<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER: 0-23607
APPLIED VOICE RECOGNITION, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 76-0513154
- -----------------------------------------------------------------------------
(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)
(713) 621-5678
(Issuer's telephone number, including area code)
Check whether the issuer: (1) has 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 MAY 13, 1999: 16,089,491
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES [_] NO [X]
<PAGE>
PART I.
FINANCIAL INFORMATION
This report includes "forward looking statements" within the meaning of
Section27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this report are forward looking
statements. Such forward looking statements include, without limitation,
statements under "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" regarding the
Company's estimate of sufficiency of existing capital resources and its ability
to raise additional capital to fund cash requirements for future operations and
acquisitions. Although the Company believes 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 ability to achieve the Company's expectations is contingent
upon a number of factors which include (i) the Company's ability to produce and
market its products in the healthcare transcription industry, (ii) effect of any
current or future competitive products, (iii) ongoing cost of research and
development activities, (iv) the retention of key personnel, and (v) capital
market conditions. "e-DOCS.net(TM)" and "VoiceCOMMANDER(TM)" are our trademarks.
This Report may contain trademarks and service marks of other companies.
ITEM 1. FINANCIAL STATEMENTS
TABLE OF CONTENTS
Item Page
- --------------------------------------------------------------------------------
Consolidated balance sheet as of March 31, 1999 1
Consolidated statements of operations for the three months ended
March 31, 1999 and March 31, 1998 2
Consolidated statement of stockholders' equity for the three months ended
March 31, 1999 3
Consolidated statement of cash flows for the three months ended
March 31, 1999 and March 31, 1998 4
Notes to consolidated financial statements 5
<PAGE>
APPLIED VOICE RECOGNITION, INC. dba
e-DOCS.Net
Consolidated Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
March 31
1999
-----------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,203,531
Accounts receivable, net of allowance of $32,500 812,651
Inventory 58,259
Deposits and prepaid expenses 489,226
Deferred expenses 61,418
------------
Total current assets 2,625,085
Property plant and equipment, net 877,571
Other assets:
Prepaid licenses 860,000
Capitalized software cost, net of accumulated depreciation of $83,673 381,393
Other intangibles, net of accumulated amortization of $13,835 1,116,324
Goodwill, net of accumulated amortization of $33,994 1,156,568
------------
Total other assets 3,514,285
TOTAL ASSETS $ 7,016,941
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 354,732
Accrued expenses 526,225
Stock dividend payable 247,652
Current portion of preferred stock payable 835,338
Common stock payable 13,500
Note payable to related party 91,103
Current portion of capital lease obligation 349,835
Current portion of long-term debt 79,960
Deferred revenue 50,350
------------
Total current libilities 2,548,695
Preferred stock payable, net of current portion 348,178
Capital lease, net of current portion 86,206
Note payable to related party, net of current portion 97,331
------------
Total liabilities 3,080,410
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock; $.10 par value; 2,000,000 shares authorized.
Series A; 186,000 shares issued and outstanding 18,600
Series B; 2,285 shares issued and outstanding 228
Series C; 153,538 shares issued and outstanding 15,353
Series D; 5,000 shares issued and outstanding 500
Common stock; $.001 par value; 50,000,000 shares authorized; 16,050,994
shares issued and outstanding 16,049
Paid-in-capital 20,146,657
Accumulated deficit (16,260,856)
------------
Total stockholders' equity 3,936,531
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,016,941
============
See notes to finanical statements
</TABLE>
1
<PAGE>
APPLIED VOICE RECOGNITIONS, INC. dba
e-DOCS.Net
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
1999 1998
------------------------------------------
<S> <C> <C>
Net consulting, hardware, software and related revenues $ 469,949 $ 158,299
Net transcription service revenues 749,169 17,388
------------------------------------------
Total net revenues 1,219,118 175,687
Hardware, software and related cost of sales 52,567 81,759
Transcription cost of sales 500,745 11,622
------------------------------------------
Total cost of sales 553,312 93,381
Gross margin 665,806 82,306
Operating expenses:
Marketing and sales 169,292 279,765
General and administrative 1,525,327 1,185,903
Research and development 263,241 180,775
------------------------------------------
Total operating expenses 1,957,860 1,646,443
Operating loss (1,292,054) (1,564,137)
Other income (expenses):
Rental income 3,600 -
Gain on disposal of asset 4,003 -
Interest income 11,961 9,615
Interest expense (46,833) (40,773)
------------------------------------------
Total other expense (27,269) (31,158)
Net Loss $ (1,319,323) $(1,595,295)
==========================================
Statement of comprehensive loss:
Unrealized holding Loss - (312,646)
------------------------------------------
Comprehensive loss $ (1,319,323) $(1,907,941)
==========================================
Basic and diluted loss per share $ (0.09) $ (0.12)
==========================================
</TABLE>
See notes to finanical statements
2
<PAGE>
APPLIED VOICE RECOGNITION, INC. dba
e-DOCS.net
Consolidated Statement of Stockholder's Equity
For The Three Months Ended March 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Preferred Stock Preferred Stock Preferred Stock
Issued Issued Series A Issued Series B Issued Series C Issued Series D
--------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 16,040,994 $16,039 186,000 $18,600 2,285 $ 228 153,538 $15,353 3,000 $ 300
Exercise of options to
purchase 10,000 shares of
common stock. 10,000 10 - - - - - - - -
Sale of 2,000 shares of
Series D Preferred stock
in connection with private
placement - - - - - - - - 2,000 200
Issuance of one warrant to
purchase a total of
500,000 shares of common
stock in connection with
the Series D Private
Placement. - - - - - - - - - -
Accrual of stock dividend
payable to the preferred
stock investors - - - - - - - - - -
Net loss for the three
months ended March 31, 1999 - - - - - - - - - -
--------------------------------------------------------------------------------------------------
Balance at March 31, 1999 16,050,994 $16,049 186,000 $18,600 2,285 $ 228 153,538 $15,353 5,000 $ 500
===================================================================================================
Paid In Capital
---------------------------------------------------------------------------------------------------
Common Preferred Series A Preferred Series B Preferred Series C Preferred Series D
---------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 11,973,339 $1,469,400 $2,600,211 $1,520,026 $2,889,320
Exercise of options to
purchase 10,000 shares of
common stock. 9,990 - - - -
Sale of 2,000 shares of
Series D Preferred stock
in connection with private
placement - - - - 1,999,990
Issuance of one warrant to
purchase a total of
500,000 shares of common
stock in connection with
the Series D Private
Placement. 275,000 - - - -
Accrual of stock dividend
payable to the preferred
stock investors - - - - -
Net loss for the three
months ended March 31, 1999 - - - - -
---------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $ 12,258,329 $1,469,400 $2,600,211 $1,520,026 $4,889,120
===================================================================================================
Reduction of paid in Retained
Capital Deficit Total
---------------------------------------------------------
Balance at December 31, 1998 $ (2,315,429) $ (14,850,417) $ 3,336,970
Exercise of options to
purchase 10,000 shares of
common stock. - - 10,000
Sale of 2,000 shares of
Series D Preferred stock
in connection with private
placement - - 2,000,000
Issuance of one warrant to
purchase a total of
500,000 shares of common
stock in connection with
the Series D Private
Placement. (275,000) - -
Accrual of stock dividend
payable to the preferred
stock investors - (91,116) (91,116)
Net loss for the three
months ended March 31, 1999 - (1,319,323) (1,319,323)
---------------------------------------------------------
Balance at March 31, 1999 $ (2,590,429) $ (16,260,856) $ 3,936,531
=========================================================
</TABLE>
3
<PAGE>
APPLIED VOICE RECOGNITION, INC. dba
e-DOCS.Net
Consolidated Statements of Cash Flow
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------------------
1999 1998
-----------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,319,323) $(1,595,295)
Adjustments to reconcile net (loss) to cash provided by operating
activities:
Depreciation and amortization 122,575 28,394
Gain on disposal of assets (4,003) -
Stock options and warrants issued for services - 34,000
Stock issued in lieu of cash compensation - 234,031
Bad debt expense - 100,000
Changes in operating assets and liabilities:
Accounts receivable (599,346) 19,191
Inventory (21,038) 55,573
Deposits, prepaids and deferred expenses (110,147) (3,400)
Deferred revenues (26,500) (4,707)
Accounts payable and accrued expenses (336,251) (107,070)
---------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (2,294,033) (1,239,283)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (105,516) (29,118)
Investments - (312,646)
Cash paid for purchase of transcription companies (490,000) -
Capitalized R&D costs - (49,295)
---------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (595,516) (391,059)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds from related party - 37,091
Principal payment on debt (528,506) (14,008)
Sales and lease back funding 240,000 -
Principal payments under capital lease (6,327) (3,010)
Sale of preferred stock - Series B - 3,000,000
Sale of preferred stock - Series D 3,000,000 -
Stock options/warrants exercised 10,000 27,834
---------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,715,167 3,047,907
NET INCREASE (DECREASE) IN CASH (174,382) 1,417,565
---------------------------------------
Cash at the beginning of the period $ 1,377,913 $ 1,207,235
=======================================
CASH AT END OF PERIOD $ 1,203,531 $ 2,624,800
=======================================
See notes to financial statements
</TABLE>
4
<PAGE>
APPLIED VOICE RECOGNITION, INC.
dba e-DOCS.net
Notes to Consolidated Financial Statements
(Unaudited)
1. THE COMPANY
NATURE OF BUSINESS
Applied Voice Recognition, Inc. dba e-DOCS.Net (the "Company") provides
conventional and internet-based outsource electronic medical transcription
services to clinics, outpatient centers, physicians and hospitals. The Company
also develops and markets voice-enabled computer software programs tailored for
use in the healthcare industry.
The Company was originally formed on August 15, 1996, as a Delaware Corporation.
The Company became a Utah Corporation by virtue of a share exchange that was
treated as a reverse merger on December 11, 1996 with Summa Vest, Inc. The
Company was reincorporated as a Delaware Corporation, on January 29, 1998.
On December 1, 1998, the Company formed a new wholly owned subsidiary, AVRI
Health Care Information Services, Inc., a Delaware Corporation (AVRI
HealthCare), which was primarily formed for the purpose of acquiring companies
in the transcription service business.
On March 3, 1999, the Company filed a DBA that allows the Company to do business
as e-Docs.net. On the same day, the Company's subsidiary AVRI Health Care
Information Services, Inc., underwent a name change to e-DOCS.net Health Care
Information Services.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Applied Voice
Recognition, Inc., a Delaware 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, as
amended. 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,
1998, as reported in the form 10-KSB, have been omitted.
5
<PAGE>
APPLIED VOICE RECOGNITION, INC.
dba e-DOCS.net
Notes to Consolidated Financial Statements
(Unaudited)
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, and have been prepared in accordance
with generally accepted accounting principles. All significant inter-company
transactions and balances have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates to be made by management.
Actual results could differ from those estimates.
PREPAID LICENSES
Prepaid licenses are stated at cost and are charged against cost of goods sold
as each license is sold to third party customers. Current prepaid licenses are
estimated based on management's estimate of anticipated sales for the next
twelve months. The remaining balance is classified as long-term.
INTANGIBLES AND GOODWILL
Intangibles and goodwill are amortized using the straight-line method over their
estimated useful lives, which range from 5 to 20 years. Intangibles include
trade names and customer lists. Goodwill represents the excess purchase price
over the fair value of net assets acquired for acquisition accounted for as
purchases. The Company periodically monitors intangibles and goodwill to
determine if subsequent events or circumstances have occurred that have
compromised the viability of the asset. To the extent such an event has
happened, the Company will make necessary revisions to the balance or
amortization life. Management believes that there have been no such events or
circumstances which warrant revision to the remaining useful life, or which
affect the recoverability of intangibles and goodwill. For the three months
ended March 31, 1999 and 1998, the Company incurred $32,274 and $-0-,
respectively, of related amortization expense.
