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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 000-13225
VPGI CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 75-1975147
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17300 North Dallas Parkway, Suite 2050, 75248
Dallas, Texas (Zip Code)
(Address of principal executive offices)
(972) 233-0900
(Registrant's telephone number, including area code)
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 whether the Registrant is an accelerated filer
(as defined in rule 12b-2 of the Exchange Act). YES NO X
At November 12, 2003, there were 5,242,120 shares of Registrant's
common stock outstanding.
GENERAL INDEX
Page
Number
---------------------------------------------------------------------------
PART I.
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS..................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................... 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK........................................... 11
ITEM 4. CONTROLS AND PROCEDURES............................... 11
PART II.
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............. 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................... 12
SIGNATURES....................................................... 12
EXHIBIT INDEX.................................................... 13
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VPGI Corp. and Subsidiaries
Consolidated Balance Sheets
September 30 June 30
2003 2003
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,685 $ 9,883
Trade accounts receivable, net - -
Notes receivable - -
Inventories - -
Prepaid expenses - -
Other current assets - -
----------- -----------
Total current assets 2,685 9,883
PROPERTY AND EQUIPMENT, net of
accumulated depreciation - -
OTHER ASSETS
Purchased software, net of
accumulated amortization - -
Product and software development
costs, net of accumulated amortization - -
Intellectual property license, net of
accumulated amortization - -
Goodwill, net of accumulated amortization - -
Security deposit on corporate office 12,948 12,948
Other - -
----------- -----------
Total other assets 12,948 12,948
----------- -----------
Total assets $ 15,633 $ 22,831
=========== ===========
VPGI Corp. and Subsidiaries
Consolidated Balance Sheets
September 30 June 30
2003 2003
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ - $ -
Current maturities of obligations
under capital leases - -
Trade accounts payable - -
Accrued expenses 7,142 11,992
Deferred revenue - -
----------- -----------
Total current liabilities 7,142 11,992
LONG TERM DEBT, less current maturities - -
OBLIGATIONS UNDER CAPITAL LEASES, less
current maturities - -
----------- -----------
Total liabilities 7,142 11,992
STOCKHOLDERS' EQUITY
Preferred stock, cumulative, $1.00
par value; 1,000,000 shares authorized:
Series A, 30,000 shares issued and
outstanding (liquidation
preference of $30,000) 30,000 30,000
Series H, 2 shares issued and outstanding
(liquidation preference of $50,000) 2 2
Series K, 20 shares issued and outstanding
(liquidation preference of $500,000) 20 20
Series 2002-G, 196 shares issued and
outstanding (liquidation preference
of $4.9 million) 196 196
Common stock, $.001 par value; 80,000,000
shares authorized; 5,242,120 and
4,486,120 shares issued and outstanding
at September 30 and June 30, 2003,
respectively 5,242 4,486
Additional paid in capital 60,365,155 60,337,666
Accumulated deficit (60,392,124) (60,361,531)
----------- -----------
Total stockholders' equity 8,491 10,839
----------- -----------
Total liabilities and stockholders' equity $ 15,633 $ 22,831
=========== ===========
The accompanying notes are an integral part of these statements.
VPGI Corp. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30,
2003 2002
----------- -----------
Revenues
Product sales $ - $ 41,672
Consulting and support services - 395,831
----------- -----------
Total revenues - 437,503
Cost of products and services
Cost of product sales - 50,058
Cost of consulting and support services - 143,460
----------- -----------
Total cost of products and services - 193,518
----------- -----------
Gross margin - 243,985
Operating expenses
Selling - 10,012
General and administrative 37,152 787,285
Depreciation and amortization - 261,637
Impairment of goodwill - 1,005,509
----------- -----------
Total operating expenses 37,152 2,064,443
Operating loss (37,152) (1,820,458)
Other (income) expense
Other income (6,560) (22,172)
Interest expense - 7,836
----------- -----------
Total other (income) expense (6,560) (14,336)
----------- -----------
Net loss (30,592) (1,806,122)
Decrease in redemption value of
redeemable preferred stock - 656,000
Dividend requirements on preferred stock (1,075) (1,250)
----------- -----------
Net loss attributable to common stockholders $ (31,667) $ (1,151,372)
=========== ===========
Per share amounts allocable to common stockholders
Basic and diluted
Net loss $ (0.01) $ (0.31)
=========== ===========
Weighted average common shares outstanding -
basic and diluted 4,839,468 3,749,785
The accompanying notes are an integral part of these statements.
