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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pre Effective Amendment No. 2 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTERACTIVE TELESIS INC.
(Exact name of registrant as specified in its charter)
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Delaware SERVICES - COMPUTER PROGRAMMING 33-0649915
(state or other jurisdiction of (Primary standard industrial (IRS employer identification number)
incorporation or organization) classification number)
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INTERACTIVE TELESIS INC.
12636 High Bluff Dr., Suite 200, San Diego, California 92130
858-523-4000
FAX 858-523-4001
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Donald E. Cameron, Chief Executive Officer
INTERACTIVE TELESIS INC.
12636 High Bluff Dr., Suite 200, San Diego, California 92130
858-523-4000
FAX 858-523-4001
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Bruce J. Rushall, Esq.
RUSHALL & McGEEVER, APC
1903 Wright Place, Suite 250
Carlsbad, California 92056
(760) 438-6855
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE PRICE FEE*
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Common Stock, par value $.01 per
share 905,798 $2.31 (1) $2,092,393 $553
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Common Stock, par value $.01 per
share issuable upon exercise of
warrants 135,870 $2.31 (2) $ 313,859 $ 83
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Common Stock, par value $.01 per
share issuable upon exercise of
warrants 50,000 $2.31 (3) $ 115,500 $31.00
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Common Stock, par value $.01 per
share issuable upon exercise of
repricing rights. 905,798 $2.31 (4) $2,092,393 $553
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* Registrant previously paid a registration fee of $2,141 upon the filing
of this Registration Statement on July 12, 2000.
(1) Estimated solely for the purpose of calculating the registration fee
based on the average of the closing bid and asked price of the common
stock on the OTC Bulletin Board market on July 11, 2000.
(2) Estimated solely for the purpose of calculating the registration fee
based on the average of the closing bid and asked price of the common
stock on the OTC Bulletin Board market on July 11, 2000.
(3) Estimated solely for the purpose of calculating the registration fee
based on the average of the closing bid and asked price of the common
stock on the OTC Bulletin Board market on September 1, 2000.
(4) Estimated solely for the purpose of calculating the registration fee
based on the average of the closing bid and asked price of the common
stock on the OTC Bulletin Board market on July 11, 2000. Represents the
number of shares underlying Repricing Rights assuming Average Market
Price is one-half of purchase price of the shares to which the Repricing
Rights relate. Average Market Price means the average of the closing bid
prices of Registrant's common stock on each of the four trading days
having the lowest closing bid price during the 30 consecutive trading
day period prior to the exercise date of the Repricing Rights.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE. IT MIGHT CHANGE. WE CANNOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT THAT WE HAVE FILED WITH
THE SEC IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL, NOR DOES IT
SOLICIT OFFERS TO BUY, THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
1,997,466 Shares
INTERACTIVE TELESIS INC.
Common Stock
This prospectus may be used only in connection with the following resales
of common stock of INTERACTIVE TELESIS INC.:
-- 905,797 shares may be offered and sold, from time to time, by BH Capital
Investments, L.P. and Excalibur Limited Partnership, who originally
purchased these shares pursuant to their securities purchase agreement
with us dated June 12, 2000, which we refer to as the June 12th
Agreement.
-- 135,870 shares may be offered and sold, from time to time, by BH Capital
and Excalibur, who will originally purchase some or all of these shares
upon exercise of warrants.
-- 50,000 shares may be offered and sold from time to time by Merchant
Bancorp of America Reg.d and Next Millienium Capital Holdings, LLC will
originally purchase some or all of these shares upon the exercise of
warrants.
-- up to an additional 905,798 shares which may be issuable to BH Capital
and Excalibur under repricing rights issued pursuant to the June 12,
2000 agreement.
We refer to BH Capital, Excalibur, Merchant Bancorp of America Reg.d and
Next Millienium Capital Holdings, LLC as "selling stockholders."
Our common stock is traded on the OTC Bulletin Board market under the
symbol "TSIS" On October 2, 2000, the last sale price of our common stock
on the Nasdaq over-the-counter-market was $1.75 per share.
Investing in our common stock involves risks. See "RISK FACTORS" beginning
on page 5.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OUR SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. IT IS ILLEGAL FOR ANYONE TO TELL YOU OTHERWISE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 6, 2000.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY 4
The Company 4
The Offering 4
RISK FACTORS 5
Risks Related to the Company's Business 5
We Have a Limited Operating History 5
We Have a History of Losses and May Incur Losses in the Future 5
Our Current Business Is Dependent upon a Small Number of Customers Who Account
for the Majority of Our Revenues 5
Our Current Business Depends on Certain Skilled and Experienced Employees 6
Revenues from Portions of Our Business May Vary Throughout its Fiscal Year 6
We Do Not Generally Charge our Customers for our Initial Set-up Costs for
Establishing a Customized Interactive Voice Response Service 6
We Do Not Have Copyright or Patent Protection for Our Proprietary Software
Systems 6
Many of Our Customers Have Greater Technical and Financial Resources than We Do 6
We Do Not Believe Substantial Barriers Exist to The Entry by Other Companies
Into One or More of The Services We Provide 6
If We Are Unable to Develop New Services or Expand Features of Existing
Services, we May Not Be Able to Expand Our Operations 7
Our Business Is Subject to Changes in the Computer and Telecommunication
Industries Which Are Occurring at a Rapid Rate 7
We Rely Significantly on Third Parties 7
Potential Lack of Liquidity in Our Common Stock Due to Penny Stock Regulations 7
We Expect our Share Price to Remain Highly Volatile 8
We Do Not Pay Dividends on our Common Stock and Have No Plans to Do So 8
Our Management Has Broad Discretion over Establishing and Implementing our
Operational Strategies and Goals 8
USE OF PROCEEDS 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
Results of Operations 9
Liquidity and Capital Resources 12
BUSINESS 15
General 15
InvestorREACH(TM) 16
Digital Record and Replay Services 17
Automated Surveys 17
MarketReach(TM) - Enhanced Services 18
Acquisition of Paragon Voice Systems 18
Sales and Marketing 19
Competition 19
Business Concentration 19
Trademark and Copyright Issues 20
Governmental Regulation 20
Employees 21
MANAGEMENT 22
Compensation of Non-Employee Directors 23
Board of Directors Meetings 24
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EXECUTIVE COMPENSATION 24
PRINCIPAL STOCKHOLDERS 25
Security Ownership of Certain Beneficial Owners and Management 25
DESCRIPTION OF CAPITAL STOCK 26
Common Stock 26
Market Price of and Dividends on the Company's Common Equity and Other
Shareholder Matters 27
Repricing and Anti-Dilution Rights 28
Transfer Agent and Warrant Agent 28
SELLING STOCKHOLDERS 28
LEGAL PROCEEDINGS 28
PLAN OF DISTRIBUTION 29
LEGAL MATTERS 30
EXPERTS 30
ADDITIONAL INFORMATION 30
INDEX TO FINANCIAL STATEMENTS F-1
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PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including our
financial statements and related notes, and especially the risks described under
"RISK FACTORS."
THE COMPANY
OUR BUSINESS
We provide customized Interactive Voice Response (IVR) services to medium
and large-size corporations for internal use. IVR services generally consist of
accessing or interacting with information in a computer database using a
touch-tone phone. We specialize in providing customized IVR systems meeting
specific customer needs utilizing proprietary software. In some instances, we
bundle our IVR services with a partner's service offering for resale to their
customers. We offer our services nationwide in the United States and in Canada.
We commenced providing IVR services in 1993. The Company's initial service
offering was an automated shareholder communication service, marketed to public
companies under the service name InvestorREACH(TM).
In December 1999, we acquired a controlling interest in one of our
suppliers, Paragon Voice Systems, 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 facility for complex ASR
software applications.
Our principal executive offices are located at 12636 High Bluff Dr., Suite
200, San Diego, California 92130. Our telephone number is 858-523-4000.
Our Internet website is located at interactivetelesis.com.
THE OFFERING
Common stock offered 1,997,466 shares
Common stock outstanding 31,764,486 shares
Use of Proceeds We will not receive proceeds from the sale of
the shares registered hereby, all such
proceeds will go to the selling stockholders.
Assuming all of the warrants held by selling
stockholders are exercised in full for cash,
we will realize proceeds of $578,545. Proceeds
will be used for working capital and potential
acquisitions.
OTC Bulletin Board symbol TSIS
Risk Factors You should read the"RISK FACTORS" section
beginning on page 5 and the other cautionary
statements in this prospectus to ensure that
you understand the risks associated with an
investment in our common stock.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend
the forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. All statements regarding our
expected financial position and operating results, our business strategy and our
plans are forward-looking statements. These statements can sometimes be
identified by our use of words such as "may," "anticipate," "expect," "intend,"
"believe," "estimate" or similar expressions. Our expectations in any
forward-looking statements may not turn out to be correct. Our actual results
could be materially different from our expectations. Important factors that
could cause our actual results to be materially different from our expectations
include those discussed under "Risk Factors." We have no obligation to update
these statements to reflect events and circumstances after the date of this
prospectus.
RISK FACTORS
The business of the Company involves a number of risks and uncertainties
that could cause actual results to differ materially from results projected in
any forward-looking statement in this report. The Company's securities are
speculative and investment in the Company's securities involves a high degree of
risk and the possibility that the investor will suffer the loss of the entire
amount invested.
RISKS RELATED TO THE COMPANY'S BUSINESS
We have a limited operating history.
We implemented our current plan of business in 1994 and remain dependent
upon a limited variety of services and small number of significant customers.
See "Business" on page 15 and "Business Concentration" on page 19. We intend to
expand the scope of our services and our customer base but there is no assurance
that our long-term operating strategies for the sales of our ASR hosting
services in selected markets will be successful.
We have a history of losses and may incur losses in the future.
Until our fiscal year ended July 31, 1999, we had incurred significant net
losses under our current plan of business. There is no assurance that our
revenues will grow or that we will maintain profitability in the future. Our
ability to increase revenue and maintain profitability will be affected by other
risks and uncertainties described below, most of which are outside of our
control.
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Our current business is dependent upon a small number of customers who account
for the majority of our revenues.
Historically we have relied on a small number of customers for most of our
revenues and earnings. The loss of one or more of these customers and our
inability to replace them could materially adversely affect our short-term
profitability. For example, AT&T stopped using our record and replay services
in July 2000. AT&T had been our major record and replay service customer since
1998.
Our current business depends on certain skilled and experienced employees.
These include our Chief Executive Officer, Chief Operating Officer and VP
of Operations. We have no long-term contracts with our key employees.
Competition for skilled and experienced software programmers and supporting
skills in our geographic region is intense and we may not be able to hire or
retain key employees as needed. If we are unable to hire, train and manage new
skilled and experienced employees as needed, we would be unable to support our
planned growth and future operations.
Revenues from portions of our business may vary throughout our fiscal year.
For example, our Digital Record & Replay service may be utilized mostly
during the quarterly earnings season, which is typically held by calendar-year
companies during the months of January, April, July and October.
We do not generally charge our customers for our initial set-up costs for
establishing a customized interactive voice response service.
Instead, we recoup these costs over the first several months of a contract.
The majority of our contracts with our customers are cancelable by either party
upon 30 days notice. Therefore, there is no assurance that an account, once
established, will be maintained for a time sufficient to allow us to recoup its
set-up costs.
We do not have copyright or patent protection for our proprietary software
systems.
We do not consider our service mark or trade secrets to be material to our
financial results and/or results of operations.
Many of our customers have greater technical and financial resources than we do.
Should they deem it advisable and economically feasible, our major
customers could choose to internally provide the services they contract us to
provide. Accordingly, there is no assurance that in the future one or more of
our major customers may not provide internally services which it now purchases
from us.
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We do not believe substantial barriers exist to the entry by other companies
into one or more of the services we provide.
Accordingly, we could, in the future, encounter significant competition for
our services from one or more competitors which have significantly greater
technical and/or financial resources than us.
If we are unable to develop new services or expand features of existing
services, we may not be able to expand our operations.
We must continually explore additional areas and services which we may
offer to our customers. Our inability to manage our growth could harm our
business. Also, if we are unable to continually improve our ability to deliver
services to customers, we may not be able to accommodate the increasing level of
use or expanding needs of our customer base.
Our business is subject to changes in the computer and telecommunication
industries which are occurring at a rapid rate.
It is possible that future changes in these industries could significantly
change the demand for our services and/or the means by which we provide our
services. Our failure to adapt to such changes could adversely affect our volume
or cause our services to become obsolete.
We rely significantly on third parties.
Our operations depend to a significant degree on a number of other third
parties, including telecommunication service providers. We have no effective
control over these third parties. From time to time, we could experience
temporary interruptions in our telecommunications access. Continuous or
prolonged interruptions in our telecommunications access would have a material
adverse affect on our business, financial condition, and results of operations.
Our agreements with our telecommunications providers place certain limits on our
ability to obtain damages from the service providers for failure to maintain
services to our facilities.
RISKS RELATED TO AN INVESTMENT IN THE COMPANY'S COMMON STOCK
Potential lack of liquidity in our common stock due to penny stock regulations.
