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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2003
Commission file number 000-13225
VPGI CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 75-1975147
(State of incorporation) (I.R.S. Employer Identification No.)
17300 North Dallas Parkway, Suite 2050, 75248
Dallas, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 233-0900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.001 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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 ____
Indicate by check mark, if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). YES NO X
As of December 31, 2002 the aggregate market value of the voting
stock held by non-affiliates of the Registrant (3,669,213 shares) was
approximately $128,422, based on the closing sale price of the Common Stock
as reported by the OTC Bulletin Board[R] ($0.035). Shares of Common Stock
held by each executive officer and director and by each person who owns 5%
or more of the outstanding Common Stock, based on corporate records and
Schedule 13G filings, have been excluded since such persons may be deemed
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
At September 20, 2003 there were 5,242,120 shares of Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: exhibits shown on the Exhibit
Index.
GENERAL INDEX
Page Number
ITEM l. BUSINESS............................................ 3
ITEM 2. PROPERTIES.......................................... 5
ITEM 3. LEGAL PROCEEDINGS................................... 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 5
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................. 6
ITEM 6. SELECTED FINANCIAL DATA.............................. 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK......................................... 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements.......... 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................. 16
ITEM 9A. CONTROLS AND PROCEDURES............................. 17
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.. 17
ITEM 11. EXECUTIVE COMPENSATION.............................. 18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................... 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 21
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.............. 21
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K......................................... 22
SIGNATURES.................................................... 23
EXHIBIT INDEX................................................. 53
VPGI CORP.
PART I
ITEM l. BUSINESS
(a) General Development of Business
We were incorporated in Texas on July 13, 1984. We filed an S-18
registration statement in November 1984 and completed the registered
offering in January 1985. In 1996 we introduced a digital media device
(set top box), which enabled the display of Internet content on a
television. In 1998 we added design and cabling services for voice/data
networks and in 1999 we added computer telephony integration (CTI)
capabilities to our product offerings with customized call center
solutions.
In December 2002, due to our financial position and the business
outlook for the foreseeable future, we discontinued normal operations.
All of our directors resigned, except for the CEO who remained as the sole
director, and we laid off all of our remaining officers and employees,
although some former employees continued to act in limited consulting roles
to facilitate an orderly winding down process. We are continuing to
evaluate various options and may consider a merger candidate, an acquisition
of a viable business or positioning the Company for a buyer of the corporate
entity.
(b) Financial Information About Industry Segments
Please refer to Note O of the Notes to Consolidated Financial
Statements in this Form 10-K for information concerning Industry Segments.
(c) Narrative Description of Business
We have conducted no business operations since December 2002, except
for managing assets and reducing liabilities. The following information,
consequently, relates only to normal business operations conducted prior to
that date.
Major Markets, Products and Services
Our digital media technology was available for licensing by customers
wishing to manufacture and market a digital media device that provided easy
and affordable access to the Internet through the television medium. The
units offered video on demand, Internet access, broadcast entertainment
programming and content streams. The digital media devices allowed users
to save and store programming, rewind, and pause television shows in mid-
broadcast; provided electronic programming guides that allowed users to
select channels based on television show, actor, or theme and could be used
to collect demographic information.
Our CTI technologies offered customized products for customer contact
centers, which could be designed to support a diverse network of sites, and
managed voice and data transactions from multiple sources while allowing for
intelligent routing and queuing.
Patents, Trademarks and Licenses
We owned or held rights to all patents, trademarks and licenses that we
considered to be necessary in the conduct of our business.
Manufacturing
We did not own manufacturing facilities, but rather contracted all
manufacturing to third parties.
Environmental
We were in compliance with all applicable environmental laws.
Major Customers
In fiscal year 2003, one customer accounted for approximately 39% of
consolidated revenues. In fiscal year 2002, one customer accounted for
approximately 44.6% of consolidated revenues and at June 30, 2002, one
customer accounted for 58.1% and another customer accounted for 25.2% of
trade accounts receivable. In fiscal year 2001, one customer accounted
for approximately 24.9% of consolidated revenues and at June 30, 2001,
one customer accounted for 49.8% of trade accounts receivable.
Competition
We operated in an intensely competitive industry. A number of
companies had developed digital media devices and technologies similar to
ours, including, among others, low-cost Internet access technologies, (ii)
"set top" boxes, as well as (iii) video game devices that provide Internet
access. Personal computer manufacturers offered products that offered
television viewing combined with Internet access. CTI competitors included
companies that marketed products with functionalities similar to ours.
Employees
As of June 30, 2003, the Company had no employees.
Warranty
The Company has no material outstanding warranty obligations.
ITEM 2. PROPERTIES
Until December 2002, we operated from the following locations, which
were deemed suitable for our operations. At June 30, 2003, another business
venture was utilizing the former corporate headquarters and making the lease
payments. All other locations were closed.
Location Purpose/Use Owned/Leased Square Footage
-------- ----------- ------------ --------------
Dallas, TX Corporate Headquarters Leased 16,617
Dallas, TX Storage facility Leased 5,120
Tulsa, OK Subsidiary office Leased 7,500
ITEM 3. LEGAL PROCEEDINGS
During 2003 one of our subsidiaries initiated an arbitration proceeding
against Metrophone Telecommunications, Inc. and AT&T Solutions, Inc.
alleging breach of contract. AT&T was subsequently dismissed and an
arbitration award of approximately $300,000 against Metrophone was awarded
by American Arbitration Association, Dallas division, in Case No. 71 181
00650 02, styled uniView Technologies Products Group, Inc. vs. Metrophone
Telecommunications, Inc. and AT&T Solutions, Inc. Metrophone has closed
its business and collection of the award appears doubtful.
We were otherwise routinely a party to ordinary litigation incidental
to our business, as well as to other litigation of a nonmaterial nature.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
We held a Special Shareholders' Meeting on July 17, 2003 to amend and
restate the Articles of Incorporation of the Company, which resulted in a
reduction of the par value of the Company's common stock from $.80 to $.001
per share. Of 4,486,120 common shares issued and outstanding as of June 13,
2003, the Record Date, 3,122,257 were represented in person or by proxy at
the meeting, which constituted a quorum for the transaction of all business
to come before the meeting.
The following proposal was approved by the required number of shares
represented at the meeting:
1. Adoption of director's proposal to amend and restate the Articles
of Incorporation of the Company.
FOR: 3,037,572 AGAINST: 78,930 ABSTAIN: 5,755
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
Until September 13, 2002 our common stock, $.001 par value (the
"Common Stock") traded on the NASDAQ SmallCap Market[SM]. It now trades on
the OTC Bulletin Board under the symbol "VPGI." High and low trade price
information for our Common Stock is presented below for each quarter in the
last two fiscal years.
Quarter Ending Date High Trade Low Trade
------------------- ---------- ---------
Fiscal 2003
-----------
June 30, 2003 $ 0.19 $ 0.018
March 31, 2003 $ 0.045 $ 0.02
December 31, 2002 $ 0.20 $ 0.035
September 30, 2002 $ 0.85 $ 0.15
Fiscal 2002
-----------
June 30, 2002 $ 0.87 $ 0.35
March 31, 2002 $ 1.31 $ 0.57
December 31, 2001 $ 0.90 $ 0.35
September 30, 2001 * $ 4.08 $ 0.65
* Stock prices adjusted retroactively to reflect the effects of a one-
for-eight reverse stock split on September 7, 2001.
Holders
As of June 30, 2003 there were approximately 11,500 record shareholders
and individual participants in security position listings.
Dividends
We have never paid cash dividends on common shares and do not
anticipate doing so in the foreseeable future. In addition, our Series
2002-G Convertible Preferred Stock contains preferential covenants that
materially limit the discretion of our Board of Directors with respect
to payment of dividends or making any other distribution to our common
shareholders so long as Series 2002-G is outstanding or unconverted.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes our equity compensation plans as of
June 30, 2003:
Number of Securities
Number of Securities Remaining Available For
To Be Issued Upon Weighted-average Future Issuance Under
Exercise of Outstanding Exercise Price of Equity Compensation Plans
Options, Warrants Outstanding Options, (Excluding Securities
Plan Category and Rights Warrants and Rights Reflected in Column (a))
--------------------------------------------------------------------------------------------
(a) (b) (c)
Equity Compensation
Plans Approved by
Security Holders 2,044,436 $ 4.13 2,973,064
Equity Compensation
Plans Not Approved by
Security Holders 215,000 $ 0.02 -0-
--------- ------- ---------
Total 2,259,436 $ 3.74 2,973,064
========= ======= =========
Options issued and available for future issuance under stockholder-
approved plans consist primarily of those authorized pursuant to our
1999 Equity Incentive Plan. Options issued under plans not approved by
stockholders consist of a one-time grant to former employees for services
rendered in connection with the winding down of normal Company operations
and to consultants for prior services rendered.
Recent Sales of Unregistered Securities
Issuances of equity securities during the fourth fiscal quarter that
were not registered under the Securities Act of 1933 consisted of the
following:
On June 4, 2003 we issued to some of our former employees and
consultants, for services, warrants to purchase an aggregate of 190,000
shares of our Common Stock. The warrants are exercisable at any time
through July 17, 2008 at a fixed exercise price of $0.02 per share. The
issuance was made pursuant to the exemption from registration provided by
Rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933,
in that (a) the investor or its purchaser representative is reasonably
believed to have such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the
investment, (b) the investor or its purchaser representative were
provided with required information and an opportunity to obtain additional
information a reasonable period of time prior to the transaction, (c) the
investor or its purchaser representative were advised of the limitations on
resale of the Common Stock, (d) the investor represented its intention to
acquire the securities for investment only and not with view to or for sale
in connection with any distribution thereof, and (e) appropriate legends
were affixed to the instruments issued in the transactions.
ITEM 6. SELECTED FINANCIAL DATA
All financial data for the years referenced below were derived from our
Consolidated Financial Statements for those years and the comparability of
the information is affected by acquisitions, dispositions, and other
transactions which are described in the footnotes which accompany those
Consolidated Financial Statements, and which should be read in conjunction
with this five-year financial summary. Other factors which may affect the
comparability of the information for the more recent fiscal years are
discussed further in Item 7 below.
Year Ended June 30,
-------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Consolidated Statement
of Operations Data
-------------------
Revenues $ 625,785 $5,369,311 $9,332,232 $ 9,145,705 $11,486,058
Operating loss (3,545,461) (3,894,502) (6,789,892) (10,631,655) (7,913,331)
Net loss (3,475,604) (2,733,434) (6,622,458) (10,863,875) (6,297,353)
Net loss attributable
to common stockholders (2,163,804) (1,019,077) (284,658) (9,825,275) (10,879,960)
Loss per Common
Share (1) (0.52) (0.30) (0.08) (3.82) (7.02)
Consolidated Balance
Sheet Data
--------------------
Total assets 22,831 4,842,203 8,837,360 12,523,204 14,080,768
Long term debt -- 14,938 1,388,126 595,324 3,823,210
Redeemable preferred
stock -- 1,456,000 1,170,000 8,409,600 10,350,000
Stockholders' equity
(deficit) 10,839 2,018,192 3,933,806 860,699 (2,013,022)
Number of employees -- 25 67 104 79
(1) Basic and diluted loss per share which was computed based upon the
weighted average number of common shares outstanding during each fiscal
year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion provides information to assist in the
understanding of our financial condition and results of operations and
should be read in conjunction with the Consolidated Financial Statements
and related notes appearing elsewhere herein.
