SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934, for the quarter ended December 31, 1999
Commission File No. 000-27613
DESERT WEST MARKETING, INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2505 Rancho Bel Air, Las Vegas, Nevada 89107
(Address of registrant's principal executive offices) (Zip Code)
702.878.8310
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant (1) has filed all reports required by Section 13 or
15(d) of the Securities Act of 1934 during the preceding 12 months (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 90 days.
Yes [_] No [X]
The number of shares outstanding of the issuer's only class of Common Stock,
$.001 par value, was 2,650,000 on March 31, 2000.
Transitional Small Business Disclosure format (check one):
Yes [_] No [X]
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
<PAGE>
Desert West Marketing, Inc.
(A Development Stage Company)
Financial Statements
As of December 31, 1999 and
For the Three and Nine Month Periods Ended December 31, 1999 and
For the Period from March 5, 1999 (Inception) to December 31, 1999
(Unaudited)
<PAGE>
Desert West Marketing, Inc.
(A Development Stage Company)
Index to the Financial Statements (Unaudited)
As of December 31, 1999 and
For the Three and Nine Month Periods Ended December 31, 1999 and
For the Period from March 5, 1999 (Inception) to December 31, 1999
(Unaudited)
Financial Statements of Desert West Marketing, Inc.:
Balance Sheet, as of December 31, 1999 (Unaudited) 1
Statements of Operations for the Three and Nine Month
Periods Ended December 31, 1999 and for the Period
from March 5, 1999 (Inception) to December 31,
1999 (Unaudited) 2
Statement of Shareholders' Equity for the Three and
Nine Month Periods Ended December 31, 1999 and for
the Period from March 5, 1999 (Inception) to
December 31, 1999 (Unaudited) 3
Statement of Cash Flows for the Three and Nine Month
Periods Ended December 31, 1999 and for the Period
from March 5, 1999 (Inception) to December 31,
1999 (Unaudited) 4
Notes to Financial Statements (Unaudited) 5
<PAGE>
Desert West Marketing, Inc.
(A Development Stage Company)
Balance Sheet
December 31, 1999
(Unaudited)
--------------------------------------------------------------------------------
ASSETS
Cash $ 7,500
Accrued interest 83
Due from shareholder 2,500
--------
Total assets $ 10,083
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 1,199
--------
Total liabilities 1,199
--------
Shareholders' equity:
Common stock, $.001 par value; 10,000,000
shares authorized; 2,650,000 shares issued and
outstanding 2,650
Additional paid-in capital 9,000
Deficit accumulated during development stage (2,766)
--------
Total shareholders' equity 8,884
--------
Total liabilities and shareholders' equity $ 10,083
========
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
Desert West Marketing, Inc.
(A Development Stage Company)
Statement of Operations
For the Three and Nine Month Periods Ended December 31, 1999 and
For the Period from March 5, 1999 (Inception) to December 31, 1999
(Unaudited)
--------------------------------------------------------------------------------
Period from
Three Months Nine Months March 5, 1999
Ended Ended (Inception) to
December 31, December 31, December 31,
1999 1999 1999
------------ ------------ ------------
Revenue -- -- --
Cost of sales -- -- --
------------ ------------ ------------
Gross profit -- -- --
Other expenses $ (1,116) $ (1,116) $ (2,766)
------------ ------------ ------------
Net loss $ (1,116) $ (1,116) $ (2,766)
============ ============ ============
Net loss per share -- -- --
============ ============ ============
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Desert West Marketing, Inc.
(A Development Stage Company)
Statement of Shareholders' Equity
For the Period from March 5, 1999 (Inception) to December 31, 1999
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
Price Common Additional During the
Common Per Common Stock Paid-in Development
Shares Share Stock Subscribed Capital Stage Total
--------- --------- --------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Formation of corporation,
March 5, 1999 -- -- -- -- -- --
Issuance of common stock 1,650,000 $ 0.001 $ 1,650 -- -- -- $ 1,650
Common stock subscribed $ 0.010 -- $ 1,000 $ 9,000 -- 10,000
Net loss -- -- -- $ (1,650) (1,650)
Balance, March 31, 1999 1,650,000 1,650 1,000 9,000 (1,650) 10,000
Issuance of common stock on
collection of stock
subscription receivable 1,000,000 1,000 (1,000) -- -- --
Net loss -- -- -- -- (1,116) (1,116)
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1999 2,650,000 $ 2,650 -- $ 9,000 (2,766) $ 8,884
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Desert West Marketing, Inc.