REVENUE RECOGNITION
The Company's primary revenue source is derived from the rendering of
transcription services to the healthcare transcription market. These services
are provided in the traditional manner and through the use of speech recognition
technology. Fees for transcription-related services are based primarily on
contracted per line rates, and revenue is recognized upon the rendering of
services and delivery of transcribed materials. For the three months ended
March 31, 1999 and 1998, the Company recorded $749,169 and $17,388,
respectively, of transcription revenues.
6
<PAGE>
APPLIED VOICE RECOGNITION, INC.
dba e-DOCS.net
Notes to Consolidated Financial Statements
(Unaudited)
The Company also develops and markets software that automates the transcription
process by enabling voice to text translation. This software is marketed and
sold to the healthcare transcription market as part of a bundled package that
includes hardware, training and maintenance. With respect to revenue
recognition, the Company has adopted Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"). SOP 97-2 generally requires revenue earned
on software arrangements involving multiple elements (e.g. software products,
upgrades, enhancements, customer support, installation and training) to be
allocated to each element on the relative fair values of the elements. The fair
value of an element is based on evidence, which is specific to the vendor. The
revenue allocated to software products, including specified upgrades or
enhancements, generally is recognized upon delivery of the products. The
revenue allocated to unspecified upgrades and updates and post contract customer
support generally is recognized when upgrades are delivered or as the services
are performed. If there is not appropriate evidence of the fair value for all
elements of the arrangement, all revenue from the arrangement is deferred until
such evidence exists or until all elements are delivered. The adoption of SOP
97-2, has not had a significant impact on revenues recognized by the Company.
In addition to the above, the Company also provides consulting services related
to the development of language models and systems implementations. This revenue
source is not considered to be a key component, from an on-going standpoint,
however, the Company did earn significant consulting revenues during the first
quarter of 1999. For the three months ended March 31, 1999 and 1998, the
Company recorded $364,700 and $-0-, respectively, of consulting revenues. The
Company recognizes consulting revenues upon the rendering of services.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components. SFAS No. 130
requires unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in shareholders'
equity, to be included in comprehensive income.
3. ACQUISITIONS
On February 22, 1999 and February 26, 1999, Applied Voice Recognition, Inc., a
Delaware corporation ("the Company") , through its wholly-owned subsidiary,
e-Docs Health Care Information Services, Inc. , a Delaware corporation (the
"Acquisition Sub"), acquired the assets of three transcription companies: PRN
Transcription, Inc. ("PRN"); AM Transcription, Inc. ("AM"); and Reyna
Transcriptions, Inc. ("Reyna") (collectively the "Acquired Companies").
7
<PAGE>
APPLIED VOICE RECOGNITION, INC.
dba e-DOCS.net
Notes to Consolidated Financial Statements
(Unaudited)
PRN Transcription has been in business since 1988, and specializes in providing
transcription services to the healthcare industry in east Texas. With its office
in Tyler Texas, PRN Transcription provides transcription services to over 20
clients.
AM Transcription has been in business since 1990, and specializes in providing
transcription services to the healthcare industry in and around the Dallas
Metropolitan Area. With its office in Richardson, Texas, AM Transcription
provides transcription services to over 50 clients.
Reyna Transcription has been in business since 1989, and specializes in
providing transcription services to the healthcare industry in and around the
Houston Metropolitan Area. With its office in Richmond, Texas, Reyna
Transcription provides transcription services to over 40 clients.
Pursuant to the three Asset Purchase Agreements (the "Agreements"), the Company
acquired certain assets owned by the Acquired Companies including tangible
personal property consisting of: equipment, computer hardware and software, and
furniture and fixtures; and general intangibles comprised of: contracts, certain
intellectual property, and certain business licenses.
The Acquired Companies were purchased for aggregate consideration of $1,451,000
consisting of:
(i) $466,857 in cash
(ii) $744,633 of the Company's Series 2 Preferred Stock, par value $.10 per
share (the "Preferred Stock"). Of the $744,633, $570,634, will be issued
to PRN, and AM in three equal annual installments with a stated value of
approximately $190,000 each. The balance of $174,000 will be issued to
PRN if it meets or exceeds certain revenue targets, as set for in the
relevant agreement, over the next three years.
(iii) promissory note issued by the Acquisition Sub in the aggregate principal
amount of $175,000 (the "Note") and payable to Reyna.
(iv) the assumption of certain capital lease obligation with a buyout value of
$64,509
The Preferred Stock carries an 8% cumulative dividend payable in cash or in
additional shares of Preferred Stock at the Company's option. Dividends are
payable quarterly and in arrears on the first day of each January, April, July
and October commencing on January 1, 2000. Each share of the Preferred Stock
when issued will be convertible, at any time, into a number of shares of Common
Stock equal to (i) $100 per share of Preferred Stock being converted, plus any
earned, but unpaid dividends, if any, divided by (ii) the greater of $1.00 per
share or the average daily closing price of the Company's Common Stock for the
thirty day period immediately preceding the effective date of any such
conversion on the Over-The-Counter Bulletin Board. The
8
<PAGE>
APPLIED VOICE RECOGNITION, INC.
dba e-DOCS.net
Notes to Consolidated Financial Statements
(Unaudited)
Company has agreed to register such shares of Common Stock issued upon
conversion of the Preferred Stock for resale under the Securities Act of 1933,
as amended, at the expense of the Company. These shares of preferred stock are
subject to automatic conversion if the Company undertakes an underwritten public
offering with an aggregate market value of $10,000,000 or more. Any shares of
the Preferred Stock may be redeemed, at the Company's option, after the third
anniversary of the date of their issuance, at a redemption price of $100 per
share plus any accrued but unpaid dividends. Except as otherwise required by the
Delaware General Corporate Law, the holders of the Preferred Stock shall have no
voting rights.
For purchase accounting purposes a preferred stock payable of $594,666 has been
recorded for the net present value of the commitment to issue preferred stock on
the purchase of the transcription company's acquired during the first quarter
of 1999. The preferred stock payable has been discounted using a rate of 15%.
The Note is an unsecured obligation of the Acquisition Sub payable to Reyna. The
Note bears interest at 8% per annum and is payable in three annual installments
of cash on the day after the first, second, and third anniversaries of the
closing date, each for the principal amount of $58,333, $58,333 and $58,334,
respectively, plus accrued interest. In the case of an Event of Default (as
defined in the Note), Reyna may accelerate the entire unpaid principal balance
of the Note. After any such acceleration, any outstanding principal amount shall
bear interest at the rate of 18% per annum.
4. STOCKHOLDERS' EQUITY
PREFERRED STOCK
On December 31, 1998, the company entered into a Series D Preferred Stock and
Warrant Purchase Agreement to sell up to 5,000 shares of Series D Convertible
Preferred Stock. These shares have a par value of $.10 and were priced at $1,000
per share and were sold to L&H Investment Company ("LHIC"). This agreement was
broken down into three closings of 2,000 shares, 1,000 shares, and 2,000 shares
respectively, each closing was subject to the Company meeting certain financial
and/or operational targets.
As of December 31, 1998 the Company met the first and second targets and
received the funding for the first target. The Company recorded a receivable for
the second target, as of December 31, 1998, and reflected the shares as issued
in the Statement of Stockholders' Equity, as of that date. The funding for the
second target was received in January 1999 and the funding for the third target
was received in March 1999. Upon receipt of funding for the third target, the
Company issued the shares and accounted for these in the Statement of
Stockholders' Equity.
9
<PAGE>
APPLIED VOICE RECOGNITION, INC.
dba e-DOCS.net
Notes to Consolidated Financial Statements
(Unaudited)
WARRANTS
In connection with the third closing of the sale of the Series D Preferred
Stock, on March 15, 1999, the Company granted to LHIC a warrant to purchase
500,000 shares of common stock, with an exercise price of $1.25. The Company has
estimated and recorded $275,000 as a cost of capital, based on an analysis using
the Black Scholes model.
DIRECTOR STOCK OPTIONS
On February 8, 1999, the Company granted options to purchase 119,444 shares of
common stock to certain members of the Board of Directors in consideration for
their term and contribution to the Board of Directors. The options were granted
with an exercise price of $1.25 and vest within 12 to 19 months.
Also, on February 8, 1999, the Company granted a exercise price adjustment to a
director's option to purchase 20,000 shares of common stock. The exercise price
was adjusted from $3.00 to $1.00.
5. SALES AND LEASE BACK
On March 22, 1999, the Company completed a sales and lease back agreement (the
"Agreement") with Commercial Money Center. In accordance with the Agreement,
the Company sold computer equipment, software, office equipment and furniture,
with an aggregate net book value of $202,270, for $240,000. The company
recorded $37,730 of unearned profit on the sale and will amortize this into
other income over three years.
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and dilutive loss per
share:
March 31, 1999 March 31, 1998
-------------- --------------
Numerator:
Net loss $(1,319,323) $(1,525,295)
Preferred stock dividend (91,116) (40,326)
------------- -------------
Numerator for basic and diluted
earnings per share - loss
available to Common Stockholders $(1,410,439) $(1,565,621)
10
<PAGE>
APPLIED VOICE RECOGNITION, INC.
dba e-DOCS.net
Notes to Consolidated Financial Statements
(Unaudited)
Denominator:
Denominator for basic and dilutive
earnings per share - weighted
average shares outstanding 16,045,661 13,053,806
Basic and diluted loss per share $ (.09) $ (.12)
All outstanding options and warrants are antidilutive and therefore have not
been included using the treasury stock method, for diluted computation. All
potential common shares from conversions of preferred stock are antidilutive and
have been excluded from dividend computations.
7. COMMITMENTS AND CONTINGENCIES
On March 22, 1997, the Company's predecessor Applied Voice Technologies
Partners, LTD and Nevada Gold & Casinos, Inc. ("Nevada Gold") completed a non-
binding letter of intent ("LOI") that called for the creation of a joint venture
for the development and marketing of voice activated gaming technology.
According to Nevada Gold, it entered into two lease agreements, on furniture and
computer equipment, pursuant to the terms of the LOI. Despite the willingness
of both parties to execute the terms of the LOI, the joint venture was never
created. On September 25, 1998, Nevada Gold filed a claim of breach of contract
and unjust enrichment against the Company for failure to reimburse Nevada Gold
for payments it made under the lease agreements. The Company has engaged legal
counsel to research the matter.
8. SUBSEQUENT EVENT
The company has entered into negotiations to sell on a non-exclusive basis the
Company's retail product VoiceCOMMANDER(TM) ("VC"). VC will be marketed directly
by Internet Marketing Consortium on their internet sites. The profit sharing
arrangement, is yet to be determined.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's current revenue is derived from: (i) the sale of traditional out-
sourced transcription services (ii) the provision of ASR transcription services
through its VoiceCOMMANDER 99(TM); (iii) the sale of licenses of its medical
dictation voice recognition software applications and training and maintenance
services associated with the installation and on-going use of the software; and
(iv) the sale of computer hardware that is bundled with software applications at
the customers request.
In early 1998, the Company's business plan and marketing efforts focused on the
sales of VoiceCOMMANDER 4.0(TM). This version of the Company's voice recognition
software was sold to the general business community through retail sales
channels and via the Company's Houston based sales force. In the first quarter
of 1998, the Company narrowed the focus of its business plan and began
concentrating its efforts solely on the medical transcription market.
Reflecting this change in the business plan, the Company redesigned the
functionality of VoiceCOMMANDER 4.0 to meet the medical dictation needs of
healthcare professionals. This resulting new version of the Company's voice
recognition software was named VoiceCOMMANDER Professional Edition TM ("The
Professional Edition") and was introduced in the second quarter of 1998. The
Professional Edition was marketed and sold as a bundled package that included,
among other peripherals, a personal computer and a hand-held digital recorder.
The Professional Edition allowed physicians to dictate and record patient notes
on the hand-held digital recorder as they make their patient visits. The
information was then downloaded to a specially equipped personal computer where
it is automatically transcribed, via voice recognition, to formatted text. The
resulting transcription was produced with a high degree of accuracy and minimal
need for transcriptionist intervention. The Professional Edition was sold from
May 1998 to February 1999 as a complete solution to the in-house transcription
needs of physicians.
