<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 March 31, 1998
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 506 91356
Tarzana, California (Zip Code)
(Address of principal executive offices)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] No [ ]
As of May 15, 1998, there were 16,049,072 shares of Voice Powered Technology
International, Inc. Common Stock $.001 par value outstanding and 74,196,288
shares reserved for issuance pursuant to the registrant's Chapter 11 Plan of
Reorganization.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE> 2
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 March 31, 1998 3
Statements of Operations for the three
months ended March 31, 1998 and 1997 4
Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 5
Notes to Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II -- OTHER INFORMATION
ITEM 2 . Changes in Securities and Use of Proceeds 11
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 12
</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>
PRO FORMA
MARCH 31, MARCH 31, 1998
1998 (NOTE 3)
-------- --------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 27
Receivables, net of allowance for doubtful accounts 34
Inventory 159
Prepaid expenses 12
--------
Total current assets 232
Property and equipment
Equipment 401
Other 69
--------
470
Less accumulated depreciation 265
--------
Net property and equipment 205
Patents and technology rights, net of amortization 186
Deferred costs, net of amortization 201
Other assets 29
--------
Total assets $ 853
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities not subject to compromise
Accounts payable $ 67
Accrued expenses 247 $147
Loan payable 200
-------- --------
Total current liabilities not subject to compromise 514 414
Long term debt - plan loan payable -- 350
-------- --------
Total liabilities not subject to compromise 514 764
Liabilities subject to compromise (Note 2) 3,240 --
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, 10,000,000 shares authorized; $1.00 stated value, 500,000
shares issued and outstanding; aggregate
liquidation preference of $500,000 500 --
Common stock, 100,000,000 shares authorized; $.001 stated value,
16,011,572 (90,245,360) shares issued and outstanding 16 90
Additional paid-in capital 27,897 30,057
Accumulated deficit (31,314) (30,058)
-------- --------
Total stockholders' equity (deficit) (2,901) 89
-------- --------
Total liabilities and stockholders' equity (deficit) $ 853 $ 853
======== ========
</TABLE>
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE> 4
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
-------- --------
<S> <C> <C>
Sales $ 1,341 $ 303
Less price protection 77 --
-------- --------
Net sales 1,264 303
Cost of goods sold 981 188
-------- --------
Gross profit 283 115
Operating costs
Marketing 577 68
General and administrative 652 255
Research and development 225 91
Warehouse 176 54
-------- --------
Total operating costs 1,630 468
-------- --------
Operating loss (1,347) (353)
Other expense, net (39) (4)
-------- --------
Loss before reorganization item $ (1,386) $ (357)
Reorganization items
Fees associated with Disclosure Statement
and Plan of Reorganization -- (36)
Professional fees -- (24)
-------- --------
Net loss $ (1,386) $ (417)
======== ========
Net loss per common share $ (.10) $ (.03)
======== ========
Weighted average common
shares outstanding 13,949 16,011
======== ========
</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>
THREE MONTHS ENDED
MARCH 31,
-------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1997 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,386) $ (417)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 181 103
Changes in operating assets and liabilities:
Decrease in restricted cash 75 --
Decrease in receivables 1,167 115
(Increase) decrease in inventory (108) 55
(Increase) decrease in prepaid expenses 52 (1)
Increase in other assets (7) --
Decrease in pre-petition accounts payable (171) --
Increase in post-petition accounts payable -- 4
Increase (decrease) in pre-petition accrued expenses (83) 11
Increase in post-petition accrued expenses -- 108
------- -------
Net cash used in operating activities (280) (22)
------- -------
Cash flows from investing activities:
Capital expenditures (68) --
Expenditures for deferred costs (64) --
------- -------
Net cash used in investing activities (132) --
------- -------
Cash flows from financing activities:
Proceeds from pre-petition note payable 500 --
Proceeds from post-petition note payable -- 15
------- -------
Net cash provided by financing activities 500 15
------- -------
Net increase (decrease) in cash and cash equivalents 88 (7)
Cash and cash equivalents at the beginning of the year 227 34
------- -------
Cash and cash equivalents, March 31 $ 315 $ 27
======= =======
SUPPLEMENTAL DISCLOSURE
Interest paid $ 43 $ 5
======= =======
</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,
1997. Operating results for the three month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
NOTE 2 -- On September 22, 1997, the Company filed a voluntary petition for
relief with the United States Bankruptcy Court, Central District of California
("Court"), under the provisions of Chapter 11 of the Bankruptcy Code. Under
Chapter 11, certain claims against the Company in existence prior to the filing
of the petition for relief are stayed while the Company continues business
operations as a "Debtor-In-Possession." These claims are reflected in the March
31, 1998 balance sheet as "liabilities subject to compromise."