VPGI Corp. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended September 30,
2003 2002
---------- ----------
Cash flows from operating activities
Net loss $ (30,592) $(1,806,122)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization - 261,637
Impairment of goodwill - 1,005,509
Discount on debt - 9,198
Common stock issued 756 -
Warrants to purchase common stock issued 27,488 -
Changes in operating assets and liabilities
Trade accounts receivable - 119,661
Inventories - (1,957)
Prepaid expense - 90,149
Other current assets - 3,506
Other assets - (20,495)
Accounts payable and accrued
liabilities (4,850) (137,179)
Deferred revenue - (19,203)
---------- ----------
Cash and cash equivalents used
in operating activities (7,198) (495,296)
Cash flows from investing activities
Proceeds from sale of assets - 2,221
---------- ----------
Cash and cash equivalents
provided by investing activities - 2,221
Cash flows from financing activities
Principal payments on capital lease
obligations - (9,732)
---------- ----------
Cash and cash equivalents used in
financing activities - (9,732)
Net decrease in cash and cash equivalents (7,198) (502,807)
Cash and cash equivalents, beginning of period 9,883 724,051
---------- ----------
Cash and cash equivalents, end of period $ 2,685 $ 221,244
========== ===========
Supplemental information:
Cash paid for interest $ - $ 7,836
Non-cash transactions:
756,000 shares of common stock issued for
consulting services
Warrants to purchase 150,000 shares of
common stock issued for professional
services
The accompanying notes are an integral part of these statements.
VPGI Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)
BASIS OF PRESENTATION
The interim consolidated financial statements and summarized notes
included herein were prepared, without audit, in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP)
for interim financial information, pursuant to rules and regulations of the
Securities and Exchange Commission. Because certain information and notes
normally included in complete financial statements prepared in accordance
with U.S. GAAP were condensed or omitted pursuant to such rules and
regulations, it is suggested that these financial statements be read
in conjunction with the Consolidated Financial Statements and the Notes
thereto, included in the Company's Annual Report on Form 10-K for the
preceding fiscal year. These interim financial statements and notes hereto
reflect all adjustments which are, in the opinion of management, necessary
for a fair statement of results for the interim periods presented. Such
financial results, however, should not be construed as necessarily
indicative of future earnings.
REDEEMABLE PREFERRED STOCK
Prior to April 16, 2003, the Company's Series 2002-G preferred stock
was redeemable at the option of the holder, and was therefore classified
outside of stockholders' equity in the balance sheets of those periods. The
redemption value of these securities varies based on the market price of the
Company's common stock. The Company adopted an accounting method for those
prior periods 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 terms of the preferred stock were amended,
whereby redemption of the preferred stock shall be at the sole option of the
Company. Therefore, the preferred stock will be accounted for in subsequent
periods as equity.
IMPAIRMENT OF GOODWILL
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
("NWA"), but rather would apply its resources in other areas. The Company
intends to either wind down the operations of NWA or seek a buyer for the
subsidiary. As a result of this decision, and based on the fair value
of the subsidiary, the Company has determined that the $1,005,509 of
unamortized goodwill on the Company's books related to NWA is impaired
under Statement of Financial Accounting Standards No. 142 ("SFAS 142").
