<PAGE> 1
INTERACTIVE TELESIS, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DECEMBER 17, 1999
(DATE OF EARLIEST EVENT REPORTED)
INTERACTIVE TELESIS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<CAPTION>
DELAWARE 000-28215 33-0649915
<S> <C> <C>
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
535 ENCINITAS BOULEVARD, SUITE 116
ENCINITAS, CALIFORNIA 92024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(760) 632-1700
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
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.
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 partially owned
subsidiary on a consolidated basis.
The Company purchased the Paragon shares pursuant to a stock purchase
agreement (the "Agreement"), a copy of which is included as an exhibit to this
report. Under the Agreement, the Company is obligated to vote its shares for the
election of Paragon's Board of Directors as mutually agreed to by Paragon's
other shareholders.
Paragon is a leading value-added reseller and developer of computer
telephony solutions in the emerging technology field of Automated Speech
Recognition ("ASR"). Paragon resells speech recognition software and application
building blocks for the technology as a part of its integrated solutions.
Paragon is a California corporation based in San Diego, California.
The Company is a long-time customer of Paragon and purchased a controlling
interest in Paragon with a view of joining forces to develop and deploy the most
advanced speech recognition solutions for corporate customers. The Company hopes
that its relationship with Paragon will allow Paragon to provide the
development, integration and support services for ASR applications the Company
builds for its customers to handle their ASR calls and communication needs.
The Paragon Acquisition helps position the Company to become one of the
premiere hosting facilities for complex ASR applications.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of business acquired:
PARAGON VOICE SYSTEMS
FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT
For the years ended May 31, 1998 and 1999
3
<PAGE> 4
PARAGON VOICE SYSTEMS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITOR'S REPORT..................................................5
FINANCIAL STATEMENTS
Balance Sheets..........................................................6
Statements of Operations ...............................................7
Statements of Changes in Shareholders' Deficit..........................8
Statements of Cash Flows................................................9
NOTES TO FINANCIAL STATEMENTS..........................................10 - 16
</TABLE>
4
<PAGE> 5
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Paragon Voice Systems
San Diego, California
We have audited the balance sheets of Paragon Voice Systems (the "Company") as
of May 31, 1998 and 1999, and the related statements of operations, changes in
shareholders' deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paragon Voice Systems as of May
31, 1998 and 1999, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
San Diego, California PANNELL KERR FORSTER
January 24, 2000 Certified Public Accountants
A Professional Corporation
5
<PAGE> 6
PARAGON VOICE SYSTEMS
BALANCE SHEETS
May 31, 1998 and 1999
and November 30, 1999 (Unaudited)
ASSETS
<TABLE>
<CAPTION>
November 30,
May 31, 1998 May 31, 1999 1999
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 1,396 $ 41,098 $ 5,831
Accounts receivable 37,095 17,442 23,799
Inventory 1,401 8,808 -
Note receivable from officer 16,500 - -
--------- --------- ---------
Total current assets 56,392 67,348 29,630
Property and equipment, net 20,212 26,164 25,342
--------- --------- ---------
Total assets $ 76,604 $ 93,512 $ 54,972
========= ========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 85,940 $ 134,938 $ 154,195
Notes payable to officer and related parties 97,943 163,943 157,400
Due to shareholder 16,565 540 2,218
--------- --------- ---------
Total current liabilities 200,448 299,421 313,813
--------- --------- ---------
Commitments (Note 4)
Shareholders' deficit:
Common stock, no par value, 2,000,000
shares authorized; 358,700 issued and
outstanding at May 31, 1998 and 1999,
and November 30, 1999 (unaudited),
respectively 1,000 1,000 1,000
Accumulated deficit (124,844) (206,909) (259,841)
--------- --------- ---------
Total shareholders' deficit (123,844) (205,909) (258,841)
--------- --------- ---------
Total liabilities and shareholders' deficit $ 76,604 $ 93,512 $ 54,972
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
PARAGON VOICE SYSTEMS
STATEMENTS OF OPERATIONS
For the years ended May 31, 1998 and 1999 and for the
six months ended November 30, 1998 and 1999 (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended May 31, November 30,
1998 1999 1998 1999
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 248,871 $ 413,898 $ 199,828 $ 105,885
Costs and expenses:
Cost of revenues 97,267 183,156 99,232 36,233
