-----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, OuZ4XRDNh3RdfH/OPWZfnd3QEUcLund75lJ+OL3TPuELkPyBrOFMPkkkyqGufeCW zDK+MnblI09slxwtIqWDbA== 0000950148-98-001432.txt : 19980527 0000950148-98-001432.hdr.sgml : 19980527 ACCESSION NUMBER: 0000950148-98-001432 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980526 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: SEC FILE NUMBER: 001-11476 FILM NUMBER: 98631470 BUSINESS ADDRESS: STREET 1: 18425 BURBANK BLVD STE 508 CITY: TARZANA STATE: CA ZIP: 91356 BUSINESS PHONE: 8187571100 10QSB 1 FORM 10-QSB (DATED 03/31/1998) 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, 1998 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 506 91356 Tarzana, California (Zip Code) (Address of principal executive offices) 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 [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 May 15, 1998, there were 16,049,072 shares of Voice Powered Technology International, Inc. Common Stock $.001 par value outstanding and 74,196,288 shares reserved for issuance pursuant to the registrant's Chapter 11 Plan of Reorganization. Transitional Small Business Disclosure Format (check one) Yes [ ] No [X] 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 March 31, 1998 3 Statements of Operations for the three months ended March 31, 1998 and 1997 4 Statements of Cash Flows for the three months ended March 31, 1998 and 1997 5 Notes to Financial Statements 6-7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II -- OTHER INFORMATION ITEM 2 . Changes in Securities and Use of Proceeds 11 ITEM 5. Other Information 11 ITEM 6. Exhibits and Reports on Form 8-K 12
-2- 3 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. BALANCE SHEET (AMOUNTS IN THOUSANDS) (UNAUDITED) ASSETS
PRO FORMA MARCH 31, MARCH 31, 1998 1998 (NOTE 3) -------- -------- Current assets Cash and cash equivalents $ 27 Receivables, net of allowance for doubtful accounts 34 Inventory 159 Prepaid expenses 12 -------- Total current assets 232 Property and equipment Equipment 401 Other 69 -------- 470 Less accumulated depreciation 265 -------- Net property and equipment 205 Patents and technology rights, net of amortization 186 Deferred costs, net of amortization 201 Other assets 29 -------- Total assets $ 853 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities not subject to compromise Accounts payable $ 67 Accrued expenses 247 $147 Loan payable 200 -------- -------- Total current liabilities not subject to compromise 514 414 Long term debt - plan loan payable -- 350 -------- -------- Total liabilities not subject to compromise 514 764 Liabilities subject to compromise (Note 2) 3,240 -- Commitments and contingencies Stockholders' equity (deficit) Preferred stock, 10,000,000 shares authorized; $1.00 stated value, 500,000 shares issued and outstanding; aggregate liquidation preference of $500,000 500 -- Common stock, 100,000,000 shares authorized; $.001 stated value, 16,011,572 (90,245,360) shares issued and outstanding 16 90 Additional paid-in capital 27,897 30,057 Accumulated deficit (31,314) (30,058) -------- -------- Total stockholders' equity (deficit) (2,901) 89 -------- -------- Total liabilities and stockholders' equity (deficit) $ 853 $ 853 ======== ========
-3- SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 4 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------------- 1997 1998 -------- -------- Sales $ 1,341 $ 303 Less price protection 77 -- -------- -------- Net sales 1,264 303 Cost of goods sold 981 188 -------- -------- Gross profit 283 115 Operating costs Marketing 577 68 General and administrative 652 255 Research and development 225 91 Warehouse 176 54 -------- -------- Total operating costs 1,630 468 -------- -------- Operating loss (1,347) (353) Other expense, net (39) (4) -------- -------- Loss before reorganization item $ (1,386) $ (357) Reorganization items Fees associated with Disclosure Statement and Plan of Reorganization -- (36) Professional fees -- (24) -------- -------- Net loss $ (1,386) $ (417) ======== ======== Net loss per common share $ (.10) $ (.03) ======== ======== Weighted average common shares outstanding 13,949 16,011 ======== ========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS -4- 5 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1997 1998 ------- ------- Cash flows from operating activities: Net loss $(1,386) $ (417) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 181 103 Changes in operating assets and liabilities: Decrease in restricted cash 75 -- Decrease in receivables 1,167 115 (Increase) decrease in inventory (108) 55 (Increase) decrease in prepaid expenses 52 (1) Increase in other assets (7) -- Decrease in pre-petition accounts payable (171) -- Increase in post-petition accounts payable -- 4 Increase (decrease) in pre-petition accrued expenses (83) 11 Increase in post-petition accrued expenses -- 108 ------- ------- Net cash used in operating activities (280) (22) ------- ------- Cash flows from investing activities: Capital expenditures (68) -- Expenditures for deferred costs (64) -- ------- ------- Net cash used in investing activities (132) -- ------- ------- Cash flows from financing activities: Proceeds from pre-petition note payable 500 -- Proceeds from post-petition note payable -- 15 ------- ------- Net cash provided by financing activities 500 15 ------- ------- Net increase (decrease) in cash and cash equivalents 88 (7) Cash and cash equivalents at the beginning of the year 227 34 ------- ------- Cash and cash equivalents, March 31 $ 315 $ 27 ======= ======= SUPPLEMENTAL DISCLOSURE Interest paid $ 43 $ 5 ======= =======
