ITEM 1A. RISK FACTORS
We are a development stage company that currently has limited operations and no revenues. The focus of current management is concerned primarily with maintaining our public filings and in locating and completing a suitable business combination. Until we complete a business combination, we will have no operations and will generate no operating revenues. The following is a description of important risk factors affecting current and future results of our operations.
Risks Related to our Business
We are a development stage company with no current operations and, accordingly, there is no basis upon which to evaluate our ability to achieve our business objective.
Our business objective is to acquire an operating business in the technology industry. Although we have conducted a preliminary review, we have no plans, arrangements or understandings with any prospective acquisition candidates nor have we engaged any agent or other representative to identify or locate suitable acquisition candidates. We have no present revenues and do not expect to generate any revenues until, at the earliest, after the consummation of a business combination. Since we do not know what the operating history, if any, of any potential acquisition will be, there is no basis upon which to evaluate our ability to achieve our business objective.
Since we have not currently selected any target business with which to complete a business combination, we are unable to currently ascertain the merits or risks of the Company's operations.
Since we have not yet identified a prospective target business, we are unable to present any basis to evaluate the possible merits or risks of the target business' operations. While we do not intend to target financially unstable companies or companies in the development stage, to the extent we complete a business combination with such a company, we may be affected by numerous risks inherent in the business operations of those entities. We would consider a company to be financially unstable if, for example, a substantial portion of its cash flow were dedicated to its debt service obligations or its expected capital expenditure requirements exceeded the ability of the target business to fund them. In addition, we would consider a business to be in its early stages of development or growth if it is newly formed and is in the process of developing its initial technologies, processes, services, or products. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors. Since we have limited cash resources, we expect that any acquisition will require the issuance of a substantial number of shares of our capital stock or debt obligations (see sections below); otherwise, we will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate.
As we will favor underperforming companies as business combination opportunities, we may be subject to the additional risks associated with the financial and operational condition of underperforming companies.
As we evaluate business combination opportunities, we intend to favor underperforming companies that we believe have the potential to increase their performance substantially through changes in operations or strategy. As a result, following the consummation of any such business combination, we may be subject to additional risks that would not exist if we were to consummate a business combination with companies that are not underperforming. These risks may relate to, among other things, the following:
* the potentially weak financial, operational and/or strategic position of the underperforming company;
* identification and retention of individuals with the requisite skills and experience to replace the existing management of the acquired company;
* dedication of substantial resources to restructuring the operations and finances of the acquired company;
* development of strategic business initiatives, including, without limitation, sales and marketing plans and research and development plans, as well the identification of individuals or third parties capable of executing those initiatives; and
* restructuring the acquired company's operations to improve its business model, financial condition, and results of operations.
To address each of the foregoing risks, we will be required to dedicate substantial financial and human resources which would otherwise be used by us to expand a business following the business combination, which may have a material adverse effect on our business, prospects, financial condition, and results of operations.
We may issue shares of our capital stock to complete a business combination, which would dilute the equity interest of our stockholders and could cause a change in control of our ownership.
Our certificate of incorporation authorizes the issuance of up to 80,000,000 shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $1.00 per share. Although we have no current commitments to issue our securities in any acquisition, we will, in all likelihood, issue a number of additional shares of our common stock or preferred stock, or a combination of common and preferred stock, to complete a business combination. We additionally expect to issue a number of shares of our common stock in conversion of currently outstanding convertible preferred stock and convertible debt obligations. Additional shares could be issued in exercise of currently outstanding warrants or stock options. The issuance of additional shares of our common stock or any number of shares of our preferred stock:
* may significantly dilute the equity interest of our public shareholders;
* may adversely affect prevailing market prices for our securities; and
* may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded to our common stock.
The issuance of a substantial number of our shares of common stock will also likely cause a change in control, which may affect, among other things, our ability to use our net operating loss carry forwards. At June 30, 2007, we had net operating loss carry forwards for Federal income tax purposes of approximately $65.4 million, which will expire in various amounts in the years 2008 through 2023 if not utilized. These net operating loss carry forwards are available to us to offset future taxable income, subject to significant limitations and provisions of the Internal Revenue Code. Due to various changes in control, these net operating loss carry forwards may have been severely curtailed or lost entirely. A change in control may also result from the resignation or removal of our present management.
We may issue debt securities or otherwise incur substantial debt to complete a business combination, which may adversely affect our leverage and financial condition.
Although we have no commitments as of the date of this report to issue any debt securities, or to otherwise incur additional debt, we may choose to incur substantial debt to complete a business combination or to fund operations until such time as a business combination can be completed. If we issue debt securities, it could result in:
* default and foreclosure on our assets if our operating revenues after a business combination were insufficient to pay our debt obligations;
* acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that require the maintenance of certain financial ratios or reserves and any such covenant is breached without a waiver or renegotiation of that covenant;
* our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and
* our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding.
Our ability to effect a business combination and to execute any potential business plan afterwards will be totally dependent upon the efforts of key personnel, some of whom may join us following a business combination and whom we may have only a limited ability to evaluate.
Our ability to effect a business combination will be totally dependent upon the efforts of our current management and its advisors. Our current management does not intend to assume the day-to-day operational management of our target business, and the precise role of any key personnel will be the subject of negotiation in any business combination. Part of the analysis of a particular acquisition will include an evaluation of the experience and skill set of the target business' management and negotiate as part of the business combination that certain members of that management remain if it is believed that it is in the best interests of the company. The future role of specific key personnel following a business combination, however, cannot presently be fully ascertained.
Our current management will allocate its time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This could impact on our ability to consummate a business combination.
Our current management is not required to commit its full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and other businesses. We do not intend to have any full time employees prior to the consummation of a business combination. All of our executive officers are engaged in other business endeavors and are not obligated to contribute any specific number of hours to our affairs. If our executive officers' other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could impact our ability to consummate a business combination.
We may for a period of time only be able to complete one business combination, which would cause us to be solely dependent on a single business and a limited number of products or services.
We may have the ability to complete only a single business combination. Accordingly, the prospects for our ability to effect our acquisition strategy may be:
* solely dependent upon the performance of a single business, or
* dependent upon the development or market acceptance of a single or limited number of products, processes or services.
In this case, we will not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities that may have the resources to complete several business combinations in different industries or different areas of a single industry.
We may be unable to obtain additional financing, if required, to complete a business combination or to fund the operations and growth of the target business, which could compel us to restructure the transaction or abandon a particular business combination.
Because we have not yet identified any prospective target business, we cannot ascertain the capital requirements for any particular transaction. If our current financial resources prove to be insufficient, either because of the size of the business combination or the depletion of the available resources in search of a target business, we will be required to seek additional financing. We cannot assure you that such financing would be available on acceptable terms, if at all. To the extent that additional financing is unavailable when needed to consummate a particular business combination, we will be compelled to restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, if we consummate a business combination, we may require additional financing to fund the operations or growth of the target business. The failure to secure additional financing may stall the development or growth of the target business. None of our officers, directors or stockholders is required to provide any financing to us in connection with or after a business combination.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
The statements contained in this report that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management's expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words "anticipates," "believe," "continue," "could," "estimate," "expect," "intends," "may," "might," "plan," "possible," "potential," "predicts," "project," "should," "would" and similar expressions may identify forward- looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example, statements about our:
* ability to complete a combination with one or more target businesses;
* success in retaining or recruiting, or changes required in, our officers, key employees or directors following a business combination;
* officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving a business combination, as a result of which they would then receive expense reimbursements;
* potential inability to obtain additional financing to complete a business combination;
* potential change in control if we acquire one or more target businesses for stock;
* public securities' limited liquidity and trading;
* our financial performance following any business combination.
