SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended October 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange Act
Commission file number 0-25659
VIRILITEC INDUSTRIES, INC.
(exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11-3447894
(IRS Employer Identification No.)
236 Broadway Ave., Suite 201, Brooklyn, NY 11211
(Address of principal executive offices)
(800) 775-0712 ext. 4144
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of December 5, 2000 the Registrant had 4,717,930 shares of its Common Stock
outstanding
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
Index to Form 10-QSB
For the Quarter ended October 31, 2000
<TABLE>
<S> <C>
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet as of October 31, 2000 3
Statement of Income for the three months ended 4
October 31, 2000 and 1999 and from inception (August 11, 1998)
through October 31, 2000
Statement of Cash Flows for the three months ended 5
October 31, 2000 and 1999 and from inception (August 11, 1998)
through October 31, 2000
Notes to the Financial Statements for the three months 6-7
Ended October 31, 2000
Item 2. Management's Discussion and Analysis 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
AT OCTOBER 31, 2000
(UNAUDITED)
Assets
Current Assets
Cash and cash equivalents $ 10,647
Accounts receivable, net 19,200
Other current assets (principally related party) 537
----------
Total current assets 30,384
Property and equipment, net 900
Other Assets 7,438
----------
Total assets 38,721
==========
Liabilities and Shareholder's Equity
Current Liabilities
Accounts payable 300
Other current liabilities 4,000
----------
Total current liabilities 4,300
Shareholder's Equity
Common Stock, $.0001 par value; authorized 20,000,000 shares; 472
issued and outstanding - 4,717,930
Paid in Capital 234,662
Deficit accumulated during the development stage (200,713)
----------
Total Shareholder's Equity 34,421
Total liabilities and shareholder's equity $ 38,721
==========
Read the accompanying summary of significant accounting notes to
financial statements, which are an integral part of this financial statement.
3
<PAGE>
VIRILITEC INDUSTRIES, INC.
STATEMENT OF OPERATIONS
FOR THE 3 MONTHS ENDED OCTOBER 31, 2000 AND 1999
FROM INCEPTION (AUGUST 11, 1998) TO OCTOBER 31, 2000
<TABLE>
<S> <C> <C> <C>
Inception
3 Months ended (August 11, 1998)
-------------------------------------- through
October 31, 2000 October 31, 1999 October 31, 2000
-----------------------------------------------------------------------
Revenue $ 19,200 $ - $ 29,400
Operating expenses:
Salaries and payroll related - 10,000 38,460
Other compensation expense - - 52,500
Management fees - - 38,500
Travel - 6,600 19,963
Rent 600 450 4,200
Depreciation 300 300 2,700
Amortization 213 - 1,063
Professional fees 8,075 4,936 64,877
Selling, general and administrative expenses 120 5,532 7,875
------------------ ------------------ ------------------
Total operating expenses 9,308 27,818 230,137
Loss before other income (expense) 9,893 (27,818) (200,737)
Other income (expense):
Interest income - - 24
Interest expense - - -
------------------ ------------------ ------------------
Total other income (expense) - - 24
------------------ ------------------ ------------------
Net Loss 9,893 (27,818) (200,713)
================== ================== ==================
Basic weighted average common shares outstanding 4,716,130 4,702,100 4,412,987
================== ================== ==================
Basic Loss per common share $ 0.002 $ (0.006) $ (0.045)
================== ================== ==================
</TABLE>
Read the accompanying summary of significant accounting notes to
financial statements, which are an integral part of this financial statement.
4
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999
FROM INCEPTION (AUGUST 11, 1998) THROUGH OCTOBER 31, 2000
<TABLE>
<S> <C> <C> <C>
Inception
3 Months ended (August 11, 1998)
-------------------------------------- through
October 31, 2000 October 31, 1999 October 31, 2000
-----------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 9,893 $ (27,818) $ (200,713)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 513 300 3,763
Issuance of shares for officer compensation - 52,500
Issuance of shares for professional fees - 4,936 30,064
Issuance of shares for management fee - 38,500
Officers salary applied to paid in capital - 10,000 38,410
Office rent applied to paid in capital 300 450 3,900
Changes in Operating assets and liabilities:
Accounts receivable and other current assets (19,200) (3,320) (19,737)
Accounts Payable and Accrued Liabilities (2,775) 400 4,300
------------------ ------------------ -------------------
Net cash provided by/(used in) operating activities (11,270) (15,052) (49,013)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and equipment - (3,600)
Payment for license - (8,500)
------------------ ------------------ -------------------
Net cash provided by/(used in) investing activities - - (12,100)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of common shares 1,800 15,000 96,740
Cost of common share offering - (24,980)
------------------ ------------------ -------------------
Net cash provided by/(used in) financing activities 1,800 15,000 71,760
------------------ ------------------ -------------------
Net increase (decrease) in cash and cash equivalents (9,470) (52) 10,647
Cash and cash equivalents, beginning of period 20,117 300 -
------------------ ------------------ -------------------
Cash and cash equivalents, end of period $ 10,647 $ 248 $ 10,647
================== ================== ===================
</TABLE>
Read the accompanying summary of significant accounting notes to
financial statements, which are integral part of this financial statement.
5
<PAGE>
VIRILITEC INDUSTRIES, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
OCTOBER 31, 2000
NOTE 1 -BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Virilitec
Industries, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. The financial
statements reflect all adjustments consisting of normal recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results for the periods shown. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
These financial statements should be read in conjunction with the audited
financial statements and footnotes thereto included in Virilitec Industries,
Inc.'s Form 10K-SB as filed with the Securities and Exchange Commission.
