-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OC1EQ97K7cqrXnrRl1g4VfiTE8juSKSRxHgRLX50OCjmH3/wr14wvnVs9f2Asu3G MpE1b24KzA1kCAHnx7kTrQ== 0000950148-97-002202.txt : 19970825 0000950148-97-002202.hdr.sgml : 19970825 ACCESSION NUMBER: 0000950148-97-002202 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970822 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOICE POWERED TECHNOLOGY INTERNATIONAL INC CENTRAL INDEX KEY: 0000890447 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 953977501 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11476 FILM NUMBER: 97668415 BUSINESS ADDRESS: STREET 1: 18425 BURBANK BLVD STE 508 CITY: TARZANA STATE: CA ZIP: 91356 BUSINESS PHONE: 8187571100 10QSB 1 FORM 10QSB 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 June 30, 1997 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) 18425 Burbank Boulevard, Suite 508 91356 Tarzana, California (Zip Code) Registrant's telephone number, including area code: (818) 757-1100 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 No X ----- ----- As of August 9, 1997, there were 16,011,572 shares of Voice Powered Technology International, Inc. Common Stock $.001 par value outstanding excluding outstanding options warrants. ================================================================================ 2 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 June 30, 1997 3 Statements of Operations for the three and six months ended June 30, 1997 and 1996 4 Statements of Cash Flows for the six months ended June 30, 1997 and 1996 5 Notes to Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II -- OTHER INFORMATION ITEM 5. Other Information 12 Signatures 13
-2- 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. BALANCE SHEET (AMOUNTS IN THOUSANDS) (UNAUDITED) ASSETS
June 30, 1997 -------- Current assets Cash and cash equivalents $ 300 Restricted cash 75 Receivables, net of allowance for doubtful accounts 82 Receivables sold to financial institution 575 Less initial payments received from financial institution 448 -------- Net amount due from financial institution 127 Inventory 1,246 Prepaid expenses 92 -------- Total current assets 1,922 Property and equipment Equipment 1,697 Other 135 -------- 1,832 Less accumulated depreciation 1,411 -------- Net property and equipment 421 Patents and technology rights, net of amortization 236 Deferred costs, net of amortization 337 Other assets 94 -------- Total assets $ 3,010 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 427 Accrued expenses 719 Current obligations under long term debt (Note 2) 400 -------- Total current liabilities 1,546 Long term debt (Note 2) 1,309 -------- Total liabilities 2,855 Commitments and contingencies (Note 6) -- Stockholders' equity Preferred stock, 10,000,000 shares authorized; 500,000 issued and outstanding at $1.00 stated value (Note 3) 500 Common stock, $.001 stated value - shares authorized, 50,000,000; issued and outstanding, 16,011,572 16 Additional paid-in capital 27,897 Accumulated deficit (28,258) -------- Total stockholders' equity 155 -------- Total liabilities and stockholders' equity $ 3,010 ========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -3- 4 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1996 1997 1996 1997 -------- -------- -------- -------- Sales $ 2,258 $ 527 $ 4,458 $ 1,868 Less price protection -- -- -- 77 -------- -------- -------- -------- Net sales 2,258 527 4,458 1,791 Costs and expenses Cost of goods sold 1,605 365 2,966 1,346 Discontinued model costs (Note 5) -- 790 -- 790 Marketing 410 257 845 834 General and administrative 603 642 1,283 1,294 Research and development 245 180 538 405 Warehouse 280 137 458 313 -------- -------- -------- -------- Total costs and expenses 3,143 2,371 6,090 4,982 -------- -------- -------- -------- Operating loss (885) (1,844) (1,632) (3,191) Other income (expense) Gain on sale of assets (Note 2) -- 141 -- 141 Sale of technology license (Note 2) -- 700 -- 700 Forgiveness of debt (Note 3) -- 1,388 -- 1,388 Other expense, net (18) (72) (52) (111) -------- -------- -------- -------- Net income (loss) $ (903) $ 313 $ (1,684) $ (1,073) ======== ======== ======== ======== Net income (loss) per common $ (.06) $ .02 $ (.12) $ (.07) share Weighted average common shares outstanding 13,949 15,064 13,492 14,553 ======== ======== ======== ========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. -4- 5 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1997 ------- ------- Cash flows from operating activities: Net loss $(1,684) $(1,073) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Compensatory stock options 24 2 Depreciation and amortization 367 355 Discontinued model costs -- 790 Gain on sale of assets -- (141) Gain on forgiveness of debt -- (1,388) Changes in operating assets and liabilities: Decrease in restricted cash -- 75 Decrease in receivables 1,783 1,593 Decrease in inventory 1,098 411 Decrease in prepaid expenses 58 9 Increase in deferred costs (338) (98) (Increase) decrease in other assets (203) 33 Increase (decrease) in accounts payable 352 (2,027) Decrease in accrued expenses (551) (310) ------- ------- Net cash provided by (used