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 September 30, 2000
[ ] 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 [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 A Common Stock, $.001- 20,766,357 shares outstanding as of
September 30, 2000 (This amount excludes 377,515 shares held in trust for
potential private placements.)
<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 following financial statements are attached hereto and incorporated
herein by this reference:
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 F - 1
Consolidated Statement of Operations For the nine months
ended September 30, 2000 and 1999 and three month periods
ended September 30, 2000 and 1999 and from inception
(September 7, 1989) through September 30, 2000 F - 2
Consolidated Statement of Changes in Common
Stockholders' Equity (Deficit) from Inception
(September 7, 1989) through December 31, 1996 F - 3
Consolidated Statement of Changes in Common
Stockholders' Equity (Deficit) for the years ended
December 31, 1997 and 1998 F - 4
Consolidated Statement of Changes in Common
Stockholders' Equity (Deficit) for the year ended
December 31, 1999 and the nine month period ended
September 30, 2000 F - 5
Consolidated Statement of Cash Flows for the three and
nine month periods ended September 30, 2000 and 1999
and the year ended December 31, 1999 and from
inception (September 7, 1989) to September 30, 2000 F - 6
Notes to Consolidated Financial Statements F - 7
This quarterly report and the documents incorporated in this report by
reference include forward-looking statements under the Securities Act. In
addition, from time to time, we have made or may make forward-looking statements
orally or in writing. The words "may," "will," "expect," "anticipate,"
"believe," "estimate," "plan," "intend" and similar expressions have been used
to identify forward-looking statements. We have based these forward-looking
statements on our current views with respect to future events and financial
performance. Actual results could differ materially from those projected in the
forward-looking statements. These forward-looking statements are subject to
risks, uncertainties and assumptions.
Operating results for the three and nine month periods ended September
30, 2000 are not necessarily indicative of the results that can be expected for
the year ending December 31, 2000.
2
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
-----------------------------------------
2000 1999
---------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 105,280 $ 10,038
Accounts receivable - trade 51,107 2,616
Inventory 7,178 3,673
Prepaid expenses 115,584 8,305
---------- ----------
Total Current Assets 279,150 24,632
---------- ----------
PROPERTY AND EQUIPMENT
Clinic and office equipment 67,231 44,819
Leasehold and leasehold improvements 42,500 -
Internet systems and hardware 37,063 -
---------- ----------
151,794 44,819
Less accumulated depreciation (41,706) (35,122)
---------- ----------
Net Property and Equipment 110,088 9,697
---------- ----------
OTHER ASSETS 105,184 10,200
---------- ----------
TOTAL ASSETS $ 489,422 $ 44,529
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 363,648 $ 239,812
Accrued interest 594,240 484,118
Accrued salaries 655,335 557,726
Other accrued expenses 111,504 139,693
Notes and advances currently due:
Short-term shareholder advances 51,802 45,171
Vendors 112,333 112,333
Stockholders and others 1,973,272 1,808,709
---------- ----------
Total Liabilities 3,862,134 3,387,562
---------- ----------
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, 20,766,357 and 11,581,196 shares issued and
outstanding at September 30, 2000 and December 31, 1999 20,766 11,581
Additional paid-in capital 3,236,419 2,040,969
Accumulated development stage deficit (6,628,596) (5,393,382)
---------- ----------
(3,371,363) (3,340,783)
Less shares issued for future transactions (1,350) (2,250)
---------- ----------
Total Stockholders' Deficit (3,372,713) (3,343,033)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 489,422 $ 44,529
========== ==========
</TABLE>
F - 1
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Nine Months Ended For the Quarter Ended
September 30, September 30, From Inception
