<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, 1999
[ ] 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, 1997 (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
share outstanding on May 21, 1999 is 12,794,460.
1
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
CONTENTS
PART 1 - FINANCIAL INFORMATION
_______________________________________________________________________________
<TABLE>
<C> <S> <C>
ITEM 1. Consolidated Financial Statements:
Balance Sheets - March 31, 1999 (unaudited) and December 31, 1998... 3-4
Statements of Operations -
Three Month Periods Ended March 31, 1999 and 1998 (unaudited)....... 5
Statement of Stockholders' Equity (Deficit) -
Three Month Period Ended March 31, 1999 (unaudited)................. 6
Statements of Cash Flows -
Three Month Periods Ended March 31, 1999 and 1998 (unaudited)....... 7
Notes to the Financial Statements (unaudited)....................... 8-11
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 12-14
PART II - OTHER INFORMATION
- ----------------------------------------------------------------------------------------
Signature........................................................... 15
</TABLE>
2
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of March 31, 1999 and December 31, 1998
ASSETS
------
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
--------------- --------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 542,476 $ 903,649
Marketable securities 250,000 250,000
Accounts receivable, less allowance
for doubtful accounts of $41,472 673,484 929,006
Inventories 343,704 196,603
Prepaid expenses and other current assets 98,115 132,509
------------ ------------
Total Current Assets 1,907,779 2,411,767
------------ ------------
Equipment
Manufacturing equipment 19,881 19,881
Furniture and equipment 105,160 105,160
Computer equipment 209,574 209,574
------------ ------------
334,615 334,615
Less accumulated depreciation (288,141) (271,411)
------------ ------------
46,474 63,204
------------ ------------
Other Assets
Intangible assets, net of accumulated amortization
of $111,159 and $66,236 866,761 911,684
Other assets 875 875
------------ ------------
Total Other Assets 867,636 912,559
------------ ------------
$ 2,821,889 $ 3,387,530
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of March 31, 1999 and December 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
March 31,
1999 December 31,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
Current liabilities
Notes payable - bank $ 298,810 $ 283,689
Notes payable - others 824,968 958,724
Convertible notes payable 600,000 600,000
Accounts payable 670,561 1,054,079
Accrued expenses 245,328 130,303
------------ ------------
Total Current Liabilities 2,639,667 3,026,795
------------ ------------
Long-term debt 2,065,000 2,065,000
------------ ------------
Stockholders' equity (Deficit)
Series B, 10% Cumulative Convertible Preferred Stock,
$.01 par value; authorized 110,000 shares; issued and
outstanding 1,000 shares, aggregate liquidation preference
of $50,000 10 10
Series C, Convertible Preferred Stock, $.01 par value;
authorized 450 shares; issued and outstanding 50 shares,
aggregate liquidation preference of $50,000 1 1
Common stock, $.0001 par value; authorized 30,000,000
shares; issued and outstanding 12,589,928 and 12,056,428
shares 1,259 1,206
Additional paid-in-capital 24,133,620 24,064,868
Accumulated deficit (26,017,668) (25,770,350)
------------ ------------
Total Stockholders' Equity (Deficit) (1,882,778) (1,704,265)
------------ ------------
$ 2,821,889 $ 3,387,530
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
----------- -----------
<S> <C> <C>
Net revenues $ 839,698 $ 346,836
Cost of sales 410,510 268,572
----------- -----------
Gross profit 429,188 78,264
----------- -----------
Operating expenses
Research and development 10,428 61,359
Sales and marketing 430,068 258,097
General and administrative 392,403 723,491
----------- -----------
Total operating expenses 832,899 1,042,947
----------- -----------
Loss from operations (403,711) (964,683)
Other income (expense)
Other income (expense) 270,280 (385)
Interest income 22 30,826
Interest expense (113,909) (47,569)
----------- -----------
Total other income (expense) 156,393 (17,128)
----------- -----------
Loss before income tax expense (247,318) (981,811)
State income tax expense - 3,200
----------- -----------
Net loss (247,318) (985,011)
Deemed dividend to preferred shareholders - (163,728)
----------- -----------
Net loss allocable to common shareholders (247,318) (1,148,739)
=========== ===========
Loss per share - basic and diluted $ (0.02) $ (0.17)
=========== ===========
Weighted average number of common shares outstanding 12,187,511 6,856,961
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Series B Series C
Convertible Convertible
Preferred Stock Preferred Stock Common Stock Additional
--------------- --------------- ------------------ Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit Total
------- ------- ------- ------- ---------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 1,000 $ 10 50 $ 1 12,056,428 $1,206 $24,064,868 $(25,770,350) $(1,704,265)
Exercise of stock options 533,500 53 68,752 68,805
