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 April 30, 2000
[ ] Transition report under 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.)
100 Cedarhurst Avenue, Suite 201, Cedarhurst, New York 11516
(Address of principal executive offices)(Zip Code)
(800) 775-0712 ext. 4144
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 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 May 30, 2000, the Registrant had 4,710,300 shares of its Common Stock
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
APRIL 30, 2000
ASSETS
Current Assets:
Cash $ 10,704
Due from officer 6,228
--------
Total Current Asset 16,932
--------
Equipment, net 1,500
License fee 8,500
--------
Total Assets $ 26,932
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and
accrued expenses $ 3,001
---------
Commitments and other matters
Stockholders' Equity:
Common stock, $.0001 par value;
20,000,000 shares authorized;
4,710,310 shares issued and outstanding,
of which 3,175,000
shares are restricted shares 472
Additional paid-in capital 260,115
---------
260,587
Deficit accumulated during the
development stage (236,656)
----------
Total Stockholders' Equity 23,931
---------
Total Liabilities &
Stockholders' Equity $ 26,932
=========
See accountant's report.
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 NINE MONTHS ENDED APRIL 30, 2000
AND FOR THE PERIOD AUGUST 11, 1998
(INCEPTION) TO APRIL 30, 2000
-----------------------------
Cumulative Amounts
For the Period
Nine August 11, 1998
Months Ended (Inception) To
April 30, 2000 April 30,2000
Sales $ -0- $ -0-
Costs and expenses:
Officer's salary (30,000) (68,460)
Other compensation expense -0- (52,500)
Management fees -0- (38,500)
Compensation expense of
international counsel ( 4,936) (35,000)
General and administrative
expenses (19,724) (25,098)
Travel (8,492) (14,272)
Depreciation ( 900) (2,100)
Taxes (250) ( 750)
Interest income -0- 24
--------- --------
Net Loss ( 64,302) (236,656)
Accumulated deficit,
beginning of period (172,354) -0-
-------- ------
Accumulated deficit,
end of period $(236,656) $(236,656)
========== ==========
See accountant's report.
The accompanying notes are an integral part of these financial statements.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
AND ACCUMULATED DEFICIT
FOR THE NINE MONTHS ENDED APRIL 30, 2000
AND FOR THE PERIOD AUGUST 11, 1998
(INCEPTION) TO APRIL 30, 2000
-----------------------------
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. expense 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 (14,229)
---------- ------ ------- ----------
Balance - July 31, 1999 4,667,100 $ 467 $181,732 $(172,354)
---------- ------ -------- ----------
See accountant's report.
The accompanying notes are an integral part of these financial statements.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
AND ACCUMULATED DEFICIT
FOR THE NINE MONTHS ENDED APRIL 30, 2000
AND FOR THE PERIOD AUGUST 11, 1998
(INCEPTION) TO APRIL 30, 2000
-----------------------------
Deficit
Common Stock Accumulated
$.0001 Par Value Additional During The
Paid - In Development
Shares Amount Capital Stage
Balance - July 31, 1999 4,667,100 $ 467 $181,732 $(172,354)
---------- ------ -------- ----------
Contributed services:
Officer's salary 10,000
Rent 450
Compensation of
international counsel 4,936
Common stock issued 15,000 2 14,998
Net loss - three months
ended October 31, 1999 (27,818)
---------- ------ ------- ----------
Balance-October 31, 1999 4,682,100 469 212,121 (200,172)
---------- ------ -------- ----------
Contributed services:
Officer's salary 10,000
Rent 450
Common stock issued 20,000 2 19,998
Stock issuance costs (1,113)
Net loss - three months
ended January 31, 2000 (22,070)
---------- ------ -------- ----------
Balance- January 31, 2000 4,702,100 $ 471 $241,456 $(222,242)
---------- ------ -------- ----------
Contributed services:
Officer's salary 10,000
Rent 450
Common stock issued 8,210 1 8,209
Net loss - three months
ended April 30, 2000 (14,414)
---------- ------ ------- ----------
Balance-April 30, 2000 4,710,310 $ 472 $260,115 $(236,656)
========== ====== ======== ==========
See accountant's report.
