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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM 10-SB
General Form for Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Interactive Telesis, Inc.
(Name of Small Business Issuer in its charter)
Delaware 33-0649915
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(State of incorporation) (IRS Employer Identification No.)
535 Encinitas Boulevard
Suite 116
Encinitas, California 92024
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 760-632-1700
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Copy To: Bruce J. Rushall, Esq.
1903 Wright Place, Suite 250
Carlsbad, CA 92008
(760) 438-6855
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None N/A
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
(Title of class)
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
General
Interactive Telesis Inc. ("the Company" or "ITI") provides customized
interactive voice response (IVR) services. IVR generally consists of accessing
or interacting with information in a computer database using a touch-tone phone.
The Company specializes in providing customized IVR systems meeting specific
customer needs utilizing proprietary software. The Company 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). A description of the Company's current service
offerings is provided below. ITI's services are sold to medium- and large-size
corporations for internal use and, in some instances, are bundled with a
partner's service offering for resale to their customers. The Company offers its
services nationwide in the United States and in Canada.
History
The Company was formed under the laws of the province of British Columbia on
June 19, 1987, under the name "Butter Rock Resources Ltd.," and, on September
23, 1996, the Company's jurisdiction of incorporation was continued to the State
of Delaware. The Company was originally involved in mineral exploration until
its acquisition in 1992 of Investment News Network, a company with a business
concept to utilize IVR to create an automated shareholder communication service
by which public companies could communicate in a timely and cost-effective
manner with their investors.
The Company's shares were originally listed for trading on the Vancouver Stock
Exchange in 1992, under the name "Butter Rock Resources Ltd." In 1993, the
Company acquired Investment News Network Inc., a Nevada corporation, and changed
its name to "INN Investment News Network Ltd." In September of 1995, the
Company's shares were posted for trading on the OTC Bulletin Board. Effective
October of 1995, the Company conducted a one-for-seven share consolidation and
commenced trading under the ticker symbol "TSIS." The Company voluntarily
de-listed from the Vancouver Stock Exchange in March, 1996. The Company's shares
have remained trading on the OTC Bulletin Board under the ticker symbol "TSIS"
since that date.
The Company has not participated in any material reclassification, merger,
consolidation or purchaser sale of assets outside the ordinary course of
business during the last three years.
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Business
The Company currently offers specific IVR services, both directly to medium and
large corporations, as well as allowing its services to be bundled with its
partners' product offerings. The Company is not a solution-provider - that is,
it does not develop IVR solutions for a fee and then install them at the
customer's site. Rather, the Company hosts all applications and provides all of
its services through its own software and hardware systems located at the
Company's facilities. In some cases, in order to reduce telecommunication costs,
the Company installs equipment at a customer's location, which is remotely
monitored and managed and remains the property of the Company. The Company's
systems consist of industry standard hardware and the Company's proprietary
software. The systems are modular and can be scaled to accommodate even the
largest applications.
The following are descriptions of the Company's current service offerings:
InvestorREACH(TM)
InvestorREACH(TM) is an automated shareholder communication service
which allows client public companies to provide a toll-free telephone
number which the corporations advertise to their investors. Investors
calling the number hear a personalized greeting from the client company,
are provided with a stock quote, 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.
The Company also provides mail fulfillment services. The Company charges
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 fees the Company charges for the services listed above are
as follows:
<TABLE>
<S> <C>
Service Fee $300 - $500 per month
Per-minute IVR Usage $0.29 - $0.35 U.S., $0.39 - $0.65 Canada
Mail Fulfillment $2.35 - $2.50 fee plus a pass-through on first class postage
</TABLE>
The Company determines in negotiations with the client the exact fee
charged for each contract. The factors used to determine fees charged
are based on economic and marketing assumptions which include financial
and segment strength of customer, scope of service, volume of usage and
set-up costs.
The Company offers InvestorREACH(TM) on a month-to-month basis, with no
set-up fee, no long-term contract, and no termination fees.
The Company currently has 52 InvestorREACH(TM) customers in various
industries. The largest clients include Wells Fargo, Nike, Yahoo!,
Excite, National Fuel Gas, and the Tribune Corporation.
Revenues for the fiscal year 1999 derived from the largest
InvestorREACH(TM) clients are as follows:
<TABLE>
<CAPTION>
Client Fiscal Year 1999 Revenue
<S> <C>
Wells Fargo $84,003
Nike $ 3,665
Yahoo! $25,900
Excite@Home $ 5,178
National Fuel Gas $13,702
Tribune Group $14,551
</TABLE>
To experience the InvestorREACH(TM) service, call 1/888/474-9910.
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The negotiations for the sale of InvestorREACH(TM) referenced in Note 8
to the financial statements have been terminated.
Digital Record and Replay Services
In November, 1997, the Company 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 are client-branded such that endusers are not aware the
service has been outsourced to the Company. The Company invoices the
teleconferencing company semi-monthly, based on per-minute replay usage.
The Company complements 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 client company.
The Company currently provides these services to two, AT&T Corporation
and Global Crossing, teleconferencing providers, as well as directly to
certain corporations for internal use.
Company has provided services to AT&T since November 15, 1999, based on
the Company's letter to AT&T of December 19, 1997, which is included as
Exhibit 10.22 to this Registration Statement. These services consist of
recording and playback services for AT&T's teleconference services.
Under the terms of this agreement, payment for the Company's services
is due and payable within 45 days from the date billed. The Company
understands its agreement with AT&T can be canceled by either party at
any time upon notice to the other.
The Company provides services to Global Crossing (formerly Frontier
ConferTech) pursuant to a contract dated September 15, 1999, a copy of
which is included as Exhibit 10.23 to this Registration Statement.
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
the Company 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
The Company has 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. The Company has registered the
service mark TeleSurvey(SM) in conjunction with this service.
The Company's initial sales and marketing efforts with respect to this
offering are focused on the prepaid phone card market in the United
States. The Company has 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 the
Company's 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 prepaid telecommunication platform to
dial their outgoing telephone call.
Upon securing reselling relationships with these partners, the Company
structured a Channel Partner Program to support the sales and marketing
efforts of the Company's partners with a view to increasing revenue from
this sector. In addition to the prepaid phone card industry, the Company
is pursuing survey application opportunities in the call center and
credit card industries.
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MarketReach(TM) - Enhanced Services
The Company has 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
The Company has created applications, and is 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, Interactive Telesis, Inc. (the "Company") purchased
510,000 shares of common stock of Paragon Voice Systems ("Paragon").
Upon consummation of the transaction, Paragon had a total of 900,000 shares
outstanding of which the Company owns 56.67%.
Paragon is a leading value-added reseller and developer of computer telephony
solutions in the emerging technology field of Automated Speech Recognition
("ASR"). Paragon resells speech recognition software and application building
blocks for the technology as a part of its integrated solutions. Paragon is a
California corporation based in San Diego, California.
The Company is a long-time customer of Paragon and purchased a controlling
interest in Paragon with a view of joining forces to develop and deploy the
most advanced speech recognition solutions for corporate customers. The Company
hopes that its relationship with Paragon will allow Paragon to provide the
development, integration and support services for ASR applications the Company
builds for its customers to handle their ASR calls and communication needs.
The Paragon Acquisition helps position the Company to become one of the
premiere hosting facilities for complex ASR applications.
Sales and Marketing
The Company has a proprietary sales force of five individuals targeting
customers in specific industry sectors (e.g., teleconferencing and prepaid long
distance). Sales strategies include telemarketing, face-to-face meetings,
presentations, and providing free demonstrations.
In the Prepaid Channel Program, the purpose is to leverage the existing sales
forces of the Channel partners in selling the Company's services bundled with
the partner's prepaid minutes. The Company has recently created partner
handbooks and an entire Channel Partner Program to support and increase revenues
for the Company and its partners in the sale of automated surveys in combination
with prepaid phone cards.
Competition
To the Company's knowledge, 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. The
Company does not offer any live-agent services and wherever these services are
required as a complement to the Company's IVR services, the Company out-sources
the live-agent services to one of several call centers with which the Company
has partnered.
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
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bureau services similar to the business strategy of the Company. In general, the
Company finds itself in competition with large call center competitors which
also offer IVR services. The Company is 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 competes against much larger
companies.
Business Concentration
A majority of the Company's revenues to date has been generated by record and
replay services. 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's relationship with these customers is good and the Company expects to
be providing additional services in the future to these customers beyond those
currently being provided. All of the Company's contracts are terminable upon
notice by either party.
The following were the Company's major customers, based on revenue, during the
fiscal years ended:
July 31, 1998 AT&T TeleConferencing
July 31, 1999 AT&T TeleConferencing, Global Crossing
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.
The Company has applied for the following service marks:
- InvestorREACH(TM)
- MarketREACH
- TeleSurvey
Governmental Regulation
The Company is 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
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products and services. The Company does not provide customer information to
third parties and, therefore, does not anticipate any current or proposed
legislation relating to online privacy to directly affect its activities to a
material extent.
The Company is not certain how its 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 the Company's 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 the Company's business depends. Future
government regulation may have an adverse affect on the Company's cost of doing
business.
Employees
The Company currently has 23 full-time employees and three part-time employees.
The Company's success will depend in large part on its ability to attract and
retain skilled and experienced employees. The Company believes that its
relations with its employees is good. The Company does not currently have any
key-man life insurance on any of its employees, directors, or executive
officers.
The Company has no written or oral contracts for employment with any of its
employees, directors, or executive officers.
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
- THE COMPANY HAS A LIMITED OPERATING HISTORY. The Company implemented
its current plan of business in 1994 and remains dependent upon a
limited variety of services (as specified under "Business" on page 3)
and small number of significant customers (See "Business
Concentration" on page 6.) Because of the Company's limited
experience in its principal markets and its anticipated need to
expand the scope of its services and its customer base, there is no
assurance that the Company's long-term operating strategies for the
sales of its services in its selected markets will be successful.
- 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 the 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 broke-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 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.
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- THE COMPANY HAS A HISTORY OF LOSSES AND MAY INCUR LOSSES IN THE
FUTURE. Until its fiscal year ended July 31, 1999, the Company had
incurred significant net losses under its current plan of business.
There is no assurance that the Company's revenues will grow or that
it will maintain profitability in the future. The Company's ability
to increase revenue and maintain profitability will be affected by
other risks and uncertainties described below, most of which are
outside of the Company's control.
- THE COMPANY'S BUSINESS IS DEPENDENT UPON A SMALL NUMBER OF CUSTOMERS
WHO ACCOUNT FOR THE MAJORITY OF THE COMPANY'S REVENUES. The loss of
one or more of these customers and the Company's inability to replace
them would materially adversely affect the Company's business.
- THE COMPANY'S BUSINESS DEPENDS ON CERTAIN SKILLED AND EXPERIENCED
EMPLOYEES. These include the Company's Chief Executive Officer, VP of
Operations and its senior software programmers. The Company does not
maintain long-term employment contracts with its CEO or any of its
key employees. Competition for skilled and experienced software
programmers and supporting skills in the Company's geographic region
is intense and the Company may not be able to hire or retain key
employees. If the Company is unable to hire, train and manage new
skilled and experienced employees as needed, it would be unable to
support its planned growth and future operations.
- REVENUES FROM PORTIONS OF THE COMPANY'S BUSINESS MAY VARY THROUGHOUT
ITS FISCAL YEAR. For example, the Company's 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.
- THE COMPANY DOES NOT GENERALLY CHARGE ITS CUSTOMERS FOR ITS INITIAL
SET-UP COSTS FOR ESTABLISHING A CUSTOMIZED INTERACTIVE VOICE RESPONSE
SERVICE, BUT RECOUPS THESE COSTS OVER THE FIRST SEVERAL MONTHS OF A
CONTRACT. The majority of Company's services accounts with 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 the Company to recoup its set-up
costs.
- THE COMPANY DOES NOT HAVE COPYRIGHT OR PATENT PROTECTION FOR ITS
PROPRIETARY SOFTWARE SYSTEMS. The Company does not consider its
service mark or trade secrets to be material to its financial
results and/or results of operations.
- MANY OF THE COMPANY'S CUSTOMERS HAVE GREATER TECHNICAL AND FINANCIAL
RESOURCES THAN THE COMPANY AND COULD, SHOULD THEY DEEM IT ADVISABLE
AND ECONOMICALLY FEASIBLE, PROVIDE INTERNALLY THE SERVICES OTHERWISE
PROVIDED BY
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THE COMPANY. Accordingly, there is no assurance that in the future
one or more of the major customers may not provide internally
services which it now purchases from the Company.
- THE COMPANY DOES NOT BELIEVE SUBSTANTIAL BARRIERS EXIST TO THE ENTRY
BY OTHER COMPANIES INTO ONE OR MORE OF THE SERVICES THE COMPANY
PROVIDES. Accordingly, the Company could, in the future, encounter
significant competition for its services from one or more competitors
which have significantly greater technical and/or financial resources
than the Company.
