<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-KSB/A-1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-23607
APPLIED VOICE RECOGNITION, INC.
(Name of small business issuer in its charter)
DELAWARE 76-0513154
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1717 St. James Place, Suite 242, Houston, Texas 77056
(Address of Principal Executive Office) (Zip Code)
(713) 621-3131
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the 12 months ended December 31, 1999 were
$5,261,810. The aggregate market value of the voting common stock held by non-
affiliates of the registrant, based on the closing bid price on the OTC
Electronic Bulletin Board on April 28, 2000 of $0.6562 was $9,948,281. As of
April 28, 2000, the issuer had 39,451,538 shares of its common stock, par value
$.001 per share, outstanding.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
================================================================================
<PAGE>
TABLE OF CONTENTS
Item Page
- ---- ----
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............ 3
Item 10. Executive Compensation....................................... 5
Item 11. Security Ownership of Certain Beneficial Owners
and Management............................................... 8
Item 12. Certain Relationships and Related Transactions............... 10
2
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table provides information concerning each executive officer
and director of the Company as of the date hereof:
NAME Age Position
- ------------------------- ------ --------------------------------------------
Timothy J. Connolly 47 President and Chairman of the Board
H. Russel Douglas 47 Chief Technology Officer
Jackson L. Nash 55 Chief Financial Officer and Secretary
Mark E. Navarro 35 Chief Accounting Officer, Controller,
and Treasurer
J. William Boyar 49 Director
James S. Cochran, M.D. 56 Director
Daniel Dornier 38 Director
N. Rudy Garza 41 Director
TIMOTHY J. CONNOLLY has served as Chairman of the Board of the Company since
August 1996. From August 1996 to July 1999, Mr. Connolly also served as the
Company's Chief Executive Officer and President. As of December 20, 1999, Mr.
Connolly was again made President of the Company. Mr. Connolly founded Applied
Voice Technology, LP (the Company's predecessor) in November 1994 and served as
its managing partner until August 1996. In 1984, Mr. Connolly formed Post Oak
Financial Corporation, an investment and mortgage-banking firm, and served as
President of that corporation until October 1994. Mr. Connolly graduated from
Texas A&M University with an undergraduate degree in Marketing and Management,
and a Masters Degree in Business Administration.
H. RUSSEL DOUGLAS served as Vice President of Research and Development/Chief
Technology Officer and as a director of the Company from August 1996 through
December 1999. Following a brief stint with Lernout & Hauspie Speech Products,
N.V. starting in January 2000, Mr. Douglas returned to the Company in April 2000
as Chief Technology Officer. Mr. Douglas was employed by Applied Voice
Technology, LP from August 1995 through August 1996. From 1989 through August
1995, Mr. Douglas was a senior manager of Legent Corporation, an international
computer software company, where Mr. Douglas was responsible for development and
worldwide support of Legent's systems product line. Mr. Douglas began developing
voice applications in 1986 as Vice President of Research and Development of
VOTEK, an early voice applications company based in Ontario, Canada. Mr. Douglas
received a BSC Degree in Economics and Commerce in 1977 from the Royal Military
College of Canada, and a Masters Equivalent in Organizational Management in 1981
from the Canadian Military Staff School.
JACKSON L. NASH has served as Chief Financial Officer and Secretary of the
Company since February 2000. Mr. Nash was Vice President and Chief Financial
Officer of Windsor Frozen Food Company, Ltd. from June 1996 to March 1999, and
Vice President, Chief Financial Officer and Secretary of Trans American Refining
Corporation during 1994 and 1995. Mr. Nash was with Ernst & Young for twenty
years, leaving the firm as an Audit Partner in 1992 to become an independent
consultant.
3
<PAGE>
MARK E. NAVARRO has served as Chief Accounting Officer, Controller and Treasurer
since October 1997. From October 1996 to September 1997, Mr. Navarro was the
Account Manager at eCommlink, Inc. From August 1994 to September 1996, Mr.
Navarro was the Manager of Planning and Analysis for Kelsey Seybold, P.C., a
healthcare clinic. From August 1989 to July 1994, Mr. Navarro was a manager with
KPMG Peat Marwick.
J. WILLIAM BOYAR has been a director of the Company since August 1997. Mr.Boyar
has been a shareholder in the firm of Boyar, Simon & Miller, P.C. since 1990.
