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INTERACTIVE TELESIS INC
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 Quarter ended April 30, 2000
Commission file number 000-28215
INTERACTIVE TELESIS INC
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<S> <C>
Delaware 33-0649915
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
535 Encinitas Boulevard, Suite 116
Encinitas, California 92024
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(Address of principal executive office) (Zip Code)
Registrant's telephone number,
including area code: (760) 632-1700
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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. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of a recent date: 30,811,938 shares of common stock,
$0.001 par value, as of April 30, 2000.
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INTERACTIVE TELESIS, INC.
PART I - FINANCIAL INFORMATION
On December 17, 1999, Interactive Telesis, Inc. (the "Company")
purchased 510,000 shares of common stock of Paragon Voice Systems ("Paragon").
The shares were purchased for $1,200,000, $300,000 of which was paid at closing
and the remainder of which will be paid in three (3) installments of $300,000
each, due and payable April 1, 2000, July 1, 2000, and October 1, 2000,
respectively. The purchase price for the shares was determined through arm's
length negotiations between the Company and Paragon's Management and is
accounted for as a purchase transaction.
Upon consummation of the transaction, Paragon had a total of 900,000
shares of common stock outstanding of which the Company owns 56.67%. An
additional 100,000 shares have been reserved for Paragon's Employee Stock Option
Plan. In addition to the Company, Paragon has three shareholders. In the event
the Employee Stock Options are fully exercised, the Company's percentage
ownership will be reduced to 51%. The Company will account for its investment in
Paragon as a majority owned subsidiary on a consolidated basis.
ITEM 1. FINANCIAL STATEMENTS
The historical interim financial statements, which follow, reflect the
activity of Interactive Telesis Inc. (fiscal year end July 31) for the three and
nine months ended April 30, 2000 and the results of operations of Paragon
(fiscal year end May 31) from the date of acquisition, December 17, 1999
through February 29, 2000, which is the end of Paragon's third quarter. As a
result of the transaction described above in Part I - Financial Information, the
following financial information is presented on a consolidated basis eliminating
Interactive Telesis Inc.'s investment in Paragon. However, prior period
financial statements (fiscal year 1999) have not been restated for the
acquisition of Paragon.
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INTERACTIVE TELESIS, INC.
BALANCE SHEETS
April 30, 2000 AND JULY 31, 1999
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<CAPTION>
ASSETS
Consolidated
APR 30, 2000 JUL 31,1999
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(UNAUDITED) (AUDITED)
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<S> <C> <C>
CURRENT ASSETS:
CASH $ 1,037,757 $ 490,152
ACCOUNTS RECEIVABLE-NET 740,397 682,815
PREPAID EXPENSES AND OTHER CURRENT ASSETS 42,851 7,730
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TOTAL CURRENT ASSETS 1,821,005 1,180,697
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PROPERTY AND EQUIPMENT, NET 886,493 762,508
GOODWILL 602,163 --
------------ ------------
TOTAL ASSETS $ 3,309,661 $ 1,943,205
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 216,015 $ 111,469
NOTES PAYABLE TO RELATED PARTIES 161,337 --
DUE TO SHAREHOLDERS 34,000 --
CURRENT PORTION OF CAPITAL LEASE OBLIGATIONS 55,467 205,044
------------ ------------
TOTAL CURRENT LIABILITIES 466,819 316,513
------------ ------------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 336,232 292,229
------------ ------------
TOTAL LIABILITIES 803,051 608,742
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MINORITY INTEREST IN NET ASSETS OF SUBSIDIARY 354,237 --
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.001 PAR VALUE, 50,000,000 SHARES
AUTHORIZED; 30,811,938 AND 30,599,888 SHARES ISSUED
AND OUTSTANDING AT APR 30, 2000 AND JUL 31, 1999,
RESPECTIVELY 30,812 30,600
ADDITIONAL PAID IN CAPITAL 10,031,905 9,639,691
ACCUMULATED DEFICIT (7,910,344) (8,335,828)
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TOTAL SHAREHOLDERS' EQUITY 2,152,373 1,334,463
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,309,661 $ 1,943,205
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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INTERACTIVE TELESIS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
April 30 April 30
------------------------------- -------------------------------
Consolidated Consolidated
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues $ 1,445,608 $ 915,196 $ 3,759,529 $ 1,934,652
Costs and expenses:
Cost of revenues 276,581 49,255 442,737 156,418
Salaries and wages 513,981 292,512 1,367,626 791,563
General and administrative 417,304 215,305 933,652 560,093
Sales and marketing 116,213 68,650 226,867 197,652