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, 1997. Operating results for the three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. NOTE 2 -- On September 22, 1997, the Company filed a voluntary petition for relief with the United States Bankruptcy Court, Central District of California ("Court"), under the provisions of Chapter 11 of the Bankruptcy Code. Under Chapter 11, certain claims against the Company in existence prior to the filing of the petition for relief are stayed while the Company continues business operations as a "Debtor-In-Possession." These claims are reflected in the March 31, 1998 balance sheet as "liabilities subject to compromise." On January 21, 1998, the Company, in conjunction with Franklin Electronic Publishers, Inc. ("Franklin"), the Company's largest secured creditor, filed a combined Amended Disclosure Statement and Plan of Reorganization (the "Plan") with the Bankruptcy Court. The Plan included a significant reduction of the Company's pre-petition obligations, in addition to Franklin's waiving its pre-petition secured claim in the amount of $1,733,990 in exchange for an 80% interest in the equity of the Company. The Disclosure Statement was approved as to form by the Bankruptcy Court, and was submitted to all interested parties for approval. On March 16, 1998, the Company filed a motion with the Bankruptcy Court for confirmation of the Plan, and 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 "Order"). The Plan became effective on May 12, 1998 (the "Effective Date"). The financial statements have been prepared by the Company in accordance with Statement of Position 90-7: Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. The Company incurred a loss of $417,000 for the three months ended March 31, 1998, and had an accumulated deficit of $2,901,000 and had negative working capital of $293,000 at March 31, 1998. These matters raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments to the financial statements that may be necessary should the Company be unable to continue as a going concern. 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 (the Plan Loan accrues interest at 8% per annum, with interest only payable in arrears on a monthly basis with principal all due and payable in a lump sum payment five years from the Effective Date); 2) The 500,000 shares of outstanding convertible preferred stock is deemed 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 will be issued 72,196,288 shares of the Company's common stock, which equates to an 80% equity interest in the Company in exchange for Franklin's pre-petition secured claim in the amount of $1,733,990. The pro forma amounts for March 31, 1998 presented in the accompanying balance sheet include the effect of the above transactions which would result in a decrease to accrued expenses of $100,000 (related to administrative expenses which will be paid from the proceeds of the Plan Loan); an increase to long term debt as a result of receipt of the proceeds from the Plan Loan in the amount of $350,000; 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 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 $1,256,000 resulting from extraordinary income from forgiveness of debt of approximately $1,273,000 less second quarter 1998 administrative expenses not accrued as of March 31, 1998 of approximately $17,000. -6- 7 VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Success of the Company after confirmation of the Plan is dependent, among other things, on reaching a satisfactory level of profitability and generating sufficient cash flow resources to meet ongoing obligations. The Company intends to seek to obtain adequate working capital resources, either through internally generated cash flow or external sources, in order to increase its sales and distribution of its products, resume research and development activities for new products and improvements to its Technology, dedicate additional resources to the development of licensing opportunities for its Technology, and explore further improvements to its PC compatible IQ- VOICE(TM) Organizers inclusive of improvements to its PCLink software. No assurance can be given that the Company will be able to achieve such level of profitability, or be able to obtain the required working capital. These matters raise substantial doubt about the ability of the Company to continue as a going concern. Further, as of the Effective Date, the Company became an 80% controlled subsidiary of Franklin, and therefore subject to Franklin's direction and discretion regarding future business activities. The financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. -7- 8 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. These losses were the result of multiple factors inclusive of unsuccessful introductions of new models of the Company's core product line (the IQ-VOICE Organizer), failed launches of new products, increased competition from lower priced digital recorders, and a general decline in domestic retail sales of the entire hand-held electronics category. 