FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended January 31, 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: 000-23180
WASATCH INTERACTIVE LEARNING CORPORATION
----------------------------------------
(Exact name of small business issuer as specified in its charter)
Washington 91-1253514
- - - - - - - - - - - - - - - ---------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5250 South Commerce Drive, Suite 101, Salt Lake City, Utah 84107
----------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 261-1001
Check 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 past
twelve months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. x Yes __ No
Number of shares of the registrant's $0.0001 par value common stock outstanding
at March 15, 2000: 7,658,334.
Transitional Small Business Disclosure Format Yes ____ No _X_
<PAGE>
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Balance Sheet as of January 31, 2000 (Unaudited) 3
Statements of Operations (Unaudited)
for the three months ended January 31, 2000 and 1999 4
Statements of Operations (Unaudited)
for the nine months ended January 31, 2000 and 1999 5
Statements of Cash Flows (Unaudited) for the nine months ended
January 31, 2000 and 1999 6
Notes to Financial Statements (Unaudited) 7-8
Item 2. Management's Discussion and Analysis or Plan of Operations 9-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEET
January 31, 2000
- - - - - - - - - - - - - - - ----------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current Assets:
<S> <C>
Cash $258,584
Trade receivables 291,755
Note receivable 150,000
Other 9,986
----------
Total Current Assets 710,325
----------
Property and equipment 293,959
Less: accumulated depreciation (206,662)
----------
Property and equipment, net 87,297
----------
License agreement 1,500,000
Less: accumulated amortization (875,000)
----------
License agreement, net 625,000
----------
Total Assets $1,422,622
==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Note payable $190,616
Accounts payable 54,071
Accrued expenses 989,273
Deferred revenue 82,913
Current portion of long-term debt 37,712
----------
Total Current Liabilities 1,354,585
----------
Long-term debt 55,579
----------
Total Liabilities 1,410,164
----------
Shareholders Equity:
Common stock, .0001 par value, 100,000,000
shares authorized; 7,500,000 shares issued and
outstanding 750
Additional paid-in capital 3,053,158
Accumulated deficit (3,041,450)
-----------
Total Shareholders' Equity/Deficit 12,458
----------
Total Liabilities and Shareholders' Equity $1,422,622
==========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended January 31, 2000 1999
- - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $633,634 $484,689
Cost of goods sold 130,733 167,804
-------- ----------
Gross profit 502,901 316,885
-------- ----------
Overhead expenses:
Research and development 98,310 156,692
Sales and marketing 131,140 150,698
General and administrative 131,201 161,434
-------- ----------
Total overhead expenses 360,651 468,824
-------- ----------
Income from operations 142,250 (151,939)
-------- ----------
Interest expense 12,393 22,902
-------- ----------
Net income $129,857 $(174,841)
======== ==========
Weighted average number of shares outstanding 3,529,464 3,396,693
Income per common share $0.04 $(0.05)
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the nine months ended January 31, 2000 1999
- - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $1,603,910 $1,598,758
Cost of goods sold 393,425 585,664
---------- ----------
Gross profit 1,210,485 1,013,094
---------- ----------
Overhead expenses:
Research and development 409,446 560,621
Sales and marketing 330,310 604,242
General and administrative 372,100 497,752
---------- ---------
Total overhead expenses 1,111,856 1,662,615
---------- ---------
Income from operations 98,629 (649,521)
---------- ----------
Interest expense 54,839 65,102
---------- ---------
Net income/(loss) $43,790 $(714,623)
========== ==========
Weighted average number of shares outstanding 3,512,355 3,396,693
Income/(loss) per common share $0.01 $(0.21)
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited)
For the nine months ended January 31, 2000 1999
- - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income/(loss) $43,790 (714,623)
Adjustments to reconcile net loss to cash
Provided by/(used in) operating activities:
Depreciation and amortization 288,212 281,557
Common stock issues for services 151,250 -0-
(Increase)/decrease in:
Trade receivables (328,636) (29,759)
Inventory -0- 16,881
Increase/(decrease) in:
Accounts payable (61,496) 33,450
Accrued expenses 50,698 (199,891)
Deferred revenue 25,466 45,825
-------- --------
Net cash provided by/(used in) operating activities 169,284 (566,560)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (16,684) -0-
-------- ---
Cash flow from financing activities:
Proceeds from issuance of common stock 370,000 -0-
Payment on notes payable (309,384) -0-
Proceeds from long-term debt 63,576 523,702
Payments on long-term debt (89,839) (80,049)
-------- --------
Net cash provided by financing activities 34,353 443,653
-------- --------
Net increase/(decrease) in cash 186,953 (122,907)
-------- --------
Cash, beginning of period 71,631 235,358
-------- --------
Cash, end of period $258,584 $112,451
======== ========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During the three months ended January 31, 2000, the Company issued 400,816
shares of common stock in exchange for a reduction in long-term debt of
$393,946.