in) operating activities 906 (1,769) ------- ------- Cash flows from investing activities: Proceeds from sale of equipment -- 65 Capital expenditures (113) (84) ------- ------- Net cash used in investing activities (113) (19) ------- ------- Cash flows from financing activities: Payments on loan payable (1,265) -- Proceeds from the exercise of stock options 15 -- Proceeds from (payments on) note payable (100) 1,709 Proceeds from sale of common stock -- 152 ------- ------- Net cash provided by (used in) financing activities (1,350) 1,861 ------- ------- Net increase (decrease) in cash and cash equivalents (557) 73 Cash and cash equivalents at the beginning of the year 2,095 227 ------- ------- Cash and cash equivalents, June 30 $ 1,538 $ 300 ======= ======= SUPPLEMENTAL DISCLOSURE: Interest paid $ 88 $ 91 ======= ======= Non-cash financing and investing activities: Issuance of compensatory stock options to $ 50 $ -- related party Issuance of common stock to vendor 1,955 -- Conversion of accounts payable to note payable 883 -- Issuance of preferred stock to vendor -- 500
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS -5- 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, 1996. Operating results for the three and six month periods ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. NOTE 2 -- In May 1997, the Company consummated a transaction involving two agreements with Franklin Electronic Publishers, Inc. The first agreement was a Purchase and Loan Agreement in which the two companies entered into the following transactions: 1) The Company transferred and sold to Franklin for $450,000 in cash its inventory, rights to work in process, manufacturing assets, marketing assets, and software and hardware design assets for the Company's IQoVOICE(TM) Organizer Models 5150 and 5160 (IQoVOICE Pocket Organizers); 2) The Company sold to Franklin for $150,000 in cash 2,000,000 shares of the Company's common stock, par value $.001 per share, representing the approximate market price of the Company's common stock at the time of the transaction; and 3) Franklin loaned the Company cash equal to $1,200,000, in addition to $500,000 previously loaned to the Company in the first quarter of 1997, and restructured the previous payment terms into a new $1,700,000 promissory note. The new note carries interest at a rate of 10% per year. The interest is payable monthly, with principal payments of $400,000 due on April 30 of each year commencing April 30, 1998 and ending April 30, 2001, with the final installment in the amount necessary to repay the full balance of the loan. The second agreement was a Technology Transfer Agreement in which the two companies entered into the following transactions: 1) The Company granted to Franklin a non-exclusive perpetual license for technology rights evidenced by the Company's patent related to operation of Voice Organizer products as well as other technology and software developed by the Company related to or used in the Model 5150 and 5160 for a non-refundable advance royalty of $700,000; and 2) the Company assigned the rights to VoiceLogic(TM) Technology to Franklin, and Franklin granted back to the Company a non-exclusive perpetual license of the VoiceLogic Technology, including the right to sublicense, for the development, manufacture, sale and distribution of Voice Organizer products with recording times in excess of four minutes and any other electronic products that are not Voice Organizers, subject to the Company remaining obligated to pay royalties to Franklin at the same rates for which the Company was obligated to the inventor of the VoiceLogic Technology prior to its assignment to Franklin. As a result of the completion of these transactions, the Company recognized $141,000 as a gain on the sale of assets, and $700,000 as income from the sale of the technology license. NOTE 3 -- Also in May 1997, the Company entered into agreements with Flextronics (Malaysia) SDN. BHD. ("Flextronics") and GSS/Array Technology, Inc. ("GSS"), the manufacturers of the Company's products, relating to the resolution of outstanding liabilities and commitments. The Company entered into a Settlement Agreement with Flextronics under which the Company made a cash payment and assigned the proceeds due pursuant to a licensing agreement with Kong Wah Video for a voice operated television remote control device to Flextronics as full and final settlement for all outstanding liabilities and commitments other than approximately $260,000 in inventory which had already been manufactured by Flextronics. The Company committed to purchase such inventory prior to June 30, 1997, but has only purchased $185,000 as of yet. Flextronics continues to work with the Company regarding the continuing efforts to purchase the remaining inventory. The Company also entered into a Discounted Payment and Adequate Assurance of Performance Agreement with GSS under which the Company made a cash payment and issued 500,000 shares of non-voting, non-cumulative, convertible preferred stock, with a $0.06 per share mandatory dividend payable annually in cash or common stock at the option of the Company on the