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 March 31, 1998
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.)
300 Park Avenue, 17th Floor
New York, NY 10022
(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: 3,261,550.
<PAGE>
VOICENET, INC.
INDEX
Part I - Financial Statements:
Balance Sheets - March 31, 1998 and December 31, 1997 ........... 3
Statement of Operations - For the Three Months Ended
March 31, 1998 and March 31, 1997 ............................... 4
Statement of Cash Flows - For the Three
Months Ended March 31, 1998 and March 31, 1997 .................. 5
Statement of Stockholders' Equity - For the
Period April 2, 1996 (Inception) through ........................ 6
March 31, 1998
Notes to Unaudited Financial Statements ......................... 7
Management's Discussion and Analysis or
Plan of Operation ............................................... 9
2
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited) (audited)
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 375,527 $ 909,217
Prepaid Expenses 11,382 11,382
----------- -----------
Total Current Assets 386,909 920,599
Organization Costs, Net 1,300 1,300
Intangible Assets 4,500,000 4,500,000
Security Deposits 2,600 2,600
----------- -----------
Total Assets $ 4,890,809 $ 5,424,499
=========== ===========
CURRENT LIABILITIES
Accounts Payable $ 92,089 $ 138,643
Due to Parent Company 312,624
Other 4,000
----------- -----------
Total Current Liabilities 92,089 455,267
----------- -----------
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, 3,261,550 shares issued and outstanding 32,616 32,616
Additional Paid in Capital 5,552,671 5,552,671
Deficit accumulated during developmental stage (786,567) (616,055)
----------- -----------
Total Stockholders' Equity 4,798,720 4,969,232
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,890,809 $ 5,424,499
=========== ===========
</TABLE>
See notes to the financial statements
3
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the period
April 2, 1996
Three Months Three Months (date of inception)
Ended Ended through
March 31, March 31, March 31,
1998 1997 1998
(unaudited) (unaudited) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Interest Income $ 2,544 $ 16 $ 41,022
Other Income 13,345 13,345
----------- ----------- -----------
Total Income 15,889 16 54,367
----------- ----------- -----------
Total General and Administrative
Expenses 186,401 1,972 840,934
----------- ----------- -----------
Loss from Operations (170,512) (1,956) (785,567)
----------- ----------- -----------
Net Loss ($ 170,512) ($ 1,956) ($ 785,567)
=========== =========== ===========
Net Loss per Common Share $ .05 $ .00
=========== ===========
Weighted average number of
shares outstanding during the
period 3,261,550 3,261,550
=========== ===========
</TABLE>
See notes to the financial statements
4
<PAGE>
VOICENET, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
April 2, 1996
(date of inception)
Three Months Ended through
March 31, 1998 Year Ended March 31, 1998
(unaudited) December 31, 1997 (unaudited)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss $(170,512) $ (615,330) $ (786,567)
--------- ----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase (Decrease) in Accounts Payable
and Due to Related Parties (363,178) 64,614 (226,535)
Amortization Expense 400 700
Increase in Prepaid Expense (11,382) (11,382)
Increase in Security Deposit (2,600) (2,600)
--------- ----------- -----------
Total Adjustments (363,178) 51,032 (239,817)
--------- ----------- -----------
Net cash provided by operating activities (533,690) (564,298) (1,026,384)
--------- ----------- -----------
Cash Flows used in Investing Activities
Payments for Organization Costs -0- -0- (2,000)
--------- ----------- -----------
Net cash used for investing activities -0- -0- (2,000)
--------- ----------- -----------
Cash Flows from Financing Activities
Proceeds from issuance of stock 1,172,921 1,197,941
Net advances from Parent Company 287,624 312,624
Advances from Related Party Company 4,000 4,000
Payments for deferred offering costs -0- (112,654)
--------- ----------- -----------
Net cash used in financing activities -0- 1,464,545 1,401,911
--------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (533,690) 900,247 375,527
Cash and cash equivalents, beginning of period 909,217 8,970 -0-
--------- ----------- -----------
Cash and cash equivalents, end of period $ 375,527 $ 909,217 $ 375,527
========= =========== ===========
</TABLE>
See notes to the financial statements
5
<PAGE>
VOICENET, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Period April 2, 1996 (Inception) Through March 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional during the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Initial issuance of shares 1,000 $ 1 $ 25,019 $ -0- $ 25,020
Stock split 2,499,000 24,999 (24,999) -0-
Net loss for the period April 2, 1996 (inception)
