<PAGE> 1
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 January 31, 2000
Commission file number 000-28215
INTERACTIVE TELESIS INC
- -------------------------------------------------------------------------------
Delaware 33-0649915
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
535 Encinitas Boulevard, Suite 116
Encinitas, California 92024
- --------------------------------------- -------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number,
including area code: (760) 632-1700
-------------------
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: 30,711,938 shares of common stock,
$0.001 par value, as of January 31, 2000.
1
<PAGE> 2
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) as of and for the
six months ended January 31, 2000 and Paragon (fiscal year end May 31) as of
November 30, 1999. As a result of the transaction described above in Part I -
Financial Information, the following Balance Sheet at January 31, 2000 is
presented on a consolidated basis eliminating Interactive Telesis Inc.'s
investment in Paragon.
2
<PAGE> 3
INTERACTIVE TELESIS, INC.
BALANCE SHEETS
JANUARY 31, 2000 AND JULY 31, 1999
<TABLE>
<CAPTION>
ASSETS
JAN 31, 2000 JUL 31,1999
------------ ------------
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
CASH $ 956,145 $ 490,152
ACCOUNTS RECEIVABLE 646,530 682,815
DEPOSITS 7,730 7,730
------------ ------------
TOTAL CURRENT ASSETS 1,610,405 1,180,697
------------ ------------
PROPERTY AND EQUIPMENT, NET 897,001 762,508
GOODWILL 655,740 -
------------ ------------
TOTAL ASSETS $ 3,163,146 $ 1,943,205
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 178,297 $ 111,469
NOTES PAYABLE TO RELATED PARTIES 157,400 -
DUE TO SHAREHOLDERS 2,218 -
CURRENT PORTION OF CAPITAL LEASE OBLIGATIONS 107,928 205,044
------------ ------------
TOTAL CURRENT LIABILITIES 445,843 316,513
------------ ------------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 345,062 292,229
------------ ------------
TOTAL LIABILITIES 790,905 608,742
------------ ------------
MINORITY INTEREST IN NET ASSETS OF SUBSIDIARY 396,899 -
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.001 PAR VALUE, 50,000,000 SHARES
AUTHORIZED; 30,711,938 AND 30,599,888 SHARES ISSUED
AND OUTSTANDING AT JAN 31, 2000 AND JUL 31,1999,
RESPECTIVELY, AND 100,000 ISSUABLE AT JAN 31, 2000 30,812 30,600
ADDITIONAL PAID IN CAPITAL 9,878,367 9,639,691
ACCUMULATED DEFICIT (7,933,837) (8,335,828)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 1,975,342 1,334,463
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,163,146 $ 1,943,205
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 4
INTERACTIVE TELESIS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31 JANUARY 31
------------------------------ -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 1,112,985 $ 555,474 $ 2,313,920 $ 1,019,456
Costs and expenses:
Cost of revenues 66,698 55,536 166,156 107,163
Salaries and wages 454,658 277,840 853,645 499,051
General and administrative 254,146 159,078 516,348 344,788
Sales and marketing 59,579 48,058 110,654 129,002
Depreciation and amortization 67,171 41,652 125,584 68,697
------------ ------------ ------------ ------------
Total costs and expenses 902,252 582,164 1,772,387 1,148,701
------------ ------------ ------------ ------------
Operating income (loss) 210,733 (26,690) 541,533 (129,245)
Other expenses:
Interest expense 11,672 6,288 22,542 10,658
Litigation contingency expense 117,000 - 117,000 -
------------ ------------ ------------ ------------
Total other expenses 128,672 6,288 139,542 10,658
------------ ------------ ------------ ------------
Income (loss) before income taxes $ 82,061 $ (32,978) $ 401,991 $ (139,903)
Provision for income taxes (Note E) - - - -
------------ ------------ ------------ ------------
Net income (loss) $ 82,061 $ (32,978) $ 401,991 $ (139,903)
============ ============ ============ ============
Basic net income per share $ 0.00 $ (0.00) $ 0.01 $ (0.00)
============ ============ ============ ============
Shares used to compute basic net income per share 30,671,405 30,575,888 30,644,188 30,528,847
============ ============ ============ ============
Diluted net income per share $ 0.00 $ (0.00) $ 0.01 $ (0.00)
============ ============ ============ ============
Shares used to compute diluted net income per share 32,313,917 31,823,289 32,478,139 31,823,289
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
INTERACTIVE TELESIS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JANUARY 31
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 401,991 $ (139,903)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 125,584 68,697
LITIGATION SETTLEMENT 117,000
CHANGES IN OPERATING ASSETS AND LIABILITIES:
DECREASE IN ACCOUNTS RECEIVABLE 60,084 94,406
INCREASE IN PREPAID EXPENSES AND DEPOSITS - (2,920)
