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, 1998
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Commission File Number: 0-7796
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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, 1998 was 6,466,502 shares of the Registrant's common stock $.10 par
---------
value.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
VOICE IT WORLDWIDE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1998 1997 1998
-------- --------- -------- -------
<S> <C> <C> <C> <C>
Sales - net $1,362,343 $ 893,570 $2,718,485 $2,151,547
Cost of sales 745,049 449,755 1,491,571 1,078,948
---------- ---------- ---------- ----------
Gross profit 617,294 443,815 1,226,914 1,072,599
Operating expenses:
Administrative and general 326,354 324,826 679,082 691,469
Selling & marketing 417,431 621,370 835,350 1,142,158
Research and development 242,555 245,222 454,376 479,954
---------- ---------- --------- ---------
Total operating expenses 986,340 1,191,418 1,968,808 2,313,581
Net operating profit (369,046) (747,603) (741,894)(1,240,982)
Other income (expense)
Interest income (expense) (72,610) (77,745) (141,334) (155,046)
---------- ---------- --------- ---------
Net income (loss)
before income tax (441,656) (825,348) (883,228)(1,396,028)
Income tax (Note 4) 0 0 0 0
---------- ----------- -------- ---------
Net income (loss) ($441,656) ($825,348) ($883,228)$(1,396,028)
========== ========== ========== ===========
Net income (loss)
per common share (Note 7) ($0.08) ($0.13) $(0.17) $(0.22)
=========== =========== ========== ===========
Weighted average number
of shares outstanding 5,054,802 6,466,502 5,054,802 6,466,502
========== ========== ========= ==========
</TABLE>
See notes to financial statements.
- 2 -
VOICE IT WORLDWIDE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
December 31, June 30,
1997 1998
----------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $867,242 $193,349
Accounts receivable, net
of allowance $110,256 (1997)
and $185,837 (1998)(Note 5) 2,814,035 651,756
Other receivables 251,087 89,660
Inventories (Note 3) 1,789,347 1,981,341
Prepaid expenses and other
current assets 337,575 504,099
--------- ---------
6,059,286 3,420,205
Tooling, furniture and office
equipment, net of
accumulated depreciation (Note 3) 429,758 333,640
Other assets (Note 3) 832,499 827,974
---------- ---------
Total assets $7,321,543 4,581,819
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $1,799,466 $1,203,500
Accrued liabilities (Note 3) 288,694 160,572
Current portion of long
term debt and line-of-credit
(Notes 2 and 5) 48,755 197,664
---------- ----------
2,136,915 1,561,736
Long-term debt (Note 5) 3,169,762 2,401,245
Stockholders' equity (Note 6):
Common stock; $.10 par;
20,000,000 shares authorized;
6,466,502 issued & outstanding 646,650 646,650
Preferred stock, 10,000,000 shares
authorized; none issued & outstanding 0 0
Additional paid in capital 6,720,140 6,720,140
Accumulated deficit (5,351,924) (6,747,952)
---------- ----------
2,014,866 618,838
---------- ----------
Total liabilities and
stockholders' equity $7,321,543 $4,581,819
========== ==========
</TABLE>
See notes to financial statements.
- 3 -
VOICE IT WORLDWIDE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance-December 31,
1997 6,466,502 $646,650 $6,720,140 ($5,351,924) $2,014,866
Net (loss) for the
six months ended
June 30, 1998 0 0 0 (1,396,028) (1,396,028)
--------- -------- --------- ---------- -----------
Balance - June 30, 1998 6,466,502 $646,650 $6,720,140 ($6,747,952) $618,838
========= ======== ========== ========== ===========
</TABLE>
See notes to financial statements.