Salaries and wages 102,366 194,361 91,562 59,666
General and administrative 60,289 93,733 44,419 48,494
Sales and marketing 4,054 3,987 1,197 2,211
Depreciation 13,848 10,785 6,924 7,642
--------- --------- --------- ---------
Total costs and expenses 277,824 486,022 243,334 154,246
--------- --------- --------- ---------
Operating loss (28,953) (72,124) (43,506) (48,361)
Other expenses:
Interest expense 5,846 9,941 2,523 4,571
--------- --------- --------- ---------
Total other expenses 5,846 9,941 2,523 4,571
--------- --------- --------- ---------
Loss before income taxes (34,799) (82,065) (46,029) (52,932)
Income taxes - - - -
Net loss $ (34,799) $ (82,065) $ (46,029) $ (52,932)
========= ========= ========= =========
Basic and diluted net loss per share $ (.10) $ (.23) $ (.13) $ (.15)
========= ========= ========= =========
Shares used to compute basic and diluted
net loss per share 358,700 358,700 358,700 358,700
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
PARAGON VOICE SYSTEMS
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
For the years ended May 31, 1998 and 1999 and
for the six months ended November 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Total
Common Stock Accumulated Shareholders'
Shares Amount Deficit (Deficit)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, May 31, 1997 358,700 $ 1,000 $ (90,045) $ (89,045)
Net loss - - (34,799) (34,799)
--------- --------- --------- ---------
Balance, May 31, 1998 358,700 1,000 (124,844) (123,844)
Net loss - - (82,065) (82,065)
--------- --------- --------- ---------
Balance, May 31, 1999 358,700 1,000 (206,909) (205,909)
Unaudited information:
Net loss for the six months ended
November 30, 1999 (unaudited) - - (52,932) (52,932)
--------- --------- --------- ---------
Balance , November 30, 1999
(unaudited) 358,700 $ 1,000 $(259,841) $(258,841)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 9
PARAGON VOICE SYSTEMS
STATEMENTS OF CASH FLOWS
For the years ended May 31, 1998 and 1999 and for the
six months ended November 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended May 31, November 30,
1998 1999 1998 1999
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(34,799) $(82,065) $(46,029) $(52,932)
Adjustments to reconcile net loss to
net cash used in operating activities:
Bad debts - 2,852 - -
Depreciation 13,848 10,785 6,924 7,642
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable (21,031) 16,801 (28,298) (6,357)
(Increase) decrease in inventory (1,401) (7,407) (5,242) 8,808
Increase in accounts payable 23,187 48,998 28,469 19,257
(Decrease) increase in due to
shareholder 16,565 (16,025) - 1,678
-------- -------- -------- --------
Net cash flows used in operating activities (3,631) (26,061) (44,176) (21,904)
-------- -------- -------- --------
Cash flows from investing activities:
Repayments on notes receivable 36,000 16,500 16,500 -
Borrowings on notes receivable (45,045) - - -
Purchase of property and equipment (7,210) (16,737) (6,885) (6,820)
-------- -------- -------- --------
Net cash flows (used in) provided by
investing activities (16,255) (237) 9,615 (6,820)
-------- -------- -------- --------
Cash flows from financing activities:
Decrease in bank overdraft (1,085) - - -
Borrowings on notes payable 22,325 70,000 55,000 -
Repayments on notes payable - (4,000) - (6,543)
-------- -------- -------- --------
Net cash flows provided by (used in)
financing activities 21,240 66,000 55,000 (6,543)
-------- -------- -------- --------
Net increase (decrease) in cash 1,354 39,702 20,439 (35,267)
Cash at beginning of period 42 1,396 1,396 41,098
-------- -------- -------- --------
Cash at end of period 1,396 41,098 21,835 5,831
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 5,846 $ 9,941 $ 2,523 $ 4,571
======== ======== ======== ========
Income taxes $- $- $- $-
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 10
PARAGON VOICE SYSTEMS
NOTES TO FINANCIAL STATEMENTS
For the years ended May 31, 1998 and 1999 and for the
six months ended November 30, 1999 (Unaudited)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Paragon Voice Systems (the "Company") was incorporated in the state of
California in June 1991. The Company is in the business of developing and
installing computer telephony solutions incorporating automated speech
recognition to customers primarily located in the United States. The
Company's installation of its computer telephony applications can either be
on customer's existing computer equipment or on computer equipment bought
from the Company.
Subsequent to year end, in December 1999, the Company amended and restated
its articles of incorporation to increase the number of authorized shares
of common stock from 100 to 2,000,000, and effected a 3,587-for-1 split of
its issued and outstanding common stock (the "restatement"). Share and per
share amounts have been disclosed in the accompanying financial statements
as if the restatement took place on May 31, 1997.
