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 March 31, 1999
[ ] 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: 0-22899
Wasatch Pharmaceutical, Inc.
(Exact name of registrant as specified in charter)
Utah 84-0854009
---------- -----------------
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
714 East 7200 South, Midvale, Utah 84047
(Address of principal executive offices) (Zip Code)
(801) 566-9688
Issuer's telephone number, including area code
Not Applicable
(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 [ ] No [X] 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 A Common Stock, $.001- 12,840,821 isssued and outstanding as of
March 31, 1999 (This amount excludes 44,170 shares paid for but unissued
awaiting appropriate issue documentation and excludes 25,765,000 shares issued
to secure the Registrant's obligations and subscription receivable for 500,000
shares.)
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Registrant's 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 foot notes 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 Registrant as of March 31, 1999, and
the related audited balance sheet of the Registrant as of December 31, 1997, the
unaudited related statements of operations and cash flows for the three month
periods ended March 31, 1999 and 1998 and from inception (September 7, 1989)
through March 31, 1999, are attached hereto and incorporated herein by this
reference.
Operating results for the quarter ended March 31, 1999 are not necessarily
indicative of the results that can be expected for the year ending December 31,
1999.
The following financial statements are included in this report:
Consolidated Balance Sheet as of March 31, 1999 and
December 31, 1998............................................ F-1
Consolidated Statements of Operations for the Quarter
ended March 31, 1999, 1998 and from inception (September
7, 1989) through March 31, 1999.............................. F-2
Consolidated Statements of Changes in Common Stockholders'
(Deficit) for the Quarter ended March 31, 1999 and from
inception (September 7, 1989) through March 31, 1998......... F-3
Consolidated Statements of Cash Flows for the Quarter ended
March 31, 1999, 1998, and from inception (September 7,
1989) through March 31, 1999................................ F-4
Notes to the Consolidated Financial Statements................. F-5
2
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
OVERVIEW
The Company has proprietary technology for the treatment of various
common skin disorders, including acne, eczema, and psoriasis. After completing
successful clinical studies, prototype clinics were established with the goal of
duplicating the success rates achieved in the clinical environment and to
establish medical, business and administrative procedures that could be
duplicated in an Internet network of patients and doctors and through Company
clinics across the country. Two prototype treatment 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 three years and has
set up the business and administrative procedures, the clinics have not reached
a profitable level due to the lack of funds for advertising and marketing.
To this date, the Company has not had the resources to fully implement
its plan for the development and expansion of its Internet and clinic
operations. Due to the lack of 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 long-term financing.
The Company is seeking funding to establish an Internet presence, open
additional clinics in major metropolitan areas and to launch a major advertising
and marketing campaign to support each of its business strategies. Based on
successful historical models, management concludes that through direct patient
treatment on the Internet, working with health insurance companies and HMOs and
supplemented by a physician referral program, revenues could be increased
substantially with the infrastructure in place that is operating at 10% to 15%
of clinic capacity.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had current assets of $10,866 and
current liabilities of $3,357,138, generating a working capital deficit of
$3,346,272, which is a 14% increase from December 31, 1998. The increase in the
deficit is due to the Company's operating loss of $227,502 for the three-month
period ended March 31, 1999. The deficit was financed with new borrowings of
$275,185, additional shareholder investment of $7,213 and creditor forbearance
of $162,836.
RESULTS OF OPERATIONS
For the three months ended March 31, 1999, the Company had revenues of
$14,238, compared to revenues of $21,076 for the same period of 1998, a decrease
of 32%. The Company's operating expenses decreased $998 in the first three
months of 1999, as compared to the first three months of 1998. There was not a
comparable decrease in expense because the Company maintains a core technical
and management staff in anticipation of rapid growth. The Company's corporate
expenses increased $4,600 to $84,108 and interest expense increased $56,780 to
$92,000. These variations are attributable to the timing of expenditures for
fund raising activities and the increasing Company debt. For the first quarter
of 1999 the Company had a net loss of $227,502 compared to a loss of $160,287 in
the same period of 1998. The Company anticipates that the losses will continue
until funding is obtained to implement the Company's business plan.