- 4 -
VOICE IT WORLDWIDE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ($883,228) ($1,396,028)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities:
Allowance for discounts and bad debts (40,845) 75,581
Depreciation and amortization 181,083 262,097
Amortization of deferred loan costs 12,720 12,720
Changes in current assets and liabilities:
Receivables 1,786,990 2,248,125
Prepaid expenses (161,259) (166,524)
Inventories 292,256 (191,994)
Accounts payable (1,603,749) (595,966)
Accrued liabilities (253,720) (128,122)
---------- ---------
Cash (used in) provided by
operating activities (669,752) 119,889
Cash flows from investing activities:
Other assets (179,019) (154,538)
Acquisition of tooling, furniture
and equipment (41,233) (19,636)
---------- ----------
Cash used in investing
activities (220,252) (174,174)
Cash flows from financing activities:
Draws (payments) on long term
line-of-credit - net 601,848 (619,608)
Cash provided by (used in)
financing 601,848 (619,608)
---------- ----------
Net decrease in cash (288,156) (673,893)
Cash - Beginning of period 585,414 867,242
---------- ---------
Cash - End of period $297,258 $193,349
========== =========
</TABLE>
Supplemental disclosure of cash flow information: Cash paid during the period
for interest was $112,298 (1997) and $92,053 (1998).
See notes to financial statements.
-5-
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, 1997.
The statements of operations, balance sheets, stockholders' equity and cash
flows as of June 30, 1998 and 1997 and the periods then ended 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, 1998, 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,
1997 1998
------------ ---------
(Unaudited)
<S> <C> <C>
Inventories
Raw materials $1,150,884 $ 850,661
Finished goods 922,882 1,195,794
(Reserves) (284,419) (65,114)
---------- ----------
$1,789,347 $1,981,341
========== ==========
Tooling, furniture and equipment
Office furniture and equipment $ 247,072 $ 258,007
Tooling and manufacturing equipment 679,122 687,823
---------- ----------
926,194 945,830
Less accumulated depreciation (496,436) (612,190)
---------- ----------
$ 429,758 $ 333,640
========== ==========
Other assets
Deferred loan costs - net of
accumulated amortization of $52,999
in 1997 and $65,719 in 1998 $ 130,394 $ 117,674
Product software development costs -
net of accumulated amortization of
$216,923 in 1997 and $335,276 in 1998 493,148 529,336
Patent costs - net of accumulated
amortization of $120,846 in 1997 and
$148,839 in 1998 158,957 130,964
Marketable securities 50,000 50,000
---------- ----------
$ 832,499 $ 827,974
========== ==========
</TABLE>
<PAGE>
- ------
NOTE 3 - SELECTED BALANCE SHEET INFORMATION (CONTINUED)
- --------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ ---------
(Unaudited)
<S> <C> <C>
Accrued liabilities
Vacation & 401K $ 40,608 $ 40,608
Advertising 101,489 67,802
Warranty 38,694 6,689
Commissions 101,738 13,614
Other 6,165 31,859
----------- -----------
$ 288,694 $ 160,572
=========== ===========
</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, 1997, the Company had net operating loss carry forwards of
approximately $5,160,000 which substantially expire in fiscal years 2008
through 2012 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, due to a lack of profitable
operating history.
NOTE 5 - LONG-TERM DEBT AND LINE-OF-CREDIT
- ------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ ---------
(Unaudited)
<S> <C> <C>
$2,000,000 line of credit to a bank,
reduced to $520,000 at June 30, 1998,
interest at their "Base Rate"
plus 2.5%, totaling 11.0% at June 30, 1998,
payable monthly, principal due on or
before January 1, 1999. Borrowings are
collateralized by, and limited to a
percentage of eligible worldwide accounts
receivable and finished goods inventory
(Note 2). $768,517 $148,909
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
--------- ---------
3,218,517 2,598,909
Less current portion (48,755) (197,664)
Total long-term debt $3,169,762 $2,401,245
========= =========
</TABLE>
NOTE 6 - STOCKHOLDERS' EQUITY
- ---------------------------------
On June 12, 1998, at a special meeting of the shareholders, the shareholders
of the Company approved an amendment to the Articles of Incorporation of the
Company to increase the number of authorized shares of Common Stock from
10,000,000 to 20,000,000 and also authorize 10,000,000 shares of preferred
stock.
Warrants
- --------
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. 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. As part of a repricing negotiation with
the debenture holder, the Company lowered the exercise price of all Warrants
to $1.06 per share and the Warrants were then exercised on December 30, 1997,
resulting in proceeds to the Company of $996,400. In January 1998, the
Company agreed to issue an additional 500,000 warrants subject to a vote of
the shareholders increasing the number of shares authorized.
