<PAGE>
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 September 30, 1999
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
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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)
One Franklin Plaza 08016
Burlington, New Jersey (Zip Code)
Registrant's telephone number, including area code: (609) 386-2500
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 September 30, 1999 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
--- ---
<PAGE>
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION PAGE NUMBER
-----------
ITEM 1. Financial Statements -- unaudited
Balance Sheet as of September 30, 1999 3
Statements of Operations for the three months
ended September 30, 1999 and 1998 4
Statements of Operations for the nine months
ended September 30, 1999 and 1998 5
Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 6
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-9
PART II -- OTHER INFORMATION 10
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET
(Amounts in Thousands except Share Data)
(Unaudited)
ASSETS
September 30,
1999
-------------
Current assets
Cash and cash equivalents $ 104
Receivables, net of allowance for doubtful accounts 65
Inventory 104
Prepaid expenses 1
------
Total current assets 274
Property and equipment
Equipment 200
Less accumulated depreciation 184
------
Net property and equipment 16
Patents and technology rights, net of amortization 98
Deferred costs, net of amortization 20
Other assets 16
------
134
Total assets $ 424
======
Liabilities and Stockholders' Deficit
Current liabilities
Current portion, long term debt (Note 3) $ 50
Accounts payable and accrued expenses:
Franklin 686
Other 225
Deferred income 14
------
Total current liabilities 975
Long term debt- loans payable- Franklin (Note 3) 570
------
Total liabilities 1,545
Stockholders' equity (deficit)
Common stock, 100,000,000 shares authorized; $.001
stated value, 90,245,360 shares issued and outstanding 90
Accumulated deficit (1,211)
------
Total stockholders' equity (deficit) (1,121)
------
Total liabilities and stockholders' equity (deficit) $ 424
======
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
Sept. 30 Sept. 30
1999 1998
-------------------- ----------------
<S> <C> <C>
Net sales $ 302 $ 588
Cost of goods sold 173 342
-------------------- ----------------
Gross profit 129 246
Costs and expenses
Marketing 44 55
General and administrative 120 234
Research and development 28 81
Warehouse 24 46
-------------------- ----------------
Total costs and expenses 216 416
-------------------- ----------------
Operating loss (87) (170)
Other income (expense) 15 (13)
-------------------- ----------------
Income (Loss) before reorganization and extraordinary
items (72) (183)
Reorganization item
Professional fees - (2)
-------------------- ----------------
Net income (loss) $ (72) $ (185)
==================== ================
Net income (loss) per share $ - $ -
Weighted average common
shares outstanding 90,245 90,245
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<PAGE>
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share)
(Unaudited)
<TABLE>
<CAPTION>
Debtor in
Possession
Nine Months Ended May 13- Jan 1-
Sept. 30 Sept. 30 May 12
1999 1998 1998
------------------- ----------------- ----------------
<S> <C> <C> <C>
Net sales $ 1,112 $ 949 $ 531
Cost of goods sold 660 538 299
-------------------- ------------------ -----------------
Gross profit 452 411 232
Costs and expenses
Marketing 169 94 94
General and administrative 497 347 409
Research and development 134 121 130
Warehouse 116 75 77
-------------------- ------------------ -----------------
Total costs and expenses 916 637 710
-------------------- ------------------ -----------------
Operating loss (464) (226) (478)
Other income (expense) (10) (19) (3)
-------------------- ------------------ -----------------
Income (Loss) before reorganization and extraordinary
items (474) (245) (481)
Reorganization item
Professional fees - (2) (70)
-------------------- ------------------ -----------------
Loss before extraordinary item (474) (247) (551)
Extraordinary item
Relocation expense (Note 4) (150) - -
Forgiveness of debt - - 1,288
-------------------- ------------------ -----------------
Net income (loss) $ (624) $ (247) $ 737
==================== ================== =================
Income (loss) per share
Before extraordinary item $(0.01) $ - $ (0.03)
Extraordinary item $ - $ - $ 0.08
-------------------- ------------------ -----------------
Net income (loss) per share $ - $ - $ 0.05
Weighted average common
shares outstanding 90,245 90,245 16,049
</TABLE>
See accompanying notes to financial statements
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<PAGE>
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months May 13- January 1-
ended Sept. 30, Sept. 30, May 12,
1999 1998 1998
Debtor in
Possession
--------------- --------------- ---------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss) $ (624) $ (247) $ 737
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 139 155 153
Gain on forgiveness of debt -- -- (1,288)
Changes in operating assets and liabilities:
Decrease in receivables 129 12 26
(Increase) decrease in inventory 211 (489) 66
(Increase) decrease in prepaid expenses 7 (27) 9
Decrease in other assets 8 1 3
Increase in post-petition accounts payable 106 534 2
Increase (decrease) in post-petition accrued expenses 82 (38) 18
Increase (decrease) in deferred income (51) 77 70
Decrease in pre-petition liabilities subject to compromise -- -- (208)
Loss on disposition of equipment 13 -- --
--------------- --------------- ---------------
Net cash provided by (used in) operating activities 20 (22) (412)
Cash flows from investing activities
Capital expenditures (5) (14) --
Proceeds from sale of equipment 18 -- --
--------------- --------------- ---------------
Net cash provided by (used in) investing activities 13 (14) --
Cash flows from financing activities
Proceeds from post-petition loans payable -- 53 415
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 33 17 3
Cash and cash equivalents at the beginning of the period 71 38 35
--------------- --------------- ---------------
Cash and cash equivalents at the end of the period $ 104 $ 55 $ 38
=============== =============== ===============
</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,
1998. Operating results for the nine month period ended September 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
NOTE 2 -- On September 22, 1997, the Company filed a petition for relief with
the United States Bankruptcy Court, Central District of California, under the
provisions of Chapter 11 of the Bankruptcy Code. From September 1997 through May
12, 1998, the Company operated as a "Debtor-In-Possession" under such code. As
of May 12, 1998 (the "Effective Date"), in accordance with AICPA Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code", the Company adopted "fresh-start reporting" and has reflected
the effects of such adoption in the financial statements. There was no change to
the carrying value of the assets or liabilities as a result of the adoption of
fresh start reporting, however, the balance of the deficit was offset against
paid in capital, to the extent available.
