UNITED STATES
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 September 30, 2000
[ ] 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 November 17, 2000 is 20,112,964.
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
CONTENTS
PART 1 - FINANCIAL INFORMATION
------------------------------------------------------------------------------
ITEM 1. Consolidated Financial Statements:
Balance Sheets - September 30, 2000 (unaudited) and December 31, 1999..3-4
Statements of Operations (unaudited) -
Three Month Periods Ended September 30, 2000 and 1999....................5
Nine Month Period Ended September 30, 2000 and 1999 .................... 6
Statement of Stockholders' Equity (unaudited) -
Nine Month Period Ended September 30, 3000 ............................. 7
Statements of Cash Flows - (unaudited) -
Nine Month Periods Ended September 30, 2000 and 1999.................... 8
Notes to the Financial Statements (unaudited)........................ 9-10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................11-14
PART II - OTHER INFORMATION
-------------------------------------------------------------------------------
Signature.................................................................15
2
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
<TABLE>
ASSETS
<CAPTION>
September 30,
2000 December 31,
(Unaudited) 1999
---------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 63,333 $ 1,119,153
Marketable securities - 536,667
Accounts receivable, less allowance
for doubtful accounts of $120,554
and $63,782 8,703 139,137
Inventories - 585,407
Other receivables 9,215 47,383
Prepaid expenses and other current assets 441,801 676,753
-------- -------
Total Current Assets 523,052 3,104,500
-------- ---------
Equipment
Manufacturing equipment 152,602 106,019
Furniture and office equipment 109,654 109,654
Computer equipment 275,541 270,588
-------- -------
537,797 486,261
Less accumulated depreciation 353,316 305,434
-------- -------
Total Equipment 184,481 180,827
-------- -------
Other Assets
Intangible assets, net of accumulated
amortization of $119,114 and $96,297 492,630 526,856
Other assets 875 138,006
---- --------
Total Other Assets 493,505 664,862
-------- --------
Total Assets $1,201,038 $3,950,189
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September 30,
2000 December 31,
(Unaudited) 1999
------------ ------------
<S> <C> <C>
Current liabilities
Notes payable - other $ 749,904 $ 392,209
Accounts payable 709,077 836,500
Accrued expenses 601,478 469,533
-------- -------
Total Current Liabilities 2,060,459 1,698,242
---------- ---------
Long-term debt, less current portion - 26,331
-- ------
Total long-term liabilities - 26,331
Minority Interest (1,542) 654,151
Stockholders' equity
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
19,686,788 and 17,487,288 shares 2,088 1,749
Additional paid-in capital 29,543,060 28,398,646
Accumulated deficit (30,403,038) (26,828,941)
------------- -------------
Total Stockholders' Equity (857,879) 1,571,465
------------- -------------
Total Liabilities & Stockholders' Equity $ 1,201,038 $ 3,950,189
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
2000 1999
------- -------
<S> <C> <C>
Net revenues $ 142,059 $ 738,437
Cost of sales 321,725 524,677
-------- -------
Gross profit (179,666) 213,760
--------- -------
Operating expenses
Research and development - 34,159
Sales and marketing 319,451 496,873
General and administrative 1,222,752 520,616
---------- -------
Total operating expenses 1,542,203 1,051,648
---------- ---------
Loss from operations (1,721,869) (837,888)
Other income (expense)
Other income - -
Interest income 1,973 6,000
Interest expense (5,625) (36,871)
Litigation recovery receivable, net of costs - 60,632
Minority interest in net loss of consolidated
subsidiary 513,820 6,835
-------- -----
Total other income (expense) 510,168 36,596
---------- ---------
Income (loss) before income tax expense (1,211,701) (801,292)
State income tax expense - -
-- -
Net loss after tax, before extraordinary item (1,211,701) (801,292)
Extraordinary gain on forgiveness of debt (0) 42,276
Net income (loss) allocable to common shareholders (1,211,702) $ (759,016)
============= ===========
Basic net income (loss) per common share $ (0.06) $ (0.06)
Loss before extraordinary item $ - $ 0.01
---- ------
Basic and diluted net loss per common share $ (0.06) $ (0.05)
======== ========
Diluted weighted average shares of common stock 19,686,788 14,359,168
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
---------- ----------
<S> <C> <C>
Net revenues $ 864,020 $ 1,851,685
Cost of sales 1,106,898 1,161,653
--------- ----------
Gross profit (242,878) 690,032
--------- -------
Operating expenses
Research and development 35,835 56,315
Sales and marketing 1,419,693 1,279,950
General and administrative 2,939,796 1,394,384
---------- ----------
Total operating expenses 4,395,324 2,730,649
---------- ----------