On January 21, 1998, the Company, in conjunction with Franklin Electronic
Publishers, Inc. ("Franklin"), the Company's largest secured creditor, filed a
combined Amended Disclosure Statement and Plan of Reorganization (the "Plan")
with the Bankruptcy Court. The Plan included a significant reduction of the
Company's pre-petition obligations, in addition to Franklin's waiving its
pre-petition secured claim in the amount of $1,733,990 in exchange for an 80%
interest in the equity of the Company. The Disclosure Statement was approved as
to form by the Bankruptcy Court, and was submitted to all interested parties for
approval. On March 16, 1998, the Company filed a motion with the Bankruptcy
Court for confirmation of the Plan, and at a hearing held on April 23, 1998, the
Company's motion for confirmation of the Plan was granted and the order
confirming the Plan was entered by the Court on April 29,1998 (the "Order"). The
Plan became effective on May 12, 1998 (the "Effective Date").
The financial statements have been prepared by the Company in accordance with
Statement of Position 90-7: Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code. The Company incurred a loss of $417,000 for the three
months ended March 31, 1998, and had an accumulated deficit of $2,901,000 and
had negative working capital of $293,000 at March 31, 1998. These matters raise
substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments to the
financial statements that may be necessary should the Company be unable to
continue as a going concern.
NOTE 3 --In accordance with the Plan, on or about May 12, 1998, the following
occurred: 1)The Company received a loan of $350,000 from Franklin (the "Plan
Loan") to create a fund to be dedicated to the payment of creditor claims and
certain administrative expenses (the Plan Loan accrues interest at 8% per annum,
with interest only payable in arrears on a monthly basis with principal all due
and payable in a lump sum payment five years from the Effective Date); 2) The
500,000 shares of outstanding convertible preferred stock is deemed converted
into 2,000,000 shares of the Company's common stock; and 3) the Company's
Articles of Incorporation were amended to, among other things, increase the
authorized shares of common stock to 100,000,000. Pursuant to the Plan, Franklin
will be issued 72,196,288 shares of the Company's common stock, which equates to
an 80% equity interest in the Company in exchange for Franklin's pre-petition
secured claim in the amount of $1,733,990.
The pro forma amounts for March 31, 1998 presented in the accompanying balance
sheet include the effect of the above transactions which would result in a
decrease to accrued expenses of $100,000 (related to administrative expenses
which will be paid from the proceeds of the Plan Loan); an increase to long term
debt as a result of receipt of the proceeds from the Plan Loan in the amount of
$350,000; a decrease to liabilities subject to compromise in the amount of
$3,240,000 as a result of the settlement of such liabilities in accordance with
the terms of the Plan; a decrease to preferred stock of $500,000 resulting from
its conversion to common stock; an increase to common stock of $74,000 and an
increase to additional paid-in capital of $2,160,000 resulting from the
conversion of the preferred stock as well as the new common stock issuance to
Franklin; and a decrease to the Company's accumulated deficit of $1,256,000
resulting from extraordinary income from forgiveness of debt of approximately
$1,273,000 less second quarter 1998 administrative expenses not accrued as of
March 31, 1998 of approximately $17,000.
-6-
<PAGE> 7
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Success of the Company after confirmation 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 Company intends
to seek to obtain adequate working capital resources, either through internally
generated cash flow or external sources, in order to increase its sales and
distribution of its products, resume research and development activities for new
products and improvements to its Technology, dedicate additional resources to
the development of licensing opportunities for its Technology, and explore
further improvements to its PC compatible IQ- VOICE(TM) Organizers inclusive of
improvements to its PCLink software. No assurance can be given that the Company
will be able to achieve such level of profitability, or be able to obtain the
required working capital. These matters raise substantial doubt about the
ability of the Company to continue as a going concern. Further, as of the
Effective Date, the Company became an 80% controlled subsidiary of Franklin, and
therefore subject to Franklin's direction and discretion regarding future
business activities. The financial statements do not include any adjustments
that may be necessary should the Company be unable to continue as a going
concern.
-7-
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Since the calendar quarter ended December 31, 1995, the Company has
experienced sustained significant operating losses. These losses were the result
of multiple factors inclusive of unsuccessful introductions of new models of the
Company's core product line (the IQ-VOICE Organizer), failed launches of new
products, increased competition from lower priced digital recorders, and a
general decline in domestic retail sales of the entire hand-held electronics
category.
Through 1996 and the first nine months of 1997, the Company attempted to
improve its financial condition by reducing fixed operating costs, liquidating
inventories, streamlining operating departments, and entering into two
significant transactions in an attempt to strengthen the Company's financial
position. Despite these efforts, the Company was unable to generate sufficient
revenues and gross profit to sustain its ongoing operations, further depleting
cash and working capital.
On September 22, 1997, the Company filed a voluntary petition for relief
with the United States Bankruptcy Court, Central District of California, under
the provisions of Chapter 11 of the Bankruptcy Code (Case No. LA 97-46292-VZ).