Forward Looking Statements
This report may contain "Forward Looking Statements," which are our
expectations, plans, and projections which may or may not materialize, and
which are subject to various risks and uncertainties, including statements
concerning expected expenses and the adequacy of our sources of cash to
finance our current and future operations. When used in this report, the
words "plans," "believes," "expects," "anticipates," "estimates" and similar
expressions are intended to identify forward-looking statements. Factors
which could cause actual results to materially differ from our expectations
include the following: general economic conditions and growth in the high
tech industry; competitive factors and pricing pressures; changes in product
mix; the timely development and acceptance of new products; and the risks
described from time to time in our SEC filings. These forward-looking
statements speak only as of the date of this report. We expressly disclaim
any obligation or undertaking to release publicly any updates or change in
our expectations or any change in events, conditions or circumstances on
which any such statement may be based, except as may be otherwise required
by the securities laws.
Results of Operations
Please refer to Note O of the Notes to Consolidated Financial
Statements in this Form 10-K for additional information on our operating
segments.
FISCAL YEAR ENDED JUNE 30, 2003 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2002
---------------------------------------------------------------------------
Revenues
Total revenues for fiscal year 2003 decreased to $626,000, as compared
to $5.37 million in 2002. Revenues for fiscal year 2003 are primarily
comprised of revenues from the sale of CTI products and support services
during the first half of the fiscal year before the Company discontinued
all operations.
Gross Margin
Gross margin for fiscal year 2003 was $421,000, as compared to $3.11
million for 2002. This represents 67.2% of all revenue in fiscal year
2003, compared to 58% in the previous year. The increase as a percentage of
revenue can be attributed to the virtual elimination of all costs associated
with the sale of products and services due to the discontinuance of
operations.
Write-Off of Inventory and Software Development Costs
We wrote off all remaining inventories, purchased software and product
and software development costs in December 2002 for fiscal year 2003, as
they were no longer being utilized. No inventories were written down or
off and we did not capitalize any software development costs in fiscal year
2002.
Operating Expenses
Total operating expenses for fiscal year 2003 decreased to
approximately $3.97 million, compared to approximately $7.0 million for the
same period last year. Significant components of operating expenses for the
fiscal years ended June 30, 2003 and 2002 consisted of the following:
Year ended June 30,
-------------------------------
2003 2002
----------- -----------
Compensation $ 537,859 $ 3,099,108
Facilities 156,560 578,423
Depreciation 439,621 494,112
Asset Impairment 1,793,534 -0-
Amortization of software development
costs, trademark, and goodwill 177,985 1,098,937
Online service expense 2,188 66,516
Legal expense and professional fees 205,411 141,489
Extinguishment of debt -0- 406,243
Sales and marketing 10,370 52,850
Other 642,524 1,070,460
----------- -----------
Total $ 3,966,052 $ 7,008,138
=========== ===========
"Other" expenses include public company cost, telephone, travel,
office, insurance, and other general and administrative expenses. The
decrease in operating expenses for fiscal year 2003 is attributable to
the discontinuance of all Company operations in December 2002.
Interest Expense
Total interest expense for fiscal year 2003 was $13,000 as
compared to $101,000 in 2002. The decrease in interest expense is primarily
attributable to the virtual elimination of our debt level at June 30, 2003,
from approximately $240,000 at June 30, 2002.
FISCAL YEAR ENDED JUNE 30, 2002 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2001
---------------------------------------------------------------------------
Revenues
Total revenues for fiscal year 2002 decreased to $5.37 million, as
compared to $9.33 million in 2001. Revenues for fiscal year 2002 were
primarily comprised of revenues from the sale of CTI products and support
services, as well as revenues from infrastructure design and cabling
services.
CTI. Revenues for our CTI segment for fiscal year 2002 were
approximately $2.68 million, compared to approximately $2.88 million for
2001. Much of the revenue for 2002 is attributable to the sale in January
2002 of a source code license to a major customer for $1.3 million in cash.
This customer generated approximately $2.5 million of our revenues during
the fiscal year ended June 30, 2001 and at the time of the sale represented
our largest CTI customer. The transaction resulted in limited revenues from
this customer after the sale, as the customer assumed the responsibility
for its own CTI software operations. Sales from CTI products and support
services since the date of the sale through June 30, 2002 totaled $172,500.
In connection with the sale transaction, the customer also offered
positions to some of our staff who had been assigned to manage and maintain
the customer's contract and our CTI staff was reduced accordingly.
Cabling services. Revenues for our infrastructure design and cabling
services segment for fiscal year 2002 were approximately $2.5 million,
compared to approximately $5.0 million for 2001. This segment historically
offered computers and computer networks, primarily to school districts.
During fiscal year 2001, we shifted our emphasis to providing infrastructure
design and cabling services for high-speed voice/data networks. The
decrease in revenues for 2002 is attributable to the transition period
brought about by the change from primarily offering hardware to primarily
offering higher margin services.
Royalties. Due to the sale of the Curtis Mathes trademark in September
2001, we recognized only $50,000 in royalty revenue from the trademark
during fiscal 2002, compared to $1.13 million during the previous year.
Gross Margin
Gross margin for fiscal year 2002 was $3.11 million, as compared to
$4.35 million for 2001. As a percentage of total revenue, gross margin
increased to 58% in fiscal year 2002, compared to 46.6% in the previous
year. The increase as a percentage of revenue can be attributed to focusing
resources on opportunities that yield better margins, as well as to the sale
of the source code license.
Inventory Write-Down and Software Development Costs
We did not capitalize any additional software development costs in
fiscal year 2002. In fiscal year 2001, we capitalized software development
costs of $329,000, which were attributable to continued improvements and
enhancements to the various models of our digital media device.
Operating Expenses
Total operating expenses for fiscal year 2002 decreased 37% to
approximately $7.0 million, compared to approximately $11.14 million for
the same period last year. Significant components of operating expenses for
the fiscal years ended June 30, 2002 and 2001 consisted of the following:
Year ended June 30,
-------------------------------
2002 2001
----------- -----------
Compensation $ 3,099,108 $ 4,972,693
Facilities 578,423 729,766
Depreciation 494,112 583,229
Amortization of software development
costs, trademark, and goodwill 1,098,937 1,332,948
Online service expense 66,516 853,053
Legal expense 141,489 0
Extinguishment of debt 406,243 0
Stock option expense 0 58,496
Other 1,123,310 2,611,785
----------- -----------
Total $ 7,008,138 $ 11,141,970
=========== ===========
"Other" expenses include public company cost, telephone, travel,
office, insurance, and other general and administrative expenses. The
decrease in online service expenses for 2002 compared to 2001 primarily
consists of online television listings utilized in connection with our
digital media products, which services were terminated in July 2001. The
remaining decrease in operating expenses for fiscal year 2002 is primarily
attributable to reduced compensation and other expenses due to a reduction
in the number of employees and overall cost controls.
Interest Expense
Corporate interest expense for fiscal year 2002 was $90,000 as
compared to $113,000 in 2001. The decrease in interest expense is primarily
attributable to a decrease in our debt level from approximately $1.4 million
at June 30, 2001 to approximately $240,000 at June 30, 2002. Products and
services interest expense for fiscal year 2002 was $12,000 as compared to
$64,000 in 2001. This decrease is due in part to phasing out a line of
credit in fiscal 2001. The weighted average interest rate for our borrowings
was 13.2% and 13.8% for the years ended June 30, 2002 and 2001,
respectively.
Liquidity and Capital Resources
Cash and cash equivalents at June 30, 2003 were $9,883 compared to
$724,000 at June 30, 2002. In the past we relied on available borrowing
arrangements and sales of our common and preferred stock to supplement
operations. However, during 2003 outside financial resources became
unavailable to us and it was necessary to discontinue operations and close
the Company.
Cash Flows From Operations
Cash used in operations for the fiscal year ended June 30, 2003 was
$1.07 million compared to $2.15 million used in operations in 2002. The
major components of cash used in operations during 2003 were comprised of a
$3.48 million loss from operations, including depreciation and amortization
of $440,000, asset and goodwill impairment of $1.7 million, and a discount
on a note receivable of $300,000.
Cash used in operations for the fiscal year ended June 30, 2002 was
$2.15 million compared to $3.46 million in 2001. The major components of
cash used in operations during 2002 were comprised of a $2.73 million loss
from operations, including depreciation and amortization of $1.6 million
(primarily capitalized software amortization) and a one-time gain of $1.1
million on the sale of the Curtis Mathes trademark, as well as a reduction
in our investment in working capital. In addition, a loss of
$406,000 for extinguishment of debt resulted from the assumption by
the purchaser of the trademark of a $2 million note payable. (See Note H
of the Notes to Consolidated Financial Statements in this Form 10-K for
additional information on Long-Term Debt.)
Cash used in operations for the fiscal year ended June 30, 2001 was
$3.46 million. Major components of cash used in operations in fiscal year
2001 were a net loss from operations of $6.62 million and a reduction in
deferred revenues of $719,000, consisting of fees received in advance for
call center maintenance and other services, which were earned and recognized
during fiscal year 2001, offset by the following: depreciation and
amortization of $1.92 million; accounts receivable decreased by $529,000,
primarily due to a slow down in sales during the fourth quarter of fiscal
year 2001; prepaid expenses decreased by $730,000 primarily due to a
reduction in prepaid expenses for television listings that expired during
fiscal year 2001; and accounts payable and accrued liabilities increased by
$313,000, primarily due to a $450,000 deposit on the trademark sale received
in fiscal year 2001.
Cash Flows From Investing Activities
During fiscal year 2003, we discounted the outstanding principal
balance of $850,000 of the note receivable received in the sale of the
Curtis Mathes trademark and collected $550,000. We additionally redeemed
a certificate of deposit for $25,000.
During fiscal year 2002, we sold the Curtis Mathes trademark to an
investment group for $4.5 million, which included $635,000 in cash ($450,000
of which was received in fiscal 2001) and $1,865,000 in a note receivable.
The sale resulted in a release of a secured debt of $2 million as the buyer
assumed the outstanding debt, providing additional operating capital. The
value of the sale was based on an estimated four years of projected royalty
stream from the Curtis Mathes brand. Payments received on the note
receivable in fiscal 2002 totaled $1.02 million, and the outstanding
principal balance of the note receivable at June 30, 2002 was $850,000.
We additionally purchased approximately $12,000 of property and equipment
during 2002 and purchased a long-term certificate of deposit for $25,000.
During fiscal year 2001, we purchased property and equipment for
$177,000, approximately $100,000 of which related to computers and computer
software. Additional development costs of $329,000 were capitalized as
expenditures relating to improvements in our digital media device and we
received approximately $68,000 in cash from the sale of fully depreciated
equipment.
Cash Flows From Financing Activities
Cash of $315,000 was used in financing activities during fiscal year
2003, consisting of payments on long-term and capital lease obligations.
Cash of $100,000 was borrowed during fiscal year 2003.
Cash flow from financing activities generated approximately $1.11
million during fiscal year 2002; major components include $500,000 from the
issuance of preferred stock and $700,000 from proceeds of long term debt.
Cash flow from financing activities generated $3.06 million during
fiscal year 2001; major components include $2.00 million from the sale of
Common Stock and $1.52 million from proceeds of long term debt.
Additionally, net repayment of the bank line of credit totaled approximately
$321,000 for the year.
Other Matters
Critical Accounting Policies
The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates. The
following critical accounting policies are utilized by management in the
preparation of the consolidated financial statements.
Redeemable Preferred Stock. Prior to April 2003, the Company's Series
1999-D1 and 2002-G preferred stock was redeemable at the option of the
holder, and was therefore classified outside of stockholders' equity. The
redemption value of these securities varies based on the market price of the
Company's common stock. The Company adopted an accounting method provided
in EITF Topic D-98 for these types of securities, which recognizes changes
in redemption value immediately as they occur and adjusts the carrying value
of the security to equal the redemption value at the end of each reporting
period. The result of this accounting method is an increase in loss
attributable to common shareholders and a decrease in stockholders' equity
as the Company's common stock price increases, with the opposite effect when
the Company's common stock price decreases. On April 16, 2003, the holder
of the Company's Series 2002-G preferred stock agreed to modify the terms of
the preferred stock, whereby any future redemption of the preferred stock
shall be at the sole option of the Company. This modification to the terms
of the preferred stock results in the preferred stock being accounted for
as equity at June 30, 2003.
