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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2000
OR
[ ] 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.
(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)
1770 St. James, Suite 116, Houston, TX 77056
(Address of principal executive offices)
(713) 621-3131
(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 August 14, 2000: 40,393,293
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES [ ] NO [X]
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APPLIED VOICE RECOGNITION, INC.
DBA E-DOCS.NET
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 2000..................... 4
Consolidated Statements of Operations for the three and six months
ended June 30, 2000 and June 30, 1999.............................. 5
Consolidated Statements of Cash Flow for the six months ended
June 30, 2000 and June 30,1999..................................... 6
Notes to Unaudited Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings Proceedings...................................... 12
Item 2. Changes in Securities.............................................. 12
Item 5. Other Information.................................................. 13
Item 6. Exhibits and Reports on Form 8-K................................... 13
Signatures................................................................. 14
2
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PART I.
FINANCIAL INFORMATION
This report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this report are forward looking
statements. Such forward looking statements include, without limitation,
statements as to estimates, expectations, beliefs, plans, and objectives
concerning the Company's future financial and operating performance, and as
included in "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. The forward looking statements are subject to
assumptions and beliefs based on current information known to the Company and
factors that are subject to uncertainties, risk and other influences, which
are outside the Company's control, and could yield results differing
materially from those anticipated. The ability to achieve the Company's
expectations is contingent upon a number of factors which include (i)
availability of sufficient capital and capital market conditions, (ii) the
Company's ability to produce and market its products in the healthcare
transcription industry, (iii) effect of any current or future competitive
products, (iv) ongoing cost of research and development activities, and (v)
the retention of key personnel. "e-DOCS.net(TM)" is our trademark. This
report may contain trademarks and service marks of other companies.
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ITEM 1. FINANCIAL STATEMENTS
APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
DBA E-DOCS.NET
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
ASSETS ------------- -----------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 399,340 $ 53,529
Accounts receivable, net of allowance of $74,900 478,049 258,668
Other receivable - 747,137
Deposits and prepaid expenses 3,550 6,074
Deferred expense 101,466 -
------------ ------------
TOTAL CURRENT ASSETS 982,405 1,065,408
PROPERTY AND EQUIPMENT, NET 648,019 858,492
OTHER ASSETS
Prepaid software rights 970,900 970,900
EPN software development costs 207,320 -
Other intangibles, net 422,835 447,310
Goodwill, net 488,881 504,899
------------ ------------
TOTAL OTHER ASSETS 2,089,936 1,923,109
------------ ------------
TOTAL ASSETS $ 3,720,360 $ 3,847,009
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payable $ 343,770 $ 365,639
Accrued expenses 915,649 1,167,416
Stock dividend payable - 246,774
Current portion of preferred stock payable 473,543 474,000
Note payable to related party 250,000 250,000
Current portion of capital lease obligation 71,915 64,354
Current portion of long term debt 58,333 65,977
------------ ------------
TOTAL CURRENT LIABILITIES 2,113,210 2,634,160
Preferred stock payable, net of current portion 327,894 683,460
Capital lease liability, net of current portion 241,699 279,670
Long-term debt, net of current portion 58,334 141,091
------------ ------------
TOTAL LIABILITIES 2,741,137 3,738,381
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 2,000,000
shares authorized
Series B - - 168
Series 2 - 297 50
Common stock, $.001 par, 50,000,000 shares
authorized, 39,616,793 outstanding 39,617 35,269
Paid in capital 20,160,716 18,199,066
Accumulated deficit (19,221,407) (18,125,925)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 979,223 108,628
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,720,360 $ 3,847,009
============ ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
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APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
DBA E-DOCS.NET
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
-------- ---------- ----------- --------------
Revenue:
Medical Transcription $614,016 $1,131,741 $ 1,221,390 $ 1,880,910
