<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHIINGTON, 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 September 30, 1997
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commissions file number: 33-1210-D
APPLIED VOICE RECOGNITION, INC.
(Exact name of registrant as specified in its charter)
Utah 87-042552
---- ---------
(State or other Jurisdiction of (IRS Employer Identification No.)
incorporation or Organization)
4615 Post Oak Place, Suite 111 Houston, TX 77027
(Address of principal executive offices including zip code)
(713) 621-5678
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 November 14, 1997: 12,956,211
<PAGE>
INDEX
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Unaudited Balance Sheets
Unaudited Statements of Operations
Unaudited Statements of Cash Flows
Notes to Unaudited Financial Statements
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
PART II: OTHER INFORMATION
Item 2 Changes in the Company's Securities
Item 4 Submission of Matters to a Vote of the Security Holders
Item 5 Other Matters
Item 6 Exhibits and Reports on Form 8K
FORWARD LOOKING STATEMENTS
Included in this report are "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations reflected in such forward-looking
statements will prove to have been correct. The Company's actual results could
differ materially from those anticipated in the forward-looking statements as a
result of certain factors including those set forth under Part I, Item 2
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." The Company's operating results have fluctuated and may continue to
fluctuate on an annual and quarterly basis, as a result of a number of factors,
many of which are outside the Company's control. These factors include the
timing of significant orders, the length of the sales cycle, the timing of the
release of new products, the ability of the Company to recruit and train an
effective field sales force, the acceptance of new and enhanced versions of the
Company's product, pricing trends in the Automated Speech Recognition industry,
and conditions and events in the computer industry and the general economy
<PAGE>
PART I: FINANCIAL INFORMATION
Item: 1: Financial Statements
APPLIED VOICE RECOGNITION, INC.
Form 10-QSB
Quarter Ended, September 30, 1997
Balance Sheets for the periods ending
September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
ASSETS 1997 1996
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 3,107,550 $ 769,734
Accounts receivable, net 106,507 12,000
Inventory 213,530 14,128
Deposits and prepaid expenses 203,009 -
----------- ----------
Total Current Assets 3,630,597 795,862
=========== ==========
Property and equipment, net of accumulated
depreciation of $43,801 and $14,011. 197,498 20,019
Computer software net of amortization of $15,524 170,773 -
----------- ----------
TOTAL ASSETS $ 3,998,868 $ 815,881
=========== ==========
LIABILITIES
Accounts payable and accrued expenses $ 370,632 $ 175,355
Current portion of long term debt 127,922 10,161
Due to stockholders - 7,500
----------- ----------
Total Current Liabilities 498,554 193,016
Due to stockholders 125,000 125,000
Long term debt 14,032 91,015
Deferred Sales 151,770 -
Capital lease liability 50,805 -
----------- ----------
TOTAL LIABILITIES 840,161 409,031
STOCKHOLDERS EQUITY
Convertible preferred Stock, $.01 par value, 2,000,000
shares authorized, 312,500 shares issued
and outstanding 3,125 -
Common Stock, $.001 oar value, 50,000,000
shares authorized, 12,736,217 and
10,729,602 issued and outstanding. 12,737 10,729
Paid in capital 5,945,152 1,053,784
Accummulated (deficit) (2,802,307) (657,663)
----------- ----------
TOTAL STOCKHOLDERS EQUITY 3,158,707 406,850
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $ 3,998,868 $ 815,881
=========== ==========
</TABLE>
See notes to financial statements
<PAGE>
APPLIED VOICE RECOGNITION, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1997
Income Statements for the periods ending
September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 785,327 $ 278,545 $ 332,176 $ 62,934
Cost of sales 431,514 189,289 160,639 47,680
----------- --------- --------- ---------
GROSS MARGIN 353,813 89,256 171,537 15,254
Selling 657,474 85,457 338,848 57,984
General and administrative 1,435,638 183,045 627,400 3,971
Research and development 210,106 66,030 37,745 51,119
----------- --------- ---------- ----------
TOTAL OPERATING EXPENSES 2,303,218 334,532 1,003,993 113,074
Other income and (expense)
Interest expense (29,362) (3,852) (16,360) (3,852)
Interest income 14,661 9,481 -
----------- --------- ---------- ----------
(Loss) before extraordinary item (1,964,106) (249,128) (839,335) (101,672)
Extraordinary item - debt forgiveness,
Less applicable income tax of $0 - 25,391 - 25,391
----------- --------- ---------- ----------
NET (LOSS) $(1,964,106) $(223,737) $ (839,335) $ (76,281)
=========== ========= ========== ==========
(Loss) per common share $ (0.18) $ (0.03) $ (0.07) $ (0.01)
Weighted average shares outstanding 11,088,258 6,647,259 11,998,576 8,301,777
</TABLE>
See notes to financial statements
