-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FY9F5yTzjmCEG6r84tDNuoAucoWi0+2E/RwOuTT+W3Iox2D1hb/FkPOtyV++uifC haQ1zSZN18LUkV/MLngXVA== 0001331275-09-000013.txt : 20090619 0001331275-09-000013.hdr.sgml : 20090619 20090619112549 ACCESSION NUMBER: 0001331275-09-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20090430 FILED AS OF DATE: 20090619 DATE AS OF CHANGE: 20090619 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Vital Products, Inc. CENTRAL INDEX KEY: 0001331275 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-127915 FILM NUMBER: 09900439 BUSINESS ADDRESS: STREET 1: 35 ADESSO ROAD CITY: CONCORD STATE: A6 ZIP: L4K 3C7 BUSINESS PHONE: 416 650 5711 MAIL ADDRESS: STREET 1: 35 ADESSO ROAD CITY: CONCORD STATE: A6 ZIP: L4K 3C7 10-Q 1 vital_april302009.txt VITAL PRODUCTS APRIL 30 2009 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2009 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number: 333-127915 VITAL PRODUCTS, INC. --------------------- (Exact name of registrant as specified in its charter) Delaware 98-0464272 ---------------------- -------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 245 DRUMLIN CIRCLE, CONCORD ONTARIO, CANADA L4K 3E4 --------------------------------------------------------- (Address of principal executive offices) (905) 482-0200 --------------------- (Registrant's telephone number, including area code) Not Applicable -------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ] Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filed, a non-accelerated filed, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act. Large Accelerated filer [ ] Accelerated filer [ ] Non-Accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of June 9, 2009, the Issuer had 98,838,857 shares of common stock issued and outstanding, par value $0.0001 per share. VITAL PRODUCTS, INC QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED APRIL 30, 2009 TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Item 1 - Financial Statements: Index..........................................4 Balance Sheets as at April 30, 2009 (unaudited) and July 31, 2008............................................................ F1 Statements of Operations for the three and nine months ended April 30, 2009 and 2008 (unaudited)...................................... F2 Statement of Shareholders' Deficit for the nine months ended April 30, 2009 (unaudited)......................................... F3 Statements of Cash Flows for the nine months ended April 30, 2009 and 2008 (unaudited)...................................... F4 NOTES TO FINANCIAL STATEMENTS.............................................F5-F8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................................5 Item 3 - Quantitative and Qualitative Disclosures About Market Risk...........9 Item 4T - Controls and Procedures ............................................9 PART II - OTHER INFORMATION Item 1 - Legal Proceedings...................................................10 Item 1A - Risk Factors.......................................................10 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.........10 Item 3 - Defaults Upon Senior Securities.....................................10 Item 4 - Submission of Matters to a Vote of Security Holders.................10 Item 5 - Other Information ..................................................10 Item 6 - Exhibits ...........................................................10 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. VITAL PRODUCTS, INC. Financial Statements April 30, 2009 and 2008 (Unaudited) Page Index of Financial Statements: Balance Sheets as at April 30, 2009 (unaudited) and July 31, 2008............................................................ F1 Statements of Operations for the three and nine months ended April 30, 2009 and 2008 (unaudited)...................................... F2 Statement of Stockholders' Deficit for the nine months ended April 30, 2009 (unaudited)......................................... F3 Statements of Cash Flows for the nine months ended April 30, 2009 and 2008 (unaudited)...................................... F4 NOTES TO FINANCIAL STATEMENTS.............................................F5-F8 VITAL PRODUCTS, INC. Balance Sheets April 30, 2009 (Unaudited) and July 31, 2008 April 30, July 31, 2009 2008 ---------- ---------- (Unaudited) ASSETS Current assets Cash $ 23,439 $ 2,802 Accounts receivable 10,783 - Inventory 10,197 - ---------- ---------- Total current assets 44,419 2,802 ---------- ---------- Other Equipment, net of accumulated depreciation 24,164 35,156 ---------- ---------- 24,164 35,156 ---------- ---------- Total assets $ 68,583 $ 37,958 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities $ 80,315 $ 97,600 Note payable to Cellular Connection Ltd. 167,500 - Advances from Metro One Development, Inc. 235,310 292,083 Notes payable to Metro One Development, Inc. - 1,766,210 ---------- ---------- Total current liabilities 483,125 2,155,893 ---------- ---------- STOCKHOLDERS' DEFICIT Capital stock 8,400 1,075 Additional paid-in capital 4,512,900 334,475 Stock paid on pending acquisition (2,000,000) - Prepaid expenses paid with stock (54,608) - Accumulated other comprehensive income (loss) 122,964 (176,598) Accumulated deficit (3,004,198) (2,276,887) ---------- ---------- Total stockholders' deficit (414,542) (2,117,935) ---------- ---------- Total liabilities and stockholders' deficit $ 68,583 $ 37,958 ========== ========== See Accompanying Notes to Financial Statements F1 VITAL PRODUCTS, INC. Statements of Operations For the three and nine months ended April 30, 2009 and 2008 (Unaudited) For The For The For The For The Three Three Nine Nine Months Months Months Months Ended Ended Ended Ended April April April April 30, 2009 30, 2008 30, 2009 30, 2008 ----------- ---------- ----------- ---------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Sales $ 11,614 $ - $ 11,614 $ 15,251 Cost of sales - - - 8,074 ----------- ---------- ----------- ---------- Gross profit 11,614 - 11,614 7,177 ----------- ---------- ----------- ---------- Operating expenses Depreciation 1,809 3,479 5,666 10,490 Selling, general and administrative expenses 21,773 18,769 187,898 59,918 ----------- ---------- ----------- ---------- Total operating expenses 23,582 22,248 193,564 70,408 ----------- ---------- ----------- ---------- Net operating loss (11,968) (22,248) (181,950) (63,231) Other income (expense) Financing costs (105,176) (73,677) (293,011) (221,262) Gain (loss) on currency exchange rate 34,477 (5,670) (252,350) 86,033 ----------- ---------- ----------- ---------- Net income (loss) for the period $ (82,667) $ (101,595) $ (727,311) $ (198,460) =========== ========== =========== ========== Net income (loss) per common share, basic and fully diluted $ (0.00) $ (0.01) $ (0.02) $ (0.02) =========== ========== =========== ========== Weighted average number of common shares outstanding 77,861,236 10,750,000 45,977,840 10,750,000 =========== ========== =========== ========== See Accompanying Notes to Financial Statements F2 VITAL PRODUCTS, INC. Statement of Changes in Stockholders' Deficit For the nine months ended April 30, 2009 (Unaudited)
Stock Accumulated Paid On Prepaid Other Additional Related Expense Compreh- Common Stock Paid-In Acquisi- Paid ensive Number Amount Capital Deficit tion With Income Total Stock (Loss) - ------------------------------------------------------------------------------------------------------ Balance, July 31, 2008 10,750,000 $ 1,075 $ 334,475 ($2,276,887) - $ - ($176,598)($2,117,935) Issuance of stock for consulting services 500,000 50 99,950 - - - - 100,000 Issuance of stock for conversion of promissory note 78,000,000 7,800 2,077,950 - - (54,608) - 2,031,142 Issuance of stock for related acquisition 10,000,000 1,000 1,999,000 - (2,000,000) - - - Return of Shares (15,250,000) (1,525) 1,525 - - - - - Foreign currency translation - - - - - - 299,562 299,562 Net loss for the period - - - (727,311) - - - (727,311) - ------------------------------------------------------------------------------------------------------ Balance, April 30, 2009 84,000,000 $ 8,400 $4,512,900 ($3,004,198)(2,000,000) (54,608) $122,964 ($ 414,542) ======================================================================================================
