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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
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)
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 [X] No [ ]
As of November 5, 1997, there were 16,011,572 shares of Voice Powered
Technology International, Inc. Common Stock $.001 par value outstanding.
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE NUMBER
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<S> <C>
ITEM 1. Financial Statements -- unaudited
Balance Sheet as of September 30, 1997 3
Statements of Operations for the three and
nine months ended September 30, 1997 and 1996 4
Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 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 1. Legal Proceedings 11
SIGNATURES 12
</TABLE>
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET (NOTE 2)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
ASSETS (NOTE 3)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
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<S> <C>
Current assets
Cash and cash equivalents $ 36
Receivables, net of allowance for doubtful accounts 67
Receivables sold to financial institution 246
Less initial payments received from financial institution 233
--------
Net amount due from financial institution 13
Inventory 715
Prepaid expenses 44
--------
Total current assets 875
Property and equipment
Equipment 1,779
Other 135
--------
1,914
Less accumulated depreciation 1,487
--------
Net property and equipment 427
Patents and technology rights, net of amortization 220
Deferred costs, net of amortization 350
Other assets 58
--------
Total assets $ 1,930
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 587
Accrued expenses 741
Current obligations under long term debt 400
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Total current liabilities 1,728
Long term debt 1,309
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Total liabilities 3,037
Commitments and contingencies (Note 4) --
Stockholders' deficit
Preferred stock, 10,000,000 shares authorized;
500,000 issued and outstanding at $1.00 stated value 500
Common stock, 50,000,000 shares authorized;
16,011,572 issued and outstanding at $.001 stated value 16
Additional paid-in capital 27,897
Accumulated deficit (29,520)
--------
Total stockholders' deficit (1,107)
--------
Total liabilities and stockholders' deficit $ 1,930
========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1997 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 1,910 $ 591 $ 6,368 $ 2,459
Less price protection -- 128 -- 205
-------- -------- -------- --------
Net sales 1,910 463 6,368 2,254
Costs and expenses
Cost of goods sold 1,622 841 4,588 2,186
Discontinued model costs -- -- -- 790
Marketing 840 140 1,685 974
General and administrative 639 426 1,922 1,720
Research and development 288 143 826 548
Warehouse 259 142 717 456
-------- -------- -------- --------
Total costs and expenses 3,648 1,692 9,738 6,674
-------- -------- -------- --------
Operating loss (1,738) (1,229) (3,370) (4,420)
Other income (expense)
Gain on sale of assets -- -- -- 141
Sale of technology license -- -- -- 700
Forgiveness of debt -- -- -- 1,388
Other expense, net (46) (34) (98) (145)
-------- -------- -------- --------
Net loss $ (1,784) $ (1,263) $ (3,468) $ (2,336)
======== ======== ======== ========
Net loss per common share $ (.13) $ (.08) $ (.25) $ (.16)
Weighted average common
shares outstanding 13,949 16,012 13,644 14,980
======== ======== ======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,468) $(2,336)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Compensatory stock options 36 2
Depreciation and amortization 624 469
Discontinued model costs -- 790
Gain on sale of assets -- (141)
Gain on forgiveness of debt -- (1,388)
Writedown of inventory -- 400
Changes in operating assets and liabilities:
Decrease in restricted cash -- 150
Decrease in receivables 3,538 1,722
Decrease in inventory 1,476 640
Decrease in prepaid expenses 84 58
Increase in deferred costs (457) (139)
(Increase) decrease in other assets (291) 69
Increase (decrease) in accounts payable 977 (1,866)
Decrease in accrued expenses (511) (387)
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Net cash provided by (used in) operating activities 2,008 (1,957)
------- -------
Cash flows from investing activities:
Proceeds from sale of equipment -- 65
Capital expenditures (181) (160)
------- -------
Net cash used in investing activities (181) (95)
------- -------
Cash flows from financing activities:
Payments on loan payable (3,265) --
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 (3,350) 1,861
------- -------
Net decrease in cash and cash equivalents (1,523) (191)
Cash and cash equivalents at the beginning of the year 2,095 227
------- -------
Cash and cash equivalents, September 30 $ 572 $ 36
======= =======
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 147 $ 130
======= =======
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 --
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 nine month periods ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
NOTE 2 -- On September 22, 1997, the Company filed a petition with the United
States Bankruptcy Court, Central District of California, under the provisions of
Chapter 11 of the Bankruptcy Code. The Company is continuing to operate as a
"Debtor in Possession" under such code. The Company is in the process of
preparing a plan of reorganization to file with the Bankruptcy Court in
conjunction with Franklin Electronic Publishers, Inc. ("Franklin"), the
Company's largest secured creditor. No assurance can be given that such plan
will be completed, filed, and/or approved by the court, or other interested
parties of the bankruptcy case.
