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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 October 31, 2000
Commission file number 000-28215
INTERACTIVE TELESIS INC
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Delaware 33-0649915
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
12636 High Bluff Dr., Suite 200,
San Diego, California 92130
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(Address of principal executive office) (Zip Code)
Registrant's telephone number,
including area code: (858)523-4000
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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: 31,783,386 shares of common stock,
$0.001 par value, as of October 31, 2000.
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INTERACTIVE TELESIS, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATION:
On December 17, 1999, Interactive Telesis, Inc acquired a majority
ownership of Paragon Voice Systems ("Paragon"), collectively known as the
"Company." Paragon is in the business of developing and installing computer
telephony solutions incorporating automated speech recognition systems. The
Company has used the purchase method to record this transaction at historical
cost. The purchase price of the subsidiary was $1.2 million which allowed
Interactive to control 56.67%. All significant inter-company accounts and
transactions have been eliminated at consolidation.
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ITEM 1. FINANCIAL STATEMENTS
INTERACTIVE TELESIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 2000 and July 31, 2000
<TABLE>
<CAPTION>
OCT 31, 2000 JUL 31, 2000
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,228,099 $ 2,925,051
Accounts receivable 436,219 332,808
Inventory 12,955 5,635
Deposits, prepaid expenses and other current assets 64,750 152,198
------------ ------------
Total current assets 1,742,023 3,415,692
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Property and equipment, net 2,787,346 1,285,780
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Intangible asset, net 516,115 547,395
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Total assets $ 5,045,484 $ 5,248,867
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 480,646 $ 250,518
Note payable to related party 24,000 31,000
Deferred revenue -- 8,354
Current portion of note payable 9,585 14,039
Current portion of capital lease obligations 568,192 364,454
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Total current liabilities 1,082,423 668,365
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Long-term obligations:
Note payable, net of current portion 145,961 145,961
Capital lease obligations, net of current portion 1,315,968 404,920
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Total long-term obligations 1,461,929 550,881
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Total liabilities 2,544,352 1,219,246
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Commitments and contingencies
Minority interest in net assets of subsidiary 91,935 207,547
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Shareholders' equity:
Common stock, $.001 par value, 50,000,000 shares
authorized; 31,783,386 and 31,764,486 shares issued
and outstanding at Oct. 31, 2000 and July 31, 1999,
respectively 31,784 31,765
Additional paid in capital 12,263,939 12,258,358
Accumulated deficit (9,886,526) (8,468,049)
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Total shareholders' equity 2,409,197 3,822,074
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Total liabilities and shareholders' equity $ 5,045,484 $ 5,248,867
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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INTERACTIVE TELESIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended October 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
OCT 31, 2000 OCT 31, 1999
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<S> <C> <C>
Revenues $ 790,208 $ 1,200,935
Costs and expenses:
Cost of revenues 183,046 99,458
Salaries and wages 1,086,542 398,985
General and administrative 638,117 262,204
Sales and marketing 248,002 51,076
Depreciation and amortization 126,280 58,413
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Total costs and expenses 2,281,987 870,136
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Operating (loss) income (1,491,779) 330,799
Other expenses:
Interest expense 42,311 10,869
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Total other expenses 42,311 10,869
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(Loss) income before income taxes and minority
interest in subsidiary (1,534,090) 319,930
Minority interest in net loss of subsidiary 115,612 --
------------ ------------
(Loss) income before income taxes (1,418,478) 319,930
Provision for income taxes -- --
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Net (loss) income $ (1,418,478) $ 319,930
============ ============
Basic net income (loss) per share $ (0.04) $ 0.01
============ ============
Shares used to compute basic net income (loss) per share 31,774,787 30,625,513
============ ============
Diluted net income (loss) per share $ (0.04) $ 0.01
============ ============
Shares used to compute diluted net income (loss) per share 31,774,787 31,947,914
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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INTERACTIVE TELESIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended October 31, 2000 and 1999
(UNAUDITED)
<TABLE>
<CAPTION>
OCT 31, 2000 OCT 31, 1999
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(1,418,478) $ 319,930
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Bad debts 3,000 --
Depreciation and amortization 126,280 58,413
Interest on capital leases and long-term debt 42,311 10,869
Minority interest (115,612) --
Changes in operating assets and liabilities, net of business acquired:
Decrease (increase) in accounts receivable (106,411) 15,198
Increase in inventory (7,320) --
(Increase) decrease in prepaid expenses and deposits 87,447 --
Increase (decrease) in accounts payable and
accrued liabilities 225,674 47,295
Increase (decrease) in deferred revenue (8,354) --
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Net cash flows provided by operating activities (1,171,463) 451,705
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Cash flows from investing activities:
Purchase of property and equipment (302,175) (110,740)
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Net cash flows used in investing activities (302,175) (110,740)
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Cash flows from financing activities:
Repayments on borrowings from shareholder (7,000) --
Proceeds on issuance of common stock 5,600 20,000
Repayments on capital leases (221,914) (71,323)
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Net cash flows (used in) provided by financing activities (223,314) (51,323)
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Net increase (decrease) in cash and cash equivalents (1,696,952) 289,642
Cash and cash equivalents at beginning of period 2,925,051 490,152
----------- -----------
Cash and cash equivalents at end of period $ 1,228,099 $ 779,794
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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INTERACTIVE TELESIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the three months ended October 31, 2000 and 1999
(UNAUDITED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
OCT 31, 2000 OCT 31, 1999
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<S> <C> <C>
Cash paid during the period for:
Interest $ 42,311 $ 10,869
============ ============
Income taxes $ -- $ --
============ ============
Supplemental disclosure of non-cash investing and financing activities:
Purchase of property and equipment on capital leases $ 1,294,391 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated 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 10K-SB submission made to the Securities and
Exchange Commission (SEC) on October 30, 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:
Subsequent to October 31, 2000, the Company and Hambrecht and Quist
Guaranty Finance, LLC entered into agreements whereby H&QGF agreed to invest up
to $4.15 million in the Company, $1.15 million pursuant to a loan and security
agreement and up to $3.0 million pursuant to an equity line of credit agreement.