3
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
During the first quarter the following common share transactions
occurred:
a. Issued 30,000common shares to employees as stock bonus.
b. Issued 95,000 restricted common shares to creditors for
extensions.
c. Issued 70,000 restricted common shares for cash totaling $
7,000
d. Issued 58,000 shares to creditors for loan fees.
e. Issued 30,000common shares to creditors as collateral on funds
advanced.
The common shares were issued in reliance on the exemption from registration
provided by Section 4 (2) of the Securities Act of 1934 and the "Safe Harbor" of
Regulation D, Rule 504.
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.
Exhibit
Number: Exhibit
27 Financial Data Schedule (included only in the electronic
filing of this document).
(b) Reports on Form 8-K - None
4
<PAGE>
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.
Dated: April 18, 2000
By: /s/ David K. Giles
-----------------------
David K. Giles
Principal Accounting Officer
5
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 AND DECEMBER 31, 1998
ASSETS
1999 1998
---------- ----------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 230 $ 2,589
Accounts receivable - trade 3,142 7,175
Inventory 6,894 7,158
Prepaid expenses 600 600
---------- ----------
Total Current Assets 10,866 17,522
---------- ----------
PROPERTY AND EQUIPMENT
Clinic and office equipment 41,554 41,554
Less accumulated depreciation (30,199) (28,492)
---------- ----------
Net Property and Equipment 11,355 13,062
---------- ----------
OTHER ASSETS 200,200 200
---------- ----------
TOTAL ASSETS $ 222,421 $ 30,784
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 283,861 $ 237,609
Accrued interest 426,533 356,260
Accrued salaries 361,978 291,114
Payroll taxes 86,250 85,136
Other accrued expenses 34,961 60,628
Notes and advances currently due:
Short-term shareholder advances 25,776 18,157
Vendors 112,333 112,333
Stockholders 2,025,446 1,783,946
---------- ----------
Total Liabilities 3,357,138 2,945,183
---------- ----------
STOCKHOLDERS' DEFICIT
Preferred stock, $0.001 par value, 1,000,000
shares authorized 49,258 issued and outstanding 49 49
Common stock, $0.001 par value, 50,000,000 shares
authorized, 39,105,821 shares issued and outstanding 39,106 38,823
Additional paid-in capital 1,329,026 1,322,096
Accumulated development stage deficit (4,452,133) (4,224,632)
---------- ----------
(3,083,952) (2,863,664)
Less shares issued for future transactions (50,765) (50,735)
---------- ----------
Total Stockholders' Deficit (3,134,717) (2,914,399)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 222,421 $ 30,784
========== ==========
</TABLE>
The accompanying footnotes are an integral part of this financial information
F-1
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(Unaudited)
For the Quarter Ended
March 31, From
-------------------------- Inception To
1999 1998 Mar. 31, 1999
--------- --------- -----------
REVENUES
<S> <C> <C> <C>
Professional fee income $ 4,281 $ 7,572 $ 218,368
Product sales 9,957 13,504 431,133
--------- --------- -----------
Total Revenues 14,238 21,076 649,501
--------- --------- -----------
OPERATING EXPENSES
Cost of products sold 291 1,423 48,299
Salaries 36,266 36,809 515,836
Employee leasing - - 218,745
Payroll taxes 3,239 3,435 49,557
Physicians fees 7,616 10,200 245,484
Rent 10,059 11,718 179,992
Advertising 1,487 (632) 214,039
Depreciation 1,314 1,314 30,570
Other 5,359 2,362 62,848
--------- --------- -----------
Total Operating Expenses 65,631 66,629 1,565,370
GENERAL AND ADMINISTRATIVE EXPENSE 84,108 79,514 2,484,169
INTEREST 92,000 35,220 642,377
--------- --------- -----------
Total Expenses 241,739 181,363 4,691,916
--------- --------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS AND
THE PROVISION FOR INCOME TAXES (227,502) (160,287) (4,042,416)
LOSS FROM DISCONTINUED OPERATIONS - - (409,718)
--------- --------- -----------
NET LOSS BEFORE INCOME TAXES (227,502) (160,287) (4,452,134)
PROVISION FOR INCOME TAXES - - -
--------- --------- -----------
NET LOSS $ (227,502) $ (160,287) $(4,452,134)
========== ========== ===========
Loss per share before discounted operations $ (0.017) $ (0.016) $ (0.347)
Loss per share from discounted operation - - -