See Accompanying Notes to Financial Statements F3 VITAL PRODUCTS, INC. Statements of Cash Flows For the nine months ended April 30, 2009 and 2008 (Unaudited) For The For The Nine Nine Months Months Ended Ended April April 30, 2009 30, 2008 ----------- ---------- (Unaudited) (Unaudited) Operating activities Net income (loss) $ (727,311) $(198,460) Adjustments to reconcile net loss to net cash used by operating activities: Gain on currency exchange rate 252,350 (86,033) Depreciation 5,666 10,490 Interest on notes payables 264,930 221,262 Accretion on debt discount and interest 17,500 - Stock based expenses 100,000 - Change operating assets and liabilities: Accounts receivable (10,783) 5,019 Inventory (10,197) 4,225 Accounts payable and accrued liabilities (18,932) 43,774 ----------- ---------- Net cash provided by operating activities (126,777) 277 ----------- ---------- Financing activities Advance from bank overdraft - - Payment on advances (11,574) - Proceeds from advances - 8,111 Proceeds from Note from Cellular 150,000 - ----------- ---------- Net cash provided by financing activities 138,426 8,111 ----------- ---------- Foreign currency translation effect 8,988 (2,536) ----------- ---------- Net increase in cash 20,637 5,852 Cash at beginning of period 2,802 2,599 ----------- ---------- Cash at end of period $ 23,439 $ 8,451 =========== ========== See Accompanying Notes to Financial Statements F4 VITAL PRODUCTS, INC. Notes to Financial Statements April 30, 2009 and 2008 (Unaudited) 1. NATURE OF OPERATIONS AND BASIS FOR PRESENTATION Vital Products, Inc. (the "Company") was incorporated in the State of Delaware on May 27, 2005. On July 5, 2005, the Company purchased the Childcare Division of Metro One Development, Inc., (formerly On The Go Healthcare, Inc.), which manufactured and distributed infant care products. As of July 31, 2008, the Company's sole business was to manufacture two products under the On The Go name: a padded training seat and a baby bath. As of July 31, 2008, these two products did not produce enough revenue for the Company to cover its expenses. After evaluating the market for baby care products, the Company determined not to invest further funds developing its baby products line. In September 2008, the Company changed its business plan to pursue a new line of business as a developer and distributor of industrial packaging products. The Company is in the very early stage of this change in business model and further growth will depend on the Company's ability to raise capital. The accompanying unaudited financial statements have been prepared in accordance with the Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements should be read in conjunction with the annual financial statements for the year ended July 31, 2008 of Vital Products, Inc. The interim financial statements present the balance sheet, statements of operations, stockholders' equity and cash flows of Vital Products, Inc. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of April 30, 2009 and the results of operations, stockholders' equity and cash flows presented herein have been included in the financial statements. All such adjustments are the normal and recurring nature. Interim results are not necessarily indicative of results of operations for the full year. 2. SIGNIFICANT ACCOUNTING POLICIES Liquidity and Going Concern During the nine months ended April 30, 2009 and 2008, the Company incurred income (losses) of ($727,311) and ($198,460), respectively, and cash provided by (used in) operations was ($126,777) and $277, respectively. The Company financed its operations through loans payable and vendors' credit. Management believes that the current cash balances at April 30, 2009 and net cash proceeds from operations will not be sufficient to meet the Company's cash requirements for the next twelve months. Accordingly, these financial statements have been prepared on a going concern basis and do not include any adjustments to the measurement and classification of the recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has experienced losses in the period and has negative working capital. The Company's ability to realize its assets and discharge its liabilities in the normal course of business is dependent upon continued support. The Company is currently attempting to obtain additional financing from its existing shareholders and other strategic investors to continue its operations. However, the Company may not obtain sufficient additional funds from these sources. F5 These conditions cause substantial doubt about the Company's ability to continue as a going concern. A failure to continue as a going concern would require that stated amounts of assets and liabilities be reflected on a liquidation basis that could differ from the going concern basis. 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Accounting Principles The Company's accounting and reporting policies conform to generally accepted accounting principles and industry practice in the United States. The financial statements are prepared in United States dollars. Use of Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles 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 reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Foreign Currency Translation The Company considers the functional currency to be the local currency and, accordingly, their financial information is translated into U.S. dollars using exchange rates in effect at year-end. The Canadian dollar is the local currency. Adjustments resulting from translation of foreign exchange are included as a component of other comprehensive income (loss) within stockholders' deficit. Revenue Recognition The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") as modified by Securities and Exchange Commission Staff Accounting Bulletin No. 104. Under SAB 101, revenue is recognized at the point of passage to the customer of title and risk of loss, there is persuasive evidence of an arrangement, the sales price is determinable, and collection of the resulting receivable is reasonably assured. The Company generally recognizes revenue at the time of delivery of goods. Sales are reflected net of discounts and returns. Allowance for doubtful accounts The Company records an allowance for doubtful accounts as a best estimate of the amount of probable credit losses in its accounts receivable. Each month, the Company reviews this allowance and considers factors such as customer credit, past transaction history with the customer and changes in customer payment terms when determining whether the collection of a receivable is reasonably assured. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. Receivables are charged off against the allowance for doubtful accounts when it becomes probable that a receivable will not be recovered. F6 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Inventory Inventory comprises finished goods held for sale and is stated at lower of cost or market value. Cost is determined by the average cost method. The Company estimates the realizable value of inventory based on assumptions about forecasted demand, market conditions and obsolescence. If the estimated realizable value is less than cost, the inventory value is reduced to its estimated realizable value. If estimates regarding demand and market conditions are inaccurate or unexpected changes in technology affect demand, the Company could be exposed to losses in excess of amounts recorded. Income Taxes The Company follows SFAS 109 "Accounting for Income Taxes" for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Basic Loss Per Share Statement of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS 128) provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. All potentially dilutive securities have been excluded from the computations since they would be antidilutive. However, these dilutive securities could potentially dilute earnings per share in the future. Comprehensive Income The Company has adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners or distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under the current accounting standards as a component of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is displayed in the statement of stockholders' deficit and in the balance sheet as a component of stockholders' deficit. F7 2. SIGNIFICANT ACCOUNTING POLICIES (continued) New Accounting Pronouncements In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles". The Company is currently evaluating the impact of SFAS No. 162 on its financial statements, and the adoption of this statement is not expected to have a material effect on the Company's financial statements. In May 2008, the FASB issued FASB FSP APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)". FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Such separate accounting also requires accretion of the resulting discount on the liability component of the debt to result in interest expense equal to an issuer`s nonconvertible debt borrowing rate. In addition, the FSP provides for certain changes related to the measurement and accounting related to derecognition, modification or exchange. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. The adoption of FASB FSP APB 14-1 is not expected to have a significant impact on the Company's consolidated financial statements. 3. NOTE PAYABLE TO CELLULAR CONNECTION LTD. The $150,000 advance from The Cellular Connection, Ltd. was a result of two convertible secured promissory notes, with a total original face amount of $180,000, issued to The Cellular Connection Ltd. during 2009 which total face amount includes one year of interest totaling $30,000 and actual loan amount totaling $150,000. The convertible secured promissory notes accrue interest at a rate of 20% per year and have maturity dates of January 19, 2010 and April 30, 2010. The outstanding face amount of the convertible secured promissory note shall increase by 20% in 2011, by another 20% in 2012 and again on each one year anniversary of 2012 maturity until it has been paid in full. The note entitles the note holder to convert the note, plus accrued interest, any time prior to the maturity date, at 75% of the average of the lowest closing bid price during the fifteen (15) trading days immediately preceding the conversion date. The notes have been accounted for as original issue discount notes due to the conversion feature. The discount totaling $60,000 shall be accreted over the life of the note for a total accreted value of $240,000. Furthermore, the $30,000 interest which has been included as part of the overall face amount of the notes shall also be accreted over a one year period. As of April 30, 2009, the total accretion of both discount and interest totaled $17,500. Pursuant to the terms of the notes, The Cellular Connection Ltd. may elect to secure a portion of the Company's assets not to exceed 200% of the face amount of the notes, including, but not limited to, accounts receivable, cash, marketable securities, equipment, building, land or inventory. F8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INTRODUCTION The following discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with our audited financial statements and related notes thereto included elsewhere in this report, and in our Form 10-KSB filed November 13, 2008, for the year ended July 31, 2008. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains "forward-looking statements" that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our Form 10-KSB filed November 13, 2008, for the year ended July 31, 2008 and other filings we make with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Financial Statements and accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, inventories, impairment of long-term assets, income taxes and loss contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies, among others, may be impacted significantly by judgment, assumptions and estimates used in the preparation of the Financial Statements: Revenue and expense recognition - We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or SAB 101 as modified by Securities and Exchange Commission Staff Accounting Bulletin No. 104. Under SAB 101, revenue is recognized at the point of passage to the customer of title and risk of loss, there is persuasive evidence of an arrangement, the sales price is determinable, and collection of the resulting receivable is reasonably assured. We generally recognize revenue at the time of delivery of goods. Sales are reflected net of discounts and estimated returns based on historical patterns. We record amounts billed to customers for shipping and handling as sales revenues. We include costs incurred for shipping and handling in cost of sales. We assess the recoverability of long-lived assets whenever events or changes in business circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the sum of the expected undiscounted future net cash flows over the remaining useful life is less than the carrying amount of the assets. 5 New Accounting Pronouncements In May 2008, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 162, "The Hierarchy of Generally Accepted Accounting Principles." SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." We are currently evaluating the impact of SFAS No. 162 on our financial statements, and we do not expect the adoption of this statement to have a material effect on our financial statements. In May 2008, the FASB issued FASB FSP APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)." FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Such separate accounting also requires accretion of the resulting discount on the liability component of the debt to result in interest expense equal to an issuer`s nonconvertible debt borrowing rate. In addition, the FSP provides for certain changes related to the measurement and accounting related to derecognition, modification or exchange. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. We do not expect the adoption of FASB FSP APB 14-1 to have a significant impact on our consolidated financial statements. OUR BUSINESS As of July 31, 2008, our sole business was to manufacture two products under the On The Go name: a padded training seat that helps toddlers with potty training, and a baby bath with a contoured shape to cradle babies 0-6 months old. As of July 31, 2008, these two products failed to produce enough revenue for us to cover our expenses. After evaluating the market for baby care products, we determined that the industry does not offer enough opportunity for a small company to create products that are affordable to develop, price competitively for the consumer and that can be introduced into distribution channels without significant expense. As a result, we decided not to invest further funds developing our baby products line. In August 2008, we began the process of developing a new line of business as a distributor of industrial packaging products. On September 17, 2008, we entered into a Letter of Intent to purchase Montreal-based Den Packaging Corporation. We believe that the addition of Den Packaging Corporation will undoubtedly strengthen our standing in the industrial packaging sector. We are currently in the process of renegotiating a final agreement to consummate the purchase of Den Packaging Corporation. On October 7, 2008, we entered into a consulting agreement with DLW Partners of Toronto, an industrial packaging consulting firm specializing in market analysis, market and product strategies and the development of product line extensions. We believe that DLW will work closely with us to develop new products for existing markets and establish product line extensions to further our market share. Most importantly DLW has experience in the development of environmentally friendly products and we expect that DLW will further our initiative to develop environmentally acceptable products. 