UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the period ended June 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-11747
VIE FINANCIAL GROUP, INC.
| Delaware | 22-6650372 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) |
1114 AVENUE OF THE AMERICAS, 22ND FLOOR
NEW YORK, NEW YORK 10036
(212) 575-8200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2) Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practical date:
| Common Stock $.01 par value | 21,139,245 | |
| (Title of Class) | (No. of shares as of August 16, 2004) |
INDEX
| PAGE | ||||
| PART I – FINANCIAL INFORMATION |
||||
| Item 1. |
Financial Statements (Unaudited) | |||
| Consolidated Balance Sheets - June 30, 2004 and March 31, 2004 |
4 | |||
| Consolidated Statements of Operations - For the Three Months Ended June 30, 2004 and 2003 |
5 | |||
| Consolidated Statements of Cash Flows - For the Three Months Ended June 30, 2004 and 2003 |
6 | |||
| 7 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | ||
| 20 | ||||
| Item 3. |
29 | |||
| Item 4. |
29 | |||
| PART II – OTHER INFORMATION |
||||
| Item 1. |
29 | |||
| Item 2. |
Changes in Securities; Use of Proceeds and Issuer Purchase of Equity Securities |
30 | ||
| Item 6. |
30 | |||
| 31 | ||||
2
PART I - FINANCIAL INFORMATION
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this document constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance, or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others:
| • | our ability to continue as a “going concern”; |
| • | availability and terms of debt and/ or equity capital to fund our operations; |
| • | our ability to become profitable; |
| • | our dependence on arrangements with our clearing firm, liquidity partners, execution venues and self-regulatory organizations; |
| • | changes in business strategy or development plans; |
| • | our dependence on proprietary and third-party technology and demand for such technology; |
| • | fluctuations in securities trading volumes, prices and market liquidity; |
| • | industry trends; |
| • | our ability to broaden our customer mix; |
| • | competition; |
| • | our ability to expand existing and develop new markets for our products; |
| • | our ability to develop intended future products; |
| • | availability and retention of qualified personnel; |
| • | changes in government regulation; |
| • | general economic and business conditions; and |
| • | other risk factors referred to in this Form 10-Q under the heading “Additional Factors That May Affect Future Results”. |
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” or “continue” or other forms of or the negative of those terms or other comparable terms.
Although we believe that the expectations reflected in the forward-looking statements are based on reasonable assumptions, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. We do not have a duty to update any of the forward-looking statements after the date of this filing.
3
VIE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| June 30, 2004 (Unaudited) |
March 31, 2004 (Audited) |
|||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 1,496,428 | $ | 2,249,187 | ||||
| Securities owned, at fair value |
12,334 | 17,244 | ||||||
| Receivables from brokers, dealers and other |
428,974 | 787,245 | ||||||
| Prepaid expenses and other current assets |
476,245 | 107,119 | ||||||
| Total current assets |
2,413,981 | 3,160,795 | ||||||
| Property and equipment, net of accumulated depreciation |
115,453 | 120,535 | ||||||
| Other assets |
407,858 | 406,768 | ||||||
| Total assets |
$ | 2,937,292 | $ | 3,688,098 | ||||
| Liabilities and Stockholders’ Deficiency |
||||||||
| Accounts payable and accrued expenses |
$ | 2,023,714 | $ | 1,403,431 | ||||
| Securities sold, not yet purchased, at fair value |
— | 103,902 | ||||||
| Accrued severance and current portion of lease termination liability |
142,053 | 178,785 | ||||||
| Net liabilities of discontinued operations |
62,667 | 62,667 | ||||||
| Total current liabilities |
2,228,434 | 1,748,785 | ||||||
| Secured note |
4,967,109 | 4,803,761 | ||||||
| Secured convertible note |
1,386,019 | 1,218,519 | ||||||
| Lease termination liability |
431,834 | 524,579 | ||||||
| Other liabilities |
50,804 | 39,951 | ||||||
| Total liabilities |
9,064,200 | 8,335,595 | ||||||
| Commitments and contingencies |
||||||||
| Preferred Stock – shares authorized: 3,000,000 |
||||||||
| 590,000 shares designated as Series B – (liquidation preference equals $240,000); shares issued and outstanding; 24,000 |
240,000 | 240,000 | ||||||
| 100,000 shares designated as Series G – par value: $0.01; shares issued and outstanding: 10,394 and none |
120 | 120 | ||||||
| 100,000 shares designated as Series H – par value: $0.01; shares issued and outstanding: none and 75,562 |
— | 756 | ||||||