anniversary date of issuance, as full and final settlement of outstanding liabilities. The preferred stock carries a $1.00 per share liquidation preference and each share is convertible into four (4) shares of the Company's common stock. Further, at the option of GSS, for a one year period the Company will agree to either appoint a representative of GSS to the Board of Directors of the Company or to allow a representative to attend Board of Directors meetings as a non-voting observer. Also under the Discounted Payment and Adequate Assurance of Performance Agreement, GSS has agreed to continue to manufacture pursuant to the terms of the original Manufacturing Agreement for a period of not less than six months, and the Company has agreed to provide GSS with a standby letter of credit to secure the Company's payments. Lastly, on or about May 22, 1997, the Company entered into agreements with many of its other trade creditors in which the trade creditors agreed to accept discounted lump sum payments in full consideration of current obligations of the Company. As a result of these agreements, the Company recognized a gain from forgiveness of debt of $1,388,000. -6- 7 NOTE 4 -- As of May 1, 1997, the Company entered into three agreements with Edward M. Krakauer establishing the terms and conditions under which Mr. Krakauer resigned as the Company's president and CEO. Under the first agreement, a Termination Agreement, Mr. Krakauer's employment agreement was terminated and a negotiated payment plan was established for accrued salaries of $52,000 owed to the date of termination plus a discounted balance of the terminated employment agreement of $190,000. Payments applicable to the foregoing will be made at various intervals through June 30, 1998. Under the terms of the second agreement, a Consulting Agreement, Mr. Krakauer would serve the Company as a consultant through June 30, 1998, at an annual rate of $60,000 per year. Under the third agreement, Mr. Krakauer was granted 75,000 stock options at an exercise price of $.008 per share (which was 20% of the fair market value per share at the time of the grant in accordance with previous options granted by the Company for non-employee directors). Mr. Krakauer will remain The Chairman of the Company's Board of Directors. NOTE 5 -- As of June 30, 1997 the Company elected to discontinue future production of two of its product lines: the low cost version of the IQoVOICE Organizer, originally introduced in the fourth quarter of 1995, and the IQoVOICE Organizer/Pager, originally introduced in the fourth quarter of 1996. As a result, the Company wrote off $88,000 and $215,000 which, respectively, was the book value of the tooling and product development costs associated with the discontinued products. Further, the Company wrote down the inventory value of the related finished goods by $217,000, and established a reserve of $270,000 relating to a program to promote sales of the two product lines and maintain existing retail shelf space. As such, the total cost charged to operations as of June 30, 1997 related to discontinued products was $790,000 NOTE 6 -- The Company had entered into a letter agreement dated May 2, 1996 with Everen Securities Inc. ("ESI") regarding the retention of ESI's services as financial advisor and agent. This agreement was terminated by the Company February 3, 1997. ESI has subsequently asserted a claim against the Company for fees due as a result of the Franklin transactions (Note 2) in the amount of $450,000. The Company and ESI are presently in a dispute as to the validity of this claim. The Company intends to vigorously defend its position on this matter, however no assurances can be made as to the outcome. The Company has not made any accruals relating to this matter at the present time. -7- 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The results of the Company's operating performance for the three and six month periods ended June 30, 1997 as compared to a year ago are primarily a reflection of the following: the Company's continued efforts to liquidate its older, higher cost products, including discontinued inventory; efforts made to facilitate the introduction of the Company's new product lines in the third quarter; and the effects of the Company selling its IQoVOICE Pocket Organizer lines under one of two agreements with Franklin Electronic Publishers, Inc. ("Franklin") which were entered into in the second quarter of 1997 (Note 2 of Notes to Financial Statements). The liquidation efforts, which include selling the older products at book value; costs to reduce the retail price of certain products at retail stores in order to facilitate inventory movement; and entering into additional advertising commitments with customers relating to both the older products and the Company's current product lines; have resulted in higher cost of goods and higher marketing expenses as a percentage of sales. Additionally, it was necessary for the Company to accept returns from certain key customers of unsold, discontinued products in exchange for purchase commitments for new products which will be fulfilled in the third and fourth quarters