U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, l997
Commission file number 333-12979
VOICENET, INC.
(Exact name of small business issuer as
specified in its charter)
Delaware 13-3896031
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 1511, 380 Lexington Avenue, New York, NY 10138
(Address of principal executive offices)
(212) 399-6682
(Issuer's telephone number)
________________________________________________________________________________
(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,250,750.
<PAGE>
PART I - Financial Information
Item 1. Financial Statements.
See pages FS-1 to FS-6 attached.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The Company was formed in April 1996. The Company was organized for the
purpose of acquiring and marketing speech recognition technologies and systems
(the "Speech Technologies") developed by Southern Group Limited ("Southern"), an
Australian publicly traded company listed on the Australian Stock Exchange,
which is the Company's majority shareholder. The Company is in the development
stage and its operations are subject to all the problems, expenses, delays and
other risks inherent in the establishment of a new business enterprise, as well
as the problems inherent in developing and marketing a new product/service and
in establishing a name and business reputation. The likelihood of the success of
the Company must also be considered in connection with the rapidly and
continually changing technology and the competitive environment in which the
Company will operate. There can be no assurance that the Company's operations
will result in its becoming or remaining economically viable. Potential
investors should be aware of the problems, delays, expenses and difficulties
encountered by any company in a developmental stage, many of which may be beyond
the Company's control. These include, but are not limited to, organization and
hiring of sales, administrative and management personnel, lack of customer
acceptance of the Company's products, sales and marketing problems, intense
competition, product quality control, and inadequate financial resources. The
Company has had no revenues from operations to date and, because it is just
beginning to enter the commercial stage, it may likely sustain operating losses
for an indeterminate time period. Since its inception in April 1996, the Company
has devoted substantially all of its efforts and resources to raising capital
through an initial public offering of its common stock. During the quarter ended
September 30, 1997, the Company generated an accumulated deficit of $828 and has
a total accumulated deficit of $4,259.
Statements included in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" Section, and in other sections of
this Report and in prior and future filings by the Company with the Securities
and Exchange Commission, in the Company's prior
2
<PAGE>
and future press releases and in oral statements made with the approval of an
authorized executive which are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 and are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. There are important risk factors that in
some cases have affected and in the future could affect the Company's actual
results and could cause the Company's actual financial and operating performance
to differ materially from that expressed in any expressed in any forward-looking
statement. The following discussion and analysis should be read in conjunction
with the Financial Statements and notes thereto appearing elsewhere in this
report.
The Company had no revenues from continuing operations in the year ending
December 31, or the quarter ending September 30, 1997. The Company has incurred
net losses since its inception in 1996. The Company's losses incurred since
inception have resulted principally from legal, accounting, priniting, marketing
and travel expenditures incurred in pursuing its capital raising activities, and
to a lesser extent early stage product marketing expenses. The Company expects
to incur operating costs and possible losses therefrom over the next several
years due primarily to expanded sales and marketing efforts, including the
establishment of product sales office, the staffing of such office with
marketing, administrative and management personnel, and travel and related
business entertainment expenses incurred by the sales personnel as they seek
potential customers for the Company's products. There can be no assurance of
when and whether the Company will generate revenues or become profitable on a
sustained basis, if at all. Although the Company anticipates sales to commence
in 1998, the Company's results of operations may vary significantly from quarter
to quarter due to timing of payments and other factors. The timing of the
Company's revenues, if any, may not match the timing of associated product
development of other expenses.
The Company's ability to achieve sales and increase its levels of revenue
will depend upon its ability to secure capital financing and to sell the
Company's products. The Company's ability to generate significant revenue and
become profitable is dependent in large part on its commercializing the
Company's lead product, the CourtScript system for digital recording of courts.
There can be no assurance that the operations of the Company will generate
significant revenue or will ever be profitable.
3
<PAGE>
RESULTS OF OPERATIONS FOR THREE MONTHS ENDING SEPTEMBER 30, l997; COMPARED WITH
SEPTEMBER 30, l996.
Net losses increased from $ 256 for the three months ending September 30,
l996 to $ 828 for the three months ending September 30, l997. The Company had no
revenue or operating income for the quarters ended September 30, l996 and
September 30, l997 from continuing operations. The Company has interest income
of $1 for the three months ended September 30, 1997 and $120 in the comparable
prior period. Total general, administrative and development expenses were $3,552
for l997 in comparison to $553 for 1996, an increase of 643%. The increase in
these costs from l996 to l997 was in most expense categories. No salaries or
wages were paid for either the quarters ended September 30, 1996 or September
30, 1997.