- IF THE COMPANY IS UNABLE TO DEVELOP NEW SERVICES OR EXPAND FEATURES
OF EXISTING SERVICES, IT MAY NOT BE ABLE TO EXPAND ITS OPERATIONS.
The Company must continually explore additional areas and services
which it may offer to its customers. The Company's inability to
manage its growth could harm its business. Also, if the Company is
unable to continually improve its ability to deliver services to
customers, it may not be able to accommodate the increasing level of
use or expanding needs of its customer base.
- THE COMPANY'S 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 the Company's services and/or the
means by which the Company provides its services. The Company's
failure to adapt to such changes could adversely affect the Company's
volume or cause the Company's services to become obsolete.
- THE COMPANY RELIES SIGNIFICANTLY ON THIRD PARTIES. The Company's
operations depend to a significant degree on a number of other third
parties, including telecommunication service providers. The Company
has no effective control over these third parties and no long-term
contractual relationships with any of them. From time to time, the
Company could experience temporary interruptions in its Internet Web
site connections and its telecommunications access. Continuous or
prolonged interruptions in the Company's Internet Web site
connections or in its telecommunications access would have a material
adverse affect on the Company's business, financial condition, and
results of operations. The Company's agreements with its
telecommunications providers place certain limits
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on the Company's ability to obtain damages from the service providers
for failure to maintain services to the Company's facilities.
RISKS RELATED TO AN INVESTMENT IN THE COMPANY'S COMMON STOCK
- THE COMPANY EXPECTS ITS SHARE PRICE TO REMAIN HIGHLY VOLATILE. The
market price for the Company's 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 the Company's business, including
announcements of technological innovations, fluctuations in customer
orders, customer cancellations, the introduction of new products by
the Company or its competitors, service problems and/or quarterly
variations in the actual or anticipated results of the Company's
operations. Also, the over-the-counter market in which the Company's
stock trades has 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 the Company's stock.
- THE COMPANY DOES NOT PAY DIVIDENDS ON ITS COMMON STOCK AND HAS NO
PLANS TO DO SO. The Company has not paid any cash dividends on its
common shares to date. The Company intends to retain any earnings to
finance growth and development of its business and does not
anticipate paying cash dividends in the foreseeable future.
Accordingly, the Company's shareholders will need to look for
appreciation in the market price of the Company's stock for a return
on their investment in the Company.
- MANAGEMENT HAS BROAD DISCRETION OVER ESTABLISHING AND IMPLEMENTING
THE COMPANY'S OPERATIONAL STRATEGIES AND GOALS. Management may
devise, modify, abandon or implement operating strategies at any time
within their discretion without a vote of the Company's shareholders.
Accordingly, investors in the Company must depend on management's
experience and judgment in making critical decisions affecting the
Company's business and operating results.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. The Company 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 the Company's third quarter
revenues, while third quarter revenues were up 66% from the second quarter of
1999. To October 31, 1999, the Company has recorded seven consecutive quarters
of increasing revenues.
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Cost of Revenue and Major Expenses
Fiscal 1999 versus 1998
Cost of Revenue 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 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 the Company's growth in revenue.
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.
Sales and marketing expenses increased during the period 88% as a result of
adding staff and also increased travel expenditures to promote the growth of the
business.
Depreciation and amortization increased 174% during the period as a result of
adding computer and related equipment. The increase in the Company's property
and equipment of approximately $575,000 was financed primarily by way of capital
leases secured by the equipment and personally guaranteed by the Company's CEO.
Upon successfully securing additional long-term contracts, the Company will be
required to increase the size of its IVR systems to support the additional
growth. Equipment will be acquired through a combination of cash on hand and
capital leases on the equipment purchased.
Management believes that Automated Speech Recognition based on natural language
engines will begin replacing traditional, existing IVR technology based on DTMF
(callers making selections by pressing buttons on the telephone keypad). 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.
The Company has recently begun focusing its 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 the Company's recent acquisition
of Paragon Voice Systems.
At the 1999 Annual General Meeting the Board of Directors sought and received
authorization from shareholders for the sale of the Company's automated
shareholder communication service, InvestorREACH(TM). However, the Company has
since terminated discussions for the sale of InvestorREACH(TM).
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Liquidity and Capital Resources
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.
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-4, 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.
Commitments - non cancelable operating 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.
Management is confident that the Company's positive cash flow is sufficient to
meet its anticipated capital expenditures on both a short- and long-term basis.
The Company's systems are modular in nature and scalable, depending on demand.
Accordingly, capital expenditures on the Company's telecommunications network
are usually made only immediately prior to use; hence, an increase in revenue
and net income. Based on current cash flow projections, management expects that
the Company can continue operations and expand its computer network where
necessary in the future without any outside infusions of cash.
Future Expectations
For the fiscal year ending July 31, 2000, the Company is projecting revenue
increases, with a corresponding increase in net income (before tax). Achieving
growth in both revenues and net income will be contingent upon the Company
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.
The Company's telecommunication costs should be reduced over the next fiscal
year, resulting from volume discounts.
The Company has 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. The Company has made a valuation allowance for the
deferred tax assets, including the portion related to the net operating loss
carry-forwards. A valuation allowance is recorded 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. To the extent that the Company is able to
achieve net operating income in the future, the tax loss carry-forwards will
have a significant, positive effect on the Company's after-tax income.
Forward Looking Statements
This registration statement contains forward-looking statements that are based
on the Company's beliefs as well as assumptions made by and information
currently available to the Company. When used in this registration statement,
the words "believe," "endeavor," "expect," "anticipate," "estimate," "intends,"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and assumptions,
including, without limitation, the risks and uncertainties concerning
technological changes, increased competition, and general economic conditions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, or projected. The Company cautions potential
investors not to place undue reliance on any such forward-looking statements,
all of which speak only as of the date made.
12
<PAGE> 13
Year 2000 Issue
The Year 2000 Problem generally involved whether a computer system, software
product or business system, when working alone or in conjunction with other
software or hardware systems, accepted input of, stored, manipulated and output,
dates in the Year 2000 or thereafter without error or interruption (the "Year
2000 Problem"). The Year 2000 Problem had the potential to impact the Company in
the following principal areas: (i) the Company's internal technology systems;
(ii) the Company's non-internal technology systems which contain embedded
computer devices; and (iii) the business systems of the Company's partners,
vendors and customers. The Director of Operations and the Corporate Systems
staff managed the Company's Year 2000 efforts and the Company had no significant
Y2K issues occur and none of the Company's processes or services were effected
negatively at the commencement of January 2000.
The Company incurred approximately $8,800 in Year 2000 remediation
costs, which was funded from working capital.
ITEM 3. DESCRIPTION OF PROPERTY
The Company's executive offices are located in Encinitas, California, and
consist of approximately 5063 square feet, under a non-cancelable operating
lease, at a monthly cost of $7,935. The lease expires on August 31, 2001. The
Company's principal computer facility is located in San Diego in a shared
facility with a co-location lease for $2,000 per month with one of the Company's
telecommunication suppliers. The Company is in process of transitioning systems
from this facility to its new technology center at 10180 Telesis Court, San
Diego CA. This facility comprises 1,500 square feet that the Company sublets
from an existing tenant in exchange for network services.
13
<PAGE> 14
ITEM 4. 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 February 1, 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>
Name and Address Number of Shares Percentage Owned
- ---------------- ---------------- ----------------
<S> <C> <C>
Donald E. Cameron(1)(2) 1,479,544 4.51%
Marc Goyette(1)(3) 275,000 .84%
Robert Wilson(1)(3) 100,000 .31%
David Webb(1)(4) 250,000 .76%
Michael Hutchison(1)(5) 100,000 .31%
William R. Adams(1)(6) 75,000 .23%
Douglas T. Luke(1)(7) 102,350 .31%
--------- -------
All directors & officers as a group 2,381,894 7.27%
</TABLE>
(1) Address is 535 Encinitas Blvd., Suite 116, Encinitas, CA 92024
(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
(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. Hutchison to purchase 100,000 shares of
common stock at an exercise price of 35 cents per share
(6) 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
(7) Includes options granted to Mr. Luke to purchase 75,000 shares of Common
Stock at an exercise price of 35 cents per share
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
Set forth below are the Directors and Officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Donald E. Cameron 47 President and CEO;
Director since 1993
Marc Goyette(1)(2) 43 Director since 1998
Robert Wilson(1)(2) 55 Director since 1996
David J. Webb 37 Chief Operating Officer
Michael Hutchison 38 Vice President of Business Development
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C>
William R. Adams 50 Chief Financial Officer/Secretary
Douglas T. Luke 34 Vice President of Operations
</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 high-tech 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.
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),
15
<PAGE> 16
Mr. Webb has served as an independent consultant (1994-1995) to several
communications firms based in California.
Michael Hutchison
Mr. Hutchison joined the Company in April, 1998 and is currently Vice President
of Business Development for Interactive Telesis. He began his career in
marketing with Electronic Data Systems as manager of EDS/General Motors'
international operations. He was the Vice President of Sales and Marketing for
Anthony Robbins' product and seminar training company from 1987 to 1994. He then
served as President of the Ambassador Management Group, providing sales and
marketing services to emerging growth "start -up" companies, from 1994 to 1998.
Mr. Hutchison is a member of the San Diego Telecom Council.
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).
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.
16
<PAGE> 17
- - Stock Option
The Company proposes to 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>
No. of Shares Exercise Price
------------- --------------
<S> <C> <C>
Marc Goyette 100,000 40 cents
Robert Wilson 100,000 40 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.
ITEM 6. 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.
17
<PAGE> 18
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------------------
Annual Compensation Awards Payouts
-------------------------- ---------- -----------
Name Other Securities Restricted All
And Annual Under Shares or LTIP other
Principal Financial Salary Bonus Compen- Options Restricted Payouts Compen-
Position Year-End ($U.S.) ($) sation granted(#) Share Units ($) sation($)
- -------------- --------- -------- ------- ------- ---------- ----------- ------- ---------
<S> <C> <C> <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.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
The Company has only one class of stock.
The Company is authorized to issue 50,000,000 shares of Common Stock, $0.001 par
value, of which, as of November 1, 1999, 30,651,138 shares were issued and
outstanding and held of record by 1,049 stockholders. As of November 1, 1999,
the Company had 3,370 beneficial owners of its 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
18
<PAGE> 19
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 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.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Market Information
The Company's Common Stock has been posted for trading on the OTC Bulletin Board
under the symbol "TSIS" since October, 1996.
Commencing with the fiscal quarter ending October 31, 1997, the high and low bid
prices for each quarter were as follows:
<TABLE>
<CAPTION>
Quarter ended High Low
-------------- -------- --------
<S> <C> <C> <C>
Oct. 31, 1997 86 cents 62 cents
Jan. 31, 1998 72 cents 30 cents
April 30, 1998 60 cents 41 cents
July 31, 1998 66 cents 48 cents
Oct. 31, 1998 51 cents 25 cents
Jan. 31, 1999 42 cents 25 cents
April 30, 1999 51 cents 27 cents
July 31, 1999 43 cents 36 cents
Oct. 31, 1999 36 cents 31 cents
</TABLE>
The quotations reflect inter-dealer prices, without retail mark-up, mark-down,
or commission, and may not represent actual transactions.
The Company has not paid any cash dividends since its inception and does not
anticipate paying dividends in the foreseeable future. It is anticipated that
earnings, if any, will be retained for the expansion of the Company's business.
19
<PAGE> 20
ITEM 2. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit brought in the Superior Court of
California in January, 1999, by Dieter Sauer, a former consultant, claiming
wrongful termination by the Company. The consultant alleges special, general and
punitive damages in excess of $400,000.
The Company is a defendant in a lawsuit brought in the District Court of Nevada
in November, 1997, by Scott Madison, a stockholder. The stockholder is claiming
that the Company, an Officer of the Company, and individuals associated with a
fiscal agent who assisted the Company in raising equity capital in 1996, made
misrepresentations to the plaintiff in the sale of shares of the Company's
Common Stock. The plaintiff alleges special, general and punitive damages in
excess of $1,000,000. Although the Company intends to vigorously defend the
action, counsel for the Company believes it is probable the Company will be
required to pay some damages. A reserve of $80,000 has been provided for in the
Company's financial statements.
Beginning in approximately March 1997 through August 1998, the Company
authorized the repurchase of up to $2 million of its common stock through open
market transaction for the intended purpose of reducing the Company's
outstanding stock. As described in Note 6 to the Company's 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.
The Company is not aware of any proceedings or potential proceedings that any
governmental authority is contemplating.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In December, 1998, the Company did not reappoint Buckley Dodds and Associates as
independent auditors for the Company and appointed Pannell Kerr Forster as
independent auditors. Pannell Kerr Forster was engaged to perform the audits for
the fiscal years ended July 31, 1998 and 1999. The decision to change
independent auditors was approved by the Board of Directors of the Company.
