SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year ended July 31, 2000 Commission File Number 0-25659
VIRILITEC INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-3447894
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
236 Broadway Ave., Suite 201, Brooklyn, NY 11211
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including Area Code:(800) 775-0712 ext. 4144
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, par value $.0001
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 twelve (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 ninety (90) days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant: Indeterminate - No existing market
The number of shares outstanding of Registrant's Common Stock as of September
30, 2000:4,716,130
<PAGE>
ITEM 1. BUSINESS
(a) Business Development
Virilitec Industries, Inc. ("Virilitec", or the "Company"), a Delaware
corporation, was organized on August 11, 1998. The Company has not been involved
with any bankruptcy, receivership or similar proceedings. The Company has not
had any material reclassification, merger, consolidation, or purchase or sale of
a significant amount of assets not in the ordinary course of business.
(b) Business of Issuer
The Company was formed to license and distribute a line of
bioengineered virility nutritional supplements, designed to enhance human male
sperm count and potency (the "Product"). The Product is a nutritional supplement
derived from natural materials and compounds. While the Company believes it
contains properties that could stimulate human male sperm production and sexual
virility, it does not make any claims whatsoever that the Product does in fact
induce the desired results. The Company has not clinically tested the Product,
nor has it been clinically tested in a previous formulation. There is no
statistical data to support any claims of effectiveness and the Company makes no
such clinical claims. In this manner, the Product could be compared to a vitamin
or herb, in that it is a nutritional supplement taken by individuals who believe
that such supplements will have an effect upon a certain condition whether or
not such result has been determined clinically to be a product of utilizing the
supplement. There are other nutritional supplements that claim to have similar
effectiveness as the Company's Product. However, to the Company's knowledge,
none of them have demonstrated recognized clinical effectiveness.
Management believes that the current success and widespread coverage
generated by Pfizer's Viagra(R) has positioned the market to be receptive to the
introduction of a naturally derived nutritional supplement that is cheaper and
may produce a positive effect upon male potency. As such, the Company entered
into an agreement with Vitahealth Scientific, Inc., a New York corporation
("Vitahealth"), regarding the distribution of its nutritional supplement geared
toward enhancing male potency and sperm count. Management believes that it can
be successful in capitalizing on the market awareness of concerns over male
potency by introducing the Product into worldwide markets.
Due to the nature of the Product, and the high cost of qualifying for
US FDA approval, management determined that the best way to market the Product
initially was to pursue sales internationally. The Company has not received any
professional or governmental opinion that it would not be subject to
governmental regulation in those countries in which the Company intends to sell
the Product. However, in the Company's research of the market (via the internet,
contacts with other providers of nutritional supplements and informal
discussions with counsel), the Company has found overseas markets to be much
more liberal in regulation than the United States. In fact a principal of
Vitahealth (the Company's supplier) has sold a similar product to the overseas
market without governmental regulatory involvement. As such, the Company has
identified independent sales agents in England and Israel where it could, in the
opinion of management, successfully introduce the Product with little or no
regulatory approval needed. Due to the delays involved with commencing Product
production, the Company was uncertain as to the start of the sales process and
could not, in good faith, make commitments to potential distributors. As such,
management has delayed interviewing
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potential distributors in other countries. As soon as initial sales via the
Israel and England distributors are processed, the Company will resume its
efforts to identify and engage additional international distributors.
Vitahealth has sold a nutritional supplement designed to enhance male
potency and sperm count in the past. However, Vitahealth spent most of the
fiscal year reformulating its product to produce a Product with greater efficacy
in producing the desired results. In conjunction with the reformulation of the
Product, Vitahealth also revamped its production line, with all new commercial
grade production and encapsulation equipment intended to allow it to produce the
Product at a high volume. The facility is expected to have full certification
from the Israel Department of Health. The certification from the Israel
Department of Health is not a drug review or certification of the product
itself. The facility is being built with "off the shelf" equipment, under
standard health procedures. One of the principals of Vitahealth has previously
manufactured a similar product in Israel, and is well versed in the applicable
regulations. The production facility was designed and constructed under his
direct supervision. The certification from the Israeli Department of Health is
akin to certification from any local health department. They verify that the
premises are clean and sanitary for the usage intended. As construction is
supervised by an individual who is experienced with the health requirements, the
Company expects that there should be no problem in the issuance of its
certification.
The industry is extremely fragmented. There are many small operators -
companies or individuals that sell nutritional supplements, and as such it is
difficult to accurately determine what market share a specific vendor has.
Additionally, while a principal of the Company's supplier has sold an earlier
version of the Product, the Company is in the start up phase of selling its
first product, and as such has no established position in the industry.
There are currently many purveyors of nutritional supplements. The
Company intends to compete by placing a focused advertising campaign with
testimonial information (when available), and by referral. Management believes
the product will produce the desired effect upon its users, and that the success
of those users will prompt others to add the Company's nutritional supplement to
their diet.
Licensing and Distribution Agreement
On August 25, 1998, the Company entered into a 50 year Licensing and
Distribution Agreement with Vitahealth, whereby the Company was granted
exclusive rights to distribute the Product. Under terms of the agreement, the
Company's independent sales agents will place sales orders directly with
Vitahealth, which will fill such orders. The sales agents will pay Vitahealth
upon order placement, and Vitahealth, acting as collections agent for the
Company, will forward the Company's portion of the sales proceeds to the
Company. Vitahealth has agreed to periodic reviews of its order receipts in
order to ensure that the Company is receiving its appropriate revenue.
The Company has paid an initial non-refundable one time $8,500
licensing fee to Vitahealth. The Company will also pay Vitahealth an annual fee
of $10,000, beginning 90 days after the Product is manufactured and ready for
delivery to the Company's agents and then annually thereafter on the anniversary
of the first payment's due date, as long as the Licensing and Distribution
Agreement has not been terminated for any reason before the date such payment is
due. Due to the longer than expected delays, the Company and Vitahealth have
agreed to waive the $10,000 annual fee for this year. The agreement also calls
for Vitahealth to be paid $1.45 per capsule of the product - to be sold in
thirty day supplies (the Product's expected minimum usage period before a user
would potentially achieve positive results). The Company expects to distribute
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the Product to its sales agents for $1.85 per capsule (thereby making $0.40 per
capsule), and the Company's independent sales agents are projected to sell them
for approximately $2.15 to $2.25 per capsule.