The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading "Risk Factors." Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws and/or if and when management knows or has a reasonable basis on which to conclude that previously disclosed projections are no longer reasonably attainable.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
The Company has no current business operations and the current CEO, Mr. Rozelle, utilizes his business office located in Houston, Texas for limited administrative functions performed on behalf of the Company.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Management believes that there are no claims or actions pending or threatened against the Company, the ultimate disposition of which would have a material impact on the Company's financial position, results of operations or cash flows.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of Fiscal 2007.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock, $.001 par value (the "Common Stock") trades on the OTC Bulletin Board under the symbol "VPGC." Until September 18, 2006, the effective date of a reverse stock split, our Common Stock traded 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. (All share and per share data give effect to a one for fifty (1:50) reverse stock split that was implemented on September 18, 2006, applied retroactively as if it occurred on July 1, 2004.)
Quarter Ending Date High Trade Low Trade ------------------- ---------- ---------
Fiscal 2007 ----------- June 30, 2007 $ 1.05 $ 0.60 March 31, 2007 $ 2.00 $ 1.05 December 31, 2006 $ 3.25 $ 2.00 September 30, 2006 $ 2.75 $ 1.75
Fiscal 2006 ----------- June 30, 2006 $ 4.00 $ 2.50 March 31, 2006 $ 4.00 $ 2.50 December 31, 2005 $ 4.50 $ 2.50 September 30, 2005 $ 7.50 $ 4.50
Holders
As of June 30, 2007 there were approximately 1,236 holders of record of our common stock.
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
Options issued and available for future issuance under stockholder- approved plans consist of those authorized pursuant to our 1999 Equity Incentive Plan. (All share and per share data give effect to a one for fifty (1:50) reverse stock split that was implemented on September 18, 2006, applied retroactively as if it occurred on July 1, 2004.)
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
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
FISCAL YEAR ENDED JUNE 30, 2007 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2006
Revenues
We had no revenues for fiscal year 2007 and 2006.
Gross Margin
We had no gross margin for fiscal year 2007 and 2006.
Operating Expenses
Total operating expenses for fiscal year 2007 decreased to approximately $200,395, compared to approximately $317,615 for the same period last year. Significant components of operating expenses for the fiscal years ended June 30, 2007 and 2006 consisted of the following:
Year ended June 30, ------------------------------- 2007 2006 ----------- ----------- Compensation $ -- $ 85,658 Facilities -- 23,183 Legal expense and professional fees 142,821 96,556 Other 57,574 112,218 ----------- ----------- Total $ 200,395 $ 317,615 =========== ===========
"Other" expenses include public company cost, telephone, travel, office, insurance, amortization of intangibles and other general and administrative expenses. The decrease in operating expenses for fiscal year 2007 is attributable to decreasing Company operations during fiscal year 2007.
Interest Expense
We had total interest expense of $48,385 in fiscal year 2007 as compared to $185,748 in fiscal year 2006. The decrease in interest expense is attributable to the conversion of convertible debt held by Trident during fiscal year 2007.
Other Expense, (Income), net
We had other expense of $565,422 in fiscal year 2007 as compared to ($2,422) in fiscal year 2006. The increase in other expense is related to the $525,000 impairment of intangible assets and $53,168 related to the termination of the Company's defined contribution plan.
FISCAL YEAR ENDED JUNE 30, 2006 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2005 ---------------------------------------------------------------------------
Revenues
We had no revenues for fiscal year 2006. Revenues of $12,243 for fiscal year 2005 were derived primarily from the resale of refurbished cell phones in the telecommunications industry.
Gross Margin
We had no gross margin for fiscal year 2006. Gross margin for fiscal year 2005 was $12,243, which represented 100% of all revenue in fiscal year 2005.
Operating Expenses
Total operating expenses for fiscal year 2006 decreased to approximately $317,615, compared to approximately $570,275 for the same period last year. Significant components of operating expenses for the fiscal years ended June 30, 2006 and 2005 consisted of the following:
Year ended June 30, ------------------------------- 2006 2005 ----------- ----------- Compensation $ 85,658 $ 133,821 Facilities 23,183 2,162 Legal expense and professional fees 96,556 160,818 Write-off of acquired in-process research and development -- 146,819 Other 112,218 126,655 ----------- ----------- Total $ 317,615 $ 570,275 =========== ===========
"Other" expenses include public company cost, property taxes, telephone, travel, office, insurance, and other general and administrative expenses. The decrease in operating expenses for fiscal year 2006 is attributable to decreasing Company operations during fiscal year 2006.
Interest Expense
We had total interest expense of $185,748 in fiscal year 2006 as compared to $164,582 in fiscal year 2005. The increase in interest expense is attributable to additional financing from Trident received during fiscal year 2006.
Liquidity and Capital Resources
Cash and cash equivalents at June 30, 2007 were $1,431 compared to $11,032 at June 30, 2006. In the past we have relied on available borrowing arrangements and sales of our common and preferred stock to supplement operations.
Cash Flows from Operations
Cash used in operations for the fiscal year ended June 30, 2007 was $59,701 compared to $338,305 used in operations in 2006. The major components of cash used in operations during 2007 were comprised of a $814,202 loss from operations, write off of assets of $525,000, amortization of the discount on debt and intangible assets of $10,818 the issuance of stock for services of $25,000 and changes in operating assets and liabilities of $193,683.
Cash used in operations for the fiscal year ended June 30, 2006 was $338,305 compared to $532,296 used in operations in 2005. The major components of cash used in operations during 2006 were comprised of a $500,941 loss from operations, amortization of the discount on debt of $64,623, and changes in operating assets and liabilities of $98,013.
Cash Flows from Investing Activities
During fiscal years 2007, 2006 and 2005, no cash was used in investing activities.
Cash Flows from Financing Activities
During fiscal year 2007, cash of $50,000 was borrowed and proceeds from the issuance of warrants of $100 were received.
During fiscal year 2006, cash of $296,000 was borrowed.
During fiscal year 2005, cash payments of $20,067 were used for dividends declared. Cash of $605,700 was borrowed during the fiscal year 2005.
Other Matters
Going Concern
We incurred net losses of $814,202, $500,941 and $717,477 for the years ended June 30, 2007, 2006 and 2005, respectively. In December 2002 we laid off all of our employees and discontinued normal operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
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.
Revenue Recognition. During 2005 we recognized a significant portion of our revenue while acting as a sales agent or in a similar capacity. As such, we reported revenue based upon the fee earned as acting as an agent. Product sales were recognized at the time of delivery and customer acceptance.
Asset Impairment. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds the estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount exceeds the fair value of the asset.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8.
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)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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.
Annual report on internal control over financial reporting. Based upon the most recent pronouncements of the Securities and Exchange Commission, our first annual report on internal control over financial reporting is due for inclusion in our annual report on Form 10-K for the twelve month period ending June 30, 2008. We expect to begin the process during next fiscal year of identifying a framework to use to evaluate the effectiveness of our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act.)
Changes in Internal Control over Financial Reporting. Our management has evaluated whether any change in our internal control over financial reporting occurred during the fourth fiscal quarter. Based on that evaluation, management concluded that there has been no change in our internal control over financial reporting during the relevant period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of all of our directors and executive officers as of September 1, 2007. Our officers are appointed by, and serve at the pleasure of, the Board of Directors.
Name Age Title -------------------- ----- ---------------------------------------------- Joseph R. Rozelle 34 Sole Board Member, President, Chief Executive Officer and Chief Financial Officer
Biographical information with respect to our executive officers and directors is provided below. There are no family relationships between any of our executive officers or directors.