Consulting, hardware, software and related - - - 469,949
-------- ---------- ----------- -----------
TOTAL REVENUE 614,016 1,131,741 1,221,390 2,350,859
Cost of Sales:
Medical Transcription 466,225 795,170 938,510 1,295,915
Consulting, hardware, software and related - - - 52,567
-------- ---------- ----------- -----------
GROSS MARGIN 147,791 336,571 282,880 1,002,377
Operating expenses:
Marketing and sales 14,571 179,750 19,436 349,042
General and administrative 720,548 2,414,192 1,228,954 3,939,519
Research and development - 232,624 13,172 495,865
-------- ---------- ----------- -----------
OPERATING LOSS (587,328) (2,489,995) (978,682) (3,782,049)
Other income (expense):
Other income (expense) 74 (66,002) (1,256) (58,399)
Interest income 7,823 8,873 15,448 20,834
Interest expense (56,368) (243,023) (130,992) (289,856)
--------- ----------- ------------ -----------
TOTAL OTHER INCOME (EXPENSE) (48,471) (300,152) (116,800) (327,421)
--------- ----------- ------------ -----------
Net loss $(635,799) $(2,790,147) $(1,095,482) $(4,109,470)
========= =========== =========== ===========
Statement of comprehensive loss:
Comprehensive loss $(635,799) $(2,790,147) $(1,095,482) $(4,109,470)
========= =========== =========== ===========
Basic and diluted loss per share $ (0.02) $ (0.18) $ (.03) $ (0.27)
========= =========== =========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
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APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
DBA E-DOCS.NET
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,095,482) $(4,109,740)
Adjustments to reconcile net loss
to cash provided by (used in) operating activities:
Accretion of interest on preferred stock payable 67,520 207,077
Depreciation and amortization 164,819 285,661
Amortization of deferred compensation 125,426 -
Other 38,445
Changes in operating assets and liabilites:
Accounts receivable (219,381) (760,142)
Other receivable 747,137 -
Other 2,524 192,763
Accounts payable and accruals 79,336 (332,371)
----------- -----------
Net cash provided by (used in) operating activites (128,101) (3,813,295)
CASH FLOW FROM INVESTING ACTIVITIES:
Cash paid for acquisitions - (736,857)
Purchase of equipment (40,261) (321,533)
Capitalized software development costs (207,320) -
--------- ---------
Net cash used by investing activities (247,581) (1,058,390)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock - 2,700,000
Proceeds from issuance of debt and warrants 1,742,529
Proceeds from the exercise of common stock options
and warrants 842,304 10,000
Debt and capital lease repayment (120,811) (600,773)
----------- -----------
Net cash provided by financing activities 721,493 3,851,756
NET INCREASE (DECREASE) IN CASH 345,811 (1,019,929)
CASH AND CASH EQUIVALENTS:
Beginning of period 53,529 1,377,913
----------- -----------
End of period $ 399,340 $ 357,984
=========== ===========
</TABLE>
6
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APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
dba e-DOCS.net
Footnotes to the Financial Statements
(unaudited)
1. 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. All
significant intercompany accounts and transactions have been eliminated. 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,
1999, as reported in the Form 10-KSB, have been omitted.
The Company has incurred significant losses and cash deficits since inception.
The Company has been dependent upon outside financing to develop its software
products and to provide working capital. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
Beginning in the fourth quarter of 1999, the Company suspended its acquisitions
program and focused on restructuring the core operations of the transcription
companies acquired. As of December 31, 1999, the Company had reduced its
corporate head count from 35 to 7 and had sold its operations in Manila, New
York, New Jersey and a portion of its Houston operations. These actions reduced
the monthly losses by approximately $300,000, while reducing revenue by $250,000
per month.
Since the Company's announcement of its restructuring on January 7, 2000,
liquidity has significantly improved. Gross revenues averaging $200,000 per
month have been achieved, and warrants and options have been exercised,
resulting in net proceeds to the Company of approximately $842,000 as of June
30, 2000. Management believes current resources and additional financing
commitments are adequate to fund the development costs of the e-Docs Physician's
Network (EPN) as well as the Company's working capital needs through December
31, 2000.
It will be necessary for the Company to raise additional capital for the rollout
of EPN intended to occur in the fourth quarter of 2000. While management is
confident capital is available, there are no assurances that the necessary
capital can be obtained.
Certain reclassifications have been made to prior year balances in order to be
consistent with current year presentation.