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 of the Company 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 equated to an additional 80% equity
interest in the Company in exchange for Franklin's pre-petition secured claim in
the amount of $1,733,990. As of the Effective Date, 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 and
subsequently borrowed an additional $20,000 in accordance with the terms of the
prior agreement. Under the terms of the new agreement (the "Revolving Loan"),
entered into as of the Effective Date, interest accrues at 8% per annum payable
monthly in arrears and with the principal balance payable in two installments;
1) $50,000 on or before May 12, 1999 and; 2) the balance in a lump sum payment
five years from the Effective Date, which is May 12, 2003. As of September 30,
1999, the principal balance due on this loan was $270,000. The Company was
unable to meet its obligation with respect to the $50,000 principal payment due
May 12, 1999 however no default has been declared with respect to this
obligation.
NOTE 4 - On May 14, 1999, the Company announced its intention to close its
facility in Simi Valley, California. As of July 31, 1999, the Company relocated
to, and entered into a contract with Franklin Electronic Publishers, Inc. in
Burlington, New Jersey for its warehousing, distribution, financial and
manufacturing management operations. As of March 31, 1999, the Company had
recorded a reserve in the amount of $150,000 related to the costs associated
with the closure of the California facility, inclusive of severance for
employees, moving costs and other expenses.
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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. 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. The Company's Amended Plan
of Reorganization and Disclosure Statement was approved by the United States
Bankruptcy Court, Central District of California on April 29, 1998 and became
effective on May 12, 1998.
Since the commencement of the Bankruptcy Proceedings, the Company's
domestic business activities have consisted primarily of sales of IQ.VOICE/TM/
Organizer products directly to consumers through various direct marketing
programs and to smaller retailers and wholesale accounts. In March 1998, the
Company entered into a distribution agreement with a television marketing
company headquartered in Mexico ("Distributor"). Distributor's primary method of
marketing is via direct sales to end users through television advertising.
Distributor, at its sole cost and expense, produced a thirty (30) minute
television program, known as an infomercial, featuring the IQ.VOICE/TM/
Organizer (the "Infomercial"). In September 1998, the Company entered into a
license agreement with Distributor pursuant to which the Company was granted the
worldwide right (excluding Mexico, Brazil and Chile) to license to unrelated
third parties the right to broadcast the Infomercial. In consideration of the
license granted by Distributor, the Company agreed to pay royalties to
Distributor based upon the Company's sales of its IQ.VOICE/TM/ Organizer
products to licensees of the Infomercial. To date, the Company has entered into
agreements with television marketing companies in Spain, France, Switzerland,
Portugal, Belgium, Italy, Argentina, Colombia and Peru. In South American
markets, test airings of the Infomercial were not successful, potentially due to
the highly unstable economic conditions in those markets. The Company is
actively pursuing additional licensees in countries throughout Europe, the Far
East and the Middle East with experience in marketing and distributing products
using television marketing.
On May 14, 1999, the Company announced its intention to close its facility
in Simi Valley, California. As of July 31, 1999, the Company relocated to, and
entered into a contract with, Franklin Electronic Publishers, Inc. in
Burlington, New Jersey for its warehousing, distribution, financial and
manufacturing management operations. As of March 31, 1999, the Company had
recorded a reserve in the amount of $150,000 related to the costs associated
with the closure of the California facility, inclusive of severance for
employees, moving costs and other expenses. The Company anticipates this
decision will result in cost savings with respect to managing the Company's
operations.