Loss from operations (4,638,202) (2,040,617)
Other income
Other income - -
Interest income 19,537 6,498
Interest expense (22,500) (253,723)
Litigation recovery receivable, net of costs - 1,260,632
Minority interest in Hollywood Partners.Com 1,030,949 6,835
---------- ---------
Total other income 1,027,986 1,020,242
---------- ----------
Income (loss) before income tax expense (3,610,216) (1,020,375)
State income tax expense 6,400 -
------ ---
Net loss after tax, before extraordinary item (3,616,616) (1,020,375)
Extraordinary item - forgiveness of debt 42,520 315,828
------- ---------
Net income (loss) allocable to common shareholders $ (3,574,096) $ (704,547)
============= ===========
Basic net income (loss) per common share $(0.18) $ (0.07)
Loss before extraordinary item $ - $ 0.02
---- ------
Basic and diluted net loss per common share $(0.18) $ (0.05)
== ========
Diluted weighted average shares of common stock 19,686,788 14,785,893
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Series B Series C
Convertible Convertible
Preferred Stock Preferred Stock
Shares Amount Shares Amount
-------------------- ------------------
<S> <C> <C> <C> <C>
Balance, January 1, 2000 1,000 $ 10 50 $ 1
Exercise of stock options
Stock, options and warrants
issued for services
Net loss
------ ---- --- --
Balance, September 30, 2000 1,000 $ 10 50 $ 1
======= ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In
Shares Amount Capital
---------- ------- ------------
<S> <C> <C> <C>
Balance, January 1, 2000 17,487,288 $ 1,749 $ 28,398,646
Exercise of stock options 3,387,000 339 1,132,276
Stock, options and warrants
issued for services 12,138
Net loss
---------- ------- -----------
Balance, September 30, 2000 20,874,288 $ 2,088 $ 29,543,060
========== ======= ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit Total
------------ -----------
<S> <C> <C>
Balance, January 1, 2000 $ (26,828,942 $ 1,571,464
Exercise of stock options 1,132,615
Stock, options and warrants
issued for services 12,138
Net loss (3,574,096) (3,574,096)
-------------- -----------
Balance, September 30, 2000 $ (30,403,038) $(857,879)
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
------- ---------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net loss (3,574,096) $ (247,318)
Adjustments to reconcile net loss to cash and cash
equivalents used in operating activities
Extraordinary gain (42,520) -
Stock and options issued for services -
Depreciation and amortization 82,108 61,653
Provision for doubtful accounts 56,772 -
Minority interest in net loss of consolidated
subsidiary (1,030,949) -
Stock options exercised for services - 38,455
Changes in operating assets and liabilities:
Accounts receivable 62,450 255,522
Inventories 585,408 (147,101)
Prepaid expenses and other current assets 402,967 37,393
Other assets 18,495 -
Accounts payable (84,904) (361,168)
Long term debt, less current portion (52,664) -
Income taxes payable (23,838) -
Accrued expenses 194,810 120,025
-------- -------
Cash and cash equivalents used in operating activities(3,405,961) (242,539)
Cash flows from investing activities:
Purchase of computer equipment (51,536) -
Proceeds from sale of marketable securities 536,667 -
-------- ---
Cash and cash equivalents provided by investing
activities 485,131 -
------- ---
Cash flows from financing activities:
Proceeds from issuance of stock 1,520,008 -
Proceeds from notes payable 379,226 (118,635)
Repayment of notes payable (34,224) 31,000
---------- ---------
Cash and cash equivalents provided by (used in)
financing activities 1,865,010 (87,635)
--------- ---------
Decrease in cash and cash equivalents (1,055,820) (330,174)
--------- ---------
Cash and cash equivalents, beginning of period 1,119,153 872,649
---------- -------
Cash and cash equivalents, end of period $ 63,333 $ 542,475
========== =========
</TABLE>
See accompanying notes to consolidated financial statements
8
<PAGE>
Vitafort International Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - GENERAL
The unaudited consolidated financial statements which include the
operations of Vitafort, Visionary Brands and Hollywood Partners.Com, Inc. have
been prepared on the same basis as the audited consolidated financial statements
for the year ended December 31, 1999 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 filed on Form
10-KSB for the year ended December 31, 1999.
Historically, Vitafort has developed, marketed and distributed snack
foods to the retail grocery trade creating a wholly owned subsidiary, Visionary
Brands, Inc., to execute this strategy. These products have been marketed under
Company-developed brands such as "Peanut Squeeze," or licensed brands procured
by Hollywood Partners.com, Inc. such as "The Wizard of OZ" marshmallows. The
Company has developed these products from the actual conception of the product
idea to the shipment of the product to the retailer. However, the Company has
dramatically curtailed all operations due to lack of capitol.