2. E-DOCS PHYSICIAN NETWORK (EPN)
The e-DOCS Physician Network (EPN) is a secure, browser based document handling
system for physician offices, currently under development by e-DOCS.net. It
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APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
dba e-DOCS.net
Footnotes to the Financial Statements
(unaudited)
will encrypt, store and retrieve patient records, both medically transcribed and
the Physicians' own hand written notes. The EPN will be provided on an
Application Service Provider basis for a quarterly fee paid by the Physician. A
selection of other services requested by Physicians and their staff will also be
available on the EPN.
The Company has a contract with Thought Interactive of Austin, Texas to develop
the EPN. The Coding has been completed, with Beta testing scheduled for
September and general release in October. The Company is negotiating contracts
with national service providers to the medical community. Agreements completed
include: VERISIGN to provide internet trust services for secure e-commerce;
PROFESSIONAL MEDICAL Insurance Services (PMIS), which would allow EPN members to
receive discounts of up to 25% on their malpractice insurance; MEDCAREERS.COM,
which features the largest online database of healthcare jobs on the internet;
FIRST BANK OF BEVERLY HILLS to provide an array of services to secure and
protect EPN transactions; and MAPQUEST and ACCUWEATHER.
3. STOCKHOLDERS' EQUITY
Effective as of March 11, 2000 the then remaining 920 shares of Series B
Preferred Stock and related accrued dividends of $96,759 were automatically
converted into 560,766 shares of common stock.
On February 23, 2000, the Company issued 1,911 shares of Series 2 Preferred
Stock as planned deferred purchase price payments for transcription company
acquisitions. These shares were subsequently converted into 115,755 shares of
Common Stock.
In May 2000, the Company issued 163,583 shares of common stock as required by
the Forebearance Agreement.
In May 2000, the Company issued and held in escrow 2,333 shares of Series II
Preferred Stock. The shares were part of the planned deferred payments for the
acquisition of A Word Above, Inc.
In May 2000, the Company issued 572,132 shares of common stock to Lonestar
Medical Transcription USA, Inc. in a cashless exercise of a warrant to purchase
800,000 shares of the Company's common stock.
In May 2000, the Company issued 58,000 shares of common stock as contingent
purchase price for the acquisition of PRN Transcription, Inc.
All other change in securities discussed in Part II, Item 1 had previously been
reflected in the December 31, 1999 financial statements included in Form 10KSB.
4. COMMITMENTS AND CONTINGENCIES
A Registration Statement of Form SB-2 became effective on August 12, 2000,
registering for resale 21,210,176 shares of the Company's common stock. This
included the shares required to be registered pursuant to various agreements,
including an extension agreement with Cornell Transcription, Inc.
5. EARNINGS PER SHARE
Basic earnings per common share is based on the weighted average number of
common shares outstanding during the period, while diluted earnings per common
share considers all potentially dilutive securities that were outstanding during
the period. The Company has potentially dilutive securities outstanding
including stock options, warrants, convertible debt and convertible preferred
stock. Both basic and diluted earnings per common share are the same for each of
the periods presented as inclusion of such potentially dilutive securities was
antidilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
e-DOCS' current revenue is derived from the out-sourced medical transcription of
patient records for physicians, clinics and hospitals through its wholly owned
subsidiary e-DOCS Health Care Information Systems ("EDOCS HCIS"). Our current
customer base includes approximately 1,200 physicians in six states.
After ten months of usage by physicians, we recognized that the voice
recognition component of our previous product, VoiceCOMMANDER 99 was not
generating the cost and labor savings previously believed possible. However, the
market clearly indicated a preference for a browser-oriented tool for Internet-
based transcription and medical records storage services. Utilizing the
experience gained from our first Internet-based service, VoiceCOMMANDER 99, we
have begun development of our next generation browser-based service, titled
e-DOCS Physician Network.
While we continue to provide outsource medical transcription services, we are
developing the EPN, through our wholly-owned subsidiary the e-DOCS Physician
Network, Inc., as a medically centric, business-to-business application service
provider. The EPN will be designed to provide a secure, browser-based document
handling solution directed at the independent transcription company and the
nation's 475,000 clinical physicians, 70% of whom practice in groups of five or
less. We are utilizing our experience in previously acquiring eight independent
transcription companies to provide a common technology platform to these
independent, capital-deficient businesses.