Subsequent to year end, in December 1999, the Company issued 510,000 shares
of its common stock for an aggregate purchase price of $1,200,000, payable
in four equal installments of $300,000 on each of: the date of the
agreement; April 1, 2000; July 1, 2000; and October 1, 2000. As a result of
this transaction, the Company became a 56.67% owned subsidiary of
Interactive Telesis, Inc. (the "Parent").
Fiscal Year
The Company's year-end for financial reporting purposes is May 31.
Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts
receivable, note receivable, accounts payable and due to shareholder,
approximate fair value due to the immediate short-term maturity of these
financial instruments.
The fair value of the Company's notes payable approximates the carrying
amount based on the current rates offered to the Company for debt of the
same remaining maturities with similar collateral requirements.
Inventory
The Company's inventory consists of computer equipment for sale to
customers as part of the installation of its computer telephony solutions.
Inventory is stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated on
the declining balance basis and straight line basis over the estimated
useful lives of the depreciable assets which range from three to five
years.
10
<PAGE> 11
PARAGON VOICE SYSTEMS
NOTES TO FINANCIAL STATEMENTS
For the years ended May 31, 1998 and 1999 and for the
six months ended November 30, 1999 (Unaudited)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenues are generated by the Company's installation of its computer
telephony solutions, which can include the sale of computer equipment to
customers. Revenue is recognized when these services are provided by the
Company, or when title transfers on the sale of computer equipment.
Concentration Risk
A majority of the Company's revenues are generated by the installation of
its computer telephone solutions. If the demand for this service decreased
or if the Company's ability to continue to provide this service was
impaired, the Company's revenue source would be impacted.
Revenues from 2 and 3 major customers were approximately 30% and 50% of
total revenues for the years ended May 31, 1998 and 1999, respectively.
The Company is dependent on a small number of licensors for its advanced
speech recognition software. If any of these licensors were unable to
continue to provide this advanced speech recognition software, the
Company's revenue generating ability would be severely impacted.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." This statement encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock
options, and other equity instruments based on a fair-value method of
accounting.
Companies that do not choose to adopt the expense recognition rules of SFAS
No. 123 will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion (APB) No. 25, but are required to
provide pro forma disclosures of the compensation expense determined under
the fair-value provisions of SFAS No. 123. APB No. 25 requires no
recognition of compensation expense for most of the stock-based
compensation arrangements provided by the Company, namely, broad-based
employee stock purchase plans and option grants where the exercise price is
equal to the market price at the date of the grant.
The Company has adopted the disclosure provisions of SFAS No. 123 effective
June 1, 1997. The Company has opted to follow the accounting provisions of
APB No. 25 for stock-based compensation and to furnish the pro forma
disclosures required under SFAS No. 123. (See Note 6).
11
<PAGE> 12
PARAGON VOICE SYSTEMS
NOTES TO FINANCIAL STATEMENTS
For the years ended May 31, 1998 and 1999 and for the
six months ended November 30, 1999 (Unaudited)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized
for the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets
and liabilities. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Net Income (Loss) Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which
specifies the computation, presentation and disclosure requirements for
earnings per share. SFAS No. 128 supersedes the provisions of APB No. 15,
and requires the presentation of basic earnings per share and diluted
earnings per share. The Company has adopted the provisions of SFAS No. 128
effective June 1, 1997.
Basic net (loss) per share excludes dilution and is computed by dividing
net (loss) by the weighted average number of common shares outstanding
during the reported periods. Diluted net (loss) per share reflects the
potential dilution that could occur if stock options and other commitments
to issue common stock were exercised.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The Company provides for an allowance for doubtful accounts based on the
payment history of its accounts receivable. The Company reviews the ageing
of its accounts receivable on a periodic basis and writes off as bad debts
those accounts receivable which it estimates are doubtful of collection.
Interim Financial Statements
The accompanying balance sheet as of November 30, 1999 and the statements
of operations and cash flows for the six month periods ended November 30,
1998 and 1999, respectively, have not been audited. However, these
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In management's opinion, the
accompanying financial statements reflect all material adjustments
(consisting only of normal recurring adjustments) necessary for a fair
statement of the results for the interim periods presented. The results for
the interim periods are not necessarily indicative of the results which
will be reported for the entire year.
