FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: September 30, 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
September 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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales - net $2,203,294 $1,360,996 $7,355,496 $4,079,481
Cost of sales 1,148,577 949,850 4,315,571 2,441,420
--------- --------- --------- ---------
Gross profit 1,054,717 411,146 3,039,925 1,638,061
Operating expenses:
Administrative and general 284,240 319,916 860,437 998,998
Selling & marketing 612,474 568,515 1,657,317 1,403,866
Research and development 152,452 222,013 501,982 676,389
Non recurring charge to
operations 1,421,703 0 1,421,703 0
--------- ------- --------- ---------
Total operating expenses 2,470,869 1,110,444 4,441,439 3,079,253
Net operating profit (1,416,152) (699,298) (1,401,514)(1,441,192)
Other income (expense)
Interest income (expense) (56,503) (87,760) (200,744) (229,094)
-------- ------ ------- -------
Net income (loss) before
income tax (1,472,655) (787,058) (1,602,258)(1,670,286)
Income tax (Note 4) 0 0 0 0
--------- ------- --------- ---------
Net income (loss) ($1,472,655) ($787,058) $(1,602,258)$(1,670,286)
========== ======== ========== ==========
Net income (loss) per
common share (Note 7) ($0.29) $(.16) $(.32) $(.33)
========== ======== ========== ==========
Weighted average number of shares
outstanding 5,054,802 5,054,802 5,054,802 5,054,802
========= ========= ========= =========
</TABLE>
<PAGE>
VOICE IT WORLDWIDE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
December 31, September 30,
1996 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $585,414 $225,656
Accounts receivable, net of
allowance $93,965 (1996)
and $69,792 (1997)(Note 5) 3,246,302 1,855,617
Other receivables 34,358 51,876
Inventories (Note 3) 2,570,632 2,614,769
Prepaid expenses and other
current assets 44,836 215,509
6,481,542 4,963,427
Tooling, furniture and office
equipment, net of
accumulated depreciation (Note 3) 379,707 333,564
Other assets (Note 3) 680,250 778,488
-------- -------
Total assets $7,541,499 $6,075,479
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $2,243,426 $1,200,193
Accrued liabilities (Note 3) 446,500 247,023
Line-of-credit (Notes 2 and 5) 266,722 0
--------- ---------
2,956,648 1,447,216
Long-term debt (Note 5) 2,450,000 4,163,698
Stockholders' equity (Note 6)
Common stock; $.10 par;
10,000,000 shares
authorized; 5,054,802 issued
& outstanding 505,480 505,480
Additional paid in capital 5,364,910 5,364,910
Accumulated deficit (3,735,539) (5,405,825)
--------- ---------
2,134,851 464,565
--------- ---------
Total liabilities and
stockholders' equity $7,541,499 $6,075,479
========= =========
</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 nine months
ended September
30, 1997 0 0 0 (1,670,286) (1,670,286)
Balance - September
30, 1997 5,054,802 $505,480 $5,364,910 $(5,405,825) $464,565
========= ======= ========= ========== =======
</TABLE>
<PAGE>
VOICE IT WORLDWIDE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($1,602,258) ($1,670,286)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Non-cash charge to operations 1,421,703 0
Allowance for discounts and bad debts 29,357 (24,173)
Depreciation and amortization 142,832 281,565
Amortization of deferred loan costs 19,080 19,080
Changes in current assets and liabilities
Receivables 2,348,250 1,397,340
Prepaid expenses 17,813 (170,673)
Inventories (216,396) (44,137)
Accounts payable (758,645) (1,043,233)
Accrued liabilities (374,042) (199,477)
Cash (used in) provided by
operating activities 1,027,694 (1,453,994)
Cash flows from investing activities
Other assets (290,299) (263,444)
Acquisition of tooling,
furniture and equipment (220,285) (89,296)
-------- -------
Cash used in investing activities (510,584) (352,740)
Cash flows from financing activities
Draws (payments) on long term
line-of-credit - net (387,999) 1,446,976
-------- ---------
Cash used in financing activities (387,999) 1,446,976
Net increase (decrease) in cash 129,111 (359,758)
Cash - Beginning of period 251,321 585,414
------- -------
Cash - End of period $380,432 $225,656
======== ========
</TABLE>
Supplemental disclosure of cash flow information: Cash paid during the period
for interest was $148,883 (1996) and $204,942 (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 September 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, September 30,
