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, 1999 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
or organization) Identification No.)
100 Cedarhurst Ave., Suite 201, Cedarhurst, NY 11516
(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.
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
December 31, 1999: 4,702,100
<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 gotten 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
<PAGE>
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 is currently
reformulating its product to produce what it believes will be a Product with
greater efficacy in producing the desired results. Vitahealth is in the process
of opening a new manufacturing facility in Jerusalem, Israel where the Product
will be manufactured. 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
<PAGE>
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. 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 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 is reformulating the Product to enhance its
competitive position. Due to the vagaries of the development process, the
Company does not currently have a firm date for when the Product will be
available.
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
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 is presently in the process of selecting 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.
<PAGE>
ITEM 2. PROPERTIES
The Company maintains its corporate offices rent free at an office of
one of its shareholders at 100 Cedarhurst Ave, Suite 201, Cedarhurst, NY 11516.
The Company has agreed to either sublet the space it is currently using at a
cost of $150 monthly, or to relocate its office to another location on the first
day of the month commencing after the Product is available.
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.
<PAGE>
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:
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
These options shall become effective only in the event the Licensing
and Distribution agreement between the Company and Vitahealth is still in effect
on the date the options are due to be effective. The options have no
registration rights. See "BUSINESS - Licensing And Distribution Agreement."
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:
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
The shares underlying the options have no registration rights.
Of the 4,667,100 shares of common stock outstanding, 3,625,000 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 December 31, 1999, there were 12% holders of the Company's common
stock, and 9 holders of the Company's Class A Warrants.
(c) Dividends
The Company has had no earnings to date, nor has the Company 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. SELECTED FINANCIAL DATA
The following selected financial data for the period August 11, 1998
(inception) through July 31, 1999 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.
<PAGE>
Statement of Operations Data
From 8/11/98
(inception) to
7/31/99
Net Revenues -0-
Cost and Expenses $(166,880)
General and Administrative
Expenses (5,374)
Interest Income 24
Income Taxes -0-
Net Loss (172,354)
Loss Per Share $(.04)
Balance Sheet Data
December 31, 1998
Working Capital $ 9,850
Total Assets 11,200
Total Liabilities 1,350
Stockholders' Equity $ 9,850
<PAGE>
ITEM 7. PLAN OF OPERATIONS
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.
Plan of Operation
As noted in Item 1 above, the Company is currently waiting for the
initial production date of the Product. Until the production facilities of its
supplier, Vitahealth Scientific, Inc. are operational, the Company cannot begin
to market the Product with an expectation to be able to deliver goods within a
reasonable amount of time. The Company has been advised by Vitahealth that it
expects to begin delivery of the Product during the first quarter of 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.
At the present time, management has full faith in Vitahealth's ability
to deliver the Product. However, the Company cannot guarantee that additional
delays will not further delay the commencement of sales and distribution.
Currently, management is prepared to give Vitahealth every opportunity to
complete the production facility, even at the cost of postponing the production
deadline again. While management continually reviews the status of the
production facility to determine when the Company will begin sales there are no
plans or intentions at this time to exercise the Company's right to terminate
the Vitahealth agreement due to missing the production deadline.
As the Company has not yet begun 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
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 only cash outlay of the Company is in banking fees and
in 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 there is enough cash on hand to fund such
activities 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 8. 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
Bella Roth 50 President & Chairman of the Board
Arnold A. Lipton, M.D. 69 VP - Scientific Advisor & Director
Moshe Laufer 40 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 Securities 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
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 11. 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 has been waived until October 1999. 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 1998 $31,282(3) 0 $50,000(2) 325,000 options worth $0
President &
Chairman
Arnold Lipton, M.D. 1998 0 0 $2,500(2) 75,000 options worth $0
V.P.-Scientific
Advisor &
Director
Moshe Laufer 1998 0 0 0 75,000 options worth $0
Secretary,
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.
<PAGE>
(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
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<S> <C> <C> <C> <C>
% of Options Exercise Price
Name Number of Options Granted (1998) (per share) Expiration
- ---- ----------------- -------------- -------------- -----------
Bella Roth 175,000 36.84 $2.50 11/12/01
150,000 31.58 $4.00 11/12/01
------- -----
Total 325,000 68.42
======= =====
Arnold Lipton, M.D.