12
<PAGE> 13
PARAGON VOICE SYSTEMS
NOTES TO FINANCIAL STATEMENTS
For the years ended May 31, 1998 and 1999 and for the
six months ended November 30, 1999 (Unaudited)
NOTE 2 - RELATED PARTY TRANSACTIONS
Note Receivable
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Unsecured loan to the CEO of the Company. The loan
is non-interest bearing and due on demand $ 16,500 $-
======== ========
</TABLE>
Notes Payable
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Unsecured loan from the CEO of the Company, bearing
interest at 6% per annum and payable on demand $ 24,325 $ 90,325
Unsecured loan from a corporation controlled by a
relative of the CEO (the "related corporation"),
bearing interest at 8% per annum and 7.25% per annum
for the years ended May 31,1998 and 1999,
respectively. The loan is payable on demand 58,618 58,618
Unsecured loan from a trust controlled by a relative
of the CEO (the "related trust"), bearing interest
at 9.5% for the years ended May 31,1998 and 1999,
respectively. The loan is payable on demand 15,000 15,000
-------- --------
$ 97,943 $163,943
======== ========
</TABLE>
Subsequent to year end, the Company issued shares of common stock in exchange
for the cancellation and full satisfaction of the unsecured loan to the related
corporation (See Note 6).
Due to Shareholder
Due to shareholder consists of advances to the Company which are non interest
bearing and due on demand. As of May 31, 1998 and 1999, the amounts due to the
shareholder were $16,565 and $540, respectively.
Contract Services
During the years ended May 31, 1998 and 1999, the Company hired a relative of
the CEO on a contract basis to perform voice recording services for the Company.
The amounts paid for these services were approximately $6,270 and $2,600 for the
years ended May 31, 1998 and 1999, respectively.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of May 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Computer and related equipment $ 49,133 $ 65,870
Office furniture and fixtures 2,239 2,239
-------- --------
51,372 68,109
Less accumulated depreciation (31,160) (41,945)
-------- --------
Net property and equipment $ 20,212 $ 26,164
======== ========
</TABLE>
13
<PAGE> 14
PARAGON VOICE SYSTEMS
NOTES TO FINANCIAL STATEMENTS
For the years ended May 31, 1998 and 1999 and for the
six months ended November 30, 1999 (Unaudited)
NOTE 4 - COMMITMENTS
Leases
The Company leases its facilities under non-cancelable operating leases
that expire at various dates through March 2001. Minimum future obligations
under these leases as of May 31, 1999, are as follows:
<TABLE>
<CAPTION>
Year ending May 31, Amount
------------------- --------------
<S> <C>
2000 $27,324
2001 22,770
--------------
Total minimum lease payments $50,094
==============
</TABLE>
Rent expense under the non-cancelable operating leases was $12,560 and
27,324 for the years ended May 31, 1998 and 1999, respectively.
NOTE 5 - INCOME TAXES
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax purposes. The tax
effect of temporary differences consisted of the following as of May 31:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 55,400 $ 73,200
Cash basis accounting for tax purposes 25,600 40,300
--------- ---------
Gross deferred tax assets 81,000 113,500
Less: Valuation allowance (81,000) (113,500)
--------- ---------
Net deferred tax assets $ - $ -
========= =========
</TABLE>
Realization of deferred tax assets is dependant upon sufficient future
taxable income during the period that deductible temporary differences and
carryforward are expected to be available to reduce taxable income. As the
achievement of required future taxable income is uncertain, the Company
recorded a valuation allowance. The valuation allowance increased by
$32,500 from 1998 and increased by $13,900 from 1997.
14
<PAGE> 15
PARAGON VOICE SYSTEMS
NOTES TO FINANCIAL STATEMENTS
For the years ended May 31, 1998 and 1999 and for the
six months ended November 30, 1999 (Unaudited)
NOTE 5 - INCOME TAXES (Continued)
As of May 31, 1999, the Company has net operating loss carryforwards for
both federal and state income tax purposes. Federal and state net operating
loss carryforwards totaling approximately $183,000 as of May 31, 1999,
begin to expire in 2010 and 2000, respectively. Under federal and state
laws, the availability of operating loss carryforwards are limited in the
event of a cumulative change in the Company's ownership resulting in a
change in control. The Company believes such a change occurred in December
1999. Therefore, the amount of annual taxable income which can be offset by
the net operating loss carryforwards will be limited to approximately
$127,000.
