[FN]
See notes to financial statements.
- 2 -
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
Commission File Number: 0-7796
VOICE IT WORLDWIDE, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado 83-0203787
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identificaion Number)
2643 Midpoint Drive, Suite A
Fort Collins, Colorado 80525
(Address of principal (Zip Code)
executive offices)
(970) 221-1705
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the issuer
was required to file such reports), and (2) has been subject to such
filing reqirements for the past 90 days.
Yes X No
Number of shares outstanding of the Issuer's Common Stock, as
of June 30,1996 was 5,054,802 shares of the Registrant's
common stock $.10 par value.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
VOICE IT WORLDWIDE, INC.
Balance Sheets
<TABLE>
<CAPTION>
Assets (unaudited)
December June 30,
31,
1995 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $251,321 $879,605
Accounts receivable, net of allowance $173,165
and $188,352 respectively (Note 5) 4,959,919 2,067,610
Other receivables 115,299 20,807
Inventories (Note 3) 3,512,245 2,982,532
Prepaid expenses and other current assets 115,612 85,388
9,672,400 6,035,942
Tooling, furniture and office equipment, net of
accumulated depreciation (Note 3) 254,677 347,088
Other assets (Note 3) 463,327 605,757
Total assets $9,672,400$6,988,787
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $2,199,876 $725,408
Accrued liabilities (Note 3) 720,721 247,350
2,920,597 972,758
Long-term debt (Notes 2 and 5) 3,060,701 2,454,531
Stockholders' equity (Note 7):
Common stock; $. 10 par; 10,000,000 shares
authorized; 5,054,802 issued & outstanding 505,480 505,480
Additional paid in capital 5,364,910 5,364,910
Accumulated deficit (2,179,288)(2,308,892)
3,691,102 3,561,498
Total liabilities and stockholders' equity $9,672,400$6,988,787
VOICE IT WORLDWI]DE, INC.
Statements of Operations
(unaudited)
<TABLE >
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Sales - net $2,671,394 $2,390,275 $6,470,150 $5,152,202
Cost of sales 1,544,212 1,464,725 3,724,935 3,166,994
Gross profit 1,127,182 925,550 2,745,215 1,985,208
Operating expenses:
Administrative and general 235,099 294,099 478,590 576,195
Selling & marketing 1,018,929 452,573 2,007,244 1,044,844
Research and development 159,514 168,601 385,274 349,531
Total operating expenses1,413,542 915,273 2,871,108 1,970,570
Net operating (286,360) 10,277 (125,893) 14,638
profit
Other income (expense):
Interest expense (5,713) (68,198) (8,954) (145,212)
Interest income 26,290 366 60,563 970
Net income (loss) before income
tax (265,783) (57,555) (74,284) (129,604)
Income tax (Note 4) (19,150) 0 0 0
Net income (loss) ($246,633) ($57,555) ($74,284) ($129,604)
Net income (loss) per
common share (Note 8) ($0.06) ($0.02) ($0.02) ($0.03)
Weighted avg. number of shares
outstanding 4,405,922 5,054,802 4,406,257 5,054,802
VOICE IT WORLDWIDE, INC.
Statement of Stockholders' Equity
(unaudited)
</TABLE>
<TABLE>
<CAPTION> Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
Total
<S> <C> <C> <C> <C> <C>
Balance December 31 5,054,802 $505,480 $5,364,910 ($2,179,288) $3,691,102
1995
Net (loss) for the
three months (72,049) (72,049)
ended March 31, 1996
Net (loss) for the three months
ended June 30, 1996 0 0 0 (57,555) (57,555)
Balance June 30
1996 5,054,802 $505,480 $5,364,910 ($2,308,892) $3,561,498
VOICE IT WORLDWIDE, INC.