6 On October 21, 2008, we entered into a sales and marketing agreement with Eco Tech Development LLC of Nevada, a product research and development company specializing in eco-friendly industrial packaging applications, whereby we will market certain proprietary and patent-pending technologies that have recently been developed by Eco Tech, beginning with the marketing of a new bio-based foam packaging product. In December 2008, we met with three global manufacturers and one North American company to present our new bio-based foam technology to their marketing and technical groups. The discussions with each company included individual market share, technical service abilities and number of sales people with respect to each company we met with, as well as the expected growth projections with regards to total market value and the time frame required for each company to convert its business to our bio-based foam. On January 13, 2009, we formally announced that we had commenced production of Biofill(TM), our bio-based foam in place packaging product, and on January 26, 2009, we received our first purchase order. On January 30, 2009, we received a second purchase order for our Biofill(TM) product from a major North American manufacturer. On February 19, 2009, we entered into an agreement to market a new paper packaging system. While we believe paper packaging has been a staple in the industrial packaging market for many years, our new system produces a craft paper product that simulates a moldable nest. We believe this product is price competitive with other paper products and gives us the advantage of performance and range of use. Although our new line of business continues to develop, we believe that these purchase orders validate our product and reflect the industrial packaging industry's trend towards environmentally friendly product lines. RESULTS OF OPERATIONS COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED APRIL 30, 2009 AND 2008 Revenues: We had revenues of $11,614 for the nine months ended April 30, 2009, as compared to revenues of $15,251 for the nine months ended April 30, 2008. The decrease in revenues was primarily the result of our development of a new product line. Cost of Sales: Our cost of sales for the nine months ended April 30, 2009 was $0, compared to $8,074 for the nine months ended April 30, 2008. The decrease in cost of sales was directly related to the decrease in sales. Selling, General and Administrative Expenses: Our selling, general and administrative costs were $187,898 for the nine months ended April 30, 2009, compared to $59,918 for the nine months ended April 30, 2008. The increase in selling, general and administrative expenses was primarily the result of stock based expenses related to consulting services. Net loss: Our net loss for the nine months ended April 30, 2009 was $727,311, compared to a net loss of $198,460 for the nine months ended April 30, 2008. The increase in net loss was a result of the reasons mentioned above. Total Assets: Our total assets as of April 30, 2009 were $68,583, an increase of $30,625, as compared to the fiscal year ended July 31, 2008 which were $37,958. The increase was a result of purchase of inventory and accounts receivable from sales in 2009. Our total liabilities as of April 30, 2009 were $483,125, a decrease of $1,672,768, as compared to $2,155,893 for the fiscal year ended July 31, 2008. The decrease in our total liabilities compared to the prior year ended July 31, 2008 was primarily the result of the payment on our note payable to Metro One Development, Inc. (formerly On The Go Healthcare, Inc.) in common stock. 7 LIQUIDITY AND CAPITAL RESOURCES As of April 30, 2009, we had total current assets of $44,419 and total current liabilities of $483,125, resulting in a working capital deficit of $438,706. As of that date, we had cash of $23,439. Our cash flow from operating activities for the nine months ended April 30, 2009 resulted in a deficit of $126,777. Our current cash balance and cash flow from operating activities will not be sufficient to fund our operations. Our cash flow from financing activities for the nine months ended April 30, 2009 resulted in a surplus of $138,426. We believe we will need to raise capital of approximately $300,000 to $350,000 through either debt or equity instruments to fund our operations for the next 12 months. However, we may not be successful in raising the necessary capital to fund our operations. In addition to the amounts needed to fund our operations, we may need to generate an additional $500,000 to cover our current liabilities for the next 12 months. As of April 30, 2009, we have $150,000 of advances due to The Cellular Connection Ltd. and $235,310 of advances due to Metro One Development, Inc. (formerly On The Go Healthcare, Inc.), payable on demand. The initial $150,000 advanced from The Cellular Connection, Ltd. is the aggregate amount due under two convertible secured promissory notes with an aggregate face amount of $180,000. We issued these notes to The Cellular Connection Ltd. during 2009. The aggregate face amount includes one year of interest totaling $30,000 and actual loan amount totaling $150,000. The convertible secured promissory notes accrue interest at a rate of 20% per year and have maturity dates of January 19, 2010 and April 30, 2010. The outstanding face amount of the convertible secured promissory notes increase by 20% in 2011, by an additional 20% in 2012 and again on each one year anniversary after 2012 until the notes have been paid in full. The notes entitle the holder to convert the note, plus accrued interest, anytime prior to the maturity date, at 75% of the average of the lowest closing bid price during the fifteen trading days immediately preceding the conversion date. Pursuant to the terms of the convertible secured promissory notes, The Cellular Connection Ltd. may elect to secure a portion of our assets not to exceed 200% of the face amount of the notes, including, but not limited to, accounts receivable, cash, marketable securities, equipment, building, land or inventory. Until we are able to generate positive cash flows from operations in an amount sufficient to cover our current liabilities and debt obligations as they become due, if ever, we will remain reliant on borrowing funds or selling equity. We intend to raise funds through the issuance of debt or equity. Raising funds in this manner typically requires much time and effort to find accredited investors, and the terms of such an investment must be negotiated for each investment made. There is a risk that such additional financing may not be available, or may not be available on acceptable terms, and the inability to obtain additional financing or generate sufficient cash from operations could require us to reduce or eliminate expenditures for capital equipment, production, design or marketing of our products, or otherwise curtail or discontinue our operations, which could have a material adverse effect on our business, financial condition and results of operations. We may not be able to raise sufficient funds to meet our obligations. If we do not raise sufficient funds, our operations will be curtailed or will cease entirely and you may lose all of your investment. An optional source of financing may be through the sale of equity. However, this source of financing may not be available to us and demand for our equity/debt instruments may not be sufficient to meet our capital needs and such financing may not be available on terms favorable to us. 8 Further, to the extent that we raise capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to our existing stockholders. If we raise additional funds through issuance of debt securities, these securities may have rights, preferences and privileges senior to holders our of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be adequate to meet our operational needs, we may seek to compensate our service providers with stock in lieu of cash, which may also result in dilution to existing stockholders. OFF-BALANCE SHEET ARRANGEMENTS As of April 30, 2009, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As a Smaller Reporting Company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item. ITEM 4. CONTROLS AND PROCEDURES. Disclosure Controls and Procedures Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management's assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance that the control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met. Changes in Internal Controls over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended April 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 9 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against our Company or our officers and directors in their capacity as such that could have a material impact on our operations or finances. ITEM 1A. RISK FACTORS. There have been no material changes from the risk factors as previously disclosed in our annual report on Form 10-KSB for the fiscal year ended July 31, 2008. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. During the period between March 20, 2009 and March 27, 2009, we issued 35,000,000 shares of our common stock to Metro One Development, Inc. The shares were issued as a result of our conversion of $131,250 in principal and accrued interest due under a promissory note to Metro One Development, Inc. The shares were issued at a conversion price of $0.00375 per share. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. In the three months ended April 30, 2009, we did not submit any matters to a vote of security holders. ITEM 5. OTHER INFORMATION. Not applicable. ITEM 6. EXHIBITS. Exhibit Number Description of Exhibit 3.1 Certificate of Incorporation (included as exhibit 3.1 to the Form SB-2 filed August 29, 2005 and incorporated herein by reference). 