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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(X) Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 2000 or
( ) Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _______ to _______
Commission File Number: 19910
VITAL LIVING PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 56-1683886
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5001 Smith Farm Road, Matthews, NC 28104
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(Address of principal executive offices)
(704) 821-3200
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of Common
Stock as of June 19, 2000.
Common Stock, $0.01 par value . . . . . . . . . 3,098,326
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
CONDENSED FINANCIAL STATEMENTS
For the Quarter Ended March 31, 2000
VITAL LIVING PRODUCTS, INC.
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Company's Form 10-SB filed March 14, 2000 as
amended.
2
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VITAL LIVING PRODUCTS, INC.
BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
ASSETS
CURRENT ASSETS:
Cash $ 875
Accounts receivable, less allowance for doubtful accounts
of $12,355 216,513
Installment accounts receivable 33,218
Inventory 279,099
--------
Total current assets 529,705
PROPERTY AND EQUIPMENT:
Office furniture and equipment 43,067
Warehouse equipment 100,415
Computer equipment 126,949
Vehicles 121,329
Water service equipment 431,942
Leasehold improvements 22,558
--------
846,260
Less accumulated depreciation 660,097
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Net property and equipment 186,163
OTHER ASSETS 18,141
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$734,009
========
3
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VITAL LIVING PRODUCTS, INC.
BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts $ 19,255
Trade accounts payable 178,654
Accrued interest payable to related party 4,749
Demand notes payable to related parties 619,752
Accrued dividends 1,069,500
Accrued payroll and payroll taxes 37,612
Current portion of long-term notes payable 13,362
Other accrued liabilities 21,140
-----------
Total current liabilities 1,964,024
LONG-TERM NOTES PAYABLE 18,568
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,422,173 shares issued and 3,098,326 outstanding 34,221
Preferred stock - Class A, $.01 par value, 3,303,375 shares
authorized, issued and outstanding 33,034
Preferred stock - Class B, convertible, $.01 par value,
1,000,000 shares authorized
Series A - 575,000 shares outstanding 1,150,000
Series B - 31,290 shares outstanding 1,783,935
Paid-in capital 7,892,407
Treasury stock, 323,847 shares, at cost (75,000)
Retained earnings (deficit) (12,067,180)
-----------
Total stockholders' equity (1,248,583)
-----------
$ 734,009
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4
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VITAL LIVING PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
2000 1999
----------- ----------
REVENUES:
Product sales $ 298,517 $ 248,425
Service revenues 89,701 109,065
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Total revenues 388,218 357,490
COST OF GOODS SOLD:
Direct material costs 159,451 137,458
Labor, taxes and fringes 74,094 79,012
Travel, vehicle and other costs 33,380 31,237
Research and development costs -- 27,000
Depreciation 23,159 23,212
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Total cost of goods sold 290,084 297,919
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GROSS MARGIN 98,134 59,571
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries, taxes and fringes 97,084 88,179
Sales commissions and brokerage costs 26,008 18,322
Marketing, advertising and promotion 43,914 61,495
Travel and vehicle costs 5,392 8,716
Professional fees and costs 73,625 4,330
Bad debt expense 280 370
Office and telephone costs 30,078 23,438
Depreciation and amortization 3,523 2,243
Insurance and other 6,483 3,979
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Total selling, general and
administrative expenses 286,387 211,072
INCOME (LOSS) FROM OPERATIONS (188,253) (151,501)
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OTHER REVENUES (EXPENSES):
Interest expense (12,415) (136,136)
Other 1,454 1,591
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Total other revenues (expenses) (10,961) (134,545)
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NET INCOME (LOSS) BEFORE INCOME TAXES (199,214) (286,046)
INCOME TAX (PROVISION) BENEFIT -- --
----------- -----------
NET INCOME (LOSS) ($ 199,214) ($ 286,046)
=========== ===========
BASIC INCOME (LOSS) PER COMMON SHARE ($ 0.08) ($ 0.11)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,081,347 2,996,451
=========== ===========
5
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VITAL LIVING PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $ 323,524 $ 383,107
Cash paid to suppliers and employees (473,214) (477,059)
Interest paid (11,375) (3,746)
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Net cash used by operating activities (161,065) (97,698)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (33,661) (8,595)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on bank overdraft, net (19,371) (31,567)
Net proceeds from demand notes payable to related parties 182,000 135,500
Payments on notes payable (2,154) (1,528)
Proceeds from new borrowings 21,497 --
Proceeds from common stock options exercised 12,968 --
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Net cash provided by financing activities 194,940 102,405
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NET INCREASE (DECREASE) IN CASH 214 (3,888)
CASH, beginning of period 661 5,526
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CASH, end of period $ 875 $ 1,638
========= =========
</TABLE>
NONCASH TRANSACTIONS:
Preferred Series A, Class B dividends of $34,500 were accrued during each of
the three month periods ended March 31, 2000 and 1999.