Under Chapter 11, certain claims against the Company in existence prior to the
filing of the petition for relief are stayed while the Company continues
business operations as a "Debtor-In-Possession."
As a result of concern on the part of the Company's major domestic
retail customers regarding the Company's financial stability, the limited cash
and working capital resources available to the Company and the potential
exposure to the Company which would result from price protection, advertising,
and stock balancing commitments required by these major retail customers, the
Company discontinued shipments of its IQ-VOICE Organizer products to many of its
major retail customers since the commencement of the Bankruptcy Proceedings. At
present, the Company is engaged in only limited business activities consisting
of sales of IQ-VOICE Organizer products to smaller retailers and wholesale
accounts, to international distributors, and through various direct marketing
programs. As a result of this contraction, the Company has significantly
decreased its variable and fixed operating costs, including the reduction of a
number of its officers and other employees.
On January 21, 1998, the Company, in conjunction with Franklin
Electronic Publishers, Inc. ("Franklin"), the Company's largest secured
creditor, filed a combined Amended Disclosure Statement and Plan of
Reorganization (the "Plan") with the Bankruptcy Court. The Plan included a
significant reduction of the Company's pre-petition obligations, in addition to
Franklin's waiving its pre-petition secured claim in the amount of $1,733,990 in
exchange for an 80% interest in the equity of the Company. The Disclosure
Statement was approved as to form by the Bankruptcy Court, and was submitted to
all interested parties for approval. On March 16, 1998, the Company filed a
motion with the Bankruptcy Court for confirmation of the Plan, and at a hearing
held on April 23, 1998, the Company's motion for confirmation of the Plan was
granted and the order confirming the Plan was entered by the Court on April
29,1998 (the "Order"). The Plan became effective on May 12, 1998 (the "Effective
Date").
In accordance with the Plan, on the Effective Date, the following
occurred: 1)The Company received a loan of $350,000 from Franklin (the "Plan
Loan") to create a fund to be dedicated to the payment of creditor claims and
certain administrative expenses (the Plan Loan accrues interest at 8% per annum,
with interest only payable in arrears on a monthly basis with principal all due
and payable in a lump sum payment five years from the Effective Date); 2) The
500,000 shares of outstanding convertible preferred stock is deemed converted
into 2,000,000 shares of the Company's common stock; and 3) the Company's
Articles of Incorporation were amended to, among other things, increase the
authorized shares of common stock to 100,000,000. Pursuant to the Plan Franklin
will be issued 72,196,288 shares of the Company's common stock, which equates to
an 80% equity interest in the Company in exchange for Franklin's pre-petition
secured claim in the amount of $1,733,990.
The effects of these transactions result in a decrease to accrued
expenses of $100,000 (related to administrative expenses which will be paid from
the proceeds of the Plan Loan); an increase to long term debt as a result of
receipt of the proceeds from the Plan Loan in the amount of $350,000; a decrease
to liabilities subject to compromise in the amount of $3,240,000 as a result of
the settlement of such liabilities in accordance with the terms of the Plan; a
decrease to preferred stock of $500,000 resulting from its conversion to common
stock; an increase to common stock of $74,000 and an increase
-8-
<PAGE> 9
to additional paid-in capital of $2,160,000 resulting from the conversion of the
preferred stock as well as the new common stock issuance to Franklin; and a
decrease to the Company's accumulated deficit of $1,256,000 resulting from
extraordinary income from forgiveness of debt of approximately $1,273,000 less
second quarter 1998 administrative expenses not accrued as of March 31, 1998 of
approximately $17,000.
RESULTS OF OPERATIONS
For the three months ended March 31, 1998, the Company reported an
operating loss of $353,000, as compared to an operating loss of $1,347,000 for
the three months ended March 31, 1997. After including other expenses and
reorganization items, the Company reported a net loss of $417,000, or $.03 per
share, for the three months ended March 31, 1998, and a net loss of $1,386,000,
or $.10 per share, for the three months ended March 31, 1997.
Sales for the three months ended March 31, 1998 were $303,000, while
sales for the three months ended March 31, 1997 were $1,341,000. After incurring
price protection costs of $77,000 charged against sales during the first quarter
of 1997, net sales for the three months ended March 31, 1997 were $1,264,000.
The decrease in sales, as noted above, related primarily to the decreased levels
of sales to retail customers as a result of the Company's bankruptcy filing. The
1997 price protection costs were incurred to reduce the retail price of the
IQ-VOICE Organizer/Pager, a subsequently discontinued product. 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.
