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: September 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) Identification 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
requirements for the past 90 days.
Yes X No
Number of shares outstanding of the Issuer's Common
Stock, as of September 30, 1996 was 5,054,802
shares of the Registrant's common stock $.10 par value.
VOICE IT WORLDWIDE, INC.
Balance Sheets
Assets
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $251,321 $380,432
Accounts receivable, net of
allowance $173,165 and $202,522
respectively (Note 5) 4,959,919 2,550,512
Other receivables 115,299 147,099
Inventories (Note 3) 3,512,245 2,606,158
Prepaid expenses and other
current assets 115,612 10,657
8,954,396 5,694,858
Tooling, furniture and office
equipment, net of accumulated
depreciation (Note 3) 254,677 401,337
Other assets (Note 3) 463,327 665,339
Total assets $9,672,400 $6,761,534
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $2,199,876 $1,441,231
Accrued liabilities (Note 3) 720,721 558,757
Note payable (Note 2 and 5) 0 222,702
2,920,597 2,222,690
Long-term debt (Notes 5) 3,060,701 2,450,000
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) (3,781,546)
3,691,102 2,088,844
Total liabilities and stockholders'
equity $9,672,400 $6,761,534
</TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
VOICE IT WORLDWIDE, INC.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Sales - net $2,952,843 $2,203,294 $9,449,497 $7,355,496
Cost of sales 2,050,962 1,148,577 5,775,898 4,315,571
Gross profit 901,881 1,054,717 3,673,599 3,039,925
Operating expenses:
Administrative and
general 232,720 284,240 737,813 860,437
Selling & marketing 577,285 612,474 2,584,530 1,657,317
Research and
development 188,375 152,452 573,648 501,982
Consumer price
reduction program 625,565 0 625,565 0
Non recurring charge
to operations 0 1,421,703 0 1,421,703
Total operating
expenses 1,623,945 2,470,869 4,521,556 4,441,439
Net operating profit (722,064)(1,416,152) (847,957) (1,401,514)
Other income (expense):
Interest expense (22,635) (56,503) (31,589) (201,715)
Interest income 3,094 0 63,657 971
Net income (loss)
before income tax (741,605)(1,472,655) (815,889) (1,602,258)
Income tax (Note 4) 0 0 0 0
Net income (loss) ($741,605)($1,472,655) ($815,889) ($1,602,258)
Net income (loss)
per common share
(Note 8) ($0.16) ($0.29) ($0.18) ($0.32)
Weighted avg. number
of shares
outstanding 4,592,882 5,054,802 4,468,688 5,054,802
</TABLE>
VOICE IT WORLDWIDE, INC.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1995 1996
<S> <C> <C>
Cash flows from operating activities:
Net (loss) ($815,889) ($1,602,258)
Adjustments to reconcile net (loss)
to net cash provide by or used in
operating activities:
Non-cash charge to operations 0 1,421,703
Allowance for discounts and bad debts 42,478 29,357
Depreciation and amortization 83,788 142,832
Amortization of deferred loan costs 0 19,080
Changes in current assets
and liabilities:
Receivables 133,730 2,348,250
Prepaid expenses (19,672) 17,813
Inventories (3,013,929) (216,396)
Accounts payable 364,134 (758,645)
Accrued liabilities 210,253 (374,042)
Notes payable 0 222,702
Cash (used in) provided by
operating activities (3,015,107) 1,250,396
Cash flows from investing activities:
Other assets (63,143) (290,299)
Acquisition of tooling, furniture
and equipment (183,275) (220,285)
Cash used in investing activities (246,418) (510,584)
Cash flows from financing activities:
Payments on line of credit - net 605,030 (610,701)
Payment of stockholder appraisal rights (4,212) 0
Issuance of common stock (net of
offering costs) 967,398 0
Increase in deferred offering costs (43,717) 0
Cash used in financing activities 1,524,499 (610,701)
Net increase (decrease) in cash (1,737,026) 129,111
Cash - Beginning of period 2,002,981 251,321
Cash - End of period $265,955 $380,432
</TABLE>
Supplemental disclosure of cash flow information: Cash paid
during the year for interest
was $0 (1995) and $199,376 (1996).
