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: March 31, 1999
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 March 31, 1999
was 6,466,502 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)
Three Months Ended
March 31,
----------------------------
1998 1999
----------- -----------
Sales - net ................ $ 1,257,977 $ 5,730,030
Cost of (Note 11) .......... 781,880 4,159,597
sales
----------- -----------
Gross profit .......... 476,097 1,570,434
Operating expenses:
Administrative and general 273,749 506,765
Selling & marketing ....... 564,418 244,035
Research and development .. 131,309 156,468
----------- -----------
Total operating expenses 969,476 907,268
Net operating profit ....... (493,379) 663,165
Other income (expense)
Interest income (expense) . (77,301) (35,762)
----------- -----------
Net income (loss) before
income tax ................ (570,680) 627,403
Income tax (Note 4) ........ 0 0
----------- -----------
Net income (loss) .......... ($ 570,680) $ 627,403
=========== ===========
Basic and diluted profit
(loss) per common share
(Note 7) .................. ($ 0.09) $ 0.10
=========== ===========
Weighted average number of
shares
Outstanding - basic and
diluted ................... 6,466,502 6,466,502
=========== ===========
-2-
<PAGE>
VOICE IT WORLDWIDE, INC.
Balance Sheets
Assets (unaudited)
December 31, March 31,
1998 1999
----------- -----------
Current assets:
Cash and cash equivalents .............. $ 222,339 $ 80,666
Accounts receivable, net of allowance
$389,093 (1998) and $390,482 (1999) ... 2,388,152 3,696,246
Other receivables ...................... 65,186 319
Inventories (Note 3) ................... 1,509,396 1,382,978
Prepaid expenses and other current
assets ................................ 192,564 221,261
----------- -----------
Total current assets ............ 4,377,637 5,381,470
Tooling, furniture and office equipment,
net of accumulated depreciation (Note 3) 195,819 181,033
Other assets-net of accumulated
amortization (Note 3) .................. 270,482 246,239
=========== ===========
Total assets ............................ $ 4,843,938 $ 5,808,742
=========== ===========
Liabilities and Stockholders' Equity
(Deficit)
Prepetition liabilities secured
Line of-credit (Note 5) ................ $ 88,240 $ 101,657
Prepetition liabilities subject to
compromise
Accounts payable ....................... 1,917,828 1,917,873
Accrued expenses ....................... 0 0
Notes Payable (Note 5) ................. 2,450,000 2,450,000
----------- -----------
4,367,828 4,367,873
Post petition liabilities
Accounts Payable ....................... 1,373,446 1,272,434
Accrued expenses (Note 3) .............. 273,078 423,468
Customer deposits ...................... 65,438 0
Debtor in possession notes ............. 260,000 600,000
----------- -----------
1,971,962 2,295,902
Stockholders' equity (Note 6):
Common stock; $.10 par; 20,000,000
shares authorized; 6,466,502 issued
and outstanding ....................... 646,650 646,650
Preferred stock, 10,000,000 shares
authorized; none issued and
outstanding ........................... 0 0
Additional paid in capital ............. 6,720,140 6,720,140
Accumulated deficit .................... (8,950,882) (8,323,479)
----------- -----------
(1,584,092) (956,689)
----------- -----------
Total liabilities and
stockholders' equity ................... $ 4,843,938 $ 5,808,742
=========== ===========
-3-
<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, 1998 6,466,502 $ 646,650 $ 6,720,140 ($8,950,882) ($1,584,092)
Net profit for the
three months
ended March 31, 1999 ... 0 0 0 627,403 627,403
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1999 6,466,502 $ 646,650 $ 6,720,140 ($8,323,479) ($ 956,689)
=========== =========== =========== =========== ===========
</TABLE>
- 4 -
<PAGE>
VOICE IT WORLDWIDE, INC.
Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
----------------------------
1998 1999
----------- -----------
Cash flows from operating activities:
Net income (loss) ........................... ($ 570,680) $ 627,403
----------- -----------
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Allowance for discounts and bad debts ...... (6,307) 1,389
Depreciation and amortization .............. 134,854 41,569
Amortization of deferred loan costs ........ 6,360 10,600
Changes in current assets and liabilities:
Receivables ............................... 1,418,289 (1,244,616)
Prepaid expenses .......................... (173,748) (28,697)
Inventories ............................... 94,835 126,418
Customer deposits ......................... 0 (65,438)
Accounts payable - pre and post petition .. (874,101) (100,967)
Accrued liabilities - pre and post petition (170,261) 150,390
----------- -----------
429,921 (1,109,352)
----------- -----------
Cash (used in) provided by operating
activities ............................ (140,759) (481,949)
Cash flows from investing activities:
Other assets ................................ (69,264) (816)
Acquisition of tooling, furniture
and equipment .............................. (16,181) (12,325)
----------- -----------
Cash used in investing activities ..... (85,445) (13,141)
Cash flows from financing activities:
Draws (payments) on line of credit - net .... (202,746) 13,417
Proceeds from Debtor in Possession notes .... 0 340,000
----------- -----------
Cash provided by (used in) financing . (202,746) 353,417
----------- -----------
Net decrease in cash ......................... (428,950) (141,673)
Cash - Beginning of period ................... 867,242 222,339
----------- -----------
Cash - End of period ......................... $ 438,292 $ 80,666
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest was $93,433 (1998) and $38,739
(1999).
-5-
<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, 1998.
The statements of operations, balance sheets, stockholders' equity and cash
flows as of March 31, 1999 and 1998 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 March 31, 1999, 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
December 31, March 31,
1998 1999
----------- -----------
(Unaudited)
Inventories
Raw materials .......... $ 998,787 $ 2,340,575
Finished goods ......... 1,596,996 114,931
Reserve for obsolescence (1,086,396) (1,072,528)
----------- -----------
$ 1,509,396 $ 1,382,978
=========== ===========
Tooling, furniture and equipment
Office furniture and equipment $ 258,361 $ 263,690
Tooling and manufacturing
equipment ................... 243,556 250,551
----------- -----------
501,917 514,241
Less accumulated depreciation (306,098) (333,208)
----------- -----------
$ 195,819 $ 181,033
=========== ===========
December 31, March 31,
1998 1999
----------- ---------
(Unaudited)
Other assets
Deferred loan costs - net of accumulated
amortization of $74,199 (1998) and
$84,799 (1999) ........................ $109,194 $ 98,594
Patent costs - net of accumulated
amortization of $177,388 (1998) and
$191,846 (1999) ....................... 111,288 97,645
Marketable securities - available
for sale (Note3) ...................... 50,000 50,000
$270,482 $246,239
======== ========
<PAGE>
Note 3 - Selected Balance Sheet Information (continued)
December 31, March 31,
1998 1999
---------- ---------
(Unaudited)
Accrued liabilities
Vacation & 401K $ 39,858 $ 49,366
Advertising .... 86,187 57,935
Warranty ....... 127,780 131,436
Commissions .... 2,982 10,728
Interest Payable 5,749 19,207
Licensing fee .. 146,444
Other .......... 10,522 8,352
-------- --------
$273,078 $423,468
<PAGE>
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, 1998, the Company had net operating loss carry forwards of
approximately $9,400,000 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
Prepetition-Secured
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
---------- ----------
(Unaudited)
<S> <C> <C>
$100,000 line-of-credit to financial institution,
interest at prime rate plus 2.5%, totaling 10.25%
at December 31, 1998. Principal is due March 31,
2000. Borrowings are collateralized by all
receivables, inventory, investment property,
equipment and general intangibles. Pursuant to the
filing of Chapter 11 reorganization, a cash
collateral agreement was signed by both parties
agreeing to monthly interest payments on the
balance outstanding at the date of filing or
$2,500, whichever is greater. $88,240 $101,657
Prepetion Liabilities Subject to Compromise
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. Monthly principal redemption of
one percent of the then outstanding balance was to
begin in November 1998. As of March 31, 1999, no
payments had been made on the principal balance. $2,450,000 $2,450,000
</TABLE>
<PAGE>
Note 6 - Stockholders' Equity
Convertible Debenture
The Company has issued a $2,450,000 convertible debenture (Note 5). This
debenture is convertible into the Company's common stock at a rate of $0.95 of
principal for each share of common stock. Monthly principal redemption of one
percent of the then outstanding balance was to begin in November 1998. As of
March 31, 1999, no payments had been made on the principal balance. The Company
has rejected this convertible debenture as part of its proposed plan of
reorganization filed March 2, 1999 pursuant to Chapter 11 of the Bankruptcy
Code. However, no assurances can be made that the Company's Plan will be
accepted. As such, no adjustments have been made to reflect this proposal.
