), which resulted in a reverse acquisition.  The Agreement provided for the reorganization of AVRS with Samoyed. In connection with the Agreement, Samoyed acquired all of the issued and outstanding common shares of AVRS in exchange for 140 million shares of Samoyed’s common stock.  On May 19, 2008 at the closing of the Agreement, the former shareholders of AVRS owned approximately 85% of the outstanding common stock of Samoyed, resulting in a change in control.

 

For accounting purposes, this acquisition has been treated as a reverse acquisition and recapitalization of AVRS, with Samoyed the legal surviving entity. Since Samoyed had, prior to the recapitalization, minimal assets and limited operations, the recapitalization has been accounted for as the sale of 24,700,008 shares of AVRS common stock for the net liabilities of Samoyed. Therefore, the historical financial information prior to the date of the recapitalization is the financial information of AVRS. Costs of the transaction have been charged to the period in which they are incurred.

 

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

 

Stock Purchase Agreements

 

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

 

During the year ended December 31, 2012, the Company entered into Stock Purchase Agreements for the private sale of an aggregate of 11,640,000 shares of the common stock for aggregate proceeds of $532,000, all of which was received in 2012. 

 

Agreement and Plan of Merger

 

On March 25, 2009, the Company entered into an Agreement and Plan of Merger (“Agreement and Plan of Merger”) with its wholly-owned subsidiary, NCC, LLC, a Colorado limited liability company, whereby NCC, LLC merged with and into the Company pursuant to Section 92A.180 of the Nevada Business Corporations Act. Upon consummation of the Agreement and Plan of Merger: (i) NCC, LLC ceased to exist; (ii) the Company’s membership interests in NCC, LLC automatically were canceled or retired and ceased to exist, without any consideration delivered in exchange thereof; (iii) the title to all estate, property rights privileges, powers and franchise assets and/or other rights owned by NCC, LLC became vested in the Company without reversion or impairment; and (iv) all liabilities of any kind of NCC, LLC became vested in the Company.

 

Stock Based Compensation

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

 

 

 

 

Note 2.     Significant Accounting Policies

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company is a development stage enterprise with losses since Inception and a net capital deficit. These factors, among others, may indicate that the Company will be unable to continue as a going concern for reasonable period of time.

 

The financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. During the years ended December 31, 2012 and 2011, the Company’s president has loaned or advanced the Company funds for working capital on an “as needed” basis. There is no assurance that these loans or advances will continue in the future.  During the twelve months ended December 31, 2011 the Company received an aggregate of $500,000 from the sale of shares in private offerings of its common stock. During the twelve months ended December 31, 2012, the Company received an aggregate of $ 532,000 from the sale of shares in private offerings of its common stock.

 

Use of Estimates

 

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Basis of Consolidation

 

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

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments with original maturities of three months or less when acquired to be cash equivalents. The Company had cash at December 31, 2012 of $76,520, and $13,405 cash at December 31, 2011.  No amounts resulted from cash equivalents.

 

Financial Instruments

 

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

 

Fixed Assets

 

Fixed assets are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, ranging from three to five years. Expenditures for additions and improvements are capitalized, while repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal.

 

Revenue Recognition

 

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

 

Income Taxes

 

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes.  The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flow.  Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.  The Company did not record a cumulative effect adjustment related to the adoption of ASC 740.

 

Research and Development Costs

 

Research and development costs are expensed in the period incurred.

 

Patents, Deferred Costs and Amortization

 

Patents consist of costs incurred to acquire issued patents. Amortization commences once a patent is granted. Costs incurred to acquire patents that have not been issued are reported as deferred costs. If a patent application is denied or expires, the costs incurred are charged to operations in the year the application is denied or expires. The Company amortizes its patents over an estimated useful life of twenty years.

 

Impairment and Disposal of Long-Lived Assets

 

The Company evaluates the carrying value of its long-lived assets under the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” now referred to as ASC 360-10 Property, Plant, and Equipment – “Impairment or Disposal of Long Lived Assets” subsections” . ASC 306-10 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying value or fair value, less costs to sell.  The Company’s last impairment analysis was completed effective December 31, 2012.  Impairment recorded for each of the years ending 2012 and 2011 was $-0-.  See Note 3.

