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