During 1995, the Company completed the sale of 648,880 units of its common
stock. In connection with the private placement and the issuance of
convertible debt, the Company issued an aggregate total of 38,131 warrants to
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, 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. Warrants for 20,000 of these shares expired 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, 1998, the Company had granted (net of cancellations) 494,443
options with various vesting periods and an exercise price of between $1.06
and $3.00 per share. As of June 30, 1998, 384,443 granted options are vested
with exercise prices ranging from $1.06 to $3.00. However, no options have
been exercised.
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
- ----------------------------------------------
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
- --------------------------------
The Company adopted Statement of Financial Accounting Standard No. 128 ("FAS
128"), Earnings Per Share. All prior period loss per common share data has
been restated to conform to the provisions of this statement. Basic loss per
common share is computed using the weighted average number of shares
outstanding adjusted for the incremental shares attributed to outstanding
options to purchase common stock, only if their effect is dilutive. Options
and warrants to purchase shares of common stock in 1998 and 1997 were not
included in the computation of diluted loss per common share because their
effort would be antidilutive.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW:
Voice It Worldwide, Inc. utilizes a broad range of silicon chip
technology including digital and analog storage devices, flash memory and
digital voice compression integrated circuits. Voice It combines these
technologies with proprietary software which enables the Company to develop
leading edge consumer voice recorder 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, Mexico, 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 and electronic
specialty 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 currently has distribution in
approximately 5,000 retail outlets in more than 15 countries.
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 Company has expanded its Personal Note Recorder line to include
models with recording capacities from 40 seconds to 32 minutes. The Company
has also added product lines to include more business oriented tools such as
the Voice It Executive Series, the Voice It MMARKManager and the Voice It
Digital Voice Recorder.
During the fourth quarter of 1996, the Company introduced the Voice It
Managers. This new line of digital recording products 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 continued to redefined its role in digital
recording technology by developing and introducing a new Executive Series of
Personal Note Recorders and a dictation-length digital recorder with edit and
computer download features. The Company's new dictation-length recorder,
called the Voice It Digital Voice Recorder 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>
During 1998, the Company has developed and will introduce its newest
version of the Voice It Digital Voice Recorder. This new digital recorder
will continue to be able to download to your computer, and will also be able
to interface with various popular continuous speech voice-to-text software.
This innovation will allow the voice-to-text software user to escape the
confines of their computer and become mobile in their dictation.
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,
-------------------- ------------------
1997 1998 1997 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 54.7 50.3 54.9 50.1
----- ----- ----- -----
Gross profit 45.3 49.7 45.1 49.9
----- ----- ----- -----
Operating expenses
Administrative and general 24.0 36.4 25.0 32.1
Selling and marketing 30.6 69.5 30.7 53.1
Research and development 17.8 27.4 16.7 22.3
----- ----- ----- ------
Total operating expenses 72.4 133.3 72.4 107.5
----- ----- ----- -----
Operating loss (27.1) (83.6) (27.3) (57.6)
Other income (expense), net (5.3) (8.7) (5.2) (7.2)
----- ----- ----- ------
Net loss before income tax (32.4) (92.3) (32.5) (64.8)
Income tax (benefit) 0.0 0.0 0.0 0.0
----- ----- ------ ------
Net loss (32.4)% (92.3)% (32.5)% (64.8)%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997:
Net sales for the three months ended June 30, 1998 were $893,600 compared
to $1,362,300 for the three months ended June 30, 1997. The Company is
currently introducing an upgraded version of its Voice It Digital Recorder
that will interface with the new popular continuous speech voice-to-text
software. With the customer anticipating this new technology, sales of the
existing version of our Digital Recorder were much slower than anticipated.
Also, because the original Digital Recorder was introduced late in the fourth
quarter of 1997, there was high retail inventory from the Holiday season.
These factors combined to cause second quarter, 1998 sales to be lower when
compared to the second quarter sales of 1997.
Cost of sales for the quarter ended June 30, 1998 decreased to $449,800
or 50.3% of net sales from $745,000 or 54.7% of net sales during the second
quarter of 1997. As a percentage of net sales, cost of sales decreased during
the quarter due to cost savings associated with various components. While the
Company continues to expect cost of sales for the Personal Note Recorders to
continue at approximately 50%, the Company will introduce its newest digital
recorder with sales to Dragon Systems, Inc., the leading provider of
voice-to-text software in the United States. However, these Original
Equipment Manufacturing ("OEM") sales carry a lower gross margin and will
increase the relative cost of sales (as a percentage of sales) for the
remainder of the year.