Net Loss (247,318) (247,318)
------- ------- ------- ------- ---------- ------- ----------- ------------ -----------
Balance, December 31, 1998 1,000 $ 10 50 $ 1 12,589,928 $1,259 $24,133,620 $(26,017,668) $(1,882,778)
======= ======= ======= ======= ========== ======= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
VITAFORT INTERATIONAL CORPORTION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
--------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net loss $(247,318) $ (985,011)
Depreciation and amortization 61,653 51,081
Stock options exercised for services 38,455 -
Stock issued for services - 12,334
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable, net 255,522 270,340
Inventories (147,101) (66,400)
Prepaid expenses and other current assets 37,393 (7,955)
Other assets - (1,100)
Increase (decrease) in:
Accounts payable (361,168) (365,634)
Accrued expenses 120,025 (110,958)
--------- -----------
Cash and cash equivalents used in operating activities (242,539) (1,203,303)
--------- -----------
Cash flows from investing activities:
Purchase of equipment - (8,757)
Cash acquired through acquisition of Global International Sourcing - 75,462
--------- -----------
Cash and cash equivalents used in investing activities - 66,705
--------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock - 499,000
Repayments of notes payable, short term (118,635) (32,272)
Advances to Global International - (328,535)
Repayments of notes payable - (131,688)
--------- -----------
Cash and cash equivalents (used in) provided by financing
activities (87,635) 6,505
--------- -----------
Increase (decrease) in cash and cash equivalents (330,174) (1,130,093)
Cash and cash equivalents, beginning of period 872,649 2,199,036
--------- -----------
Cash and cash equivalents, end of period $ 542,475 $ 1,068,943
========= ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 67,441 $ 47,569
Income taxes $ - $ 3,200
Supplemental disclosure of non-cash operating, investing, and
financing activities
Stock issued for accounts payable $ 27,350 $ 131,750
Stock issued for prepaid consulting services $ 3,000 $ 61,666
Stock issued for acquisition of marketing contract $ - $ 43,124
Acquisition of Global International Sourcing:
Assets acquired, net of cash $ - $ 535,786
Liabilities assumed, including $522,328 due to Vitafort $ - $ 829,461
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
Vitafort International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - GENERAL
The unaudited 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 statements and
related footnotes 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 included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
The Company is presently engaged in formulating, marketing and distributing
fat-free, low fat and reduced fat foods.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. All material
intercompany accounts and transactions have been eliminated.
(b) Inventories are stated at the lower of 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 years or less.
(d) Intangible assets, which are recorded at cost, are composed of debt
issuance costs, acquisition costs of Auburn Farms and Natures
Warehouse trademarks, and goodwill associated with the acquisition of
Global International Sourcing, Inc. The acquisition costs associated
with trademarks and goodwill are being amortized on a straight-line
basis over twenty years. All other intangible assets are being
amortized on a straight-line basis over periods not exceeding five
years. These costs are reviewed by management periodically and written
down to the value of the future benefit expected to be derived.
(e) For the three months ended March 31, 1999 and 1998, basic loss per
share has been computed using the weighted average number of common
shares outstanding during the period. Since options and warrants
outstanding for all periods presented are anti-dilutive, basic and
dilutive loss per share are the same amounts. Dividends on cumulative
preferred stock are not material.
8
<PAGE>
NOTE 3 - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or
market. Inventory consists of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Finished goods $155,226 $118,524
Packaging and raw material 188,478 78,079
-------- --------
$343,704 $196,603
======== ========
</TABLE>
NOTE 4 - STOCKHOLDERS' EQUITY
During the three month period ended March 31, 1999, the holders of stock
options to purchase 533,500 shares of stock exercised these options as
compensation for services rendered and to be rendered.
NOTE 5 - GOING CONCERN
The Company has prepared the financial statements included herewith
assuming that the Company will continue as a going concern. Although the
Company raised additional capital in 1998, it has not generated sufficient
revenue-producing activity to sustain its operations. Accordingly, the Company
must realize a satisfactory level of profitability from its current and future
operations in order to remain a viable entity. The Company's auditors have
included an explanatory paragraph in their report for the year ended December
31, 1998 indicating there is substantial doubt regarding the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
any uncertainty.