As of July 31, 1999 Vitahealth had not yet completed construction of
its manufacturing facility, so the Company allowed Vitahealth a 95 day period
from the signing of the Licensing Agreement before the Product would be ready
for production and sale. Should the Product not be ready at such time, the
Company had the right to either terminate the agreement within the following 30
days or extend the production deadline. As the production facility was not
timely been completed, the Company and Vitahealth agreed to extend the 95 day
production deadline until September 30, 1999, when it believed the Product would
be available. Vitahealth had originally planned to lease and construct the
facility based on commitments made to Vitahealth by the Company regarding the
initial licensing fee and ongoing support. Because the Company's financing via
its offering did not proceed according to management's initial timetable, the
Company could not honor those commitments on a timely basis. As such, Vitahealth
had to abandon the original site selected for its production facility. As it now
had a new time window available due to the financing delays, Vitahealth decided
to reformulate the Product and to try to refine the production run. When the
Company completed its offering, the reformulation was not yet finished. Once the
reformulation was completed, Vitahealth had to reselect a site and negotiate
tenancy as well as redesign and outfit the production facility in the new plant.
Management was advised by Vitahealth that the facility would be ready by
September 30, 1999.
As of December 31, 1999, the production facility was completed enough
to begin modest production runs. However, due to the recent development of
competitive products, Vitahealth once again reformulated the Product to enhance
its competitive position. During May 2000, the new production facility was
completed as well as the reformulation of the Product. On May 15, 2000,
Vitahealth filed a patent application in Israel covering the Product. The
application is currently pending.
Vitahealth and the Company have agreed upon certain minimal sales
quotas to be maintained for the agreement to remain in effect. Should the sales
levels fall below the sales quotas, the Company shall have the right to
terminate the Licensing and Distribution Agreement. The sales quotas follow the
following schedule; a) within the 2nd month of production and sales - a minimum
of 22,500 capsules, b) within the 3rd month of production and sales - a minimum
of 55,000 capsules, c) within the 6th month of production and sales - a minimum
of 150,000 capsules, d) a minimum of 200,000 capsules for every month following
the end of the 6th month of production and sales of the product. There is also a
10% increase in the sales quota effective annually on January 1, beginning
January 1, 2000. The Company and Vitahealth are currently renegotiating the
terms for the quotas.
Marketing and Growth
With the broad based recognition of products such as Pfizer's
Viagra(R), Management believes the market is ready for the introduction of
nutritional supplements designed to enhance human male potency and sperm count
on a long term basis. Should the Company begin distribution of this Product
domestically, it will be subject to regulation by the U.S. Food and Drug
Administration ("FDA") and most likely also by the Federal Trade Commission
("FTC") but possibly under similar circumstances as standards applied to other
mainstream food company product lines. However, certain more stringent
regulations can be applied by the FDA and FTC to companies making health and/or
nutritional claims beyond those approved by existing regulations. While the
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Company does not believe the more stringent regulations will apply, it cannot be
certain. Therefore, the Company intends to distribute the Product
internationally, at least initially.
The Product will be subject to regulation by the presiding
jurisdictional drug and/or food regulatory commissions of the countries in which
the Company intends to distribute the Product. While the Company does not
believe that any regulations will apply to the distribution of the Product
within the various countries in which it intends to initiate distribution, it
cannot be certain. At this time the Company has selected the countries of Israel
and England as its initial markets. Management believes that the regulatory
requirements of those countries to be such that the Company will be able to
launch sales in those countries without concern of violating food and/or drug
regulations. The Company intends to increase its distribution to such additional
countries as allow for the sale of the Product without expensive regulatory
approval.
The Company has selected the initial sales force in Israel and now that
the Product will be available in commercial quantities, the Company plans to
begin the process of selecting additional qualified sales agents to be its
direct representatives in the countries the Company will market the Product. The
Company intends to support its sales agents with focused media (internet,
magazine, newspaper) advertisements introducing the Product designed to heighten
awareness of the availability of alternative products to enhance human male
sperm count and potency such as the Product. The Company will also endeavor to
provide its sales agents with promotional materials containing testimonials
(when available) from users of the Company's products.
Acquisitions
The Company has no specific acquisition plans at this time.
Employees
Mrs. Bella Roth, the Company's President, is the Company's only full
time employee. The Company intends to retain marketing and public relations
consultants as necessary.
Special Note Regarding Forward-Looking Statements
Some of the statements under "Business" are forward-looking statements
that involve risks and uncertainties. These forward-looking statements include
statements about our plans, objectives, expectations, intentions and assumptions
and other statements contained herein are not statements of historical fact. You
can identify these statements by words such as "may," "will," "should,"
"estimates," "plans," "expects," "believes," "intends" and similar expressions.
We cannot guarantee future results, levels of activity, performance or
achievements. Our actual results and the timing of certain events may differ
significantly from the results discussed in the forward-looking statements,
based specifically upon the ability of our manufacturer to produce the Product,
which we do not control. You are cautioned not to place undue reliance on any
forward-looking statements.
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ITEM 2. PROPERTIES
The Company maintains its corporate offices at 236 Broadway Avenue,
Suite 201, Brooklyn, NY 11211 on a month-to-month basis at a rate of $300 per
month.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET PRICE OF REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
There is no public trading market for the Company's securities.
The Company currently has 42,100 class A warrants issued and
outstanding. Each Warrant entitles the holder to purchase one Share of
restricted Common Stock at an exercise price of $10.00, subject to adjustment,
through the first anniversary of the date the Company's Shares are initially
approved for trading in any public market.
Under the terms of the Company's licensing agreement, the Company has
agreed to grant Vitahealth stock options to purchase up to 300,000 additional
restricted shares of the Common Stock of the Company for a period of 5 years
beginning June 30,1999 according to the following schedule:
<TABLE>
<S> <C> <C>
Date Option to be Effective Amount of Options Exercise Price (per Share)
-------------------------------------------------------------------------------------------------
6/30/1999 100,000 $10.00
11/30/1999 100,000 $10.00
6/30/2000 100,000 $10.00
</TABLE>
The Company has also granted stock options to the following officers to
purchase additional shares of common stock of the Company according to the
following schedule:
<TABLE>
<S> <C> <C>
Name of Option Holder Amount of Options Exercise Price (per Share)
----------------------------------------------------------------------------------------
Bella Roth 175,000 $2.50
Bella Roth 150,000 $4.00
Arnold Lipton, M.D. 25,000 $2.00
Arnold Lipton, M.D. 50,000 $3.00
Moshe Laufer 25,000 $2.50
Moshe Laufer 50,000 $4.00
</TABLE>
The shares underlying the options issued to Vitahealth and the officers
have no registration rights.