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 (Case No. LA 97-46292-VZ). Under Chapter 11, certain claims against the Company in existence prior to the filing of the petition for relief are stayed while the Company continues business operations as a "Debtor-In-Possession." As a result of concern on the part of the Company's major domestic retail customers regarding the Company's financial stability, the limited cash and working capital resources available to the Company and the potential exposure to the Company which would result from price protection, advertising, and stock balancing commitments required by these major retail customers, the Company discontinued shipments of its IQ-VOICE Organizer products to many of its major retail customers since the commencement of the Bankruptcy Proceedings. At present, the Company is engaged in only limited business activities consisting of sales of IQ-VOICE Organizer products to smaller retailers and wholesale accounts, to international distributors, and through various direct marketing programs. As a result of this contraction, the Company has significantly decreased its variable and fixed operating costs, including the reduction of a number of its officers and other employees. On January 21, 1998, the Company, in conjunction with Franklin Electronic Publishers, Inc. ("Franklin"), the Company's largest secured creditor, filed a combined Amended Disclosure Statement and Plan of Reorganization (the "Plan") with the Bankruptcy Court. The Plan included a significant reduction of the Company's pre-petition obligations, in addition to Franklin's waiving its pre-petition secured claim in the amount of $1,733,990 in exchange for an 80% interest in the equity of the Company. The Disclosure Statement was approved as to form by the Bankruptcy Court, and was submitted to all interested parties for approval. On March 16, 1998, the Company filed a motion with the Bankruptcy Court for confirmation of the Plan, and 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 "Order"). The Plan became effective on May 12, 1998 (the "Effective Date"). In accordance with the Plan, on the Effective Date, 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 (the Plan Loan accrues interest at 8% per annum, with interest only payable in arrears on a monthly basis with principal all due and payable in a lump sum payment five years from the Effective Date); 2) The 500,000 shares of outstanding convertible preferred stock is deemed 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 will be issued 72,196,288 shares of the Company's common stock, which equates to an 80% equity interest in the Company in exchange for Franklin's pre-petition secured claim in the amount of $1,733,990. The effects of these transactions result in a decrease to accrued expenses of $100,000 (related to administrative expenses which will be paid from the proceeds of the Plan Loan); an increase to long term debt as a result of receipt of the proceeds from the Plan Loan in the amount of $350,000; 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 to preferred stock of $500,000 resulting from its conversion to common stock; an increase to common stock of $74,000 and an increase -8- 9 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 $1,256,000 resulting from extraordinary income from forgiveness of debt of approximately $1,273,000 less second quarter 1998 administrative expenses not accrued as of March 31, 1998 of approximately $17,000. RESULTS OF OPERATIONS For the three months ended March 31, 1998, the Company reported an operating loss of $353,000, as compared to an operating loss of $1,347,000 for the three months ended March 31, 1997. After including other expenses and reorganization items, the Company reported a net loss of $417,000, or $.03 per share, for the three months ended March 31, 1998, and a net loss of $1,386,000, or $.10 per share, for the three months ended March 31, 1997. Sales for the three months ended March 31, 1998 were $303,000, while sales for the three months ended March 31, 1997 were $1,341,000. After incurring price protection costs of $77,000 charged against sales during the first quarter of 1997, net sales for the three months ended March 31, 1997 were $1,264,000. The decrease in sales, as noted above, related primarily to the decreased levels of sales to retail customers as a result of the Company's bankruptcy filing. The 1997 price protection costs were incurred to reduce the retail price of the IQ-VOICE Organizer/Pager, a subsequently discontinued product. Accordingly, established