25,000 5.26 $2.00 11/12/01
50,000 10.53 $3.00 11/12/01
------ -----
Total 75,000 15.79
====== =====
Moshe Laufer
25,000 5.26 $2.50 11/12/01
50,000 10.53 $4.00 11/12/01
------ -----
Total 75,000 15.79
====== =====
</TABLE>
(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 1999, the directors, did not file Forms 3.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of December 31, 1999, 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.
<PAGE>
<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) 76.1%
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) 79.2%
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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. 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 None.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
100 CEDARHURST AVE. SUITE 201
CEDARHURST, NEW YORK 11516
FINANCIAL STATEMENTS
FOR THE PERIOD AUGUST 11, 1998
(INCEPTION) TO JULY 31, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Virilitec Industries Inc.
100 Cedarhurst ave. Suite 201
Cedarhurst, NY 11516
I have audited the accompanying balance sheet of Virilitec Industries Inc. (a
development stage company) as of July 31, 1999, and the related statements of
operations, stockholders' equity, and cash flows for the period August 11, 1998
(inception) to July 31, 1999. These financial statements are the responsibility
of the Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Virilitec Industries Inc. (a
development stage company) as of July 31, 1999, and the results of its
operations and its cash flows for the period August 11, 1998 (inception) to July
31, 1999 in conformity with generally accepted accounting principles.
/s/Joseph Morgenstern
Joseph Morgenstern
Certified Public Accountant
January 10, 2000
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JULY 31, 1999
ASSETS
Subsequent
Event
Actual Pro-Forma
Current Assets:
Cash $ 300 $ 35,300
Equipment, net 2,400 2,400
License fee 8,500 8,500
-------- --------
Total Assets $ 11,200 $ 46,200
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued
expenses $ 1,270 $ 1,270
Due to Officer 80 80
-------- --------
1,350 1,350
Commitments and other matters
Stockholders' Equity:
Common stock, $.0001 par value; 20,000,000 shares authorized; 4,667,100 shares
issued and outstanding, of which 3,175,000
shares are restricted shares 467 471
Additional paid-in capital 181,737 216,733
--------- ---------
182,204 217,204
Deficit accumulated during
the development stage (172,354) (172,354)
---------- ----------
Total Stockholders' Equity 9,850 44,850
--------- ---------
Total Liabilities &
Stockholders' Equity $ 11,200 $ 46,200
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
AND ACCUMULATED DEFICIT
FOR THE PERIOD ENDED AUGUST 11, 1998
(INCEPTION) TO JULY 31, 1999
----------------------------
Cumulative Amounts
For the Period
August 11, 1998 August 11, 1998
Inception To (Inception) To
July 31, 1999 July 31, 1999
Sales $ -0- $ -0-
Costs and expenses:
Officer's salary (38,460) (38,460)
Other compensation expense (52,500) (52,500)
Management fees (38,500) (38,500)
Compensation expense of
international counsel (30,064) (30,064)
General and administrative
expenses (5,374) (5,374)
Travel (5,780) (5,780)
Depreciation (1,200) (1,200)
Taxes ( 500) ( 500)
Interest income 24 24
--------- --------
Net Loss (172,354) (172,354)
Accumulated deficit,
beginning of period -0- -0-
-------- ------
Accumulated deficit,
end of period $(172,354) $(172,354)
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD AUGUST 11, 1998
(INCEPTION) TO JULY 31, 1999
----------------------------
Deficit
Common Stock Accumulated
$.0001 Par Value Additional During The
Paid - In Development
Shares Amount Capital Stage
Common stock issued in 3,100,000 $ 310 $( 310)
connection with the
formation of the Company
Common stock issued 933,000 93 41,417
Contributed services:
Officer's salary 14,615
Rent 750
Other comp. expenses 525,000 52 52,448
Compensation of
international counsel 50,000 5 10,091
Net loss - August 11,1998
through December 31, 1998 $ (78,783)
---------- ------ ------- ------------
Balance-December 31, 1998 4,608,000 461 119,010 (78,783)
---------- ------ -------- ------------
Common stock issued 4,100 4,400
Contributed services:
Officer's salary 16,667
Rent 750
Management fees 55,000 6 38,494
Compensation of
international counsel 14,135
Stock issuance costs (24,440)
Net loss - five months
ended May 31, 1999 (79,342)
---------- ------ ------- ------------
Balance - May 31, 1999 4,667,100 467 169,016 (158,125)
