<PAGE>
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 June 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 August 18, 2000 is 20,359,288
<PAGE>
VITAFORT INTERNATIONAL CORPORATION
CONTENTS
PART 1 - FINANCIAL INFORMATION
------------------------------------------------------------------------------
ITEM 1. Consolidated Financial Statements:
Balance Sheets - June 30, 2000 (unaudited) and
December 31, 1999............................. 3-4
Statements of Operations (unaudited) -
Three Month Periods Ended June 30, 2000 and 1999............. 5
Six Month Periods Ended June 30, 2000 and 1999 .............. 6
Statement of Stockholders' Equity (unaudited) -
Six Month Period Ended June 30, 3000 ........................ 7
Statements of Cash Flows - (unaudited) -
Six Month Periods Ended June 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 June 30, 2000 and December 31, 1999
<TABLE>
ASSETS
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 377,390 $ 1,119,153
Marketable securities - $ 536,667
Accounts receivable, less allowance
for doubtful accounts of $84,284 and $63,782 40,479 139,137
Inventories 269,365 585,407
Other receivables 194,794 47,383
Prepaid expenses and other current assets 698,823 676,753
Total Current Assets 1,580,851 3,104,500
Equipment
Manufacturing equipment 151,602 106,019
Furniture and office equipment 109,654 109,654
Computer equipment 275,541 270,588
536,797 486,261
Less accumulated depreciation 335,975 305,434
Total Equipment 200,823 180,827
Other Assets
Intangible assets, net of accumulated amortization
of $107,706 and $96,297 504,038 526,856
Other assets 875 138,006
Total Other Assets 504,913 664,862
Total Assets $ 2,286,587 $ 3,950,189
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 2000 and December 31, 1999
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
-----------------------
<S> <C> <C>
Current liabilities
Notes payable, current portion $ 767,377 $ 392,209
Accounts payable 636,200 836,500
Accrued expenses 558,429 469,533
Total Current Liabilities 1,962,006 1,698,242
Long-term debt, less current portion 1,948 26,331
Total long-term liabilities 1,948 26,331
Minority Interest 303,233 654,151
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 20,359,288
and 17,487,288 shares 2,037 1,749
Additional paid-in capital 29,208,690 28,398,646
Accumulated deficit (29,191,336) (26,828,941)
------------- -----------
Total Stockholders' Equity 19,402 1,571,465
------------- -----------
Total Liabilities & Stockholders' Equity $ 2,286,589 $ 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
June 30,
2000 1999
---------------------
<S> <C> <C>
Net revenues $ 286,078 $273,550
Cost of sales 398,227 226,466
Gross profit (loss) (112,149) 47,084
Operating expenses
Research and development 1,913 11,728
Sales and marketing 559,428 353,009
General and administrative 866,634 481,365
Total operating expenses 1,427,975 846,102
Loss from operations (1,540,124) (799,018)
Other income (expense)
Other income - 3,271
Interest income 7,770 476
Litigation recovery receivable, net of costs - 1,200,000
Interest expense (5,625) (102,943)
Total other income 2,145 1,100,804
Income (loss) before income tax expense (1,537,979) 301,786
State income tax expense 6,400 -
Net income (loss) after tax, before minority interest (1,544,379) 301,786
Minority interest in net loss of consolidated
subsidiary 243,956 -
Net income (loss) $(1,300,423) 301,786
Basic and diluted net income (loss) per common share $ (0.07) $ 0.02
Basic and diluted weighted average shares of common stock 18,020,505 13,167,395
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
------------------------
<S> <C> <C>
Net revenues $ 721,961 $ 1,113,248
Cost of sales 785,173 636,976
Gross profit (loss) (63,212) 476,272
Operating expenses
Research and development 35,834 22,156
Sales and marketing 1,100,242 783,077
General and administrative 1,717,044 873,768
Total operating expenses 2,853,120 1,679,001
Loss from operations (2,916,332) (1,202,729)
Other income
Other income - 273,551
Interest income 17,564 498
Litigation recovery receivable, net of costs - 1,200,000
Interest expense (29,674) (216,852)
Total other income (expense) (12,110) 1,257,197
Income (loss) before income tax expense (2,928,442) 54,468
State income tax expense 6,400 -
Net income(loss)after tax,before minority interest
and extraordinary item (2,922,042) 54,468
Minority interest in net loss of consolidated
subsidiary 517,129 -
Extraordinary item - forgiveness of debt 42,520 -
Net (income) loss $(2,362,393) $ 54,468
Basic and diluted net loss per common share:
Loss before extraordinary item $ (0.13) -
Extraordinary gain on extinguishment of debt 0.01 -
Basic and diluted net loss $ (0.12) $ -
Basic and diluted weighted average shares of
common stock 18,923,288 12,586,620
