<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, 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
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 West Easy Street, Unit 106
Simi Valley, California 93065
(805) 578-8330
(Address and telephone number of principal executive offices)
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 March 31, 1999 there were 90,245,360 shares of Voice Powered
Technology International, Inc. Common Stock $.01 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>
<S> <C>
PART I -- FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements -- unaudited
Balance Sheet as of March 31, 1999 3
Statements of Operations for the three months
ended March 31, 1999 and 1998 4
Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-8
PART II -- OTHER INFORMATION 9
</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
March 31, 1999
<TABLE>
<S> <C>
Current assets
Cash and cash equivalents $ 115
Receivables, net of allowance for doubtful accounts 60
Inventory 301
Prepaid expenses 5
-------
Total current assets 481
Property and equipment
Equipment 329
Other 82
411
Less accumulated depreciation 333
-------
Net property and equipment 78
Patents and technology rights, net of amortization 116
Deferred costs, net of amortization 60
Other assets 24
-------
Total assets $ 760
=======
Liabilities and Stockholders' Deficit
Current liabilities
Current portion, long term debt (Note 3) $ 50
Accounts payable 533
Accrued expenses 367
Deferred income 44
-------
Total current liabilities 994
Long term debt- loans payable (Note 3) 570
-------
Total liabilities 1,564
Stockholders' equity (deficit)
Common stock, 100,000,000 shares authorized; $.001 stated value,
90,245,360 shares issued and outstanding 90
Accumulated deficit (894)
Total stockholders' equity (deficit) (804)
-------
Total liabilities and stockholders' equity (deficit) $ 760
=======
</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>
Three months || Three months
ended || ended
March 31, 1999 || March 31, 1998
|| Debtor
|| in
|| Possession
--------------- || ----------------
<S> <C> || <C>
Net sales $ 489 || $ 303
||
Cost of goods sold 285 || 188
-------- || ----------------
||
Gross profit 204 || 115
||
Costs and expenses ||
Marketing 69 || 68
General and administrative 174 || 255
Research and development 54 || 91
Warehouse 51 || 54
-------- || ----------------
348 || 468
-------- || ----------------
||
Operating loss (144) || (353)
||
Other income (expense) (13) || (4)
-------- || ----------------
||
Loss before reorganization and extraordinary items (157) || (357)
||
Reorganization item ||
Professional fees -- || (60)
-------- || ----------------
||
Loss before extraordinary item (157) || (417)
||
Extraordinary item ||
Relocation expense (Note 4 ) (150) || --
-------- || ----------------
||
Net income (loss) $ (307) || $ (417)
======== || ================
||
Income (loss) per share ||
Before extraordinary item $ -- || $ (0.03)
Extraordinary item $ -- || $ --
-------- || ----------------
|| ================
Net income (loss) per share $ -- || $ --
======== || ================
Weighted average common ||
shares outstanding 90,245 || 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>
Three months || Three months
ended || ended
March 31, 1999 || March 31, 1998
|| Debtor in
|| Possession
------------------ || -------------------
<S> <C> || <C>
Increase (Decrease) in Cash and Cash Equivalents ||
||
Cash flows from operating activities: ||
Net income (loss) $(307) || $(417)
Adjustments to reconcile net loss ||
to net cash provided by (used in) operating activities: ||
Depreciation and amortization 48 || 103
Changes in operating assets and liabilities: ||
(Increase) decrease in receivables 134 || 115
(Increase) decrease in inventory 14 || 55
(Increase) decrease in prepaid expenses 2 || (1)
(Increase) decrease in other assets -- || --
Increase (decrease) in post-petition accounts payable (30) || 4
Increase (decrease) in pre-petition accrued expenses -- || 11
Increase in post-petition accrued expenses 208 || 108
Increase (decrease) in post-petition deferred income (20) || --
----- || ----
Net cash provided by (used in) operating activities 49 || (22)
----- || ----
Cash flows from investing activities: ||
Capital expenditures (5) || --
----- || ----
Net cash provided by (used in) investing activities (5) || --
----- || ----
Cash flows from financing activities: ||
Proceeds from post-petition loans payable -- || 15
Proceeds from sale of common stock -- || --
----- || ----
||
Net cash provided by (used in) financing activities -- || 15
----- || ----
||
Net increase (decrease) in cash and cash equivalents 44 || (7)
||
Cash and cash equivalents at the beginning of the period 71 || 34
----- || ----
Cash and cash equivalents at the end of the period $ 115 || $ 27
===== || ====
</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 three-month period ended March 31, 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, 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.