Product and Software Development Costs. We capitalized product and
software development costs beginning at the time technological feasibility
of the product or software was established, until the product or software
was ready for use in products. Research and development costs of products
and software were expensed as incurred. The capitalized costs related to
products or software which we expected to become an integral part of our
revenue-producing products were amortized in relation to expected revenues
from the product, or straight-line over a maximum of four years, whichever
was greater. We regularly reviewed the carrying value of product or
software development costs, and we would recognize a loss when the expected
net realizable value of a product fell below the unamortized cost.
Impairment of Long-lived Assets. The Company evaluated long-lived
assets and intangibles held and used for impairment whenever events or
changes in circumstances indicated that the carrying amounts may not be
recoverable. Impairment was recognized when the undiscounted cash flows
estimated to be generated by those assets were less than the carrying
amounts of such assets.
Revenue Recognition. We recognized revenue as follows: (a) service
revenue - when the services were provided; (b) equipment and product
sales - at the time of delivery and customer acceptance; (c) installation
of software and hardware systems - the completed contract method; and (d)
royalties - when earned as the customer sold royalty related products.
Amounts for which revenue could not be recognized, such as uncompleted
contracts or unearned maintenance services, were included in deferred
revenue and were recognized as contracts were completed or ratably over
the period covered by the maintenance agreement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Prior to December 2002, we were exposed to market risk from changes in
interest rates which could adversely affect our financial position, results
of operations and cash flows. In seeking to minimize the risks from
interest rate fluctuations, we managed exposures through our regular
operating and financing activities. We did not use financial instruments
for trading or other speculative purposes and we were not a party to any
leveraged financial instruments. We were exposed to interest rate risk
primarily through our borrowing activities, which are described in the
"Long-Term Debt" Notes to the Consolidated Financial Statements, which
are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and related Financial Statement
Schedules are included immediately following the signature page of this
Form 10-K.
Selected Quarterly Financial Data (unaudited)
The following tables set forth certain unaudited financial data for the
quarters indicated:
Fiscal 2003 Quarter Ended Fiscal 2002 Quarter Ended
-------------------------------------------------- ------------------------------------------------------
Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
2002 2002 2003 2003 2001 2001 2002 2002
---------- ---------- --------- ---------- ---------- ---------- ---------- ----------
Net Sales $ 437,503 $ 103,282 $ 0.00 $ 85,000 $ 1,639,662 $ 827,858 $ 2,393,752 $ 508,039
Gross Margin $ 243,985 $ 91,606 $ 0.00 $ 85,000 $ 1,003,082 $ 473,723 $ 1,713,433 $ (76,602)
% of net sales 55.8% 88.7% 0% 100% 61.2% 57.2% 71.6% (15.1)%
Operating income
loss) $(1,820,458) $(1,574,644) $ (67,986) $ (82,373) $ (868,653) $(1,372,669) $ 81,350 $(1,328,287)
% of net sales (416.1)% (1,524.6)% 0% (96.9)% (53.0)% (165.8)% 3.4% (261.5)%
Net income (loss) $(1,806,122) $(1,555,195) $ (76,208) $ (38,079) $ (245,387) $(1,348,541) $ 112,581 $(1,252,087)
% of net sales (412.8)% (1,505.8)% 0% (44.8)% (15.0)% (162.9)% 4.7% (246.5)%
Net income (loss)
attributable to
common shareholders $(1,151,372) $ (926,095) $ (47,183) $ (39,154) $ 269,913 $(1,429,491) $ 11,855 $ 128,646
% of net sales (263.2)% (896.7)% 0% (46.1)% 16.5% (172.7)% 0.5% 25.3%
Net income (loss)
attributable to
common shareholders
per share - basic and
diluted* $(0.31) $(0.24) $(0.01) $(0.01) $0.08 $(0.42) $0.00 $0.04
* Difference in per share amounts between quarterly financial data and
year-end results are attributable to rounding.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The client-auditor relationship between the Registrant and Grant
Thornton LLP ended, with the approval of Registrant's audit committee,
as of August 21, 2003. Grant Thornton declined to stand for reelection.
During the Registrant's two most recent fiscal years and the subsequent
interim period preceding termination of the relationship, there were no
disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedure. Although unrelated to the change, the former accountant's
report on Registrant's financial statements for the fiscal year ended June
30, 2002 contained an opinion that was qualified concerning the Registrant's
ability to continue as a going concern. The former accountant was provided
with a copy of the foregoing disclosures and was requested to furnish the
Registrant with a letter addressed to the Commission stating whether it
agrees with the above statements and, if not, stating the respects in which
it does not agree. The former accountant's letter is filed as Exhibit 16
to the Company's Form 8-K Report filed with the Commission dated August 21,
2003.
A new independent accountant, Cheshier & Fuller, L.L.P., was engaged
as of August 21, 2003 as the principal accountant to audit the Registrant's
financial statements beginning with fiscal year ended June 30, 2003.
ITEM 9A. CONTROLS AND PROCEDURES
Our Chief Executive Officer has reviewed and evaluated the
effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 240.13a-15(e) or 15d-15(e)) as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive
Officer has concluded that these disclosure controls and procedures are
effective.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
The following sets forth, with respect to each member of our Board of
Directors as of June 30, 2003, his name, age, period served as director,
present position, if any, with the Company and other business experience.
All directors in the past have served one-year terms between annual meetings
of shareholders.
Patrick A. Custer, 54, is the sole member of the Board and Chief
Executive Officer. Mr. Custer served as a director from 1984 to 1985, and
from 1987 until the present. He served as President and Chief Executive
Officer from 1984 to 1985 and from September 1992 until the present. From
1986 until 1990, Mr. Custer was an international business consultant for
Park Central Funding (Guernsey), Ltd. From 1978 until 1982, Mr. Custer was
a general securities principal and worked for a major brokerage firm as a
corporate finance specialist and was owner of his own brokerage firm. He
was responsible for structuring and funding IPO's, real estate, energy
companies, and numerous high-tech start-up companies. Mr. Custer's
technical experience includes engineering and management positions with
Texas Instruments and Honeywell. Mr. Custer is a graduate of Texas Tech
University in Finance and Management, with additional studies in Electrical
Engineering and master studies in Finance.
Executive Officers
The following table lists the names and positions held by all executive
officers as of June 30, 2003.
Name Position
---- --------
Patrick A. Custer Sole Board member, President, Chief
Executive Officer and Principal Financial
Officer
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act ("Section 16(a)"), requires our
directors, executive officers and persons who beneficially own more than
10% of a registered class of our equity securities ("10% Owners") to file
reports of beneficial ownership of our securities and changes in such
beneficial ownership with the Securities and Exchange Commission
("Commission"). Directors, executive officers and 10% Owners are also
required by rules promulgated by the Commission to furnish us with copies
of all forms they file pursuant to Section 16(a).
Based solely upon a review of the copies of the forms filed pursuant to
Section 16(a) furnished to us, or written representations that no year-end
Form 5 filings were required for transactions occurring during fiscal year
ended June 30, 2003, we believe that during the fiscal year ended June 30,
2003, all Section 16(a) filing requirements applicable to our directors,
executive officers and 10% Owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid over the last
three completed fiscal years to our Chief Executive Officer and any other
executive officer who received compensation exceeding $100,000 during the
fiscal year ended June 30, 2003.
Long Term Compensation
------------------------------------
Annual Compensation Awards Payouts
--------------------------------- --------------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
All
Other
Name and Year Other Restricted Securities LTIP Compen-
Principal Ended Annual Stock Underlying Payouts sation
Position June 30 Salary($) Bonus($) Compensation($) Awards($) Options(#) ($) ($)
- ---------- ------- -------- ------- -------------- ---------- -------------- ------- ------
Patrick A. Custer 2003 159,490 -0- (1) -0- 310,000 -0- -0-
Sole member of the 2002 210,000 -0- (1) -0- 378,000 -0- -0-
Board and CEO 2001 210,000 -0- (1) -0- 141,250 -0- -0-
(1) Other annual compensation to this executive officer, including payment
of a car allowance and other personal benefits, did not exceed the
lesser of $50,000 or 10% of such executive officer's total annual
salary and bonus for such fiscal year.
Option Grants Table
The following table shows individual grants of stock options made
during fiscal year ended June 30, 2003 to each of the named executive
officers.
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (2)
- -------------------------------------------------------------------------------- ---------------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities % of Total Exercise Market
Underlying Options or Base Price on
Options Granted to Price the Date Expiration
Name Granted(#) Employees ($/Sh) of Grant Date 5% ($) 10% ($)
- ---- ------------- ---------- -------- -------- ---------- ------- ---------
Patrick A. Custer 310,000 (1) 100% $ 0.02 $ 0.02 06/04/08 1,713 3,785
(1) These options are subject to the terms of our 1999 Equity Incentive
Plan; they have a five-year life and vested immediately upon issuance.
(2) Potential realizable values are net of exercise price, but before
deduction of taxes associated with exercise. The indicated 5% and 10%
values represent assumed rates of appreciation only and are provided to
comply with Commission regulations. They do not necessarily reflect
our views as to the likely trend in the stock price. Actual gains, if
any, on stock option exercises and the sale of Common Stock holdings
will be dependent upon, among other things, the success of management's
endeavors to sell the corporate shell, merge with or acquire a viable
business, the resulting future performance of the Common Stock, if any,
and overall stock market conditions. The amounts reflected in this
table may not be achieved.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
The following table shows aggregate exercises of options (or tandem
stock appreciation rights) and freestanding stock appreciation rights during
the fiscal year ended June 30, 2003 by each of the named executive officers.
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
Shares
Acquired Value Exercisable (E)/ Exercisable (E)/
Name on Exercise(#) Realized($) Unexercisable (U) Unexercisable (U)
- ------ -------------- ----------- ----------------- -----------------
Patrick A. Custer -0- -0- 746,500 (E) 27,900 (E)
189,000 (U) -0- (U)
(1) At June 30, 2003, 310,000 of the options were considered "in-the-
money," as the fair market value of the underlying securities on that
date ($0.11) exceeded the exercise price of the options ($0.02). None
of the remaining options were considered "in-the-money," as the fair
market value of the underlying securities did not exceed the exercise
price of the options.
Compensation of Directors
Directors are not paid compensation as such, except for services
performed in another capacity, such as an executive officer.
Employment Contracts and Termination and Change-in-Control Arrangements
At June 30, 2003, we had no employment agreement with any named
executive officer.
Compensation Committee Interlocks and Insider Participation
Mr. Custer participated in advising the Board of Directors concerning
certain aspects of executive officer compensation during the last completed
fiscal year. Mr. Custer is Chairman of the Board, President and Chief
Executive Officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 20,
2003 with respect to the beneficial ownership of Common Stock by (i) persons
known to us to be the beneficial owners of more than 5% of the outstanding
shares of Common Stock, (ii) all directors of the Company, (iii) each of
the executive officers and (iv) all directors and executive officers of
the Company as a group.
The number of shares of Common Stock beneficially owned by each
individual set forth below is determined under the rules of the Commission
and the information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership includes
any shares as to which an individual has sole or shared voting power or
investment power and any shares which an individual presently, or within 60
days of September 28, 2003 (the date on which this Form 10-K is due at the
Commission), has the right to acquire through the exercise of any stock
option or other right. Unless otherwise indicated, each individual has sole
voting and investment power (or shares such powers with his spouse) with
respect to the shares of Common Stock set forth in the following table. The
information is based upon corporate records, information furnished by each
shareholder, or information contained in filings made with the Securities
and Exchange Commission.