The EPN will be designed to become the standard technology platform for the
independent transcription company and the individual practicing physician. It is
being developed in response to a need identified by our existing customer base
for a simple, secure document handling solution to the daily needs of the
medical services community.
The EPN is being designed to provide an efficient Internet-based delivery system
for medical transcription documents and an infrastructure for capturing,
organizing, storing and retrieving medical information. The services may include
medical transcription and storage, training, legacy system integration, and the
electronic storage and retrieval of the physician's hand-written notes of a
patient encounter. The EPN will be designed to simplify how physicians interact
with medical information, without attempting to change their current practice
methodology. It will also support opportunities for other physician interests
and alliances into content, services and products.
We intend to provide the services of the EPN on a monthly subscription basis.
Medical transcription companies will pay a basic monthly fee for maintenance of
their web page on the system. This will entitle the transcription company to
deliver its medically transcribed documents through the EPN browser, allowing
physicians to review their transcription online and digitally sign the document.
It will be available all of the time from any location upon authorization of the
user.
The basic browser based service will be provided to the physician at no cost.
The EPN will offer secure, long-term, HIPAA-compliant document storage for a
monthly subscription fee. Other services anticipated to be provided include a
basic online medical record, including the capture of the physician's
handwritten patient notes without scanning. Our study of 42 practices throughout
Texas and Colorado showed that only one in fourteen physicians currently use an
electronic medical record entry system. The remainder rely on handwritten
patient notes. Our research indicates many physicians prefer a
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simple document solution that does not alter the way the physician practices
medicine. Additionally, cost reductions in medicine demand an approach based on
usage, rather than large, up-front investments.
We believe that the important competitive advantage of the EPN will be its
presentation of information to the physician rather than requiring the physician
to search the net to find information and services. A medical search engine
button will always be available adjacent to the patient record, allowing the
physician instant access to this resource at all times. We further intend to
enter into strategic relationships with well-known providers of other services,
such as banking, medical and office supplies, and an upgrade path to a more
sophisticated medical record, if desired by the physician.
Furthermore, the EPN will provide enabling infrastructure and services for
secure, online medical transactions. It will provide an integrated service
solution designed specifically for healthcare that will include roaming user
credentials, complete audit trail, fraud detection and directed delegation of
authority to medical records. Thus, the EPN is being designed to be a secure
facility with "state of the art" protection.
RESULTS OF OPERATIONS
Due to the evolution of our business strategy, we believe that our historical
results of operations for the periods presented may not be directly comparable.
Further, we believe the historical results of operations do not fully reflect
the operating efficiencies and improvements that are expected to be achieved by
the continued integration of our acquired businesses and the corporate
restructuring from the sale of our primary loss-generating assets.
The Company's Revenue is derived primarily from its wholly owned subsidiary
e-Docs Health Care Information Services (EDOCS HCIS).
REVENUES
Our primary source of revenues originated from the sale of transcription
services. During the six months ended June 30, 1999, we also generated $469,949
in revenues from the sale of bundled products comprised of software and
hardware. There were no sales of bundled products in the three months ended June
30, 2000 or 1999. Net transcription service revenues decreased to $614,016 for
the three months ended June 30, 2000 and $1,221,390 for the six months ended
June 30, 2000, a decrease of $517,125 and $659,520 respectively from the
comparable periods in 1999. The decrease is primarily attributable to the sale
of the net assets and contracts of certain of the Company's medical
transcription services effective December 20, 1999.
COST OF SALES
Cost of sales for medical transcription consists primarily of labor costs. Cost
of sales for medical transcription decreased $328,945 and $357,405 for the
three and six months periods ending June 30, 2000, respectively as compared to
the same period in 1999, as a result of the reduced transcription revenues.
Related gross margin on medical transcription services for the three and six
months ending June 30, 2000 was $147,791 and $282,880, resulting in a gross
margin on transcription services of 24% and 23%, compared to 30% and 31% for the
comparative periods in 1999.The decreased gross margin primarily reflects
increases in labor costs resulting from a shortage in skilled medical
transcriptionists.
Cost of sales for bundled products for the six months ended June 30, 1999 was
$52,567 and related gross margin was $417,382.