Certain salaries to Company employees totalling $8,852 and $8,285 were paid by
a stockholder during the three month periods ended March 31, 2000 and 1999,
respectively.
Continued
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VITAL LIVING PRODUCTS, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
USED BY OPERATING ACTIVITIES:
Net income (loss) ($199,214) ($286,046)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 26,682 25,455
Services provided at no charge by stockholder 8,852 8,285
(Increase) decrease in accounts receivable (60,949) 24,025
(Increase) decrease in inventory 973 (91,303)
Decrease in prepaid expenses -- 4,881
Increase in trade accounts payable 93,072 71,581
Increase in accrued interest payable to related party 1,040 132,390
Increase in accrued payroll and payroll taxes 20,812 2,959
Increase (decrease) in other accrued liabilities (52,333) 10,075
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Net cash used by operating activities ($161,065) ($97,698)
========= =========
</TABLE>
7
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VITAL LIVING PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. BASIS OF PRESENTATION:
The condensed interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein. It is suggested that
these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Form
10-SB filed March 14, 2000 as amended by Amendment No. 1 thereto filed
May 8, 2000 and Amendment No. 2 thereto filed June 14, 2000. The
Company follows the same accounting policies in preparation of interim
reports.
Results of operations for the interim periods are not indicative of
annual results.
2. COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN:
As shown in the accompanying financial statements the Company has
incurred recurring losses from operations and resulting cash flow
deficits. It also has current liabilities significantly in excess of
current assets and a significant deficit in total stockholders' equity.
These factors raise substantial doubt about the Company's ability to
continue as a going concern as of March 31, 2000.
Management continues to focus on its marketing and sales of water testing
kits, which represent a relatively new product line. Management
believes that this new line will help the Company to achieve
profitability. The Company's ultimate ability to become profitable,
however, is contingent on its achieving significantly higher sales
levels. Until that occurs and until the Company generates positive cash
flow from operations, additional outside funding will continue to be
required. The Company has in place a credit line with Mr. Wilbur
Peters, a related party and stockholder, as discussed in Note 3. The
Company anticipates that this credit line will provide the necessary
funding it requires for the next year. However, Mr. Peters is not
required to make advances on such line of credit and as a result there
is no guarantee that such funding will be available.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
8
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3. RELATED PARTY TRANSACTIONS:
Through March 31, 2000, the Company had approximately $219,700 in
borrowings outstanding on a $750,000 revolving line of credit from
Wilbur Peters. This line of credit provides that advances will be made
at the discretion of the lender and requires monthly interest payments
at the LIBOR rate plus 1.5%. Interest accrued at March 31, 2000, was
approximately $1,200. Interest expense on this note totals
approximately $2,000 in the three months ended March 31, 2000.
4. RESTATEMENT OF STOCKHOLDERS' EQUITY ACCOUNTS:
Subsequent to the original issuance of its financial statements as of
March 31, 2000, the Company has revised its financial statements as of
December 31, 1999. The effect of this revision is to increase the
beginning retained earnings deficit as of January 1, 2000 by $3,461,504
and increase paid-in capital at that date by the same amount. The
effect of this change on the Company's balance sheet as of March 31,
2000, is to increase those same accounts by $3,461,504 over the
balances originally presented. These revisions do not change total
stockholders' equity.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Company's Financial Statements and the related notes thereto contained in Item
1.
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 2000
Revenues from operations for the first quarter of 2000 increased 9% to
$388,218 from $357,490 for the first quarter of 1999. The increase in operating
revenues was primarily the result of a 20% increase in sales of our PurTest(R)
line of products, which grew from $169,365 in the first quarter of 1999 to
$203,045 in the first quarter of 2000. Sales of our PurTest(R) products improved
principally as a result of the successful implementation of our efforts to
expand distribution of such products at the retail level. Also contributing to
the improvement in operating revenues was an increase in revenues from the sales
and service of water treatment equipment up 24% from $103,984 in the first
quarter of 1999 to $129,418 in the first quarter of 2000. Due chiefly to a shift
in focus and resources toward development of our PurTest(R) line of products,
revenues from our water vending and misting operations decreased 34% from
$84,141 in the first quarter of 1999 to $55,755 in the first quarter of 2000.
