<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
FEBRUARY 16, 1999 (DECEMBER 1, 1998)
APPLIED VOICE RECOGNITION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-23607 76-0513154
- - --------------------------------------------------------------------------------
(Commission File Number) (IRS EMPLOYER IDENTIFICATION NO.)
4615 POST OAK PLACE, SUITE 111, HOUSTON, TEXAS 77027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 621-5678
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
Item 7. Financial statements, proforma financial information and exhibits
(a) Financial Statements of Business Acquired
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Statline, Inc.
We have audited the balance sheets of Statline, Inc. as of April 23, 1998 and
December 31, 1997, and the related statements of operations and deficit, and
cash flows for the period from January 1, 1998 through April 23, 1998 and the
year ended December 31, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Statline, Inc. as of April 23,
1998 and December 31, 1997, and the results of its operations and its cash flows
for the period from January 1, 1998 through April 23, 1998 and the year ended
December 31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 5, Statline, Inc. sold its fixed assets and customer list
on April 23, 1998.
/s/ M.R. Weiser & Co. LLP
__________________________________
M.R. Weiser & Co. LLP
Edison, NJ
January 26, 1999
<PAGE>
STATLINE,INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 23, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 259 $ 1,040
Accounts receivable, less allowance for
doubtful accounts of $45,000 147,193 160,595
Note receivable - Cornell
Transcription, inc. 100,000
------------------- -------------------
Total current assets 247,452 161,635
Fixed assets, net 74,570
Other assets 892 1,742
------------------- -------------------
Total assets $ 248,344 $ 237,344
=================== ===================
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 18,281 $ 11,038
Due to Innodata Corporation 422,606 568,127
------------------- -------------------
Total current liabilities 440,887 579,165
Stockholders' deficit: 292543
Capital stock, no par value, 200 shares
authorized, 100 shares issued and
outstanding 200 200
Paid in capital 99,800 99,800
Deficit (292,543) (441,218)
------------------- -------------------
Total stockholders' deficit (192,543) (341,218)
Total liabilities and stockholders'
deficit $ 248,344 $ 237,947
=================== ===================
</TABLE>
(See notes to financial statements)
<PAGE>
STATLINE,INC.
STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH APRIL 23, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Sales revenue $ 216,200 $ 629,354
Cost of sales 118,604 538,077
---------------- ----------------
Gross profit 97,596 91,277
---------------- ----------------
General and administrative expenses:
Salaries and commissions 37,016 82,903
Payroll taxes 6,546 10,543
Telephone and pagers 218 588
Insurance 1,853
Dues and subscriptions 476
Administrative expenses 511 1,386
Travel and entertainment 59 3,229
Bad debt expense 25,000
Depreciation and amortization 10,045 40,101
Corporate allocations 23,617
---------------- ----------------
Total general and administrative
expenses 54,395 189,687
---------------- ----------------
Income (Loss) from operations 43,201 (98,410)
---------------- ----------------
Other income:
Miscellaneous income 7,499
Gain on sale of fixed assets 105,474
---------------- ----------------
Total other income 105,474 7,499
---------------- ----------------
Net income (Loss) 148,675 (90,911)
Deficit, at beginning of period (441,218) (350,307)
---------------- ----------------
Deficit, at end of period $(292,543) $(441,218)
================ ================
</TABLE>
(See notes to financial statements)
<PAGE>
STATLINE,INC.
SATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1998 THROUGH APRIL 23, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 148,675 $ (90,911)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation 10,045 40,101
Bad debt expense 25,000
Gain on sale of fixed assets (105,474)
Changes in operating assets and
Liabilities:
Decrease in accounts receivable 13,402 78,619
Decrease in other assets 850 3,631
Decrease in accounts payable
and accrued expenses (7,758) (928)
Decrease in due to Innodata Corporation (60,521) (187,559)
------------------- --------------------
Net cash provided by operating activities (781) (132,047)
------------------- --------------------
Cash flows from investing activities:
Acquisition of property and equipment (2,078)
------------------- --------------------
Net cash used investing activities (2,078)
------------------- --------------------
Cash flows from financing activities:
Net decrease in cash and cash equivalents (781) (134,125)
Cash and cash equivalents at beginning
of period 1,040 135,165
------------------- --------------------
Cash and cash equivalents at end of
period $ 259 $ 1,040
=================== ====================
Supplemental schedule of noncash investing and financing
activities:
Noncash protion of the proceeds of sale of fixed assets
and customer list represented by a note receivable
of $100,000 (See Note 5.)