NOTE 6 - LITIGATION
The Company is subject to pending claims and litigation, the most
significant of which are discussed below.
In December 1994, Lloyd Gauntt, who invested an aggregate of $75,000 in
certain of the Company's private placements, initiated an action in Superior
Court, Orange County, California against his stockbroker, two national brokerage
firms, several companies in which he had invested; and, certain of those
company's officers. Included among the defendants was the Company and its then
Chief Executive Officer, Steve Westlund. The complaint seeks damages in an
unspecified amount in excess of $500,000 and punitive damages in an unspecified
amount in excess of $5,000,000. The Court has dismissed the class action claims
as to the Company and granted a motion that the claims against the brokerage
firms and associated persons must be submitted to arbitration. The Plaintiff
has appealed that ruling. The Company denies any liability to the plaintiff and
intends to vigorously defend this action. The Company notes that the plaintiff
sold a portion of the securities he purchased from the Company, realizing a
profit; that the balance of the securities became salable under Rule 144; and
that, if sold, the Plaintiff `s losses might be as little as $15,000.
9
<PAGE>
In April, 1997, the Company agreed in principle with ATCOLP INVESTMENT
PARTNERS, a California Limited Partnership (the "Lender), in which Donald Wohl,
a Director of the Company at the time, is the general partner, for a loan in the
amount of $300,000 (the "Loan"), to fund the payment of legal fees in connection
with the Company's arbitration against The Keebler Company. The loan was
evidenced by a note which bears interest at the lesser of 15% per annum or the
highest rate allowed by law with recourse solely to the net proceeds of the
arbitration, if any. If the Company did not realize any net proceeds from the
arbitration, the Loan would be canceled and the Lender would receive a warrant
for the purchase of 400,000 shares of the Company's Common Stock at $.01 per
share. If the Loan was repaid through the application of the net proceeds of the
arbitration, the Lender would receive warrants for the purchase of 200,000
shares of Common Stock at $.01 per share and a percentage of net proceeds of the
arbitration equal to 15% of the first $1,000,000 of net proceeds, but not less
than $100,000; 20% of the net proceeds greater than $1,000,000 and less than
$3,000,000; and, 25% of net proceeds above $3,000,000. The Loan was approved by
the disinterested members of the Company's Board of Directors, and was on terms
no less favorable to the Company than were available from non-affiliated
lenders. A second proposal, from another source, contained terms which would
have required the Company to pay $2,050,000 in fees based on the actual award,
repay the $300,000 advance, and be granted a warrant for 1,000,000 shares of the
Company's common stock at an exercise price of $1.00. The loan amount of
$300,000 was repaid upon settlement of the litigation in June 1997 and receipt
of funds in July 1997, plus $1,236,883 in conformity with the agreed upon
formula, plus a warrant for 200,000 shares of the Company's common stock at a
$0.01 per share.
In connection with the acquisition of assets of Auburn Farms, Inc., ("AFI")
in 1996, the Company acquired the intellectual property and certain claims of
AFI. In May 1996, the Company filed an action in federal court alleging Lanham
Act violations, misappropriation of trade secrets, unfair competition,
conspiracy and related claims arising out of misappropriation of Auburn Farms'
principal products by Auburn Farms co-packer, New Life Bakery ("New Life") and a
principal competitor, Barbara's Bakery ("Barbara's"). The lawsuit was filed in
the United States District Court for the Eastern District of California which is
scheduled for trial in May 2000. Vitafort is seeking in excess of $10 million
in damages based on claims of unfair competition, breach of contract, fraud
among other claims. These claims arise from New Life's abrupt termination of
production for Auburn Farms and its alleged conspiracy with Barbara's Bakery to
make and distribute to natural food stores and other retailers products to which
Auburn Farms (and Vitafort as successor) had contractual rights to distribute
exclusively. It is also based on Barbara's Bakery's representations to brokers,
distributors and consumers that it had the right to distribute these same food
products. The Company has been advised by outside litigation counsel that
evidence produced in discovery may support a request for punitive damages. The
defendants have filed counterclaims against Vitafort and its Chief Executive
Officer seeking $5 million in damages.
On March 25, 1998, New Life and Barbara's purported to purchase from AFI's
bankruptcy estate certain claims against Barbara's and New Life for $300,000.