MARKETING AND SALES EXPENSE
Marketing and sales expense consists primarily of marketing and sales salaries
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and commissions and advertising/promotional expenditures. Marketing and sales
expense decreased to $14,571 and $19,436 for the three and six months ended June
30, 2000, down approximately $165,000 and $330,000 for the comparative periods
in 1999. The decrease is the direct result of our increased focus on the
transcription business. The transcription industry does not require significant
marketing efforts.
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 decreased for the three
and six months ended June 30, 2000 to $720,548 and $1,228,954, a decrease of
approximately $1,690,000 and $2,710,000 from the same periods in 1999. The
decrease was primarily attributable to decreases in compensation,legal &
accounting fees, travel and consulting in 2000 related to the decreased level of
operations, and reflecting in 1999 a high level of acquisition related
activities.
Compensation for the three and six months ended June 30, 2000 decreased by
approximately $700,000 and $1,075,000 from the same periods in 1999. The
decrease reflected the headcount decreases for disposed operations, as well as a
reduction in corporate office staff from 35 to seven.
Legal and accounting fees for the three and six months ending June 30, 2000
decreased by approximately $400,000 and $550,000 and consulting fees for the
same periods decreased by approximately $60,000 and $325,000 all as compared to
the similar periods in 1999. The first half of 1999 reflected significant
professional fees as a result of ongoing acquisition activities. The company has
curtailed its acquisition policy with an emphasis on internal growth of its
transcription business and development of the EPN.
Travel related costs decreased approximately $60,000 and $150,000 for the three
and six months ended June 30, 2000 to the comparative period in 1999.
Significant acquisition activities and a larger network of transcription
companies in 1999 were the primary reasons for the decrease.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense consists primarily of personnel costs including
salaries, benefits and consultant costs related to the research and preliminary
development efforts on new software products. Research and development expense
decreased to $0 and $13,172 for the three and six months ended June 30, 2000,
down approximately $232,000 and $482,000 from the comparative periods in 1999.
The decrease in research and development costs is attributable to our change in
business focus from software development to a transcription service provider.
During 2000 the Company capitalized approximately $207,000 in development costs
related to the e-DOCS Physicians Network (EPN). In 1999 no development costs
were capitalized. Development costs associated with the EPN will largely be
incurred in the second and third quarters of 2000.
Through the period ended June 30, 2000, we have incurred operating losses, since
our inception, of approximately $23.1 million. To date, our operations have not
been profitable and there is no assurance that they will become profitable in
the future. Significant acquisitions and dispositions in 1999 distort the
comparability between periods and as to future operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000 the Company had cash and cash equivalents of $399,340 and a
working capital deficiency of $1,130,085. This compares to cash and cash
equivalents of $53,529 and a working capital deficiency of $1,568,752 at
December 31,1999. The increase in working capital of approximately $438,000 is
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attributable to: cash received from exercise of stock options and warrants of
approximately $825,000; approximately $370,000 from issuance of common stock
reflected as a liability in the December 31, 1999 financial statements; and
offset by current year operating losses.
We believe our cash position, less known commitments and contingencies, plus
outside financing received and additional financing commitments plus cash
generated from operations should be adequate to fund our on-going operations and
fund the development of the EPN through December 31, 2000. Although we should
have improved operating results, we will still require substantial additional
capital during fiscal 2001 to implement and market the EPN.
