FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: June 30, 1997
---------------
Commission File Number: 0-7796
------------
VOICE IT WORLDWIDE, INC.
---------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Colorado 83-0203787
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2643 Midpoint Drive, Suite A
Fort Collins, Colorado 80525
- ---------------------------------------------------- ----------
(Address of principal (Zip Code)
executive offices)
(970) 221-1705
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
---------
Number of shares outstanding of the Issuer's Common Stock, as of June
30, 1997 was 5,054,802 shares of the Registrant's common stock $.10 par
------------
value.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
VOICE IT WORLDWIDE, INC.
=====================================================================
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
1996 1997 1996 1997
======= ====== ====== ======
<S> <C> <C> <C> <C>
Sales, net $2,390,275 $1,362,343 $5,152,202 $2,718,485
Cost of sales 1,464,725 745,049 3,166,994 1,491,571
--------- --------- --------- ---------
Gross profit 925,550 617,294 1,985,208 1,226,914
Operating expenses
Administrative and general 294,099 326,354 576,195 679,082
Selling & marketing 452,573 417,431 1,044,844 835,350
Research and development 168,601 242,555 349,531 454,376
--------- --------- --------- --------
Total operating expenses 915,273 986,340 1,970,570 1,968,808
Net operating profit 10,277 (369,046) 14,638 (741,894)
Other income (expense)
Interest income (expense) (67,832) (72,610) (144,242) (141,334)
--------- --------- --------- ---------
Net income (loss) before income
tax (57,555) (441,656) (129,604) (883,228)
Income tax (Note 4) - - - -
--------- --------- --------- ---------
Net income (loss) $(57,555) $(441,656) $(129,604) $(883,228)
========= ========= ========= ==========
Net income (loss) per common
share (Note 7) $ (.01) $ (.09) $ (.03) $ (.17)
Weighted average number of
shares outstanding 5,054,802 5,054,802 5,054,802 5,054,802
</TABLE>
- 3 -
<PAGE>
VOICE IT WORLDWIDE, INC.
Balance Sheets
Assets
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
------------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 585,414 $ 297,258
Accounts receivable, net of allowance
$93,965 (1996) and $53,120 (1997)
(Note 5) 3,246,302 1,473,475
Other receivables 34,358 61,040
Inventories (Note 3) 2,570,632 2,278,376
Prepaid expenses and other current assets 44,836 206,095
--------- ---------
6,481,542 4,316,244
Tooling, furniture and office equipment,
net of accumulated depreciation (Note 3) 379,707 332,212
Other assets (Note 3) 680,250 754,194
--------- ---------
Total assets $7,541,499 $5,402,650
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $2,243,426 $ 639,677
Accrued liabilities (Note 3) 446,500 192,780
Line-of-credit (Notes 2 and 5) 266,722 0
--------- --------
2,956,648 832,457
Long-term debt (Note 5) 2,450,000 3,318,570
Stockholders' equity (Note 6)
Common stock; $.10; 10,000,000 shares
authorized; 5,054,802 issued and
outstanding 505,480 505,480
Additional paid-in capital 5,364,910 5,364,910
Accumulated deficit (3,735,539) (4,618,767)
---------- ----------
2,134,851 1,251,623
Total liabilities and stockholders'
equity $7,541,499 $5,402,650
========== ==========
</TABLE>
<PAGE>
VOICE IT WORLDWIDE, INC.
Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance - December 31,
1996 5,054,802 $505,480 $5,364,910 $(3,735,539) $2,134,851
Net (loss) for the six
months ended June 30,
1997 - - - (883,228) (883,228)
--------- -------- ---------- ----------- ----------
Balance - June 30,
1997 5,054,802 $505,480 $5,364,910 $(4,618,767) $1,251,623
========= ======== ========== =========== ==========
</TABLE>
<PAGE>
VOICE IT WORLDWIDE, INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
1996 1997
---------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(129,604) $(883,228)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Allowance for discounts and bad debts 15,187 (40,845)
Depreciation and amortization 111,208 181,083
Amortization of deferred loan costs 12,720 12,720
Changes in current assets and liabilities
Receivables 2,971,614 1,786,990
Prepaid expenses 30,224 (161,259)
Inventories 529,713 292,256
Accounts payable (1,474,468) (1,603,749)
Accrued liabilities (473,371) (253,720)
---------- -----------
Cash (used in) provided by operating
activities 1,593,223 (669,752)
Cash flows from investing activities
Other assets (197,440) (179,019)
Acquisition of tooling, furniture and
equipment (161,329) (41,233)
--------- ----------
Cash used in financing activities (358,769) (220,252)
Cash flows from financing activities
Draws (payments) on long-term line-of-credit, net (606,170) 601,848
--------- ---------
Cash used in financing activities (606,170) 601,848
Net increase (decrease) in cash 628,284 (288,156)
Cash - beginning of period 251,321 585,414
--------- ---------
Cash - end of period $ 879,605 $297,258
========== ========
</TABLE>
Supplemental disclosure of cash flow information: Cash paid during the period
for interest was $148,883 (1996) and $112,298 (1997)
<PAGE>
VOICE IT WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
The summary of the Company's significant accounting policies are incorporated
by reference to the audited Voice It Worldwide, Inc. financial reports
included in the Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.
The statements of operations, balance sheets, stockholders' equity and cash
flows have not been audited by independent accountants, but in the opinion of
the management, reflect all normal recurring adjustments and entries necessary
for the fair presentation of the operations of the Company. The results of
operations for any quarter, and quarter-to-quarter trends, are not necessarily
indicative of the results to be expected for any future period.
NOTE 2 - LETTER OF CREDIT
- ------------------------------
At June 30, 1997, the Company had no irrevocable standby letters of credit
outstanding. However, from time to time, letters of credit are required by
major suppliers and have various expiration dates. When issued, these letters
of credit are secured by the Company's line of credit (Note 5).
NOTE 3 - SELECTED BALANCE SHEET INFORMATION
- -------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
----------- ----------
<S> <C> <C>
Inventories
Raw materials $701,033 $921,203
Finished goods 1,869,599 1,357,173
----------- ----------
$2,570,632 $2,278,376
=========== ==========
Tooling, furniture and equipment
Office furniture and equipment $222,424 $241,080
Tooling and manufacturing equipment 460,151 482,727
----------- -----------
682,575 723,807
Less accumulated depreciation (302,868) (391,595)
----------- -----------
$379,707 $332,212
=========== ===========
Other assets
Deferred loan costs - net of accumulated
amortization of $27,559 in 1996 and $40,279
in 1997 $155,834 $143,114
Product software development costs - net of
accumulated amortization of $66,283 in 1996
and $132,043 in 1997 330,054 436,152
Patent costs - net of accumulated amortization of
$66,647 in 1996 and $93,242 in 1997 194,284 176,851
Other 78 (1,923)
---------- -----------
$ 680,250 $ 754,194
========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
-------------- -----------
<S> <C> <C>
Accrued liabilities
Vacation & 401K $ 38,587 $ 38,587
Advertising 254,809 45,568
Warranty 50,729 46,558
Commissions 91,614 44,911
Other 10,761 17,156
-------------- -----------
$446,500 $ 192,780
============== ===========
</TABLE>
NOTE 4 - INCOME TAXES
- -------------------------------------------------------
The Company reports income taxes for interim periods based on annualized
estimates of earnings, tax credits and book/tax differences at the estimated
annual effective tax rate. For federal and state income tax purposes, at
December 31, 1996, the Company had net operating loss carry forwards 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.
NOTE 5 - LONG-TERM DEBT AND LINE-OF-CREDIT
- ------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
<S> <C> <C>
Line-of-credit to a bank with interest at their
"Base Rate" plus 5%, totaling 13.25% at
December 31, 1996, payable monthly, principal
due on or before April 18, 1997. This line-of-credit
was fully repaid and expired on April 18, 1997. $ 266,722 $ -
$2,000,000 line of credit to a bank, interest at
their "Base Rate" plus 2.5%, totaling 11.0% at
June 30, 1997, payable monthly, principal due on
or before March 31, 2000. Borrowings are
collateralized by, and limited to a percentage
of eligible worldwide accounts receivable and
finished goods inventory (Note 2). - 868,570
8% convertible debenture, interest payable monthly,
convertible into one share of common stock for each
$0.95 of principal converted. Principal due November
1, 2002. Loan costs associated with this
debenture were approximately $180,000, and are
amortized over the life of the agreement resulting in an
effective interest rate of 9%. Monthly principal
redemption of one percent of the then outstanding
balance begins in November, 1998. 2,450,000 2,450,000
--------- ---------
2,716,722 3,318,570
Less current portion (266,722) -
--------- ---------
Total long-term debt $2,450,000 $3,318,570
========= =========
</TABLE>
NOTE 6 - STOCKHOLDERS' EQUITY
- -----------------------------
Warrants
- -----------------------------
During 1995, the Company completed the sale of 648,880 units of its common
stock. Each Unit consists of one unregistered share of its $.10 par value
common stock and one-half of a detachable unregistered common stock purchase
warrant (the "Warrant"). The attached Warrants remained unexercised and
expired on December 31, 1996.