VOICE IT WORLDWIDE, INC.
Statement of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance -
December 31,
1995 5,054,802 $505,480 $5,364,910 ($2,179,288) $3,691,102
Net (loss)
for the nine
months ended
September 30,
1996 0 0 0 (1,602,258) (1,602,258)
Balance -
September 30,
1996 5,054,802 $505,480 $5,364,910 ($3,781,546) $2,088,844
</TABLE>
VOICE IT WORLDWIDE, INC.
Notes to Financial Statements
(unaudited)
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 $110,000. These letters
of credit are required by major suppliers and have
expiration dates ranging from October, 1996 through January,
1997. These letters of credit are secured by the Company's
line of credit (Note 5).
Note 3 - Selected Balance Sheet Information
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
<S> <C> <C>
Inventories
Raw materials $ 1,194,821 $1,058,531
Finished goods 2,317,424 1,547,627
$ 3,512,245 $2,606,158
Tooling, furniture and equipment
Office furniture and equipment $ 111,797 $ 206,457
Tooling and manufacturing
equipment 321,169 446,793
432,966 653,250
Less accumulated depreciation (178,289) (251,913)
$ 254,677 $ 401,337
Other assets
Deferred loan costs - net of
accumulated amortization of
$2,119 in 1995 and $21,199
in 1996 $ 181,274 $ 162,194
Product software development
costs - net of accumulated
amortization of $0 in 1995 and
$39,664 in 1996 146,838 290,483
Patent costs - net of accumulated
amortization of $24,350 in 1995
and $53,893 in 1996 113,446 190,893
Other 21,769 21,769
$ 463,327 $ 665,339
</TABLE>
Note 3 - Selected Balance Sheet Information (continued)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
<S> <C> <C>
Accrued liabilities
Payroll taxes $ 17,430 $ 0
Vacation 24,751 33,596
Advertising 533,055 358,634
Warranty 88,707 25,554
Commissions 47,836 110,803
Other 8,942 30,170
$720,721 $558,757
</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 31, September 30,
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 September 30, 1996,
payable monthly, principal due on or
before March 31, 1998. Borrowings are
collateralized by, and limited to a
percentage of eligible accounts
receivables, finished goods inventories
and letters of credit as additional
collateral (Notes 6 and 9). $ 610,701 $ 222,702
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
effective interest rate of 9%. Monthly
principal redemption of one percent of
the then outstanding balance begins in
November, 1998 (Note 9). 2,450,000 2,450,000
Less current portion - 222,702
Total long-term debt $ 3,060,701 $2,450,000
</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 September 30, 1996, the Company had granted
494,943 options with various vesting periods and an exercise
price of between $1.56 and $3.00 per share. As of September
30, 1996, 268,610 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 issued an
additional 25,000 warrants at an exercise price of $1.50 per
share to the debenture holder in exchange for a waiver of
certain financial covenants. These 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.
Note 7 - Stockholders' Equity (continued)
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 -Financial covenants
Because of the $1.4 million non-cash charge to operations
for the current change in technology and discontinuance of a
product line, the Company has technically breached certain
financial covenants with its lenders. Additionally, this
charge may negatively impact the rate of conversion of the
convertible debenture issued in connection with financing
the Company obtained during fourth quarter of 1995. The
Company is currently finalizing negotiations with the
financial institutions to waive and/or cure the default
(Note 5).
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 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 8 minutes. The 5 and 8 minute models
were just introduced during the third quarter, with the 5
minute model quickly becoming one of the Company's top
selling models. This broad range of products with retail
prices ranging from $29.99 to $89.95 makes Voice It the only
company to offer consumers such a broad selection of
products and prices.