Gross profit and gross profit percentage were $115,000 and 38% for the
three months ended March 31, 1998, as compared to $283,000 and 21% for the three
months ended March 31, 1997. The decrease in gross profit was a result of the
decreased level of sales as discussed above. The increase in the gross profit
percentage related to the fact that 1998 sales consisted of a higher percentage
of new products which carry a higher gross profit margin, while 1997 sales
included liquidation efforts relating to older products which were sold at or
near book value.
Total operating expenses for the three months ended March 31, 1998 and
1997 were $468,000 and $1,630,000, respectively. The decrease in expenses is the
result of decreased costs associated with the Company's decreased sales volume,
as well as efforts made by the Company to significantly reduce its fixed costs.
Marketing expenses for the three months ended March 31, 1998 and 1997
were $68,000 and $577,000, respectively. The decrease is associated with the
Company's lower volume of sales and the related lower marketing and distribution
costs, as well as lower fixed costs. As such, the Company incurred decreased
costs related to salaries, advertising and promotional costs, and international
sales expenses.
General and administrative expenses decreased to $255,000 for the three
months ended March 31, 1998 from $652,000 for the three months ended March 31,
1997. The decrease is the result of the Company's lower fixed costs including
salaries, consultants, rent, and depreciation.
Research and development expenses for the three months ended March 31,
1998 and 1997 were $91,000 and $225,000, respectively. The decrease is primarily
the result of decreased salaries and amortization. The Company had substantively
suspended development of new and existing products during the course of the
bankruptcy proceedings.
Warehouse and distribution expenses decreased to $54,000 for the three
months ended March 31, 1998 from $176,000 for the three months ended March 31,
1997. The decrease is directly related to the Company's decreased sales. As
such, the Company incurred decreases to temporary labor costs, freight costs,
and third party fulfillment costs.
Other expense was $4,000 and $39,000 for the three months ended March
31, 1998 and March 31, 1997, respectively, primarily relating to interest
expense.
Included as reorganization items incurred as a result of the Company's
Bankruptcy Proceedings are $36,000 in expenses relating to the Plan, and $24,000
in expenses relating to legal fees.
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<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant, sustained net losses for the past
three years, including $417,000 for the three months ended March 31, 1998.
Further, the Company has an accumulated deficit of $2,901,000 and negative
working capital of $293,000 at March 31, 1998. Because of these and other
factors, on September 22, 1997, the Company filed a voluntary petition for
relief with the United States Bankruptcy Court, Central District of California,
under the provisions of Chapter 11 of the Bankruptcy Code. Throughout the course
of the Bankruptcy Proceedings, the Company had been operating as a "Debtor in
Possession" under such code.
At a hearing in the Court on April 23, 1998 the Company's motion for
confirmation of the Plan was granted and an Order confirming the Plan was
entered April 29,1998 with an Effective Date of May 12, 1998. In accordance with
the Plan, on the Effective Date, the following occurred: 1)The Company received
the Plan Loan of $350,000 from Franklin to create a fund to be dedicated to the
payment of creditor claims and certain administrative expenses (the Plan Loan
accrues interest at 8% per annum, with interest only payable in arrears on a
monthly basis with principal all due and payable in a lump sum payment five
years from the Effective Date); 2) The 500,000 shares of outstanding convertible
preferred stock is deemed converted into 2,000,000 shares of the Company's
common stock; and 3) the Company's Articles of Incorporation were amended to,
among other things, increase the authorized shares of common stock to
100,000,000. Pursuant to the Plan Franklin will be issued 72,196,288 shares of
the Company's common stock, which equates to an 80% equity interest in the
Company in exchange for Franklin's pre-petition secured claim in the amount of
$1,733,990.
The effects of these transactions result in a decrease to accrued
expenses of $100,000 (related to administrative expenses which will be paid from
the proceeds of the Plan Loan); an increase to long term debt as a result of
receipt of the proceeds from the Plan Loan in the amount of $350,000; a decrease
to liabilities subject to compromise in the amount of $3,240,000 as a result of
the settlement of such liabilities in accordance with the terms of the Plan; a
decrease to preferred stock of $500,000 resulting from its conversion to common
stock; an increase to common stock of $74,000 and an increase to additional
paid-in capital of $2,160,000 resulting from the conversion of the preferred
stock as well as the new common stock issuance to Franklin; and a decrease to
the Company's accumulated deficit of $1,256,000 resulting from extraordinary
income from forgiveness of debt of approximately $1,273,000 less second quarter
1998 administrative expenses not accrued as of March 31, 1998 of approximately
$17,000.
Success of the Company after confirmation 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
Company intends to seek to obtain adequate working capital resources, either
through internally generated cash flow or external sources, in order to increase
its sales and distribution of its products, resume research and development
activities for new products and improvements to its Technology, dedicate
additional resources to the development of licensing opportunities for its
Technology, and explore further improvements to its PC compatible IQ- VOICE(TM)
Organizers inclusive of improvements to its PCLink software. No assurance can be
given that the Company will be able to achieve such level of profitability, or
be able to obtain the required working capital. These matters raise substantial
doubt about the ability of the Company to continue as a going concern. Further,
as of the Effective Date, the Company became an 80% controlled subsidiary of
Franklin, and therefore subject to Franklin's direction and discretion regarding
future business activities. The financial statements do not include any
adjustments that may be necessary should the Company be unable to continue as a
going concern.