Number of Shares
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
------------------- ----------------------- --------
5% Beneficial Owners
Patrick A. Custer 1,072,508 (1) 17.91%
17300 N. Dallas Pkwy., Suite 2050
Dallas, Texas 75248
Peak Decision International Limited 350,000 (2) 7.80%
Unit 1603, 16F
Dina House,
11 Duddell Street, Central
Hong Kong
Trident Growth Fund, L.P. 423,815 (3) 8.80%
(formerly known as Gemini
Growth Fund, L.P.)
3602 McKinney Ave, Suite 220
Dallas, Texas 75204
Directors
Patrick A. Custer 1,072,508 (1) 17.91%
Executive Officers
Patrick A. Custer 1,072,508 (1) 17.91%
All Directors and Executive
Officers as a Group 1,072,508 (4) 17.91%
(1) Includes 290,188 shares owned outright by Mr. Custer; 746,500 shares
issuable to Mr. Custer upon exercise of vested nonstatutory Employee
Stock Options; 32,729 shares held of record by Custer Company, Inc., a
family trust, over which Mr. Custer exercises voting control; 2,969
shares owned by his wife; 118 shares held by his wife for the benefit
of his minor daughter; and 2 shares each held by Mr. Custer for the
benefit of his two sons.
(2) Common shares owned.
(3) Includes 26,625 shares owned outright by Founders Equity Group, Inc.,
an affiliate of Beneficial Owner, 65,940 shares owned outright by
Founders Partners IV, LLC, an affiliate of Beneficial Owner, and
331,250 shares issuable upon exercise of warrants.
(4) Includes shares beneficially owned by all directors and Executive
Officers shown above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Pursuant to SEC Release No. 33-8183 (as corrected by Release No.
33-8183A), the disclosure requirements of this Item are not effective
until the Annual Report on Form 10-K for the first fiscal year ending
after December 15, 2003.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Reference is made to the financial statements filed as part of
this report.
(2) Financial Statement Schedules
Reference is made to the financial statement schedules filed as
part of this report. All other schedules are omitted because
they are not applicable or not required, or because the required
information is included in the financial statements or notes
thereto.
(3) Exhibits
Reference is made to the Exhibit Index at the end of this Form
10-K for a list of all exhibits filed with and incorporated by
reference in this report.
(b) Reports on Form 8-K.
During the last quarter of the period covered by this report the
Company filed one Report on Form 8-K, dated August 21, 2003,
reporting a change in accountants.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VPGI CORP.
By: /s/ PATRICK A. CUSTER
---------------------
Patrick A. Custer
Chief Executive Officer
and Principal Financial Officer
October 14, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Principal Executive Officer and
-------------------------------
Principal Financial and Accounting Officer
------------------------------------------
/s/ PATRICK A. CUSTER Chairman of the Board, October 14, 2003
Patrick A. Custer Chief Executive Officer
and Director
Independent Auditor's Report
----------------------------
Board of Directors
VPGI Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of VPGI Corp.
and Subsidiaries as of June 30, 2003, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
the year ended June 30, 2003. These consolidated financial statements are
the responsibility of management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
financial statements of VPGI Corp. and Subsidiaries as of June 30, 2002 and
for each of the two years in the period then ended, were audited by other
auditors whose report dated September 3, 2002, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of VPGI Corp. and Subsidiaries as of June 30, 2003, and the
consolidated results of their operations and their consolidated cash flows
for the year ended June 30, 2003 in conformity with accounting principles
generally accepted in the United States of America.
We have also audited Schedule II for the year ended June 30, 2003. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
As shown in the consolidated financial statements, the Company incurred net
losses of $3,475,604, $2,733,434 and $6,622,458 for the years ended June
30, 2003, 2002 and 2001, respectively. These factors, among others, as
discussed in Note B to the consolidated financial statements raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Note B.
CHESHIER & FULLER, L.L.P
Dallas, Texas
September 29, 2003
Report of Independent Certified Public Accountants
Board of Directors
VPGI Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of VPGI Corp.
(formerly uniView Technologies Corporation) and Subsidiaries as of June
30, 2002, and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for each of the two years in the
period ended June 30, 2002. These financial statements are the
responsibility of management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VPGI Corp.
and Subsidiaries as of June 30, 2002, and the consolidated results of their
operations and their consolidated cash flows for each of the two years in the
period ended June 30, 2002 in conformity with accounting principles
generally accepted in the United States of America.
We have also audited Schedule II for the years ended June 30, 2002 and
2001. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company incurred net losses of $2,733,434 and $6,622,458
for the years ended June 30, 2002 and 2001, respectively. These factors,
among others, as discussed in Note B to the financial statements raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Note B.
The financial statements do not include any adjustments that might result
from the outcome of these undertainties.
GRANT THORNTON LLP
Dallas, Texas
September 3, 2002
VPGI Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 2003 2002
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 9,883 $ 724,051
Trade accounts receivable, net of allowance
for doubtful accounts of $-0- in 2003 and
$13,637 in 2002 - 356,178
Note receivable from the sale of trademark - 850,000
Inventories - 49,929
Prepaid expenses - 285,271
Other current assets - 3,506
----------- -----------
Total current assets 9,883 2,268,935
CERTIFICATE OF DEPOSIT - 25,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,618,974 in 2002 - 150,033
OTHER ASSETS
Purchased software, net of accumulated
amortization of $1,783,263 in 2002 - 711,702
Product and software development costs, net of
accumulated amortization of $522,476 in 2002 - 422,190
Intellectual property license - 129,500
Goodwill, net of accumulated amortization of
$414,824 in 2002 - 1,005,509
Security deposit on corporate office 12,948 12,948
Pension surplus - 29,231
Other - 87,155
----------- -----------
Total other assets 12,948 2,398,235
----------- -----------
Total assets $ 22,831 $ 4,842,203
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
VPGI Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2002
----------- -----------
CURRENT LIABILITIES
Current maturities of long-term debt,
net of debt discount of $52,500 in 2002 $ - $ 169,992
Current maturities of obligations under
capital leases - 30,002
Trade accounts payable - 707,207
Accrued expenses 11,992 395,003
Deposits - -
Deferred revenue - 50,869
----------- -----------
Total current liabilities 11,992 1,353,073
LONG TERM DEBT, less current maturities - 13,445
OBLIGATIONS UNDER CAPITAL LEASES,
less current maturities - 1,493
----------- -----------
Total liabilities 11,992 1,368,011
REDEEMABLE PREFERRED STOCK
Series 2002-G, -0- shares issued and
outstanding at June 30, 2003 and 240
shares issued and outstanding at June 30,
2002, (liquidation preference of $6 million) - 1,456,000
STOCKHOLDERS' EQUITY
Preferred stock, cumulative, $1.00 par value;
1,000,000 shares authorized:
Series A, 30,000 shares issued and outstanding
at June 30, 2003 and 2002 30,000 30,000
Series H, 2 shares issued and outstanding
at June 30, 2003 and 2002 (liquidation
preference of $50,000) 2 2
Series 2002-K, 20 shares issued and outstanding
at June 30, 2003 and June 30, 2002
(liquidation preference of $500,000) 20 20
Series 2002-G, 196 shares issued and outstanding
at June 30, 2003 (liquidation preference of
$4.9 million) 196 -
Common stock, $.001 par value; 80,000,000 shares
authorized; 4,486,120 and 3,749,785 shares
issued and outstanding at June 30, 2003 and
2002, respectively 4,486 3,750
Additional paid in capital 60,337,666 60,186,369
Accumulated deficit (60,361,531) (58,201,949)
----------- -----------
Total stockholders' equity 10,839 2,018,192
Total liabilities and stockholders' equity $ 22,831 $ 4,842,203
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
VPGI Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
2003 2002 2001
---------- ---------- ----------
Revenues
Product sales $ 127,730 $ 1,919,695 $ 5,434,527
Consulting and support services 498,055 3,399,463 2,765,958
Royalties - 50,153 1,131,747
---------- ---------- ----------
Total revenues 625,785 5,369,311 9,332,232
Cost of products and services
Cost of product sales 50,649 939,082 3,231,702
Cost of consulting and support services 154,545 1,316,593 1,748,452
---------- ---------- ----------
Total cost of products and services 205,194 2,255,675 4,980,154
---------- ---------- ----------
Gross margin 420,591 3,113,636 4,352,078
Operating expenses
Selling 10,370 52,850 686,377
General and administrative 1,722,527 4,955,996 8,539,416
Depreciation and amortization 439,621 1,593,049 1,916,177
Extinguishment of debt -- 406,243 --
Asset impairment 1,793,534 -- --
---------- ---------- ----------
3,966,052 7,008,138 11,141,970
---------- ---------- ----------
Operating loss (3,545,461) (3,894,502) (6,789,892)
Other (income) expense
Interest income (83,023) (95,445) (30,247)
Interest expense 13,166 101,389 177,237
Other income, net - (63,966) (246,151)
Gain on sale of assets - - (68,273)
Gain on sale of trademark - (1,103,046) -
---------- ---------- ----------
Total other (income) expense (69,857) (1,161,068) (167,434)
---------- ---------- ----------
Net loss (3,475,604) (2,733,434) (6,622,458)
---------- ---------- ----------
Decrease in redemption
value of redeemable preferred stock 1,316,100 2,168,657 7,239,600
Dividend requirements on preferred stock (4,300) (454,300) (901,800)
---------- ---------- ----------
Net loss attributable to
common stockholders $(2,163,804) $(1,019,077) $ (284,658)
========== ========== ==========
Per share amounts allocable to common
stockholders - Basic and diluted
Net loss $(0.52) $(0.30) $(0.08)
===== ===== =====
Weighted average common shares
outstanding - Basic and diluted 4,133,160 3,404,172 3,387,645
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
VPGI Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended June 30, 2003, 2002 and 2001
Common Stock Preferred Stock Additional
---------------------- -------------------- paid-in Accumulated
Shares Amount Shares Amount capital deficit Total
---------- ---------- -------- ---------- ----------- ------------ -----------
Balances - July 1, 2000 3,307,065 $ 3,307 30,002 $ 30,002 $56,621,178 $ (55,793,788) $ 860,699
Sale of common stock 91,912 92 - - 1,999,908 - 2,000,000
Stock compensation for employees
and directors - - - - 58,496 - 58,496
Issuance of warrants for services - - - - 212,619 - 212,619
Issuance of warrants in connection
with long-term debt - - - - 188,600 - 188,600
Preferred stock dividends - - - - - (3,750) (3,750)
Allocation for decrease in redemption
value of redeemable preferred stock - - - - - 7,239,600 7,239,600
Net loss - - - - - (6,622,458) (6,622,458)
---------- ---------- -------- ---------- ----------- ------------ -----------
Balances - June 30, 2001 3,398,977 3,399 30,002 30,002 59,080,801 (55,180,396) 3,933,806
Adjustment to common stock for reverse
stock split 808 1 - - (1) - -
Issuance of common stock for investment
in subsidiary 350,000 350 - - 129,150 - 129,500
Issuance of Series 2002-K preferred stock - - 20 20 499,980 - 500,000
Issuance of warrants for services - - - - 72,000 - 72,000
Issuance of warrants in connection
with long-term debt - - - - 156,875 - 156,875
Repriced warrants in connection
with long-term debt - - - - 179,064 - 179,064
Issuance of warrants in connection
with the sale of trademark - - - - 68,500 - 68,500
Preferred stock dividends - - - - - (2,119) (2,119)
Preferred stock dividends forgiven
in exchange of Series D-1 for
Series G preferred stock - - - - - (2,454,657) (2,454,657)
Allocation for decrease in redemption
value of redeemable preferred stock - - - - - 2,168,657 2,168,657
Net loss - - - - - (2,733,434) (2,733,434)
---------- ---------- -------- ---------- ----------- ------------ -----------
Balances - June 30, 2002 3,749,785 3,750 30,022 30,022 60,186,369 (58,201,949) 2,018,192
Conversion of Series 2002-G preferred
to common stock 733,335 733 - - 60,767 - 61,500
Issuance of common stock in exchange
for services 3,000 3 - - 66 - 69
Issuance of warrants for services - - - - 4,025 - 4,025
Issuance of warrants in connection
with long-term debt - - - - 4,965 - 4,965
Issuance of warrants with sale
of subsidiaries - - - - 3,270 - 3,270
Adjustment for Series 2002-G preferred - - 196 196 78,204 - 78,400
Allocation for decrease in redemption
value of redeemable preferred stock - - - - - 1,316,022 1,316,022
Net loss - - - - - (3,475,604) (3,475,604)
---------- ---------- -------- ---------- ----------- ------------ -----------
Balances - June 30, 2003 4,486,120 $ 4,486 30,218 $ 30,218 $ 60,337,666 $ (60,361,531) $ 10,839
