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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, 2000
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, 2000 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
PART I -- FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements -- unaudited
Balance Sheet as of September 30, 2000 3
Statements of Operations for the three months
ended September 30, 2000 and 1999 4
Statements of Operations for the nine months
ended September 30, 2000 and 1999 5
Statements of Cash Flows for the nine months
ended September 30, 2000 and 1999 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II -- OTHER INFORMATION 10
2
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Sept. 30,
2000
----------------
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 60
Accounts receivable 31
Inventories 126
----------------
TOTAL CURRENT ASSETS 217
----------------
PROPERTY AND EQUIPMENT
Equipment 190
Less accumulated depreciation (190)
----------------
-
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OTHER ASSETS 16
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TOTAL ASSETS $ 233
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Loans Payable - Franklin $ 620
Accounts payable and accrued expenses - Franklin 1,012
Accounts payable and accrued expenses - other 160
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TOTAL CURRENT LIABILITIES 1,792
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SHAREHOLDERS' EQUITY:
Common stock, $.001 stated value - 100,000,000 shares authorized;
90,245,360 issued and outstanding 90
Accumulated deficit (1,649)
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TOTAL SHAREHOLDERS' EQUITY (1,559)
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 233
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</TABLE>
See accompanying notes to financial statements.
3
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
Sept. 30, 2000 Sept. 30, 1999
---------------------- -------------------
<S> <C> <C>
Net sales $ 86 $ 302
Costs and expenses
Costs of goods sold 117 173
Marketing 19 44
General and administrative 60 120
Research and development - 28
Warehouse - 24
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Total costs and expenses 196 389
Operating loss (110) (87)
Other income (expense):
Interest expense (13) (13)
Other - 28
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Net income (loss) $ (123) $ (72)
====================== ===================
Net Income (loss) per share: $ - $ -
====================== ===================
Weighted average common shares outstanding 90,245 90,245
====================== ===================
</TABLE>
See accompanying notes to financial statements.
4
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Sept. 30, 2000 Sept. 30, 1999
-------------------- -------------------
<S> <C> <C>
Net sales $ 324 $ 1,112
Costs and expenses
Costs of goods sold 256 660
Marketing 63 169
General and administrative 254 497
Research and development - 134
Warehouse 5 116
Relocation expense - 150
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Total costs and expenses 578 1,726
Operating loss (254) (614)
Other income (expense):
Interest expense (38) (38)
Other 17 28
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Net income (loss) $ (275) $ (624)
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Net Income (loss) per share: $ - $ (0.01)
==================== ===================
Weighted average common shares outstanding 90,245 90,245
==================== ===================
</TABLE>
See accompanying notes to financial statements.
5
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VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Sept. 30, 2000 Sept. 30, 1999
-------------------- -------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (275) $ (624)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 2 139
Source (use) of cash from change in operating assets and liabilities:
Accounts receivable 5 129
Inventories 4 211
Prepaids and other assets - 15
Accounts payable and accrued expenses 190 188
Deferred income - (51)
Loss on disposition of equipment - 13
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (74) 20
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (5)
Proceeds from sale of equipment - 18
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - 13
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (74) 33
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 134 71
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 60 $ 104
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</TABLE>
See accompanying notes to financial statements.
6
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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,
1999. Operating results for the nine month period ended September 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
NOTE 2 - As part of a Plan of Reorganization, 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,
2000, 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 3 - In July 1999, the Company closed 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. In March 1999, the Company 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
Except for the historical information contained herein, the matters discussed
throughout this report, including, but not limited to, those that are stated as
the Company's belief or expectation or preceded by the word "should" are
forward looking statements that involve risks to and uncertainties in the
Company's business, including, among other things, the timely availability and
acceptance of new electronic products, changes in technology, the impact of
competitive electronic products, the management of inventories, the Company's
dependence on third party component suppliers and manufacturers, including
those that provide Company -specific parts, and other risks and uncertainties
that may be detailed from time to time in the Company's reports filed with the
Securities and Exchange Commission.
RISK FACTORS
The Company may not be able to continue operating as a "going concern" without
additional capital through public or private offerings.
The Company is indebted to Franklin Electronic Publishers, Inc. (Franklin) in
the amount of $1,632,000. The Company believes that currently available funds,
including financing from Franklin, will be sufficient to meet its anticipated
working capital needs through December 31, 2000. Thereafter, the Company will
need to raise additional funds. If the Company raises additional funds through
the issuance of equity or convertible debt securities, the percentage ownership
of current stockholders will be reduced, stockholders may experience additional
dilution and such securities may have rights, preferences and privileges senior
to those of the Company's common stock. There can be no assurance that
additional financing will be available on terms favorable to the Company or at
all. If adequate funds are not available or are not available on acceptable
terms, there could be a material adverse effect on the Company's business,
results of operations and financial condition.
See the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999 for additional Risk Factors.
Results of Operations
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Three months ended September 30, 2000:
Sales for the quarter ended September 30, 2000 were $86,000, a decrease of
$216,000, or 72% from sales of $302,000 in the prior year. The decline in sales
is attributable to lower sales of Voice Organizer products in both domestic and
international markets. There can be no assurance that there will continue to be
demand for these products.