The Company entered into a reverse acquisition with A.G. Holdings, a public
shell corporation on January 20, 2000. At the time of the merger, the shell
corporation had an accumulated deficit of $17,537 and payables of $17,537.
See notes to financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the opinion of Management, the accompanying consolidated financial statements
contain adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position of Wasatch Interactive Learning
Corporation (the "Company") at January 31, 2000, and the results of operations
for the three and nine months ended January 31, 2000 and 1999 and cash flows for
the nine months ended January 31, 2000 and 1999. The results of operations for
the three months and nine months ended January 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending April 30,
2000.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as specified by the instructions to Form 10-QSB
and Item 310 of Regulation S-B. It is suggested that these financial statements
and related notes be read in conjunction with the Company's Annual Report on
Form 10-KSB for the year ended April 30, 1999.
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wasatch Interactive Learning Corporation ("Wasatch" or the "Company") is a
Washington corporation that develop and sells educational software to public and
private schools. The accounting policies of the Company conform to generally
accepted accounting principles. The following is a summary of the most
significant of such policies:
Estimates--The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets, liabilities,
net sales and expenses during the reporting period. Estimates also affect the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from these estimates.
Reclassifications--Certain reclassifications have been made to the 1999
financial statements to conform with the 2000 presentation.
Revenue recognition--Revenue is recognized when product is shipped and/or
services are performed. Revenue attributable to software support and
enhancements is recognized ratably over the contractual life, generally twelve
months.
Research and development--The Company conducts research and development to
develop new products. Research and development costs have been charged to
expense as incurred.
Income taxes--The Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. An
allowance against deferred tax assets is recorded when it is more likely than
not that such tax benefits will not be realized. Research tax credits are
recognized as utilized.
Earnings/Loss per share--Basic earnings/loss per common share is based on the
weighted average number of common shares outstanding during each period. There
are no options or warrants issued, so that dilutive earnings/loss per share are
not reported.
Cash and cash equivalents--The Company considers all highly liquid investments
with an original maturity date of three months or less when purchased to be cash
equivalents. Cash and cash equivalents are placed with federally insured
financial institutions. These balances are generally not significant since they
are transferred to reduce the Company's revolving line of credit on a daily
basis.
Accounts receivable and concentration of credit risk--The Company's financial
instruments that are exposed to concentrations of credit risk consist primarily
of cash, cash equivalents and trade receivables. The Company has no significant
concentrations of customers or resulting accounts receivable. Nor does it carry
an allowance for doubtful accounts since there is no history of credit losses.
Inventories--Inventory is stated at the lower of cost (first-in, first-out
basis) or market.
Property--Property is stated at cost and depreciated or amortized on the
straight-line method over the 3- to 5-year lives of assets. Gains and losses on
disposal of property are accounted for and disclosed separately on the statement
of operations.
License Agreement--The Company has a license agreement in place reflecting the
payment of cash in exchange for certain rights to market and sell software to
the education market. The license agreement is being amortized on a
straight-line basis over five years.