Depreciation and amortization 129,049 50,899 270,908 119,596
------------ ------------ ------------ ------------
Total costs and expenses 1,453,128 676,621 3,241,790 1,825,322
------------ ------------ ------------ ------------
Operating income (loss) (7,520) 238,575 517,739 109,330
Other (income) expenses:
Interest expense 18,310 7,880 40,852 18,538
Litigation contingency expense -- -- 117,000 --
Minority interest in net loss of subsidiary (65,597) -- (65,597) --
------------ ------------ ------------ ------------
Total other (income) expenses (47,287) 7,880 92,255 18,538
------------ ------------ ------------ ------------
Income before income taxes $ 39,767 $ 230,695 $ 425,484 $ 90,792
Provision for income taxes -- -- -- --
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Net income $ 39,767 $ 230,695 $ 425,484 $ 90,792
============ ============ ============ ============
Basic net income per share $ 0.00 $ 0.01 $ 0.01 $ 0.00
============ ============ ============ ============
Shares used to compute basic net income per share 30,811,938 30,575,888 30,700,105 30,544,528
============ ============ ============ ============
Diluted net income per share $ 0.00 $ 0.01 $ 0.01 $ 0.00
============ ============ ============ ============
Shares used to compute diluted net income per share 32,861,209 31,791,929 32,903,061 31,791,929
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
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INTERACTIVE TELESIS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED APRIL 30
Consolidated
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 425,484 $ 90,792
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 270,908 119,596
LITIGATION SETTLEMENT 117,000 --
MINORITY INTEREST IN OPERATIONS OF PARAGON (65,597) --
LOSS ON LOAN EXTINGUISHMENT 15,000 --
CHANGES IN OPERATING ASSETS AND LIABILITIES:
INCREASE IN ACCOUNTS RECEIVABLE (6,095) (165,599)
INCREASE IN PREPAID EXPENSES AND DEPOSITS (35,121) (12,920)
INCREASE/(DECREASE) IN ACCOUNTS/NOTES PAYABLE 124,689 (17,215)
DECREASE IN DEFERRED REVENUE -- (12,500)
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NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 846,268 2,154
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CASH FLOWS FROM INVESTING ACTIVITIES:
CASH ACQUIRED IN PARAGON VOICE SYSTEMS ACQUISITION 5,830 --
PURCHASE OF PROPERTY AND EQUIPMENT (320,727) (526,396)
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NET CASH FLOWS USED IN INVESTING ACTIVITIES (314,897) (526,396)
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CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS ON ISSUANCE OF COMMON STOCK 121,808 6,475
REPAYMENTS ON CAPITAL LEASES (175,522) (100,533)
PROCEEDS FROM BORROWING ON CAPITAL LEASES 69,948 326,525
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NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES 16,234 232,467
----------- -----------
NET INCREASE (DECREASE) IN CASH 547,605 (291,775)
CASH AT BEGINNING OF PERIOD 490,152 406,090
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CASH AT END OF PERIOD $ 1,037,757 $ (114,315)
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
NINE MONTHS ENDED APRIL 30
2000 1999
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<S> <C> <C>
CASH PAID DURING THE YEAR FOR:
INTEREST $ 40,852 18,538
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INCOME TAXES $ -- --
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</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
ON DECEMBER 17, 1999 THE COMPANY ACQUIRED 56.67% OF THE OUTSTANDING COMMON STOCK
OF PARAGON VOICE SYSTEMS. THE VALUE OF THE ASSETS AND LIABILITIES ACQUIRED WAS
$54,972 INCLUDING CASH OF $5,830 AND $313,813 RESPECTIVELY.
ON FEBRUARY 25, 2000 THE COMPANY ISSUED 100,000 SHARES OF COMMON STOCK AT A FAIR
MARKET VALUE OF $197,000 IN SETTLEMENT OF THE MADISON LAWSUIT.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results of operations for the periods shown. The results of operations for
such periods are not necessarily indicative of the results expected for the full
fiscal year or for any future period.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included with the Form 10SB/A submission made to the Securities and
Exchange Commission (SEC) on April 21, 2000 and the Company's current report on
Form 8-K/A, which was filed with the (SEC) on February 29, 2000.
The Company acquired a 56.67% interest in Paragon Voice Systems, on
December 17, 1999, a leading value-added reseller and developer of computer
telephony solutions in the emerging technology field of Automated Speech
Recognition ("ASR").
B. RECLASSIFICATION: None
C. STOCK SPLIT: None
D. SUBSEQUENT EVENTS: None
E. INCOME TAXES:
Income taxes have not been provided for in the accompanying financial
statements due to the net operating loss carry forwards generated in prior years
that are available for carry forward against current year income.
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INTERACTIVE TELESIS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OVERVIEW:
Interactive Telesis is a leader in specialized interactive voice
response (IVR) services and deployment of speech recognition technologies.