========== ========== ======== ========== =========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
VPGI Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
2003 2002 2001
---------- ---------- -----------
Cash flows from operating activities
Net loss $(3,475,604) $(2,733,434) $(6,622,458)
Adjustments to reconcile net loss to
cash used in operating activities:
Gain on sale of assets - - (68,273)
Depreciation and amortization 439,621 1,593,049 1,916,177
Asset impairment 1,793,534 - -
Provision for bad debt 300,000 - -
Bad debt expense - - 35,816
Gain on sale of Curtis Mathes
trademark - (1,103,046) -
Stock compensation expense 11,318 - 58,496
Issuance of warrants for services - 72,000 212,619
Amortization of debt discount - 53,545 12,250
Loss on extinguishment of debt - 406,243 -
Conversion of preferred stock -
Series 2002-G 196 - -
Proceeds from issuance of common stock 736 - -
Changes in assets and liabilities,
net of effects from acquisitions
and dispositions:
Trade accounts receivable 356,178 205,079 529,388
Inventories 49,929 173,520 38,152
Prepaid expenses 314,503 (131,738) 729,736
Other current assets - 163,045 205,535
Other assets 90,661 81,286 (99,974)
Accounts payable and accrued
liabilities (904,433) (734,867) 312,527
Deferred revenue (50,869) (194,165) (718,996)
---------- ---------- -----------
Cash and cash equivalents
used in operating
activities (1,074,230) (2,149,483) (3,459,005)
Cash flows from investing activities
Purchase of property and equipment - (11,606) (177,234)
Additions to product and software
development costs - - (329,307)
Collections on note receivable 550,000 1,015,000 -
Proceeds from sale of trademark - 185,000 -
Investment in certificate of deposit - (25,000) -
Proceeds from certificate of deposit 25,000 - -
Proceeds from sale of assets - - 68,273
Disposal of property and equipment - 23,019 -
---------- ---------- -----------
Cash and cash equivalents provided
by (used in) investing activities 575,000 1,186,413 (438,268)
Cash flows from financing activities
Proceeds from long term debt 100,000 700,000 1,517,025
Proceeds from line of credit - - 1,746,003
Principal payments on line of credit - - (2,067,445)
Principal payments on long-term debt (313,445) (19,621) (24,824)
Principal payments on capital lease
obligations (1,493) (71,740) (111,302)
Dividends paid - (2,119) (3,750)
Proceeds from issuance of preferred
stock - Series 2002-K - 500,000 -
Proceeds from issuance of common stock - - 2,000,000
---------- ---------- -----------
Cash and cash equivalents provided
by (used in) financing activities (214,938) 1,106,520 3,055,707
---------- ---------- -----------
Net increase (decrease) in cash and
cash equivalents (714,168) 143,450 (841,566)
Cash and cash equivalents,
beginning of year 724,051 580,601 1,422,167
---------- ---------- -----------
Cash and cash equivalents,
end of year $ 9,883 $ 724,051 $ 580,601
========== ========== ===========
Supplemental information
Cash paid for interest $ 13,166 $ 80,965 $ 142,343
========== ========== ===========
See Note N for supplemental schedule of non-cash investing and financing
activities.
The accompanying notes are an integral part of these consolidated financial
statements.
VPGI Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003, 2002 and 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Until it discontinued normal operations in December 2002 (see Note B),
VPGI Corp. (formerly uniView Technologies Corporation) and Subsidiaries
(the Company), offered enhanced digital media solutions to customers
worldwide. It also offered contact center customer service solutions
through CIMphony[TM], a suite of computer telephony integration (CTI)
software products and services.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the accompanying
notes. Actual results could differ from those estimates.
Cash Equivalents
----------------
All highly liquid debt investments with an original maturity of three
months or less are considered to be cash equivalents.
Inventories
-----------
Inventories are stated at the lower of average cost or market.
Inventories consist primarily of computer parts and peripherals to be used
in network systems and products.
Property and Equipment
----------------------
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives. Maintenance and
repairs are expensed as incurred. Equipment leased under capital lease
obligations is depreciated over the life of the lease using the straight-
line method.
Accounting for Impairment of Long-Lived Assets
----------------------------------------------
The Company evaluates long-lived assets and intangible assets, including
goodwill, held and used for impairment whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable.
Impairment of goodwill is the condition that exists when the carrying amount
of goodwill exceeds its implied fair value. Impairment of other assets is
recognized when the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of such assets.
Product and Software Development Costs
--------------------------------------
The Company capitalizes product and software development costs incurred
from the time technological feasibility of the product or software is
established until the product or software is ready for use in products.
Research and development costs related to product and software development
are expensed as incurred. The capitalized costs related to the product or
software which will become an integral part of the Company's revenue-
producing products are amortized in relation to expected revenues from the
product or straight-line, over a maximum of four years, whichever is
greater. The carrying value of product or software development costs is
regularly reviewed by the Company, and a loss is recognized when the net
realizable value by product falls below the unamortized cost.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist of cash and cash equivalents,
notes receivable, redeemable preferred stock and debt. The fair value of
cash and notes receivable approximate the recorded amounts because of the
liquidity and short term nature of these items. The fair value of debt
approximates the recorded amounts. The fair value of redeemable preferred
stock is reflected by the recorded amount as it represents fair value
based on the market price of the Company's common stock.
Stock-Based Compensation
------------------------
The Company accounts for stock-based compensation to employees using the
intrinsic value method. Accordingly, compensation cost for stock options
is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
Redeemable Preferred Stock
--------------------------
Prior to April 2003, the Company's Series 1999-D1 and 2002-G preferred
stock was redeemable at the option of the holder, and was therefore
classified outside of stockholders' equity. The redemption value of these
securities varies based on the market price of the Company's common stock.
The Company adopted an accounting method provided in EITF Topic D-98 for
these types of securities, which recognizes changes in redemption value
immediately as they occur and adjusts the carrying value of the security
to equal the redemption value at the end of each reporting period. The
result of this accounting method is an increase in loss attributable to
common shareholders and a decrease in stockholders' equity as the
Company's common stock price increases, with the opposite effect when the
Company's common stock price decreases.
Revenue Recognition
-------------------
The Company recognizes service revenue as the services are provided.
Equipment and product sales are recognized at the time of delivery and
customer acceptance. Revenue from the installation of software and
hardware systems is recognized on the completed contract method. Royalty
revenue is recognized when earned as the customer sells royalty related
products. Amounts for which revenue cannot be recognized such as
uncompleted contracts or unearned maintenance services are included in
deferred revenue and are recognized as contracts are completed or ratably
over the period covered by the maintenance agreement.
On January 16, 2002, the Company completed the sale of a source code
license to one of its largest customers of its CTI product. The sale
resulted in the Company receiving $1.3 million in cash (this revenue is
included in consulting and support service revenue in the accompanying
statements of operations). The buyer also hired six of the Company's
employees.
Advertising Costs
-----------------
Advertising costs are charged to operations as incurred. Advertising
costs for the years ended June 30, 2003, 2002, and 2001 were $319,
$23,469, and $555,187, respectively.
Reverse Stock Split
-------------------
In September 2001, the Company's stockholders approved a one for eight
reverse stock split. All share and per share data give effect to the
reverse split applied retroactively as if it occurred at the beginning of
the earliest period presented. The number of outstanding shares has been
further adjusted to reflect the effects of rounding fractional shares to
the next whole share after the reverse split.
Loss Per Share
--------------
Basic loss per common share is based on the weighted average number of
common shares outstanding. Diluted loss per share is computed based on
the weighted average number of shares outstanding, plus the number of
additional common shares that would have been outstanding if dilutive
potential common shares had been issued. In all years presented, all
potential common shares were anti-dilutive.
All share and per share data give retroactive effect to the one for eight
reverse stock split approved by the stockholders in September 2001 as if
the reverse split occurred at the beginning of the earliest period
presented.
Reclassifications
-----------------
Certain reclassifications of the 2002 and 2001 financial statements and
related notes have been made to conform with the 2003 presentation.
New Pronouncements
------------------
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or
Disposal Activities." The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS 146 is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002. The Company expects no material impact to its
financial statements upon adoption of SFAS 146.
In December 2002, FASB issued Statement of Financial Accounting Standard
No. 148 ("SFAS 148"), Accounting for Stock-Based Compensation - Transition
and Disclosure - an amendment of FASB Statement No. 123. The standard
provides alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. The Company is required to adopt SFAS 148 for fiscal
years beginning after December 15, 2002. The Company does not believe
that the adoption of this standard will have a material effect on its
financial condition or results of operation.
NOTE B - GOING CONCERN MATTERS
The Company laid off all of its employees and discontinued normal
operations in December 2002. The accompanying financial statements have
been prepared accordingly. The Company incurred net losses of $3,475,604,
$2,733,434 and $6,622,458 for the years ended June 30, 2003, 2002 and
2001, respectively. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
For the last several years, the Company had been developing its business
plan with a focus in offering its technical expertise in information
technology. The Company's product offerings included providing consulting
services to niche markets, technology products through its digital media
products and computer telephony integration products. The Company is
continuing to evaluate all of its options and may consider seeking a
buyer, a merger candidate or an acquisition of a viable business.
The financial statements do not include any adjustment to reflect the
possible effects on the recoverability and classification of assets or
liabilities which may result from the inability of the Company to continue
as a going concern.
NOTE C - BUSINESS COMBINATIONS AND DIVESTITURES
Effective September 22, 1999 the Company acquired assets of Zirca
Corporation ("Zirca") for $300,000 cash and 45,000 restricted common
shares of the Company valued at $675,000. The acquisition of Zirca was
accounted for as a purchase and the Company allocated the excess purchase
price over tangible assets acquired of approximately $360,000 to purchased
software. In December 2001, the Company wrote off the remaining assets of
$143,539 relating to prior acquisitions as these assets were no longer
being utilized.
Effective June 26, 2002, the Company acquired 60% of the outstanding
capital stock of an Asian company for 350,000 shares of its common stock.
The acquisition was accounted for as a purchase. The Company allocated
the purchase price of approximately $129,500 to intellectual property
license. In December 2002, the Company wrote off this asset, as it was no
longer being utilized.
All acquisitions have been accounted for as purchases and the operations
of the purchased companies have been included in the Company's statement
of operations since their date of acquisition.
NOTE D - SUBSEQUENT EVENTS
In July 2003, stockholders approved an amendment and restatement of the
Company's articles of incorporation, resulting in a reduction in par value
of the Company's common stock from $.80 per share to $.001 per share. The
authorized number of shares was maintained at 80,000,000. All share and
per share data give effect to the reduction in par value applied
retroactively as if it occurred on July 1, 2000.
