-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GydstG9c6J8Om0weZAv5/8aDjkDc53Q2naY0NbDJd70u4P2w99FfalBkPVZLovRb wSzPFPq1qk8DZTI+ksvn0g== 0000950134-97-003871.txt : 19970515 0000950134-97-003871.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950134-97-003871 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOICE CONTROL SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000350899 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 751707970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11189 FILM NUMBER: 97604242 BUSINESS ADDRESS: STREET 1: 14140 MIDWAY RD SUITE 100 CITY: DALLAS STATE: TX ZIP: 75244 BUSINESS PHONE: 9727261200 MAIL ADDRESS: STREET 1: 14140 MIDWAY ROAD STREET 2: SUITE 100 CITY: DALLAS STATE: TX ZIP: 75244 FORMER COMPANY: FORMER CONFORMED NAME: SCOTT INSTRUMENTS CORP DATE OF NAME CHANGE: 19920703 10QSB 1 FORM 10-QSB FOR QUARTER ENDED MARCH 31, 1997 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 Quarter Ended March 31, 1997 Commission File No. 0-10385 VOICE CONTROL SYSTEMS, INC. (Name of small business issuer in its charter) DELAWARE 75-1707970 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 14140 MIDWAY ROAD DALLAS, TEXAS 75244 (972) 726-1200 (Address of principal executive (Registrant's telephone offices) number, including area code) ----------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 11,089,010 SHARES of Common Stock, $.01 par value outstanding at March 31, 1997. 2 VOICE CONTROL SYSTEMS, INC. FORM 10-QSB QUARTERLY REPORT PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to S.E.C. rules and regulations although the Company believes the disclosures made are adequate to make the information presented not misleading, and in the opinion of management, all adjustments have been reflected which are necessary for a fair statement of the information shown. 2 3 VOICE CONTROL SYSTEMS, INC. BALANCE SHEET (UNAUDITED) ===============================================================================
ASSETS March 31, 1997 CURRENT ASSETS: ------------ Cash and cash equivalents $ 14,648,348 Accounts receivable (net of $113,000 allowance for doubtful accounts) (Note 7) 3,259,062 Inventory 574,459 Prepaid expenses 106,339 ------------ TOTAL CURRENT ASSETS 18,588,208 NET PROPERTY AND EQUIPMENT 1,416,046 OTHER ASSETS 51,428 ------------ $ 20,055,682 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT: Accounts payable and accrued expenses (Note 5) $ 1,106,819 Deferred revenue 878,584 ------------ TOTAL CURRENT LIABILITIES 1,985,403 ------------ LONG TERM DEBT -- ------------ TOTAL LIABILITIES 1,985,403 ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock; $1.00 par value; 300,000 shares authorized; none issued and outstanding -- Common stock, $.01 par value: 20,000,000 shares authorized; 11,089,010 issued and outstanding 110,890 Paid-in capital 37,090,514 Receivable from shareholders (70,010) Deficit (19,061,115) ------------ TOTAL STOCKHOLDERS' EQUITY 18,070,279 $ 20,055,682 ============
3 4 VOICE CONTROL SYSTEMS, INC. STATEMENTS OF OPERATIONS (UNAUDITED) ===============================================================================
Three Months Ended March 31, 1997 1996 ------------ ----------- Sales (Note 7) $ 4,002,701 3,699,713 Cost of Sales 650,920 939,495 ------------ ----------- Gross Profit 3,351,781 2,760,218 COSTS AND EXPENSES: Selling, general and administrative 1,790,087 1,529,568 Research and development 1,258,176 1,603,848 Interest expense (Income), net (195,989) (84,048) Interest, to affiliates -- 29,936 ------------ ----------- TOTAL COSTS AND EXPENSES 2,852,274 3,079,304 ------------ ----------- NET INCOME (LOSS) BEFORE TAXES 499,507 (319,086) Income Taxes (Note 6) 3,500 -- ------------ ----------- NET INCOME (LOSS) $ 496,007 $ (319,086) ============ =========== Earnings (loss) per Common and Common Equivalent Share $ 0.04 $ (0.05) ============ =========== Weighted Average Shares and Share Equivalents Outstanding 12,808,185 6,870,327 ============ ===========
See accompanying notes to financial statements 4 5 VOICE CONTROL SYSTEMS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) ===============================================================================