</TABLE>
(See notes to financial statements)
<PAGE>
STATLINE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business:
Statline, Inc. (the "Company") was organized in January 1994 under the laws
of New Jersey. The Company is engaged in the business of medical
transcription services for various hospitals and doctors, and operates in
the U.S. and the Philippines. The Company is wholly owned by Innodata
Corporation. (See Note 5 for sale of assets.)
Revenue Recognition:
The Company recognizes revenue when the transcribed files are transmitted to
the customer.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fixed assets:
Fixed assets are carried at cost less allowances for depreciation and
amortization. Depreciation and amortization is recorded on the straight-
line method at rates based on the lesser of the estimated useful life of the
assets or lease terms ranging from three to ten years.
Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.
Income Taxes:
The Company is a "C" Corporation for income tax purposes. The net operating
loss carryforwards, with expiration dates from 2009-2012, approximated
$440,000 at December 31, 1997. Since the "more likely than not" criteria of
SFAS 109 was not met, the valuation allowance was equal to the net deferred
tax asset.
<PAGE>
2. FIXED ASSETS:
Fixed assets consist of the following as of:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Computer equipment $ 184,761
Equipment and furniture 4,992
------------
189,753
Less accumulated depreciation (115,183)
------------
$ 74,570
============
</TABLE>
In April 1998, the Company sold their fixed assets. (See Note 5.)
3. DUE TO INNODATA CORPORATION:
The Company receives advances from its parent company, Innodata Corporation,
to help fund its operations. Amounts due to Innodata at April 30, 1998 and
December 31, 1997 were $422,606 and $568,127, respectively.
4. MAJOR CUSTOMERS:
There were five major customers at April 23, 1998 and December 31, 1997
representing approximately 80% of the accounts receivable.
5. SALE OF ASSETS:
On April 23, 1998, the Company sold its fixed assets and customer list to
Cornell Transcription, Inc. for $100,000 in cash and a non-interest bearing
note for $100,000, payable in quarterly installments which are due within
one year. The $100,000 cash payment was made to Innodata Corporation, the
then parent of Statline, Inc.; such payment was used to reduce the amount
due to Innodata Corporation at April 23, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Cornell Transcription, Inc.
We have audited the balance sheet of Cornell Transcription, Inc. as of September
30, 1998, and the related statements of operations and deficit, and cash flows
for the period from April 23, 1998 (commencement of operations) through
September 30, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cornell Transcription, Inc. as
of September 30, 1998 and the results of its operations and its cash flows for
the period from April 23, 1998 (commencement of operations) through September
30, 1998 in conformity with generally accepted accounting principles.
As discussed in Note 10, Cornell Transcription, Inc. sold substantially all of
its assets on December 1, 1998.
/s/ M.R. Weiser & Co. LLP
_____________________________
M.R. Weiser & Co. LLP
Edison, NJ
January 26, 1999
<PAGE>
CORNELL TRANSCRIPTION, INC.
BALANCE SHEETS
SEPTEMBER 30, 1998
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 1,931
Accounts receivable 281,889
Prepaid expenses 1,356
Due from related party 15,742
-------------------
Total current assets 300,918
Fixed assets, net 273,722
Customer list, net of accumulated amortization of
$13,333 66,667
Security deposit 6,490
-------------------
Total assets $647,797
===================
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Line of credit $195,000
Accounts payable and accrued expenses 81,184
Due to Innodata Corporation 14,103
Note payable-Statline, Inc. 75,000
Capital leases, current portion 17,241
-------------------
Total current liabilities 382,528
Capital leases, net of current portion 29,306
-------------------
Total liabilities 411,834
===================
Stockholders' deficit:
Capital stock, no par value, 200 shares
authorized, 100 shares issued and
outstanding 252,156
Deficit (16,193)
-------------------
Total stockholders' deficit 235,963
Total liabilities and stockholders'
deficit $647,797
===================
</TABLE>
(See notes to financial statements)
<PAGE>
CORNELL TRANSCRIPTION, INC.