There were no disagreements between the Company and Buckley Dodds and Associates
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures.
Buckley Dodds and Associates had not issued a report in the past two fiscal
years containing a disclaimer or adverse or qualified opinion.
There were no disagreements between the date of the last audit report prepared
by Buckley Dodds and Associates and the date they were discharged in favor of
Pannell Kerr Forster.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Company sold unregistered shares of its Common
Stock as follows:
Between March and September, 1997, the Company issued an aggregate of 12,537,572
shares to a total of 63 investors for aggregate consideration of $4,427,999. The
offering was carried out by Capital Resolutions. The sales were made in reliance
upon Rule 506 and Section 4.2 of the 1933 Act.
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.
Prior to investing, each subscriber was provided with or had 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
20
<PAGE> 21
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 501A of the 1933
Act.
A total of 111 persons purchased securities in this 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 this Offering, 86 investors, each of whom is 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.
Stock Options
The Company established the Interactive Telesis 1996 Stock Plan as a means
whereby the Company may, through awards of (i) incentive stock options ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code, (ii) stock
appreciation rights ("SARs"), (iii) nonqualified stock options ("NSOs"), (iv)
restricted stock ("Restricted Stock"), and (v) phantom stock ("Phantom Stock"):
(a) provide key full-time employees, non-employee directors, consultants
or advisors, with additional incentive to promote the success of the
Company's business;
(b) encourage such persons to continue to promote the success of the
Company; and
(c) enable such person to acquire proprietary interests in the Company.
The Stock Option Plan as of November 1, 1999, is authorized to grant
options to acquire a maximum of 1,485,000 shares of Common Stock. The
provisions of this Plan do not apply to or affect any option, stock,
stock appreciation right, restricted stock or phantom stock heretofore
or hereafter granted under any other stock plan of the Company, and all
such options, stock, stock appreciation rights, restricted stock or
phantom stock continue to be governed by and subject to the applicable
provisions of the plan under which they were granted.
Since November of 1996, the Company has issued an aggregate of 1,052,000
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. Of these options, 112,000
have been cancelled without being exercised; options for 50,000 shares
have been exercised; as of November 1, 1999, 890,000 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.
21
<PAGE> 22
STOCK OPTIONS AS OF NOVEMBER 1, 1999
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE DATE GRANTED EXPIRATION DATE
---------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Directors 395,000 $0.40 10/3/96 10/3/06
Directors 100,000 $0.40 5/15/98 5/15/08
Directors 100,000 $0.40 5/15/99 5/15/09
Employees 190,000 $0.40 10/3/96 10/3/06
Consultants 105,000 $0.25 5/15/98 5/15/00
Consultant 50,000 $0.40 10/3/96 10/3/06
----------
Subtotal 940,000
Consultant (Exercised 10/14/99) 50,000
Total Outstanding Options ==========
as of November 1, 1999 890,000
==========
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that, to the fullest extent
permitted by Section 102(b)(7) of the General Corporation Law of the State of
Delaware, as amended from time to time, or in analogous provisions of successor
law, there shall be no liability on any part of any director of the Corporation
to the Corporation or to its stockholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of Section 102(b)(7)
shall not adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any act or omission occurring
prior to or at the time of such repeal or modification.
Section 145 of the Delaware General Corporation Law, as amended, provides for
the indemnification of the Company's officers, directors, employees and agents
under certain circumstances as follows:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
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<PAGE> 23
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
23
<PAGE> 24
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The Company's Bylaws provide for the indemnification of the Company's directors,
officers, employees, or agents under certain circumstances as follows:
6.1 Right to Indemnification. The Corporation shall indemnify and hold harmless,
to the fullest extent permitted by applicable law as it presently exists or may
hereafter by amended, any person who was or is made or is threatened to be made
a party of is otherwise involved in
24
<PAGE> 25
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") by reason of the fact the he or she, or a person
for whom he or she is the legal representative, is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust, enterprise or nonprofit entity,
including service with respect to employee benefit plans, against all liability
and loss suffered and expenses reasonably incurred by such person. The
Corporation shall be required to indemnify a person in connection with a
proceeding initiated by such person only if the proceeding was authorized by the
Board of Directors of the Corporation.
6.2 Prepayment of Expenses. The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a director or officer in advance of the
final disposition of the proceeding shall be made only upon receipt of an
undertaking by the director or officer to repay all amounts advanced if it
should be ultimately determined that the director or officer is not entitled to
be indemnified under this Article or otherwise.
6.3 Claims. If a claim for indemnification or payment of expenses under this
Article is not paid in full within sixty days after a written claim therefore
has been received by the Corporation, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action,
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
6.4 Non-Exclusivity of Rights. The rights conferred on any person by this
Article VI shall not be exclusive of any other rights which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
6.5 Other Indemnification. The Corporation's obligation, if any, to indemnify
any person who was or is serving at its request as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust enterprise or
non-profit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise.
6.6 Amendment of Renewal. Any repeal or modification of the foregoing provisions
of this Article VI shall not adversely affect any right or protection hereunder
of any person with respect to any act or omission occurring prior to the time of
such repeal or modification.
25
<PAGE> 26
PART F/S
INTERACTIVE TELESIS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT.......................................... F-1
FINANCIAL STATEMENTS
Balance Sheets................................................. F-2
Statements of Operations ...................................... F-3
Statements of Changes in Shareholders' Equity.................. F-4
Statements of Cash Flows....................................... F-5 - F-6
NOTES TO FINANCIAL STATEMENTS........................................ F-7 - F-15
</TABLE>
<PAGE> 27
[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-1
<PAGE> 28
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-2
<PAGE> 29
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-3
<PAGE> 30
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-4
<PAGE> 31
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-5
<PAGE> 32
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-6
<PAGE> 33
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-7
<PAGE> 34
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-8
<PAGE> 35
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-9
<PAGE> 36
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-10
<PAGE> 37
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-11
<PAGE> 38
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-12
<PAGE> 39
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-13
<PAGE> 40
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-14
<PAGE> 41
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-15
<PAGE> 42
PART III
ITEM 1. Index of 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
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
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
- --------------------
* Previously filed.
</TABLE>
27
<PAGE> 43
<TABLE>
<S> <C>
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+ AT&T Corp. contract dated December 19, 1997
10.23+ Global Crossing (formerly Frontier Communications Services,
Inc.) contract dated September 14, 1999
16.1* Letter from Buckley Dodds and Associates, dated Oct. 29, 1999
16.2* Letter from Buckley Dodds and Associates, dated March 21, 2000
27.1* Financial Data Schedule
- --------------------
* Previously filed.
+ Portions of this exhibit have been omitted pursuant to a request for
confidential treatment.
</TABLE>
28
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERACTIVE TELESIS INC.
(a Delaware corporation)
------------------------------------
(Registrant)
Dated: April 21, 2000 By: /s/ Donald E. Cameron
---------------------------------
Donald E. Cameron
President and CEO
29
<PAGE> 1
EXHIBIT 10.22
**This portion of the document has been omitted pursuant to a request for
confidential treatment and this document, including the information, has been
filed separately with such respect.
December 19, 1997 [INTERACTIVE TELESIS LOGO]
Maggie M. Agront
AT&T
100 Southgate Parkway
Morristown, NJ
TEL: 973/898-8921
FAX: 973/898-8176
RE: TELECONFERENCE RECORDING AND REPLAY SERVICE
Dear Maggie:
I apologize for the delay in responding to your Nov. 20 memo in which you
provided me with a draft of the agreement by which Interactive Telesis will
provide recording and playback services to AT&T.
I provided a draft copy of Exhibit B (pricing schedule) to Rob Mayer and have
just received his approval. Attached is the Exhibit B pricing schedule for
inclusion in the agreement. I have not yet received a draft of Exhibit A (the
description of services to be provided) from you and look forward to receiving
same at your earliest convenience.
We commenced providing services approximately Nov. 15, and will be invoicing
AT&T the first week in January for service provided in November and December.
As such, it would be best for all concerned if we could expedite the
finalization and execution of this agreement.
I do not have any comments or revisions on the form of draft agreement that you
forwarded to me so that once the exhibits are finalized we should be in a
position to execute the agreement.
I look forward to hearing from you shortly.
Yours very truly,
/s/ DONALD E. CAMERON
- ------------------------------
Donald E. Cameron
President
Enc.
cc: Rob Mayer
<PAGE> 2
EXHIBIT B
The following pricing is to be charged for services performed by Interactive
Telesis Inc. pursuant to this Agreement.
<TABLE>
<CAPTION>
Services Price
<S> <C>
Teleconference recording and playback
One time set-up fee $3500
Recording no charge
Replay **
Editing $10 per conference call
Customized greetings $45
Usage reports no charge
Implementation of replay features
Pause, reverse, fast forward $15 per conference call
Fast-forward to location $25 per conference call
Safe-harbor disclaimer option $15 per conference call
Fax-on-demand
Set up per conference call $75 per conference call
Fax usage $0.40 per minute
Message capture/transcription
Message capture option $75 per conference call
Transcription (name, address, affiliation) $0.80 per message
Transcription (open-ended responses) $1.65 per minute of
transcription
Usage report no charge
Internet replay
Development fee $2500
Replay (no time restriction) $350 per conference call
Usage report no charge
Specializing programming
Specialized programming involving
creation of new applications and
enhancements to existing applications,
including revisions to specialized report $90 per hour
Broadcast fax
Set-up fee no charge
Broadcast fax $0.40 per minute
Standard report no charge
</TABLE>
- ------------
** Confidential treatment requested
Please refer to the legend on the front page of this document.
<PAGE> 3
FAX DATE November 20, 1997
Number of pages including cover sheet 8
TO: Don Cameron FROM: Maggie M. Agront
AT&T
100 Southgate Parkway
Morristown, NJ
PHONE PHONE 201-898-8921
FAX PHONE 760-632-1790 FAX PHONE 201-898-8176
CC:
REMARKS: [ ] Urgent [X] For your review [X] Reply ASAP [ ] Please Comment
Don:
Attached is a draft of the agreement for the audio teleconference services. The
draft does not include Exhibits A (the specifications for the work to be
performed) or Exhibit B (pricing). I am currently still working on Exhibit A
and will need you to provide me the pricing information for Exhibit B.
I am sending you the attached so that you can review all the legal terms and
conditions which will be included in the agreement and let me know if there are
any concerns that you have.
Thank you,
Maggie Agront
<PAGE> 4
DRAFT
Interactive Telesis Inc. AT&T Corp.
535 Encinitas Blvd 100 Southgate Parkway Rm. 3B28
Encinitas, CA 92024 Morristown, NJ 07960
Attention: Mr. Don Cameron Attention: Maggie Agront
Subject to the terms and conditions stated in this Agreement and on the reverse
side of page one of this Agreement, Interactive Telesis, Inc. agrees to perform
the professional services described, hereinafter "Work", and AT&T Corp.
("Company") agrees to pay the charges stated. Whenever the terms "you", "your",
"Supplier" or "Contractor" are used in this Agreement, the same shall mean
Interactive Telesis Inc.
STATEMENT OF WORK
Commencing August 1, 1997 and ending on July 31, 1999, Contractor shall perform
services under this agreement.
Contractor shall provide to Company recording and playback services for
Company's Teleconference Services, as specified in Exhibit A, attached hereto
and made a part hereof. Contractor shall complete such services within the time
allowed in this Agreement and shall meet all interim deadlines, if any,
specified in Exhibit A. Services not completed to Company's satisfaction shall
be re-performed at no cost to Company.
COMPENSATION
Upon submission of accurate invoices by Contractor as required herein, Company,
upon acceptance of the work hereunder, shall pay Contractor for the performance
of this Agreement in accordance with the schedule contained in Exhibit B,
attached hereto and made a part hereof. The Work shall be performed to the
satisfaction of Company, and shall be in accordance with the highest
professional standards commonly used in the Automated Call Processing industry,
and with such standards or restrictions as may be lawfully imposed by
governmental authority. Unless otherwise specifically provided in Exhibit B,
the scheduled payments include the cost of all labor required to complete the
services described in Exhibit A.
