<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
for the quarterly period ended MARCH 31, 1996
---------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File Number 0-18438
-------
VITAFORT INTERNATIONAL CORPORATION
----------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 68-0110509
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1800 Avenue of the Stars, Suite 480, Los Angeles, CA 90067
-----------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(310) 552-6393
------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act of 1934 of during the preceding twelve
months ended December 31 1995 (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 days.
Yes: X No:
--------- --------
The number of shares of the Registrant's Common Stock, par value $.0001 per
shares outstanding on May 10, 1996 was 79,050,489.
Page 1
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VITAFORT INTERNATIONAL CORPORATION
CONTENTS
PART 1 - FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ITEM 1 Financial Statements:
<S> <C> <C>
Condensed Consolidated Balance Sheets -- March 31, 1996 and December 31, 1995... 3-4
Condensed Consolidated Statements of Operations -- Three-Month Period Ended
March 31, 1996 and 1995.......................................................... 5
Condensed Consolidated Statements of Cash Flows -- Three-Month Period Ended
March 31, 1996 and 1995.......................................................... 6
Notes to the Condensed Consolidated Financial Statements......................... 7-9
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 10-12
Signatures....................................................................... 13
</TABLE>
Page 2
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 2,745,677 $ 1,316,406
Accounts receivable-trade, net allowance for
doubtful accounts of $45,650 at March 31, 1996
and December 31, 1995 371,593 39,423
Notes receivable 20,074 19,778
Other receivables 0 147,974
Inventory 1,697,658 680,876
Prepaid expenses and other assets 345,393 365,117
----------- -----------
TOTAL CURRENT ASSETS 5,180,396 2,569,574
FIXED ASSETS:
Manufacturing equipment 292,009 165,931
Furniture and office equipment 119,759 82,465
Computer equipment 146,183 148,074
----------- -----------
TOTAL FIXED ASSETS 597,950 396,470
Less accumulated depreciation and amortization (167,550) (139,991)
----------- -----------
NET FIXED ASSETS 390,401 256,479
OTHER ASSETS:
Intangible and other assets 379,612 425,494
Less accumulated amortization (71,148) (67,703)
----------- -----------
NET OTHER ASSETS 308,464 357,791
----------- -----------
----------- -----------
TOTAL ASSETS $ 5,879,260 $ 3,183,844
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 3
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable - trade $ 208,684 $ 236,927
Accrued expenses 353,213 636,514
Notes payable 54,539 75,000
Current maturities of long-term debt 62,523 174,364
Other current liabilities 0 150,000
--------- ----------
TOTAL CURRENT LIABILITIES 678,959 1,272,805
Long-term debt, exclusive of current maturities 23,240 34,548
--------- ----------
TOTAL LIABILITIES 702,200 1,307,353
STOCKHOLDERS' EQUITY:
Series B, 10% Cumulative Convertible
Preferred Stock $0.01 par value,
cumulative, 110,000 shares authorized,
1,500 shares issued and outstanding at
March 31, 1996 and December 31, 1995;
aggregate liquidation preference of
$75,000 at March 31, 1996 and
December 31, 1995. 15 15
Series C, Convertible Preferred Stock,
$0.041 par value, 450 shares authorized,
50 shares issued and outstanding as of
March 31, 1996 and December 31, 1996;
aggregate liquidation preference of $1
at March 31, 1996 and December 31, 1995. 1 1
Subscribed stock, 12,684,130 shares at
March 31, 1996 and 24,589,484 shares at
December 31, 1995. 1,883,870 3,418,196
Common stock, $.0001 par value. Authorized
180,000,000 shares at March 31, 1996
and December 31, 1995, issued and
outstanding 73,383,822 and 38,223,704
shares at March 31, 1996 and December 31,
1995, respectively. 7,338 3,823
Additional paid-in capital 17,101,163 11,382,120
Accumulated deficit (13,815,326) (12,927,664)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 5,177,061 1,876,491
---------- ----------
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,879,260 $ 3,183,844
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 4
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE-MONTHS ENDED MARCH 31,
----------------------------
1996 1995
(UNAUDITED)
Net sales $ 840,995 $ 839,037
Cost of sales 708,313 407,604
--------- --------
Gross profit 132,682 431,433
Operating expenses:
Product development 157,994 33,541
Marketing 549,758 323,859
General and administrative 322,681 330,195
--------- --------
TOTAL OPERATING EXPENSES 1,030,432 687,595
--------- --------
Operating loss (897,750) (256,162)
Other income 17,095 2,053
Interest expenses (5,552) (9,589)
--------- --------
LOSS BEFORE PROVISION FOR INCOME TAXES (886,208) (263,698)
Income taxes 1,454 0
--------- --------
NET LOSS $ (887,662) $(263,698)
--------- --------
--------- --------
NET LOSS PER SHARE $ (0.02) $ (0.01)
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
Page 5
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE-MONTHS ENDED MARCH 31,
----------------------------
1996 1995
(UNAUDITED)
CASH FLOWS FROM OPERATIONS:
Net loss $ (887,662) $ (263,698)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 31,004 38,685