3.2 By-laws (included as exhibit 3.2 to the Form SB-2 filed August 29, 2005 and incorporated herein by reference). 4.1 Form of Stock Certificate (included as exhibit 4.1 to the Form SB-2 filed October 26, 2006 and incorporated herein by reference). 4.2 Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock, dated April 20, 2009 (included as exhibit 4.1 to the Form 8-K filed April 24, 2009 and incorporated herein by reference). 10.1 Asset Sale Agreement between the Company and On The Go Healthcare, Inc. dated July 5, 2005 (included as exhibit 10.3 to the Form SB-2 filed August 29, 2005 and incorporated herein by reference). 10.2 Secured Promissory Note between the Company and On The Go Healthcare, Inc. dated February 23, 2006 (included as exhibit 10.2 to the Form SB-2 filed February 24, 2006 and incorporated herein by reference). 10 10.3 Secured Promissory Note between the Company and On The Go Healthcare, Inc. dated February 23, 2006 (included as exhibit 10.3 to the Form SB-2 filed February 24, 2006 and incorporated herein by reference). 10.4 Secured Promissory Note between the Company and The Cellular Connection Ltd. dated January 20, 2009 (included as exhibit 10.5 to the Form 10-Q filed March 20, 2009 and incorporated herein by reference). 10.5 Convertible Promissory Note between the Company and Metro One Development, Inc. dated June 18, 2009 (filed herewith). 10.6 Secured Promissory Note between the Company and The Cellular Connection Ltd. dated April 30, 2009 (filed herewith). 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: June 19, 2009 Vital Products, Inc. By:/s/ Michael Levine -------------------------- Michael Levine Principal Executive Officer Dated: June 19, 2009 By:/s/ Henry Goldberg ---------------------------- Henry Goldberg, Chief Financial and Principal Accounting Officer and Director 11 EX-10.5 2 vital_april302009ex105.txt CONVERTIBLE PROMISSORY NOTE DATED JUNE 18, 2009 EXHIBIT 10.5 CONVERTIBLE PROMISSORY NOTE FACE AMOUNT AS OF JANUARY 31, 2008 U.S. $294,864 Issue Date June 18, 2009 FOR VALUE RECEIVED, Vital Products, Inc., a Delaware corporation (the "Company"), hereby promises to pay Metro One Development, Inc., a Delaware corporation, (the "Holder") the Face Amount in such amounts, at such times and on such terms and conditions as are specified herein (this "Note"). The Company acknowledges the Holder paid all consideration for this Note as of January 31, 2008. Article 1. Maturity. The Face Amount of this Note is payable by July 31, 2010, unless extended in writing by both the Company and the Holder (the "Maturity Date"). Notwithstanding any provision to the contrary in this Note, the Company may pay in full to the Holder the Face Amount, or any balance remaining thereof, in common stock, as set forth in Article 2, or readily available funds at any time and from time to time without penalty. Any balance remaining outstanding on the Maturity shall automatically be converted into common stock in accordance with Article 2. Article 2. Payment. 2.1. Payment in Cash. The outstanding balance of this Note is payable cash or in shares of the Company's common stock, at the Company's option. 2.2. Payment in Stock. (a) Conversion. If the Company elects to convert any portion of the outstanding balance of this Note into shares of the Company's common stock, it may do so at any time in accordance with Article 1, at its sole option. The number of shares of common stock issuable upon the conversion of this Note shall be determined pursuant to Section 2.1(c). (b) Common Stock to be Issued. Upon the conversion of any portion of this Note, the Company shall instruct its transfer agent to issue stock certificates representing the number of shares of common stock issuable upon such conversion, as applicable. The Company shall act as registrar and shall maintain an appropriate ledger containing the necessary information with respect to the balance of the Note. The Company warrants that no instructions, other than these instructions, have been given or will be given to the transfer agent and that the common stock shall otherwise be freely resold, except as may be set forth herein or subject to applicable law. (c) Conversion Rate. The Company shall convert the outstanding principal due under this Note, or any portion thereof, at a conversion price of $0.01 (the "Conversion Price"). The number of shares of the Company's common stock issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted by (y) the Conversion Price. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded up or down, as the case may be, to the nearest whole share. Article 3. Interest. There shall be no interest due under this Note. Article 4. Certain Adjustments. (a) Stock Splits. If the Company, at any time while this Note is outstanding, (i) subdivides outstanding shares of its common stock into a larger number of shares, or (ii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares, and absent a merger or acquisition transaction, the Conversion Price will remain at $0.01 as set forth in Article 2. (b) Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the common stock issuable upon the conversion of this Note is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a transaction provided for elsewhere in this Article 4), in any such event, the Company shall convert any portion of the outstanding balance of this Note into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the maximum number of shares of common stock into which the outstanding balance of this Note could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. (c) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time after the date of issuance of this Note, there is a capital reorganization of the common stock (other than a transaction provided for elsewhere in this Article 4), as a part of such capital reorganization, provision shall be made so that the Holder of this Note shall thereafter be entitled to receive upon conversion of this Note, the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of common stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. Article 5. Mergers. The Company shall not consolidate or merge into, or transfer all or substantially all of its assets to, any person, unless such person assumes in writing the obligations of the Company under this Note. Any reference herein to the Company shall refer to such surviving or transferee corporation and the obligations of the Company shall terminate upon such written assumption. Article 6. Notices. Any notices, consents, waivers or other communications required or to be given under the terms of this Note must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally, (ii) upon receipt, when sent by facsimile (provided a confirmation of transmission is mechanically or electronically generated and kept on file by the sending party), or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. Article 7. Time. Where this Note authorizes or requires the payment of money or the performance of a condition or obligation on a Saturday or Sunday or a holiday in which the United States Stock Markets ("U.S. Markets") are closed ("Holiday"), or authorizes or requires the payment of money or the performance of a condition or obligation within, before or after a period of time computed from a certain date, and such period of time ends on a Saturday or a Sunday or a Holiday, such payment may be made or condition or obligation performed on the next succeeding business day, and if the period ends at a specified hour, such payment may be made or condition performed, at or before the same hour of such next succeeding business day, with the same force and effect as if made or performed in accordance with the terms of this Note. A "business day" shall mean a day on which the U.S. Markets are open for a full day or half day of trading. Article 8. No Assignment. This Note shall not be assigned except in accordance with Article 5. Article 9. Governing Law. The validity, terms, performance and enforcement of this Note shall be governed and construed by the provisions hereof and in accordance with the laws of the State of Delaware applicable to agreements that are negotiated, executed, delivered and performed solely in the State of Delaware. Article 10. Miscellaneous. (a) In this Note, unless the context otherwise requires, words