<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
[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 as restated
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: 0-23607
APPLIED VOICE RECOGNITION, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-051318
-------- ---------
(State or other jurisdiction of (IRS Employer Identification Number)
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 of November 14, 1997: 12,956,211
(Number of shares of common stock outstanding as of July 30, 1998: 13,982,309)
<PAGE>
RESTATEMENT
This 10-QSB/A is filed so as to reflect a restatement of Part I, including the
financial statements for the three-month period and nine month period ended
September 30, 1997. See footnote 6 to the financial statements for an
explanation of the restatement.
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 there
lease 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
PART I: FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Index to financial statements
Description Page #
- -------------------------------------------------------------------------------
Balance sheet 1
Statement of operations 2
Statement of changes in stockholders' equity 3
4
Statement of cash flows
5
Notes to financial statements
<PAGE>
APPLIED VOICE RECOGNITION, INC.
FORM 10QSB-A
QUARTER ENDED SEPTEMBER 30, 1997
Balance Sheets for the periods ending
September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1997 - 1996 -
Restated Restated
---------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents 3,107,550 769,734
Escrow account - -
Accounts receivable, net of allowance of $0 106,507 12,000
Inventory 213,530 14,128
Deposits, prepaid expenses, and deferred expenses 339,509 101,250
---------- --------
Total current assets 3,767,096 897,112
Property plant and equipment, net 197,498 20,019
Other assets:
Capitalized software cost, net of accumulated
amortization of $15,524 170,773 -
---------- --------
TOTAL ASSETS 4,135,367 917,131
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade payable 370,877 175,354
Accrued expenses 39,727 -
Current portion of long-term debt 127,922 10,161
Note payable to related party - 7,500
Deferred revenue 151,770 -
---------- --------
Total current liabilities 690,296 193,015
Note payable to related party, net of current portion 125,000 125,000
Capital lease, net of current portion 50,805 -
Long-term debt, net of current portion 14,032 91,015
---------- --------
Total liabilities 880,133 409,030
Preferred stock; $.10 par value; 2,000,000
shares authorized; Series A; 312,500 shares
issued and outstanding 31,250 -
Common stock; $.001 par value; 50,000,000
shares authorized; 12,648,720 issued and
outstanding 12,649 10,729
Paid-in-capital 7,103,732 661,413
Accumulated deficit (3,892,397) (164,041)
---------- --------
Total stockholders' equity 3,255,234 508,101
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 4,135,367 917,131
========== ========
See notes to financial statements
</TABLE>
-1-
<PAGE>
APPLIED VOICE RECOGNITION, INC.
FORM 10QSB-A
QUARTER ENDED SEPTEMBER 30, 1997
Income Statement for the periods ending
September 30, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
----------------------------------- -----------------------------------
September 30, September 30, September 30, September 30,
1997 - 1996 - 1997 - 1996 -
Restated Restated Restated Restated
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Net revenues 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
Operating expenses:
Marketing and sales 657,474 85,457 338,848 57,984
General and administrative 1,824,887 523,045 757,150 343,971
Research and development 210,106 66,030 37,745 51,119
----------------------------------- -----------------------------------
Total operating expenses 2,692,467 674,532 1,133,743 453,074
Operating margin (2,338,654) (585,276) (962,206) (437,820)
Other expenses:
Interest income 14,661 - 9,481 -
Interest expense (409,012) (37,602) (189,310) (37,602)
----------------------------------- -----------------------------------
Total other expense (394,351) (37,602) (179,829) (37,602)
(loss) Before extraordinary item (2,733,005) (622,878) (1,142,035) (475,422)
Extraordinary item -
debt foregiveness, Less applicable
income tax of $0 - 25,391 - 25,391
----------------------------------- -----------------------------------
Net (Loss) (2,733,005) (597,487) (1,142,035) (450,031)
=================================== ===================================
Basic and diluted (loss) per
share (0.25) (0.09) (0.10) (0.05)
Weighted average shares
outstanding 11,049,770 6,647,259 11,049,770 8,301,777
See notes to financial statements
</TABLE>
-2-
<PAGE>
APPLIED VOICE RECOGNITION, INC.
