Back to GetFilings.com
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 December 31, 2004
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)
P.O. Box 802808 75380
Dallas, Texas (Zip Code)
(Address of principal executive offices)
(214) 263-3122
(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 February 14, 2005, there were 6,012,120 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.................. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.................................... 10
ITEM 4. CONTROLS AND PROCEDURES.............................. 10
PART II.
OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES.............. 10
ITEM 6. EXHIBITS............................................. 11
SIGNATURES..................................................... 12
EXHIBIT INDEX.................................................. 13
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VPGI CORP. and Subsidiaries
Consolidated Balance Sheets
December 31 June 30
2004 2004
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 456,799 $ -
----------- -----------
Total current assets 456,799 -
----------- -----------
OTHER ASSETS
Pension surplus 49,972 49,972
----------- -----------
Total other assets 49,972 49,972
----------- -----------
Total assets $ 506,771 $ 49,972
=========== ===========
VPGI CORP. and Subsidiaries
Consolidated Balance Sheets
December 31 June 30
2004 2004
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Other current liabilities
Note payable, net of deferred loan costs $ 618,797 $ -
Accrued expenses 12,336 -
----------- -----------
Total current liabilities 631,133 -
----------- -----------
Total liabilities 631,133 -
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
Series 2002-L, 175 shares issued and
outstanding (liquidation preference
of $1.75 million) 175 -
Common stock, $.001 par value; 80,000,000
shares authorized; 6,012,120 and 5,242,120
shares issued and outstanding at December 31
and June 30, 2004, respectively 6,012 5,242
Additional paid in capital 60,417,361 60,356,529
Accumulated deficit (60,578,128) (60,342,017)
----------- -----------
Total stockholders' equity (deficit) (124,362) 49,972
----------- -----------
Total liabilities and stockholders'
equity (deficit) $ 506,771 $ 49,972
=========== ===========
The accompanying notes are an integral part of these statements.
VPGI CORP. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
December 31 December 31 December 31 December 31
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues
Product sales $ - $ - $ - $ -
Consulting and support services 500 - 500 -
----------- ----------- ----------- -----------
Total revenues 500 - 500 -
Cost of products and services
Cost of product sales - - - -
Cost of consulting and
support services - - - -
----------- ----------- ----------- -----------
Total cost of products and services - - - -
----------- ----------- ----------- -----------
Gross margin 500 - 500 -
Operating expenses
General and administrative 211,178 2,685 211,178 39,837
----------- ----------- ----------- -----------
Total operating expenses 211,178 2,685 211,178 39,837
----------- ----------- ----------- -----------
Operating loss (210,678) (2,685) (210,678) (39,837)
Other (income) expense
Other income - - - (6,560)
Interest expense 25,433 - 25,433 -
----------- ----------- ----------- -----------
Total other (income) expense 25,433 - 25,433 (6,560)
----------- ----------- ----------- -----------
Net loss (236,111) (2,685) (236,111) (33,277)
Dividend requirements
on preferred stock (32,775) (1,075) (32,775) (2,150)
----------- ----------- ----------- -----------
Net loss attributable
to common stockholders $ (268,886) $ (3,760) $ (268,886) $ (35,427)
=========== =========== =========== ===========
Net loss per share attributable
to common stockholders -
basic and diluted $ (0.05) $ (0.00) $ (0.05) $ (0.01)
=========== =========== =========== ===========
Weighted average common shares
outstanding - basic and diluted 5,627,120 5,242,120 5,434,620 5,040,794
The accompanying notes are an integral part of these statements.
VPGI CORP. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended December 31,
2004 2003
----------- -----------
Cash flows from operating activities
Net loss $ (236,111) $ (33,277)
Adjustments to reconcile net loss to
cash used in operating activities:
Amortization of debt discount 13,098 -
Acquired in-process research and development 148,421 -
Common stock issued - 756
Warrants to purchase common stock issued - 27,488
Changes in operating assets and
liabilities, net of effects of
acquisitions and dispositions:
Accounts payable and
accrued liabilities 12,336 (4,850)
----------- -----------
Cash and cash equivalents used in
operating activities (62,256) (9,883)
Cash flows from investing activities
Acquisition of business, net of cash (86,645) -
----------- -----------
Cash and cash equivalents used in
by investing activities (86,645) -
Cash flows from financing activities
Net proceeds from issuance of notes payable 605,700 -
----------- -----------
Cash and cash equivalents provided
by financing activities 605,700 -
Net increase (decrease) in cash and
cash equivalents 456,799 (9,883)
Cash and cash equivalents, beginning of period - 9,883
----------- -----------
Cash and cash equivalents, end of period $ 456,799 $ -
=========== ===========
Supplemental cash flow disclosures
Cash paid for:
Interest $ 13,097 $ -
=========== ===========
Income taxes $ - $ -
=========== ===========
Non-cash investing and financing activities
Acquisition of intangible assets in exchange $ 61,776 $ -
for common stock, preferred stock and warrants =========== ===========
to acquire common stock
The accompanying notes are an integral part of these statements.