General and administrative expenses were $324,800 during the second
quarter of 1998 compared with $326,400 for the same period in 1997. These
expenses are mostly fixed and therefore have not decreased as sales decreased.
Sales and marketing expenses for the quarter ended June 30, 1998
increased $204,000 to $621,400 from $417,400 during the same quarter in 1997.
This increase is due to a large increase in cooperative advertising reserves.
The increased cooperative advertising is based on commitments made to larger
accounts where corresponding increases in sales have not materialized.
Research and development costs increased $2,600 to $245,200 for the
second quarter of 1998 from $242,600 for the same quarter in 1997. The
Company amortizes software development costs, and expenses all other research
and development costs. The amortized costs are then amortized over the
estimated useful life of the product with is approximately 3 years. During
the current year the amortization expense has increased due to the continued
effort to develop new and better products.
The Company incurred an operating loss of approximately $747,600 for the
second quarter ended June 30, 1998 compared with an operating loss of
approximately $369,000 for the same quarter in 1997. The primary increase in
the operating loss during the quarter is due to the decrease in sales.
Compounding the effect of the sales decrease was the increased expense for
cooperative advertising with accounts selling the Voice It products.
Net interest expense for the quarter ending June 30, 1998 of $77,700
compares to net interest expense during the same period last year of $72,600.
The primary component of interest expense is the interest on the $2.45 million
convertible debt the Company entered into during the fourth quarter of 1995.
Additionally, the Company incurred interest expense from utilization of its
line-of-credit facility as well as interest paid to one of the Company's
vendors for extended payment terms. After interest expense, the net loss for
the three months ended June 30, 1998 was $825,348 or $0.13 per share compared
to a net loss of $441,656 or $0.08 per share for the second quarter of 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997:
Net sales for the six months ended June 30, 1998 were $2,151,500 compared
to $2,718,500 for the six months ended June 30, 1997. As mentioned earlier,
the sales for the first half of 1998 declined due in part to the high retail
inventory of the new Voice It Digital Recorder resulting from the late
introduction during the fourth quarter of 1997. Additionally, because the new
generation of this recorder will be introduced during late third quarter and
into the fourth quarter of 1998, orders for the earlier version of the Digital
Recorder have been lower than expected.
Cost of sales for the first six months ended June 30, 1998 decreased to
$1,078,900 or 50.1% of net sales from $1,491,600 or 54.9% of net sales during
the six months of 1997. As a percentage of net sales, cost of sales decreased
during the quarter due to cost savings associated with various components.
The Company expects costs of sales to increase as a percentage of sales during
late third quarter and into the fourth quarter due to the OEM introduction of
the new digital voice recorder that is compatible with continuous speech,
voice-to-text software.
General and administrative expenses increased $12,400 to $691,500 during
the first half of 1998 compared with $679,100 for the same period in 1997.
This small increase is primarily due to the increase in reserved warranty
costs.
Sales and marketing expenses for the six months ended June 30, 1998
increased $306,800 to $1,142,200 from $838,400 during the same period in 1997.
This increase is due to increased cooperative advertising reserves and general
print advertising that was expensed during the quarter.
Research and development costs increased $25,600 to $480,000 for the
first half of 1998 from $454,400 for the same period in 1997. A primary
reason for this increase is due to the increased amortization of previously
capitalized software development costs, as well as increased amortization of
various tooling costs.
The Company incurred an operating loss of approximately $1,241,000 for
the first six months ended June 30, 1998 compared with an operating loss of
approximately $741,900 for the same period in 1997. The primary increase in
the operating loss during the current quarter is related to the decrease in
sales for the second quarter combined with increased cooperative advertising
costs during the period.
Net interest expense for the six months ending June 30, 1998 of $155,000
compares to net interest expense during the same period last year of $141,300.
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 as well as interest paid to one of the Company's
vendors for extended payment terms. After interest expense, the net loss for
the six months ended June 30, 1998 was $1,396,028 or $0.22 per share compared
to a net loss of $883,228 or $0.17 per share for the first half of 1997.