(A Development Stage Company)
Statement of Cash Flows
For the Three and Nine Month Periods Ended December 31, 1999 and 1998 and
For the Period from March 5, 1999 (Inception) to December 31, 1999
(Unaudited)
--------------------------------------------------------------------------------
Period from
Nine Months March 5, 1999
Ended (Inception) to
December 31, December 31,
1999 1999
---------- ------------
Cash flows from operating activities:
Net loss $ (1,116) $ (2,766)
Adjustments to reconcile net loss to
net cash used in operations:
Decrease in assets:
Accrued interest (83) (83)
Due from shareholder (2,500) (2,500)
Increase in liabilities:
Accounts payable 1,199 1,199
---------- ----------
Cash used in operating activities (2,500) (4,150)
---------- ----------
Cash flows used in investing activities:
Cash used in investing activities -- --
---------- ----------
Cash flows provided by financing activities:
Issuance of common stock 10,000 11,650
---------- ----------
Cash provided by financing activities 10,000 --
---------- ----------
Net increase (decrease) in cash 7,500 7,500
Cash at beginning of period -- --
---------- ----------
Cash at end of period $ 7,500 $ 7,500
========== ==========
Supplemental Disclosure of Cash Flow Information
Interest paid -- --
Income taxes paid -- --
Supplemental Schedule of Non-cash Investing and Financing Activities
Common stock subscriptions:
Stock subscriptions receivable -- $ 10,000
Common stock subscribed -- $ (1,000)
Additional paid-in capital -- $ (9,000)
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Desert West Marketing, Inc.
(A Development Stage Company)
Notes to Financial Statements
As of December 31, 1999 and
For the Three and Nine Month Periods Ended December 31, 1999 and
For the Period from March 5, 1999 (Inception) to December 31, 1999
(Unaudited)
--------------------------------------------------------------------------------
1. Basis of Presentation
In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments, consisting of only normal
recurring adjustments necessary to present fairly its financial position as
of December 31, 1999 and the results of its operations and cash flows for
the period from March 5, 1999 (inception) to December 31, 1999 and the six
months ended December 31, 1999.
2. Development Stage Operations
Desert West Marketing, Inc. (a development stage company) (the "Company")
was incorporated in the state of Nevada on March 5, 1999 and has no
operating history with no revenues and no products or technology ready for
the market. The Company's initial business plan anticipates engaging in the
manufacture and/or sale of vitamins and nutritional supplements. The
implementation of these plans requires, among other things, significant
resources and may involve the use of leased facilities and equipment,
subcontract manufacturing, consultants, outside sales representatives,
and/or merger with an operating entity. While management believes the
Company has adequate cash resources to meet its immediate liquidity needs,
the Company's ability to be a going concern is predicated on its ability to
raise additional necessary capital to implement its plans, achievement of
successful operations, and or the completion of a merger with an operating
entity. There is no assurance that any of these will occur or be
successful.
3. Loss Per Common Share
Loss per common share has been computed by dividing the loss available to
common shareholders by the weighted-average number of common shares for the
period.
The Company does not have any potentially dilutive securities.
The computations of loss per common share for the three and nine month
periods ended December 31, 1999 and the period from March 5, 1999
(inception) to December 31, 1999 are as follows:
5
<PAGE>
Desert West Marketing, Inc.
(A Development Stage Company)
Notes to Financial Statements
As of December 31, 1999 and
For the Three and Nine Month Periods Ended December 31, 1999 and
For the Period from March 5, 1999 (Inception) to December 31, 1999
(Unaudited)
--------------------------------------------------------------------------------
3. Loss Per Common Share, Continued
<TABLE>
<CAPTION>
Period from
Three Months Nine Months March 5, 1999
Ended Ended (Inception) to
December 31, December 31, December 31,
1999 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss available to common shareholders $ (1,199) $ (1,199) $ (2,849)
----------- ----------- -----------
Weighted-average shares 2,650,000 2,650,000 2,550,000
----------- ----------- -----------
Loss per common share -- -- --
=========== =========== ===========
</TABLE>
4. License Agreement
In December 1999, the Company entered into an agreement to license a
natural anti-cholesterol encapsulated health supplement derived from
fermented rice and Peruvian plant products. Under this agreement, the
Company has the exclusive right to manufacture and market this health
supplement. In exchange for this exclusive licensing agreement, the Company
is required to pay a fee in the amount of $.10 per each 100 capsules of
product sold. The license has a term of five years with automatic renewals
for three years unless either party provides notice prior to its
expiration.