DECREASE IN ACCOUNTS PAYABLE (7,367) (15,785)
DECREASE IN DEFERRED REVENUE - (12,500)
----------- -----------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 697,292 8,005
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CASH ACQUIRED IN PARAGON VOICE SYSTEMS ACQUISITION 5,830 -
PURCHASE OF PROPERTY AND EQUIPMENT (234,735) (374,033)
----------- -----------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (228,905) (374,033)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS ON ISSUANCE OF COMMON STOCK 41,888 6,475
REPAYMENTS ON CAPITAL LEASES (114,230) (50,762)
PROCEEDS FROM BORROWING ON CAPITAL LEASES 69,948 326,525
----------- -----------
NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,394) 282,238
----------- -----------
NET INCREASE (DECREASE) IN CASH 465,993 (99,800)
CASH AT BEGINNING OF PERIOD 490,152 406,090
----------- -----------
CASH AT END OF PERIOD $ 956,145 $ 306,290
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
SIX MONTHS ENDED JANUARY 31
2000 1999
----------- -----------
CASH PAID DURING THE YEAR FOR:
INTEREST $ 22,542 10,658
=========== ===========
INCOME TAXES $ - -
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCIAL 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.
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE> 6
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 February 24, 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:
The negotiations for the sale of InvestorREACH (TM) referenced in Note
8 to the financial statements, submitted with Form 10SB to the SEC on November
19, 1999, have been terminated. The Company discontinued exploring the possible
disposition of this service line.
Settlement was reached on February 25, 2000 in the lawsuit brought by
Scott Madison. The case was settled for 100,000 Shares of Common Stock at $0.001
par value and a market price of $1.97 per share. The accounting for the
settlement of this litigation was booked in January to reflect the appropriate
accounting treatment for the second fiscal quarter.
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.
6
<PAGE> 7
INTERACTIVE TELESIS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
As of and for the six months ended January 31, 2000
and for the year ended July 31, 1999
Presented below is unaudited pro forma financial information reflecting
the combination, for the six-month period ended January 31, 2000.
The unaudited pro forma information presented below is not necessarily
indicative of the actual results of operations, and should not be used to
project the Company's results of operations for any future date or period.
7
<PAGE> 8
INTERACTIVE TELESIS, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED BALANCE SHEET
January 31, 2000
<TABLE>
<CAPTION>
Paragon
Interactive Voice
Telesis, Inc. Systems Pro Forma
January 31, November 30, Pro Forma January 31,
2000 1999 Adjustments 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 650,314 $ 5,831 A $ 300,000 $ 956,145
Accounts receivable 622,731 23,799 - 646,530
Other current assets 7,730 - - 7,730
----------- ----------- ----------- -----------
Total current assets 1,280,775 29,630 300,000 1,610,405
----------- ----------- ----------- -----------
Noncurrent assets:
Property and equipment, net 871,659 25,342 - 897,001
Note receivable A 900,000
C (900,000) -
Investment in subsidiary 1,200,000 - B (1,200,000) -
Goodwill - - B 650,987
E (65,098) 585,889
----------- ----------- ----------- -----------
Total noncurrent assets 2,071,659 25,342 (614,111) 1,482,890
----------- ----------- ----------- -----------
Total assets $ 3,352,434 $ 54,972 $ (314,111) $ 3,093,295
=========== =========== =========== ===========
Current liabilities:
Accounts payable and
accrued liabilities $ 24,102 $ 154,195 $ - $ 178,297
Current portion of capital
lease obligations 107,928 - - 107,928
Notes payable to officer
and related parties 900,000 157,400 C (900,000) 157,400
Due to shareholder - 2,218 - 2,218
----------- ----------- ----------- -----------
Total current liabilities 1,032,030 313,813 (900,000) 445,843
----------- ----------- ----------- -----------
Long term Liabilities:
Capital lease obligations 345,062 - - 345,062
----------- ----------- ----------- -----------
Total long term liabilities 345,062 - - 345,062
----------- ----------- ----------- -----------
Minority interest in net assets of subsidiary - - B 419,834
D (22,935) 396,899
Shareholders' equity (deficit):
Common stock and additional
paid in capital 9,909,179 1,000 A 1,200,000
B (1,201,000) 9,909,179
Accumulated deficit (7,933,837) (259,841)B 232,153
D 22,935
E (65,098) (8,003,688)
----------- ----------- ----------- -----------
Total shareholders' equity (deficit) 1,975,342 (258,841) 188,990 1,905,491