Because our common stock trades below $5.00 per share, we are subject to
the Securities Enforcement and Penny Stock Reform Act of 1990 (the "Penny Stock
Rules"). The Penny Stock Rules adversely affect the market liquidity for our
common stock because broker-dealers trading in Penny Stocks must, among other
things, provide customers with a risk disclosure statement setting forth certain
specified information prior to a purchase transaction; disclose to the customer
inside bid quotation and outside offer quotation for this Penny Stock, or, in a
principal transaction, the broker-dealer's offer price for the Penny Stock;
disclose the aggregate amount of any compensation the broker-dealer receives in
the transaction; disclose the aggregate amount of the cash compensation that any
associated person of the broker-dealer, who is a natural person, will receive in
connection with the transaction; deliver to the customer after the transaction
certain information concerning determination of the price and market trading
activity of the Penny Stock. Also, prior to the transaction, the broker-dealer
must
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approve the customer's account for transactions in Penny Stocks and receive from
the customer a written agreement to the transaction setting forth the identity
and quantity of the Penny Stock to be purchased. Also, under the Penny Stock
Rules, broker-dealers must provide monthly account statements to customers which
include the above-disclosures regarding penny stock investments. These
requirements make it more difficult administratively for broker-dealers to buy
and sell our stock on behalf of their customers. Consequently, the Penny Stock
Rules affect the ability of our shareholders to sell the Company's shares in the
secondary market.
We expect our share price to remain highly volatile.
The market price for our stock has in the past fluctuated significantly and
is expected to continue to fluctuate primarily because of the number of shares
outstanding, the low trading price of the stock, developments in our business,
including announcements of technological innovations, fluctuations in customer
orders, customer cancellations, the introduction of new products by our
competitors, service problems and/or quarterly variations in the actual or
anticipated results of our operations. Also, the over-the-counter market in
which our stock trades have historically experienced extreme price and volume
volatility, which has particularly affected market prices of technology
companies. This volatility has often been unrelated to the operating performance
of the companies. Broad market volatility may adversely affect the market and
price of our stock.
Potential Dilutive Effect
The shares we may issue pursuant to the repricing rights and anti-dilution
provisions under the June 12th Agreement may have a potential dilutive effect
on our outstanding shares.
Pursuant to the repricing rights, we must issue additional shares if the
average market price at the time the investors sell their stock purchased under
the June 12th Agreement is less than their original purchase price for that
stock. Also, under anti-dilution rights under the June 12th Agreement the
investors are entitled to receive additional shares of our common stock if we
issue any additional shares at a lower price than paid by the investors after
they purchase their shares and before they sell their shares, including shares
they purchase upon exercise of their warrants. As a result, our net income per
share, if any, could be materially decreased in future periods and market
prices for our common stock could be materially and adversely affected.
The more shares the investors become entitled to receive pursuant to
anti-dilution rights or upon exercise of repricing rights, the more influence
and control they could exert over the Company. The purchase agreement between
the Company and the investors limits the ownership by the investors to no more
than 9.9% at any given time.
Short selling by the Selling Stockholders might negatively affect our stock
price.
Pursuant to the terms of the securities purchase agreement between the
Investors and the Company, each of the Investors has agreed that until such
time that it no longer owns any unexercised repricing rights, it will not sell
short, directly or indirectly through any affiliate, any shares of our common
stock, except during the ten trading days preceding any exercise date with
respect to the exercise of repricing rights by the Investors. Although the
circumstances under which the Investors can effect short sales of our common
stock are limited, any such sales made by the Investors or by other parties
could, if done in sufficient quantities, significantly depress the trading
price of our common stock. Moreover, given the relatively low trading volume
for our common stock, a short sale of a relatively small block of shares could
have significantly more impact than such a sale would have on a more
established public company with a higher trading volume.
We do not pay dividends on our common stock and have no plans to do so.
We intend to retain any earnings to finance growth and development of our
business and do not anticipate paying cash dividends in the foreseeable future.
Accordingly, our shareholders will need to look for appreciation in the market
price of our stock, if any, for a return on their investment.
Our management has broad discretion over establishing and implementing our
operational strategies and goals.
Our management may devise, modify, abandon or implement operating
strategies at any time within their discretion without a vote of our
shareholders. Accordingly, investors must depend on our management's experience
and judgment in making critical decisions affecting our business and operating
results.
USE OF PROCEEDS
Assuming the warrants held by selling stockholders are exercised in full
for cash, we will realize proceeds of $578,545. We have agreed to pay certain
expenses in connection with this offering, currently expected to be
approximately $40,000. Proceeds will be used for working capital and potential
acquisitions. We will not receive any of the proceeds from the sale of common
stock by the selling stockholders.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED APRIL 30, 2000 AND 1999
Our net revenues were $1,445,608 and $3,759,529 for the three months and
nine months ended April 30, 2000, respectively, which represent increases of 58%
and 94% when compared with the corresponding periods in 1999. The increases were
due primarily to the increase in volume/usage of the existing customers of
Digital Record & Replay.
The three month increase of $530,412 in revenues is a result of two items.
Approximately, $518,900, is an increase in of two existing customers of Digital
Record & Replay, which includes transport revenue of $185,969. The remaining
increase is a result of adding new customers to Automated Survey services in the
amount of $4,600 and the inclusion of Paragon in the amount of $6,940, during
the three months ended April 30, 2000 compared to the same period in 1999.
The nine month increase of $1,824,877 in revenues is a result of two items.
Approximately, $1,627,400, is an increase in of two existing customers of
Digital Record & Replay, which includes transport revenue of $185,969. The
remaining increase is a result of adding new customers to Automated Survey
services in the amount of $190,460 and the inclusion of Paragon in the amount of
$6,940, during the nine months ended April 30, 2000 compared to the same period
in 1999.
Our cost of revenues for the quarter ended April 30, 2000 was 7.0% compared
to 5.0% of revenue for the same period in 1999. Our cost of revenues for the
quarter ended April 30, 2000 was 19% of revenue or $276,581 (after inclusion of
both the transport revenue and transport cost) compared to 5.0% of revenue for
the same period in 1999. The increase of $227,326 for the third quarter is made
up of three parts: (1) increased costs as a result of increased usage $37,349,
(2) Paragon costs $4,008 and (3) transport costs $185,969.
Our cost of revenues for the nine months ended April 30, 2000 was 7.0% of
compared to 8.0% of revenue for the same period in 1999. The cost of revenues
for the nine months ended April 30, 2000 was 11.8% of revenue or $442,737 (after
inclusion of both the transport revenue and transport cost) compared to 8.0% of
revenue or $156,418 for the same period in 1999. The increase of $286,319, for
the nine months ended April 30, 2000 is made up of three parts (1) increased
costs as a result of increased usage $96,342, (2) Paragon costs of $4,008 and
(3) transport costs of $185,969. The increase in cost of revenue, for both the
third quarter and the nine months of fiscal year 2000, (after exclusion of both
the transport revenue and transport cost) is mainly a result of increased
volume/usage, which resulted in increased revenue for Digital Record & Replay
services.
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Our salaries and wages increased from $292,512 to $513,981, or 76%, for the
quarter ended April 30, 2000 compared with the same period in 1999. The increase
of $221,469, for the third quarter is made up of two parts (1) increased costs
as a result of increased staff $146,071, and (2) inclusion of Paragon costs
$75,398. The increase, for both the third quarter and the first nine months of
fiscal year 2000, is a result of the inclusion of Paragon, and Interactive
Telesis adding staff. The additional staff is needed to provide the Information
Technology and Systems skills and experience needed to meet and support the
requirements of the new customers, which enabled the Company's revenue growth
during the period.
Our general and administrative expense increased from $215,305 to $417,304,
or 94%, for the three-month period ended April 30, 2000 compared with the same
period in 1999. The increase of $201,999, for the third quarter is made up of
two parts (1) increased costs as a result of increased recruiting, insurance,
accounting, and consulting fees $165,086, and (2) inclusion of Paragon costs
$36,913. The increase, for both the third quarter and the first nine months of
fiscal year 2000, is a result of the inclusion of Paragon, and Interactive
Telesis increased recruiting, insurance, legal, accounting and consulting fees
during the period.
Our sales and marketing expense increased from $68,650 to $116,213, or 69%,
for the three-month period ended April 30, 2000 compared with the same period in
1999. The increase of $47,563 for the third quarter is made up to two parts (1)
increased costs as a result of increased travel, training, conferences and trade
shows $40,429, and (2) inclusion of Paragon costs $7,134.
Our sales and marketing expenses increased from $197,652 to $226,867, or
15%, for the nine-month period ended April 30, 2000 compared with the same
period in 1999. The nine-month increase is primarily a result of increased
travel, conferences and trade show costs during the period.
Our depreciation and amortization expense increased from $50,899 to
$129,049, or 153.5% for the three-month period ended April 30, 2000 compared
with the same period in 1999. The increase of $78,150 for the third quarter is
made up of three parts (1) Our depreciation $17,017, (2) Paragon's depreciation
$28,584 and (3) $32,549 of goodwill amortization resulting from our acquisition
of Paragon. The increase of $151,312 for the nine months ended April 30, 2000,
is made up of three parts (1) Our depreciation $73,904, (2) Paragon depreciation
$28,584 and (3) $48,824 of goodwill amortization resulting from our acquisition
of Paragon. The increase in our depreciation for both the third quarter and the
first nine months of fiscal year 2000, is a result of adding computer and
related equipment during the period and during the fiscal year 1999.
Litigation contingency expense for the nine-month period ended April 30,
2000 of $117,000 represents the settlement, over the previously provided for
amounts, of the Madison case for 100,000 shares of our common stock.
Net income for the quarter ended April 30, 2000 was $39,767 as compared to
net income of $230,695 for the quarter ended April 30, 1999. The quarterly net
income reflects the
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inclusion of the Company's share of Paragon's loss of $(85,792) along with the
amortization of goodwill of $(32,549), associated with the acquisition of
Paragon. The net income for the quarter ended April 30, 2000 for Interactive
Telesis unconsolidated was $158,108.
Net income for the nine months ended April 30, 2000 was $425,484 as
compared to net income of $90,792 for the nine months ended April 30, 1999. The
nine months net income reflects the inclusion of the Company's share of
Paragon's loss of $(85,792) along with the amortization of goodwill of
$(48,824), associated with the acquisition of Paragon. The Net income for the
nine months ended April 30, 2000 for Interactive Telesis unconsolidated was
$560,100.
Basic earnings per share increased to $0.01 for the nine months ended April
30, 2000 as compared to $(0.00) per share for the same period ended April 30,
1999.
Income taxes have not been provided for in the accompanying financial
statements due to the net operating loss carry forwards generated in prior years
that are available for carry forward against current year income.
COMPARISON OF YEARS ENDED JULY 31, 1999 AND 1998
Revenues for fiscal year 1999 nearly tripled from the prior fiscal year to
$3,022,290. The increase in revenue from $1,102,241 in fiscal year 1998 to
$3,022,290 in fiscal year 1999 was a result of adding clients in the areas of
InvestorREACH(TM), which accounted for $263,195 in additional revenue, and
Digital Record and Replay, which increased from $828,173 in fiscal year 1998 to
$2,278,591, an increase of $1,450,346 or 175% over fiscal year 1998. The Digital
Record and Replay increase is due to an increase in revenue of $574,858 or 70%
of one existing customer, and 105%, or $877,793 is a result of adding a new
customer. We also added new customers to the Automated Surveys service in the
amount of $206,743 in revenue in fiscal year 1999. Automated Survey service had
no revenue in fiscal year 1998. Net income totaled $321,740, representing
earnings of just over 1 cent per share. In the fourth quarter of the 1999 fiscal
year, revenues were up 18% over third quarter revenues, while third quarter
revenues were up 66% from the second quarter of 1999. To October 31, 1999, we
recorded seven consecutive quarters of increasing revenues.
Our cost of revenues consists of the expenses associated with providing the
telecommunication services based on usage, and recurring fixed monthly
telecommunications costs. These costs are a mix of both variable and fixed
costs. For the fiscal year ended July 31, 1999, cost of revenue increased 125%
over 1998, due to increased usage.
Salaries and wages increased 44% from fiscal 1998 to fiscal 1999 as a
result of adding five full-time employees during fiscal year 1999. The increase
in our staff was necessary to provide the Information Technology and Systems
skills and experience needed to meet and support the requirements of the
customers, which enabled our growth in revenue.
11
<PAGE> 14
Our general and administrative costs are made up of the following major
expenses: consulting and legal fees, office rent, printing, postage, and
telephone/ facsimile. These five accounts made up 80% of the general and
administrative expenses for fiscal year 1999 and 81% for fiscal year 1998.
General and administrative expense for fiscal year 1998 was $627,831 and for
fiscal year 1999 was $742,802, or an increase of $114,971 or 18.3%. The increase
was the result of higher consulting and legal fees for fiscal year 1999 over
1998 by $105,786, or 58%. The additional consulting and legal fees were
necessary to help grow the business from revenue of $1,102,241 in fiscal year
1998 to $3,022,290 in fiscal year 1999.