The decrease in accounts receivable of $115,000 reflects the Company's
overall decreased sales levels.
The net increase in post-petition accounts payable and accrued expenses
of $123,000 as of March 31, 1998 is mainly attributable to professional fees
associated with the Company's reorganization and with the Company's annual
audit.
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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<PAGE> 11
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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In accordance with the provisions of the Plan (a copy of which was filed
as Exhibit 10.8 to the Company's Form 10-KSB for the fiscal year ended December
31,1997), the Company filed, effective May 6, 1998, a Certificate of Amendment
of Articles of Incorporation in order to include a provision prohibiting the
issuance of non-voting equity securities and to increase the number of
authorized shares of Common Stock to 100,000,000 shares in order to provide for
the issuance of the new Common Stock to Franklin.
Also on the Effective Date, in accordance with the provisions of the
Plan, the Company reserved for issuance 74,196,288 shares of its common stock
consisting of; 1) 2,000,000 shares as a result of holders of convertible
preferred stock being deemed to have exercised their right to convert such stock
to common shares in complete satisfaction of their rights under such preferred
stock and; 2) 72,196,288 for the conversion of Franklin's secured claim of
$1,733,990 into common stock of the Company sufficient to giving Franklin an
eighty percent (80%) equity interest in the Company (on a fully diluted basis
following conversion of all of the Company's outstanding convertible preferred
stock into common stock).
Further, on the Effective Date, in accordance with the provisions of the
Plan, all of the Company's outstanding options, warrants and any other legal or
contractual rights to purchase the Company's common stock were deemed void and
unenforceable after the Effective Date
ITEM 5. OTHER INFORMATION
In accordance with the Plan, on the Effective Date, the following
occurred: 1)The Company received the Plan Loan of $350,000 from Franklin to
create a fund to be dedicated to the payment of creditor claims and certain
administrative expenses (the Plan Loan accrues interest at 8% per annum, with
interest only payable in arrears on a monthly basis with principal all due and
payable in a lump sum payment five years from the Effective Date); 2) The
500,000 shares of outstanding convertible preferred stock is deemed converted
into 2,000,000 shares of the Company's common stock; and 3) the Company's
Articles of Incorporation were amended to, among other things, increase the
authorized shares of common stock to 100,000,000. Pursuant to the Plan Franklin
will be issued 72,196,288 shares of the Company's common stock, which equates to
an 80% equity interest in the Company in exchange for Franklin's pre-petition
secured claim in the amount of $1,733,990. Upon completion of the foregoing
transactions, the Company's total outstanding common stock will be equal to
90,245,360 shares ( See Part II, Item 2. Changes in Securities and Use of
Proceeds). Accordingly, holders of the Company's common stock as of the
Effective Date will be subject to substantial dilution.
The sole source for the payment of all pre-petition claims of unsecured
creditors of the Company shall be the Plan Loan of $350,000 by Franklin which
shall be used to create a fund (the "Creditor Fund") to be dedicated to the
payment of such claims. Certain administrative expenses, priority claims and
cure payments related to the assumption by the Company of certain pre-petition
executory contracts will also be paid from the Creditor Fund before the
remainder is distributed to general unsecured claims. The Company estimates
that, after payment of allowable administrative expenses, priority claims and
cure payments related to the assumption by the Company of certain pre-petition
executory contracts, the balance remaining for general unsecured claims will be
$0.10 on each dollar of such claims allowed. Post-petition liabilities incurred
in the ordinary course of the Company's business (specifically including,
without limitation, payroll expenses, commissions, rent and accounts payable for
inventory purchases and other incidental operating expenses; but specifically
excluding professional fees and expenses incurred prior to the Effective Date)
were to be paid by the Company in the ordinary course and will not be paid from
the Creditor Fund.
Also in accordance with the provisions of the Plan, on the Effective
Date, a new Board of Directors was appointed comprised of three executive
officers of Franklin including Michael R. Strange, currently a Director and
Executive Vice President of Franklin, Gregory J. Winsky, Senior Vice President
of Franklin, and Kenneth H. Lind, Vice President and Treasurer of Franklin.
The Company's new Board of Directors appointed Michael R. Strange to the
position of Chairman of the Board and Chief Executive Officer and Mitchell B.
Rubin, former President and CEO, to the position of President, Chief Operating
Officer and Chief Financial Officer. Mr. Rubin was also appointed to serve on
the Board of Directors of the Company.