AUDIT
Contractor shall maintain accurate and complete records of all hours of direct
labor employees engaged in Work for which payment under this Agreement is to be
computed on the basis of actual time worked, at a fixed rate per unit of time
and all other costs, if any, payable by Company under this Agreement. Such
records shall be maintained in accordance with recognized commercial accounting
practices so they may be readily audited and shall be held until costs have
been finally determined under this Agreement and payment or final adjustment of
payment as the case may be has been made. Contractor shall permit Company or
<PAGE> 5
TERMS AND CONDITIONS
ASSIGNMENT AND SUBCONTRACTING - Supplier shall not assign any right or interest
under this Agreement (excepting monies due or to become due) or designate or
subcontract any Works or other obligation to ?? ?? or owed under this Agreement
without prior written consent of Company. Any attempted assignment, delegation
or subcontracting in contravention of the above provisions shall be void and
ineffective. Any assignment of monies shall be void and ineffective to the
extend that (1) Supplier shall not have given Company at least thirty (30) days
prior written notice of such assignment or (2) such assignment attempts to ???
upon Company obligations to the assignee additional in the payment of such
monies, or to ??? ??? from dealing solely and directly with Supplier in all
matters pertaining to this Agreement including ?? ??? amendments or settlements
of changes ??. All Work performed by Supplier's subcontractor(s) ?? shall be
deemed Work performed by Supplier.
CHANGES - Company may at any time during the progress of the Work require
additions to or alterations or deductions or deviations (all hereinafter
referred to as a "Change") from the Work called for by the specifications,
drawings and samples. No Change shall be considered as an addition or alteration
to or deduction or deviation from the Work called for by the specifications,
drawings and samples nor shall Supplier be entitled to any compensation for work
done pursuant to or in contemplation of a Change, unless made pursuant to a
written Change Order issued by Company. Within ten (10) days after a request for
a Change, Supplier shall submit a proposal to Company which includes any
increases or decreases in Supplier's costs or changes in a delivery or Work
schedule necessitated by the Change. Company shall, within ten (10) days of
receipt of the proposal, other (i) accept the proposal in which event Company
shall issue a written Change Order ordering Supplier to perform the Change or
(ii) advise Supplier not to perform the Change in which event Supplier shall
proceed with the original Work.
CHOICE OF LAW - The construction interpretation and performance of this
Agreement and all transactions under it shall be governed by the Laws of the
State of New Jersey excluding its choice of laws rules and including the
Convention for the International Sale of Goods. The parties agree that the
provision of the New Jersey Uniform Commercial Code apply to this Agreement and
all transactions under it, including agreements and transactions relating to the
furnishing of services, the lease or rental of equipment or material, and ??? of
software. Supplier agrees to submit to the jurisdiction of any court wherein an
action is commenced against Company based on a claim for which Supplier has
agreed to indemnify Company under this agreement.
COMPLIANCE WITH LAWS - Supplier and all persons furnished by Supplier shall
comply at their own expense with all applicable federal, state, local and
foreign laws, ordinances, regulations and codes, including those relating to the
use of chlorofluorocarbons, and including the identification and procurement of
required permits, certificates, licenses, insurance, approvals and inspections
in performance under this Agreement. Supplier agrees to indemnify, defend (at
Company's request) and save harmless Company, its affiliates, and their
customers and each of their officers, directors and employees from and against
any losses, damages, claims, demands, suits, liabilities, fines, penalties and
expenses (including reasonable attorney's fees) that arise out of or result from
any failure to do so.
ENTIRE AGREEMENT - This Agreement shall incorporate the typed or written
provisions on Company's orders issued pursuant to this Agreement and shall
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and the order(s) and shall not be modified or
rescinded, except by a writing signed by Supplier and Company. All references in
these terms and conditions to this Agreement or to Work, services, material,
equipment, products, software or information furnished under, in performance of,
pursuant to, or in contemplation of, this Agreement shall also apply to any
orders issued pursuant to this Agreement. Printed provisions on the reverse side
of Company's orders (except as specified otherwise in this Agreement) and all
provisions on Supplier's forms shall be deemed deleted. Additional or different
terms inserted in this Agreement by Supplier, or deletions thereto, whether by
alterations, addends, or otherwise, shall be of no force and effect, unless
expressly consented to by Company in writing. Estimates or forecasts furnished
by Company shall not constitute commitments. The provisions of this Agreement
supersede all contemporaneous oral agreements and all prior oral and written
quotations, communications, agreements and understandings of the parties with
respect to the subject matter of this Agreement. The term "Work" as used in this
Agreement may also be referred to as "services".
FORCE MAJEURE - Neither party shall be held responsible for any delay or
failure in performance of any part of this Agreement to the extent such delay or
failure is caused by fire, flood, explosion, war, strike, embargo, government
requirement, civil or military authority, act of God, or other similar causes
beyond its control and without the fault or negligence of the delayed or
nonperforming party or its subcontractors ("force majeure conditions").
Notwithstanding the foregoing, Supplier's liability for loss or damage to
Company's material in supplier's possession or control shall not be modified by
this clause. If any force majeure condition occurs, the party delayed or unable
to perform shall give immediate notice to the other party, stating the nature of
the force majeure condition and any action being taken to avoid or minimize its
effect. The party affected by the other's delay or inability to perform may
elect to: (1) suspend this Agreement or an order for the duration of be force
majeure condition and (i) at its option buy, sell, obtain or furnish elsewhere
material or services to be bought, sold, obtained or furnished under this
Agreement or an order (unless such sale or furnishing is prohibited under this
Agreement) and deduct from any commitment the quantity bought, sold, obtained or
furnished or for which commitments have been made elsewhere and (ii) once the
force majeure condition ceases, assume performance under this Agreement or an
order with an option in the affected party to extend the period of this
Agreement or order up to the length of time the force majeure condition endured
and/or (2) when the delay or nonperformance continues for a period of at least
fifteen (15) days, terminate at no charge, this Agreement or an order or the
part of it relating to material not already shipped, or services not already
performed. Unless written notice is given within forty-five (45) days after the
affected party is notified of the force majeure condition, (i) shall be deemed
selected.
GOVERNMENT CONTRACT PROVISIONS - The following provisions regarding equal
opportunity, and all applicable laws, rules, regulations and executive orders
specifically related thereto, including applicable provisions and clauses from
the Federal Acquisition Regulation and all supplements thereto are incorporated
in this Agreement as they apply to work performed under specific U.S. Government
contracts: 41 CFR 60-1.4, Equal Opportunity; 41 CFR 60-1.7, Reports and Other
Required Information; 41 CFR 60-1.6, Segregated Facilities; 41 CFR 60-250.4,
Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era (if in
excess of $10,000); and 41 CFR 60-741.4, Affirmative Action for Disabled Workers
(if in excess of $2,500), wherein the terms "contractor" and "subcontractor"
shall mean "Supplier". In addition, orders placed under this Agreement
containing a notation that the material or service are intended for use under
Government Contracts shall be subject to such other Government provision
printed, typed or written thereon, or on the reverse side thereof, or in
attachments thereto.
IDENTIFICATION - Supplier shall not, without Company's prior written consent,
engage in advertising, promotion or publicity related to this Agreement, or make
public use of any identification in any circumstances related to this Agreement.
"Identification" means any copy or semblance of any trade name, trademark,
service mark, insignia, symbol, logo, or any other product, service or
organization designation, or any specification or drawing of AT&T or its
affiliates, or evidence of inspection by or for any of them. Supplier shall
remove or obliterate any Identification prior to any use or disposition of any
material rejected or not purchased by Company, and, shall indemnify, defend (at
Company's request) and save harmless AT&T and its affiliates and each of their
officers, directors and employees from and against any losses, damages, claims,
demands, suits, liabilities, fines, penalties and expenses (including reasonable
attorneys' fees) arising out of Supplier's failure to so remove or obliterate.
IMPLEADER - Supplier shall not implead or bring an action against Company or
its customers or the employees of either based on any claim by any person for
personal injury or death to an employee of Company or its customers occurring
in the course or scope of employment and that arises out of material or
services furnished under this Agreement.
INDEMNITY - All persons furnished by Supplier shall be considered solely
Supplier's employees or agents, and Supplier shall be responsible for payment of
all unemployment, social security and other payroll taxes, including
contributions when required by law. Supplier agrees to indemnify and save
harmless Company, its affiliates, its and their customers and each of their
officers, directors, employees, successors and assigns (all hereinafter referred
to in this clause as "Company") from and against any losses, damages, claims,
demands, suits, liabilities, fines, penalties and expenses (including reasonable
attorney's fees) that arise out of or result from: (1) injuries or death to
persons or damage to property, including theft, in any way arising out of or
occasioned by, caused or alleged to have been caused by or on account of the
performance of the Work or ?? performed by Supplier or persons furnished by
Supplier; (2) assertions under Workers' Compensation ??? under acts made by
persons furnished by Supplier or by any subcontractor or by reason of any
injuries and to those persons for which company would be responsible under
Workers' Compensation or similar acts if the persons were employed by Company;
(3) any failure on the part of Supplier to satisfy all claims for labor,
equipment, materials and other obligations relating directly or indirectly to
the performance of the Work; or (4) any failure by Supplier to perform
Supplier's obligations under this clause of the INSURANCE clause. Supplier
agrees to defend Company, at Company's request, against any such claim, demand
or suit. Company agrees to notify Supplier within a reasonable time of any
written claims or demands against Company for which Supplier is responsible
under this clause.
INFRINGEMENT - Supplier shall indemnify and save harmless Company, its
affiliates, its and their customers and each of their officers, directors,
employees, successors and assigns (all hereinafter referred to in this clause as
"Company") from and against any losses, damages, liabilities, fines, penalties,
and expenses (including reasonable attorneys' fees) that arise out of or result
from any proved or unproved claim (1) of infringement ????? or any other
proprietary or personal interest, and (2) related by circumstances to the
existence of this Agreement or performance under or in contemplation of it (an
Infringement Claim). If the Infringement Claim arises solely from Supplier's
adherence to Company's written instructions regarding services or tangible or
intangible goods provided by Supplier (Items) and if the Items are not (1)
commercial items available on the market or the ??? as such items, or (2) items
of Supplier's designated origin, design or selection Company shall indemnify
Supplier. Company or Supplier (at Company's request) shall defend or settle at
its own expense any demand, action or suit on any Infringement Claim against the
other for which it is indemnified under the proceeding provision and each shall
timely notify the other of any assertion against it of any Infringement Claim
and shall cooperate in good faith with the other to facilitate the defense of
any such Claim.
INSPECTION - Company Representatives shall at all times have access to the Work
for the purpose of inspection or a Quality Review and Supplier shall provide
safe and proper facilities for such purpose.
INSURANCE - Supplier shall maintain and cause Supplier's subcontractors to
maintain during the term Agreement (1) Workers' Compensation insurance as
prescribed by the law of the state or nation in which Work is performed; (2)
employer's liability insurance with limits of at least $300,000 for each
occurrence; (3) comprehensive automobile liability insurance, if the use of
motor vehicles is required, with limits of ??? $1,000,000 combined single limit
for bodily injury and property damage for each occurrence; (4) Commercial
General Liability ("CGL") insurance, including Blanket Contractual Liability and
Broad Form Property Coverage with limits of at least $1,000,000 combined single
limit for bodily injury and property damage for each occurrence; and (5) if the
furnishing to Company (by sale or otherwise) of products or material is ??? CGL
insurance endorsed to include products liability and completed operations
coverage in the amount of $5,000,000 for each occurrence. All CGL and automobile
liability insurance shall designate AT&T Corp. and its affiliates, and each of
their officers, directors and employees (all hereinafter referred to in this
clause as "Company") as an additional insured. All such insurance must be
primary and required to respond and ?? prior to any other available coverage.
Supplier agrees that Supplier, Supplier's insurer(s) and anyone claiming by,
through, under, or in Supplier's behalf shall have no claim, right of action or
right of subrogation against Company and its customers based on any loss or
liability insured against under the foregoing insurance Supplier and Supplier's
subcontractors shall furnish, prior to the start of Work, certificates or
adequate proof of the foregoing insurance including, if specifically requested
by Company, copies of the endorsements of insurance policies. Company shall be
notified in writing at least thirty (30) days prior to cancellation of a change
in the policy.
INVOICING - Supplier's invoices shall be rendered upon completion of the Work or
at other times as expressly provided for in this Agreement or order; and shall
be payable when the Work has been performed to the satisfaction of Company.
Supplier shall mail invoices with copies of any supporting documentation
required by Company to the address shown on this Agreement or order. The Work
shall be delivered free from all claims, liens, and charges whatsoever. Company
reserves the right to require before making payment that all parties furnishing
labor and materials for the Work have been paid.
PAYMENT TERMS - Unless payment terms more favorable to Company appear on
Supplier's invoice, and Company elects to pay on such terms, invoices shall be
paid in accordance with the terms stated in the Agreement, and due dates for
payment of invoices shall be computed from the date of receipt of invoice by
Company.
RELEASES VOID - Neither party shall require (i) waivers or releases of any
personal rights or (ii) execute documents which conflict with the terms of this
Agreement from employees, representatives or customers the other in connection
with visits to its premises and both parties agree that no such releases,
waivers or documents shall be pleaded by them or third persons in any action or
proceeding.