Our sales and marketing expenses increased during the period 88% as a
result of adding staff and also increased travel expenditures associated with
the growth of the business.
Depreciation and amortization increased 174% during the period as a result
of adding computer and related equipment. Our property and equipment increased
by approximately $575,000 and was financed primarily by way of capital leases
secured by the equipment and personally guaranteed by our CEO. Upon successfully
securing additional contracts, we will be required to increase the size of our
systems to support the additional growth. Equipment will be acquired through a
combination of cash on hand and capital leases on the equipment purchased.
We have recently begun focusing our efforts with the goal of becoming a
premier developer and hosting facility for ASR applications. Reference is made
to the heading "Business" for a description of our recent acquisition of Paragon
Voice Systems.
At the 1999 Annual General Meeting our Board of Directors sought and
received authorization from shareholders for the sale of the Company's automated
shareholder communication service, InvestorREACH(TM). However, we have since
terminated discussions for the sale of InvestorREACH(TM) and will be enhancing
this service with ASR functionality.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Our current ratio was 3.9 to 1 at April 30, 2000. Based on current cash
flow projections management expects that we can complete expected operations for
the current fiscal year without the need for infusions of additional cash.
Working capital was $1,354,186 at April 30, 2000, an increase of $490,002
from July 31, 1999. The increase is a result of positive operating results and
positive cash flows for the nine-month period ended April 30, 2000.
Our net working capital increased to $864,184 at July 31, 1999, due
primarily to an increase in Accounts Receivable as a result of increased revenue
for fiscal year 1999. Fiscal year 1999 revenue nearly tripled from fiscal year
1998, from $1.1 million to $3.0 million.
12
<PAGE> 15
DETAIL OF CASH FLOWS FOR FISCAL YEAR 1999 AND 1998
OPERATING ACTIVITIES. Cash flows of $353,937 were provided by operations in
fiscal year 1999, compared to cash flows used in operations of $(543,705) in
fiscal 1998. The increase is primarily due to the Company reporting net income
of $321,740 in fiscal year 1999, compared to net loss of $(677,417) in fiscal
year 1998, an adjustment for depreciation (non-cash expenditure) of $177,067 in
fiscal year 1999, compared to $64,615 in fiscal 1998, and a litigation
contingency (non-cash expenditure) of $80,000 in fiscal year 1999.
INVESTING ACTIVITIES. Cash flows used in investing activities was $91,240
for the purchase of property and equipment, other than leasing of property and
equipment, during fiscal year 1999, compared to $104,955 during fiscal 1998.
FINANCING ACTIVITIES. Cash flows used in financing activities was
$(178,635) in fiscal year 1999, compared to cash flows provided by financing
activities of $518,093 in fiscal year 1998. The decrease is primarily due to
cash used for the repayment of capital leases of $185,110, and the decrease in
issuances of common stock and purchases of treasury shares. Refer to page F-6,
Statements of Changes in Shareholders' Equity for Fiscal Year 1999 and 1998.
The causes for material changes from period to period in the balance sheet
were as follows:
-- Accounts Receivable increased in 1999 as a result of increased
revenue in 1999.
-- Property and equipment increased in 1999, which was necessary for
the growth of the Company. Computer and related equipment were both
purchased with cash and leased to enable the Company to provide the
services necessary to grow the revenue of the Company in 1999 and
future years.
-- Liabilities increased in 1999 as a result of leasing computers and
equipment as stated above. The liabilities in 1999 also increased as
a result of providing for a litigation contingency of $80,000.
We lease our facilities under non-cancelable operating leases that expire
at various dates through July 2002. Minimum future obligations under these
leases as of July 31, 1999, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31 AMOUNT
<S> <C>
2000 $129,147
2001 104,202
2002 13,732
--------
$247,081
</TABLE>
Rent expense under the non-cancelable operating leases was $103,185 and
$62,589 for the years ended July 31, 1999, and 1998.
13
<PAGE> 16
Our goal is to become the leading hosting facility for complex ASR
applications. In order to achieve this goal, management believes we will need
additional infusions of cash to purchase computers and related equipment in
order to expand our systems capabilities.
FUTURE EXPECTATIONS
For the fiscal year ending July 31, 2000, we are projecting revenue
increases, with a reduction in net income (before tax) as we elect to expand our
staff and systems capabilities to support anticipated demand for our ASR hosting
services. However, AT&T ceased using our record and replay services in July
2000. As a result, we expect to realize reductions in our revenues of up to 25%
or more for our quarter ended October 31, 2000 and to possibly continue to
impact our revenues thereafter. Achieving growth in both revenues and net income
will be contingent upon our securing additional contracts with existing
customers as well as long-term, high-margin contracts with new customers, and
there is no certainty that these objectives will be achieved.
Our telecommunication costs should be reduced over the next fiscal year,
resulting from volume discounts.
As of July 31, 1999 we have both federal and state income tax loss
carry-forwards of approximately $2,255,000 and $1,703,000, respectively, which
can be used to offset future income taxes. We have made a valuation allowance
for the deferred tax assets, including the portion related to the net operating
loss carry-forwards.
ACQUISITION OF CONTROLLING INTEREST IN PARAGON
On December 17, 1999, the Company purchased 510,000 shares of common stock
of Paragon Voice Systems. 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, both
of which have been paid, and October 1, 2000, respectively.
ASR technology essentially allows computers to understand the human voice
and respond to voice commands. Management expects this technology to not only
dramatically expand the number of applications for which current IVR technology
is not sufficient but also to replace most current IVR applications over time.
PRIVATE PLACEMENT
Pursuant to an agreement dated June 12, 2000, as amended, BH Capital and
Excalibur agreed to purchase up to $4,500,000 of our common stock 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 are scheduled to
occur, subject to satisfaction of all conditions thereto, forty five days,
ninety days, respectively, after the effective date of this Registration
Statement. At each closing, these investors would purchase shares of our common
stock for a price equal to the average closing bid price for our stock on the
five consecutive trading days preceding the respective closing date. At each
closing, we will also issue warrants for the purchase of shares equal to 15% of
the purchase price of the shares divided by the exercise price of the
14
<PAGE> 17
warrants which is 110% of the share purchase price at the respective closing. At
the first closing, these investors received warrants for the purchase of 135,870
shares at a price of $3.03 per share. In addition, at each closing we are
required to grant these investors repricing rights with respect to the shares
and antidilution rights with respect to the shares and the warrants. In
connection with this transaction, we also agreed to pay a cash fee equal to 7.5%
of the investors' investment to two unrelated finders at each closing as well as
issue them warrants for the purchase of our common stock at the rate of 20,000
shares for each $1 million of securities purchased by the investors.
We agreed to file a separate Registration Statement covering the shares
issued and issuable as part of each closing, including the shares underlying the
warrants, and the repricing rights, issued at each closing. We have the right to
repurchase the shares and repricing rights at a premium.
We will realize net proceeds of approximately $2,274,000 from the
$2,500,000 initial closing after the payment of the finder's compensation, legal
and accounting fees and/or other direct costs of the transactions. If the second
and third closings are consummated, we expect to realize approximately an
additional $1,800,000 in net proceeds. These amounts do not include the
additional $578,545 we may receive from the exercise of the warrants we issued
in the first closing or the additional amounts we may receive upon the exercise
of the warrants we will issue in the second and third closings. We plan to use
these funds to purchase additional computer equipment, including servers and
supporting hardware and to initially fund additional personnel necessary to
expand our ASR hosting services. We have no minimum budget for these
expenditures and our expansion plans may be scaled and timed to meet our
available cash resources.
BH Capital Investments, L.P. and Excalibur Limited Partnership are both
Canadian-based limited partnerships whose principal business is investing
primarily in publicly-traded U.S. companies by means of private placements
and/or Regulation S offerings. Excalibur Limited Partnership and BH Capital
Investments, L.P. have been engaged in this business since 1997 and 1999,
respectively. We were introduced to these investors by Next Millennium Capital
Holdings, LLC, one of the unrelated finders in the transaction, which we had
contacted regarding possible financing sources. We have had no prior dealings
with any of the investors or finders in the transaction.
CHANGE IN INDEPENDENT AUDITORS
In December, 1998, we did not reappoint Buckley Dodds and Associates as our
independent auditors and appointed Pannell Kerr Forster as our independent
auditors. Pannell Kerr Forster was engaged to perform the audits for the fiscal
years ended July 31, 1998 and 1999. Our board of directors approved our change
in independent auditors. We had no disagreements with Buckley Dodds and
Associates on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures and there were no
disagreements between the date of their last audit report and the date they were
discharged. Buckley Dodds and Associates had not issued a report in the past two
fiscal years containing a disclaimer or adverse or qualified opinion.
IMPACT OF INFLATION
We do not believe inflation has had a significant effect on our operations.
YEAR 2000 EFFECTS
We incurred approximately $8,800 in Year 2000 remediation costs, which was
funded from working capital. We incurred no material adverse effects from Year
2000 related conditions.
BUSINESS
GENERAL
We currently offer specific IVR services, both directly to medium and large
corporations, as well as allowing our services to be bundled with our partners'
product offerings. We are not a solution-provider - that is, we do not develop
IVR solutions for a fee and then install them at the customer's site. Rather, we
host all applications and provide all of our services through our own software
and hardware systems located at our facilities. In some cases, in order to
reduce telecommunication costs, we install equipment at a customer's location,
which we remotely monitor and manage and it remains our property. Our systems
consist of industry standard hardware and a combination of off-the-shelf and
proprietary software. The systems are modular and can be scaled to accommodate
very large applications.
We currently offer the following services:
15
<PAGE> 18
INVESTORREACH(TM)
InvestorREACH(TM) is an automated shareholder communication service which
allows customer public companies to provide a toll-free telephone number which
they advertise to their investors. Investors calling the number hear a
personalized greeting from the customer company, and may select from a menu of
options which may include:
-- Stock quote (high, low, volume)
-- News releases (voice and fax)
-- Financial statements (quarterly, annual, and management discussion)
-- Request information material to be mailed
-- Be transferred to the investor relations department or transfer
agent of the public corporation.
We also provide mail fulfillment services. We charge a monthly service fee,
a per-minute usage fee for voice, fax, and call transfer, and transactional fees
for mail fulfillment services.
The range of our fees for the services are:
<TABLE>
<S> <C>
Service Fee $300 to $500 per month
Per-minute IVR Usage $0.24 to $0.35 U.S. ($0.39 to $0.65 Canada)
Mail Fulfillment $2.35 - $2.50 fee plus a pass-through on
first-class postage
</TABLE>
We determine the exact fees charged for each contract through negotiations
with the customer. Factors we consider when determining fees include the
financial and segment strength of the customer, scope of service, volume of
usage and set-up costs.
We offer InvestorREACH(TM) on a month-to-month basis, with no set-up fee,
no long-term contract, and no termination fees.
We currently have 43 InvestorREACH(TM) customers in various industries. Our
customers include Wells Fargo, Nike, Yahoo!, Excite@Home, National Fuel Gas, and
the Tribune Corporation.
16
<PAGE> 19
Revenues for the fiscal year ended July 31, 1999 derived from our largest
InvestorREACH(TM) customers were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
CUSTOMER 1999 REVENUE
-------- ------------
<S> <C>
Wells Fargo $84,003
Yahoo $25,900
National Fuel Gas $13,702
Tribune Group $14,551
</TABLE>
To experience the InvestorREACH(TM) service, call 1/888/474-9910.
DIGITAL RECORD AND REPLAY SERVICES
In November, 1997, we began providing digital record and replay services to
the teleconference industry. The service allows teleconference providers to
digitally record teleconferences they conduct on behalf of their customers.
These calls are then made available for immediate replay by end users using a
touch-tone telephone. The system is 100% automated (except where special editing
is requested) and is customer-branded such that endusers are not aware the
service has been outsourced to us. We invoice the teleconferencing
company semi-monthly, based on per-minute replay usage. We complement
the telephonic replay with Internet replay capability, allowing end users to
access sound files from a site hosted on behalf of the teleconference provider
or by the customer.
We currently provide these services to one teleconferencing provider,
Global Crossing, as well as directly to other corporate customers for internal
use.
We provide services to Global Crossing (formerly Frontier ConferTech)
pursuant to a contract dated September 15, 1999. These services include digital
recording and automated replay of the customer's teleconference calls
originating from its Westminster, Colorado and Canadian operations. Under this
contract, payments are due to us for services provided at the stated rates
within 45 days of the date billed. This contract may be terminated at any time
upon notice by either party.
AUTOMATED SURVEYS
We have developed proprietary software applications which permit surveys to
be conducted via IVR on an automated basis without human intervention. Surveys
can be linear or branching and responses can be multiple choice or
voice-recorded. We have registered the service mark TeleSurvey(SM) in
conjunction with this service.