Joseph R. Rozelle, 34, is the sole member of the Board and Chief Executive Officer, effective July 14, 2006. Mr. Rozelle is currently also the President of Nautilus Global Partners, a Limited Liability Company dedicated to facilitation of "going public" transactions for foreign and domestic operating companies on the public United States Exchanges. From 2004 through January 2006, Mr. Rozelle was a consultant with Accretive Solutions, providing Sarbanes-Oxley Compliance consulting and other accounting related consulting services. Prior thereto, Mr. Rozelle worked with Momentum Equity Group, LLC and Momentum Bio Ventures as a Principal Analyst beginning in the spring of 2002 and winter of 2003, respectively through 2004. Prior to joining Momentum, Mr. Rozelle was an associate with Barclays Capital in the Capital Markets Group, specializing in asset securitization in the summer of 2001. Prior thereto, he was the Assistant Vice President of Planning and Financial Analysis for a regional commercial bank and was responsible for all of the corporate financial modeling, risk analysis, mergers and acquisition evaluation, and corporate budgeting. Mr. Rozelle also served as a senior auditor with Arthur Andersen, where he was involved in a variety of filings with the SEC involving corporate mergers, spin-offs, public debt offerings, and annual reports. Mr. Rozelle holds a Bachelors of Business Administration degree from the University of Houston and earned a Masters of Business Administration degree from the Jesse H. Jones School of Management at Rice University in 2002. In addition, he is a Certified Public Accountant in the State of Texas.
As of the date of this report, the Company does not have any contractual arrangements with Mr. Rozelle.
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, 2007, we believe that during the fiscal year ended June 30, 2007, all Section 16(a) filing requirements applicable to our directors, executive officers and 10% Owners were complied with.
Audit Committee
We have no active Audit Committee, however, Mr. Rozelle meets the definition of an audit committee financial expert, as set forth in Item 401(h)(2) of Regulation S-K.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive officer, our principal financial officer, and our principal accounting officer or controller, or persons performing similar functions. A copy of our code of ethics will be provided to any person without charge, upon request, by sending such request to us at our principal office.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Stock Options
The following table sets forth information concerning individual grants of stock options made during our last fiscal year to our Named Executive Officers. No stock appreciation rights were issued during the fiscal year.
During fiscal year ended June 30, 2007, there were no options exercised. The following table sets forth information concerning option holdings as of June 30, 2007 with respect to our Named Executive Officers.
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, 2007, we had no employment agreement with any named executive officer.
Compensation Committee Interlocks and Insider Participation
Mr. Rozelle participated in advising the Board of Directors concerning certain aspects of executive officer compensation during the last completed fiscal year. Mr. Rozelle is Chairman of the Board, President and Chief Executive Officer.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of September 28, 2007 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, 2007 (the date on which this Form 10-K was originally 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.
Amount of Percent Name and Address Beneficial of of Beneficial Owner Ownership(1) Class ---------------------------------------- ------------ ------- Directors and Officers: Joseph R. Rozelle 50,000 0.5% ------ --- All Directors and Executive Officers 50,000 0.5% as a Group (1 person) 5% Stockholders: Trident Growth Fund, LP 8,817,761 (2) 90.8% 700 Gemini, Suite 100 Houston, TX 77058 Hei Shing Lam, Joseph 627,000 6.5% RM 905 One Hysan Avenue, Causeway Bay Hong Kong
---------------------------- (1) Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, and is generally determined by voting powers and/or investment powers with respect to securities. Unless otherwise noted, all of such shares of Common Stock listed above are owned of record by each individual named as beneficial owner and such individual has sole voting and dispositive power with respect to the shares of Common Stock owned by each of them.
(2) Includes 20,000 shares held by Trident Advisors, Inc and 26,945 warrants issued to Trident Growth Fund, L.P.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 2004 the Company acquired Venture Pacific Group, Inc. ("VPG"). The acquisition resulted in the issuance to VPG shareholders of approximately 15,400 new shares of common stock of the Company, which were valued at approximately $60,000, according to the stock price at the time. (All share and per share data give effect to a one for fifty (1:50) reverse stock split that was implemented on September 18, 2006, applied retroactively as if it occurred on July 1, 2004.)
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. These preferred shares were valued at $175. (These shares are not affected by the one for fifty (1:50) reverse stock split that was implemented on September 18, 2006, as the terms of Series 2004-L Preferred Stock contain no reset feature in the event of a reverse split.)
At the time of the merger, our Chief Executive Officer also served as the Chief Executive Officer and as a director of VPG and was the beneficial owner of approximately 39% of VPG. Trident reported as a beneficial owner of 7.6% of the Company as of June 30, 2004, was also a beneficial owner of approximately 35% of VPG.
On May 1, 2007 we executed an Asset Purchase Agreement (the "Agreement") with Trident and the transaction was completed on the same date. Pursuant to the Agreement, we acquired certain assets (the "Assets") from Trident, generally described as software, trademarks and other intellectual properties formerly held by People Solution, Inc., which Assets were acquired by Trident in a foreclosure of Trident's security interest in the Assets on May 30, 2006.
Trident is the beneficial owner of approximately 91% of the Company.
Consideration paid by the Company for the acquisition of the Assets consists of two million (2,000,000) shares of par value $.001 common stock of the Company ("Common Stock"). As the Company and Trident are under common control, the Assets were transferred at the carrying value of Trident. The Assets were valued at $1,025,000 on the balance sheet of the seller at the time of sale. Management estimates the fair value of the Assets at $500,000 and has incurred an impairment charge of $525,000 based on the difference between the previous carrying cost and the estimated fair value of the Assets. The principle followed in determining the estimated fair value of the assets was an estimation of the approximate value of the Assets, considering their potential for generating revenues for the Company.
As of June 18, 2007, we completed the spin off of five of our subsidiaries (the "Subsidiaries"), as set forth below, the same being all of our ownership interest in said Subsidiaries:
* 100% of Venture Pacific Group, Inc., a Texas corporation, (which owns 100% of its subsidiaries, Test Secure International, Inc. and uniView Technologies Corp., and 80% of its subsidiary, Global Knowledge Group, Inc.);
* 100% of Uniview Technologies Products Group, Inc., a Texas corporation;
* 61% of Uniview Softgen Corporation, a Texas corporation;
* 60% of Uniview Asia Limited, formerly known as China Action Management Limited, a Hong Kong corporation;
* 100% of Curtis Mathes Corporation, a Delaware corporation;
The transaction was completed in a two-step transaction, whereby, as of June 15, 2007, all of the capital stock of Venture Pacific Group, Inc. was transferred to Custer Company, Inc. and as of June 18, 2007, all of the capital stock of the remaining of the foregoing named subsidiaries was transferred to Venture Pacific Group, Inc. In addition, as of June 18, 2007, all of our right, title and interest in and to the following trademarks (the "Assets") were transferred to Venture Pacific Group, Inc.:
uniView[R] (trademark) (words only) Registration No.: 2,173,544 Date of Registration: July 14, 1998 International Class No(s).: 009, 042
Electric Globe Bug and Design[R] (trademark) Registration No.: 2,190,882 Date of Registration: September 22, 1998 International Class No(s).: 009
The aggregate purchase price for the foregoing capital stock and assets was $20.00 and other good and valuable consideration. 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. The terms of the agreement were established through arms length negotiations between the parties, considering the financial statements of the subsidiaries. A principal in Custer Company, Inc. is Patrick A. Custer, the former Chief Executive Officer of the Company. However, there currently exists no material relationship between Mr. Custer or Custer Company, Inc. and the Company or any of its affiliates, any director or officer of the Company, or any associate of any such director or officer.
All other related party transactions, which require disclosure, are included in the Management's Discussion and Analysis or the Notes to Consolidated Financial Statements.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
Audit fees include fees paid by the Company to its auditors in connection with the annual audit of the Company's financial statements and the auditor's review of the Company's interim financial statements. The aggregate fees billed to the Company by CF & Co., L.L.P. for audit services for the fiscal years ended June 30, 2007 and 2006 were $42,000 and $46,598, respectively.