(Increase) decrease in:
Inventory (1,016,782) 108,060
Accounts receivable (332,170) (264,440)
Prepaids and other assets 213,283 (190,622)
Increase (decrease) in:
Accounts payable (28,243) (139,793)
Accrued expense (240,681) 176,757
Other (150,000) 0
------------ ---------
NET CASH USED IN OPERATING ACTIVITIES (2,411,252) (535,051)
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (161,480) (3,494)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 4,145,612 0
Proceeds from (repayment of) notes
payable, shore term (20,461) 550,000
Repayment of long term debt (123,148) (74,143)
------------ ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,002,003 475,857
------------ ---------
NET INCREASE (DECREASE) IN CASH 1,429,271 (62,688)
------------ ---------
CASH AT BEGINNING OF PERIOD 1,316,406 330,977
------------ ---------
CASH AT END OF PERIOD; $ 2,745,677 $ 268,289
------------ ---------
------------ ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 4,379 $ 9,589
------------ ---------
------------ ---------
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of common stock for
Payment of deferred compensation $ 42,620 $ 0
------------ ---------
------------ ---------
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 6
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL:
The Company is presently engaged in formulating and marketing fat-free and
low fat foods.
The unaudited condensed consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and, in
the opinion of management, reflect all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation for each of the
periods presented. The results of operations for interim periods are not
necessarily indicative of results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under item
310(b) of Regulation S-B, the accompanying consolidated financial statments
and related footnotes have been condensed and do not contain certain
information that will be included in the Company's annual consolidated
financial statements and footnotes thereto. For further information, refer
to the consolidated financial statements and related footnotes for the
year ended December 31, 1995 included in the Company's Annual Report on
Form 10-KSB.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) The accompanying condensed consolidated financial statements include
the accounts of the Company and its subsidiaries. All material
inter-company accounts and transactions have been eliminated. The
subsidiaries have had no operations since 1994 and will remain inactive
in the near future.
(b) Inventories are stated at the lower cost (first-in, first-out basis) or
market.
(c) Fixed assets are composed of manufacturing equipment, furniture, office
equipment and computer equipment and are recorded at cost. Depreciation
is computed on a straight-line basis over the estimated useful life,
generally five or less years.
(d) Intangible assets are composed of debt issuance costs, customer lists,
and prepaid professional service contracts and are recorded at cost.
The intangible assets are being amortized on a straight-line basis over
periods not exceeding five years. All intangible assets associated
with Future Foods (a subsidiary) were written-off during 1994.
(e) For the purpose of cash flow, the Company considers all highly liquid
investments purchased with an original maturity of three months or less
to be cash equivalents.
Page 7
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(f) Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
(3) NET INCOME (LOSS) PER SHARE:
Net income (loss) per share of common stock is computed based on the
weighted average number of shares of common stock outstanding of
51,301,548 and 24,026,107 for the three month period ended March 31,
1996 and 1995, respectively.
(4) Notes payable (as of March 31, 1996):
CURRENT LONG TERM TOTAL
------- --------- -----
10% note payable, due in monthly
installments of $3,125 plus
interest through July 1996.
Secured by tangible assets. $ 15,626 ---- 15,626
14% note payable, due in monthly
installments of $4,033, including
interest, through October 1997,
Secured by certain of the
Company's fixed assets 41,897 23,240 65,137
14% note payable, due in monthly
installments of $5,000 plus
interest, through April, 1996 5,000 ---- 5,000
8% note payable, due in monthly
installments of $5,091 plus
interest, commencing
January 1, 1995 54,539 ---- 54,539
------- ------- ------
$ 117,062 23,240 140,302
------- ------- ------
------- ------- ------
(5) STOCKHOLDERS EQUITY:
During the three-month period ended March 31, 1996, the following
common stock transactions occurred:
a) The Company completed the Private Placement transactions
representing the sales of 21,400,000 shares at prices from $.15 to
$.30 per share, with proceeds of approximately $3.5 million, net
of expenses of approximately $490,000.
b) At the time of the Private Placement transactions, the Company
converted Consultant Fees Payable and Employee's deferred wages of
approximately $43,000 at the Private Placement rate of $.15 per
share.
c) Various investors exercised options to purchase approximately
2,571,000 shares at prices from $.15 to $.25 per share, with total
proceeds of approximately $475,000.
d) The Company sold 1,000,000 stock purchase options for $120,000,
using the proceeds to purchase production assets.