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 that effect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - REVENUE RECOGNITION
The company currently recognizes revenue in the form of distributor fees
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
Industries, Inc.'s revenue recognition practices are in conformity with the
guidelines of SAB 101.
NOTE 3 - NET LOSS PER SHARE
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.
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.
6
<PAGE>
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The company reported a net profit of
$9,893 for the three months ended October 31, 2000 and has reported net losses
of $200,713 from inception (August 11, 1998) to October 31, 2000. As reported on
the statement of cash flows, the Company incurred negative cash flows from
operating activities of $11,270 for the three months ended October 31, 2000 and
has reported deficient cash flows from operating activities of $49,013 from
inception (August 11, 1998). To date, these losses and cash flow deficiencies
have been financed principally through the sale of common stock ($96,740).
Continuation of the Company as a going concern is dependent upon obtaining
sufficient working capital for its planned activity. 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 the year. The Company anticipates more orders
to be submitted by agents and filled by the manufacturer in the year and the
volume to increase which will contribute to attaining a profitable operations
for the Company
NOTE 5 - STOCKHOLDER'S EQUITY
On October 31, 2000 the Company sold 1,800 shares of common stock at a
price of $1.00 per share.
NOTE 6 - PAID IN CAPITAL
In August and September 2000, the Company incurred office rent in the
amount of $150.00 per month totaling $300.00. During this period, the Company
maintained 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.
7
<PAGE>
Item 2. Plan of Operations
The following discussion should be read in conjunction with the financial
statements and related notes that are included under Item 1. 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, our ability to
complete development and then market our services, competitive factors and other
risk factors as stated in other of our public filings with the Securities and
Exchange Commission.
Overview
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. On May 15,
2000, the manufacturer, Vitahealth Scientific Inc., a New York corporation
("Vitahealth"), filed a patent application in Israel covering the Product. The
application is currently pending.
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 place sales orders directly with Vitahealth,
which fills such orders. The sales agents pay Vitahealth upon order placement,
and Vitahealth, acting as collections agent for the Company, forwards 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.
8
<PAGE>
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 is currently distributing 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 currently selling them for approximately $2.15 to $2.25 per capsule.
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.
Results of Operations
Three months ended October 31, 2000 and 1999
During the three month period ending October 31, 2000, the Company sustained a
profit of $9,893 compared to a loss of $27,818 for the same period ended October
31, 1999. This was primarily driven by revenue generated in the October 31, 2000
period as well as a decrease in salaries in which an officer of the company
waived her salary in the current quarter. The company has an accumulated deficit
since inception (August 11, 1998) of $200,713. The losses since inception was
primarily driven by expenses incurred to bring the Company operational.
Revenues
During the three month period ending October 31, 2000 , the Company's revenues
were $19,200 compared to zero for the same period ended October 31, 1999.
Revenues are in the form of distributor fees derived principally from
commissions received on the sale of product. Since inception (August 11,1998)
revenues in the form of distributor fees derived principally from commissions
received on the sale of product were $29,400.
Operating Expenses
During the three months ended October 31, 2000, the company incurred $9,308 in
operating expenses as compared to $27,818 in the same period in 1999. This
decrease was primarily driven by a decrease in salaries in which an officer of
the company waived her salary in the current quarter.
9
<PAGE>
Depreciation
During the three month period ending October 31, 2000, the Company incurred
depreciation expense in the amount of $300, which is the amount incurred for the
same period in 1999. Depreciation from inception is $2,700.
Material changes in financial condition, liquidity and capital resources
At October 31, 2000, the Company had $10,647 in cash and cash equivalents
compared to $248 for the same period in 1999. The Company had a working capital
of approximately $26,084 at October 31, 2000 compared to $1,818 for the same
period in 1999. Net cash used in operating activities for the three months ended
October 31, 2000 was $11,270 compared to $15,052 for the same period in 1999 and
$49,013 since inception. Cash used was mainly attributable to the operating
expenses related to operations as well as changes in net operating assets and
liabilities.
No cash was used in investing activities for the three months ended October 31,
2000 or for the three months ended October 31, 1999. Net cash used in investing
activities since inception was $12,100. The net cash used was for the purchase
of equipment and distributor rights.
Net cash provided by financing activities was $1,800 for the three months ended
October 31, 2000 and $15,000 for the same period in 1999. Net cash provided by
financing activities since inception was $71,760. These amounts are primarily
attributable from sale of shares through private placements for both periods.
On July 10, 2000, the Board of Directors approved a resolution whereas the
Company may commence a private placement offering to sell up to 75,000 shares of
common stock at a price of $1.00 per share. For the three months ended October
31, 2000, 1,800 shares of common stock had been sold. Since July 10, 2000,
common shares totaling 7,400 have been sold from the private placement.
General Operations
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
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
nine months following initial production and sale of the Product.
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
10
<PAGE>
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. The Company believes that
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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
During the quarter, the Company sold 1,800 common shares at $1.00
per share. These shares were issued outside of the United States to non-U.S.
residents pursuant to the exemption from registration contained in Regulation S.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
11
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 27 - Financial Data Schedule
12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the 1934 Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
VIRILITEC INDUSTRIES, INC.
By: /s/Bella Roth
Bella Roth, Chairman of the Board
December 8, 2000