-------------------------- -------------------------- To Sept. 30,
2000 1999 2000 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Professional fee income $ 4,881 $ 12,242 $ 2,181 $ 4,300 $ 233,282
Product sales 16,019 24,792 4,730 7,070 467,500
----------- ----------- ----------- ----------- -----------
Total Revenues 20,899 37,034 6,911 11,370 700,781
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Cost of products sold 3,267 2,603 976 993 54,759
Salaries 144,501 122,836 51,413 46,081 795,256
Employee leasing - - - 218,745
Payroll taxes 12,675 10,310 2,891 3,710 97,658
Physicians fees 24,082 24,592 6,900 9,175 291,950
Rent 27,239 27,882 9,097 8,444 234,181
Advertising 3,337 2,035 - 250 217,934
Depreciation 3,528 3,981 1,003 1,281 38,038
Other 19,873 17,002 7,629 6,916 102,514
----------- ----------- ----------- ----------- -----------
Total Operating Expenses 238,503 211,241 79,910 76,850 2,051,035
GENERAL AND ADMINISTRATIVE EXPENSE 805,726 360,840 263,035 136,136 3,748,786
INTEREST 211,885 264,302 70,141 82,936 1,119,839
----------- ----------- ----------- ----------- -----------
Total Expenses 1,256,114 836,383 413,086 295,921 6,919,660
----------- ----------- ----------- ----------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS AND
THE PROVISION FOR INCOME TAXES (1,235,215) (799,349) (406,175) (284,551) (6,218,879)
LOSS FROM DISCONTINUED OPERATIONS - - - - (409,718)
----------- ----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES (1,235,215) (799,349) (406,175) (284,551) (6,628,597)
PROVISION FOR INCOME TAXES - - - - -
----------- ----------- ----------- ----------- -----------
NET LOSS $(1,235,215) $ (799,349) $ (406,175) $ (284,551) $(6,628,597)
=========== =========== =========== =========== ===========
Loss per share before discounted operations $ (0.085) $ (0.078) $ (0.022) $ (0.027) $ (0.620)
Loss per share from discounted operation - - - - (0.041)
----------- ----------- ----------- ----------- -----------
BASIC LOSS PER COMMON SHARE $ (0.085) $ (0.078) $ (0.022) $ (0.027) $ (0.661)
=========== =========== =========== =========== ===========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 14,592,189 10,252,860 18,290,768 10,712,684 10,033,456
=========== =========== =========== =========== ===========
</TABLE>
F - 2
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
From Inception (September 7, 1989 Through December 31, 1996
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 September 7, 1989 $ - - $ - $ - $ - $ -
------ --------- ------ ---------- ----------- ----------
Stock issued at inception for
approximately $0.0005 to Company's
founders for services rendered - 10,000,000 5,334 - - 5,334
Common stock issued in
payment of loan fees at
$0.005 per share - 75,000 375 - - 375
Redemption and cancellation
of common stock for cash
and note payable - (600,000) (25,000) - - (25,000)
Stock issued at $.005 per share for
services rendered during 1995 - 837,216 4,186 - - 4,186
Contribution of capital by a shareholder - - 214,943 - - 214,943
Equivalent shares exchanged in the
consolidation of Medisys Research
Group, Inc & Wasatch Pharmaceutical, Inc. 9,852 1,777,040 (187,749) 184,051 - 6,154
Net loss for the year ended
December 31, 1995 - - - - (1,080,270) (1,080,270)
------ --------- ------ ---------- ----------- ----------
Balance, December 31, 1995 9,852 12,089,256 12,089 184,051 (1,080,270) (874,278)
To give retroactive effect to a one for
four reverse stock split (7,389) (9,066,924) (9,067) 9,067 - (7,389)
------ --------- ------ ---------- ----------- ----------
Restated balance, December 31, 1995 2,463 3,022,332 3,022 193,118 (1,080,270) (881,667)
Proceeds from the sale of common stock - 57,500 58 137,442 - 137,500
Cash proceeds from the exercise of
employee stock options - 250,000 250 - - 250
Stock issued in connection with the following:
Borrowing funds - 148,374 148 - - 148
Consulting agreement - 100,000 100 - - 100
Services rendered - 7,500 8 - - 8
Cancellation of debt - 250 - 12,339 - 12,339
Stock exchanged for the following assets:
Preferred stock of an insurance
holding company - 750,000 750 - - 750
Oil and gas properties - 2,000,000 2,000 3,717,536 - 3,719,536
Stock issued for a short-term note under a