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Of the 4,716,130 shares of common stock outstanding, 3,674,030 are
currently subject to the resale restrictions and limitations of Rule 144. In
general, under Rule 144 as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate, or persons whose
shares are aggregated with affiliates, who has owned restricted shares of common
stock beneficially for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed 1% of the total
number of outstanding shares of the same class. In the event the shares are sold
on an exchange or are reported on the automated quotation system of a registered
securities association, you could sell during any three-month period the greater
of such 1% amount or the average weekly trading volume as reported for the four
calendar weeks preceding the date on which notice of your sale is filed with the
SEC. Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
A person who has not been an affiliate for at least the three months immediately
preceding the sale and who has beneficially owned shares of common stock for at
least two years is entitled to sell such shares under Rule 144 without regard to
any of the limitations described above.
(b) Holders
On September 30, 2000, there were 159 holders of the Company's common
stock, and 9 holders of the Company's Class A Warrants.
(c) Dividends
The Company has not declared any dividends to date. The payment by the
Company of dividends, if any, in the future, rests within the discretion of its
Board of Directors and will depend, among other things, upon the Company's
earnings, its capital requirements and its financial condition, as well as other
relevant factors. The Company has not declared any cash dividends since
inception, and has no present intention of paying any cash dividends on its
Common Stock in the foreseeable future, as it intends to use earnings, if any,
to generate growth.
ITEM 6. PLAN OF OPERATIONS
Selected Financial Data
The following selected financial data for the period August 11, 1998
(inception) through July 31, 2000 is derived from the Company's audited
financial statements included elsewhere herein. The following data should be
read in conjunction with the financial statements of the Company and
Predecessor.
Statement of Operations Data
From 8/11/98
(inception) to
7/31/00
Net Revenues $ 10,200
Cost and Expenses (213,074)
General and Administrative
Expenses (7,755)
Interest Income 24
Income Taxes -0-
Net Loss (210,605)
Loss Per Share $ (.05)
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Balance Sheet Data
July 31, 2000
Working Capital $ 26,429
Total Assets 29,504
Total Liabilities 7,075
Stockholders' Equity $ 29,504
Plan of Operation
The following discussion should be read in conjunction with the financial
statements and related notes which are included elsewhere in this report.
Statements made below which are not historical facts are forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties including, but not limited to, general economic conditions,
competition, availability of the Product and our ability to market our product.
As noted in Item 1 above, until the production facilities of its
supplier, Vitahealth Scientific, Inc. became operational, the Company was unable
to market the Product as it had no expectation to be able to deliver goods
within a reasonable amount of time. Vitahealth began delivery of the Product
during the fourth quarter of fiscal 2000.
Vitahealth had originally planned to lease and construct the facility
based on commitments made to Vitahealth by the Company regarding the initial
licensing fee and ongoing support. Because the Company's financing via its
offering did not proceed according to management's initial timetable, the
Company could not honor those commitments on a timely basis. As such, Vitahealth
had to abandon the original site selected for its production facility. As it now
had a new time window available due to the financing delays, Vitahealth decided
to reformulate the Product and to try to refine the production run. When the
Company completed its offering, the reformulation was not yet finished. Once the
reformulation was completed, Vitahealth had to reselect a site and negotiate
tenancy as well as redesign and outfit the production facility in the new plant.
The Company has interviewed sales agents only in Israel and England,
and has identified agents it intends to retain as distributors as soon as
production commences. Because of the delays involved with commencing Product
production, the Company was uncertain as to exactly when such agents could begin
the sales process and could not, in good faith, make commitments to potential
distributors. As such, management has delayed interviewing potential
distributors in other countries. As soon as initial sales via the Israel and
England distributors are processed, the Company will resume its efforts to
identify and engage additional international distributors.
The Company intends to allow each master distributor exclusive rights
within his/her own country. Any sales generated in their territory shall be for
the sole benefit of the sales agents. When a sales agent becomes a distributor
for the Company, they agree to purchase the Product from the Company for $1.85
per capsule, and the Company's independent sales agents are projected to sell
them for approximately $2.15 to $2.25 per capsule. However, the sales agents can
sell the capsules at whatever price they determine. The sales agents
compensation is the difference between what they pay the Company for the product
and the price they sell the Product.
As the Company only recently began to sell the Product, it is difficult
for management to evaluate the growth curve of Product sales. Additionally, it
is expected that the delays involved with initiating production has tarnished
the earlier market 'excitement' for human sexual virility and potency products
created by Viagra(R). When considering those factors, Management believes it is
likely that the initial sales quotas will not be met and it will have a right to
terminate the Vitahealth Agreement pursuant to the sales quota clauses present
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in the agreement. Having considered the various factors involved with its right
to terminate the agreement based on sales quota requirements, management has no
plans to do so at this time. It is management's opinion, that there is a market
for a human sexual potency nutritional supplement and is fully committed to
providing Vitahealth with the opportunity to be the sole supplier of such a
product to the Company. While the Company will review the sales numbers as sales
are commenced, and retains the right to reevaluate its position on an ongoing
basis, there are no plans or intentions at this time to exercise the Company's
right to terminate the Vitahealth agreement due to sales quotas for at least
three months following initial production and sale of the Product.
The Company expects to fund $4,000 of initial advertising in health
journals and media so distributors will have such publications in hand for sales
purposes. The Company also intends to use the Internet for advertising as that
currently allows the greatest visibility for very small costs. In fact, the
Company believes that it may be able to obtain free access on certain websites
looking for products such as the Company's. Subsequently, the company intends to
reserve 20% of revenues for ongoing advertising and marketing up to $10,000 (in
advertising expenditures - or $50,000 total revenues) monthly per country, and
10% of all additional revenues.