Boyar & Miller, P.C. represents the Company as outside counsel on various
legal matters. Mr. Boyar has been practicing corporate and real estate law
since 1976. Mr. Boyar received his undergraduate degree from Tulane University,
and his Law Degree from Tulane University School of Law.
DANIEL DORNIER has served on the Company's Board of Directors since September
1998. From August 1991 to June 1993, Mr. Dornier was an Investment Banker with
SBC-Warburg Dillon Reed. From June 1993 to June 1995, he served as a Private
Investment Manager for various companies owned by the Dornier family. From 1995
to the present, Mr. Dornier has served as President of Dornier Capital Advisors,
where he manages investment portfolios for high net worth individuals in Europe
and in the United States.
JAMES S. COCHRAN, M.D. has served on the Company's Board of Directors since
February 1999. Since 1978, Dr. Cochran has been practicing medicine 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 the former
president of the medical/dental staff of Presbyterian Hospital of Dallas and is
Chairman of the Urology Process Improvement Committee.
N. RUDY GARZA has been a director of the Company since September 1999. From 1983
to 1996, Mr. Garza served as Vice President and Chief Executive Officer and as a
civil and environmental engineering company and was involved in mergers,
acquisitions and the raising of equity. In 1996, Mr. Garza founded G-51 Capital,
LLC and has served as its President since then. Mr. Garza is a seed and early
stage venture capitalist specializing in Texas centric Internet and software
companies.
There are no family relationships among the directors and officers of the
company. None of the directors receive any compensation or reimbursement of out-
of-pocket expenses to attend board meetings. However, all board members are
eligible to receive stock options pursuant to the 1997 Incentive Plan.
Each officer of the Company serves at the discretion of the Board of
Directors, subject to the terms of his employment agreement, if any, and is
eligible to receive stock options pursuant to the 1997 Incentive Plan. See Item
10 "Executive Compensation" below, for a discussion of the Company's employment
agreements.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the equity
securities of the Company to file initial reports of ownership and reports of
changes in ownership of the Common Stock with the Securities and Exchange
Commission. Officers, directors and greater than 10% shareholders are required
to furnish the Company with copies of all Section 16(a) reports they file. The
Company is aware that some 10% shareholders, officers and directors have been
late in filings.
4
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary of Compensation. The following table provides certain summary
information concerning compensation paid or accrued during the fiscal years
ended December 31, 1999, 1998 and 1997 to the Company's Chief Executive Officer
and to each of the other most highly compensated executive officers during the
fiscal year ended December 31, 1999 (the "Named Executive Officers"):
Summary of Compensation Table:
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation
------------------------------------------------------------- ------------------------------------------
Securities
Name and Principal Other Annual Under-lying All Other
Position Year Salary ($) Bonus ($) Compensation ($) Options/Sars (#) Compensation ($)
- ------------------------ ------ ------------ --------- -------------------- ------------------- ------------------
<S> <C> <S> <C> <C> <C> <C>
Eric A. Black (3) 1999 104,167 25,000 1,500,000 (4)
Chief Executive Officer
Timothy J. Connolly 1999 250,000 109,250
Chairman of the Board 1998 224,417 (5) 11,605 (2)
1997 157,833 24,399 9,433 (2) 500 (7)
Robin P. Ritchie (3) 1999 161,665
Chief Operating Officer 1998 50,000 300,000 (6)
H. Russell Douglas 1999 178,675 15,020
Chief Technology Officer 1998 188,401 (5) 9,000 (2) 110,000
1997 113,500 7,500 (2) 100,500 (7)
Richard A. Cabrera (3) 1999 103,979 25,000 210,000 (4)
Chief Financial Officer
Milton A. Speigelhaur (3) 1999 159,842 150,000 (6)
Vice-President of 1998
Marketing and Sales
Mark E. Navarro 1999 72,500 4,925
Controller 1998 72,500
1997 15,105
</TABLE>
(1) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for each executive officer.
(2) This amount includes commissions and car allowance, if pertinent.
(3) On December 20, 1999, Mr. Black, Mr. Ritchie, Mr. Cabrera, and Mr.
Spiegelhauer agreed to terminate their employment contracts with the
Company upon the Company's reorganization.