At September 30, l996, the Company had total assets of $4,609,075, and at
September 30, 1997, the Company had total assets of $4,783,753, an increase of
$174,678. At September 30, 1996, the Company had total liabilities of
$4,584,587, and at September 30, 1997 the Company had total liabilities of
$4,762,992. At September 30, 1997 the Company had an total stockholders' equity
of $20,761 in comparison to a total stockholders' equity of $24,487 at the
comparable date in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a negative working capital as of September 30, 1997 of
$4,759,618 in comparison $ 4,590,059 as of September 30, l996. The Company had
an accumulated deficit of $533 for the period ended September 30, l996 in
comparison to an accumulated deficit of $4,259 for the comparable 1997 period.
The increase in the accumulated deficit is primarily related to continuing
operating costs without any operating income. For the three months ended
September 30, l997 the Company's cash requirements were satisfied from the cash
reserves in its operating and investment accounts and from unsecured loans made
by the Company's majority shareholder, Southern Group Limited, which totalled
$120,500 at September 30, 1997.
On November 5, 1997, the Company successfully completed an initial public
offering of its common stock. In the public offering, 562,500 shares of common
stock were issued to Southern at a conversion price of $8.00 per share in
payment and satisfaction of a $4.5 million promissory note which the Company had
executed and delivered to Southern in August 1996 pusuant to the purchase of
digital technology from Southern under a Technology Purchase Agreement dated
August 1, 1996, and 188,250 shares of common stock were sold to new shareholders
at the price of $8.00 per share. After the underwriters selling commission and
discount, the Company had net proceeds of approximately $1,365,000. In addition,
the Company incurred approximately $430,000 in transaction costs in connection
with the offering, including filing fees, attorneys fees, accountants fees,
printing costs, tranfser agent's fees, travel expenses and other costs and
expenses.
4
<PAGE>
The Company does not currently possess a bank source of financing and has not
had any revenues. The Company cannot be certain that its existing sources of
cash will be adequate to meet its liquidity requirements. Therefore, the Company
is considering the following options to meet its liquidity requirements:
(a) attempting to raise additional funds through the sale of equity
securities to persons or entities who are not presently stockholders of the
Company;
(b) attempting to obtain a bank line of credit; and
(c) should insufficient funds be available from the foregoing sources,
reducing the Company's present rate of expenditures which might materially
adversely affect the ability of the Company to produce competitive products and
services and to market them effectively.
The Company believes that its existing cash and cash equivalents together
with the approximately $1 million of net proceeds after offering expenses and
costs resulting from the closing of its initial public offering, excluding any
potential cash flow from operating revenues, will be sufficient to meet its
operating expenses and capital expenditures requirements for at least the next 6
months. The Company's future capital requirements, however, will depend on
numerous factors, including (i) the effectiveness of product commercialization
activities and marketing activities, including the creation and progress of its
sales and marketing operations, (ii) the effect of competing technological and
market developments, from competitors that have greater resources than the
Company. However, if operating expenses are higher than expected or if cash flow
from operations is lower than anticipated, there can be no assurance that the
Company will have sufficient capital resources to be able to continue as a going
concern.
Unless the Company is able to generate revenues or obtain additional
financing in the future, the continuing losses incurred by the Company in its
development phase raise substantial doubt about the Company's ability to
continue as a going concern. Therefore, the Company's ability to continue in
business as a going concern depends upon its ability to sell products, to
generate fees from the sale of its services, to conserve liquidity by setting
marketing and other priorities and reducing expenditures, to obtain bank
financing and to obtain additional funds through offering of its securities. The
Company's ability to obtain funds through an offering of its debt securities is
limited by its lack of revenue. In any event, there is no assurance that any
expenditure reductions, financings or other measures that the Company may be
able to effect will enable it to meet its working capital requirements.
5
<PAGE>
PART II - Other Information
Item 5. Other Information.
On November 5, 1997, the Company successfully completed an initial public
offering of its common stock. In the public offering, 562,500 shares of common
stock were issued to Southern at a conversion price of $8.00 per share in
payment and satisfaction of a $4.5 million promissory note which the Company had
executed and delivered to Southern in August 1996 pusuant to the purchase of
speech technology from Southern under a Technology Purchase Agreement dated
August 1, 1996, and 188,250 shares of common stock were sold to new shareholders
at the price of $8.00 per share. After the underwriters selling commission and
discount, the Company had net proceeds of approximately $1,365,000. In addition,
the Company incurred approximately $430,000 in transaction costs in connection
with the offering, including filing fees, attorneys fees, accountants fees,
printing costs, tranfser agent's fees, travel expenses and other costs and
expenses.