1996 1997
----- ----
<S> <C> <C>
Inventories
Raw materials $ 701,033 $1,486,048
Finished goods 1,869,599 1,128,721
--------- ---------
$2,570,632 $2,614,769
========= =========
Tooling, furniture and equipment
Office furniture and equipment $ 222,424 $ 248,159
Tooling and manufacturing equipment 460,151 523,712
--------- ---------
682,575 771,871
Less accumulated depreciation (302,868) (438,307)
----------- ---------
$ 379,707 $ 333,564
=========== =========
Other assets
Deferred loan costs - net of accumulated
amortization of $27,559 in 1996 and $46,639
in 1997 $155,834 $ 136,754
Product software development costs - net of
accumulated amortization of $66,283 in 1996
and $172,093 in 1997 330,054 474,229
Patent costs - net of accumulated amortization
of $66,647 in 1996 and $106,963 in 1997 194,284 169,428
Other 78 (1,923)
------- -------
$680,250 $778,488
======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
---- ----
<S> <C> <C>
Accrued liabilities
Vacation & 401K $ 38,587 $ 42,546
Advertising 254,809 63,320
Warranty 50,729 32,520
Commissions 91,614 67,988
Other 10,761 40,649
------ ------
$446,500 $247,023
======= ========
</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, September 30,
1996 1997
---- ----
<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 $ 0
$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). At September 30,
1997, the Company was not in compliance with
the tangible net worth covenant of the
loan agreement (Note 8). 0 1,713,698
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 4,163,698
Less current portion (266,722) 0
--------- ---------
Total long-term debt $2,450,000 $4,163,698
========== ==========
</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 September 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 September 30, 1997, 434,443 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.
NOTE 8 - SUBSEQUENT EVENTS
- ------------------------------
During the period, the Company became aware that it was not compliance with
the tangible net worth requirement of its loan and security agreement with its
primary lender. While the lender is aware of this situation, it has issued a
default under the loan agreement. The Company is currently pursuing
alternatives to return to compliance with the tangible net worth requirement.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW:
Voice It Worldwide, Inc. ("Voice It") utilizes a broad range of silicon
chip technology including digital analog storage devices, flash memory and
digital voice compression integrated circuits. Voice It combines these
technologies with proprietary software enabling the Company to stay on the
cutting edge of new voice products. The Company protects its proprietary
technology through a combination of pending patents, copyrights and trade
secrets.
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, 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'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 its Personal Note Recorder line to include
models with recording capacities from 40 seconds to ten minutes and again
added the new Executive Series that increases the capacity to 22 minutes.
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.
During 1997, the Company again redefined its role in digital recording
technology by developing and introducing a new Executive Series of Personal
Note Recorders that have recording times up to 22 minutes and combines
enhanced features with an LCD display. The Company also extended its product
line to include a new Digital Voice Recorder that has 50 minutes of internal
memory as well as the ability to increase its capacity by adding a 50 minute
removable memory card. By using additional memory cards, the Voice It
Digital Voice Recorder has virtually unlimited storage capacity. The Digital
Voice Recorder's edit features work like a "verbal word processor" for voice
files enabling the addition or deletion of words or phrases seamlessly within
a sentence or paragraph. In addition to all of the other enhanced features,
the Company's new recorder downloads its compressed verbal files to a Personal
Computer. Using the Voice It PC Link software, the files can be named and
stored, played through the computer's speakers for transcription using popular
word processing programs, or even attached to email and sent via the internet.
