<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period from __________ to _________
Commission File No. 1-11476
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
(Name of small business issuer in its charter)
California 95-3977501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
15260 Ventura Blvd. Suite 2200 91403
Sherman Oaks, California (Zip Code)
Registrant's telephone number, including area code: (818) 905-0950
Check whether the issuer (l) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 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.
Yes X No
----- -----
As of August 7, 1996, there were 13,949,072 shares of Voice Powered
Technology International, Inc. Common Stock $.001 par value
outstanding excluding outstanding options and warrants.
<PAGE> 2
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Item 1. Financial Statements -- unaudited
Balance Sheet as of June 30, 1996 3
Statements of Operations for the three and
six months ended June 30, 1996 and 1995 4
Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits 10
</TABLE>
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<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30,
1996
--------
<S> <C>
Current assets
Cash and cash equivalents $ 1,538
Receivables, net of allowance for doubtful accounts 3,280
Inventory 1,864
Prepaid expenses 81
--------
Total current assets 6,763
--------
Property and equipment
Equipment 1,737
Other 141
--------
1,878
Less accumulated depreciation 1,203
--------
Net property and equipment 675
Patents, net of amortization 160
Deferred costs, net of amortization 1,070
Other assets 288
--------
Total assets $ 8,956
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,416
Accrued expenses 1,054
Note payable 783
Loan payable 2,000
--------
Total current liabilities 5,253
========
Stockholders' equity
Preferred stock, $0.001 par value, 10,000,000
shares authorized; none issued --
Common stock, $.001 stated value - shares
authorized, 50,000,000; issued and out-
standing, 13,949,072 14
Additional paid-in capital 27,722
Accumulated deficit (24,033)
--------
Total stockholders' equity 3,703
--------
Total liabilities and stockholders' equity $ 8,956
========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<PAGE> 4
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 6,040 $ 2,258 $ 11,744 $ 4,458
Cost of goods sold 3,616 1,605 6,534 2,966
-------- -------- -------- --------
Gross profit 2,424 653 5,210 1,492
Operating costs
Marketing 901 410 2,103 845
General and administrative 815 603 1,607 1,283
Research and development 283 245 609 538
Warehouse 301 280 607 458
-------- -------- -------- --------
Total operating costs 2,300 1,538 4,926 3,124
-------- -------- -------- --------
Operating income (loss) 124 (885) 284 (1,632)
Other income (expense), net 30 (18) 64 (52)
-------- -------- -------- --------
Net income (loss) $ 154 $ (903) $ 348 $ (1,684)
======== ======== ======== ========
Net income (loss) per common share $ .01 $ (.06) $ .03 $ (.12)
Weighted average common
shares outstanding 12,796 13,949 12,727 13,492
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<PAGE> 5
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 348 $ (1,684)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Compensatory stock options 32 24
Depreciation and amortization 259 367
Changes in operating assets and liabilities:
(Increase) decrease in receivables (591) 1,783
(Increase) decrease in inventory (1,165) 1,098
Decrease in prepaid expenses 41 58
Increase in patents (30) --
Increase in deferred costs (498) (338)
Increase in other assets (87) (203)
Increase (decrease) in accounts payable (451) 352
Increase (decrease) in accrued expenses 840 (551)
------------ ------------
Net cash provided by (used in) operating
activities (1,302) 906
------------ ------------
Cash flows from investing activities:
Capital expenditures (254) (113)
------------ ------------
Net cash used in investing activities (254) (113)
------------ ------------
Cash flows from financing activities:
Proceeds from (payments on) loan payable 450 (1,265)
Proceeds from the exercise of stock options 10 15
Payments on note payable -- (100)
------------ ------------
Net cash provided by (used in) financing
activities 460 (1,350)
------------ ------------
Net decrease in cash and cash equivalents (1,096) (557)
Cash and cash equivalents at the beginning of the year 4,012 2,095
------------ ------------
Cash and cash equivalents, June 30 $ 2,916 $ 1,538
============ ============
Supplemental Disclosure:
Interest paid $ 18 $ 88
============ ============
Non-cash financing and investing activities:
Issuance of compensatory stock options to
related party $ -- $ 50
Issuance of common stock to vendor -- 1,955
Conversion of accounts payable to note payable -- 883
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. For further
information, refer to the financial statements, and footnotes thereto, included
in the Company's Annual Report on Form 10-KSB for the year ended December 31,
1995. Operating results for the three and six month periods ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.
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<PAGE> 7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For the three and six month periods ended June 30, 1996, the
Company's performance continued to reflect the weak performance of the consumer
electronics sector during the fourth quarter of 1995, resulting in higher year
end inventories at retail stores, which in turn adversely affected the
Company's sales volumes for the first half of 1996. To accelerate sales, and
facilitate the introduction of new, lower cost products planned for the second
half of 1996, the Company has reduced the pricing of its product line, which
resulted in lower gross profit margins and higher expenses as a percentage of
sales. Further, the Company has sold off, at book value, significant
quantities of its inventory of the Voice MessagePad(TM), which was initially
introduced during the fourth quarter of 1995, further depressing gross margins.
RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1996, the
Company reported operating losses of $885,000 and $1,632,000, respectively.
For the three and six month periods ended June 30, 1995 the Company reported
operating income of $124,000 and $284,000, respectively. After adding other
expense and income, the Company reported net losses of $903,000 and $1,684,000
for the three and six months ended June 30, 1996 and net income of $154,000 and
$348,000 for the same periods in 1995. The resulting net losses per common
share for the three and six months ended June 30, 1996 were $.06 and $.12,
respectively, while for the three and six months ended June 30, 1995, the
Company reported net income per common share of $.01 and $.03.
Net sales and gross profit for the three and six months ended
June 30, 1996 were $2,258,000 and $653,000, and $4,458,000 and $1,492,000,
respectively. For the three and six months ended June 30, 1995, net sales and
gross profit were $6,040,000 and $2,424,000, and $11,744,000 and $5,210,000,
respectively. Gross profit percentage decreased to 29% from 40% for the three
month periods and to 33% from 44% for the six month periods ended June 30,
1996. The decreases in sales and gross profit, as stated above, resulted from
slower sales of the Company's products, due in part to the weak performance of
both the consumer electronics sector during the fourth quarter of 1995, and
retail inventory carryover into the first two quarters of 1996. The decreases
in gross profit percentage reflect the price reductions effected by the
Company, and the sale at book value of the Voice MessagePad, a product that the
Company has discontinued.
Sales for the three months ended June 30, 1996 as compared to
the three months ended March 31, 1996 remained consistent while the gross
profit percentage decreased by 9 percentage points. The decrease in gross
profit primarily relates to the Company's continued price reductions in order
to further stimulate sales of the existing product lines, and facilitate the
introduction of its new, lower cost, higher gross margin products planned for
the second half of the year, and to the sale of the Voice MessagePad
inventories at a price which was equal to their book value.
Total operating expenses for the three and six months ended
June 30, 1996 were $1,538,000 and $3,124,000. Total operating expenses for the
three and six months ended June 30, 1995 were $2,300,000 and $4,926,000. The
decreases in expenses primarily relate to the Company's decreased sales which
resulted in lower variable costs, largely marketing and general and
administrative expenses, combined with the Company's efforts to decrease its
fixed costs in all areas of operations. For the three months ended June 30,
1996, as compared to the three months ended March 31, 1996, total operating
expenses remained consistent.
Marketing expenses for the three and six months ended June 30,
1996 were $410,000 and $845,000 respectively. For the same periods in 1995,
marketing expenses were $901,000 and $2,103,000. The decreases in marketing
expenses are associated with both the lower volume of sales and the related
lower distribution costs such as sales commission, advertising allowances for
retail distributors, international sales expenses, and targeted direct response
print advertising expenses, as well as decreased fixed costs including salaries
and amortization. Marketing expenses for the three month period ended June 30,
1996 decreased slightly from the three months ended March 31, 1996, which
primarily reflects the Company's efforts to decrease its fixed costs in all
areas of operations.
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<PAGE> 8
General and administrative expenses decreased to $603,000 and
$1,283,000 for the three and six month periods ended June 30, 1996 from
$815,000 and $1,607,000 for the three and six months ended June 30, 1995. The
decreases are primarily the result of decreased fixed costs including salaries,
consulting fees, and public costs, and are also associated with the decreased
volume of sales and the related decreases in variable general and
administrative costs such as royalties and credit card fees. General and
administrative expenses for the three month period ended June 30, 1996
decreased by $80,000 from the three months ended March 31, 1996, which again is
primarily the result of the Company's efforts to decrease its fixed costs in
all areas of operations.
Research and development expenses decreased to $245,000 and
$538,000 for the three and six months ended June 30, 1996 from $283,000 and
$609,000 for the three and six months ended June 30, 1995. The decreases are
primarily the result of decreased salaries, consulting fees, and materials.
The Company continues to develop new products as well as enhance its
proprietary technology. Research and development expenses for the three month
period ended June 30, 1996 decreased by $48,000 from the three months ended
March 31, 1996, relating to the decreased costs noted.