----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $ 3,352,434 $ 54,972 $ (314,111) $ 3,093,295
=========== =========== =========== ===========
</TABLE>
7.a
<PAGE> 9
INTERACTIVE TELESIS, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended January 31, 2000
<TABLE>
<CAPTION>
Paragon
Interactive Voice
Telesis, Inc. Systems Pro Forma
For the six For the six For the six
months ended months ended Pro Forma months ended
January 31, 2000 November 30, 1999 Adjustments January 31, 2000
----------------- ----------------- ------------- -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 2,313,920 $ 105,885 F $ (29,313) $ 2,390,492
Costs and expenses:
Cost of revenues 166,156 36,233 F (29,313) 173,076
Salaries and wages 853,645 59,666 - 913,311
General and administrative 516,348 48,494 - 564,842
Other costs and expenses 236,238 9,853 E 65,098 311,189
----------------- -------------- ------------- -----------------
Total costs and expenses 1,772,387 154,246 35,785 1,962,418
----------------- -------------- ------------- -----------------
Operating income (loss) 541,533 (48,361) (65,098) 428,074
Other (income) expenses:
Interest expense 22,542 4,571 - 27,113
Litigation contingency expense 117,000 - - 117,000
Minority interest in net loss
of subsidiary - - D (22,935) (22,935)
----------------- -------------- ------------- -----------------
Total other (income) expenses 139,542 4,571 (22,935) 121,178
----------------- -------------- ------------- -----------------
Income (loss) before income taxes 401,991 (52,932) (42,163) 306,896
Income taxes - - - -
----------------- -------------- ------------- -----------------
Net income (loss) $ 401,991 $ (52,932) $ (42,163) $ 306,896
================= ============== ============= =================
Basic net income per share $ 0.01 $ 0.01
================= =================
Shares used to compute basic net
income per share 30,644,188 30,644,188
================= =================
Diluted net income per share $ 0.01 $ 0.01
================= =================
Shares used to compute diluted
net income per share 32,478,139 32,478,139
================= =================
</TABLE>
7.b
<PAGE> 10
INTERACTIVE TELESIS, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended July 31, 1999
<TABLE>
<CAPTION>
Paragon
Interactive Voice
Telesis, Inc. Systems Pro Forma
For the year For the year For the year
ended ended Pro Forma ended
July 31, 1999 July 31, 1999 Adjustments July 31, 1999
----------------- ----------------- ----------------- -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 3,022,290 $ 413,898 H $ (81,750) $ 3,354,438
Costs and expenses:
Cost of revenues 221,506 183,156 H (81,750) 322,912
Salaries and wages 1,184,523 194,361 - 1,378,884
General and administrative 742,801 93,733 - 836,534
Other costs and expenses 443,693 14,772 I 130,197 588,662
----------------- ----------------- ----------------- -----------------
Total costs and expenses 2,592,523 486,022 48,447 3,126,992
----------------- ----------------- ----------------- -----------------
Operating income (loss) 429,767 (72,124) (130,197) 227,446
Other (income) expenses:
Interest expense 28,027 9,941 - 37,968
Litigation contingency expense 80,000 - - 80,000
Minority interest in net loss
of subsidiary - - G (35,562) (35,562)
----------------- ----------------- ----------------- -----------------
Total other expenses 108,027 9,941 (35,562) 82,406
----------------- ----------------- ----------------- -----------------
Income (loss) before income taxes 321,740 (82,065) (94,635) 145,040
Income taxes - - - -
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 321,740 $ (82,065) $ (94,635) $ 145,040
================= ================= ================= =================
Basic net income per share $ 0.01 $ 0.00
================= =================
Shares used to compute basic net
income per share 30,365,097 $ 30,365,097
================= =================
Diluted net income per share $ 0.01 0.00
================= =================
Shares used to compute diluted
net income per share 31,160,123 $ 31,160,123
================= =================
</TABLE>
7.c
<PAGE> 11
INTERACTIVE TELESIS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
As of and for the six months ended January 31, 2000
and for the year ended July 31, 1999
The following pro forma adjustments to the pro forma consolidated
balance sheet are being recorded as if the purchase of the 510,000 shares of
Paragon Voice Systems' common stock occurred as of November 30, 1999. The pro
forma adjustments for the amortization of goodwill generated by the acquisition
for the six months ended January 31, 2000 are being recorded as if the purchase
of the 510,000 shares of Paragon Voice Systems' common stock occurred as of
August 1, 1999. Paragon Voice Systems' fiscal year end for financial reporting
purposes is May 31.