While the Company is committed to retaining Vitahealth as its supplier,
there is no guarantee that Vitahealth's production delays or lack of product
salability as evidenced by underpreforming the sales quotas will not necessitate
the eventual termination of the Vitahealth agreement. Should the agreement be
terminated for any reason, the Company at this time intends to locate another
provider of human sexual potency and virility nutritional supplements to become
its supplier. There is no guarantee that the Company will be able to locate and
retain such a provider and the Company has not even begun to attempt to locate
one. The Company continually evaluates the business market to attempt to place
itself at the most profitable position. While the Company currently intends to
continue to operate as discussed, there can be no guarantee that uncontrollable
variables will not force a substantive change in the Company's operation or
plans of operation.
At present the primary cash outlays of the Company are for travel
expenses and legal and accounting fees incurred by the Company as it prepares
filings associated with being a reporting company (quarterly unaudited reports,
annual reports, etc.). Management believes that between cash on hand, cash flow
from revenues and anticipated equity financing there will be sufficient funds
for the Company's operations for the next 12 months. When the Company becomes
operational, further costs (such as salary for Mrs. Roth) are expected to be
covered by revenue generated by the Company's sales. The agreement with Mrs.
Roth calls for her to be paid up to $40,000 from the proceeds of sales of the
Product. Should sales levels not allow for her to receive her full compensation,
she will receive compensation from available funds after the Company satisfies
all its other obligations. The only other anticipated expense not currently
provided for is the advertising budget. Management is currently exploring
various options including the sale of additional stock and/or warrants, bank
financing or personal loans by management or family members. Other than as
specifically identified, the Company does not forsee the need to raise
additional funds in the next 12 months.
The Company does not expect to conduct any product research and
development or to purchase or sell a plant or significant equipment. The Company
intends to retain marketing and public relations consultants as necessary, and
to hire support staff for its President only if warranted by its sales volume on
an as needed basis.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included herein commencing on page F-1.
The Company is not required to provide supplementary financial information.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On October 2, 2000, the Company dismissed Joseph Morgenstern
CPA as its independent accountants ("JM"). This action had been approved by the
Company's Board of Directors. During its tenure, JM did not issue a report on
the Company's financial statements that either contained an adverse opinion or a
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope or accounting principles.
During the period of its engagement there were no
disagreements between the Company and JM on any matter of accounting principles
or practices, financial statement disclosure, or audit scope and procedure,
which disagreement, if not resolved to the satisfaction of JM, would have caused
it to make reference to the subject matter of the disagreement in connection
with its opinion.
On October 2, 2000, the Board of Directors of the Company
appointed Mark Cohen CPA ("MC") as its independent accountants. Prior to such
engagement, the Company did not consult with MC regarding the application of
accounting principles to a specified transaction, or the type of audit opinion
that may be rendered with respect to the Company's financial statements.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
Bella Roth 50 President & Chairman of the Board
Arnold A. Lipton, M.D. 70 VP - Scientific Advisor & Director
Moshe Laufer 41 Secretary/Treasurer & Director
Directors serve for five year terms.
Bella Roth - President & Chairman of the Board of Directors - Mrs. Roth founded
the Company in August 1998, and has been its President and Chairman of the Board
since inception. From 1988 to 1995 Mrs. Roth was Treasurer, Secretary and a
Director of Providential Secureties Inc. (OTC:BB PRVH), a publicly traded
holding company. From 1996 to 1998, Mrs. Roth was involved in various community
projects as she searched for a business opportunity. From 1983 to 1987 she was
an officer and Director of Innovative Medical Technologies, a public company
involved with the development and marketing of electronic medical devices.
Arnold A. Lipton, M.D. - Vice President & Director - has been a Vice President,
the scientific advisor and a Director of the Company since August 17, 1998. Dr.
Lipton is a physician in private practice in Brooklyn, NY since 1970, with a
specialty in Obstetrics and Gynecology. Dr. Lipton holds an M.D. from Lausanne
Medical School, a Masters in Science from the Philadelphia College of Science,
and a Bachelors of Science from the Brooklyn College of Pharmacy. Dr. Lipton is
a member of the New York State Medical Society and the Kings County Medical
Society.
Moshe Laufer - Secretary/Treasurer & Director - Mr. Laufer has been the
Secretary/Treasurer and a director of the Company since its inception. From 1995
to 1998 he has been primarily occupied with managing his investment portfolio
and pursuing various personal and professional interests. From 1986 to 1995 Mr.
Laufer was a licensed distributer of NY Bottling, Inc. a company engaged in the
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bottling and distribution of soft drinks in the Northeastern United States. Mr.
Laufer is the brother-in-law of Mrs. Roth.
(b) Significant Employees
None
Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law, as amended,
authorizes the Company to Indemnify any director or officer under certain
prescribed circumstances and subject to certain limitations against certain
costs and expenses, including attorney's fees actually and reasonably incurred
in connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which a person is a party by reason of being
a director or officer of the Company if it is determined that such person acted
in accordance with the applicable standard of conduct set forth in such
statutory provisions. The Company's Certificate of Incorporation contains
provisions relating to the indemnification of director and officers and the
Company's By-Laws extends such indemnities to the full extent permitted by
Delaware law.
The Company may also purchase and maintain insurance for the benefit of any
director or officer which may cover claims for which the Company could not
indemnify such persons.
Compensation of Directors
No Director receives any cash compensation for their service as a
Director. Each Director of the Company will receive 5,000 restricted Shares of
the Common Stock of the Company per year, provided they attend no less than 50%
of the Board of Directors meeting in that year.
ITEM 10. EXECUTIVE COMPENSATION OF EXECUTIVE OFFICERS
(a) General
Commencing November 12, 1998, the Company has agreed to pay Mrs. Bella
Roth, its President & Chairman of the Board of Directors, an annual salary of
$40,000. Mrs. Roth's compensation was disclaimed for this year. Mrs. Roth
provides her services on a full-time basis. While the Company did not pay Mrs.
Roth any salary during fiscal year 1999, the Company's financial statements for
that period reflect the pro-rata amount under general and administrative
expenses with a corresponding amount in paid-in-capital. Similarly, $52,500 is
reflected as "other compensation expense" and "additional paid-in-capital" on
the Company's financial statements. No executive officer or employee of the
Company is paid more than $100,000 per year in salary and benefits.
