<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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934 For the transition period from to
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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)
18425 Burbank Boulevard, Suite 508 91356
Tarzana, California (Zip Code)
Registrant's telephone number, including area code: (818) 757-1100
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 No X
----- -----
As of August 9, 1997, there were 16,011,572 shares of Voice Powered
Technology International, Inc. Common Stock $.001 par value outstanding
excluding outstanding options warrants.
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE NUMBER
ITEM 1. Financial Statements -- unaudited
<S> <C>
Balance Sheet as of June 30, 1997 3
Statements of Operations for the three and
six months ended June 30, 1997 and 1996 4
Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II -- OTHER INFORMATION
ITEM 5. Other Information 12
Signatures 13
</TABLE>
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30,
1997
--------
<S> <C>
Current assets
Cash and cash equivalents $ 300
Restricted cash 75
Receivables, net of allowance for doubtful accounts 82
Receivables sold to financial institution 575
Less initial payments received from financial institution 448
--------
Net amount due from financial institution 127
Inventory 1,246
Prepaid expenses 92
--------
Total current assets 1,922
Property and equipment
Equipment 1,697
Other 135
--------
1,832
Less accumulated depreciation 1,411
--------
Net property and equipment 421
Patents and technology rights, net of amortization 236
Deferred costs, net of amortization 337
Other assets 94
--------
Total assets $ 3,010
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 427
Accrued expenses 719
Current obligations under long term debt (Note 2) 400
--------
Total current liabilities 1,546
Long term debt (Note 2) 1,309
--------
Total liabilities 2,855
Commitments and contingencies (Note 6) --
Stockholders' equity
Preferred stock, 10,000,000 shares authorized;
500,000 issued and outstanding
at $1.00 stated value (Note 3) 500
Common stock, $.001 stated value - shares authorized,
50,000,000; issued and outstanding, 16,011,572 16
Additional paid-in capital 27,897
Accumulated deficit (28,258)
--------
Total stockholders' equity 155
--------
Total liabilities and stockholders' equity $ 3,010
========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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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,
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 2,258 $ 527 $ 4,458 $ 1,868
Less price protection -- -- -- 77
-------- -------- -------- --------
Net sales 2,258 527 4,458 1,791
Costs and expenses
Cost of goods sold 1,605 365 2,966 1,346
Discontinued model costs (Note 5) -- 790 -- 790
Marketing 410 257 845 834
General and administrative 603 642 1,283 1,294
Research and development 245 180 538 405
Warehouse 280 137 458 313
-------- -------- -------- --------
Total costs and expenses 3,143 2,371 6,090 4,982
-------- -------- -------- --------
Operating loss (885) (1,844) (1,632) (3,191)
Other income (expense)
Gain on sale of assets (Note 2) -- 141 -- 141
Sale of technology license (Note 2) -- 700 -- 700
Forgiveness of debt (Note 3) -- 1,388 -- 1,388
Other expense, net (18) (72) (52) (111)
-------- -------- -------- --------
Net income (loss) $ (903) $ 313 $ (1,684) $ (1,073)
======== ======== ======== ========
Net income (loss) per common $ (.06) $ .02 $ (.12) $ (.07)
share
Weighted average common
shares outstanding 13,949 15,064 13,492 14,553
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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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 1996 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,684) $(1,073)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Compensatory stock options 24 2
Depreciation and amortization 367 355
Discontinued model costs -- 790
Gain on sale of assets -- (141)
Gain on forgiveness of debt -- (1,388)
Changes in operating assets and liabilities:
Decrease in restricted cash -- 75
Decrease in receivables 1,783 1,593