---------- ------ -------- ------------
Contributed services:
Officer's salary 7,178
Rent 300
Compensation of
international counsel 5,833
Stock issuance costs (540)
Net loss - two months
ended July 31, 1999 (14,729)
---------- ------ ------- ------------
Balance - July 31, 1999 4,667,100 $ 467 $181,732 $ (172,354)
========== ====== ======== ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD AUGUST 11, 1998
(INCEPTION) TO JULY 31, 1999
----------------------------
Cumulative Amounts
For the Period
August 11, 1998 August 11, 1998
Inception To (Inception) To
July 31, 1999 July 31, 1999
Cash Flows From Operating Activities
Net loss $( 172,354) $( 172,354)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Depreciation 1,200 1,200
Contributed services 161,324 161,324
Changes in operating assets
and liabilities:
Accrued expenses 1,270 1,270
Due to officer 80 80
-------- --------
Net cash used in operating
activities (8,480) (8,480)
--------- ---------
Cash Flows From Investing Activities
Capital expenditures (3,600) (3,600)
License fee (8,500) (8,500)
-------- --------
Net cash used in investing
activities (12,100) (12,100)
-------- --------
Cash Flows From Financing Activities
Stock offering 45,910 45,910
Cost of stock offering (25,030) (25,030)
Net cash from financing
activities 20,880 20,880
--------- --------
Net increase in cash 300 300
Cash at beginning of period -0- -0-
-------- ------
Cash at end of period $ 300 $ 300
======== =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
THE COMPANY
Virilitec Industries Inc. (the Company) was incorporated on August 11, 1998 with
total authorized shares of 20,000,000, par value $.0001. The Company was formed
to license and distribute a line of bioengineered virility supplements.
Initially, the Company intends to market its product in international markets,
using independent sales agents. The Company is in the development stage and its
efforts through July 31, 1999 have been principally devoted to organizational
activities and raising capital. Management anticipates incurring additional
losses as it pursues its organizational and development efforts. The Company's
stock offering was closed on April 6, 1999. The Company believed it raised
sufficient funds from the offering to finance its operations. Company also
believes it will be able to obtain any additional funds required.
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.
Actual results could differ from those estimates.
Depreciation
Equipment, primarily computers, is depreciated by the straight-line method over
its estimated useful life. When property is retired or otherwise disposed of,
the cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in operations.
Amortization
The licensing fee will be amortized on the straight-line basis over the life of
the agreement. All mandatory additional annual payments will be charged to
operations as they become due.
Stock issuance costs
Stock issuance costs represent expenses related to the Company's offering. These
expenses include the direct costs of the offering such as legal, filing fees,
printing and related consulting fees. These costs were deducted from the
proceeds of the offering.
Stock Offering
The Company's initial stock consited of up to 460,000 units at $1.00 per unit.
Each unit entitles the holder to one (1) share of common stock, $.0001 par value
and one (1) redeemable Class A warrant entitling the holder to purchase one (1)
share of restricted common stock at an exercise price of $10.00 per share.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has issued an aggregate of 525,000 shares of stock to certain
officers and directors in exchange for present and anticipated management
services. The stock has been recorded at its estimated fair value of $.10 per
share. The Company later issued an aggregate of 105,000 shares to consultants in
exchange for services. The stock has been recorded at its estimated fair value
of $.70 per share with a corresponding amount as compensation expense.
CAPITALIZATION
The Company currently has 4,667,100 shares of common stock outstanding, of which
management owns 3,675,000. Included in the 3,675,000 shares owned by directors
and company management are 3,175,000 shares of restricted shares as defined in
the Securities Act of 1933 and the regulations thereunder. Management which owns
3,125,000 restricted shares has agreed not to sell any of such shares for a
period of one year following the final closing of the Stock Offering referred to
above.
