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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 June 30, 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)
21 W. Easy Street, Suite 106 93065
Simi Valley, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (805) 578-8330
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 July 31, 1998, there were 90,245,360 shares of Voice Powered Technology
International, Inc. Common Stock $.001 par value outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
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PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements -- unaudited
Balance Sheet as of June 30, 1998 3
Statements of Operations for the six
months ended June 30, 1998 and 1997 4
Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 5
Notes to Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-10
PART II -- OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 11
ITEM 5. Other Information 11
</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,
1998
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<S> <C>
Current assets
Cash and cash equivalents $ 66
Receivables, net of allowance for doubtful accounts 29
Inventory 662
Prepaid expenses 8
--------
Total current assets 765
Property and equipment
Equipment 408
Other 69
--------
477
Less accumulated depreciation 303
--------
Net property and equipment 174
Patents and technology rights, net of amortization 162
Deferred costs, net of amortization 155
Other assets 25
--------
Total assets $ 1,281
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion , long term debt (Note 3) $ 50
Accounts payable 522
Accrued expenses 131
Deferred Income 103
--------
Total current liabilities 807
Long term debt - loans payable (Note 3) 550
--------
Total liabilities 1,357
Stockholders' equity (deficit)
Common stock, 100,000,000 shares authorized; $.001 stated value,
90,245,360 shares issued and outstanding 90
Additional paid-in capital 30,057
Accumulated deficit (30,223)
--------
Total stockholders' equity (deficit) (76)
--------
Total liabilities and stockholders' equity (deficit) $ 1,281
========
</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,
--------------------------- ---------------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 527 $ 588 $ 1,868 $ 891
Less price protection -- -- 77 --
-------- -------- -------- --------
Net sales 527 588 1,791 891
Cost of goods sold 365 306 1,346 495
-------- -------- -------- --------
Gross profit 162 282 445 396
Operating costs
Discontinued model costs 790 -- 790 --
Marketing 257 65 834 134
General and administrative 642 232 1,294 521
Research and development 180 78 405 169
Warehouse 137 52 313 106
-------- -------- -------- --------
Total costs and expenses 2,006 427 3,636 930
-------- -------- -------- --------
Operating loss (1,844) (145) (3,191) (534)
Other income (expense)
Gain on sale of assets 141 -- 141 --
Sale of technology license 700 -- 700 --
Forgiveness of debt (Note 3) 1,388 1,288 1,388 1,288
Reorganization expense (46) (70)
Other expense, net (72) (6) (111) (10)
-------- -------- -------- --------
Net income (loss) $ 313 $ 1,091 $ (1,073) $ 674
======== ======== ======== ========
Net income (loss) per common share $ .02 $ .02 $ (.07) $ .02
Weighted average common
shares outstanding 15,064 53,138 14,553 37,264
======== ======== ======== ========
</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 1997 1998
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Cash flows from operating activities:
Net loss $(1,073) $ 674
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Compensatory stock options 2 --
Depreciation and amortization 355 211
Discontinued model costs 790 --
Gain on sale of assets (141) --
Gain on forgiveness of debt (1,388) (1288)
Changes in operating assets and liabilities
Decrease in restricted cash 75 --
Decrease in receivables 1,593 119
Decrease (Increase) in inventory 411 (449)
Decrease in prepaid expenses 9 3
(Increase) Decrease in deferred costs (98) --
Decrease in other assets 33 4
(Decrease) Increase in post-petition accounts payable (2,027) 458
Decrease in post-petition accrued expenses (310) (7)
Increase in Deferred Income -- 103
Decrease in pre-petition liabilities subject to compromise -- (208)
------- -------
Net cash used in operating activities (1,769) (380)
------- -------
Cash flows from investing activities:
Proceeds from sale of equipment 65 --
Capital expenditures (84) (4)
------- -------
Net cash provided by (used in) investing activities (19) (4)
------- -------
Cash flows from financing activities:
Proceeds from post-petition loans payable -- 415
Proceeds from (payments on) note payable 1,709 --
Proceeds from sale of common stock 152 --
------- -------
Net cash provided by financing activities 1,861 415
------- -------
Net increase in cash and cash equivalents 73 31
Cash and cash equivalents at the beginning of the year 227 35
------- -------
Cash and cash equivalents, June 30 $ 300 $ 66
======= =======
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 91 $ --
======= =======
Non-cash financing and investing activities:
Issuance of preferred stock to vendor 500 (500)
Conversion of preferred stock to common stock 500
Issuance of common stock in consideration of pre-petition loan payable 1,734
</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 and six month periods ended June 30, 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 were stayed while the Company continued business
operations as a "Debtor-In-Possession."
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. 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 an operating loss of $534,000
for the six months ended June 30, 1998, had an accumulated deficit of
$30,223,000 and had negative working capital of $42,000 at June 30, 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; 2) the 500,000 shares of outstanding
convertible preferred stock was 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 was 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 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.