Vitafort has begun to build the asset base on its balance sheet with the
spin out of Hollywood Partners.com. Currently, the Company holds 4.619 million
shares of a separately-traded public company, Hollywood Partners.com (OTCBB:
HLYP) common stock.
Hollywood Partners.com, Inc. ("HP.com") has positioned itself to service
its client base in the areas of marketing, branding and distribution. Using the
Company's tie-ins to entertainment and sports properties, the Company provides
strategic solutions to help clients to achieve their marketing and business
objectives. The Company will generate revenue by charging the client base for
its promotional packages, and by utilizing the registered database for back end
commerce and demographic enhancement.
The Company has also been exploring the possibility of utilizing the
Hollywood Partners.com asset base to pursue potential mergers and acquisitions
candidates. However, there are no guarantees that the Company will be able to
acquire these companies and execute this strategy.
NOTE 2 - LOSS PER SHARE
For the three months ended September 30, 2000, basic and diluted loss
per share has been computed using the weighted average number of common shares
outstanding during the period. Dividends on cumulative preferred stock are not
material.
9
<PAGE>
NOTE 3 - INVENTORIES
Inventory consists of the following:
September 30, December 31,
2000 1999
------------- -------------
Finished goods $ 0 $ 352,847
Packaging and raw material 0 232,560
---- -----------
$ 0 $ 585,407
NOTE 4 - STOCKHOLDERS' EQUITY
During the nine month period ended September 30, 2000, the holders of
stock options to purchase 3,387,000 shares of stock exercised these options as
compensation for services rendered and to be rendered.
NOTE 5 - GOING CONCERN
The Company has prepared the accompanying financial statements included
herewith assuming that it will continue as a going concern. Although the Company
raised additional capital in 2000, 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, 1999 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
this uncertainty.
NOTE 6 - LITIGATION
The Company has filed suit against the manufacturer of the peanut
filling for Peanut Squeeze. The Company is seeking damages for the
manufacturer's inability to meet product specifications. As a result, the
Company incurred significant damages including lost sales and shelf space, lost
promotional costs and expenses associated with introducing and marketing Peanut
Squeeze, and damage to the Company's distribution network of brokers and
distributors. In addition, 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) that are typical for a company
of its size and scope and financial condition, and none of these proceedings are
believed to be material to its financial condition or results of operations.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Unaudited)
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995. Certain statements contained in this
Quarterly Report on Form 10-QSB ("Form 10-QSB") constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different than any
expressed or implied by these forward-looking statements. These statements may
be contained in our filings with the Securities and Exchange Commission, press
releases, and written or oral presentations made by our representatives to
analysts, rating agencies, stockholders, news organizations and others. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "intend", "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of these terms
or other comparable terminology. Although we believe that the expectations in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. See also the
information set forth in Exhibit 99.1 on our Form 8-K dated January 21, 2000
titled "RISK FACTORS," incorporated into the quarterly report for the period
ending March 31, 2000 on Form 10-QSB.
Three Months and Nine Months Ended September 30, 2000 and 1999
Results of Operations:
The Company had planned to raise capital over the past year to support
its food marketing initiatives through Visionary Brands. However, the quality
control problems associated with the manufacturing of Peanut Squeeze, the
Company's primary food product, has made that task extremely difficult.
Management relied on the manufacturer to produce a consistent good-tasting
product. This did not occur and the Company has had to discontinue the product,
while suffering significant losses due to the poor quality product produced by
the manufacturer.
The Internet segment lost its allure on Wall Street in the past six
months and companies that were trading at incredible multiples of both revenue
and earnings collapsed as analysts began to demand fundamental business
principles and immediate results. These market condition changes have allowed
Hollywood Partners.com ("HP.com") to expand its business model to include the
potential acquisition of brick and mortar companies with revenue and profit, and
the expansion into non-Internet marketing and promotions companies. HP.com has
positioned itself to service its client base in the areas of marketing, branding
and distribution. Using the Company's tie-ins to entertainment and sports
properties, the Company provides strategic solutions to help clients to achieve
their marketing and business objectives. The Company will generate revenue by
charging the client base for its promotional packages, and by utilizing the
registered database for back end commerce and demographic enhancement.
11
<PAGE>
Net Revenues:
For the three months ended September 30, 2000, net sales were $142,059
compared to $738,437 for the same period in 1999, a decrease of $596,378 or
80.1%. The lack of significant growth in revenue was primarily due to the shut
down of manufacturing and distribution of Peanut Squeeze. In addition, the
revenue generated from the sales of "The Wizard of Oz" marshmallows has been
greatly reduced.
For the nine months ended September 30, 2000, net sales were $864,020
compared to $1,851,685 for the same period in 1999, a decrease of $987,665 or
53.3%. This decrease was also due to the shut down of Peanut Squeeze and the
slow down of "The Wizard of Oz" marshmallows.