November, 1996 stock option plan - 300,000 300 299,700 - 300,000
Net loss for the year ended
December 31, 1996 - - - - (504,108) (504,108)
------ --------- ------ ---------- ----------- ----------
Balance, December 31, 1996 $2,463 6,635,956 $6,636 $4,360,135 $(1,584,378) $2,784,856
====== ========= ====== ========== =========== ==========
</TABLE>
F - 3
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
From Inception (September 7, 1989 Through December 31, 1996
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 September 7, 1989 $ - - $ - $ - $ - $ -
Stock issued at inception for
approximately $0.0005 to Company's founders
for services rendered - 10,000,000 5,334 - - 5,334
Common stock issued in
payment of loan fees at
$0.005 per share - 75,000 375 - - 375
Redemption and cancellation
of common stock for cash
and note payable - (600,000) (25,000) - - (25,000)
Stock issued at $.005 per share for
services rendered during 1995 - 837,216 4,186 - - 4,186
Contribution of capital by a shareholder - - 214,943 - - 214,943
Equivalent shares exchanged in the consolidation
of Medisys Research Group, Inc &
Wasatch Pharmaceutical, Inc 9,852 1,777,040 (187,749) 184,051 - 6,154
Net loss for the year ended
December 31, 1995 - - - - (1,080,270) (1,080,270)
------ --------- ------ ---------- ----------- ----------
Balance, December 31, 1995 9,852 12,089,256 12,089 184,051 (1,080,270) (874,278)
To give retroactive effect to a one for
four reverse stock split (7,389) (9,066,924) (9,067) 9,067 - (7,389)
------ --------- ------ ---------- ----------- ----------
Restated balance, December 31, 1995 2,463 3,022,332 3,022 193,118 (1,080,270) (881,667)
Proceeds from the sale of common stock - 57,500 58 137,442 - 137,500
Cash proceeds from the exercise of
employee stock options - 250,000 250 - - 250
Stock issued in connection with the following:
Borrowing funds - 148,374 148 - - 148
Consulting agreement - 100,000 100 - - 100
Services rendered - 7,500 8 - - 8
Cancellation of debt - 250 - 12,339 - 12,339
Stock exchanged for the following assets:
Preferred stock of an insurance
holding company - 750,000 750 - - 750
Oil and gas properties - 2,000,000 2,000 3,717,536 - 3,719,536
Stock issued for a short-term note under a
November, 1996 stock option plan - 300,000 300 299,700 - 300,000
Net loss for the year ended
December 31, 1996 - - - - (504,108) (504,108)
------ --------- ------ ---------- ----------- ----------
Balance, December 31, 1996 $2,463 6,635,956 $6,636 $4,360,135 $(1,584,378) $2,784,856
====== ========= ====== ========== =========== ==========
</TABLE>
F - 4
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY DEFICIT)
For the Year Ended December 31, 1999 and the Nine Months Ended September 30, 2000
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 December 31, 1998 $ 49 38,822,821 $38,823 $1,322,096 $(4,224,632) $(2,863,664)
Shares issued in connection with:
Note extensions - 249,811 250 2,990 - 3,240
Securities sold for cash - 799,257 799 214,098 - 214,897
Services rendered - 3,331,076 3,331 - - 3,331
Retirement of debt and interest - 422,304 422 185,843 - 186,265
Correction to sales price of shares sold officer - - - (24,500) - (24,500)
Replacement shares issued - 550,000 550 139,817 - 140,367
Replacement shares to be issued - 161,123 161 28,094 - 28,255
Share transactions with Collier Development
Contingent shares returned (25,500,000) (25,500) - - (25,500)
Settlement shares issued - 2,300,000 2,300 160,976 - 163,276
Cost of funds 26,000 26 (26) -
Shares issued as collaterial 2,000,000 2,000 2,000
Net loss for the ended December 31, 1998 - - - - (1,168,749) (1,168,749)
------ ---------- ------- ---------- ----------- -----------
Balance December 31, 1999 49 23,162,392 23,162 2,029,388 (5,393,381) (3,340,782)
Adjustment for 1 for 2 reverse share split - (11,581,196) (11,581) 11,581 - -
------ ---------- ------- ---------- ----------- -----------
Balance December 31, 1999 - Restated 49 11,581,196 11,581 2,040,969 (5,393,381) (3,340,782)
Shares issued in connection with:
Loan extensions - 12,323 12 11 23
Securities sold for cash - 6,106,907 6,107 944,974 951,081
Services rendered - 1,834,832 1,835 673 2,508
Shares issued Officer as special compensation 110,000 110 110 220