In addition, the Company renegotiated the terms of its post-petition secured
revolving Loan and Security Agreement with Franklin. As of the Effective Date,
the Company had borrowed $250,000 in accordance with the terms of this
agreement. This loan was previously due and payable the earliest of (a) May 15,
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. Interest had been accrued at 12% per annum. Under the terms of
the new agreement entered into as of the Effective Date, interest accrues at 8%
per annum payable monthly in arrears and the principal balance of $250,000 is
payable in two installments; 1) $50,000 on or before May 12, 1999 and; 2) the
balance of $200,000 in a lump sum payment five years from the Effective Date.
The balance sheet as of June 30, 1998 includes the effect of the above
transactions which resulted in an increase to long term debt in the amount of
$550,000 as a result of renegotiation of the post petition Loan and Security
Agreement and receipt of the proceeds from the Plan Loan; 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 in accrued expenses of $135,000 as a result of the payment of
administrative expenses of the Bankruptcy Proceedings; a decrease to preferred
stock of $500,000
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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
$1,288,000 resulting from forgiveness of debt.
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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 IQoVOICE(TM) 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.
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 had
discontinued shipments of its IQoVOICE Organizer products to many of its major
retail customers since the commencement of the Bankruptcy Proceedings. For the
six months ended June 30, 1998, the Company's domestic business activities have
consisted of sales of IQoVOICE Organizer products to smaller retailers and
wholesale accounts 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.
In March, 1998, the Company entered into an agreement with Calidad Valor
Garantia S.A.DE C.V., a television marketing company headquartered in Mexico
("CVG"), granting CVG exclusive marketing rights for its IQoVOICE Organizer
products within the country of Mexico contingent upon CVG achieving certain
minimum sales objectives. CVG's primary method of marketing is via direct sales
to end users through television advertising. CVG, at its sole cost and expense,
produced a thirty (30) minute television program, known as an infomercial,
featuring the IQoVOICE Organizer. This infomercial clearly demonstrates all of
the benefits and functionality of the Organizer and offers the viewer the
opportunity to order the Organizer direct from CVG. This form of direct sales
has proven to be successful in Mexico. For the three months ended June 30, 1998,
sales to CVG totalled $273,500, representing forty-six per cent (46%) of the
Company's total sales for this three month period. The Company and CVG are, at
present, planning to expand this marketing approach to other countries in Latin
America as well as producing a new infomercial for airing in the US and European
markets.
In June, 1998, the Company purchased $457,000 of inventory from Franklin
which included a variety of models of electronic organizers. The Company intends
to utilize its direct marketing and other channels of distribution to sell this
inventory in order to generate additional sales and working capital.
RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 1998, the Company
reported operating losses of $145,000 and $534,000, respectively. 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. After adding other expense and
forgiveness of debt, the Company reported a net income of $1,091,000 and
$674,000 for the three months and six months ended June 30, 1998. For the three
and six month periods ended June 30, 1997, the Company reported net income of
$313,000 and a net loss of $1,073,000, respectively. The resulting effect per
common share for the three and six months ended June 30, 1998 was income of $.02
per common share, while for the three and six months ended June 30, 1997, the
Company reported net income per common share of $.02 and net loss of $.07,
respectively.
For the three and six month periods ended June 30, 1998, sales were
$588,000 and $891,000, respectively. For the three and six months ended June 30,
1997, sales were $527,000 and $1,868,000, respectively. The increase in sales
for the three months ended June 30, 1998 related primarily to the sales
activities in Mexico as described above. For the six
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months ended June 30, 1998, the decrease in sales related primarily to decreased
levels of sales to retail customers for the three months ended March 31, 1998 as
a result of the Company's bankruptcy filing as compared to the same period in
1997.
Gross profit and gross profit percentage were $162,000 and 48% and $396,000
and 44% for the three and six months ended June 30, 1998, respectively. For the
three and six months ended June 30, 1997, gross profit and gross profit
percentage were to $162,000 and 31% and $445,000 and 25% respectively. For the
three months ended June 30, 1998, the increase in the gross profit was a result
of the higher sales level as well as the impact of $52,500 in licensing revenues
which have no cost of goods directly attributable to such revenues. The decrease
in gross profit for the six months ended June 30, 1998 was a result of the
decreased level of sales for the three months ended March 31, 1998 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 as well as the impact of the previously discussed licensing
revenues , while 1997 sales included liquidation efforts relating to older
products which were sold at or near book value.
Total operating costs for the three and six months ended June 30, 1998 were
$427,000 and $930,000. Total costs and expenses for the three and six months
ended June 30, 1997 were $2,006,000 and $3,636,000. The decreases in costs and
expenses primarily relate to the Company's lower variable costs associated with
its international distribution channels as well as the Company's efforts to
decrease its fixed costs in all areas of operations as well as the elimination
of charges resulting from discontinued model costs.