Interactive Telesis presents a very compelling offering for companies wishing to
leverage the benefits of speech recognition without the high cost of ownership,
capital outlay and internal IT staff requirements.
Paragon Voice Systems is a leading developer of computer telephony
solutions. Based in San Diego, California and founded in 1991, Paragon Voice
Systems specializes in open, PC-based systems and provides solutions to
start-ups, Fortune 1000 corporations (including five of the six largest oil
companies), educational institutions and government agencies.
RESULTS OF OPERATIONS:
Net revenues were $1,445,608 and $3,759,529 for the three months and
nine months ended April 30, 2000, respectively, which represent increases of 58%
and 94% when compared with the corresponding periods in 1999. The increases were
due primarily to the increase in volume/usage of the existing customers of
Digital Record & Replay.
The three months increase is due to an increase in revenue of
approximately $518,900, or 56.7%, of two existing customers of the Digital
Record & Replay, which includes transport revenue of $185,969, and $11,540, or
1.3% is a result of adding new customers to Automated Survey services in the
amount of $4,600 and the inclusion of Paragon in the amount of $6,940, during
the three months ended April 30, 2000 compared to the same period in the 1999.
The nine months increase is due to an increase in revenue of
approximately $1,627,400, or 84%, of two existing customers of the Digital
Record & Replay, which includes transport revenue of $185,969, and $197,400, or
10% is a result of adding new customers to Automated Survey services in the
amount of $190,460 and the inclusion of Paragon in the amount of $6,940, during
the nine months ended April 30, 2000 compared to the same period in 1999.
The cost of revenues for the quarter ended April 30, 2000 was 7% of
revenue compared to 5% of revenue for the same period in 1999. The cost of
revenues for the quarter ended April 30, 2000 was 19% of revenue or $276,581
(after inclusion of both the transport revenue and transport cost) compared to
5% of revenue or $49,255 for the same period in 1999. The increase of $227,326,
for the third quarter is made up of three parts (1) increased costs as a result
of increased usage $37,349, (2) Paragon costs $4,008 and (3) transport costs
$185,969.
The cost of revenues for the nine months ended April 30, 2000 was 7% of
revenue compared to 8% of revenue for the same period in 1999. The cost of
revenues for the nine months ended April 30, 2000 was 11.8% of revenue or
$442,737 (after inclusion of both the transport revenue and transport cost)
compared to 8% of revenue or $156,418 for the same period in 1999. The increase
of $286,319, for the nine months ended April 30, 2000, is made up of three parts
((1) increased costs as a result of increased usage $96,342, (2) Paragon costs
$4,008 and (3) transport costs $185,969. The increase in cost of revenue, for
both the third quarter and the nine months of fiscal year 2000, (after exclusion
of both the transport revenue and transport cost) is mainly a result of
increased volume/usage, which resulted in increased revenue for Digital Record &
Replay services.
Salaries and wages increased from $292,512 to $513,981, or 76%, for the
quarter ended April 30, 2000 compared with the same period in 1999. The increase
of $221,469, for the third quarter is made up of two parts (1) increased costs
as a result of increased staff 50% or $146,071, (2) inclusion of Paragon costs
26% or $75,398. The increase, for both the third quarter and the first nine
months of fiscal year 2000, is a result of the inclusion of Paragon, and
Interactive Telesis adding staff. The additional staff is needed to provide the
Information Technology and Systems skills and experience needed to meet and
support the requirements of anticipated new customers.
General and administrative expense increased from $215,305 to $417,304,
or 94%, for the three-month period ended April 30, 2000 compared with the same
period in 1999. The increase of $201,999, for the third quarter is made up of
two parts (1) increased costs as a result of increased recruiting, insurance,
accounting, and consulting fees 77% or $165,086, and (2) inclusion of Paragon
costs 17% or $36,913. The increase, for both the third quarter and the first
nine months
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of fiscal year 2000, is a result of the inclusion of Paragon, and Interactive
Telesis increased recruiting, insurance, legal, accounting and consulting fees
during the period.
Sales and marketing expense increased from $68,650 to $116,213, or 69%,
for the three-month period ended April 30, 2000 compared with the same period in
1999. The increase of $47,563, for the third quarter is made up of two parts (1)
increased costs as a result of increased travel, training, conferences and trade
shows 59% or $40,429, and (2) inclusion of Paragon costs 10% or $7,134.
Sales and marketing expense increased from $197,652 to $226,867, or 15%,
for the nine-month period ended April 30, 2000 compared with the same period in
1999. The nine-month increase is primarily a result of increased travel,
conferences and trade show costs during the period.