(4) These options were granted in connection with the employment contracts of
Mr. Black and Mr. Cabrera. The vested and unvested shares of these
options were forfeited upon the termination of their employment contracts.
(5) This amount includes 32,143 and 21,429 shares of common stock issued to
Timothy J. Connolly and H. Russel Douglas, respectively, in lieu of cash
salaries. The value of this amounted to $76,001 and $51,001, respectively.
(6) These options were granted in connection with the employment contracts of
Mr. Ritchie and Mr. Spiegelhauer. The unvested shares of these options
were forfeited upon the termination of their employment contracts. With
respect to the vested shares, the Company agreed to extend the exercisable
period for an additional three years from December 20, 1999.
(7) The Company granted options to purchase 500 shares of common stock
in December of 1997 as a holiday bonus.
5
<PAGE>
Option Grants/SAR in Last Fiscal Year:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------------------------------
Number of % of total
securities options/SAR's
underlying granted to
option/SAR's employees in Exercise or base
Name granted fiscal year price ($/share) Expiration date
- ---------------------- ---------------------- --------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
Eric A. Black (1) 1,500,000 71.14% $1.03 8/2/09
Richard A. Cabrera (1) 210,000 9.96% $1.25 4/15/09
</TABLE>
(1) On December 20, 1999 Erick A. Black's and Richard A Cabrera's employment
contracts terminated in connection with the Company's reorganization. Upon
termination, the Company and Mr. Black and Mr. Cabrera mutually agreed to
forfeit the vested and unvested shares of the option grants.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year Ended Option
Values.
The following table provides certain information with respect to
options exercised during the fiscal year ended December 31, 1999 by the Chief
Executive Officer and each of the Named Executive Officers listed in the
preceding tables:
<TABLE>
<CAPTION>
Number of Securities Underlying
Shares Unexercised Options at Fiscal Value of Unexercised In-the-Money
Acquired on Value Year-End (#) Options at Fiscal Year-End ($)
Name Exercise (#) Realized ($) Exercisable Un-Exercisable Exercisable (1) Un-exercisable (1)
- --------------------- ------------- ---------------- --------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Black (2) -- -- -- -- -- --
Timothy J. Connolly -- -- 333 167 -- --
Robin P. Ritchie (3) -- -- 140,625 --
H. Russel Douglas -- -- 100,000 110,000 -- --
333 167 -- --
Richard A. Cabrera (2) -- -- -- -- -- --
Milton A. Spiegelhaur (3) -- -- 66,667 -- -- --
Jackson L. Nash -- -- -- -- --
Mark E. Navarro -- -- 33,000 10,000
</TABLE>
(1) The value for these options is not presented because the fair market value
price of the Company's common stock is less than the option price.
(2) During 1999, Eric A. Black and Richard A. Cabrera were granted 1,500,000
and 210,000 shares, respectively, in connection with their employment
agreements. On December 20, 1999, Mr. Black's and Mr. Cabrera's contracts
terminated as the result of the Company's reorganization. Upon
termination, the Company and Mr. Black and Mr. Cabrera mutually agreed to
forfeit the vested and unvested shares of the option grants.
(3) On December 20, 1999, Robin P. Ritchie's and Milton A. Spiegelhauer's
employment contracts terminated in connection with the Company's
reorganization. Upon termination, the Company and Mr. Ritchie and Mr.
Spiegelhauer mutually agreed to forfeit the unvested shares of the option
grants. With respect to the vested shares, it was mutually agreed to
extend the life of these for an additional three years from December 20,
1999.
6
<PAGE>
EMPLOYMENT AGREEMENTS WITH KEY PERSONNEL
On July 1, 1997, the Company entered into an employment agreement with
Timothy J. Connolly, the Company's Chief Executive Officer. On August 2, 1999,
the employment agreement was amended to reflect Mr. Connolly's sole position as
Chairman of the Board. As of December 20, 1999, Mr. Connolly was also named
President of the Company. The initial term of the contract expires December 31,
2001. Thereafter, the contract will be automatically extended for successive
one-year periods unless terminated by Mr. Connolly or the Company. According to
the agreement, Mr. Connolly will receive an annual base salary of $250,000 for
2000. On February 1, 2000 and effective as of January 1, 2000, the Company and
Mr. Connolly amended his employment agreement again to allow him to receive a
portion of his $250,000 base salary and unreimbursed expenses for 2000, up to a
maximum of $186,750, in the Company's common stock at a 35% discount to the
current market price. Further, the amended employment agreement allows Mr.
