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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission File Number 0-7796
VOICE IT WORLDWIDE, INC.
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(Name of small business issuer in its charter)
Colorado 83-0203787
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer Identifica-
incorporation or organization) tion Number)
2643 Midpoint Drive, Suite A
Fort Collins, Colorado 80525
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(Address of principal executive (Zip Code)
offices)
Issuer's telephone number, including area code: (970) 221-1705
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.10 Par Value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $12,219,109.
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant: As of March 31, 1997: $2,346,700*.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: $.10 Par Value Common Stock--
5,054,802 shares as of March 31, 1997.
Transitional Small Business Disclosure Format: Yes No X
--- ---
* The aggregate market value was determined by multiplying the number of
outstanding shares (excluding those shares held of record by executive
officers, directors and greater than five percent shareholders) by
$0.734375, the average of the bid and asked prices of the Registrant's
common stock as of March 31, 1997, such date being within 60 days prior to
the date of filing.
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PART I
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-KSB and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending and competition. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made by or on behalf of the
Company. These risks and uncertainties include, but are not limited to, those
relating to market conditions, product life cycles, customer delays in
purchasing products, technology shifts, potential difficulties in introducing
new products, competition, price sensitivity and the uncertainty of continuing
market acceptance of the Company's products by distributors, retailers and
consumers.
ITEM 1. DESCRIPTION OF BUSINESS.
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GENERAL
Voice It Worldwide, Inc. (the "Company") designs, develops and markets
a line of personal consumer electronics products which digitally record and
store voice information on solid state memory. Voice It products utilize
computer chip technology to capture and organize ideas, thoughts, reminders and
messages. In 1993, the Company introduced its first product line, the Voice
It(R) Personal Note Recorder, dimensionally sized like a credit card and
approximately 1/3 inch thick. The compact size, ease of use and portability
make Voice It Personal Note Recorders a convenient replacement for handwritten
sticky notes, particularly at times and in places where handwriting is
impractical. Voice It Personal Note Recorders are available in recording
capacities ranging from 40 seconds to six minutes. Unique message management
features make it easy to leave multiple messages, save individual messages, play
them and erase them when no longer needed. Memory management, message
management and high quality voice reproduction have helped the Company stay on
the leading edge in product features and longer recording capacity. During
1996, Voice It was the leading brand of digital note recorders, offering six
different models, with prices ranging from $29 to $90.
In late 1995, the Company introduced its second product line, the
Voice It Family Message Center. The product was launched during the Christmas
season of 1995 and was positioned as a better way to leave family members
messages, notes and reminders. Although the Company was able to achieve good
distribution, nearly all retailers chose to carry the product in their
electronics department, which is targeted toward male rather than female
consumers. In late 1995 and early 1996, the Company launched its advertising
program for the product but was unable to generate sufficient sales at the
retail level to sustain distribution. Management believes the failure to
generate strong retail sell-through was due to problems with product placement
at the store level, a slow electronics retail market, pricing and communications
to the target market. During 1996, nearly all retailers carrying the product
returned excess merchandise. Because of rapidly changing technology and the
financial risk to re-introduce the product, management took a one-time
writedown of the inventory and associated costs to liquidate the excess product,
which it expects will be completed in 1997.
During the fourth quarter of 1996, the Company introduced the Voice
It(R) Managers, a new line of digital recording products that offers both
extended digital recording capacity and organization features, including time
and date stamping of messages and channel organizers, an LCD display and a
built-in icon library for file folder labeling. The Voice It Manager products
also offer message alarms, calendar
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scheduling, a phone data bank for 100 names with three phone numbers each and
auto-dialer capabilities. Three models are available with recording capacities
of 22 minutes, 45 minutes or 90 minutes, ranging in price from $89 to $199. The
Company was able to secure distribution in over 1,500 retail outlets and
placement in several national direct mail catalogs.
During the fourth quarter of 1996, the Company began shipping a new
voice recognition clock. This product was 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, date and
alarm activation. This product is the Company's first venture into the field of
voice recognition and will help expand its technology base.
The Company distributes its products in the United States through a
network of manufacturers representatives and internationally through
distributors. In the U.S. and Canada, the products are available in a variety
of distribution channels including direct mail catalogs, department stores, mass
merchants, office super stores, catalog showrooms, electronic specialty stores
and drug stores. As the category has developed, the Company secured diverse
distribution in a large number of retailers. During 1996, the returns of excess
Message Center inventory and a slower electronics market caused loss of
distribution of Voice It note recorders in department stores and mass merchants
compared with the previous year. While some retailers discontinued carrying the
product, the Company was able to add some new retailers to its distribution. By
year end of 1996, Voice It products were distributed in approximately 4,000
outlets in the U.S. and 1,000 outlets in Canada. Voice It products are
available in such well known retailers as The Sharper Image, Brookstone, Service
Merchandise, Staples, OfficeMax, Office Depot, Circuit City, Best Buy, Longs
Drug Stores and Fred Meyer. In Canada, the products are also available through
Radio Shack, London Drugs, Office Depot and Business Depot. Internationally,
Voice It products are available in 15 countries, with new distributors in 1996
in England, Spain, Belgium and Holland.
The Company markets its digital recording products directly to
consumers, targeting those individuals most likely to benefit from the solid
state technology. The Company utilizes a national public relations program, as
well as print and broadcast advertising, to increase consumer awareness and
purchasing of the Voice It branded products. The market for digital recorders
is in the early stages of the product life cycle. From 1993 to 1995, the
category grew quickly for gadget oriented products with recording capacities of
less than one minute. During 1996, sales of digital recorders of this type
appear to have declined and growth has only occurred with the addition of longer
capacity recorders. Management believes that as digital recording technologies
advance, memory costs decrease and recording capacities increase at reasonable
prices, the market will again increase and begin to compete in existing similar
categories of electronic products. New, longer capacity Voice It digital
recorders and organizers will be positioned to compete against the existing
tape-based recording products and the key driven organizers found in the market
today.
The Company contracts for the manufacture of its products in the Far
East, using companies with fully integrated, turnkey manufacturing services with
expertise in chip-on-board technology, surface mount board assemblies, printed
circuit boards, liquid crystal displays and ISO Quality Certification Programs.
In addition, the Company employs on-site quality control personnel for product
inspection and release. The Company protects its proprietary technologies
through a combination of trade secrets, trademarks, patent applications and
copyrights, where appropriate. In 1995, the Company received registration of
its Voice It trademark and a design patent on the Voice It Personal Note
Recorder line. In 1996, the Company continued to receive worldwide recognition
of the Voice It trademark in such countries as Canada, Germany, Austria,
Belgium, Luxembourg, Netherlands, France, United Kingdom, Sweden, Switzerland
and Australia.
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BUSINESS STRATEGY
The Company's plan of operation and business strategy is based on the
following core points:
Market a broad range of Voice It Personal Note Recorders and Managers
to meet consumer needs and to target various channels of distribution of the
target market. Voice It products appeal to a broad range of consumers by
offering a variety of features and prices to meet consumer communication and
pricing needs. By providing several different models of both the note recorders
and managers, the Company is able to broaden market appeal, significantly
increase retail shelf presence and increase product benefits for the end user.
Maintain value pricing of Voice It products to maintain market share
leadership and a competitive advantage in price vs feature value to the end
user. Marketing its products at competitive price points provides value to
consumers when they make their brand decision. By consistently offering better
features at lower prices, management believes it can compete with higher priced
brand name competitors.
Continue to increase consumer awareness of the Voice It brand name
through a national public relations campaign and national advertising during key
seasonal selling periods. The Company is continuing its advertising and public
relations efforts to the consumer marketplace with emphasis in the gift giving
seasons of the year. The Company plans to continue utilizing print media and
supplementing with broadcast media in target markets.
Aggressively develop and introduce new products in the digital
recording arena to maintain a leadership role in the note recorder category and
to establish the Voice It brand to compete in the exiting markets of tape-based
recorders and key-driven organizers. Additional emphasis has been placed in
research and development to capitalize on the changing technologies in the
digital voice market. In 1996, the Company introduced three new recording
products and its first voice recognition product for distribution exclusively at
Brookstone. In 1997, the research and development program is being accelerated
to introduce products that can transfer digital voice data to the personal
computer for editing, transcription, archiving and attaching to E-mail and
Internet messages.
Aggressively seek relationships which can enable Voice It to more
rapidly access the market of digital, solid state recording. The Company has
been focusing efforts on successfully building a profitable business by
increasing its size and/or resources through strategic partnerships. With the
slowing of the consumer electronics market, the Company needs to add to its
critical mass to become a significant and profitable player in the consumer
electronics business.
VOICE AS A PRIMARY DATA SOURCE
The easiest and most common means of communications is by spoken word.
Speaking is easy, fast, universal and expressive in meaning and connotation.
The majority of documentation in business and personal life come in the form
of written expression because voice cannot easily be stored and used as a source
of data. However, technology advances in just the last two years are making it
easier to use voice as the primary communications tool.
With the advent of high speed personal computer processors, low cost
memory and the Internet, people will soon have the capability of using voice as
an alternative data source. There will be no need to convert voice into written
format when speech can be used to communicate. Verbal information, captured on
a Voice It digital recorder, once transferred to a PC can be saved, edited and
transmitted via E-mail, without undergoing any conversion. This transformation
will open up a new world of verbal
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communications not possible just a couple of years ago. Management believes
these technological advances can create a shift in the everyday means of
communication both personally and in business.
PRODUCTS
The Company has currently defined three product categories for
development: personal messaging, with the use of a Voice It personal note
recorder; personal organization, with the Voice It Manager; and personal and
interpersonal communications, with the Voice It PC Download Digital Recorder.
Initially, the Company focused on personal messaging with its Voice It
Personal Note Recorder product line. The Voice It note recorder was invented to
provide consumers with a small, portable means of recording short messages as
personal reminders. The product uses computer chip technology allowing voice
signals to be recorded on a silicon chip. The Voice It Personal Note Recorder
is roughly the size of a credit card. Because of its small size and light
weight and the fact that it is battery powered, the product is highly portable.
This portability makes the product a convenient replacement for handwritten
notes and reminders, particularly in places where handwriting is impractical -
such as in the car when writing is both impractical and unsafe.
The Company has developed a product line of note recorders which
includes six different models, each with a different recording capacity and some
with different message management features. Recording capacities in the product
line range from 40 seconds to six minutes. All models can hold multiple
messages of any length up to the total recording capacity of the model.
Messages can be accessed instantaneously with controls similar to a CD player.
Messages can be saved until no longer needed and erased one at a time or all at
once, if necessary. Higher end models contain additional features of audio
cues, speeds, and channels for categorizing messages. Voice It products are
superior in the market because of the message management features, the high
quality voice recording and the availability of a variety of recording
capacities.
In 1996, the Company focused on using voice as a way to keep organized
- - from reminder recordings such as "call Judy about the dates for house-
sitting", to messages pre-set to alarms on a daily, weekly or yearly basis
such as "don't forget Mom's birthday - and her favorite flowers - gardenias", to
a personal phone data bank (capable of storing 100 names with three phone
numbers each) with an autodialer (when you're in a busy airport). The Voice It
Manager uses high voice compression technology paired with innovative features
that make it easy to save and store information in verbal form. The Voice It
Manager brings state-of-the-art long capacity flash memory technology to solid
state recording. Flash memory means you don't lose your information, whether it
is messages or phone numbers - even when your batteries run down or you replace
them. With exceptional recording capacity plus the ability to categorize
information, set alarms and review messages by their date and time stamp, the
Voice It Manager is the most advanced product of its kind - and at retail prices
that range from $89 to $199. Recording capacities range from 22 minutes to 90
minutes.