<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 Nine Months Ended
September 30, September 30,
-------------- -------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 52.1 69.8 58.7 59.8
-------- -------- ------ ------
Gross profit 47.9 30.2 41.3 40.2
-------- -------- ------ ------
Operating expenses
Administrative and
general 12.9 23.5 11.7 24.5
Selling and marketing 27.8 41.8 22.5 34.4
Research and development 6.9 16.3 6.8 16.6
Non recurring charge to
operations 64.5 0.0 19.4 0.0
------- ------- ------ -----
Total operating expenses 112.1 81.6 60.4 75.5
------ ------ ------ ------
Operating income (loss) (64.2) (51.4) (19.1) (35.3)
Other income (expense),
net (2.6) (6.4) (2.7) (5.6)
-------- ------ -------- -----
Net loss before income tax (66.8) (57.8) (21.8) (40.9)
Income tax (benefit) 0.0 0.0 0.0 0.0
------- ------- ------- -------
Net loss (66.8)% (57.8)% (21.8)% (40.9)%
======== ======= ======= ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996:
Net sales for the three months ended September 30, 1997 were $1,361,000
compared to $2,203,300 for the three months ended September 30, 1996. Three
primary factors were instrumental in posting these reduced sales for the
quarter. First, while the Company began shipping its new products during
August and September, 1997, the Company's contract manufacturer was behind
schedule to ramp up production levels to their required capacities in order to
complete the current back orders. At September 30, 1997, the Company had back
orders of its products of approximately $1 million. Second, the Company had
authorized an inventory exchange with a major customer to return some of its
lower run time Voice It products and replace them with the higher run time new
products. These returns came in during the third quarter, but because the
Company was back ordered, it was unable to ship the new products until the
fourth quarter. Finally, there is a continuing weak consumer electronics
market, which was also negatively impacted from the liquidation of competitive
product inventory at extraordinarily low selling prices.
Cost of sales for the third quarter ended September 30, 1997 decreased to
$949,800 or 69.8% of net sales from $1,148,600 or 52.1% of net sales during
the third quarter of 1996. The dollar decrease is due to the corresponding
decrease in unit sales. As a percentage of net sales, cost of sales increased
during the quarter because of the larger mix of international sales as a
percentage of total. Also, the inventory exchange from the customer mentioned
above caused a negative impact to margins. Although the current quarter's
cost of sales percentage had increased, the Company is continuing its cost
reduction program and expects to see the fourth quarters costs decreased of
sales to be lower as a percentage of sales which will result in gross margins
returning to the high 40% range.
General and administrative expenses increased $35,700 to $319,900 during
the third quarter of 1997 compared with $284,200 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 an increase
in our investor relations area. Also, 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.
Sales and marketing expenses for the quarter ended September 30, 1997
decreased $43,600 to $568,500 from $612,500 during the same quarter 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 $69,600 to $222,000 for the
third quarter of 1997 from $152,400 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 continues to
aggressively expand recording capacities and enhance features on both its
current and new products and has also developed computer software to download
and interface with the PC.
During the third quarter of 1996, the Company recorded a non recurring
charge to operations of approximately $1.4 million. This non-cash charge
resulted from the discontinuance of the Company's Message Center product line
and the reduction of certain inventory carrying costs due to technology
advances.
Primarily because of the one million dollar backlog of orders, combined
with the inventory exchange from a customer, the Company incurred
substantially lower than normal revenues during the third quarter, 1997. As
such, this revenue base could not absorb the level of fixed expenses and
increased research costs resulting in an operating loss of $699,298 compared
to an operating loss during the third quarter of 1996 of $1,416,152.
Net interest expense for the quarter ending September 30, 1997 of $87,760
compares to net interest expense during the same period last year of $56,503.
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
third three months ended September 30, 1997 was $787,058 or $0.16 per share
compared to a net loss of $1,472,655 or $0.29 per share for the third quarter
of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996:
Sales for the first nine months ended September 30, 1997 of $4,079,500 is
significantly lower than the $7,355,500 recorded during the nine months of
1996. This decrease is attributable to a variety of reasons including the
overall decrease in the consumer electronic category, a delay in the
production ramp up of its new products and higher returns due to the inventory
exchange with one of our larger customers.
Cost of sales for the nine months ended September 30, 1997 decreased to
$2,441,400 or 59.8% of net sales from $4,315.600 or 58.7% of net sales during
the nine months of 1996. The dollar decrease is due to the corresponding
decrease in unit sales. Cost of sales as a percentage of sales increased
slightly for the current nine months due partly to the impact of the inventory
exchange absorbed during the third quarter of 1997. The Company expects the
costs for fourth quarter to be lower resulting in gross margins returning to
the high 40% level.