OPTIONS
The Company has granted stock options to certain officers and directors to
purchase additional shares of restricted common stock of the Company as follows:
Exercise
Option Holders Number of Options Price (Per Share)
President and Chairman 175,000 2.50
of Board of Directors
President 150,000 4.00
Vice President/Director 25,000 2.00
Vice President/Director 50,000 3.00
Secretary/Treasurer and Director 25,000 2.50
Secretary/Treasurer and Director 50,000 4.00
Under the terms of the Company's licensing agreement, the Company has also
agreed to grant stock options to its manufacturer to purchase up to 300,00
additional restricted shares of the common stock of the Company for a period of
five years beginning October 31, 1999 according to the following schedule:
Exercise
Effective Date Number of Shares Price (Per Share)
- -------------- ---------------- -----------------
10/31/1999 100,000 10.00
03/31/2000 100,000 10.00
10/31/2000 100,000 10.00
This options shall become effective only in the event the licensing and
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 DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
LICENSING AND DISTRIBUTION AGREEMENT
The Company has entered into a fifty (50) year licensing and distribution
agreement, whereby the Company was granted exclusive rights to distribute a
certain nutritional supplement designed to enhance human male sperm count and
potency. Under the terms of the agreement, the Company's independent sales
agents will place orders directly with the manufacturer, which will fill such
orders. The sales agents will pay the manufacturer upon order placement, and the
manufacturer, acting as collections agent for the Company, will forward the
Company's portion of sales proceeds to the Company. The manufacturer has agreed
to periodic review 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 licensing fee of $8,500.
The Company will also pay an annual licensing fee of $10,000, commencing on 90
days after the product is manufactured and delivered and each year thereafter,
on the anniversary of the first payment's due date as long as the licensing and
distribution agreement has not been terminated before the date such payment is
due. The Company's agents are required to pay the manufacturer $1.85 for each
unit of the product sold of which the manufacturer retains $1.45 and forwards
$.40 to the company. The parties have agreed to certain minimum sales and
production quotas. If either the company or the manufacturer fail to meet the
minimum sales and production quotas, either party may terminate the agreement
without penalties.
INCOME TAXES
At July 31, 1999, the Company has an operating loss carry forward for tax
purposes of approximately $172,000, which expires in 2014. The Company has fully
reserved the tax benefit of the operating loss carry forward because the
likelihood of realization of the benefit cannot be established.
COMMITMENTS
The Company maintains its corporate offices rent free at an office of one of its
shareholders at 100 Cedarhurst Ave. Suite 201, Cedarhurst, NY 11516. The Company
has agreed to either sublet the space it is currently using at a cost of $150
monthly, or relocate its office to another location. Management anticipates that
the monthly rental cost of another item should be no more than $500. The company
included rent expense of $150 a month in the General and Administrative expenses
with a corresponding amount in paid in capital.
The president of the company will receive an annual salary of $40,000. The
President has waived payment, accordingly; the pro-rata amount is included in
general and administrative expenses with a corresponding amount in paid in
capital.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1999
COMMITMENTS (CONTINUED)
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 company stock. The total fair market value of the
shares and services has been determined to be $35,000; accordingly, the pro-rata
portion of this amount has been charged to compensation expense with
corresponding amounts charged to stock and paid-in capital.
The Company has also hired an individual to act as its local agent in the State
of Israel. The agent's duties will include supervising the completion of the new
manufacturing facility of its supplier, reviewing applications for local
licenses and approvals, as well as overseeing 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. The value
of these services has been determined to be $38,500 and has been recorded as an
expense with corresponding offsets to common stock and paid-in capital.
SUBSEQUENT EVENT
The Company is currently conducting a second stock offering of up to 100,000
shares at $1.00 per share. Subsequent to the date of these financial statements,
but prior to their issuance, 35,000 shares have been sold.
<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
President
Dated: __th day of January, 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.
Date: January 18, 2000
/s/Bella Roth
Bella Roth
President and Chairman
(Chief Executive Officer)
/s/Moshe Laufer Date: January 18, 2000
Moshe Laufer
Secretary/Treasurer and Director
(Chief Financial/Accounting Officer)
- ---------------------- Date: January ___, 2000
Arnold A. Lipton, M.D.
V.P. and Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001076700
<NAME> VIRILITEC INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 300
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 300
<PP&E> 3,600
<DEPRECIATION> 1,200
<TOTAL-ASSETS> 11,200
<CURRENT-LIABILITIES> 1,350
<BONDS> 0
0
0
<COMMON> 467
<OTHER-SE> 9,383
<TOTAL-LIABILITY-AND-EQUITY> 11,200
<SALES> 0
<TOTAL-REVENUES> 24
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 172,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 172,354
<INCOME-TAX> 0
<INCOME-CONTINUING> 172,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,354
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>