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 accounted
for as a purchase transaction.
Upon consummation of the transaction, Paragon had a total of 900,000
shares 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.
A - To record the issue by Paragon Voice Systems of 510,000 shares of its
common stock to Interactive Telesis, Inc. for $1,200,000, $300,000 of
which was paid on signing of the stock purchase agreement and the
balance due in 3 quarterly installments beginning April 1, 2000.
B - To eliminate intercompany investment and related equity accounts, in
consolidation, of Paragon Voice Systems on acquisition, to record
minority interest in net assets of subsidiary, and to record acquired
goodwill.
C - To eliminate intercompany Note Receivable and Note Payable arising
from the acquisition described in A and B above.
D - To record the minority shareholders' share of Paragon Voice Systems'
net loss for the six months ended November 30, 1999.
E - To record the amortization of goodwill on the straight-line basis
over the estimated useful life of 5 years.
F - To record the elimination of intercompany sales from Paragon Voice
Systems to Interactive Telesis, Inc.
8
<PAGE> 12
The following pro forma adjustments have been made to the pro forma consolidated
statement of operations as if the purchase of the 510,000 shares of Paragon
Voice Systems' common stock occurred as of August 1, 1998.
G - To record the minority shareholders' share of Paragon Voice Systems'
net loss for the year ended May 31,1999.
H - To record the elimination of intercompany sales from Paragon Voice
Systems to Interactive Telesis, Inc.
I - To record the amortization of goodwill on the straight-line basis
over the estimated useful life of 5 years.
9
<PAGE> 13
INTERACTIVE TELESIS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS:
Net revenues were $1,112,985 and $2,313,920 for the three months and
six months ended January 31, 2000, respectively, which represent increases of
100% and 127% 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 $463,000, or 83%, of two existing customers of the Digital Record
& Replay and 13%, or $75,000 is a result of adding new customers to Automated
Survey services, during the three months ended January 31, 2000 compared to the
same period in the 1999. The six months increase is due to an increase in
revenue, of approximately $1,110,000, or 86%, of two existing customers of the
Digital Record & Replay and 13%, or $170,000 is a result of adding new customers
to Automated Survey services, during the six months ended January 31, 2000
compared to the same period in 1999.
The cost of revenues for the quarter ended January 31, 2000 was $66,698
compared to $55,536 for the same period in 1999. Cost of Revenues as a
percentage of net revenue decreased, approximately 3.5%, for both the second
quarter and the first six months of the fiscal year 2000 when compared with the
same period in fiscal year 1999. This decrease is due to increased volume/usage,
which resulted in increased revenue for the higher margin Digital Record &
Replay services.
Salaries and wages increased from $277,840 to $454,658, or 64%, for the
three-month period ended January 31, 2000 compared with the same period in 1999.
The increase, for both the second quarter and the first six months of fiscal
year 2000,is a result of adding staff to provide the Information Technology and
Systems skills and experience needed to meet and support the requirements of the
new customers, which enabled the Company's revenue growth during the period.
General and administrative expense increased from $159,078 to $254,146,
or 60%, for the three-month period ended January 31, 2000 compared with the same
period in 1999. The increase, for both the second quarter and the six months of
fiscal year 2000, is primarily a result of increased legal, accounting and
consulting fees during the period.
Sales and marketing expense increased $11,521 for the three-month
period ended January 31, 2000 compared with the same period in 1999, as a
results of increased Investor Relations costs.
10
<PAGE> 14
Sales and marketing expense decreased from $129,002 to $110,654, or
14%, for the six-month period ended January 31, 2000 compared with the same
period in 1999. The six-month decrease is primarily a result of reducing
Investor Relations costs and reducing Conferences and Trade Show costs during
the period.
Depreciation and amortization expense increased from $41,652 to
$67,171, or 61% for the three-month period ended January 31, 2000 compared with
the same period in 1999. The increase, for both the second quarter and the first
six 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 three-month and six-month period
ended January 31, 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 January 31, 2000 was $82,061 as
compared to a net loss of $(32,978), for the quarter ended January 31, 1999.