-11-
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 3(aa) -- Certificate of Amendment of Articles of Incorporation
Exhibit 10.8.1-- Order confirming Amended Disclosure Statement and Plan
of Reorganization for Voice Powered Technology
International, Inc. dated as of April 29, 1998
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: May __, 1998 By:/s/ Mitchell B. Rubin
---------------------
Mitchell B. Rubin, President and Chief Financial
Officer
-12-
<PAGE> 1
EXHIBIT 3(aa)
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
The undersigned, Mitchell B. Rubin, certifies as follows:
1. I am the duly elected and acting President of Voice Powered
Technology International, Inc., a California corporation ("Corporation").
2. The Corporation is subject, pursuant to Chapter 11 of the United
States Bankruptcy Code, to the jurisdiction of the United States Bankruptcy
Court for the Central District of California, in a proceeding entitled "In Re
Voice Powered Technology, Inc., a California corporation, Debtor," Case No. Bk.
No. LA 97-46292-VZ.
3. Pursuant to an Order Confirming Amended Plan of Reorganization for
Voice Powered Technology International, Inc., entered on April 29, 1998
("Order"), the amendments to the Articles of Incorporation of the Corporation
hereinafter set forth have been approved and Mitchell B. Rubin, President of the
Corporation, has been authorized to execute this Certificate and to cause this
Certificate to be filed with the Secretary of State of California.
4. Pursuant to the Order and Section 1400 of the California Corporations
Code, Paragraph (a) of Article III is hereby amended to read as follows:
"Preferred Stock, Series B 14% Convertible Cumulative
Preferred Stock, Series C 12% Convertible Cumulative Preferred Stock,
Special Preferred Stock and Common Stock. The corporation is
authorized to issue five classes of shares designed Preferred Stock,"
"Series B 14% Convertible Cumulative Preferred Stock," "Series C 12%
Convertible Cumulative Preferred Stock," "Special Preferred Stock"
and "Common Stock," respectively. The number of shares of Preferred
Stock authorized to be issued is 5,000,000 shares, $0.001 par value,
the number of shares of Series B 14% Convertible Cumulative Preferred
Stock authorized to be issued is 2,000,000, $0.001 par value, the
number of shares of Series C 12% Convertible Cumulative Preferred
Stock authorized to be issued is 2,500,000 shares, $0.001 par value,
the number of shares of Special Preferred Stock authorized to be
issued is 10,000,000 shares, $0.001 par value, and the number of
shares of Common Stock authorized to be issued is 100,000,000 shares
of $0.001 par value. The corporation shall not issue non-voting
equity securities. The rights, preferences, provisions and
restrictions imposed upon the five classes of shares are set forth in
the succeeding Sections of Article III."
<PAGE> 2
IN WITNESS WHEREOF, the undersigned being duly authorized as
aforesaid, has executed this Certificate this 8th day of May 1998.
/s/ Mitchell B. Rubin
-------------------------------
Mitchell B. Rubin
The undersigned declares under penalty of perjury under the laws of
the State of California that the matters set forth in this Certificate are true
and correct of his own knowledge.
Dated: May 8, 1998
/s/ Mitchell B. Rubin
-------------------------------
Mitchell B. Rubin
<PAGE> 1
EXHIBIT 10.8.1
PAG/36013.1/ORD/16252.00 521981517
MARTIN J. BRILL (State Bar No. 53220)
PHILIP A. GASTEIER (State Bar No. 130043)
ROBINSON, DIAMANT & BRILL
A Professional Corporation
1888 Century Park East, Suite 1500
Los Angeles, California 90067
Telephone: (310) 277-7400
Telecopier: (310) 277-7584
Attorneys for Debtor and
Debtor in Possession
BRAD R. GODSHALL
PACHULSKI, STANG, ZIEHL & YOUNG PC
10100 Santa Monica Boulevard, 11th Floor
Los Angeles, California 90067
Telephone: (310) 277-6910
Attorneys for Franklin Electronic Publishing, Inc.
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re Bk. No. LA 97-46292-VZ
VOICE POWERED TECHNOLOGY Chapter 11
INTERNATIONAL, INC., a
California corporation,
ORDER CONFIRMING AMENDED PLAN OF
Debtor. REORGANIZATION FOR VOICE POWERED TECHNOLOGY
INTERNATIONAL, INC.
Date: April 23, 1998
Time: 3:00 P.M.