(6) GOING CONCERN:
The Company's condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. At March 31,
1996, current assets exceed current liabilities by $4,501,437, however
the Company's accumulated deficit aggregates $13,815,326. The Company's
ability to continue operations is dependent upon its ability to reach a
satisfactory level of profitability. The accompanying condensed
consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
Page 8
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(7) SUBSEQUENT EVENTS:
As of March 31, 1996, The Company had no issued or outstanding shares of
Series A Preferred of Series D Preferred Stock. These preferred stock
issue were formally eliminated in April and May of 1996, respectively.
In April 1996, Ken Berg resigned from the Board of the Directors citing
increased time requirements of his previous commitments.
On May 2, 1996, the Company completed the purchase of the trademarks and
brand names of Auburn Farms and Natures Warehouse. The purchase was made
for $75,000 plus deferred payments based upon future sales over the next
10 years, as defined.
Page 9
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED)
Results of operations:
The Company's focus for the first three-month period of 1996 centered
around three basic challenges: 1) Completing the Private Placement sales
of equity to provide the capital necessary to pursue the Company's market
objectives; 2) Expanding/establishing its basic broker-distribution network
for its products, and pursuing the authorization of its products by the
major grocers throughout the United States; and 3) Completing/refining the
production processes at its co-packers to improve the quality, consistency,
and capacity of its production.
These goals and their costs were not applicable to the Company's first
quarter of 1995, and comparison of net sales, gross profits and operating
expenses during the two periods provides limited meaningful information,
and should be considered carefully before deducing any trends or
anticipating future results.
The Company's operational results reflect the focus defined above.
Specifically, the Company achieved sales revenue of approximately $841,000
in the first full quarter of sales and distribution of our products. Net
income was a loss of approximately $888,000 (compared to a loss of
approximately $263,000 for the same period last year), and this is a
direct reflection of the Company's focus, and related costs of that focus.
Furthermore, the Company's product mix changed significantly from the same
period of the prior year. In 1995, meatless cold cuts were less than 5% of
net sales and Fudgets-Registered Trademark- were the balance. In 1996,
Fudgets-Registered Trademark- represented 44% of sales, Caketts-TM- were 48%
of sales, Juliettes-TM- 6%, and meatless cold cuts were 1% of sales.
Net sales:
The net sales for the three-month period ended March 31, 1996 were
approximately $841,000, compared to the net sales for the
three-month period ending March 31, 1995 of approximately $840,000.
This comparison is not meaningful as the Company was establishing new
distribution channels with new products the first quarter of 1996,
while it was exploiting existing distribution in 1995. Sales for the
quarter were somewhat constrained in the first month of the quarter as
the Company awaited the close of Private Placement transactions before
the Company could aggressively make sales and delivery commitments to
its customers.
Gross profit:
The gross profit for the three-month period ended March 31, 1996 was
approximately $133,000, or 16% of sales compared to approximately
$431,000 or 51% in the first quarter ending March 31, 1995. The
periods are not necessarily comparable due to changes in product mix
and start-up of new production. Management expected the Company's
gross profit to be depressed during the first two quarters of 1996 as
a result of the usual cost associated with increasing efficiency,
quality and consistency at new product co-packers. In addition, new
package production start-up costs (for shipper displays & new
products) are generally expensed in the period incurred, and this
further depressed the Company's gross margin during the first quarter
of 1996. Management believes these start-up expenses totaled
approximately $127,000 this quarter, or 15% of sales. The
resultant gross margin (adjusted for these effects) would have been
approximately $260,000 (or 31% of sales), and Management believes
gross margins should continue to improve if the Company realizes the
economics derived from product developments implemented in the first
quarter, as well as from growing sales volumes.