17
<PAGE> 20
We have initial sales and marketing efforts with respect to this offering
are focused on the prepaid phone card market in the United States. We have
partnered with approximately 17 issuers of prepaid phone cards to add the survey
capability as a value-added option to their prepaid offering, thus enhancing
their value proposition to their customers.
The service involves a user of a prepaid phone card being routed to our IVR
system at the time of activation (only) of the prepaid phone card for a
3-5-question survey. At the conclusion of the survey, the customer is returned
to the customer's prepaid telecommunication platform to dial their outgoing
telephone call.
Upon securing reselling relationships with these partners, we structured a
Channel Partner Program to support the sales and marketing efforts of our
partners with a view to increasing revenue from this sector.
MARKETREACH(TM) - ENHANCED SERVICES
We have developed proprietary software which provides the following
customized IVR functionality:
-- Message recording
-- Record and replay message (telephone)
-- Internet message replay
-- Fax-on-demand
-- Automated call transfer
-- Dealer locator
-- Caller surveys
-- Credit card transactions
-- Broadcast fax
-- Broadcast e-mail
We have created applications, and are continuing to pursue additional
opportunities utilizing this functionality, including Third Party Verification
(TPV) and contests/sweepstakes applications.
ACQUISITION OF PARAGON VOICE SYSTEMS
On December 17, 1999, we purchased 510,000 shares of common stock of
Paragon Voice Systems, a leading value-added reseller and developer of computer
telephony solutions in the emerging technology field of ASR. Paragon resells
speech recognition software and application building blocks for the technology
as a part of its integrated solutions. Upon consummation of the transaction,
Paragon had a total of 900,000 shares outstanding of which we owned 56.67%.
We 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. Our relationship with Paragon will allow us to provide
additional development, integration and support capabilities for ASR
applications. Our acquisition of Paragon helps position us to become one of the
premiere hosting facilities for complex ASR applications.
18
<PAGE> 21
SALES AND MARKETING
We have a proprietary sales force of five individuals targeting customers
in specific industry sectors (e.g., telecommunications, speech technology voice
portals, and managed computer services). Sales strategies include telemarketing,
face-to-face meetings, presentations, and providing free demonstrations.
In speech technology and managed services, the purpose is to leverage the
existing sales forces of the partners in selling our services bundled with the
partner's offering.
COMPETITION
There are more than one hundred companies in the United States and Canada
which have IVR capability, although in most instances, the IVR functionality is
used to supplement live-agent call center services. We do not offer any
live-agent services and wherever these services are required as a complement to
our IVR services, we out-source the live-agent services to one of several call
centers with which we have working relationships.
The IVR industry is dominated by perhaps ten large corporations capable of
handling extremely high volume applications which are usually associated with
direct response television advertising. There are also dozens of smaller
companies providing IVR service bureau services similar to our business
strategy. In general, we are in competition with large call center competitors
which also offer IVR services. We are pursuing business with large, national
companies, including a majority of the large telephone companies in the United
States and Canada, and, as a result, usually compete against much larger
companies.
BUSINESS CONCENTRATION
Most of our revenues to date have been generated by record and replay
services. 78% and 68% of our revenue was generated by three customers and one
customer for the years ended July 31, 1999, and 1998, respectively. Our
relationship with these customers is good and we expect to be providing
additional services in the future to these customers beyond those currently
being provided. All of our contracts are terminable upon notice by either party.
Effective July 12, 2000, AT&T stopped using our record and replay
services. Global Crossing accounted for approximately 60% of our revenues from
record and replay services.
Our major customers, based on revenue, during the fiscal years ended were:
<TABLE>
<S> <C>
July 31, 1998 AT&T TeleConferencing
July 31, 1999 AT&T TeleConferencing, Global Crossing
</TABLE>
TRADEMARK AND COPYRIGHT ISSUES
The Company develops all of its proprietary software in house and does not
incorporate any third-party software other than off-the-shelf, commercially
available software.
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<PAGE> 22
We have applied for the following service marks:
-- InvestorREACH(TM)
-- MarketREACH(TM)
-- TeleSurvey(TM)
GOVERNMENTAL REGULATION
We are not currently subject to direct federal, state, or local regulation
in the United States other than regulations applicable to businesses generally
or directly applicable to electronic commerce. However, because the Internet is
becoming increasingly popular, it is possible that a number of laws and
regulations may be adopted in the United States with respect to the Internet.
These laws may cover issues such as user privacy, freedom of expression,
pricing, content and quality of products and services, taxation, advertising,
intellectual property rights and information security. Furthermore, the growth
of electronic commerce may prompt calls for more stringent consumer protection
laws. Several states have proposed legislation to limit the use of personal user
information gathered online or require online services to establish privacy
policies. The Federal Trade Commission has indicated that it may propose
legislation on this issue to Congress in the near future and has initiated
action against at least one online service regarding the manner in which
personal information was collected from users and provided to third parties. The
adoption of such consumer protection laws could create uncertainty in Internet
usage and reduce the demand for all products and services. We do not provide
customer information to third parties and, therefore, do not anticipate any
current or proposed legislation relating to online privacy to directly affect
our activities to a material extent.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of those laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address such issues could create uncertainty in the Internet
marketplace. That uncertainty could reduce demand for our services or increase
the cost of doing business as a result of litigation costs or increased service
delivery costs.
In addition, it is uncertain what impact government regulation may have on
telecommunication providers on which our business depends. Future government
regulation may have an adverse affect on our cost of doing business.
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<PAGE> 23
PROPERTY
Effective August 7, 2000, we moved our offices to 13,686 square feet of
leased space at our current location. Our 60-month lease requires initial rent
at the monthly rate of $2.50 per square foot for a total rent of $410,580 per
annum. The lease provides for annual rental increases of $.06 per foot per
year. In addition, we pay specified common area maintenance costs. We own no
real property.
SUBSIDIARIES
In August 2000, we formed VoiceVault, Inc., a California Corporation, as
our wholly owned subsidiary. We are considering operating one or more of our
IVR service divisions through VoiceVault, Inc. in the future.
EMPLOYEES
We currently have forty full-time employees and two part-time employees.
Our success will depend in large part on our ability to attract and retain
skilled and experienced employees. We believe that our relations with our
employees is good. We do not currently have any key-man life insurance on any of
our employees, directors, or executive officers.
We have no written or oral contracts for employment with any of our
employees, directors, or executive officers.
MANAGEMENT
The following table sets forth information about our directors and
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald E. Cameron 48 President and CEO; Director since 1993
Marc Goyette(1)(2) 43 Director since 1998
Robert Wilson(1)(2) 55 Director since 1994
David J. Webb 38 Chief Operating Officer
William R. Adams 50 Chief Financial Officer/Secretary
Douglas Luke 34 Vice President of Operations
Kenneth M. Gotthelf 38 Vice President of Sales and Strategic Alliance
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Donald E. Cameron. Mr. Cameron founded and has served as President and CEO
of Interactive Telesis since 1993. Prior to joining the Company, Mr. Cameron was
a lawyer specializing in the area of corporate/securities law for a period of
thirteen years and was partner in the law firm of Worrall, Scott, and Page,
Vancouver, Canada. As CEO of the Company, Mr. Cameron oversees all areas of the
Company's activities, including sales, marketing, technical development,
operations, and administration.
Marc Goyette. Since 1993 Mr. Goyette has been the Founder and President of
ROI International, an executive recruiting firm. In 1988, Mr. Goyette joined
Phoenix Network, a national long distance company, as its Chief Operating
Officer and was later promoted to President. Prior to Phoenix Network, Mr.
Goyette held positions as head of MIS Development for the electronics division
of General Dynamics and Senior Financial Consultant for Merrill Lynch.
Robert Wilson. Since 1992, Mr. Wilson has been an active Board member for
several private and public companies in the United States and Canada, including
Nanovation Technologies Inc., a private company in Miami involved in optical
engineering; Stamford International Inc., an Ontario, Canada-based merchant
banking firm traded on the OTC Toronto; and Amusement International Ltd., a
Calgary company, traded on the ASE.
21
<PAGE> 24
David J. Webb. Mr. Webb joined the Company in November, 1995 and is
currently Chief Operating Officer. His background includes an M.A. in
mathematics and a B.S. in computer science. He worked as a software development
team leader at IBM (1986-1987). He also taught at Penn State University
(1987-1990). Mr. Webb held the position as Vice President of Information Systems
for Phoenix Network (1990-1994), Mr. Webb has served as an independent
consultant (1994-1995) to several communications firms based in California.
William R. Adams. Mr. Adams joined the Company in June, 1998 and is
currently Chief Financial Officer. His financial experience includes over
fifteen years (1977 to 1993) at Hughes Electronics, where he was Group Finance
Manager, and Delco Electronics (1995 to 1997), where he was a Senior Financial
Specialist. Mr. Adams also served as Vice President and Controller of Cubic
Applications (1997 to 1998), and CFO at DQDT, a start-up design engineering firm
(1993 to 1995).
Douglas T. Luke. Mr. Luke joined the Company in March 1999 and is currently
Vice President of Operations. His background includes an MS in Computer Science
and MCSE (Microsoft Certified Systems Engineer). He worked as a System Analyst
for the US Government (1988-1992), a Telecom Manager for the US State Department
(1992-1996), a consultant for Telos Information Systems (1996), a Manager IS
Support for DataWorks Corp. (1996-1998) and a Principal Owner/Consultant for
SkyLine Systems (1998-1999).
Kenneth M. Gotthelf. Mr. Gotthelf joined the Company in June 2000. From
1995 until he joined the Company, Mr. Gotthelf was employed by Stik-ees, a
manufacturing and marketing company headquartered in San Diego, CA, where he
had served as Vice President of Sales and Marketing from 1995 to 1997 and
President and CEO from 1998 until his departure. Mr. Gotthelf had previously
served as Vice President of Operations of ITC Worldwide Communications, an
enhanced facsimile service bureau from 1992 until he jointed Stik-ees.
Each Director holds office until his successor is elected and qualified or
until his earlier resignation in the manner provided in the bylaws of the
Company. The Board of Directors has established an Audit Committee, consisting
of Messrs. Goyette and Wilson, and a Compensation Committee, consisting of
Messrs. Goyette and Wilson. The Audit Committee reviews the Company's
independent auditors, the scope and timing of the audit services, and other
services they are asked to perform, the Auditor's Report on the Company's
financial statements following completion of the audit, and the Company's
policies and procedures, with respect to internal accounting and financial
controls. In addition, the Audit Committee makes annual recommendations to the
Board of Directors for the appointment of independent auditors for the ensuing
year. The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all officers of the Company and
reviews general policy matters relating to compensation and benefits of
employees of the Company.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
The Company has the following arrangement by which non-employee directors
are compensated:
-- Cash - $6,000 per annum plus out of pocket expenses to attend
meetings - paid quarterly.
-- Stock Option
22
<PAGE> 25
We grant stock options to purchase 25,000 shares of the Company annually to
each director of the Company under the 1996 Stock Option Plan, to a maximum of
150,000 shares. The options are granted immediately after the Annual General
Meeting with a exercise price equal to the market price at the time of granting.
The options vest at the end of the fiscal year they are granted.
Previously the following directors were granted options to purchase
securities as follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Marc Goyette 100,000 40 cents
Marc Goyette* 25,000 35 cents
Robert Wilson 100,000 40 cents
Robert Wilson* 25,000 35 cents
</TABLE>
*These options vest annually over four years. Under the 1996 Stock Option
Plan, all stock options terminate ninety (90) days after the optionee ceases to
hold his or her position with the Company.
The Company has granted stock options to directors to assist the Company in
compensating, attracting, retaining, and motivating the directors of the Company
and to closely align the personal interests of the directors with those of the
shareholders.
BOARD OF DIRECTORS MEETINGS
The Board of Directors had six meetings during the fiscal year ended July
31, 1999, which were attended by all directors.
EXECUTIVE COMPENSATION
The following table sets forth all annual and long-term compensation for
services in all capacities to the Company for the last three fiscal years in
respect of each of the individuals who were, as at July 31, 1999, the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company (collectively "the Named Executive Officers"), including any
individual who would have qualified as a Named Executive Officer but for the
fact that individual was not serving as such an Officer at the end of the most
recently completed financial year. The Company has one Named Executive Officer.
23
<PAGE> 26
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
RESTRICTED
NAME AND SECURITIES SHARES OR
PRINCIPAL FINANCIAL SALARY BONUS OTHER ANNUAL UNDER OPTIONS RESTRICTED
POSITION YEAR-END ($U.S.) ($) COMPENSATION GRANTED (#) SHARE UNITS
<S> <C> <C> <C> <C> <C> <C>
Donald Cameron 1997 $ 96,300 -- -- 395,000 --
President/CEO
Donald Cameron 1998 $108,000 -- -- -- --
President/CEO
Donald Cameron 1999 $120,000 $ 36,250* -- -- --
President/CEO
</TABLE>
* Bonus to CEO/Director was used to pay off a loan due from CEO/Director of
$21,000 plus the income taxes associated with such bonus.