of 1997, causing decreased sales levels and higher expenses as a percentage of sales. Also, the sale of the IQoVOICE Pocket Organizer lines to Franklin has negatively impacted, and will continue to negatively impact, sales of IQoVOICE Organizer products as compared to prior periods. These occurrences, however, were partially offset by sales of the Company's new products, as well as the Company's efforts to streamline its operations and reduce its expenses. Sales of the Company's new products, which were introduced in the latter portion of 1996, carry lower cost of goods as a percentage of sales. Further, the streamlining of operations has enabled the Company to begin decreasing fixed costs in all areas of operations. These decreases are expected to become more evident in future quarters. Finally, the agreements with Franklin, as well as agreements with the Company's manufacturers and other trade creditors (Note 3 of Notes to Financial Statements), have caused the Company to recognize unusual income resulting in a profitable second quarter and improved working capital position as of June 30, 1997. As noted above, however, the sale of the IQoVOICE Pocket Organizers has negatively impacted sales as compared to prior periods, and will continue to do so. RESULTS OF OPERATIONS 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. For the three and six month periods ended June 30, 1996, the Company reported operating losses of $885,000 and $1,632,000, respectively. After adding other expense and income, the Company reported net income of $313,000 for the three months ended June 30, 1997, and a net loss of $1,073,000 for the six months ended June 30, 1997. For the three and six month periods ended June 30, 1996, the Company reported net losses of $903,000 and $1,684,000. The resulting effect per common share for the three and six months ended June 30, 1997 were income of $.02 per common share and loss of $.07 per common share, respectively, while for the three and six months ended June 30, 1996, the Company reported net losses per common share of $.06 and $.12, respectively. For the three and six month periods ended June 30, 1997, sales were $527,000 and $1,868,000, respectively. After reduction of price protection costs of $77,000 charged against sales in the first quarter, net sales for the six months ended June 30, 1997 were $1,791,000. For the three and six months ended June 30, 1996, sales were $2,258,000 and $4,458,000, respectively. The decreases in net sales were primarily attributable, as stated above, to the sale of the IQoVOICE Pocket Organizer line and to the Company accepting returns from customers of unsold products. Further, the sales decreases were also attributable to reductions in liquidation sales, direct response sales, international sales, and licensing revenues. -8- 9 Total costs and expenses for the three and six months ended June 30, 1997 were $2,371,000 and $4,982,000. Total costs and expenses for the three and six months ended June 30, 1996 were $3,143,000 and $6,090,000. The decreases in costs and expenses primarily relate to the Company's decreased sales which resulted in lower costs of goods sold and lower variable costs, as well as to the Company's efforts to decrease its fixed costs in all areas of operations. These decreases were offset by charges incurred in the second quarter of 1997 relating to discontinued model costs. Cost of goods sold decreased to $365,000 and $1,346,000 for the three and six month periods ended June 30, 1997 from $1,605,000 and $2,966,000 for the same periods in 1996 due to the Company's decreased sales. As a percentage of sales, cost of goods sold was 69% and 72% for the three and six month periods ended June 30, 1997, and 71% and 67% for the same periods in 1996. The high percentage of costs of goods sold in each of the periods relates to the Company's efforts to sell off older products at book value. During the three and six month periods ended June 30, 1997, however, the Company's cost of goods as a percentage of sales for its current core products was 53% and 51%, respectively. In the second quarter of 1997, the Company charged $790,000 to operations relating to discontinued model costs. The Company elected to discontinue future production of its low cost line of IQoVOICE Organizers and its IQoVOICE Organizer/Pagers. Included in the charge were writeoffs of tooling and deferred costs, writedown of related inventory, and reserves established to promote sales of these products. For the three and six months ended June 30, 1997, marketing expenses were $257,000 and $834,000, respectively. For the three and six months ended June 30, 1996, marketing expenses were $410,000 and $845,000 respectively. The decreases in marketing expenses are associated with both the lower volume of sales and the related lower distribution costs such as sales commissions and targeted direct response print advertising expenses, as well as decreased fixed costs including consultants, promotional costs, and amortization. These decreases were offset by increases associated with advertising allowances established for retail accounts to accelerate sales of both the older inventory and the current product lines. General and administrative expenses increased slightly to $642,000 and $1,294,000 for the three and six month periods ended June 30, 1997 from $603,000 and $1,283,000 for the three and six month periods ended June 30, 1996. 