VPGI CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
(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.
LOSS PER SHARE
Basic loss per share is based upon the weighted average number of
shares of common stock outstanding. Diluted loss per share is based upon
the weighted average number of shares of common stock outstanding plus the
number of additional common shares that would have been outstanding if
dilutive potential common shares had been issued. In all periods presented,
all potential common shares were anti-dilutive.
BUSINESS SEGMENT INFORMATION
The Company discontinued normal operations in December, 2002. Since
that date, no business segments have existed.
STOCK-BASED COMPENSATION
The Company has not issued stock options to employees since fiscal
year ended June 30, 2003. The options issued during that period vested
immediately. No material vesting has occurred with regard to any
outstanding employee stock options during 2004 or the current fiscal
period.
MERGER TRANSACTION
On November 10, 2004 the Company signed an Agreement and Plan of Merger
(the "Agreement") to acquire another company, Venture Pacific Group, Inc.
("VPG"). The merger was effected by merging a new subsidiary of the Company
into VPG, resulting in VPG being the surviving entity and a wholly-owned
subsidiary of the Company. The merger was effective upon issuance of the
Certificate of Merger by the Texas Secretary of State on November 16, 2004.
The acquisition resulted in the issuance to VPG shareholders of
approximately 770,000 new shares of common stock of the Company, which were
valued at approximately $60,000, according to the stock price on November
10, 2004. The exchange ratio consisted of one share of common stock of the
Company ("Common Stock") for each ten shares of VPG common stock held by VPG
shareholders.
The Company also issued to Trident Growth Fund, LP ("Trident") a new
series of preferred stock, Series 2004-L Preferred Stock (the "Preferred
Stock"), to retire an outstanding series of preferred stock of VPG. The
Preferred Stock has a liquidation value of $1.75 million and is convertible
at the option of the holder into a total of 1.75 million shares of Common
Stock at any time after six months from the issue date. 14% cumulative
dividends accrue on the Preferred Stock, which are payable as follows: 4%
dividends are payable quarterly and 10% dividends shall accumulate and be
payable upon (a) the conversion of the Preferred Stock to Common Stock,
(b) the redemption of the Preferred Stock, or (c) such time as the Company
generates positive cash flow sufficient to pay such dividends. These
preferred shares were valued at $175.
Concurrently with the acquisition of VPG, the Company borrowed $700,000
from Trident and executed a Convertible Note (the "Note") payable at the
earlier of: (i) November 10, 2005; (ii) the closing date of the Company's
next public offering; or (iii) the date of any change of control of the
Company, as defined therein. Interest is payable monthly on the Note at
the rate of 14% per annum. The Note is convertible into Common Stock at any
time on or after the six month anniversary of the date of issue of the Note,
at a per share conversion price equal to the average of the closing prices
of the Common Stock for the three business days ending on any conversion
date.
In connection with the merger, the Company issued to Trident warrants
to purchase 760,000 shares of Common Stock, exercisable for five years at
an exercise price of $.10 per share. The warrants were valued at $1,600.
In accordance with Statement of Financial Accounting Standards
No. 141, "Business Combinations", the Company has accounted for the merger
transaction using the purchase method of accounting. The results of VPG's
operations have been included in the financial statements since the date of
acquisition. With the acquisition of VPG, the Company expects to become
active in the licensing of radio frequency identification technologies to
integrate with its own technologies to develop applications in specialty
areas.
The following table summarizes the estimated value of the assets
acquired and liabilities assumed at the date of acquisition.
Intangible assets $ 148,421
Current liabilities assumed 86,645
----------
Net assets acquired $ 61,776
==========
The $148,421 intangible asset was assigned to in-process research and
development assets that were written off at the date of acquisition. Those
write-offs are included in general and administrative expenses.
Upon consolidation, all intercompany accounts and transactions have
been eliminated.