In 1997, the Company expects to introduce a digital recorder line
which will have the capability of interfacing with a Personal Computer. Voice
recording on a Voice It Digital Recorder will allow information entry, access
and editing currently impossible in a tape format. Downloading to a computer
will provide additional editing for message management features as well as the
ability to archive information in voice form. Transmitting messages will also
be possible by attaching voice files to E-mail or Internet messages - for more
personal and expressive communication. Lastly, if information needs to be
transferred to written word, voice messages can be played for easy transcription
on the PC.
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PERSONAL DIGITAL RECORDING MARKET
In 1993, the Company introduced the first credit-card sized digital
recorder in the market. Since that time, the Company has established itself as
the leader in the digital recorder market which has grown significantly since
1993, with Voice It factory unit sales increasing from approximately 5,000 units
in 1993 to more than 300,000 units in 1996. In the first three years of
marketing, the Company's products were positioned primarily as a replacement for
handwritten notes and reminders, a new category in the personal electronics
market. Sales growth was achieved through increased consumer demand as well as
increased distribution at the retail level.
Management estimates that in 1996, approximately half of the solid
state recorder category was comprised of products with recording capacities
under one minute. The low recording capacity segment of the category includes a
large number of "gadget" recorder products offering poor voice quality and a
limitation of recording just one message. The other half of the market
consisted of products that have recording capacities ranging from approximately
one and one-half minutes to 20 minutes. This segment of the category is
currently dominated by Voice It models. Substantial category growth took place
in 1994 and 1995 as evidenced by increased distribution and increased sales
volume to existing customers. After a weak 1995 holiday selling period and an
industry downturn in consumer electronics, the Company experienced lowered
factory sales on its note recorder line and significant product returns on the
Message Center throughout 1996. In addition, factory sales were affected by a
substantial number of competitive models being liquidated at extraordinarily low
selling prices. The distribution of these close-out models caused lower Voice It
sales and helped contribute to the loss of distribution in some outlets.
During the second half of 1996, the Company continued to expand its
product line to include a variety of differently featured recorders, using the
most recent advances in voice and digital voice technology. In 1994, Voice It
offered three models for retail sale and increased this number to six models in
1995. During 1996, the Company upgraded its Personal Note Recorder product
line by adding message management features and utilizing new "flash" memory.
Flash memory does not require battery power to store information and, therefore,
Voice It products utilizing this technology can save messages even when
batteries run low or are removed and replaced. During the third quarter of
1996, the Company made the decision to discontinue its Family Message Center and
began selling its remaining inventory at lower prices. In the fourth quarter of
1996, the Company introduced two new Voice It Manager organizers which use voice
as the primary data entry form. These products began shipping in October;
however, backorders were not completely shipped until mid-December. These late
initial shipments accounted for some lost sales due to the inability of the
Company to reach some retail shelves in time for the holiday buying season.
Initial sell-through on these products is promising, with strong sales in the
direct mail catalog outlets during November and December of 1996. By increasing
recording capacities to 90 minutes and adding organization features, management
believes that its brands now can compete in the "tape-based" personal recorder
market as well as in the "key-entry" digital organizer market.
Management believes that it is essential for the Company to continue
to increase its product lines to incorporate new features, longer recording
capacity and the ability to make communications easier and faster with the
interface to the personal computer. By incorporating ways to use voice to
simplify and improve communications, digital recording can be utilized in more
personal and business environments.
MARKETING AND SALES
The Company markets its products primarily through retail channels.
In the U.S. and Canada, the Company's products are available in a broad range of
retail stores including office super stores, catalog showrooms, electronic
specialty stores, department stores and catalogs and direct mail catalogs.
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Approximately 4,000 retail outlets in the United States carry the products,
including such retailers as Neiman Marcus, Foley's, Hammacher Schlemmer, Day-
Timers, J.C. Penney catalog, Service Merchandise, Staples, OfficeMax, Office
Depot, Fedco, Lechmere, Circuit City, Best Buy, Brookstone and The Sharper
Image. For the fiscal year ended December 31, 1996, the Company had one
customer which accounted for sales of approximately 13% of its business. In
Canada, the products are available in Radio Shack stores, London Drugs, Office
Depot and Business Depot stores. Internationally, the Company's products are
distributed through a variety of retail stores and catalogs.
The Company's marketing strategy emphasizes the unique features and
benefits of the Voice It Personal Note Recorder and Voice It Manager products.
The Company offers several models for broad scale distribution and selected
models for sheltered distribution in department stores and direct mail catalogs.
The Company's strategy also emphasizes the sales potential of the product line
based on successes at other retail outlets and the margins the product affords
to retailers.
The Company sells its products to retailers through a national network
of independent manufacturers representatives who sell through direct contact
with retail and wholesale accounts. The Company has 20 independent groups who
cover the U.S. and Canadian markets. These representatives are paid on a
commission-only basis. In addition, the Company utilizes exclusive distributors
internationally and has focused its efforts mainly in Europe. U.S. and Canadian
retail accounts are provided with payment terms of up to 60 days whereas
international business is primarily conducted with the use of letters of credit,
payment upon receipt of goods and payment terms of up to 30 days after receipt
of goods.
The Company promotes its products directly to consumers through
national advertising and public relations efforts. In 1995, the Company
concentrated its national advertising in print and radio, running two flights
during the year, one at the Father's Day gift period and again during the
holiday season. In 1996, the Company focused the majority of its efforts
primarily in national television advertising airing during the holiday selling
season on such networks as TNT, TBS, CNN and Headline News. Management believes
that its advertising efforts have increased consumer awareness and purchases of
the Voice It brand. Total dollar expenditures on advertising were decreased in
1996 compared with 1995 due to the discontinuance of the Message Center product
line and the decreased advertising expenditures during the Father's Day period.
The Company also engages the services of a public relations firm to
generate trade and consumer press coverage of its products. The efforts this
year have been significant in terms of print, radio and broadcast coverage of
Voice It products in such venues as Popular Science, Selling Power, Sales and
Marketing Technology, Today's Realtor, Computer Life, New York Magazine and
numerous newspapers across the country.
MANUFACTURING AND SUPPLIERS
The Company currently contract manufactures its products in the Far
East with firms specializing in fully integrated, turnkey contract manufacturing
of electronic products. They have expertise in chip-on-board technology,
surface mount board assemblies, printed circuit boards and liquid crystal
displays. They provide the Company with vertically integrated manufacturing
operations which management believes provide better manufacturability and cost
effectiveness for its products. Additionally, these companies employ ISO
Quality Certification Programs, which help insure that the products meet the
Company's quality specifications. The Company also takes an active role in
quality assurance by employing on-site quality control personnel to conduct in-
process and final quality inspection as well as authorize release of finished
goods shipments.
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The Company purchases certain critical component parts of its products
directly from third parties. In addition, the Company relies on its contract
manufacturers to supply critical components. Primary suppliers of chip
technology used in the Company's products include Information Storage Devices,
Inc., Lucent Technologies, Microchip Technology, Inc., Oki Electronic Ltd. and
Samsung Semiconductor.
COMPETITION
Although the Voice It Personal Note Recorder was the first product of
its kind to be sold widely through retail channels, direct competition emerged
during the second half of 1994. Many products which compete with the note
recorder line are of short recording capacity, low recording quality and have
little or no ability to manage multiple message recording, selectively erase or
skip search messages. The primary competitor to date in this segment of the
category is a product called MemoMate which was introduced in the market in late
1994 through a direct marketing campaign utilizing direct response advertising
on television. This product was originally priced in the $30 range when first
introduced to the retail market in early 1995. Voice It's aggressive pricing
strategy, implemented during the second half of 1995, forced MemoMate to reduce
prices and eventually to close out price its remaining models. Most of the close
out prices occurred in 1996 when the average selling price on this product were
at levels below $12. In addition to MemoMate, there have been numerous other
small brands which have entered the market at the low end including Conair,
Allied Voice, Northwestern Bell and a number of "recorder-key chains" with 20
seconds or less of recording capacity. Many of these products were introduced in
1995 and have been sold at close out pricing during 1996. Management believes
that a certain segment of the market exists for products in this "gadget"
category, but that products of this type do not offer substantial benefits to
consumers and are sold at very low margins to reach retail prices below $15.
During 1996, several large companies entered the digital recording
market with products which ranged in recording capacities from 20 seconds to 18
minutes. Olympus was the first company to introduce a line of personal note
recorders directly competitive with the lower capacity recorders in the Voice It
product line, but at higher price points. Olympus was able to secure limited
distribution to compete directly with Voice It. During the second half of 1996,
Olympus reduced the retail price of their products to compete at the same price
points as Voice It. In the limited number of stores where the brands directly
compete, Olympus has been able to gain some market share. In early 1997,
Olympus introduced their plans to market a digital recorder using removable
flash memory for delivery in the second half of the year, with a recording
capacity of approximately 30 minutes and a projected price of $250.00 at retail.
In early 1996, General Electric introduced a note recorder with
approximately 90 seconds of memory. Distribution of the product was fragmented
and was not seen in the outlets that carry Voice It products. By the end of the
year, retailers reported getting special close out pricing on this model. No
significant market share was able to be gained by General Electric. In mid-1996,
Sony began shipping a digital recorder with 16 minutes of capacity. The unit
retailed in price at approximately $150 and offered message management and
digital editing features. The product was able to secure distribution in office
super stores, electronic specialty outlets and department stores; however,
market share is estimated to be low for the Sony product. In 1997, the Company
expects to see new competition in the personal note recorder category as well as
in the longer recording capacity digital recording market. It is expected that
such companies as Sanyo, Aurora, Machina, and Sycom will be introducing new
products in the digital recording arena, as well as continuing products from
Olympus and Sony.
Indirect competition for the Voice It products exists in other
portable digital recording products at the high end of the market. One of these
competitors, Voice Powered Technology International, Inc., utilizes voice
recognition technology in an organizer that can serve as a note recorder. Voice
Powered
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products were priced significantly higher than the Company's in 1995 and
early 1996 at prices ranging from $100 and above. By mid-1996, Voice Powered
redesigned its product line utilizing flash technology and sold older models at
close-out pricing during the second half of 1996. The introduction of their new
products and the sales of their older models at reduced prices allowed Voice
Powered to gain distribution and market share during the second half of 1996.
The Company believes that in the emerging solid state recorder
category, competitive activity can serve to increase consumer awareness and
stimulate consumer demand. With effective positioning of Voice It products as a
feature and value leader, management believes it can effectively compete in the
note recorder category as well as the organizer and "tape" based recorder
markets.
PATENTS AND TRADEMARKS
The Company seeks to protect its proprietary technologies through a
combination of trade secrets, patents and copyrights, where appropriate. A
patent application for the Voice It products was filed with the U.S. Patent and
Trademark Office in March 1993 and is currently pending. Additionally, patents
have been filed in 15 foreign countries. Management believes that the secondary
or advanced features of its credit card-sized solid state voice recorder may be
patentable under current patent law in both the United States and
internationally. Additionally, the Company's patent applications do not appear
to infringe on any currently issued patents in the United States or
internationally. The Company has received trademark registration in the United
States for "Voice It" and has also received registered trademarks for "Voice It"
in various foreign countries. The Company has also received a design patent in
the United States for its Voice It Personal Note Recorders.
Management believes that due to the rapid pace of technological change
in its industry, the Company's success is likely to depend more upon continued
innovation, technical expertise, established retail distribution, marketing
skill and customer support than on legal protection of the Company's proprietary
rights.
EMPLOYEES
The Company currently employs 29 persons, including its seven
executive officers and its vice president of manufacturing. Management believes
that it maintains good relationships with the employees. The Company's
employees are not unionized.