During October, 1996, the Company began shipping its
new dictation length solid state voice recorder product line
with organizer features. The palm-sized Voice It Managers
are available in two models with maximum recording
capacities of 22 and 45 minutes including an 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 and an
automatic telephone dialing feature. The products are being
launched in both catalogs and retail stores.
In October, the Company also announced the introduction
of its fifth new product for 1996. In November, Voice It
will begin shipping a new voice recognition clock, available
exclusively through the Brookstone catalog and Brookstone
stores during the holiday season. This is the first travel
alarm clock that lets you set the time and alarm with your
voice. It also includes a special "talk back" feature
confirming the time and alarm activation. This product is
the Company's first venture into the field of voice
recognition and expands its technology base.
The Company markets its products in the United States
and internationally in Canada, Europe, the Far East 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 and Canada. 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 in both sales dollars and in the number
of units sold. 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 leads the category with approximately 50% dollar
share of 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 has
resulted in significant 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
at nearly 48% gross margin for the current quarter ended
September 30, 1996. The Company expects to achieve similar
margin levels for the remainder of the year and is
continuing its efforts to improve gross margins through new
lower priced technology.
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 digital recording
products in the marketplace. In 1996, the Company again
focused on new products introducing two new note recorders
to its current product line, two new models of Voice Manager
products with dictation length recording capacities to 44
minutes and enhanced organizer features including a phone
bank and message alarm capability. Additionally, the
Company expanded its technology base by introducing its
first product with voice recognition capability. In
November, the Company will begin shipping a voice
recognition clock which uses voice commands to set the time
and alarm.
While the Company introduced five new products during
1996, it has also decided to discontinue a product. During
1995, the Company introduced the Message Center which was
designed to be used in households to organize messages for
family members. Although the Company was able to achieve
initial distribution in approximately 1500 stores, the lack
of consumer awareness combined with a competitors recent
liquidation of a similar type of product at very low prices
forced the company to make the decision to discontinue this
product line.
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 Nine Months Ended
September 30, September 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 69.5 52.1 61.1 58.7
Gross profit 30.5 47.9 38.9 41.3
Operating expenses
Administrative and
general 7.9 12.9 7.8 11.7
Selling and marketing 19.5 27.8 27.4 22.6
Research and development 6.4 6.9 6.1 6.8
Consumer price reduction
program 21.2 0.0 6.6 0.0
Non recurring charges
to operations 0.0 64.5 0.0 19.3
Total operating expenses 55.0 112.1 47.9 60.4
Operating income (loss) (24.5) (64.2) (9.0) (19.1)
Other income (expense),
net (0.7) (2.6) 0.3 (2.7)
Net loss before income
tax (25.2) (66.8) (8.7) (21.8)
Income tax (benefit) 0.0 0.0 0.0 0.0
Net loss (25.2)% (66.8)% (8.7)% (21.8)%
</TABLE>
Three Months ended September 30, 1996 compared to Three
Months ended September 30, 1995
Sales for the three months ended September 30, 1996
were $2,203,300 compared to $2,952,800 for the three months
ended September 30, 1995. The Company experienced strong
orders for its new Voice Manager product line during the
third quarter, 1996. However, the Company was delayed in
manufacturing and shipping the new Voice Manager creating
over a $1.1 million back order situation at September 30,
1996. The Company began shipping the Voice Manager to
retail accounts during the first part of October, 1996.
Management has also seen strong orders of its other new
product introductions. The VT-300 model with five minutes
of recording time and new "Flash" chip technology is quickly
becoming one of its more popular models. Management expects
to see significant retail sales of its products through the
holiday season with the implementation of a national
advertising campaign including cable television and spot
radio beginning in November, 1996.
Cost of sales for the third quarter ended September 30,
1996 decreased to $1,148,600 or 52.1% of net sales from
$2,051,000 or 69.5% of net sales during the third quarter of
1995. The dollar decrease is due in part to the
corresponding decrease in unit sales. However, as a
percentage of net sales, cost of sales have significantly
decreased through the Company's cost reduction program put
in place after adopting the aggressive pricing policy during
the third quarter of 1995. This cost reduction program and
the introduction of new technology has effectively increased
the Company's gross product margin back to 48% during the
current quarter from 30% during the third quarter of 1995.