NOTE E - DISPOSITION OF ASSETS AND SIGNIFICANT SALES TRANSACTIONS
In September 2001, the Company sold the Curtis Mathes trademark for $4.5
million, consisting of cash and notes receivable. $450,000 in cash was
received in June 2001. At June 30, 2002, a total of $1,650,000 of the
purchase price had been received in cash, leaving a principal balance of
$850,000 on a note receivable due in March 2003. In connection with the
sale, the Company was released from approximately $2.0 million of long-
term debt, which was assumed by the buyer of the trademark. As a result
of the release of this long-term debt, the Company recorded an
extraordinary loss on debt extinguishment of $406,243. The Company had
issued warrants to the lender in connection with the loan and was
amortizing these costs over the life of the loan. The carrying amount of
the debt was $1,593,757 at the time of payment due to the value of the
warrants and upon extinguishment of the debt, all of the costs were
accelerated. The Company recorded a gain of $1,103,046 on the sale of the
trademark.
In January 2002, the Company sold a source code license of its CIMphony
product to HSBC, its largest customer for that product, for $1.3 million
in cash. In February 2002, as part of the agreement, the Company allowed
HSBC to hire six of its employees who were principally involved in
servicing this customer, while retaining adequate support staff for its
other CTI customers. In addition to providing cash for operations, this
transaction resulted in a reduction of overall employee expenses, while
continuing to allow opportunities for sales of CIMphony source code
licenses to other customers. However, the transaction was expected to
result in limited revenues in the future from this customer, as it assumes
the responsibility for its own CTI software operations. This customer
generated approximately $241,000 and $2.4 million (including the sale of
the source code license) in revenues during the years ended June 30, 2003
and 2002, respectively.
In December 2002, the Company sold nine of its subsidiaries: Video
Management, Inc., including its wholly owned subsidiary Network America,
Inc., Corporate Network Solutions, L.C., Warranty Repair Corporation, FFL
Corporation, including its wholly owned subsidiary Systematic Electronics
Corp., uniView Technologies Advanced Systems Group, Inc., uniView Network
America Corp., and uniView Xpressway Corporation. In the transaction, all
of the issued and outstanding common stock of each of subsidiary was
transferred to W. I. Technology Holding Company Inc. for a purchase price
of $10. In connection with the sale, the Company issued warrants to
purchase 150,000 shares of its common stock, exercisable through December
19, 2005 at a fixed exercise price of $.01 per share. The Company had no
operations remaining after the sale. Due to the resulting suspension of
ongoing development of its technologies, the Company wrote down all of the
intellectual property values and goodwill associated with its
technologies. The Company reported no gain or loss on the transaction as
the assets of these subsidiaries had been written off or realized, and the
liabilities on the books were satisfied prior to the sale.
NOTE F - PROPERTY AND EQUIPMENT
As a result of the cessation of all normal business activities, the
Company wrote off all remaining property and equipment during 2003.
Property and equipment at June 30 consist of the following:
Useful life
(in years) 2002
----------- ----------
Equipment 3-5 $ 1,306,933
Furniture and fixtures 5 177,698
Computer software 3 102,603
Vehicles 3 116,503
Leasehold improvements lease term 65,270
----------
1,769,007
Less accumulated depreciation
and amortization (1,618,974)
----------
$ 150,033
==========
Equipment under capital leases included above at June 30, 2003 and 2002
was $-0- and $102,921, respectively, and the related accumulated
amortization amounted to $-0- and $78,935, respectively. Amortization of
assets held under capital leases is included with depreciation expense.
Depreciation expense for years ending June 30, 2003, 2002, and 2001
totaled $439,621, $494,112, and $583,229, respectively.
NOTE G - OTHER ASSETS
Other assets at June 30 consist of the following:
2003 2002
---------- ----------
Purchased software $ - $ 2,494,965
Product and software development costs - 944,666
Intellectual property license - 129,500
Goodwill - 1,420,333
Security deposit on corporate office 12,948 12,948
Pension surplus - 29,231
Other - 87,155
---------- ----------
12,948 5,118,798
Less accumulated amortization - (2,720,563)
---------- ----------
$ 12,948 $ 2,398,235
========== ==========
Purchased software is normally amortized in relation to expected revenue
from the product or straight-line over a maximum of four years, whichever
is greater. Amortization expense for the years ended June 30, 2003, 2002,
and 2001 was $177,985, $683,718, and $808,392, respectively. Revenue from
these products was $241,026, $2,677,445 (including the $1.3 million sale
of the source code license), and $2,972,504 for the years ended June 30,
2003, 2002, and 2001, respectively. In December 2002, the Company wrote
off this asset, as it was no longer being utilized.
Product and software development costs are normally amortized over their
estimated useful life of three years. Amortization expense for the years
ended June 30, 2003, 2002, and 2001 was $-0-, $273,060, and $178,867,
respectively. Revenue from these products was $2,808, $93,623, and
$22,423 for the years ended June 30, 2003, 2002 and 2001, respectively.
In December 2002, the Company wrote off this asset, as it was no longer
being utilized.
The Company purchased the Curtis Mathes Corporation in 1993 and sold its
only remaining asset, the Curtis Mathes trademark, in September 2001 for a
gain of $1,103,046. The trademark was being amortized on a straight-line
basis over 20 years. Amortization expense for the years ended June 30,
2002 and 2001 was $43,706 and $244,237, respectively.
Goodwill totaling $1,420,333 from 1998 acquisitions of Video Management,
Inc. (VMI) and Corporate Network Solutions (CNS) was being amortized over
its estimated useful life of fourteen years. Amortization expense for
each of the years ended June 30, 2002 and 2001 was $101,453. In October
2002, management and the Board of Directors of the Company determined,
based on i) lower than expected revenues, ii) its inability to secure
contracts it had expected to secure during the quarter ended September 30,
2002, and iii) its limited resources, the Company would not continue to
support the operations of its subsidiary, Network America, Inc. (NWA). As
a result of this decision, and based on the fair value of the subsidiary,
the Company determined that the $1,005,509 of unamortized goodwill on the
Company's books relating to NWA was impaired. Accordingly, the Company
recorded an impairment expense for that amount to write off the goodwill
as of September 30, 2002.
NOTE H - LONG-TERM DEBT
Long-term debt at June 30 consists of the following:
2002
----------
Convertible note payable to a finance company
collateralized by substantially all assets
with interest at 14%. Interest payments due
monthly, principal due May 31, 2003. $ 200,000
Other 35,937
----------
235,937
Less debt discount (52,500)
----------
183,437
Less current portion (169,992)
----------
$ 13,445
==========
The weighted average interest rate of borrowings outstanding at June 30,
2002 was 13.19%.
On May 10, 2002 the Company entered into a note payable with Gemini Growth
Fund, L.P. for $200,000, at an annual interest rate of 14%, maturing on
May 31, 2003. On November 12, 2002, the loan agreement was modified to
change the loan amount from $200,000 to $300,000 and the Company entered
into an additional note payable with Trident Growth Fund, L.P., formerly
known as Gemini Growth Fund, L.P., for $100,000 at an annual interest rate
of 14%, maturing on November 30, 2003. In connection with the $100,000
loan, the Company issued warrants to purchase 75,000 shares of its common
stock, exercisable for three years at a fixed exercise price of $1.50 per
share. The loans were collateralized by a security interest in the note
received in connection with the sale of the Curtis Mathes trademark and
other assets of the Company. Interest was payable monthly in cash. In
December 2002, the Company received a notice of default and acceleration
notice from Trident Growth Fund, accelerating the entire principal balance
due on the notes. To satisfy this obligation, the Company negotiated a
discount on the $850,000 note receivable it acquired in the sale of the
Curtis Mathes trademark in exchange for a lump sum payment of $550,000
from the debtor, charging $300,000 to bad debt expense. Approximately
$300,000 of the proceeds received by the Company were applied to pay the
entire remaining principal balance, as well as accumulated interest and
other fees, due on the note payable to Trident Growth Fund.
NOTE I - COMMITMENTS AND CONTINGENCIES
Lease Commitments
-----------------
The Company leases equipment and facilities under various non-cancelable
operating and capital leases which expire at various dates through fiscal
2005. The following are scheduled future minimum lease payments and
sublease rental income at June 30, 2003:
Operating Leases
----------------------------
Minimum Sublease
Year ending lease rental
June 30, payments income Totals
-------- ------- ------- -------
2004 $146,940 $ - $146,940
2005 61,224 - 61,224
------- ------- -------
Total minimum lease payments $208,164 $ - $208,164
======= ======= =======
Rental expense under operating leases for the years ended June 30, 2003,
2002 and 2001 was $128,197, $437,124 and $616,327, respectively.
Litigation
----------
On July 26, 1999, the Company and a vendor agreed to settle a legal
action. In return for a prepayment of $750,000 and 31,250 shares of its
common stock whose market value at closing date was $16.00 per share, the
Company received two years of television listing services from the vendor.
The agreement required an additional annual fee of $70,000 and a nominal
fee per customer. As of June 30, 2002, all fees associated with the
agreement had been fully paid.
The Company is routinely a party to ordinary litigation incidental to its
business, as well as to other litigation of a nonmaterial nature, the
outcome of which management does not expect, individually or in the
aggregate, to have a material adverse effect on the financial condition or
results of operations of the Company.
NOTE J - CONCENTRATIONS OF CREDIT RISK
During 2003, 2002 and 2001, one customer represented 39%, 45% and 25% of
sales, respectively. At June 30, 2002, two customers accounted for 84% of
trade accounts receivable. At June 30, 2001, one customer accounted for
50% of trade accounts receivable.
Management provides an allowance for doubtful accounts which reflects its
estimate of the uncollectible receivables. In the event of non-
performance, the maximum exposure to the Company is the recorded amount of
the receivable at the balance sheet date. The Company's receivables are
generally not secured.
NOTE K - STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
Preferred Stock
---------------
The Company has 1,000,000 shares authorized of $1.00 par value cumulative
preferred stock. The Company's articles of incorporation allow the board
of directors to determine the number of shares and determine the relative
rights and preferences of any series of preferred stock to be issued.
In December 1992, the Company issued 140,000 shares of Series A redeemable
preferred stock (stated value $1 per share). In fiscal 2000, 100,000
shares were redeemed for cash, and 10,000 shares were converted to common
stock, with the remaining 30,000 outstanding at June 30, 2003. Shares
accumulate dividends at 6%, or $1,800 per year. Dividends in arrears at
June 30, 2003 and 2002 on Series A shares totaled $12,150 and $10,350,
respectively.
In fiscal 1996, the Company issued 55 shares of Series H convertible
preferred stock (stated value $25,000 per share). 52 shares were
converted into common stock in fiscal 1997, and one share was converted in
fiscal 2000, with the remaining two shares outstanding at June 30, 2003.
Shares accumulate dividends at 5%, or $2,500 per year and are paid in May
and November of each year. Shares are convertible based on 80% of the
five day average closing bid price of the Company's common stock, with
minimum and maximum conversion limits of $12 and $32 per share,
respectively. Dividends of $2,500 and $-0- were in arrears on Series H
shares at June 30, 2003 and 2002, respectively.
In June 1999, the Company issued 720 shares of Series D-1 convertible
preferred stock (stated value $25,000 per share). The shares accumulated
dividends at 5%, or $900,000 per year and were convertible into common
stock at $32 per share. In fiscal 2002, the Company exchanged these
shares for 240 shares of Series 2002-G preferred stock (stated valued
$25,000 per share). The new series of preferred stock has no provision
for dividends and was convertible into 4,000,000 shares of common stock at
$1.50 per share. All outstanding and unconverted shares of the new
preferred stock as of June 30, 2004 shall be, at the Company's option,
either converted into common stock or redeemed by the Company based on the
market price of the Company's common stock. Cumulative dividends in
arrears at June 30, 2001 totaled $1,850,000. In conjunction with the
exchange of shares, all accumulated dividends associated with the D-1
preferred stock were released by mutual agreement.