Decrease in inventory 1,098 411
Decrease in prepaid expenses 58 9
Increase in deferred costs (338) (98)
(Increase) decrease in other assets (203) 33
Increase (decrease) in accounts payable 352 (2,027)
Decrease in accrued expenses (551) (310)
------- -------
Net cash provided by (used in) operating
activities 906 (1,769)
------- -------
Cash flows from investing activities:
Proceeds from sale of equipment -- 65
Capital expenditures (113) (84)
------- -------
Net cash used in investing activities (113) (19)
------- -------
Cash flows from financing activities:
Payments on loan payable (1,265) --
Proceeds from the exercise of stock options 15 --
Proceeds from (payments on) note payable (100) 1,709
Proceeds from sale of common stock -- 152
------- -------
Net cash provided by (used in) financing
activities (1,350) 1,861
------- -------
Net increase (decrease) in cash and cash equivalents (557) 73
Cash and cash equivalents at the beginning of the year 2,095 227
------- -------
Cash and cash equivalents, June 30 $ 1,538 $ 300
======= =======
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 88 $ 91
======= =======
Non-cash financing and investing activities:
Issuance of compensatory stock options to $ 50 $ --
related party
Issuance of common stock to vendor 1,955 --
Conversion of accounts payable to note payable 883 --
Issuance of preferred stock to vendor -- 500
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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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,
1996. Operating results for the three and six month periods ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
NOTE 2 -- In May 1997, the Company consummated a transaction involving two
agreements with Franklin Electronic Publishers, Inc. The first agreement was a
Purchase and Loan Agreement in which the two companies entered into the
following transactions: 1) The Company transferred and sold to Franklin for
$450,000 in cash its inventory, rights to work in process, manufacturing assets,
marketing assets, and software and hardware design assets for the Company's
IQoVOICE(TM) Organizer Models 5150 and 5160 (IQoVOICE Pocket Organizers); 2) The
Company sold to Franklin for $150,000 in cash 2,000,000 shares of the Company's
common stock, par value $.001 per share, representing the approximate market
price of the Company's common stock at the time of the transaction; and 3)
Franklin loaned the Company cash equal to $1,200,000, in addition to $500,000
previously loaned to the Company in the first quarter of 1997, and restructured
the previous payment terms into a new $1,700,000 promissory note. The new note
carries interest at a rate of 10% per year. The interest is payable monthly,
with principal payments of $400,000 due on April 30 of each year commencing
April 30, 1998 and ending April 30, 2001, with the final installment in the
amount necessary to repay the full balance of the loan. The second agreement was
a Technology Transfer Agreement in which the two companies entered into the
following transactions: 1) The Company granted to Franklin a non-exclusive
perpetual license for technology rights evidenced by the Company's patent
related to operation of Voice Organizer products as well as other technology and
software developed by the Company related to or used in the Model 5150 and 5160
for a non-refundable advance royalty of $700,000; and 2) the Company assigned
the rights to VoiceLogic(TM) Technology to Franklin, and Franklin granted back
to the Company a non-exclusive perpetual license of the VoiceLogic Technology,
including the right to sublicense, for the development, manufacture, sale and
distribution of Voice Organizer products with recording times in excess of four
minutes and any other electronic products that are not Voice Organizers, subject
to the Company remaining obligated to pay royalties to Franklin at the same
rates for which the Company was obligated to the inventor of the VoiceLogic
Technology prior to its assignment to Franklin. As a result of the completion of
these transactions, the Company recognized $141,000 as a gain on the sale of
assets, and $700,000 as income from the sale of the technology license.