<PAGE>
APPLIED VOICE RECOGNITION, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1997
Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
CASH FLOWS FROM OPERATING ACTIVITIES September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net (Loss) $(1,964,106) $ (223,737)
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 47,241 8,439
Changes in operating assets and liabilities
Accounts receivable (68,503) (6,539)
Inventory (164,457) 872
Deposits and prepaids (203,009) -
Deferred revenue 151,770 -
Accounts Payable and accrued expenses 270,475 102,164
----------- ----------
NET CASH USED BY OPERATING ACTIVITIES (1,930,589) (118,801)
CASH FLOWS FOR INVESTING ACTIVITIES
Purchase of equipment (211,334) (5,615)
Capitalization of software cost (186,297)
----------- ----------
NET CASH USED BY INVESTING ACTIVITIES (397,631) (5,615)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash loaned - stockholders 180,000 -
Principal payments on stockholder debt (207,500) (89,902)
Loan proceeds - notes payable 586,500 -
Principal payments on notes payable (586,305) (57,005)
Capital lease financing 55,047 -
Principal payments under capital lease obligation (4,242) -
Proceeds from sale of stock 4,855,273 1,000,562
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,878,773 853,655
----------- ----------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS $ 2,550,553 $ 729,239
=========== ==========
Cash and cash equivalents at beginning of period 556,997 40,495
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,107,550 $ 769,734
=========== ==========
</TABLE>
See notes to financial Statements
<PAGE>
APPLIED VOICE RECOGNITION, INC.
FORM 10-QSB
QUARTER ENDED, SEPTEMBER 30, 1997
APPLIED VOICE RECOGNITION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
ISSUED ISSUED ADDITIONAL PAID IN
------------------ ----------------- PAID-IN CAPITAL -
SHARES AMOUNT SHARES AMOUNT CAPITAL EXPENSE
------- ------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance at December 31, 1996 10,729,602 $10,730 - $ - $1,095,010 -
Sale of 100,000 shares of common stock to
Don Saunders for $250,000 100,000 100 - - 249,900 -
Exercise of 16,667 stock options of Akin
Olajuwon for $2,333 16,667 17 - - 22,983 -
Issuance of 50,000 shares of common stock
for consulting services rendered by
S.Reid in the amount of $200,000. These
services are considered to be a
promotional expense associated with the
private placement 50,000 50 - - 199,950 (200,000)
Issuance of 50,000 warrants for consulting
services rendered by S.Reid. The
exercise price of each warrant amounts to
$3. This compares to the FMV of each
warrant of $4. These services are
considered to be a promotional expense
associated with the private placement - - - - 50,000 (50,000)
Issuance of 50,000 shares of common stock
for consulting services rendered by R.
Huttner in the amount of $75,000. 50,000 50 - - 74,950 -
Issuance of 5,000 shares of common stock
for legal services rendered by Brewer
Pritchard in the amount of $18,750. 5,000 5 - - 18,745 (18,750)
Exercise of 37,500 warrants of Russ
Douglas for $5,250 37,500 38 - - 5,213 -
Exercise of 16,667 warrants of J. Marion
for $2,333 16,667 17 - - 2,316 -
Sale of 103,125 shares of preferred stock
for $1,000,000 - - 103,125 1,031 998,969 -
Sale of 209,375 shares of preferred stock
for $1,500,000 - - 209,375 2,094 1,497,906 -
Sale of 1,015,625 shares of common stock
to Don Saunders for $1,625,000 1,015,625 1,016 - - 1,623,984 -
Sale of 271,875 shares of common stock to
Betz for $435,000 271,875 272 - - 434,728 -
Sale of 308,125 shares of common stock to
others for $493,000 308,125 308 - - 492,692 -
PPM Expenses - - - - - (553,309)
Issuance of 50,781 shares of common stock
to Sanders for commissions associated
with private placement. Commissions
amount to $81,256 50,781 51 - - 81,205 (81,256)
Issuance of 84,375 shares of common stock
to ESL for commissions associated with
private placement. Commissions amount to
$135,000 84,375 84 - - 134,916 (135,000)
Net Loss
---------- ------- ------- ------ ---------- -----------
Ending balance at September 30, 1997 12,736,217 $12,737 312,500 $3,125 $6,983,467 $(1,038,315)
========== ======= ======= ====== ========== ===========
</TABLE>
See notes to financial statements
<TABLE>
<CAPTION>
RETAINED
EARNINGS TOTAL
-------- -------
<S> <C> <C>
Beginning balance at December 31, 1996 $ (838,201) $ 267,539
Sale of 100,000 shares of common stock to
Don Saunders for $250,000 - 250,000
Exercise of 16,667 stock options of Akin
Olajuwon for $2,333 - 23,000
Issuance of 50,000 shares of common stock
for consulting services rendered by
S.Reid in the amount of $200,000. These
services are considered to be a
promotional expense associated with the
private placement - -
Issuance of 50,000 warrants for consulting
services rendered by S.Reid. The
exercise price of each warrant amounts to
$3. This compares to the FMV of each
warrant of $4. These services are
considered to be a promotional expense
associated with the private placement - -
Issuance of 50,000 shares of common stock
for consulting services rendered by R.