NOTE 3 -- As of September 22, 1997, with letter amendment dated October 7, 1997,
the Company entered into a revolving $400,000 Loan and Security Agreement with
Franklin which had not been borrowed against as of September 30, 1997. The term
of the agreement is the earliest of (a) March 3, 1998; (b) the effective date of
an order confirming a plan of reorganization of the Company; or (c) at the
option of Lender, immediately and without notice upon the occurrence or during
the continuation of an Event of Default as defined in the agreement. The
agreement is collateralized by all of the assets of the Company, subordinate
only to the security interest of KBK Financial Corporation in pre-petition
accounts receivable and inventory of the Company. Borrowings under the agreement
are permitted up to 75% of accounts receivable and 50% of open purchase orders
held by the Company. Accounts receivable and purchase orders to be borrowed
against must be approved by Franklin for eligibility. The agreement carries an
interest rate of 12% per annum on the average daily balance. The agreement, as
amended, also provides for Franklin to guarantee payment to the Company's
suppliers for shipments pursuant to purchase orders, which have been approved by
Franklin, for the manufacture of products. The amounts of such guarantees are
deducted from the amount otherwise borrowable based on approved accounts
receivable and purchase orders.
NOTE 4 -- 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 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.
NOTE 5 -- The Company's financial statements have been prepared assuming that
the Company will continue as a going concern. At September 30, 1997, current
liabilities exceeded current assets by $853,000, and the Company's accumulated
deficit aggregated $29,520,000. Further, as stated in Note 2, the Company has
filed a Chapter 11 bankruptcy petition. Accordingly, there is substantial doubt
regarding the Company's ability to continue as a going concern. The Company's
ability to continue operations is dependent upon completing a plan of
reorganization, filing said plan with the Bankruptcy Court, having the Court and
other interested parties approve the plan, and then implementing the plan.
Success of the plan is dependent, among other things, on reaching a satisfactory
level of profitability and generating sufficient cash flow resources to meet
ongoing obligations. The accompanying financial statements do not include any
adjustments that might result from the outcome of these uncertainties. There is
no assurance given that the Company will continue as a going concern.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On September 22, 1997, the Company filed a petition with the United
States Bankruptcy Court, Central District of California, under the provisions of
Chapter 11 of the Bankruptcy Code. The Company is continuing to operate as a
"Debtor in Possession" under such code. The Company is in the process of
preparing a plan of reorganization to file with the Bankruptcy Court in
conjunction with Franklin Electronic Publishers, Inc. ("Franklin"), the
Company's largest secured creditor. No assurance can be given that such plan
will be completed, filed, and/or approved by the court, or other interested
parties of the bankruptcy case.
The results of the Company's operating performance for the three and
nine month periods ended September 30, 1997 as compared to a year ago are
primarily a reflection of the following: the Company's limited cash resources
which caused production delays as well as the filing of the Chapter 11 petition;
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; slow retail sales of most
hand held organizers; and the effects of the Company selling its IQ-VOICE(TM)
Pocket Organizer lines under agreements with Franklin which were entered into in
the second quarter of 1997. 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.
Also, the sale of the IQ-VOICE Pocket Organizer lines to Franklin has negatively
impacted, and will continue to negatively impact, sales of IQ-VOICE Organizer
products as compared to prior periods.
These occurrences 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 newer flash memory products, which
include the latest PC Link IQ-VOICE Organizers introduced in the third quarter
of 1997, carry lower cost of goods as a percentage of sales. Further, the
streamlining of operations has enabled the Company to decrease fixed costs in
all areas of operations.
RESULTS OF OPERATIONS
For the three and nine month periods ended September 30, 1997, the
Company reported operating losses of $1,229,000 and $4,420,000, respectively.