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<PAGE>
Item 2. Plan of Operation
THIS REPORT SPECIFIES FORWARD-LOOKING STATEMENTS OF MANAGEMENT OF THE COMPANY
("FORWARD-LOOKING STATEMENTS") INCLUDING, WITHOUT LIMITATION, FORWARD-LOOKING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS AND FUTURE
STRATEGIES. FORWARD-LOOKING STATEMENTS ARE STATEMENTS THAT ESTIMATE THE
HAPPENING OF FUTURE EVENTS AND ARE NOT BASED ON HISTORICAL
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<PAGE>
FACTS. FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-
LOOKING TERMINOLOGY, SUCH AS "COULD", "MAY", "WILL", "EXPECT", "SHALL",
"ESTIMATE", "ANTICIPATE", "PROBABLE", "POSSIBLE", "SHOULD", "CONTINUE", "INTEND"
OR SIMILAR TERMS, VARIATIONS OF THOSE TERMS OR THE NEGATIVE OF THOSE TERMS. THE
FORWARD- LOOKING STATEMENTS SPECIFIED IN THIS REPORT HAVE BEEN COMPILED BY
MANAGEMENT OF THE COMPANY ON THE BASIS OF ASSUMPTIONS MADE BY MANAGEMENT AND
CONSIDERED BY MANAGEMENT TO BE REASONABLE. FUTURE OPERATING RESULTS OF THE
COMPANY, HOWEVER, ARE IMPOSSIBLE TO PREDICT AND NO REPRESENTATION, GUARANTY, OR
WARRANTY IS TO BE INFERRED FROM THOSE FORWARD-LOOKING STATEMENTS.
THE ASSUMPTIONS USED FOR PURPOSES OF THE FORWARD-LOOKING STATEMENTS SPECIFIED IN
THIS REPORT REPRESENT ESTIMATES OF FUTURE EVENTS AND ARE SUBJECT TO UNCERTAINTY
AS TO POSSIBLE CHANGES IN ECONOMIC, LEGISLATIVE, INDUSTRY, AND OTHER
CIRCUMSTANCES. AS A RESULT, THE IDENTIFICATION AND INTERPRETATION OF DATA AND
OTHER INFORMATION AND THEIR USE IN DEVELOPING AND SELECTING ASSUMPTIONS FROM AND
AMONG REASONABLE ALTERNATIVES REQUIRE THE EXERCISE OF JUDGMENT. TO THE EXTENT
THAT THE ASSUMED EVENTS DO NOT OCCUR, THE OUTCOME MAY VARY SUBSTANTIALLY FROM
ANTICIPATED OR PROJECTED RESULTS, AND, ACCORDINGLY, NO OPINION IS EXPRESSED ON
THE ACHIEVABILITY OF THOSE FORWARD-LOOKING STATEMENTS. IN ADDITION, THOSE
FORWARD-LOOKING STATEMENTS HAVE BEEN COMPILED AS OF THE DATE OF THIS REPORT AND
SHOULD BE EVALUATED WITH CONSIDERATION OF ANY CHANGES OCCURRING AFTER THE DATE
OF THIS REPORT. NO ASSURANCE CAN BE GIVEN THAT ANY OF THE ASSUMPTIONS RELATING
TO THE FORWARD-LOOKING STATEMENTS SPECIFIED IN THIS REPORT ARE ACCURATE, AND THE
COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS.
Overview of Our Business. We were incorporated on March 5, 1999, pursuant to the
provisions of General Corporation Law of Nevada. Our executive offices are
located at 2505 Rancho Bel Air, Las Vegas, Nevada 89107. Our telephone number is
(702)240-0124. We were organized to engage in the manufacturing, packaging and
sale and distribution of vitamins and nutritional supplements. Our original
business plan was to distribute vitamin brands of other vitamin producers, as
well as developing our own vitamin brands. We originally planned to manufacture
some of our own vitamin products.
We also planned to market health related products other than vitamins if the
opportunity presented itself. We planned to market our products to alternative
medicine practitioners, health food stores and other wholesale and resale
sources. Because research and development costs in the vitamin and health
supplement industry are so high, and our funds are limited, we decided to
acquire the right to sell or distribute existing products or obtain licensing,
marketing, distribution or other rights to those types of products.
Some of our shareholders are friends and business associates of Dr. Robert
Milne. Dr. Milne is a board-certified family practice physician with extensive
experience in alternative health care, allergy testing and preventative
medicine. He is also the inventor of a patented allergy-testing device. Before
starting his own practice at the Milne Medical Center in Las Vegas, Nevada, Dr.