Huttner in the amount of $75,000. - 75,000
Issuance of 5,000 shares of common stock
for legal services rendered by Brewer
Pritchard in the amount of $18,750. - -
Exercise of 37,500 warrants of Russ
Douglas for $5,250 - 5,250
Exercise of 16,667 warrants of J. Marion
for $2,333 - 2,333
Sale of 103,125 shares of preferred stock
for $1,000,000 - 1,000,000
Sale of 209,375 shares of preferred stock
for $1,500,000 - 1,500,000
Sale of 1,015,625 shares of common stock
to Don Saunders for $1,625,000 - 1,625,000
Sale of 271,875 shares of common stock to
Betz for $435,000 - 435,000
Sale of 308,125 shares of common stock to
others for $493,000 - 493,000
PPM Expenses - (553,309)
Issuance of 50,781 shares of common stock
to Sanders for commissions associated
with private placement. Commissions
amount to $81,256 - -
Issuance of 84,375 shares of common stock
to ESL for commissions associated with
private placement. Commissions amount to
$135,000 - -
Net Loss (1,964,106) (1,964,106)
----------- -----------
Ending balance at September 30, 1997 $(2,802,307) $ 3,158,706
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
APPLIED VOICE RECOGNITION, INC.
NOTES TO FINANCIAL STATEMENTS
For the Quarter ended September 30, 1997
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 principals 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 combined 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 the fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations are not necessarily indicative of the results
to be expected for the full year. Note 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 Private Placement of the Company's Stock
The company recently completed the private placement (the "Private Placement")
of 1,595,625 shares of common stock, par value $.001 per share (the "Common
Stock") for a purchase price of $1.60 per share and 312,500 shares of Series A
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock") for a
purchase price of $8.00 per share. The Company closed the first offering of
125,000 shares of the Series A Preferred Stock on August 1, 1997 for a purchase
price of $8.00 per share for an aggregate of $1,000,000, and closed the second
offering of 187,500 shares of the Series A Preferred Stock on August 12, 1997
for an aggregate of $1,500,000. Additionally, the Company closed its offering
of common stock on August 27, 1997 and received the aggregate purchase price of
$2,553,000. Total expenses of the private placement including broker fees,
commission and legal and accounting expenses totaled $387,359
Note 3 Bridge Loans, Loans from related parties
On August 14, 1997, the company paid in full amounts payable, under a bridge
loan agreement, to a stockholder and certain officers of the Company. The
balance paid amounted to $430,000. This was paid in accordance with the
provisions of the bridge loan agreement which called for full payment at the
earlier of six months or the receipt of the minimum proceeds of the private
placement, of $2,000,000.
Note 4 Loss per common share
Loss per share is calculated on the basis of the weighted average number of
common shares outstanding during the period. Common stock equivalent shares
consists of the incremental shares issuable upon the exercise of stock options
and warrants using the treasury stock method if dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128. Earnings Per Share, which is required to be adopted on December 31, 1997.
At that time the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
common stock equivalents will be excluded. The impact of Statement No. 128 on
primary and fully diluted earnings per share is not expected to be material for
the three months and nine months ended September 30, 1997.