NOTE 3 -- Also in May 1997, the Company entered into agreements with Flextronics
(Malaysia) SDN. BHD. ("Flextronics") and GSS/Array Technology, Inc. ("GSS"), the
manufacturers of the Company's products, relating to the resolution of
outstanding liabilities and commitments. The Company entered into a Settlement
Agreement with Flextronics under which the Company made a cash payment and
assigned the proceeds due pursuant to a licensing agreement with Kong Wah Video
for a voice operated television remote control device to Flextronics as full and
final settlement for all outstanding liabilities and commitments other than
approximately $260,000 in inventory which had already been manufactured by
Flextronics. The Company committed to purchase such inventory prior to June 30,
1997, but has only purchased $185,000 as of yet. Flextronics continues to work
with the Company regarding the continuing efforts to purchase the remaining
inventory. The Company also entered into a Discounted Payment and Adequate
Assurance of Performance Agreement with GSS under which the Company made a cash
payment and issued 500,000 shares of non-voting, non-cumulative, convertible
preferred stock, with a $0.06 per share mandatory dividend payable annually in
cash or common stock at the option of the Company on the anniversary date of
issuance, as full and final settlement of outstanding liabilities. The preferred
stock carries a $1.00 per share liquidation preference and each share is
convertible into four (4) shares of the Company's common stock. Further, at the
option of GSS, for a one year period the Company will agree to either appoint a
representative of GSS to the Board of Directors of the Company or to allow a
representative to attend Board of Directors meetings as a non-voting observer.
Also under the Discounted Payment and Adequate Assurance of Performance
Agreement, GSS has agreed to continue to manufacture pursuant to the terms of
the original Manufacturing Agreement for a period of not less than six months,
and the Company has agreed to provide GSS with a standby letter of credit to
secure the Company's payments. Lastly, on or about May 22, 1997, the Company
entered into agreements with many of its other trade creditors in which the
trade creditors agreed to accept discounted lump sum payments in full
consideration of current obligations of the Company. As a result of these
agreements, the Company recognized a gain from forgiveness of debt of
$1,388,000.
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NOTE 4 -- As of May 1, 1997, the Company entered into three agreements with
Edward M. Krakauer establishing the terms and conditions under which Mr.
Krakauer resigned as the Company's president and CEO. Under the first agreement,
a Termination Agreement, Mr. Krakauer's employment agreement was terminated and
a negotiated payment plan was established for accrued salaries of $52,000 owed
to the date of termination plus a discounted balance of the terminated
employment agreement of $190,000. Payments applicable to the foregoing will be
made at various intervals through June 30, 1998. Under the terms of the second
agreement, a Consulting Agreement, Mr. Krakauer would serve the Company as a
consultant through June 30, 1998, at an annual rate of $60,000 per year. Under
the third agreement, Mr. Krakauer was granted 75,000 stock options at an
exercise price of $.008 per share (which was 20% of the fair market value per
share at the time of the grant in accordance with previous options granted by
the Company for non-employee directors). Mr. Krakauer will remain The Chairman
of the Company's Board of Directors.
NOTE 5 -- As of June 30, 1997 the Company elected to discontinue future
production of two of its product lines: the low cost version of the IQoVOICE
Organizer, originally introduced in the fourth quarter of 1995, and the IQoVOICE
Organizer/Pager, originally introduced in the fourth quarter of 1996. As a
result, the Company wrote off $88,000 and $215,000 which, respectively, was the
book value of the tooling and product development costs associated with the
discontinued products. Further, the Company wrote down the inventory value of
the related finished goods by $217,000, and established a reserve of $270,000
relating to a program to promote sales of the two product lines and maintain
existing retail shelf space. As such, the total cost charged to operations as of
June 30, 1997 related to discontinued products was $790,000
NOTE 6 -- The Company had entered into a letter agreement dated May 2, 1996 with
Everen Securities Inc. ("ESI") regarding the retention of ESI's services as
financial advisor and agent. This agreement was terminated by the Company
February 3, 1997. ESI has subsequently asserted a claim against the Company for
fees due as a result of the Franklin transactions (Note 2) in the amount of
$450,000. The Company and ESI are presently in a dispute as to the validity of
this claim. The Company intends to vigorously defend its position on this
matter, however no assurances can be made as to the outcome. The Company has not
made any accruals relating to this matter at the present time.