Connolly, at his option, to be paid additional shares of common stock in lieu of
his future cash salary on terms agreeable to Mr. Connolly and the Company. In
addition to the base salary, Mr. Connolly is entitled to receive an annual
bonus. The annual bonus is determined at the beginning of each year and is
contingent upon Mr. Connolly's ability to meet certain performance criteria. Mr.
Connolly is entitled to receive 100% of the base salary under his contract if a
change of control occurs as defined in his contract.
On August 2, 1999, the Company entered into an employment agreement with
Eric A. Black, the Company's former Chief Executive Officer. This employment
agreement was terminated effective December 20, 1999, pursuant to the terms of
the Asset Purchase Agreement between the Company, Lonestar Medical Transcription
USA, Inc., L&H Investment Company, N.V. and Lernout & Hauspie Speech
Productions, N.V. dated effect as of December 20, 1999 (the "Asset Purchase
Agreement").
On April 1, 2000, the Company entered into an employment agreement with H.
Russel Douglas, the Company's Chief Technology Officer. The initial term of the
contract is to expire on September 30, 2000. According to the agreement, Mr.
Douglas will receive an annual base salary of $131,247 for 2000. In addition to
the base salary, Mr. Douglas is entitled to receive a quarterly bonus. The
quarterly bonus is equal to 6-1/4% of the base salary and is contingent upon Mr.
Douglas' ability to meet certain performance criteria. In accordance with the
agreement, Mr. Douglas is also entitled to participate in the Company's 1997
Incentive Plan.
On May 1, 1997, the Company entered into an employment agreement with
William T. Kennedy, the Company's former Chief Financial Officer. On April 1,
1999, Mr. Kennedy resigned from the Company to pursue other interests.
On April 15, 1999, the Company entered into an employment agreement with
Richard A. Cabrera, the Company's former Chief Financial Officer. This
employment agreement was terminated effective December 20, 1999, pursuant to the
terms of the Asset Purchase Agreement.
7
<PAGE>
On August 31, 1998, the Company entered into an employment agreement with
Milton A. Spiegelhauer as the Company's VP of Sales and Marketing. The initial
term of the contract was to expire on August 31, 2001. During the term of the
agreement, Mr. Spiegelhaur received an annual base salary of approximately
$141,000. On December 20, 1999, the employment agreement was terminated. On
February 25, 2000, Mr. Spiegelhaur was issued 200,440 shares of the Company's
common stock for payment of the remainder of his six months severance payable
pursuant to the terms of his employment agreement.
On August 1, 1998, the Company entered into an employment agreement with
Robin P. Ritchie as the Company's Chief Operating Officer. The term of the
agreement is effective until terminated by either the employer or employee. The
initial term of the contract was to expire on July 31, 2002. During the term of
the agreement, Mr. Ritchie received an annual base salary of $150,000. On
December 20, 1999, the employment agreement was terminated. On March 1, 2000,
Mr. Ritchie was issued 197,802 shares of the Company's common stock for payment
of the remainder of his six months severance payable pursuant to the terms of
his employment agreement.
On February 14, 2000, the Company entered into a letter agreement with
Jackson L. Nash as the Company's Chief Financial Officer. The term of the
agreement is effective until terminated by either the employer or the employee.