RIGHT OF ENTRY AND PLANT RULES - Each party shall have the right to enter the
premises of the party during normal business hours with respect to the
performance of this Agreement, subject to all rules and regulations security
regulations and procedures and U.S. Government clearance requirement applicable.
Supplier shall become acquainted with conditions governing the delivery, receipt
and storage of materials at the site of the Work so that Supplier will not
interfere with Company's operations. Storage ?? will not necessarily be provided
adjacent to the site of the Work. Therefore, Supplier shall be expected to
select, uncrate, remove and transport materials from the storage areas provided.
Company is not responsible for the safekeeping of Supplier's property on company
premises. Supplier shall not stop, delay or interfere with Company's work
schedule without the prior approval of Company's Representative. Supplier shall
provide and maintain sufficient covering and take any other precautions
necessary to protect Company's lot, equipment and other property from damage due
to Supplier's performance of this Work.
SUPPLIER'S INFORMATION - Supplier shall not provide under, or have provided in
contemplation of, its Agreement any idea, data, program, technical, business or
other intangible information, however conveyed, or any document, print, tapes,
disk, semiconductor memory or other information conveying tangible ?? unless
Supplier has the right to do so, and Supplier shall not view any of the
foregoing as confidential or proprietary.
SURVIVAL OF OBLIGATIONS - The obligations of the parties under this Agreement,
which by their nature would continue beyond the termination, cancellation or
expiration of this Agreement, including by way of illustration only and not
limitation, those in the clauses COMPLIANCE WITH LAWS, IDENTIFICATION,
IMPLEADER, INDEMNITY, INFRINGEMENT, INSURANCE, RELEASES VOID, USE OF INFORMATION
OR WARRANTY, shall survive termination, cancellation or expiration of this
Agreement.
TAXES - Company shall reimburse Supplier only for the following tax payments
with respect to transactions under this Agreement unless Company advises
Supplier that an exemption applies: state and local or use taxes, as applicable.
Taxes payable by Company shall be billed as separate items on Supplier's invoice
and shall not be included in Supplier's prices. Company shall have the right to
have Supplier contest any taxes that Company deems improperly levied at
Company's expense and subject to Company's direction and control.
TERMINATION - Company may at any time terminate this Agreement or an order in
whole or in part by written notice to Supplier. In such case, Company's
liability shall be limited to payment of the amount due for Work performed up to
and including the date of termination (which amount shall be substantiated with
proof satisfactory to Company), and no further Work will be rendered by
Supplier. Such payment shall constitute full and complete discharge of Company's
obligations. In no event shall Company's liability exceed the price for the Work
being terminated.
TOOLS AND EQUIPMENT - Unless otherwise specifically provided in this Agreement,
Supplier shall provide all labor, tools and equipment (the "tools") for
performance of this Agreement. Should Supplier actually use any tools owned or
rented by Company or its customer, Supplier acknowledges that Supplier accepts
the term "as is, where is," that neither Company nor its customer have any
responsibility for the condition or state of repair of the tools and that
Supplier shall have risk of loss and damage to such tools. Supplier agrees not
to remove the tools from Company's or its customer's premises and to return the
tools to Company or its customer upon completion of use, or at such earlier time
as Company or its customer may request in the same condition as when received by
Supplier, reasonable wear and tear excluded.
USE OF INFORMATION - Supplier shall view as Company's property any idea, data,
program, technology, business or other intangible information, however,
conveyed, and any document print, tape, disk, tool or other tangible information
conveying or performance aiding article owned or controlled by Company and
provided to, or acquired by, Supplier under or in contemplation of this
Agreement (information). Supplier shall at no charge to Company, and as Company
directs, destroy or surrender to Company promptly at its request ?? such article
or any copy of such information. Supplier shall keep information confidential
and use it only for or performing under this Agreement and obligate its
employees, subcontractors and others working for it to do so, provided that the
foregoing shall not apply to information previously known to Supplier ??? ??
obligation made public through no fault imputable to Supplier.
WAIVER - The failure of either party at any time to enforce any right or remedy
advisable to it under Agreement or otherwise with respect to any breach or
failure by the other party shall not be construed to be a waiver of such right
or remedy with respect to any other breach or failure by the other party.
WARRANTY - Supplier warrants to Company and its customers that material
furnished will be new merchandisable, free from defects in design, material and
workmanship and will conform to and perform in accordance with the
specifications, drawings and samples. These warranties extend to the future
performance of the material and shall continue for the longer of (a) the
warranty period applicable to Company's sales to customers of the material or of
products which incorporate the material, (b) one year after the material
accepted by Company or (c) such greater period as may be specified elsewhere in
this Agreement. Supplier also warrants to Company and its customers that
services will be performed in a first class, workmanlike manner. In addition, if
material furnished contains one or more manufacturers' warranties, Supplier
hereafter assigns such warranties to Company and its customers. All warranties
that survive inspection, acceptance and payment. Material or services not
meeting the warranties will be, at Company's option, returned, refund, repaired,
replaced or reperformed by Supplier at no cost to Company or its customer and
with transportation costs and risk or loss and damage in transit borne by
Supplier. Repaired and replacement materials shall be warranted as set forth
above in this clause.
WORK DONE BY OTHERS - If any part of the Work is dependent upon work done by
others, Supplier shall inspect and promptly report to Company's Representative
any defect that renders such other ?? for Supplier's proper performance.
Supplier's silence shall constitute approval of such other work as ??????
<PAGE> 6
Company's Representative to examine and audit these records and all supporting
records at all reasonable times. Audits shall be made not later than (a) three
(3) calendar year(s) after the final delivery date of material ordered or
completion of services rendered or (b) three (3) calendar year(s) after
expiration date of this Agreement, whichever comes later.
INVOICING
The clause INVOICING printed on the reverse side of page one of this Agreement
is amended to include the following:
Contractor's invoice shall be rendered in accordance with the clause
COMPENSATION contained herein, shall reference Agreement No. LF9D14D, and shall
be payable when the Work has been performed to the satisfaction of Company's
Representative.
Contractor shall submit an original and duplicate copy to:
Rob Mayer
AT&T Corp.
290 Davidson Avenue, Rm. E3B095
Somerset, NJ 08875
LIMIT OF EXPENDITURE
The maximum expenditure against this Agreement shall not exceed One Million
Dollars ($1,000,000.00).
Notwithstanding any other provisions in this Agreement, the total amount payable
by Company for the Work shall be determined by applying the stated rate of
compensation to the Work actually performed by Contractor. Contractor shall not
render Work and Company shall not be required to pay for Work in excess of the
amount stipulated in this Agreement, unless Contractor has first secured an
amendment to this Agreement authorizing the increased expenditure.
MEDIATION
If a dispute arises out of or relates to this Agreement, or its breach, and the
parties have not been successful in resolving such dispute through negotiation,
the parties agree to attempt to resolve the dispute through mediation by
submitting the dispute to a sole mediator selected by the parties or, at any
time at the option of a party, to mediation by the American Arbitration
Association ("AAA"). Each party shall bear its own expenses and an equal share
of the expenses of the mediator and the fees of the AAA. The parties, their
representatives, other participants and the mediator shall hold the existence,
content and result of the mediation in confidence. If such dispute is not
resolved by such mediation, the parties shall have the right to resort to any
remedies permitted by law. All defenses based on passage of time shall be
tolled pending the termination of the mediation. Nothing in this clause shall
be construed to preclude any party from seeking injunctive relief in order to
protect its rights pending mediation. A request by a party to a court for such
injunctive relief shall not be deemed a waiver of the obligation to mediate.
<PAGE> 7
NONEXCLUSIVE MARKET RIGHTS
It is expressly understood and agreed that this Agreement neither grants to
Contractor an exclusive right or privilege to sell to Company any or all
material or services of the type described in this Agreement which Company may
require, nor requires the purchase of any material or services from Contractor
by Company. It is, therefore, understood that Company may contract with other
Contractors for the procurement of comparable material or services. In
addition, Company shall at its sole discretion, decide the extent to which
Company will market, advertise, promote, support, or otherwise assist in
further offerings of the material or services.
NOTICES
Any notice or demand which under the terms of this Agreement or under any
statute must or may be given or made by Contractor or Company shall be in
writing and shall be given or made by telegram, tested telex, confirmed
facsimile, or similar communication or by certified or registered mail
addressed to the respective parties as follows:
To Company: Maggie Agront
AT&T Corp.
Room 3B28
100 Southgate Parkway
Morristown, NJ 07960
To Contractor: Don Cameron
Interactive Telesis, Inc.
535 Encinitas Blvd., Suite 116
Encinitas, CA 92024
Such notice or demand shall be deemed to have been given or made when sent by
telegram, telex, or facsimile, or other communication or when deposited, postage
prepaid in the U.S. mail.
The above addresses may be changed at any time by giving prior written notice
as above provided.
ORDERLY TRANSITION
In the event of expiration or termination of this Agreement, in whole or in
part, wherein all or some portion of the work will be performed by Company
itself or elsewhere, Contractor agrees to provide its full cooperation in the
orderly transition of the work to Company or elsewhere, including, but not
necessarily limited to packing and preparing for shipment any materials or
other inventory to be transferred, provision of reports, files and similar
media necessary for continuation of the work transferred, continuation of work
at reducing levels if necessary during a transition period and at reduced levels
if work is transferred in part. Prices for additional work such a packing and
preparation for shipment, and revision of prices resulting from revised
volumes, if necessary, shall be proposed by Contractor and shall be mutually
agreed upon by the parties.
<PAGE> 8
RELATIONSHIP
Contractor shall exercise full control and direction over the employees of
Contractor performing the Work covered by this Agreement. Any changes in
personnel that may be reasonably requested by Company through its authorized
representative shall be made as soon as reasonably possible.
Neither Contractor nor its employees or agents shall be deemed to be Company's
employees or agents. It is understood that Contractor is an independent
contractor for all purposes and at all times. Contractor is wholly responsible
for withholding and payment of all applicable federal, state and local income
and other payroll taxes with respect to its employees, including contributions
from them as required by law.
REPRESENTATIVES
Company's Technical Representative is Robert Mayer (908-805-2738) Company's
Agreement Representative is Maggie Agront (201-898-8921) or such other person
as may be designated in writing by Company from time to time. Contractor's
Representative is Don Cameron or such other person as may be designated in
writing by Contractor from time to time.
SEVERABILITY
If any of the provisions of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not invalidate or render
unenforceable the entire agreement, but rather the entire agreement shall be
construed as if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of Contractor and
Company shall be construed and enforced accordingly.
TITLE TO WORK PRODUCTS
All right, title and interest in and to all tangible and intangible work and
work products developed or produced under this Agreement by or on behalf of
Contractor for Company, whether comprising or incorporated in specifications,
drawings, sketches, models, samples, data, computer programs, reports,
documentation or other technical or business information, and all right, title
and interest in and to patents, copyrights, trade secrets, trademarks and other
intellectual property derived from such work and work products are hereby
assigned by Contractor to Company and are hereby agreed by Contractor to be
transferred to Company or otherwise vested therein, effective when first
capable of being so assigned, transferred or vested. Contractor shall obligate
its employees, subcontractors and others to provide, and shall supply to
Company at no extra cost, all such assignments, rights and covenants as Company
deems appropriate to assure and perfect such transfer or other vesting. All
work and work products shall be provided to Company as required herein or
on termination or completion of this Agreement, whichever is earlier, unless
Contractor is requested in writing to do otherwise. All such work and work
products shall be considered and arranged to be a "work made for hire" to the
extent allowed by law.
The work and work products developed or produced under this Agreement shall be
the original work of Contractor, unless Company's Technical Representative has
consented in writing to the inclusion of work or work products owned or
copyrighted by others (hereafter "included works"). In requesting such consent,
Contractor shall notify Company of the scope of the rights and permissions
Contractor intends to obtain for
<PAGE> 9
Company with respect to such included works and modify the scope of same as
requested by Company. Copies of all rights and permissions, clearly identifying
the included works to which they apply, shall be supplied to Company promptly
after their acquisition.
Company shall not acquire title hereunder to any intangible work or work
products preexisting execution of this Agreement and not developed or produced
in anticipation hereof.
Contractor agrees, for itself and its affiliates, not to assert patents and
copyrights owned or controlled by Contractor or any parent thereof or
subsidiary of either against Company, its affiliates, and its or their direct
or indirect customers, in connection with any work product or other subject
matter directly or indirectly derived from work done hereunder.
IN WITNESS WHEREOF, Contractor and Company have executed this Agreement in
duplicate on the day and year below written.
INTERACTIVE TELESIS, INC. AT&T CORP.
By: By:
---------------------------------- ----------------------------------
(Signature) (Signature)
Maggie M. Agront
Contract Specialist
- ------------------------------------- -------------------------------------
(Name & Title Typed or Printed) (Name & Title Typed or Printed)
- ------------------------------------- -------------------------------------
(Date) (Date)
<PAGE> 1
EXHIBIT 10.23
** This portion of the document has been omitted pursuant to a request for
confidential treatment and this document, including the information, has been
filed separately with such respect.