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 (Note 4). After deducting that charge, general and administrative expenses decreased, primarily resulting from decreases in fixed costs including salaries, consulting fees, rent and legal fees, as well as variable royalty costs associated with the decreased volume of sales. The decreases were offset by costs and expenses associated with the Company's March 31, 1997 location change, which enabled the Company to significantly reduce its subsequent monthly rent expense. Research and development expenses decreased to $180,000 and $405,000 for the three and six months ended June 30, 1997 from $245,000 and $538,000 for the three and six months ended June 30, 1996. The decreases are primarily the result of decreased salaries and consulting fees, offset by an increase in amortization expense as the Company strives to develop new products as well as enhance the VoiceLogic Technology. Warehouse and distribution expenses decreased to $137,000 and $313,000 for the three and six months ended June 30, 1997 from $280,000 and $458,000 for the three and six months ended June 30, 1996. The decreases are directly related to the decreased sales and related reductions in shipping costs, supplies, and temporary help. These decreases were partially offset by costs incurred to process and repackage goods returned from retail accounts which were accepted in exchange for future purchase commitments. 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(TM) 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, 1997 was $72,000 and $111,000. Other expense for the three and six months ended June 30, 1996 was $18,000 and $52,000. Other expense primarily relates to interest expense. -9- 10 LIQUIDITY At June 30, 1997, the Company had working capital of $376,000. The Company has been actively seeking a strategic relationship, including merger opportunities, product development joint ventures, and distribution agreements in order to grow and strengthen the Company's financial base. Further, the Company has been seeking funding, in the form of equity or debt, in order to satisfy cash requirements in the ordinary course of business, develop a major new voice recognition product, and provide funding for costs that may be associated with effecting such strategic relationship. In May 1997, the Company consummated a transaction involving two agreements with Franklin. The first agreement was a Purchase and Loan Agreement in which the two companies entered into the following transactions: 1) The Company transferred and sold to Franklin for $450,000 in cash its inventory, rights to work in process, manufacturing assets, marketing assets, and software and hardware design assets for the Company's IQoVOICE(TM) Organizer Models 5150 and 5160 (IQoVOICE Pocket Organizers); 2) The Company sold to Franklin for $150,000 in cash 2,000,000 shares of the Company's common stock, par value $.001 per share, representing the approximate market price of the Company's common stock at the time of the transaction; and 3) Franklin loaned the Company cash equal to $1,200,000, in addition to $500,000 previously loaned to the Company in the first quarter of 1997, and restructured the previous payment terms into a new $1,700,000 promissory note. The new note carries interest at a rate of 10% per year. The interest is payable monthly, with principal payments of $400,000 due on April 30 of each year commencing April 30, 1998 and ending April 30, 2001, with the final installment in the amount necessary to repay the full balance of the loan. The second agreement was a Technology Transfer Agreement in which the two companies entered into the following transactions: 1) The Company granted to Franklin a non-exclusive perpetual license for technology rights evidenced by the Company's patent related to operation of Voice Organizer products as well as other technology and software developed by the Company related to or used in the Model 5150 and 5160 for a non-refundable advance royalty of $700,000; and 2) the Company assigned the rights to the VoiceLogic(TM) Technology to Franklin, and Franklin granted back to the Company a non-exclusive perpetual license of the VoiceLogic Technology, including the right to sublicense, for the development, manufacture, sale and distribution of Voice Organizer products with recording times in excess of four minutes and any other electronic products that are not Voice Organizers, subject to the Company remaining obligated to pay royalties to Franklin at the same rates for which the Company was obligated to the inventor of the VoiceLogic Technology prior to its assignment to Franklin. As a result of the completion of these transactions, the Company recognized $141,000 as a gain on the sale of assets, and $700,000 as income from the sale of the technology license. Also in May 1997, the Company entered into agreements