Dividends of $-0-, $2,119 and $3,750 on preferred stock were paid during
the years ended June 30, 2003, 2002, and 2001, respectively. Cumulative
dividends in arrears as of June 30, 2003 and 2002 amounted to $14,650 and
$10,350, respectively.
In June 2002, the Company issued 20 shares of Series 2002-K convertible
preferred stock (stated value $25,000 per share). The shares have no
provision for dividends and are convertible into common shares at $.80 per
share. At any time, at the Company's sole discretion, the Company may
redeem all or part of the outstanding preferred shares at a price per
share of 120% of their face value.
On April 16, 2003, the holder of the Company's Series 2002-G preferred
stock agreed to modify the terms of the preferred stock, whereby any
future redemption of the preferred stock shall be at the sole option of
the Company rather than at the option of the Holder. This modification to
the terms of the preferred stock resulted in the preferred stock being
accounted for as equity as of June 30, 2003, rather than as liability. In
addition, 44 shares of the preferred stock was converted into 733,335
shares of common stock for a total of $61,500.
Stock Options
-------------
The Company has periodically granted stock options for employment and
outside services received during the years reported. These options are
treated as fixed, compensatory awards.
The Company has granted non-compensatory stock options to key employees
and directors at market value at the date of grant. The options granted
to directors have generally vested immediately, and the options granted to
employees have generally vested over a 3-year period; however, during
2003, options covering 310,000 shares were granted that vested
immediately. During 2002 and 2001, options covering 22,688 and 185,882
shares, respectively, were granted that vest over 3 years.
During 2003 and 2002, options issued to employees and directors with
exercise prices less than market on the grant date were immaterial and,
accordingly, no compensation expense was recognized in those years.
During 2001, options issued to employees and directors with exercise
prices less than market value resulted in compensation expense under the
intrinsic value method of $58,496. Had compensation cost been determined
on the basis of fair value pursuant to FASB Statement No. 123, net loss
and net loss per share for 2003, 2002 and 2001 would have been increased
as follows:
2003 2002 2001
---------- ---------- ----------
Net loss
As reported $(3,475,604) $(2,733,434) $(6,622,458)
Deduct: total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of income tax effect (261,578) (250,113) (3,133,230)
---------- ---------- ----------
Pro forma net loss $(3,737,182) $(2,983,547) $(9,755,688)
========== ========== ==========
Loss per share
As reported (0.52) (0.80) (2.22)
Pro forma (0.90) (0.88) (2.88)
The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
2003 2002 2001
---------- ---------- ----------
Expected volatility 150% 150% 150%
Risk-free interest rate 1.15% - 1.3% 3.50% - 4.30% 4.33% - 5.75%
Expected lives 2.7 to 5.5 years 3 years 1 to 3 years
Dividend yield - - -
Additional information with respect to all options outstanding at June 30,
2003, and changes for the three years then ended was as follows:
Above Equal to Below
market price market price market price
------------------ --------------- --------------
Weighted Weighted Weighted
average average average
exercise exercise exercise Total
Options price Options price Options price Options
------- ------ ------ ----- ------- ----- -------
Outstanding at
June 30, 2000 207,291 $ 20.24 12,500 $14.64 113,438 $15.60 333,229
Granted 275,679 14.80 6,250 14.48 9,026 16.48 290,955
Forfeited (28,040) 17.68 - - (6,563) 16.48 (34,603)
------- ------ ------ ----- ------- ----- -------
Outstanding at
June 30, 2001 454,930 15.761 8,750 14.56 115,901 15.68 589,581
Granted 2,162,857 0.83 - - - - 2,162,857
Forfeited (540,820) 2.46 - - (11,147) 28.65 (551,967)
------- ------ ------ ----- ------- ----- -------
Outstanding at
June 30, 2002 2,076,967 3.63 18,750 14.56 104,754 14.40 2,200,471
Granted - - 310,000 0.02 - - 310,000
Forfeited (466,035) 1.56 - - - - (466,035)
------- ------ ------ ----- ------- ----- -------
Outstanding at
June 30, 2003 1,610,932 $ 4.13 328,750 0.85 104,754 $14.40 2,044,436
========= ====== ====== ===== ======= ===== =========
Number Weighted
of shares average
underlying exercise
options price
---------- -----
Options exercisable at June 30, 2001 558,519 $15.60
========= =====
Options exercisable at June 30, 2002 1,061,555 $ 7.91
========= =====
Options exercisable at June 30, 2003 1,855,436 $ 4.55
========= =====
For 2003, options granted equal to market value had a weighted average
fair value per share of $0.02. For 2002, options granted above market
value had a weighted average fair value per share of $0.83. For 2001,
options granted above, equal to, and below market value had a weighted
average fair value per share of $11.20, $11.92 and $16.08, respectively.
Information about stock options outstanding at June 30, 2003 is summarized
as follows:
Options outstanding Exercisable
-------------------------------- ----------------------
Weighted
average Weighted Weighted
remaining average average
Range of contractual exercise Number exercise
exercise prices Number life price exercisable price
---------------- --------- ----- ------- ----------- --------
$0.02 310,000 4.90 $ 0.02 310,000 $ 0.02
$0.80 1,208,930 3.31 0.80 1,019,930 0.80
$12.00 to $16.48 506,756 1.58 14.11 506,756 14.11
$21.52 to $28.00 18,750 1.63 25.84 18,750 25.84
--------- ---------
2,044,436 1,855,436
========= =========
Common stock warrants issued and outstanding at June 30, 2003 are
summarized as follows:
Weighted Weighted
average average
Range of exercise price Number remaining life exercise price
---------------------- ------- -------------- --------------
$0.01 to $0.02 365,000 3.98 $ 0.02
$1.50 to $6.72 381,250 1.94 2.01
$13.28 to $28.00 15,000 2.29 25.55
$32.00 to $48.00 170,000 1.51 33.76
All outstanding warrants are exercisable at June 30, 2003, with the
exception of 100,000 warrants which become exercisable at various dates
through February 2005.
During the year ended June 30, 2003, warrants to purchase 25,000 shares of
the Company's common stock were granted in connection with services
provided. The warrants have an exercise price of $.01, expire in July
2008, and were valued at $548 at June 30, 2003. Additionally, warrants to
purchase 190,000 shares of the Company's common stock were granted in
connection with services provided. The warrants have an exercise price of
$.02, expire in July 2008, and were valued at $3,477 at June 30, 2003.
Additionally, warrants to purchase 75,000 shares of the Company's common
stock were granted in connection with the issuance of long-term debt.
These warrants have an exercise price of $1.50, with a provision to
reprice at par value upon the satisfaction of the anti-dilution provisions
of certain preferred stock, and expire in November 2005. The value of the
warrants is $4,965 at June 30, 2003. Additionally, warrants to purchase
150,000 shares of the Company's common stock were granted in connection
with the sale of subsidiaries. The warrants have an exercise price of
$.01, expire in December, 2005, and were valued at $3,270.
During the year ended June 30, 2002, warrants to purchase 150,000 shares
of the Company's common stock were granted in connection with consulting
services provided. The warrants have an exercise price of $1.50, expire
in February 2007, and were valued at $72,000 and recorded as a prepaid
expense, net of amortization of $6,000 at June 30, 2002. Additionally,
warrants to purchase 150,000 shares of the Company's common stock were
granted in connection with the issuance of long-term debt. These warrants
have an exercise price of $1.50 and expire in April 2005. The value of
the warrants, $60,000, is included as a discount on the debt net of
accumulated amortization of $7,500. Warrants to purchase 50,000 shares of
the Company's common stock were granted for a finder's fee in connection
with the sale of the Curtis Mathes trademark. These warrants have an
exercise price of $32.00 per share, with a provision to reprice at par
value upon the satisfaction of the anti-dilution provisions of certain
preferred stock. The value of the warrants, $68,500, was recorded as a
reduction in the gain on the sale of trademark in the accompanying
statement of operations.
During the year ended June 30, 2001, warrants to acquire 168,750 shares of
the Company's common stock (valued at $188,600) were granted in connection
with the issuance of long-term debt. The value of the warrants was
included as a discount on the debt net of accumulated amortization of
$12,500 at June 30, 2001. In 2002, additional warrants to acquire 31,250
shares (valued at $96,875) related to this debt were issued, and the
warrants issued in 2001 were repriced to $.80 per share (valued at
$179,064). The warrants have an exercise price of $0.80 and expire
between December 2003 and July 2006. In connection with the sale of the
Curtis Mathes trademark in September 2001, this debt was assumed by the
buyer of the trademark and these costs were accelerated and recorded as an
extraordinary loss on extinguishment of debt. Additionally, warrants to
purchase 12,500 and 2,500 shares of the Company's common stock were
granted to a customer in connection with a sale of set-top boxes and to a
consultant for services performed, respectively. The warrants have an
exercise price of $28.00, expire in October 2005, and were valued at
$180,000 and charged to selling expense during the fourth quarter 2001.
NOTE L - INCOME TAXES
A reconciliation of income tax benefit computed by applying the U.S.
Federal tax rates to the net loss and recorded income tax expense
(benefit) is as follows:
2003 2002 2001
---------- ---------- ----------
Tax benefit at statutory rate $(1,338,107) $ (929,368) $(2,251,636)
Non-deductible expenses - 3,134 93,572
Change in estimate for prior years - - -
Sale of trademark - (610,842) -
Adjustment of net operating
loss carryforwards - - 2,164,423
Change in valuation allowance 1,338,107 1,502,582 (6,359)
Other - 34,494 -
---------- ---------- ----------
$ - $ - $ -
========== ========== ==========
The components of the Company's deferred income taxes at June 30, 2003 and
2002 are as follows:
2003 2002
---------- ----------
Deferred tax assets
Inventories $ - $ 13,600
Accounts receivable - 4,637
Fixed assets - 38,695
Accrued liabilities - 16,900
Deferred revenue - 12,250
Net operating loss carryforwards 21,041,871 19,703,764
---------- ----------
21,041,871 19,789,846
Deferred tax liabilities
Software and product development costs - (86,402)
---------- ----------
Net deferred tax asset 21,041,871 19,703,444
Valuation allowance (21,041,871) (19,703,444)
---------- ----------
$ - $ -
========== ==========
At June 30, 2003, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $63,416,602 which may be used
to offset future taxable income, subject to certain limitations and
provisions of the Internal Revenue Code, and will expire in various
amounts in the years 2008 through 2022 if not utilized.
NOTE M - PENSION AND OTHER BENEFIT PROGRAMS
Prior to a subsidiary's bankruptcy filing in 1992, the subsidiary had a
defined benefit plan, which covered substantially all full-time employees.
The following table sets forth the funded status of the Company's defined
pension plan at June 30:
2003 2002 2001
-------- -------- --------
Actuarial present value of
benefit obligations
--------------------------
Accumulated benefit obligation $ 637,444 $ 637,444 $ 700,879
======== ======== ========
Projected benefit obligation 637,444 637,444 700,879
Plan assets at fair value 637,444 666,675 609,637
-------- -------- --------
Excess projected benefit obligation - (29,231) 91,242
-------- -------- --------
Net pension (asset) liability $ - $ (29,231) $ 91,242
======== ======== ========
Net pension cost includes
the following components
------------------------
Interest on unfunded liability $ (2,046) $ 6,387 $ 8,660
Actuarial (gain) loss (16,420) (84,881) (5,187)
-------- -------- --------
Net pension cost (benefits) $ (18,466) $ (78,494) $ 3,473
======== ======== ========
The weighted average assumed discount rate used in determining the
actuarial present value of the projected benefit obligation for 2003,
2002, and 2001 was 7%. The net pension asset is shown in other noncurrent
assets in the consolidated balance sheet.
