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, 1998
[ ] 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- 5,968,773 Outstanding as of March 31, 1998
(This amount includes 56,477 shares paid for but unissued awaiting
appropriate documentation and excludes 2,623,664 shares subscribed to but not
paid for.)
<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, 1998, 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, 1998 and 1997 and from inception (September 7, 1989)
through March 31, 1998, are attached hereto and incorporated herein by this
reference.
Operating results for the quarter ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the year ending
December 31, 1998.
The following financial statements are included in this report:
Consolidated Balance Sheet as of March 31, 1998 and
December 31, 1997............................................. F-1
Consolidated Statements of Operations for the Quarter ended
March 31, 1998, 1997 and from inception (September 7, 1989)
through March 31, 1998....................................... F-2
Consolidated Statements of Changes in Common Stockholders'
(Deficit) for the Quarter ended March 31, 1998................ F-3
Consolidated Statements of Cash Flows for the Quarter ended
March 31, 1998, 1997, and from inception (September 7, 1989)
through March 31, 1998....................................... 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 four 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 and
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, 1998, the Company had current assets of $43,909 and
current liabilities of $1,857,950, generating a working capital deficit of
$1,814,041, which is a 7.9% increase from December 31, 1997. The increase in the
deficit is due to the Company's operating loss of $160,287 for the three-month
period ended March 31, 1998. The deficit was financed with new borrowings of
$98,724, additional shareholder investment of $26,154 and creditor forbearance
of $35,409.
RESULTS OF OPERATIONS
For the three months ended March 31, 1998, the Company had revenues of
$21,076, compared to revenues of $22,247 for the same period of 1997, a decrease
of $1.171or 5.3%. The Company's operating expenses increased by 67.7% or $26,909
in the first three months of 1998, as compared to the first three months of
1997. This was primarily due to an increase in salary expense for clinic
technicians.
The Company's corporate expenses decreased to $79,514 from $82,555 and
interest expense increased to $35,220 from $21,821. These variations are
attributable to the timing of expenditures for fund raising activities and the
increasing Company debt. For the first quarter of 1998 the Company had a net
loss of $160,287 compared to a loss of $ 126,499 in the same period of 1997. The
Company anticipates that the losses will continue until funding is obtained
which will be used to launch 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. Exchanged oil and gas properties for 1,800,000 shares of Wasatch common
Stock.
b. Issued 43,334 restricted common shares to creditors for extensions of
due dates.
c. Issued 73,340 restricted common shares for cash totaling $ 10,000.
d. Rescinded an exchange of 750,000 restricted common shares for 12,000
preferred shares of an insurance company.
e. Forgave a $520,390 debt for issued common stock in connection with the
above exchange for oil and gas properties.
f. Issued 92,436 common shares that were previously paid for but unissued
awaiting appropriate documentation.
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
On March 9, 1998, The Company filed the following report on Form 8K
describing the disposition of certain assets.
Summary
In November 1997, after determining the oil and gas developer of
Wasatch's West Virginia oil and gas properties would not be able to meet their
commitments in accordance the contractual arrangements, the Board of Directors
authorized management to exchange the Company's West Virginia oil and gas
properties for the common shares originally issued by Wasatch. Negotiations
commenced and an acceptable solution was reached in February 1998. Under the
agreed upon exchange arrangement, Wasatch would return title to the fifty oil
and gas wells acquired in exchange for 1,800,000 of the shares issued and a
release from all obligations associated with the oil and gas operations.
Affiliates of the principals to the oil and gas transaction had given
the Registrant notes receivable for common shares issued. It was agreed that the
amount due on shares issued, at the time of the exchange ($520,390), would be
forgiven. This reduction in the obligation was reflected in the financial
statements as a charge to Additional Paid In Capital during the quarter ended
March 31, 1998.
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 14, 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 Sheets
March 31, December 31,
1998 1997
-------------------- ------------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 31,362 $ 14,259
Accounts receivable - trade 7,535 7,839
Inventory 4,412 3,642
Prepaid expenses 600 15,663
-------------------- ------------------
Total Current Assets 43,909 41,403
-------------------- ------------------
PROPERTY AND EQUIPMENT
Furniture and office equipment 41,554 41,554
Less accumulated depreciation (23,370) (21,662)
-------------------- ------------------
Net Property and Equipment 18,184 19,892
-------------------- ------------------
OTHER ASSETS 875 875
-------------------- ------------------
TOTAL ASSETS $ 62,968 $ 62,170
==================== ==================
CURRENT LIABILITIES
Accounts payable - trade $ 223,701 $ 229,234
Accrued interest 262,132 229,484
Other accrued expenses 207,342 198,293
Notes and advances currently due
Short-term shareholder loans 24,054 31,581
Vendors 112,333 112,333
Stockholders 1,028,388 921,388
-------------------- ------------------
TOTAL LIABILITIES 1,857,950 1,722,313
-------------------- ------------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 1,000,000
shares authorized 49,258 issued & outstanding
Series A 49 49
Common stock, $0.001 par value, 50,000,000
shares authorized, 8,592,437 shares and
9,225,763 shares issued and outstanding. 8,592 9,226
Additional paid-in capital 1,281,959 1,792,421
Accumulated development stage deficit (2,926,236) (2,765,949)
-------------------- ------------------
(1,635,636) (964,253)
Less notes receivable from stockholders (159,346) (695,890)
-------------------- ------------------
Total Stockholder's Equity (1,794,982) (1,660,143)
-------------------- ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 62,968 $ 62,170
==================== ==================
</TABLE>
The accompanying footnotes are an integral part of these
financial statements.