Starting in May 1998, the Company began development of a software product that
provides healthcare professionals with a tool for Internet based transcription
and dictation services. The new product, named VoiceCOMMANDER 99, provides a
mobile dictation solution designed to improve the quality and reduce the costs
of healthcare information needs. Released on February 15, 1999,
VoiceCOMMANDER 99 utilizes voice recognition, handheld digital recording
technology, and Internet driven technologies.
To take advantage of the cost efficiencies provided by VoiceCOMMANDER 99, the
Company has implemented a plan to acquire medical transcription companies. As
of March 31, 1999, the Company had acquired transcription operations in Texas,
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Colorado, Florida, New York area and an offshore transcription factory located
in Manila, the Philippines. The Company intends to continue to acquire
additional transcription companies, subject to availability, if any, of capital
to finance the acquisitions. The Company's initial geographic focus will be
centered in major metropolitan markets in the United States.
RESULTS OF OPERATIONS
Three months ended March 31, 1999 vs. three months ended March 31, 1998.
Net Revenues
Net revenues for the Company increased approximately 594% in the first quarter
of 1999 to $1,219,118, up $1,043,431 from the first quarter of 1998. The
increase is mostly attributable to two factors:
1. As the result of the Company's acquisition program, the Company acquired
approximately $732,000 of transcription revenues for the three months ended
March 31, 1999.
2. On January 11, 1999, the Company completed a consulting agreement with one
of its investors. In accordance with the agreement, the Company developed
medical language models, for a voice recognition product, and delivered
these in the first quarter of 1999. The Company earned and booked $300,000
worth of revenue in connection with this agreement.
Cost of sales
Cost of sales consists primarily of transcription labor costs. Other components
of cost of sales include hardware costs, other direct labor, and amortization of
capitalized software costs. Total cost of sales increased approximately 493% in
the first quarter of 1999 to $553,312, up $459,931 from the first quarter of
1998. The increase in cost of sales is wholly attributable to transcription
labor costs, which increased approximately $489,000 as the result of the
increase in transcription revenue. The increase in transcription labor costs was
offset by the decrease in cost of sales attributable to hardware. Hardware cost
of sales decreased as the result of decreased hardware sales.
Marketing and sales expense
Marketing and sales expense consists primarily of salaries of marketing and
sales personnel and promotional expenditures. Marketing and sales expense
decreased approximately 39% in the first quarter of 1999 to $169,292, down
$110,473 from the first quarter of 1998. During 1998, the Company changed its
business focus to concentrate solely on the medical transcription market and
within that year, transitioned out of the retail voice recognition software
market. Promotional expenditures in the first quarter of 1999 decreased
approximately $96,000 from the
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same expenditures in the first quarter of 1998. In addition to this, the size of
the sales staff decreased between these periods. This resulted in a decrease in
salaries of approximately $14,000. The decrease of these expense items is
attributable to lower promotional cost and sales requirements of the
transcription industry.
General and administrative expense
General and administrative expense is comprised primarily of compensation and
related expenditures for administrative and executive personnel, professional
fees associated with legal, consulting, and accounting services, and general
corporate overhead. General and administrative expense increased approximately
29% in the first quarter of 1999 to $1,525,327, up $339,424 from the first
quarter of 1998. The main reason for the increase is attributable to
incremental consulting, legal, and accounting services of approximately
$178,000. Consulting services were incurred in connection with the beta testing,
development, and roll-out of VoiceCOMMANDER 99(TM). In addition, consulting
services were incurred in the development and implementation of a data gathering
module to be used in accumulating statistical information generated by
VoiceCOMMANDER 99(TM). This information will be used for billing purposes and
for various performance metrics. Another factor attributable to the increase is
the growth in administrative and executive personnel, which resulted in
approximately $140,000 of incremental expenses. This increase is the direct
result of acquisitions and the filling of key management positions. All other
general and administrative costs increased approximately $21,000 due to higher
telephone, occupancy, travel, depreciation and general office expenses. These
expenditures increased as the result of the Company's acquisition program.
Research and development
Research and development expense consists primarily of personnel costs including
salaries, benefits and consultant costs related to the development of the
Company's products. Research and development expenses increased approximately
46% in the first quarter of 1999 to $263,241, up $82,466 from the first quarter
of 1998. The increase in research and development costs, is attributable to the
increase in consulting related expenditures. Consulting related expenditures
increased as the result of the quality assurance review of VoiceCOMMANDER 99(TM)
and the development of macros, to be incorporated into VoiceCOMMANDER 99(TM),
which will streamline the transcription process. Another factor contributing to
the increase is the amortization of deferred consulting fees arising as the
result of warrants granted to consultants in april 1998.
Interest income
Interest income consists primarily of interest earned on cash and cash
equivalents. Interest income increased approximately 24% in the first quarter of
1999 to $11,961, up $2,346 from the first quarter of 1998. The increase is
wholly
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attributable to the current year increase in invested funds as compared to same
in prior year.
Interest expense
Interest expense increased approximately 15% in the first quarter of 1999 to
$46,833, up $6,060 from the first quarter of 1998. The majority of the interest
expense incurred in the first quarter of 1999 is attributable to preferred stock
payable to the sellers of transcription companies acquired. The Company
discounted the amount of preferred stock payable using a discount rate of 15%.
Income taxes
The Company has incurred losses since inception and, therefore, has not been
subject to federal income taxes. As of March 31, 1999, the Company had generated
net operating losses ("NOLs"), for financial reporting purposes, of
approximately $13.6 million available to reduce future federal income taxes.
These carry-forwards will begin to expire in 2011. The ability of the Company to
utilize the carry-forwards is dependent upon the Company generating sufficient
taxable income, and may be affected by annual limitations on the use of such
carry-forwards if a change of control occurs due to future sales of the
Company's capital stock. The Company has recorded a valuation allowance for all
net deferred tax assets, including NOLs.
Net loss
Net loss decreased approximately 17% in the first quarter of 1999 to $1,319,323,
down $275,972 from the $1,595,295 net loss recorded for the first quarter of
1998. This decrease is attributable to increased revenues of $1,043,431, which
increased the gross margin by approximately $584,000 in the first quarter of
1999 as compared to the first quarter of 1998. As the result of the Company's
growth through acquisitions, operating expenses increased by approximately
$311,000. The balance of the decrease is attributable to changes in other
income and expense.
Through the period ended March 31, 1999, the Company has incurred operating
losses, since inception, of approximately $13.6 million. To date, the Company's
operations have not been profitable and there is no assurance that they will
become profitable in the future. As a result, the Company believes that its
historical results of operations for the periods presented may not be directly
comparable.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999 the Company had cash and cash equivalents of $1,203,531 and
working capital of $76,390. In comparison to December 31, 1998, working capital
decreased approximately $504,000. This decreases is attributable to cash
utilization.
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Net cash used by operating activities
Net cash used by operating activities increased $1,054,354 from $1,239,283 for
the three months ended March 31, 1998 to $2,293,637 for the three months ended
March 31, 1999. The increase is primarily attributable to the following factors:
. The Company's acquisition program has resulted in incremental receivables
for the quarter of approximately $599,000.
. The Company paid $350,000 related to the prepayment of software licenses to
be used in connection with Voice COMMANDER 99(TM).
The balance of the increase is attributable to other changes in working capital.
Net cash used by investing activities
For the three months ended March 31, 1999, outflows from investing activities
totaled $595,912. This total is comprised of purchases of property, plant and
equipment, and cash paid for transcription companies of $105,912 and $490,000,
respectively.
Net cash provided by financing activities
Net cash provided by financing activities amounted to $2,715,167. This is
primarily comprised of the following:
. The Company received $3,000,0000 in funding attributable to the second and
third close of the Company's Series D Private Placement, which occurred on
January 14 and March 15, 1999.
. The Company received $240,000 in connection with a sales and lease back
arrangement.
. The Company received $10,000 as payment for the exercise of a stock option.
. The Company made principal payments on debt and capital leases of $534,833.
Cash position
The Company's cash position less known commitments and contingencies as of March
31 1999 plus cash generated from operations for the balance of fiscal year 1999
will not be adequate to fund the Company's on going operations in either the
short-term or the long-term. In addition, the Company continues to incur
operating losses and will continue to need additional working capital to fund
its operations, research and development, and marketing efforts for the next
fiscal year. If the Company is not successful in obtaining additional funding
for its operations during
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1999, there will exist substantial doubt as to the company's ability to continue
as a going concern.
The Company's liquidity will be further reduced as amounts are expended for
continuing research and development, expansion of sales and marketing activities
and development of its administrative functions. Additionally, the Company's
liquidity will also be reduced as amount are used for purchases of capital
assets and the acquisition of transcription companies. As a result, the Company
will be required to raise substantial additional capital during 1999 in order to
fund its current operations. The Company intends to raise such additional
funding through the sale of equity or convertible debt securities. However,
there can be no assurance that the Company will be able to raise such additional
capital when needed, or on terms commercially favorable to the Company, if at
all. Such option will result in additional material dilution to the Company's
stockholders.
If the Company chooses to continue its current growth strategy of acquiring
additional medical transcription companies, then significant additional capital
in addition to the amounts detailed above will be required to meet these
objectives. In that case, the Company will be required to raise additional
funding though the sale of equity or convertible debt securities. There can be
no assurance the Company will be able to raise sufficient capital necessary for
the continuation of its acquisition strategy when needed, or on terms
commercially favorable to the Company, if at all.
If the Company is unable to obtain the financing commitments required to
successfully implement its intended business plan, then the Company will
implement contingency plans which may include: (a) the slow down in pace of its
acquisition plan, (b) acceleration of its plans to increase production capacity
in its offshore transcription facility in the Philippines and transfer the
majority of transcription work to offshore production (c) the reduction of
expenses primarily through the reduction of sales and administrative personnel
and (d) the curtailment of the development and deployment of the Company's
VoiceCOMMANDER 99 products
Successful implementation of this contingency plan is largely dependent upon
hiring and training sufficient numbers of Philippine based transcriptionists to
process a material percentage of the transcription workload of the Company. This
contingency plan would increase the Company's exposure to the risks of doing
business in a foreign country (as discussed below).
Business strategy
The Company's business strategy is to reduce the costs of medical transcription
labor and increase the availability of medical transcription labor in two ways.
First, the company's voicecommander 99 voice recognition software solution has
been specifically engineered to reduce these direct labor costs. Second, less
expensive offshore transcription labor will be used to further reduce labor
costs and
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to free up domestic transcription capacity. Transcriptionist wages in countries
such as the Philippines are as much as 50% to 75% less than comparable wages in
the United States. In both these labor savings efforts, the Company recognizes
not only cost savings but also an increase in processing capacity.
Management is aware that there are additional business risks inherent in
offshore business operations. These risks include but are not limited to;
currency fluctuations, civil unrest and inadequate services and communications
infrastructure. Management believes that currency risks are minimal since no
more than 45 days operating capital are retained in offshore accounts and all
initial transfers are retained in dollar denominated accounts. Management has
reviewed the existing infrastructure in the Philippines and believes that the
services and communications infrastructure is adequate to meet the needs of the
Company for the foreseeable future.
Implementing secure Internet and voice compression technology to transmit the
doctor's voice transcription files is also an integral part of the Company's
cost reduction strategy. The Company is not inventing new technology to achieve
its objectives here, but rather it is following the business model of other
"e-commerce" companies. Using the internet for moving data is a viable
technology and has proven cost effective, in particular when compared to
standard voice, non compressed transmission of data.
YEAR 2000
The year 2000 issue generally describes the various problems that may result
from the failure of computer and other mechanical systems to properly process
certain dates and date sensitive information. The Company's operations are
reliant on several third party products and service relationships. A failure by
any of these partners to adequately address the Year 2000 issue would adversely
affect the Company's operation.
State of Readiness
The Company has undertaken initiatives to ensure that it is prepared for the
Year 2000 issue. All of the software produced by the Company is created with
industry standard tools and runs on industry standard operating systems and
databases. These tools, operating systems and databases have been certified Year
2000 compliant by the manufacturers. In addition, the current systems used by
the Company, to account for its day to day operations, were recently purchased
and are certified as Year 2000 compliant by the manufacturer. As for future
enhancements or additions to the current system, the Company has established a
clear directive that requires these to be Year 2000 ready, prior to purchase.