Statements of Cash Flows
(unaudited)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30
1995 1996
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($74,284) ($129,604)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Allowance for discounts and bad 30,753 15,187
debts
Depreciation and amortization 50,865 111,208
Amortization of deferred loan costs 0 12,720
Changes in current assets and liabilities:
Receivables 896,596 2,971,614
Prepaid expenses (34,103) 30,224
Inventories (2,778,993) 529,713
Accounts payable 269,915 (1,474,468)
Accrued liabilities 61,886 (473,371)
Cash (used in) provided by operating (1,577,365) 1,593,223
activities
Cash flows from investing activities:
Other assets (54,326) (197,440)
Acquisition of tooling, furniture and (145,917) (161,329)
equipment
Cash used in investing activities (200,243) (358,769)
Cash flows from financing activities:
Payments on line of credit - net 0 (606,170)
Payment of stockholder appraisal rights (4,213) 0
Increase in deferred offering costs (161,615) 0
Cash used in financing activities (165,828) (606,170)
Net increase (decrease) in cash (1,943,436) 628,284
Cash - Beginning of period 2,002,981 251,321
Cash - End of period $59,545 $879,605
Supplemental disclosure of cash flow information: Cash paid during
the year for interest was $0 (1995) and $148,883 (1996).
Note 1 - Summary of Significant Accounting Policies
The summary of the Company's significant accounting policies are
incorporated by reference to the Voice It Worldwide, Inc. Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
The statements of operations, balance sheets, stockholders' equity
and cash flows have not been audited by independent accountants, but
in the opinion of the management, reflect all normal recurring
adjustments and entries necessary for the fair presentation of the
operations of the Company. The results of operations for any
quarter, and quarter-to-quarter trends, are not necessarily
indicative of the results to be expected for any future period.
Note 2 - Letter of Credit
The Company has irrevocable standby letters of credit in the
aggregate amount of approximately $351,000. These letters of credit
are required by major suppliers and have expiration dates ranging
from July, 1996 through October, 1996. These letters of credit are
secured by the Company's line of credit (Notes 5 and 6).
Note 3 - Selected Balance Sheet Information
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
<S> <C> <C>
Inventories
Raw materials $ 1,194,821 $ 902,563
Finished goods 2,317,424 2,079,969
$ 3,512,245 $ 2,982,532
Tooling, furniture and equipment
Office furniture and equipment $ 111,797 $ 186,447
Tooling and manufacturing equipment 321,169 407,847
432,966 594,294
Less accumulated depreciation (178,289) (247,206)
$ 254,677 $ 347,088
Other assets
Deferred loan costs - net of accumulated
amortization of $2,119 in 1995 and $12,720
in 1996 $ 181,274 $ 168,554
Product software development costs - net of
accumulated amortization of $0 in 1995 and
$24,473 in 1996 146,838 240,787
Patent costs - net of accumulated amortization of
$24,350 in 1995 and $42,167 in 1996 113,446 174,647
Other 21,769 21,769
$ 463,327 $ 605,757
</TABLE>
Note 3 - Selected Balance Sheet Information (continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Accrued liabilities
Payroll taxes $ 17,430$ 0
Vacation 24,751 32,587
Advertising 533,055 72,127
Warranty 88,707 96,811
Commissions 47,836 36,657
Other 8,942 9,168
$720,721 $247,350
</TABLE>
Note 4 - Income Taxes
The Company reports income taxes for interim periods based on
annualized estimates of earnings, tax credits and book/tax
differences at the estimated annual effective tax rate. For federal
and state income tax purposes, at December 31, 1995, the Company had
net operating loss carry forwards of approximately $2,034,000 which
substantially expire in fiscal year 2009.
Note 5 - Long-Term Debt
<TABLE>
<CAPTION>
December June 30,
31,
1995 1996
<S> <C> <C>
$4,000,000 line of credit to a bank,
interest at their "Base Rate" plus 3%,
totaling 11.25 % at June 30, 1996,
payable monthly, principal due on or
before March 31, 1998. Borrowings are
collateralized by, and limited to a$ 610,701 $ 4,531
percentage of eligible accounts
receivables, finished goods inventories
and letters of credit as additional
collateral (Note 6).