in the singular number include the plural, and in the plural include the singular, and words of the masculine gender include the feminine and the neuter, and when the tense so indicates, words of the neuter gender may refer to any gender. (b) The numbers and titles of sections contained in this Note are inserted for convenience of reference only, and they neither form a part of this Note nor are they to be used in the construction or interpretation hereof. (c) Neither this Note nor any provision hereof shall be waived, modified, changed, discharged, terminated, revoked or canceled, except by an instrument in writing signed by the party effecting the same against whom any waiver, modification, change, discharge, termination, revocation or cancelation is sought. (d) This Note may be executed in two or more counterparts, all of which taken together shall constitute one instrument. Execution and delivery of this Note by exchange of facsimile copies bearing the facsimile signature of a party shall constitute a valid and binding execution and delivery of this Note by such party. Such facsimile copies shall constitute enforceable original documents. (e) This Note represents the FINAL AGREEMENT between the Company and the Holder and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. (f) The execution, delivery and performance of this Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the Certificate of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws, or (ii) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancelation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree, including United States Federal and state securities laws and regulations and the rules and regulations of the principal securities exchange or trading market on which the common stock is traded or listed, applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Any misrepresentations shall be considered a breach of contract under this Note and the Holder may seek all remedies permitted by law. [Signature Page Follows] IN WITNESS WHEREOF, the Company has duly executed this Note as of June 18, 2009. VITAL PRODUCTS, INC. By: /s/Michael Levine - ------------------------------ Name: Michael Levine Title: Chief Executive Officer EX-10.6 3 vital_april302009ex106.txt CONVERTIBLE PROMISSORY NOTE DATED APRIL 30, 2009 EXHIBIT 10.7 CONVERTIBLE SECURED PROMISSORY NOTE ISSUE AMOUNT U.S. $50,000 FACE AMOUNT U.S. $60,000 INTEREST RATE 20% per year ISSUANCE DATE April 30, 2009 FOR VALUE RECEIVED, Vital Products, Inc., a Delaware corporation (the "Company"), hereby promises to pay The Cellular Connection Ltd., an Ontario corporation, (the "Holder") the Face Amount, subject to further adjustment as described below, in such amounts, at such times and on such terms and conditions as are specified herein (this "Note"). Article 1. Advancement and Fees The Holder agrees to pay forty-seven thousand five hundred dollars ($47,500) to the Company upon the issuance of this Note as an inducement fee. In addition, the Company agrees to pay two thousand five hundred dollars ($2,500) in document fees associated with this Note. Such amounts shall be considered fees and will not be applied to principal or interest. Article 2. Maturity The Face Amount of this Note is payable April 30, 2010 (the "Maturity Date"). Notwithstanding any provision to the contrary in this Note, the Company may pay in full to the Holder the Face Amount, or any balance remaining thereof, in readily available funds at any time and from time to time without penalty ("Prepayment"). Article 3. Interest The outstanding Face Amount of the Note shall increase by 20% on April 30, 2010. The outstanding Face Amount of the Note shall increase by another 20% on April 29, 2011 and again on each one year anniversary of April 29, 2011 until the Note has been paid in full. Article 4. Collateral The Holder may elect to secure a portion of the Company's assets not to exceed 200% of the Face Amount of the Note, including, but not limited to, accounts receivable, cash, marketable securities, equipment, building, land or inventory (the "Collateral"). Article 5. Defaults and Remedies Article 5.1. Events of Default An "Event of Default" or "Default" occurs if the Company does not pay the Face Amount of this Note within five (5) business days after the Maturity Date. Upon the occurrence of an Event of Default, the Holder may: * Transfer any or all of the Collateral into its name, or into the name of its nominee or nominees; * Exercise all corporate rights with respect to the Collateral, including, without limitation, all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any shares of the Collateral as if it were the absolute owner thereof, including, but without limitation, the right to exchange, at its discretion, any or all of the Collateral upon the merger, consolidation, amalgamation, reorganization, recapitalization or other readjustment of the Company thereof, or upon the exercise by the Company of any right, privilege or option pertaining to any of the Collateral, and, in connection therewith, to deposit and deliver any and all of the Collateral with any committee, depository, transfer agent, registrar or other designated agent upon such terms and conditions as it may determine, all without liability except to account for property actually received by it; and * Subject to any requirement of applicable law including, for greater certainty, the Personal Property Security Act (Ontario), sell, assign and deliver the whole or, from time to time, any part of the Collateral at the time held by the Holder, at any private sale or at public auction, with or without demand, advertisement or notice of the time or place of sale or adjournment thereof or otherwise (all of which are hereby waived, except such notice as is required by applicable law and cannot be waived), for cash or credit or for other property for immediate or future delivery, and for such price or prices and on such terms as the Pledgee in its sole discretion may determine, or as may be required by applicable law. Article 5.2 Conversion Privilege (a) The Holder shall have the right to convert the Note into shares of the Company's common stock (the "Common Stock") at any time prior to the Maturity Date. The number of shares of Common Stock issuable upon the conversion of the Note shall be determined pursuant to Article 5.3. Any fractional shares that occur as a result of conversion shall be rounded up or down, as the case may be, to the nearest whole share. (b) In the event all or any portion of the Note remains outstanding on the Maturity Date (the "Residual Amount"), the unconverted portion of such Note will automatically be converted into shares of Common Stock on such date in the manner set forth in Article 5.3. Article 5.3 Conversion Procedure. (a) The Residual Amount may be converted, in whole or in part, any time and from time to time, prior to the Maturity Date. Such conversion shall be effectuated by surrendering to the Company, or its attorney, the Note to be converted together with a facsimile or original of the signed notice of conversion (the "Notice of Conversion"). The date on which the Notice of Conversion is effective ("Conversion Date") shall be deemed to be the date on which the Holder has delivered to the Company a facsimile or original of the signed Notice of Conversion, as long as the original Note to be converted is received by the Company within five (5) business days thereafter. At such time that the original Note has been received by the Company, the Holder can elect whether a reissuance of the Note is warranted, or whether the Company can retain the Note as a continual conversion by the Holder. Notwithstanding the above, any Notice of Conversion received on or after 4:00 P.M. EST shall be deemed to have been received the following business day (receipt being via a confirmation of the time such facsimile to the Company is received). (b) Common Stock to be Issued - Upon any conversion of the Note, and upon receipt by the Company or its attorney of a facsimile or original of the Holder's signed Notice of Conversion, the Company shall instruct its transfer agent to issue stock certificates without restrictive legends or stop transfer instructions, if at that time the aforementioned registration statement described in Article 5.1 has been declared effective (or with proper restrictive legends if the registration statement has not as yet been declared effective), in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion, as