NOTE N - NON-CASH INVESTING AND FINANCING ACTIVITIES
2003 2002 2001
---------- ---------- ----------
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for
purchase of assets $ - $ 129,500 $ -
========== ========= ==========
Issuance of common stock for services $ 69 $ - $ -
========== ========= ==========
Issuance of common stock warrants
for services $ 4,025 $ 72,000 $ 212,619
========== ========= ==========
Stock compensation $ - $ - $ 58,496
========== ========= ==========
Issuance of warrants in connection
with sale of trademark $ - $ 68,500 $ -
========== ========= ==========
Issuance of warrants in connection
with sale of subsidiaries $ 3,270 $ - $ -
========== ========= ==========
Note receivable from sale
of trademark $ - $1,865,000 $ -
========== ========= ==========
Debt relieved upon sale of trademark $ - $2,000,000 $ -
========== ========= ==========
Issuance of warrants in connection
with long-term debt $ 4,965 $ 335,938 $ 188,600
========== ========= ==========
Conversion of preferred stock
to common stock $ 61,500 $ - $ -
========== ========= ==========
NOTE O - BUSINESS SEGMENT INFORMATION
Until it discontinued normal operations in December 2002, the Company was
primarily engaged in high technology product sales and consulting and
support services. The following tables set forth certain information with
respect to the years ended June 30:
The Company had three segments for 2003, 2002 and 2001: Technology
product sales, technology consulting and support services, and royalty
from trademark licensing. The segments were differentiated by the products
and services provided as follows:
Product sales
-------------
This segment consisted of set-top boxes, network equipment, computer
cabling, computer telephony integration (CTI) and personal computer
equipment and peripherals.
Consulting and support services
-------------------------------
This segment consisted of services for the implementation of e-business
solutions, software support maintenance, and network development and
support.
Royalties
---------
This segment consisted of royalty income from licensing the Curtis
Mathes Trademark which was sold in September 2001.
The Company's underlying accounting records are maintained on a legal
entity basis. Segment disclosures are on a performance basis consistent
with internal management reporting. The Company evaluates performance
based on earnings from continuing operations before income taxes and other
income and expense. The Corporate column includes corporate overhead
related items. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (Note A).
2003 2002 2001
---------- ----------- -----------
Net revenues
Product sales $ 127,730 $ 1,919,695 $ 5,434,527
Consulting and support services 498,055 3,399,463 2,765,958
Royalties - 50,153 1,131,747
---------- ----------- -----------
$ 625,785 $ 5,369,311 $ 9,332,232
---------- ----------- -----------
Operating loss
Product sales $(1,147,212) $ (1,504,892) $ (2,924,871)
Consulting and support services (1,125,619) (1,497,418) (1,937,387)
Corporate (1,272,630) (485,949) (1,927,634)
---------- ----------- -----------
Total operating loss (3,545,461) (3,488,259) (6,789,892)
Less interest expense (13,166) (101,389) (177,237)
Other income (expenses) 83,023 159,411 344,671
Gain on sale of trademark - 1,103,046 -
---------- ----------- -----------
Loss before extraordinary item (3,475,604) (2,327,191) (6,622,458)
Extraordinary item - (406,243) -
---------- ----------- -----------
Net loss $(3,475,604) $ (2,733,434) $ (6,622,458)
========== =========== ===========
Identifiable assets
Computer products and service $ - $ 213,030 $ 3,783,772
Corporate 22,831 4,629,173 5,053,588
---------- ----------- -----------
$ 22,831 $ 4,842,203 $ 8,837,360
========== =========== ===========
Depreciation, amortization
and write-down
Computer products and service $ 2,402,218 $ 421,136 $ 306,213
Corporate 16,716 1,171,913 1,609,965
---------- ----------- -----------
$ 2,418,934 $ 1,593,049 $ 1,916,178
========== =========== ===========
Capital expenditures
Computer products and service $ - $ 11,606 $ 148,948
Corporate - - 28,286
---------- ----------- -----------
$ - $ 11,606 $ 177,234
========== =========== ===========
International revenues for the years ended June 30, 2003, 2002 and 2001
totaled $156,334, $2,396,981 and $2,589,784, respectively.
VPGI Corp. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 2003, 2002 and 2001
Balance at Charged to Charged Balance
beginning costs and to other at end
Description of year expenses accounts Deductions of year
----------- --------- --------- -------- ---------- ---------
Year ended June 30, 2001
Allowance for
doubtful accounts 5,874 18,780 - (11,017) 13,637
Year ended June 30, 2002
Allowance for
doubtful accounts 13,637 - - - 13,637
Year ended June 30, 2003
Allowance for
doubtful accounts 13,637 42,851 - (56,488) -
UNIVIEW TECHNOLOGIES CORPORATION
and Subsidiaries
EXHIBIT INDEX
Exhibit Number Description of Exhibits Sequential Page Number
----------------------------------------------------------------------------
3(i) * Articles of Incorporation of the Company, as amended and
restated. 57
3(ii) Bylaws of the Company, as amended (filed as Exhibit
"3(ii)" to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1999 and incorporated
herein by reference.) N/A
4.1 Form of common stock Certificate of the Company (filed
as Exhibit "4.2" to the Company's annual report on Form
10-K for the fiscal year ended June 30, 1994 and
incorporated herein by reference.) N/A
4.2 1999 Equity Incentive Plan (filed as Exhibit "4.4" to
the Company's Registration Statement on Form S-8 filed with
the Commission on July 12, 2000 and incorporated herein
by reference.) N/A
4.3 Series A Preferred Stock terms and conditions (filed as
Exhibit "4.3" to the Company's annual report on Form
10-K for the fiscal year ended June 30, 1994 and
incorporated herein by reference.) N/A
4.4 Series H Preferred Stock terms and conditions (filed as
Exhibit "4.4" to the Company's Registration Statement on
Form S-3 originally filed with the Commission on June
20, 1996 and incorporated herein by reference.) N/A
4.5 Series 2002-G Preferred Stock terms and conditions
(filed as Exhibit "4.1" to the Company's Current Report
on Form 8-K dated as of March 5, 2002 and incorporated
herein by reference.) N/A
4.6 Form of warrant issued in connection with private
placement to Bonanza Partners, Ltd. (filed as Exhibit
"4.11" to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 31, 1999 and
incorporated herein by reference.) N/A
4.7 Form of warrant issued in connection with acquisition of
certain assets of Softgen International, Inc. (filed as
Exhibit "4.12" to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 1999 and
incorporated herein by reference.) N/A
4.8 Form of warrant issued in connection with private
placement to LBI Group, Inc. (filed as Exhibit "4.5" to
the Company's Registration Statement on Form S-3 filed
with the Commission on May 19, 2000 and incorporated
herein by reference.) N/A
4.9 Form of warrant issued in connection with private
placement to Founders Partners VI, LLC (filed as Exhibit
"4.5" to the Company's Registration Statement on Form
S-3 filed with the Commission on October 10, 2000 and
incorporated herein by reference.) N/A
4.10 Form of warrant issued to Sagemark Capital, L.P. in
connection with a loan to the Company (filed as Exhibit
"4.11" to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended December 31, 2000 and
incorporated herein by reference.) N/A
4.11 Form of warrant issued to Highland Holdings for a
finder's fee in connection with the Sagemark loan to
the Company (filed as Exhibit "4.12" to the Company's
Quarterly Report on Form 10-Q/A for the fiscal quarter
ended September 30, 2001 and incorporated herein by
reference.) N/A
4.12 Form of warrant issued to Massive Capital, LLC for a
finder's fee in connection with the sale of the Curtis
Mathes trademark (filed as Exhibit "4.13" to the
Company's Quarterly Report on Form 10-Q/A for the fiscal
quarter ended September 30, 2001 and incorporated herein
by reference.) N/A
4.13 Securities Purchase Agreement dated March 5, 2002
between registrant and Brown Simpson Partners I, Ltd.
relating to the redemption of registrant's Series 1999-
D1 Convertible Preferred Stock with Series 2002-G
Convertible Preferred Stock (filed as Exhibit "99.2" to
the Company's Current Report on Form 8-K dated as of
March 5, 2002 and incorporated herein by reference.) N/A
4.14 Registration Rights Agreement dated March 5, 2002
between registrant and Brown Simpson Partners I, Ltd.
relating to the registration of the shares of common
stock underlying registrant's Series 2002-G Convertible
Preferred Stock (filed as Exhibit "99.3" to the
Company's Current Report on Form 8-K dated as of
March 5, 2002 and incorporated herein by reference.) N/A
4.15 Settlement and Mutual Release Agreement dated March 5,
2002 between registrant and Brown Simpson Partners I,
Ltd. relating to the redemption of registrant's Series
1999-D1 Convertible Preferred Stock with Series 2002-G
Convertible Preferred Stock (filed as Exhibit "99.4" to
the Company's Current Report on Form 8-K dated as of
March 5, 2002 and incorporated herein by reference.) N/A
4.16 Form of warrant issued to Setfield Limited for services
rendered (filed as Exhibit "4.18" to the Company's
annual report on Form 10-K for the fiscal year ended
June 30, 2002 and incorporated herein by reference.) N/A
4.17 Form of warrant issued to Gemini Growth Fund, L.P. in
connection with a loan to the Company (filed as Exhibit
"4.19" to the Company's annual report on Form 10-K for
the fiscal year ended June 30, 2002 and incorporated
herein by reference.) N/A
4.18 Series 2002-K Preferred Stock terms and conditions
(filed as Exhibit "4.20" to the Company's annual report
on Form 10-K for the fiscal year ended June 30, 2002 and
incorporated herein by reference.) N/A
4.19 Form of warrant issued to Associates Funding Group, Inc.
in connection with sale of nine subsidiaries (filed as
Exhibit "4.18" to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2003, filed
on May 20, 2003 and incorporated herein by reference.) N/A
4.20 Form of warrant issued to Akin, Gump, Strauss, Hauer &
Feld, LLP. in connection with legal services rendered to
the Company (filed as Exhibit "4.19" to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2003, filed on May 20, 2003 and
incorporated herein by reference.) N/A
4.21 * First Amendment to Series 2002-G Preferred Stock terms
and conditions. 62
4.22 * Form of 190,000 warrants issued to consultants during
year ended June 30, 2003 in connection with services
rendered to the Company. 65
10.1.1 Lease Agreement between the Company and CMD Realty
Investment Fund II, L.P., dated October 18, 1999
pertaining to the property utilized as the corporate
headquarters (filed as Exhibit "10.2" to the Company's
Annual Report on Form 10-K for the fiscal year ended
June 30, 2000 and incorporated herein by reference.) N/A
10.1.2 First Amendment to Lease Agreement between the Company
and CMD Realty Investment Fund II, L.P., dated November
10, 1999 pertaining to the property utilized as the
corporate headquarters (filed as Exhibit "10.2.1" to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2000 and incorporated herein by
reference.) N/A
10.1.3 Second Amendment to Lease Agreement between the Company
and CMD Realty Investment Fund II, L.P., dated January
10, 2000 pertaining to the property utilized as the
corporate headquarters (filed as Exhibit "10.2.2" to the
Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 2000 and incorporated herein by
reference.) N/A
10.1.4 * Third Amendment to Lease Agreement between the Company
and CMD Realty Investment Fund II, L.P., dated December
23, 2002 pertaining to the property utilized as the
corporate headquarters. 70
21 * Subsidiaries of the Company. 72
23 * Consent of Independent Certified Public Accountants. 73
31 * Certification of Chief Executive Officer and Principal
Financial Officer pursuant to Rule 13a-14(a) or 15d-
14(a) of the Securities and Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. 74
32 * Certification of Chief Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. 76
_______________
* Filed herewith.