The Company's expansion effort into the transcription industry comes with the
risk that acquired systems may be date sensitive and Year 2000 non-compliant. To
date, the Company is aware of several acquired systems, used in the
transcription
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business, which are not Year 2000 compliant. To mitigate this problem, the
Company is replacing these non-compliant systems with its own proprietary Year
2000 compliant software and Year 2000 compliant hardware.
Cost to address Year 2000 Issues
In most cases the purchased non-Year 2000 compliant equipment is at or near the
end of its useful life. This equipmenT would have to be replaced in the normal
course of operations. The cost associated with these replacements will be
reflected in the normal results of operations.
Risks Associated with the Year 2000 Issues
The Company believes that the risks associated with Year 2000 issues center
primarily with the continued availability of the Internet. The lack of
availability of the Internet would reduce the ability of the Company to cheaply
and effectively move transcription workload. The Company is currently finalizing
plans to ensure a reasonable level of redundant capacity utilizing Year 2000
compliant traditional transcription equipment.
Contingency Planning
In the event of a Year 2000 problem with the Internet, the Company would revert
to processing it transcription business on Year 2000 compliant transcription
recording systems. These systems are being purchased in the normal course of
its business, as part of the Company's disaster recovery plans. The lack of
availability of the Internet could require the use of traditional telephone
lines. In the event of a failure of the Internet and the national or
international telephone system, the Company could continue to process
transcription utilizing couriers to move the transcription data, although at a
greatly reduced capacity and productivity.
The Company's Year 2000 planning process, as discussed above, represent an
ongoing process. As the company acquires new companies in the course of its
expansion, each acquired company will undergo due diligence to ensure that all
of its software and equipment are Year 2000 compliant. Although the Company
believes it is taking the appropriate courses of action to ensure that material
interruptions in business operations do not occur as a result of the Year 2000
conversions, there can be no assurances that the actions discussed herein will
detect and correct all Year 2000 compliance issues. To the extent that the
Company is unsuccessful in anticipating and eliminating any negative financial
consequences of the Year 2000 issues the results of operations will be adversely
affected. Among the factors which might affect the success of the Company's Year
2000 plans are: (i) the Company's ability to properly identify deficient
system; (ii) the ability of third parties to adequately address Year 2000 issues
or to notify the Company of potential deficiencies; (iii) the Company's ability
to adequately address any such internal or external deficiencies; (iv) the
Company's ability to complete its Year 2000 plans in a
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timely manner; and (v) unforeseen expenses relate to the Company's Year 2000
plans.
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PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
REGISTRATION STATEMENT
On February 10, 1999, the Company filed an S-3 Registration Statement (the"S-3")
which registered 5,551,895 shares of the Company's common stock, par value $.001
per share for resale by certain shareholders. The S3 was declared effective on
February 25, 1999.
RECENT SALES OR ISSUANCE'S OF UNREGISTERED SECURITIES
Sale of preferred stock
On January 14 and March 15, 1999, the Company sold in a private placement,
under Rule 506 of Regulation D, 1,000 and 2,000 shares, respectively, of the
Company's Series D Convertible Preferred Stock, par value $.10 per share, for a
sales price of $1,000 per share, to LHIC. These sales are a part of the Series D
Preferred Stock and Warrant purchase agreement to sell up to 5,000 shares of
Series D Convertible Preferred Stock, entered into, with LHIC, on December 31,
1998.
The shareholders of the Series D Preferred Stock are entitled to cumulative
dividends at a rate of 10% per annum, payable in shares of the Company's Common
Stock based on a share price equal to the average closing price of such Common
Stock on the OTCBB for the quarter prior to the particular dividend date.
The Series D Preferred shares convert into common stock, and may be converted,
at the option of the holder, at any time. Each share of Series D Preferred Stock
is initially convertible into 666.67 shares of Common Stock based on a
conversion price of $1.50. In the event that the average closing price for the
Common Stock during the six month period ending November 30, 2002 is less
than $5.00 per share, the conversion price that would otherwise have been in
effect, at that date, will be reduced by 50%, and all modifications of the
conversion price, if any, after November 30, 2002 shall be computed from the
reduced conversion price. The average closing price in this calculation is based
upon the average closing price in the quarter immediately prior to the dividend
date of the Common Stock on the OTCBB.
Any shares of the Series D Preferred Stock that have not been converted to
Common Stock by November 30, 2004, at the Company's option, may at any time
thereafter be redeemed at a redemption price of $1,000 per share plus any
accrued (whether or not declared) and unpaid dividends. If the Company chooses
to redeem Series D Preferred Stock it must redeem all or none of the outstanding
shares, with a 30 day written notice.
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WARRANTS
In connection with the third closing of the sale of the Series D Preferred
Stock, on March 15, 1999, the Company granted LHIC a warrant to purchase 500,000
shares of common stock, with an exercise price of $1.25.
Director stock options
On February 8, 1999, the Company granted options to purchase 119,444 shares of
common stock to certain members of the Board of Directors in consideration for
their term and contribution to the Board of Directors. The options were granted
with an exercise price of $1.25 and vest within 12 to 19 months.
On February 8, 1999, the Company granted a strike price adjustment to a
director's option to purchase 20,000 shares of common stock. The exercise price
was adjusted from $3.00 to $1.00
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
CHANGE IN OFFICER POSITION
On April 1, 1999, Mr Kennedy, the Company's Chief Financial Officer, resigned
from the Company to pursue other interests.
On April 7, 1999, the Company hired Richard Cabrera to fill the Chief Financial
Officer's postion. Mr.Cabrera, served as Vice President--Financial Analysis for
Browning-Ferris International, Inc., BFI's international division. During the
six-year period he was with BFI, division revenues grew from $80 million to $1.4
billion. Mr. Cabrera began his career with KPMG Peat Marwick and has held
positions with Alliance Exploration, Inc. and US Ecology, Inc. Most recently, he
has provided contract professional services to Fortune 500 companies such as
Portland Gas & Electric, Southern California Edison, Edison International and
Reynolds Metal Company.
NEW BOARD MEMBERS
Mr. Jo Lernout was appointed to the Board of Directors on February 8, 1999. Mr.
Lernout is the co-founder of Lernout & Hauspie. He also serves as a managing
director of the Board at Lernout & Hauspie and the Fund Manager of Flanders
Language Valley Fund. Prior to
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founding Lernout & Hauspie in 1987, together with Pol Hauspie, Mr. Lernout
served in various capacities for Wang Laboratories. He served as National
Commercial Director of Wang Belgium from1985-1987 and as Sales Manager for
Office Automation from 1979 to 1984. Prior to this, Mr. Lernout served as
General Manager of Garco Industries, Graphic division, in Boston, USA and in
sales at Merk Sharp & Dome and Bull. He holds a Degree in Physics from Vlerick
Management School in Ghent, Belgium.
Mr. Thomas Denys was appointed to the Board of Directors on February 8, 1999.
He has been Managing Director of Lernout & Hauspie Investment Corp. ("LHIC")
since its incorporation. Mr. Denys was a Senior Associate at Loeff Claeys
Verbeke, the leading Benelux based law firm where he was active in developing
the business and Finance Department since 1992. Mr. Denys served as Belgium
Counsel to Lernout & Hauspie since 1994 and was involved in the IPOs of more
than a dozen other companies. Mr. Denys has been an assistant professor in
Financial Law at the Catholic University of Leuven between 1996 and 1998. Mr.
Denys holds a degree in law and a postgraduate degree in finance from the
Catholic University of Leuven and a Master's in German law. Mr. Denys serves asa
non executive director on the board of Krypton Electronic Engineering as well as
on the boards of several of LHIC's investments.
Mr. James S. Cochran, M.D. was appointed to the Board of Directors on February
8, 1999. Dr. Cochran currently practices with Urology Specialists & Associates,
a private practice of eight physicians in Dallas Texas. Dr. Cochran also holds a
position as Clinical Instructor in Urology at the University of Texas
Southwestern Medical School as well as the Chief Medical Officer of Physicians
Data Corp and Ultrasight, Inc. In addition to being a member of numerous
professional societies such as the American Urological Association, the American
Medical Association and the American Fertility Society, among others, he is also
a member of several national advisory boards including Prime Medical Inc. and
Indigo, Inc. Dr. Cochran is past President of the Medical/Dental staff of
Presbyterian Hospital of Dallas and is Chairman of the Urology Process
Improvement Committee.
AMENDMENT TO THE SERIES B CERTIFICATE OF DESIGNATION
On February 8, 1999, the Company, and the Series B Preferred Shareholders'
agreed to amend the Series B Certificate of Designation. Under the terms of the
original certificate of designation, the Series B Preferred Stock was
convertible at 78% of the 5 day average closing bid price (the "Average"), as
reported by Bloomberg, LP for the 5 consecutive trading days immediately
preceding the applicable conversion date. However, the amendment provides that:
(a) if the Average is between $1.60 and $1.25, the Conversion Price shall be
$1.25; (b) if the Average is between $1.25 and $.75, the Conversion Price shall
be equal to the Average; and (c) if the Average is below $.75. the Conversion
Price shall be $.75.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1 Amendment to the Certificate of Designation for the Series B Preferred
Stock
10.1 Employment agreement by Richard A. Cabrera and the Company date
April 7, 1999
27.1 Financial Data Schedule
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(B) REPORTS ON FORM 8-K
On January 15, 1999, the Company filed a Current Report on Form 8-K which
described (i) the terms of the private placement of $3,000,000 of the Company's
Series D Preferred Stock to Lernout & Hauspie Investment Company on December 31,
1999, (ii) the agreement by the Company's Series B Preferred Stockholders not to
convert any additional shares of Series B Preferred Stock until February 12,
1999, and (iii) the resignation of Frederick A. Huttner from the Company's Board
of Directors.
Also on January 15, 1999, the Company filed a current report on Form 8-K which
described the Company's acquisition of Linda R. Whillhite transcription on
December 31, 1999.
On February 17, 1999, the Company filed an amendment to its current report on
Form 8-K dated December 16, 1998, which described the acquisition of Cornell
Transcription, Inc., a New York Corporation. The Form 8-K was amendment to
included the audited financials of the acquired business.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on behalf by the undersigned, thereunto duly authorized
on this 13th day of May, 1999.
APPLIED VOICE RECOGNITION, INC.
/s/ Richard A. Cabrera
-------------------------------
Richard A. Cabrera
Chief Financial Officer and Secretary
(on behalf of the registrant and as
Chief Accounting Officer)
<PAGE>
EXHIBIT 3.1
AMENDMENT TO THE CERTIFICATE OF DESIGNATION,
NUMBER, POWERS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE QUALIFICATIONS,
LIMITATIONS, RESTRICTIONS, AND OTHER DISTINGUISHING
CHARACTERISTICS OF THE SERIES B PREFERRED STOCK
OF
APPLIED VOICE RECOGNITION, INC.
Pursuant to Section 151(g) of the Delaware General Corporation Law, Applied
Voice Recognition, Inc., a Delaware corporation (the "Company"),
Does Hereby Certify that pursuant to the authority conferred upon the Board
of Directors by the Certificate of Incorporation of the Company, and pursuant to
Section 151(g) of the Delaware General Corporation Law, said Board of Directors,
at a special meeting of the Board of Directors held on February 8, 1999, duly
adopted resolutions providing an amendment to the Series B Preferred Stock of
the Company, which amendment has been approved by the unanimous consent of the
holders of the Series B Preferred Stock dated April 13, 1999 in accordance with
the Certificate of Designation (as hereinafter defined). The resolutions are
and read as follows:
"Resolved, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Company by the provisions of the Certificate of
Incorporation of the Company, this Board of Directors, which has obtained the
consent of the holders of the Series B Preferred Stock in accordance with the
Certificate of Designation, Number, Powers, Preferences and Relative,
Participating, Optional, and Other Special Rights and the Qualifications,
Limitations, Restrictions, and Other Distinguishing Characteristics of the
Series B Preferred Stock (the "Certificate of Designation") governing such
series, hereby amends such Certificate of Designation, as follows:
Section 3 of the Certificate of Designation is hereby deleted and replaced
in its entirety with the following:
3. DESIGNATION OF THE SERIES. The Board of Directors of the Company, pursuant
to authority expressly vested in it as aforesaid, has adopted the following,
creating a Series B issue of Preferred Stock:
There shall be a series of convertible Preferred Stock designated as
"Series B Preferred Stock." The shares of such series shall be referred to
herein as the "Series B Shares." Upon initial issuance by the Company, the
price per share of the Series B Shares shall be $1,000 (the "Purchase Price").