2. NET EARNINGS / (LOSS) PER COMMON SHARE
Basic earnings / (loss) per share is computed by dividing net earnings by the
weighted average number of shares outstanding during each period. In as much as
the Company did not have any common stock equivalents outstanding at January 31,
2000 and January 31, 1999, diluted earnings per share have not been calculated.
The following data show the amounts used in computing earnings per share.
<TABLE>
<CAPTION>
Nine Months Ended January 31,
2000 1999
----------- ------------
<S> <C> <C>
Shares outstanding during the entire period 3,396,693 3,396,693
Weighted average shares issued during the period 115,662 -0-
----------------------------------
Weighted average number of shares used in basic EPS 3,512,355 3,396,693
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended January 31,
2000 1999
----------- ------------
<S> <C> <C>
Shares outstanding during the entire period 3,396,693 3,396,693
Weighted average shares issued during the period 132,771 -0-
-----------------------------------
Weighted average number of shares used in basic EPS 3,529,464 3,396,693
</TABLE>
3. NOTES PAYABLE AND LONG TERM DEBT
The Company has a bank line of credit agreement which allows the Company to
borrow a maximum of $500,000 at an interest rate equal to the bank's prime rate
plus 2.5%. The line of credit matures on March 31, 2000. The principal amount
outstanding under the bank line of credit as of January 31, 2000 amounted to
$190,616.
As of January 31, 2000, long term debt consisted of a note payable to a
financial institution in the amount of $23,712. Such note requires monthly
payment of $8,207 including interest at 11%, secured by inventory, accounts
receivable and property and equipment, due March 31, 2000. Long term debt also
included capital lease obligations in the amount of $69,579. The terms of the
leases include options to purchase the equipment at the end of the lease, and
have imputed interest rates ranging from 11% to 18% per annum.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
General:
The following discussion should be read in conjunction with the unaudited
financial statements and notes contained in this report and in conjunction with
"Management's Discussion and Analysis or Plan of Operations" and the audited
consolidated financial statements and notes included in the Company's Annual
report on Form 10-KSB, as amended for the year ended April 30, 1999.
Material Changes in Results of Operations:
Net sales for the three month period ended January 31, 2000 increased by
approximately $149,000 (31%) compared to the three month period ended January
31, 1999. For the nine months ended January 31, 2000, net sales increased by
$5,000 over the same period in the previous year. In September 1999, the Company
completed and released a new mathematics-oriented product, which has increased
sales over the prior year since its release.
Gross Profit for the three months ended January 31, 2000 increased by $186,000
(59%), while gross profit for the nine month period increased $197,000 (19%).
Concurrently, gross profit as a percentage of sales increased 14% in the
three-month period and 12% in the nine-month period. These improvements and
increases were due to management's decision to perform certain software
installation and training activities in-house rather than subcontracting them
outside. The costs of doing these tasks in-house were significantly less.
Overhead expenses for the three months ended January 31, 2000 decreased $108,000
(23%) compared to the prior year. For the nine months ended January 31st, such
costs decreased $551,000 (33%). These decreases were do to the following
factors:
* Research and development costs decreased as a result of completion
of a major contract for a new product line in April 1999.
* Sales and marketing expenses decreased due to a reduction of one
sales person and partial redeployment of another.
* General and administrative costs were lower for a variety of
reasons, including lower fringes benefits resulting from decreases
in staffing and expiration of a lease for certain office space
that was not renewed.
Net income/(loss) for both comparative periods improved based on the cumulative
effect of the above described factors.
Material Changes in Financial Condition:
Cash flows from operating activities for the nine months ended January 31, 2000
improved $753,000 compared to the prior year. This improvement was primarily the
result of a reduction in net income/(loss) from a loss of $715,000 in 1999 to a
gain in 2000 of $44,000. This improvement of $759,000 was offset by the small
net effect of other factors that are not significant or material.
Cash flows from investing activities did not change materially year over year.