7
<PAGE>
Note 5 Pro forma presentation of September 30, 1996 financials
The financial statements presented for the period ended September 30, 1996
represent a profoma consolidated balance sheet and income statement of the
Company and Summa Vest, Inc. On December 11, 1996, Summa Vest, Inc., an public
traded company with no operations since 1993 completed a "reverse acquisition"
of the Company. The reverse acquisition has been accounted for by the purchase
method of accounting for the fiscal year ended December 31, 1996. The financial
statements for the period ended September 30, 1996 represent the consolidated
balance sheet and income statement as if the merger occurred on September 30,
1996.
8
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
Applied Voice Recognition Inc. (the "Company" or "AVRI") develops, markets and
supports speech driven computer applications. Founded in 1994, the Company was
an early entrant in Automated Speech Recognition (ASR) software application
marketplace. In 1995, the Company introduced VoiceCommander, a personal
computer windows based, discrete speech-driven, office suite software product.
The VoiceCommander enables the user to dictate and print letters and office
memos, dictate and send faxes, maintain a database of business and personal
contacts, automatically dial telephone numbers, manage e-mail and "surf" the
world-wide web all via voice commands. In December 1996 AVRI completed a
reverse merger with a public company. As a result, the Company is now traded on
the Nasdaq OTCBB under the symbol "AVRI". For the periods under discussion in
this document, sales of the VoiceCommander product have been the primary source
of revenues for AVRI.
The Company's revenues are derived from license fees for software products,
training fees for assisting the customer in the use of the Company's products,
software support and maintenance and sales of hardware used in conjunction with
the Company's software. Software licenses are typically granted on a per user
basis, however the Company may grant enterprise-wide licenses for multi users
sites. Revenues have been derived in the main from direct sales to end users
through the Company's direct field sales force. Since inception, AVRI has
focused its sales and marketing resources in the Houston, Texas marketplace and
consequently most of the revenues in 1996 and 1997 are derived from this market.
During the first three quarters of 1997, the Company has significantly increased
its research and development efforts to produce a new continuous speech version
of its VoiceCommander product. The Company has also increased its sales,
marketing and administrative staff to capitalize on the launch of VoiceCommander
4.0. On September 15, 1997, the Company publicly announced the rollout of its
continuous speech version of the VoiceCommander series, VoiceCommander 4.0.
The Company's operating results have fluctuated and may continue to fluctuate on
an annual and quarterly basis, as a result of a number of factors, many of which
are outside the Company's control. These factors include the timing of
significant orders, the length of the sales cycle, the timing of the release of
new products, the ability of the Company to recruit and train an effective field
sales force, the acceptance of new and enhanced versions of the Company's
product, pricing trends in the Automated Speech Recognition industry, and
conditions and events in the computer industry and the general economy.
Additionally, the Company has expensed all research and development costs from
inception through June 30, 1997 and therefore financial periods may reflect
higher than normal expenses in advance of the financial periods in which
material sales revenues can be realized on any newly developed products.
RESULTS OF OPERATIONS
REVENUES
Revenues were $332,176 and $62,934 for the three months ended September 30, 1997
and 1996, respectively, representing an increase of $269,242 or 428%. Revenues
were $785,327 and $278,545 for the nine months ended September 30, 1997 and 1996
respectively, representing an increase of $506,782 or 182%. The increases for
the three months and the nine months ended September 30, 1997 resulted primarily
from the addition of sales personnel in direct sales and marketing and
promotional campaigns implemented in the Houston marketplace in 1997.
9
<PAGE>
OPERATING EXPENSES, NONOPERATING ITEMS
Cost of sales as a percentage of revenues was 49% in the third quarter of fiscal
1997 compared to 76% in the third quarter of fiscal 1996 and 55% for the first
three quarters of 1997 versus 68% for the first three quarters of 1996. Cost of
sales in aggregate totaled $431,514 and $189,289 for the nine months ended
September 30, 1997 and 1996, respectively, and $160,639 and $47,680 for the
three months ended September 30, 1997 and 1996, respectively. The favorable
trend in cost of sales as a percentage of revenues in both periods is
attributable to the negotiation of favorable contracts with suppliers of the
speech engine upon which the Company's software applications run. Additionally,
the Company realized lower training costs by increasing the average size of its
training classes.
Sales and marketing expenses were $338,848 in the third quarter of 1997 and
$57,984 in the third quarter of 1996 representing an increase of $280,864. For
the first three quarters of 1997 and 1996 sales and marketing expenses equaled
$657,474 and $85,457, respectively, representing and increase of $572,017.
For the current period and the year to date, the increase in sales and marketing
expenses was attributable to the addition of incremental salespersonnel and the
launch of a radio and print marketing campaign featuring Hakeem Olajuwon.