Primarily as a result of our securing a five year contract with a test
strip provider, which enabled us to obtain test strips at a lower cost, the
absence of research and development costs and improvements in operating
efficiencies made possible by our increased production of PurTest(R) products,
gross margin increased to 25% in the first quarter of 2000 from 17% in the first
quarter of 1999. We would anticipate continued improvement in operating
efficiencies, and therefore in gross margin, to the extent we are able to
execute our strategy of expanding distribution of our Pur-Test(R) products. Any
such improvement would, however, be offset to the extent we incur research and
development costs in connection with the expansion of our Pur-Test(R) product
line.
Loss from operations only was $188,253 in the first quarter of 2000
compared to a loss of $151,501 in the first quarter of 1999. The principal
expense item contributing to this increase in loss was professional fees,
primarily associated with our filing of a Registration Statement on Form 10-SB
to register our common stock under the Securities Exchange Act of 1934, which
were $73,625 in the first quarter of 2000, up from $4,330 in the first quarter
of 1999. We anticipate incurring a relatively high level of professional fees
associated with our becoming a public reporting company.
Net loss for the first quarter of 2000, was $199,214, compared to net
loss for the first quarter of 1999 of $286,046. Net loss improved primarily
because of a decrease in interest expenses from $136,136 in the first quarter of
1999 to $12,415 in the first quarter of 2000. Interest expense was reduced as a
result of the elimination during 1999 of debt owed to C. Wilbur Peters, Chairman
of our board. On June 30, 1999 Mr. Peters forgave approximately $2,150,000 of
our debt to him and on November 5, 1999 Mr. Peters released and discharged the
balance due on our $3,035,529 promissory note to him in exchange for our issuing
31,290 shares of our Series B, Class B preferred stock to Mr. Peters.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred operating losses each year since our inception.
Throughout that time C. Wilbur Peters, Chairman of our board, or entities
controlled by Mr. Peters have funded our operations by lending money to us and
by leasing equipment to us used in our business. Under a $400,000 promissory
note dated September 1, 1992 issued by us to CTF, Inc., a non-profit corporation
controlled by Mr. Peters, we owed approximately $400,000 at March 31, 2000. This
note is payable on demand and bears interest at prime plus 2%. On July 1, 1999,
we established a line of credit with Mr. Peters in the amount of $750,000
evidenced by a promissory note bearing interest at the LIBOR Market Index Rate
plus 1.50%, due and payable on June 30, 2001. At March 31, 2000, the outstanding
balance of that note was approximately $219,700. Mr. Peters has no legal
obligation to make advances upon that note.
10
<PAGE> 11
Net cash used by operating activities was $180,436 in the first quarter
of 2000 and $129,265 in the first quarter of 1999. In both such quarters cash to
fund such negative cash flows was obtained from the financing arrangements
described above. We do not expect positive cash flows from our operations during
2000 and into 2001. Even if we are successful in continuing to expand our
product distribution, we expect that such expansion will continue to require
additional cash. We believe that our cash on hand, cash generated from
operations, and advances on our current line of credit (which Mr. Peters is not
obligated to make) will enable us to continue our operations through July 2001.
No assurance can be given, however, that Mr. Peters will continue to advance
funds under the line of credit, that such funds will satisfy our needs for such
period or that, if needed, additional funds will be available. If we are unable
to obtain any such additional necessary financing our financial condition and
results of operations could be materially adversely affected.
CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION
Statements in this report as to projections of future financial or
economic performance of the Company, and statements of our plans and objectives
for future operations are "forward looking" statements, and are being provided
in reliance upon the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Important factors that could cause actual results
or events to differ materially from those projected, estimated, assumed or
anticipated in any such forward looking statements include: general economic
conditions in our markets including inflation; recession; increased competition
from existing competitors and from any new entrants in our markets; any loss of
key management personnel; changes in governmental regulations applicable to our
business; and the availability of additional funding necessary to support our
operations in the event our currently available funding sources prove inadequate
or unavailable.
11
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PART II
ITEM 1. LEGAL PROCEEDINGS
We are not currently party to any material legal proceedings. However,
we are currently and may from time to time in the future become a party to
various legal proceedings incidental to our business.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Document Description
----------- --------------------
27 Financial Data Schedule (filed in electronic
format only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 2000.
12
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VITAL LIVING PRODUCTS, INC.
Date: July 31, 2000 By: /s/ C. Larry Pratt
--------------------------------
C. Larry Pratt
Vice President
(Principal Financial Officer)
(Duly Authorized Officer)
13
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INDEX OF EXHIBITS
FORM 10-QSB
QUARTERLY REPORT
Exhibit No. Exhibit Description
----------- -------------------
27 Financial Data Schedule (filed in electronic format only)
14
