ADVANCED VOICE RECOGNITION SYSTEMS, INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

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

The forward-looking statements contained in this 10-Q are largely based on our expectations, which reflect estimates and assumptions made by our management.

These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management's assumptions about future events may prove to be inaccurate.

Management cautions all readers that the forward-looking statements contained in this 10-Q are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to various factors listed in this Quarterly Report. All forward-looking statements speak only as of the date of this 10-Q. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Overview We are a software development company headquartered in Scottsdale, Arizona. We specialize in creating interface and application solutions for speech recognition technologies. Our speech recognition software and related firmware was first introduced in 1994 at an industry trade show. We currently have limited capital resources. We are not currently engaged in marketing any products. Our principal assets are our patents. Our business strategy will be to attempt to interest other companies in entering into license agreements or other strategic relationships and to support and defend our patents through infringement and interference proceedings, as appropriate.

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

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

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

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

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

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

13 566487 -------------------------------------------------------------------------------- To obtain sufficient funds to meet our future needs for capital, we will from time to time, evaluate opportunities to raise financing through sales of our securities. However, future equity or debt financing may not be available to us at all, or if available, may not be on terms acceptable to us. We do not intend to pay dividends to shareholders in the foreseeable future.

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

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

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

Patent #7,558,730. We intend to use our patent protection to our advantage by licensing or otherwise. If our licensing and other efforts prove successful, our liquidity may increase.

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

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

Off-Balance Sheet Arrangements We have no off-balance sheet arrangements.

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