The par value per share is $.10. The authorized number of such Series B Shares
is 3,000.
A. VOTING RIGHTS. Except as otherwise required by law, the holders of the
Series B Shares shall not be entitled to vote separately, as a series or
otherwise, on any matter submitted to
<PAGE>
a vote of the shareholders of the Company. Notwithstanding the foregoing,
without the prior written consent of the holders of sixty-six and two-thirds
percent (66 2/3%) of the Series B Shares:
(i) NO ALTERATION OF THE TERMS OF THE SERIES B SHARES. The Company
shall not amend, alter, or repeal (whether by amendment, merger, or
otherwise) any of the provisions related to the Series B Shares of its
Certificate of Incorporation, as amended, any resolutions of the board of
directors or any instrument establishing and designating the Series B
Shares in determining the relative rights and preferences thereof so as to
affect any materially adverse change in the rights, privileges, powers, or
preferences of the holders of Series B Shares; or
(ii) NO SENIOR SECURITIES. The Company shall not create or designate
any additional preferred stock senior in right as to dividends, voting
rights, redemptions or liquidation to the Series B Shares.
B. DIVIDENDS. The holders of the Series B Shares shall be entitled to
receive a 5% cumulative dividend payable on the date of each conversion (the
"Dividend Payment Date"). The dividend shall be payable in cash or in common
stock par value $.001 per share of the Company (the "Common Stock"), at the
Company's option. Such dividends shall be payable in preference to dividends on
any Common Stock or stock of any class ranking, as to dividend rights, junior to
the Series B Shares, and shall be junior as to payment of dividends to the
Company's Series A Preferred Stock. If the dividend is to be paid in Common
Stock, the number of shares of the Company's Common Stock to be received shall
be determined by dividing the dollar amount of the dividend by the then
applicable Market Price, as of the Dividend Payment Date. "Market Price" shall
mean 78% the 5 day average daily closing bid price, as reported by Bloomberg, LP
for the five consecutive trading days immediately preceding the Dividend Payment
Date.
If the dividend is to be paid in cash, the Company shall make such payment
to the holders of the Series B Shares within 10 business days of the Dividend
Payment Date. If the dividend is to be paid in Common Stock, said Common Stock
shall be delivered to the holder, or per holder's instructions, within 10
business days of the Dividend Payment Date. If the Company is required by law
to withhold all or any portion of any dividend payable upon any Dividend Payment
Date, then the Company shall withhold the appropriate amount of cash or number
of shares of Common Stock and pay the remainder to the holder within said 10
business day period following a Dividend Payment Date. Dividends shall be fully
cumulative and shall accrue (whether or not declared and whether or not there
shall be funds legally available for the payment of dividends), without
interest, and shall be payable on the Dividend Payment Date unless such payment
would be in violation of the Delaware General Corporation Law. No interest
shall accrue on any unpaid dividends on the Series B Preferred Stock.
C. CONVERSION RIGHTS.
(i) SERIES B SHARES. Upon the Company's receipt of a facsimile or
original of holder's signed Notice of Conversion, the Company shall
instruct its transfer agent to issue one or more certificates representing
that number of shares of Common Stock into which the Series B Shares are
convertible in accordance with the provisions regarding conversion set
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forth below. The Company shall act as Registrar and shall maintain an
appropriate ledger containing the necessary information with respect to the
Series B Shares.
(ii) CONVERSION DATE. Such conversion shall be effectuated by
surrendering to the Company, the Series B Shares to be converted together
with a facsimile or original of the signed Notice of Conversion which
evidences holder's intention to convert those Series B Shares indicated.
The date on which the Notice of Conversion is effective ("Conversion Date")
shall be deemed to be the date on which the holder has delivered to the
Company a facsimile or original of the signed Notice of Conversion, as long
as the original Series B Shares to be converted are received by the Company
or its designated attorney within 10 business days thereafter. As long as
the Series B Shares to be converted are received by the Company within 10
business days after it receives a facsimile or original of the signed
Notice of Conversion, the Company shall deliver to the holder, or per the
holder's instructions, the shares of Common Stock, with restrictive legends
as set forth in the Subscription Agreement, within 5 business days of
receipt of the certificate(s) representing such Series B Shares to be
converted.
(iii) COMMON STOCK TO BE ISSUED WITH RESTRICTIVE LEGEND. Upon the
conversion of any Series B Shares and upon receipt by the Company of a
facsimile or original of holder's signed Notice of Conversion and the
certificate or certificates representing such Series B Shares, the Company
shall instruct Company's transfer agent to issue stock certificates with
the appropriate restrictive legends in the name of holder (or its nominee)
and in such denominations to be specified at conversion representing the
number of shares of Common Stock issuable upon such conversion, as
applicable. Company warrants that no instructions, other than these
instructions, have been given or will be given to the transfer agent and
that the Common Stock shall otherwise be freely transferable on the books
and records of Company.
(iv) CONVERSION RATE. Holder is entitled to convert, anytime after
the earlier of June 24, 1998, or the date a registration statement covering
the Common Stock to be issued upon the conversion of the Series B Shares is
deemed effective, the entire Purchase Price of the Series B Shares, plus
accrued and unpaid dividends, at 78% of the 5 day average closing bid price
(the "Average"), as reported by Bloomberg, LP for the 5 consecutive trading
days immediately preceding the applicable Conversion Date (the "Conversion
Price"); provided, however, that: (a) if the Average is between $1.60 and
$1.25, the Conversion Price shall be $1.25; (b) if the Average is between
$1.25 and $.75, the Conversion Price shall be equal to the Average; and (c)
if the Average is below $.75, the Conversion Price shall be $.75. For any
conversion, the extent to which the Average is greater than the Conversion
Price shall be referred to as the "Conversion Discount."
No fractional shares or scrip representing fractions of shares will be
issued on conversion, but the number of shares issuable shall be rounded up
or down, as the case may be, to the nearest whole share.
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The Series B Shares are subject to a mandatory conversion on March 11,
2000 at which time all Series B Shares outstanding will be automatically
converted, upon the terms set forth in this section ("Mandatory Conversion
Date").
(v) USURY. Nothing contained in this Certificate of Designation shall
be deemed to establish or require the payment of interest to the holder at
a rate in excess of the maximum rate permitted by governing law. In the
event that the rate of interest required to be paid exceeds the maximum
rate permitted by governing law, the rate of interest required to be paid
thereunder shall be automatically reduced to the maximum rate permitted
under the governing law and such excess shall be returned with reasonable
promptness by the holder to the Company.
(vi) ISSUANCE OF CERTIFICATE. It shall be the Company's
responsibility to take all necessary actions and to bear all such costs to
issue the certificate of Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the transfer
agent, if so required. The person in whose name the certificate of Common
Stock is to be registered shall be treated as a shareholder of record on
and after the Conversion Date. Upon surrender of any Series B Shares that
are to be converted in part, the Company shall issue to the holder a new
certificate representing the Series B Shares equal to the unconverted
amount, if so requested by holder.
(vii) LIQUIDATED DAMAGES. In the event the Common Stock is not
delivered per the written instructions of the holder, within five (5)
business days after the receipt of the certificate(s) representing the
Series B Shares to be converted, then in such event the Company shall pay
to holder one percent (1%) in cash of the Purchase Price of the Series B
Shares being converted per each day after the fifth (5th) business day
following the receipt of the certificate(s) representing the Series B
Shares to be converted that the Common Stock is not delivered.
The Company acknowledges that its failure to deliver the Common Stock
within five (5) business days after the receipt of the certificate(s)
representing the Series B Shares to be converted will cause the holder to
suffer damages in an amount that will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include this
provision for liquidated damages. The parties acknowledge and agree that
the liquidated damages provision set forth in this section represents the
parties' good faith effort to qualify such damages and, as such, agree that
the form and amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall not relieve
the Company from its obligations to deliver the Common Stock pursuant to
the terms of this Certificate of Designation.
To the extent that the failure of the Company to issue the Common
Stock pursuant to this Section 3C is due to the unavailability of
authorized but unissued shares of Common Stock, the provisions of this
Section 3C(vii) shall not apply but instead the provisions of Section
3C(viii) shall apply.
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The Company shall make any payments incurred under this Section
3C(vii) in immediately available funds within ten (10) business days from
the date of issuance of the applicable Common Stock. Nothing herein shall
limit a holder's right to pursue actual damages or cancel the conversion
for the Company's failure to issue and deliver Common Stock to the holder
within ten (10) business days after the receipt of the certificate(s)
representing the Series B Shares to be converted.
(viii) RESERVATION OF COMMON STOCK. The Company shall at all times
reserve and have available all Common Stock necessary to meet conversion of
the Series B Shares by all holders of the entire amount of Series B Shares
(issued along with the purchase of the Series B Shares) then outstanding.
If, at any time holder submits a Notice of Conversion and the Company does
not have sufficient authorized but unissued shares of Common Stock
available to effect, in full, a conversion of the Series B Shares (a
"Conversion Default", the date of such default being referred to herein as
the "Conversion Default Date"), the Company shall issue to the holder all
of the shares of Common Stock which are available, and the Notice of
Conversion as to any Series B Shares requested to be converted but not
converted (the "Unconverted Series B Shares"), upon holder's sole option,
may be deemed null and void. The Company shall provide notice of such
Conversion Default ("Notice of Conversion Default") to all existing holders
of outstanding Series B Shares, by facsimile, within five (5) business days
of such default (with the original delivered by overnight or two day
courier), and the holder shall give notice to the Company by facsimile
within ten (10) business days of receipt of the original Notice of
Conversion Default (with the original delivered by overnight or two day
courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all holders of outstanding Series B
Shares payments for a Conversion Default ("Conversion Default Payments") in
the amount of (N/365) x (.24) x the initial issuance price of the
outstanding and/or tendered but not converted Series B Shares held by each
holder where N = the number of days from the Conversion Default Date to the
date (the "Authorization Date") that the Company authorizes a sufficient
number of shares of Common Stock to effect conversion of all remaining
Series B Shares. The Company shall send notice ("Authorization Notice") to
each holder of outstanding Series B Shares that additional shares of Common
Stock have been authorized, the Authorization Date and the amount of
holder's accrued Conversion Default Payments. The accrued Conversion
Default Payments shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the holder's option, payable as follows:
(i) in the event holder elects to take such payment in cash, cash payments
shall be made to such holder of outstanding Series B Shares by the fifth
(5th) day of the following calendar month, or (ii) in the event holder
elects to take such payment in stock, the holder may convert such payment
amount into Common Stock at the conversion rate set forth in Section 3C(iv)
at anytime after the fifth (5th) day of the calendar month following the
month in which the Authorization Notice was received, until the Mandatory
Conversion Date.
The Company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect in full
a conversion of the Series B Shares will cause the holder to suffer damages
in an amount that will be difficult
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to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Certificate of Designation a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages
provision set forth in this section represents the parties' good faith
effort to quantify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve the Company
from its obligations to deliver the Common Stock pursuant to the terms of
this Certificate of Designation.
Nothing herein shall limit the holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock.
(ix) FINAL PROSPECTUSES. The Company shall furnish to holder such
number of prospectuses and other documents incidental to the registration
of the Series B Shares of Common Stock underlying the Series B Shares,
including any amendment of or supplements thereto.