(b) Summary Compensation Table
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C>
Name and Other Long-term
Principal Position Year Salary Bonus Compensation Compensation: Options (1)
------------------ ---- -------- ----- ------------ -------------------------
Bella Roth 1999 0 0 0 0
President & 1998 $31,282(3) 0 $50,000(2) 325,000 options worth $0
Chairman
Arnold Lipton, M.D. 1999 0 0 0 0
V.P.-Scientific 1998 0 0 $2,500(2) 75,000 options worth $0
Advisor &
Director
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Moshe Laufer 1999 0 0 0 0
Secretary, 1998 0 0 0 75,000 options worth $0
Treasurer &
Director
</TABLE>
(1) Based on the Company's Offering Memorandum dated September 25, 1998, in
which the Shares of the Company's stock was sold for an arbitrarily
determined price of $1.00 per share for unrestricted shares of the
Company's of common stock, the relatively high exercise price and the
limited time before the Options expire, the options are essentially
valueless.
(2) Consists of shares purchased at par value which for accounting
purposes are being valued at $.10.
(3) Reflects amounts recorded on Company's financial statements as
compensation. This is purely an accounting entry as no compensation
was actually paid.
(c) Options/SAR Grants Table
None
(d) Aggregated Option/SAR Exercises and Fiscal Year End Option/SAR Value Table
None
(e) Long Term Incentive Plan ("LTIP") Awards Table
None
(f) Compensation of Directors
Commencing January 1, 1999 each Director shall receive 5,000 restricted shares
annually. Said compensation is contingent upon attendance at no less than 50% of
that year's Board of Director's meetings.
(g) Employment Contracts and Termination of Employment, and Change-in-Control
Arrangements
The Company has no employment contracts with any of its executive officers. Mrs.
Bella Roth serves as President of the Company for $40,000 annually, and will
continue to serve under such terms without the benefit of an employment
contract. There are no provisions for compensation to be paid to any executive
officer or director of the Company upon the termination of their services by
either party or by the actions of a third party.
(h) Report on Repricings of Options/SARs
None.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater-than-ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. During fiscal 2000, no transactions occurred which required the
filing of any forms under Section 16(a).
12
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of September 30, 2000, information
regarding the beneficial ownership of the Company's Common Stock based upon the
most recent information available to the Company for (i) each person known by
the Company to own beneficially more than five (5%) percent of its outstanding
Common Stock, (ii) each of its officers and directors, and (iii) all of its
officers and directors as a group.
<TABLE>
<S> <C> <C> <C>
Name and Address Amount and Nature
Title of Class of Beneficial Owner of Beneficial Owner Percent of Class
-------------- --------------------------------------------------------------------------------------
Common Stock Bella Roth 3,825,000(1) 75.9%
543 Bedford Ave.
Brooklyn, NY
Common Stock Moshe Laufer 175,000(2) 3.7%
172 Rodney Street
Brooklyn, NY
Common Stock Arnold Lipton, M.D. 100,000(2) 2.1%
225 West 86 Street
New York, NY
Common Stock All Directors and 4,100,000(3) 79.0%
Executive Officers
as a Group
</TABLE>
(1) Includes underlying securities for 325,000 options to purchase
additional shares of common stock. Does not include 3,800 shares owned
by adult daughter residing in home. Mrs. Roth disclaims beneficial
ownership of these shares.
(2) Includes underlying securities for 75,000 options to purchase
additional shares of common stock.
(3) Includes underlying securities for an aggregate of 475,000 options to
purchase additional shares of common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
The financial statements are listed in the Index to Financial
Statements on page F-1 and are filed as part of this annual report.
2. Not Applicable.
3. Exhibits 27 - Financial Data Schedule.
(b) Reports on Form 8-K
A Report on Form 8-K dated October 2, 2000 was filed on October 10,
2000 reporting a change of auditor.
13
<PAGE>
Mark Cohen C.P.A.
1772 East Trafalgar Circle
Hollywood, Fl 33020
(954) 922 - 6042
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors
Virilitec Industries, Inc.
We have audited the accompanying balance sheet of Virilitec Industries, Inc. (a
company in the development stage) as of July 31, 2000 and the related statements
of operations, shareholders' equity (deficiency) and cash flows for the year
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Virilitec Industries,
Inc. as of July 31, 1999 were audited by other auditors whose report dated
January 20, 2000, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Virilitec Industries, Inc. at
July 31, 2000, and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 5 to the
financial statements, the Company has experienced an operating loss that raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 5. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Mark Cohen
Mark Cohen C.P.A.
A Sole Proprietor Firm
Hollywood, Florida
October 20, 2000
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
AT JULY 31, 2000 AND 1999
Assets
<TABLE>
<S> <C> <C>
July 31, 2000 July 31, 1999
Current Assets
Cash and cash equivalents $ 20,117 $ 300
Other current assets (principally related party) 537 -
Total current assets 20,654 300
Property and equipment, net 1,200 2,400
Other Assets 7,650 8,500
Total assets 29,504 11,200
=============== =================
Liabilities and Shareholder's Equity
Current Liabilities
Accounts payable 3,075 1,270
Other current liabilities 4,000 80
Total current liabilities 7,075 1,350
Shareholder's Equity
Common Stock, $.0001 par value; authorized 20,000,000 shares; 472 467
issued and outstanding - 4,716,130 in 2000 4,667,100 in 1999
Paid in Capital 232,562 181,737
Deficit accumulated during the development stage (210,605) (172,354)
Total Shareholder's Equity 22,429 9,850
Total liabilities and shareholder's equity $ 29,504 $ 11,200
============== =================
</TABLE>
Read the accompanying summary of significant accounting policies and notes to
financial statements, both of which are an integral part of this financial
statement.