Accordingly, the Company has recorded an impairment expense for that amount
to write off the goodwill as of September 30, 2002. Approximately $694,000
of the impairment expense is reflected in the services segment, while
the remaining $312,000 is reflected in the product sales segment in the
Company's Business Segment Information for the three months ended September
30, 2002.
LOSS PER SHARE
Basic loss per share are based upon the weighted average number of
shares of common stock outstanding. Diluted loss per share are based upon
the weighted average number of shares of common stock outstanding and, when
dilutive, common shares issuable for stock options, warrants and convertible
securities. There are no dilutive securities in the three-month periods
ended September 30, 2003 and 2002. The effect of preferred stock dividends
on the amount of losses allocable to common stockholders was negligible for
the three months ended September 30, 2003 and 2002.
The weighted average of outstanding warrants that were not included in
the diluted calculation because their effect would be anti-dilutive total
1,169,837 and 577,844 for the three months ended September 30, 2003 and
2002, respectively. The weighted average of outstanding options that were
not included in the diluted calculation because their effect would be anti-
dilutive total 2,027,283 and 2,151,925 for the three months ended September
30, 2003 and 2002, respectively.
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 three months ended September 30:
2003 2002
---------- ----------
Net revenues:
Product sales $ - $ 41,672
Services - 395,831
---------- ----------
$ - $ 437,503
========== ==========
Operating loss:
Product sales $ - $ (801,822)
Services - (496,224)
Corporate (37,152) (522,412)
---------- ----------
Total operating loss (37,152) (1,820,458)
Less interest expense - (7,836)
Interest and other income 6,560 22,172
---------- ----------
Net loss $ (30,592) $(1,806,122)
========== ==========
STOCK-BASED COMPENSATION
In December 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 148, "Accounting
for Stock-Based Compensation _ Transition and Disclosure" (SFAS 148) which
amends Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123). SFAS 148 provides alternative methods
of transition for voluntary change to the fair value based method of
accounting for stock-based employee compensation and requires disclosures
in annual and interim financial statements of the effects of stock-based
compensation as reflected below.
The Company continues to account for its stock options under the
recognition and measurement principles of Accounting Principles board
Opinion No. 25 "Accounting for Stock Issued to Employees," and related
Interpretations. No stock based employee compensation expense related to
the Company's stock options is reflected in the net loss, as all options
granted under the plan had an exercise price equal to the market value of
the underlying common stock on the date of grant. The following table
illustrates the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of SFAS 123 to stock-based
compensation.
Three Months Ended
September 30 September 30
2003 2002
---------- ----------
Net loss, as reported $ (31,667) $(1,151,372)
Deduct: Total stock-based employee
compensation expense determined
using the fair value based method
for all awards $ (13,125) $ (102,920)
---------- ----------
Pro forma net loss $ (44,792) $(1,254,292)
========== ==========
Loss per share
As reported $ (0.01) $ (0.31)
Pro forma $ (0.01) $ (0.33)
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:
Three Months Ended
September 30 September 30
2003 2002
---------- ----------
Expected volatility 150% 150%
Risk-free interest rate 0.90% 1.67%
Expected lives 5 years 3 years
Dividend yield - -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
Overview
Until the Company discontinued operations in December 2002, we offered
enhanced digital media solutions to customers worldwide. We also offered
contact center customer service solutions through CIMphony[TM], a suite of
computer telephony integration (CTI) software products and services. We are
continuing to evaluate all of our options and may consider seeking a buyer,
a merger candidate or an acquisition of a viable business.
The following discussion provides information to assist in the
understanding of our financial condition and results of operations for the
fiscal quarter ended September 30, 2003. It should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing in
our Annual Report on Form 10-K for fiscal year ended June 30, 2003.
Results of Operations
Revenues. We report no revenues for the fiscal quarter ended September
30, 2003, compared to $438,000 for the same quarter last year. The decrease
is due to the Company discontinuing all operations during December 2002.
