U.S. 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 March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 000-15243
VITAL HEALTH TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1618186
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
855 Village Center Drive, North Oaks, MN 55127
(Address of Principal Executive Offices)
(651) 238-8636
(Issuer's telephone number)
Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X] No [ ]
Check whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13, or 15(d) of the Exchange Act subsequent to the
distribution of securities under a plan confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 2002: 2,594,460 shares of common stock.
Transitional Small Business Format: Yes [X] No [ ]
FORM 10-QSB
VITAL HEALTH TECHNOLOGIES, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION 3
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Plan of Operation
PART II. OTHER INFORMATION 9
Item 6 Exhibits and Reports on Form 8-K 9
SIGNATURES 9
Item 1. Financial Information
VITAL HEALTH TECHNOLOGIES, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2002 2001
----------- --------
ASSETS
Current assets:
Cash $ 2,447 $ 1,379
Inventory, net of valuation allowance 0 0
----------- -----------
Total current assets 2,447 1.379
----------- ----------
Furniture and equipment 6,677 6,677
Less accumulated depreciation 2,471 2,108
Less accumulated depreciation 4,206 4,569
----------- -----------
Net furniture and equipment 0 0
----------- -----------
Total assets $ 2,447 $ 1,379
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 12,592 $ 10,080
Notes payable - convertible 112,500 102,500
------------ -----------
Total current liabilities 125,092 112,580
---------- ----------
Stockholders' equity (deficit):
Undesignated stock: 5,000,000 shares
authorized; none issued and outstanding 0 0
Common stock: $.01 par value; 50,000,000
shares authorized; shares issued and
outstanding 2,594,460 in 2002 and 284,460 in 2001 25,945 2,845
Additional paid-in capital 11,976,778 11,966,778
Accumulated deficit (11,793,637) (11,793,637)
Deficit accumulated during the
development stage (331,731) (287,187)
----------- -----------
Total stockholders' equity (deficit) (122,645) (111,201)
----------- -----------
Total liabilities and
Stockholders' equity (deficit) $ 2,447 $ 1,379
----------- ----------
See Notes to Financial Statements.
3
VITAL HEALTH TECHNOLOGIES, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Reentrance Into
March 31, Development
------------------------------ Stage to
2002 2001 March 31, 2002
----------- --------- --------------
Revenue $ 0 $ 560 $ 96,361
Cost of sales 0 (38) (38)
General and administrative expenses (41,817) (67,289) (760,663)
Interest expense (2,727) (533) (94,701)
Other income (expense) 0 0 (7,404)
Income tax expense 0 (355) (529)
--------- --------- ---------
Net income (loss) (44,544) (67,655) (766,974)
Other comprehensive income (loss) 0 0 0
--------- --------- ---------
Comprehensive income (loss) $ (44,544) $ (67,655) $(766,974)
--------- --------- ---------
Basic earnings (loss) per share $ (.10) $ (.24) $ (7.54)
--------- --------- ---------
Weighted average number of
shares outstanding $ 449,008 $ 284,460 $ 101,725
--------- --------- ---------
See Notes to Financial Statements.
4
VITAL HEALTH TECHNOLOGIES, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash
(Unaudited)
Reentrance
Three Months Ended Development
March 31 Stage to
2002 2001 March 31, 2002
--------- --------- --------------
Cash flows from operating activities:
Net income (loss) $ (44,544) $ (67,655) $(331,731)
Adjustments to reconcile net income (loss)
to cash flows from operating activities:
Debt forgiveness 0 0 (435,243)
Indebtedness incurred for services
and storage 0 0 400,000
Implied compensation under SABS-T 10,000 0 130,000
Stock issued for services 23,100 0 23,100
Warrants issued for consulting services 0 550 2,012
Depreciation 363 0 2,309
Valuation allowance (363) 0 7,241
Inventory 0 38 38
Prepaid expenses 0 7,081 0
Accounts payable and other current liabilities 2,512 (5,953) (8,082)
--------- --------- ---------
Cash flows from operating activities (8,932) 65,452 (210,356)
--------- --------- ---------
Cash flows from financing activities:
Stock proceeds 0 0 34,888
Issuance of convertible notes payable 10,000 90,000 167,038
--------- --------- ---------
Cash flows from investing activities 10,000 90,000 201,926
--------- --------- ---------
Increase (decrease) in cash 1,068 24,548 (8,430)
Cash:
Beginning of year 1,379 9,143 10,877
--------- --------- ---------
End of year $ 2,447 $ 33,691 $ 2,447
--------- --------- ---------
Supplemental cash flow information:
Interest paid $ 0 $ 0 $ 0
========= ==========================
Income taxes paid $ 0 $ 0 $ 1,081
========= ==========================
See Notes to Financial Statements.