For the three months ended September 30, 2000, the Company realized a net
loss on sales of $31,000 due to inventory valuation adjustments of approximately
$73,000 recorded during the quarter. Excluding the effect of these adjustments,
gross profit for the quarter was $42,000 or 49% of sales. Gross profit for the
three months ended September 30, 1999 was $129,000 or 43% of sales.
Total operating costs for the quarter ended September 30, 2000 decreased by
$137,000 to $79,000 compared with $216,000 in the prior year. Commencing July
31, 1999, the Company relocated to, and contracted out for, its warehousing,
distribution, financial and manufacturing management operations with Franklin.
The year-to-year reduction in operating expense is primarily the result of this
relocation and the reductions in staff.
8
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The Company had no research and development expenses for the quarter ended
September 30, 2000, having spent $28,000 in the prior year. The Company has
suspended development of new and existing products.
For the quarters ended September 30, 2000 and 1999, interest expense of
$13,000 consisted of interest on the Company's loans payable to Franklin. The
September 1999 quarter included income of $28,000 primarily relating to a gain
of $38,000 from the favorable settlement of an arbitration. The net loss for the
quarter was $123,000 compared with $72,000 in the prior year.
Nine months ended September 30, 2000:
Sales for the nine months ended September 30, 2000 were $324,000, a
decrease of $788,000, or 71% from sales of $1,112,000 in the prior year. The
decline in sales is attributable to lower sales of Voice Organizer products in
both domestic and international markets. There can be no assurance that there
will continue to be demand for these products.
For the nine months ended September 30, 2000, gross profit was $68,000 or
21% of sales. Excluding the effect of inventory valuation adjustments of
approximately $73,000 recorded during the September quarter, gross profit was
$141,000 or 44% of sales. Gross profit for the nine months ended September 30,
1999 was $452,000 or 41% of sales.
Total operating costs for the nine months ended September 30, 2000
decreased by $744,000 to $322,000 compared with $1,066,000 in the prior year.
Commencing July 31, 1999, the Company relocated to, and contracted out for, its
warehousing, distribution, financial and manufacturing management operations
with Franklin. The year-to-year reduction in operating expense is primarily the
result of this relocation and the reductions in staff.
The Company had no research and development expenses for the nine months
ended September 30, 2000, having spent $134,000 in the prior year.
For the nine months ended September 30, 2000 other income (expense) of
($21,000) consisted primarily of interest expense on the Company's loans payable
to Franklin. In spite of massive expense reduction, the Company was unable to
operate profitably, losing $275,000 in the first nine months of the year
compared with a loss of $624,000 in the first nine months of the prior year.
Liquidity
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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.
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At the commencement of the Bankruptcy Proceedings, the Company entered into
a revolving $400,000 Loan and Security Agreement with Franklin collateralized
by all of the assets of the Company. This loan was due and payable on the
Effective Date. The agreement carried an interest rate of 12% per annum on the
average daily balance. The December 31, 1997 balance of $185,000 was the
highest balance during 1997, and said amount was in excess of the borrowings
allowed under the terms of the agreement. 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 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, 2000, the principal balance due
on this loan was $620,000.
As discussed above, the Company was to have made a principal payment of
$50,000 to Franklin on or before May 12, 1999. As the Company was unable make
this payment, the Company is in default on its loans from Franklin and the
entire balance of the loans has been classified as a current obligation on the
Company's September 30, 2000 balance sheet.
As of September 30, 2000, amounts due Franklin included the loans discussed
above of $620,000, inventory purchased from Franklin in 1998 for resale in the
amount of $457,000, royalties of $150,000, accrued interest of $133,000 and net
expenses paid by Franklin on the Company's behalf of approximately $272,000.
As of September 30, 2000, the Company had an accumulated deficit of
$1,649,000 and negative working capital of $1,575,000. 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. Franklin has expressed its
present intention to provide certain financial support to the Company through at
least December 31, 2000 to allow the Company to continue as a going concern.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has received notice from the holder of U.S. Patent 5,696,496
entitled "Portable Messaging and Scheduling Device with Homebase Station"
stating that the holder had filed suit alleging infringement of that patent in
December 1999 in United States District Court for the District of Massachusetts
(Civil Action No. 99-CV-12468) against certain companies (not including the
Company) and alleging that certain of the Company's Voice Organizer products may
also infringe that patent. The Company is reviewing the status of the
litigation and the claim. No assurance can be given with respect to that patent
or the Company's continued sale of Voice Organizer or other products.
Items 2, 3, 5, and 6 - None
Item 4. Submission Of Matters To A Vote Of Securities Holders - None
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VOICE POWERED TECHNOLOGY INTERNATIONAL, INC.
Date: November 14, 2000 By: /s/ Gregory J. Winsky
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Gregory J. Winsky, President,
and Chief Executive Officer
Date: November 14, 2000 By: /s/ Arnold D. Levitt
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Arnold D. Levitt
Chief Financial Officer
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