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE PERIOD FROM APRIL 23, 1998 (COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Transcription revenue $369,959
Cost of sales 156,967
-------------------
Gross profit 212,992
-------------------
General and administrative expenses:
Salaries and commissions 84,938
Payroll taxes 4,705
Telephone 12,814
Travel and entertainment 5,046
Professional fees 45,536
Rent 19,810
Depreciation and amortization 39,756
Other 27,442
-------------------
Total general and administrative
expenses 240,047
-------------------
Loss from operations (27,055)
-------------------
Other income (expenses):
Sublease income 6,400
Other income 12,659
Interest expense (8,197)
-------------------
Total other income 10,862
-------------------
Net loss and deficit at end of period $(16,193)
===================
</TABLE>
(See notes to financial statements)
<PAGE>
CORNELL TRANSCRIPTION, INC.
SATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 23, 1998 (COMMENCEMENT OF OPERATIONS)
THROUGH SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (16,193)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 39,756
Changes in operating assets and liabilities:
Increase in accounts receivable (281,889)
Increase in prepaid expenses (1,356)
Increase in due from related party (15,742)
Increase in security deposits (6,490)
Increase in accounts payable and accrued
expenses 81,184
Increase in due to Innodata 14,103
--------------------
Net cash used in operating activities (186,627)
--------------------
Cash flows from investing activities (Note 1)
Acquisition of fixes assets (200,145)
Acquisition of customer list (80,000)
--------------------
Net cash used investing activities (280,145)
--------------------
Cash flows from financing activities:
Proceeds from line of credit 195,000
Payment of Statline, Inc. note payable (25,000)
Proceeds from capital lease obligation 55,556
Payment of capital lease obligation (9,009)
Capital contribution 252,156
--------------------
Net cash provided by financing activities 468,703
--------------------
Net increase in cash and cash equivalents at end
of period $ 1,931
====================
Supplemental cash flow information:
Interest paid $ 4,192
====================
Supplemental schedule of noncash investing and
financing activities:
Note payable - Statline, Inc. for acquisition
of equipment and customer list $ 100,000
====================
</TABLE>
(See notes to financial statements)
<PAGE>
CORNELL TRANSCRIPTION, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business:
Cornell Transcription, Inc. (the "Company"), located in New York City, is
engaged in medical transcription services for various hospitals and doctors,
and operates in the U.S. and the Philippines. On April 23, 1998, the Company
commenced its operations by purchasing the customer list and fixed assets of
Statline, Inc. (See Note 4.) (See Note 10 for subsequent sale of the
Company.)
Revenue Recognition:
The Company recognizes revenue when the transcribed files are transmitted to
the customer.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fixed Assets:
Fixed assets are carried at cost less allowances for depreciation and
amortization. Depreciation and amortization are recorded on the straight-
line method at rates based on the lesser of the estimated useful life of the
assets or lease terms ranging from three to ten years.
Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.
Income Taxes:
The Company is a "C" Corporation for income tax purposes.
<PAGE>
2. FIXED ASSETS:
Fixed assets consist of the following as of September 30, 1998:
<TABLE>
<S> <C>
Computer equipment $231,380
Equipment and furniture 5,050
Leasehold improvements 63,715
-----------------
300,145
Less accumulated depreciation (26,423)
-----------------
$273,722
=================
</TABLE>
Computer equipment includes assets of $54,545 under capital leases with
accumulated depreciation and amortization of $7,575.
3. DUE FROM RELATED PARTY:
The Company conducts business with Outsource Transcription Philippines, Inc.
("Outsource"). Outsource performs all of the transcription services for the
Company. The sole stockholder of the Company is a majority stockholder of
Outsource.
At September 30, 1998, Outsource owes the Company $15,742. There are no
foreign currency gains or losses during the period ended September 30, 1998.