(x) CERTAIN ADJUSTMENTS. In the event of any change in one or more
classes of capital stock of the Company by reason of any stock dividend,
stock split-up, recapitalization, reclassification, or combination,
subdivision or exchange of shares or the like, or in the event of the
merger or consolidation of the Company or the sale or transfer by the
Company of all or substantially all of its assets, then all liquidation
preference, conversion and other rights and privileges appurtenant to the
Series B Shares shall be promptly and appropriately adjusted by the Board
of Directors of the Company so as to fully protect and preserve the same
(such preservation and protection to be to the same extent and effect as if
the subject event had not occurred, or the applicable right or privilege
had been exercised immediately prior to the occurrence of the subject
event, or otherwise as the case may be), it being the intention that,
following any such adjustment, the holders of the Series B Shares shall be
in the same relative position with respect to their rights and privileges
as they possessed immediately prior to the event that precipitated the
adjustment.
(xi) COSTS. The Company shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance or delivery of
shares of Common Stock upon conversion of any Series B Shares; provided
that the Company shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of
the Series B Shares in respect of which such shares are being issued.
(xii) CONCERNING THE SECURITIES. The issuance, sale and delivery of
the Series B Shares have been duly authorized by all required corporate
action on the part of Company, and when issued, sold and delivered in
accordance with the terms hereof and thereof for the consideration
expressed herein and therein, will be duly and validly issued and
enforceable in accordance with their terms, subject to the laws of
bankruptcy and creditors' rights generally. 2,500,000 shares of Common
Stock issuable upon conversion of the Series B Shares has been duly and
validly reserved for issuance and, upon issuance shall be duly and validly
issued, fully paid, and non-assessable (the "Reserved Shares").
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Prior to conversion of all the Series B Shares, if at anytime the
conversion of all the Series B Shares outstanding results in an
insufficient number of Reserved Shares being available to cover all the
conversions and exercises, then in such event, the Company will move to
call and hold a shareholder's meeting within forty-five (45) days of such
event for the sole purpose of authorizing additional Common Stock to
facilitate the conversions. In such an event the Company shall: (1)
recommend its current or future officers, directors and other control
people to vote their shares in favor of increasing the authorized number of
shares of Common Stock and (2) recommend to all shareholders to vote their
shares in favor of increasing the authorized number of shares of Common
Stock. The Company represents and warrants that under no circumstances will
it deny or prevent holder's right to convert the Series B Shares as
permitted under the terms of this Certificate of Designation.
(xiii) REDEMPTION. The Company shall have the right to redeem any or
all of the Series B Shares which, as of the date of such redemption, had
not been converted for 117.5% of the Purchase Price of the Series B Shares
being redeemed, plus accrued but unpaid dividends thereon.
Redemption by the Company shall be effected by the Company notifying
the holder by facsimile at the number listed in the Company's records as to
the Company's intention to exercise its right of redemption (the "Notice of
Redemption"). The Company shall state in the Notice of Redemption the
amount of Series B Shares it intends to redeem, the amount that it will pay
to effectuate such redemption, the name and address of the escrow agent for
the redemption (the "Escrow Agent") and the date by which the holder must
deliver the original Series B Shares to be redeemed to such Escrow Agent.
The Company shall give the holder at least ten (10) and no more than thirty
(30) business days' advance notice of the above information. On or before
the date by which the holder is to deliver the original certificate
representing the Series B Shares to the Escrow Agent, the Company shall
wire to the Escrow Agent that amount necessary to effect the redemption.
Once the Escrow Agent is in receipt of the original certificates
representing the Series B Shares being redeemed and those funds necessary
to effect the redemption, the Escrow Agent shall wire those funds to the
holder and deliver the original certificates representing the Series B
Shares via overnight courier to the Company. With respect to that portion
of the Series B Shares being redeemed, provided sufficient funds are on
deposit with the Escrow Agent on the redemption date as herein described,
then in such event, after the date of redemption, dividends shall cease to
accrue on those Series B Shares being redeemed and the holder shall have no
further rights as to those Series B Shares being redeemed other than the
right to receive payments on the redemption date. If the redemption is not
consummated within thirty (30) days of the date of the Notice of
Redemption, the Notice of redemption shall be void and the holder may
proceed to convert such Series B Shares pursuant to the terms hereof.
(xiv) BENEFICIAL OWNERSHIP LIMITATION. Other than the mandatory
conversion provisions contained in this Certificate of Designation which
are not limited by the following, in no other event shall the holder be
entitled to convert that amount of Series B Shares in excess of that amount
upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the holder and its affiliates, and (2) the
number of shares of Common Stock issuable upon the conversion of the Series
B Shares with
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respect to which the determination of this proviso is being made, would
result in beneficial ownership by the holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock of the Company. For
purposes of this provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Regulation 13D-G thereunder, except as otherwise provided in clause (1)
of such provision. Any issuance by the Company to the holder in excess of
the limit contained in this Paragraph 3C(xiv) shall be null and void, and
upon notice of such invalid issuance, the Company shall correct its books
and cause its transfer agent's books to be corrected forthwith to reflect
that the Buyer's ownership of Common Stock is within the limit set forth
herein. Buyer shall immediately deliver any certificates for invalidly
issued Common Stock to the Company's transfer agent. The Company further
agrees to (i) immediately reissue certificates for Common Stock to the
extent that a portion of the Common Stock represented by said certificates
have been validly issued and (ii) to reflect that portion of those shares
of Common Stock which were deemed invalidly issued as outstanding and
unconverted Series B Shares.
D. LIQUIDATION.
(i) SERIES B PREFERENCE. Upon any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, the holders of Series
B Shares shall be entitled, before any distribution or payment is made upon
any shares of Common Stock or any preferred stock junior in rank to the
Series B Shares, to be paid an amount per share equal to the liquidation
value described in this Section 3D(i) (the "Liquidation Value"); provided,
that the Series B Preferred Stock shall rank junior in liquidation to the
Series A Preferred Stock. If upon the occurrence of any such event the
assets distributable among the holders of the Series B Preferred Stock and
any other class or series of capital stock ranking on parity therewith, if
any, as to assets in liquidation (collectively, the "Parity Stock"), shall
be insufficient to permit the payment of the full preferential amounts for
the Series B Preferred Stock and Parity Stock, then the entire assets and
funds of the Company legally available for distribution to its shareholders
shall be distributed ratably per share to the holders of the Series B
Preferred Stock and Parity Stock in proportion to their full preferential
amounts per share to which they are respectively entitled. The per share
Liquidation Value of the Series B Shares on any date is equal to the sum of
the following:
(1) $1,000, plus
(2) an amount equal to any accrued and unpaid dividends from the
date of issuance of the Series B Shares.
Neither the consolidation nor merger of the Company with or into any
other corporation or other entities, nor the sale, transfer or lease of all
or substantially all of the assets of the Company shall itself be deemed to
be a liquidation, dissolution or winding-up of the Company within the
meaning of this Section 3D. Notice of liquidation, dissolution, or
winding-up of the Company shall be mailed, by overnight courier, postage
prepaid, not less than twenty (20) days prior to the date on which such
liquidation, dissolution, or winding-up is expected to take place or become
effective, to the holders of record of the
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Series B Shares at their respective addresses as the same appear on the
books of the Company or supplied by them in writing to the Company for the
purpose of such notice, but no defect in such notice or in the mailing
thereof shall affect the validity of the liquidation, dissolution or
winding-up.
(ii) GENERAL.
(1) All of the preferential amounts to be paid to the holders of
the Series B Shares pursuant to Section 3D(i) shall be paid or set
apart for payment before the payment or setting apart for payment of
any amount for, or the distribution of any assets of the Company to,
the holders of the Common Stock or any preferred stock junior in rank
to the Series B Shares in connection with such liquidation,
dissolution or winding-up.
(2) After setting apart or paying in full the preferential
amounts aforesaid to the holders of record of the issued and
outstanding Series B Shares as set forth in Section 3D(i), the holders
of record of Common Stock and any preferred stock junior in rank to
the Series B Shares shall be entitled to participate in any
distribution of any remaining assets of the Company, and the holders
of record of the Series B Shares shall not be entitled to participate
in such distribution.
E. REACQUIRED SHARES. Any Series B Shares redeemed, purchased, converted,
or otherwise acquired by the Company in any manner whatsoever shall not be
reissued as part of such Series B Preferred Stock and shall be retired promptly
after the acquisition thereof. All such Series B Shares upon their retirement
and the filing of any certificate required in connection therewith pursuant to
the Delaware Law shall become authorized but unissued shares of preferred stock.
F. EQUALITY. All Series B Preferred Stock holders shall be subject to the
same terms and conditions as set forth herein. No Series B Preferred Stock
holders shall be entitled to or receive terms that are more favorable than those
given to any other Series B Preferred Stock holder. In the event a Series B
Preferred Stock holder is given or receives terms more favorable than those
given to or received by any other Series B Preferred Stock holder, then in such
event all Series B Preferred Stock holders shall be given and entitled to those
more favorable terms.
G. COPIES OF AGREEMENTS, INSTRUMENTS, DOCUMENTS. Copies of any of the
agreements, instruments or other documents referred to in this Certificate shall
be furnished to any stockholder upon written request to the Company at its
principal place of business.
H. SALES VOLUME LIMITATIONS.
(i) NUMBER OF SHARES. At any time up to and including May 31, 1999,
the Series B Preferred Stock holders will not, individually, or in the
aggregate, sell shares of the Company's Common Stock on any one trading day
in excess of the greater of (1) 5,000 shares or (2) five percent (5%) of
the preceding trading day's volume as reported by the Over-The-Counter
Bulletin Board, or the principal exchange or market upon which
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the Company's Common Stock is then listed. After May 31, 1999, the Series B
Preferred Stock holders will not, individually, or in the aggregate, sell
shares of the Company's Common Stock in excess of 100,000 shares per
calendar week.
(ii) LIQUIDATED DAMAGES. In the event that the Series B Preferred
Stock holders exceed such sales volume limitations, then such Series B
Preferred Stock holders will pay to the Company an amount per share equal
to the greater of (1) $.10 or (2) the Conversion Discount for each share of
Common Stock sold above such sales volume limitations. Such payment of
liquidated damages shall be due and paid to the Company within ten (10)
days after the end of the month during which such volume limitation was
exceeded (the "Due Date"). In the event that such payment is not paid on
the Due Date and the Company has given at least three (3) days' notice of
such default to each of the holders of the Series B Preferred Stock, then
until such payment is made, the Company may, at its option, consider any
conversion requests it receives or has received after the Due Date null and
void and may also withhold any shares of Common Stock to be issued to the
Series B Preferred Stock holders. In the event the Company withholds such
shares, it shall not be subject to the liquidated damages clause contained
in Section 3C(vii) hereof.
The Series B Preferred Stock holders acknowledge that their failure to
abide by these sales volume limitations will cause the Company and its
shareholders to suffer damages in an amount that will be difficult to
ascertain. Accordingly, the parties agree that it is appropriate to
include this provision for liquidated damages. The parties acknowledge and
agree that the liquidated damages provision set forth in this section
represent the parties' good faith effort to qualify such damages and, as
such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty.
(iii) EXCEPTION TO LIMITATIONS. In the event that the Series B
Preferred Stock holders desire to exceed such sales volume limitations
during a particular period, such holder(s) may request an exception from
the Company's Chief Financial Officer (or other similar officer, if none
exists). The approval of any such request shall be given or withheld in
the sole discretion of the Company.
(iv) SCHRODER & CO. INC. All transactions of any nature in the
Company's securities by the holders of the Series B Preferred Stock or on
their behalf shall be conducted through Schroder & Co. Inc., who shall
regularly provide monthly statements of all transactions in the Company's
Common Stock by the holders of the Series B Preferred Stock, and such other
periodic statements as requested by the Company.
I. PROHIBITION ON SHORT SALES. For as long as the Series B Preferred
Stock is outstanding, each holder of the Series B Preferred Stock agrees not to
effect "short" sales in the Common Stock, loan shares or otherwise participate
in any transaction which could be considered as a "short sale" under the rules
and regulations promulgated under the Exchange Act and agrees to prohibit each
stockholder, executive, employee, representative, affiliate, officer, director
or control person of the Purchaser from effecting any such transaction.