Three months Ended March 31, ------------------------------ 1997 1996 ------------ ------------ Cash Flows from Operating Activities: Net income (loss) $ 496,007 $ (319,086) Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 120,882 105,379 Changes in operating assets and liabilities: Accounts receivable (751,299) (736,408) Inventory (121,781) (4,929) Prepaid expenses (8,749) 28,061 Other assets 422 83,592 Accounts payable and accrued expenses 126,394 351,448 Deferred revenue (547,179) 55,715 ------------ ------------ Net cash used in operating activities (685,303) (436,228) ------------ ------------ Net Cash Used in Investing Activities: Capital expenditures (69,165) (262,879) ------------ ------------ Cash Flows from Financing Activities: Repayment of principal on notes payable -- (601) Proceeds from note receivable 48,745 35,627 Proceeds from note payable -- 150,000 Net proceeds from common stock issuance (Note 4) -- 13,446,261 Proceeds from exercise of stock options 127,247 1,028,680 ------------ ------------ Net cash provided by financing activities 175,992 14,659,967 ------------ ------------ Net increase (decrease) in cash and cash equivalents 578,476 13,960,860 Cash and cash equivalents at beginning of year 15,226,824 2,556,717 ------------ ------------ Cash and cash equivalents at March 31 $ 14,648,348 $ 16,517,577 ============ ============ Supplemental cash flow information Interest paid $ 141 $ 1,752 Conversion of debt and interest by an affiliate to 1,300,694 shares of stock 1,195,078 --
5 6 VOICE CONTROL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) =============================================================================== 1. BUSINESS Voice Control Systems, Inc. (the "Company" or "VCS") engages in the design of voice recognition systems that allow for the voice control of electronic machines and/or devices. Operating results for the three months ending March 31, 1997 are not necessarily indicative of the expected results for the year. The unaudited financial statements include all adjustments, consisting primarily of normal recurring accruals, which management considers necessary for a fair presentation of such information. 2. BUSINESS ACQUISITION The Company and Voice Processing Corporation ("VPC") entered into an Agreement and Plan of Merger, approved on October 29, 1996 by each Company's stockholders of record, pursuant to which VPC was merged into the Company. Effective November 4, 1996, all of VPC's common stock was converted into and exchanged for 0.87091 shares of VCS common stock in a transaction accounted for using the pooling-of-interest method of accounting. In addition, all options and warrants to purchase VPC shares were exchanged for options and warrants to purchase VCS shares at the 0.87091 exchange rate. The stock conversion referred to above has been retroactively reflected in the financial statements for all periods presented. Separate results of operations for the periods presented herein and prior to the date of the merger with VPC are provided below.
Three Months Ended March 31, 1996 --------------- REVENUES: VCS 2,325,759 VPC 1,373,954 ----------- COMBINED 3,699,713 NET INCOME (LOSS): VCS 223,493 VPC (542,579) ----------- COMBINED $ (319,086) ===========
3. PER SHARE INFORMATION Earnings per common and common equivalent share are computed based upon the weighted average number of outstanding shares of common stock and common stock equivalents. 4. STOCK OFFERING On February 14, 1996, the Company completed the sale of 1,269,402 shares of common stock. In March 1996, the underwriters exercised their overallotment option for an additional 220,500 shares of common stock. Net proceeds to the Company from the stock offering and from stock options exercised in conjunction with the offering totaled $14,432,000. 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following at March 31, 1997: Accounts payable $ 412,632 Accrued expenses 694,187 ----------- $ 1,106,819
6 7 VOICE CONTROL SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) =============================================================================== 6. INCOME TAXES Net operating loss ("NOL") carryforwards expiring from 1997 to 2011 totaling approximately $24,249,000 are available at March 31, 1997 to offset future periods taxable income. Effective August 11, 1994, the Company had an ownership change, as defined by the Internal Revenue Code Section 382 (IRC 382). In connection with the merger with VPC, VPC had an ownership change, as defined by IRC 382. As a result of the changes, the NOL of the Company is limited in its use against future earnings, if any, to approximately $2,205,000 annually. The following reconciles income tax expense at the federal statutory rate to the actual tax expense for the three months ended March 31:
1997 1996 --------- --------- Income taxes at the statutory rate $ 172,000 $ -- State taxes based on income 23,000 -- Effect on taxes resulting from: Utilization of NOL carry forwards (195,000) -- Federal alternative minimum taxes 3,500 -- --------- --------- $ 3,500 $ -- ========= =========