4. PURCHASE:
On April 23, 1998, the Company bought fixed assets and the customer list of
Statline, Inc. for $200,000. The Company accounted for the acquisition using
the purchase method of accounting and, accordingly, the assets acquired have
been recorded at their estimated fair values. Of the total purchase price,
$80,000 was allocated to the customer list, which is being amortized on a
straight-line basis over a three-year period and $120,000 was allocated to
the fixed assets.
5. LINE OF CREDIT:
The Company obtained a line of credit from Sterling National Bank. The
financing provides for borrowings of up to 80% of eligible accounts
receivable. The interest rate on
<PAGE>
borrowings is prime plus 2% and is collateralized by the borrower's assets.
At September 30, 1998, $211,264 was available and $195,000 was outstanding.
6. CAPITAL LEASES:
In May 1998, the Company entered into two capital leases for equipment that
expire in June 2001, with aggregate monthly payments of $1,760.
The following is a schedule by years of future minimum lease payments under
capital leases as of September 30, 1998:
Years Ending
September 30,
- - -------------
1999 $21,120
2000 21,120
2001 10,560
-------
52,800
Less imputed interest (6,253)
-------
$46,547
=======
7. NOTE PAYABLE:
As part of purchasing the business from Statline, Inc. the Company entered
into a non-interest bearing note for $100,000, payable in four equal
quarterly installments of $25,000. The final payment is due April 1999. At
September 30, 1998, $75,000 was still owed to Statline, Inc.
8. COMMITMENTS AND CONTINGENCIES:
Leases:
In 1998, the Company entered into two leases for office space in both New
York and Florida, for which it is obligated through January 2008 and April
2000, respectively.
<PAGE>
The Company is obligated for annual minimum rental payments as follows:
Year Ended
September 30,
- - ------------------------
1999 $ 38,400
2000 36,600
2001 36,960
2002 38,438
2003 39,976
Thereafter 192,337
--------
$382,711
========
Rent expense charged to operations for the period from April 30, 1998
(commencement of operations) through September 30, 1998 was $19,810.
The Company also entered into two sublease agreements during 1998. Minimum
lease payments to be received as of September 30, 1998 are as follows:
Year Ended
September 30,
------------
1999 $62,255
2000 15,925
-------
$78,180
=======
9. MAJOR CUSTOMERS:
There were five major customers accounting for 81% of transcription revenue
for the period ended September 30, 1998. These customers represented 85% of
accounts receivable at September 30, 1998.
10. SUBSEQUENT EVENT:
On December 1, 1998, the Company sold substantially all of its assets to
Applied Voice Recognition, Inc.
<PAGE>
Applied Voice Recognition, Inc.
PRO FORMA BALANCE SHEET
(UNAUDITED)
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------------- -----------------------------
Applied Voice
Recognition, Cornell
Inc. (See Note 1) Combined Adjustments As Adjusted
---------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $1,396,301 $ 1,931 $ 1,398,232 $ (275,000) (a)
(1,931) (b) $ 1,121,301
Accounts receivable, net of allowance 104,713 281,889 386,602 (281,889) (b) 104,713
Inventory 73,078 1,356 74,434 (1,356) (b) 73,078
Deposits and prepaid expenses 24,675 15,742 40,417 (15,742) (b) 24,675
Deferred expenses 249,142 - 249,142 249,142
---------- --------- ----------- ---------- -----------
Total current assets 1,847,909 300,918 2,148,827 (575,918) 1,572,909
Property plant and equipment, net 409,532 273,722 683,254 (85,803) (b) 597,451
Long-term portion of deferred expenses 150,000 6,490 156,490 (6,490) (b) 150,000
Other assets:
Capitalized software costs,
net of accumulated depreciation 411,169 - 411,169 411,169
Investments 133,924 - 133,924 133,924
Goodwill, net of accumulated amortizatio 50,293 - 50,293 534,544 (b) 584,837
Other intangibles - 66,667 66,667 (66,667) (b)
534,543 (b) 534,543
---------- --------- ----------- ---------- -----------
Total other assets 595,386 66,667 662,053 1,002,420 1,664,473
---------- --------- ----------- ---------- -----------
TOTAL ASSETS $ 3,002,827 $ 647,797 $ 3,650,624 $ 334,209 $ 3,984,833
========== ========= =========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade payables and accrued expenses $ 177,334 $ 81,184 $ 258,518 $ (81,184) (b)
80,000 (b) $ 257,334
Line of credit - 195,000 195,000 (195,000) (b) -
Stock dividend payable 111,688 111,688 111,688