8% convertible debenture, interest
payable monthly, convertible into one
share of common stock for each $2.625 of
principal converted. Principal due
November 1, 2002. Loan costs associated
with this debenture were approximately
$180,000, and are amortized over the life
of the agreement resulting in an 2,450,000
effective interest rate of 9%. Monthly 2,450,000
principal redemption of one percent of
the then outstanding balance begins in
November, 1998.
Less current portion - -
Total long-term debt $ 3,060,701 $ 2,454,531
</TABLE>
Note 6 - Related Party Transactions
As additional collateral for the line-of-credit (Note 5), the Company
used letters-of-credit issued from individuals with the Company as
beneficiary. These letters-of-credit could be drawn upon by the
Company's bank if the Company was in default of the Credit and
Security Agreement between the bank and the Company. The Company
paid interest quarterly at the rate of 10% of the face amount of the
letters-of-credit with a 5% premium on any amount that is drawn upon
by the bank. Additionally, there were 20,000 warrants issued to the
participants of this program to purchase the Company's common stock
(Note 7). The last of these letters- of-credit expired May 30, 1996.
Note 7 - Stockholders' Equity
Stock Options
The Company has reserved a total of 860,243 of its authorized but
unissued common stock for stock option plans (the "Plans") pursuant
to which officers, directors, employees and non-employees of the
Company are eligible to receive incentive and/or non-qualified stock
options. Under the terms of the Plans, options are exercisable based
on various vesting schedules with an exercise price which equals the
market price of the common stock on the date of grant. Through June
30, 1996, the Company had granted 457,443 options with various
vesting periods and an exercise price of between $1.56 and $3.00 per
share. As of June 30, 1996, 261,110 granted options are vested with
exercise prices ranging from $1.56 to $3.00. However, no options
have been exercised.
Warrants
During 1995, the Company completed the sale of 648,880 units of its
common stock. Each Unit consists of one unregistered share of its
$.10 par value common stock and one-half of a detachable unregistered
common stock purchase warrant (the "Warrant"). One Warrant entitles
the holder thereof to purchase, at a price of $2.50, one share of
unregistered Common Stock at any time until December 31, 1996 unless
extended by the Company's Board of Directors. There were 324,440
warrants issued as part of the offering.
In connection with the $2,450,000 convertible debenture (Note 4), the
Company issued 915,000 warrants (the "Debenture Warrants") to buy
unregistered shares of the Company's common stock at an exercise
price of $2.75 per share. These Debenture Warrants have a three
year life and may be redeemed, after October 27, 1996, by the Company
for $.05 per Debenture Warrant if the Company's common stock price
reaches a $6.00 bid price for 20 consecutive trading days. In the
first quarter, 1996, the Company also issued an additional 25,000
warrants to the debenture holder in exchange for a waiver of certain
financial covenants. These additional warrants have basically the
same terms and conditions as the Debenture Warrants.
In connection with the above private placement of common stock and
the issuance of convertible debt, the Company issued an aggregate
total of 38,131 warrants to the placement agents. Each warrant
entitles the holder to purchase one unregistered share of common
stock at any time from June, 1996 through June, 1999 at an exercise
price of $2.75 per share.
In connection with the additional collateral program (Note 6), the
Company issued 20,000 warrants to acquire the Company's common stock.
Each warrant entitles the holder to purchase one share of the
Company's unregistered common stock at an exercise price of $2.75 per
share. These warrants can be exercised at any time prior to their
expiration in May, 2000.
Note 8 - Earnings Per Share
Net income per common share is based on the weighted average number
of common shares outstanding, inclusive of common stock equivalents
computed using the modified treasury stock method. However, common
stock equivalents were not used in computing the loss per share, as
their inclusion would have been anti-dilutive.