General and administrative expenses were $627,400 in the third quarter of 1997
and $3,971 in the third quarter of 1996, representing an increase of $623,429.
For the nine months ended September 30, 1997, general and administrative
expenses totaled $1,435,638 representing an increase of $1,252,593 over the
$183,045 incurred for the nine months ended September 30, 1996. The increase in
both periods is attributable to the addition of senior level management,
including the Company's President, Chief Financial Officer and Vice President of
Sales, administrative personnel and associated recruiting costs.
Research and development expenses decreased from $51,119 in the third quarter of
1996 to $37,745 in the same quarter of 1997. This reduction was due to the
capitalization of development costs for the continuous speech version of
VoiceCommader in the third quarter of 1997. Software development costs were
expensed as incurred for all periods up to June 30, 1997. For the nine months
ended September 30, 1997, these expenses totaled $210,106 versus $66,030 for the
same period in 1996. The increase in research and development expenses of
$144,076 was attributable, mainly to increased staffing.
For the three months and nine months ending September 30, 1997, net interest
expense increased by $10,849 and $8,656 for the same periods of 1996. The
increase in both periods was due to increased debt financing.
An extraordinary loss of $25,391, net of income tax effects, was recognized in
the third quarter of 1996 and no extraordinary losses were recognized for the
nine months ended September 30, 1997. The extraordinary loss was due to the
forgiveness of debt.
NET INCOME (LOSS)
Net loss for the third quarter of fiscal 1997 was $839,335 compared to a net
loss of $76,281 for the same period in 1996. For the nine months ended
September 30, 1997, the net loss for the Company totaled $1,964,106 compared to
a net loss of $223,737 for the same period in 1996. The increases in net loss
for both periods is attributable to the incremental sales, marketing, research
and development, and general and administrative expenses incurred in conjunction
with the launch of the Company's new VoiceCommander product.
10
<PAGE>
LIQUIDITY AND FINANCIAL CONDITION
Net cash used by operating activities increased to $1,930,589 for the nine
months ended September 30, 1997 from $118,801 for the nine months ended
September 30, 1996. The increase in cash used of $1,811,788 was due to the
increase in net loss for the Company for the two periods of $1,740,369 and a net
increase in the carrying value of net assets, notably inventory totaling
$71,419. Net loss for the nine months ended September 30, 1997 amounted to
$1,964,106 and $223,737 for the nine months ended September 30, 1996.
The Company utilized $397,631 of its funds for purchasing equipment and
capitalizing software development for the nine months ended September 30, 1997
versus $5,615 for the same period in 1996. The increase of $392,016 was
attributable to purchasing computer and office equipment.
Cash flows from financing activities totaled $4,878,773 the nine months ended
September 30, 1997 and for the nine months ended September 30, 1996 totaled
$853,655. This increase of $4,025,108 was attributable to a net increase of
$3,854,701 received as the result of the Private Placement of the Company's
stock (as described below), and a net increase of $170,407 of funds received
from loan proceeds and capital lease financing.
The Company recently completed the private placement (the "Private Placement")
of 1,595,625 shares of common stock, par value $.001 per share (the "Common
Stock") for a purchase price of $1.60 per share and 312,500 shares of Series A
Preferred Stock, par value $.01 per share (the Series A Preferred Stock") for a
purchase price of $8.00 per share. The Company closed the first offering of
125,000 shares of the Series A Preferred Stock on August 1, 1997 for a purchase
price of $8.00 per share for an aggregate of $1,000,000, and closed the second
offering of 187,500 shares of the Series A Preferred Stock on August 12, 1997
for an aggregate of $1,500,000. Additionally, the Company closed its offering of
common stock on August 27, 1997 and received the aggregate purchase price of
$2,553,000. Total expenses of the private placement including broker fees,
commission and legal and accounting expenses totaled $387,359.
The Company received $580,000 in loan proceeds from corporate directors,
officers and outsiders in the form of bridge loans during the three months ended
September 30, 1997. The Company has repaid these bridge loans including
accumulated interest. (The bridge loans bore interest at 12% per annum and the
maker received one warrant to purchase the Company's stock for $1.60 for every
dollar loaned to the Company.)
The Company anticipates that it will continue to lose money in the near term as
a result of the Company increasing its expenditures in connection with marketing
its products and services on a national scale, increasing its sales force and
technical support staff and opening additional sales offices. The Company
believes, however, that the Company will be able to utilize the proceeds of the
Private Placement, together with the revenues generated from the Company's
existing operations to develop the Company's products and services and the
markets for those products and services, to the extent necessary for the Company
to meet its future capital requirements for the Company's future operations.