applicable. In the event that the Note is aged one year and deemed sellable under Rule 144, the Company shall, upon a Notice of Conversion, instruct the transfer agent to issue free trading certificates without restrictive legends, subject to other applicable securities laws. The Company is responsible for all costs associated with the issuance of the shares, including, but not limited to, fees associated with the opinion letter, FedEx of the certificates and any other costs that arise. The Company shall act as registrar and shall maintain an appropriate ledger containing the necessary information with respect to the Note. The Company warrants that no instructions, other than these instructions, have been given or will be given to the transfer agent and that the Common Stock shall otherwise be freely resold, except as may be set forth herein or subject to applicable law. (c) Conversion Rate - The Holder is entitled to convert the Note, plus accrued interest, anytime prior to the Maturity Date, at 75% of the average of the lowest closing bid price during the fifteen (15) trading days immediately preceding the Conversion Date. No fractional shares or script representing fractions of shares will be issued upon conversion, but rather the number of shares issuable shall be rounded up or down, as the case may be, to the nearest whole share. (d) Nothing contained in the Note shall be deemed to establish or require the payment of interest to the Holder at a rate in excess of the maximum rate permitted by governing law. In the event that the rate of interest required to be paid exceeds the maximum rate permitted by governing law, the rate of interest required to be paid thereunder shall be automatically reduced to the maximum rate permitted under the governing law and such excess shall be returned with reasonable promptness by the Holder to the Company. (e) It shall be the Company's responsibility to take all necessary actions and to bear all such costs to issue the Common Stock as provided herein, including the responsibility and cost for delivery of an opinion letter to the transfer agent, if so required. The Holder shall be treated as a shareholder of record on the date Common Stock is issued to the Holder. If the Holder shall designate another person as the entity in the name of which the stock certificates issuable upon conversion of the Note are to be issued prior to the issuance of such certificates, the Holder shall provide to the Company evidence that either no tax shall be due and payable as a result of such transfer or that the applicable tax has been paid by the Holder or such person. Upon surrender of any Notes that are to be converted in part, the Company shall issue to the Holder a new Note equal to the unconverted amount, if so requested in writing by the Holder. (f) Within five (5) business days after receipt of the documentation referred to above in Article 5.2, the Company shall deliver a certificate for the number of shares of Common Stock issuable upon the conversion. In the event the Company does not make delivery of the Common Stock as instructed by the Holder within five (5) business days after the Conversion Date, then in such event the Company shall pay to the Holder one percent (1%) in cash of the dollar value of the amount remaining on the Note after said conversion, compounded daily, per each day after the fifth (5th) business day following the Conversion Date that the Common Stock is not delivered to the Holder. The Company acknowledges that its failure to deliver the Common Stock within five (5) business days after the Conversion Date will cause the Holder to suffer damages in an amount that will be difficult to ascertain. Accordingly, the parties agree that it is appropriate to include in this Note a provision for liquidated damages. The parties acknowledge and agree that the liquidated damages provision set forth in this section represents the parties' good faith effort to quantify such damages, and, as such, agree that the form and amount of such liquidated damages are reasonable and will not constitute a penalty. The payment of liquidated damages shall not relieve the Company from its obligations to deliver the Common Stock pursuant to the terms of this Note. (g) The Company shall at all times reserve (or make alternative written arrangements for reservation or contribution of shares) and have available all Common Stock necessary to meet conversion of the Note by the Holder of the entire amount of the Note then outstanding. If, at any time the Holder submits a Notice of Conversion and the Company does not have sufficient authorized but unissued shares of Common Stock (or alternative shares of Common Stock as may be contributed by stockholders of the Company) available to effect, in full, a conversion of the Note (a "Conversion Default," the date of such default being referred to herein as the "Conversion Default Date"), the Company shall issue to the Holder all of the shares of Common Stock which are available, and the Notice of Conversion as to any Note requested to be converted but not converted (the "Unconverted Note") may be deemed null and void upon written notice sent by the Holder to the Company. The Company shall provide notice of such Conversion Default ("Notice of Conversion Default") to the Holder, by facsimile within three (3) business days of such default (with the original delivered by overnight mail or two day courier), and the Holder shall give notice to the Company by facsimile within five (5) business days of receipt of the original Notice of Conversion Default (with the original delivered by overnight mail or two day courier) of its election to either nullify or confirm the Notice of Conversion. The Company acknowledges that its failure to maintain a sufficient number of authorized but unissued shares of Common Stock to effect, in full, a conversion of the Note will cause the Holder to suffer damages in an amount that will be difficult to ascertain. Accordingly, the parties agree that it is appropriate to include in this Note a provision for liquidated damages. (h) If, by the fifth (5th) business day after the Conversion Date of any portion of the Note to be converted (the "Delivery Date"), the transfer agent fails for any reason to deliver the Common Stock upon conversion by the Holder and after such Delivery Date, the Holder purchases, in an open market transaction or otherwise, shares of Common Stock (the "Covering Shares") solely in order to make delivery in satisfaction of a sale of Common Stock by the Holder (the "Sold Shares"), which delivery such Holder anticipated to make using the Common Stock issuable upon conversion (a "Buy-In"), the Company shall pay to the Holder, in addition to any other amounts due to the Holder pursuant to this Note, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy In Adjustment Amount" is the amount equal to the excess, if any, of (x) the Holder's total purchase price (including brokerage commissions, if any) for the Covering Shares over (y) the net proceeds (after brokerage commissions, if any) received by the Holder from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in immediately available funds within five (5) business days of written demand by the Holder. By way of illustration and not in limitation of the foregoing, if the Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company will be required to pay to the Holder will be $1,000. (i) The Company shall defend, protect, indemnify and hold harmless the Holder and all of its shareholders, officers, directors, employees, counsel, and direct or indirect investors and any of the foregoing person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement, collectively, the "Article 5.3(i) Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Article 5.3(i) Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Article 5.3(i) Indemnified Liabilities"), incurred by any Article 5.3(i) Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in this Note or any other certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any covenant, agreement or obligation of the Company contained in this Note or any other certificate, instrument, or document contemplated hereby or thereby, (iii) any cause of action, suit, or claim brought or made against such Article 5.3(i) Indemnitee by a third party and arising out of or resulting from the execution, delivery, performance, or enforcement of the Note or any other certificate, instrument, or document contemplated hereby or thereby, (iv) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Common Stock underlying the Note, or (v) the status of the Holder or holder of the Note as an investor in the Company, except insofar as any such misrepresentation, breach or any untrue statement, alleged untrue statement, omission, or alleged omission is made in reliance upon and in conformity with written information furnished to the Company by the Holder which is specifically intended by the Holder to be relied upon by the Company, including for use in the preparation of any such registration statement, preliminary prospectus, or prospectus, or is based on illegal trading of the Common Stock by the Holder. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law. The indemnity provisions contained herein shall be in addition to any cause of action or similar rights the Holder may have, and any liabilities the Holder may be subject to. Article 6. Mergers The Company shall not consolidate or merge into, or transfer all or substantially all of its assets to, any person, unless such person assumes in writing the obligations of the Company under this Note and immediately after such transaction no Event of Default exists. Any reference herein to the Company shall refer to such surviving or transferee corporation and the obligations of the Company shall terminate upon such written assumption. Failure to do so will constitute an Event of Default under this Note and the Holder may immediately seek to take actions as described under Article 5 of this Note. Article 7. Notices Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Note must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally, (ii) upon receipt, when sent by facsimile (provided a confirmation of transmission is mechanically or electronically generated and kept on file by the sending party), or (iii) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. Article 8. Time Where this Note authorizes or requires the payment of money or the performance of a condition or obligation on a Saturday or Sunday or a holiday in which the United States Stock Markets ("US Markets") are closed ("Holiday"), or authorizes or requires the payment of money or the performance of a condition or obligation within, before or after a period of time computed from a certain date, and such period of time ends on a Saturday or a Sunday or a Holiday, such payment may be made or condition or obligation performed on the next succeeding business day, and if the period ends at a specified hour, such payment may be made or condition performed, at or before the same hour of such next succeeding business day, with the same force and effect as if made or performed in accordance with the terms of this Note. A "business day" shall mean a day on which the US Markets are open for a full day or half day of trading. Article 9. No Assignment This Note shall not be assigned. Article 10. Rules of Construction In this Note, unless the context otherwise requires, words in the singular number include the plural, and in the plural include the singular, and words of the masculine gender include the feminine and the neuter, and when the tense so indicates, words of the neuter gender may refer to any gender. The numbers and titles of sections contained in this Note are inserted for convenience of reference only, and they neither form a part of this Note nor are they to be used in the construction or interpretation hereof. Wherever, in this Note, a determination of the Company is required or allowed, such determination shall be made by a majority of the Board of Directors of the Company and, if it is made in good faith, it shall be conclusive and binding upon the Company and the Holder. Article 11. Governing Law The validity, terms, performance and enforcement of this Note shall be governed and construed by the provisions hereof and in accordance with the laws of the State of Delaware applicable to agreements that are negotiated, executed, delivered and performed solely in the State of Delaware. Article 12. Waiver The Holder's delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waiver, affect, or diminish any right of the Holder under this Note to demand strict compliance and performance herewith. Any waiver by the Holder of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type. None of the undertakings, agreements and covenants of the Company contained in this Note, and no Event of Default, shall be deemed to have been waived by the Holder, nor may this Note be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Holder. Article 13. Senior Obligation The Company shall cause this Note and all other existing Notes with the Holder ("Holder's Debt") to be senior in right of payment to all other indebtedness of the Company. Article 14. Miscellaneous (a) All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, impersonal, singular or plural, as the identity of the person or persons may require. (b) Neither this Note nor any provision hereof shall be waived, modified, changed, discharged, terminated, revoked or canceled, except by an instrument in writing signed by the party effecting the same against whom any change, discharge or termination is sought. (c) This Note may be executed in two or more counterparts, all of which taken together shall constitute one instrument. Execution and delivery of this Note by exchange of facsimile copies bearing the facsimile signature of a party shall constitute a valid and binding execution and delivery of this Note by such party. Such facsimile copies shall constitute enforceable original documents. (d) This Note represents the FINAL AGREEMENT between the Company and the Holder and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties, there are no unwritten oral agreements among the parties. (e) The execution, delivery and performance of this Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby will not (i) result in a violation of the Certificate of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or the By-laws, or (ii) conflict with, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, contract, indenture mortgage, indebtedness or instrument to which the Company or any of its Subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree, including United States federal and state securities laws and regulations and the rules and regulations of the principal securities exchange or trading market on which the Common Stock is traded or listed (the "Principal Market"), applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Any misrepresentations shall be considered a breach of contract and Default under this Note and the Holder may seek to take actions as described under Article 5 of this Note. [signature page follows] IN WITNESS WHEREOF, the Company has duly executed this Note as of the Issuance Date first written above. VITAL PRODUCTS, INC. The Cellular Connection Ltd. By: /s/Michael Levine By: /s/Stuart Turk - --------------------- -------------------- Name: Michael Levine Name: Stuart Turk Title: CEO Title: President EX-31.1 4 vital_april302009ex311.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) I, Michael Levine, certify that: 1. I have reviewed this quarterly report of Vital Products, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 19, 2009 By: /s/ Michael Levine - ----------------------------------------- Michael Levine Chief Executive Officer and Principal Executive Officer EX-31.2 5 vital_april302009ex312.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) I, Henry Goldberg, certify that: 1. I have reviewed this quarterly report of Vital Products, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 19, 2009 By: /s/ Henry Goldberg - ----------------------------------------- Henry Goldberg Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer EX-32.1 6 vital_april302009ex321.txt CERTIFICATION OF OFFICERS EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Vital Products, Inc., a Delaware corporation (the "Company"), does hereby certify, to such officer's knowledge, that: The quarterly report on Form 10-Q for the quarter ended April 3, 2009 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 19, 2009 /s/ Michael Levine - ----------------------------------------- Michael Levine, Chief Executive Officer and Principal Executive Officer Date: June 19, 2009 By: /s/ Henry Goldberg - ----------------------------------------- Henry Goldberg Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer -----END PRIVACY-ENHANCED MESSAGE-----