Note 9 - Subsequent Events
In July, 1996, the Company granted an additional 42,500 options to
acquire the Company's common stock with various vesting periods at an
exercise price of $1.69 per share.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Voice It Worldwide, Inc. ("Voice It") designs, develops and
markets personal consumer electronics products which allow people to
verbalize reminders and short messages for themselves and others
without the need for pen and paper. Voice It products utilize
computer chip technology to capture ideas, thoughts, reminders and
messages, incorporating high quality recording with patent pending
message management features. Voice It Personal Note Recorders are
about the size of a credit card and approximately 1/3 inch thick.
Their compact size, portability and ease of use make them a
convenient replacement for handwritten sticky notes, particularly at
times and in places where handwriting is impractical.
The Company's first product, the Voice Itr Personal Note
Recorder, with a 75 second capacity was introduced in the market in
November of 1993. Since then, the product line has expanded to six
models with recording capacities from 40 seconds to 5 minutes with a
new 8 minute model being introduced during the third quarter, 1996.
This broad range of products with retail prices ranging from $29.99
to $99.95 makes Voice It the only company to offer consumers such a
broad selection of products and prices.
During the second half of 1996, the Company will introduce its
new dictation length solid state voice recorder product line with
organizer features. The palm-sized Voice It Managers will be
available in two models with recording capacities of 22 and 45
minutes with a LCD display, five user defined channels and a list of
20 icons. The organizer will also have a unique contact file capable
of storing up to 100 names with 3 phone numbers per name. Both
models will be launched in catalogs and retail stores in early fourth
quarter, 1996.
The Company markets its products in the United States and
internationally in Canada, Europe, Japan and the Middle East and has
rapidly increased its sales from $144,000 in its first year of
operations in 1993 to approximately $15.6 million for the year ended
December 31, 1995. Voice It products are now available in
approximately 5,000 retail outlets in the United States. The
products are available in a variety of distribution channels
including department stores, mass merchants, office super stores,
catalog showrooms, electronic specialty stores and direct mail
catalogs.
At the start of the third quarter, 1995, the Company implemented
a pricing strategy on its Personal Note Recorders designed to broaden
consumer demand, capture a significant market share, create a
dominant retail shelf presence and deter low end competition in the
marketplace. The Company lowered prices on its shorter run time
products and introduced two new higher margin note recorders with
greater recording capacities and additional features. With the
introduction of new higher margin models, most retailers that were
carrying only one Voice It model added at least one additional model
to their retail assortment while many chose to carry several models.
The success of the Company's marketing strategies has resulted
in capturing the leadership role in the digital recording category.
During 1995, the Company was able to both deter low-end competition
and establish its brand as the definitive leader. Based upon
independent research reports, Voice It became the leading brand in
the category with more than 50% dollar share in the market which is
more than twice the market share of its closest competitor.
Management believes that the Company's successful market position is
directly related to its broad based distribution, availability of a
broad product line with a wide price selection at retail and
promotion of its products through national advertising.
Coinciding with the price reduction, the Company initiated an
aggressive cost reduction program which is continuing to result in
improvement in gross margins. Gross margins declined to a low of 30%
during the third quarter of 1995 and have gradually increased each
quarter culminating in a 39% gross margin for the current quarter
ended June 30, 1996. The Company expects continued improvement of
gross margins throughout 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
During 1995, the Company research and development efforts
resulted in the introduction of five new product entries, two in the
first half of the year, and three in the second half of the year.
These new products provided consumers with features not found on any
products in the marketplace. Research and development is continuing
its efforts to focus on unique, patentable product features which can
be added to the Company's digital recorder product lines. The
Company is introduced one new product during the first half of 1996
and is currently preparing to introduce three additional new products
during the second half of 1996. These products include two new note
recorders with five and eight minutes of recording time as well as a
new product line of solid state recorders with capacities of 22 and
45 minutes with enhanced organizer features.