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, such as 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 other risks described from
time to time in the 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 changes 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. With the acquisition of Venture Pacific Group, Inc. ("VPG")
in November 2004, we expect to become active in the licensing of radio
frequency identification ("RFID") technologies to integrate with our
own technologies to develop applications in specialty areas, such as
anti-counterfeiting of drugs, medical devices, and logistical systems.
We are continuing to evaluate all of our options and may continue to
consider seeking a buyer, a merger candidate or an acquisition of
another 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 December 31, 2004. 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, 2004.
Results of Operations
Revenues. We report revenues of $500 for the three and six months
ended December 31, 2004, compared to no revenues for the same periods last
year.
Gross Margin. Gross margin for the three and six months ended December
31, 2004 was $500, compared to zero for the same periods last year.
Operating Expenses. Total operating expenses for the three months
ended December 31, 2004 were $211,178, compared to $2,685 for the same
period in 2003. Total operating expenses for the six months ended December
31, 2004 were $211,178, compared to $39,837 for the same period last year.
Significant components of operating expenses for the three and six months
ended December 31, 2004 and 2003 consisted of the following:
Three Months Ended Six Months Ended
December 31 December 31 December 31 December 31
2004 2003 2004 2003
-------- -------- -------- --------
Write off of acquired
research and development $ 148,421 $ - $148,421 $ -
Compensation - - - 5,760
Legal expense and
professional fees 20,588 - 20,588 26,485
Other 42,169 2,685 42,169 7,592
-------- -------- -------- --------
Total $ 211,178 $ 2,685 $ 211,178 $ 39,837
======== ======== ======== ========
During the six months ended December 31, 2003, another business venture
utilized the former corporate headquarters and made the lease payments.
As of December 31, 2003, this business venture had vacated the premises.
The lease term expired on November 30, 2004 and the balance of the lease
obligation is considered a contingent liability of the Company, dependent
upon the landlord re-leasing the space to another tenant. "Other" expenses
include public company cost, telephone, travel, office, insurance and other
general and administrative expenses. The increase in operating expenses for
the period is attributable to the Company resuming activity with the
acquisition of VPG during November 2004.
Liquidity and Capital Resources
Cash Flows From Operations. Cash used in operations for the six months
ended December 31, 2004 and 2003 was $62,257 and $9,883, respectively.
Cash Flows From Investing Activities. During the six months ended
December 31, 2004, we used net cash in investing activities of $86,645 for
the acquisition of VPG. During the six months ended December 31, 2003 we
engaged in no investing activities.
Cash Flows from Financing Activities. During the six months ended
December 31, 2004 we received cash of $605,700 proceeds from the issuance of
short-term debt. During the six months ended December 31, 2003 we engaged
in no financing activities.
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, 2004, 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. UNREGISTERED SALES OF EQUITY SECURITIES
In connection with the acquisition of VPG effective as of November 16,
2004, the Company has issued and will issue to the shareholders of VPG an
aggregate of 770,000 new shares of its Common Stock, valued at approximately
$60,000, based on the Company's stock price at the effective date. The
transaction resulted in VPG becoming a wholly owned subsidiary of the
Company.
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
Reference is made to the Exhibit Index of this Form 10-Q for a list of
all exhibits filed with and incorporated by reference in this report.
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: February 14, 2005
VPGI CORP.
and Subsidiaries
EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibits Page Number
----------------------------------------------------------------------------
2.1 Agreement and Plan of Merger dated November 10, 2004 between the
Company and Venture Pacific Group, Inc. (filed as Exhibit "2.1" to
the Company's Current Report on Form 8-K dated as of November 10,
2004, filed on November 17, 2004.)
4.1 Series 2004-L Preferred Stock terms and conditions (filed as
Exhibit "4.1" to the Company's Current Report on Form 8-K dated
as of November 10, 2004, filed on November 17, 2004.)
4.2 Form of warrant issued to Trident Growth Fund, L.P. in connection
with the Loan Agreement dated November 1, 2004 between the Company
and Trident Growth Fund, L.P. (filed as Exhibit "4.2" to the
Company's Current Report on Form 8-K dated as of November 10,
2004, filed on November 17, 2004.)
10.1 Loan Agreement dated November 10, 2004 between the Company and
Trident Growth Fund, LP. (filed as Exhibit "10.1" to the Company's
Current Report on Form 8-K dated as of November 10, 2004, filed on
November 17, 2004.)
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. 15
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. 17
_______________
* Filed herewith.