Both agreements are dated November 21, 2000. The loan bears interest at the rate
of 7.5% per annum, has a term of 3 years, and is convertible at the election of
the holder into the Company's convertible Series A preferred stock at a price of
$1.10 per share during the first year, $1.52 during the second year, and $2.00
per share during the third year. $650,000 of this loan was funded on November
21, 2000 and the remaining $500,000 is to be funded upon the effective date of
the Registration Statement (the "effective date") which the Company has agreed
to file covering the shares of its common stock issuable in connection with the
conversion of the Series A preferred stock issuable under this loan and the
equity line of credit and upon the exercise of the warrant discussed below.
Under the equity line of credit, the Company is entitled for 12 months
from the effective date to sell ("put"), to H&QGF up to $3 million of its Series
A preferred stock at a price equal to 83% of the lower of (x) the average of the
closing bid prices of the Company's common stock for the five trading days
immediately preceding notice, of the date of its notice to put the stock or (x)
the closing price of the day of the put. Each put creates a subseries of
convertible stock which will have a liquidation preference equal to the price
paid. Under this agreement, the Company may sell as much as $500,000 in
preferred stock at any time, subject to certain conditions and the requirement
that H&QGF hold no more than 9.9% of the Company's outstanding stock at any
time. The Company has the right to pay dividends payable on the Series A
preferred stock either in cash or in kind. The Series A convertible preferred
stock will be convertible into common stock on a one-per-one basis.
Also pursuant to the equity line of credit agreement, H&QGF purchased,
for $3,947, a warrant for the purchase of 394,737 shares of our Series A
preferred stock at a price of $1.52 per share at any time or from time to time
until November 20, 2007.
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As a result of the H&QGF financing, the Company, BH Capital Investments,
L.P. and Excalibur Limited Partnership, have, by mutual consent, agreed to
renegotiate the second and third closings of their stock purchase agreement
dated June 12, 2000, as amended. Under that agreement, BH Capital and Excalibur
agreed to purchase up to $4,500,000 of our common stock with repricing rights in
three separate closings of $2.5 million, $1 million and $1 million,
respectively. The first closing for the purchase of 905,797 shares at a price of
$2.76 per share was effective on June 12, 2000. The second and third closings
were scheduled to occur on or about December 31, 2000 and February 15, 2001.
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.
Forward-Looking Statements:
Certain information set forth herein (other than historical data and
information) may constitute forward-looking statements regarding events and
trends which may affect the Company's future operating results and financial
trends which may affect the Company's future operating results and financial
position. The words "believe," "endeavor," "expect," "anticipate," "estimate,"
"intends," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks, uncertainties and
assumptions, including, without limitation, the risks and uncertainties
concerning technological changes, increased competition, and general economic
conditions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, or projected. The Company cautions
potential investors not to place undue reliance on any such forward-looking
statements, all of which speak only as of the date of this Annual Report. It is
not possible to foresee or identify all such factors. The Company disclaims any
intention, commitment or obligation to revise or update any forward-looking
statement, or to disclose any facts, events or circumstances that occur after
the date hereof, which may affect the accuracy of any forward-looking statement.
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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 specializes in interactive voice response (IVR)
services, deployment of automated speech recognition(ASR)technologies and
speech-enabled hosting services. 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.