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<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The results of the Company's operating performance for the
three and six month periods ended June 30, 1997 as compared to a year ago
are primarily a reflection of the following: the Company's continued efforts
to liquidate its older, higher cost products, including discontinued
inventory; efforts made to facilitate the introduction of the Company's new
product lines in the third quarter; and the effects of the Company selling
its IQoVOICE Pocket Organizer lines under one of two agreements with
Franklin Electronic Publishers, Inc. ("Franklin") which were entered into in
the second quarter of 1997 (Note 2 of Notes to Financial Statements). The
liquidation efforts, which include selling the older products at book value;
costs to reduce the retail price of certain products at retail stores in
order to facilitate inventory movement; and entering into additional
advertising commitments with customers relating to both the older products
and the Company's current product lines; have resulted in higher cost of
goods and higher marketing expenses as a percentage of sales. Additionally,
it was necessary for the Company to accept returns from certain key
customers of unsold, discontinued products in exchange for purchase
commitments for new products which will be fulfilled in the third and fourth
quarters of 1997, causing decreased sales levels and higher expenses as a
percentage of sales. Also, the sale of the IQoVOICE Pocket Organizer lines
to Franklin has negatively impacted, and will continue to negatively impact,
sales of IQoVOICE Organizer products as compared to prior periods.
These occurrences, however, were partially offset by sales of
the Company's new products, as well as the Company's efforts to streamline
its operations and reduce its expenses. Sales of the Company's new products,
which were introduced in the latter portion of 1996, carry lower cost of
goods as a percentage of sales. Further, the streamlining of operations has
enabled the Company to begin decreasing fixed costs in all areas of
operations. These decreases are expected to become more evident in future
quarters.
Finally, the agreements with Franklin, as well as agreements
with the Company's manufacturers and other trade creditors (Note 3 of Notes
to Financial Statements), have caused the Company to recognize unusual
income resulting in a profitable second quarter and improved working capital
position as of June 30, 1997. As noted above, however, the sale of the
IQoVOICE Pocket Organizers has negatively impacted sales as compared to
prior periods, and will continue to do so.
RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1997, the
Company reported operating losses of $1,844,000 and $3,191,000,
respectively. For the three and six month periods ended June 30, 1996, the
Company reported operating losses of $885,000 and $1,632,000, respectively.
After adding other expense and income, the Company reported net income of
$313,000 for the three months ended June 30, 1997, and a net loss of
$1,073,000 for the six months ended June 30, 1997. For the three and six
month periods ended June 30, 1996, the Company reported net losses of
$903,000 and $1,684,000. The resulting effect per common share for the three
and six months ended June 30, 1997 were income of $.02 per common share and
loss of $.07 per common share, respectively, while for the three and six
months ended June 30, 1996, the Company reported net losses per common share
of $.06 and $.12, respectively.
For the three and six month periods ended June 30, 1997, sales
were $527,000 and $1,868,000, respectively. After reduction of price
protection costs of $77,000 charged against sales in the first quarter, net
sales for the six months ended June 30, 1997 were $1,791,000. For the three
and six months ended June 30, 1996, sales were $2,258,000 and $4,458,000,
respectively. The decreases in net sales were primarily attributable, as
stated above, to the sale of the IQoVOICE Pocket Organizer line and to the
Company accepting returns from customers of unsold products. Further, the
sales decreases were also attributable to reductions in liquidation sales,
direct response sales, international sales, and licensing revenues.
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<PAGE> 9
Total costs and expenses for the three and six months ended
June 30, 1997 were $2,371,000 and $4,982,000. Total costs and expenses for
the three and six months ended June 30, 1996 were $3,143,000 and $6,090,000.
The decreases in costs and expenses primarily relate to the Company's
decreased sales which resulted in lower costs of goods sold and lower
variable costs, as well as to the Company's efforts to decrease its fixed
costs in all areas of operations. These decreases were offset by charges
incurred in the second quarter of 1997 relating to discontinued model costs.