Combined with the $2,450,000 convertible debenture (Note 4), the Company
issued 915,000 warrants (the "Debenture Warrants") to buy unregistered shares
of the Company's common stock at an exercise price of $2.75 per share. These
Debenture Warrants have a three year life and may be redeemed, after October
27, 1996, by the Company for $.05 per Debenture Warrant if the Company's
common stock price reaches a $6.00 bid price for 20 consecutive trading days.
In the first quarter, 1996, the Company issued an additional 25,000 warrants
at an exercise price of $1.50 per share to the debenture holder in exchange
for a waiver of certain financial covenants. These warrants have basically
the same terms and conditions as the Debenture Warrants. 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 mentioned private placement stock and the
issuance of convertible debt, the Company issued an aggregate total of 38,131
warrants to the placement agents. Each warrant entitles the holder to
purchase one unregistered share of common stock at any time from June, 1996
through June, 1999 at an exercise price of $2.75 per share. However, with the
issuance of warrants pursuant to an employment agreement 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.
Stock Options
- --------------
The Company has reserved a total of 860,243 of its authorized but unissued
common stock for stock option plans (the "Plans") pursuant to which officers,
directors, employees and non-employees of the Company are eligible to receive
incentive and/or non-qualified stock options. Under the terms of the Plans,
options are exercisable based on various vesting schedules with an exercise
price which equals the market price of the common stock on the date of grant.
Through June 30, 1997, the Company had granted 654,443 options with various
vesting periods and an exercise price of between $1.06 and $3.00 per share.
As of June 30, 1997, 402,443 granted options are vested with exercise prices
ranging from $1.56 to $3.00. However, no options
have been exercised.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Accordingly, no compensation cost has been
recognized for the stock options and warrants granted. Consistent with the
disclosure-only provisions of SFAS No. 123, the Company must provide pro forma
net earnings and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair value based method
defined in SFAS No. 123 had been applied.
The Company uses one of the most widely used option pricing models, the
Black-Scholes model (the Model), for purposes of valuing its stock option
grants. The Model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable.
In addition, it requires the input of highly subjective assumptions including
the expected stock price volatility, expected dividend yields, the risk free
interest rate and the expected life. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in subjective input assumptions can materially affect the fair
value estimate, in management's option, the value determined by the Model is
not necessarily indicative of the ultimate value of the granted options.
NOTE 7 - EARNINGS PER SHARE
- --------------------------------
Net income per common share is based on the weighted average number of common
shares outstanding, inclusive of common stock equivalents computed using the
modified treasury stock method. However, common stock equivalents were not
used in computing the loss per share, as their inclusion would have been
anti-dilutive.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW:
Voice It Worldwide, Inc. ("Voice It") designs, develops and markets
personal consumer electronics products which allow people to verbalize
reminders and messages for themselves and others without the need for pen and
paper. Voice It products utilize computer chip technology to capture ideas,
thoughts, reminders and messages, incorporating high quality recording with
patent pending message management features. Voice It Personal Note Recorders
are about the size of a credit card and approximately 1/3 inch thick. Their
compact size, portability and ease of use make them a convenient replacement
for handwritten sticky notes, particularly at times and in places where
handwriting is impractical.
The Company's first product, the Voice It Personal Note Recorder, with a
75 second capacity was introduced in the market in November of 1993. Since
then, the product line has expanded to six models with recording capacities
from 40 seconds to six minutes with retail prices ranging from $29 to $90.