Results of Operations
The following table sets forth, for the periods indicated, items
in the Statement of Operations expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months
Ended
June 30, June 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 57.8 61.3 57.6 61.5
Gross profit 42.2 38.7 42.4 38.5
Operating expenses
Administrative & general 8.8 12.3 7.3 11.1
Selling and marketing 38.1 18.9 31.0 20.3
Research and development 6.0 7.1 6.0 6.8
Total operating expenses 52.9 38.3 44.4 38.2
Operating income (loss) (10.7) 0.4 (1.9) 0.3
Other income (expense), 0.8 (2.8) 0.8 (2.8)
Net loss before income tax (9.9) (2.4) (1.1) (2.5)
Income tax (benefit) (0.7) 0.0 0.0 0.0
Net loss (9.2)% (2.4)% (1.1)% (2.5)%
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
Three Months ended June 30, 1996 compared to Three Months ended June
30, 1995
Sales for the three months ended June 30, 1996 were $2,390,300
compared to $2,671,400 for the three months ended June 30, 1995.
While the Company experienced strong orders from its primary retail
accounts during the second quarter, 1996, sales continue to be
affected by a weak consumer electronics market. Management expects
significant improvement during the second half of 1996 with the
introduction of 4 new products and the implementation of an extensive
national advertising campaign during the important holiday season.
Cost of sales for the second quarter ended June 30, 1996
decreased to $1,464,700 or 61.3% of net sales from $1,544,200 or
57.8% of net sales during the second quarter of 1995. The dollar
decrease is due to the corresponding decrease in unit sales.
However, as a percentage of net sales, cost of sales increased due to
lowering the average sales price on the smaller recording time models
after an aggressive pricing policy was adopted during the third
quarter of 1995. However, in conjunction with the lower prices, the
Company also initiated a cost reduction program to eventually return
to lower costs and higher margins. The cost of sales as a percentage
of net sales has been reduced from a high of 69.7% during the third
quarter, 1995 to 61.3% for the current quarter. Management expects
this trend to continue as the Company continues its efforts to reduce
costs.
General and administrative expenses increased 16% or $59,000 to
$294,100 or 12.3% during the second three months of 1996 compared
with $235,100 or 8.8% for the same period in 1995. These expenses
increased for the quarter due to increased costs associated with
investor relations including salaries and public relations.
Additional costs associated with increased amortization and
depreciation is related to increased capital assets and patent costs.
As a percentage of sales, general and administrative expense
increased in part due to the increased expenses, but the increase is
also due to the lower volume of net sales for the quarter.
Sales and marketing expenses for the quarter ended June 30, 1996
decreased 56% or $566,400 to $452,600 or 18.9% of net sales in 1996
from $1,018,900 or 38.1% of net sales in 1995. This decrease is due
partly to the decrease in sales volume and related variable marketing
and commission expenses in support of the Voice It Product line.
Additionally, however, during the second quarter last year, the
Company spent additional funds in advertising the Voice It Note
Recorders and building the note recorder category. This year,
management will spend the majority of its advertising funds during
the fourth quarter peak sales period.
Research and development costs increased by $9,100 to $168,600
for the second quarter of 1996 from $159,500 for the same quarter in
1995. In the fourth quarter of 1995, the Company made the decision
to capitalize product software development cost in accordance with
GAAP. These costs are then amortized over the estimated useful life
of the product. The net effect of this change in the second quarter
of 1996 was to defer approximately $57,000 of research expenses
related to software development. Non-software development research
costs are expensed as incurred and are in support of existing
products as well as the development of new products. The increased
total research expenditures are the result of additional efforts to
launch new products scheduled for introduction during the second half
of 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
The Company recorded an operating profit for the three months
ended June 30, 1996 of $10,277 compared with an operating loss of
$(286,360) for the same quarter of 1995. Even though the Company's
gross profit margin was lower during the current quarter, the
operating profit is the result of management closely monitoring the
Company's expenses. The Company intends to invest in a heavier
schedule of advertising during the fourth quarter gift giving season
as sales increase, and the results of the cost of sales reductions
are realized.