[INTERACTIVE TELESIS LOGO]
September 14, 1999
Lisa McCausland
Frontier Communications Services, Inc.
12110 North Pecos Street
Westminster, CO 80234-2076
Dear Lisa:
As requested, enclosed is the Record and Replay Communication Services
Agreement (in triplicate) executed by Interactive Telesis. Would you please
provide one fully executed copy to the undersigned at your convenience.
You will note that we have added the PostView Support and Maintenance Section of
our Business Continuity Plan as Attachment C to the Agreement. I think you will
find this addendum will cover the issues that were raised earlier and for which
Frontier wanted more specific detail than set forth in our Best Practices
document. If you would like any amendments to Attachment C, just let us know
and we will be happy to accommodate.
Yours very truly,
/s/ DONALD E. CAMERON
- -------------------------------
Donald E. Cameron
President
Enc.
<PAGE> 2
RECORD AND REPLAY COMMUNICATION SERVICES AGREEMENT
1. Agreement between Interactive Telesis Inc. (ITI) and
Name: Frontier Communications Services Inc., d/b/a Frontier ConferTech
Address: 12110 North Pecos Street, Westminster, CO 80234-2076
(the Corporation)
2. ITI operates a telecommunications system that provides, inter alia,
digital recording and playback capabilities ("the Network") accessible by
various communication devices, including telephone and computer, as
described in Attachment "A" (the "Communication Services").
3. ITI agrees to provide the Communication Services to the Corporation and to
provide all hardware and software required for delivering the
Communication Services. Services not completed to the Corporation's
satisfaction shall be reperformed at no cost to the Corporation.
4. Upon acceptance of the services provided hereunder and submission of
accurate invoices by ITI, Corporation shall pay ITI for the performance of
the Communication Services in accordance with the schedule contained in
Attachment "B", attached hereto and made a part hereof. The Communication
Services shall be performed to the satisfaction of the Corporation and
shall be in accordance with the highest professional standards commonly
used in the automated call processing industry.
5. Non-exclusive Rights: It is expressly understood and agreed that this
Agreement neither grants to ITI an exclusive right or privilege to sell to
or provide the Communication Services or services of a similar type
described in this Agreement which the Corporation may require. It is
understood that the Corporation may contract with other service providers
for the procurement of comparable services. In addition, the Corporation
shall, at its sole discretion, decide the extent to which the Corporation
will market, advertise, promote, support or otherwise assist in further
offerings of the services contemplated under this Agreement. The
Communication Services shall be provided by ITI in accordance with the
specific Support and Maintenance conditions set forth in Attachment "C."
6. IT IS UNDERSTOOD THAT THE GENERAL CONDITIONS OF BUSINESS ATTACHED TO THIS
AGREEMENT ARE INCORPORATED BY REFERENCE AND FORM PART OF THIS AGREEMENT.
BY EXECUTING THIS AGREEMENT THE CORPORATION CONFIRMS HAVING READ,
UNDERSTOOD AND ACCEPTED EACH OF THE GENERAL CONDITIONS OF BUSINESS.
FRONTIER CONFERTECH INTERACTIVE TELESIS INC.
Signature: /s/ DONALD POULTER Signature: /s/ DONALD E. CAMERON
--------------------- ------------------------
Name: Donald Poulter Name: Donald E. Cameron
-------------------------- -----------------------------
Title: VP Title: President
------------------------- ----------------------------
Date: 09/15/99 Date: 9-14-99
-------------------------- -----------------------------
<PAGE> 3
GENERAL CONDITIONS OF BUSINESS
The following GENERAL CONDITIONS OF BUSINESS are incorporated by reference in
the Record and Replay Communication Services Agreement.
1. AGREEMENT
ITI agrees to provide Communication Services to the Corporation utilizing
the Network.
2. BILLING AND PAYMENT
A. Invoicing Payment. All usage charges are billed on minute increments.
Invoices submitted pursuant to this Agreement shall be deemed correct unless
the Corporation makes written objection stating the reason within 60 days of
receipt by the Corporation of the disputed invoice. ITI shall submit invoices
to Corporation, together with such documentation as Corporation may require,
at the following address:
Frontier ConferTech
12110 North Pecos Street
Westminster, CO 80234
Attn: Brendon Peach
If the Corporation has no objection to an invoice, it shall pay the
invoice in full within forty-five (45) days after receipt of such invoice. If
Corporation objects to an invoice or any portion thereof, it shall notify ITI
of its objections within thirty (30) days after receipt and, within forty-five
(45) days of receipt, it shall pay that portion of the invoice not in dispute.
Any objections or disputes concerning invoices shall be resolved in accordance
with Section 12 herein.
3. AUDIT
ITI shall maintain accurate and complete records of all recording and
replay usage for which payment under this Agreement is to be computed. Such
records shall be maintained in accordance with recognized commercial accounting
practices so they may be readily audited and shall be held until costs have
been finally determined under this Agreement and payment or final adjustment of
payments as the case may be has been made. ITI shall permit Corporation or
Corporation's Representative to examine and audit these records and all
supporting records at all reasonable times. Audits shall be made not later than
two (2) calendar years after the completion of services rendered pursuant to
this Agreement.
4. REPORTING
ITI shall provide usage and billing reports in the format(s) and time
intervals required by the Corporation. ITI shall, at the Corporation's request,
provide secured online call management and call usage access to the Corporation
for the Record and Replay services provided under this Agreement.
5. TITLE TO WORK PRODUCTS
All right, title and interest in and to all tangible and intangible work
and work products developed or produced under this Agreement by or on behalf of
ITI for the Corporation, whether comprising or incorporated in specifications,
samples, data, computer programs, reports, documentation or other technical or
business information, and all right, title and interest in and to patents,
copyrights, trade secrets, trademarks and other intellectual property derived
from such work and work products are the property of ITI. This Provision shall
not apply to the Corporation's confidential information that may be contained
in the work product.
6. WARRANTIES
ITI agrees that it shall provide, in connection with the services provided
pursuant to this Agreement, the standard of care, skill, and diligence normally
provided by a vendor in the performance of similar services and that all such
services shall be performed in accordance with sound and accepted industry
standards and practices. If ITI fails to meet such standards of care, skill and
diligence set forth in this section, ITI shall be liable for all direct damages
caused thereby.
ITI has developed a Business Continuity Plan (the "BCP") which addresses
issues relating to system maintenance, back-up, and disaster recovery relating
to the services to be provided hereunder. The BCP details ITI's procedures and
is attached hereto as Exhibit "C" and incorporated by reference herein.
7. YEAR 2000
ITI warrants that all services, including any software or data processing
support, data exchanges or systems of any kind used by ITI to support
performance of the services, shall be Year 2000 Compliant, as defined below.
This warranty begins upon the commencement of the service and shall continue
thereafter until March 31, 2001, or the expiration of any other warranty period
applicable to the service, whichever is later. In the event of a breach of this
warranty, Corporation shall have any and all rights and remedies provided at
law or in equity. Upon receiving notice thereof, ITI shall promptly correct any
breach of this warranty, including correction of any invalid data or
information resulting therefrom.
"Year 2000 Compliant" means proper performance of any service which is
dependent upon or involves calendar dates before, during and after the Year
2000, including both single century and multi-century formulas, leap year
capabilities and transition from the year 2000 to the year 2001. "Proper
Performance" means the service will not cause an abnormal ending scenario or
generate incorrect values involving dates.
8. INDEMNIFICATION
A. By Corporation. The Corporation shall indemnify and hold harmless ITI
and any affiliated companies from and against any and all claims, damages, or
liability, including reasonable attorneys' fees and the costs and expense of
any legal action, or prelude thereto, for libel, slander, invasion of privacy,
securities law violations, improper trade practices, illegal competition,
infringement of copyright or licenses (if not covered under Section 14
hereof), or any other wrongful conduct resulting from the dissemination of any
information provided by customers of the Corporation and made available on the
Network and not involving negligence or wrongful acts or omissions on the part
of ITI.
B. By ITI. ITI shall indemnify, defend and hold harmless Corporation
from and against any claims, damage or liability including reasonable attorneys
fees and the costs and expenses of any legal action, or prelude thereto,
arising as a result of the negligence or wrongful acts or omissions of ITI, its
officers, employees or agents in performing any services for Corporation
pursuant to this Agreement, including, without limitation, claims under Sections
7 and 14 hereof.
C. Survival. The provision of this paragraph shall remain effective and
inure to the benefit of the respective parties notwithstanding the expiration,
cancellation, or termination of this Agreement.
9. TERMINATION
Either party may cancel this Agreement at any time by giving the other
party 30 days' written notice thereof and specifying the effective date of such
cancellation. ITI may cancel this Agreement if the Corporation has failed to
make any payment when due pursuant to this Agreement upon giving 30 days'
written notice to Corporation and the Corporation does not cure such failure
within 10 days after receipt of ITI's written notice thereof.
10. GOVERNMENTAL REGULATION
This Agreement is subject to the terms of the licenses held by ITI and to
all applicable federal, state, and municipal laws, regulations, and decisions,
either presently in existence or enacted, made or enforced hereafter, including
the regulations and actions of all governmental administrative agencies and
commissions having jurisdiction.
11. ASSIGNMENT AND DELEGATION
Neither party may assign any rights hereunder without the express prior
written consent of the other, which consent shall not be unreasonably delayed
or withheld.
12. MEDIATION
If a dispute arises out of or relates to this Agreement, or its breach,
and the parties have not been successful in resolving such dispute through
negotiation, the parties agree to attempt to resolve the dispute through
mediation by submitting the dispute to a sole mediator selected by the parties
or, at any time at the option of a party, to mediation by the American
Arbitration Association ("AAA"). Each party shall bear its own expenses and,
unless the arbitrator rules otherwise, an equal share of the expenses of the
mediator and the fees of the AAA. The parties, their representatives, other
participants and the mediator shall hold the existence, content and result of
the mediation in confidence. If such dispute is not resolved by such mediation,
the parties shall have the right to resort to any remedies permitted by law.
All defenses based on passage of time shall be tolled pending
<PAGE> 4
the termination of the mediation. Nothing in this clause shall be construed to
preclude any party from seeking injunctive relief in order to protect its
rights pending mediation. A request by a party to a court for such injunctive
relief shall not be deemed a waiver of the obligation to mediate.
13. WAIVER
The failure of either party to this Agreement to object to, or to take
affirmative action with respect to, any conduct of the other which is a
violation of the terms of this Agreement shall not be construed as a waiver of
such violation or breach, or of any future breach, violation, or wrongful
conduct.
14. PATENT AND OTHER PROPRIETARY RIGHTS INDEMNITY
ITI warrants that the service provided hereunder does not infringe upon or
violate any patent, copyright, trade secret, or any other proprietary right
of any third party. In the event of any claim for patent/trademark infringement
by any third party against Corporation related to ITI's provision of services
provided hereunder. ITI agrees to defend any suit or proceeding brought against
Corporation, provided ITI is notified promptly in writing and is given complete
authority and information required for the defense of same in Corporation's
name. ITI shall pay all damages and costs (including reasonable attorney fees)
whether or not such claim is successful or awarded against Corporation.
15. EQUAL OPPORTUNITY
ITI will not discriminate against any employee or applicant for employment
because of race, religion, color, sex, age, or national origin. ITI will take
affirmative action to ensure that applicants are employed, and the employees are
treated during employment without regard to their race, religion, color, sex,
age, or national origin. Such action shall include, but not be limited to, the
employment, upgrading, demotion, or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of compensation;
and selection for training, including apprenticeship. ITI agrees to post in
conspicuous places, available to employees and applicants for employment,
notices setting forth the provisions of this Section . ITI will comply with all
provisions of Executive Order No. 11246 of September 24, 1965, as amended, and
of the rules, regulations, and relevant orders of the Secretary of Labor. ITI
will include the provisions of this Section in every subcontract or purchase
order relating to this agreement unless exempted by rules, regulations, or
orders of the Secretary of Labor issued pursuant to Section 204 or Executive
Order No. 11246 of September 24, 1965, so that such provisions will be binding
upon each subcontractor and vendor.
16. CONFIDENTIALITY
Except upon mutual written agreement, or as may be required by law,
neither party shall in any way or form disclose the existence or terms of this
Agreement.
17. NOTICES
Any notice, demand, or request provided for in, or allowed by, this
Agreement shall be in writing and shall be deemed properly made if personally
delivered, delivered by courier or sent via facsimile transmission to the
person at the facsimile number specified below and shall be deemed received, if
personally delivered or delivered by courier, upon delivery, or if sent by
facsimile transmission, upon transmission, or if mailed, on the fifth business
day following deposit in the US mail.