FORM 10-QSB/A
Statement of stockholders equity
Quarter Ended September 30, 1997
<TABLE>
<CAPTION>
Preferred stock Common Stock
Issued Series A Issued Expense
------------------------------------- APIC APIC Allocated Retained
Shares Amount Shares Amount Common Preferred to APIC Earnings Total
-------------------------------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE AT
JANUARY 1, 1997 - $ - 10,642,102 $ 10,642 $ 1,605,789 $ - $ - $(1,159,392) $ 457,039
Sale of 100,000 shares of
common stock for $250,000 - $ - 100,000 $ 100 $ 249,900 $ - $ - $ - $ 250,000
Fair value of stock
options issued for
consulting services - $ - - $ - $ 224,500 $ - $ - $ - $ 224,500
Issuance of 50,000 shares
of common stock for
consulting services - $ - 50,000 $ 50 $ 199,950 $ - $ - $ - $ 200,000
Issuance of 50,000 shares
of common stock for
consulting services - $ - 50,000 $ 50 $ 74,950 $ - $ - $ - $ 75,000
Exercise of 70,834 stock
options - $ - 70,834 $ 71 $ 9,845 $ - $ - $ - $ 9,916
Fair value of warrants
issued in connection with
Bridge Loans - $ - - $ - $ 278,400 $ - $ - $ - $ 278,400
Private placement expense
attributed to warrants
issued in connection with
private placement - $ - - $ - $ 345,750 $ - $ (345,750) $ - $ -
Issuance of 135,159 shares
of common stock for
commissions associated
with private placement - $ - 135,159 $ 135 $ 216,121 $ - $ (216,256) $ - $ -
Sale of 1,595,625 shares
of common stock for
$2,552,999 in connection
with private placement - $ - 1,595,296 $ 1,595 $ 2,551,404 $ - $ - $ - $ 2,552,999
Sale of 312,500 shares of
Series A preferred stock 312,500 $ 31,250 - $ - $ - $ 2,468,750 $ - $ - $ 2,500,000
Issuance of 5,000 shares
of common stock for legal
services rendered in
connection with private
placement - $ - 5,000 $ 5 $ 18,745 $ - $ (18,750) $ - $ -
Cash expense related to
private placement - $ - - $ - $ - $ - $ (559,616) $ - $ (559,616)
Net Loss for the nine
months ended June 30, 1997 - $ - - - - - - (2,733,005) $(2,733,005)
---------------------------------------------------------------------------------------------------------
ENDING BALANCE SEPTEMBER 30,
1997, AS RESTATED 312,500 $ 31,250 12,648,391 $ 12,649 $ 5,775,354 $ 2,468,750 $(1,140,372) $(3,892,397) $ 3,255,233
=========================================================================================================
</TABLE>
See notes to financial statements
-3-
<PAGE>
APPLIED VOICE RECOGNITION, INC.
FORM 10QSB-A
QUARTER ENDED SEPTEMBER 30, 1997
Statements of Cash Flow for the periods ending
September 30, 1997 and 1996
(Unaudited)
Nine Months Ended
----------------------------
September 30, September 30,
1997 - 1996 -
Restated Restated
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) (2,733,005) (597,487)
Adjustments to reconcile net (loss) to cash
provided by operating activities:
Depreciation 47,241 8,439
Stock issued for services 275,000 340,000
Stock options and warrants issued for services 224,558 -
Changes in operating assets and liabilities:
Accounts receivable (68,500) (6,539)
Inventory (164,457) 872
Deposits and prepaids (137,009) (101,250)
Deferred revenues 151,772 -
Accounts payable and accrued expenses 297,445 102,164
---------- ---------
NET CASH USED BY OPERATING ACTIVITIES (2,106,955) (253,801)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (211,334) (5,615)
Capitalized R&D costs (186,297) -
---------- ---------
NET CASH USED BY INVESTING ACTIVITIES (397,631) (5,615)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash loaned by stockholders 180,000 -
Principal payment on stockholder debt (207,500) -
Loan proceeds from third parties 586,500 -
Principal payment on third party debt (586,305) (146,907)
Capital lease financing 55,047 -
Principal payments under capital lease (4,242) -
Warrants granted in connection with bridge
loans 278,400 -
Stock issued in connection with note payable - 135,000
Private placement cash expenditures (559,677) -
Stock options/warrants exercised 9,916 -
Proceeds from sale of stock 5,303,000 1,000,562
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,055,139 988,655
NET INCREASE (DECREASE) IN CASH 2,550,553 729,239
---------- ---------
Cash at the beginning of the period 556,997 40,495
========== =========
CASH AT END OF PERIOD 3,107,550 769,734
========== =========
See notes to financial statements
-4-
<PAGE>
APPLIED VOICE RECOGNITION, INC.
FORM 10QSB-A
NOTES TO FINANCIAL STATEMENTS
For the Quarter ended September 30, 1997
(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 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 $.10 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 $580,000, under the terms of a bridge loan
agreement, to a stockholder and certain officers of the Company. 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.
-5-
<PAGE>
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.
Note 5 Pro forma presentation of September 30, 1996 financials
- ----------------------------------------------------------------
The financial statements presented for the period ended September 30, 1996
represent a pro forma consolidated balance sheet and income statement of the
Company and Summa Vest, Inc. On December 11, 1996, Summa Vest, Inc., a publicly
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.
Note 6 Restatement
- ------------------
The financial statements for the quarter ended September 30, 1996 have been
restated as follows:
In August of 1996, the Company issued 250,000 stock options to certain
officers and management of the Company. The officers and management
received the stock options in lieu of cash compensation. The Company is
restating the 1996 financial statements to record $340,000 of compensation
expense related to the granting of the options.