The contract provides for payment on an hourly basis for the performance of
certain tasks.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, derived from the
Company's transfer records, filings with the Securities and Exchange Commission
and other public information, regarding the beneficial ownership of the
Company's Common Stock as of April 1, 2000 by: (i) each person who is known by
the Company to beneficially own more than five percent of the outstanding shares
of Common Stock, (ii) each of the named executive officers and directors, and
(iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK BENEFICIAL OWNERSHIP %
NAME AND ADDRESS OF BENEFICIAL OWNERS (1) BENEFICIALLY OWNED (2) OF SHARES
- -------------------------------------------- ---------------------------------- ------------------------
<S> <C> <C>
Greenwhich AG 6,756,483 (3) 18.22%
25 Field Point Drive
Greenwhich Connecticut 06830
Voice Technologies Partners Ltd 5,590,000 (4) 14.37%
Entrepreneurial Investors Limited 5,545,939 14.26%
Citibank Building, Second Floor
East Mall Drive
P.O. Box F-42544
Freeport, Bahamas
Timothy J. Connolly 4,715,431 (4) (5) 12.03%
Jan Carson Connolly 4,715,431 (4) (6) 12.03%
Daniel Dornier 2,185,994 (7) 5.60%
25 Field Point Drive
Greenwhich, Connecticut 06830
H. Russel Douglas 1,556,980 (4) (8) 3.98%
Rudy Garza 191,667 (9) 0.49%
401 West 29th Street
Austin, Tx 78705
J. William Boyar 181,667 (10) 0.47%
Boyar, Simon, & Miller
4265 San Felipe, Suite 1200
Houston, Texas 77027
James S. Cochran, M.D. 98,167 (11) 0.25%
Urology Specialist & Associates
8210 Walnut Hill Lane #208
Dallas, Texas 75231
Jackson L. Nash, CPA 20,833 (12) 0.05%
3131 Tangley
Houston, Tx 77005
</TABLE>
8
<PAGE>
(1) Except as otherwise indicated, the addresses for the above-referenced
persons are at the Company.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchanges Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of April 25, 2000 are
deemed outstanding. Such shares, however, are not deemed outstanding for
the purposes of computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in the table has
sole voting and investment power with respect to the shares set forth
opposite such stockholder's name.
(3) Includes 400,000 shares of Common Stock issuable upon exercise of currently
exercisable warrants in connection with the Bridge Loan Agreement.
(4) Mr. Connolly has voting and disposition control over the shares of Common
Stock owned by Voice Technologies Partners, L.P., by virtue of owning all
of the outstanding stock of Voice Technologies Management Corp., the
managing general partner of Voice Technologies Partners, L.P. Ms. Carson
Connolly and Mr. Douglas also own partnership interests in Voice
Technologies Partners, Inc., either in their individual capacities or
through other entities in which they have ownership interests.
(5) Includes 176,662 shares of Common Stock issuable upon exercise of currently
exercisable warrants in connection with the Bridge Loan Agreements and
employee and director stock options. Also includes 2,077,712 shares of
Common Stock and warrants beneficially owned by his wife, Jan Carson
Connolly.
(6) Includes 60,416 shares of Common Stock issuable upon exercise of currently
exercisable warrants in connection with the Bridge Loan Agreement. Also
includes 2,637,719 shares of Common Stock beneficially owned by her
husband, Timothy J. Connolly.
(7) Includes 91,111 shares of Common Stock issuable upon exercise of director
stock options. In addition, Mr. Dornier beneficially owns 1,013,472 shares
and 60,000 shares of the common stock and warrant holdings, respectively,
of Greenwhich AG.
(8) Includes 215,333 shares of Common Stock issuable upon exercise of employee
stock options.
(9) Includes 191,667 shares of Common Stock issuable upon exercise of currently
exercisable warrants in connection with Bridge Loan Agreements and director
stock options.
(10) Includes 171,666 shares of Common Stock issuable upon exercise of director
stock options.
(11) Includes 98,167 shares of Common Stock issuable upon exercise of director
stock options.
(12) Includes 20,833 shares of Common Stock issuable upon exercise of employee
options.
9
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 22, 2000, the Company entered into a one-time oral agreement
with N. Rudy Garza one of the Company's Directors. The agreement included a fee
of $10,000 to provide consulting services relating to the review of the
Company's business plan.
On September 30, 1998, the Company entered into a "Value Added Reseller
Agreement" ("VAR Agreement") with Lernout & Hauspie Speech Products (L&H). L&H
develops and licenses dictation software for use in the health care industry.
The VAR Agreement gives the Company rights to a world-wide non-exclusive license
of certain software products developed by L&H. On December 27, 1998, this
agreement was amended to include additional requirements. In accordance with the
amended agreement, the Company agreed to prepay L&H $1,000,000 (in two
installments) for software licenses. Of this amount, $650,000 was paid on
December 31, 1998 and the balance of $350,000 was paid on March 31, 1999. The
entire prepaid amount of $1,000,000, of which $560,000 is classified as long-
term, is reflected in the December 31, 1998 financial statements.