 

Loss per Common Share

The Company reports net loss per share using a dual presentation of basic and diluted loss per share. Basic net loss per share excludes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock

method in determining common stock equivalents. At December 31, 2012 and 2011, there were no variances between the basic and diluted loss per share as there were no potentially dilutive securities outstanding.

 

Fair Value of Financial Instruments

 

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

 

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

 

 

Level 1:

Quoted prices in active markets for identical assets or liabilities.

 

Level 2:

Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability.

 

Level 3:

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

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

 

Subsequent Events

 

On March 9, 2010 the United States Patent and Trademark Office (“USPTO”) declared an interference between the Company as Senior Party and Allvoice Developments, US LLC as Junior Party. On April 27, 2012, the BPAI denied the Company’s motions.  On May 28, 2012 the Company filed a request for rehearing in the BPAI.  On December 19, 2012 the BPAI denied the Company’s request for rehearing.

 

Recent Accounting Pronouncements

 

The Company reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
 

 

 

Note 3.     Intangible and Fixed Assets

 

Intangible Assets

 

On November 13, 1995 the Company filed a patent application with the U.S. Patent and Trademark Office, which was granted on September 28, 1999 as patent #5,960,447, “Word Tagging and Editing system for Speech Recognition”. In accordance with 35 USC 154, the term for the above referenced patent shall be for a period beginning on the date on which the patent issues and ending 20 years from the date on which the application for the patent was filed in the United States. The above referenced U.S. Patent will expire on November 13, 2015.

 

The Company monitors the anticipated outcome of legal actions, and if it determines that the success of the defense of a patent is probable, and so long as the Company believes that the future economic benefit of the patent will be increased, the Company capitalizes external legal costs incurred in the defense of the patent. Upon successful defense of litigation, the amounts previously capitalized are amortized over the remaining life of the patent.

 

On July 7, 2009, Patent No.: US 7,558,730 titled “Speech Recognition and Transcription Among Users Having Heterogeneous Protocols” was issued by the United States Patent and Trademark Office.  In accordance with 35 USC 154, the patent shall be for a term beginning on July 7, 2009 and ending 20 years from the application date of November 27, 2001.  The patent will expire on November 27, 2021.  The deferred fees were capitalized during the quarter ended September 30, 2009 and the Company began amortization.

 

On March 9, 2010 the United States Patent and Trademark Office declared interference between the Company as Senior Party and Allvoice Developments, US LLC as Junior Party.  Interference is a proceeding before the Board of Patent Appeals and Interference (“BPAI”) in instances where two or more parties claim patent rights to the same technology. The U.S. patent system awards patents to the first party to invent a particular technology.  In an interference, the primary purpose is to determine which party invented the technology first, and to award the patent to that party.  The Company has been a party to the patent interference proceedings since March 2010.  Due to the absence of a decision by the end of 2010, in the 4th quarter of 2010, AVRS impaired 100% of the deferred costs associated with the interference, resulting in a $1,068,860 impairment loss.  The expense in 2012 and 2011 was $40,649 and $44,007 respectively.  On April 27, 2012, the BPAI entered a judgment denying the Company’s motions.  On May 29, 2012, AVRS filed a Request for Rehearing in the BPAI.  On December 19, 2012 the BPAI entered a judgment denying the request for rehearing.  Further options included filing an appeal to the Court of Appeals or filing a civil suit. The Company decided that further litigation would be costly and time-consuming and would divert the attention of our management and key personnel from our business operations.

 

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

 

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

 

Amortization at December 31, 2012 is as follows:

 

SCHEDULE OF INTANGIBLE ASSETS

 

 

December 31, 2012

 

 

 

 

 

 

 

U.S. Patent #

 

 

Carrying Value

 

Amortization

 

Patent, net

5,960,447

 

$

63,247

$

55,866

$

7,381

7,558,730

 

 

58,277

 

16,422

 

41,855

7,949,534

 

 

3,365

 

548

 

2,817

8,131,557

 

 

5,092

 

436

 

4,656

 

 

$

129,981

$

73,272

$

56,709

 

Amortization expense totaled $9,657 and $9,143 for the years ending December 31, 2012 and 2011, respectively.  Estimated aggregate amortization expense for each of the next five years is as follows:

 

SCHEDULE OF FUTURE AMORTIZATION

 

 

 

 

Year ending December 31,

 

 

 

 

 

2013

 

9,743

2014

 

8,692

2015

 

5,527

2016

 

5,527

2017

 

5,527