The purchased claims do not include any of the claims previously acquired by the
Company. In a subsequent transaction, Vitafort acquired Sacramento Commercial
Bank's interest in the litigation proceeds. The Company may be obligated to pay
a portion of any recovery to the Company against New Life to AFI's bankruptcy
estate and/or its creditors, as well as a portion of any recovery against any
defendant to the Auburn Farms Vindication Limited Partners, LLP which is
committed to funding a significant part of the litigation expense. The Company
intends to pursue this litigation vigorously. There is no assurance given that
the Company will receive any recovery. The Company believes that the
distribution of the Auburn Farms products was substantially injured by unfair
competition from Barbara's Bakery and New Life.
Vitafort has secured up to $800,000 in off balance sheet financing for the
litigation against New Life and Barbara's Bakery, including $600,000 from a
newly-formed investment partnership, Auburn
10
<PAGE>
Farms Vindication Partners, LLC, for the purpose of paying the legal fees and
expenses of the pending litigation. The fee arrangement includes a limited,
partial contingency arrangement with Jenner & Block, one of the nation's leading
trial firms. Jenner & Block also represented Vitafort in the 1997 arbitration
against The Keebler Company that resulted in Vitafort receiving $6.75 million in
damages and attorneys' fees. Under the fee arrangements, the first proceeds
received from the litigation if any, will go to repay the advancements of legal
fees and expenses, including those made by the Company. Between 25% to 35% of
any additional amounts may be paid to the investment partnership. Additionally,
the law firm and investment group may collectively receive as much as $580,000
as additional compensation from a successful judgment in the litigation. These
fee arrangements may materially decrease the value of any recovery to the
Company.
On September 29, 1998, a complaint was filed in Superior Court, the County
of Los Angeles, in an action entitled "Kirtland & Packard LLP, a California
Limited Liability Partnership vs. Vitafort, Inc., a Delaware Corporation; and
Does 1-25 inclusive." The complaint alleges Breach of Contract, Fraud,
Negligent Misrepresentation, Common Counts, Breach of Implied Covenant of Good
Faith and Fair Dealing, Negligent Performance of Contract, and Declaratory
Relief, arising out of a contract for legal services. The Complaint seeks
damages in the amount of $85,000 plus interest and attorneys fees, and for such
other and further relief as the Court deems just and proper. The Company is
vigorously defending the suit.
In addition to the items discussed in this note, the Company is a party to
legal proceedings (which generally relate to disputes between the Company and
its suppliers or customers regarding payment for products sold or supplied) are
typical for a company of its size and scope and financial condition, and that
none of these proceedings are believed to be material to its financial condition
or results of operations.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AS RESULTS OF OPERATIONS
(Unaudited)
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995:
Except for historical facts, all matters discussed in this report which are
forward looking involve a high degree of risks and uncertainties. Potential
risks and uncertainties include, but are not limited to, competitive pressures
from other food companies and within the grocery industry, economic conditions
in the Company's primary markets and other uncertainties detailed from time to
time in the Company's Securities and Exchange Commission filings.
Three Months Ended March 30, 1999 and 1998
- ------------------------------------------
Results of Operations:
The Company continues to focus on the development of new products and the
repair of customer relationships. Progress was made in the development area for
new products with the introduction in the second half of 1998 of "The Wizard of
Oz" group of products. These products account for the sales increase when
compared to the first quarter of 1998. However, the amount of this increase has
not been sufficient to offset expenses and the overall results reflect a loss.
New products offerings have significantly improved the gross profit
margins. However, there can be no assurance that the Company can maintain any
significant increased level of sales over any extended time periods.
Development programs for new products continue, with the planned
introduction of the "Peanut Squeeze" line for the third quarter of this year.
While such introductions may have little, if any, impact in the quarter the
product is introduced, due to the amount of time required for distribution into
the channels, it should provide a cascading effect over future periods.
Net Revenues:
For the three months ended March 31, 1999, net sales were $839,698 compared
to $346,836 for the same period in 1998, an increase of $492,862 or 143%. This
was due primarily to sales of "The Wizard of Oz" line of products.