Shares issued in stock exchange arrangement
Replacement shares issued 288,489 288 130,978 131,266
Shares issued in satisfaction of debt
Reduction of principal 212,500 213 116,579 116,792
In lieu of interest 2,577 2,577
Shares issued for exercised stock options 300,000 300 - 300
Correction to exercise price for stock options (452) (452)
Shares issued to Joint Venture Partner - 100,000 100 - 100
Shares issued as collaterial
Contingent shares returned - (2,875,000) (2,875) - (2,875)
Contingent shares issued - 3,100,000 3,100 - 3,100
Shares issued adjustment for cancellations
and effect of stock exchange - (4,890) (5) - (5)
Net loss for the six months ended June 30, 2000 - - - - (1,235,215) (1,235,215)
------ ---------- ------- ---------- ----------- -----------
Stockholders' equity September 30, 2000
per shares issued and contractual committed 49 20,766,357 20,766 3,236,419 (6,628,597) (3,371,362)
Less - common shares issued for future transactions - (1,350,000) (1,350) - - (1,350)
------ ---------- ------- ---------- ----------- -----------
Balance September 30, 2000 $ 49 19,416,357 $ 19,416 $ 3,236,419 $(6,628,597) $(3,372,712)
====== ========== ======== =========== =========== ===========
</TABLE>
F - 5
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended For the Quarter Ended
September 30, September 30, From
--------------------------- ------------------------- Inception To
2000 1999 2000 1999 Sept.30, 2000
------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,235,215) $ (799,349) $ (406,175) $ (284,552) $ (6,628,598)
Adjustments to reconcile net (Loss) to net cash
used by operating activities:
Depreciation and amortization 7,178 5,047 2,349 1,562 42,300
Expenses paid with common shares 3,823 1,100 - 3,823
Depreciation and losses on fixed asset disposals
Clinic assets - - - - 15,234
Oil and gas assets - - - - 387,122
Increase (decrease) in working capital -
(Increase) decrease in receivables (48,491) 4,811 (47,541) 1,128 (51,107)
(Increase) decrease in inventory (3,505) 2,326 902 893 (7,178)
(Increase) decrease in prepaid expenses (107,279) - (114,984) (115,584)
Increase (decrease) in accounts payable 123,836 (12,952) 58,435 (54,180) 363,650
Increase (decrease) in accrued interest 110,123 120,311 11,340 29,062 573,498
Increase (decrease) in other accruals 69,419 189,154 56,915 66,489 787,582
------------ ---------- ---------- ---------- --------------
Net cash used in operating activities (1,080,111) (490,653) (437,659) (239,598) (4,629,258)
------------ ---------- ---------- ---------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (101,975) (1,484) (84,563) - (133,004)
(Increase) decrease in other assets (95,577) (10,000) (51,977) (10,000) (105,777)
------------ ---------- ---------- ---------- --------------
Net cash used in investing activities (197,553) (11,484) (136,540) (10,000) (238,782)
------------ ---------- ---------- ---------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 406,513 264,426 73,241 173,767 3,485,634
Expenses paid by shareholder - - - - 38,323
Repayment of loans (115,950) - (23,174) (854,965)
Proceeds from sale of common shares 1,082,347 235,137 615,693 75,601 1,976,331
Capital contributed by shareholder - - - - 154,800
Collection of share subscriptions - - - - 141,726
Exercised stock options - - - - 125,250
Redemption of common shares - - - - (20,409)
Cost of raising capital (3) (16) (73,369)
------------ ---------- ---------- ---------- --------------
Net cash provided by financing activities 1,372,906 499,547 665,760 249,368 4,973,320
------------ ---------- ---------- ---------- --------------
NET INCREASE (DECREASE) IN CASH 95,243 (2,589) 91,560 (230) 105,280
Balance at beginning of period 10,038 2,589 13,720 230 -
------------ ---------- ---------- ---------- --------------
Balance at end of period $ 105,280 $ 0 $ 105,280 $ 0 $ 105,280
============ ========== ========== ========== ==============
</TABLE>
F - 6
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
(Unaudited)
NOTE 1 - NATURE AND HISTORY OF THE BUSINESS
The consolidated financial statements include Wasatch Pharmaceutical,
Inc. (a development stage company) (the Company), and its wholly owned
subsidiaries, Medisys Research Group, Inc. and American Institute of Skin Care,
Inc.