For the three and nine month periods ended September 30, 1996, the Company
reported operating losses of $1,738,000 and $3,370,000, respectively. After
adding other expense and income, the Company reported net losses of $1,263,000
and $2,336,000 for the three and nine months ended September 30, 1997, and net
losses of $1,784,000 and $3,468,000 for the same periods in 1996. The resulting
net losses per common share for the three and nine months ended September 30,
1997 were $.08 and $.16, respectively, while for the three and nine months ended
September 30, 1996, the Company reported net losses per common share of $.13 and
$.25, respectively.
For the three and nine month periods ended September 30, 1997, sales
were $591,000 and $2,459,000, respectively. After reduction of price protection
costs of $128,000 charged against sales in the third quarter, and $77,000
charged against sales in the first quarter, net sales for the three and nine
months ended September 30, 1997 were $463,000 and $2,254,000, respectively. For
the three and nine months ended September 30, 1996, net sales were $1,910,000
and $6,368,000, respectively. The decreases in net sales were primarily
attributable, as stated above, to the sale of the IQ-VOICE Pocket Organizer line
to Franklin, as well as to production delays due to lack of cash. Further, the
sales decreases were also attributable to reductions in liquidation sales,
direct response sales, international sales, and licensing revenues. The price
protection costs were incurred to reduce the retail prices of discontinued
products. Accordingly, established retail accounts were issued credits for
on-hand inventory equal to the difference between the wholesale price at which
they had purchased the products and their new wholesale price which is based on
the reduced retail price.
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Total costs and expenses for the three and nine months ended September
30, 1997 were $1,692,000 and $6,674,000. Total costs and expenses for the three
and nine months ended September 30, 1996 were $3,648,000 and $9,738,000. 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 third quarter
of 1997 relating to a $300,000 writedown of inventory, and $790,000 in charges
incurred in the second quarter of 1997 relating to discontinued model costs.
Cost of goods sold decreased to $841,000 and $2,186,000 for the three
and nine month periods ended September 30, 1997 from $1,622,000 and $4,588,000
for the same periods in 1996 due to the Company's decreased sales. In the third
quarter of 1997, the Company incurred a $400,000 writedown of inventory related
to various discontinued models in accordance with lower of cost or market
valuation. As a percentage of sales, cost of goods sold was 142% and 89% for the
three and nine month periods ended September 30, 1997, and 85% and 72% 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, as well as the noted inventory writedown. During the three and nine month
periods ended September 30, 1997, however, the Company's cost of goods sold as a
percentage of sales for its current core products was 62% and 54%, respectively.
The increase in costs of goods as a percentage of sales of current core products
for the three month period ended September 30, 1997 was due to a larger portion
of such sales having been made to international and catalog customers which
carry a lower sales price than that of standard retail customers, but also carry
lower variable costs such as co-operative advertising allowances and sales
commissions.
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 IQ-VOICE Organizers and
its IQ-VOICE Organizer/Pagers. Included in the charge were write-offs of tooling
and deferred costs, writedown of related inventory, and reserves established to
promote sales of these products.
For the three and nine months ended September 30, 1997, marketing
expenses were $140,000 and $974,000, respectively. For the three and nine months
ended September 30, 1996, marketing expenses were $840,000 and $1,685,000
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 travel, consultants, promotional costs, and
amortization.
General and administrative expenses decreased to $426,000 and $1,720,000
for the three and nine month periods ended September 30, 1997 from $639,000 and
$1,922,000 for the three and nine month periods ended September 30, 1996. The
decreases primarily resulted from decreases in fixed costs including salaries,
travel, 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, as well as
a one time charge incurred in the second quarter of 1997 of $190,000 relating to
the termination agreements between the Company and its former president.
Research and development expenses decreased to $143,000 and $548,000 for
the three and nine months ended September 30, 1997 from $288,000 and $826,000
for the three and nine months ended September 30, 1996. The decreases are
primarily the result of decreased salaries, consulting fees, and amortization.
While the Company continues to support its current product lines, due to its
present Chapter 11 status, development of new products has been suspended
pending the Company's reorganization.
Warehouse and distribution expenses decreased to $142,000 and $456,000
for the three and nine months ended September 30, 1997 from $259,000 and
$717,000 for the three and nine months ended September 30, 1996. The decreases
are directly related to the decreased sales and related reductions in shipping
costs, supplies, and temporary help.