Depreciation and amortization expense increased from $50,899 to
$129,049, or 153.5% for the three-month period ended April 30, 2000 compared
with the same period in 1999. The increase of $78,150, for the third quarter is
made up of three parts (1) Interactive Telesis depreciation $17,017, (2) Paragon
depreciation $28, 584 and (3) Goodwill amortization (Paragon Acq.) $32,549. The
increase of $151,312, for the nine months ended April 30, 2000, is made up of
three parts (1) Interactive Telesis depreciation $73,904, (2) Paragon
depreciation $28, 584 and (3) Goodwill amortization (Paragon Acq.) $48,824. The
increase in depreciation for Interactive Telesis, for both the third quarter and
the first nine months of fiscal year 2000, is a result of adding computer and
related equipment during the period and during the fiscal year 1999.
Litigation contingency expense for the nine-month period ended April 30,
2000, of $117,000 represents the settlement, over the previously provided for
amounts, of the Madison case for 100,000 shares of common stock.
Net income for the quarter ended April 30, 2000 was $39,767 as compared
to a net income of $230,695, for the quarter ended April 30, 1999. The quarterly
net income reflects the inclusion of the Company's share of Paragon's loss
$(85,792) along with the amortization of goodwill $(32,549), associated with the
acquisition of Paragon. The Net income for the quarter ended April 30, 2000 for
Interactive Telesis unconsolidated was $158,108.
Net income for the nine months ended April 30, 2000 was $425,484 as
compared to a net income of $90,792, for the nine months ended April 30, 1999.
The nine months net income reflects the inclusion of the Company's share of
Paragon's loss $(85,792) along with the amortization of goodwill $(48,824),
associated with the acquisition of Paragon. The Net income for the nine months
ended April 30, 2000 for Interactive Telesis unconsolidated was $560,100.
Basic earnings per share increased to $0.01 for the nine months ended
April 30, 2000 as compared to $0.00 per share for the same period ended April
30, 1999.
Income taxes have not been provided for in the accompanying financial
statements due to the net operating loss carry forwards generated in prior years
that are available for carry forward against current year income.
LIQUIDITY AND CAPITAL RESOURCES:
On December 17, 1999, the Company purchased 510,000 shares of common
stock of Paragon Voice Systems ("Paragon"). The shares were purchased for
$1,200,000, $300,000 of which was paid at closing and the remainder of which
will be paid in three (3) installments of $300,000 each, due and payable April
1, 2000, July 1, 2000, and October 1, 2000, respectively.
Working capital was $1,354,186 at April 30, 2000, an increase of
$490,002 from July 31, 1999. The increase is a result of positive operating
results and positive cash flows from Operating activities for the nine-month
period ended April 30, 2000.
The Company's current ratio is 3.9 to 1 at April 30, 2000.
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Based on current cash flow projections management expects that the
Company can complete expected operations for the current fiscal year without the
need for infusions of additional cash.
YEAR 2000 IMPLICATIONS:
The Company has incurred approximately $8,800 in Year 2000 remediation
costs, which was funded from working capital. The Company has designated the
Vice President of Operations as manager of all Year 2000 efforts. These efforts
include continued product testing and contingency planning.
The Company has contacted its major customers and vendors to assess
their status as to Year 2000 compliance. There is no assurance that service
interruptions will not occur from vendors, suppliers or service providers,
including financial institutions or governments. The Company believes that
alternative suppliers exist and, therefore, if services are interrupted from
suppliers, the situation should be temporary.
IMPACT OF INFLATION:
The Company does not believe inflation has had a significant effect on
its operations
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit brought in the Superior Court of
California in January, 1999, by Dieter Sauer, a former consultant, claiming
wrongful termination by the Company. The consultant alleges special, general and
punitive damages in excess of $400,000.
ITEM 2. CHANGES IN SECURITIES
During the third quarter the Company granted 175,000 stock options at
exercise prices of $3.00(115,000 shares), $2.47(20,000 Shares) and $2.25 (40,000
shares) per share. The options were granted as follows: Employees - 100,000
shares, Consultants - 0 shares and Officers - 75,000 shares. In issuing these
securities the Company relied on the exemption from registration under Rule 506
of the Securities Act of 1933 (the "Act"), with respect to warrants granted to
Officers and Directors and Rule 701 of the Act with respect to options granted
to employees and the consultant.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS - 27 Financial Data Schedule
B. REPORTS ON FORM 8-K - On 12/29/99 the Company filed a report
Form 8-K and on 2/29/00 filed an amendment to the report Form 8-K which
announced the acquisition of Paragon Voice Systems.
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INTERACTIVE TELESIS, INC.
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.
INTERACTIVE TELESIS, INC.
(A Delaware Corporation)
(Registrant)
By: /s/ Donald E. Cameron
----------------------------------------
Donald E. Cameron
President & CEO
Date: June 9, 2000
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