Cost of goods sold decreased to $365,000 and $1,346,000 for
the three and six month periods ended June 30, 1997 from $1,605,000 and
$2,966,000 for the same periods in 1996 due to the Company's decreased
sales. As a percentage of sales, cost of goods sold was 69% and 72% for the
three and six month periods ended June 30, 1997, and 71% and 67% for the
same periods in 1996. The high percentage of costs of goods sold in each of
the periods relates to the Company's efforts to sell off older products at
book value. During the three and six month periods ended June 30, 1997,
however, the Company's cost of goods as a percentage of sales for its
current core products was 53% and 51%, respectively.
In the second quarter of 1997, the Company charged $790,000 to
operations relating to discontinued model costs. The Company elected to
discontinue future production of its low cost line of IQoVOICE Organizers
and its IQoVOICE Organizer/Pagers. Included in the charge were writeoffs of
tooling and deferred costs, writedown of related inventory, and reserves
established to promote sales of these products.
For the three and six months ended June 30, 1997, marketing
expenses were $257,000 and $834,000, respectively. For the three and six
months ended June 30, 1996, marketing expenses were $410,000 and $845,000
respectively. The decreases in marketing expenses are associated with both
the lower volume of sales and the related lower distribution costs such as
sales commissions and targeted direct response print advertising expenses,
as well as decreased fixed costs including consultants, promotional costs,
and amortization. These decreases were offset by increases associated with
advertising allowances established for retail accounts to accelerate sales
of both the older inventory and the current product lines.
General and administrative expenses increased slightly to
$642,000 and $1,294,000 for the three and six month periods ended June 30,
1997 from $603,000 and $1,283,000 for the three and six month periods ended
June 30, 1996. Included in expenses during the second quarter of 1997 is a
one time charge of $190,000 relating to the termination agreements between
the Company and its former president (Note 4). After deducting that charge,
general and administrative expenses decreased, primarily resulting from
decreases in fixed costs including salaries, consulting fees, rent and legal
fees, as well as variable royalty costs associated with the decreased volume
of sales. The decreases were offset by costs and expenses associated with
the Company's March 31, 1997 location change, which enabled the Company to
significantly reduce its subsequent monthly rent expense.
Research and development expenses decreased to $180,000 and
$405,000 for the three and six months ended June 30, 1997 from $245,000 and
$538,000 for the three and six months ended June 30, 1996. The decreases are
primarily the result of decreased salaries and consulting fees, offset by an
increase in amortization expense as the Company strives to develop new
products as well as enhance the VoiceLogic Technology.
Warehouse and distribution expenses decreased to $137,000 and
$313,000 for the three and six months ended June 30, 1997 from $280,000 and
$458,000 for the three and six months ended June 30, 1996. The decreases are
directly related to the decreased sales and related reductions in shipping
costs, supplies, and temporary help. These decreases were partially offset
by costs incurred to process and repackage goods returned from retail
accounts which were accepted in exchange for future purchase commitments.
Other income items included in the second quarter of 1997
relate to the agreements with Franklin, the Company's manufacturers, and
certain other trade creditors (Notes 2 and 3 of Notes to Financial
Statements). The Franklin transactions resulted in a gain of $141,000 from
the sale of assets relating to the Company's IQoVOICE(TM) Organizer Models
5150 and 5160 (IQoVOICE Pocket Organizers), and other income of $700,000
from certain technology rights. The agreements with the Company's
manufacturers and other trade creditors resulted in forgiveness of debt of
$1,388,000.
Other expense for the three and six months ended June 30, 1997
was $72,000 and $111,000. Other expense for the three and six months ended
June 30, 1996 was $18,000 and $52,000. Other expense primarily relates to
interest expense.
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<PAGE> 10
LIQUIDITY
At June 30, 1997, the Company had working capital of $376,000.
The Company has been actively seeking a strategic relationship, including
merger opportunities, product development joint ventures, and distribution
agreements in order to grow and strengthen the Company's financial base.
Further, the Company has been seeking funding, in the form of equity or
debt, in order to satisfy cash requirements in the ordinary course of
business, develop a major new voice recognition product, and provide funding
for costs that may be associated with effecting such strategic relationship.