General and administrative expenses increased $138,600 to $999,000 during
the nine months of 1997 compared with $860,400 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 and an increase in shareholder relations programs.
Sales and marketing expenses for the nine months ended September 30, 1997
decreased $253,400 to $1,403,700 from $1,657,300 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 $174,400 to $676,400 for the
nine months of 1997 from $502,000 for the same period in 1996. The primary
reason for this increase is developing new products for introduction during
the second half of 1997. The Company has expanded its recording capacities,
enhanced the features on both current and new products. The Company has also
written computer software that can process the compressed voice information
that can now be downloaded and managed from our new Voice It Digital Recorder
to a personal computer.
During 1996, the Company made the decision to discontinue its Message
Center product line. As a result, the Company recorded a non-cash charge to
operations of approximately $1.4 million.
During the nine months ended September 30, 1997, the Company has had a
significantly lower revenue base than during the first nine months of 1996.
This decrease is attributable to a variety of reasons including the overall
decrease in the consumer electronic category, a delay in the production ramp
up of its new products and higher returns due to stock balancing . The result
of this decreased revenue is an operating loss of for the period of $1,441,192
compared to an operating loss during the nine months ended September 30, 1996
of $1,401,514.
Interest expense for the nine months ended September 30, 1997 of $229,094
compares to net interest expense during the same period last year of $200,744.
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 nine months ended September 30, 1997 was $1,670,286 or $0.33 per share
compared to a net loss of $1,602,258 or $0.32 per share for the first nine
months 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. At September 30, 1997, the
Company had cash and cash equivalents of approximately $225,700 and working
capital of approximately $3,516,200.
Cash used by the Company for operating activities during the nine months
ended September 30, 1997 was approximately $1,454,000. The Company recorded a
net loss during the period of approximately $1,670,300 including non-cash
items totalling $276,500. 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 and inventories of approximately
$170,700 and $44,100 respectively as well as decreases in accounts payable and
accrued liabilities by approximately $1,043,200 and $199,500 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 of approximately $1,397,300. The accounts
receivable decrease is due to the first quarter collection of the higher
fourth quarter, 1996 sales combines with lower revenues during the first nine
months of 1997. Additional uses of cash include $89,300 for the acquisition
of tooling and equipment as the Company increases its manufacturing capacity
for new products, and $263,400 in acquiring other assets. During the nine
months ended September 30, 1997, the Company generated approximately
$1,447,000 by drawing on a portion of its bank line-of-credit, net of repaying
the current portion of the bank line-of-credit.
On April 18, 1997, the company completed a three year $2,000,000
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 September 30, 1997. The credit and security
agreement of this line-of-credit contains a customary minimum net worth
covenant. Due to the reduced sales and increased loss mentioned earlier, the
Company is not currently in compliance with the minimum tangible net worth
requirement. While the bank is aware of this situation, it has not issued a
default under the loan agreement. The Company is currently pursuing
alternatives to return to compliance with the tangible net worth requirement.
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 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: 11/14/97 /s/Dennis W. Altbrandt
------------------
Dennis W. Altbrandt
Chief Executive Officer
Date: 11/14/97 /s/Mark A. Griffith
------------------
Mark A. Griffith
Chief Financial Officer
Chief Accounting Officer
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 225,656
<SECURITIES> 0
<RECEIVABLES> 1,907,493
<ALLOWANCES> (69,792)
<INVENTORY> 2,614,769
<CURRENT-ASSETS> 4,963,427
<PP&E> 333,564
<DEPRECIATION> (438,307)
<TOTAL-ASSETS> 6,075,479
<CURRENT-LIABILITIES> 1,447,216
<BONDS> 0
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0
<COMMON> 505,480
<OTHER-SE> (40,415)
<TOTAL-LIABILITY-AND-EQUITY> 6,075,479
<SALES> 4,079,481
<TOTAL-REVENUES> 4,079,481
<CGS> 2,441,420
<TOTAL-COSTS> 5,520,673
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229,094
<INCOME-PRETAX> (1,670,286)
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