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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
________________________________________________________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission file number: 33-1210-D
APPLIED VOICE RECOGNITION, INC.
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(Exact name of registrant as specified in its charter)
Utah 87-042552
---- ---------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4615 Post Oak Place., Suite 111, Houston, TX 77027
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(Address of principal executive offices including zip code)
(713) 621-5678
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(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of Common Stock outstanding as of March 31, 1997: 11,029,000
shares
Page 1 of 9
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PART I.
FINANCIAL INFORMATION
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<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheet as of March 31, 1997............................... 3
Consolidated Statements of Income for the Three Months
ended March 31, 1997 and 1996............................................... 4
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1997 and 1996.............................................. 5
Notes to Consolidated Financial Statements.................................... 6
</TABLE>
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APPLIED VOICE RECOGNITION, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
BALANCE SHEETS FOR THE PERIODS ENDING
MARCH 31, 1997 AND 1996
(UNAUDITED)
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
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<S> <C> <C>
ASSETS
Cash 288,016 18,014
Accounts Receivable 81,056 2,954
Inventory 36,200 15,000
Deposits and prepaids 33,482
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TOTAL CURRENT ASSETS 438,754 35,968
Property and equipment, net of
accumulated depreciation of
$19,051 and 6,076. 86,970 28,963
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TOTAL ASSETS 525,724 64,931
========= =======
LIABILITIES
Current Portion of long term debt 136,642 9,100
Due to stockholders 296,271
Accounts payable and accrued expenses 180,308 113,112
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TOTAL CURRENT LIABILITIES 316,950 418,483
Due to stockholders 125,000 95,900
Long term debt 28,599 --
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TOTAL LIABILITIES 470,549 514,383
STOCKHOLDERS EQUITY
Common Stock, $.001 par value,
50,000,000 shares authorized,
11,029,000 and 5,820,000
issued and outstanding 11,029 5,820
Paid in capital 1,344,207 58,132
Retained (deficit) (1,300,061) (513,404)
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TOTAL STOCKHOLDERS EQUITY 55,175 (449,452)
--------- -------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY 525,724 64,931
========= =======
</TABLE>
See notes to financial statements
3
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APPLIED VOICE RECOGNITION, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INCOME STATEMENTS FOR THE PERIODS ENDING
MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
MARCH 31, MARCH 31,
1997 1996
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<S> <C> <C>
Net Sales 215,954 117,643
Cost of Sales 135,540 73,075
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GROSS MARGIN 80,414 44,568
Selling 162,780 23,295
General and administrative 318,663 86,643
Research and development 59,933 14,108
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TOTAL OPERATING EXPENSES 541,376 124,046
Other income and (expense)
Interest expense (4,950)
Interest income 4,052
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NET (LOSS) (461,860) (79,478)
========== =========
(Loss) Per Common Share (0.04) (0.01)
Weighted Average Shares Outstanding 10,730,603 5,820,000
</TABLE>
See notes to financial statements
4
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APPLIED VOICE RECOGNITION, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDING MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
MARCH 31, MARCH 31,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) (461,860) (79,478)
Adjustments to reconcile net income
to cash provided by operating
activities
Depreciation 6,967 506
Changes in operating assets and
liabilities
Accounts Receivable (43,052) 2,507
Inventory (20,609)
Accounts Payable and accrued
expenses 79,047 (13,259)
--------- -------
NET CASH USED BY OPERATING ACTIVITIES (439,507) (89,724)
CASH FLOWS FOR INVESTING ACTIVITIES
Purchase of equipment (76,057) (6,626)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash loaned by stockholders -- 73,869
Cash contributed by stockholders 250,000
Repayments of notes payable (3,418)
Loan proceeds from third parties
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NET CASH PROVIDED BY FINANCING 246,582 73,869
ACTIVITIES --------- -------
NET INCREASE (DECREASE) IN CASH (268,982) (22,481)
========= =======
Cash at beginning of period 556,997 40,495
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CASH AT END OF PERIOD 288,015 18,014
========= =======
</TABLE>
See notes to financial statements
5
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APPLIED VOICE RECOGNITION, INC.
NOTES TO FINANCIAL STATEMENT
(Unaudited)
Note 1 - Basis of Presentation:
The accompanying unaudited interim financial statements of Applied Voice
Recognition, Inc., a Utah corporation (the "Company"), have been prepared in
accordance with generally accepted accounting principles and the rules of the
Securities and Exchange Commission (the ''SEC"), and should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's latest Annual Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year,
1996, as reported in the Form 10-KSB, have been omitted.
Note 2 - Net Income (Loss) Per Share:
Net Income per common share is calculated on the basis of the weighted average
number of common shares outstanding during the period. The dilutive effect of
common stock equivalents is not material. The calculation of primary loss per
common share is based on the weighted average number of common shares
outstanding during the period, after consideration of the dilutive effect of
stock options and warrants reflected under the treasury stock method. Fully
diluted net income (loss) per share is not presented because such amounts would
be the same as amounts computed for primary net income (loss) per common share.
Note 3 - Notes Payable To Related Parties:
As of December 31, 1995, amounts payable to founding stockholders was $222,402
and was payable on demand, carried no interest and was mostly accrued
compensation. As of July 16, 1996, amounts due of $214,902 were contributed in
a recapitalization of the Company in consideration for a $125,000 note payable.