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J. NOTICES. Except as specifically set forth herein, all notices or
communications provided for or permitted hereunder shall be made in writing by
hand delivery, express overnight courier, registered first class mail, or
telecopier addressed (i) if to the Company, to its office at 4615 Post Oak
Place, Suite 111, Houston, Texas 77027, Attention: Timothy J. Connolly, Chairman
and Chief Executive Officer, telecopier: 713/621-5870, with an additional copy
addressed to the attention of the Company's Chief Financial Officer, and (ii) if
to a holder of the Series B Preferred Stock, to such holder at the address of
such holder as listed in the stock record books of the Company or to such other
address as the Company or such holder, as the case may be, shall have designated
by notice similarly given. All such notices and communications shall be deemed
to have been duly given: when delivered by hand, if personally delivered; five
(5) business days after being deposited in the mail, registered or certified
mail, return receipt requested, postage prepaid, if mailed; when received after
being deposited in the regular mail; the next business day after being deposited
with an overnight courier, if deposited with a nationally recognized overnight
courier service; when receipt is acknowledged, if by telecopier, as long as
followed up on the same day by overnight courier.
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In witness whereof, this Amendment to the Certificate of Designation has
been executed on behalf of the Company by its Chief Executive Officer and
attested by its Secretary or Assistant Secretary this ____ day of April, 1999,
and they do hereby affirm, under penalty of perjury, that the foregoing
Amendment to the Certificate of Designation is the act and deed of the Company
as unanimously approved by the holders of the Series B Preferred Stock and that
the facts stated therein are true and accurate.
APPLIED VOICE RECOGNITION, INC.
By:
-------------------------
Timothy J. Connolly
Chief Executive Officer and
Chairman of the Board
Attest:
By:
------------------------------
William T. Kennedy
Chief Financial Officer
and Secretary
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
(RICHARD A. CABRERA)
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of April 15, 1999 (the
"Effective Date"), by and between APPLIED VOICE RECOGNITION, INC., a Delaware
corporation doing business as e-DOCS.net ("Employer"), and RICHARD A. CABRERA,
an individual residing in Knoxville, Tennessee ("Employee").
W I T N E S S E T H:
WHEREAS, Employer and Employee desire to enter into an agreement regarding
Employee's employment with Employer pursuant to the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties covenant and agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby accepts
employment with Employer on the terms and conditions set forth in this
Agreement.
2. TERM OF EMPLOYMENT. The term of Employee's employment hereunder (the
"Term") shall commence as of April 15, 1999 (the "Commencement Date") and shall
continue (subject to termination by either Employer or Employee as hereinafter
provided) for an initial term (the "Initial Term") expiring on April 14, 2002
(the "Expiration Date"). The Expiration Date shall be automatically extended
unless terminated by Employer or Employee for successive one-year periods
following the expiration of the Initial Term. If Employer desires to terminate
Employee's employment under this Agreement at the end of the Initial Term or at
the end of any succeeding one year term, Employer shall give written notice of
such desire to Employee at least one month prior to the expiration of the
Initial Term or any succeeding one year term. If Employee desires to terminate
Employee's employment under this Agreement at the end of the Initial Term or at
the end of any succeeding one year term, Employee shall give written notice of
such desire to Employer at least one month prior to the expiration of the
Initial Term or any succeeding one year term. At the expiration of the then-
existing term, Employer shall have no further obligation to Employee other than
payment of any earned and unpaid Base Salary (as hereafter defined) under
Section 3(a) and any earned and unpaid Bonus (as hereafter defined) under
Section 3(b), and Employee shall have no further obligation to Employer except
as set forth in Sections 7, 8, 9 and 10.
3. COMPENSATION AND OTHER BENEFITS.
a. As compensation for all services rendered by Employee in performance of
Employee's duties or obligations under this Agreement, Employer shall pay
Employee the following base salary (the "Base Salary"):
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(1) for the period from April 15, 1999 until October 15, 1999, a monthly
base salary of ELEVEN THOUSAND SIX HUNDRED SIXTY-SEVEN AND NO/100
DOLLARS ($11,667.00); and
(1) for the period from October 16, 1999 until the Expiration Date, a
monthly base salary of TWELVE THOUSAND FIVE HUNDRED AND 00/100 DOLLARS
($12,500.00).
Employee's Base Salary shall be payable in equal semi-monthly installments or in
the manner and on the timetable which Employer's payroll is customarily handled
or at such intervals as Employer and Employee may hereafter agree to from time
to time.
b. In addition to receiving the Base Salary provided for in
Section 3(a), Employee shall be entitled to a quarterly bonus equal to twelve
and one-half percent (12-1/2%) of his annualized Base Salary as of the end of
the applicable quarter (the "Bonus"). References to quarters contained herein
shall mean the three months ending March 31, June 30, September 30 and December
31. The Bonus shall be earned if, and only if, Employee has met the criteria set
by Employer for the applicable quarter. In connection therewith, Employer agrees
that prior to the end of each quarter, it shall set criteria for Employee's
Bonus to be earned during the following quarter and shall communicate such
criteria to Employee in writing. If Employee successfully meets the criteria
established by Employer (in the discretion of Employer), Employer shall pay to
Employee the quarterly Bonus within thirty (30) days of the end of the
applicable quarter. In the event Employee is employed hereunder for less than a
full quarter, Employee shall be entitled to earn a pro rata portion of the Bonus
based upon the actual number of days employed hereunder during the quarter as
compared to the total number of days in the quarter; however, Employee shall not
be entitled to any adjustment in the criteria on account of working less than a
full quarter.
c. Employee shall be entitled to be reimbursed by Employer for
all reasonable and necessary expenses incurred by Employee in carrying out
Employee's duties under this Agreement in accordance with Employer's standard
policies regarding such reimbursements.
d. Beginning with the Commencement Date, Employee shall be
entitled during the Term, upon satisfaction of all eligibility requirements, if
any, to participate in all health, dental, disability, life insurance and other
benefit programs now or hereafter established by Employer which cover
substantially all other of Employer's employees and shall receive such other
benefits as may be approved from time to time by Employer.
e. Employee shall be entitled to receive one week of paid
vacation during the Term and following the six-month anniversary of the
Commencement Date. During the Term and following the first anniversary of the
Commencement Date, Employee shall be entitled to receive two weeks of paid
vacation. In addition, Employee shall be entitled to receive paid holidays as
enjoyed by all other employees of Employer.
2
<PAGE>
f. Employee shall be entitled to receive paid time off to
participate in the minimum annual required amount of continuing professional
education required by the American Institute of Certified Public Accountants and
the Texas State Board of Accountancy for Employee to maintain his Certified
Public Accountant license, which annual participation is estimated to be
approximately forty (40) hours.
g. Employee shall be entitled to reimbursement for (i) the
reasonable cost of relocating and moving his household from Knoxville, Tennessee
to Houston, Texas and (ii) realtor fees arising out of the sale of his house in
Knoxville, Tennessee. The aggregate reimbursement for the foregoing shall not
be in excess of $19,500. Employee shall also be entitled reimbursement for
temporary living and commuting expenses of up to $1,075.00 per month from the
Commencement Date, but in no event shall such payments be made for a period
longer than six (6) months after the Commencement Date.
4. DUTIES.
a. Employee that he will relocate to Houston, Texas on or
before April 15, 1999. Employee is employed to act as Chief Financial Officer
of the Employer or in such other office or position as shall be assigned to
Employee from time to time by Employer, and to perform such duties as are
commensurate with Employee's position with Employer.
b. Employee agrees that during the period of employment,
Employee shall devote full-time efforts to Employee's duties as an employee of
Employer and Employee shall use Employee's best efforts to perform the duties of
Employee's position in an efficient and competent manner and shall use
Employee's best efforts to promote the interests of Employer and any affiliated
companies.
c. During the period of employment, Employee agrees not to (i)
solely or jointly with others undertake or join any planning for or organization
of any business activity competitive with the business activities of Employer,
and (ii) directly or indirectly, engage or participate in any other activities
in conflict with the best interests of Employer.
d. Employee agrees that during the period of employment
Employee shall refer to Employer all opportunities to which Employee might
become exposed in carrying out Employee's duties and responsibilities hereunder
that relate to voice recognition or medical transcription.
5. STOCK OPTION PLAN. As a further inducement to Employee to accept
employment upon the terms set forth herein and in consideration of Employee's
execution of this Agreement, Employee shall be granted options entitling
Employee to purchase 210,000 shares of Employer's common stock, par value $0.001
(the "Options"), pursuant to, and Employee shall be entitled to otherwise
participate in, that certain Applied Voice Recognition, Inc. 1997 Incentive
Plan, as amended from time to time. The granting instrument for the Options
will provide, in addition to other terms set forth therein, that (i) the
purchase price for the Options shall be the average bid and ask price for
Employer's shares of common stock on the NASDAQ OTCBB (or any national
securities exchange hereafter listing Employer's common stock) on the
3
<PAGE>
day prior to the Commencement Date, (ii) one third of the Options (being options
to purchase 70,000 shares) will vest on the first anniversary date of the
Commencement Date, and (iii) approximately one twenty-fourth (1/24th) of the
remaining Options shall vest on the last day of each month following the first
anniversary date of the Commencement Date (specifically, options to purchase
5,833 shares on the last day of months one through twenty-three and 5,841 shares
on the last day of the twenty-fourth month).
6. TERMINATION OF EMPLOYMENT. Employee's employment and this
Agreement shall terminate upon the earliest to occur of any of the following
events (the actual date of such termination being referred to herein as the
"Termination Date"):
a. The termination of the Agreement pursuant to Section 2.
b. Employee's employment pursuant hereto shall terminate in the
event of the death of Employee.
c. Employer may terminate Employee's employment under this
Agreement for cause without any prior notice (except as set forth in
subparagraph (3) below), upon the occurrence of any of the following events:
(1) any embezzlement or wrongful diversion of funds of
Employer or any affiliate of Employer by Employee;
(2) gross malfeasance by Employee in the conduct of
Employee's duties;
(3) breach of this Agreement and the failure to cure such
breach following reasonable notice thereof;
(4) gross neglect by Employee in carrying out Employee's
duties; or
(5) the failure of Employee to be able to perform
Employee's duties hereunder for a period of not less than ninety (90)
days by reason of disability. For purposes of this Agreement,
Employee shall be deemed to have become disabled when the Board of
Directors of Employer, upon the advice of a qualified physician, shall
have determined that Employee has become physically or mentally
incapable (excluding infrequent and temporary absences due to ordinary
illness) of performing Employee's duties under this Agreement. Before
making any termination decision pursuant to this Section 6(c)(5), the
Board of Directors of Employer shall determine whether there is any
reasonable accommodation (within the meaning of the Americans with
Disabilities Act) which would enable Employee to perform the essential
functions of Employee's position under this Agreement despite the
existence of any such disability. If such a reasonable accommodation
is possible, Employer shall make that accommodation
4
<PAGE>
and shall not terminate Employee's employment hereunder based on such
disability.
d. If Employee's employment is terminated for any of the
reasons specified in Section 6(b), (c) or (e), Employer shall no longer be
obligated to make the payments specified under Section 3 or to pay to Employee
any other compensation or benefits whatsoever, except as may otherwise be
provided in Section 6(e). Notwithstanding the foregoing, if for any reason
Employee's employment is terminated hereunder, any compensation payable under
Sections 3(a) or 3(b) which shall have been earned but not yet paid shall be
paid by Employer to Employee or Employee's estate, as the case may be.
e. Employer shall have the right to terminate Employee's
employment hereunder without prior notice and without cause; provided, however,
in such event, Employee shall continue to receive his Base Salary for six (6)
months following the date of such termination. In such event, Employee shall
not be eligible to receive the Bonus for any quarter beyond the quarter in which
Employee's employment is terminated. If this Agreement is terminated by
Employer under this Section 6(e), any Options that would otherwise vest on or
before the next vesting period (be it annual or monthly) shall automatically
become fully vested immediately upon termination; however, any additional
unvested Options shall be cancelled upon termination. Notwithstanding the
foregoing, the prior provisions of this Section 6(e) shall be void and of no
force or effect in the event of (i) the sale of substantially all of the assets
of Employer, (ii) the merger of Employer into another entity, or (iii) the
merger of another entity into Employer if, as a result of any transaction
described in clause (i), (ii) or (iii), the shareholders of Employer do not
control a majority of the shares of the surviving entity. In the event of any
such sale or merger, any of the Options that have not yet vested shall
immediately vest.