--------- --------- -----------
BASIC LOSS PER COMMON SHARE $ (0.017) $ (0.016) $ (0.347)
========== ========== ==========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 13,196,095 10,017,472 12,838,121
========== ========== ==========
</TABLE>
The accompanying footnotes are an integral part of this financial information
F-2
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Quarter Ended
March 31, From
--------------------------- Inception To
1999 1998 Mar. 31, 1999
--------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (227,502) $ (160,287) $ (4,452,134)
Adjustments to reconcile net (Loss) to net cash
used by operating activities:
Depreciation and depletion 1,707 1,706 30,199
Depreciation and losses on fixed asset disposals
Clinic assets - - 15,234
Oil and gas assets - - 4,189
Loss on disposal of oil and gas properties 382,933
Expenses paid with common shares 43 -
Increase (decrease) in working capital -
(Increase) decrease in receivables 4,033 305 (3,142)
(Increase) decrease in related party receivable - - -
(Increase) decrease in inventory 264 (770) (6,894)
(Increase) decrease in prepaid expenses - 15,063 (600)
Increase (decrease) in accounts payable 46,252 (5,532) 283,861
Increase (decrease) in accrued interest 70,273 32,647 426,533
Increase (decrease) in other accruals 46,311 9,050 483,189
-------- -------- ----------
Net cash used by operating activities (58,662) (107,775) (2,836,632)
-------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - - (27,764)
(Increase) decrease in other assets (200,000) - (200,200)
-------- -------- ----------
Net cash provided (used) by investing activities (200,000) - (227,964)
-------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 275,185 141,296 2,651,392
Expenses paid by shareholder - - 38,323
Repayment of loans (26,065) (42,572) (482,856)
Proceeds from sale of common shares 7,113 10,000 517,578
Capital contributed by shareholder - 154,800
Collection of share subscriptions - 16,154 141,726
Common shares exchanged for debt 70 - 12,388
Exercised stock options - - 125,250
Redemption of common shares - - (20,409)
Cost of raising capital - - (73,366)
-- -- --------
Net cash provided used by financing activities 256,303 124,879 3,064,826
-------- -------- ----------
NET INCREASE (DECREASE) IN CASH (2,359) 17,104 230
Balance at beginning of period 2,589 14,259 -
-------- -------- ----------
Balance at end of period $ 230 $ 31,362 $ 230
======== ======== ==========
</TABLE>
The accompanying footnotes are an integral part of this financial information
F-3
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------------------
(Unaudited)
Preferred Common Stock Additional Accumulated Total
Stock ---------------------- Paid - In Development Stockholders'
Amount Shares Amount Capital Stage Deficit Equity
--------- ---------- --------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance forward December 31, 1998 $ 49 38,822,821 $ 38,823 $ 1,322,096 $(4,224,631) $(2,863,664)
Shares issued in connection with:
Note extensions - 70,000 70 - - 70
Securities sold for cash - 70,000 70 6,930 - 7,000
Services rendered - 83,000 83 - - 83
Employee benefits 30,000 30 - - 30
Shares issued to potential investor to be used
as interim loan collateral - 30,000 30 - - 30
Net loss for the quarter ended March 31, 1999 - - - - (227,502) (227,502)
---- ---------- -------- ----------- ----------- -----------
Balance March 31, 1999 of stockholders'
equity-per committed contracts 49 39,105,821 39,106 1,329,026 (4,452,133) (3,083,952)
Less shares issued for future transactions - (26,265,000) (26,265) (24,500) - (50,765)
---- ---------- -------- ----------- ----------- -----------
Net equity March 31, 1999 $ 49 12,840,821 $ 39,055 $ 1,278,312 $(4,452,133) $(3,134,717)
==== ========== ======== =========== =========== ===========
</TABLE>
The accompanying footnotes are an integral part of this financial information
F-4
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1999
(unaudited)
NOTE 1 - NATURE AND HISTORY OF THE BUSINESS
The consolidated financial statements include Wasatch Pharmaceutical,
Inc. (a development stage company) (Wasatch or the Company), and its wholly
owned subsidiaries, Medisys Research Group, Inc. and American Institute of Skin
Care, Inc.