The balance owed to these founding stockholders as of December 31, 1996, was
$27,500, all of which was repaid by the Company in February, 1997.
Note 4 - Common Stock:
Prior to August 15, 1996, the Company was organized as three different Texas
limited partnerships . On August 15, 1996, the Company was incorporated and the
Partnership contributed all assets and liabilities in exchange for 6,000,000
shares. Because 3% of the Company was given up as partial consideration for a
$125,000 loan made July 16, 1996 (see Note 3,) and equivalent 5,820,000 shares
is used as the total outstanding shares as of December 31, 1995 through March
31, 1996.
Note 5 - Subsequent Events:
On May 15, 1997, the Company commenced the sale of its common stock in a private
placement offering.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the Consolidated Financial Statements appearing in Item 1.
GENERAL
The Company and its predecessors are engaged in business of developing and
selling Micro-Computer Voice Recognition Software to commercial and government
markets. Revenue is recognized by the Company when purchase orders are signed.
Research and development costs are charged to expense as incurred. For the
three months ending March 31, 1996 ("1996 First Quarter") and the three months
ended March 31, 1997 ("1997 First Quarter"), research and development costs were
$53,733 and $14,108 respectively. Management expects that additional amounts
will be expended on research and development for future periods. Among the
principal costs to market and sell the Company's products are advertising and
promotion costs, sales, salaries and commissions, and general and administrative
expenses.
RESULTS OF OPERATIONS
1997 First Quarter and 1996 First Quarter.
Net sales for the 1997 First Quarter were $215,954 versus $117,643 for the
1996 First Quarter, an increase of 83 percent. This increase is primarily due
to an increased marketing efforts in the Houston area.
Cost of sales was $135,540 in the 1997 First Quarter versus $73,075 in the
1996 First Quarter, an increase of 85 percent. The increase was the result of
greater sales effected in 1997.
The Company's gross margin in the 1997 First Quarter was $80,414 versus $
44,568 in the 1996 First Quarter, an increase of 80 percent. This increase was
primarily due to higher sales resulting in higher margins.
Selling expenses increased to $162,780 in the 1997 First Quarter from
$23,295 in the 1996 First Quarter, an increase of 598 percent. This increase
was primarily due to the addition of sales personnel.
General administrative expenses increased to $318,663 in the 1997 First
Quarter from $86,643 in the 1996 First Quarter, a increase of 282 percent. This
increase is primarily due to additional management personnel increases.
Research and development costs increased to $59,933 in the 1997 First
Quarter from $14,108 in the 1996 First Quarter, an increase of 282 percent.
This increase is primarily due to the addition of new programmers for product
development.
The net loss in the 1997 First Quarter was $461,860 compared with a net
loss of $79,478 in the 1996 First Quarter an increase of 483 percent. The
increase in the amount of loss was due to an overall increase in programming and
sales staff.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $121,804, compared to
a working capital deficit of $382,515 at March 31, 1996. This increase in the
Company's working capital was primarily due to conversion of stockholder debt to
equity.
Net cash used by operating activities was $439,507 and $(89,724) in the
1997 First Quarter and the 1996 First Quarter respectively. The increase in net
cash used by operating activities resulted largely from slaes of common stock.
Net cash provided by financing activities was $246,582 and $73,869 in the 1997
First Quarter and the 1996
7
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First Quarter, respectively. The significant increase in net cash provided by
the financing activities resulted primarily from the slaes of common stock.
The Company has financed its growth primarily through borrowings from its
stockholders, as well as from the sale of its common stock. The Company has not
entered into any loan agreements with any financial institution. As of March 31,
1997, the Company's sources of internal/external financing were limited. It is
not expected that internal sources of liquidity will improve until net cash is
provided by operating activities, and until such time, the company will rely
upon external sources for liquidity. There can be no assurance that the Company
will be able to obtain additional cash resources from the sale of its securities
unreasonable terms, if at all. Management believes, however, that its current
cash position will provide adequate liquidity to meet the Company's capital
requirements for the balance of 1997. Lower than expected revenues resulting
from adverse economic conditions or otherwise, could restrict the Company's
ability to expand its business as planned, and if severe enough, may shorten the
period during which its current cash proceeds may be expected to satisfy the
Company's capital requirements. As of March 31, 1997, the Company has no
material capital commitments.
PART II
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLIED VOICE RECOGNITION, INC.
By //s/ TIMOTHY J. CONNOLLY
----------------------------------------------
Timothy J. Connolly, Chief Financial Officer
and Chief Accounting Officer
May 15, 1997
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 288,016 18,014
<SECURITIES> 0 0
<RECEIVABLES> 81,056 2,954
<ALLOWANCES> 0 0
<INVENTORY> 36,200 15,000
<CURRENT-ASSETS> 438,754 35,968
<PP&E> 86,970 28,963
<DEPRECIATION> 6,967 2,507
<TOTAL-ASSETS> 525,724 64,931
<CURRENT-LIABILITIES> 316,950 418,483
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 525,724 64,931
<SALES> 215,954 117,643
<TOTAL-REVENUES> 215,954 117,643
<CGS> 135,540 73,075
<TOTAL-COSTS> 135,540 73,075
<OTHER-EXPENSES> 541,376 124,046
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 898 0
<INCOME-PRETAX> (461,860) (79,478)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (461,860) (79,478)
<EPS-PRIMARY> (0.04) (0.01)
<EPS-DILUTED> (0.04) (0.01)
</TABLE>