Audit Related Fees
Audit related fees include fees paid by the Company to its auditors for services related to accounting consultations and internal control review. There were no audit-related fees paid by the Company for either of the fiscal years ended June 30, 2007 or 2006.
Tax Fees
Tax fees include fees paid by the Company to its auditors for corporate tax compliance and tax advisory services. There were no tax-related fees billed to the Company for either of the fiscal years ended June 30, 2007 or 2006.
All Other Fees
All other fees include fees paid by the Company to its auditors for all other services rendered by the auditor to the Company. Fees for other services paid by the Company for fiscal years ended June 30, 2007 or 2006 were $0 and $0, respectively.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(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.
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/ JOSEPH R. ROZELLE --------------------- Joseph R. Rozelle Chief Executive Officer and Principal Financial Officer October 15, 2007
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 registrant and in the capacities and on the dates indicated.
Principal Executive Officer and ------------------------------- Principal Financial and Accounting Officer ------------------------------------------
/s/ JOSEPH R. ROZELLE Chairman of the Board, October 15, 2007 Joseph R. Rozelle Chief Executive Officer and Director
Report of Independent Registered Public Accounting Firm -------------------------------------------------------
Board of Directors VPGI Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of VPGI Corp. and Subsidiaries (A Development Stage Company) as of June 30, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended June 30, 2007, 2006 and 2005. These consolidated financial statements are the responsibility of management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 audits provide 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, 2007 and 2006, and the consolidated results of their operations and their consolidated cash flows for the years ended June 30, 2007, 2006 and 2005 in conformity with accounting principles generally accepted in the United States of America.
As shown in the consolidated financial statements, the Company incurred net losses of $814,202, $500,941 and $717,477 for the years ended June 30, 2007, 2006 and 2005, 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. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/ CF & Co., L.L.P.
CF & Co., L.L.P.
Dallas, Texas October 16, 2007
VPGI Corp. and Subsidiaries (A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 2007 2006 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ 1,431 $ 11,032 Prepaid expenses 1,285 21,132 ----------- ----------- Total current assets 2,716 32,164
OTHER ASSETS Intangible assets, net of accumulated amortization of $7,634 492,366 - Pension surplus - 55,530 ----------- ----------- Total other assets 492,366 55,530 ----------- ----------- Total assets $ 495,082 $ 87,694 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
VPGI Corp. and Subsidiaries (A Development Stage Company)
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2007 2006 ----------- ----------- CURRENT LIABILITIES Note payable, net of discounts of $0 and $6,049, respectively, for 2007 and 2006, respectively $ - $ 989,951 Trade accounts payable 27,352 19,145 Payable to Affiliate 101,237 - Accrued expenses - 122,152 ----------- ----------- Total liabilities 128,589 1,131,248
COMMITMENTS AND CONTINGENCIES (NOTE G) - -
STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock, cumulative, $1.00 par value; 1,000,000 shares authorized: Series A, -0- and 30,000 shares issued and outstanding at June 30, 2007 and 2006, respectively - 30,000 Series H, -0- and 2 shares issued and outstanding at June 30, 2007 and 2006, respectively - 2 Series 2002-K, -0- and 20 shares issued and outstanding at June 30, 2007 and June 30, 2006, respectively - 20 Series 2002-G, 6 and 152 shares issued and outstanding at June 30, 2007 and 2006, respectively (liquidation preference of $150,000 and $3.8 million at June 30, 2007 and 2006, respectively) 6 152 Series 2004-L, -0- and 175 shares issued and outstanding at June 30, 2007 and 2006 - 175 Common stock, $.001 par value; 80,000,000 shares authorized; 9,707,791 and 137,909 shares issued and outstanding at June 30, 2007 and 2006, respectively 9,708 138 Additional paid in capital 63,074,903 60,506,462 Accumulated deficit (60,362,085) (60,362,085) Deficit accumulated during development stage (2,356,039 (1,218,418) ----------- ----------- Total stockholders' equity (deficit) 366,493 (1,043,554) ----------- ----------- Total liabilities and stockholders' equity $ 495,082 $ 87,694 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
VPGI Corp. and Subsidiaries (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
Cumulative During Development Stage 2007 2006 2005 -------- -------- -------- -------- Revenues Product sales $ 5,548 $ - $ - $ 5,548 Consulting and support services 6,695 - - 6,695 -------- -------- -------- -------- Total revenues 12,243 - - 12,243
Cost of products and services Cost of product sales - - - - Cost of consulting and support services - - - - -------- -------- -------- -------- Total cost of products and services - - - - -------- -------- -------- -------- Gross margin 12,243 - - 12,243
Operating expenses General and administrative 1,088,285 200,395 317,615 570,275 --------- -------- -------- -------- Operating loss (1,076,042) (200,395) (317,615) (558,032)
Other (income) expense Interest expense 398,715 48,385 185,748 164,582 Other expense (income), net 557,863 565,422 (2,422) (5,137) -------- -------- -------- -------- Total other (income) expense 956,578 613,807 183,326 159,445 -------- -------- -------- -------- Net loss (2,032,620) (814,202) (500,941) (717,477) =========
The accompanying notes are an integral part of these consolidated financial statements.
VPGI Corp. and Subsidiaries (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
Years ended June 30,
2007 2006 2005 -------- -------- --------
Dividend requirements on preferred stock (62,240) (249,300) (156,341) -------- -------- --------
Net loss attributable to common stockholders $(876,442) $(750,241) $(873,818) ======== ======== ======== Per share amounts allocable to common stockholders - Basic and diluted
Net loss $(0.17) $(5.46) $(7.55)
Weighted average common shares outstanding - Basic and diluted 5,220,016 137,409 115,749
The accompanying notes are an integral part of these consolidated financial statements.
VPGI Corp. and Subsidiaries (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
Cumulative During Development Stage 2007 2006 2005 ----------- -------- -------- --------- Cash flows from operating activities Net loss $ (2,032,620) $(814,202) $(500,941) $ (717,477) Adjustments to reconcile net loss to cash used in operating activities: Issuance of stock or warrants for services 35,000 25,000 - 10,000 Write-off of acquired assets 671,819 525,000 - 146,819 Amortization of debt discount and intangible assets 173,850 10,818 64,623 98,409 Other non-cash items 8,861 8,861 - - Changes in assets and liabilities, net of effects from acquisitions and dispositions: Trade accounts receivable - - 21,000 (21,000) Prepaid and other assets 48,687 75,377 (9,222) (17,468) Accounts payable and accrued liabilities 164,101 109,445 86,235 (31,579) ----------- -------- -------- --------- Cash and cash equivalents used in operating activities (930,302) (59,701) (338,305) (532,296) ----------- -------- -------- --------- Cash flows from investing activities Cash and cash equivalents provided by (used in) investing activities - - - - ----------- -------- -------- ---------
Cash flows from financing activities Preferred stock dividend paid (20,067) - - (20,067) Proceeds from redemption of warrants 100 100 - - Net proceeds from issuance of notes payable 951,700 50,000 296,000 605,700 ----------- -------- -------- --------- Cash and cash equivalents provided by financing activities 931,733 50,100 296,000 585,633 ----------- -------- -------- --------- Net increase (decrease) in cash and cash equivalents 1,431 (9,601) (42,305) 53,337 ----------- -------- -------- --------- Cash and cash equivalents, beginning of year - 11,032 53,337 - ----------- -------- -------- --------- Cash and cash equivalents, end of year $ 1,431 $ 1,431 $ 11,032 $ 53,337 =========== ======== ======== ========= Supplemental information Cash paid for interest $ 66,173 $ - $ - $ 66,173 =========== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements.