In May 1997, the Company consummated a transaction involving two
agreements with Franklin. The first agreement was a Purchase and Loan
Agreement in which the two companies entered into the following
transactions: 1) The Company transferred and sold to Franklin for $450,000
in cash its inventory, rights to work in process, manufacturing assets,
marketing assets, and software and hardware design assets for the Company's
IQoVOICE(TM) Organizer Models 5150 and 5160 (IQoVOICE Pocket Organizers); 2)
The Company sold to Franklin for $150,000 in cash 2,000,000 shares of the
Company's common stock, par value $.001 per share, representing the
approximate market price of the Company's common stock at the time of the
transaction; and 3) Franklin loaned the Company cash equal to $1,200,000, in
addition to $500,000 previously loaned to the Company in the first quarter
of 1997, and restructured the previous payment terms into a new $1,700,000
promissory note. The new note carries interest at a rate of 10% per year.
The interest is payable monthly, with principal payments of $400,000 due on
April 30 of each year commencing April 30, 1998 and ending April 30, 2001,
with the final installment in the amount necessary to repay the full balance
of the loan. The second agreement was a Technology Transfer Agreement in
which the two companies entered into the following transactions: 1) The
Company granted to Franklin a non-exclusive perpetual license for technology
rights evidenced by the Company's patent related to operation of Voice
Organizer products as well as other technology and software developed by the
Company related to or used in the Model 5150 and 5160 for a non-refundable
advance royalty of $700,000; and 2) the Company assigned the rights to the
VoiceLogic(TM) Technology to Franklin, and Franklin granted back to the
Company a non-exclusive perpetual license of the VoiceLogic Technology,
including the right to sublicense, for the development, manufacture, sale
and distribution of Voice Organizer products with recording times in excess
of four minutes and any other electronic products that are not Voice
Organizers, subject to the Company remaining obligated to pay royalties to
Franklin at the same rates for which the Company was obligated to the
inventor of the VoiceLogic Technology prior to its assignment to Franklin.
As a result of the completion of these transactions, the Company recognized
$141,000 as a gain on the sale of assets, and $700,000 as income from the
sale of the technology license.
Also in May 1997, the Company entered into agreements with
Flextronics (Malaysia) SDN. BHD. ("Flextronics") and GSS/Array Technology,
Inc. ("GSS"), the manufacturers of the Company's products, relating to the
resolution of outstanding liabilities and commitments. The Company entered
into a Settlement Agreement with Flextronics under which the Company made a
cash payment and assigned the proceeds due pursuant to a licensing agreement
with Kong Wah Video for a voice operated television remote control device to
Flextronics as full and final settlement for all outstanding liabilities and
commitments other than approximately $260,000 in inventory which has already
been manufactured by Flextronics. The Company committed to purchase such
inventory prior to June 30, 1997, but has only purchased $185,000 as of yet.
Flextronics continues to work with the Company regarding the continuing
efforts to purchase the remaining inventory. The Company also entered into a
Discounted Payment and Adequate Assurance of Performance Agreement with GSS
under which the Company made a cash payment and issued 500,000 shares of
non-voting, non-cumulative, convertible preferred stock, with a $0.06 per
share mandatory dividend payable annually in cash or common stock at the
option of the Company on the anniversary date of issuance, as full and final
settlement of outstanding liabilities. The preferred stock will have a $1.00
per share liquidation preference and each share will be convertible into
four (4) shares of the Company's common stock. Further, at the option of
GSS, for a one year period the Company will agree to either appoint a
representative of GSS to the Board of Directors of the Company or to allow a
representative to attend Board of Directors meetings as a non-voting
observer. Also under the Discounted Payment and Adequate Assurance of
Performance Agreement, GSS has agreed to continue to manufacture pursuant to
the terms of the original Manufacturing Agreement for a period of not less
than six months, and the Company has agreed to provide GSS with a standby
letter of credit to secure the Company's payments. Lastly, on or about May
22, 1997, the Company entered into agreements with many of its other trade
creditors in which the trade creditors agreed to accept discounted lump sum
payments in full consideration of current obligations of the Company. As a
result of these agreements, the Company recognized a gain from forgiveness
of debt of $1,388,000.