retail accounts were issued credits for on-hand inventory equal to the difference between the wholesale price at which they had purchased the products and their new wholesale price which is based on the reduced retail price. Gross profit and gross profit percentage were $115,000 and 38% for the three months ended March 31, 1998, as compared to $283,000 and 21% for the three months ended March 31, 1997. The decrease in gross profit was a result of the decreased level of sales as discussed above. The increase in the gross profit percentage related to the fact that 1998 sales consisted of a higher percentage of new products which carry a higher gross profit margin, while 1997 sales included liquidation efforts relating to older products which were sold at or near book value. Total operating expenses for the three months ended March 31, 1998 and 1997 were $468,000 and $1,630,000, respectively. The decrease in expenses is the result of decreased costs associated with the Company's decreased sales volume, as well as efforts made by the Company to significantly reduce its fixed costs. Marketing expenses for the three months ended March 31, 1998 and 1997 were $68,000 and $577,000, respectively. The decrease is associated with the Company's lower volume of sales and the related lower marketing and distribution costs, as well as lower fixed costs. As such, the Company incurred decreased costs related to salaries, advertising and promotional costs, and international sales expenses. General and administrative expenses decreased to $255,000 for the three months ended March 31, 1998 from $652,000 for the three months ended March 31, 1997. The decrease is the result of the Company's lower fixed costs including salaries, consultants, rent, and depreciation. Research and development expenses for the three months ended March 31, 1998 and 1997 were $91,000 and $225,000, respectively. The decrease is primarily the result of decreased salaries and amortization. The Company had substantively suspended development of new and existing products during the course of the bankruptcy proceedings. Warehouse and distribution expenses decreased to $54,000 for the three months ended March 31, 1998 from $176,000 for the three months ended March 31, 1997. The decrease is directly related to the Company's decreased sales. As such, the Company incurred decreases to temporary labor costs, freight costs, and third party fulfillment costs. Other expense was $4,000 and $39,000 for the three months ended March 31, 1998 and March 31, 1997, respectively, primarily relating to interest expense. Included as reorganization items incurred as a result of the Company's Bankruptcy Proceedings are $36,000 in expenses relating to the Plan, and $24,000 in expenses relating to legal fees. -9- 10 LIQUIDITY AND CAPITAL RESOURCES The Company has incurred significant, sustained net losses for the past three years, including $417,000 for the three months ended March 31, 1998. Further, the Company has an accumulated deficit of $2,901,000 and negative working capital of $293,000 at March 31, 1998. 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. Throughout the course of the Bankruptcy Proceedings, the Company had been operating as a "Debtor in Possession" under such code. At a hearing in the Court on April 23, 1998 the Company's motion for confirmation of the Plan was granted and an Order confirming the Plan was entered April 29,1998 with an Effective Date of May 12, 1998. In accordance with the Plan, on the Effective Date, the following occurred: 1)The Company received the Plan Loan of $350,000 from Franklin to create a fund to be dedicated to the payment of creditor claims and certain administrative expenses (the Plan Loan accrues interest at 8% per annum, with interest only payable in arrears on a monthly basis with principal all due and payable in a lump sum payment five years from the Effective Date); 2) The 500,000 shares of outstanding convertible preferred stock is deemed 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 will be issued 72,196,288 shares of the Company's common stock, which equates to an 80% equity interest in the Company in exchange for Franklin's pre-petition secured claim in the amount of $1,733,990. The effects of these transactions result in a decrease to accrued expenses of $100,000 (related to administrative expenses which will be paid from the proceeds of the Plan Loan); an increase to long term debt as a result of receipt of the proceeds from the Plan Loan in the amount of $350,000; 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 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 $1,256,000 resulting from extraordinary income from forgiveness of debt of approximately $1,273,000 less second quarter 1998 administrative expenses not accrued as of March 31, 1998 of approximately $17,000. Success of the Company after confirmation of the Plan is dependent, among other things, on reaching a satisfactory level of profitability and generating sufficient cash flow resources to meet ongoing obligations. The Company intends to seek to obtain adequate