6
<PAGE>
INDEX TO FINANCIAL STATEMENTS
VOICENET, INC.
Balance Sheet at December 31, l996
(audited) and September 30, l997 (unaudited) .............................. 8
Statement of Income (Loss) for the three and nine
months ended September 30, l996 and l997 (unaudited) ...................... 9
Statement of Cash Flows for the three and nine months ended
September 30, 1996 and 1997 (unaudited) ................................. 10
7
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(unaudited) (audited)
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 3,374 $ 8,970
----------- -----------
Total Current Assets 3,374 8,970
Deferred Offering Costs 278,979 112,654
Organization Costs, Net 1,400 1,700
Intangible Assets 4,500,000 4,500,000
----------- -----------
Total Assets $4,783, 753 $4,623,324
=========== ===========
CURRENT LIABILITIES
Accounts Payable $ 142,492 $ 74,029
Due to Parent Company 120,500 25,000
Note Payable, Parent Company 4,500,000 4,500,000
----------- -----------
Total Current Liabilities 4,762,992 4,599,029
Stockholders' Equity
Preferred Stock, $.01 par value, 1,000,000
shares authorized, no shares outstanding -0- -0-
Common Stock, $.01 par value, 10,000,000
shares authorized, 2,500,000 shares issued and outstanding 25,000 25,000
Additional Paid in Capital 20 20
Deficit accumulated during developmental stage (4,259) (725)
----------- -----------
Total Stockholders' Equity 20,761 24,295
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,783,753 $ 4,623,324
=========== ===========
</TABLE>
See notes to the financial statements
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the period
April 2, 1996
Nine Months (date of inception) Three Months Three Months
Ended through Ended Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income $ 18 $ 20 $ 1 $ 20
----------- ----------- ----------- -----------
Amortization 300 200 100 100
Income Taxes 2,705 353 470 176
Bank Charges 547 259
----------- ----------- ----------- -----------
Total Expenses 3,552 553 829 276
Loss from Operations (3,534) (533) (828) (256)
----------- ----------- ----------- -----------
Net Loss ($ 3,534) ($ 533) ($ 828) ($ 256)
=========== =========== =========== ===========
Net Loss per Common Share $ .00 $ .00 $ .00 $ .00
=========== =========== =========== ===========
Weighted average number of
shares outstanding during the
period 2,500,000 2,500,000 2,500,000 2,500,000
=========== =========== =========== ===========
</TABLE>
See notes to the financial statements
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
April 2, 1996
(date of inception)
Nine Months Ended through
September 30, 1997 September 30, 1996
(unaudited) (unaudited)
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (3,534) $ (533)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in Accounts Payable 68,463 59,589
Amortization Expense 300 200
--------- ---------
Total Adjustments 68,763 59,789
Net cash provided by operating activities 65,229 59,256
--------- ---------
Cash Flows used in Investing Activities
Payments for Organization Costs -0- (2,000)
--------- ---------
Net cash used for investing activities -0- (2,000)
--------- ---------
Cash Flows from Financing Activities
Proceeds from issuance of stock 25,000
Additional Paid in Capital 20
Advances from Parent Company 95,500 25,000
Payments for deferred offering costs (166,325) (82,235)
--------- ---------
Net cash used in financing activities (70,825) (32,215)
--------- ---------
Net (decrease) increase in cash and cash equivalents (5,596) 25,041
Cash and cash equivalents, beginning of period 8,970 -0-
--------- ---------
Cash and cash equivalents, end of period $ 3,374 $ 25,041
========= =========
</TABLE>
Supplemental Disclosure of Noncash Financing Activities:
During the period April 2, 1996 (inception) through September 30, 1996, the
Company purchased technology from its parent company and incurred a note payable
of $4,500,000.
See notes to the financial statements
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments which are, in the opinion of
management, necessary to present fairly the information required herein. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations, although management
believes that the disclosures are adequate to make the information presented not
misleading. The results of operations for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results of operations
to be expected for the full year. For information concerning the Company's
significant accounting policies, reference is made to the Company's filing with
the Securities and Exchange Commission on Form SB-2, as filed on October 7,
1997.