To ITI:
Interactive Telesis
535 Encinitas Blvd., Suite 116
Encinitas, CA 92024
Attention: David Webb, V.P. Operations
Telephone Number: 760-632-1700
Facsimile Number: 760-632-1790
To Corporation:
Frontier ConferTech
12110 North Pecos Street
Westminster, CO 80234
Attention: Lisa McCausland
Telephone Number: 303/633-3416
Facsimile Number: 303/633-3030
Nothing contained in this Section shall preclude the transmission of
routine invoices or correspondence, messages, and information by other methods
between the respective parties or their authorized representatives in the
ordinary course of performing their obligations under this Agreement.
Either party may change any individual designated above without amendment
to this Agreement, by written notice provided to the other party.
18. MODIFICATION
This writing, including the schedules attached hereto, contains the entire
agreement between the parties. No representations were made or relied upon by
either party, other than those expressly set forth herein. No agent, employee,
or other representative of either party is empowered to alter any of the terms
hereof, unless done in writing and signed by the respective parties.
<PAGE> 5
ATTACHMENT "A"
The Communication Services to be provided under this Agreement are set forth
in detail under ITI's response dated July 1, 1998, to the Corporation's RFP
dated June 15, 1998, which are incorporated herein by reference. In general,
the services will include the following:
- - Services - The digital recording and automated replay of teleconference
calls originating at the Corporation's Westminster, Colorado, and Canadian
operations. The service includes the recording and storage of all calls as
a back-up to analog taping carried out by the Corporation.
- - Storage - All calls, whether scheduled for replay or not, shall be
available on the system for retrieval for a period of 30 days from the date
of recording or, in the event of replay, 30 days after the expiration of
the replay, within two business hours.
- - Recordings, in any format, will be removed from all media and destroyed no
earlier than 60 days and no later than 90 days after the expiration date of
each conference call.
- - Reporting - The call detail reporting format will be determined by the
Corporation and may be modified from time to time at the Corporation's
request.
- - Management tools - ITI will develop an online session management interface
(OSMI) providing the Corporation with the ability to remotely manage all
aspects of the replay of each conference call, from set-up to tear-down.
Details of OSMI are set forth in the ITI response at item 4.2.1.1.
- - Internet replay - ITI will design, develop and host a web site for the
Corporation dedicated to the replay of audio teleconferences through the
Internet. ITI will modify and enhance this dedicated web site from time to
time at the Corporation's request.
SERVICE STANDARDS
1. The service will initially be provisioned with 288 dedicated ports provided
by the following carriers:
Frontier Communications 8 long distance TIs
AT&T 2 long distance TIs
TCG 2 local access TIs
2. ITI will perform all technical development, testing, installation and
operation of Corporation's system according to the specifications outlined
by the Corporation.
3. ITI has configured the dedicated system to allow routine maintenance and
the addition of system hardware without any interruption of service. If any
interruption of the service is anticipated, ITI will inform the Corporation
of such interruption (if possible) before interrupting service to ensure
that call volume loss is minimized.
4. ITI has configured the existing hardware and software for maximum fault
tolerance and redundancy and, in the event of equipment malfunction or
failure, general service should not be interrupted, although total capacity
will be reduced until repairs to the system have been completed. ITI will
provide its best efforts to replace any lost capacity as quickly as
possible.
<PAGE> 6
5. ITI will provide technical support for any and all issues arising from the
ITI equipment and the operation of the Communication Services to be
provided under this Agreement at no additional cost to the Corporation.
6. ITI has preconfigured hot spare work stations to replace any failed
machines. ITI has two highly fault-tolerant servers and a spare server
that is synchronized nightly with the other servers. This system includes
an auto-loading SCSI tape backup system that can store 96GB of data. ITI
performs daily incremental backups and weekly full backups of all data
with tapes being archived off-site.
7. All call usage and billing data shall be available to the client within
one hour of request during usual business hours.
8. ITI has dedicated systems-support staff that performs monthly maintenance
on all machines during non-peak hours. ITI disconnects each machine, one
by one, and runs a full set of diagnostics. This consists of checking
hard drives for logical and physical errors and running both high- and
low-level diagnostics on all system components (such as controller cards,
T1 cards, RAM, etc.).
9. All recordings are stored digitally into 8-bit U-law dialogic VOX format
at a sampling rate of 8,000Hz.
10. All hardware and software are prequalified for Y2K compliance. Software
design and testing incorporates all Y2K issues.
<PAGE> 7
ATTACHMENT "B"
The following pricing is to be charged for services performed by Interactive
Telesis Inc. pursuant to this Agreement.
<TABLE>
<CAPTION>
Services Price
<S> <C>
Teleconference recording and playback no charge
One-time set-up fee
Per call:
Recording and replay **
Editing $15 per conference call +
Customized greetings $45 per conference call +
Usage reports no charge
Implementation of replay features
Pause, reverse, fast forward no charge
Fast forward to specific location $25 per conference call +
Safe-harbor disclaimer option $15 per conference call +
Fax-on demand
Set-up (up to 7 pages) $75 per conference call
Fax usage $0.40 per page
Message capture/transcription
Message capture option no charge
Transcription (name, address, affiliation) $0.80 per message
Transcription $1.65 per minute of transcription
Detail report (standard format) no charge
Internet replay
Replay (no time restriction) $350 per conference call ++
Record and transmit electronically to client $250 per conference call
Usage report no charge
Web site hosting fee $150 per month
Specialized programming
Specialized programming involving $125 per hour
creation of new applications and (fixed per project pricing is
enhancements to existing applications, available)
including revisions to specialized reports
Internet management systems
Development:
Call usage detail no charge
Customization of call Charge to be determined
management interface according to client specifications.
</TABLE>
+ No charge if completed by Customer.
++ Subject to volume/band width requirements; per-minute charge is
available.
** CONFIDENTIAL TREATMENT REQUESTED.
PLEASE REFER TO THE LEGEND ON
THE FRONT PAGE OF THIS DOCUMENT.
<PAGE> 8
ATTACHMENT "B" (CONT'D)
Record and Replay Pricing
**
ITI shall be responsible for all hardware and software development costs
necessary to provide the Communication Services contemplated under this
Agreement other than:
(i) the customized development of the online session management interface
(OSMI) and
(ii) creation of any new applications or substantial enhancements to
existing applications which were not envisioned in the original RFP
response dated July 1, 1998.
The Corporation shall be responsible for all telecommunication charges
necessary to provide the Communication Services under this Agreement. These
charges shall include, but are not limited to, the following:
1. Installation and monthly recurring charges for all long distance T1
service;
2. Where ITI arranges for long distance and/or local T1 service from a
second carrier (initially two long distance T1s from AT&T and two
local T1s from TCG), ITI will pass through these expenses, with
appropriate third-party invoices, and the Corporation shall be
responsible for reimbursing ITI at cost for same;
3. Where ITI, at the request of the Corporation, arranges installation
of second-carrier services, ITI shall advise the Corporation of
expected costs prior to incurring any expenses.
** CONFIDENTIAL TREATMENT REQUESTED.
PLEASE REFER TO THE LEGEND ON
THE FRONT PAGE OF THIS DOCUMENT.
<PAGE> 9
ATTACHMENT C
INTERACTIVE TELESIS INC [INTERACTIVE TELESIS LOGO]
===============================================================================
BUSINESS CONTINUITY PLAN
----------------------------------------------------------------
Supplement One
Post View Support and Maintenance
- --------------------------------------------------------------------------------
<PAGE> 10
<TABLE>
<S> <C>
Overview...................................................................2
Purpose................................................................2
Scope..................................................................2
Definition of Terms....................................................2
Service Ticket Classification..........................................3
Bug Ticket Classification..............................................3
System maintenance.........................................................4
Disk Maintenance.......................................................4
Network Maintenance....................................................4
Other devices..........................................................5
Database maintenance...................................................5
Virus protection.......................................................5
System Backup..........................................................6
System monitoring..........................................................7
System support.............................................................8
Procedures.............................................................8
Escalations............................................................9
Key Contacts...........................................................9
System Capacity planning and upgrade......................................10
</TABLE>
<PAGE> 11
OVERVIEW
PURPOSE
To provide a comprehensive set of procedures for support and maintenance
of the Frontier Confertech Post View System located in San Diego and
Toronto, Canada and hosted by Interactive Telesis. Used in conjunction
with our Business Continuity Plan it will insure the reliability and
availability of the Post View system.
SCOPE
This document is intended to define the levels of support and what type
of maintenance will be performed as well as the frequency of such
maintenance. Additionally, it describes the communication process should
the need for support arise.
DEFINITION OF TERMS
This section will define the terms used throughout this document.
- Service Ticket Classification: Method of tracking problems and
solutions with the Post View System.
- Bug Classification: The prioritization of known software bugs and the
order in which they will be resolved.
- System Outage: Critical error with system resulting in the system
being unavailable.
- Circuit Outage: T1 voice line non-operational.
- Service degradation: Slow and or erratic performance of Post View
system.
- PartnerSupport.net: ITI's customer service Internet operation (Still
under implementation).
- Preventive maintenance: Proactive maintenance performed on a
scheduled basis and designed to insure the health of the system.
- Scheduled maintenance: Maintenance performed on a scheduled basis
either recurring or one time.
- Unscheduled maintenance: Performed on an irregular basis because of
an abnormal operating condition.
- Automated maintenance: Maintenance performed on a recurring basis by
a software utility or SNMP application. I.E. scheduled disk
defragmentation, virus scan, RAID consistency check, or physical
surface scan.
- Non-intrusive maintenance: Maintenance performed during system
operation that does not result in degradation of system performance,
e.g. system backup, virus scan, or defragmentation.
- Intrusive maintenance: Maintenance resulting in the degradation of
system performance or system outage.
2
<PAGE> 12
- SNMP: Simple Network Management Protocol
- PERC: Power Edge RAID Controller
- RAID: Redundant Array of Inexpensive (or Independent) Drives
- Software Bug: Any error in the IVR code, known or unknown, which
causes the system to perform abnormally.
- System Bug: Any error in support software, (i.e. NT Server, SQL7.0,
etc.) protocols, transports, or other commercially available software.
SERVICE TICKET CLASSIFICATION
1. Priority 1: (Critical) The Post View system is down and conference
customers cannot listen to and or record conferences. Restoration
will occur as fast as humanly possible with an objective of 15
minutes or less.
2. Priority 2: (Major) Fifty percent or more of the system is unavailable
for any reason. System is still functional but capacity is severely
reduced. Restoration will occur as fast as humanly possible with an
objective of 1 hour or less.
3. Priority 3: (Minor) Any condition that results in the Post View
system performing at less than optimal performance. This includes;
slow performance during administration, recording, and replay, 1 or
more voice communications lines down, 1 or more IVR workstations
down, disk space reaches 85 percent of capacity, any other trouble
that results in degradation in performance. Restoration will occur as
fast as humanly possible with an objective of 3 hours or less.
BUG TICKET CLASSIFICATION
1. Priority 1: (Critical) Any code error or violation in the Interactive
Telesis developed applications or databases that results in the Post
View system being unavailable. Repair will occur as fast as humanly
possible with an objective of 15 minutes or less.
2. Priority 2: (Major) Any code error or violation in the Interactive
Telesis developed applications or databases that results in the Post
View system operating at a reduced capacity. Repair will occur as
fast as humanly possible with an objective of 1 hour or less.
3. Priority 3: (Minor) Code errors or violations in the Interactive
Telesis developed applications or databases that should be fixed to
enhance service or improve performance. Repair will occur according
to a scheduled implementation plan after a significant amount of
testing has occurred.
4. Priority 4: (warranted) Errors in software developed by companies
other than ITI and used to host the Post View system, e.g. bugs in
Microsoft or any other commercially available software. Repair will
occur in accordance with the software manufacturer's bug fixing plan.
3
<PAGE> 13
SYSTEM MAINTENANCE
Whenever possible any system maintenance will be performed in a non-intrusive
manner consistent with insuring maximum availability of the Post View system.
Where available software utilities will be used to automate and enhance the
maintenance procedures. A framework like Unicenter TNG or HP OpenView will be
used to monitor and report on system health and performance. Additional tools
will be deployed to build a layered approach to maintenance. All automated
maintenance will occur as background processes and have no effect on system
performance. The first line of defense is the monitoring of system performance
and capacity. The second line of defense is the proactive maintenance of the
system on a scheduled basis. The third line of defense is the exception
maintenance conducted just before peak periods to insure maximum availability
of the Post View application. All maintenance will be performed under the
supervision of the Manager, Corporate Systems who is directly responsible for
all corporate systems. Technicians qualified on the monitoring and maintenance
procedures of Interactive Telesis will perform monitoring and maintenance.
These steps are detailed below:
DISK MAINTENANCE
All disks will be maintained in the readiest state available.