The Company's executive bonuses are determined by the Compensation
Committee of the Board of Directors. Annual bonuses are determined by the
Committee based on the executive's performance against the annual objectives and
goals of the Company set by the Committee. A member of the Committee recuses
himself from voting on his own bonus compensation amounts.
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock as of July 31, 2000, by (i) each person
who is known by the Company to be the beneficial owner of more than five percent
(5%) of the issued and outstanding shares of Common Stock, (ii) each of the
Company's directors and executive officers, and (iii) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
NAME AND ADDRESS OF SHARES OWNED
------------------------------------- --------- ----------
<S> <C> <C>
Donald E. Cameron(1)(2) 1,479,544 4.17%
Marc Goyette(1)(3) 300,000 0.53%
Robert Wilson(1)(3) 125,000 0.20%
David Webb(1)(4) 250,000 0.78%
William R. Adams(1)(5) 75,000 0.11%
Douglas T. Luke(1)(6) 102,350 0.09%
Kenneth M. Gotthelf(1)(7) 75,000 nil
All directors and officers as a
group (seven) 2,406,894 5.72%
</TABLE>
24
<PAGE> 27
----------
(1) Address is 12636 High Bluff Drive, Suite 200, San Diego, California
92130.
(2) Includes options granted to Mr. Cameron to purchase 965,000 shares of
Common Stock at an exercise price of 40 cents per share for 395,000
shares and 35 cents per share for 570,000 shares and 407,401 warrants
granted to Mr. Cameron pursuant to a 1996 private placement to purchase
407,401 shares of Common Stock at an exercise price of 40 cents per
share.
(3) Includes options granted to Messrs. Goyette and Wilson to purchase
100,000 shares each of Common Stock at an exercise price of 40 cents per
share, and 25,000 shares each of Common Stock at an exercise price of 35
cents per share.
(4) Includes options granted to Mr. Webb to purchase 250,000 shares of
Common Stock at an exercise price of 40 cents per share for 100,000
shares and at 35 cents per share for 150,000 shares.
(5) Includes options granted to Mr. Adams to purchase 75,000 shares of
Common Stock at an exercise price of 40 cents per share for 4,000 shares
and at 35 cents per share for 71,000 shares.
(6) Includes options granted to Mr. Luke to purchase 75,000 shares of Common
Stock at an exercise price of 35 cents per share.
(7) Includes options granted to Mr. Gotthelf to purchase 75,000 shares of
Common Stock at an exercise price of $2.41 per share.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
THE COMPANY HAS ONLY ONE CLASS OF STOCK. We are authorized to issue
50,000,000 shares of Common Stock, $0.001 par value, of which, as of July 31,
2000, 31,764,486 shares were issued and outstanding and held of record by 790
stockholders. As of July 31, 2000, we had approximately 3,300 beneficial owners
of our Common Stock.
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders generally. Approval of proposals
submitted to shareholders at a duly held meeting, other than the election of
directors, requires a vote of the shareholders holding a majority of the shares
eligible to vote at the meeting who are present in person or by proxy. The
foregoing notwithstanding, the Corporation's Articles of Incorporation provide
that any amendment, alteration, change or repeal of any provision contained in
the Articles of Incorporation require a vote of the shareholders owning at least
75% of the shares entitled to vote on the measure who are present in person or
by proxy at the meeting. Also subject to Delaware law, the Corporation's Bylaws
provide that any ordinary resolution passed by the vote of the shareholders
holding 50% of the shares entitled to vote which are present in person or by
proxy at a duly called meeting are required to (i) approve a contract where
there are no disinterested directors; or (ii) approve a sale of all or
substantially all the Corporation's assets; or (iii) to approve the dissolution,
winding up or liquidation of the Corporation. The Corporation's Bylaws provide
that the holders of 33-1/3% or more of the Corporation's
25
<PAGE> 28
outstanding stock entitled to vote at a meeting constitute a quorum at all
shareholder meetings for the transaction of business, except as otherwise
required by statute or the Articles of Incorporation.
Stockholders are entitled to receive dividends as may be declared from time
to time by the Board of Directors out of funds legally available therefore, and
in the event of liquidation, dissolution or winding up of the Company to share
ratably in all assets remaining after payment of liabilities. The holders of
shares of Common Stock have no preemptive, conversion, subscription or
cumulative voting rights.
MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Our common stock has been traded on the OTC Bulletin Board Market under the
symbol "TSIS" since October 1996. The following table shows the high and low
closing sales prices per share of our common stock as reported for the OTC
Bulletin Board Market for each quarter since the calendar quarter ending October
31, 1997.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
October 31, 1997 86 cents 62 cents
January 31, 1998 72 cents 30 cents
April 30, 1998 60 cents 41 cents
July 31, 1998 66 cents 48 cents
October 31, 1998 51 cents 25 cents
January 31, 1999 42 cents 25 cents
April 30, 1999 51 cents 27 cents
July 31, 1999 43 cents 36 cents
October 31, 1999 36 cents 31 cents
January 31, 2000 $3.69 29 cents
April 30, 2000 $5.06 $1.50
July 31, 2000 $3.06 $2.00
</TABLE>
The quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not represent actual transactions.
On October 2, 2000, the last reported price of our common stock on the
OTC Bulletin Board Market was $1.75 per share.
26
<PAGE> 29
We have never declared or paid any dividends on our common stock, and we do
not expect to declare or pay any cash dividends in the foreseeable future. The
payment of dividends, if any, in the future is within the discretion of our
board of directors and will depend upon our earnings, if any, our capital
requirements and financial condition and other relevant factors.
REPRICING AND ANTI-DILUTION RIGHTS
On June 12, 2000, we issued 905,797 shares of common stock in a private
placement for $2,500,000. Each purchaser also received one repricing right per
each share purchased to receive additional shares of common stock if the selling
stockholders resell their shares within a date up to 18 months after the
effective date of the Registration Statement of which this prospectus is a part,
at a price which is less than the average market price on the date of their
resale. For the purposes of the June 12th Agreement, "average market price"
means the average of the closing bid prices of our common stock on each of the
four trading days having the lowest closing bid price during the thirty
consecutive trading days immediately preceding the exercise date of the
repricing rights. We may be required to issue additional shares of common stock
to satisfy repricing rights as well as adjustments to the warrants issued
pursuant to the June 12, 2000 agreement described above.
TRANSFER AGENT AND WARRANT AGENT
The Registrar and transfer agent for our common stock and warrant agent for
the public warrants is Pacific Corporate Trust, located in Vancouver, BC,
Canada.
SELLING STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus, relating to the selling stockholders. None of the selling
stockholders has ever held any position or office with us or had any material
relationship with us. The shares beneficially owned do not include shares
issuable under repricing rights or anti-dilution provisions.
<TABLE>
<CAPTION>
SHARES TO SHARES
SHARES BENEFICIALLY OWNED PRIOR TO BE SOLD BENEFICIALLY
OFFERING IN THE OWNED AFTER
---------------------------------- OFFERING THE OFFERING(2)
NUMBER(1) PERCENT ----------- ---------------
<S> <C> <C> <C> <C>
BH Capital Investments, L.P.(3) 973,733 2.97% 973,733 None
Excalibur Limited Partnership(4) 973,733 2.97% 973,733 None
Merchant Bancorp of America, Reg'd 25,000 .08% 25,000 None
Next Millienium Capital Holdings, LLC 25,000 .08% 25,000 None
</TABLE>
(1) Includes all shares and shares issuable upon exercise of the repricing
rights and warrants which have been purchased through the date of this
Prospectus under our June 12, 2000 agreement. These amounts do not include
shares, repricing rights or warrants which may be purchased in subsequent
closings as provided in that agreement.
(2) Assumes the sale of all shares offered hereby.
(3) These shares are beneficially owned by Henry Brachfeld, the President of HB
and Co., Inc., the General Partner of BH Capital Investments, L.P., who has
shared voting and investment power with respect to the shares.
(4) These shares are beneficially owned by William Hechter, the President of
Excalibur Capital Management, Inc., the General Partner of Excalibur
Limited Partnership, who has shared voting and investment power with
respect to the shares.
27
<PAGE> 30
LEGAL PROCEEDINGS
We are a defendant in a lawsuit brought in the Superior Court of California
in January, 1999, by Dieter Sauer, a former consultant, claiming that we
wrongfully terminated him. He alleges special, general and punitive damages in
excess of $400,000.
Beginning in approximately March 1997 through August 1998, we authorized
the repurchase of up to $2 million of our common stock through open market
transactions for the intended purpose of reducing our outstanding stock. As
described in Note 6 to our financial statements for the years ended July 31,
1999 and 1998, certain aspects of the stock repurchase program may not have been
in strict compliance with regulatory requirements which could lead to certain
liabilities, the nature and outcome of which are uncertain.
PLAN OF DISTRIBUTION
This prospectus covers the proposed resale of up to an estimated 3,505,435
shares of our common stock by the selling stockholders. No shares will be sold
by us. The selling stockholders may offer the shares at various times in one or
more of the following transactions:
-- on the OTC Bulletin Board;
-- in transactions other than market transactions;
-- if otherwise permitted, in connection with short sales of our
shares;
-- by pledge to secure debts or other obligations;
-- if otherwise permitted, in connection with the writing of non-traded
and exchange-traded call options, in hedge transactions and in
settlement of other transactions in standardized or over-the-counter
options; or
-- in a combination of any of the above.
The selling stockholders may sell shares at market prices then prevailing,
at prices related to prevailing market prices, at negotiated prices or at fixed
prices.
The selling stockholders may use broker-dealers to sell shares. If this
happens, broker-dealers will either receive discounts or commissions from the
selling stockholders, or they will receive commissions from purchasers of shares
for whom they have acted as agents. Selling stockholders may be deemed to be
underwriters with respect to the shares sold by them.
During such time as they may be engaged in a distribution of the shares the
selling stockholders are required to comply with Regulation M promulgated under
the Securities Exchange Act of 1934. With certain exceptions, Regulation M
precludes any selling stockholder, any affiliated purchasers and any
broker-dealer or other person who participates in such distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
28
<PAGE> 31
is complete. Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution of that
security. All of the foregoing may affect the marketability of the common stock.
It is possible that a significant number of shares may be sold and,
accordingly, such sales or the possibility thereof may have a depressive effect
on the market price of the common stock.
LEGAL MATTERS
Rushall & McGeever, APC, Carlsbad, California will pass upon the validity
of the common stock.
EXPERTS
Our financial statements as of July 31, 1999 and 1998, and for the years
then ended included in this prospectus have been included in reliance upon the
report of Pannell Kerr Forster, Certified Public Accounts, A Professional
Corporation, given upon the authority of that firm as experts in accounting and
auditing.
The financial statements of Paragon Voice Systems as of May 31, 1998 and
1999, and for the years then ended included in this prospectus have been
included in reliance upon the report of Pannell Kerr Forster, Certified Public
Accounts, A Professional Corporation, given upon the authority of that firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934 and, in accordance therewith, file reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, IL 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the SEC upon payment of certain fees prescribed by the SEC.
The SEC's Web site contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of that site is http://www.sec.gov. Our common stock is traded on the
OTC Bulletin Board market and our reports, proxy statements and other
information may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W.,Washington, D.C. 20006. We have filed a registration statement on
29
<PAGE> 32
Form SB-2 with the SEC under the Securities Act with respect to the securities
offered in this prospectus. This prospectus, which is filed as part of that
registration statement, does not contain all of the information set forth in the
registration statement, certain portions of which have been omitted in
accordance with the SEC's rules and regulations. Statements made in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete and are qualified in their entirety by
reference to each such contract, agreement or other document which is filed as
an exhibit to the registration statement. The registration statement may be
inspected without charge at the public reference facilities maintained by the
SEC, and copies of such materials can be obtained from the Public Reference
Section of the SEC at prescribed rates.
30
<PAGE> 33
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Audited financial statements Interactive Telesis as of July
31, 1999 and 1998 ......................................... F-2
Audited financial statements Paragon as of May 31, 1998 and
1999 ...................................................... F-18
Unaudited financial statements for three and nine months
ended April 30, 2000 and 1999 ............................. F-33
F-1
<PAGE> 34
AUDITED FINANCIAL STATEMENTS
INTERACTIVE TELESIS
AS OF JULY 31, 1999 AND 1998
F-2
<PAGE> 35
[PKF LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Interactive Telesis, Inc.
Encinitas, California
We have audited the balance sheets of Interactive Telesis, Inc. (the "Company")
as of July 31, 1999 and 1998, and the statements of operations, changes in
shareholders' equity, 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 Interactive Telesis, Inc. as of
July 31, 1999 and 1998, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ PANNELL KERR FORSTER
-----------------------------------
San Diego, California PANNELL KERR FORSTER
September 17, 1999 Certified Public Accountants
A Professional Corporation
F-3
<PAGE> 36
INTERACTIVE TELESIS, INC.