A reconciliation of the effective tax rates with the federal statutory rate
is as follows as of May 31:
<TABLE>
<CAPTION>
1998 1999
------------- -------------
<S> <C> <C>
Income tax expense (benefit) at 35% statutory rate $(12,200) $(28,700)
Change in valuation allowance 13,900 32,500
State income taxes, net (2,000) (4,800)
Other 300 1,000
------------- -------------
$ - $ -
============= =============
</TABLE>
NOTE 6 - SUBSEQUENT EVENTS
On December 1, 1999, the Company issued 31,300 shares of common stock to a
related corporation in exchange for the cancellation and full satisfaction
of the unsecured loan described in Note 2. Based on the fair value of the
shares issued, the Company will record a loss on the extinguishment of this
debt of approximately $15,000 during the quarter ended February 29, 2000.
In December 1999, the Company adopted a stock option plan (the "Plan")
under which options to purchase up to 100,000 shares of common stock may be
granted to directors, officers or employees of the Company, as well as to
consultants and other service providers of the Company. The Plan provides
for grants of options with a term of up to 10 years. No options have been
granted under the Plan.
NOTE 7 - NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS
Property and equipment
Property and equipment consists of the following as of November 30, 1999
(unaudited):
<TABLE>
<CAPTION>
<S> <C>
Computer and related equipment $72,690
Office furniture and fixtures 2,239
--------
74,929
Less accumulated depreciation (49,587)
Net property and equipment $25,342
========
</TABLE>
15
<PAGE> 16
PARAGON VOICE SYSTEMS
NOTES TO FINANCIAL STATEMENTS
For the years ended May 31, 1998 and 1999 and for the
six months ended November 30, 1999 (Unaudited)
NOTE 7 - NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS (Continued)
Notes Payable
Notes payable consist of the following as of November 30, 1999 (unaudited):
<TABLE>
<CAPTION>
<S> <C>
Unsecured loan from the CEO of the Company,
bearing interest at 6% per annum and payable
on demand $83,782
Unsecured loan from a corporation controlled by
a relative of the CEO (the "related corporation"),
bearing interest at 7.25% per annum. The loan is
payable on demand 58,618
Unsecured loan from a trust controlled by a relative
of the CEO (the "related trust"), bearing interest at
9.5% per annum. The loan is payable on demand 15,000
--------
$157,400
</TABLE>
16
<PAGE> 17
(b) Pro Forma Financial Information:
INTERACTIVE TELESIS, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED BALANCE SHEET
October 31, 1999
<TABLE>
<CAPTION>
Paragon
Interactive Voice
Telesis, Inc. Systems Pro Forma
October 31, August 31, Pro Forma October 31,
1999 1999 Adjustments 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 779,794 $ 12,123 A $ (300,000)
B 300,000 $ 791,917
Accounts receivable 667,617 13,486 - 681,103
Other current assets 7,730 - - 7,730
----------- ----------- ----------- -----------
Total current assets 1,455,141 25,609 - 1,480,750
----------- ----------- ----------- -----------
Noncurrent assets:
Property and equipment, net 814,835 29,163 - 843,998
Note receivable - - B 900,000
D (900,000) -
Investment in subsidiary - - A 1,200,000
C (1,200,000) -
Goodwill - - C 650,987
F (32,549) 618,438
----------- ----------- ----------- -----------
Total noncurrent assets 814,835 29,163 618,438 1,462,436
----------- ----------- ----------- -----------
Total assets $ 2,269,976 $ 54,772 $ 618,438 $ 2,943,186
=========== =========== =========== ===========
Current liabilities:
Accounts payable and
accrued liabilities $ 158,764 $ 119,837 $ - $ 278,601
Current portion of capital
lease obligations 152,323 - - 152,323
Notes payable to officer
and related parties - 163,943 - 163,943
Due to shareholder - 2,145 - 2,145
----------- ----------- ----------- -----------
Total current liabilities 311,087 285,925 - 597,012
----------- ----------- ----------- -----------
Long term Liabilities:
Capital lease obligations 284,496 - - 284,496
Notes payable to related parties - - A 900,000
D (900,000) -
----------- ----------- ----------- -----------
Total long term liabilities 284,496 - - 284,496
----------- ----------- ----------- -----------
Minority interest in net assets of
subsidiary - - C 419,834
E (10,939) 408,895
Shareholders' equity (deficit):
Common stock and additional
paid in capital 9,690,291 1,000 B 1,200,000
C (1,201,000) 9,690,291
Accumulated deficit (8,015,898) (232,153) C 232,153
E 10,939
F (32,549) (8,037,508)
----------- ----------- ----------- -----------
Total shareholders' equity (deficit) 1,674,393 (231,153) 209,543 1,652,783
----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity $ 2,269,976 $ 54,772 $ 618,438 $ 2,943,186
=========== =========== =========== ===========
</TABLE>
17
<PAGE> 18