Gross Profit:
Gross profit increased from $78,264 for the three months ended March 31,
1998 to $429,188 for the three months ended March 31, 1999, an increase of
$350,924 or 448%. Gross profit was 51.2% of net revenues for the quarter ended
March 31, 1999, compared to 22.6% for the same period of 1998. This is due to
the favorable mix of "The Wizard of Oz" products sold at much higher gross
profit margins.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AS RESULTS OF OPERATIONS
(Unaudited)
Operating Expenses:
Research and Development - Total expenses for product development in the
quarter ended March 31, 1999 were $10,428 compared to $61,359 for the same
period in 1998, a decrease of $50,931. This is in line with the Company's on-
going strategy to source from existing manufacturers and use their internal
research and technical staff to develop the new products.
Sales and Marketing:
Total sales and marketing expenses for the quarter ended March 31, 1999
were $430,068 compared to $258,097 for the three months ended March 31, 1998, an
increase of $171,971. Increase expenses were primarily in the areas of freight,
$85,606; sales promotion expenses, $68,416; and commissions $16,961, all related
to sales volume growth.
General and Administrative:
For the quarter ended March 31, 1999, total general and administrative
expenses were $392,403 compared to $723,491 for the same quarter ended March 31,
1998, a decrease of $331,088. Significant cost reductions were primarily
achieved in the following areas: legal, $144,374, due to off balance sheet
financing of a litigation; consultants, $61,558, as part of the cost reduction
program; management and staff salaries, $35,629, due to staffing reductions;
and other miscellaneous items, $70,026.
Other Income (Expense):
The interest expenses increased from $47,569 in 1998 to $113,909 in the
first quarter of fiscal 1999 due to higher costs of lines of credit required to
fund the Company's working capital needs.
Other income of $270,280 reflects primarily re-negotiation of consulting
contract costs of $139,490 that had been accrued, and reversal of old accounts
payable of $130,790.
Liquidity and Capital Resources:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
--------- ----------
<S> <C> <C>
Net Cash Used for Operations $(242,539) $(1,023,303)
Net Cash Provided by Investing Activities - 66,705
Net Cash Provided (Used in) by Financing Activities (118,635) 6,505
Working Capital (Deficit) (731,888) 1,178,066
</TABLE>
13
<PAGE>
The Company continues to expend resources in the product development area
for the scheduled introduction of new products. However, there is no guarantee
that these products, once introduced in the market, will achieve the anticipated
level of sales forecast by the Company nor reach the gross profit margin
targeted by the Company for each of the products. In addition, while the Company
has experienced less losses over the past twelve months, there is no guarantee
that new co-packers will provide the Company with credit terms. Nor is there any
assurance that the Company will be able to meet its future cash obligations
without additional external funding and improved sales. Neither additional
financing nor improved sales can be guaranteed to occur in the future. While the
Company has made significant improvement in rebuilding customer relationships,
the process has been slow and costly, and there is no guarantee that these
customers will purchase products from the Company with the same enthusiasm that
they have in the past.
The Company continues to suffer recurring losses from operations as of
March 31, 1999 and previously, and has not generated sufficient revenue-
producing activity to sustain its operations. The Company has a working capital
deficit of $731,888 as of March 31, 1999. The Company's independent certified
public accountants have included a modification to their opinion, which
indicates there is substantial doubt about the Company's ability to continue as
a going concern. See "Note 5" to the consolidated financial statements for
additional information. The Company is attempting to raise additional capital to
meet future working capital requirements and launch new products, but may not be
able to do so. The Company is also considering raising funds through off balance
sheet financing for new products. Should the Company not be able to raise
additional capital, it may have to curtail operations.
14
<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
/s/ Fred Rigaud
------------------------------
Fred Rigaud
Acting Chief Financial Officer
Date: May 24, 1999
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 542,476
<SECURITIES> 250,000
<RECEIVABLES> 673,484
<ALLOWANCES> 41,472
<INVENTORY> 343,704
<CURRENT-ASSETS> 1,907,779
<PP&E> 334,615
<DEPRECIATION> 288,141
<TOTAL-ASSETS> 2,821,889
<CURRENT-LIABILITIES> 2,639,667
<BONDS> 0
0
11
<COMMON> 1,259
<OTHER-SE> (1,882,778)
<TOTAL-LIABILITY-AND-EQUITY> 2,821,889
<SALES> 839,698
<TOTAL-REVENUES> 839,698
<CGS> 410,510
<TOTAL-COSTS> 832,899
<OTHER-EXPENSES> (270,302)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,909
<INCOME-PRETAX> (247,318)
<INCOME-TAX> 0
<INCOME-CONTINUING> (247,318)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (247,318)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