BALANCE SHEETS
July 31, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 490,152 $ 406,090
Accounts receivable, net of allowance for doubtful
accounts of $0 and $0 at July 31, 1999 and 1998,
respectively 682,815 431,422
Deposits 7,730 8,205
Amount due from director -- 21,000
----------- -----------
Total current assets 1,180,697 866,717
----------- -----------
Property and equipment, net 762,508 293,770
----------- -----------
Total assets $ 1,943,205 $ 1,160,487
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 111,469 $ 49,615
Deferred revenue -- 12,500
Current portion of capital lease obligations 205,044 24,000
----------- -----------
Total current liabilities 316,513 86,115
----------- -----------
Capital lease obligations, net of current portion 292,229 75,791
----------- -----------
Total liabilities 608,742 161,906
----------- -----------
Commitments and contingencies (Note 5)
Shareholders' equity:
Common stock, $.001 par value, 50,000,000 shares
authorized; 30,599,888 and 29,914,140 shares issued
at July 31, 1999 and 1998, respectively; 30,599,888 and
28,751,945 shares outstanding at July 31, 1999 and
1998, respectively 30,600 29,914
Additional paid in capital 9,639,691 10,048,457
Accumulated deficit (8,335,828) (8,657,568)
Treasury stock, at cost, 0 and 1,162,195 shares
at July 31, 1999 and 1998, respectively -- (422,222)
----------- -----------
Total shareholders' equity 1,334,463 998,581
----------- -----------
Total liabilities and shareholders' equity $ 1,943,205 $ 1,160,487
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 37
INTERACTIVE TELESIS, INC.
STATEMENTS OF OPERATIONS
For the years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 3,022,290 $ 1,102,241
Costs and expenses:
Cost of revenues 221,506 98,055
Salaries and wages 1,184,523 822,035
General and administrative 742,801 627,831
Sales and marketing 266,626 141,432
Depreciation and amortization 177,067 64,615
----------- -----------
Total costs and expenses 2,592,523 1,753,968
----------- -----------
Operating income (loss) 429,767 (651,727)
Other expenses:
Interest expense 28,027 25,690
Litigation contingency 80,000 --
----------- -----------
Total other expenses 108,027 25,690
----------- -----------
Income (loss) before income taxes 321,740 (677,417)
Provision for income taxes -- --
----------- -----------
Net income (loss) $ 321,740 $ (677,417)
=========== ===========
Basic net income (loss) per share $ 0.01 $ (0.03)
=========== ===========
Shares used to compute basic net income (loss) per share 30,365,097 22,973,001
=========== ===========
Diluted net income (loss) per share $ 0.01 $ (0.03)
=========== ===========
Shares used to compute diluted net income (loss) per share 31,160,123 22,973,001
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 38
INTERACTIVE TELESIS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------ ----------------------------
Shares Amount Shares Amount
---------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, July 31, 1997 16,658,610 $16,659 1,212,220 $(1,185,462)
Issue of common stock for cash,
net of issuance costs 14,352,204 14,352 -- --
Issue of common stock to
directors and employees 850,602 850 -- --
Issue of stock options to
directors and employees -- -- -- --
Purchase of treasury stock -- -- 1,897,251 (3,138,169)
Retirement of treasury stock (1,947,276) (1,947) (1,947,276) 3,901,409
Net loss -- -- -- --
---------- ------- ---------- -----------
Balance, July 31, 1998,
as restated (See Note 9) 29,914,140 29,914 1,162,195 (422,222)
Reissue of treasury stock -- -- (845,668) 421,906
Retirement of treasury stock (316,527) (316) (316,527) 316
Issue of common stock for cash,
net of issuance costs 1,002,275 1,002 -- --
Issue of stock options to
directors and employees -- -- -- --
Net income -- -- -- --
---------- ------- ---------- -----------
Balance, July 31, 1999 30,599,888 $30,600 -- $ --
========== ======= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid In Accumulated Shareholders'
Capital Deficit Equity (Deficit)
----------- ----------- ----------------
<S> <C> <C> <C>
Balance, July 31, 1997 $ 6,307,636 $(5,344,472) $ (205,639)
Issue of common stock for cash,
net of issuance costs 4,572,315 -- 4,586,667
Issue of common stock to
directors and employees 398,350 -- 399,200
Issue of stock options to
directors and employees 33,939 -- 33,939
Purchase of treasury stock -- -- (3,138,169)
Retirement of treasury stock (1,263,783) (2,635,679) --
Net loss -- (677,417) (677,417)
----------- ----------- -----------
Balance, July 31, 1998,
as restated (See Note 9) 10,048,457 (8,657,568) 998,581
Reissue of treasury stock (630,847) -- (208,941)
Retirement of treasury stock -- -- --
Issue of common stock for cash,
net of issuance costs 214,414 -- 215,416
Issue of stock options to
directors and employees 7,667 -- 7,667
Net income -- 321,740 321,740
----------- ----------- -----------
Balance, July 31, 1999 $ 9,639,691 $(8,335,828) $ 1,334,463
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 39
INTERACTIVE TELESIS, INC.
STATEMENTS OF CASH FLOWS
For the years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 321,740 $ (677,417)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Bad debts 11,573 --
Depreciation and amortization 177,067 64,615
Interest on capital leases and long-term debt 28,027 25,690
Amount due from director forgiven 21,000 --
Issuance of common stock and stock options
to directors and employees 7,667 433,139
Litigation contingency 80,000 --
Changes in operating assets and liabilities:
Increase in accounts receivable (262,966) (385,359)
Decrease in prepaid expenses and deposits 475 1,022
Decrease in stock subscription receivable -- 78,200
Decrease in accounts payable and accrued liabilities (18,146) (84,032)
(Decrease) increase in deferred revenue (12,500) 437
--------- -----------
Net cash flows provided by (used in) operating activities 353,937 (543,705)
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment (91,240) (104,955)
--------- -----------
Net cash flows used in investing activities (91,240) (104,955)
--------- -----------
Cash flows from financing activities:
Proceeds on issuance of common stock 215,416 4,586,667
Repayments on long-term debt -- (66,463)
Repayments on capital leases (185,110) (127,748)
Purchase of treasury stock and related costs (208,941) (3,138,169)
Decrease in stock subscriptions -- (735,384)
--------- -----------
Net cash flows (used in) provided by financing activities (178,635) 518,903
--------- -----------
Net increase (decrease) in cash 84,062 (129,757)
Cash at beginning of year 406,090 535,847
--------- -----------
Cash at end of year $ 490,152 $ 406,090
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 40
INTERACTIVE TELESIS, INC.
STATEMENTS OF CASH FLOWS (Continued)
For the years ended July 31, 1999 and 1998
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest $ 28,027 $ 25,690
======== ==========
Income taxes $ -- $ --
======== ==========
Supplemental disclosure of noncash investing and financing activities:
Treasury stock transactions $209,787 $2,635,679
======== ==========
Purchase of property and equipment on capital lease $554,565 $ 156,790
======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 41
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended July 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Interactive Telesis, Inc. (the "Company") was incorporated under the laws of the
Province of British Columbia, Canada, on June 19, 1987, and on September 23,
1996, the Company's jurisdiction of incorporation was changed to the state of
Delaware. It is in the business of developing and marketing customized
interactive voice response services to customers primarily located in the United
States.
Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts
receivable, prepaid expenses and deposits, amount due from director, accounts
payable and accrued liabilities, and deferred revenue approximate fair value due
to the immediate short-term maturity of these financial instruments.
The fair value of the Company's capital lease obligations approximates the
carrying amount based on the current rates offered to the Company for debt of
the same remaining maturities with similar collateral requirements.
Cash and Cash Equivalents
The Company considers all cash accounts, which are not subject to withdrawal
restrictions or penalties, and certificates of deposit and money market funds
purchased with an original maturity of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated on a
declining balance basis over the estimated useful lives of the depreciable
assets which range from three years for computer and related equipment to five
years for office furniture and fixtures, and motor vehicles.
Treasury Stock
The Company's repurchases of shares of common stock are recorded as treasury
stock, at cost, and result in a reduction of shareholders' equity. When treasury
shares are retired, the Company uses a first-in, first-out method and the excess
of repurchase cost over additional paid in capital is treated as an increase in
accumulated deficit. When treasury shares are reissued, the Company uses a
first-in, first-out method and the excess of repurchase cost over reissuance
price is treated as a reduction of additional paid in capital.
Revenue Recognition
Revenues are generated by the Company's interactive voice response services.
Revenue is recognized when these services are provided by the Company.
Cost of Revenues
Cost of revenues represent the direct telecommunication costs incurred by the
Company to provide its interactive voice response services.
F-9
<PAGE> 42
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended July 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentration Risk
A majority of the Company's revenues are generated by record and replay
services. 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.
78% and 68% of the Company's revenue was generated by three and one customer(s)
for the years ended July 31, 1999 and 1998, respectively.
The Company maintains its primary checking and savings accounts at one financial
institution located in California. Accounts at this bank are insured by the
Federal Deposit Insurance Corporation (FDIC) up to $100,000. At July 31, 1999
and 1998, the Company's uninsured cash balances totaled $390,152 and $306,090,
respectively. The Company has not experienced any losses in such accounts and
management believes it places its cash on deposit with financial institutions
which are financially stable.
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
August 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).
Long-Lived Assets
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of the impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. SFAS No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The Company adopted SFAS No. 121 effective
August 1, 1997.
F-10
<PAGE> 43
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended July 31, 1999 and 1998
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 for entities with publicly held common stock. SFAS No. 128 supercedes
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 August 1, 1997.
Basic net income (loss) per share excludes dilution and is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
during the reported periods. Diluted net income (loss) per share reflects the
potential dilution that could occur if stock options and other commitments to
issue common stock were exercised. During the year ended July 31, 1999,
outstanding options and warrants to purchase 838,901 common shares were included
in the weighted average share computation. During the year ended July 31, 1998,
outstanding options and warrants to purchase 1,000,651 common shares were
anti-dilutive and have been excluded from the weighted average share
computation.
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 reviews the ageing of its accounts receivable on a periodic basis
and records on allowance for doubtful accounts based on an estimate of those
accounts receivable which eventually will become uncollectible.
NOTE 2 - RELATED PARTY TRANSACTIONS
Amount due from director
Amount due from director consists of the following as of July 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- -------
<S> <C> <C>
Unsecured loan to the CEO, bearing interest at 8%,
for legal costs related to a legal action resulting from
his position as a director and officer of the Company.
In July 1999, the loan was forgiven via a bonus to the
CEO for achieving certain revenue targets for the
Company. $-- $21,000
==== =======
</TABLE>
F-11
<PAGE> 44
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended July 31, 1999 and 1998
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of July 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Computer and related equipment $ 933,799 $ 357,730
Office furniture and fixtures 64,198 36,534
Motor vehicle 42,072 -
---------- ---------
1,040,069 394,264
Less: Accumulated depreciation (277,561) (100,494)
---------- ---------
Net property and equipment $ 762,508 $ 293,770
========== =========
</TABLE>
NOTE 4 - CAPITAL LEASE OBLIGATIONS
Capital lease obligations consist of the following as of July 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
Capital lease obligations, bearing interest at rates
of up to 28%, with interest and principal payable in
monthly installments of approximately $21,400. The
capital lease obligations are secured by the computer
and related equipment, and by personal guarantees of
the CEO. The capital lease obligations are due at
various dates between July 2000 and June 2003. $ 497,273 $ 99,791
Less: Current portion (205,044) (24,000)
--------- --------
Capital lease obligation, long-term $ 292,229 $ 75,791
========= ========
</TABLE>
Aggregate maturities of capital lease obligations as of July 31, 1999, are as
follows:
<TABLE>
<CAPTION>
Year Ended July 31, Amount
------------------- ---------
<S> <C>
2000 $ 257,171
2001 228,465
2002 102,906
2003 13,299
---------
Total minimum lease payments 601,841
Less: Amount representing interest (104,568)
---------
$ 497,273
=========
</TABLE>
Capitalized leases included in property and equipment amounted to approximately
$712,000 and $157,000 before accumulated amortization of $165,000 and $45,000 as
of July 31, 1999 and 1998, respectively. Included in depreciation and
amortization expense is amortization of capital lease assets in the amounts of
approximately $120,000 and $34,000 for the years ended July 31, 1999 and 1998,
respectively.
F-12
<PAGE> 45
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended July 31, 1999 and 1998
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under a non-cancelable operating
leases that expire at various dates through July 2002. Minimum future
obligations under these leases as of July 31, 1999, are as follows:
<TABLE>
<CAPTION>
Year ended July 31, Amount
------------------- --------
<S> <C>
2000 $129,147
2001 104,202
2002 13,732
--------
Total minimum lease payments $247,081
========
</TABLE>
Rent expense under the non-cancelable operating leases was $103,185 and $62,589
for the years ended July 31, 1999 and 1998.
Litigation
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 $400,000. At the present stage of
litigation, the probability that the Company will be required to pay damages
cannot be determined and therefore an estimate of the amount of loss cannot be
made. Accordingly, no contingent liability has been provided for in the
accompanying financial statements.