working capital resources, either through internally generated cash flow or external sources, in order to increase its sales and distribution of its products, resume research and development activities for new products and improvements to its Technology, dedicate additional resources to the development of licensing opportunities for its Technology, and explore further improvements to its PC compatible IQ- VOICE(TM) Organizers inclusive of improvements to its PCLink software. No assurance can be given that the Company will be able to achieve such level of profitability, or be able to obtain the required working capital. These matters raise substantial doubt about the ability of the Company to continue as a going concern. Further, as of the Effective Date, the Company became an 80% controlled subsidiary of Franklin, and therefore subject to Franklin's direction and discretion regarding future business activities. The financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The decrease in accounts receivable of $115,000 reflects the Company's overall decreased sales levels. The net increase in post-petition accounts payable and accrued expenses of $123,000 as of March 31, 1998 is mainly attributable to professional fees associated with the Company's reorganization and with the Company's annual audit. 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. -10- 11 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In accordance with the provisions of the Plan (a copy of which was filed as Exhibit 10.8 to the Company's Form 10-KSB for the fiscal year ended December 31,1997), the Company filed, effective May 6, 1998, a Certificate of Amendment of Articles of Incorporation in order to include a provision prohibiting the issuance of non-voting equity securities and to increase the number of authorized shares of Common Stock to 100,000,000 shares in order to provide for the issuance of the new Common Stock to Franklin. Also on the Effective Date, in accordance with the provisions of the Plan, the Company reserved for issuance 74,196,288 shares of its common stock consisting of; 1) 2,000,000 shares as a result of holders of convertible preferred stock being deemed to have exercised their right to convert such stock to common shares in complete satisfaction of their rights under such preferred stock and; 2) 72,196,288 for the conversion of Franklin's secured claim of $1,733,990 into common stock of the Company sufficient to giving Franklin an eighty percent (80%) equity interest in the Company (on a fully diluted basis following conversion of all of the Company's outstanding convertible preferred stock into common stock). Further, on the Effective Date, in accordance with the provisions of the Plan, all of the Company's outstanding options, warrants and any other legal or contractual rights to purchase the Company's common stock were deemed void and unenforceable after the Effective Date ITEM 5. OTHER INFORMATION In accordance with the Plan, on the Effective Date, the following occurred: 1)The Company received the Plan Loan of $350,000 from Franklin to create a fund to be dedicated to the payment of creditor claims and certain administrative expenses (the Plan Loan accrues interest at 8% per annum, with interest only payable in arrears on a monthly basis with principal all due and payable in a lump sum payment five years from the Effective Date); 2) The 500,000 shares of outstanding convertible preferred stock is deemed 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 will be issued 72,196,288 shares of the Company's common stock, which equates to an 80% equity interest in the Company in exchange for Franklin's pre-petition secured claim in the amount of $1,733,990. Upon completion of the foregoing transactions, the Company's total outstanding common stock will be equal to 90,245,360 shares ( See Part II, Item 2. Changes in Securities and Use of Proceeds). Accordingly, holders of the Company's common stock as of the Effective Date will be subject to substantial dilution. The sole source for the payment of all pre-petition claims of unsecured creditors of the Company shall be the Plan Loan of $350,000 by Franklin which shall be used to create a fund (the "Creditor Fund") to be dedicated to the payment of such claims. Certain administrative expenses, priority claims and cure payments related to the assumption by the Company of certain pre-petition executory contracts will also be paid from the Creditor Fund before the remainder is distributed to general unsecured claims. The Company estimates that, after payment of allowable administrative expenses, priority claims and cure payments related to the assumption by the Company of certain pre-petition executory contracts, the balance remaining for general unsecured claims will be $0.10 on each dollar of such claims allowed. Post-petition liabilities incurred in the ordinary course of the Company's business (specifically including, without limitation, payroll expenses, commissions, rent and accounts payable for inventory purchases and other incidental operating expenses; but specifically