Warrants
In connection with the convertible debenture, the Company has issued a total of
940,000 warrants to buy the Company's common stock at an exercise price of $1.06
per share. On December 30, 1997, the warrants were exercised at $1.06 per share
resulting in proceeds of $996,400.
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 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.
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.
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.
The Company has rejected all outstanding warrants as part of its plan of
reorganization filed March 2, 1999 pursuant to Chapter 11 of the Bankruptcy
code. However, there are no assurances that the Company plan will be accepted.
Therefore, no adjustments have been made that reflect this proposal.
Stock Options
The Company has reserved a total of 800,000 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 December 31, 1998, the Company had granted (net of cancellations)
426,443 options with various vesting periods and an exercise price of between
$0.31 and $3.00 per share. As of March 31, 1999, 328,943 granted options are
vested with exercise prices ranging from $1.06 to $3.00. However, no options
have been exercised. As part of its plan of reorganization filed March 2, 1999
pursuant to Chapter 11 of the Bankruptcy code the Company has rejected all
outstanding stock options granted pursuant to the 1994 Stock Compensation Plan.
As of March 31, 1999 the Company has granted 702,200 new incentive and/or
non-qualified stock options to officers, directors, employees and non-employees
as part of its post reorganization plan. 677,200 of these shares were issued at
an exercise price of $0.19 with an expiration date of 1/13/2002. 633,700 of
these options vested 1/13/99 and 43,500 options vest on final acceptance of the
Company's Plan of Reorganization by the U.S. Trustee. The final 25,000
additional options were granted on 3/1/99 at $0.48 a share with three year
vesting.
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 effect would be
antidilutive.
Note 8 - Letters-of-credit
The Company partially finances the purchase of their raw materials through the
assignment of letters-of-credit issued by their largest customer, Dragon Systems
Inc. (Dragon). Dragon issues letters-of-credit to the Company who in turn assign
the letters-of-credit to their vendors to prepay the purchase of raw materials
used in their turnkey manufacturing process. As of March 31, 1999, there were no
unassigned letters-of-credit.
Note 9 - Related Party Transactions
The Company holds various debtor in possession ("DIP") notes payable to members
of the Board of Directors. As of March 31, 1999, a total of $600,000 was
outstanding. The loans have been approved by order of the Bankruptcy Court,
provide for an interest rate of 10% per annum and qualify as costs and expenses
of administration in the bankruptcy proceedings.
Note 10 - Subsequent Events
On November 2, 1998, the Company filed a voluntary petition for protection under
the reorganization provisions of Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court, District of Colorado, file number 98-25542 RJB.
The Company will continue to operate as a Debtor-in-Possession.
On March 2, 1999, the Company submitted its initial proposed Plan of
Reorganization dated March 2, 1999 to the United States Bankruptcy Court.
Subsequent to this filing, the Company submitted a new Plan of Reorganization
and Disclosure Statement on April 21, 1999 to the
United States Bankruptcy Court.
Note 11 - Reclassifcation
Certain costs for warranty, manufacturing overhead, and warehouse/shipping
expenses have been reclassified as cost of sales expense instead of operating
expenses in the first quarter of 1998. This change was made to conform to the
classification of expenses in 1999. The change better reflects the proper
categorization of these product related expenses.
<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.
Until 1998, the Company's products were designed primarily for consumer use and
sold through retail channels in the U.S., Canada and Europe. In 1998, the
Company began development of a Mobile Dictation Recorder designed for
professional users and compatible with voice recognition software. The
capabilities of the new Mobile Dictation Recorder provide the Company with an
opportunity to enter significant new markets. During 1998, the Company changed
its business strategy to reduce its reliance on the retail market and expand its
business through OEM, VAR, and vertical markets. In June 1998, the Company
entered into an agreement with Dragon Systems Inc., the leading voice
recognition software marketer in the U.S., to supply Mobile Dictation Recorders
for bundling with Dragon Systems voice recognition software. Shipments to this
customer began in October 1998.
The change in business strategy implemented in 1998 led to improved revenue and
earnings performance for the quarter ended March 31, 1999. During the quarter,
sales increased 355% to $5,730,000 and the company showed a profit of $627,403
or $0.10 per share. Although future quarters may not show similar results, the
Company believes that its new strategy is working and intends to pursue it
aggressively.