VPGI Corp. and Subsidiaries (A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007, 2006 and 2005
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business ----------------------- Until it discontinued normal operations in December 2002, VPGI Corp. 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.
Effective July 1, 2004, the Company's management has devoted substantially all of its time to the planning and acquisition of new operations. Accordingly, the Company's financial statements for 2007, 2006, and 2005 are presented as a development stage enterprise, as prescribed by Statement of Financial Accounting Standards No. 7, "Accounting for Development Stage Enterprises".
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.
Reverse Stock Split ------------------- On September 5, 2006 stockholders approved a one for fifty (1:50) reverse split of all outstanding shares of the Company's common stock and the reverse split was implemented at September 18, 2006. The par value remained at $0.001 per share and the authorized number of shares was maintained at 80,000,000. All share and per share data give effect to the reverse stock split, applied retroactively as if it occurred July 1, 2004.
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.
Fair Value of Financial Instruments ----------------------------------- The Company's financial instruments consist of cash and cash equivalents, redeemable preferred stock and debt. The fair value of cash approximates 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 ------------------------ Effective July 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment ("SFAS 123R"), which requires employee and qualifying director share-based payments to be accounted for using the fair value method. Share-based compensation costs related to equity instruments are charged against income ratably over the fixed vesting period for the related equity instruments, with the initial charge generally recorded in the first full month following the grant. The adoption of this standard did not have a material effect on the Company's financial statements.
Under the modified prospective method transition of SFAS 123R, compensation costs related to any non-vested portion of stock option awards outstanding at the adoption date are based on the grant date fair value of those awards. Since all stock options previously granted were fully vested prior to June 30, 2005, there are no deferred compensation costs resulting from stock options to be accounted for on a prospective basis. There were no further stock options issued for all years presented.
Revenue Recognition ------------------- During 2007 and 2006, the Company recognized no revenue. During 2005 the Company recognized a significant portion of its revenue while acting as a sales agent or in a similar capacity. As such, the Company reported revenue based upon the fee earned as acting as an agent. Product sales were recognized at the time of delivery and customer acceptance.
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.
Income taxes ------------ The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires that deferred tax assets and liabilities arising from temporary differences between book and tax basis will be recognized using enacted rates at the time such temporary differences reverse. In the case of deferred tax assets, SFAS 109 requires a reduction in deferred tax assets if it is more likely than not that some portion or all of the deferred tax will not be realized. There are accumulated deferred tax assets of $21.8 million, which are offset by a valuation allowance pursuant to SFAS 109. Such losses are limited by certain Internal Revenue Service regulations.
Payable to Affiliate -------------------- During the year ended June 30, 2007, the Company entered into an agreement with a privately held company in which the privately held company agreed to pay certain expenses for VPGI Corp in exchange for a non-interest bearing note payable on demand. The privately held company is partially owned by Trident Growth Fund, LP ("Trident"), which also owns approximately 91% of the outstanding Common Stock of the Company.
Intangible Assets ----------------- Intangible assets consist primarily of purchased software and trademarks. Purchased software is subject to periodic amortization over its estimated useful life (5 years). Trademarks have an indefinite life and are subject to periodic review for impairment. In accordance with SFAS No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), such assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount exceeds the estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the asset.
Amortization expense for the year ended June 30, 2007 was $7,634. Estimated amortization expense expected to be recorded over the next five fiscal years are as follows:
2008 $46,000 2009 $46,000 2010 $46,000 2011 $46,000 2012 $38,366
Recently issued accounting standards ------------------------------------ Effective at the beginning of the first quarter of 2008, the Company will adopt the provision of FIN 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes." The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
The Company does not expect that the implementation of FIN 48 will have a material impact on the its consolidated financial position, results of operations or cash flows.
In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement No. 157, "Fair Value Measurements" ("FAS 157"), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles ("GAAP"). As a result of FAS 157, there is now a common definition of fair value to be used throughout GAAP, which is expected to make the measurement of fair value more consistent and comparable. The Company must adopt FAS 157 in fiscal 2008, and management currently does not expect the impact to be material to its consolidated financial statements.
In September 2006, the United States Securities and Exchange Commission issued Staff Accounting Bulleting No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). SAB provides guidance on the consideration of the effects of prior year misstatements for the purpose of a materiality assessment. SAB 108 establishes an approach that requires the quantification of financial statement errors based on the effect of each on the company's balance sheet and statement of operations and the related financial statement disclosures. SAB 108 permits existing public companies to record the cumulative effect of initially applying this approach in the first year ending after November 15, 2006 by recording the necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the initial balance of retained earnings. Additionally the use of the cumulative effect transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. The adoption of SAB 108 did not have a material effect on the Company's consolidated financial position, statement of operations, or cash flows.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments_an amendment of FASB Statements No. 133 and 140," to permit fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation in accordance with the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company adopted SFAS No. 155 in fiscal year 2007. SFAS 155 did not have a material impact on the Company's consolidated financial statements as the Company has no such instruments.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities", which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The statement amends SFAS No. 115, "Accounting for Certain Investments in Debt and Equity". This statement is effective for fiscal years beginning after November 15, 2007. The Company does not believe that the adoption of SFAS 159 will have a material impact on the Company's consolidated financial statements.
NOTE B - GOING CONCERN MATTERS
The Company incurred net losses of $814,202, $500,941 and $717,477 for the years ended June 30, 2007, 2006 and 2005, respectively. In addition, at June 30, 2007, the Company had negative working capital of $125,873. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
The Company is continuing to evaluate all of its options and is actively 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
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 15,400 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 five hundred shares of VPG common stock held by VPG shareholders. (All share and per share data give effect to a one for fifty (1:50) reverse stock split that was implemented on September 18, 2006, applied retroactively as if it occurred on July 1, 2004.)
The Company also issued to 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. Shares accumulate dividends at $245,000 per year. Dividends in arrears at June 30, 2006 and 2005 on Preferred Stock totaled $381,274 and $136,274, respectively. These shares are unaffected by the reverse split, as the terms of Series 2004-L Preferred Stock contain no reset feature in the event of a reverse split.
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 issuance of debt discussed above, the Company issued to Trident warrants to purchase 15,200 shares of Common Stock, exercisable for five years at an exercise price of $5.00 per share. The warrants were valued at $60,040 and are included as a discount to notes payable.
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.
The following table summarizes the estimated value of the assets acquired and liabilities assumed at the date of acquisition.
Intangible assets $ 146,819 Current liabilities assumed 86,644 ---------- Net assets acquired $ 60,175 ==========
The $146,819 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.
The following table summarizes the unaudited pro forma condensed financial information as if the acquisition of VPG was completed July 1, 2004. The unaudited combined pro forma condensed financial statements are derived from the historical financial statements of the Company and VPG and reflect adjustments to present the write-off of in-process research and development as of July 1, 2004. The pro forma information is presented for informational purposes only. You should not rely on the pro forma information as an indication of the results of operations of future periods or the results that actually would have been realized had the companies been a single company during the periods presented.
Year Ended June 30, ------------------- ---------- Revenues $ 17,243 Operating expenses 538,633 Other income (expense) (205,301) Net Loss (726,691) Net Loss attributable to common stockholders (942,532) Net Loss per share $ (8.14)
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. Upon consolidation, all intercompany accounts and transactions have been eliminated.
On May 1, 2007 the Company executed an Asset Purchase Agreement (the "Agreement") with Trident and the transaction was completed on the same date. Pursuant to the Agreement, we acquired certain assets (the "Assets") from Trident, generally described as software, trademarks and other intellectual properties formerly held by People Solution, Inc., which Assets were acquired by Trident in a foreclosure of Trident's security interest in the Assets on May 30, 2006.