The Company is a defendant in a lawsuit brought by an individual claiming that
the Company and other defendants made misrepresentations in the sale of shares
of the Company's common stock. The plaintiff alleges special, general and
punitive damages in excess of $1,000,000. Although the case has been vigorously
defended, it is probable that the Company will be required to pay damages. The
Company's best estimate of the amount of the probable loss is $80,000 and
accordingly, a provision of $80,000 has been provided for in the accompanying
financial statements.
Other
No contingent liability has been provided for in the accompanying financial
statements that relates to the Company's 1997 stock repurchase program, as
discussed in Note 6, as an estimate of the amount of loss cannot be made.
F-13
<PAGE> 46
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended July 31, 1999 and 1998
NOTE 6 - SHAREHOLDERS' EQUITY
Stock repurchase program
In 1997, the Company authorized the repurchase of up to $2,000,000 worth of its
shares through open market transactions with the intention of retiring this
stock. For the years ended July 31, 1999 and 1998, the Company paid $208,941 and
$3,138,169 to five brokerage accounts of the Company and certain shareholders
(the "Brokerage Accounts") and purchased and resold shares at values varying
between $0.30 and $1.06. As of July 31, 1999, the Company did not hold any
treasury stock and had settled all the Brokerage Accounts. Certain aspects of
the stock repurchase program may not have been in strict compliance with
regulatory requirements, which could lead to certain liabilities, the nature and
outcome of which are uncertain (see Note 5 -- other).
Stock purchase warrants
In January 1997, the Company issued 407,401 share purchase warrants to the CEO
in connection with the settlement of a debt. The warrants entitle the director
to purchase 407,401 shares of common stock at $.40 per share, and expire in
November 2001. None of the warrants had been exercised as of July 31, 1999.
In January 1997, the Company issued 675,000 share purchase warrants to a
corporation in connection with the issue of shares of common stock. The warrants
entitled the corporation to purchase 337,500 shares of common stock at $.20 per
share, and expired unexercised in January 1999.
Stock option plans
In October 1996, the Company adopted a non-qualified stock option plan (the
"Plan") under which options to purchase up to 1,485,000 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.
Pursuant to the Plan, the Company granted options to purchase 132,000 and
205,000 shares of common stock for the years ended July 31, 1999 and 1998,
respectively.
The Company has elected to account for grants under its Plan following APB No.
25 and related interpretations. Accordingly, compensation costs of $7,667 and
$33,939 have been recognized for options granted during the years ended July 31,
1999 and 1998, respectively. Under SFAS No.123, the fair value of each option
granted during the years ended July 31, 1999 and 1998, was estimated on the
measurement date utilizing the then current fair value of the underlying shares,
as estimated by management, less the exercise price discounted over the average
expected life of the options, with an average risk free interest rate of between
4.9% and 6.7%, price volatility of between .53 and 1, and no dividends.
F-14
<PAGE> 47
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended July 31, 1999 and 1998
NOTE 6 - SHAREHOLDERS' EQUITY (Continued)
Stock option plans (Continued)
Had compensation cost for all awards been determined based on the fair value
method as prescribed by SFAS No.123, reported net income (loss) and net income
(loss) per share would have been as follows:
<TABLE>
<CAPTION>
July 31, 1999 July 31, 1998
------------- -------------
<S> <C> <C>
Net income (loss):
As reported $321,740 $(677,417)
Pro forma $261,659 $(779,733)
Basic net income (loss) per share:
As reported $ 0.01 $ (0.03)
Pro forma $ 0.01 $ (0.03)
Diluted net income (loss) per share:
As reported $ 0.01 $ (0.03)
Pro forma $ 0.01 $ (0.03)
</TABLE>
A summary of the activity of the stock options for the years ended July 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
Year ended Year ended
July 31, 1999 July 31, 1998
------------------------ -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 808,000 $ 0.38 715,000 $ 0.40
Granted 132,000 0.40 205,000 0.33
Forfeited -- -- (112,000) 0.40
Expired -- -- -- --
------- -------- --------- -------
Outstanding at end of period 940,000 $ 0.38 808,000 $ 0.38
======= ======== ========= =======
Exercisable at end of period 431,500 $ 0.36 255,750 $ 0.34
======= ======== ========= =======
Weighted-average fair value
of options granted during the period $ 0.32 $ 0.39
========= =======
Weighted-average remaining contractual
life of options outstanding at end
of period 7 years 7 years
======== =======
</TABLE>
F-15
<PAGE> 48
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended July 31, 1999 and 1998
NOTE 7 - 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 July 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 866,000 $ 900,000
Other 35,000 --
--------- ---------
Gross deferred tax assets 901,000 900,000
Less: Valuation allowance (614,000) (742,000)
--------- ---------
Net deferred tax assets 287,000 158,000
Deferred tax liabilities:
Property and equipment (28,000) (11,000)
Cash basis accounting for tax purposes (259,000) (147,000)
--------- ---------
$ -- $ --
========= =========
</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 decreased by $128,000 from 1998 and increased
by $221,000 from 1997.
As of July 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 $2,255,000 and $1,703,000, respectively, as
of July 31, 1999, begin to expire in 2011. 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 has not performed an analysis to determine if such a change has
taken place, however, management does not believe such a change has taken place.
A reconciliation of the effective tax rates with the federal statutory rate is
as follows as of July 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Income tax expense (benefit) at 35% statutory rate $ 113,000 $(237,000)
Change in valuation allowance (128,000) 221,000
Nondeductible expenses -- 14,000
State income taxes, net 19,000 (39,000)
Other (4,000) 41,000
--------- ---------
$ -- $ --
========= =========
</TABLE>
F-16
<PAGE> 49
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended July 31, 1999 and 1998
NOTE 8 - PROPOSED SALE OF PRODUCT SERVICE LINE
On June 25, 1999, the Company's Board of Directors authorized management to
negotiate the sale of the InvestorReach service ("InvestorReach"). Revenues and
net income (loss) from InvestorReach were $537,028 and $145,973 for the year
ended July 31, 1999, and $272,833 and $(16,781) for the year ended July 31,
1998, respectively. InvestorReach does not have any separately identifiable
assets and liabilities. Management is currently negotiating the sale of
InvestorReach.
NOTE 9 - RESTATEMENT AND RECLASSIFICATION
The July 31, 1998 financial statements were previously issued under Canadian
Generally Accepted Accounting Principles. As a result, no compensation expense
was recognized for the issue of stock options to directors and employees, and
the cost of treasury stock was allocated between common stock par value and
additional paid in capital. Accordingly, the additional paid in capital and net
loss as of and for the year ended July 31, 1998, have been restated to account
for the issue of such stock options in accordance with APB No. 25, and the cost
of treasury stock has been reclassified from common stock par value and
additional paid in capital to treasury stock, at cost.
As a result of the above, $33,939 has been recognized as compensation expense
for the year ended July 31, 1998, increasing the net loss from $(643,478) as
previously reported, to $(677,417). Also, $(1,162) and $(421,060) have been
reclassified from common stock par value and additional paid-in capital,
respectively, to treasury stock, at cost, as of July 31, 1998, to properly
reflect treasury stock, with no effect on total shareholders' equity.
F-17
<PAGE> 50
AUDITED FINANCIAL STATEMENTS
PARAGON
AS OF MAY 31, 1998 AND 1999
F-18
<PAGE> 51
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
F-19
<PAGE> 52
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.
F-20
<PAGE> 53
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.
F-21
<PAGE> 54
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.
F-22
<PAGE> 55
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.
F-23
<PAGE> 56
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.
F-24
<PAGE> 57
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).
F-25
<PAGE> 58
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.
F-26
<PAGE> 59
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>
F-27
<PAGE> 60
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.
F-28
<PAGE> 61
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>
F-29
<PAGE> 62
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>
F-30
<PAGE> 63
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 B $ (81,750) $ 3,354,438
Costs and expenses:
Cost of revenues 221,506 183,156 B (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 C 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 - - A (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>
F-31
<PAGE> 64
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 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.
A - To record the minority shareholders' share of Paragon Voice Systems'
net loss for the year ended May 31,1999.
B - To record the elimination of intercompany sales from Paragon Voice
Systems to Interactive Telesis, Inc.
C - To record the amortization of goodwill on the straight line basis over
the estimated useful life of 5 years.
F-32
<PAGE> 65
UNAUDITED FINANCIAL STATEMENTS FOR THE
THIRD QUARTER ENDED APRIL 30, 2000
F-33
<PAGE> 66
INTERACTIVE TELESIS, INC.
BALANCE SHEETS
April 30, 2000 AND JULY 31, 1999
<TABLE>
<CAPTION>
ASSETS
Consolidated
APR 30, 2000 JUL 31,1999
------------ ------------
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
CASH $ 1,037,757 $ 490,152
ACCOUNTS RECEIVABLE-NET 740,397 682,815
PREPAID EXPENSES AND OTHER CURRENT ASSETS 42,851 7,730
------------ ------------
TOTAL CURRENT ASSETS 1,821,005 1,180,697
------------ ------------
PROPERTY AND EQUIPMENT, NET 886,493 762,508
GOODWILL 602,163 --
------------ ------------
TOTAL ASSETS $ 3,309,661 $ 1,943,205
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 216,015 $ 111,469
NOTES PAYABLE TO RELATED PARTIES 161,337 --
DUE TO SHAREHOLDERS 34,000 --
CURRENT PORTION OF CAPITAL LEASE OBLIGATIONS 55,467 205,044
------------ ------------
TOTAL CURRENT LIABILITIES 466,819 316,513
------------ ------------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 336,232 292,229
------------ ------------
TOTAL LIABILITIES 803,051 608,742
------------ ------------
MINORITY INTEREST IN NET ASSETS OF SUBSIDIARY 354,237 --
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.001 PAR VALUE, 50,000,000 SHARES
AUTHORIZED; 30,811,938 AND 30,599,888 SHARES ISSUED
AND OUTSTANDING AT APR 30, 2000 AND JUL 31, 1999,
RESPECTIVELY 30,812 30,600
ADDITIONAL PAID IN CAPITAL 10,031,905 9,639,691
ACCUMULATED DEFICIT (7,910,344) (8,335,828)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 2,152,373 1,334,463
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,309,661 $ 1,943,205
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-34
<PAGE> 67
INTERACTIVE TELESIS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
April 30 April 30
------------------------------- -------------------------------
Consolidated Consolidated
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 1,445,608 $ 915,196 $ 3,759,529 $ 1,934,652
Costs and expenses:
Cost of revenues 276,581 49,255 442,737 156,418
Salaries and wages 513,981 292,512 1,367,626 791,563
General and administrative 417,304 215,305 933,652 560,093
Sales and marketing 116,213 68,650 226,867 197,652
Depreciation and amortization 129,049 50,899 270,908 119,596
------------ ------------ ------------ ------------
Total costs and expenses 1,453,128 676,621 3,241,790 1,825,322
------------ ------------ ------------ ------------
Operating income (loss) (7,520) 238,575 517,739 109,330
Other (income) expenses:
Interest expense 18,310 7,880 40,852 18,538
Litigation contingency expense -- -- 117,000 --
Minority interest in net loss of subsidiary (65,597) -- (65,597) --
------------ ------------ ------------ ------------
Total other (income) expenses (47,287) 7,880 92,255 18,538
------------ ------------ ------------ ------------
Income before income taxes $ 39,767 $ 230,695 $ 425,484 $ 90,792
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net income $ 39,767 $ 230,695 $ 425,484 $ 90,792
============ ============ ============ ============
Basic net income per share $ 0.00 $ 0.01 $ 0.01 $ 0.00
============ ============ ============ ============
Shares used to compute basic net income per share 30,811,938 30,575,888 30,700,105 30,544,528
============ ============ ============ ============
Diluted net income per share $ 0.00 $ 0.01 $ 0.01 $ 0.00
============ ============ ============ ============
Shares used to compute diluted net income per share 32,861,209 31,791,929 32,903,061 31,791,929
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-35
<PAGE> 68
INTERACTIVE TELESIS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED APRIL 30
Consolidated
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 425,484 $ 90,792
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 270,908 119,596
LITIGATION SETTLEMENT 117,000 --
MINORITY INTEREST IN OPERATIONS OF PARAGON (65,597) --
LOSS ON LOAN EXTINGUISHMENT 15,000 --
CHANGES IN OPERATING ASSETS AND LIABILITIES:
INCREASE IN ACCOUNTS RECEIVABLE (6,095) (165,599)
INCREASE IN PREPAID EXPENSES AND DEPOSITS (35,121) (12,920)
INCREASE/(DECREASE) IN ACCOUNTS/NOTES PAYABLE 124,689 (17,215)
DECREASE IN DEFERRED REVENUE -- (12,500)
----------- -----------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 846,268 2,154
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
CASH ACQUIRED IN PARAGON VOICE SYSTEMS ACQUISITION 5,830 --
PURCHASE OF PROPERTY AND EQUIPMENT (320,727) (526,396)
----------- -----------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (314,897) (526,396)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS ON ISSUANCE OF COMMON STOCK 121,808 6,475
REPAYMENTS ON CAPITAL LEASES (175,522) (100,533)
PROCEEDS FROM BORROWING ON CAPITAL LEASES 69,948 326,525
----------- -----------
NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES 16,234 232,467
----------- -----------
NET INCREASE (DECREASE) IN CASH 547,605 (291,775)
CASH AT BEGINNING OF PERIOD 490,152 406,090
----------- -----------
CASH AT END OF PERIOD $ 1,037,757 $ (114,315)
=========== ===========
</TABLE>
<TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
NINE MONTHS ENDED APRIL 30
2000 1999
----------- -----------
<S> <C> <C>
CASH PAID DURING THE YEAR FOR:
INTEREST $ 40,852 18,538
=========== ===========
INCOME TAXES $ -- --
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
ON DECEMBER 17, 1999 THE COMPANY ACQUIRED 56.67% OF THE OUTSTANDING COMMON STOCK
OF PARAGON VOICE SYSTEMS. THE VALUE OF THE ASSETS AND LIABILITIES ACQUIRED WAS
$54,972 INCLUDING CASH OF $5,830 AND $313,813 RESPECTIVELY.