Net interest expense for the second quarter of 1996 of $67,800
is compared to net interest income during the same period last year
of $20,600. The primary component of the current period interest
expense is the interest on the $2.45 million convertible debenture
the Company entered into during the fourth quarter of 1995. After
interest expense, the net loss for the second quarter of 1996 was
$(57,555) or $(.02) per share compared to a net loss of $(246,633) or
$(.06) per share for the second quarter of 1995.
Six Months ended June 30, 1996 compared to Six Months ended June 30,
1995
Sales for the six months ended June 30, 1996 decreased to
$5,152,200 from $6,470,100 during the first six months of 1995.
Although the Company experienced strong orders from its primary
retail accounts during the first half of 1996, the soft retail market
continues to affect retail sales to the consumer as well as the lower
level of inventory needed by the retail outlets. The first half of
1995 also benefited from additional sales to new distribution as
well as the introduction of the Company's new 90-second Personal Note
Recorder. Management expects that, while the soft retail trend may
continue, the Company's sales will increase during the second half of
1996 due to four new product introductions and the holiday season.
Cost of sales for the first half of 1996 decreased slightly to
$3,167,000 from $3,724,900 for the first six months of 1995. This
dollar reduction in costs is due to the lower sales levels for the
Company during the first half of 1996. As a percentage of sales,
costs have increased to 61.5% during 1996 from 57.6% of sales for the
same period in 1995. This increase is due to the decrease in the
average sales price on the lower recording time models after the
aggressive pricing policy mentioned earlier. Management expects
costs to decrease as a percentage of sales as the Company continues a
manufacturing cost reduction program that it instituted in
conjunction with the price decrease.
Administrative expenses increased $97,600 or 20% to $576,200
during the first six months ended June 30, 1996 from $478,600 during
the same period of 1995. This increase is due to increased personnel
and investor relations costs as well as increased amortization and
depreciation as the Company increases its capital assets and patent
position.
Selling and Marketing expenses decreased $962,400 or 48% to
$1,044,800 during the first six months of 1996 from $2,007,200 during
the first six months of 1995. This decline is due in part to the
decreased sales volume and the corresponding decrease in variable
expenses such as cooperative advertising and commissions.
Additionally, the Company has not invested as heavily during the
first half of 1996 in consumer advertising. The Company is planning
to concentrate its advertising during the second half of 1996, where
it will have a bigger impact in the holiday gift giving season.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
Research and development expenses decreased for the six months
ended June 30, 1996 of $349,500 or 6.8% of sales compared to $385,300
or 6% of sales for the six months ended June 30, 1995. However, this
decrease in expense is mostly due to the Company's decision to
capitalize product software development cost in accordance with GAAP.
The net effect of this capitalization, net of the appropriate
amortization, for the first half of 1996 was to defer approximately
$92,100 of research expenses related to software development. Non-
software development research costs are expensed as incurred and are
in support of existing products as well as the development of new
products. Prior to the capitalization of software costs, total
research and development expenses increased due to the additional
development required for introducing longer recording capacity
products.
The Company posted an operating profit for the first six months
ended June 30, 1996 of $14,639 compared with an operating loss for
the first six months last year of $(125,893). This increase reflects
management's commitment to closely monitor costs and expenses in an
effort to effectively manage the seasonality of the business.
Net interest expense for the first six months of 1996 of
$144,200 is compared to a net interest income during the first six
months of 1995 of $51,600. The primary component of this interest
expense is the cost of the Company's convertible debt of $2,450,000
that was funded during the fourth quarter of 1995. This results in a
net loss for the Company's first six months of operations of
$(129,604) or $(0.03) per share compared with a net loss during the
same period last year of $(74,284) or $(0.02) per share.
Liquidity and Capital Resources
The Company has financed its growth to date primarily from the
private sale of Common Stock and Warrants, the merger with Lander
Energy Co. and the issuance of $2,450,000 in convertible debentures.
The Company also uses bank financings for short term working capital
needs as well as to guarantee letters of credit issued to a major
supplier. At June 30, 1996, the Company had cash and cash
equivalents of approximately $879,600 and working capital of
approximately $5,063,200.