Trident is the beneficial owner of approximately 91% of the Company.
Consideration paid by the Company for the acquisition of the Assets consists of two million (2,000,000) shares of par value $.001 common stock of the Company ("Common Stock"). As the Company and Trident are under common control the Assets were transferred at the carrying value of Trident. The Assets were valued at $1,025,000 on the balance sheet of the seller at the time of sale. Management estimates the fair value of the Assets at $500,000 and has incurred an impairment charge of $525,000 based on the difference between the previous carrying cost and the estimated fair value of the Assets. The principle followed in estimating the fair value of the assets was an estimation of the approximate value of the Assets, using an estimate of the net present value of expected future cash flows.
As of June 18, 2007, we completed the spin off of five of our subsidiaries (the "Subsidiaries"), as set forth below, the same being all of our ownership interest in said Subsidiaries:
* 100% of Venture Pacific Group, Inc., a Texas corporation, (which owns 100% of its subsidiaries, Test Secure International, Inc. and uniView Technologies Corp., and 80% of its subsidiary, Global Knowledge Group, Inc.);
* 100% of Uniview Technologies Products Group, Inc., a Texas corporation;
* 61% of Uniview Softgen Corporation, a Texas corporation;
* 60% of Uniview Asia Limited, formerly known as China Action Management Limited, a Hong Kong corporation;
* 100% of Curtis Mathes Corporation, a Delaware corporation;
The transaction was completed in a two-step transaction, whereby, as of June 15, 2007, all of the capital stock of Venture Pacific Group, Inc. was transferred to Custer Company, Inc. and as of June 18, 2007, all of the capital stock of the remaining of the foregoing named subsidiaries was transferred to Venture Pacific Group, Inc. In addition, as of June 18, 2007, all of our right, title and interest in and to the following trademarks (the "Assets") were transferred to Venture Pacific Group, Inc.:
uniView[R] (trademark) (words only) Registration No.: 2,173,544 Date of Registration: July 14, 1998 International Class No(s).: 009, 042
Electric Globe Bug and Design[R] (trademark) Registration No.: 2,190,882 Date of Registration: September 22, 1998 International Class No(s).: 009
The aggregate sales price for the foregoing capital stock and assets was $20.00 and other good and valuable consideration. The Company recorded a loss of approximately $2,360 on the transaction, related to the transfer of the Company's defined benefit pension plan as discussed in Note I. The terms of the agreement were established through arms length negotiations between the parties, considering the financial statements of the subsidiaries. A principal in Custer Company, Inc. is Patrick A. Custer, the former Chief Executive Officer of the Company. However, there currently exists no material relationship between Mr. Custer or Custer Company, Inc. and the Company or any of its affiliates, any director or officer of the Company, or any associate of any such director or officer.
NOTE D - NOTES PAYABLE
On November 10, 2004 the Company entered into a note payable with Trident for $700,000, at an annual interest rate of 14%, maturing on November 10, 2005. The loan was collateralized by a security interest in Company assets. Interest was payable monthly in cash.
On August 10, 2005 the loan agreement was modified to change the loan amount from $700,000 to $750,000 and the Company entered into an additional note payable with Trident for $50,000 at an annual interest rate of 14%, maturing on August 10, 2006. In connection with the $50,000 loan, the Company issued warrants to purchase 36,000 shares of its Common Stock, exercisable for five years at an exercise price of $5.00 per share. The warrants were valued at approximately $3,500.
On September 19, 2005 the loan agreement was again modified to change the loan amount from $750,000 to $850,000 and the Company entered into an additional note payable with Trident for $100,000 at an annual interest rate of 14%, maturing on September 19, 2006. In connection with the $100,000 loan, the Company issued warrants to purchase 72,000 shares of its Common Stock, exercisable for five years at an exercise price of $5.00 per share. The warrants were valued at approximately $6,000.
On February 7, 2006 the loan agreement was again modified to change the loan amount from $850,000 to $950,000 and the Company entered into an additional note payable with Trident, for $100,000 at an annual interest rate of 14%, maturing on February 7, 2007. In connection with the $100,000 loan, the Company issued warrants to purchase 1,440 shares of its Common Stock, exercisable for five years at an exercise price of $5.00 per share. The warrants were valued at approximately $1,900.
On June 27, 2006 the loan agreement was again modified to change the loan amount from $950,000 to $996,000 and the Company entered into an additional note payable with Trident for $46,000 at an annual interest rate of 14%, maturing on February 7, 2007. In connection with the $46,000 loan, the Company issued warrants to purchase 1,520 shares of its Common Stock, exercisable for five years at an exercise price of $5.00 per share. The warrants were valued at approximately $3,345.
On July 19, 2006 the loan agreement was again modified to change the loan amount from $996,000 to $1,046,000 and the Company entered into an additional note payable with Trident for $50,000 at an annual interest rate of 14%, maturing on February 7, 2007.
On November 6, 2006, the note payable of $1,044,135 (net of discount $2,865) and accrued interest of $131,013 with Trident was converted into 4,718,852 shares of Common Stock at a conversion price of $0.25 per share. This transaction eliminated substantially all of the Company's outstanding debt.
NOTE E - COMMITMENTS AND CONTINGENCIES
Litigation
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. At June 30, 2007, the Company was not a party to any litigation.
NOTE F - CONCENTRATIONS OF CREDIT RISK
There were no sales during 2007 and 2006.
During 2005 one customer represented 100% of sales.
NOTE G - 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, 2006. Shares accumulate dividends at 6%, or $1,800 per year. Dividends in arrears at June 30, 2006 and 2005 on Series A shares totaled $17,550 and $15,750, respectively. On September 20, 2006, the holder of 30,000 shares of the Company's Series A Preferred Stock, representing all of the issued and outstanding shares of Series A Preferred Stock, converted its holdings into shares of the Company's par value $.001 common stock ("Common Stock"). The preferred stock had a liquidation value of $30,000 and was converted into 600 shares of Common Stock at a conversion price of $50 per share.
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, 2006. 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 $10,000 and $7,500 were in arrears on Series H shares at June 30, 2006 and 2005, respectively. On September 20, 2006, the holder of one (1) share of the Company's Series H Preferred Stock converted its holdings into Common Stock. The preferred stock had a liquidation value of $25,000 and was converted into five (5) shares of Common Stock at a conversion price of $6,000 per share. On November 1, 2006, the holder of one (1) share of the Company's Series H Preferred Stock converted its holdings into Common Stock. The preferred stock had a liquidation value of $25,000 and was converted into five (5) shares of Common Stock at a conversion price of $6,000 per share. After these conversions, no shares of Series H Preferred Stock remained issued and outstanding.
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). In conjunction with the exchange of shares, all accumulated dividends associated with the D-1 preferred stock were released by mutual agreement. The new series of preferred stock had no provision for dividends and was convertible into shares of common stock. Forty-four shares were converted into common stock in fiscal 2003, forty shares were converted into common stock in fiscal 2005, and four shares were converted in fiscal 2006. As of June 30, 2006, the outstanding unconverted 152 shares of Series 2002-G Preferred stock had a liquidation preference of $3.8 million, convertible into 50,667 shares of common stock of the Company. On September 20, 2006, the holder of 86 shares of the Company's Series 2002-G Preferred Stock converted its holdings into Common Stock. The preferred stock had a liquidation value of $2,150,000 and was converted into 28,667 shares of Common Stock at a conversion price of $75 per share. On November 6, 2006, the holder of 60 shares of the Company's Series 2002-G Preferred Stock converted its holdings into Common Stock. The preferred stock had a liquidation value of $1,500,000 and was converted into 20,000 shares of Common Stock at a conversion price of $75 per share. After the conversion, six (6) shares of Series 2002-G Preferred Stock remained issued and outstanding.