In early 1998, the Company lost distribution of its note recorder products in
several important retail customers, resulting in a 31% decline in sales for the
nine months ended September 30, 1998 versus the same period in 1997. The
Company's failure to meet certain financial performance objectives resulted in
the loss of its line of credit. Although the Company continued to invest in the
development of the Mobile Dictation Recorder and had secured a substantial
purchase order from Dragon Systems for this product, the loss of the line of
credit, coupled with impending payments for interest and past due payables to
suppliers, resulted in the Company filing a petition for protection under the
reorganization provisions of Chapter 11 of the Bankruptcy Code with the United
States Bankruptcy Court, district of Colorado, on November 2, 1998.
The Company continues its operations as a Debtor-in-Possession (`DIP"). On March
2, 1999, the Company submitted its initial proposed Plan of Reorganization dated
March 2, 1999 to the United States Bankruptcy Court. On April 21, 1999 the
Company submitted a new Plan of Reorganization along with its Disclosure
Statement to the U.S. Bankruptcy Court. The Company continues to meet its
post-petition financial obligations through a combination cash generated from
receivables by the Company's primary customer and DIP loans from Management.
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:
Three Months Ended
December 31,
-------------------
1998 1999
-------- ---------
Net sales 100.0% 100.0%
Cost of sales 62.2 72.6
------ ------
Gross profit 37.8 27.4
------ ------
Operating expense
Administrative and general 21.8 8.8
Selling and marketing 44.9 4.3
Research and development 10.4 2.7
------ -----
Total operating expenses 77.1 15.8
------ -----
Operating profit (loss) (39.2) 11.6
Other income (expense), net (6.1) (.6)
------ -----
Net profit (loss) before
income tax (45.4) 10.9
Income tax (benefit) 0.0 0.0
------ -----
Net profit (loss) (45.4)% 10.9%
====== =====
Three Months ended March 31, 1999 vs. Three Months ended March 31, 1998:
Net sales for the three months ended March 31, 1998 were $5,730,000 compared to
$1,258,000 for the three months ended March 31, 1998. The increase in sales were
the result of the successful introduction of the Voice It Mobile Digital
Recorder that interfaces with the new popular continuous speech voice-to-text
software. Sales to Dragon represented 90% of first quarter 1999 revenue. As a
result of the loss of note recorder distribution, sales of the existing version
of our Digital Note Recorder were much slower than anticipated. Additionally,
the number of retail outlets, and corresponding retail sales, have significantly
declined as the Company pursues it's strategy of focusing on its Original
Equipment Manufacturing ("OEM") business.
Cost of sales for the quarter ended March 31, 1999 increased to $4,159,600 or
72.6% of net sales from $781,900 or 62.1% of net sales during the first quarter
of 1998. The increase is the result of increased sales volume of the mobile
digital recorder to Dragon, the leading provider of voice-to-text software in
the United States. These OEM sales carry a lower gross margin and will increase
the relative cost of sales (as a percentage of sales) than note recorders that
accounted for the majority of sales in the first quarter of 1998.
General and administrative expenses were $506,765 during the first quarter of
1999 compared with $273,749 for the same period in 1998, but as a percent of net
sales, administrative expenses decreased from 21.8% in 1998 to 8.8% in 1999. The
increase in expenses is primarily due to increased legal, accounting and banking
expenses resulting from the Chapter 11 Bankruptcy filing. Additional expenses
were also accrued for severance and relocation as the Company is planning to
consolidate its operations in San Diego, California and move out of its Ft.
Collins, Colorado headquarters.
Sales and marketing expenses for the quarter ended March 31, 1999 decreased by
$320,383 to $244,035 from $564,418 during the same quarter in 1998. This
decrease is due, in part, to the reduction in coop and sales commissions related
to the decrease in retail sales of note recorder products. As a result of the
change in business strategy, lower retail sales and reduced distribution, the
Company also eliminated consumer advertising. As a percent of net sales, sales
and marketing expenses decreased from 44.9% in 1998 to 4.3% in 1999.
Research and development costs increased by $25,159 to $156,468 for the first
quarter of 1999 from $131,309 for the same quarter in 1998. Research costs have
increased due to continued investment in the development of the Digital Voice
Recorder, and due to the Company decision to amortize capitalized product
software development expenses over a shorter period of time. As a percent of net
sales, research and development expenses decreased from 10.4% in 1998 to 2.7% in
1999.