NOTE 4 - On May 14, 1999, the Company announced its intention to close its
facility in Simi Valley, California. Commencing June 30, 1999, the Company will
relocate to, and contract out for, its warehousing, distribution, financial and
manufacturing management operations with Franklin Electronic Publishers, Inc. in
Burlington, New Jersey. As of March 31, 1999, the Company has 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 IQo VOICEa
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 IQo VOICE 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 IQo VOICE Organizer products
to licensees of the Infomercial. To date, the Company has entered into
agreements with television marketing companies in Spain, France, Netherlands,
Portugal, Belgium, Italy, Argentina, Colombia and Peru. The infomercial has
aired in Spain, France and Belgium with positive results, and the Company
anticipates continued airings and sales in 1999 for these markets. 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. Commencing June 30, 1999, the Company will
relocate to, and contract out for, its warehousing, distribution, financial and
manufacturing management operations with Franklin Electronic Publishers, Inc. in
Burlington, New Jersey. As of March 31, 1999, the Company has 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 a cost
savings with respect to managing the Company's operations.
Management of the Company is presently focused on the continued
expansion of its international sales of the IQoVOICE Organizer products, the
development of targeted domestic direct marketing channels for its current
products, as well as pursuing licensing opportunities for its Technology.
Results of Operations
For the three months ended March 31, 1999, the Company reported a loss
before reorganization and extraordinary items of $157,000. 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 anticipated 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 quarter ended
March 31, 1999 of $307,000.
Sales for the three months ended March 31, 1999 were $489,000 of which,
$320,000 in sales were to international customers primarily as a result of the
Infomercial advertising.
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Cost of goods for the three months ended March 31, 1999 were $285,000
or 58% of sales, resulting in gross profit and gross profit percentage of
$204,000 and 42% 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 the period totaled $348,000. The Company
continues to reduce its operating costs in all expense categories including
marketing, general and administrative, research and development and warehouse
expenses as a result of its de-emphasis on domestic retail sales which requires
significant marketing, administrative and warehousing expenditures as opposed to
the Company's international sales where the local distributor bears the majority
of the costs in these categories. In further pursuit of this objective,
commencing June 30, 1999, the Company will relocate to, and contract out for,
its warehousing, distribution, financial and manufacturing management operations
with Franklin. The Company anticipates this decision will result in a cost
savings with respect to maintaining the Company's operations.
Research and development expenses for the three months ended March 31,
1999 were $54,000. The Company has substantively suspended development of new
and existing products until such time as it can generate adequate financial
resources.
Other expense was $13,000 for the three months ended March 31, 1999,
primarily relating to interest expense on the loans payable to Franklin.
Liquidity
The Company has incurred significant, sustained net losses for the
past three years. 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.
As of March 31, 1999, the Company had an accumulated deficit of
$894,000 and negative working capital of $513,000. Future 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. 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.
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 Company
expects to complete such remediation by September 30, 1999. The cost of
remediation is estimated to be approximately $25,000, to be expensed as
incurred. The Company does not believe that the failure of any customer to be
year 2000 compliant would have a material adverse effect on the financial
condition 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,
-8-
<PAGE> 9
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.
.
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 14, 1999 By: /s/ Mitchell B. Rubin
------------------------------------
Mitchell B. Rubin, President,
and Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 115
<SECURITIES> 0
<RECEIVABLES> 60
<ALLOWANCES> 0
<INVENTORY> 301
<CURRENT-ASSETS> 481
<PP&E> 411
<DEPRECIATION> 333
<TOTAL-ASSETS> 760
<CURRENT-LIABILITIES> 994
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> (804)
<TOTAL-LIABILITY-AND-EQUITY> 760
<SALES> 489
<TOTAL-REVENUES> 489
<CGS> 285
<TOTAL-COSTS> 348
<OTHER-EXPENSES> 13
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (307)
<INCOME-TAX> 0
<INCOME-CONTINUING> (307)
<DISCONTINUED> 0
<EXTRAORDINARY> (150)
<CHANGES> 0
<NET-INCOME> (307)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