The Company has provided an allowance for its entire deferred tax asset as its realization is dependent upon future generation of taxable income, which is not assured. Until such realization can be reasonably determined based on established sources of earnings sufficient to utilize the NOL carryforward, management will continue to provide an allowance for the entire deferred tax asset. 7. MAJOR CUSTOMERS One customer accounted for 36% of revenue for the three months ended March 31, 1997 and accounted for 29% of total sales for the three months ended March 31, 1996. Two customers accounted for 12% and 10% of total sales for the three months ended March 31, 1997. Two different customers accounted for 13% and 10% of total sales for the three months ended March 31, 1996. The Company's largest customer was also the holder of its short term convertible debt. The promissory note and accrued interest was converted to 1,300,694 shares of common stock on January 1, 1997. Accounts receivable from the largest customer was 9% of the total receivable balance at March 31, 1997. 8. NEW ACCOUNTING PRONOUNCEMENT On March 3, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This statement simplifies the standards for computing and presenting earnings per share ("EPS") and makes them comparable to international EPS standards. SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. While early adoption is not permitted, disclosure of the effect of the adoption of the standard is required. If SFAS 128 was applied to the three month periods ended March 31, 1997 and 1996, the earnings per share would be as follows:
Three Months Ended March 31, 1997 1996 ----- ------- Basic earnings per common share $ .04 $ (.05) Diluted earnings per common share $ .04 $ (.05)
7 8 Part I - Financial Information Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS Three months Ended March 31, 1997 vs. March 31, 1996 Sales increased 8% from $3,700,000 during the three months ending March 31, 1996 to $4,003,000 during the three months ending March 31, 1997. Three customers, Dialogic Corporation, Creative Labs and Glenayre, accounted for 36%, 12% and 10%, respectively, of total sales for the three months ending March 31, 1997. Dialogic Corporation, Entex and Periphonics accounted for 29%, 13% and 10%, respectively, of total sales for the three months ending March 31, 1996. Royalty, development and license fees, which increased 72% over the three months ending March 31, 1996, were 36% of total revenues for the three months ending March 31, 1997. Hardware sales, which decreased 12% over the three months ending March 31, 1996, were 59% of revenues in the three months ending March 31, 1997. This decrease in hardware sales is a result of the Company's continued conversion from primarily a hardware/software supplier to become primarily a software supplier. Cost of sales includes the cost of components and subcontracted manufacturing related to hardware products. Gross profit as a percent of sales increased from 75% in the three months ending March 31, 1996 to 84% in the comparable 1997 period as a result of the decrease in hardware sales and the increase in royalty, development and license fees. Research and development expenses decreased 22% from $1,604,000 in the three months ending March 31, 1996 to $1,258,000 in the three months ending March 31, 1997. This decrease reflects cost reductions realized by eliminating duplicate functions resulting from the merger with VPC. Selling, general, and administrative expenses increased 17% from $1,530,000 in the three months ending March 31, 1996 to $1,790,000 in the three months ending March 31, 1997. Additional sales staff has been added to help support a growing customer base of companies integrating speech recognition technology into their products. The combined net operating loss ("NOL") carryforwards of the merged Company expire from 1997 to 2011 and total approximately $24,249,000 as of March 31, 1997. The Company has provided an allowance against its entire deferred tax asset relating primarily to NOL carry forward of approximately $8,245,000. Effective August 11, 1994, the Company had an ownership change, as defined by the Internal Revenue Code Section 382 (IRC 382). In connection with the merger with VPC, VPC had an ownership change, as defined by IRC 382. As a result of the changes, the NOL of the Company is limited in its use against future earnings, if any, to approximately $2,205,000 annually. Federal income taxes and state franchise taxes based on income have been offset by net operating loss carryforwards thus far in 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's principal cash requirements to date have been to fund working capital and capital expenditures in order to support its sales growth. Net working capital at March 31, 1997 was $16,493,000. In the past, the