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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] 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: 2-35700
Wasatch Pharmaceutical, Inc.
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(Exact name of registrant as specified in charter)
Utah 84-0854009
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State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
714 East 7200 South, Midvale, Utah 84047
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(Address of principal executive offices) (Zip Code)
(801) 566-9688
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Issuer's telephone number, including area code
Not Applicable
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(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports). Yes [X] No [ ] and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Class Outstanding as of August 31, 1996
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Common Stock, $.001 3,079,814*
*Gives effect to a 4:1 reserve split of the issuer's issued and outstanding
shares of common stock effective August 16, 1996.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation of
the financial position, results of operations, cash flows, and stockholder's
equity in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Company as of June 30, 1996, and the
related audited balance sheet of the Company as of December 31, 1995, the
unaudited related statements of operations and cash flows for the three and
six month periods ended June 30, 1996 and 1995, and from inception (September
7, 1989) through June 30, 1996, are attached hereto and incorporated herein by
this reference.
Operating results for the quarter ended June 30, 1996, and for the six
months ended June 30, 1996 are not necessarily indicative of the results that
can be expected for the year ending December 31, 1996.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
PLAN OF OPERATION
The Company owns the proprietary technology for the treatment of
various common skin disorders, including acne, eczema, and psoriasis and has
begun to introduce this technology through company-owned clinics. As a
follow-up to previous clinical studies, prototype clinics were established two
years ago in an effort to achieve similar success rates as the clinical
studies had achieved and to establish medical and administrative procedures
that could be duplicated in clinics across the country. Two prototype medical
clinics are currently in operation in Utah. Although the Company has
confirmed the technology through the successful treatment of hundreds of
patients over the last two years and has set up the administrative procedures,
the clinics have not reached a profitable level due to the lack of funds for
advertising and marketing. The Company does not at this time have substantial
assets to support significant future development and expansion of its clinic
operation without additional working capital. Due to lack of assets and
working capital, the Company's financial statements contain a "going concern"
disclosure which places into question the Company's ability to continue
without substantial increases in revenues or additional equity financing.
The Company is seeking funding to add four more clinics in major
metropolitan areas and to launch a major advertising and marketing campaign to
support each of the clinics. Management feels that the advertising campaign
along with working with health insurance companies and HMOs to become a
Preferred Provider and a physician referral program would increase revenues
above the break-even point and make each clinic profitable.
In April, 1996, the Company entered into a contract to sell 6,000,000
shares of its restricted common stock (the "Wasatch Common")to
Lindbergh-Hammar Associates ("Lindbergh") of Dallas, Texas at a price of
$1.225 per share in exchange for 7,350 shares of Lindbergh preferred stock,
par value $1,000 per share (the "Lindbergh Preferred"). The Lindbergh
Preferred has a non-cumulative dividend rate of 5% per annum and all voting
rights remain with the the Company's board of directors until such time as the
Lindbergh Preferred are redeemed pursuant to their terms. Lindbergh agreed to
redeem the Lindbergh Preferred over a two (2) year period of time. The
Lindbergh Preferred was to be called and redeemed at par value in monthly
increments equal to 10% of the insurance premium income generated by Lindbergh
as a result of the Wasatch Common being assigned to the Capital and Surplus
Account of an insurance company affiliated to Lindbergh. Lindbergh agreed to
call and redeem a minimum of $100,000 face value (par value) Lindbergh
Preferred by the end of 90 days after receiving the an Independent Certified
Public Accountant's Certification letter confirming the bid price, or value,
of the trading shares of the Company. On August 23, 1996, after discussion
between the Company and Lindbergh relating to the timing for completiion of
Lindbergh's audit and/or certification and the Company's progress for
establishing a bid and asked price for the Company's common stock, the Company
and Lindbergh mutually agreed to rescind the agreement between the parties.
The 6,000,000 shares of Wasatch Common were returned to the Company for
cancellation.
On August 12, 1996, the board of directors voted to approve a 4:1
reverse split of the Company's common stock, with an effective date of August
16, 1996.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had current assets of $19,491 and current
liabilities of $1,071,038, resulting in a working capital deficit of
$1,051,547. The increase in the working capital deficit is due primarily to
the Company's operating losses which were $127,023 and $255,613 for the three
and six month periods ended June 30, 1996, respectively. The majority of
expenses are related to the operation of the Company's two existing prototype
clinics and the expenses of operating a public company. The Company is trying
to obtain funding to set up four more clinics and to launch a major
advertising and public relations campaign which would bring in additional
revenue. Management feels this additional revenue would make the clinics
profitable.
In April, 1996, the Company agreed to sell a total of 150,000 shares of
unregistered common stock to two former directors and officers of the Company
in a private placement transaction at approximately $.78 per share. The sale
of these shares was completed in August, 1996, resulting in gross proceeds to
the Company of $117,350.
In June, 1996, the Company borrowed $2,100 from four unrelated
individuals on notes to be paid from the proceeds of any future public
offering, should such an offering be contemplated. The notes are accruing
interest at 15% and are unsecured. In July, 1996, the Company borrowed
$40,000 from a former director of the Company, payable upon demand, accruing
interest at 10% and secured by a retirement fund owned by the spouse of Gary
Heesch, President of the Company.