Note 2 - Nature of Business
Voicenet, Inc. (the "Company"), a Delaware corporation, was incorporated on
April 2, 1996. The Company was established for the marketing and distribution of
continuous speech and voice recognition systems and of digital audio reporting,
transcription, archiving and retrieval systems in North America, Central America
and South America. The Company has not commenced operations and is considered a
developmental stage company in accordance with Statement of Financial Accounting
Standards No. 7. The Company is majority-owned (63%) by Southern Group Limited
("Southern"), an Australian company.
Note 3 - Net Loss Per Common Share
Net loss per share is computed based on the weighted average number of shares of
common stock outstanding for the periods presented. The effect of the stock
options and warrants on the net loss per share was antidilutive for the periods
presented.
Note 4 - Purchase of Technology
On August 1, 1996 the Company entered into a Technology Sales and Purchase
Agreement (the "Technology Agreement") with Southern to acquire certain
exclusive rights and ownership with respect to the development, use, marketing,
sales and distribution of a continuous computer based digital voice compression,
recognition and recording technology. The term of the agreement is for the
longer of twenty-five (25) years or the life of any patents and extensions
granted under the patent applications. The rights acquired are for territories
including North America, Central America and South America. These rights were
purchased for $4,500,000 in the form of a noninterest-bearing promissory note,
further described below.
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
On August 31, 1996, as amended effective November 1,1996 and December 31, 1996,
the Company executed a $4,500,000 promissory note payable to Southern in
conjunction with the above agreement. The note is noninterest-bearing and
payable as follows: (a) $2.5 million upon the earlier of October 31, 1997 or the
successful closing of the Company's public securities offering, (b) $1 million
upon the earlier of October 31, 1997 or the first signed installation contract
for a COURTSMART system in the United States of at least $30,000, and (c) $1
million on October 31, 1997. If not earlier paid, the full outstanding principle
shall be due in full on October 31, 1997. The Company has granted to Southern,
as collateral, a security interest in all assets of the Company. See Note 6.
Note 5 - Due to Parent Company
The Company was advanced monies by Southern for start-up purposes. Such amounts
are noninterest bearing and have no definitive repayment terms. The balances as
of September 30, 1997 and 1996 amounted to $120,500 and $25,000, respectively.
Note 6 - Stockholders' Equity
At inception, the Company authorized 3,000 shares of $.001 par value common
stock and issued 1,000 of these shares for $25,000.
On September 15, 1996 the Company increased its number of authorized Common
Shares to 10,000,000 and changed its par value of these shares to $.01 per
share. In addition, the Company authorized 1,000,000 shares to Preferred Stock,
par value $.01 per share.
On September 15, 1996 the board of directors of the Company declared a
2,500-for-1 stock split. The financial statements have been adjusted to reflect
this transaction.
On September 15, 1996, the Company adopted a non-qualified stock option plan
(the "Plan"). An aggregate of 500,000 shares of Common Stock are authorized for
issuance under the Plan. The Plan provides that all regular employees of the
Company except for directors who are members of the administrative committee are
eligible to participate in the Plan. No options may be granted subsequent to
September 15, 2006. There are no options issued and outstanding at September 30,
1997.
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
On November 5, 1997, the Company successfully completed an initial public
offering of its common stock. In the public offering, 562,500 shares of common
stock were issued to Southern at a conversion price of $8.00 per share in
payment and satisfaction of a $4.5 million promissory note which the Company had
executed and delivered to Southern in August 1996 pursuant to the purchase of
speech technology from Southern under a Technology Purchase Agreement dated
August 1, 1996, and 188,250 shares of common stock were sold to new shareholders
at the price of $8.00 per share. After the underwriters selling commission and
discount, the Company had net proceeds of approximately $1,365,000. In addition,
the Company incurred approximately $430,000 in transaction costs in connection
with the offering, including filing fees, attorneys fees, accountants fees,
printing costs, transfer agent's fees, travel expenses and other costs and
expenses.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 19, 1997
VOICENET, INC.
By: /s/ Frank Carr
--------------------------------------
Frank Carr, Chief Executive Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,374
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,374
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,783,753
<CURRENT-LIABILITIES> 4,762,992
<BONDS> 0
0
0
<COMMON> 25,000
<OTHER-SE> 20,761
<TOTAL-LIABILITY-AND-EQUITY> 4,783,753
<SALES> 0
<TOTAL-REVENUES> 18
<CGS> 0
<TOTAL-COSTS> 3,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,534)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,534)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