through December 31, 1996 (725) (725)
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1996 2,500,000 25,000 20 (725) 24,295
Issuance of shares in connection with the initial
public offering, net of offering costs 188,250 1,583 971,984 973,867
Issuance of shares on December 30, 1997 10,800 108 86,292 86,400
Conversion of debt to common shares 562,500 5,625 4,494,375 4,500,000
Net loss for the year ended December 31, 1997 (615,330) (615,330)
----------- ----------- ----------- ----------- -----------
Balance - December 31, 1997 3,261,550 $ 32,616 $ 5,552,671 $ (616,055) $ 4,969,232
=========== =========== =========== =========== ===========
Three months ended March 31, 1998 -- -- -- (170,512) (170,512)
----------- ----------- ----------- ----------- -----------
Net loss 3,261,550 $ 32,616 $ 5,552,671 $ (786,567) $ 4,798,720
=========== =========== =========== =========== ===========
</TABLE>
6
<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 Voicenet (Aust.) Ltd.
("VNA"), 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 VNA 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.
7
<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 was 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 VNA for start-up purposes. Such amounts are
noninterest bearing and have no definitive repayment terms. The balance as of
December 31, 1997 amounted to $312,624. The amounts due were repaid in the first
quarter of 1998.
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.
8
<PAGE>
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 Voicenet (Aust.) Ltd. (formerly
Southern Group Limited) ("VNA"), 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. As of March 31, 1998, the Company had a total accumulated deficit of
$786,567.
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
9
<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, 1997 or the quarter ending March 31, 1998. 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
during 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.
10
<PAGE>
RESULTS OF OPERATIONS FOR THREE MONTHS ENDING MARCH 31, l998; COMPARED WITH
MARCH 31, l997.
Net losses increased from $1,956 for the three months ending March 31, l997
to $170,512 for the three months ending March 31, l998. The Company had no
revenue or operating income for the quarters ended March 31, l997 and March 31,
l998 from continuing operations. The Company had interest income of $2,544 for
the three months ended March 31, l998 and $16 in the comparable prior period.
Total general, administrative and development expenses were $186,401 for the
three months ending March 31, 1998 in comparison to $1,972 in the comparable
prior period. The increase in these costs from l997 to l998 was in most expense
categories.
At December 31, 1997, the Company had assets of $5,424,499 compared to
total assets of $4,890,809 at March 31, 1998, a decrease of $533,690. At
December 31, 1997, the Company had total liabilities of $455,267 compared to
total liabilities of $92,089 at March 31, l998, a decrease of $363,178. At
December 31, 1997, the Company had a total stockholders' equity of $4,969,232
compared to total stockholders' equity at March 31, l998 of $4,798,720.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital as of December 31, 1997 of $465,332 in
comparison $294,820 as of March 31, l998. The Company had an accumulated deficit
of $616,055 as of December 31, 1997 in comparison to an accumulated deficit of
$786,567 as of March 31, l998. The increase in the accumulated deficit is
primarily related to continuing operating costs without any operating income.
For the three months ended March 31, l998 the Company's cash requirements were
satisfied from the cash reserves in its operating and investment accounts.
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 VNA 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 VNA in August 1996 pusuant to the purchase of digital
technology from VNA 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 $973,867. In addition, the Company
incurred approximately $532,133 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.
11
<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.
12
<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: May 20, 1998
VOICENET, INC.
By: /s/ Howard Messer
--------------------------------------
Howard Messer
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 375,527
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 386,909
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,890,809
<CURRENT-LIABILITIES> 92,089
<BONDS> 0
0
0
<COMMON> 32,616
<OTHER-SE> 4,757,104
<TOTAL-LIABILITY-AND-EQUITY> 4,798,720
<SALES> 0
<TOTAL-REVENUES> 15,889
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 186,401
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (186,401)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (170,512)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