The Statement of Operations for the nine months ended September 30,
1999 and 2000 and for the period from inception (September 7, 1989) through
September 30, 2000, the Statement of changes in Stockholders Equity for the nine
months ended September 30, 2000 and the Balance Sheet as of September 30, 2000
include, in the opinion of management, all of the adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results for these periods and the financial condition as of that date.
Historical interim results are not necessarily indicative of results that may be
expected for any future period.
For the purpose of this financial presentation "Inception" shall mean
September 7, 1989, which was the commencement of Medisys, the original Company,
operations.
NOTE 2 - REVERSE STOCK SPLIT
On June 22, 2000, The Company's Board of Directors effected a 100%
reduction in the number of shares issued and outstanding through a "reverse
stock split." The Par Value of the common stock was not changed.
All references to common stock, common stock outstanding, common stock
options and per share amounts in the consolidated financials statements prior to
the date of the reverse stock split have been restated, on a retroactive basis,
to reflect the one for two decrease in the shares outstanding. In addition, the
share amounts and their resulting dollar values in the Consolidated Statement of
Changes In Shareholders Equity have retroactively restated to December 31, 1999.
NOTE 3 - CHANGES IN PRESENTATION
Certain financial presentations for the third quarter of 1999 have been
reclassified to conform to the current year's presentation.
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 sustain their
operations on a long-term basis. The Company has sought short-term funding and
plans to obtain long-term funding through a broad based public stock offering, a
private placement or a combination thereof. Management believes that sufficient
funding to commence implementing its strategic business plan will be obtained by
the end of the fourth quarter of 2000.
F - 7
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
(Unaudited)
NOTE 4 - GOING CONCERN PREMISE (Continued)
In April 2000, the Company entered into an agreement with a private
investment group to provide long-term capital funding. Following the original
funding closing of $200,000 through the sale of a convertible debenture,
management concluded that the investor group would not be compatible with the
Company's long-term goals and no further funds were sought. In October 2000 the
Company executed an agreement for the redemption of the aforementioned
convertible debenture by November 15, 2000 for $300,000 and 750,000 shares of
the Company's common stock. For each 30-day period, after November 15, 2000, the
debenture remains outstanding; the redemption price increases in $20,000
increments: up to $340,000 on January 2, 2001 and the number of shares increases
incrementally to a total of 1,250,000 on that date.
NOTE 5 - PREPAID EXPENSES
In preparation for the commencement of its skin care line of business,
the Company has incurred certain costs that will either be consumed in
operations within the next twelve months or capitalized with successful fund
raising activities. Following is a list of these items at September 30, 2000.
Description Amount
----------- ------
Prepaid Rent and Deposits for
new clinic, office & warehouse $ 27,380
Prepayment for initial inventory
of treatment bottles 15,000
Prepaid Costs for proposed
offering of common stock 35,104
Deferred Cost of offering brochures 36,100
Legal Retainer 2,000
------------
$ 115,584
NOTE 6 - OTHER ASSETS
The Company has incurred the following costs in connection with certain
regulatory applications and to establish and protect its proprietary trade
names, secrets, processes and formulae; those costs have been capitalized to be
amortized over their useful lives:
Description Amount
FDA Application Costs $ 40,000
Trademark Costs 13,800
Trade Names & Copy Rights 47,250
Deposits 4,728
-----------
Total 105,778
Amortization (594)
-----------
Total $ 105,184
===========
F - 8
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
(Unaudited)
NOTE 7 - EARNINGS PER SHARE
Earnings Per Share is based on shares issued and outstanding reduced by
shares that have been contingently issued for collateral on loans or placed in
trust for exempt private placements to be made in the future. The exclusion is
predicated upon ownership not transferring to the holders benefit. At September
30, 2000, the issued and outstanding shares (20,766,357) exclude those shares
contingently issued for a specific common stock private placement program
(377,517), and the shares that were held as potential collateral on existing or
potential loans (1,350,000).