Page 10
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED)
Result of operations: (CONTINUED)
Operating expenses:
Operating expenses for the three-month period ended March 31, 1996 were
approximately $1,030,000, compared to approximately $688,000 for the
same period in 1995, an increase of approximately $342,000 or 50% due
primarily to the costs of expanding distribution of the Company's
products in new and existing retail markets. As is customary in the
wholesale food industry, marketing and promotional expenses run high as
a percentage to sales in the first months of distribution. Product
development expenses increased approximately $124,000 this quarter
compared to the same period last year, accounting for the 36% of the
increase in operating expenses. Such level of expenses are expected
during the initial production periods at new co-packers in order to fine
tune production processes to ensure consistent quality and efficient
production of its products. Management anticipates that this level of
Product Development expense should fall as a percentage of sales as
sales grow, but fall only slightly on a nominal basis in future periods
as the Company continually improves its products and introduces new
products to the market. In spite of the greatly increased administrative
burdens relative to the Private Placement related transactions,
Administrative expenses were held to about half of the comparable
amounts of the previous two quarters (approximately $323,000
for the three-month period ending March 31, 1996, compared to
approximately $585,000 for the fourth quarter of 1995, and approximately
$654,000 for the third quarter of 1995), and is slightly less than the
comparable period for the previous year.
Interest expense:
Interest expenses were under $6,000, compared to approximately $10,000
for the previous year (and approximately $22,000 and $46,000 for the
third and fourth quarters, respectively, of 1995), due primarily to the
conversion of debt directly into equity concurrent with the Private
Placement transactions.
Liquidity and capital resources:
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
Net cash used for operations ($2,411,252) ($535,051)
Net cash used for investing activities (161,480) (3,494)
Net cash provided by financing activities 4,002,003 475,857
Working capital surplus (deficit) 4,501,437 (880,296)
Page 11
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
Trends:
The Company's net cash used in operations for the three-month period
ended March 31, 1996 was significantly higher than expected in typical
periods (as compared to sales) due to the start-up
of marketing and production of all products. This adverse relationship
is expected to be short term, and will be resolved over time.
The Company continues to use strategic capital exchanges to reduce its
cash needs, as successfully demonstrated in the last three quarters of
1995. This included exchanging services for equity (or equity options)
with several service providers, and converting deferred executive
salaries into equity, saving $50,000 in cash assets in the first quarter
of 1996. The Company intends to enter into similar transactions in the
future where practicable.
The CEO continued to defer his $12,500 monthly compensation through
January 30, 1996, and the other key executives continue to defer $8,300
in wages and benefits per month, in the interest of conserving current
working capital. All earned deferrals through January 1996 were
converted into equity at the private placement rates.
The Company continues to limit significant capital expenditures to
machinery and equipment directly related to the pursuit of
profitability. The Company intends to continue the ongoing investment
into research and development projects approximating $350,000 per year
as the Company is positioning itself to formulate, market and
distribute additional and improved products.
Management believes the Company must become profitable and continue to
access outside capital resouces in order to be a going concern. As
disclosed in the December 31, 1995 "Notes to Consolidated Financial
Statements" (Note 8) included in Form 10-KSB, the Company began Private
Placement transactions in September of 1995, and completed the
process on January 29, 1996. This has allowed the Company to
pursue and expand distribution on existing and new products,
purchase necessary inventory for product sales, and initiate the
launch of several new products.
Page 12
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VITAFORT INTERNATIONAL CORPORATION
----------------------------------
(Company)
/s/ Mark Beychok
-----------------------
Mark Beychok
Chief Executive Officer
Date: May 15, 1996
------------------
Note: Electronically filed on May 15, 1996
Page 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,745,677
<SECURITIES> 0
<RECEIVABLES> 417,243
<ALLOWANCES> (45,650)
<INVENTORY> 1,697,658
<CURRENT-ASSETS> 5,180,396
<PP&E> 597,950
<DEPRECIATION> (167,550)
<TOTAL-ASSETS> 5,879,260
<CURRENT-LIABILITIES> 678,959
<BONDS> 0
0
16
<COMMON> 7,338
<OTHER-SE> 5,169,707
<TOTAL-LIABILITY-AND-EQUITY> 5,879,260
<SALES> 840,995
<TOTAL-REVENUES> 858,090
<CGS> (708,313)
<TOTAL-COSTS> 1,030,432
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,552)
<INCOME-PRETAX> (886,208)
<INCOME-TAX> (1,454)
<INCOME-CONTINUING> (887,662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (887,662)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