Note payable to related party 37,091 14,103 51,194 (14,103) (b) 37,091
Current portion of capital lease obligati 10,455 17,241 27,696 27,696
Current portion of long-term debt 8,882 75,000 83,882 (75,000) (b)
260,793 (a) 269,675
Deferred revenue 61,032 - 61,032 61,032
---------- --------- ----------- ---------- -----------
Total Current Liabilities 406,482 382,528 789,010 (24,494) 764,516
Capital lease, net of current portion 31,109 29,306 60,415 60,415
Long-term debt, net of current portion 4,379 0 4,379 594,666 (a) 599,045
---------- --------- ----------- ---------- -----------
Total liabilities 441,970 411,834 853,804 570,172 1,423,976
Preferred stock 54,658 - 54,658 54,658
Common stock 14,454 252,156 266,610 (252,156) (b) 14,454
Paid-in-capital 14,044,606 - 14,044,606 14,044,606
Accumulated comprehansive loss (169,201) - (169,201) (169,201)
Accumulated deficit (11,383,660) (16,193) (11,399,853) 16,193 (b) (11,383,660)
---------- --------- ----------- ---------- -----------
Total Stockholders equity 2,560,857 235,963 2,796,820 (235,963) 2,560,857
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,002,827 $ 647,797 $ 3,650,624 $ 334,209 $ 3,984,833
========== ========= =========== ========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
<PAGE>
Applied Voice Recognition, Inc.
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------- ----------------------------------
Applied Voice
Recognition, Cornell
Inc. (See Note 1) Combined Adjustments As Adjusted
------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 475,303 $ 586,159 $ 1,061,462 $ 1,061,462
Cost of Sales 257,718 275,571 533,289 533,289
------------------------------------------- ----------------------------------
Gross Profit 217,585 310,588 528,173 - 528,173
Expenses:
Selling, general and administrative 4,919,649 244,641 5,164,290 780 (2) 5,165,070
Depreciation and amortization 119,403 49,801 169,204 59,625 (1) 228,829
------------------------------------------- ----------------------------------
Total expenses 5,039,052 294,442 5,333,494 60,405 5,393,899
------------------------------------------- ----------------------------------
Operating income (loss) (4,821,467) 16,146 (4,805,321) (60,405) (4,865,726)
Interest expense 79,860 8,197 88,057 73,805 (3) 161,862
Other expense (income) 438,595 (19,059) 419,536 419,536
Gain on disposal of assets - (105,474) (105,474) 105,474 -
------------------------------------------- ----------------------------------
Income (loss) before income
taxes (5,339,922) 132,482 (5,207,440) (239,685) (5,447,125)
Provision (benefit) for income
taxes - - - - -
Net income (loss) $ (5,339,922) $ 132,482 $ (5,207,440) $ (239,685) $ (5,447,125)
============ ========= ============ ========== ===========
Statement of comprehensive loss:
Unrealized holding loss (598,874) (598,874) (598,874)
Comprehensive (loss) gain $ (5,938,796) $ 132,482 $ (5,806,314) $ (239,685) $ (6,045,999)
============ ========= ============ ========== ===========
Basic & diluted net loss per common
share $ (0.43) $ (0.44)
============ ===========
Number of shares used to compute
basic & diluted net loss per share 13,416,292 13,416,292
============ ===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
<PAGE>
Applied Voice Recognition, Inc.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------------- -----------------------------------
Applied Voice
Recognition, Cornell
Inc. (See Note 1) Combined Adjustments As Adjusted
-------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $2,113,013 $629,354 $2,742,367 - $ 2,742,367
Cost of Sales 853,672 538,077 1,391,749 - 1,391,749
-------------------------------------------- -----------------------------------
Gross Profit 1,259,341 91,277 1,350,618 - 1,350,618
Expenses:
Selling, general and administrative 4,887,588 149,586 5,037,174 1,000 (2) 5,038,174
Depreciation and amortization 189,131 40,101 229,232 79,501 (1) 308,733
-------------------------------------------- -----------------------------------
Total Expenses 5,076,719 189,687 5,266,406 80,501 5,346,907
-------------------------------------------- -----------------------------------
Operating loss (3,817,378) (98,410) (3,915,788) (80,501) (3,996,289)
Interest expense (income) 388,424 (7,499) 380,925 98,407 (3) 479,332
Other income (37,138) - (37,138) - (37,138)
-------------------------------------------- -----------------------------------
Loss before income taxes (4,168,664) (90,911) (4,259,575) (178,908) (4,438,483)