with Flextronics (Malaysia) SDN. BHD. ("Flextronics") and GSS/Array Technology, Inc. ("GSS"), the manufacturers of the Company's products, relating to the resolution of outstanding liabilities and commitments. The Company entered into a Settlement Agreement with Flextronics under which the Company made a cash payment and assigned the proceeds due pursuant to a licensing agreement with Kong Wah Video for a voice operated television remote control device to Flextronics as full and final settlement for all outstanding liabilities and commitments other than approximately $260,000 in inventory which has already been manufactured by Flextronics. The Company committed to purchase such inventory prior to June 30, 1997, but has only purchased $185,000 as of yet. Flextronics continues to work with the Company regarding the continuing efforts to purchase the remaining inventory. The Company also entered into a Discounted Payment and Adequate Assurance of Performance Agreement with GSS under which the Company made a cash payment and issued 500,000 shares of non-voting, non-cumulative, convertible preferred stock, with a $0.06 per share mandatory dividend payable annually in cash or common stock at the option of the Company on the anniversary date of issuance, as full and final settlement of outstanding liabilities. The preferred stock will have a $1.00 per share liquidation preference and each share will be convertible into four (4) shares of the Company's common stock. Further, at the option of GSS, for a one year period the Company will agree to either appoint a representative of GSS to the Board of Directors of the Company or to allow a representative to attend Board of Directors meetings as a non-voting observer. Also under the Discounted Payment and Adequate Assurance of Performance Agreement, GSS has agreed to continue to manufacture pursuant to the terms of the original Manufacturing Agreement for a period of not less than six months, and the Company has agreed to provide GSS with a standby letter of credit to secure the Company's payments. Lastly, on or about May 22, 1997, the Company entered into agreements with many of its other trade creditors in which the trade creditors agreed to accept discounted lump sum payments in full consideration of current obligations of the Company. As a result of these agreements, the Company recognized a gain from forgiveness of debt of $1,388,000. -10- 11 The effect of the transactions with Franklin, Flextronics, GSS, and the other trade creditors have improved the Company's working capital position and its stockholders' equity. However, the Company anticipates continued losses from operations through the first nine months of 1997, and believes that such losses will continue unless the Company is successful in its efforts to increase sales from its current distribution channels and diversify its product line. As a result, management continues to seek a strategic relationship including merger opportunities, product development joint ventures, and distribution agreements in order to grow and strengthen the Company's financial base. The Company also continues to seek additional equity funding in order to satisfy cash requirements for the remainder of 1997, inclusive of planned product development activities and to further strengthen its working capital position. At present, no definitive agreements exist, and failure to either consummate a strategic relationship agreement or obtain additional funding could result in the Company's having insufficient cash resources to meet its obligations in 1997. These factors raise substantial doubt about the Company's ability to continue as a going concern. The decrease in accounts receivable of $1,593,000 is attributable mainly to collections on customer receivables which existed at December 31, 1996. Such decrease was offset partially by new receivables from customers from sales made in the first quarter of 1997. The net decrease in accounts payable and accrued expenses of $2,337,000 is mainly attributable to payments made to the Company's contract manufacturers and other trade creditors as a result of the agreements entered into as noted above. 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. -11- 12 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 In May 1997, Mr. Edward Krakauer resigned as the Company's president and CEO, however, he remains Chairman of the Company's Board of Directors. Mr. Krakauer will serve as a part-time consultant to the Company through June 30, 1998. Further in May 1997, Mitchell B. Rubin was appointed by the Board of Directors to fill the positions of president and CEO. -12- 13 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 22, 1997 By: /s/ Mitchell B. Rubin --------------------------------- Mitchell B. Rubin, President, Chief Executive Officer, and Chief Financial Officer -13- EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENITIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 3-MOS DEC-31-1997 JUN-30-1997 375 0 209 0 1,246 1,922 1,832 1,411 3,010 2,855 0 0 500 16 155 3,010 527 527 365 2,371 72 0 0 313 0 313 0 2,229 0 313 0.02 0.02
-----END PRIVACY-ENHANCED MESSAGE-----