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 NINE MONTHS ENDED APRIL 30, 2000
AND FOR THE PERIOD AUGUST 11, 1998
(INCEPTION) TO APRIL 30, 2000
-----------------------------
Cumulative Amounts
For the Period
Nine months August 11, 1998
Ended (Inception) To
April 30,2000 April 30,2000
Cash Flows From Operating Activities
Net loss $( 64,302) $(236,656)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Depreciation 900 2,100
Contributed services 36,286 1976100
Changes in operating assets
and liabilities:
Accrued expenses 1,651 3,001
Due from officer (6,228) (6,228)
--------- --------
Net cash used in operating
activities (31,693) (40,173)
--------- ---------
Cash Flows From Investing Activities
Capital expenditures -0- (3,600)
License fee -0- (8,500)
-------- --------
Net cash used in investing
activities -0- (12,100)
------- --------
Cash Flows From Financing Activities
Stock offering 43,210 89,120
Cost of stock offering (1,113) (26,143)
------ ---------
Net cash from financing
activities 42,097 62,977
--------- --------
Net increase (decrease) in cash 10,404 10,704
Cash at beginning of period 300 -0-
------- ------
Cash at end of period $ 10,704 $ 10,704
========= =========
See accountant's report.
The accompanying notes are an integral part of these financial statements.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
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 April 30, 2000 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
initial 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 offering consisted 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 stock at an exercise price of $10.00 per share. The
Company conducted a secondary stock offering of up to 100,000 shares at $1.00
per share which was closed as of May 15, 2000. As of the date of these financial
statements, 43,210 shares have been sold.
<PAGE>
VIRILITEC INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2000
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 4,710,310 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 Initial Stock Offering of
April 6, 1999.
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 April 30, 2000 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
These 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
APRIL 30, 2000
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
As of 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
APRIL 30, 2000
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 agreement has
not been renewed.
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.
OTHER COMMENTS
The Company's Supplier received an assignment of the rights of a pending patent
that has been applied for in Israel for the subject product. In turn, the
supplier has assigned its rights to the Company.
<PAGE>
Item 2. Plan of Operations.
The following discussion should be read in conjunction with
the financial statements and related notes which 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,
availability of our product, our ability to market our product, competitive
factors and other risk factors as stated in other of our public filings with the
Securities and Exchange Commission.
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.
The Company is currently waiting for the initial production date of the
Product. Until the production facilities of its supplier, Vitahealth Scientific,
Inc. ("Vitahealth") 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.
Vitahealth had originally planned to lease and construct its facility
based upon commitments made to Vitahealth by the Company regarding the initial
licensing fee and ongoing support. Because the Company's financing via its
initial 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 initial 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.
<PAGE>
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.
<PAGE>
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 anticipate 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.
During this quarter the Company raised $8,210 through the sale of 8,210
shares at a price of $1.00 per share. The Company intends to use these funds to
finance the filing of a patent application in Israel for the Product and for the
associated legal fees and for assigning the patent application to the Company.
Following the close of this quarter, Vitahealth began initial delivery
of the Product. As a result, the Company anticipates having sales during the
next quarter. In addition, the Company sold 220 shares at a price of $1.00 per
share during May. Also, following the close of the quarter, a patent application
for the Product was filed in Israel and was assigned to the Company.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) A financial data schedule is filed herewith as an exhibit.
(b) No reports on Form 8-K were filed during the quarter for which this
report is being filed.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned thereto duly
authorized.
Date: June 13, 2000
VIRILITEC INDUSTRIES, INC.
By: /s/Bella Roth
Bella Roth
President and Director
(Principal Executive Officer)