General and administrative expenses increased 43% or
$51,500 to $284,200 or 12.9% during the third three months
of 1996 compared with $232,700 or 7.9% for the same period
in 1995. These expenses increased for the quarter due to
increased costs associated with investor relations including
salaries, legal and public relations expenses. Additional
costs associated with increased amortization and
depreciation is related to increased capital assets and
patent costs.
Sales and marketing expenses for the quarter ended
September 30, 1996 increased 6% or $35,200 to $612,500 or
27.8% of net sales in 1996 from $577,300 or 19.5% of net
sales in 1995. This slight increase is mostly due to
increased fixed costs such as advertising preparation (to
prepare the Company's fourth quarter advertising media)
offset by reduced variable costs due to lower sales volume.
Research and development costs decreased by $35,900 to
$152,500 for the third quarter of 1996 from $188,400 for the
same quarter in 1995. The Company capitalizes its product
software development cost in accordance with GAAP. These
costs are being amortized over the estimated useful life of
the product. The net effect of this change in the third
quarter of 1996 was to defer approximately $49,700 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 Company initiated an aggressive pricing strategy
during the third quarter of 1995. Associated with this
program was consumer price reduction program designed to
immediately reduce the retail shelf price of Voice It
products. The success of this strategy helped the Company
to capture the leadership role in the digital recording
category.
During third quarter, 1996, the Company recorded a non
recurring charge to operations of $1,421,703. This non-cash
charge results primarily from the discontinuance of the
Message Center product line and the reduction of certain
inventory carrying costs due to technology advances. In
discontinuing the Message Center product line, the charges
incurred are due to reducing the carrying cost of existing
inventory to the estimated market value as well as writing
off certain amounts for related tooling and product
merchandising.
Due to the above mentioned $1,421,703 non-recurring and
non-cash charge to operations, the Company recorded an
operating loss for the three months ended September 30, 1996
of $1,416,152 compared with an operating loss of $722,064
for the same quarter of 1995.
Net interest expense for the third quarter of 1996 of
$56,503 compares to net interest expense during the same
period last year of $19,541. 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 third quarter ended September 30, 1996
was $1,472,655 or $0.29 per share compared to a net loss of
$741,605 or $0.16 per share for the third quarter of 1995.
Nine Months ended September 30, 1996 compared to Nine Months
ended September 30, 1995
Sales for the nine months ended September 30, 1996
decreased to $7,355,500 from $9,449,500 during the first
nine months of 1995. Several factors have contributed to
the decrease in sales including a soft retail market which
caused both slower retail sales and the inability to expand
new distribution, the lack of new product introductions
during the first half of the year and a competitors
liquidation of discontinued models. During the third
quarter, the Company experienced strong orders for its new
high run time Note Recorders as well as its new Voice
Manager product line. At September 30, 1996, the Company
had over $1.1 million in orders for its Voice Manager that
began shipping in early October, 1996. Due to the
implementation of a national advertising campaign that will
including television and radio advertising, management
expects to see positive retail sales of its products through
the holiday season.
Cost of sales for the first nine months of 1996
decreased to $4,315,600 from $5,775,900 for the first three
quarters of 1995. As a percentage of sales, costs have also
decreased to 58.7% during the first nine months of 1996 from
61.1% of sales for the same period in 1995. This decrease
is due to the material cost reduction program including
price reductions through technology changes. Management
implemented these programs to coincide with the aggressive
pricing policy that was executed during the third quarter of
1995.
Administrative expenses increased $122,600 or 17% to
$860,400 during the first nine months ended September 30,
1996 from $737,800 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 $927,200 or
36% to $1,657,300 during the first three quarters of 1996
from $2,584,500 during the first nine months of 1995. The
primary reason for this decrease is due to the Company not
investing as heavily in consumer advertising during the
first nine months of 1996. The Company is planning to
concentrate its advertising during the fourth quarter of
1996, where it expects a bigger impact during the holiday
gift giving season.