For the three and six months ended June 30, 1998, marketing expenses were
$65,000 and $134,000, respectively. For the three and six months ended June 30,
1997, marketing expenses were $257,000 and $834,000 respectively. The decreases
in marketing expenses are associated with the lower volume of sales to domestic
retail customers in comparison with the same period for 1997 which, typically,
require a high level of advertising and promotional costs in contrast to the
lower costs associated with the Company's international distribution channels
which, in the six months ended June 30, 1998, accounted for a significantly
higher percentage of sales. The Company was also successful in decreasing other
fixed marketing costs including consultants, promotional costs, and
amortization.
General and administrative expenses decreased to $232,000 and $520,000 for
the three and six month periods ended June 30, 1998 from $642,000 and $1,294,000
for the three and six month periods ended June 30, 1997. 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. After
deducting that charge, general and administrative expenses decreased, primarily
resulting from decreases in fixed costs including salaries, consulting fees,
rent and legal fees.
Research and development expenses decreased to $78,000 and $169,000 for the
three and six months ended June 30, 1998 from $180,000 and $405,000 for the
three and six months ended June 30, 1997. The decreases are 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. The Company has resumed its research and development activities on
a limited basis and anticipates these expenses to increase for the remaining six
months of 1998.
Warehouse and distribution expenses decreased to $52,000 and $106,000 for
the three and six months ended June 30, 1998 from $137,000 and $313,000 for the
three and six months ended June 30, 1997. The decreases are directly related to
the decreased sales and related reductions in shipping costs, supplies, and
temporary help.
Other income for the six months ended June 30, 1998 included $1,288,000 in
forgiveness of debt as a result of the settlements achieved on pre-petition
obligations through the bankruptcy proceedings. 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 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, 1998 was $6,000
and $10,000. 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,
1998 primarily relates to interest expense accrued for loans owed to Franklin.
As a result of the Company's Bankruptcy Proceedings, reorganization
expenses incurred for the three and six months ended June 30, 1998 was $32,000
and $56,000 relating to legal fees.
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<PAGE> 10
LIQUIDITY
The Company has incurred significant, sustained net losses for the past
three years, including an operating loss of $534,000 for the six months ended
June 30, 1998. In addition, at June 30, 1998, the Company had an accumulated
deficit of $30,223,000 and had negative working capital of $42,000. 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. 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. 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 effect of the transactions related to the implementation of the Plan
which were effected as of June 30, 1998 resulted in an increase to long term
debt in the amount of $550,000; 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 in accrued expenses of
$135,000 as a result of the payment of administrative expenses of the Bankruptcy
Proceedings; 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 $1,288,000
resulting from forgiveness of debt.
Success of the Company is dependent, among other things, upon reaching a
satisfactory level of profitability and generating sufficient cash flow
resources to meet ongoing obligations. The Company intends to obtain adequate
working capital resources through internally generated cash flow in order to
continue to increase the sales and distribution of its products, resume research
and development activities for improvements to its Technology, explore further
improvements to its PC compatible IQ- VOICE Organizers inclusive of improvements
to its PCLink software, and dedicate additional resources to the development of
licensing opportunities for its Technology. No assurance can be given that the
Company will be able to achieve such level of profitability and thereby 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 82% controlled subsidiary of Franklin, and
therefore subject to Franklin's direction and discretion regarding future
business activities.
The decrease in accounts receivable of $119,000 is attributable mainly to
the Company's emphasis on direct marketing and international sales for which the
Company typically requires payment at the time of purchase.
The increase in inventory of $449,000 and accounts payable of $458,000 is
primarily attributable to the Company's purchase of inventory for resale from
Franklin.
The increase in deferred income of $103,000 is attributable to the deposits
received from international distributors against pending purchase orders.
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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 12, 1998, in accordance with the provisions of the Plan, the Company
issued 74,196,288 shares of its common stock consisting of; 1) 2,000,000 shares
as a result of holders of convertible preferred stock converting 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.
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 May 12, 1998, 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 equated 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 is 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 were subject to
substantial dilution.
The sole source for the payment of all pre-petition claims of unsecured
creditors of the Company was the Plan Loan of $350,000 by Franklin which was
used to create the fund (the "Creditor Fund") 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 were also paid from the Creditor Fund before the remainder was
distributed to general unsecured claims. 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 was be $0.09 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 paid by the Company
in the ordinary course of business.
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 19, 1998 By: /s/ Mitchell B. Rubin
---------------------------------
Mitchell B. Rubin, President,
and Chief Financial Officer
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<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 ENTRIES BY REFERENCE TO SUCH financial statements
</LEGEND>
<MULTIPLIER> 1000
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0
0
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</TABLE>