Notwithstanding the foregoing, the Company's business plan anticipates
additional financing in the next twelve months. No assurance can be given that
any such financing would be available.
Without such additional financing there can be no assurance, however, that the
Company will be able to develop its products and services, or the markets for
such products and services to the extent required to meet its future capital
requirements from the revenues generated by the Company's future operations. If
cash provided by operating activities is insufficient to provide internal
sources of liquidity, the Company will rely upon external sources of liquidity.
There can be no assurance that the Company will be able to obtain additional
cash resources from the sale of its securities or from debt sources on
reasonable terms, if at all. 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 available cash may be expected to satisfy the Company's capital
requirements.
11
<PAGE>
As of the date of this report, the company has no material capital commitments.
PART II: OTHER INFORMATION
Item 2: Changes in Securities
During the three months ended September 30, 1997, the Company completed the
private placement of 1,595,625 of common stock, par value $.001 per share (the
"Common Stock") for a purchase price of $1.60 per share and 312,500 shares of
Series A Preferred Stock, par value $.10 per share (the "Series A Preferred
Stock") at a purchase price of $8.00 per share, all to "accredited investors" as
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended.
Item 4: Submission of Matters to a Vote of the Security Holders
On July 27, 1997, a special meeting of the shareholders of the Company was held
to amend the Company's Certificate of Incorporation to allow the Company to
issue 312,500 shares of Series A Preferred Stock. The matter was adopted by the
shareholders.
Item 5: Other Matters
On September 25, 1997, the board of directors of the Company approved a change
in the consulting agreement with one of its board members, Mr. Fredrick Huttner.
In substance, the board approved and Mr. Huttner agreed that Mr. Huttner would
surrender 200,000 of previously issued shares of Common Stock and receive
150,000 options priced at $1.60 issued under the Company's stock incentive plan.
Additionally, the board approved the issuance of 10,000 shares of Company stock
in exchange for the forgiveness of debts owed to Mr. Huttner and the issuance of
50,000 of fully vested options priced at $1.60.
On September 15 1997, the following individuals were added to the board of
directors of the Company: Mr. Raymond Betz, Mr. Charles Skamser (President of
the Company) and Mr. Mike Wilson.
On October 31, 1997 the Company entered into a Share Exchange Agreement with
Profit Financial Corporation, soon to be known as Wade Cook Financial
Corporation ("Wade"). The Company agreed to exchange 100,000 shares of its
Common Stock for 14,333 shares of the Common Stock of Wade. The shares
exchanged by both parties are without registration under the Securities Act of
1933 or under any state securities laws and will therefore, be "restricted
securities" which cannot be sold or transferred by either the Company or Wade in
the absence of such registration or an available exemption therefrom.
Item 6: Exhibits and Reports on Form 8K
(a) Exhibits
27 --Financial Data Schedule
(b) Reports on Form 8K
None.
12
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant has duly
caused this report to be signed on it behalf by the undersigned thereunto duly
authorized.
Applied Voice Recognition Inc.
/s/ W. T. KENNEDY
By:___________________________
W. T. Kennedy
Chief Accounting Officer
13
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 21,011 128,734
<SECURITIES> 3,086,539 641,000
<RECEIVABLES> 106,507 12,000
<ALLOWANCES> 0 0
<INVENTORY> 213,530 14,128
<CURRENT-ASSETS> 3,630,597 795,862
<PP&E> 368,271 20,019
<DEPRECIATION> 46,805 8,439
<TOTAL-ASSETS> 3,998,868 815,881
<CURRENT-LIABILITIES> 497,710 193,016
<BONDS> 0 0
0 0
313 0
<COMMON> 12,736 10,729
<OTHER-SE> 3,146,502 396,121
<TOTAL-LIABILITY-AND-EQUITY> 3,998,868 815,881
<SALES> 785,327 278,545
<TOTAL-REVENUES> 785,327 278,545
<CGS> 431,514 189,289
<TOTAL-COSTS> 431,514 189,289
<OTHER-EXPENSES> 2,303,218 334,532
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14,701 (3,852)
<INCOME-PRETAX> (1,964,106) (223,737)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,964,106) (249,128)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 25,391
<CHANGES> 0 0
<NET-INCOME> (1,964,106) (223,737)
<EPS-PRIMARY> (.18) (.03)
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