During the fourth quarter of 1996, the Company introduced the Voice It
Manager, 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. The Company is
marketing three Voice It Manager models which have recording capacities up to
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,
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 more than 15 countries worldwide, with new distributors in
England, Spain, Belgium and Holland. The Company experienced strong retail
success in France and Italy during 1996.
The Company continually monitors its gross margins and aggressively seeks
cost reduction which, in the past, has resulted in significant improvement in
gross margins. Gross margins declined to a low of 30% during the third
quarter of 1995 and have gradually increased each quarter to the current level
of 45%. The Company expects to continue to achieve current margin levels for
the remainder of the year.
<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>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
--------- -------- ------- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 61.3 54.7 61.5 54.9
------ --------- --------- -------
Gross profit 38.7 45.3 38.5 45.1
------ --------- --------- -------
Operating expenses
Administrative and general 12.3 24.0 11.2 25.0
Selling and marketing 18.9 30.6 20.3 30.7
Research and development 7.1 17.8 6.8 16.7
------ --------- --------- -------
Total operating expenses 38.3 72.4 38.2 72.4
------ --------- --------- -------
Operating income (loss) 0.4 (27.1) 0.3 (27.3)
Other income (expense), net (2.8) (5.3) (2.8) (5.2)
------ --------- --------- -------
Net loss before income tax (2.4) (32.4) (2.5) (32.5)
Income tax (benefit) 0.0 0.0 0.0 0.0
------ --------- --------- -------
Net loss (2.4)% (32.4)% (2.5)% (32.5)%
====== ========= ========= =======
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996:
Sales for the three months ended June 30, 1997 were $1,362,300 compared
to $2,390,300 for the three months ended June 30, 1996. While the Company's
longer recording time products have been well received by the consumers, the
continuing weak consumer electronics market, combined with the negative impact
from the liquidation of competitive product inventory at extraordinarily low
selling prices, caused an extraordinary decrease in sales during the first
half of 1997. During the second half of 1997, the Company is introducing
several new models which expand recording capacities up to 22 minutes, offer
LCD displays and continue to enhance the features that should further meet
consumers increasing needs and effectively act as a digital replacement for
the existing tape recorder market. Additionally, the Company is introducing
the Voice It Digital Recorder line of products that will combine long
recording capacity through internal flash memory in addition to removable
flash memory cards. The new digital recorder will have a number of editing
features and will be able to download data to a computer for data management,
storage, transcription and attaching to E-mail.
Cost of sales for the second quarter ended June 30, 1997 decreased to
$745,000 or 54.7% of net sales from $1,464,700 or 61.3% of net sales during
the second quarter of 1996. The dollar decrease is due to the corresponding
decrease in unit sales. However, as a percentage of net sales, cost of sales
have significantly decreased through the Company's cost reduction programs.
The cost reduction programs combined with the introduction of new technology
and products have effectively increased the Company's gross product margin to
45% during the current quarter from a low of 30% during the third quarter of
1995.
General and administrative expenses increased $32,300 to $326,400 or
24.0% during the second quarter of 1997 compared with $294,100 or 12.3% for
the same period in 1996. These expenses increased for the quarter due mostly
to higher personnel costs related to the expansion of our financial and
executive area and corresponding costs such as travel and telephone.
Additionally, non-cash expenses such as depreciation and amortization have
increased over last year due to increased capitalized spending for patent and
trademark protection during the second half of 1996. As a percentage of net
sales, administrative expenses increased due in part to the increased
expenses, but mostly because of the decrease in the sales base experienced
during the second quarter of 1997.
Sales and marketing expenses for the quarter ended June 30, 1997
decreased $35,100 to $417,400 or 30.6% of net sales in 1997 from $452,600 or
18.9% of net sales in 1996. This dollar decrease is due to the decreased
sales base and the corresponding decrease in variable expenses such as
cooperative advertising and commissions to the sales force.
Research and development costs increased $74,000 to $242,600 for the
second quarter of 1997 from $168,600 for the same quarter in 1996. The
primary reason for this increase is the cost of developing new products for
introduction in the second half of 1997. The Company is aggressively
expanding recording capacities and enhancing features on both current and new
products. In addition to the new Voice It Digital Recorder mentioned above,
the Company will also introduce new Personal Note Recorders with recording
times up to 22 minutes and featuring LCD displays. During March, 1997, the
Company also began shipping an expansion to the Voice It Manager line of a
90-minutes recorder.