Place: Courtroom "1368"
Roybal Federal Building,
255 E. Temple St.
Los Angeles CA 90012
AT LOS ANGELES, CALIFORNIA IN THIS DISTRICT ON THE BELOW INDICATED DATE:
A hearing was held before the undersigned United States
Bankruptcy Judge on April 23, 1998, on the Motion For Order
<PAGE> 2
Confirming Amended Plan Of Reorganization For Voice Powered Technology
International, Inc. (the "Motion"), relating to the Amended Disclosure Statement
and Plan of Reorganization for Voice Powered Technology International, Inc.
filed January 21, 1998 (the "Plan"), filed by Voice Powered Technology
International, Inc., Debtor and Debtor-in-Possession (the "Debtor") and Franklin
Electronic Publishing, Inc. ("Franklin"). Appearances of counsel are noted in
the record.
The Court having considered the Motion and the additional
pleadings and Declarations filed in support of confirmation of the Plan, and it
appearing that adequate notice and opportunity for hearing were given under all
of the circumstances, no objections to the Motion having been filed, and having
considered the arguments and representations of counsel present and any evidence
adduced at the hearing, the Court finds that all of the requirements for
confirmation of the Plan set forth in Section 1129 of the Bankruptcy Code have
been satisfied, and having placed its findings and conclusions on the record,
and good cause otherwise appearing,
IT IS HEREBY ORDERED:
1. The Motion is granted.
2. The Amended Plan of Reorganization for Voice Powered Technology
International, Inc. dated as of January 21, 1998, proposed by the Debtor and
Franklin, a true and correct copy of which is attached hereto as Exhibit "A", is
in all respects
<PAGE> 3
hereby confirmed pursuant to the provisions of Section 1129 of the Bankruptcy
Code.
3. On the Effective Date, the provisions of the Plan shall bind the Debtor and
the Reorganized Debtor, any entity receiving property or securities under the
Plan, and any holder of a claim against or equity interest in the Debtor,
whether or not the claim or equity interest is in a class that is impaired under
the Plan and whether or not such holder has accepted the Plan pursuant to
Section 1141 of the Bankruptcy Code.
4. Pursuant to Section XVI of the Plan, this Order constitutes approval of the
executory contracts identified in Exhibit "E" of the Plan, with any such
assumption being subject only to the payment of the cure amount identified in
Exhibit "E" of the Plan, there being no other defaults or amounts required to be
paid in connection with the assumption of such contracts.
5. As provided in Section XVI of the Plan, all executory contracts and unexpired
leases of the Debtor which are not (a) contracts and leases assumed or rejected
pursuant to Order of the Court prior to entry of the Order confirming the Plan;
(b) contracts and leases which are the subject of motions to assume or reject
filed by the Debtor prior to the entry of this Order; or (c) contracts listed on
Exhibit "E" to the Plan, as it may be amended by the proponents at any time
prior to the Effective Date of the Plan, are hereby rejected. To the extent that
such rejection gives rise to a claim by the non-Debtor party or
<PAGE> 4
parties to such contracts and leases, such claim, if any, arising from such
rejection shall be forever barred and deemed waived unless such claim is duly
filed within thirty (30) days after the date of entry of this Order.
6. Except as otherwise provided in the Plan, any agreements entered into in
connection with the Plan, and other provisions of this Order, on the Effective
Date all property of the Estate shall revest in the Reorganized Debtor, free and
clear of all claims, liens, encumbrances, and other interests of any person, and
the Reorganized Debtor may operate its business and may use, acquire, and
dispose of property and compromise or settle any disputes without supervision or
approval by this Court, free and clear of any restrictions of the Bankruptcy
Code, Bankruptcy Rules, or Local Bankruptcy Rules, other than those restrictions
expressly imposed by the Plan or this Order.
7. Notwithstanding any other provision of this Order, the Reorganized Debtor may
pay, without application to this Court, the fees and charges which it incurs on
or after the Effective Date.
8. All Applications for final compensation of professional persons for services
rendered prior to the Effective Date, and all requests for payment of
administrative costs and expenses incurred prior to the entry of this Order
pursuant to 11 U.S.C. Section 507(a)(1) and not representing continuing
obligations of the Reorganized Debtor as provided in the Plan, shall be filed no
<PAGE> 5
later than forty-five (45) days after entry of this Order, or shall be forever
barred.
9. The Debtor, the Reorganized Debtor, and the Disbursing Agent under the Plan,
and their agents, attorneys, representatives and any other proper persons shall
be, and they hereby are, authorized, empowered and directed to carry out all of
the provisions of the Plan, and to perform such acts and to execute, deliver,
file or record any such agreements, instruments and documents and obtain such
supplemental orders of this Court as are necessary, useful or appropriate in
order to effectuate, implement and consummate the Plan and this Order. Without
limitation, the President and/or the Board of Directors of the Debtor are
authorized to amend the Debtor's Articles of Incorporation and Bylaws, without
necessity of obtaining shareholder approval, to include a provision prohibiting
the issuance of non-voting equity securities as provided in Section IX.i of the
Plan and to increase the number of authorized shares of common stock to 100
million shares in order to provide for the issuance of the necessary common
stock to holders of Class 1 and Class 5 Claims as provided in Sections IX.d and
h of the Plan.