The Company issued 180,000 shares of Common Stock in connection with a note
payable. The Company is restating the 1996 financial statements to record
$236,250 of deferred finance costs which will be amortized over the life of
the note payable. The restated financial statements for the quarter ended
September 30, 1996, reflect $33,750 of related interest expense.
-6-
<PAGE>
Upon the reorganization on August 15, 1996, the Company did not eliminate
its previous retained deficit. The Company is restating stockholders'
equity to reflect the elimination of the cumulative retained deficit of
$867,371 as of August 15,1996.
The financial statements for the quarter ended and nine months ended September
30, 1997 have been restated as follows:
During 1997, the Company issued common stock warrants to purchase the
Company's common stock in exchange for consulting services and did not
record the related expense and deferral. The Company is restating the
financial statements for the quarter ended and nine months ended September
30, 1997 to record $129,750 and $259,500, respectively, of consulting
expense based on the fair market value of the common stock and warrants.
At September 30, 1997, $35,250 of deferred consulting expense remained on
the balance sheet. The deferred expense will be amortized in the fourth
quarter of the 1997 fiscal year.
Between May 15, 1997 and July 24, 1997, the Company granted to officers, a
director, and others, warrants to purchase the Company's common stock
(warrants to purchase 430,000 shares to officers, warrant to purchase
50,000 shares to a director, and warrants to purchase 100,000 shares to
others) at an exercise price of $1.60 per share. The warrants were granted
in connection with bridge loans made by these individuals. Finance costs
related to these warrants were not recognized. The Company is restating the
financial statements for the quarter ended and nine months ended September
30, 1997 to record finance costs of $139,200 and $278,400, respectively,
based on the fair value of the underlying stock of the warrants issued.
-7-
<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.
-8-
<PAGE>
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.
OPERATING EXPENSES, NONOPERATING ITEMS
Cost of sales as a percentage of revenues was 48% 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 an 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 sales personnel and the
launch of a radio and print marketing campaign featuring Hakeem Olajuwon.
General and administrative expenses were $757,150 in the third quarter of 1997
and $343,971 in the third quarter of 1996, representing an increase of
$413,179. For the nine months ended September 30, 1997, general and
administrative expenses totaled $1,824,887 representing an increase of
$1,301,842 over the $523,045 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. The variance also includes incremental expenditures associated with
consulting services. Consultants were retained to assist the Company with
strategic planning and analysis.
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,
-9-
<PAGE>
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 $142,227 and $356,749 over the same periods of 1996 to
$179,829 and $394,351, respectively. The increase in both periods was due to
increased third party debt financing and incremental finance costs associated
with warrants issued in connection with bridge loans.
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 $1,142,035 compared to a net
loss of $450,031 for the same period in 1996. For the nine months ended
September 30, 1997, the net loss for the Company totaled $2,733,005 compared to
a net loss of $597,487 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. Part of the
increased loss is also attributed to additional consulting expense and finance
costs.
LIQUIDITY AND FINANCIAL CONDITION
Net cash used by operating activities increased to $2,106,955 for the nine
months ended September 30, 1997 from $253,801 for the nine months ended
September 30. The increase in cash used in operating activities of $1,853,154
is primarily attributed to the increase in net loss for the nine month period of
$2,135,578. An increase in liabilities over assets of $119,313 and an increase
in non-cash activity of $163,051 partially offset the increased net loss. Net
loss for the nine months ended September 30, 1997 amounted to $2,733,005 and
$597,487 for the nine months ended September 30, 1996. The Company invested
$211,334 of its funds on equipment purchases and $186,297 on capitalized
research and development. Compared to the nine months ended September 30, 1996,
current year to date cash used in investing activities increased $392,016. Of
this amount, $186,297 is attributed to capitalized research and development.
The balance of $205,719 is attributed to the purchase of computer and office
equipment.
Cash flows from financing activities totaled $5,055,139 for the nine months
ended September 30, 1997 and for the nine months ended September 30, 1996
totaled $988,655. The increase of $4,066,484 is primarily attributed to a net
increase of $3,742,821 received as the result of the Private Placement of the
Company's stock (as described below) and other sales of common stock. Other
factors contributing to the variance include net incremental borrowings of
$170,212 related to debt and capital lease obligations and incremental non-cash
activity of $153,451.
-10-
<PAGE>
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 -- Financial Data Schedule
(b) Reports on Form 8-K
None.
-11-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
APPLIED VOICE RECOGNITION, INC.
/s/ WILLIAM T. KENNEDY
-----------------------------------------------
William T. Kennedy
Chief Financial Officer
July 24, 1998
-12-
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<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
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<PERIOD-END> SEP-30-1997 SEP-30-1996
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