PRIOR CORPORATE HISTORY
Prior to the merger in 1994, Voice It Technologies, Inc. ("Voice It")
was incorporated in 1993 to design, develop and market electronic personal
message products to be used in the home, automobile, away from home and in
business. Product development was commenced in 1992 by Tim Walters and Anil
Agarwal, working on product concepts and prototypes of a working solid state
personal note recorder. In early 1993, a management team was assembled to
evaluate the market potential for hand-held personal note recorders using
computer chips as the recording media. Secondary research and focus groups were
conducted in early 1993, which led management to believe that it could achieve
market acceptance of its Voice It Personal Note Recorder. The Company was
incorporated in April 1993, completed initial business plans and commenced
efforts to obtain financing for its proposed operations. The Company's first
private placement of Common Stock was completed in September 1993. The Company
continued its funding through additional management contributions to capital and
a second private placement which was completed in November 1994.
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While the Company was seeking capital in 1993, it made initial contact
with the officers of Lander Energy Co. ("Lander"). Discussions took place in
early 1994 regarding potential capital funding through a merger with Lander.
The Board of Directors of Voice It believed a merger with Lander offered the
Company and its shareholders an opportunity to enhance its financial strength,
thereby providing increased opportunity for growth, technology innovation and to
meet competitive challenges.
Effective December 29, 1994, the shareholders of Lander and Voice It,
respectively, approved and adopted an Agreement and Plan of Merger, dated as of
June 27, 1994, as amended effective September 6, 1994 (the "Merger Agreement")
which provided for, among other things, the merger of Voice It with and into
Lander (the "Merger"). As a result of the Merger, Lander acquired the assets
and assumed the liabilities of Voice It and Voice It ceased to exist as a
separate legal entity. Although Lander was the surviving entity, for accounting
purposes the Merger has been treated as a reverse acquisition with Voice It as
the acquirer.
Pursuant to the Merger Agreement, Lander (i) amended its articles of
incorporation to provide for a 4.98 for 1 reverse split of all outstanding
shares of its Common Stock prior to the Merger, resulting in 979,431 post-split
shares, while maintaining the number of authorized shares of Common Stock at
10,000,000 with a par value per share of $0.10; (ii) issued an aggregate of
3,428,500 shares of Common Stock to the holders of all of the common stock of
Voice It; and (iii) changed its name to "Voice It Worldwide, Inc."
Because of the reverse acquisition accounting treatment, with Voice It
as the acquirer, the historical financial statements prior to and including 1994
are those of Voice It. The operations of Voice It are the only continuing
operations of the Company after the Merger.
ITEM 2. DESCRIPTION OF PROPERTY.
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The Company's principal executive office is located at 2643 Midpoint
Drive, Suite A, Fort Collins, Colorado 80525, and its telephone number is (970)
221-1705. The Company currently leases approximately 4,800 square feet of
office and warehouse space at a monthly rental of approximately $4,200 expiring
in February 1998. Management believes that its leased space will be adequate at
least until the end of 1997.
ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
No material legal proceedings to which the Company is a party or to
which the property of the Company is subject are pending and no such proceedings
are known by the Company to be contemplated. No legal actions are contemplated
nor judgments entered against any officer or director of the Company in
connection with any matter involving the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
10
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- -----------------------------------------------------------------
(a) Commencing January 6, 1995, the Common Stock began trading in the
over-the-counter market on the NASD OTC Bulletin Board on a post-Merger basis
under the symbol "MEMO." The following table sets forth, for the periods
indicated, the high and low bid prices of the Common Stock:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ----- -----
<S> <C> <C>
March 31, 1995 $2.75 $1.00
June 30, 1995 4.00 2.00
</TABLE>
As of July 18, 1995, the Common Stock began trading on the Nasdaq SmallCap
Market under the symbol "MEMO." Since July 18, 1995, the high and low bid
prices of the Common Stock were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ----- -----
<S> <C> <C>
September 30, 1995 $4.00 $2.38
December 31, 1995 3.38 2.13
March 31, 1996 $2.75 $0.94
June 30, 1996 2.00 1.00
September 30, 1996 2.13 1.38
December 31, 1996 1.56 1.00
</TABLE>
The foregoing information was provided by the National Quotation Bureau
based on information supplied by the National Association of Securities Dealers,
Inc. through the NASD OTC Bulletin Board, its automated system for reporting
non-Nasdaq quotes. Prices do not include retail markup, markdown or
commissions.
(b) As of March 31, 1997, there were approximately 2,200 record holders of
the Common Stock.
(c) No dividends have been declared by the Company within the last two
years and the Company does not presently intend to declare any dividends in the
future.
11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
- ------------------------------------------------------------------
OVERVIEW
Voice It Worldwide, Inc. 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 pencil. Voice It products
utilize computer chip technology to capture ideas, thoughts, reminders and
messages, incorporating high quality recording with patent pending message
management features.
The Company's first product, the Voice It(R) Personal Note Recorder, with a
75-second capacity, was introduced in the market in November 1993. Since then,
the Personal Note Recorder product line has expanded to six different models
with recording capacities from 40 seconds to six minutes with price ranges of
$29 to $90. 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. Unique
message management features make it easy to record multiple messages, play them
and erase them when no longer needed.
During the fourth quarter of 1996, the Company introduced the Voice It(R)
Managers, a new line of digital recording products that offer both extended
digital recording capacity and organization features, including time and date
stamping of messages and file folder organizers, an LCD display and a built-in
icon library for file folder labeling. The Voice It Manager products also offer
message alarms, calendar scheduling, a phone data base for 100 names with notes
and three phone numbers for each name and also includes auto-dial capabilities.
The Company was able to introduce these products in over 1,500 stores in
addition to several national direct mail catalogs. As of the first quarter of
1997, the Company is marketing three models which have recording capacities of
22, 45 and 90 minutes and range in price from $89 to $199.
The Company markets its products in the United States and internationally
in Canada, Europe, South Africa and the Middle East. Voice It products are now
available in a variety of distribution channels including direct mail catalogs,
department stores, mass merchants, office super stores, catalog showrooms,
electronic specialty stores and drug stores. Many of the retailers carrying
Voice It products are well known stores such as The Sharper Image, Brookstone,
Service Merchandise, Staples, OfficeMax, Office Depot, Circuit City and Best
Buy. In Canada, the products are also available through Radio Shack, London
Drugs, Office Depot and Business Depot. Internationally, the Company now has
distribution in approximately 15 countries worldwide, with new distributors in
England, Spain, Belgium and Holland. The Company experienced strong retail
success in France and Italy during 1996.
At the start of the third quarter of 1995, the Company implemented a new
pricing strategy on its Personal Note Recorder line 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 units and introduced new higher margin note recorders with
longer recording capacities. Management believes the pricing strategy has
allowed the Company to capture a significant share of the note recorder market.
In late 1995, the Company introduced a second product line, the Voice It
Family Message Center. The product was launched during the Christmas season of
1995 and was positioned as a better way to leave family members messages, notes
and reminders. Although the Company was able to achieve good initial
distribution, nearly all retailers chose to carry the product in their
electronics department, which is targeted toward male rather than female
consumers. In later 1995 and early 1996, the Company launched
12
<PAGE>
its advertising campaign for the product, but was unable to generate enough
retail sell-through to sustain the distribution. Management believes the failure
to generate strong retail sales was due to a combination of problems with the
product placement at the store level, a slow electronics retail market, pricing
and communication to the target market. During 1996, nearly all retailers
carrying the product returned the merchandise, leaving the Company with excess
inventory. Because of the rapid change in technology and the financial risk to
re-introduce the product, management chose to write down the value of the
inventory and the associated costs of the technology change and take a
$1,421,700 non-cash charge to operations during the third quarter of 1996.
During 1997, the Company will liquidate the remainder of the inventory at prices
at or above the reduced value.
Because of the magnitude of this non-cash charge to operations, below is a
proforma comparison of the Statements of Operations for the twelve months ended
December 31, 1995 and 1996 showing the operations of the Company without the
effect of the non-cash charge:
PROFORMA STATEMENTS OF OPERATIONS
---------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C> <C> <C>
$ (000) % $ (000) %
------- --- ------- ---
Sales - net $15,635 100 $12,219 100
------- --- ------- ---
Gross profit without obsolete
charge to operations 5,930 38 5,203 42
Operating expenses 6,883 44 5,064 41
------- --- ------- ---
Operating profit (loss) before
obsolete non-cash charge (953) (6) 139 1
Obsolete goods non-cash
charge to operations 0 0 1,422 12
------- --- ------- ---
Net operating income (loss) $ (953) (6) $(1,283) (11)
======= === ======= ===
</TABLE>
This proforma presentation illustrates the increase in gross margins of the
Company as a percentage of sales due to the cost reduction program placed into
effect during the second half of 1995. Additionally, the proforma statements
show the effect that increased gross margins had on achieving an operating
profit for 1996, prior to the non-cash charge to operations.
13
<PAGE>
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>
Years Ended December 31,
1995 1996
------ -------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 62.1 57.4
Cost of obsolete goods & related charges 0.0 11.7
----- ------
Gross margins 37.9 30.9
Operating expenses
Administrative 5.6 9.6
Selling & marketing 34.7 25.4
Research & development 3.7 6.4
----- ------
Total operating expenses 44.0 41.4
----- ------
Operating (loss) (6.1) (10.5)
Other income, net (0.2) (2.2)
----- ------
Net (loss) before income tax
benefit (6.3) (12.7)
Income tax benefit 0.0 0.0
----- ------
Net (loss) (6.3)% (12.7)%
===== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Sales for the year ended December 31, 1996 decreased 22% to $12,219,100
from $15,634,800 for the year ended December 31, 1995. This decline in sales is
due in part to the discontinuance of the Company's Message Center product line.
The Company introduced that product during the second half of 1995 and sold over
$1 million during that time. During 1996, the Company credited returns of
Message Center product which did not sell-through before year-end. After a weak
consumer electronics 1995 holiday selling season, the Company's sales were
affected by the corresponding industry downturn in consumer electronics. In
addition, sales were affected by a substantial number of competitive models
being liquidated at extraordinarily low prices. During the last half of 1996,
the Company, in keeping with its leadership role, introduced new products with
"Flash" technology and expanded its Personal Note Recorder line to include
models with times ranging from 40 seconds to six minutes. The new "Flash" chip
technology allows messages to be retained on the Voice It unit without battery
backup, thereby expanding the usefulness of the product. In October 1996, the
Company also began shipping the new Voice It Manager series of products. These
new Voice It Manager products have recording times up to 90 minutes with
features that include a display, 4 channels with corresponding icons, alarms and
a phone data base that will allow you to automatically dial many telephones.
Cost of sales for the twelve months ended December 31, 1996 decreased
$2,688,900 to $7,016,500 or 57.4% of net sales in 1996 from $9,705,300 or 62.1%
of net sales in 1995 due in part to the corresponding decrease in sales.
However, cost of sales also decreased as a percentage of net sales due to an
aggressive cost reduction program initiated during the latter part of 1995. The
Company expects to continue its efforts to lower costs as a percentage of
sales.
Cost of obsolete goods and related charges were $1,421,700 for the year
ended December 31, 1996. As mentioned above, during 1996, the Company
discontinued selling its Message Center product
14
<PAGE>
line as an ongoing item and began to liquidate its inventory. The Company
incurred a non-cash charge to operations related to writing down the carrying
value of Message Center inventory as well as a write down of older technology
inventory to net realizable values.
Administrative expenses increased $299,100 to $1,171,600 in 1996 compared
with $872,500 in 1995. This increase is due to three factors. First is an
increase in the customer service costs. The Company places a great emphasis on
customer service as the link in keeping Voice It customers satisfied and
purchasing additional Voice It products. The second source of the
administrative expense increase is the higher personnel costs related to the
expansion of our financial area. Third, the Company expanded its financial and
shareholder relations program during 1996. Because the Company's common stock
is not actively traded, the Company initiated a program to increase its presence
with the financial community. As a percentage of net sales, administrative
expenses increased to 9.6% in 1996 from 5.6% in 1995. The reason for this
increase as a percentage of sales is due to the increased expenses as well as
the decrease in the sales base.