10. The exemption from the requirement of Section 5 of the Securities Act of
1933, 15 U.S.C. Section 77(e), and any State or Local law requiring registration
for the offer or sale of a security shall apply to the offer, sale and issuance
by the Debtor of such common stock or other securities issued under the Plan, as
<PAGE> 6
provided in Section XIX.c of the Plan, and pursuant to 11 U.S.C. Section 1145.
11. The Disbursing Agent and any successor Disbursing Agent designated under the
Plan may, as provided in Section IX and XV of the Plan, pursue such objections
to claims as are timely and necessary, and may employ counsel for such purpose.
Each Disbursing Agent shall serve without bond, except as required by the
Reorganized Debtor, and shall receive, without further order of this Court,
reasonable compensation for services rendered and reimbursement of expenses as
provided in the Plan.
12. As provided in Section VIII.d of the Plan, post-petition liabilities arising
in the ordinary course of the Debtor's business shall be paid by the Reorganized
Debtor in the ordinary course. All court costs and fees payable by Debtor
pursuant to Section 1930 of Title 28 of the United States Code and not
previously paid shall be paid by the Reorganized Debtor on the Effective Date.
13. This Court shall retain jurisdiction over the Debtor as provided in Section
XIX of the plan to the fullest extent allowed by law.
14. All creditors and claimants at law or in equity whose status is based upon
any debt, claim, liability or cause of action which was in existence as of the
date of this Order or which arises out of the rejection of executory contract or
unexpired lease, be and they hereby are, permanently restrained
<PAGE> 7
and enjoined from pursuing or attempting to pursue, or from commencing or
continuing any suit or proceeding at law, or in equity, directly or indirectly,
against the Debtor, except pursuant to and consistent with the provisions of the
Plan and this Order.
15. In accordance with Local Bankruptcy Rule 142(3), a post-confirmation status
conference will be held on August 22, 1998, at 10:00 a.m. in Courtroom "1368".
At least twenty (20) days prior to the status conference, the Debtor must file a
status report ("Report") explaining what progress has been made toward
confirmation of the confirmed plan of reorganization. The Report must be served
on the United States Trustee, the 20 largest unsecured creditors, and those
parties who have requested special notice. The Report shall include at least the
following information:
(a) A schedule listing for each debt and each class of claims: the total
amount required to be paid under the Plan; the amount required to be paid as of
the date of the Report; the amount actually paid as of the date of the Report;
and the deficiency, if any, and required payment;
(b) A schedule of any and all post-confirmation tax liabilities that
have accrued or come due, and a detailed explanation of payments thereon;
(c) Debtor's projections as to its continuing ability to comply with the
terms of the Plan;
<PAGE> 8
(d) An estimate of the date for Plan consummation and application for
final decree; and
(e) Any other pertinent information needed to explain the progress for
completion of the confirmed plan.
Reporting entities whose equity securities are registered under Section 12(b) of
the Securities Exchange Act of 1934 may provide information from their latest
10Q or 10K filing with the SEC if it is responsive to the requirements of this
paragraph 15. If the above-referenced case is converted to one under Chapter 7,
the
///
///
///
///
///
///
<PAGE> 9
property of the Reorganized Debtor shall be revested in the Chapter 7 Estate.
(a) DATED: April 29, 1998 /s/ VINCENT ZURZOLO
-------------------------------
VINCENT P. ZURZOLO,
United States Bankruptcy Judge
PRESENTED BY:
ROBINSON, DIAMANT & BRILL
A Professional Corporation
By: /s/ PHILIP A. GASTEIER
-------------------------------
PHILIP A. GASTEIER
Attorneys for Debtor and
Debtor-in-Possession
APPROVED AS TO FORM AND CONTENT:
PACHULSKI, STANG, ZIEHL & YOUNG PC
By: /s/ BRAD R. GODSHALL
-------------------------------
BRAD R. GODSHALL
Attorneys for Franklin Electronic
Publishing, Inc.
<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 REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
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<RECEIVABLES> 34
<ALLOWANCES> 0
<INVENTORY> 159
<CURRENT-ASSETS> 232
<PP&E> 470
<DEPRECIATION> 265
<TOTAL-ASSETS> 853
<CURRENT-LIABILITIES> 514
<BONDS> 0
0
500
<COMMON> 16
<OTHER-SE> (3,417)
<TOTAL-LIABILITY-AND-EQUITY> 853
<SALES> 303
<TOTAL-REVENUES> 303
<CGS> 188
<TOTAL-COSTS> 656
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (357)
<INCOME-TAX> 0
<INCOME-CONTINUING> (357)
<DISCONTINUED> 0
<EXTRAORDINARY> (60)
<CHANGES> 0
<NET-INCOME> (417)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