NOTE 8 - GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the comparative nine and three
month periods ended September 30, 2000 and 1999 and from inception through
September 30, 2000 are:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- ------------------------- Inception To
Description 2000 1999 2000 1999 2000
------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Officers' compensation $ 113,680 $ 79,085 $ 225,400 $ 193,603 $ 1,512,527
Professional services 58,109 12,693 316,392 109,500 706,769
Sales & marketing 43,451 - 0 - 71,920 - 0 - 151,527
Financing fees 3,015 205 63,571 402 104,957
Fund raising costs 5,159 40,903 15,823 40,903 83,463
Investor relations 12,106 - 0 - 28,322 - 0 - 45,497
Travel - 0 - 1,563 7,022 2,815 86,492
Telephone 5,153 1,944 10,584 5,113 78,893
Insurance - 0 - - 0 - 2,647 - 0 - 18,559
Postage 1,558 - 0 - 2,421 - 0 - 18,242
Loss on joint venture - 0 - - 0 - - 0 - - 0 - 500,000
Other 20,804 61,625 441,860
------------ ----------- -------------
(257) 8,504
----------- -----------
Total $ 263,035 $ 136,136 $ 805,726 $ 360,840 $ 3,748,786
============ =========== =========== =========== =============
</TABLE>
NOTE 9 - COMMON STOCK EXCHANGE
On June 22, 2000, The Company's Board of Directors effected a 100%
reduction in the number of shares issued and outstanding through "reverse stock
split" whereby each shareholder received one share of common stock for each two
shares held as of the records of that date. The issued and outstanding shares
were reduced from 36,270,879 common shares to 18,135,440 common shares. The Par
Value of the common stock was not changed. All references to common stock,
common stock outstanding, common stock options and per share amounts in the
consolidated financials statements and managements' discussion and analysis of
financial condition and results of operations prior to the date of the reverse
stock split have been restated, on a retroactive basis, to reflect the one for
two decrease in the shares outstanding.
F - 9
<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
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 six 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 clinic and service concepts.
Due to the lack of working capital, the Company's financial statements contain a
"going concern" disclosure, which places in question the Company's ability to
continue to operate without substantial increases in revenues or additional
long-term financing.
The Company continues to seek funding to open additional clinics in the
major metropolitan areas and establish its Internet presence, as well as
launching a major advertising and marketing campaign in support each of its
business strategies. Based on successful historical models, management concludes
that through direct patient treatment in its clinics and on the Internet and
working with health insurance companies and HMOs to deliver cost effective,
alternative skin care, supplemented by a physicians referral program, revenues
could be increased substantially with the infrastructure in place that is
operating at 10% to 15% of capacity.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had current assets of $279,149 and
current liabilities of $3,862,133 resulting in a working capital deficit of
$3,582,985, which is a 5% increase from December 31, 1999. The increased deficit
is attributable to the Company's operating loss for the nine month period ended
September 30, 2000, expenditures for certain business commence costs associated
with developing products, marketing plans and Internet strategies and the
acquisition of facilities and operating assets. These activities were financed
with new net year to date borrowings of $290,000 (including $50,000 for the last
three months) and additional shareholder investment of $1,100,000 for the nine
months ended in September (including $615,000 for the last three months).
The principle capital infusion for the quarter was a private placement
of common stock (2 million shares) to a Canadian investor group for $540,000.
These funds were obtained for commencement activities such as down payments on
inventory and fixed assets ($35,000), deposits on office, clinic and warehouse
facilities ($30,000), printing brochures ($36,000), payments to a consultant to
locate and contract for facilities ($50,000), develop marketing and product
information intelligence for HMO's and the medical community ($55,000), develop
and document personnel and training manuals ($35,000), train employees to use
practice management software and systems ($8,600) and design, engineer and
produce new product containers, trademarks and sales strategies ($94,500). The
remaining funds were retained as working capital.
3
<PAGE>
RESULTS OF OPERATIONS
Although the Company has commenced to make infrastructure investments,
the basic business of the Company remains in a start up mode and continues to
experience incremental operating losses as a result of the prototype nature of
its operations and the staff increases in preparation of launching the business
strategy.
For the nine months of calendar 2000, the Company had a net loss of
$1,235,214 compared to a net loss of $799,349 in the same period of 1999. The
loss for the latest quarter was $406,174 versus $284,552 for the third quarter
of 1999. The increased loss was the result of a $206,892 increase in
professional services ($45,416 increase for the quarter), and first time sales
and marketing expenses of $71,920 for the nine months (including $43,451 for the
quarter).