7. INVENTIONS AND CREATIONS BELONG TO EMPLOYER.
a. Any and all inventions, discoveries, improvements or
creations (collectively, "Creations") which Employee has conceived or made or
may conceive or make during the period of employment in any way, directly or
indirectly, connected with Employer's business shall be the sole and exclusive
property of Employer. Employee agrees that all copyrightable works created by
Employee or under Employer's direction in connection with Employer's business
are "works made for hire" and shall be the sole and complete property of
Employer and that any and all copyrights to such works shall belong to Employer.
To the extent any of the works described in the preceding sentence are not
deemed to be "works made for hire," Employee hereby assigns all proprietary
rights, including copyright, in these works to Employer without further
compensation.
b. Employee further agrees to (i) disclose promptly to Employer
all such Creations which Employee has made or may make solely, jointly or
commonly with others during the period of employment to the extent connected
with Employer's business, (ii) assign all such Creations to Employer, and (iii)
execute and sign any and all applications, assignments or other instruments
which Employer may deem necessary in order to enable Employer, at Employer's
expense, to apply for, prosecute and obtain copyrights, patents or other
proprietary
5
<PAGE>
rights in the United States and foreign countries or in order to transfer to
Employer all right, title and interest in said Creations.
8. CONFIDENTIALITY; OWNERSHIP OF INFORMATION. Employer promises
that Employer will, during the Term, provide Employee with access to such
Confidential Information (as defined in Section 8(a)) owned by Employer and that
is used in the operation of Employer's business as reasonably necessary to allow
Employee to perform Employee's obligations hereunder. Employee acknowledges
that Employer has agreed to provide Employee with a definite term of employment
and with access to such Confidential Information of Employer during that term of
employment.
a. DEFINITION. For purposes of this Agreement, "Confidential
Information" means any and all information relating directly or indirectly to
Employer that is not generally ascertainable from public or published
information or trade sources and that represents proprietary information to
Employer, excluding, however, (i) Employees' business contacts, (ii) information
already known to Employee prior to Employee's employment with Employer, and
(iii) information required to be divulged in any legal or administrative
proceeding in which Employee is involved. Confidential Information shall
consist of, for example, and not intending to be inclusive, (A) software (source
and object codes), algorithms, computer processing systems, techniques,
methodologies, formulae, processes, compilations of information, drawings,
proposals, job notes, reports, records and specifications, and (B) information
concerning any matters relating to the business of Employer, any of its
customers, prospective customers, customer contacts, licenses, the prices it
obtains or has obtained for the licensing of its software products and services,
or any other information concerning the business of Employer and Employer's good
will.
b. NO DISCLOSURE. During the Term and at all times thereafter,
Employee shall not disclose or use in any manner, directly or indirectly, and
shall use Employee's best efforts and shall take all reasonable precautions to
prevent the disclosure of, any such trade secrets or other Confidential
Information, except to the extent required in the performance of Employee's
duties or obligations to Employer hereunder or by express prior written consent
of a duly authorized officer or director of Employer (other than Employee).
c. OWNERSHIP OF INFORMATION. Such Confidential Information is
and shall remain the sole and exclusive property and proprietary information of
Employer or Employer's customers, as the case may be, and is disclosed in
confidence by Employer or permitted to be acquired from such customers in
reliance on Employee's agreement to maintain such Confidential Information in
confidence and not to use or disclose such Confidential Information to any other
person except in furtherance of Employer's business.
d. RETURN OF MATERIAL. Upon the expiration or earlier
termination of this Agreement for any reason, Employee shall immediately turn
over to Employer all documents, disks or other magnetic media, or other material
in Employee's possession or under Employee's control that (i) may contain or be
derived from Creations or Confidential Information, or (ii) are connected with
or derived from Employee's services to Employer.
6
<PAGE>
Employee shall not retain any Confidential Information in any form (e.g.,
computer hard drive, microfilm, etc.) upon the expiration or earlier termination
of this Agreement.
9. NONCOMPETE; WORKING FOR COMPETITOR. In consideration of
Employee's employment by Employer, Employee will not, at any time during the
Term or at any time for twenty-four (24) months subsequent to any termination of
Employee's employment pursuant to the provisions of Section 6(c) or the
voluntary termination of employment by Employee pursuant to Section 2, directly
or indirectly, within the United States, for Employee's own account or on behalf
of any direct competitors of Employer, engage in any business or transaction
involving (i) the design, installation, integration, service or consulting with
respect to voice recognition software designs and applications, or (ii) the
transcription of medical records (whether as an employee, employer, independent
contractor, consultant, agent, principal, partner, stockholder, corporate
officer, director or in any other individual or representative capacity),
without the prior written consent of Employer, which consent may be withheld by
Employer in Employer's sole and absolute discretion.
10. NON-SOLICITATION OF EMPLOYEES. During the Term and for a period
of twenty-four (24) months after the date of termination of employment, Employee
will not in any way, directly or indirectly (i) induce or attempt to induce any
employee of Employer to quit employment with Employer; (ii) otherwise interfere
with or disrupt Employer's relationship with its employees; (iii) solicit,
entice or hire away any employee of Employer; or (iv) hire or engage any
employee of Employer or any former employee of Employer whose employment with
Employer ceased less than one year before the date of such hiring or engagement.
Employee acknowledges that any attempt on the part of Employee to induce others
to leave Employer's employ, or any effort by Employee to interfere with
Employer's relationship with its other employees would be harmful and damaging
to Employer.
11. EMPLOYEE'S ACKNOWLEDGEMENT. It is the express intention of
Employee and Employer to comply with sections 15.50 et seq. of the Texas
Business and Commerce Code in effect as of the date of execution hereof.
Employee stipulates that the provisions of this Agreement are not oppressive or
overly burdensome to Employee and will not prevent Employee from earning an
income following termination of this Agreement. Employee warrants and
represents that:
a. Employee is familiar with non-compete and non-solicitation
covenants;
b. Employee has discussed or acknowledges the opportunity to
discuss the provisions of the non-compete and non-solicitation covenants
contained herein with Employee's attorney and has concluded that such provisions
(including, without limitation, the right to equitable relief and the length of
time provided for herein) are fair, reasonable and just under the circumstances;
c. Employee is fully aware of the obligations, limitations and
liabilities included in the non-compete and non-solicitation covenants contained
in this Agreement;
7
<PAGE>
d. The scope of activities covered hereby are substantially
similar to those activities to be performed by Employee under this Agreement;
e. The twenty-four (24) month non-compete and non-solicitation
period is a reasonable restriction, giving consideration to the following
factors: (1) Employee and Employer reasonably anticipate that this Agreement,
although terminable under certain provisions, will continue in effect for
sufficient duration to allow Employee to attain superior bargaining strength and
an ability for unfair competition with respect to the customers covered hereby;
(2) the duration of the twenty-four (24) month non-compete and non-solicitation
period is a reasonably necessary period to allow Employer to restore its
position of equivalent bargaining strength and fair competition with respect to
those customers covered hereby; and (3) historically, employees of all types
have remained with Employer for a duration of longer than the duration of the
twenty-four (24) month non-compete and non-solicitation period; and
f. The limitations contained in this Agreement with respect to
geographic area, duration and scope of activity are reasonable; however, if any
court shall determine that the geographic area, duration or scope of activity of
any restriction contained in this Agreement is unenforceable, it is the
intention of the parties that such restrictive covenants set forth herein shall
not thereby be terminated, but shall be deemed amended to the extent required to
render such covenants valid and enforceable.
12. REMEDIES; INJUNCTION. In the event of a breach or threatened
breach by Employee of any of the provisions of this Agreement, Employee agrees
that Employer, in addition to and not in limitation of any other rights,
remedies or damages available to Employer at law or in equity, shall be entitled
to a permanent injunction without the necessity of proving actual monetary loss
in order to prevent or restrain any such breach by Employee or by Employee's
partners, agents, representatives, servants, employees and/or any and all
persons directly or indirectly acting for or with Employee. It is expressly
understood between the parties that this injunctive or other equitable relief
shall not be Employer's exclusive remedy for any breach of this Agreement, and
Employer shall be entitled to seek any other relief or remedy which it may have
by contract, statute, law or otherwise for any breach hereof.
13. ARBITRATION. The parties agree that all disputes or questions
arising in connection with this Agreement and/or the termination of Employee's
employment hereunder shall be settled by a single arbitrator pursuant to the
rules of the American Arbitration Association in the City of Houston, Texas, and
the award of the arbitrators shall be final, non-appealable, conclusive and
enforceable in a court of competent jurisdiction; provided, however,
notwithstanding the foregoing, in no event shall any dispute, claim or
disagreement arising under Sections 7, 8, 9 and 10 of this Agreement that
requires injunctive or other equitable relief be required to be submitted to
arbitration pursuant to this provision or otherwise.
14. NOTICES. Any notice, demand or request which may be permitted,
required or desired to be given in connection therewith shall be given in
writing and directed to Employer and Employee as follows:
8
<PAGE>
If to Employer, at: Applied Voice Recognition, Inc.
4615 Post Oak Place, Suite 111
Houston, Texas 77027
Attention: President
Facsimile No.: (713) 621-5870
with a copy to: Boyar, Simon & Miller
4265 San Felipe, Suite 1200
Houston, Texas 77027
Attention: J. William Boyar, Esq.
Facsimile No.: (713) 552-1758
or, if to Employee, at: Mr. Richard A. Cabrera
10721 Wood Oak Court
Knoxville, Tennessee 37922
Notices shall be deemed properly delivered and received when and if either: (i)
personally delivered; (ii) delivered by nationally-recognized overnight courier;
(iii) when deposited in the U.S. Mail, by registered or certified mail, return
receipt requested, postage prepaid; or (iv) sent via facsimile transmission with
confirmation mailed by regular U.S. mail. Any party may change its notice
address for purposes hereof to any address within the continental United States
by giving written notice of such change to the other parties hereto at least
fifteen days prior to the intended effective date of such change.
15. SEVERABILITY. If any provision of this Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by decree of a court of last resort, Employer and
Employee shall promptly meet and negotiate substitute provisions for those
rendered or declared illegal or unenforceable, but all the remaining provisions
of this Agreement shall remain in full force and effect.
16. ASSIGNMENT. This Agreement may not be assigned by any party
without the prior written consent of the other parties.
17. BINDING AGREEMENT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, and their respective legal
representatives, heirs, successors and permitted assigns.
18. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
19. ATTORNEYS FEES. In the event of any dispute between the parties
regarding this Agreement, the prevailing party shall be entitled to be
reimbursed for such prevailing party's attorneys fees and costs of court (or
cost of arbitration, as applicable) by the non-prevailing party.
9
<PAGE>
20. AGREEMENT READ, UNDERSTOOD AND FAIR. Employee has carefully read
and considered all provisions of this Agreement and agrees that all of the
restrictions set forth are fair and reasonable and are reasonably required for
the protection of the interests of Employer.
21. SUBJECT TO BOARD APPROVAL. This Agreement is subject to approval
of the Board of Directors of Employer. In connection therewith, Employer agrees
to submit this Agreement for approval to its Board of Directors on or before
April 30, 1999, and to advise Employee promptly following such meeting as to
whether this Agreement was approved. In the event this Agreement is not
approved on or before such date, this Agreement shall be void and of no further
force or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
____ day of April, 1999, effective as of the Effective Date.
EMPLOYER:
APPLIED VOICE RECOGNITION, INC., a Delaware corporation
d/b/a e.DOCS.net
By:
----------------------------------------
Robin P. Ritchie, President
EMPLOYEE:
-------------------------------------------
RICHARD A. CABRERA
10
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