<PAGE>
VIRILITEC INDUSTRIES, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 2000 AND 1999
FROM INCEPTION (AUGUST 11, 1998) TO JULY 31, 2000
<TABLE>
<S> <C> <C> <C>
Inception
(August 11, 1998)
Years Ended through
July 31, 2000 July 31, 1999 July 31, 2000
-------------------------------------------------------------
Revenue $ 10,200 $ - $ 10,200
Operating expenses:
Salaries and payroll related - 38,460 38,460
Other compensation expense - 52,500 52,500
Management fees - 38,500 38,500
Travel 14,183 5,780 19,963
Rent 1,800 1,800 3,600
Depreciation 1,200 1,200 2,400
Amortization 850 850
Professional fees 26,738 30,064 56,802
Selling, general and administrative expenses 3,681 4,074 7,755
--------------- --------------- ------------------
Total operating expenses 48,451 172,378 220,829
Loss before other income (expense) (38,251) (172,378) (210,629)
Other income (expense):
Interest income - 24 24
Interest expense - - -
--------------- --------------- ------------------
Total other income (expense) - 24 24
--------------- --------------- ------------------
Net Loss (38,251) (172,354) (210,605)
=============== =============== ==================
Basic weighted average common shares outstanding 4,704,135 4,032,566 4,363,474
=============== =============== ==================
Basic Loss per common share $ (0.01) $ (0.04) $ (0.05)
=============== =============== ==================
</TABLE>
Read the accompanying summary of significant accounting policies and notes to
financial statements, both of which are an integral part of this financial
statement.
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF SHAREHOLDERS' EQUITY
FROM INCEPTION (AUGUST 11, 1998) THROUGH JULY 31, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Deficit during
Common Stock Shareholder's
--------------------------------------- Paid in Development Total
Shares Par Value Amount Capital Stage Equity
----------- ------------ ------------ ------------- ------------- -------------
Balance, beginning: August 11, 1998 - $ - $ - $ - $ - $ -
August 11, 1998 - Issuance of shares 3,100,000 0.0001 310 (310) -
Proceeds from the sale of Common Stock 933,000 0.0001 93 41,417 41,510
September 18, 1998 - Issuance of shares for 50,000 0.0001 5 10,091 10,096
professional fees
December 31, 1998 - Issuance of shares as 525,000 0.0001 53 52,447 52,500
compensation to officers
Proceeds from the sale of common stock 4,100 0.0001 0 4,400 4,400
March 30, 1999 Issuance of shares for mgmt fee 55,000 0.0001 6 38,494 38,500
July 31, 1999 - Officer's salary from August 1998 38,410 38,410
to July 31, 1999 applied against paid in capital
July 31, 1999 - Office rent from August 1998 1,800 1,800
to July 31, 1999 applied against paid in capital
July 31, 1999 - Amortization of Issuance of shares for 19,968 19,968
professional fees
July 31, 1999 - Stock issuance costs applied (24,980) (24,980)
against paid in capital
Net loss year ended July 31, 1999 (172,354) (172,354)
----------- ------------ ------------ ------------- ------------- -------------
Balance, ending July 31, 1999: 4,667,100 467 181,737 (172,354) 9,850
Proceeds from the sale of common stock 49,030 0.0001 5 49,025 49,030
July 31, 2000 - Office rent from August 1999 1,800 1,800
through July 31, 2000 applied against paid in capital
Net loss year ended July 31, 2000 (38,251) (38,251)
----------- ------------ ------------ ------------- ------------- -------------
Balance, ending July 31, 2000 4,716,130 $ 0.0001 $ 472 $ 232,562 $ (210,605) $ 22,429
=========== ============ ============ ============= ============= =============
</TABLE>
Read the accompanying summary of significant accounting policies and notes to
financial statement, both of which are an integral part of this financial
statement.
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 2000 AND 1999
FROM INCEPTION (AUGUST 11, 1998) THROUGH JULY 31, 2000
<TABLE>
<S> <C> <C> <C>
Inception
(August 11, 1998)
Years Ended through
July 31, 2000 July 31, 1999 July 31, 2000
-----------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (38,251) $ (172,354) $ (210,605)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,050 1,200 3,250
Issuance of shares for officer compensation - 52,500 52,500
Issuance of shares for professional fees - 30,064 30,064
Issuance of shares for management fee - 38,500 38,500
Officers salary applied to paid in capital - 38,410 38,410
Office rent applied to paid in capital 1,800 1,800 3,600
Changes in Operating assets and liabilities:
Other current assets (537) - (537)
Accounts Payable and Accrued Liabilities 5,725 1,350 7,075
------------- ------------- -------------------
Net cash provided by/(used in) operating activities (29,213) (8,530) (37,743)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and equipment - (3,600) (3,600)
Payment for license - (8,500) (8,500)
------------- ------------- -------------------
Net cash provided by/(used in) investing activities - (12,100) (12,100)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of common shares 49,030 45,910 94,940
Cost of common share offering - (24,980) (24,980)
------------- ------------- -------------------
Net cash provided by/(used in) financing activities 49,030 20,930 69,960
------------- ------------- -------------------
Net increase (decrease) in cash and cash equivalents 19,817 300 20,117
Cash and cash equivalents, beginning of period 300 - -
------------- ------------- -------------------
Cash and cash equivalents, end of period $ 20,117 $ 300 $ 20,117
============= ============= ===================
</TABLE>
Read the accompanying summary of significant accounting policies and notes to
financial statement, both of which are an integral part of this financial
statement.
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Virilitec Industries, Inc. (the Company) was incorporated in the State of
Delaware on August 11, 1998. Through an exclusive licensing agreement, the
Company will distribute a line of bioengineered virility supplements. The
Company intends to market its product in international markets, using
independent sales agents.
Virilitec Industries, Inc. prepares its financial statements in accordance with
generally accepted accounting principles. This basis of accounting involves the
application of accrual accounting; consequently, revenues and gains are
recognized when earned, and expenses and losses are recognized when incurred.
Financial statement items are recorded at historical cost and may not
necessarily represent current values.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with 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
reporting period. Certain amounts included in the financial statements are
estimated based on currently available information and management's judgment as
to the outcome of future conditions and circumstances. Changes in the status of
certain facts or circumstances could result in material changes to the estimates
used in the preparation of financial statements and actual results could differ
from the estimates and assumptions. Every effort is made to ensure the integrity
of such estimates.
Fair value of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents because of the immediate or short-term maturity of these financial
instruments.
Property and Equipment:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives when the property and equipment is placed in service.
Estimate Useful Life
(In Years)
Computer Equipment & Software. . . . . . . . . . . . .3
The cost of fixed assets retired or sold, together with the related accumulated
depreciation, are removed from the appropriate asset and depreciation accounts,
and the resulting gain or loss is included in net earnings. Maintenance and
repairs are expensed as incurred.