Warehouse and distribution expenses decreased to $280,000 and
$458,000 for the three and six months ended June 30, 1996 from $301,000 and
$607,000 for the three and six months ended June 30, 1995. The decreases are
the result of the decreased sales and related decreases in shipping costs, as
well as decreases in salaries, consultants, and travel. These decreases were
partially offset by increases in temporary labor costs and warranty parts
expenses. Warehouse and distribution expenses for the three month period
ended June 30, 1996 increased by $102,000 from the three month period ended
March 31, 1996 again relating to the increases in temporary labor costs and
warranty parts expenses.
Other expense for the three and six months ended June 30, 1996
was $18,000 and $52,000, primarily relating to interest expense associated with
the Company's loan payable, offset by interest income. For the three and six
months ended June 30, 1995, other income was $30,000 and $64,000, which
resulted primarily from interest income.
LIQUIDITY
At June 30, 1996, the Company had working capital of
$1,510,000. The Company currently has a $2.0 million ($4.0 million at December
31, 1995) working capital line of credit facility, which expires August 16,
1996. This Company made net payments of $1,265,000 during the first six months
of 1996, applied against a balance at December 31, 1995 of $3,265,000. The
Company is in the process of concluding a $3,000,000 accounts receivable
revolving purchase facility from a new financial institution which the Company
intends to use to replace the working capital line of credit.
The Company's previously disclosed price reduction program for
its products, which resulted in the payment of price protection by the Company
to its retailers, sales of discontinued product inventories at book value and
reduced gross profit margins resulting from the sale of older, higher cost
IQ-VOICE Organizer models during the first half of 1996, have negatively
impacted the Company's working capital and cash positions. Nevertheless,
management presently believes that the Company's cash flows from the
anticipated level of sales of products, together with the remaining sale of
certain inventories and the availability under the $3,000,000 accounts
receivable revolving purchase facility, will satisfy the Company's cash
requirements in the ordinary course of business during 1996. However, the
Company's cash flows are largely dependent on the sale of its products, and
should anticipated sales not be generated additional funding will be required.
The Company is considering raising additional funding of approximately
$1,500,000 to provide cash reserves and funds desired in order to more
aggressively advertise its products and pursue research and development
activities; however, no agreements presently exist for such funding.
The information in the immediately preceding paragraphs is
forward looking and involves risks and uncertainties that could significantly
impact the Company's expected liquidity requirements in the short and long
term. While it is impossible to itemize the many factors and specific events
that could affect the Company's outlook for its liquidity requirements, such
factors would include the Company's actual sales and their timing, the actual
receipt of outstanding accounts receivables and their timing, unanticipated
inventory problems, the need to react to unanticipated competitive price moves,
unanticipated product quality problems, unanticipated productions problems,
etc., which could reduce the Company's revenues and increase its expenses,
resulting in a greater burden on the Company's liquidity than that which the
Company has described above.
-8-
<PAGE> 9
In the first quarter of 1996, the Company executed an
agreement with its prior contract manufacturer which established the terms and
conditions pursuant to which the Company is winding down its affairs with this
manufacturer. The terms of this agreement included the issuance to the
manufacturer of 1,372,000 shares of the Company's common stock at market value,
the proceeds of which, $1,955,000, were applied to the Company's outstanding
debt to the manufacturer. Furthermore, the agreement required that the Company
make periodic cash payments to amortize the remaining balance of $1,283,668.
The balance as of June 30, 1996 for this obligation is $783,668. The Company
has not made the payments due of $50,000 each on June 30 and July 31, pursuant
to this agreement; however, the manufacturer has agreed to delay any further
payments until after September 1, 1996, and has stated a willingness to
negotiate a revised payment schedule.
Further, in the first quarter of 1996, the Company entered
into an agreement with a related party, the inventor of an integral part of the
voice recognition technology, which resulted in the Company obtaining
unrestricted exclusive world wide ownership rights to the technology subject to
ongoing royalties. In accordance with this agreement, the Company agreed to
pay $100,000 in cash, $50,000 of which has already been paid, and granted stock
options which were cumulatively $50,000 lower than market value to the related
party. The cost of the technology acquired is included in other assets in the
accompanying balance sheet.
The decrease in accounts receivable is attributable mainly to
collections on customer receivables which existed at December 31, 1995. Such
decrease was offset partially by new receivables from customers as a result of
sales made in the second quarter of 1996.
The decrease in inventory is attributable to the Company's
sales of its December 31, 1995 inventories which were, as stated, unexpectedly
high.
The increase in deferred costs is primarily attributable to
costs associated with the manufacturing start-up of the Company's new products,
the IQ#VOICE(TM) Pocket Organizer and the Voice Organizer Pager.
Included in the increase in other assets is the acquisition of
unrestricted exclusive world-wide ownership rights, subject to ongoing
royalties, of the Company's voice recognition technology, as described above.