ON FEBRUARY 25, 2000 THE COMPANY ISSUED 100,000 SHARES OF COMMON STOCK AT A FAIR
MARKET VALUE OF $197,000 IN SETTLEMENT OF THE MADISON LAWSUIT.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-36
<PAGE> 69
INTERACTIVE TELESIS, INC.
NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION:
The accompanying unaudited financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results of operations for the periods shown. The results of operations for
such periods are not necessarily indicative of the results expected for the full
fiscal year or for any future period.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included with the Form 10SB/A submission made to the Securities and
Exchange Commission (SEC) on April 21, 2000 and the Company's current report on
Form 8-K/A, which was filed with the (SEC) on February 29, 2000.
The Company acquired a 56.67% interest in Paragon Voice Systems, on
December 17, 1999, a leading value-added reseller and developer of computer
telephony solutions in the emerging technology field of Automated Speech
Recognition ("ASR").
B. RECLASSIFICATION: None
C. STOCK SPLIT: None
D. SUBSEQUENT EVENTS: None
E. INCOME TAXES:
Income taxes have not been provided for in the accompanying financial
statements due to the net operating loss carry forwards generated in prior years
that are available for carry forward against current year income.
F-37
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL")
contains the provisions entitling the Registrant's directors and officers to
indemnification from judgments, fines, amounts paid in settlement, and
reasonable expenses (including attorney's fees) as the result of an action or
proceeding in which they may be involved by reason of having been a director or
officer of the Registrant. In its Certificate of Incorporation, the Registrant
has included a provision that limits, to the fullest extent now or hereafter
permitted by the DGCL, the personal liability of its directors to the Registrant
or its stockholders for monetary damages arising from a breach of their
fiduciary duties as directors. Under the DGCL as currently in effect, this
provision limits a director's liability except where such director (i) breaches
his duty of loyalty to the Registrant or its stockholders, (ii) fails to act in
good faith or engages in intentional misconduct or a knowing violation of law,
(iii) authorizes payment of an unlawful dividend or stock purchase or redemption
as provided in Section 174 of the DGCL, or (iv) obtains an improper personal
benefit. This provision does not prevent the Registrant or its stockholders from
seeking equitable remedies, such as injunctive relief or rescission. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against actions
taken by directors that constitute negligence or gross negligence. The
Certificate of Incorporation also includes provisions to the effect that
(subject to certain exceptions) the Registrant shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
such law, as may from time to time be in effect. In addition, the By-Laws
require the Registrant to indemnify, to the full extent permitted by law, any
director, officer, employee or agent of the Registrant for acts which such
person reasonably believes are not in violation of the Registrant's corporate
II-1
<PAGE> 71
purposes as set forth in the Certificate of Incorporation. At present, the DGCL
provides that, in order to be entitled to indemnification, an individual must
have acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the Registrant's best interests. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to any
charter provision, by-law, contract, arrangement, statute or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
SEC registration $ 1,220
Printing and engraving costs 2,000 *
Legal fees and expenses 30,000 *
Accounting fees and expenses 3,500 *
Miscellaneous 1,500 *
Total $ 38,220
* To be provided by amendment.
Item 26. Recent Sales of Unregistered Securities
During the last three years, the Company sold unregistered shares of its
Common Stock as follows:
On June 12, 2000, the Company entered into an agreement with two
investors to purchase up to $4,500,000 of our common stock in three closings of
$2.5 million, $1 million and $1 million each. The initial closing for the
purchase of 905,797 shares at a price of $2.76 per share was completed on June
13, 2000. The second and third closings are scheduled to occur approximately 130
days and 180 days, respectively, after the initial closing date. Each of the
closings is for shares at a price equal to the average closing bid price for our
stock on the five consecutive trading days preceding the respective closing
date. At each closing, the Company will also issue 3-year warrants for the
purchase of shares equal to 15% of the purchase price of the shares divided by
the exercise price of the warrants which is equal to 110% of the share purchase
price at the respective closing. At the initial closing, the Company issued
warrants for the purchase of 135,870 shares at a price of $3.04 per share. In
addition, the Company granted the investors repricing rights with respect to the
shares and antidilution rights with respect to the shares and the warrants. The
Company agreed to include the shares, including the shares underlying the
warrants and the repricing rights, issued and issuable at the first closing for
resale under this Registration Statement. The Company has agreed to register the
resale of the Shares issued and issuable in connection with the second and third
closings on separate registration statements. Under certain circumstances, the
Company has the conditional right to repurchase the shares and repricing rights
at a premium.
The Company paid two unrelated finders an aggregate cash fee equal to
7.5% payable pro rata at each closing and 3-year warrants for the purchase of
20,000 shares per each $1.0 million of the financing closed at a price equal to
120% of the purchase price for the shares at the respective closing.
In selling these securities to the two investors and the two finders,
the Company relied on the exemption from registration under the Securities Act
of 1933 set forth in Regulation S thereof.
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<PAGE> 72
From November 1996 through January 31, 2000, the Company has issued an
aggregate of 2,378,000 options to purchase its Common Stock, with exercise
prices ranging from 25 cents to 40 cents per share to employees, directors, and
service providers under its 1996 Stock Option Plan. During the third quarter
ended April 30, 2000, the Company granted 115,000 stock options with an exercise
price of $3.00, 20,000 stock options with an exercise price of $2.47 and 40,000
stock options with an exercise price of $2.25 to its employees and/or officers.
Of these options, 140,000 have expired or been canceled without being exercised;
options for 50,000 shares have been exercised; as of May 31, 2000, 2,553,000
options remain outstanding. The issuance of these option shares were exempt from
registration pursuant to Section 4(2) of the 1933 Act or, where applicable, Rule
701 under the 1933 Act.
Between March and September, 1997, the Company made a private placement
offering pursuant to which it issued an aggregate of 12,537,572 shares to a
total of 63 investors for aggregate consideration of $4,427,999. Capital
Resolutions served as the Company's sales agent in this offering. The sales were
made in reliance upon Rule 506 and Section 4.2 of the 1933 Act.
In a private placement in 1998, the Company issued an aggregate of
13,255,530 shares to a total of 48 investors for aggregate consideration of
$3,720,137. The sales were made in reliance upon Rule 506 and Section 4(2) of
the 1933 Act.
In each of these private placement offerings, each subscriber had or was
provided prior to his or her investment access to all information regarding the
Company that would be included in the registration statement on Form SB-2,
except that the financial statements provided to subscribers were audited in
accordance with Canadian generally accepted accounting practices. With regards
to the sales made in reliance on Section 4(2) of the 1933 Act or Rule 506
thereunder, the Company had reasonable grounds to believe, prior to accepting
the subscription of each subscriber, based in part on the subscription
agreements or investment letters executed by the subscribers, that each of the
subscribers were sophisticated enough to evaluate the merits of an investment in
Common Stock and that each subscriber was purchasing with investment intent and
not with a view to distribution. In addition, each subscriber was reasonably
believed by the Company to be an accredited investor within the meaning of Rule
501(a) of the 1933 Act.
A total of 111 persons purchased securities in the 1998 private
placement offering, of which 98 were accredited investors and 13 were
non-accredited investors. Investors included 25 existing shareholders, 7
officers and directors, and 3 consultants. Of the 111 investors in such
offering, 86 investors, each of whom was an accredited investor, were
unaffiliated with the Company prior to their investment. The offering was made
directly by the Company except the Company paid commissions and/or finder's fees
ranging from 10% to 15% in connection with the sale of stock to 10 investors.
The Company's determination of whether investors were accredited investors,
within the meaning of Regulation D, was based on the Company's examination of
the investors' executed subscription documents.
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<PAGE> 73
Item 27. Exhibits
<TABLE>
<CAPTION>
Description
<S> <C>
3.1 Province of British Columbia, Company Act, Certificate of
Incorporation, Butter Rock Resources+
3.2 Company Act, Memorandum, Butter Rock Resources+
3.3 Articles of Incorporation, Interactive Telesis - 1992+
3.4 Certificate of Incorporation of the Company - Delaware+
3.5 Certificate of Amendment of Certificate of Incorporation
of the Company - Delaware +
3.6 Bylaws of the Company+
5.1 Opinion of Rushall & McGeever, APC as to the legality of
the shares being registered.++
10.1 ITI Stock Option Plan (1996)+
10.2 Lease Agreement between the Company and North Coast
Business Park, dated Feb. 15, 1995, with amendments dated
April 30, 1999+
10.3 Lease Agreement between the Company and U.S. Net
Solutions, inc., dated Feb. 22, 1999+
10.4 Sublease Agreement between the Company and The Townsend
Agency, dated Aug. 13, 1999+
10.5 Balboa Capital Corporate Equipment Lease Agreement+
10.6 Balboa Capital Corporate Equipment Lease Agreement+
10.7 Toshiba Corporate Equipment Lease Agreement+
10.8 Westover Financial Corporate Equipment Lease Agreement+
</TABLE>
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<PAGE> 74
<TABLE>
<S> <C>
10.9 Westover Financial Corporate Equipment Lease Agreement+
10.10 Ford Financial Services Corporate Equipment Lease
Agreement+
10.11 Ford Financial Services Corporate Equipment Lease
Agreement+
10.12 Imperial Business Credit Corporate Equipment Lease
Agreement+
10.13 Media Capital, LLC Corporate Equipment Lease Agreement+
10.14 Dell Financial Services Corporate Equipment Lease
Agreement+
10.15 Imperial Business Credit Corporate Equipment Lease
Agreement+
10.16 First Sierra Financial Corporate Equipment Lease
Agreement+
10.17 United Capital Leasing Corporate Equipment Lease
Agreement+
10.18 ADVANTA Business Service Corporate Equipment Lease
Agreement+
10.19 Ford Financial Services Corporate Equipment Lease
Agreement+
10.20 ADVANTA Bank Corporation Corporate Equipment Lease
Agreement+
10.21 Financial Pacific Leasing Corporate Equipment Lease
Agreement+
10.22 Securities Purchase Agreement dated June 12, 2000++
10.23 Registration Rights Agreement dated June 12, 2000.++
10.24 Warrant Agreement with BH Capital.++
10.25 Warrant Agreement with Excalibur.++
10.26 Amendment No. 1 to Securities Purchase Agreement.++
10.27 Amendment No. 1 to Registration Rights Agreement.++
10.28 I&G Highbluff, Inc. Lease dated April 25, 2000.++
16.1 Letter from Buckley Dodds and associates, dated Oct. 29,
1999+
23.1 Consent of Pannell Kerr Forster dated July 10, 2000
regarding Registrant.++
23.2 Consent of Pannell Kerr Forster dated July 10, 2000
regarding Paragon Voice Systems.++
23.3 Consent of Rushall & McGeever, APC (included in Exhibit
5.1).
</TABLE>
II-5
<PAGE> 75
<TABLE>
<S> <C>
27.1 Financial Data Schedule+
</TABLE>
+ Incorporated by reference to the corresponding exhibit contained in the
Company's Registration Statement on Form 10-SB/A filed on April 21, 2000
(accession No. 0000936392-00-000215).
++ Previously filed in this Registration Statement.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(2)
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act; and
(i) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(i) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
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<PAGE> 76
Section 13 and Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(1) That, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2)
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4)
(5) That, for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6)
(7) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, in the City of Pearl River, State
of New York, on October 4, 2000.
INTERACTIVE TELESIS INC.
By: /s/ Donald E. Cameron
---------------------------------
Donald E. Cameron, Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Donald E. Cameron Chief Executive Officer, President October 4, 2000
------------------------- and Director (Principal Executive
Donald E. Cameron Officer)
/s/ William R. Adams Chief Financial Officer and Secretary October 4, 2000
------------------------- (Principal Accounting Officer)
William R. Adams
/s/ Marc Goyette Director October 4, 2000
-------------------------
by Donald E. Cameron
his Attorney-in-fact
/s/ Robert Wilson Director October 4, 2000
-------------------------
by Donald E. Cameron
his Attorney-in-fact
</TABLE>
II-8