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Series B Series C
Convertible Convertible
Preferred Stock Preferred Stock
Shares Amount Shares Amount
------------------ ---------------------
<S> <C> <C> <C>
Balance, January 1, 2000 1,000 $ 10 50 $ 1
Stock,options and
warrants issued and
exercised for services
Net loss
Balance, June 30, 2000 1,000 $ 10 50 $ 1
============-========= ======================
Additional
Common Stock Paid-In Accuumulated
Shares Amount Capital Deficit
------------------- ----------- --------------
<S> <C> <C> <C>
Balance, January 1, 2000 17,487,288 $1,749 $28,398,646 $(26,828,943)
Stock,options and
warrants issued and
exercised for services 2,872,000 288 810,044
Net loss (2,362,393)
---------- ------ -------- ------------
Balance, June 30, 2000 20,359,288 $2,037 $29,208,690 $(29,191,336)
=========== ====== =========== =============
Total
--------
<S> <C>
Balance, January 1, 2000 $1,571,463
Stock,options and
warrants issued and
exercised for services 810,332
Net loss (2,362,393)
------------
Balance, June 30, 2000 $ 19,402
============
</TABLE>
See accompanying notes to the consolidated financial statements
7
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30.
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,362,393) $ (247,318)
Adjustments to reconcile net loss to
cash and cash equivalents used in
operating activities
Extraordinary gain (42,520) -
Stock options and warrants
issued for services 12,138 -
Depreciation and amortization 53,645 61,653
Provision for doubtful accounts 20,502 -
Minority interest in net loss of
consolidated subsidiary (350,918) -
Stock options and warrants exercised
for services 797,906 38,455
Changes in operating assets and liabilities:
Accounts receivable 78,154 255,522
Inventories 316,043 (147,101)
Prepaid expenses and other current assets 110,800 37,393
Other assets 18,495 -
Accounts payable (157,783) (361,168)
Long term debt, less current portion (50,716) -
Income taxes payable (23,838) -
Accrued expenses 151,761 120,025
---------- -----------
Cash and cash equivalents used in operating
activities (1,428,724) (242,539)
------------- ------------
Cash flows from investing activities:
Purchase of equipment (50,536) -
Proceeds from sale of marketable securities 375,022 -
---------- ------------
Cash and cash equivalents provided by investing
activities 486,131 -
---------- ------------
Cash flows from financing activities:
Proceeds from notes payable 408,591 (118,635)
Repayment of notes payable (46,116) 31,000
-------- ----------
Cash and cash equivalents provided by (used in)
financing activities 362,475 (87,635)
--------- ---------
Decrease in cash and cash equivalents (741,762) (330,174)
Cash and cash equivalents, beginning of period 1,119,153 872,649
Cash and cash equivalents, end of period $ 377,391 $ 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 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.
Vitafort develops, markets and distributes snack foods to the retail
grocery trade; however, the Company has created a wholly owned subsidiary,
Visionary Brands, Inc., to execute this strategy. Visionary Brands is in the
business of creating brands and products in the grocery industry, and
manufacturing and distributing the same. These products are 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 develops these products from the actual conception of the product idea
to the shipment of the product to the retailer.
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 and six months ended June 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:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
--------------- ------------------
<S> <C> <C>
Finished goods $ 77,480 $ 352,847
Packaging and raw material 191,885 232,560
--------- -----------
$ 269,365 $ 585,407
========= ==========
</TABLE>
NOTE 4 - STOCKHOLDERS' EQUITY
During the six month period ended June 30, 2000, the holders of stock
options to purchase 2,872,000 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 1999, 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:
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".
Three Months and Six Months Ended June 30, 2000 and 1999
--------------------------------------------------------
Results of Operations:
The Company had planned to raise capital in the first half of the 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.
During this past quarter, management has had to address significant
changes in the overall market conditions. The Company had attempted to execute a
roll-up strategy in the home delivery of center-of-the-plate entrees. This
initiative entailed raising $15 million at the subsidiary level, with the intent
of spinning out this new subsidiary into a public entity after 12 months.