The net decrease in accounts payable and accrued expenses of
$199,000 as of June 30, 1996 is mainly attributable to payments made to the
Company's prior contract manufacturer.
-9-
<PAGE> 10
PART II. OTHER INFORMATION
The Company was not required to report any matters or changes for any items of
Part II except as disclosed below.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on
June 19, 1996. Proxies for such meeting were solicited by the Company
pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended. There was no solicitation in opposition of management's
nominees as listed in the proxy statement. Each of the nominees was
elected for a one year term expiring in 1997.
Votes of 10,511,197 shares were cast for the election of
Edward M. Krakauer as a Director; 389,563 shares were withheld.
Votes of 10,518,407 shares were cast for the election of
Mitchell B. Rubin as a Director; 382,353 shares were withheld.
Votes of 10,545,612 shares were cast for the election of Myron
Hitchcock as a Director; 355,148 shares were withheld.
Votes of 10,559,727 shares were cast for the election of Dr.
Jack Steele as a Director; 341,033 shares were withheld.
Votes of 10,526,627 shares were cast for the election of
Ernest W. Townsend as a Director; 374,133 shares were withheld.
Votes of 10,672,255 shares were cast for the ratification of
the appointment of BDO Seidman as independent auditors for the Company
for the calendar year ending December 31, 1996; 97,352 shares were
cast against the ratification; and votes totaling 131,153 shares were
withheld.
ITEM 5. OTHER INFORMATION
In June 1996, Mr. Mark L. Frankel, the Vice President of
Marketing and Sales and a director since 1995, resigned to pursue other
business interests.
ITEM 6. EXHIBITS
Exhibit 11 -- Calculations of Earnings (Loss) Per Share
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<PAGE> 11
Exhibit 11
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
6/30/95 06/30/96 06/30/95 06/30/96
---------------------- --------------------
<S> <C> <C> <C> <C>
ENDING MARKET PRICE PER SHARE $ 3.25 $ 1.19 $ 3.25 $ 1.19
------------ ------------ ------------ ------------
AVERAGE MARKET PRICE PER SHARE $ 3.06 $ 1.39 $ 2.68 $ 1.52
------------ ------------ ------------ ------------
EARNINGS:
Net income (loss) applicable
to common stock $ 153,700 $ (903,200) $ 348,300 $ (1,683,600)
============ ============ ============ ============
PRIMARY EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 12,536,280 13,949,072 12,534,444 13,491,748
Incremental shares assuming all dilutive
options and warrants exercised and proceeds
used to purchase shares in the market at the
average stock price during the period 259,887 0 192,960 0
------------ ------------ ------------ ------------
Total 12,796,167 13,949,072 12,727,404 13,491,748
============ ============ ============ ============
Primary earnings (loss) per share $ .01 $ ( .06) $ .03 $ (.12)
============ ============ ============ ============
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 12,536,280 13,949,072 12,534,444 13,491,748
Incremental shares assuming all dilutive
options and warrants exercised and proceeds
used to purchase shares in the market at the
average stock price during the period, or the
stock price at the end of the period, whichever
is higher 333,455 0 333,037 0
------------ ------------ ------------ ------------
Total 12,869,735 13,949,072 12,867,481 13,491,748
============ ============ ============ ============
Fully diluted earnings (loss) per share $ .01 $ ( .06) $ .03 $ (.12)
============ ============ ============ ============
</TABLE>
Note: Common stock equivalents for the three and six month periods ended June
30, 1996 have not been considered as the effect would be anti-dilutive.
-11-
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
Date: August 13, 1996 By: /s/ Edward M. Krakauer
----------------------------------
Edward M. Krakauer, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
/s/ Edward M. Krakauer
- --------------------------
Edward M. Krakauer President and Chief Executive
Officer August 13, 1996
/s/ Mitchell B. Rubin
- --------------------------
Mitchell B. Rubin Vice President-Finance and
Operations, Chief Financial
Officer, Chief Accounting
Officer, Secretary August 13, 1996
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,538
<SECURITIES> 0
<RECEIVABLES> 3,280
<ALLOWANCES> 0
<INVENTORY> 1,864
<CURRENT-ASSETS> 6,763
<PP&E> 1,878
<DEPRECIATION> 1,203
<TOTAL-ASSETS> 8,956
<CURRENT-LIABILITIES> 5,253
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 27,722
<TOTAL-LIABILITY-AND-EQUITY> 8,956
<SALES> 4,358
<TOTAL-REVENUES> 4,358
<CGS> 2,966
<TOTAL-COSTS> 2,966
<OTHER-EXPENSES> 3,024
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> (1,684)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,684)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,684)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