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 June 30, 1998, the
Company had cash and cash equivalents of approximately $193,300 and working
capital of approximately $1,858,500.
Cash provided by the Company for operating activities during the six
months ended June 30, 1998 was approximately $119,900. A primary component of
operating cash was the Company's net loss of $1,396,000 adjusted for non-cash
adjustments of depreciation and amortization of approximately $350,400. Other
uses of operating cash for the period included increases in the Company's
prepaid expenses and inventories of approximately $166,500 and $192,000
respectively as well as decreases in accounts payable and accrued liabilities
of approximately $597,000 and $128,100 respectively. Sources of operating
cash were the decrease in account receivables of approximately $2,248,100.
Additional uses of cash include $174,200 for the acquisition of tooling and
other assets. During the six months ended June 30, 1998, the Company used
approximately $619,600 by paying down a large portion of its bank
line-of-credit.
On April 18, 1997, the Company obtained a three year $2,000,000
line-of-credit from a new lender. In January, 1998, the Company reduced this
line-of-credit to $1,000,000 and amended the maturity date to January 1, 1999.
Furthermore, the credit limit is being reduced $20,000 per week beginning
January 14, 1998 and continues each week thereafter until the earlier of the
maturity date or refinancing. Under the terms of the 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's interest rate is equal to the lenders "Base Rate" plus 2.5%,
totaling 11% at June 30, 1998. The credit and security agreement of this
line-of-credit contains a customary minimum net worth covenant.
SEASONALITY:
While the Company still anticipates that its business will be seasonal,
with approximately 40% of its sales occurring in the fourth quarter for the
holiday season, it is expanding its product line into more business
application tools in part to smooth out this holiday seasonality.
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.
YEAR 2000 COMPLIANCE:
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the Year 2000 Issue and is developing an
implementation plan to resolve the issue. The Year 2000 Issue is the result
of computer programs being written using two digits rather than four to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations. The
Company presently believes that, with modifications to existing software and
conversions to new software, the Year 2000 problem will not pose significant
operations problems for the Company's computer systems as so modified and
converted. However, if such modifications and conversions are not completed
in a timely manner, the Year 2000 problem may have a material impact on the
operations of the Company.
<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.
- ----------------------------------------------------------------------
On June 12, 1998, a special meeting of shareholders of Voice It
Worldwide, Inc. was held at the Holiday Inn - University Park in Fort Collins,
Colorado. The meeting began at 11:12 a.m., with CEO Dennis W. Altbrandt
presiding. There were 4,309,633 shares (representing 66.65% of the issued and
outstanding shares) of common stock present in person or by proxy. The motion
before the shareholders was an amendment to the Articles of Incorporation of
the Company to increase the number of authorized shares of common stock from
10,000,000 to 20,000,000 and authorize 10,000,000 shares of preferred stock.
The results of the voting were: 4,060,288 shares, or 94% of the shares voted,
were in favor of the amendment; 193,212 shares, or 5% of the shares that
voted, were against the motion; and 56,133, or 1% of the shares that voted,
abstained.
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/ J. Fredrick Walters
------------------ ---------------------------------
J. Fredrick Walters
Chairman of the Board of Directors
Date: 08/14/97 /s/ Mark A. Griffith
------------------ ---------------------------------
Mark A. Griffith
Chief Financial Officer
Chief Accounting Officer
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 193,349
<SECURITIES> 0
<RECEIVABLES> 741,416
<ALLOWANCES> (185,837)
<INVENTORY> 1,981,341
<CURRENT-ASSETS> 3,420,205
<PP&E> 333,640
<DEPRECIATION> (612,190)
<TOTAL-ASSETS> 4,581,819
<CURRENT-LIABILITIES> 1,561,736
<BONDS> 0
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0
<COMMON> 646,650
<OTHER-SE> (27,812)
<TOTAL-LIABILITY-AND-EQUITY> 4,581,819
<SALES> 2,151,547
<TOTAL-REVENUES> 2,151,547
<CGS> 1,078,948
<TOTAL-COSTS> 3,392,529
<OTHER-EXPENSES> (155,046)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (155,046)
<INCOME-PRETAX> (1,396,028)
<INCOME-TAX> 0
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<DISCONTINUED> 0
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