Net income for the six months ended January 31, 2000 was $401,991 as
compared to a net loss of $(139,903), for the six months ended January 31, 1999.
Basic earnings per share increased to $0.01 for the six months ended January 31,
2000 as compared to $(0.00) per share for the same period ended January 31,
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 $1,164,562 at January 31, 2000, an increase of
$300,378 from July 31, 1999. The increase is a result of positive operating
results and positive cash flows for the six-month period ended January 31, 2000.
The Company's current ratio is 3.6 to 1 at January 31, 2000.
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.
11
<PAGE> 15
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
Director 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.
The Company was a defendant in a lawsuit brought in the District Court
of Nevada in November, 1997, by Scott Madison, a stockholder (the "Madison
Lawsuit"). The stockholder claimed that the Company, an Officer of the Company,
and individuals associated with a fiscal agent who assisted the Company in
raising equity capital in 1996, made misrepresentations to the plaintiff in the
sale of shares of the Company's Common Stock. The plaintiff alleged special,
general and punitive damages in excess of $1,000,000. The Company settled the
Madison Lawsuit on February 25, 2000 in consideration for the Company's issuance
of 100,000 shares of its common stock. The market price of the Company's common
stock on the date of settlement was $1.97. The accounting treatment for this
event is reflected in these financial statements.
ITEM 2. CHANGES IN SECURITIES
On 12/22/99 the Company granted 1,506,000 stock options at an exercise
price of $0.35 per share. The options were granted as follows: Employees -
470,000 shares, Consultants -70,000 shares and Officers - 966,000 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.
On 01/25/00, 60,800 shares of Common Stock were issued in conjunction
with an employee termination settlement. The accounting for the employee
12
<PAGE> 16
termination settlement was accrued for, on the grant date of 10/14/99, at the
market price per share of $0.36. In issuing these securities, the Company relied
on the exemption from registration in Section 4(2) of the Act.
On 02/25/00 the Company issued 100,000 shares of Common Stock in
settlement of the Madison lawsuit. For the purposes of this issuance, the
shares were valued at their market price on the date of the settlement of $1.97
per share. The settlement was accounted for in January to reflect the
appropriate accounting treatment for the second fiscal quarter. The shares are
to be issued in 25,000 share increments, starting on 2/25/00 and then issued at
30, 60 and 90 day intervals, thereafter.
The shares were issued pursuant to a hearing of the settlement terms by
the court, after which the court found that the issuance of the shares was fair
to all parties. The Company issued these shares in reliance on the exemption
under Section 3(a)(10) of the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 13, 1999 the Company held its Annual Meeting of
Shareholders. At the meeting, the shareholders elected as directors Donald E.
Cameron (with 6,636,495 affirmative votes and 43,300 votes withheld), Marc
Goyette (with 5,768,366 affirmative votes and 975,729 votes withheld), Robert
Wilson (with 3,847,649 affirmative votes and 2,913,946 votes withheld) and John
S. Baker* (with 3,248,899 affirmative and 3,578,096 votes withheld).
*Mr. Baker resigned his position as Director of the Company
immediately after confirmation of his appointment.
The shareholders also approved the sale of the assets comprising the
Company's InvestorREACH services. However, this sale was not consummated.
The shareholders also approved the appointment of Pannell Kerr Forster
as Independent Auditors of the Company for the fiscal year ending July 31, 2000
(with 6,669,274 affirmative votes and 129,698 votes withheld).
The shareholders also approved an increase of 1,850,000 shares
issuable under the 1996 Stock Plan to 3,335,000 (with 5,097,849 affirmative
votes and 1,657,961 votes withheld).
ITEM 5. OTHER INFORMATION
The negotiations for the sale of InvestorREACH (TM) referenced in Note
8 to the financial statements, submitted with Form 10SB to the SEC on November
19, 1999, have been terminated. The Company has discontinued exploring the
possible disposition of this service line.
13
<PAGE> 17
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.
14
<PAGE> 18
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: March 10, 2000
15
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JAN-31-2000
<CASH> 956,145
<SECURITIES> 0
<RECEIVABLES> 646,530
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<CURRENT-ASSETS> 1,610,405
<PP&E> 1,274,804
<DEPRECIATION> 403,145
<TOTAL-ASSETS> 3,163,146
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<BONDS> 0
0
0
<COMMON> 30,812
<OTHER-SE> 1,944,530
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<SALES> 1,112,985
<TOTAL-REVENUES> 1,112,985
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<INTEREST-EXPENSE> 11,672
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