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 January 18, 2007, the holder of 20 shares of our Series 2002-K Preferred Stock, which represented all of the issued and outstanding shares of Series 2002-K Preferred Stock, converted its holdings into Common Stock. The preferred stock had a liquidation value of $500,000; the preferred stock was converted into a total of 625,000 shares of Common Stock at a conversion price of $0.80 per share.
Refer to Note C for preferred stock (Series 2004-L) issued in connection with acquisition.
On November 6, 2006, the holder of 175 shares of our Series 2004-L Preferred Stock, which represented all of the issued and outstanding shares of Series 2004-L Preferred Stock, converted its holdings into Common Stock. The preferred stock had a liquidation value of $1,750,000 and had accrued dividends payable of $323,419; the preferred stock and accrued dividends were converted into a total of 2,073,419 shares of Common Stock at a conversion price of $1 per share.
Dividends of $-0-, $-0- and $20,067 were paid on preferred stock during the years ended June 30, 2007, 2006 and 2005, respectively. Cumulative dividends in arrears as of June 30, 2007, 2006 and 2005 amounted to $0, $408,824 and $136,274, respectively.
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 compensatory stock options to key employees and directors at market value at the date of grant. No options were granted during 2007 and 2006. During 2005, options covering 8,000 shares were granted that vested immediately.
During 2005, no intrinsic value was assigned to options issued to employees and directors and, accordingly, no compensation expense was recognized in that year. For 2005, awards of stock-based employee compensation was accounted under the provisions of APB Opinion No. 25 "Accounting for Stock Issued to Employees". Had compensation cost been determined on the basis of fair value, net loss and net loss per share for 2007, 2006 and 2005 would have been increased as follows:
2007 2006 2005
---------- ---------- ---------- Net loss As reported $ (814,202) $ (500,941) $ (717,477) Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of income tax effect - - (78,960) ---------- ---------- ---------- Pro forma net loss $ (814,202) $ (500,941) $ (796,437) ========== ========== ========== Loss per share As reported (0.17) (5.46) (7.55) Pro forma (0.17) (5.46) (8.23)
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:
2007 2006 2005 ---------- ---------- ---------- Expected volatility N/A N/A 219% Risk-free interest rate N/A N/A 4.24% Expected lives N/A N/A 5 years Dividend yield N/A N/A -
Additional information with respect to all options outstanding at June 30, 2007, and changes for the three years then ended was as follows:
When Issued When Issued When Issued Exercise Price Exercise Price Exercise Price 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, 2004 29,411 $219.50 6,388 $ 25.50 513 $1,031.00 36,312
Granted - - 8,000 10.00 - - 8,000 Forfeited (2,813) 739.50 (63) 1,076.00 (513) 1,031.00 (3,389) ------- ------ ------ -------- ----- -------- ------- Outstanding at June 30, 2005 26,598 $164.50 14,325 $ 12.50 - - 40,923
Granted - - - - - - - Forfeited (4,850) 724.00 (125) 724.00 - - (4,975) ------- ------ ------ ------- ----- ------- ------- Outstanding at June 30, 2006 21,748 $ 40.00 14,200 $ 6.07 - - 35,948
Granted - - - - - - - Forfeited (21,748) 40.00 - - - - (21,748) ------- ------ ------ ------- ----- ------- ------- Outstanding at June 30, 2007 - $ - 14,200 $ 6.07 - - 14,200 ======= ====== ====== ======= ===== ======= =======
Number Weighted of shares average underlying exercise options price ---------- -------
Options exercisable at June 30, 2004 40,923 $ 111.50 ====== ======= Options exercisable at June 30, 2005 35,948 $ 26.60 ====== ======= Options exercisable at June 30, 2006 14,200 $ 6.07 ====== =======
No options were granted during 2007 and 2006. For 2005, options granted equal to market value had a weighted average fair value per share of $10.00.
Information about stock options outstanding at June 30, 2007 is summarized as follows:
Options outstanding Exercisable -------------------------------- ---------------------- Weighted average Weighted Weighted remaining average average contractual exercise Number exercise Exercise prices Number life price exercisable price ---------------- --------- ----- ------- ----------- --------
$ 1.00 6,200 0.93 $ 1.00 6,200 $ 1.00 $ 10.00 8,000 2.75 $ 10.00 8,000 $ 10.00 --------- --------- 14,200 14,200 ========= =========
Warrants -------- Common stock warrants issued and outstanding at June 30, 2007 are summarized as follows:
Weighted Weighted average average Range of exercise price Number remaining life exercise price ---------------------- ------- -------------- -------------- $0.05 to $4.50 11,925 1.81 $ 0.74 $5.00 20,320 2.67 $ 5.00
All outstanding warrants are exercisable at June 30, 2007.
During the year ended June 30, 2007, there were no warrants granted.
During the year ended June 30, 2006, warrants to purchase an aggregate of 5,120 shares of the Company's common stock were granted in connection with additional borrowings from Trident. The warrants have an exercise price of $5.00, expire in November 2009 through June 2011, and were valued at a total of approximately $14,745 upon issuance.
During the year ended June 30, 2005, warrants to purchase 2,000 shares of the Company's common stock were granted in connection with a litigation settlement. The warrants have an exercise price of $.05, expire in November 2009, and were valued at $10,000 upon issuance. Additionally, warrants to purchase 15,200 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 $5.00 and expire in November 2009. The value of the warrants, $60,040, was included as a discount on the debt. Additionally, in connection with the same transaction concerning the issuance of long-term debt in November 2004, the exercise dates of outstanding warrants to purchase an aggregate of 6,625 shares of the Company's common stock were extended until November 2009, from a weighted average remaining life of 0.89 years to a weighted average remaining life of 5.95 years; and the exercise prices of the warrants were repriced to $.05 per share from a weighted average exercise price of $104.50 per share.
NOTE H - 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:
2007 2006 2005 ---------- ---------- ----------
Tax benefit at statutory rate $ (313,468) $ (192,092) $ (272,093) Change in valuation allowance $ 313,468 $ 192,092 $ 272,093 ---------- ---------- ---------- $ - $ - $ - ========== ========== ==========
The components of the Company's deferred income taxes at June 30, 2007 and 2006 are as follows:
2007 2006 ---------- ---------- Deferred tax assets Net operating loss carryforwards $21,812,012 $21,498,544 ---------- ---------- Deferred tax asset 21,812,012 21,498,544 Valuation allowance (21,812,012) (21,498,544) ---------- ---------- $ - $ - ========== ==========
At June 30, 2007, the Company has net operating loss carryforwards for Federal income tax purposes of approximately $65.4 million which may be used to offset future taxable income, subject to significant limitations and provisions of the Internal Revenue Code, and will expire in various amounts in the years 2008 through 2023 if not utilized.
Due to the limited operations and continuing net operating losses, the Company has not filed Federal or State income tax returns for the last several years. Management does not believe that any taxes are due for these years and thus any penalties or related interest would be immaterial for the Company's financial position.
NOTE I - 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. Benefit accruals were frozen in accordance with Section 204(h) of ERISA as of January 1, 1997 and no employees have been added to the plan since that date.
Settlement and Plan Termination
All plan benefit obligations were settled with the purchase of annuities totaling $583,730 on August 7, 2006. In June 2007, the Company completed the spin off of five of its subsidiaries, which included the defined benefit plan.