excluding professional fees and expenses incurred prior to the Effective Date) were to be paid by the Company in the ordinary course and will not be paid from the Creditor Fund. Also in accordance with the provisions of the Plan, on the Effective Date, a new Board of Directors was appointed comprised of three executive officers of Franklin including Michael R. Strange, currently a Director and Executive Vice President of Franklin, Gregory J. Winsky, Senior Vice President of Franklin, and Kenneth H. Lind, Vice President and Treasurer of Franklin. The Company's new Board of Directors appointed Michael R. Strange to the position of Chairman of the Board and Chief Executive Officer and Mitchell B. Rubin, former President and CEO, to the position of President, Chief Operating Officer and Chief Financial Officer. Mr. Rubin was also appointed to serve on the Board of Directors of the Company. -11- 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 3(aa) -- Certificate of Amendment of Articles of Incorporation Exhibit 10.8.1-- Order confirming Amended Disclosure Statement and Plan of Reorganization for Voice Powered Technology International, Inc. dated as of April 29, 1998 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 __, 1998 By:/s/ Mitchell B. Rubin --------------------- Mitchell B. Rubin, President and Chief Financial Officer -12- EX-3.(AA) 2 EXHIBIT 3.(AA) 1 EXHIBIT 3(aa) CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. The undersigned, Mitchell B. Rubin, certifies as follows: 1. I am the duly elected and acting President of Voice Powered Technology International, Inc., a California corporation ("Corporation"). 2. The Corporation is subject, pursuant to Chapter 11 of the United States Bankruptcy Code, to the jurisdiction of the United States Bankruptcy Court for the Central District of California, in a proceeding entitled "In Re Voice Powered Technology, Inc., a California corporation, Debtor," Case No. Bk. No. LA 97-46292-VZ. 3. Pursuant to an Order Confirming Amended Plan of Reorganization for Voice Powered Technology International, Inc., entered on April 29, 1998 ("Order"), the amendments to the Articles of Incorporation of the Corporation hereinafter set forth have been approved and Mitchell B. Rubin, President of the Corporation, has been authorized to execute this Certificate and to cause this Certificate to be filed with the Secretary of State of California. 4. Pursuant to the Order and Section 1400 of the California Corporations Code, Paragraph (a) of Article III is hereby amended to read as follows: "Preferred Stock, Series B 14% Convertible Cumulative Preferred Stock, Series C 12% Convertible Cumulative Preferred Stock, Special Preferred Stock and Common Stock. The corporation is authorized to issue five classes of shares designed Preferred Stock," "Series B 14% Convertible Cumulative Preferred Stock," "Series C 12% Convertible Cumulative Preferred Stock," "Special Preferred Stock" and "Common Stock," respectively. The number of shares of Preferred Stock authorized to be issued is 5,000,000 shares, $0.001 par value, the number of shares of Series B 14% Convertible Cumulative Preferred Stock authorized to be issued is 2,000,000, $0.001 par value, the number of shares of Series C 12% Convertible Cumulative Preferred Stock authorized to be issued is 2,500,000 shares, $0.001 par value, the number of shares of Special Preferred Stock authorized to be issued is 10,000,000 shares, $0.001 par value, and the number of shares of Common Stock authorized to be issued is 100,000,000 shares of $0.001 par value. The corporation shall not issue non-voting equity securities. The rights, preferences, provisions and restrictions imposed upon the five classes of shares are set forth in the succeeding Sections of Article III." 2 IN WITNESS WHEREOF, the undersigned being duly authorized as aforesaid, has executed this Certificate this 8th day of May 1998. /s/ Mitchell B. Rubin ------------------------------- Mitchell B. Rubin The undersigned declares under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of his own knowledge. Dated: May 8, 1998 /s/ Mitchell B. Rubin ------------------------------- Mitchell B. Rubin EX-10.8.1 3 EXHIBIT 10.8.1 1 EXHIBIT 10.8.1 PAG/36013.1/ORD/16252.00 521981517 MARTIN J. BRILL (State Bar No. 53220) PHILIP A. GASTEIER (State Bar No. 130043) ROBINSON, DIAMANT & BRILL A Professional Corporation 1888 Century Park East, Suite 1500 Los Angeles, California 90067 Telephone: (310) 277-7400 Telecopier: (310) 277-7584 Attorneys for Debtor and Debtor in Possession BRAD R. GODSHALL PACHULSKI, STANG, ZIEHL & YOUNG PC 10100 Santa Monica Boulevard, 11th Floor Los Angeles, California 90067 Telephone: (310) 277-6910 Attorneys for Franklin Electronic Publishing, Inc. UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA In re Bk. No. LA 97-46292-VZ VOICE POWERED TECHNOLOGY Chapter 11 INTERNATIONAL, INC., a California corporation, ORDER CONFIRMING AMENDED PLAN OF Debtor. REORGANIZATION FOR VOICE POWERED TECHNOLOGY INTERNATIONAL, INC. Date: April 23, 1998 Time: 3:00 P.M. Place: Courtroom "1368" Roybal Federal