- - On RAID arrays the PERC Flexible Array Storage Tool (FAST) or the PERC SC
RAID Console utility is to be used for consistency monitoring of the
array. Monitoring will be continuous and a specific consistency check will
occur at 12:00 AM every Saturday night.
- - A hot swappable standby drive will be ready on all RAID 5 configurations
in case of a drive in the array failing.
- - Consistency checks will be performed on non-RAID disk drives using,
Executive Software's, NT utilities. This will occur nightly with full
defragmentation of the drives occurring every Sunday at noon.
NETWORK MAINTENANCE
All network cabling, switch, and hub equipment is maintained on a scheduled
basis.
- - Wire management trenches are used to route cabling away from traffic areas.
- - Cables will be labeled to identify the devices connected to them. This
list will be maintained in an excel spreadsheet.
- - Cables will be inspected on a quarterly basis for fraying, cracking, and
loose connectors. Damaged cables will be replaced immediately.
- - Switches will be maintained and monitored through the Network Node
Management station. During peak periods, a sniffer may be deployed to
determine if any bottlenecks are occurring in the network or transport
layer. Corrective action will be taken immediately to relieve any
occurrences of above items.
4
<PAGE> 14
OTHER DEVICES
. Board diagnostics are performed on a quarterly basis for all Dialogic
240SC T1 cards.
. Network interface cards will be monitored via SNMP and replaced
immediately if performance drops below 85% of advertised capability.
. Backup tape drives are cleaned after every 80 hours of usage.
. UPS are maintained in accordance with the manufacturer's suggested
maintenance plan.
. CSU's will be monitored via RMON probes and the network management
station.
DATABASE MAINTENANCE
All databases have a weekly scheduled maintenance plan run by the SQL
Agent.
. Transaction logs are dumped nightly at 1:00 AM to a backup device
(disk). During this process a consistency check and file resizing will
occur.
. Databases are dumped to a backup device daily at 12:00 midnight for
user databases and 1:00 AM for system databases. Consistency checks
are performed before databases are being dumped.
. Query optimization and analysis tools are enabled to allow SQL 7.0 to
performance tune itself automatically.
. Databases are configured to grow by 10% when needed and all logs are
truncated on checkpoint. Performance monitoring and index resizing
recommendations are written to a file for analysis and implementation
at the appropriate time and place.
. Transactional replication occurs "in real time" to the backup database
server and is designed to take over if the primary server fails.
VIRUS PROTECTION
The Post View system is a partially closed loop system with connectivity to
the Internet via a firewall. System management is achieved via VPN PPTP
connection over the Internet. There will be no direct downloads of files or
software to the Post View file servers. Only "shrink wrapped" software,
voice files, and ITI application code will be installed or copied to the
Post View system. This will significantly reduce the potential for viruses
effecting system availability. Additionally the following will occur:
. McAfee Netshield and Webscan X are installed and running on the
Firewall.
. A scheduled full scan of all server logical volumes will occur, from
the firewall, every Tuesday starting at 11:00 PM.
. All IVR machines will be scanned on a monthly rotation. Three machines
per week rotating so that each machine gets a full scan at least once
per month. Only the Post View IVR applications will be installed on
the IVR workstations. No other files or software will be installed, on
the workstations, with the exception of diagnostic utilities.
5
<PAGE> 15
- If a virus is introduced to a system, that system will be physically
disconnected from the network (LAN cable unplugged from the NIC) and
manually cleaned of the virus. If the Manager, Corporate Systems cannot
certify the system clean then the drive will be formatted and the machine
rebuilt.
- An incident report will be generated and submitted to the Manager,
Corporate Systems within 1 hour of a suspected or confirmed virus
incident.
SYSTEM BACKUP
Without exception, all logical volumes on the servers will have a weekly full
backup and a daily incremental backup. Tapes are changed on a grandfather,
father, and son rotation. Archive jobs will be run on an as needed basis
depending on system volume.
- Full backups with verify will occur every Thursday starting at 12:30 AM.
All volumes are written to tape at this time.
- Incremental backups with verify will occur every day except Thursday at
12:30 AM. Only files that have been changed since the last full backup or
incremental backup are written to tape at this time.
- The backup operator is responsible for reviewing the backup reports to
insure complete and verifiable backups.
- Tapes are secured in an Underwriters Laboratory (UL) approved fire proof
safe both on site and off site. The current working set in the auto
loader, second most current in safe on site, third most current in safe
off site, fourth set in off site storage location.
- One month of normal and incremental tapes will be available for
restoration. Archive tapes are kept for 6 months from date of archive
before being recycled.
- Manager, Corporate Systems is directly responsible for management and
implementation of the data storage procedures.
- During normal business hours, the NOC will be alerted electronically if a
back up job fails. During non-business hours the on call technician will
be paged.
- In the event of critical data loss the most current full backup will be
restored to the disk and current incremental tapes restored to bring the
system up to the existing storage level. The Manager, Corporate Systems
will closely monitor this procedure to insure accurate and rapid
restoration of all corrupted data.
- The Network Administrator will coordinate and monitor the restoration of
individual files on an as needed or requested by the Post View
administrators.
6
<PAGE> 16
SYSTEM MONITORING
All critical functions of the Post View system will be monitored on a 24/7
basis. This includes LAN throughput, CPU utilization, storage capacity, memory
allocation, database performance, network availability (T1 lines), capacity, and
general system health. Since our Network Operation Center (NOC) does not operate
on a 24/7 basis, the Computer Associates Framework (Unicenter TNG subset) is the
monitoring tool set we use. From 7:00 AM until 6:00 PM Monday through Friday
(normal operating hours) the NOC will be responsible for system monitoring and
maintenance. All other times the on call technician will be responsible for
system monitoring and maintenance. Alerts are programmed to trigger events at
the warning stage and to page the on call technician during non-business hours.
o Weekly reports will be submitted to the Manager, Corporate Systems for
review. Reports will include storage capacity, intraday system capacity,
performance matrix, and any other general information pertinent to the
operation of the system.
o Alerts have 4 thresholds for reporting purposes;
1. Critical: System has had a major malfunction and system is down.
2. Warning: An abnormal condition has occurred, however the system is
still functional. The system will alarm in the NOC during normal
business hours or page the on call technician during off business
hours.
3. Informational: Event has occurred and information is being logged
detailing the event. System is fully functional.
4. Exception: An event has occurred but no information was logged. A
dialog box may appear for administrative intervention, however no
data is logged to the event log. System is fully functional and no
abnormal condition has occurred.
o The Network Administrator reviews all event logs on a weekly basis for
recurring events and unusual conditions. Additionally, the event logs are
saved to a monthly folder every week and cleared in the on-line event log.
o Manager, Corporate Systems reviews monthly event folders and will submit a
quarterly system status report to the Director of Operations.
o Immediate action will be taken by either the NOC or the on call technician
to resolve events reported by the monitoring utilities.
o If any server volume reaches 85 percent of capacity additional storage
will be added "on the fly" using the FAST tool to initialize the stand by
drive.
o Any unusual or abnormal conditions are to be reported to the Network
Administrator and the Manager, Corporate Systems as soon as possible after
the event.
7
<PAGE> 17
SYSTEM SUPPORT
Post View system support is provided via our "PartnerSupport.net" solution
support operation. This new value added service is designed to "surround our
customer in service". It consists of a web site, email support, and an 800
number (1-888-833-4378). We will use it to track all issues and bugs related to
the Post View system. You will receive an issue tracking number and be able to
get status updates via the web site. Future enhancements include access via the
"OSMI" as well.
PROCEDURES
When an issue arises with the Post View system, a service request will be
submitted to the ITI partner support group. The first level technician will
take down pertinent information, open a ticket and perform preliminary
troubleshooting procedures to determine if the issue is on the LAN or the
telecommunications network. If the problem resides on the telecom network, the
Frontier Confertech Network Management Center (NMC) will be conferenced into
the call and the issue will be gracefully passed to them for resolution with
the long haul carriers. If the issue is determined to be within an ITI managed
network the following will occur.
o A case number is assigned in the system and user contact information will
be entered. A detailed description of the issue will be entered and the
issue is prioritized based on the service ticket classification explained
in the previous section.
o For priority 1 issues, the NOC will be notified of the issue as fast as
humanly possible with an objective of 15 minutes or less. If the incident
occurs after hours the on call technician will be notified immediately via
alphanumeric paging. The objective being to return the system to
operational status ASAP.
o For priority 2 issues, the same steps will be taken as in priority 1
however, the ticket will be passed through normal communications channels
with resolution being 1 hour or less. If the issue occurs after hours the
on call technician will receive an alert page and will continue
troubleshooting procedures to determine what level of repair needs to be
accomplished immediately. If service is performing at an acceptable level,
the repairs will commence at the start of the next business day. The
Manager, Corporate Systems will make the decision when determining if a
system is performing at an acceptable level.
o For priority 3 issues, a ticket will be opened and a case number assigned
to the Network Administrator for resolution. The Network Administrator
will assess the situation, determine the best course of action, and
schedule the repair of the issue to insure no interruption of service.
o The same procedures will apply for software bug tracking as well.
Additionally, a priority 4 bug will be recorded and submitted to the
appropriate software vendor for analysis and resolution in accordance with
their established procedures.
o Priority 1 and 2 software bugs will be addressed immediately, priority 3
and 4 bugs will be implemented on a mutually agreed upon schedule.
8
<PAGE> 18
ESCALATIONS
All escalations will occur automatically at pre-determined times. Frontier
Confertech and Interactive Telesis employees may request escalation of an
issue if they feel it is warranted. It is important to note that if all
issues are submitted as priority one tickets then priority one issues
become normal an the effectiveness of the escalation process is diminished.
If service level and responsiveness is not meeting your expectations,
please do not hesitate to contact the Director of Operations at
760-704-4345. All escalations will go from a first level technician to the
next appropriate person in the process.
- Priority 1 issues are escalated to the Manager, Corporate Systems if
not resolved within 30 minutes of ticket issue.
- Priority 2 issues are escalated to the Network Administrator if not
resolved within 3 hours of ticket issue. If the issue is not resolved
within 6 hours, the issues are escalated to the Manager, Corporate
Systems.
- Priority 3 issues are escalated to the Network Administrator if not
resolved within 6 hours of ticket issue. If the issues are not
resolved by next business day, the issues are escalated to the
Manager, Corporate Systems.
- Priority 1 bugs are escalated to the Director, It if not resolved
within 30 minutes of ticket issue.
- Priority 2 bugs are escalated to a Sr. Developer if not resolved
within 6 hours of ticket issue. If the bugs are not resolved within 3
days, the bugs are escalated to the Director, IT.
- Priority 3 bugs are not escalated through the normal escalation
process. They will be identified and scheduled for correction through
the Director, IT.
- Priority 4 bugs will not be tracked through the system however, they
will be logged with the MSDN for evaluation.
KEY CONTACTS
Primary point of contact for service and support will be the
PartnerSupport.net group. This may be via email, Internet, and 800 number.
This is the first place to go when you have an issue. If you have a problem
getting your issues resolved the following people can be contacted.
- Director of Operations
Email: [email protected]
(760) 704-4345 (24/7 number that forwards to cell phone)
(760) 283-2345 (pager)
- VP, Operations
Email: [email protected]
(760) 632-1700 ext. 262
(619) 214-7443 (pager)
(619) 379-7475 (cell phone)
A separate more complete list of key contacts will be provided.
9
<PAGE> 19
SYSTEM CAPACITY PLANNING AND UPGRADE
All system upgrades are scheduled to avoid confusion and downtime.
Coordination between the Post View administrators and Interactive
Telesis is critical to a successful upgrade. System and storage capacity
reports will be reviewed regularly, by the management team, to analyze
trends and better prepare for peak seasons.
- When storage reaches 65 percent of capacity, the Network administrator
will institute the standing PO for a new hot swappable hard drive. At
85 percent full the standby drive is initialized and added to the
file systems logical volume. When the replacement drive is received,
it will be put into the standby bay and low level formatted.
- An archive program will be run at least 3 times per week to move
expired voice files to the alternate file system for backup to an
archive tape and deletion from the system.
- When incoming T1 ports reach 75 percent of capacity, provisioning for
additional port capacity will occur. Additional capacity will be
captured from existing IVR systems and or standby IVR workstations
may be deployed to meet capacity during peak system usage.
- Analysis of usage will occur quarterly and after every "IR season" to
determine capacity and plan for the next period of heavy usage.
- IVR Application upgrades will be categorized as either an enhancement
or a fix to an existing problem. Bug fixes will be thoroughly tested
in a development environment and then ported to 1 or 2 production
IVR's. Once the fix has been validated on the product system the
remainder of the IVR's will be brought up to the latest build and a
new release will be generated.
- The same procedures apply for software enhancements, the only
difference being a new version is generated instead of a new release.
Additionally, enhancements are to be scheduled outside of the bug
tracking system.
10