Research and development expenses decreased for the
nine months ended September 30, 1996 to $502,000 or 6.8% of
sales compared to $576,600 or 6.1% of sales for the nine
months ended September 30, 1995. The Company currently
capitalizes its product software development cost in
accordance with GAAP. The effect of this capitalization,
net of the appropriate amortization for the three quarters
of 1996, was to defer approximately $141,800 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. Before the capitalization of software
costs, total research and development expenses increased due
to the introduction of the new longer run time, flash memory
Note Recorders, the new Voice Manager products as well as
the new Voice Activated Alarm Clock.
While the Company posted an operating profit for the
first six months of 1996, the $1.4 million one time charge
to operations during the third quarter created a net
operating loss for the nine months ended September 30, 1996
of $1,401,514. This compares with an operating loss for
the first nine months last year of $847,957.
Net interest expense for the first three quarters of
1996 of $200,700 is compared to a net interest income during
the first three quarters of 1995 of $32,100. The primary
component of this interest expense is the cost of the
Company's convertible debt of $2,450,000 which was funded
during the fourth quarter of 1995. This results in a net
loss for the Company's nine months ended September 30, 1996
$1,602,258 or $0.32 per share compared with a net loss
during the same period last year of $815,889 or $0.18 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 September 30, 1996, the Company had cash and cash
equivalents of approximately $380,400 and working capital of
approximately $3,472,200.
Cash generated by the Company during the nine months
ended September 30, 1996 was approximately $129,100. For
the nine months ended September 30, 1996, the Company
recorded a net loss of approximately $1,602,300 and adjusted
it for non-cash items totalling $1,612,972. The principal
non-cash item was the $1.4 million third quarter one time
charge to operations related to the discontinuation of the
Message Center product line as well as inventory charges due
to technology changes. Other non-cash items included
depreciation, bad debts and discounts and amortization of
loan costs. Uses of cash for the period included increases
in inventories by approximately $216,400 as well as
decreases in accounts payable and accrued liabilities by
approximately $758,600 and $162,000 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
prepaid expenses of approximately $2,348,200 and $17,800
respectively in addition to the increase in short term notes
payable. The accounts receivable decrease is due to the
first quarter collection of the higher fourth quarter, 1995
sales. The increase of the note payable was due to
reclassifying the Company's outstanding bank financing to
short term. Additional uses of cash include $220,300 for
the acquisition of tooling, property and equipment as the
Company increases its manufacturing capacity for new
products, and $290,300 in acquiring other assets. During
the nine months ended September 30, 1996, the Company used
approximately $388,000 to repay a portion of its bank line
of credit and transferred approximately $222,700 to short
term notes payable for a total use of cash for financing of
approximately $610,700.
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. 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.
Because of the third quarter $1.4 million non-cash
charge to operations relating to the discontinuance of the
Message Center product line as well as the current change in
technology, the Company is in technical default of certain
financial covenants with its lenders. This charge may also
have a negative impact on the rate of conversion for the
convertible debenture mentioned above. The Company is
currently finalizing negotiations with the financial
institutions to waive and/or cure the default.
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. Because of the
$1.4 million non-cash charge to operations for the current
change in technology and discontinuance of a product line,
the Company is in technical default of certain financial
covenants with its lenders. This charge may also negatively
impact the rate of conversion of the convertible debenture
issued in connection with financing the Company obtained
during fourth quarter of 1995. The Company is currently
finalizing negotiations with the financial institutions to
waive and/or cure the default.
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: 11/13/96 /s/ Michelle L. Morgan
Michelle L. Morgan
President, CEO
Date: 11/13/96 /s/ John H. Ellerby
John H. Ellerby
Chief Accounting Officer
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<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 380,432 380,432
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<INCOME-TAX> 0 0
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