Building, 255 E. Temple St. Los Angeles CA 90012 AT LOS ANGELES, CALIFORNIA IN THIS DISTRICT ON THE BELOW INDICATED DATE: A hearing was held before the undersigned United States Bankruptcy Judge on April 23, 1998, on the Motion For Order 2 Confirming Amended Plan Of Reorganization For Voice Powered Technology International, Inc. (the "Motion"), relating to the Amended Disclosure Statement and Plan of Reorganization for Voice Powered Technology International, Inc. filed January 21, 1998 (the "Plan"), filed by Voice Powered Technology International, Inc., Debtor and Debtor-in-Possession (the "Debtor") and Franklin Electronic Publishing, Inc. ("Franklin"). Appearances of counsel are noted in the record. The Court having considered the Motion and the additional pleadings and Declarations filed in support of confirmation of the Plan, and it appearing that adequate notice and opportunity for hearing were given under all of the circumstances, no objections to the Motion having been filed, and having considered the arguments and representations of counsel present and any evidence adduced at the hearing, the Court finds that all of the requirements for confirmation of the Plan set forth in Section 1129 of the Bankruptcy Code have been satisfied, and having placed its findings and conclusions on the record, and good cause otherwise appearing, IT IS HEREBY ORDERED: 1. The Motion is granted. 2. The Amended Plan of Reorganization for Voice Powered Technology International, Inc. dated as of January 21, 1998, proposed by the Debtor and Franklin, a true and correct copy of which is attached hereto as Exhibit "A", is in all respects 3 hereby confirmed pursuant to the provisions of Section 1129 of the Bankruptcy Code. 3. On the Effective Date, the provisions of the Plan shall bind the Debtor and the Reorganized Debtor, any entity receiving property or securities under the Plan, and any holder of a claim against or equity interest in the Debtor, whether or not the claim or equity interest is in a class that is impaired under the Plan and whether or not such holder has accepted the Plan pursuant to Section 1141 of the Bankruptcy Code. 4. Pursuant to Section XVI of the Plan, this Order constitutes approval of the executory contracts identified in Exhibit "E" of the Plan, with any such assumption being subject only to the payment of the cure amount identified in Exhibit "E" of the Plan, there being no other defaults or amounts required to be paid in connection with the assumption of such contracts. 5. As provided in Section XVI of the Plan, all executory contracts and unexpired leases of the Debtor which are not (a) contracts and leases assumed or rejected pursuant to Order of the Court prior to entry of the Order confirming the Plan; (b) contracts and leases which are the subject of motions to assume or reject filed by the Debtor prior to the entry of this Order; or (c) contracts listed on Exhibit "E" to the Plan, as it may be amended by the proponents at any time prior to the Effective Date of the Plan, are hereby rejected. To the extent that such rejection gives rise to a claim by the non-Debtor party or 4 parties to such contracts and leases, such claim, if any, arising from such rejection shall be forever barred and deemed waived unless such claim is duly filed within thirty (30) days after the date of entry of this Order. 6. Except as otherwise provided in the Plan, any agreements entered into in connection with the Plan, and other provisions of this Order, on the Effective Date all property of the Estate shall revest in the Reorganized Debtor, free and clear of all claims, liens, encumbrances, and other interests of any person, and the Reorganized Debtor may operate its business and may use, acquire, and dispose of property and compromise or settle any disputes without supervision or approval by this Court, free and clear of any restrictions of the Bankruptcy Code, Bankruptcy Rules, or Local Bankruptcy Rules, other than those restrictions expressly imposed by the Plan or this Order. 7. Notwithstanding any other provision of this Order, the Reorganized Debtor may pay, without application to this Court, the fees and charges which it incurs on or after the Effective Date. 8. All Applications for final compensation of professional persons for services rendered prior to the Effective Date, and all requests for payment of administrative costs and expenses incurred prior to the entry of this Order pursuant to 11 U.S.C. Section 507(a)(1) and not representing continuing obligations of the Reorganized Debtor as provided in the Plan, shall be filed no 5 later than forty-five (45) days after entry of this Order, or shall be forever barred. 