Medisys Research Group, Inc., a Utah corporation, (Medisys) was
incorporated on September 7, 1989 for the purpose of developing treatment
programs for various skin disorders. On January 21, 1994, American Institute of
Skin Care, Inc. (AISC) was incorporated as a wholly owned Utah subsidiary of
Medisys to administer the skin treatment programs developed by Medisys.
On December 29, 1995, Ceron Resources Corporation and Medisys completed
an Agreement and Plan of Reorganization whereby Ceron issued 85% of its
outstanding shares of common stock in exchange for all of the issued and
outstanding common stock of Medisys and the name was changed to Wasatch
Pharmaceutical, Inc.
The acquisition of Medisys by Ceron was accounted for as a purchase by
Medisys because the shareholders of Medisys control the surviving company. There
was no adjustment to the carrying value of the assets or liabilities of Ceron in
as much as its market value approximated the carrying value of net assets. In
summary, Ceron is the acquiring entity for legal purposes and Medisys is the
surviving entity for accounting purposes.
For the purpose of this financial presentation "Inception" shall mean
September 7, 1989, which was the commencement of Medisys operations.
NOTE 2 - CHANGES IN PRESENTATION
Certain financial presentations for the first quarter of 1998 have been
reclassified to conform to the 1999 presentation.
NOTE 3 - GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the comparative three month
periods ended in 1999 and 1998 and from inception through March 31, 1999 are:
From Inception
First Quarter To Mar. 31
---------------------- -------------
1999 1998 1999
---------- ------------ -------------
Officers' compensation $40,439 $34,242 $1,015,564
Professional services 35,742 13,289 279,675
Finders fees 145 7,250 41,380
Travel 569 4,647 73,689
Telephone 1241 3,639 62,317
Insurance 455 15,912
Postage 875 15,822
Payroll tax penalties 0 36,569
Other 6,372 15,119 943,239
---------- ------------ -------------
Total $84,108 $79,514 $2,484,167
========== ============ =============
F - 5
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1999
(unaudited)
NOTE 4 - GOING CONCERN PREMISE
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company is in the development stage and has not
established a source of revenues sufficient to allow it to continue to operate.
The Company is seeking an agreement to raise short-term funding and plans to
seek long-term funding through a stock offering. Management believes that
sufficient funding will be raised to meet the operating needs of the Company
during the remainder of development stage.
F-6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 230
<SECURITIES> 0
<RECEIVABLES> 3,142
<ALLOWANCES> 0
<INVENTORY> 6,894
<CURRENT-ASSETS> 10,866
<PP&E> 41,554
<DEPRECIATION> 30,199
<TOTAL-ASSETS> 222,421
<CURRENT-LIABILITIES> 3,357,138
<BONDS> 0
0
49
<COMMON> 39,106
<OTHER-SE> 1,329,026
<TOTAL-LIABILITY-AND-EQUITY> 222,421
<SALES> 9,957
<TOTAL-REVENUES> 14,238
<CGS> 291
<TOTAL-COSTS> 65,631
<OTHER-EXPENSES> 84,108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,000
<INCOME-PRETAX> (227,502)
<INCOME-TAX> 0
<INCOME-CONTINUING> (227,502)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (227,502)
<EPS-BASIC> (.017)
<EPS-DILUTED> (.017)
</TABLE>