Other income items include second quarter 1997 events relating to the
agreements with Franklin, the Company's manufacturers, and certain other trade
creditors. The Franklin transactions resulted in a gain of $141,000 from the
sale of assets relating to the Company's IQ-VOICE Organizer Models 5150 and 5160
(IQ-VOICE Pocket Organizers), and other income of $700,000 from the sale of
certain technology rights. The
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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 nine months ended September 30, 1997 was
$34,000 and $145,000. Other expense for the three and nine months ended
September 30, 1996 was $46,000 and $98,000. Other expense primarily relates to
interest expense.
LIQUIDITY
On September 22, 1997, the Company filed a petition with the United
States Bankruptcy Court, Central District of California, under the provisions of
Chapter 11 of the Bankruptcy Code. The Company is continuing to operate as a
"Debtor in Possession" under such code. The Company is in the process of
preparing a plan of reorganization to file with the Bankruptcy Court in
conjunction with Franklin Electronic publishers, Inc. ("Franklin"), the
Company's largest secured creditor. No assurance can be given that such plan
will be completed, filed, and/or approved by the court, or other interested
parties of the bankruptcy case. At September 30, 1997, the Company had negative
working capital of $853,000.
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 IQ-VOICE Organizer Models 5150 and
5160 (IQ-VOICE 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 September
30, 1997, but has only purchased $185,000 as of the date hereof. 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 has 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 has agreed 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
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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
nine months. 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.
The decrease in accounts receivable of $2,253,000 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 third quarter of 1997. As of September 22, 1997, as amended by letter
agreement dated October 7, 1997, the Company entered into a revolving $400,000
Loan and Security Agreement with Franklin under which there was no outstanding
balance as of September 30, 1997. The term of the agreement is the earliest of
(a) March 3, 1998; (b) the effective date of an order confirming a plan of
reorganization of the Company; or (c) at the option of Lender, immediately and
without notice upon the occurrence or during the continuation of an Event of
Default as defined in the agreement. The agreement is collateralized by all of
the assets of the Company, subordinate only to the security interest of KBK
Financial Corporation in pre-petition accounts receivable and inventory of the
Company. Borrowings under the agreement are permitted up to 75% of accounts
receivable and 50% of open purchase orders held by the Company. Accounts
receivable and purchase orders to be borrowed against must be approved by
Franklin for eligibility. The agreement carries an interest rate of 12% per
annum on the average daily balance. The agreement, as amended, also provides for
Franklin to guarantee payment to the Company's suppliers for shipments pursuant
to purchase orders, which have been approved by Franklin, for the manufacture of
products. The amounts of such guarantees are deducted from the amount otherwise
borrowable based on approved accounts receivable and purchase orders.
The net decrease in accounts payable and accrued expenses of $2,098,000
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.
Management was unsuccessful in its search to find 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 unable to find additional equity
or other funding in order to satisfy cash requirements for 1997. These factors
were compounded by the claim filed by Everen Securities (Note 4 in the notes to
the financial statements). Consequently, the Company filed a petition for
reorganization under Chapter 11 of the bankruptcy code. The Company is working
with Franklin in preparing a plan of reorganization to file with the Bankruptcy
Court. Accordingly, there is substantial doubt about the Company's ability to
continue as a going concern and there can be no assurance that the Company will
be able to continue as a going concern.
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.
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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 1. LEGAL PROCEEDINGS
On September 22, 1997, the Company filed a Voluntary Petition for
Reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court, Central District of California, San Fernando Valley Division.
The Company has retained the law firm of Robinson, Diamant and Brill of Los
Angeles, California as counsel and advisor to represent the Company in these
proceedings.
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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: November 10, 1997 By: /s/ Mitchell B. Rubin
----------------------------------------
Mitchell B. Rubin, President,
Chief Executive Officer, and
Chief Financial Officer
-12-
<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
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 80
<ALLOWANCES> 0
<INVENTORY> 715
<CURRENT-ASSETS> 875
<PP&E> 1,914
<DEPRECIATION> 1,487
<TOTAL-ASSETS> 1,930
<CURRENT-LIABILITIES> 1,728
<BONDS> 0
0
500
<COMMON> 16
<OTHER-SE> (1,623)
<TOTAL-LIABILITY-AND-EQUITY> 1,930
<SALES> 591
<TOTAL-REVENUES> 463
<CGS> 841
<TOTAL-COSTS> 1,692
<OTHER-EXPENSES> 34
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,263)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,263)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,263)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