While the Company increased its margins substantially compared with the
second quarter of 1996, the low revenue base during the current quarter could
not overcome the level of fixed expenses and increased research costs
resulting in an operating loss of $369,046 compared to a slight operating
profit during the second quarter of 1996 of $10,277.
Net interest expense for the quarter ending June 30, 1997 of $72,610
compares to net interest expense during the same period last year of $67,800.
The primary component of interest expense is the interest on the $2.45 million
convertible debenture the Company entered into during the fourth quarter of
1995. Additionally, the Company incurred interest expense from utilization of
its line-of-credit facility. After interest expense, the net loss for the
second three months ended June 30, 1997 was $441,656 or $0.09 per share
compared to a net loss of $57,555 or $0.01 per share for the second quarter of
1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996:
Sales for the first half ending June 30, 1997 of $2,718,500 is
significantly lower than the $5,152,200 recorded during the first half of
1996. As mentioned above, while the Company's longer recording time products
have been well received by the consumers, the continuing weak consumer
electronics market, combined with the negative impact from the liquidation of
competitive product inventory at extraordinarily low selling prices caused an
decrease in sales during the first half of 1997. During the second half of
1997, the Company is introducing several new models which expand recording
capacities up to 22 minutes, offer LCD displays and continue to enhance the
features that should further meet consumers increasing needs and effectively
act as a digital replacement for the existing tape recorder market.
Additionally, the Company is introducing the Voice It Digital Recorder line
of products that will combine long recording capacity through internal flash
memory in addition to removable flash memory cards. The new digital recorder
will have a number of editing features and will be able to download data to a
computer for data management, storage, transcription and attaching to E-mail.
Cost of sales for the first six months ended June 30, 1997 decreased to
$1,491,600 or 54.9% of net sales from $3,167.000 or 61.5% of net sales during
the first half of 1996. The dollar decrease is due to the corresponding
decrease in unit sales. However, as mentioned above, the cost of sales has
decreased significantly as a percentage of net sales through the Company's
cost reduction program.
General and administrative expenses increased $102,900 to $679,100 or
25.0% during the first six months of 1997 compared with $576,200 or 11.2% for
the same period in 1996. These expenses increased for the quarter due mostly
to higher personnel costs related to the expansion of our financial and
executive area as well as increased travel to build financial and shareholder
relations programs.
Sales and marketing expenses for the first six months ended June 30, 1997
decreased $209,500 to $835,400 or 30.7% of net sales in 1997 from $1,044,800
or 20.3% of net sales in 1996. This decrease is mostly due to the decreased
sales base and the corresponding decrease in variable expenses such as
cooperative advertising and commissions to the sales force.
Research and development costs increased $104,900 to $454,400 for the
first half of 1997 from $348,500 for the same period in 1996. The primary
reason for this increase is developing an increase of new products for
introduction during the second half of 1997. The Company expanding recording
capacities, enhancing features on both current and new products and writing
computer software to be able to download information from our new Voice It
Digital Recorder to a personal computer. In addition to the new Voice It
Digital Recorder the Company is also introducing new Personal Note Recorders
with increased recording times and LCD displays.
As discussed above, even with the substantial increase in margins, the
low revenue base during the first six months of 1997 resulted in an operating
loss of for the period of $741,894 compared to a slight operating profit
during the first half of 1996 of $14,638.
Interest expense for the first six months ended June 30, 1997 of $141,334
compares to net interest expense during the same period last year of $144,242.
The primary component of interest expense is the interest on the $2.45 million
convertible debenture the Company entered into during the fourth quarter of
1995. Additionally, the Company incurred interest expense from utilization of
its operating capital line-of-credit. After interest expense, the net loss
for the six months ended June 30, 1997 was $883,228 or $0.17 per share
compared to a net loss of $129,604 or $0.03 per share for the second quarter
of 1996.
LIQUIDITY AND CAPITAL RESOURCES:
The Company has financed its growth to date primarily from the private
sale of Common Stock and Warrants, the merger with Lander Energy Co. and the
issuance of $2,450,000 in convertible debentures. The Company also uses bank
financings for short term working capital needs as well as to guarantee
letters of credit issued to a major supplier. At June 30, 1997, the Company
had cash and cash equivalents of approximately $297,300 and working capital of
approximately $3,483,800.