Milne was Medical Director at the Omni Medical Center and also practiced
medicine at the Nevada Clinic after previous assignments in emergency medicine
and a family practice. Dr. Milne is the author of numerous papers in the medical
field and has authored several books, including The Definitive Guide to
Headaches and The Photon Connection - Energy for the New Millennium. Dr. Milne
has been developing various vitamin and health-supplement products for many
years.
2
<PAGE>
In December, 1999 we entered into a licensing agreement with Dr. Milne to
acquire the rights to produce and market a natural anti-cholesterol supplement
which is taken in capsule form. This supplement is derived from fermented rice
and Peruvian plant products. The licensing agreement requires us to pay Dr.
Milne one-tenth of a cent per capsule which we sell directly, and one-twentieth
a cent per capsule which we sell through a sublicensor.
Cholesterol is a waxy substance in your blood that helps form cell membranes,
hormones and other tissue. But when there's too much of it in your bloodstream,
it clogs up your arteries and can lead to heart disease. Your body produces
about 1,000 milligrams of cholesterol a day. The rest of it comes from
animal-based food in your diet, such as meat, fish, eggs and dairy.
About 15 million Americans presently take cholesterol-lowering drugs. By
lowering the level of so-called bad or LDL cholesterol in the blood, or lowering
the amount of a fat called triglyceride, these drugs can prevent heart disease
and save lives. However, like all pharmaceuticals, cholesterol-lowering drugs
have side effects, some of which may argue against their use by certain
patients. The most commonly prescribed drugs to control cholesterol belong to a
family called statins. These types of drugs, which are marketed under the brand
names Pravacol, or pravastatin, Zocor, or simvastatin, and other names, work by
interfering with the multi-step cholesterol manufacturing process in the liver,
reducing blood cholesterol levels.
But because statins act directly on the liver, they can also cause general
inflammation, a condition that shows up in a liver-function blood test. In rare
cases, statins can also cause general muscle inflammation. If left untreated,
this condition can progress to breakdown of muscle tissue. Then, as muscle
molecules enter the blood, they can overload the kidneys and lead to kidney
failure. Such muscle symptoms occur mostly in people taking more than one drug.
Immunosuppressants, like those used by all transplant recipients,
triglyceride-lowering drugs and even the common antibiotic erythromycin often
trigger muscle inflammation.
Another problem with statins is that they can reduce sperm count and adversely
affect a developing fetus. So men and women of childbearing age might want to
avoid taking them, or be careful about conceiving a child while on the drugs.
There are alternatives to the use of statins. Perhaps the safest
cholesterol-lowering drugs, the bile acid resins, marketed under the brand names
Questran and Colestid, never enter the blood. Instead, they remain in the
intestine, tying up bile acids. The liver manufactures bile acids from
cholesterol, so when resins disable these chemicals, the liver makes more, using
up more cholesterol, thus lowering blood cholesterol levels. But the resin drugs
can cause constipation, and they can prevent absorption of other medications.
The familiar vitamin niacin also works to lower LDL cholesterol, if taken in
high doses. Rarely, niacin can cause liver damage. But the vitamin's
blood-vessel relaxing function causes the most potential problems, says Miller.
Niacin causes a sort of super blushing or hot flashes. There are also drugs
called fibrates, marketed under the brand name Gemfibrozil and the soon-to-be
released Lipidil, which dramatically decrease triglyceride levels and, as a
bonus, raise HDLs, the so-called "good" cholesterol. Their effect on LDLs falls
short of statins, however.
Because of the existing and potential side effects of all the existing
prescription drugs, we believe our product may provide an attractive alternative
to the drug treatments presently available to lower cholesterol.
Our Plan of Operation for Next 12 Months. We plan to establish relationships
with alternative medicine practitioners and others interested in promoting
alternative treatments. We will focus our initial marketing efforts on the
states of Nevada, Utah and California. We plan to market our products by
distributing brochures and price
3
<PAGE>
lists through the mails. Follow-up calls will be made to promising prospects.
This approach will be our primary marketing method, although, if we gain some
market acceptance, we may place advertisements in magazines that promote various
sports and activities. These sources, as well as magazines promoting health
products and targeted to the alternative medicine practitioner, will be the main
focus of our magazine advertising. At this time, until the product gains support
among alternative health care providers, advertising the product is premature.
We also must arrange for commercial manufacture of the product, which we plan to
subcontract, and for packaging and distribution, which we will also subcontract,
at least initially.