Provision (benefit) for income taxes - - - - -
-------------------------------------------- -----------------------------------
Net loss $ (4,168,664) $(90,911) $(4,259,575) $ (178,908) $(4,438,483)
============================================ ===================================
Basic and diluted net loss per common
share $ (0.39) $ (0.39)
============= ==========
Number of shares used to compute
basic and diluted net loss per share 11,594,440 11,594,440
============= ==========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
<PAGE>
APPLIED VOICE RECOGNITION, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The following statements provide summary unaudited pro forma statement of
operations data for the nine months ended September 30, 1998 and for the year
ended December 31, 1997, and summary unaudited pro forma balance sheet data
as of September 30, 1998. This pro forma financial data gives effect to the
acquisition of certain assets and the assumption of certain liabilities of
Cornell Transcription, Inc., ("Cornell") a New York corporation, as if it had
occurred, at the beginning of the period presented, and as of September 30,
1998 for the balance sheet data. Cornell acquired the business operations
from Statline Inc. (Statline) as of April 23, 1998, therefore, the historical
operations of Cornell used for the pro forma statement of operations for the
year ended December 31, 1997 consists of the statement of operations for
Statline for the year ended December 31, 1997. The pro forma statement of
operations for the nine months ended September 30, 1998 consists of Statline
for the period January 1, 1998 through April 23, 1998 and of Cornell from
April 23, 1998 and of Cornell from April 23, 1998 (date of inception)
through September 30, 1998. Such pro forma financial data may not be
indicative of what the financial condition or results of operations of the
Company would have been had the transaction to which it gives effect had been
completed on such earlier date, nor is it necessarily indicative of the
financial condition or results of operations that may exist in the future.
The following pro forma information should be read in conjunction with the
Company's Annual Report on Form 10-KSB and Quarterly Reports on Form 10-QSB,
and the historical financial statements and notes of Cornell and Statline.
2. LOSS PER SHARE
Pro forma basic and dilutive loss per share were computed as follows: Basic
earnings per share were calculated by dividing net loss applicable to common
stock by the weighted average number of shares of common stock, which
excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share were calculated by dividing net loss
applicable to common stock by the weighted average number of shares of common
stock, common stock equivalents outstanding during the period and the
dilutive effect of common stock equivalents issued. Common stock equivalents
consisted of the number of shares issuable on exercise of the outstanding
stock options based on the average price of the common stock during the
period. The loss per share calculations do not include dividends associated
with the preferred stock to be issued in connection with the acquisition of
Cornell; because, the preferred stock will be not be issued until December,
1999 and the Company has recorded a liability for this commitment and the
related imputed interest which has been reflected in the earnings per share
calculations.
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3. ACQUISITION
On December 1, 1998, the Company acquired certain assets and assumed certain
liabilities of Cornell Transcription, Inc., ("Cornell") a New York
corporation and all of the outstanding common stock of Outsource
Transcription Philippines, Inc. ("OTP") a corporation formed under the laws
of the Republic of the Philippines. OTP's operations are insignificant and
due to common ownership, OTP has been combined with Cornell for financial
reporting purposes. The acquisition of Cornell was accounted for using the
purchase method of accounting.
The purchase price consisted of $275,000 of cash, a note payable of $150,000
due February 28, 1999, a note payable of $120,000 payable over one year with
no stated interest rate, (interest was imputed using 15%), a commitment to
issue $683,866 of convertible preferred stock with a dividend rate of 10% on
December 31, 1999, and approximately $80,000 of acquisition related expenses.