INTERACTIVE TELESIS, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the three months ended October 31, 1999
<TABLE>
<CAPTION>
Paragon
Interactive Voice
Telesis, Inc. Systems Pro Forma
For the three For the three For the three
months ended months ended Pro Forma months ended
October 31, 1999 August 31, 1999 Adjustments October 31, 1999
---------------- ---------------- ----------- -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 1,200,935 $ 42,067 G $ (2,813) $ 1,240,189
Costs and expenses:
Cost of revenues 99,458 11,136 G (2,813) 107,781
Salaries and wages 398,985 30,976 - 429,961
General and administrative 262,204 18,520 - 280,724
Other costs and expenses 109,489 4,438 F 32,549 146,476
------------ ------------ ------------ ------------
Total costs and expenses 870,136 65,070 29,736 964,942
------------ ------------ ------------ ------------
Operating income (loss) 330,799 (23,003) (32,549) 275,247
Other (income) expenses:
Interest expense 10,869 2,286 - 13,155
Interest income - (45) - (45)
Minority interest in net loss
of subsidiary - - E (10,939) (10,939)
------------ ------------ ------------ ------------
Total other (income) expenses 10,869 2,241 (10,939) 2,171
------------ ------------ ------------ ------------
Income (loss) before income taxes 319,930 (25,244) (21,610) 273,076
Income taxes - - - -
------------ ------------ ------------ ------------
Net income (loss) $ 319,930 $ (25,244) $ (21,610) $ 273,076
============ ============ ============ ============
Basic net income per share $ 0.01 $ 0.01
============ ============
Shares used to compute basic net
income per share 30,625,513 30,625,513
============ ============
Diluted net income per share $ 0.01 $ 0.01
============ ============
Shares used to compute diluted
net income per share 31,947,914 $ 31,947,914
============ ============
</TABLE>
18
<PAGE> 19
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 May 31, 1999 Adjustments July 31, 1999
-------------- ------------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 3,022,290 $ 413,898 I $ (81,750) $ 3,354,438
Costs and expenses:
Cost of revenues 221,506 183,156 I (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 J 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
Loss contingency 80,000 - - 80,000
Minority interest in net loss
of subsidiary - - H (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>
19
<PAGE> 20
INTERACTIVE TELESIS, INC. AND SUBSIDIARY
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three months ended October 31, 1999
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 October 31, 1999. The pro forma adjustments
for the amortization of goodwill generated by the acquisition for the three
months ended October 31, 1999 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.
A - To record the purchase of 510,000 shares of Paragon Voice Systems'
common stock 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 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.
C - 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. Miniority interest in net assets of subsidiary has been
calculated on the minority shareholders' share (43.33%) of Paragon Voice
Systems' identifiable net assets after the Issue of 510,000 shares or
56.67% of its common stock to Interactive Telesis, Inc. (the
"Issuance"). Goodwill has been calculated as the difference between the
purchase price paid by Interactive Telesis, Inc. ("ITI") on the
issuance, and the fair market value of ITI's share of Paragon Voice
Systems' identifiable net assets after the Issuance.
D - To eliminate intercompany Note Receivable and Note Payable arising
from the acquisition described in A and B above.
E - To record the minority shareholders' share of Paragon Voice Systems'
net loss for the three months ended August 31, 1999.
F - To record the amortization of goodwill on the straight line basis over
the estimated useful life of 5 years.
G - To record the elimination of intercompany sales from Paragon Voice
Systems to Interactive Telesis, Inc.
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.
H - To record the minority shareholders' share of Paragon Voice Systems'
net loss for the year ended May 31,1999.
I - To record the elimination of intercompany sales from Paragon Voice
Systems to Interactive Telesis, Inc.
J - To record the amortization of goodwill on the straight line basis over
the estimated useful life of 5 years.
20
<PAGE> 21
(c) Exhibits:
Exhibit 2.1* Acquisition Agreement-Stock Purchase Agreement between
Interactive Telesis, Inc. and Paragon Voice Systems
dated December 17, 1999.
- -----------------
* Previously Filed.
21
<PAGE> 22
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.
By: /s/ Donald E. Cameron
------------------------------------
Name: Donald E. Cameron
Title: President & CEO
Dated: March 30, 2000
22