5
NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2002 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002. For further information, refer to the financial statements
and footnotes thereto included in the Company's Form 10-KSB for the year ended
December 31, 2001.
Nature of Business
- ------------------
The Company was incorporated on April 1, 1960, under the laws of the State of
Minnesota. On September 26, 2000, the Company changed its name to Vital Health
Technologies, Inc. Formerly the Company was known as Vital Heart Systems, Inc.
In November 1993, the Company ceased the majority of its operations. At January
1, 1994, the Company was deemed to have reentered the development stage. From
1994 to 1997 the Company had only limited operations as it tried to complete the
design and marketing of a non-invasive, stress-free coronary artery disease
(CAD) detection device called a Variance Cardiograph. In 1997 the Company ceased
all operations.
In 1998 and 1999 the Company worked with a Minnesota venture capital firm,
Aurora Capital Management, LLC (Aurora) and a Minnesota entity with compatible
business operations, Vital Health Technologies, LLC (VHT-LLC) in an effort to
revitalize the Company. These dealings ultimately led to the acquisition of
VHT-LLC's assets on December 1, 2000.
Development Stage Company
- -------------------------
On January 1, 1994, the Company was deemed to have reentered the development
stage. Since that date the Company has devoted the majority of its efforts to:
maintenance of the corporate status; settlement of liabilities; technology
development and the search for a viable method of operations and/or merger
candidate.
In 1998, 1999, 2000 and 2001 the Company was fully dependent on VHT-LLC and
Aurora for the maintenance of its corporate status and to provide all managerial
assistance and working capital support for the Company.
In 2001 the Company successfully developed a new prototype for its Variance
Cardiograph heart disease testing device that shortens the test time from the
original 45-minute version to 10-minutes, while at the same time reducing the
cost of manufacturing significantly. The Company completed field-testing and has
systems installed at two locations in the St. Paul/Minneapolis area for
evaluation purposes.
During 2001, there were several unsuccessful efforts to secure $2,000,000 in
financing in order to complete plans to fully develop and market the Variance
Cardiograph. Due to lack of capital the Company decided to focus its efforts
towards reducing expenses and position itself for merger/acquisition
opportunities. On December 26, 2001 the board of directors approved a 1 for 10
reverse stock split for
6
shareholders of record as of January 7, 2002 and on January 30, 2002 the company
entered into an agreement with a Texas based finance and consulting firm, Focus
Tech Investments, Inc. (FTI) whereas FTI will provide periodic financing and
will seek out potential merger/acquisition candidates for the Company. Vital
Health Technologies has provided FTI 2,000,000 shares of Vital Health
Technologies common stock as a retainer for the services. In the event no merger
or acquisition takes place by August 30, 2002 FTI has agreed to cancel the
2,000,000 shares of common stock.
Failure of the company to secure a merger/acquisition agreement and/or adequate
financing could result in it being unable to continue as a going concern. No
estimate can be made of the range of loss that is reasonably possible should the
Company be unsuccessful.
Item 2. Managements Discussion and Analysis of Financial Condition and Plan of
Operation
Three Months Ended March 31, 2002 and 2001
The Company generated no revenue for the three months ended March 31, 2002,
as compared to $560 revenue for the three months ended March 31, 2001. Cost of
sales for the three months ended March 31, 2002 and 2001 were $0 and $38,
respectively.
General and administrative expenses for the three months ended March 31,
2002 were $41,817, as compared to $67,289 in the same period of 2000.
The Company had interest expense in the amount of $2,727 for the three
months ended March 31, 2002, as compared to $533 interest expense for the three
months ended March 31, 2001.
As a result of the foregoing, the Company realized a net loss of $44,544
for the three months ended March 31, 2002, as compared to a net loss of $67,655
for the same period in 2001.
Liquidity and Capital Resources
At March 31, 2002, the Company had a working capital deficit of $122,645,
as compared to a working capital deficit of $57,352 at March 31, 2001. The
change is primarily due to the Company using convertible notes to fund current
operations.