Cash generated by the Company during the six months ended June
30, 1996 was approximately $125,400. The primary uses of cash for
the period were to fund the net loss of approximately $129,600 (less
approximately $139,100 of non-cash items such as depreciation, bad
debts and discounts and amortization of loan costs) as well as
decreases in accounts payable and accrued liabilities by
approximately $1,474,500 and $473,400 respectively. The decrease in
accounts payable is attributable to paying for the inventories that
were purchased and accumulated during the last quarter of 1995.
Sources of cash for the period included decreases in the Company's
accounts receivable and inventories of approximately $2,971,600 and
$529,700 respectively. The accounts receivable decrease is due to
the collection of the increased sales during the fourth quarter
holiday season. Additional uses of cash included $161,300 for the
acquisition of tooling, property and equipment as the Company
increases its manufacturing capacity for new products, and $197,400
in acquiring other assets. During the six months ended June 30,
1996, the Company used approximately $606,200 to repay the line of
credit with its bank.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
During March, 1995, the Company obtained a $4 million revolving
line of credit from a bank. The amount the Company may borrow from
this line of credit is limited by the level of its eligible accounts
receivable and, to a lesser extent, the Company's finished goods
inventory and other collateral. The line of credit contains
customary financial covenants and bears interest at 3% above the
bank's "Base Rate".
On September 15, 1995, the Company completed a sale of its
common stock and purchase warrants pursuant to the June 12, 1995
Private Placement Memorandum for 560,880 Units at $2.20 per unit.
Each Unit consists of one share of the Company's $.10 par value
unregistered common stock and one-half of a detachable unregistered
common stock purchase warrant (the "Warrant"). One Warrant entitles
the holder to purchase, at a price of $2.50, one share of Common
Stock at any time until December 31, 1996 unless extended by the
Company's Board of Directors. The Company also issued an additional
Private Placement Memorandum with substantially the same terms and
conditions as the June 12, 1995 Memorandum. Under this new
Memorandum, the Company sold an additional 88,000 Units for an
additional $193,600.
On October 27, 1995, the Company issued a convertible debenture
for $2,450,000 to Renaissance Capital Growth & Income Fund III, Inc.
("Renaissance"). This debt was issued for seven years with an
interest rate of 8% per annum. In addition to various financial
covenants and redemption provisions, Renaissance has the right to
convert its debt position into equity at the rate of one share of
common stock for every $2.625 of principal. Additionally, for a
value of $50,000, the Company issued Renaissance 915,000 warrants to
buy the Company's common stock at an exercise price of $2.75 per
share. These warrants are for a three year period, and may be
redeemed by the Company any time after October 27, 1996 for $0.05 per
warrant if the Company's common stock price reaches an average bid
price of $6.00 per share for 20 prior consecutive trading days.
Management believes that the net proceeds of these equity and
debt offerings should be sufficient to finance the Company's growth
through this year's Holiday season. If the outstanding common stock
purchase warrants are exercised, there would be additional working
capital.
Seasonality
The Company anticipates that its business will be seasonal, with
at least 40% of its sales occurring during the fourth quarter of the
year in time for the holiday gift giving season.
Foreign Exchange
The Company's products are principally purchased from suppliers
in the Far East with its prices negotiated on an annual basis in U.S.
dollars at exchange rates reset annually. Exchange rate fluctuations
between the U.S. Dollar and the Singapore or Hong Kong dollar could
have an adverse effect on the Company's costs of sales and gross
margins. In the event of extreme exchange rate fluctuations, it may
become uneconomical for the relationship between the Company and its
suppliers to continue.
Inflation
Management believes that inflation has not and will not have a
significant impact on its business.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
VOICE IT WORLDWIDE, INC.
Registrant
Date: 8/13/96
Michelle L. Morgan
President, CEO
Date: 8/13/96
John H. Ellerby
Chief Accounting Officer
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