Management of the Company is presently focused on its international sales
of the IQ.VOICE Organizer products and the targeted domestic direct marketing
channels for its current products. There can be no assurance that there will
continue to be demand for these products.
Results of Operations
-----------------------
For the three and nine month periods ended September 30, 1999, the Company
reported losses before extraordinary items of $72,000 and $474,000
respectively. As of March 31, 1999, the Company accrued a Reserve for Relocation
Expense in the amount of $150,000 as an extraordinary item for the costs
resulting from the Company's decision to relocate its operations from Simi
Valley, California to Burlington, New Jersey. Accordingly, the Company reported
a net loss for the nine months ended September 30, 1999 of $624,000.
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<PAGE>
Sales for the three and nine month periods ended September 30, 1999 were
$302,000 and $1,112,000 respectively, of which, $116,000 and $637,000 in sales
were to international customers primarily as a result of the Infomercial
advertising. The decline in sales for the three months ended September 30, 1999
as compared with the preceding three months was primarily due to weakened demand
for the Company's products.
Cost of goods for the three and six month periods ended September 30, 1999
were $173,000 and $660,000 respectively, representing 57% and 59% of sales,
resulting in gross profit of $129,000 (43%) and $452,000 (41%) respectively.
Gross profit margins are subject to variation as a result of changes in the mix
of both products and sales by distribution channel.
Total operating costs for three and nine month periods ended September 30,
1999 were $216,000 and $916,000 respectively. In an effort to continue to
reduce its operating costs, commencing July 31, 1999, the Company relocated to,
and has contracted out for, its warehousing, distribution, financial and
manufacturing management operations with Franklin. The Company anticipates this
decision will result in cost savings with respect to maintaining the Company's
operations.
Research and development expenses for the three and nine month periods ended
September 30, 1999 were $28,000 and $134,000 respectively. The Company has
substantively suspended development of new and existing products until such time
as it can generate adequate financial resources.
Other income (expense) for the three and nine month periods ended September
30, 1999 were $15,000 and ($10,000) respectively, primarily relating to interest
expense on the loans payable to Franklin and a gain of $38,000 in the September
quarter from the favorable settlement of an arbitration.
Liquidity
---------
As of September 30, 1999, the Company had an accumulated deficit of
$1,211,000 and negative working capital of $701,000. The Company's ability to
continue as a going concern is dependent, among other things, upon reaching a
satisfactory level of profitability and generating sufficient cash flow
to meet ongoing obligations. No assurance can be given that the Company will be
able to achieve such level of profitability and thereby obtain the required
working capital. 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.
Since the calendar quarter ended December 31, 1995, the Company has
incurred significant net losses. 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. On January 21, 1998, the
Company, in conjunction with Franklin Electronic Publishers, Inc., the Company's
largest secured creditor, filed a combined Amended Disclosure Statement and Plan
of Reorganization 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 Plan
became effective on May 12, 1998.
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 $570,000; 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.
The Company evaluates on a continuous basis software enhancements and
updates based on new technologies to improve its information systems. The
Company has finished its assessment of its current systems that support the
Company's operations in conjunction with year 2000 compliance. The Company has
substantially completed remediation of its existing operational software to
ensure functionality and continued operations beyond the year 2000. The cost of
remediation is estimated to be approximately $25,000. The Company does not
believe that the failure of any customer to be year 2000 compliant would have
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<PAGE>
a material adverse effect on the results of operations of the Company. The
Company is in the process of evaluating the progress of its major suppliers
toward year 2000 compliance. The Company is developing contingency plans in this
regard.
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.
PART II. OTHER INFORMATION
The Company was not required to report any matters or changes for any items
of Part II except as disclosed below.
Item 5. Other Information
Effective as of July 31, 1999, Mitchell B. Rubin resigned his positions as
President and director of the Company.
Also effective as of July 31, 1999, Arnold D. Levitt was appointed as a
director and to the position of Vice President and Chief Financial Officer of
the Company.
.
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 16, 1999 By: /s/ Gregory J. Winsky
-----------------------------
Gregory J. Winsky, President,
and Chief Executive Officer
Date: November 16, 1999 By: /s/ Arnold D. Levitt
-----------------------------
Arnold D. Levitt
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 104
<SECURITIES> 0
<RECEIVABLES> 90
<ALLOWANCES> 25
<INVENTORY> 104
<CURRENT-ASSETS> 274
<PP&E> 200
<DEPRECIATION> 184
<TOTAL-ASSETS> 424
<CURRENT-LIABILITIES> 975
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> (1211)
<TOTAL-LIABILITY-AND-EQUITY> 424
<SALES> 1112
<TOTAL-REVENUES> 1112
<CGS> 660
<TOTAL-COSTS> 660
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> (474)
<INCOME-TAX> 0
<INCOME-CONTINUING> (474)
<DISCONTINUED> 0
<EXTRAORDINARY> (150)
<CHANGES> 0
<NET-INCOME> (624)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