The increased professional services expenditures resulted from the cost
of updating the Company's SEC filings (auditing costs increased $88,956 and
temporary contract accounting costs $68,030), the legal cost of financings and
registrations ($22,634) and the employment of consultants to establish the
business infrastructure of the Company ($104,479).
Interest expense the first nine months of 2000 was $211,885 versus
$264,302 in 1999. The decrease is attributable to a temporary reduction in
indebtedness of approximately $281,000 that was offset by the increasing
indebtedness late in the 2nd quarter of 2000.
The Company anticipates that the losses will continue until funds are
obtained which will enable it to launch its business plan and strategies.
4
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Lindbergh-Hammar, Inc., Assertion of Damages
On November 1 and 15, 1996 the Company entered into two contractual
arrangements with Lindbergh-Hammar, Inc., a Texas insurance company
("Lindbergh") in which Wasatch issued 12,000,000 shares of restricted common
stock in exchange for a note issued by Lindbergh with a face value of
$60,000,000. Upon Lindbergh's subsequent default of the note, the Company made
demand for payment and, failing to receive payment, proceeded to terminate the
contract and instructed its transfer agent to cancel the shares. After the
contractual failing the agreements was terminated by their terms, but Lindbergh
had transferred the aforementioned 12,000,000 shares of Wasatch common stock to
a newly formed offshore corporation, Crestport Insurance, which was apparently
organized by the owner and CEO of Lindbergh; in an attempt to perfect an
interest in the Wasatch shares issued to Lindbergh.
On October 15, 1997, Crestport filed a lawsuit against the Company and
its stock transfer agent seeking damages arising out of the cancellation of its
interest in the 12,000,000 Wasatch shares. Crestport claimed that it was an
innocent third party and a holder in due course. Lindbergh claims it paid for
the shares. Crestport has asserted a claim against the Company for $5,000,000 in
damages arising out of cancellation of the share certificate. On July 20, 1999,
the Company moved for summary judgment, and requested that the plaintiff's claim
be dismissed. The presiding judge denied the Company's request for summary
judgment and scheduled the matter for trial on November 27, 2000.
The Company believes that the claim by Crestport is without merit. The
Company intends to continue to vigorously defend its position in this lawsuit.
If the courts finds in favor of Crestport's assertion of monetary damages, or
renders a judgment that results in 12,000,000 of the Company's common shares in
the hands of a party adverse to current management, it could potentially
jeopardize the financial stability of the Company.
Aspen Capital Resources Convertible Debenture Settlement
See Item 3. Defaults Upon Senior Securities
The Company is a party to other legal proceedings that are covered by
liability insurance, the outcome of which will not have a material adverse
effect on the Company.
ITEM 2. CHANGES IN SECURITIES
The attached Exhibit 28 sets out the third quarter common share
transactions that occurred:
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Aspen Capital Resources Convertible Debenture Settlement
This settlement arose from a disagreement about the securities purchase
agreement that the Company signed with the Aspen Capital Resources, LLC (Aspen)
on April 19, 2000, wherein Aspen agreed to provide $1,000,000 to Wasatch in
exchange for a convertible debenture of an equal amount. Although Aspen never
filed a claim nor took any court action against the Company, on June 15, 2000,
Aspen delivered a notice of default to the Company and demanded redemption of a
$200,000 debenture, due in 2003, and issued by Wasatch. The Company did not
redeem the debentures asserting that performance under the original agreement
was fraudulently incomplete.
5
<PAGE>
On August 18, 2000, Aspen delivered a notice asserting its conversion
rights and demanding the application of $2,000 of principal of the $200,000
debenture for 2,000,000 shares of the common stock of the Company under the
theory that it was entitled to convert at par value ($.001 per share). The
Company disputed Aspen's claim and refused to issue the shares requested. On
August 22, 2000, Aspen delivered another notice of conversion to redeem another
$50,000 of debenture principal for 50,000,000 shares of the Wasatch common stock
based upon a conversion price of $.001 per share. In the letters sent to the
Company, Aspen then claimed it owned 52,000,000 shares of the Company's common
stock, according to the disputed calculation of the conversion price per share.