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Revenue Recognition
Revenues are derived principally from commissions received on the sale of
product. Revenue is recognized when agent orders are filled by the manufacturer.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provide guidance for disclosures
related to revenue recognition policies. Management believes that Virilitec
Industrustries, Inc.'s revenue recognition practices are in conformity with the
guidelines of SAB 101.
Recent Accounting Pronouncements:
The Statement of Financial Accounting Standards Board (SFAS) No. 130, "Reporting
Comprehensive Income," was issued by the Financial Accounting Standards Board
(FASB) in June 1997. This Statement establishes standards for the reporting and
display of comprehensive income and its components. Comprehensive income
including, among other things, foreign currency translation adjustments and
unrealized gains and losses on certain investments in debt and equity
securities. This Statement is effective for fiscal periods beginning after
December 15, 1997. The Company does not expect the adoption of this statements
to have a material impact on its financial condition or results of operations.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards Board (SFAS) No. 131, "Disclosure
about Segments of an Enterprise and Related Information." This Statement
establishes standards for reporting information about operating segments in
annual financial statements, and requires that an enterprise report selected
information about operating segments in interim reports issued to shareholders.
This Statement is effective for fiscal periods beginning after December 15,
1997. The Company does not expect the adoption of this statements to have a
material impact on its financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards Board (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This new standard establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that entities recognize all derivatives as either assets or
liabilities in the consolidated balance sheet and measure those instruments at
fair value.
Earnings Per Share of Common Stock
Basic earnings (loss) per share is computed using the weighted-average
number of common shares outstanding during the period. Options and warrants are
not considered since considering such items would have an antidilutive effect.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments with original maturities of three months or less to be
cash equivalents.
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 3 - DETAILS OF FINANCIAL STATEMENT COMPONENTS
Proper Equipment: 2000 1999
---- ----
Computer Equipment $3,600 $ 3,600
Less: Accumulated depreciation 2,400 1,200
----- -----
Property and equipment, net $1,200 $ 2,400
===== =====
NOTE 4 - COMMITMENTS AND CONTIGENCIES
Distribution Agreement
On August 25, 1998, the Company entered into an exclusive distribution
agreement with a manufacturer of bioengineered viritlity supplements whereby the
Company was granted exclusive rights to distribute a certain nutritional
supplement designed to enhance human male sperm count and potency. The term of
the agreement is 50 years. The Company's independent sales agents will place
orders with payment directly with the manufacturer who will fill the orders and
forward the Company's portion of the sales proceeds to the Company. A
non-refundable one-time fee of $8,500.00 has been paid by the Company. An annual
payment of $10,000 as a license fee is due and payable 90 days after the product
is initially manufactured and ready for delivery to the Company's agents and
then annually thereafter on the anniversary of the first payments due date. In
May, June and July of 2000, the company's agents ordered and the manufacturer
delivered 25,500 capsules of the supplement. Due to the low volume of orders,
the manufactured agreed to waive the annual payment of $10,000 due from the
Company as a license fee.
Leases
The Company maintained its corporate offices at an office of one of its
shareholders at 100 Cedarhurst Ave. Suite 201, Cedarhurst, NY 11516 at a cost of
$150 monthly. No payments have been made to the shareholder for the rent cost.
The company included rent expense of $1,800 for 2000 and 1999 in the financial
statements with a corresponding offset to paid in capital. In October 2000, the
company relocated and maintains its corporate office at 236 Broadway Ave - Suite
201, Brooklyn, NY 11211 on a month to month basis at a cost of $300.00 per
month.
Employment Contract
On November 12, 1998, the Company agreed to pay its President and Chairman
of the Board of Directors, Mrs. Bella Roth, an annual salary of $40,000. While
the Company did not pay Mrs. Roth any salary during the fiscal year 1999, the
financial statements reflect the pro-rata share of salary with a corresponding
amount in paid in capital. For the fiscal year 2000, Mrs. Roth agreed not to
accept any salary as the Company has incurred losses since inception and is in
the development stage.
International Counsel
On September 18, 1998, the Company entered into an agreement with an
individual to perform the duties of international counsel for a period of one
year in exchange for 50,000 shares of common stock. The total fair market value
of the shares and services had been determined to be $35,000.
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 4 - COMMITMENTS AND CONTIGENCIES (continued):
Management Fee
The Company hired an individual to act as its local agent in the State of
Israel. The agent's duties included monitoring the completion of the new
manufacturing facility of its supplier, reviewing applications for local
licenses and approvals, as well as monitoring the initial product runs and
testing for quality control. The agreement will terminate at the later of either
March 31, 2000, or 45 days after the aforementioned manufacturing facility is
operational and delivers its first shipment to the Company. The Company has
issued 55,000 shares to the agent as compensation for these services which were
determined to have a fair market value of $38,500. This non-cash management fee
was included in the financial statements with a corresponding offset to common
stock and paid-in capital.
Private Placement Offering
On July 10, 2000 the Board of Directors approved a Private Placement
Offering, whereby the Company will sell up to 75,000 shares of common stock at a
price of $1.00 per share.
NOTE 5 - GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The company reported a net loss of
$38,251 and $172,354 for the twelve months ended July 31, 2000 and 1999
respectively as well as reporting net losses of $210,605 from inception (August
11, 1998) to July 31, 2000. As reported on the statement of cash flows, the
Company incurred negative cash flows from operating activities of of $29,313 and
$8,530 for twelve months ended July 31, 2000 and 1999 respectively and has
reported deficient cash flows from operating activities of $37,743 from
inception (August 11, 1998). To date, these losses and cash flow deficiencies
have been financed principally through the sale of common stock ($94,940).
Continuation of the Company as a going concern is dependent upon obtaining
sufficient working capital for its planned activity and the management of the
Company has developed a strategy which it believes will accomplish this
objective through additional equity funding, and long term financing, which will
enable the Company to operate for coming year. The Company anticipates more
orders to be submitted by agents and filled by the manufacturer in the next year
and the volume to increase which will contribute to attaining a profitable
operations for the Company.
NOTE 6 - STOCKHOLDER'S EQUITY
On August 11, 1998, the company issued 3,100,000 shares of common stock to
the officers of the company at $0.0001 per share.
On September 18, 1998, the Company as part of a contractual agreement,
issued 50,000 shares of common stock to an individual for performance of the
duties of international counsel for a period of one year. The total fair market
value of the shares and services had been determined to be $35,000.