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<PAGE> 11
The effect of the transactions with Franklin, Flextronics,
GSS, and the other trade creditors have improved the Company's working
capital position and its stockholders' equity. However, the Company
anticipates continued losses from operations through the first nine months
of 1997, and believes that such losses will continue unless the Company is
successful in its efforts to increase sales from its current distribution
channels and diversify its product line. As a result, management continues
to seek a strategic relationship including merger opportunities, product
development joint ventures, and distribution agreements in order to grow and
strengthen the Company's financial base. The Company also continues to seek
additional equity funding in order to satisfy cash requirements for the
remainder of 1997, inclusive of planned product development activities and
to further strengthen its working capital position. At present, no
definitive agreements exist, and failure to either consummate a strategic
relationship agreement or obtain additional funding could result in the
Company's having insufficient cash resources to meet its obligations in
1997. These factors raise substantial doubt about the Company's ability to
continue as a going concern.
The decrease in accounts receivable of $1,593,000 is
attributable mainly to collections on customer receivables which existed at
December 31, 1996. Such decrease was offset partially by new receivables
from customers from sales made in the first quarter of 1997.
The net decrease in accounts payable and accrued expenses of
$2,337,000 is mainly attributable to payments made to the Company's contract
manufacturers and other trade creditors as a result of the agreements
entered into as noted above.
EXCEPT FOR THE HISTORICAL INFORMATION, THE MATTERS DISCUSSED
HEREIN ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS TO AND
UNCERTAINTIES IN THE COMPANY'S BUSINESS, INCLUDING, AMONG OTHER THINGS, THE
AVAILABILITY OF ADEQUATE WORKING CAPITAL, CHANGES IN TECHNOLOGY, THE IMPACT
OF COMPETITIVE PRODUCTS, THE COMPANY'S DEPENDENCE ON THIRD PARTY COMPONENT
SUPPLIES AND MANUFACTURERS, AND OTHER RISKS AND UNCERTAINTIES THAT MAY BE
DETAILED FROM TIME TO TIME IN THIS AND OTHER OF THE COMPANY'S SEC REPORTS.
-11-
<PAGE> 12
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 5. OTHER INFORMATION
In May 1997, Mr. Edward Krakauer resigned as the Company's
president and CEO, however, he remains Chairman of the Company's Board of
Directors. Mr. Krakauer will serve as a part-time consultant to the Company
through June 30, 1998.
Further in May 1997, Mitchell B. Rubin was appointed by the
Board of Directors to fill the positions of president and CEO.
-12-
<PAGE> 13
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 22, 1997 By: /s/ Mitchell B. Rubin
---------------------------------
Mitchell B. Rubin, President,
Chief Executive Officer, and
Chief Financial Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENITIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 375
<SECURITIES> 0
<RECEIVABLES> 209
<ALLOWANCES> 0
<INVENTORY> 1,246
<CURRENT-ASSETS> 1,922
<PP&E> 1,832
<DEPRECIATION> 1,411
<TOTAL-ASSETS> 3,010
<CURRENT-LIABILITIES> 2,855
<BONDS> 0
0
500
<COMMON> 16
<OTHER-SE> 155
<TOTAL-LIABILITY-AND-EQUITY> 3,010
<SALES> 527
<TOTAL-REVENUES> 527
<CGS> 365
<TOTAL-COSTS> 2,371
<OTHER-EXPENSES> 72
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 313
<INCOME-TAX> 0
<INCOME-CONTINUING> 313
<DISCONTINUED> 0
<EXTRAORDINARY> 2,229
<CHANGES> 0
<NET-INCOME> 313
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