The Company received a loan from its former president, William Kieger in
the amount of $5,000 on January 25, 2002 and another $5,000 loan from Focus Tech
Investments, Inc. on February 6, 2002. Both loans are for a period of 12 months
and accrue at 10% interest. At March 31, 2002 the Company had $112,500 in
outstanding convertible promissory notes accruing at 10% interest. Several of
the notes were due during the past three months and are now in default. At the
present time the note-holders have verbally agreed to allow the interest to
continue to accrue until the Company has the capital to pay the notes off; or,
until the board of directors declares a conversion to stock option that is
acceptable to the note-holders.
Until Vital Health receives additional outside financing to fund its
capital commitments, its operations will be limited to those that can be
effected through its officers, directors and consultants. Our president and sole
officer William Kieger submitted his resignation effective January 31, 2002 as
an officer and director for the Company.
On March 5, 2002 William Kieger entered into a consulting agreement in
which the Company has issued 300,000 shares of Vital Health Technologies common
stock for his services as a liaison between the Company and evaluation sites for
the Variance Cardiograph, trouble shooting and training, advise directors
7
in maintaining accounting and business reporting, advise regarding
merger/acquisition proposals and assistance in maintaining relationships with
development team members, in particular; engineers, physicians and regulatory
professionals. The period of the agreement is for 12 months. Each of the two
directors has agreed to serve on the board for 5,000 shares of Vital Health
Technologies common stock.
Vital Health Technologies, Inc. 2002 Employee Stock Option Plan
On March 5, 2002 the board of directors of Vital Health approved and
adopted the Vital Health Technologies, Inc. 2002 Employee Stock Option Plan in
order to retain the services of key management and consultants. Simultaneous
with the approval of the plan the Company filed an appropriate Form S-8
registration statement with the U.S. Securities and Exchange Commission to
register the shares. The 5,000 shares of common stock issued to each of the two
directors and 300,000 shares of common stock issued to William Kieger were
issued as part of the plan and Form S-8 registration statement.
Agreement with Focus Tech Investments, Inc.
On January 30, 2002, the Company entered into an agreement with Texas
finance and consulting firm Focus Tech Investments, Inc. (FTI) whereas FTI will
provide from time to time financing in order for the Company to meet its ongoing
financial responsibilities to vendors who provide legal, accounting, transfer
agent services, storage space and other miscellaneous services. FTI provided a
$5,000 loan in conjunction with signing the agreement and had provided loans
totaling $10,000 prior to the agreement.
FTI will identify and contact merger candidates who are qualified to
merge with Vital Health and present candidates to the board of directors for
preliminary approval. Following preliminary approval, FTI will continue to
conclude negotiations until final closure and approval from the board of
directors and Aurora Capital Management, L.L.C. is obtained.
As consideration for the services performed, the Company has issued FTI
2,000,000 shares of common stock restricted under rule 144. In the event FTI is
not able to conclude a merger agreement, for any reason prior to August 30,
2002, FTI has agreed to cancel the entire amount of stock issued. In the event
the stock is cancelled any loans will continue to be valid as stated in the loan
agreements.
FTI also has the right to present candidates to serve as a director until
the board of directors approves one such candidate. As of March 31, 2002 FTI has
not presented any director candidates.
Plan for the next 12 months.
Our plan for the next 12 months is to handle the administrative and
reporting requirements of a public company and to seek merger/acquisition
opportunities while maintaining evaluation sites for the Variance Cardiograph.
Forward-Looking Statement Notice
When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 regarding events, conditions, and financial
trends that may affect the Company's future plans of operations, business
strategy, operating results, and financial position. Persons reviewing this
report are cautioned that any forward-
8
looking statements are not guarantees of future performance and are subject to
risks and uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Such factors are discussed above and also include general economic factors and
conditions that may directly or indirectly impact the Company's financial
condition or results of operations.
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits
Copies of the following documents are included as exhibits to this report
pursuant to Item 601 of Regulation S-B.
SEC Ref No. Title of Document Location
- ----------- ----------------- --------
10 Vital Health Technologies, Inc. Employee Stock Option Plan Attached
10.2 Consulting Agreement with William Kieger Attached
10.3 Agreement with Focus Tech Investments, Inc. Attached
b. Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Vital Health Technologies, Inc.
Date: May 13, 2002 By /s/ Lloyd Woelfle
-------------------------------------
Lloyd Woelfle
Director
By /s/ Stephen Muscanto
-------------------------------------
Stephen Muscanto
Director
9