From August 1998 through December 1998, the Company sold 933,000 with a
sale price range from $0.01 to $1.00 per share.
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 6 - STOCKHOLDER'S EQUITY (continued):
On December 31, 1998, the company issued 525,000 shares of common stock to
officers of the company in lieu of salaries. The value of the salaries and
shares was determined to be $53,500.
From January 1999 through July 1999, the Company sold 4,100 shares of
common stock at price of $1.00 per share.
On March 30, 1999 the Company as part of a contractual agreement, issued
55,000 shares of common stock to an individual for management fees. The total
fair market value of the shares and services had been determined to be $38,500.
From August 1999 through July 2000, the Company sold 49,030 shares of
common stock at a price of $1.00 per share.
NOTE 7 - PAID IN CAPITAL
On July 31, 1999, the Company incurred officers salaries in the amount of
$38,410. This amount was applied against paid in capital since it was not paid
and deemed contributed by the officer who is also a shareholder.
On July 31, 1999, the Company incurred office rent in the amount of $1,800.
The Company maintains its corporate offices at an office of one of its
shareholders. This amount was applied against paid in capital since it was not
paid and deemed contributed by the shareholder.
On July 31, 1999, the Company recorded its stock offering expenses in the
amount of $24,980 against paid in capital.
On July 31, 2000, the Company incurred office rent in the amount of $1,800.
The Company maintains its corporate offices at an office of one of its
shareholders. This amount was applied against paid in capital since it was not
paid and deemed contributed by the shareholder.
NOTE 8 - WARRANTS AND OPTIONS
The Company currently has 42,100 class A warrants issued and
outstanding. Each Warrant entitles the holder to purchase one Share of
restricted Common Stock at an exercise price of $10.00, subject to adjustment,
through the first anniversary of the date the Company's Shares are initially
approved for trading in any public market
Under the terms of the Company's distributor agreement, the Company agreed
to grant stock options to its manufacturer to purchase up to 300,000 shares of
restricted common stock for a period of five years beginning October 31, 1999
according to the following:
Effective Number of Exercise
Date Shares Price (per share)
--------- -------------------- -----------------
06/30/99 100,000 10.00
11/30/00 100,000 10.00
06/30/00 100,000 10.00
This option shall become effective only in the event the distribution agreement
between the Company and the manufacturer is still in effect on the date the
options are due to be effective.
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 8 - OPTIONS (continued):
The Company has granted stock options to certain officers and directors to
purchase additional shares of restricted shares of common stock as follows:
Option Number of Exercise
Holder Options Price (per share)
--------- ------------- -----------------
President 175,000 2.50
President 150,000 4.00
Vice President 25,000 2.00
Vice President 50,000 3.00
Secretary 25,000 2.50
Secretary 50,000 4.00
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". The Company has determined that it will continue to account for
employee stock-based compensation under Accounting Principles Board No. 25 and
elect the disclosure-only alternative under SFAS No. 123. The fair value of a
share of nonvested stock is measured at the market price of a share on the grant
date. The proforma effect to net income and earnings per share is reflected as
follows:
<TABLE>
<S> <C> <C> <C>
Year ended Year ended
FAS 123 "Accounting for stock based compensation July 31, 2000 July 31, 1999
Paragraph 47 (a)
1. Beginning of year - outstanding
i. number of options 475,000 0
ii. weighted average exercise price 3.16 0
2. End of year - outstanding
i. number of options 475,000 475,000
ii. weighted average exercise price 3.16 3.16
3. End of year - exercisable
i. number of options 475,000 475,000
ii. weighted average exercise price 3.16 3.16
4. During the year - Granted
i. number of options 0 475,000
ii. weighted average exercise price 3.16
5. During the year - Exercised
i. number of options 0 0
ii. weighted average exercise price 0 0
6. During the year - Forfeited
i. number of options 0 0
ii. weighted average exercise price 0 0
7. During the year - Expired
i. number of options 0 0
ii. weighted average exercise price 0 0
</TABLE>
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 8 - OPTIONS (continued):
<TABLE>
<S> <C> <C>
Paragraph 47 (b) Weighted-average grant-date fair value of options
granted during the year:
1. Equals market price 0
2. Exceeds market price 2.44
3. Less than market price 0
Paragraph 47(C)Equity instruments other than options none none
Paragraph 47(d) Description of the method and significant assumptions
used during the year to estimate the fair value of options:
1. Weighted average risk-free interest rate 6.00%
2. Weighted average expected life (in months) 48.00
3. Weighted average expected volatility N/A
4. Weighted average expected dividends 0.00
Paragraph 47(e) Total compensation cost recognized in income for 0 0
stock-based employee compensation awards.
Paragraph 47(f) The terms of significant modifications of none none
outstanding awards.
Paragraph 48 - Options outstanding at the date of
the latest statement of financial position presented:
1. (a) Range of exercise prices $2.00-$4.00 $2.00-$4.00
(b) Weighted-average exercise price 2.44 2.44
2. Weighted-average remaining contractual life (in months) 24.00 36.00
Inception
Aug. 11, 1998
Year ended Year ended Through
July 31, 2000 July 31, 1999 July 31, 2000
------------- ------------- -------------
Net Income after proforma effect (38,251) (172,354) (210,605)
Earnings per share after proforma effect $ (0.01) $ (0.04) $ (0.05)
</TABLE>
NOTE 9 - INCOME TAXES
The Company did not provide any current or deferred United States federal,
state or foreign income tax provision or benefit for the period presented
because it has experienced operating losses since inception. The Company has
provided a full valuation allowance on the deferred tax asset, consisting
primarily of net operating loss carryforwards, because of uncertainty regarding
its realizability.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
VIRILITEC INDUSTRIES, INC.
By:/s/Bella Roth
--------------------------------------------------
Bella Roth
President
Dated: 26th day of October, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
Registrant and in the capacities indicated.
/s/Bella Roth Date: October 26, 2000
---------------------
Bella Roth
President and Chairman
(Chief Executive Officer)
/s/Moshe Laufer
--------------------- Date: October 26, 2000
Moshe Laufer
Secretary/Treasurer and Director
(Chief Financial/Accounting Officer)
---------------------- Date: October ___, 2000
Arnold A. Lipton, M.D.
V.P. and Director