Gross Profit:
For the three months ended September 30, 2000, gross loss was ($393,426)
compared to $213,760 for the three months ended September 30, 1999. Gross loss
was (126%) of net revenues for the quarter ended September 30, 2000, compared to
gross profit of 29% for the same period in 1999. The gross loss in the third
quarter was adversely affected by two key factors: The Company liquidated
short-coded merchandise at a discount, and the discounting of Peanut Squeeze in
an attempt to mitigate the damages caused by bad product.
For the nine months ended September 30, 2000, gross loss was ($242,878)
compared to a gross profit of $690,032 for the nine months ended September 30,
1999, a decrease of $987,665. Gross loss was (28%) of net revenues for the nine
months ended September 30, 2000 compared to gross profit of 37.2% for the same
period in 1999. The third quarter gross loss results adversely affected the nine
month gross profit results due to the liquidation and discounting of merchandise
in the quarter.
Research and Development:
Total research and development expenses for product development for the
three months ended September 30, 2000 were $0 compared to $34,159 for the same
period in 1999, a decrease of $34,159 or 100%. The decrease in research and
development expenses is due primarily to the company's new strategy to contract
with outside suppliers to develop and manufacture their products and not use in
house resources.
Total research and development expenses for product development for the
nine months ended September 30, 2000 were $35,835 compared to $56,315 for the
same period in 1999, a decrease of $20,480 or 36%. The decrease in research and
development expenses is due primarily to the company's strategy of using outside
suppliers to develop their products and not use in house resources.
Sales and Marketing:
Total sales and marketing expenses for the three months ended September
30, 2000 were $319,451 compared to $496,873 for the three months ended September
30, 1999, a decrease of $177,422 or 35.7%. This decrease was due to primarily to
low sales and marketing activity in the quarter as the company is shutting down
its distribution of Peanut Squeeze.
12
<PAGE>
Total sales and marketing expenses for the nine months ended September
30, 2000 were $1,419,693 compared to $1,279,950 for the nine months ended
September 30, 1999, an increase of $139,743 or 10.9%. This increase was also due
to the impact of HP.com on the Company's consolidated financial statements. In
the first nine months of the year, HP.com accounted for $604,827 of sales and
marketing expenses as it began to market its promotional services.
General and Administrative:
For the three months ended September 30, 2000, total general and
administrative expenses were $1,222,752 compared to $520,516 for the three
months ended September 30, 1999, an increase of $702,136, or 135%. Significant
cost increments were primarily in the following areas: consulting expense of
$363,000; management and staff salaries of $80,000, due to increase of staffing
of Hollywood Partners.com; bad debt expenses of $268,000; insurance cost of
$37,000 and legal and accounting expenses of $76,000.
For the nine months ended September 30, 2000, total general and
administrative expenses were $2,939,796 compared to $1,394,384 for the nine
months ended September 30, 1999, an increase of $1,545,412 or 111%. Significant
cost increments were primarily in the following areas: consulting expense of
$506,000; management and staff salaries of $187,000; legal and accounting fees
of $167,000; insurance fees of $106,000; and bad debt expenses of $268,000.
Other Income (Expense):
For the three months ended September 30, 2000, other income and expenses
were $3,652 compared to $29,761 for the three months ended September 30 1999, a
decrease of $26,109, or 88%. This decrease was due to a litigation recovery of
$60,632 received in 1999.
For the nine months ended September 30, 2000, other income and expenses
were ($2,963) compared to $253,723 for the nine months ended September 30 1999,
a decrease of $1,016,370 or 100%. This decrease was due primarily to a
litigation recovery of $1,260,632 received in 1999.
Liquidity and Capital Resources:
Nine Months Ended
September 30,
2000 1999
------------ -----------
Net Cash Used in Operating Activities $ (3,405,961) $ (672,001)
Net Cash Provided by Investing Activities 485,131 104,058
Net Cash Provided by
Financing Activities 1,865,010 991,327
Working Capital (1,537,407) (296,151)
13
<PAGE>
The Company continues to suffer recurring losses from operations as of
September 30, 2000 and has not generated sufficient revenue-producing activity
to sustain its operations. The Company's independent certified public
accountants have included a modification to their opinion on the Company's
December 31, 1999 financial statements, which indicates there is substantial
doubt about the Company's ability to continue as a going concern. 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. Should the
Company not be able to raise additional capital, it may have to shut down
operations.
PART II - OTHER INFORMATION
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/ John Coppolino
John Coppolino
President
/s/ Fred Rigaud
Fred Rigaud
Acting Chief Financial Officer
Date: November 20, 2000
14