F-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
For The
Three Months Ended For The
March 31, Period From
----------------------------------- Inception To
1998 1997 March 31, 1998
---------------- ---------------- ---------------------
REVENUES
<S> <C> <C> <C>
Professional fee income $ 7,572 $ 7,248 $ 192,420
Product sales 13,504 14,999 382,443
---------------- ---------------- -----------------
TOTAL REVENUES 21,076 22,247 574,863
---------------- ---------------- -----------------
OPERATING EXPENSES
Cost of products sold 1,423 1,019 44,500
Salaries 36,809 18,503 361,530
Employee leasing - - 218,745
Payroll taxes 3,435 2,375 36,594
Physicians fees 10,200 10,200 207,868
Rent 11,718 8,035 146,861
Advertising (632) 4,359 211,919
Depreciation 1,314 1,687 25,314
Other 2,362 (6,458) 59,244
---------------- ---------------- -----------------
Total Operating expenses 66,629 39,720 1,312,576
GENERAL & ADMINSTRATIVE EXPENSE 79,514 82,555 1,447,322
INTEREST 35,220 21,821 331,482
---------------- ---------------- -----------------
TOTAL EXPENSES 181,363 144,096 3,091,380
---------------- ---------------- -----------------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS AND THE PROVISION
FOR INCOME TAXES (160,287) (121,849) (2,516,517)
LOSS FROM DISCONTINUED OPERATIONS - (4,650) (409,718)
---------------- ---------------- -----------------
INCOME (LOSS) BEFORE THE PROVISION
FOR INCOME TAXES (160,287) (126,499) (2,926,235)
Provision for Income Taxes - - -
---------------- ---------------- -----------------
NET INCOME (LOSS) $ (160,287) $ (126,499) $ (2,926,235)
================ ================ =================
NET (LOSS) PER COMMON SHARE $ (0.016) $ (0.018) $ (0.492)
================ ================ =================
WEIGHTED AVERAGE SHARES OUTSTANDING 10,017,472 7,198,178 5,950,765
================ ================ =================
</TABLE>
The accompanying footnotes are an integral part
of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statements of Changes in Common
Stockholders' (Deficit)
(Unaudited)
For The
Three Months Ended For The
March 31, Period From
-------------------------------- Inception To
1998 1997 March 31, 1998
--------------- --------------- ----------------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C>
Net Income (Loss) $ (160,287) $ (126,499) $ (2,926,235)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used)
by Operating Activities
Depreciation 1,706 2,589 25,706
Loss on fixed asset disposal - - 400,019
Oil and gas assets - - -
Expenses paid with common shares 43 - 43
Increase (decrease) in working capital
(Increase) decrease in receivables 305 929 (7,535)
(Increase) decrease in related party receivable - - -
(Increase) decrease in inventory (770) (1,227) (4,412)
(Increase) decrease in prepaid expenses 15,063 - (600)
Increase (decrease) in accounts payable (5,532) 21,267 223,703
Increase (decrease) in accrued interest 32,647 21,677 262,132
Increase (decrease) in other accruals 9,050 30,846 207,342
--------------- --------------- ----------------
Net Cash Provided (Used) by
Operating Activities (107,775) (50,418) (1,819,837)
--------------- --------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets
Clinics - (25,096) (27,764)
(Increase) decrease in other assets - (11,757) (875)
--------------- --------------- ----------------
Net Cash Provided (Used) by
Investing Activities - (36,853) (28,639)
--------------- --------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 141,296 55,000 1,334,329
Expenses paid by shareholder - - 38,324
Repayment of loans (42,572) (5,000) (165,325)
Proceeds from sale of common shares 10,000 - 358,205
Capital contributed by shareholder - - 154,800
Collection of share subscriptions 16,154 30,000 115,714
Common shares exchanged for debt - - 12,317
Exercised stock options - - 125,250
Redemption of common shares - - (20,409)
Costs of raising funds - (3,517) (73,366)
--------------- --------------- ----------------
Net Cash Provided (Used) by
Financing Activities 124,879 76,483 1,879,838
--------------- --------------- ----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 17,104 (10,788) 31,363
CASH AND CASH EQUIVALENTS
At Beginning of Period 14,259 11,990 -
--------------- --------------- ----------------
At End of Period $ 31,362 $ 1,202 $ 31,363
=============== =============== ================
</TABLE>
The accompanying footnotes are an integral
part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Conslidated Statements of Cash Flows
(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>
First Quarter
Stockholders equity-per committed contracts
Balance December 31, 1997 $ 49 9,225,763 $ 9,226 $ 1,792,421 $(2,765,949) $ (964,253)
Shares issued for note extensions 43,334 43 43
Shares sold for cash 73,340 73 9,928 10,001
Exchange of preferred shares held for
investment for originally issued shares (750,000) (750) (750)
Charge for per share price reduction of
shares held under subscription notes (520,390) (520,390)
Net loss for the three months ended
March 31, 1998 (160,287) (160,287)
---- --------- ------- ----------- ----------- ------------
Stockholders Equity March 31, 1998 including
commitments for future transactions 49 8,592,437 8,592 1,281,959 (2,926,236) (1,635,636)
Shares issued for future transactions (2,623,664) (2,624) (156,747) (159,371)
---- --------- ------- ----------- ----------- ------------
Stockholders Equity March 31, 1998 $ 49 5,968,773 $ 5,969 $ 1,125,212 $(2,926,236) $ (1,795,006)
==== ========= ======= =========== =========== ============
</TABLE>
The accompanying footnotes are an integral
part of these financial statements.