Sales and marketing expenses for the year ended December 31, 1996 decreased
by $2,325,400 to $3,106,800 or 25.4% of net sales in 1996 from $5,432,200 or
34.7% of net sales in 1995. This decrease is due in part to the discontinuance
of the Message Center product and the related advertising and promotion costs
that were incurred during 1995. Additionally, many sales expenses, such as
sales commissions and cooperative advertising, are variable and decrease in
proportion to the sales decrease. Finally, during 1995, the Company incurred
approximately $625,000, or approximately 4% of net sales, in price rebates to
retail accounts carrying Voice It products. This charge was used to immediately
lower the price to consumers as part of the Company's 1995 pricing strategy and
was not repeated during 1996. The Company continued its national advertising
campaign during 1996 with an introduction into television. During the fourth
quarter of 1996, Voice It advertising was shown on the Turner networks including
CNN, Headline News, TBS and TNT. The Company also continued its radio
advertising with spots in selected markets.
Research and development costs increased by $207,700 to $785,900 in 1996
from $578,200 in 1995. Research and development costs are classified as either
support costs and hardware design costs, which are expensed as incurred, or the
development of new software programs used in the Company's products, which is
capitalized and expensed over the economic useful life of the related product.
The increase in research and development costs during the year was due to
developing and expanding the Company's current Personal Note Recorder line by
adding two new recorders that take advantage of new "Flash" chip technology.
Additionally, the Company introduced two new Voice Manager models that include
the new "Flash" chip technology and have recording times of 22 and 45 minutes,
with a 90-minute model to be introduced early in 1997. New product development
is an essential activity of the Company with over 40% of 1996's sales volume
being accounted for by new models. The Company is also working toward
strengthening its current technology associations with such companies as
Information Storage Devices, Microchip Technology Inc., Oki Electronics, Lucent
Technologies, Samsung Semiconductor and Toshiba to achieve longer recording
times as well as unique message storage and retrieval features.
The operating loss for the year ended December 31, 1996 was $1,283,400
compared with an operating loss of $953,400 in 1995. The primary factor that
contributed to this loss for the year ended December 31, 1996 was the $1,421,700
charge to operations relating to obsolete goods and related charges, primarily
resulting from the write-down of the Company's Message Center product line.
Without this charge, the Company would have recorded an operating profit of
$138,300 for the year compared with the $953,400 loss during 1995. The primary
reason for this increase is due to the decreased cost of goods sold and
resulting margin increase. While the Company's sales were $3.4 million lower
during the current
15
<PAGE>
year, gross margins, exclusive of the obsolete charges, were lower by only
$726,900 resulting in a higher gross margin as a percentage of sales. The other
reason for the net increase in operating profit is due to the decrease in
selling and marketing expenses. Voice It products continue to lead the Note
Recorder market for both units and dollars in sell-through to the consumer.
However, because the Note Recorder category has not grown as fast as originally
anticipated, and because Voice It has limited resources to promote this new
category, it is important that the Company continue its efforts in extending
recording times and operating features on its digital recorders to compete in
established categories including the tape recorder market and organizer
category.
Other income (expense) for the twelve months ended December 31, 1995
consisted primarily of interest expense on borrowed funds as well as expensing a
portion of the deferred loan costs associated with the $2.4 million convertible
debt. Net loss for the year ended December 31, 1996 was $1,556,251 or $0.31 per
share compared with the net loss for the same period last year of $980,318 or
$0.21 per share. Again, the primary reason for the 1996 loss was the $1.42
million non-cash charge to operations for cost of obsolete goods and related
charges.
QUARTERLY OPERATING RESULTS
The following table sets forth certain statements of operations data for
each of the Company's last four quarters using the proforma format mentioned
above. The information for each of these quarters is unaudited but includes all
adjustments, consisting only of normal recurring adjustments, that management
considers necessary to present fairly this information. This information was
not reviewed by the Company's independent accountants in accordance with
standards established for such reviews. 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.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ (000) % $ (000) % $ (000) % $ (000) %
------ --- ------ --- ------- --- ------ ---
Sales - net $2,762 100 $2,391 100 $ 2,203 100 $4,863 100
------ --- ------ --- ------- --- ------ ---
Gross profit without obsolete
charge to operations 1,060 38 925 39 1,134 51 2,084 43
Operating expenses 1,055 38 916 39 1,128 51 1,965 40
------ --- ------ --- ------- --- ------ ---
Operating profit before
obsolete non-cash charge 5 0 9 0 6 0 119 3
Obsolete goods non-cash
charge to operations 0 0 0 0 1,422 64 0 0
------ --- ------ --- ------- --- ------ ---
Net operating income (loss) $ 5 0 $ 9 0 $(1,416) (64) $ 119 3
====== === ====== === ======= === ====== ===
</TABLE>
As in previous years, approximately 40% of the Company's annual sales
occurred during the fourth quarter due to the holiday gift giving season. By
introducing longer run time recorders and voice managers, the Company is
attempting to better serve the business user and alleviate some of the current
seasonality.
Gross margins as a percentage of sales increased during the year from 38%
during the first quarter to 48% in the third quarter before settling slightly,
because of the impact of international sales, during the
16
<PAGE>
fourth quarter to 43%. This general increase is due to the cost reduction
program that was began during the second half of 1995.
Excluding the one time charge to operations of the write-down of older
technology inventory and other related costs, the Company recorded an operating
profit for each quarter during 1996. This was accomplished through the increase
in gross margins as well as controlling the fixed operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth to date primarily from the sale of
Common Stock, an equity merger with Lander Energy Co. as well as the issuance of
convertible debt. The Company also utilizes bank financings for additional
operating capital as well as to guarantee letters of credit issued to major
suppliers. At December 31, 1996, the Company has cash and cash equivalents of
approximately $585,400. The Company also had working capital at December 31,
1996 of approximately $3.5 million.
Cash generated by the Company from operations during the year ended
December 31, 1996 was approximately $1,278,600. The principal non-cash item was
the $1.4 million third quarter charge to operations related to the inventory
write down of the Company's Message Center product line as well as other
inventory and related charges due to technology changes. Other non-cash items
include depreciation, bad debts and discount reserves and amortization of loan
costs. Additional sources of operating cash were the decrease in receivables of
approximately $1,873,800, in addition to the increase of accounts payable of
approximately $43,500. Uses of operating cash were increases in inventories and
prepaid expenses of approximately $180,900 and $16,400, respectively, as well as
the decrease in accrued liabilities of approximately $486,300. Additional uses
of cash included investing activities of $249,600 for the acquisition of
tooling, property and equipment and $350,900 for other assets. Cash used in
financing activities include payment of debt of approximately $344,000.
The Company currently has a $3 million revolving line of credit with a bank
through March 1997. The amount the Company may borrow from this line of credit
is limited by the level of its eligible domestic accounts receivable and is
secured by the tangible assets of the Company. The Company is currently
negotiating a new $2 million line of credit to replace the current line. Under
the new line of credit, the Company's borrowing will be limited to 75% of
eligible domestic and international accounts receivable as well as a certain
percentage of finished goods inventory. The line of credit contains various
financial covenants and bears interest at 2.5% above the bank's base rate.
The Company believes that when it completes the new Bank financing and with
the current capitalization, the Company should be sufficiently financed for
1997. However, if the Company experiences significant sales growth during 1997,
it may be necessary for it to increase its bank line of credit or seek
additional sources of funds.
SEASONALITY
The Company anticipates that its business will be seasonal, with
approximately 40% of its sales occurring in fourth quarter for the Christmas
holiday season.
17
<PAGE>
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 as adjusted annually. Exchange rate fluctuations between the U.S. dollar
and the Singapore dollar may have an effect on the Company's costs of sales and
gross margins. In that event, it may become uneconomical to continue the
current relationship between the Company and its suppliers.
The Company also records a significant amount of its revenues in Europe and
the Middle East. In most countries, the Company sets its sales prices in U.S.
dollars so that any variance is for the purchaser's account. However, if the
exchange rate fluctuates between these other currencies and the U.S. dollar, it
may have an adverse effect on the Company's sales.
INFLATION
Management believes that inflation has not and will not have a significant
impact on its business.
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
- -----------------------------
Table of Contents
-----------------
Independent Auditors' Report............ F-1
Financial Statements
Balance Sheets...................... F-2
Statements of Operations............ F-3
Statements of Stockholders' Equity.. F-4
Statements of Cash Flows............ F-5
Notes to Financial Statements........... F-6
19
<PAGE>
[LETTERHEAD OF EHRHARDT KEEFE STEINER & HOTTMAN PC APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Voice It Worldwide, Inc.
Fort Collins, Colorado
We have audited the balance sheets of Voice It Worldwide, Inc. as of December
31, 1995 and 1996, and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Voice It Worldwide Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Ehrhardt Keefe Steiner & Hottman PC
---------------------------------------
Ehrhardt Keefe Steiner & Hottman PC
March 3, 1997
Denver, Colorado
20
<PAGE>
VOICE IT WORLDWIDE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
------------ ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 251,321 $ 585,414
Accounts receivable, net of allowance
of $173,165 (1995) and $93,965 (1996)
(Note 4) 4,959,919 3,246,302
Other receivables 115,299 34,358
Inventories (Notes 3 and 4) 3,512,245 2,570,632
Prepaid expenses and other current
assets 115,612 44,836
----------- -----------
Total current assets 8,954,396 6,481,542
Tooling, furniture and equipment, net
of accumulated depreciation (Note 3) 254,677 379,707
Other assets, net of accumulated
amortization (Note 3) 463,327 680,250
----------- -----------
Total assets $ 9,672,400 $ 7,541,499
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,199,876 $ 2,243,426
Accrued liabilities (Note 3) 720,721 446,500
Line-of-credit (Note 4) - 266,722
----------- -----------
Total current liabilities 2,920,597 2,956,648
Long-term debt (Notes 4, 5 and 7) 3,060,701 2,450,000
Commitments (Notes 2 and 6)
Stockholders' equity (Note 7)
Common stock; $.10 par value;
10,000,000 shares authorized;
5,054,802 shares issued and
outstanding 505,480 505,480
Additional paid in capital 5,364,910 5,364,910
Accumulated deficit (2,179,288) (3,735,539)
----------- -----------
3,691,102 2,134,851
----------- -----------
Total liabilities and stockholders'
equity $ 9,672,400 $ 7,541,499
=========== ===========
</TABLE>
See notes to financial statements.
21
<PAGE>
VOICE IT WORLDWIDE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Net sales $15,634,828 $12,219,109
Cost of sales (9,705,312) (7,016,450)
Cost of obsolete goods and related
charges - (1,421,703)
----------- -----------
Gross profit 5,929,516 3,780,956
----------- -----------
Operating expenses
Administrative and general 872,466 1,171,614
Selling and marketing 5,432,260 3,106,839
Research and development 578,204 785,866
----------- -----------
Total operating expenses 6,882,930 5,064,319
----------- -----------
Net operating loss (953,414) (1,283,363)
Other income (expense)
Interest expense (94,162) (273,786)
Interest income 67,258 898
----------- -----------
Net loss $ (980,318) $(1,556,251)
=========== ===========
Net loss per common share $(.21) $(.31)
=========== ===========
Weighted average number of shares 4,607,884 5,054,802
outstanding =========== ===========
</TABLE>
See notes to financial statements.