In December 1999, we acquired a controlling interest in Paragon Voice
Systems ("Paragon"), which is a value-added reseller and developer of computer
telephony solutions in the emerging technology field of Automated Speech
Recognition or ASR. Paragon is a San Diego based reseller of speech recognition
software and application building blocks for the technology as a part of its
integrated solutions. We purchased a controlling interest in Paragon with a view
of joining forces to develop and deploy advanced speech recognition solutions
for corporate customers. Our intention for the immediate future is to position
Interactive Telesis as a leading hosting provider for complex ASR software
applications.
In August 2000, we formed Voconex, Inc.(formerly VoiceVault, Inc.), a
California Corporation, which is currently inactive, as our wholly owned
subsidiary.
RESULTS OF OPERATIONS:
Net revenues were $790,208 for the three months ended October 31, 2000,
which represents a decrease of 34% when compared with the three months ended
October 31, 1999. The decrease was due primarily to the loss of AT&T, a
significant customer of Digital Record & Replay services.
The cost of revenues, excluding transport costs of $107,404, for the
quarter ended October 31, 2000 was 11% of revenue compared to 8% of revenue for
the three months ended October 31, 1999. The cost of revenues, after inclusion
of the transport costs,for the quarter ended October 31, 2000 was 23% of revenue
or $183,046 compared to 8% of revenue or $99,458 for the three months ended
October 31, 1999. The increase of $83,588 for the first quarter is mainly due to
inclusion of transport costs.
Salaries and wages increased from $398,985 to $1,086,542 for the quarter
ended October 31, 2000, compared with the three months ended October 31, 1999.
The increase of $687,557 for the first quarter is made up of two parts (1)
increased costs as a result of increased staff $485,424, and (2) inclusion of
Paragon costs of $202,133. The additional staff is needed to provide the
Information Technology and Professional Services departments skills and
experience needed to meet and support the requirements of anticipated new
customers.
General and administrative expense increased from $262,204 to $638,117
for the three-month period ended October 31, 2000 compared with the three months
ended October 31, 1999. The increase of $375,913 for the first quarter is made
up of two parts (1) increased costs as a result of increased recruiting,
insurance, accounting, and consulting fees $317,319, and (2) inclusion of
Paragon costs of $58,595.
Sales and marketing expense increased from $51,076 to $248,002 for the
three month period ended October 31, 2000 compared with the three months ended
October 31, 1999. The increase of $196,926 for the first quarter is made up of
two parts (1) increased costs as a result of increased travel, training,
conferences and trade shows $175,661, and (2) inclusion of Paragon costs of
$21,265.
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Depreciation and amortization expense increased from $58,413 to $126,280
or 116.2% for the three month period ended October 31, 2000 compared with the
three months ended October 31, 1999. The increase of $67,867, for the first
quarter is made up of two parts (1) Interactive Telesis increased depreciation
expense $36,587, and (2) Goodwill amortization (Paragon Acq.) $31,280.
Net loss for the quarter ended October 31, 2000 was $1,418,478 as
compared to a net income of $319,930, for the quarter ended October 31, 1999.
The quarterly net loss reflects the inclusion of the Company's share of
Paragon's loss which amounted to $151,205 along with the amortization of
goodwill $31,280, associated with the acquisition of Paragon.
Basic loss per share was $(0.04) for the three months ended October 31,
2000 as compared to basic earnings per share of $0.01 for the three month ended
October 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:
Working capital was $659,600 at October 31, 2000, a decrease of
$2,087,727 from July 31, 2000. The decrease is a result of negative operating
results and negative cash flows from operating activities for the three month
period ended October 31, 2000.
Based on current cash flow projections management expects that the
Company can complete the proposed expansion to operations for the current fiscal
year, if both the committed sources of funds are received as scheduled from the
June 12, 2000 BH Capital Investments, L.P. and Excalibur Limited Partnership
security purchase agreement and the H&QGF loan, security and equity line of
credit agreement.
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 by an individual
claiming that the Company wrongfully terminated the plaintiff. The plaintiff
alleges special, general and punitive damages in excess of $2.0 million, amended
from the initial claim of $400,000 filed in fiscal 1999. At the present stage of
litigation, the probability that the Company will be required to pay damages
cannot be determined. Accordingly, no contingent liability has been provided for
in the accompanying consolidated financial statements.
ITEM 2. CHANGES IN SECURITIES
The Company made the following changes in Securities in the first
quarter of fiscal year 2001:
I. 16,000 shares of common stock were issued to employees of the
Company via exercise of outstanding stock options.
II. On 10/30/00, in accordance with a Securities Purchase Agreement
Re-pricing Rights, the Company issued 2,900 shares of common
stock. BH Capital Investments, LP received 1,450 shares and
Excalibur Limited Partnership received 1,450 shares. Please refer
to the SEC Form SB-2/A filed October 4, 2000 for more information
on the Securities Purchase Agreement.
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III. Company issued 225,000 additional options under the 1996 Stock
Option Plan to employees during the first quarter of fiscal year
2001.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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: December 12, 2000
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