However, due to the continuing problems associated with Visionary Brands, the
small market cap of Vitafort and the tightening of the equity markets, it has
become apparent that this strategy would be very difficult to execute under
Vitafort.
11
<PAGE>
The Internet segment lost its allure on Wall Street in the second
quarter and companies that were trading at incredible multiples to 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.
Net Revenues:
For the three months ended June 30, 2000, net sales were $286,078
compared to $273,550 for the same period in 1999, an increase of $12,528 or 5%.
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 six months ended June 30, 2000, net sales were $721,961
compared to $1,113,248 for the same period in 1999, a decrease of $391,287 or
35%. 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 June 30, 2000, gross profit (loss) was
($112,149) compared to $47,084 for the three months ended June 30, 1999. Gross
profit (loss) was (39%) of net revenues for the quarter ended June 30, 2000,
compared to 17% for the same period in 1999. The gross profit in the second
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 six months ended June 30, 2000, gross profit (loss) was
($63,212) compared to $476,272 for the six months ended June 30, 1999, a
decrease of $539,484. Gross profit (loss) was (9%) of net revenues for the six
months ended June 30, 2000 compared to 43% for the same period in 1999. The
second quarter gross profit results adversely affected the six month gross
profit results due to the liquidation and discounting of merchandise in the
quarter.
12
<PAGE>
Research and Development:
Total research and development expenses for product development for the
three months ended June 30, 2000 were $1,913 compared to $11,728 for the same
period in 1999, a decrease of $9,815 or 84%. 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
six months ended June 30, 2000 were $35,834 compared to $22,156 for the same
period in 1999, an increase of $13,678 or 62%. The increase in research and
development expenses is due primarily to Websites development costs of $27,421
for Hollywood Partners, offset by reductions of consultants' costs of $8,849.
Sales and Marketing:
Total sales and marketing expenses for the three months ended June 30,
2000 were $559,428 compared to $353,009 for the three months ended June 30,
1999, an increase of $206,419 or 59%. This increase was due to the impact of
HP.com on the Company's consolidated financial statements. In the second
quarter, HP.com accounted for $181,138 of sales and marketing expenses as it
continued to market its promotional services.
Total sales and marketing expenses for the six months ended June 30,
2000 were $1,100,242 compared to $783,077 for the three months ended June 30,
1999, an increase of $317,165 or 41%. This increase was also due to the impact
of HP.com on the Company's consolidated financial statements. In the first half
of the year, HP.com accounted for $381,720 of sales and marketing expenses as it
began to market its promotional services.
General and Administrative:
For the three months ended June 30, 2000, total general and
administrative expenses were $866,634 compared to $481,365 for the three months
ended June 30, 1999, an increase of $385,269, or 80%. Significant cost
increments were primarily in the following areas: consulting expense of $51,500;
management and staff salaries of $ 151,515, due to increase of staffing of
Hollywood Partners.com; and office expenses of $ 136,985 to accommodate the new
employees
For the six months ended June 30, 2000, total general and
administrative expenses were $1,717,044 compared to $873,768 for the six months
ended June 30, 1999, an increase of $843,276, or 97%. Significant cost
increments were primarily in the following areas: consulting expense of
$250,000; management and staff salaries of $195,000; design and programming
expenses of $88,000; legal and accounting fees of $132,000; insurance fees of
$58,000; and office expenses of $70,000 to accommodate the new employees.
Other Income (Expense):
For the three months ended June 30, 2000, other income and expenses
were $2,145 compared to $1,100,804 for the three months ended June 30 1999, a
decrease of $1,098,659, or 99%. This decrease was due to a litigation recovery
of $1,200,000 received in 1999.
For the six months ended June 30, 2000, other income and expenses were
($12,110) compared to $1,257,197 for the six months ended June 30 1999, a
decrease of $1,269,307 or 101%. This decrease was due primarily to a litigation
recovery of $1,200,000 received in 1999.
13
<PAGE>
Liquidity and Capital Resources:
Six Months Ended
June 30,
2000 1999
-------------- -------------
Net Cash Used in Operating Activities $ (1,590,365) $ (242,539)
Net Cash Provided by Investing Activities 486,131 -
Net Cash Provided by (Used in) Financing Activities 362,475 (87,635)
Working Capital (381,155) (228,337)
The Company continues to suffer recurring losses from operations as of
June 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 significantly curtail operations.
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: August 21, 2000
14