Our capital requirements will depend on many factors, including, cash flow from
operations, additional working capital requirements, additional product
development expenses and capital expenditures. To the extent that existing
resources are insufficient to fund our operations in the short- or long-term, we
will need to raise additional funds through public or private financings. We may
not be able to raise additional financing on terms favorable to us or to our
stockholders without substantial dilution of their ownership and rights. If we
are unable to raise sufficient funds to satisfy either short- or long-term
requirements, there would be substantial doubt as to our ability to continue as
a going concern. We may be required to significantly curtail our operations,
sell our transcription operations, significantly alter our business strategy,
forego market opportunities or obtain funds through arrangements with strategic
partners or others that may require us to relinquish material rights to certain
of our technologies or potential markets.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which e-DOCS is a party or of which
any of its property is the subject other than ordinary, routine claims
incidental to e-DOCS' business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
The following sales of unregistered securities occurred during the six months
ended June 30, 2000, and through August 21, 2000 (the date of this filing), in
private transactions, which e-DOCS relied on the exemption from registration
available under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), unless otherwise indicated:
COMMON STOCK. On January 7, 2000, the Company issued Lonestar Medical
Transcription USA, Inc., in accordance with the Asset Purchase Agreement between
the Company and Lonestar Medical Transcription dated effective December 20,
1999, a warrant to purchase 800,000 unregistered shares of the Company's Common
Stock at an exercise price of $0.37 per share subject to adjustment. The shares
are also subject to a Registration Rights Agreement dated effective December 20,
1999. Lonestar Medical Transcription USA, Inc. performed a cashless exercise of
the warrant on May 15, 2000 and has been issued 572,132 shares of Common Stock.
These shares were subsequently registered in a Form SB-2 Registration statement
effective August 11, 2000.
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ITEM 5. OTHER INFORMATION
On May 3, 2000, the Company entered into a Forbearance Agreement with each of
Hillel Bronstein, Stuart Szpicek, and Yaniv Dagan relating to the issuance of
575 shares of the Company's convertible Series 1 Preferred Stock to Cornell
Transcription, Inc. as part of the purchase price under the terms of the Asset
Purchase Agreement between the AVRI Health Care Information Services, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company, and Cornell
Transcription, Inc., a New York corporation of which Mr. Bronstein, Mr. Szpicek,
and Mr. Dagan are shareholders. The terms of the Forbearance Agreements require
Mr. Bronstein, Mr. Szpicek, and Mr. Dagan to not exercise any enforcement rights
or remedies under, or with respect to, the Asset Purchase Agreement resulting
from the Company's inability to register the shares of the Company's Common
Stock underlying the Series 1 Preferred Stock until the earlier of when the
Common Stock is registered or August 15, 2000. The affected shares were
registered on August 11, 2000.
As consideration for the forbearance, the Company (i) granted Mr. Bronstein
warrants to purchase 118,750 shares of Common Stock, granted Mr. Szpicek
warrants to purchase 118,750 shares of Common Stock, and granted Mr. Dagan
warrants to purchase 12,500 shares of Common Stock, and (ii) accrued interest to
each of Mr. Bronstein, Mr. Szpicek and Mr. Dagan at a rate of 1% per month on
the cash value of the shares of Common Stock held by, and owed to under the
Forbearance Agreements, Mr. Bronstein, Mr. Szpicek and Mr. Dagan through the
expiration of the forbearance period. In addition, the Company paid the legal
fees of Mr. Bronstein and Mr. Szpicek totaling $40,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
All exhibits except for the schedule 27.1 were filed with the Company's
10-QSB for the quarter ending March 31, 2000 or the Company's 10-KSB for the
year ended December 31, 1999 and are incorporated by reference and not included
herein.
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
10.1 Employment Agreement between the Company and H. Russel Douglas
dated effective as of April 1, 2000.
10.2 Forbearance Agreement between the Company, e-DOCS Health Care
Information Services, Inc., Hillel Bronstein, and Cornell
Transcription, Inc. dated May 4, 2000.
10.3 Warrant Agreement issued by the Company to Hillel Bronstein dated
May 4, 2000.
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<PAGE>
10.4 Forbearance Agreement between the Company, e-DOCS Health Care
Information Services, Inc. and Stuart Szpicek dated May 4, 2000.
10.5 Warrant Agreement issued by the Company to Stuart Szpicek dated
May 4, 2000.
10.6 Forbearance Agreement between the Company, e-DOCS Health Care
Information Services, Inc., and Yaniv Dagan dated May 4, 2000.
10.7 Warrant Agreement issued by the Company to Yaniv Dagan dated
May 4, 2000.
*27.1 Financial Data Schedule.
_____________
* Filed herewith.
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K during the three months ended June 30.
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 21st day of August, 2000.
APPLIED VOICE RECOGNITION, INC.
/s/ Jackson Nash
--------------------------------
Jackson Nash
Chief Financial Officer and Secretary
(on behalf of the registrant)
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