22
<PAGE>
VOICE IT WORLDWIDE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1994 4,407,931 $440,793 $4,274,559 $(1,198,970) $ 3,516,382
Payment to shareholder for exercise of
appraisal rights (2,009) (201) (4,011) - (4,212)
Issuance of common stock at $2.20 per
share, net of offering costs of
$318,286 648,880 64,888 1,044,362 - 1,109,250
Issuance of common stock purchase
warrants in connection with
convertible debenture (Note 7) - - 50,000 - 50,000
Net loss - - - (980,318) (980,318)
--------- -------- ---------- ----------- -----------
Balance - December 31, 1995 5,054,802 505,480 5,364,910 (2,179,288) 3,691,102
Net loss - - - (1,556,251) (1,556,251)
--------- -------- ---------- ----------- -----------
Balance - December 31, 1996 5,054,802 $505,480 $5,364,910 $(3,735,539) $ 2,134,851
========= ======== ========== =========== ===========
</TABLE>
23
<PAGE>
VOICE IT WORLDWIDE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------
1995 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (980,318) $(1,556,251)
----------- -----------
Adjustments to reconcile net (loss) to
net cash provided by or used in
operating activities
Write off of obsolete inventory and
related items - 1,421,703
Allowance for discounts and bad debts 101,431 (79,200)
Depreciation and amortization 123,791 258,600
Changes in current assets and
liabilities
Receivables (2,643,853) 1,873,758
Prepaid expenses (82,644) (16,366)
Inventories (3,036,229) (180,870)
Accounts payable 1,036,227 43,550
Accrued liabilities 218,292 (486,298)
----------- -----------
(4,282,985) 2,834,877
----------- -----------
Net cash (used in) provided by
operating activities (5,263,303) 1,278,626
----------- -----------
Cash flows from investing activities
Other assets (239,877) (350,944)
Acquisition of tooling, furniture and
equipment (244,195) (249,610)
----------- -----------
Net cash used in investing
activities (484,072) (600,554)
----------- -----------
Cash flows from financing activities
Borrowings (payments) on line of
credit - net 610,701 (343,979)
Proceeds from long-term debt 2,450,000 -
Payment of long-term debt (38,750) -
Increase in deferred loan costs (181,274) -
Proceeds from issuance of stock - net
of costs 1,109,250 -
Payment of stockholder appraisal rights (4,212) -
Proceeds from issuance of common stock
warrants 50,000 -
----------- -----------
Net cash provided by (used in)
financing activities 3,995,715 (343,979)
----------- -----------
Net (decrease) increase in cash and
cash equivalents (1,751,660) 334,093
Cash and cash equivalents - beginning
of year 2,002,981 251,321
----------- -----------
Cash and cash equivalents - end of year $ 251,321 $ 585,414
=========== ===========
</TABLE>
Supplemental disclosure of cash flow information
Cash paid during the year for interest was $71,371 (1995) and $269,016
(1996).
See notes to financial statements.
24
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Voice It Worldwide, Inc. (the Company) designs, develops and markets a line of
personal consumer electronics products which digitally record and store voice
information in solid state memory. Voice It products utilize computer chip
technology to capture and organize ideas, thoughts, reminders and messages.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
- -----------
Inventories are stated at the lower of cost or market as determined by the
first-in, first-out method and consist primarily of finished goods and raw
materials. Finished goods include raw materials, labor and overhead.
Tooling, Furniture and Equipment
- --------------------------------
Tooling, furniture and equipment are recorded at cost. Depreciation is computed
based on the straight-line method over the estimated useful lives for the
following asset categories:
Tooling 3 years
Furniture and equipment 3 - 5 years
Maintenance and repairs are charged to operations in the year in which the
expense is incurred. Additions and improvements are capitalized.
Revenue Recognition
- -------------------
Revenue is recorded at the time products are shipped to the customer.
Research and Development
- ------------------------
Research and development costs for new products are charged to expense as
incurred.
Product Software Development Costs
- ----------------------------------
The Company capitalizes product software development costs when product
technological feasibility is established and concluding when the product is
ready for sale. Software development costs are amortized on the straight-line
method over an expected useful life of three years.
25
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
Patent Costs
- ------------
Patent costs are those costs related to filing for patents. These costs are
amortized on a straight-line basis over the estimated useful lives not to exceed
seventeen years.
Loss Per Share
- --------------
Loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the year. Common
stock equivalents are not considered in this calculation as their inclusion
would be antidilutive.
Warranty
- --------
Estimated warranty costs are accrued at the time of sale.
Concentration of Credit Risks
- -----------------------------
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash investments and trade
receivables.
The Company places its cash investments with high credit quality financial
institutions and, by policy, limits the amount of credit exposure to any one
institution. The Company does, however, on occasion exceed the FDIC federally
insured limits and at December 31, 1996 exceeded that amount by approximately
$147,000.
The Company grants credit, in the normal course of business, to its customers
who sell their products through catalog distribution and retail outlets. The
Company sells to customers located throughout the United States, Europe, Asia
and Canada. The Company continually monitors the electronics and personal
communications industry and its customers before granting credit. The Company
does not normally require collateral.
For the year ended December 31, 1995 and 1996, the Company's top five customers
represented 47% and 46% of the sales, respectively.
26
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
Translation of Foreign Currencies
- ---------------------------------
For non-U.S. operations, the U.S. dollar is the functional currency and
substantially all of the Company's transactions are contracted in U.S. dollars.
However, those transactions that are contracted in a foreign currency are
translated into U.S. dollars at current rates. Exchange gains and losses
arising from currency translations are included in current income. For the
years ended December 31, 1995 and 1996, approximately $1,300 of foreign currency
translation losses and $50 of foreign currency translation gains, respectively,
were included in computing the net loss. No adjustment is deemed necessary for
future gains or losses from foreign conversions as such an adjustment would be
immaterial.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of financial instruments including cash and cash
equivalents, receivable, accounts payable, and accrued expenses approximated
fair value as of December 31, 1996 because of the relatively short maturity of
these instruments.
The carrying amounts of debt issued approximate fair value because interest
rates on these instruments approximate market interest rates.
Reclassifications
- -----------------
Certain items in the 1995 financial statements have been reclassified to conform
with the 1996 presentation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management believes that such estimates
have been based on reasonable assumptions and that such estimates are adequate,
however, actual results could differ from those estimates. Significant
estimates include estimates for returns, allowances, warranties and coop
advertising.
Income Taxes
- ------------
The Company accounts for income taxes whereby deferred tax liabilities and
assets are determined based on the difference between the financial statement
assets and liabilities and tax basis assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
27
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - LETTER-OF-CREDIT
- -------------------------
The Company has an irrevocable standby letter-of-credit in the amount of
$100,000 at December 31, 1996. The letter-of-credit is required by a major
supplier and expires January 31, 1997. The letter is secured by a line-of-
credit (Note 4).
NOTE 3 - SELECTED BALANCE SHEET INFORMATION
- -------------------------------------------
December 31,
--------------------------
1995 1996
------------ ------------
Inventories
Raw materials $1,194,821 $ 701,033
Finished goods 2,317,424 1,869,599
---------- ----------
$3,512,245 $2,570,632
========== ==========
Tooling, furniture and equipment
Office furniture and equipment $ 111,797 $ 222,424
Tooling and manufacturing equipment 321,169 460,151
---------- ----------
432,966 682,575
Less accumulated depreciation (178,289) (302,868)
---------- ----------
$ 254,677 $ 379,707
========== ==========
Other assets
Deferred loan costs - net of
accumulated amortization of $2,119
(1995) and $27,559 (1996) $ 181,274 $ 155,834
Product software development costs, 146,838 330,054
net of accumulated amortization of $0
(1995) and $66,283 (1996)
Patent costs - net of accumulated
amortization of $24,350 (1995) and
$66,647 (1996) 113,446 194,284
Other 21,769 78
---------- ----------
$ 463,327 $ 680,250
========== ==========
Accrued liabilities
Vacation $ 24,751 $ 38,587
Advertising 533,055 254,809
Warranty 88,707 50,729
Commissions 47,836 91,614
Other 26,372 10,761
---------- ----------
$ 720,721 $ 446,500
========== ==========
28
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - LINE-OF-CREDIT AND
- ---------------------------
LONG-TERM DEBT
- --------------
December 31,
-------------------------
1995 1996
----------- ------------
$3,000,000 line-of-credit to a bank,
interest at their "Base Rate" plus 5%,
totaling 13.25% at December 31, 1996,
payable monthly, principal due March
31, 1997. Borrowings are
collateralized by and are limited to a
percentage of eligible accounts
receivables and finished goods
inventories. $ 610,701 $ 266,722
8% convertible debenture, interest
payable monthly, convertible into one
share common stock at $.95 (Note 7)
per share. Principal due November 1,
2002. Loan costs associated with this
debenture were approximately $180,000.
These costs 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. 2,450,000 2,450,000
---------- ----------
3,060,701 2,716,722
Less current portion - (266,722)
---------- ----------
Total long-term debt $3,060,701 $2,450,000
========== ==========
Required annual principal payments are:
Years Ended December 31,
-----------------------
1997 $ 266,722
1998 48,755
1999 272,818
2000 241,822
2001 214,347
Thereafter 1,672,258
----------
$2,716,722
==========
29
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES
- ---------------------
Deferred tax liabilities and assets are determined based on the difference
between the financial statement assets and liabilities and tax basis assets and
liabilities using the enacted tax rates in effect for the year in which the
differences are expected to occur. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
The differences between the federal income tax rate and the effective income tax
rate as reflected in the accompanying statements of operations are:
Year Ended
December 31,
----------------
1995 1996
------- -------
Statutory federal income tax rate
(benefit) (34.0)% (34.0)%
Valuation allowance for net operating
loss 34.0 34.0
------ ------
Effective tax rate - % - %
====== ======
The deferred income tax asset/liability results primarily from deferral for tax
purposes of differences in reporting certain expenses from limited partnerships
for tax and financial reporting purposes, differing basis in assets and
liabilities for tax and financial reporting purposes and the recognition of tax
net operating loss carryforwards, and is composed of the following:
December 31,
------------------------
1995 1996
---------- ------------
Total deferred current tax asset $ 840,113 $ 1,312,962
Total deferred tax liability (187,058) (12,607)
Valuation allowance (653,055) (1,300,355)
--------- -----------
$ - $ -
========= ===========
For federal and state income tax purposes, the Company has net operating loss
carryforwards of approximately $3,540,000 which substantially expire in fiscal
years 2008 through 2011 and general business credits of $46,791 which expire in
fiscal year 2009. The net operating loss carryforwards and other credits
generated a deferred tax asset which has been fully reserved for due to a lack
of profitable operating history.
30
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - COMMITMENTS
- --------------------
The Company has an operating lease for its office and warehouse location which
expires March 1, 1998. Total rent expense under this lease was $46,352 and
$52,015 in 1995 and 1996, respectively. Required minimum lease payments for
1997 through 1998 are as follows:
1997 $40,800
1998 6,800
-------
$47,600
=======
NOTE 7 - STOCKHOLDERS' EQUITY
- -----------------------------
Private Placements
- ------------------
On September 15, 1995, the Company completed the sale of 560,880 units of its
common stock and warrants pursuant to its June 12, 1995, Private Placement
Memorandum (the "1995 Memorandum") at $2.20 per unit. 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 Common Stock at any time until December 31, 1996. The Company also issued an
additional Private Placement Memorandum (the "September Memorandum") on
September 28, 1995. The terms and conditions of the September Memorandum are
the same in the 1995 Memorandum. On October 23, 1995, the Company completed the
sale of an additional 88,000 units at $2.20 per unit under the September
Memorandum. There were a total of 324,440 warrants issued as part of the
offering. None of the warrants were exercised prior to their expiration on
December 31, 1996.
Convertible Debenture
- ---------------------
During October 1995, the Company completed a $2,450,000 convertible debenture
(Note 4). This debenture was originally convertible into the Company's common
stock at a rate of $2.625 of principal for each share of common stock. In
addition to other financial covenants, the debenture also contained a provision
that would reduce the conversion rate of the note significantly if certain
earnings per share were not met in 1996. Partly because of the failure of the
Company's Message Center Product line, the Company could not meet the 1996
earnings per share covenant which would cause an automatic downward revision in
April, 1997 of the conversion rate based on a formula. Because of the revision
that was to be triggered, the Company began negotiations to reprice the
conversion rate. Effective December 31, 1996, the Company agreed to lower the
conversion rate to $.95 of principal for each share of common stock which
approximated current market value.