During 1999 the Company made additional payments of $300,000. During late
1999, the Company shifted its business focus, discontinuing development of the
license related technology. The vendor agreed to exchange the license related
payments for rights to produce and resell 3,291 units of a completed market
transcription product. At December 31, 1999 prepaid software resale rights are
stated at estimated resale value less disposal costs, resulting in a charge to
1999 operations of $329,100.
During the month of December, 1998, the Company entered into various Bridge
Loan Agreements (the "1998 Bridge Loans") with certain officers, a former
employee and a third party. The aggregate balance of the 1998 Bridge Loans
amounts to $335,333, and bear interest at 12% per annum. The 1998 Bridge Loans
plus accrued interest are payable upon the earlier of six months following the
date of the note or three business days following the receipt of $2,000,000 in
equity funding. On December 31, 1998, the Company received $2,000,000 in equity
funding and paid the 1998 Bridge Loans in January, 1999, plus accrued interest,
in accordance with the agreement. In connection with the 1998 Bridge Loans, the
Company granted warrants to purchase 355,495 shares of Common Stock resulting in
approximately $122,000 of finance cost.
On December 31, 1998, the Company entered into a Series D Preferred Stock
and warrant purchase agreement to sell up to 5,000 share of Series D Convertible
Preferred Stock to LHIC. Two Lernout & Hauspie executives, Jo Lernout and Thomas
Denys, were appointed to the Board of Directors on February 8, 1999 and resigned
as of December 20, 1999, pursuant to the Company's reorganization. The
preferred shares have a par value of $.10 and were priced at $1,000 per share.
This agreement is broken down into three closings of 2,000 shares, 1,000 shares
and 2,000 shares. Each closing was subject to the Company meeting certain
financial and/or operational targets. The first closing of 2,000 shares was
completed on December 31, 1998. The second closing was completed on January 14,
1999, and the final closing was completed on March 15, 1999. As of December 20,
1999, the shares were cancelled pursuant to an Asset Purchase Agreement between
the Company and the LHIC among others.
During 1999, the Company paid Boyar & Miller, P.C. a total of $450,905 in
legal fees and expenses for legal work performed as outside counsel to the
Company. J. William Boyar, a director of the Company, is a shareholder, director
and the Chairman of Boyar & Miller. The payments represented 8.56% of Boyar &
Miller's gross revenues for 1999.
On August 18, 1999, the Company entered into a Series E Preferred Stock
purchase agreement to sell up to 2,000 shares of Series E Convertible Preferred
Stock for $2,000,000 to Greenwich, AG of which Daniel Dornier is a director. The
preferred shares have a par value of $.10 and were priced at $1,000 per share.
10
<PAGE>
Pursuant to an Asset Purchase Agreement dated January 7, 2000 and effective
as of December 20, 1999, the Company sold the net assets and contracts of its
medical transcription service operations based in New York, New Jersey, Houston,
Texas and Manila the Philippines for approximately $8.5 million to Lonestar
Medical Transcription USA, Inc. ("Lonestar"), a Delaware corporation and a
wholly-owned subsidiary of L&H Investment Co., N.V., a Belgium company ("LHIC"),
and to LHIC, who was a preferred stockholder in the Company prior to the
consummation of this transaction. Additionally, Lonestar and LHIC will obtain
non-exclusive rights to the Company's VoiceCommander 99 code. Two LHIC
executives, Jo Lernout and Thomas Denys, were appointed to the Board of
Directors on February 8, 1999 and resigned as of December 20, 1999 pursuant to
the Company's reorganization.
In November 1999, the Company entered into a Convertible Promissory Note
and Warrant Purchase Agreement, as amended, with a G-51 Capital an affiliate of
N. Rudy Garza. The note has a stated principal amount of $250,000 and bears
interest at 9%. The note is secured by a security interest in certain assets of
the Company. The note is convertible into Common Stock at a price of $.37
common share. The conversion price is adjustable downward based on the pricing
of future common stock issues or issuances of subsequent convertible issues with
more favorable conversion terms. Contingent warrants may be issuable as a
result of future equity transactions.
