10QSB 1 0001.txt FORM 10-QSB =============================================================================== 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 ------- 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 ----- ------ 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, 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 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. BALANCE SHEET (in thousands, except share data) (unaudited)

Sept. 30, 2000 ---------------- ASSETS ------ CURRENT ASSETS: Cash $ 60 Accounts receivable 31 Inventories 126 ---------------- TOTAL CURRENT ASSETS 217 ---------------- PROPERTY AND EQUIPMENT Equipment 190 Less accumulated depreciation (190) ---------------- - ---------------- OTHER ASSETS 16 ---------------- TOTAL ASSETS $ 233 ================ LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Loans Payable - Franklin $ 620 Accounts payable and accrued expenses - Franklin 1,012 Accounts payable and accrued expenses - other 160 ---------------- TOTAL CURRENT LIABILITIES 1,792 ---------------- SHAREHOLDERS' EQUITY: Common stock, $.001 stated value - 100,000,000 shares authorized; 90,245,360 issued and outstanding 90 Accumulated deficit (1,649) ---------------- TOTAL SHAREHOLDERS' EQUITY (1,559) ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 233 ================

See accompanying notes to financial statements. 3 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. STATEMENT OF OPERATIONS (in thousands) (unaudited)

Three Months Three Months Ended Ended Sept. 30, 2000 Sept. 30, 1999 ---------------------- ------------------- 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 ---------------------- ------------------- Total costs and expenses 196 389 Operating loss (110) (87) Other income (expense): Interest expense (13) (13) Other - 28 ---------------------- ------------------- Net income (loss) $ (123) $ (72) ====================== =================== Net Income (loss) per share: $ - $ - ====================== =================== Weighted average common shares outstanding 90,245 90,245 ====================== ===================

See accompanying notes to financial statements. 4 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. STATEMENT OF OPERATIONS (in thousands) (unaudited)

Nine Months Nine Months Ended Ended Sept. 30, 2000 Sept. 30, 1999 -------------------- ------------------- 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 -------------------- ------------------- Total costs and expenses 578 1,726 Operating loss (254) (614) Other income (expense): Interest expense (38) (38) Other 17 28 -------------------- ------------------- Net income (loss) $ (275) $ (624) ==================== =================== Net Income (loss) per share: $ - $ (0.01) ==================== =================== Weighted average common shares outstanding 90,245 90,245 ==================== ===================

See accompanying notes to financial statements. 5 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. STATEMENT OF CASH FLOWS (in thousands) (unaudited)

Nine Months Nine Months Ended Ended Sept. 30, 2000 Sept. 30, 1999 -------------------- ------------------- 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 ------------------------ ----------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (74) 20 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures - (5) Proceeds from sale of equipment - 18 ------------------------ ----------------------- 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 ------------------------ ----------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 60 $ 104 ======================== =======================

See accompanying notes to financial statements. 6 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. 7 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 --------------------- 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 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 --------- 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. 9 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 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 --------------------- Gregory J. Winsky, President, and Chief Executive Officer Date: November 14, 2000 By: /s/ Arnold D. Levitt -------------------- Arnold D. Levitt Chief Financial Officer 11