31
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
- -----------------------------------------
Stock Options and Warrants
- --------------------------
In connection with the convertible debenture, the Company issued 915,000
warrants to buy the Company's common stock at an original exercise price of
$2.75 per share. The value of these warrants were calculated at $50,000. These
Warrants have a three year life and may be redeemed, after October 27, 1996 by
the Company for $.05 per 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 to the debenture holder in
exchange for a waiver of certain financial covenants. These additional warrants
had the same terms and conditions as the Debenture Warrants. As part of the
repricing negotiation with the debenture holder, the Company lowered the
exercise price of all Warrants to $1.25 per share.
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 on
unregistered share of common stock at any time from June, 1996 through June,
1999 at an original exercise price of $2.75 per share. With the issuance of
warrants listed below, the Company lowered the exercise price of these Warrants
to $1.06 per share.
During the first half of 1996, the Company used letters-of-credit issued from
individuals with the Company as beneficiary. These letters-of-credit were used
as collateral at the Company's bank for its line-of-credit. As an incentive to
participate in this collateral program, 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.
Pursuant to an employment agreement with an officer, the Company issued 40,000
Warrants to acquire common stock. Each warrant entitles the holder to purchase
one share of the Company's unregistered common stock at an exercise price of
$1.06 per share. 20,000 of these Warrants expire on December 31, 1997, the
remaining 20,000 can be exercised at any time prior to their expiration in
December, 1999.
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.
32
<PAGE>
VOICE IT WORLDWIDE, INC
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
- -----------------------------------------
Stock Options and Warrants (continued)
- --------------------------------------
The following is a summary of options and warrants granted:
<TABLE>
<CAPTION>
Exercise Price
Options Warrants Per Share
--------------- ---------- --------------
<S> <C> <C> <C>
Outstanding, December 31, 1994 295,943 - $1.56-3.00
Warrants granted - 1,277,571 1.25-2.50
Options granted 61,500 - 2.75-3.00
------- --------- --------------
Outstanding, December 31, 1995 357,443 1,277,571 1.56-3.00
Warrants granted - 85,000 1.06-1.25
Options granted 262,500 - 1.06-1.75
Warrants expired - (324,440) 2.50
------- --------- --------------
Outstanding December 31, 1996 619,943 1,038,131 $1.06-3.00
======= ========= ==============
</TABLE>
The Company has the following stock options and warrants outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Currently Exercisable
Options Warrants Exercise Expiration --------------------------
Outstanding Outstanding Price Date Options Warrants
- ------------------------ ----------- -------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C>
- 915,000 1.25 October, 1998 - 915,000
- 38,131 1.25 June, 1999 - 38,131
60,243 - 1.56 December, 1999 60,243 -
164,000 - 2.00 January, 1999 164,000 -
17,500 - 2.20 September, 1999 11,667 -
46,700 - 2.20 December, 1999 46,700 -
7,500 - 2.20 December, 1999 5,000 -
55,000 - 2.75 April, 2000 20,000 -
6,500 - 3.00 July, 2000 9,500 -
55,000 - 1.75 February, 2001 - -
42,500 - 1.69 July, 2001 - -
125,000 - 1.06 November, 2001 - -
40,000 - 1.75 February, 2001 15,000 -
- 25,000 1.06 January, 1999 - 25,000
- 20,000 1.06 December, 1999 - 20,000
- 20,000 1.06 December, 1997 - 20,000
- 20,000 2.75 May, 2000 - 20,000
- ------------------------ --------- --------- --------------
619,943 1,038,131 332,110 1,013,131
======================== ========= ========= ==============
</TABLE>
33
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
- -----------------------------------------
Stock Options and Warrants (continued)
- --------------------------------------
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock options and
warrants granted. Had compensation cost for the Company's stock options and
warrants been determined based on the fair value at the grant date for awards in
1995 and 1996 consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below:
December 31,
------------------------
1995 1996
----------- -----------
Net loss - as reported (980,318) (1,556,251)
Net loss - pro forma (1,079,025) (1,764,542)
Loss per share - as reported (.21) (.31)
Loss per share - pro forma (.23) (.35)
The fair value of each option grant is estimated on the date of grant using the
Black-Sholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 0%; expected volatility of 59%;
discount rate of 8.0%; and expected lives of 5 years.
NOTE 8 - GEOGRAPHIC SEGMENT INFORMATION
- ---------------------------------------
Operating results and other financial data are presented for the principal
geographic areas that the Company operates within for the years ended December
31, 1995 and 1996. Total revenue by geographic area includes sales to
distributors or individuals within that specific geographic area. There are not
significant transfers between geographic areas. Operating income (loss) does
not include either other income (expense) items or income taxes. U.S. operating
income is net of corporate expenses. Corporate operating loss includes
operating expenses not directly related to a specific geographic area, including
administrative and general, as well as research and development expenses.
Identifiable assets by geographic area are those assets used in Company
operations directly in that geographic area, which consist primarily of office
equipment and inventory. Corporate assets are principally cash, miscellaneous
receivables, prepaid expenses and other assets.
34
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
- ---------------------------------------------------
<TABLE>
<CAPTION>
Europe/ Corporate
United Middle and
States East Other Other Consolidated
------------ ----------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995:
Net sales to unaffiliated customers $12,729,003 $2,022,460 $883,365 $ - $15,634,828
Operating profit (loss) $ 188,184 $ 103,487 $186,715 $(1,431,800) $ (953,414)
Identifiable assets $ 6,601,560 $ 524,004 $223,597 $ 2,323,239 $ 9,672,400
DECEMBER 31, 1996:
Net sales to unaffiliated customers $ 8,608,616 $3,008,580 $601,913 $ - $12,219,109
Operating profit (loss) $ 1,173,356 $ 605,079 $102,272 $(3,164,070) $(1,283,363)
Identifiable assets $ 3,821,320 $1,425,826 $208,575 $ 2,085,778 $ 7,541,499
</TABLE>
NOTE 9 - SUBSEQUENT EVENTS
- --------------------------
Stock Options
- -------------
In February, 1996, the Company granted an additional 32,500 options to acquire
the Company's stock with various vesting periods at an exercise price of $1.06
per share.
35
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- --------------------
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- ----------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
- -------------------------------------------------
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dennis W. Altbrandt 54 Chief Executive Officer and Director
Michelle L. Morgan 47 President - U.S. Division and Director
J. Fredrick Walters 50 Chairman of the Board of Directors and President - International
Division
Timothy L. Walters 42 Vice President of Product Development
Anil K. Agarwal 44 Vice President of Technology Development
Mark A. Griffith 40 Chief Accounting Officer and Chief Financial Officer
John H. Ellerby 57 Secretary, Treasurer and Director
Larry D. Holt 56 Director
Gary E. Nordic 53 Director
Patricia R. Westbrook 44 Director
- ----------
</TABLE>
The family relationships among the officers, directors and significant
employees are (i) Michelle L. Morgan and her spouse, Christopher W. Elkins and
(ii) J. Fredrick Walters and his brother, Timothy L. Walters. Other than the
directors and executive officers, the Company has no promoters or control
persons.
DENNIS W. ALTBRANDT serves as Chief Executive Officer of the Company since
November 1996 and as a director of the Company since February 1997. From 1988
to 1991, he served as a partner in Avalon Ventures, La Jolla, California,
responsible for conception, formulation, planning and staffing of technology
related business investment opportunities. From 1991 to 1994, Mr. Altbrandt
served as president and chief executive officer of Steps Education Products,
Inc., a company which markets, sells and distributes independently developed
products to the education marketplace on a national basis. From
36
<PAGE>
1994 to 1995, he served as a principal and chief financial officer of Carrara
Capital Group, L.L.C., with responsibility for financial and investment
activities providing services to emerging growth businesses. During 1996, Mr.
Altbrandt served as a consultant to the Company and as its acting chief
financial officer until his election as Chief Executive Officer in November
1996. Mr. Altbrandt earned a B.S. in Accounting from Syracuse University in
1964.
MICHELLE L. MORGAN is a founder of the Company and serves as President - U.S.
Division and a director of the Company since 1993. From 1990 to 1993, she was
co-founder and president of ProMark Associates, Inc., a marketing consulting
firm, which serves as a consultant to a number of healthcare marketing
companies. From 1982 to 1990, Ms. Morgan served as vice president of marketing
and an executive officer of Vipont Pharmaceutical, Inc., during which time she
directed the marketing efforts for Viadent(R) Antiplaque Toothpaste and Oral
Rinse. These products were introduced to the market in 1983 and increased to
over $35 million in sales by 1989. From 1978 to 1981, Ms. Morgan served as
manager of marketing research at Teledyne Water Pik, where she specialized in
new product marketing research. Ms. Morgan earned a B.S. in Communications from
University of Illinois in 1972 and an M.B.A. from Colorado State University in
1983.
J. FREDRICK WALTERS is a founder of the Company and serves as Chairman of the
Board of Directors and President - International Division. Mr. Walters has been
involved in international marketing of products since the 1970s. He was the co-
founder, president and chief executive officer of Techmeda GMBH, a medical and
healthcare product company in Europe, from 1980 to 1993. Techmeda developed and
marketed a line of dental products under the Ligma-ject name. In 1986, Techmeda
was appointed the exclusive worldwide distributor of the Interplak(R) plaque
removal instrument. This business was sold to Bausch & Lomb in 1989. Prior to
the formation of Techmeda, Mr. Walters was the European sales and marketing
manager for Teledyne Water Pik from 1975 to 1980.
TIMOTHY L. WALTERS is a founder of the Company and serves as Vice President
of Product Development of the Company. He is the co-inventor of the Voice It
product and has spent the last two years working on product development and line
extensions. Mr. Walters held product development positions with Alcoa
Electronic Packaging, Inc. from 1986 to 1992, during which time he developed the
marketing plan for the sale of Alcoa Electronic Packaging, Inc. to Aluminum
Company of America (ALCOA). Prior thereto, he served in sales management with
Bourns, Inc. from 1983 to 1986, Ceramic Systems from 1982 to 1983 and Kyocera
International, Inc. from 1978 to 1982. Mr. Walters earned his B.S. in Chemistry
with an emphasis in Biochemistry from California State University, Fullerton in
1977.
DR. ANIL K. AGARWAL is a founder of the Company and serves as Vice President
of Technology Development of the Company. Dr. Agarwal is the co-inventor of the
Voice It product. He earned his Ph.D. in Solid State Physics from the Indian
Institute of Technology, New Delhi, India, in 1974 and his Ph.D. in Materials
Engineering from the University of Missouri at Rolla in 1980. He holds four
patents and has published 30 articles in the field of electronics. From 1987 to
1993, Dr. Agarwal served as director of CAD/CAE and product development for
multi-chip modules for Alcoa Electronic Packaging, Inc. Prior thereto, he was
foundry manager for Vitesse Semiconductor where he managed the GaAs foundry
network and served as manager of electronic components for Norton.
MARK A. GRIFFITH serves as Chief Financial Officer and Chief Accounting
Officer of the Company since February 1997. From 1980 to 1992, Mr. Griffith
served as assistant controller and then controller of Vipont Pharmaceutical,
Inc. From 1992 to 1993, he served as controller of Monaco Finance, Inc. From
1993 until his election as Chief Financial Officer in February 1997, Mr.
Griffith served as controller of the Company. He earned a B.A. in Accounting
and Business Administration from Western State College in 1980.
37
<PAGE>
JOHN H. ELLERBY serves as Secretary, Treasurer and a director of the Company.
From 1985 until shortly after the merger of Lander with Voice It in December
1994, Mr. Ellerby served as president of Lander. Prior thereto, he served as
Chairman of the Board from 1981 to 1985 and has been a director since 1979. From
1978 to 1981, Mr. Ellerby was president and a director of Pilot Oil Company, a
privately-owned Wyoming corporation involved in real estate, oil and gas and
other energy endeavors.