Gross Margin. Gross margin for the fiscal quarter ended September 30,
2003 was zero compared to $244,000 for the same quarter last year.
Operating Expenses. Total operating expenses for the three months
ended September 30, 2003 were $37,152, compared to $2,064,000 for the same
period in 2002. Significant components of operating expenses for the three
months ended September 30, 2003 and 2002 consisted of the following:
2003 2002
---------- ----------
Compensation $ 5,760 $ 367,400
Facilities - 123,600
Depreciation - 53,700
Online service expense - 3,000
Impairment of goodwill - 1,005,509
Amortization of software development
costs and trademark - 207,991
Legal expense and professional fees 26,485 125,000
Sales and marketing expenses - 10,000
Other 4,907 168,300
---------- ----------
Total $ 37,152 $ 2,064,500
========== ==========
At September 30, 2003, another business venture was utilizing the
former corporate headquarters and making the lease payments. "Other"
expenses include public company cost, telephone, travel, office, insurance
and other general and administrative expenses. The decrease in operating
expenses for the period is attributable to the Company discontinuing all
operations in December 2002.
Liquidity and Capital Resources
Cash Flows From Operations. Cash used in operations for the fiscal
quarters ended September 30, 2003 and 2002 were approximately $7,198, and
$495,000, respectively.
Cash Flows From Investing Activities. During the fiscal quarters ended
September 30, 2003 and 2002 we engaged in no significant investing
activities.
Cash Flows from Financing Activities. We engaged in no significant
financing activities during the fiscal quarters ended September 30, 2003
or 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates which
may adversely affect our financial position, results of operations and cash
flows. In seeking to minimize the risks from interest rate fluctuations, we
manage exposures through our regular operating and financing activities. We
do not use financial instruments for trading or other speculative purposes
and we are not a party to any leveraged financial instruments. We are
exposed to interest rate risk primarily through our borrowing activities,
which are described in the "Long-Term Debt" Notes to the Consolidated
Financial Statements of our Annual Report on Form 10-K for fiscal year
ended June 30, 2003, which are incorporated herein by reference.
ITEM 4. 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 our current disclosure controls and procedures
provide him with reasonable assurance that they are effective to provide him
with timely material information relating to us required to be disclosed in
the reports we file or submit under the Exchange Act.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Issuances of equity securities during the fiscal quarter ended
September 30, 2003 that were not registered under the Securities Act
of 1933 consisted of the following:
On July 8, 2003 we issued to a consultant, for services, warrants to
purchase 150,000 shares of our Common Stock. The warrants are exercisable
through July 7, 2008 at a fixed exercise price of $0.09 per share.
On August 18, 2003 we issued to our Chief Executive Officer, for
services, 288,000 shares of our Common Stock. The market price of the
Common Stock on the date of issuance was $0.02 per share.
On August 18, 2003 we issued to a consultant, for services, 468,000
shares of our Common Stock. The market price of the Common Stock on the
date of issuance was $0.02 per share.
The foregoing issuances were 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. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Reference is made to the Exhibit Index located on page 13 of this
Form 10-Q for a list of all exhibits filed with and incorporated
by reference in this report.
(b) Reports on Form 8-K:
During the three months ended September 30, 2003 the Company filed
one Current Report on Form 8-K dated August 21, 2003, reporting a
change in accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VPGI Corp.
(Registrant)
By: /s/ PATRICK A. CUSTER
-------------------------
Patrick A. Custer
Chief Executive Officer
and Principal Financial Officer
Date: November 14, 2003
VPGI Corp. and Subsidiaries
EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibits Page Number
----------------------------------------------------------------------------
4.1 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
4.2 First Amendment to Series 2002-G Preferred Stock
terms and conditions filed as Exhibit "4.21" to the
Company's Annual Report on Form 10-K dated as of
October 14, 2003 and incorporated herein by
reference.) N/A
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. 14
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. 16
__________________
* Filed herewith.