Cash used by the Company during the six months ended June 30, 1997 was
approximately $936,500. For the six months ended June 30, 1997, the Company
recorded a net loss of approximately $883,200 including it for non-cash items
totalling $153,000. Non-cash items include depreciation, bad debts and
discounts and amortization of loan costs. Uses of cash in operations for the
period included increases in prepaid expenses of approximately $161,300 as
well as decreases in accounts payable and accrued liabilities by approximately
$1,603,700 and $253,700 respectively. The decrease in accounts payable is
attributable to payments during the first quarter of 1997 related to
inventories that were produced during the last quarter of 1996. Sources of
cash for the period included decreases in the Company's accounts receivable
and inventories of approximately $1,787,000 and $161,300 respectively. The
accounts receivable decrease is due to the first quarter collection of the
higher fourth quarter, 1996 sales. Additional uses of cash include $41,200
for the acquisition of tooling and equipment as the Company increases its
manufacturing capacity for new products, and $179,000 in acquiring other
assets. During the six months ended June 30, 1997, the Company generated
approximately $601,800 by drawing on a portion of its new bank line-of-credit,
net of repaying the previous bank line-of-credit.
On April 18, 1997, the company completed negotiations on a $2,000,000
replacement line-of-credit with a new lender. Under the terms of this new
line-of-credit, the Company' borrowings are collateralized by, and limited to,
a percentage of eligible worldwide accounts receivable as well as finished
goods inventories. The Company also negotiated a lower interest rate equal to
the lenders "Base Rate" plus 2.5%, totaling 11% at June 30, 1997. The new
line-of-credit is for three years and contains a customary minimum net worth
covenant.
The Company believes that with its new line-of-credit 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;
Historically, at least 40% to 50% of its sales occurring during the fourth
quarter of the year in time for the holiday gift giving season.
FOREIGN EXCHANGE:
The Company's products are principally purchased from suppliers in the
Far East with its prices negotiated on an annual basis in U.S. dollars at
exchange rates reset annually. Exchange rate fluctuations between the U.S.
Dollar and the Singapore or Hong Kong dollar could have an adverse effect on
the Company's costs of sales and gross margins. In the event of extreme
exchange rate fluctuations, it may become uneconomical for the relationship
between the Company and its suppliers to continue.
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 variances are 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.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings. None
- ------------------------------------------------------------
Item 2. Changes in Securities. None
- ------------------------------------------------------------
Item 3. Defaults upon Senior Securities. None
- ------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. None
- ------------------------------------------------------------
Item 5. Other Information. None
- ------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K. None
- ------------------------------------------------------------
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VOICE IT WORLDWIDE, INC.
------------------------
Registrant
Date: 08/14/97 /s/ Dennis W. Altbrandt
Dennis W. Altbrandt
Chief Executive Officer
Date: 08/14/97 /s/ Mark A. Griffith
Mark A. Griffith
Chief Financial Officer
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 297,258 297,258
<SECURITIES> 0 0
<RECEIVABLES> 1,534,515 1,534,515
<ALLOWANCES> (53,120) (53,120)
<INVENTORY> 2,278,376 2,278,376
<CURRENT-ASSETS> 4,316,244 4,316,244
<PP&E> 332,212 332,212
<DEPRECIATION> (391,595) (391,595)
<TOTAL-ASSETS> 5,402,650 5,402,650
<CURRENT-LIABILITIES> 832,457 832,457
<BONDS> 0 0
0 0
0 0
<COMMON> 505,480 505,480
<OTHER-SE> 746,143 746,143
<TOTAL-LIABILITY-AND-EQUITY> 5,402,650 5,402,650
<SALES> 1,362,343 2,718,485
<TOTAL-REVENUES> 1,362,343 2,718,485
<CGS> 745,049 1,491,571
<TOTAL-COSTS> 986,340 1,968,808
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 72,610 141,334
<INCOME-PRETAX> (441,656) (883,228)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (441,656) (883,228)
<EPS-PRIMARY> (.09) (.17)
<EPS-DILUTED> 0 0
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