9. The Debtor, the Reorganized Debtor, and the Disbursing Agent under the Plan, and their agents, attorneys, representatives and any other proper persons shall be, and they hereby are, authorized, empowered and directed to carry out all of the provisions of the Plan, and to perform such acts and to execute, deliver, file or record any such agreements, instruments and documents and obtain such supplemental orders of this Court as are necessary, useful or appropriate in order to effectuate, implement and consummate the Plan and this Order. Without limitation, the President and/or the Board of Directors of the Debtor are authorized to amend the Debtor's Articles of Incorporation and Bylaws, without necessity of obtaining shareholder approval, to include a provision prohibiting the issuance of non-voting equity securities as provided in Section IX.i of the Plan and to increase the number of authorized shares of common stock to 100 million shares in order to provide for the issuance of the necessary common stock to holders of Class 1 and Class 5 Claims as provided in Sections IX.d and h of the Plan. 10. The exemption from the requirement of Section 5 of the Securities Act of 1933, 15 U.S.C. Section 77(e), and any State or Local law requiring registration for the offer or sale of a security shall apply to the offer, sale and issuance by the Debtor of such common stock or other securities issued under the Plan, as 6 provided in Section XIX.c of the Plan, and pursuant to 11 U.S.C. Section 1145. 11. The Disbursing Agent and any successor Disbursing Agent designated under the Plan may, as provided in Section IX and XV of the Plan, pursue such objections to claims as are timely and necessary, and may employ counsel for such purpose. Each Disbursing Agent shall serve without bond, except as required by the Reorganized Debtor, and shall receive, without further order of this Court, reasonable compensation for services rendered and reimbursement of expenses as provided in the Plan. 12. As provided in Section VIII.d of the Plan, post-petition liabilities arising in the ordinary course of the Debtor's business shall be paid by the Reorganized Debtor in the ordinary course. All court costs and fees payable by Debtor pursuant to Section 1930 of Title 28 of the United States Code and not previously paid shall be paid by the Reorganized Debtor on the Effective Date. 13. This Court shall retain jurisdiction over the Debtor as provided in Section XIX of the plan to the fullest extent allowed by law. 14. All creditors and claimants at law or in equity whose status is based upon any debt, claim, liability or cause of action which was in existence as of the date of this Order or which arises out of the rejection of executory contract or unexpired lease, be and they hereby are, permanently restrained 7 and enjoined from pursuing or attempting to pursue, or from commencing or continuing any suit or proceeding at law, or in equity, directly or indirectly, against the Debtor, except pursuant to and consistent with the provisions of the Plan and this Order. 15. In accordance with Local Bankruptcy Rule 142(3), a post-confirmation status conference will be held on August 22, 1998, at 10:00 a.m. in Courtroom "1368". At least twenty (20) days prior to the status conference, the Debtor must file a status report ("Report") explaining what progress has been made toward confirmation of the confirmed plan of reorganization. The Report must be served on the United States Trustee, the 20 largest unsecured creditors, and those parties who have requested special notice. The Report shall include at least the following information: (a) A schedule listing for each debt and each class of claims: the total amount required to be paid under the Plan; the amount required to be paid as of the date of the Report; the amount actually paid as of the date of the Report; and the deficiency, if any, and required payment; (b) A schedule of any and all post-confirmation tax liabilities that have accrued or come due, and a detailed explanation of payments thereon; (c) Debtor's projections as to its continuing ability to comply with the terms of the Plan; 8 (d) An estimate of the date for Plan consummation and application for final decree; and (e) Any other pertinent information needed to explain the progress for completion of the confirmed plan. Reporting entities whose equity securities are registered under Section 12(b) of the Securities Exchange Act of 1934 may provide information from their latest 10Q or 10K filing with the SEC if it is responsive to the requirements of this paragraph 15. If the above-referenced case is converted to one under Chapter 7, the /// /// /// /// /// /// 9 property of the Reorganized Debtor shall be revested in the Chapter 7 Estate. (a) DATED: April 29, 1998 /s/ VINCENT ZURZOLO ------------------------------- VINCENT P. ZURZOLO, United States Bankruptcy Judge PRESENTED BY: ROBINSON, DIAMANT & BRILL A Professional Corporation By: /s/ PHILIP A. GASTEIER ------------------------------- PHILIP A. GASTEIER Attorneys for Debtor and Debtor-in-Possession APPROVED AS TO FORM AND CONTENT: PACHULSKI, STANG, ZIEHL & YOUNG PC By: /s/ BRAD R. GODSHALL ------------------------------- BRAD R. GODSHALL Attorneys for Franklin Electronic Publishing, Inc. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 MAR-31-1998 27 0 34 0 159 232 470 265 853 514 0 0 500 16 (3,417) 853 303 303 188 656 4 0 0 (357) 0 (357) 0 (60) 0 (417) (.03) (.03)
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