The $8.5 million purchase price consisted of the forgiveness of a $2.0
million promissory note held by Lernout & Hauspie Speech Products, N.V., a
Belgium company and an affiliate of LHIC ("LHSP"), the forgiveness of a $1.5
million promissory note held by LHIC, and the retirement of $5.0 million in
Series D Preferred Stock held by LHIC. The Company will also convert warrants
held by LHIC to purchase approximately 3.5 million shares of the Company's
common stock at $1.25 per share into warrants to purchase 800,000 shares of the
Company's common stock at $0.37 per share.
In addition to the purchase price, Lonestar agreed to assume certain
employment contracts including those of Eric A. Black, President and Chief
Executive Officer of the Company, and Richard A. Cabrera, Chief Financial
Officer and Secretary of the Company. Mr. Black and Mr. Cabrera resigned their
positions at the Company, effective as of December 20, 1999. The Company agreed
to release Mr. Black and Mr. Cabrera from the non-compete clauses of their
employment contracts.
On January 20, 2000, we entered into a Stock Exchange Agreement with the
holder of the our Series A Preferred Stock, Entrepreneurial Investors, Ltd.
("EIL"), to exchange their shares of preferred stock for shares of Series G
Preferred Stock based on the primary terms set forth in a Letter Agreement dated
January 7, 2000. Those terms included the Series G Preferred Stock having a
reduced conversion price with a mandatory conversion provision that requires the
Series G shares to be converted into our common stock within seven days of their
issuance. The effective result being the resetting of the conversion price for
the Series A Preferred Stock from $1.48 to $.30, followed by the prompt
conversion of the preferred stock into our common stock. On March 23, 2000, EIL
converted its 186,000 of Series A Preferred Stock into 14,880 shares of Series G
Preferred Stock. Upon conversion, EIL also received stock dividends amounting
to 347.166 shares of Series G Preferred Stock. On March 30, those 15,227.166
shares of Series G Preferred Stock converted into 5,075,722 shares of our common
stock.
On February 11, 2000, we entered into a Stock Exchange Agreement with the
holders of the our Series C Preferred Stock, which includes Daniel Dornier and
certain of his relatives (the "Series C Investors") to exchange their shares of
preferred stock for shares of Series G Preferred Stock based on the primary
terms set forth in a Letter Agreement dated January 7, 2000. Those terms
included the Series G Preferred Stock having a reduced conversion price with a
mandatory conversion provision that requires the Series G shares to be converted
into our common stock within seven days of their issuance. The effective result
being the resetting of the conversion price for the Series C Preferred Stock
from $1.00 to $.30, followed by the prompt conversion of the preferred stock
into our common stock. On March 1, 2000 and March 23, 2000 the Series C
Investors converted their 153,538 shares into 15,353.8 shares of Series G
Preferred Stock. Upon conversion, the holders of the Series C Preferred Stock
received stock dividends amounting to 287.34 shares of Series G Preferred Stock.
On March 8, 2000, 14,516.68 shares of those Series G Preferred Stock were
converted into 4,838,894 shares of our common stock, and on March 30, 2000, the
remaining 1,124.458 were converted into 374,819 shares of our common stock.
On February 11, 2000, we entered into a Stock Exchange Agreement with the
Greenwich AG to exchange its shares of Series E Preferred Stock for shares of
Series G Preferred Stock based on the primary terms set forth in a Letter
Agreement dated January 7, 2000. Those terms included the Series G Preferred
Stock having a reduced conversion price with a mandatory conversion provision
that requires the Series G shares to be converted into our common stock within
seven days of their issuance. The effective result being the resetting of the
conversion price for the Series E Preferred Stock from $1.00 to $.30, followed
by the prompt conversion of the preferred stock into our common stock. On March
23, 2000, Greenwich AG conversion, Greenwich AG received stock dividends
amounting to 269.448 shares of Series G Preferred Stock. On March 8, 2000,
those 20,269.448 shares of Series G Preferred Stock were converted into
6,756,483 shares or our common stock.
The Company's Series B Convertible Preferred Stock was converted into
approximately 570,000 shares of the Company's Common Stock as required by the
Certificate of Designation as of March 11, 2000. The 570,000 shares includes
accrued dividends through date of conversion.
11
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act and Rule 12b-15
promulgated, the Registrant caused this Amendment No. 1 to this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
May 1, 2000
APPLIED VOICE RECOGNITION, INC.
By: /s/ Timothy J. Connolly
__________________________
Timothy J. Connolly
President and Chairman
12