F-4
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(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.
Medisys accounted for the acquisition of Medisys by Ceron as a purchase
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.
Disposition of Oil and Gas Business - On November 20, 1996, Wasatch
exchanged 2,000,000 of its common shares for a 25% interest in fifty oil and gas
wells located in western West Virginia. Under the terms of the agreement,
Wasatch's was entitled to 25% of the revenues and incurred 25% of the operating
expenses from the wells.
At the time they were acquired, the properties were not economically
productive. The transaction was based on the property developer raising the
funds to increase productivity in each of the wells in 1997. The Company would
not bear any of the enhanced production costs. There were no costs incurred for
reworking wells in 1997 or 1996.
In accordance with generally accepted accounting principles for
non-monetary transactions, the acquired properties were recorded at a fair
market value that was derived from the cash price for comparable recoverable
reserves but is not in excess of risk discounted future net revenues.
In third quarter of 1997, Wasatch called upon the oil and gas property
developer to demonstrate its ability to meet commitments under the acquisition
agreement. The developer acknowledged that they were unable to meet the
contractual commitments..
In November 1997, the Wasatch Board of Directors authorized management
to exchange the Company's West Virginia oil and gas properties for the common
shares issued by Wasatch. Negotiations commenced and an acceptable solution was
reached in February 1998. Under the agreed upon exchange arrangement, Wasatch
would return title to the fifty oil and gas wells acquired in exchange for
1,800,000 of the original shares issued and a release from all obligations
associated with the oil and gas operations. In addition, Wasatch agreed to
forgive a $520,390 debt owed it for the purchase of common stock by an affiliate
of the developer.
F-5
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(unaudited)
NOTE 1 - NATURE AND HISTORY OF THE BUSINESS (Continued)
The exchange transaction results in a material loss on disposal of a
segment of business. Consequently, the loss from the exchange and the loss from
operations are retroactively included in the loss from discontinued operations
at December 31, 1997.
NOTE 2 - CHANGES IN PRESENTATION
Certain financial presentations for the first quarter of 1997 have been
reclassified to conform to the 1998 presentation.
NOTE 3 - GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the comparative three month
periods ended and from inception through March 31, 1998 are:
First Quarter Inception
---------------------- March 31,
1998 1997 1998
----------- ---------- ------------
Officer's compensation $34,242 32,825 $617,645
Legal and accounting 13,289 15,776 228,067
Finders fees 7,250 0 7,250
Travel 4,647 4,995 68,621
Telephone 3,639 4,261 51,507
Insurance 455 162 15,512
Postage 875 0 14,458
Payroll tax penalties 0 0 16,433
Other 15,119 24,536 435,079
---------- ----------- ------------
Total $79,514 $82,555 $1,447,322
========== =========== ============
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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 31,362
<SECURITIES> 0
<RECEIVABLES> 7,535
<ALLOWANCES> 0
<INVENTORY> 4,412
<CURRENT-ASSETS> 43,909
<PP&E> 41,554
<DEPRECIATION> 23,370
<TOTAL-ASSETS> 62,968
<CURRENT-LIABILITIES> 1,857,950
<BONDS> 0
0
49
<COMMON> 8,592
<OTHER-SE> 1,281,959
<TOTAL-LIABILITY-AND-EQUITY> 62,968
<SALES> 13,504
<TOTAL-REVENUES> 21,076
<CGS> 1,423
<TOTAL-COSTS> 66,629
<OTHER-EXPENSES> 79514
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,220
<INCOME-PRETAX> (160,287)
<INCOME-TAX> 0
<INCOME-CONTINUING> (160,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,287)
<EPS-BASIC> (.016)
<EPS-DILUTED> (.016)
</TABLE>