The Company recorded an operating profit of approximately $663,200 for the first
quarter ended March 31, 1999 compared with an operating loss of approximately
$493,400 for the same quarter in 1998. A 355% increase in sales and lower
operating expenses more than offset the increase in the cost of sales as a
percentage of sales.
Other income (expense) for the quarter ended March 31, 1999 showed a loss of
$35,762 compared to a net loss of $77,301 during the same period last year. The
primary components of other income (expense) in the first quarter of 1999 are
interest on the $100 thousand secured line of credit, interest on the DIP loans
and the amortization of deferred offerings costs. First quarter 1998 other
income (expense) was primarily due to interest expense associated with the $2.4
million convertible debt the Company entered into during the fourth quarter of
1995. After interest expense, profit for the three months ended March 31, 1991
was $627,403 or $0.10 per share compared to a net loss of $570,680 or $0.09 per
share for the first quarter of 1998.
Liquidity and Capital Resources:
At March 31, 1999, the Company had cash and cash equivalents of approximately
$80,700. The Company also had working capital deficit of approximately
$1,384,000 at quarter end 1998. This is a significant improvement from the
working capital deficit of approximately $2,050,000 on December 31, 1998. The
primary reason for the improvement in working capital is the Company's net
income for the three months ended March 31, 1999 of approximately $627,400.
Cash used by the Company for operating activities during the three months ended
March 31, 1998 was approximately $482,000. A primary component of operating cash
was the Company's first quarter profit of $627,400 adjusted for non-cash
adjustments of depreciation and amortization of approximately $53,600. Other
sources of operating cash for the period included decreases in the Company's
inventories of approximately $126,400 as well as increases in accrued
liabilities of approximately $150,400. Uses of operating cash were the increase
in account receivables (due to higher sales) and prepaid expenses of
approximately $1,244,600 and $28,700 respectively as well as the decrease in
customer deposits and accounts payable totaling $166,405. Additional uses of
cash include $13,140 for the acquisition of tooling and other assets.
Cash provided by financing activities include borrowing of DIP funds totaling
$340,000. For the first quarter ended March 31, 1999, the Company's net cash
position decreased $141,673 from $222,339 at December 31, 1998 to $80,666 at
quarter end.
During the first quarter 1999 the Company has financed its working capital
requirements through letters-of-credit with its primary customer Dragon Systems,
Inc. The Company believes it will require letters of credit from Dragon or other
additional short term financing to fund working capital requirements including
materials purchases and operating expenses during the upcoming months.
Seasonality:
The Company's business has traditionally been skewed toward the fourth quarter.
In 1998, 61% of sales occurred in the fourth quarter. This was primarily the
result of the introduction of the new digital recorder during the period and
first shipments to the primary OEM customer (Dragon). The Company anticipates
that its business will become less seasonal although sales to its primary OEM
customer may continue to be skewed to the second and fourth quarter due to gift
giving. The Company's sales could also be impacted by the introduction and sell
through of new products by the primary OEM customer.
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.
Bankruptcy:
The Company continues its operations as a Debtor-in Possession ("DIP"). On March
2, 1999, the Company submitted its initial proposed Plan of Reorganization to
the U.S. Bankruptcy Court. On April 21, the Company submitted a new Plan of
Reorganization and Disclosure Statement to the Trustee of the U.S. Bankruptcy
Court. The Trustee of the Court has 20 days from the Plan filing date to respond
to the Company's latest Plan of Reorganization.
<PAGE>
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.
The Company has not yet determined the impact if any, that Year 2000 issues may
have on its vendors. However, the Company believes there are adequate
alternative vendors that can supply products and services to the Company if
necessary.
The microprocessors used in the Company's products operate on a 99-year Julian
calendar. Thus, there will be no operational issues with these products related
to the year 2000 issue.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On November 2, 1998, the Company filed a voluntary petition for protection under
the reorganization provisions of Chapter 11 of the Bankruptcy Code with the
United States Bankruptcy Court, District of Colorado, file number 98-25542 RJB.
The Company will continue to operate as a Debtor-in-Possession.
On March 2, 1999, the Company filed its initial Plan of Reorganization with the
United States Bankruptcy Court.
On April 21, 1999, the Company filed a new Plan of Reorganization and Disclosure
Statement with the United States Bankruptcy Court.
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.
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: 5/13/99
/s/ J. Fredrick Walters
J. Fredrick Walters
Chairman of the Board of Directors
Date: 5/13/99
/s/ John H. Ellerby
John H. Ellerby
Chief Financial Officer
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