Cash flows from financing activities decreased $427,000 in the current year as
compared to 1999. This was the result of net repayment of long-term debt in the
current period as compared to net borrowings required in the prior year. This
repayment was funded by a similar amount of proceeds from the sales of common
stock
Factors Affecting Future Results
This Form 10-QSB may contain forward-looking statements within the meaning of
that term in the Private Securities Litigation Reform Act of 1995 (Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). These can be identified by the use of forward-looking terminology such as
"may," "will," "should," "expect," "anticipate," "estimate," or "continue," or
the negative thereof or other variations thereon or comparable terminology.
Additional written or oral forward-looking statements may be made by the Company
from time to time, in filings with the Securities and Exchange Commission or
otherwise.
These forward-looking statements are subject to risks and uncertainties that
include, but are not limited to, the Company's limited liquidity and reliance on
certain customers that represent significant portions of the Company's total
revenue, as well as those identified in this report, the Company's ability to
market its products and services on the Internet or otherwise, the timely
development and acceptance of new products and services, the impact of
competitive products and pricing, the timely funding of school budgets, customer
payments to the Company and other risks described from time to time in the
Company's other Securities and Exchange Commission filings. Actual results may
vary materially from expectations. Readers are cautioned not to place undue
reliance on any forward-looking statements contained herein, which speak only as
of the date hereof. The Company undertakes no obligation to update these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unexpected events.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
In conjunction with an Agreement and Plan of Reorganization approved by
the shareholders of Wasatch Interactive Learning Corporation (Utah), on
January 20, 2000 and the Board of Directors of AG Holdings, Inc., AG
Holdings issued 3,605,205 shares of common stock to shareholders of
Wasatch Interactive Learning Corporation in exchange for all of the
outstanding common stock of Wasatch Interactive Learning Corporation.
All of these shares were restricted and not registered under the
Securities Act. See previously filed Form 8K.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
- - - - - - - - - - - - - - - ------------------------------------------------------------
On January 20, 2000, the shareholders of Wasatch Interactive Learning
Corporation unanimously voted to approve an Agreement and Plan of
Reorganization between AG Holdings, Inc. and Wasatch Interactive
Learning Corporation, which was approved and proposed by the boards of
directors of both companies.
At this meeting, all of the officers and directors of the registrant
resigned and were replaced by the following persons:
Barbara Morris President and Director
Carol Loomis Vice President, Secretary and Director
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits.
Exhibit 27 - Financial Data Schedule
B) Reports on Form 8-K
On February 14, 2000, the registrant issued a report on Form
8-K, for January 20, 2000 regarding Changes in Control of the
Registrant as a result of an Agreement and Plan of
Reorganization duly approved and executed between AG Holdings,
Inc. and Wasatch Interactive Learning Corporation dated
January 20, 2000.
Financial statements and pro forma financial information were
not filed with this report but will be subsequently filed
within sixty days as required.
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 INTERACTIVE LEARNING CORPORATION
(Registrant)
March 21, 2000 /s/ Barbara Morris
----------------------------------
Barbara Morris
Chief Executive Officer, President and
Director (Principal Executive Officer)
March 21, 2000 /s/ Todd Brashear
----------------------------------
Todd F. Brashear
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WASATCH
INTERACTIVE LEARNING CORPORATION FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> JAN-01-2000
<CASH> 258,584
<SECURITIES> 0
<RECEIVABLES> 441,755
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 710,325
<PP&E> 293,959
<DEPRECIATION> 206,662
<TOTAL-ASSETS> 1,422,622
<CURRENT-LIABILITIES> 1,354,585
<BONDS> 55,579
0
0
<COMMON> 750
<OTHER-SE> 11,708
<TOTAL-LIABILITY-AND-EQUITY> 1,422,622
<SALES> 633,634
<TOTAL-REVENUES> 1,603,910
<CGS> 393,425
<TOTAL-COSTS> 1,505,281
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,839
<INCOME-PRETAX> 43,790
<INCOME-TAX> 0
<INCOME-CONTINUING> 43,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,790
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
