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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 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
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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 [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of Common
Stock as of August 7, 2000.
Common Stock, $0.01 par value . . . . . . . . . 3,098,326
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PART I
ITEM 1. FINANCIAL STATEMENTS
CONDENSED FINANCIAL STATEMENTS
For the Quarter Ended June 30, 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.
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VITAL LIVING PRODUCTS, INC.
BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 400
Accounts receivable, less allowance for doubtful accounts of $13,613 335,239
Installment accounts receivable 29,245
Inventory 311,371
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Total current assets 676,255
PROPERTY AND EQUIPMENT:
Office furniture and equipment 43,067
Warehouse equipment 95,378
Computer equipment 133,578
Vehicles 121,329
Water service equipment 431,942
Leasehold improvements 22,557
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847,851
Less accumulated depreciation 685,947
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Net property and equipment 161,904
OTHER ASSETS 16,838
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$854,997
========
</TABLE>
3
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VITAL LIVING PRODUCTS, INC.
BALANCE SHEET
(UNAUDITED)
JUNE 30, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Bank overdrafts $ 27,506
Trade accounts payable 149,240
Accrued interest payable to related party 12,911
Demand notes payable to related parties 876,252
Accrued dividends 1,104,000
Accrued payroll and payroll taxes 35,729
Current portion of long-term notes payable 18,554
Other accrued liabilities 20,690
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Total current liabilities 2,244,882
LONG-TERM NOTES PAYABLE 15,069
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, $.01 par value, 1,000,000
shares authorized
Series A - 575,000 shares outstanding 1,150,000
Series B - 31,290 shares outstanding 1,783,935
Paid-in capital 7,918,805
Treasury stock, 323,847 shares, at cost (75,000)
Retained earnings (deficit) (12,249,949)
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Total stockholders' equity (1,404,954)
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$ 854,997
============
</TABLE>
4
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VITAL LIVING PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 414,926 $ 349,858 $ 713,443 $ 598,283
Service revenues 91,607 105,429 181,308 214,494
----------- ----------- ----------- -----------
Total revenues 506,533 455,287 894,751 812,777
COST OF GOODS SOLD:
Direct material costs 210,470 162,552 369,921 300,010
Labor, taxes and fringes 86,386 71,725 160,480 150,737
Travel, vehicle and other costs 28,802 30,033 62,182 61,270
Research and development costs -- 10,368 -- 37,368
Depreciation 23,389 23,298 46,548 46,510
----------- ----------- ----------- -----------
Total cost of goods sold 349,047 297,976 639,131 595,895
----------- ----------- ----------- -----------
GROSS MARGIN 157,486 157,311 255,620 216,882
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Salaries, taxes and fringes 104,100 82,805 201,184 170,984
Sales commissions and brokerage costs 35,803 34,062 61,811 52,384
Marketing, advertising and promotion expenses 44,541 43,945 88,455 105,440
Travel and vehicle costs 18,212 7,641 23,604 16,357
Professional fees and costs 46,775 43,851 120,400 48,181
Bad debt expense 1,712 (346) 1,992 24
Office and telephone costs 29,447 26,480 59,525 49,918
Depreciation and amortization 3,764 2,362 7,287 4,605
Insurance and other expenses 4,761 5,211 11,244 9,190
----------- ----------- ----------- -----------
Total selling, general and administrative expenses 289,115 246,011 575,502 457,083
INCOME (LOSS) FROM OPERATIONS (131,629) (88,700) (319,882) (240,201)
----------- ----------- ----------- -----------
OTHER REVENUES (EXPENSES):
Interest expense (17,979) (139,245) (30,394) (275,381)
Other 1,339 1,832 2,793 3,423
----------- ----------- ----------- -----------
Total other revenues (expenses) (16,640) (137,413) (27,601) (271,958)
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES (148,269) (226,113) (347,483) (512,159)
INCOME TAX (PROVISION) BENEFIT -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (148,269) $ (226,113) $ (347,483) $ (512,159)
=========== =========== =========== ===========
BASIC INCOME (LOSS) PER COMMON SHARE $ (0.06) $ (0.08) $ (0.14) $ (0.19)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,098,326 2,996,451 3,089,836 2,996,451
=========== =========== =========== ===========
</TABLE>
5
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VITAL LIVING PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $ 398,317 $ 473,853 $ 721,842 $ 856,960
Cash paid to suppliers and employees (653,828) (579,662) (1,127,043) (1,056,721)
Interest paid (9,817) (12,850) (21,192) (16,596)
--------- --------- ----------- -----------
Net cash used by operating activities (265,328) (118,659) (426,393) (216,357)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,591) (26,592) (35,252) (35,187)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on bank overdraft, net 8,251 3,847 (11,120) (27,720)
Net proceeds from demand notes payable to related parties 256,500 143,000 438,500 278,500
Payments on notes payable (3,307) (1,544) (5,461) (3,072)
Proceeds from new borrowings 5,000 -- 26,497 --
Proceeds from common stock options exercised -- -- 12,968 --
--------- --------- ----------- -----------
Net cash provided by financing activities 266,444 145,303 461,384 247,708
--------- --------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (475) 52 (261) (3,836)
CASH, beginning of period 875 1,638 661 5,526
--------- --------- ----------- -----------
CASH, end of period $ 400 $ 1,690 $ 400 $ 1,690
========= ========= =========== ===========
</TABLE>
NONCASH TRANSACTIONS:
Preferred Class B, Series A dividends of $69,000 were accrued during each of
the six month periods ended June 30, 2000 and 1999.