Being unable to negotiate reasonable settlement terms with Aspen,
management elected to file an action in a state court in Utah. On September 26,
2000, the Company filed a complaint in the Third Judicial District Court of Utah
against Joe K. Johnson (a principal) and Aspen. The Company alleged fraud as
first cause of action, promissory fraud as a second cause action, and as a third
cause of action, a breach of oral modification of the original securities
purchase agreement. The Company sought a judgment to have the securities
purchase agreement declared null, void and unenforceable, an award of damages
jointly and severally against both defendants in the amount of $20,000,000, plus
interest at the statutory rate and attorneys' fees, an award of punitive damages
jointly and severally against both defendants in the amount of $20,000,000, and
such other relief as the Court may deem just and reasonable.
On October 17, 2000, immediately prior to the state court hearing the
Company's motion for a preliminary injunction to prevent Aspen's threat of
filing a Securities and Exchange Commission form13D claiming beneficial
ownership of 52,000,000 of Wasatch's common stock, Aspen agreed to a settlement.
That settlement agreement (the Agreement) was executed on November 7, 2000.
Under the terms of the Agreement, Aspen is to fully release the Company
from all of the claims that Aspen may have arising from the execution of the
April 19, 2000, securities purchase agreement for the purchase of convertible
debentures. If, however, the Company defaults on the terms of the settlement
agreement, Aspen's release of claims will become void and Aspen will have all of
the rights pursuant to the securities purchase agreement; and the company waives
all of its defenses regarding the validity or enforceability of the securities
purchase agreement.
The Agreement provides that the Company shall deliver to Aspen 750,000
shares of its common stock, and to pay Aspen the sum of three hundred thousand
dollars ($300,000), by November 15, 2000. In the event that the Company fails to
pay in full the $300,000 on November 15, 2000, it shall then deliver to Aspen an
additional 250,000 shares its common stock and on or before, December 1, 2000,
and the Company must pay the sum of three hundred twenty thousand dollars
($320,000). Failure to pay $320,000 by December 1, 2000, the Company will then,
on or before December 6, 2000, deliver to Aspen an additional 250,000 shares of
Wasatch common stock and on or before January 2, 2001 shall pay Aspen the sum of
$340,000.
Within 60 days of the execution of the Agreement, the Company agrees to
file for registration, under the Securities Act of 1933 and under all applicable
state securities laws, the shares issued to Aspen pursuant to the Agreement. The
Company also agreed that if the Company is required to register any of its
common stock for public sale for cash, other than on form S-4 or S-8, the
Company will not permit any registration statement relating to its shares to
become effective, until all of the shares issued to Aspen have been registered,
unless such registration statement includes the shares issued to Aspen, or
unless Aspen waived its registration rights in writing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
During the quarter ended September 30, 2000, the registrant entered
into a series of facility lease agreements that are summarized in the following
table:
1. New Corporate Office and Clinic in Murray, Utah - Two separate offices
in the same building, under one five year lease. The Clinic space was
approx 2,000 sq ft. and Office space was approx 2,500 sq ft. The
starting date is December 1, 2000 and the lease rate is $4,293 per
month for both spaces.
2. Additional Clinic lease in Murray - In same building as clinic in
Murray, we will enter into a lease for additional space adjacent to the
clinic to give us 1,000 sq ft of more space. It will be a five year
lease for approx $900 per month.
3. Distribution Center - Located in Murray, Utah. 6,280 sq ft (3,500 sq ft
of warehouse and 2,500 sq ft of office), under a five-year lease
commencing October 1, 2000 and ending October 31, 2005. The monthly
rate is $2,600 per month for years one through three, $2,700 per month
for fourth year and $2,800 per month for year five.
During the quarter ended September 30, 2000, the registrant entered
into the following employment contracts:
On September 8, 2000, the board of directors approved five-year
employment contracts with Gary Heesch (President and CEO) and Dave Giles (Chief
Financial Officer) at an annual compensation rate of $150,000. Additional other
benefits including profit sharing, stock options, etc. would be added, as the
management group is grown through expansion of business activities.
6
<PAGE>
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).
28 Summary and detail of third quarter stock
transactions.
(b) Reports on Form 8-K
During the third quarter there were no reports required to be
filed on Form 8K.
7
<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: November 13, 2000
By: /s/ David K. Giles
-------------------------
David K. Giles
Principal Accounting Officer
8