Company's working capital needs were financed primarily through cash flow from operations and proceeds from the exercise of warrants and stock options. A stock offering was completed during the first quarter of 1996 that provided net proceeds of $14,432,000 to the Company from the offering and from the exercise of stock options in conjunction with the offering. At March 31, 1997, the Company held $14,645,000 in cash and cash equivalents. Cash and cash equivalents are invested in institutional cash investment accounts with preservation of capital being the primary consideration. All investments currently have overnight liquidity. Historically, the Company's primary source of liquidity has been the timely collection of its accounts receivable. The average days sales in accounts receivable was 72 days as of March 31, 1997. 8 9 The Company's inventory as of March 31, 1997 was $574,000 of which non-telecom products were approximately 54% of the inventory. The Company maintained no debt obligations as of March 31, 1997. The Company's capital expenditures were $69,000 for the three months ended March 31, 1997. The expenditures were primarily for computer equipment. VCS believes that its existing sources of liquidity will be sufficient to provide the capital resources necessary to support increased operating needs and finance continued growth in the foreseeable future. 9 10 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Amendment #2 to Employment Agreement between the Company and Dr. Thomas B. Schalk dated February 15, 1997. 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter covered by this report. 10 11 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 CONTROL SYSTEMS, INC. Dated: May 13, 1997 By: /s/ PETER J. FOSTER ------------------------------------- Peter J. Foster Chief Executive Officer and President /s/ KIM S. TERRY ------------------------------------- Kim S. Terry Principal Financial and Accounting Officer 11 12 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 10.01* Amendment #2 to Employment Agreement between the Company and Dr. Thomas B. Schalk dated February 15, 1997. 27 Financial Data Schedule *Filed herewith. EX-10.1 2 AGREEMENT #2 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.1 AMENDMENT #2 TO EMPLOYMENT AGREEMENT Pursuant to a Resolution of the Board of Directors of Voice Control Systems, Inc., a Delaware corporation ("Company"), the Employment Agreement dated June 18, 1993 between Dr. Thomas B. Schalk ("Employee") and the Company, which was modified by Amendment #1 on July 20, 1995, collectively referred to as the "Agreement" is hereby amended effective the 15th day of February, 1997 as follows. ARTICLE I of the Agreement shall be replaced in its entirety with the following: ARTICLE I Term of Employment Subject to the provisions hereof, the term of Employee's employment by Company under this Agreement shall extend through June 18, 1998; provided, however, that the term of employment shall be extended for an additional one-year period unless, on or prior to the date thirty calendar days prior to the end of such period either Company or Employee shall give notice to the other of an intention to terminate this Agreement, in which case the term of employment shall comprise only the original period. Section 3.01.A and 3.02.A of the Agreement shall be replaced with the following: 3.01.A In lieu of the provisions of 3.0.1, from and after May 1, 1996, as compensation for services rendered under the Agreement, Company shall pay Employee a salary of one hundred fifty-five thousand dollars ($155,000) per year, payable, less applicable FICA and withholding taxes, in semi-monthly installments. Such salary shall be reviewed annually by the CEO or COO and approved by the Board of Directors, after which review the salary may be raised but not lowered. 3.02.A In lieu of the provisions of 3.0.2, from and after May 1, 1996, Employee shall be eligible to receive a bonus of up to five thousand dollars ($5,000) per calendar quarter, less applicable FICA and withholding taxes. The dollar amount of the bonus shall be determined at the sole discretion of the CEO or COO based upon exceptional achievements during the quarter. EMPLOYEE: COMPANY: /s/ THOMAS B. SCHALK /s/ PETER J. FOSTER - ------------------------- -------------------------- By Its President & CEO, Pursuant to a Resolution of the Board of Directors EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 14,648,348 0 3,372,062 113,000 574,459 18,588,208 3,756,952 2,340,906 20,055,682 1,985,403 0 0 0 110,890 0 20,055,682 4,002,701 4,002,701 650,920 650,920 2,852,274 0 0 499,507 3,500 496,007 0 0 0 496,007 .04 .04
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