LARRY D. HOLT serves as a director of the Company since November 1995. Mr.
Holt has held numerous financial management positions in his career. Mr. Holt
served in various financial positions with Vipont Pharmaceutical, Inc.,
including vice president of finance and operations, chief financial officer and
secretary from 1985 to 1990. In addition, Mr. Holt served as the vice president
of finance, chief financial officer and corporate assistant secretary and
treasurer of Atrix Laboratories, Inc. from its founding in 1987 until 1990, when
Mr. Holt retired.
GARY E. NORDIC has been a director of the Company since 1980. Mr. Nordic has
been the president of Nordic Construction & Development, Inc., Fort Collins,
Colorado, since 1983.
PATRICIA R. WESTBROOK is a founder of the Company and serves as a director of
the Company. She has extensive marketing and management experience. Prior to
joining the Company on a full-time basis in January 1994 until February 1997,
Ms. Westbrook served as vice president-marketing for Bausch & Lomb's Oral Care
Division, with responsibility for a full range of marketing activities for this
Division's business, including the planning and execution of annual marketing
plans and long term strategic plans. Her work at Bausch & Lomb included a year
in the company's European division where she had marketing responsibility for
the oral care business of Europe, the Middle East and Africa. From May 1986 to
December 1988, Ms. Westbrook served as vice president-marketing for Dental
Research Corporation, a start-up company which was sold to Bausch & Lomb in
December 1988 for $133 million. Prior thereto, Ms. Westbrook served in
marketing management positions with Black & Decker and Teledyne Water Pik. Ms.
Westbrook is a graduate of the Harvard Business School Professional Management
Development program.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has not established any separate nominating committee.
The Board has established a Compensation Committee, which consists of Michelle
L. Morgan, Gary E. Nordic and Larry D. Holt. Its functions are to review and
approve annual salaries and bonuses for all executive officers, review, approve
and recommend to the Board of Directors the terms and conditions of all employee
benefits or changes thereto, and manage and administer the Company's 1994 Stock
Compensation Plan and the Lander Nonqualified Stock Option Plan.
The Board of Directors has established an Audit Committee, which consists of
Michelle L. Morgan, Gary E. Nordic and Larry D. Holt. The functions of the
Audit Committee are to recommend annually to the Board of Directors the
appointment of the independent public accountants of the Company, discuss and
review the scope and the fees of the prospective annual audit and review the
results thereof with the independent public accountants, review and approve non-
audit services of the independent public accountants, review compliance with
existing accounting and financial policies of the Company, review the adequacy
of the financial organization of the Company and review management's procedures
and policies relative to the adequacy of the Company's internal accounting
controls and compliance with federal and state laws relating to financial
reporting.
38
<PAGE>
The Board of Directors has also established a Stock Option Committee, which
consists of Michelle L. Morgan and Patricia R. Westbrook. The function of the
Stock Option Committee is to manage and administer the Company's Outside
Directors Stock Option Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company pursuant to Rule 16a-3(e) during its most recent fiscal year and
Forms 5 and amendments thereto furnished to the Company with respect to its most
recent fiscal year, and any written representation from the reporting person (as
hereinafter defined) that no Form 5 is required, the Company is not aware of any
person who, at any time during the fiscal year, was a director, officer,
beneficial owner of more than ten percent of any class of equity securities of
the Company registered pursuant to Section 12 of the Exchange Act ("reporting
person"), that failed to file on a timely basis, as disclosed in the above
Forms, reports required by Section 16(a) of the Exchange Act during the most
recent fiscal year, except Dennis Altbrandt, whose Form 3 for November 26, 1996
was filed on February 24, 1997.
ITEM 10. EXECUTIVE COMPENSATION.
- --------------------------------
The following table sets forth information regarding compensation paid to the
Company's Chief Executive Officer(s) for services rendered in all capacities
during the fiscal years ended December 31, 1996, December 31, 1995 and December
31, 1994. No executive officer received total annual salary and bonus for the
fiscal year ended December 31, 1996 in excess of $100,000.
<TABLE>
<CAPTION>
==================================================================================
LONG TERM
ANNUAL COMPENSATION COMPENSATION
==================================================================================
NAME AND
PRINCIPAL FISCAL OTHER ANNUAL OPTIONS
POSITION YEAR SALARY COMPENSATION GRANTED
<S> <C> <C> <C> <C>
Dennis W. Altbrandt, 1996 $94,833 $0 185,000(3)
Chief Executive Officer(1)
- ----------------------------------------------------------------------------------
Michelle L. Morgan, 1996 $72,000 $0 0
Chief Executive Officer(2)
--------------------------------------------------
1995 $56,000 $0 0
- ----------------------------------------------------------------------------------
John H. Ellerby,
Chief Executive Officer(2) 1994 $36,000 $0 20,081
- ----------------------------------------------------------------------------------
- ----------
</TABLE>
(1) Mr. Altbrandt was elected as Chief Executive Officer of the Company on
November 26, 1996. The information presented includes compensation paid to
Mr. Altbrandt by the Company for services rendered as a consultant during
1996.
(2) Mr. Ellerby served as Chief Executive Officer of the Company from 1985
until January 1995, at which time the Board of Directors formally elected
Michelle L. Morgan as Chief Executive Officer pursuant to the terms of the
Merger Agreement approved in December 1994. Prior to 1995, Ms. Morgan did
not receive any compensation from Lander Energy Co.
(3) For further information, see the "Option Grants" table set forth below.
The following summary table sets forth information concerning grants of stock
options made during the fiscal year ended December 31, 1996 to the Company's
Chief Executive Officer(s).
39
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL
OPTIONS GRANTED TO
EMPLOYEES IN FISCAL
NAME OPTIONS GRANTED YEAR EXERCISE PRICE EXPIRATION DATE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michelle L. Morgan 0 0% n/a n/a
- ----------------------------------------------------------------------------------------------------------------
Dennis W. Altbrandt 125,000(1) 55% $1.0625 November 26, 2001
20,000(1) 50% $1.0625 December 31, 1997
20,000(1) 50% $1.0625 December 31, 1999
10,000(1) 5% $ 1.75 February 28, 2001
10,000(1) 5% $1.6875 July 24, 2001
================================================================================================================
</TABLE>
(1) Of the 125,000 options which Mr. Altbrandt received during 1996 as Chief
Executive Officer, all of which are exercisable at $1.0625 per share,
42,000 are exercisable as of November 26, 1997, 42,000 are exercisable as
of November 26, 1998 and 41,000 are exercisable as of November 26, 1999.
In addition, Mr. Altbrandt received warrants to purchase 20,000 shares at
$1.0625 per share exercisable from November 26, 1996 to December 31, 1997
and warrants to purchase 20,000 shares at $1.0625 per share exercisable
from November 26, 1996 to December 31, 1999. Further, prior to being
elected as Chief Executive Officer, Mr. Altbrandt received options to
purchase 10,000 shares at $1.75 per share anytime from February 28, 1997
through February 28, 2001 and options to purchase 10,000 shares at $1.6875
per share anytime from July 24, 1997 through July 24, 2001.
EMPLOYMENT AGREEMENT
Effective as of November 26, 1996, the Company entered into an employment
agreement with Dennis W. Altbrandt as Chief Executive Officer of the Company
which provides for an annual salary of $160,000 and options and warrants as set
forth above. In addition, subject to the Company's achieving certain
performance objectives, Mr. Altbrandt will earn a bonus.
THE 1994 STOCK COMPENSATION PLAN
The Company and its shareholders have adopted the 1994 Stock Compensation
Plan (the "1994 Plan"). Options granted pursuant to the 1994 Plan constitute
either incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") or options which constitute non-
qualified options at the time of issuance of such options. The 1994 Plan
provides that incentive stock options and/or non-qualified stock options may be
granted to certain officers, directors (other than Outside Directors), employees
and advisors of the Company or its subsidiaries, if any, selected by the
Compensation Committee. A total of 600,000 shares of Common Stock are
authorized and reserved for issuance under the 1994 Plan, subject to adjustment
to reflect changes in the Company's capitalization in the case of a stock split,
stock dividend or similar event. The 1994 Plan is administered by the
Compensation Committee which has the sole authority to interpret the 1994 Plan
and to make all determinations necessary or advisable for administering the 1994
Plan. The exercise price for any incentive option must be at least equal to the
fair market value of the shares covered thereby as of the date of grant of such
option. Upon the exercise of the option, the exercise price thereof must be
paid in full either in cash, shares of Common Stock or a combination thereof.
If and to the extent that any option to purchase reserved shares shall not be
exercised by an optionee for any reason or if such option to purchase shall
terminate as provided by the 1994 Plan, such shares which have not been so
purchased
40
<PAGE>
thereunder shall again become available for the purposes of the 1994 Plan unless
the 1994 Plan shall have been terminated.
As of March 31, 1997, the Company had granted an aggregate of 552,200 options
under the 1994 Plan to a total of 30 persons.
THE OUTSIDE DIRECTORS STOCK OPTION PLAN
The Company and its shareholders have adopted the Outside Directors Stock
Option Plan (the "Plan"). The Plan was adopted in order to enhance the
Company's ability to secure and retain highly qualified and experienced
individuals who are not regularly salaried employees of the Company to serve as
directors of the Company. The Plan provides generally that: (i) the purchase
price of the Common Stock under each option granted shall not be less than the
fair market value of the Common Stock on the date of grant; (ii) no director may
be granted during any calendar year options to purchase more than 10,000 shares
of Common Stock; (iii) no option may be granted for a period of greater than
five years from the date of grant; and (iv) a maximum of 200,000 shares of
Common Stock have been authorized and reserved for issuance under the Plan.
As of March 31, 1997, 40,000 options had been granted under the Plan.
THE LANDER NONQUALIFIED STOCK OPTION PLAN
The Company and its shareholders have adopted the Lander Nonqualified Stock
Option Plan (the "Lander Plan") for the benefit of the former directors of
Lander. Pursuant to the Lander Plan, each of the three former directors of
Lander (including Messrs. Ellerby and Nordic) was granted an option to purchase
20,081 shares of Common Stock at an exercise price of $1.56 per share. The
options have a term of five years and may be exercised at any time until January
21, 1999. Any optionee may pay the exercise price in cash or by delivering
shares of Common Stock with a value equal to the exercise price. A total of
60,243 shares of authorized but unissued Common Stock are reserved for issuance
pursuant to the Lander Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
Set forth below is certain information as of March 31, 1997 with respect to
ownership of the Common Stock owned of record or beneficially by (i) the
Company's executive officers named in the summary compensation table, (ii) each
director of the Company, (iii) each person owning beneficially more than five
percent of the outstanding Common Stock, and (iv) all directors and executive
officers as a group. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject to
options currently exercisable or exercisable within 60 days of March 31, 1997
are deemed outstanding for computing the percentage of the person holding such
securities but are not outstanding for computing the percentage of any other
person.
41
<PAGE>
<TABLE>
<CAPTION>
NAME OF NUMBER OF PERCENTAGE
BENEFICIAL OWNER(1) COMMON SHARES OWNED
- ---------------------------------- ------------- ----------
<S> <C> <C>
Dennis W. Altbrandt 50,000 (2) 1.0
Michelle L. Morgan 433,300 (3) 8.5
J. Fredrick Walters 380,667 7.5
Timothy L. Walters 225,117 4.5
Anil K. Agarwal 331,767 6.6
Mark A. Griffith 44,250 (4) *
John H. Ellerby 96,719 (5) 1.9
Larry D. Holt 103,250 (6) 2.0
Gary E. Nordic 96,487 (7) 1.9
Patricia R. Westbrook 360,900 (8) 7.1
Renaissance Capital Growth
& Income Fund III, Inc. 3,518,947 (9) 26.8
All directors and executive
officers as a group (10 persons) 2,122,457 39.9
- ----------
</TABLE>
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) The business address of each person listed above is 2643 Midpoint Drive,
Suite A, Fort Collins, Colorado 80525. The business address of Renaissance
Capital Growth & Income Fund III, Inc. is 8080 North Central Expressway,
Suite 210/LB59, Dallas, Texas 75206.