Liquidity and Available Cash for Operations. Our current cash resources are not
sufficient to fund our marketing and promotion activities relating to our
anti-cholesterol capsules for the next 9 months. We are not currently generating
any revenues from the sale or licensing of the anti-cholesterol supplement. Our
only external source of liquidity is the sale of our capital stock. Fortunately,
because Dr. Milne developed the anti-cholesterol capsule, he, and not the
company, paid the research and other costs of its development. However, we will
have to raise additional funds or collect funds owed to the Company to continue
with our business plan.
We Have No Employees. We do not currently have any employees. We anticipate
using consultants for business, accounting, marketing and legal services on an
as-needed basis. Because we plan to enter into licensing and manufacturing
agreements with third parties when we have achieved market acceptance and
support for our anti-cholesterol capsule, we anticipate that we will require
very few employees, if any, during the next fiscal year.
Producing Our Anti-Cholesterol Capsule. We do not own production equipment and
we do not intend to purchase any production equipment or lease a production
facility until we have completed our initial marketing efforts. We do not
believe we will have any problems purchasing the rice and Peruvian plant
products necessary to produce our anti-cholesterol capsule or that availability
of those ingredients will be significantly effected by seasonal factors. Any
time you must purchase any products from outside the United States, you
encounter many potential problems, such as political instability in the country
of origin, raises in tariff rates, fluctuations in foreign exchange rates, and
general shipping and handling supplies through customs. We believe that all of
these details are manageable risks which are common risks of purchasing supplies
outside the United States.
We May Be Forced to Recall Our Product. If we receive complaints about
side-effects, or if Dr. Milne determines that there is some type of problem with
the anti-cholesterol capsules on the market, we might recall some or all of
these capsules. For example, if there was some foreign substance contaminating
the capsules during the production process, we would recall all the capsules we
had shipped, even uncontaminated capsules, to protect the public. Government
agencies having regulatory authority for product sales might order us to recall
our product due to disputed labeling claims, manufacturing issues, quality
defects or other reasons. A product recall would damage our reputation with the
public and could put us out of business.
Our business also exposes us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of nutritional supplement
products. We do not currently have product liability insurance, and there can be
no assurance that we will be able to obtain or maintain such insurance on
acceptable terms or, if obtained, that such insurance will provide adequate
coverage against potential liabilities. We face an inherent business risk of
exposure to product liability and other claims in the event that the development
or use of our technology or products is alleged to have resulted in adverse
effects.
4
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no legal actions pending against the Company nor are any such legal
actions contemplated.
Item 2. Changes in Securities
Shares Issued as Compensation for Services. In March 1999, we issued at total of
550,000 shares of our common stock as compensation for legal services provided
to the company by Thomas E. Stepp, Jr. and his paralegal, Richard Reincke. Those
shares were valued at what we believe was the fair market value at the time of
issuance, which was $0.001 per share. Also in March 1999, we issued 1,100,000
shares of our common stock to Thomas Krucker because he had expended the funds
to incorporate the company and provided services in connection with the
incorporation of the company. Those shares were valued at what we believe was
the fair market value at the time he expended those funds, which was par value.
Sale of Our Common Stock. In March 10, 1999, we sold unregistered shares of our
common stock in reliance on an exemption from registration provided by Rule 504
of Regulation D of the Securities Act of 1933. We sold a total of 1,000,000
shares of our common stock and received gross proceeds totaling $10,000 in cash
from approximately 24 non-accredited investors.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1 Underwriting Agreement (not applicable)
2 Plan of Merger (not applicable)
3.1 Articles of Incorporation* (Charter Document)
3.2 Certificate of Amendment to Articles of Incorporation* (Charter
Document)
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<PAGE>
3.3 Bylaws*
10.1 Material Contracts - License Agreement dated December 21, 1999 with
Dr. Robert Milne
11. Statement Re: Computation of Per Share Earnings (included in Footnote
2 of the Financial Statements in Item 1 of this Quarterly Report on
Form 10-QSB)
15. Letter on Unaudited Interim Financial Information(included in
Financial Statements in Item 1 of this Quarterly Report on Form
10-QSB)
18. Letter on Change in Accounting Principles (Not applicable)
19. Reports Furnished to Security Holders (Not applicable)
22. Published Report Regarding Matters Submitted to Vote (not applicable)
24. Power of Attorney*
27. Financial Data Schedule
99 Other (not applicable)
*Previously filed as exhibits to Registration Statement on Form 10-SB filed with
the Securities and Exchange Commission on October 13, 1999.
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Newport Beach, State of California, on July 3, 2000.
Desert West Marketing, Inc.,
a Nevada corporation
/s/
By: Russell Seedborg
President
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