The purchase agreement also includes a total earnout of $160,000, payable in
$683,866 of preferred stock, over 12 months based on specified revenue
targets. Payments related to the earnout will be recorded to purchase
accounting when earned. For purchase accounting purposes the commitment to
issue preferred stock has been discounted using a rate of 15% and a liability
of $594,666 has been recorded for the net present value of the obligation.
The company has allocated the excess purchase price over net assets of
$1,060,008 to customer lists and Goodwill for $530,004, and $530,004,
respectively. The Company will amortize the customer lists over 10 years and
Goodwill over 20 years.
4. ADJUSTMENTS OF HISTORICAL FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the historical
consolidated balance sheet of the Company to give effect to the acquisition
of Cornell described in Note 3 as if it had occurred as of September 30, 1998
and to the historical statements of operations as if the acquisition was
consummated as of the beginning of the periods presented:
Balance Sheet Adjustments:
(a) To reflect the acquisition of Cornell for the cash paid and the liabilities
incurred to effect the purchase (see note 3).
(b) To reflect, in connection with the acquisition of Cornell, the purchase
price allocation and the elimination of assets not acquired or liabilities
not assumed by the Company.
Statement of Operations Adjustments:
(1) To reflect additional amortization of goodwill and customer list related to
the purchase of Cornell over 20 years and 10 years, respectfully (see note
3).
(2) To reduce expenses for differences in compensation expense in connection
with the Cornell acquisition as stipulated as part of the purchase
agreement.
(3) To reflect additional interest expense related to the purchase of the
Cornell for the notes payable and the imputed interest for the commitment
to issue preferred stock (see note 3).
(4) To reduce gain, to zero, related to the sale of certain assets by Statline
to Cornell as part of April 23, 1998 business combination.
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(c) Exhibits
The following exhibits are filed with this report on Form 8-K:
*2.1 Asset purchase agreement by and among the Company, Cornell and
Acquisition Sub dated December 1, 1998
*4.1 Unsecured promissory note payable to Cornell in the amount of $270,000
*4.2 Series 1 Preferred Stock Certificate of Designation
23.1 Consent of M.R. Weiser & Co. LLP
- - -------------
* Previously filed.
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Signatures
- - ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to this report to be signed on its
behalf by the undersigned hereunto duly authorized.
APPLIED VOICE RECOGNITION, INC.
February 16, 1999 /s/ William T. Kennedy
-------------------------------
William T. Kennedy
Chief Financial Officer and
Assistant Secretary
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EXHIBIT 23.1
CONSENT OF M.R. WEISER & CO. LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Amendment No. 2 to the
Registration Statement (Form S-3 No. 333-44053), Registration Statement (Form
S-8 No. 333-24345) pertaining to the Warrant of Hakeem Olajuwan, Registration
Statement (Form S-8 No. 333-24343) pertaining to the Option To Akin Olajuwan,
Registration Statement (Form S-8 No. 333-24399) pertaining to the Warrant to Tim
Connelly, Registration Statement (Form S-8 No. 333-24397) pertaining to the
Option to Jesse Marion, Registration Statement (Form S-8 No. 333-24395)
pertaining to the Warrant to Jan Carson Connelly, Registration Statement (Form
S-8 No. 333-24393) pertaining to the Warrant to H. Russell Douglas, Registration
Statement (Form S-8 No. 333-24391) pertaining to the Compensation Agreement of
Thomas C. Pritchard, and Registration Statement (Form S-8 No. 333-44191)
pertaining to the Applied Voice Recognition, Inc. 1997 Incentive Plan, of our
reports dated January 26, 1999 with respect to the financial statements of
Statline, Inc. for the period from January 1, 1998 through April 23, 1998 and
the year ended December 31, 1997 and Cornell Transcription, Inc. for the period
from April 23, 1998 (commencement of operations) through September 30, 1998,
included in the Form 8-K/A-1 of Applied Voice Recognition, Inc.
/s/ M.R. WEISER & CO. LLP
--------------------------
M.R. WEISER & CO. LLP
Edison, N.J.
February 15, 1999