(2) Includes options currently exercisable to acquire 10,000 shares of Common
Stock and warrants currently exercisable to purchase 40,000 shares of
Common Stock. Mr. Altbrandt also owns 135,000 additional options which are
not yet vested.
(3) Michelle L. Morgan is the spouse of Christopher W. Elkins and is deemed to
beneficially own the 60,000 shares and the options currently exercisable to
acquire 53,000 shares of Common Stock owned by Mr. Elkins. Mr. Elkins also
owns 10,000 additional options which are not yet vested.
(4) Includes options currently exercisable to acquire 20,000 shares of Common
Stock. Mr. Griffith also owns 6,000 additional options which are not yet
vested.
(5) Includes options currently exercisable to acquire 30,081 shares of Common
Stock. Of the 66,638 shares, 2,623 shares are owned by Mr. Ellerby's wife,
6,463 shares are owned jointly by Mr. Ellerby and his wife, and the
remaining 57,552 shares are owned by Mr. Ellerby individually.
(6) Includes options currently exercisable to acquire 30,000 shares of Common
Stock. Of the 73,250 shares, 60,750 are owned by Mr. Holt and 12,500
shares are owned jointly by Mr. Holt and his wife.
42
<PAGE>
(7) Includes options currently exercisable to acquire 30,081 shares of Common
Stock. Of the 66,406 shares, 56,406 shares are owned by Mr. Nordic's wife
and 10,000 shares are owned by Mr. Nordic.
(8) Includes options currently exercisable to acquire 50,000 shares of Common
Stock.
(9) Represents warrants currently exercisable to acquire 940,000 shares of
Common Stock and a $2,450,000 8% Convertible Debenture currently
convertible into 2,578,947 shares of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(a) Exhibits.
--------
2.1 Agreement and Plan of Merger, dated as of June 27, 1994, between
Lander Energy Co. and Voice It Technologies, Inc., as amended
effective September 6, 1994 - incorporated by reference to the
Registrant's Registration Statement on Form S-4, file number 33-81428,
declared effective November 18, 1994.
3.1 Articles of Incorporation of the Registrant - incorporated by
reference to the Registrant's Proxy Statement and Notice of Annual
Meeting of Shareholders held July 8, 1986, filed on or about May 27,
1986.
3.2 Bylaws of the Registrant - incorporated by reference to the
Registrant's Proxy Statement and Notice of Annual Meeting of
Shareholders held July 8, 1986, filed on or about May 27, 1986.
3.3 Article of Amendment to Articles of Incorporation - incorporated by
reference to the Registrant's Report on Form 10-K for the fiscal year
ended December 31, 1987, file number 0-7796.
3.4 Articles of Amendment to Articles of Incorporation.*
10.1 Lander Nonqualified Stock Option Plan - incorporated by reference to
Exhibit 10.1 of the Registration Statement on Form S-4, file number
33-81428, declared effective November 18, 1994.
10.2 The Registrant's 1994 Stock Compensation Plan.*
10.3 The Registrant's Outside Directors Stock Option Plan.*
10.4 Lease agreement dated January 5, 1995 covering the Registrant's
executive offices.*
10.5 Manufacturing Agreement with PCI LIMITED.*
10.6 Manufacturing Agreement with Integrated Display Technology Ltd.*
43
<PAGE>
10.7 Employment Agreement with Dennis W. Altbrandt.
23.1 Consent of Ehrhardt Keefe Steiner & Hottman PC, independent public
accountants, to the incorporation by reference in the Registration
Statements on Form S-8 (file numbers 333-12711, 333-12713 and 333-
12715) of their report dated March 3, 1997, included in the
Registrant's Report on Form 10-KSB for the fiscal year ended December
31, 1996.
27.1 Financial Data Schedule.
- ---------------
* Incorporated by reference to the Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1994, file number 0-7796.
(b) Reports on Form 8-K. The Company has not filed any Current Report on
-------------------
Form 8-K during the last quarter of the period covered by this Report
on Form 10-KSB.
44
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VOICE IT WORLDWIDE, INC.
-----------------------------------
Registrant
Date: April 7, 1997 By:/s/ DENNIS W. ALTBRANDT
---------------- -------------------------------------------
Dennis W. Altbrandt, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
---- ----- ----
/s/ MICHELLE L. MORGAN President - U.S. Division and Director April 7, 1997
- ------------------------ -------------
Michelle L. Morgan
/s/ J. FREDRICK WALTERS President - International Division April 7, 1997
- ------------------------ -------------
J. Fredrick Walters and Chairman of the Board of Directors
/s/ JOHN H. ELLERBY Secretary, Treasurer and Director April 7, 1997
- ------------------------ -------------
John H. Ellerby
/s/ MARK A. GRIFFITH Chief Accounting Officer and Chief April 7, 1997
- ------------------------ -------------
Mark A. Griffith Financial Officer
/s/ DENNIS W. ALTBRANDT Director April 7, 1997
- ------------------------ -------------
Dennis W. Altbrandt
/s/ LARRY D. HOLT Director April 7, 1997
- ------------------------ -------------
Larry D. Holt
/s/ GARY E. NORDIC Director April 7, 1997
- ------------------------ -------------
Gary E. Nordic
/s/ PATRICIA R. WESTBROOK Director April 7, 1997
- ------------------------- -------------
Patricia R. Westbrook
45
<PAGE>
EMPLOYMENT TERM SHEET
BETWEEN
VOICE IT WORLDWIDE, INC.
AND
DENNIS W. ALTBRANDT
Item:
1. SALARY
Salary will be $160,000 per year, with annual increase reviews by the
Compensation Committee.
2. INCENTIVE STOCK OPTIONS
125,000 shares of stock at market price vested 1/3 per year for a three
year period. The three years will vest 42,000, 42,000 and 41,000 shares,
respectively. The vesting period will be accelerated to 50% annually upon
successful attainment of both sales and net income before taxes figures,
as presented on or about November 1st, 1996, representing the 1997 budget.
Option to be granted on the date this agreement signed.
3. FOUNDERS STOCK
30,000 shares of stock will be gifted by the founders at no cost. The
stock will be split between Dennis W. Altbrandt and Ann Altbrandt. These
shares will be given by the founders (M. Morgan, F. Walters & P.
Westbrook) upon successful attainment of both sales and net income before
taxes figures, as presented on or about November 1st, 1996, representing
the 1997 budget.
4. WARRANTS
40,000 warrants to purchase common stock will be granted at a purchase
price equal to the bid price of the stock on the date this agreement is
signed. 20,000 warrants will expire on December 31, 1997 and 20,000
warrants will expire on December 31, 1999.
5. BENEFITS
Health insurance: May take Company insurance coverage as desired for self
and/or family.
Vacation: 2 weeks per year
Holidays: As prescribed by the Company
1
<PAGE>
6. EXPENSE ACCOUNT
Compensation for all travel/commuting/meals/lodging involved with his day
to day responsibilities in the Fort Collins area - $500.00 per month.
Compensation for travel/meals/lodging involved with his daily
responsibilities outside the Fort Collins area: Coach air fare, reasonable
hotel, food, telephone, supply and other office related business expenses
will be reimbursed in accordance with practices established for all VIWI
employees.
7. TERM OF EMPLOYMENT
The Company is anticipating that Dennis W. Altbrandt is willing to join
the Company as the CEO (chief executive officer) for an undetermined
period of time. With respect to this responsibility, it is expected that
Mr. Altbrandt will be available in the Fort Collins office on at least
three of the five working days of the week, unless otherwise engaged in
travel or meetings on behalf of the Company.
8. SEVERANCE
Severance will be in the amount of three (3) months base salary (Re: item
#1 of this agreement) if employment is terminated without cause by the
Company after the first 3 months but less than 9 months of service and six
(6) months base salary, if employment is terminated without cause by the
Company after 9 months of continuous service to the Company. Other
benefits outlined herein, will continue for the duration of the severance
period.
No severance or other benefits under this agreement will be continued or
granted under a voluntary termination.
No severance or other benefits under this agreement will be continued or
granted if employment is terminated for cause (ex., theft, malfeasance,
fraud, etc.).
9. BONUS PLAN
A bonus plan would be into effect for the CEO on an objective basis
covering three criteria, as follows:
ITEM ATTAINMENT OF OBJECTIVE
100% 125% 150% 200% or >
SALES 5% 10% 15% 20%
NET INCOME 5% 10% 15% 20%
BEFORE TAX
- -------------------------------------------------------------------------------
2
<PAGE>
ANNUAL % INCREASE
0% 50% 100% 200% OR >
STOCK PRICE 0% 10% 15% 20%
-----------------------------------------------------------------------
The objective of each item would be:
SALES - as projected in the first budget presented annually to the Board
of Directors and approved by the Board of Directors.
NET INCOME BEFORE TAXES - as projected in the first budget presented
annually to the Board of Directors and approved by the Board of Directors.
STOCK PRICE - Percentage increase for 1997 will be calculated based on the
increase in the stock price from the date this agreement is signed and the
average stock price as quoted by NASDAQ for the 15 trading days following
the preliminary announcement of the Company's year end sales and earnings
for 1997. The calculation will use the average of the closing bid and
asked prices and taking into consideration the effect of any stock splits
or reversals to our existing shareholders to compare the annual stock
prices on the basis of current issued and outstanding shares. Future
calculations will use previous year end results vs. current year
achievement, as determined above, as method for calculating percentage
increase.
The bonus would thus be calculated by the simple addition of the
respective percentages as above and multiplied times the base salary of
the CEO, payable during the first pay period following determination of
the values for all bonus criteria as of December 31st, or as defined
above, of each year of employment -First calculation period to be for the
period of January 1st, 1997 to December 31st, 1997.
10. APPROVALS
This agreement is further subject to the approval by Renaissance Capital
Group and Norwest Bank in accordance with existing agreements to this
effect and ratification by the Board of Directors of Voice It Worldwide,
Inc. This agreement supersedes all previous employment/consultant
agreements between VIWI and Dennis Altbrandt.
Agreed to this date: November 26, 1996
-----------------
Signed by: /s/ Dennis W. Altbrandt
----------------------------
Dennis W. Altbrandt
3
<PAGE>
Offered by Voice It Worldwide, Inc.
/s/ John H. Ellerby, Corp. Secretary
--------------------------------
John H. Ellerby, Corp. Secretary
4
<PAGE>
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in the Registration Statement of
Voice It Worldwide, Inc. on Form S-8 of our report dated March 3, 1997,
appearing in the Annual Report on Form 10-KSB of Voice It Worldwide, Inc. for
the year ended December 31, 1996.
/s/ Ehrhardt Keefe Steiner & Hottman PC
---------------------------------------
Ehrhardt Keefe Steiner & Hottman PC
March 31, 1997
Denver, Colorado
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 585,414
<SECURITIES> 0
<RECEIVABLES> 3,340,267
<ALLOWANCES> (93,965)
<INVENTORY> 2,570,632
<CURRENT-ASSETS> 6,481,542
<PP&E> 682,575
<DEPRECIATION> (302,868)
<TOTAL-ASSETS> 7,541,499
<CURRENT-LIABILITIES> 2,956,648
<BONDS> 2,450,000
0
0
<COMMON> 505,480
<OTHER-SE> 1,629,371
<TOTAL-LIABILITY-AND-EQUITY> 7,541,499
<SALES> 12,219,109
<TOTAL-REVENUES> 12,219,109
<CGS> 8,438,153
<TOTAL-COSTS> 5,064,319
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272,888
<INCOME-PRETAX> (1,556,251)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,556,251)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,556,251)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