| Common stock - par value: $.01; shares authorized: 1,000,000,000; shares issued and outstanding; 21,139,245 and 6,959,711 |
211,392 | 6,959,711 | ||||||
| Additional paid-in capital |
110,387,193 | 99,723,729 | ||||||
| Accumulated deficit |
(116,924,901 | ) | (111,531,101 | ) | ||||
| Accumulated other comprehensive loss |
(40,712 | ) | (40,712 | ) | ||||
| Total stockholders’ deficiency |
(6,126,908 | ) | (4,647,497 | ) | ||||
| Total liabilities and stockholders’ deficiency |
$ | 2,937,292 | $ | 3,688,098 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
VIE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
$ | 1,951,705 | $ | 2,225,360 | ||||
| Expenses: |
||||||||
| Salaries and employee benefits |
973,479 | 1,283,408 | ||||||
| Professional fees |
398,830 | 247,728 | ||||||
| Brokerage, clearing and exchange fees |
709,938 | 1,042,207 | ||||||
| Depreciation and amortization |
16,275 | 164,057 | ||||||
| Non-cash compensation charges |
34,248 | — | ||||||
| Loss on trading activities |
258,762 | 1,233,825 | ||||||
| Selling, general and administrative |
665,894 | 673,616 | ||||||
| Restructuring charges |
49,190 | — | ||||||
| Total costs and expenses |
3,106,616 | 4,644,841 | ||||||
| Loss from operations |
(1,154,911 | ) | (2,419,481 | ) | ||||
| Interest income |
1,399 | 5,488 | ||||||
| Interest expense |
(354,761 | ) | (427,162 | ) | ||||
| Debt issue costs |
— | (3,321 | ) | |||||
| Other expense |
— | (47,793 | ) | |||||
| Equity in loss of affiliates |
— | (963 | ) | |||||
| Net loss from continuing operations |
$ | (1,508,273 | ) | (2,893,232 | ) | |||
| Income /(loss) from discontinued operations of eMC |
— | (20 | ) | |||||
| Net loss |
$ | (1,508,273 | ) | $ | (2,893,252 | ) | ||
| Dividends attributed to preferred stock |
(3,880,142 | ) | (247,873 | ) | ||||
| Dividends in arrears on preferred stock |
(5,385 | ) | (5,385 | ) | ||||
| Net loss applicable to common stock |
$ | (5,393,800 | ) | $ | (3,416,510 | ) | ||
| Basic and diluted net loss per common share from continuing operations |
$ | (0.30 | ) | $ | (0.45 | ) | ||
| Basic and diluted net loss per common share from discontinued operations |
$ | (0.00 | ) | $ | (0.00 | ) | ||
| Basic and diluted net loss per common share |
$ | (0.30 | ) | $ | (0.45 | ) | ||
| Weighted average number of common shares outstanding, basic and diluted |
17,830,688 | 6,930,800 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
VIE FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash Flows from Operating Activities |
||||||||
| Net loss from continuing operations |
$ | (1,508,273 | ) | $ | (2,893,232 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
16,275 | 164,057 | ||||||
| Non-cash compensation charges for stock options granted |
34,248 | — | ||||||
| Non-cash interest expense |
350,848 | 424,477 | ||||||
| Equity in loss of affiliates |
— | 963 | ||||||
| Debt issuance costs |
— | 3,321 | ||||||
| Loss on disposition of assets |
— | 47,793 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Securities owned, at fair value |
4,910 | 7,114 | ||||||
| Receivables from brokers, dealers and others |
358,271 | 379,153 | ||||||
| Advances to affiliates |
— | (963 | ) | |||||
| Prepaid expenses and other current assets |
(369,126 | ) | 3,024 | |||||
| Other assets |
(1,090 | ) | (2,243 | ) | ||||
| Accounts payable and accrued expenses |
614,897 | 218,618 | ||||||
| Payables to brokers, dealers and others |
— | (93,090 | ) | |||||
| Securities sold, not yet purchased |
(103,902 | ) | (353,604 | ) | ||||
| Accrued severance and current portion of lease termination liability |
(36,732 | ) | — | |||||
| Secured convertible note |
(20,000 | ) | (50,000 | ) | ||||
| Lease termination liability |
(92,745 | ) | — | |||||
| Other liabilities |
10,853 | (11,737 | ) | |||||
| Net cash used in continuing operations |
(741,566 | ) | (2,156,349 | ) | ||||
| Cash Flows from Investing Activities |
||||||||
| Purchase of property and equipment |
(11,193 | ) | (4,978 | ) | ||||
| Net cash used in investing activities |
(11,193 | ) | (4,978 | ) | ||||
| Cash Flows from Financing Activities |
||||||||
| Proceeds from issuance of preferred stock |
— | 1,039,366 | ||||||
| Proceeds from exercise of common stock purchase warrants |
— | 58,240 | ||||||
| Net cash provided by financing activities |
— | 1,097,606 | ||||||
| Net decrease in cash and cash equivalents |
(752,759 | ) | (1,063,721 | ) | ||||
| Cash and cash equivalents, beginning of period |
2,249,187 | 2,250,601 | ||||||
| Cash and cash equivalents, end of period |
$ | 1,496,428 | $ | 1,186,880 | ||||
| Supplemental disclosure of non-cash activities: |
||||||||
| Conversion of interest payment on secured convertible note into common stock |
$ | — | $ | 154,545 | ||||
| Common stock issued upon conversion of preferred stock |
$ | 141,039 | $ | —&n | ||||