The following table sets forth the funded status of the Company's defined pension plan at June 30 (measurement dates of June 1, 2007 and 2006):
Pension Benefits --------------------- 2007 2006 -------- -------- Change in benefit obligation Benefit obligation at beginning of year $ 564,194 $ 613,280 Interest cost 27,252 25,914 Actuarial (gain)/loss 15,765 (30,525) Benefits paid (607,211) (44,475) -------- -------- Benefit obligation at end of year $ -0- $ 564,194 ======== ======== Change in plan assets Fair value of plan assets at beginning of year $ 634,194 $ 621,711 Actual return on plan assets (24,621) 56,958 Benefits paid (607,211) (44,475) Spin-off of plan assets associated with Subsidiary spin-off (Note C) (2,362) - -------- -------- Fair value of plan assets at end of year $ -0- $ 634,194 ======== ======== Reconciliation of Funded status
Funded Status (Underfunded)/Overfunded $ -0- $ 70,000 Unrecognized net actuarial loss (gain) -- (14,470) -------- -------- Net amount recognized $ -0- $ 55,530 ======== ========
Amounts recognized in the statement of financial position consist of:
Pension Benefits --------------------- 2007 2006 -------- --------
Prepaid benefit cost $ -0- $ 55,530 -------- -------- Net amount recognized$ -0- $ 55,530 -------- --------
The accumulated benefit obligation for the defined benefit pension plan was $0 and $564,194 at June 30, 2007 and 2006, respectively.
Components of Net Periodic Benefit Cost
Pension Benefits --------------------- 2007 2006 -------- -------- Interest cost $ 27,252 $ 25,914 Expected return on plan assets (30,141) (26,336) Effect of Special Events 56,057 -- -------- -------- Net periodic benefit cost $ 53,168 $ (422) ======== ========
Assumptions
Weighted-average assumptions used to determine benefit obligations at June 30:
Pension Benefits --------------------- 2007 2006 -------- --------
Discount rate N/A 6.00% Rate of compensation increase N/A --
Weighted-average assumptions used to determine net periodic benefit cost for years ended June 30:
Pension Benefits --------------------- 2007 2006 -------- --------
Discount rate 6.00% 5.00% Expected long-term return on plan assets 5.75% 5.00% Rate of compensation increase N/A N/A
Historical and future expected returns of multiple asset classes were analyzed to develop a risk free real rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk free real rate of return, and the associated risk premium. A weighted average rate was developed based on those overall rates and the target asset allocation of the plan.
Plan Assets
The Company's pension plan weighted-average asset allocations at June 30, 2007 and 2006 by asset category are as follows:
Plan Assets at June 30: 2007 2006 ------ ------ Asset Category -------------- Equity securities N/A 33% Debt securities N/A 67% ------ ------ Total N/A 100% ====== ======
Equity securities include Principal Financial Group, Inc. Common Stock in the amount of $207,775 (33 percent of total plan assets) at June 30, 2006.
Cash Flows
Contributions ------------- Due to the settlement of all plan obligations, the Company will not be required to contribute to the pension plan in the future.
Estimated Future Benefit Payments --------------------------------- Due to the settlement of all plan obligations no future benefit payments will be made.
NOTE J - NON-CASH INVESTING AND FINANCING ACTIVITIES
2007 2006 2005 ---------- ---------- ---------- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock in acquisition of intangible assets $ 1,025,000 $ - $ 60,000 ========== ========= ========== Issuance of preferred stock in acquisition $ - $ - $ 175 ========== ========= ========== Exercise of warrants into common stock $ - $ - $ (3) ========== ========= ========== Issuance of warrants in connection with debt $ - $ 14,745 $ 60,040 ========== ========= ========== Conversion of preferred stock to common stock $ - $ (4) $ (40) ========== ========= ========== In-process research and development costs acquired through assumption of debt $ - $ - $ 86,644 ========== ========= ==========
NOTE K - BUSINESS SEGMENT INFORMATION
No business segments have existed since the Company discontinued normal operations in December 2002. Prior to that, the Company was primarily engaged in high technology product sales and consulting and support services.
NOTE L - RELATED PARTIES
The Company's former CEO held approximately 39% of the common stock of VPG at the time of the merger discussed in Note C. He also served as a director and the CEO of VPG at that time. Trident, reported as a beneficial owner of 7.6% of the Company as of June 30, 2004, was also a beneficial owner of approximately 35% of VPG.
During the year ended June 30, 2005, the Company paid approximately $20,000 to a company, 100% owned by the CEO, for management and consulting services.
During the year ended June 30, 2006, the Company's former CEO advanced approximately $63,378 to the Company for operating expenses. At June 30, 2006, amounts outstanding under this advance totaled approximately $9,246 and are included in accrued expenses. Such amounts were settled with the spin-off of certain subsidiaries as discussed in Note E.
During the year ended June 30, 2007, the Company entered into an agreement with a privately held company in which the privately held company agreed to pay certain expenses for VPGI Corp in exchange for a non-interest bearing note payable on demand. The privately held company is partially owned by Trident, which also owns approximately 91% of the outstanding Common Stock of the Company.
NOTE M - SELECTED QUARTERLY DATA (unaudited)
VPGI CORP. and Subsidiaries
EXHIBIT INDEX
Exhibit Number Description of Exhibits Sequential 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.) N/A
2.2 Asset Purchase Agreement dated May 1, 2007 between the Company and Trident Growth Fund, LP. (filed as Exhibit "2.1" to the Company's Current Report on Form 8-K dated as of May 1, 2007, filed on May 7, 2007.) N/A
3(i) Articles of Incorporation of the Company, as amended and restated (filed as Exhibit "3(i)" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2003 and incorporated herein by reference.) N/A
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 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
4.8 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
4.9 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
4.10 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
4.11 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
4.12 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
4.13 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
4.14 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
4.15 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
4.16 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
4.17 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 for the fiscal year ended June 30, 2003 and incorporated herein by reference.) N/A
4.18 Form of 190,000 warrants issued to consultants during year ended June 30, 2003 in connection with services rendered to the Company (filed as Exhibit "4.22" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2003 and incorporated herein by reference.) N/A
4.19 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.) N/A
4.20 Form of warrant issued to Trident Growth Fund, L.P. in connection with the Loan Agreement dated November 10, 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.) N/A
4.21 Amended Form of warrants issued to Trident Growth Fund, L.P. in connection with the amended Loan Agreement dated November 10, 2004 between the Company and Trident Growth Fund, L.P. (filed as Exhibit "4.21" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2005 and incorporated herein by reference.) N/A
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.) N/A
10.2 First Amendment to Loan Agreement dated November 10, 2004 between the Company and Trident Growth Fund, LP. (filed as Exhibit "10.2" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2005 and incorporated herein by reference.) N/A
10.3 Second Amendment to Loan Agreement dated November 10, 2004 between the Company and Trident Growth Fund, LP. (filed as Exhibit "10.3" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2005 and incorporated herein by reference.) N/A
10.4 Lease Agreement between the Company and Memshalah Realty dated May 5, 2005 pertaining to the property utilized as the corporate headquarters (filed as Exhibit "10.4" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2005 and incorporated herein by reference.) N/A
10.5 Third Amendment to Loan Agreement dated November 10, 2004 between the Company and Trident Growth Fund, LP. (filed as Exhibit "10.5" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2006 and incorporated herein by reference.) N/A
10.6 Fourth Amendment to Loan Agreement dated November 10, 2004 between the Company and Trident Growth Fund, LP. (filed as Exhibit "10.6" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2006 and incorporated herein by reference.) N/A
10.7 Fifth Amendment to Loan Agreement dated November 10, 2004 between the Company and Trident Growth Fund, LP. (filed as Exhibit "10.3" to the Company's Current Report on Form 10-Q for the fiscal quarter ended September 30, 2006, filed on November 11, 2006.) N/A
21 Subsidiaries of the Company. (filed as Exhibit "21" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2006 and incorporated herein by reference.) N/A
23 Consent of Independent Certified Public Accountants. (filed as Exhibit "23" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2006 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. 69
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. 71 _______________ * Filed herewith.