In August, 1996, the Company borrowed $5,000 from an individual pursuant
to a note. The note is payable with the proceeds of any future public
offering, should such an offering be contemplated by the Company and accrues
interest at 15% per annun. In addition, the Company sold 20,000 shares of
common stock at a purchase price of $1.00 per share. These shares were sold
after giving effect to the 4:1 reverse split.
The Company will continue to seek both debt and equity funding to begin
a marketing program to bring in additional revenue and to meet its current
obligations, however, due to the Company's financial condition, it would be
difficult to obtain debt financing.
RESULTS OF OPERATION
During the six months ending June 30, 1996, the Company had revenues of
$63,426 compared to $134,309 during first six months of 1995, a decrease of
$70,883. During the three month period ending June 30, 1996, the Company
recorded revenue of $29,752, compared to revenues of $70,729 for the same
prior year period, a decrease of $40,977. There are two reasons for this
decrease in revenue. During the first six months of 1995, the Company had
three prototype clinics generating revenue from operations. The Company
closed its clinic in Pocatello, Idaho in February, 1996. Also, during the
first six months of 1995, the Company was doing some test advertising which
resulted in additional revenue. Company did very little advertising of its
products during the first six months of 1996. The Company's operating
expenses decreased by 22% from the first six months of 1995 to the first six
months of 1996, and decreased 35% for the three months ending June 30, 1996 as
compared to the same three month period last year, due to a substantial
reduction in the amount of advertising, which was partially offset by
increased legal, accounting and administrative expenses that were associated
with the Company becoming a public entity.
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The Company anticipates that the losses will continue until funding is
obtained which will be used to launch the marketing program.
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
SEC
Exhibit Reference
No. No. Description Location
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4.01 4 Resolution of the Board of
Directors Authorizing the 4:1
reverse split of issued and
outstanding common stock This Filing
10.01 10 Rescision Letters between the
Company and Lindbergh-Hammer
Associates This Filing
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASATCH PHARMACEUTICAL, INC.
[Registrant]
Dated: September 3, 1996 /S/David K. Giles
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> (1,314)
<SECURITIES> 0
<RECEIVABLES> 8,187
<ALLOWANCES> 0
<INVENTORY> 12,018
<CURRENT-ASSETS> 19,491
<PP&E> 44,846
<DEPRECIATION> (13,211)
<TOTAL-ASSETS> 51,257
<CURRENT-LIABILITIES> 1,071,038
<BONDS> 0
0
2,463
<COMMON> 18,239
<OTHER-SE> 295,401
<TOTAL-LIABILITY-AND-EQUITY> 51,257
<SALES> 46,406
<TOTAL-REVENUES> 63,426
<CGS> 3,640
<TOTAL-COSTS> 277,321
<OTHER-EXPENSES> 1,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,121
<INCOME-PRETAX> (255,613)
<INCOME-TAX> 0
<INCOME-CONTINUING> (255,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (255,613)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
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Officer's Certificate
During a board meeting of Wasatch Pharmaceutical, Inc., held August 12, 1996,
the following resolution was unanimously approved by the board of directors:
RESOLVED, that the common stock of the Company be reduced by a 4:1 reverse
split, effective August 16, 1996, and that the officers of the Company are
directed to implement this split and to notify the shareholders.
/S/David K. Giles, Secretary
Dated: August 30, 1996
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LINDBERGH-HAMMAR ASSOCIATES, INC.
P.O. BOX 1329
WEATHERFORD, TEXAS 76086
PHONE 817-596-3400 FAX 817-596-3100
AUGUST 23, 1996
WASATCH PHARACEUTICAL, INC.
ATTN: Gary V. Heesch
714 East 7200 South
Midvale, Utah 84047
Dear Mr. Heesch:
In response to our phone conversation on Friday, August 23 regarding your most
recent response from the NASD, I must reluctantly rescind our agreement with
Wasatch Pharmaceutical for failure to perform.
We were led to believe that Wasatch would be trading by now, and with that
expectation, we have not pursued other opportunities to secure assets. This
loss of time with Wasatch has caused Lindbergh-Hammer a significant reduction
in revenue from lost premiums. We could accommodate Wasatch with answers to
the last set of questions from the NASD, but there is no assurance that they
will not continue with this line of questioning which would only cause us both
more harm.
I know this is a disappointment for the folks in Wasatch, but it will let you
concentrate on getting your approvals for trading. Not many medical
technologies enjoy a position of leadership in a discipline of medicine with
virtually no competition. So continue the good work and best of luck.
Sincerely,
/S/W.A. Gary, President
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WASATCH PHARMACEUTICAL, INC>
August 27, 1996
Mr. W.A. Gary, President
Lindberg-Hammar Associates, Inc.
P.O. Box 1329
Weatherford, Texas 76086
Dear W.A.:
In response to your letter of August 23, we agree to accept your decision to
terminate the agreement between Wasatch Pharmaceutical and Lindberg-Hammer.
Thank you for your patience, and we regret the inconvenience we have cause
you.
Best Wishes,
/S/ Gary V. Heesch
714 East 7200 South
Midvale, Utah 84047
801-566-9688
801-566-9680