Certain salaries to Company employees totalling $17,704 and $16,570 were paid
by a stockholder during the six month periods ended June 30, 2000 and 1999,
respectively.
In June 1999, approximately $2,150,000 of capital lease obligations and
related accrued interest along with accrued interest on a demand note payable
were all forgiven by the related party to whom these amounts were owed.
Options were granted to nonemployees for services provided on April 30, 2000.
The value of the options was approximately $17,500.
Continued
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VITAL LIVING PRODUCTS, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
RECONCILIATION OF NET INCOME (LOSS) TO Three Months Ended Six Months Ended
NET CASH USED BY OPERATING ACTIVITIES: June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $(148,269) $(226,113) $(347,483) $(512,159)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization 27,153 25,660 53,835 51,115
Services provided at no charge by stockholder 8,852 8,285 17,704 16,570
Services provided by nonemployees in exchange
for stock options 17,546 -- 17,546 --
(Increase) decrease in accounts receivable (114,753) 16,737 (175,702) 40,762
Increase in inventory (32,272) (14,056) (31,299) (105,359)
Decrease in prepaid expenses -- 7,340 -- 12,221
Increase (decrease) in trade accounts payable (29,414) (65,469) 63,658 6,112
Increase in accrued interest payable to related party 8,162 126,395 9,202 258,785
Increase (decrease) in accrued payroll and payroll tax (1,883) 2,487 18,929 5,446
Increase (decrease) in other accrued liabilities (450) 75 (52,783) 10,150
--------- --------- --------- ---------
Net cash used by operating activities $(265,328) $(118,659) $(426,393) $(216,357)
========= ========= ========= =========
</TABLE>
7
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VITAL LIVING PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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. 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 June 30, 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.
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3. RELATED PARTY TRANSACTIONS:
Through June 30, 2000, the Company had approximately $476,200 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 June 30, 2000, was
approximately $5,200. Interest expense on this note totals
approximately $8,800 for the six months ended June 30, 2000.
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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 JUNE 30, 1999 AND JUNE 30, 2000
Revenues from operations for the second quarter of 2000 increased 19%
to $414,926 from $349,858 for the second quarter of 1999. The increase in
operating revenues was primarily the result of a 22% increase in sales of our
PurTest(R) line of products, which grew from $250,271in the second quarter of
1999 to $306,271 in the second 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 our
water vending and misting operations up 7% from $86,569 in the second quarter of
1999 to $92,544 in the second quarter of 2000. Due chiefly to a shift in focus
and resources toward development of our PurTest(R) line of products, revenues
from the sales and service of water treatment equipment decreased 3% from
$109,316 in the second quarter of 1999 to $106,527 in the second quarter of
2000.
Gross margin was 31% in the second quarter of 2000, compared to 35%
in the second quarter of 1999.
Loss from operations only was $131,629 in the second quarter of 2000
compared to a loss of $88,532 in the second quarter of 1999. The principal
expense item contributing to this increase in loss was salaries, taxes and
fringes, which as a result of an increase in headcount were $104,100 in the
second quarter of 2000, up from $82,805 in the second quarter of 1999.
Net loss for the second quarter of 2000 was $148,269, compared to net
loss for the second quarter of 1999 of $225,945. Net loss improved primarily
because of a decrease in interest expenses from $139,245 in the second quarter
of 1999 to $17,979 in the second 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.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 2000
Revenues from operations for the first six months of 2000 increased 10%
to $894,751 from $812,777 for the first six months of 1999. The increase in
operating revenues was primarily the result of a 21% increase in sales of our
PurTest(R) line of products, which grew from $419,636 in the first six months of
1999 to $509,316 in the first six months 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
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in revenues from the sales and service of water treatment equipment up 11% from
$213,300 in the first six months of 1999 to $235,945 in the first six months 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 13% from $170,710 in the first six months of 1999 to
$148,299 in the first six months of 2000.
Primarily as a result of 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 29% in the first
six months of 2000 from 27% in the first six months 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 $319,882 in the first six months of 2000
compared to a loss of $240,033 in the first six months 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 $120,400 in the first six months of 2000, up from $48,181 in the second
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 six months of 2000 was $347,483, compared to net
loss for the first six months of 1999 of $511,991. Net loss improved primarily
because of a decrease in interest expenses from $275,381in the first six months
of 1999 to $30,394 in the first six months 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 June 30, 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 June 30, 2000, the outstanding
balance of that note was $476,200. Mr. Peters has no legal obligation to make
advances upon that note.
Net cash used by operating activities was $265,328 in the second
quarter of 2000 and $118,659 in the second quarter of 1999. Net cash used by
operating activities was $426,393 in the first six months of 2000 and $216,357
in the first six months of 1999. In all such periods 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
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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.
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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
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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 June 30, 2000.
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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: August 14, 2000 By: /s/ LARRY PRATT
----------------------------------
Larry Pratt
Vice President
(Principal Financial Officer)
(Duly Authorized Officer)
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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)
15
