UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934.
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For the quarter ended September 30, 2001 Commission file number 000-27931
DESERT HEALTH PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0699108
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.
8221 E. Evans Road
Scottsdale, Arizona 85260
(Address of Principal executive offices) (Zip Code)
(480) 1951-1941
Registrant' s telephone number, including area code
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 (of for 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.
Yes [X]
As of September 30, 2001, there were 8,960,321 shares of common stock
outstanding.
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DESERT HEALTH PRODUCTS, INC
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
Quarter Ended September 30, 2001
Revenue $ 161,714
Cost of sales 86,010
-----------
Gross Profit 75,703
Operating Expenses 844,657
-----------
Loss from operations (768,954)
Other income (expense)
Interest expense (5,000)
Loan fees (2,950)
-----------
(7,950)
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Net Loss (776,904)
Beginning accumulated deficit (2,990,145)
-----------
Ending accumulated deficit $(3,767,049)
===========
Earnings per common share $ (0.08)
-----------
2
DESERT HEALTH PRODUCTS, INC.
BALANCE SHEET
September 30, 2001
ASSETS
Current Assets
Cash $ (2,224)
Accounts Receivable 69,283
Interest receivable 45,000
Note receivable 352,358
Employee advances 1,172
Inventory 133,814
Prepaid expenses 25,734
-----------
Total Current Assets 625,136
Property and Equipment
Furniture and equipment, net 121,507
-----------
121,507
Other Assets
Intangibles 1,535,387
Deposits 10,000
-----------
1,545,387
-----------
$ 2,292,030
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 222,570
Deferred Revenue 90,201
Interest payable 46,509
Loans payable 1,312,356
-----------
Total Current Liabilities 1,671,636
Stockholders' Equity
Preferred Stock, $.001 par value, 10,000,000 shares
authorized and 1,338,500 shares issued and outstanding 1,339
Common stock, $.001 par value, 25,000,000 shares
authorized and 8,960,321 issued and outstanding 8,960
Subscriptions receivable 226,000
Additional paid in capital in excess of par value 4,151,144
Accumulated deficit (3,767,049)
-----------
620,394
-----------
$ 2,292,030
===========
3
DESERT HEALTH PRODUCTS, INC.
STATEMENT OF CASH FLOWS
Quarter Ended September 30, 2001
Cash Flows from Operating Activities
Cash received from customers $ 92,431
Interest income --
Miscellaneous income (2,950)
Cash paid to suppliers and employees (398,316)
Interest expense (5,000)
---------
Net Cash Provided (Used) by Operating Activities (313,835)
Cash Flows from Investing Activities
Purchase of furniture and equipment (2,430)
Purchase of intangibles (5,733)
Increase in notes receivable (54,090)
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Net Cash Provided (Used) by Investing Activities (62,253)
Cash Flows from Financing Activities
Issuance of stock 665
Increase in additional paid in capital 49,900
Increase in stock subscriptions 125,000
Increase in loans 200,638
---------
Net Cash Provided (Used) by Financing Activities 376,203
Net Increase (Decrease) in Cash and Cash Equivalents 115
Beginning Cash and Cash Equivalents (2,339)
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Ending Cash and Cash Equivalents $ (2,224)
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4
DESERT HEALTH PRODUCTS, INC.
STATEMENTS OF CASH FLOWS - continued
Quarter Ended September 30, 2001
Reconciliation of Changes in Net Operations to Net Cash Used
by Operating Activities:
Income from operations $(776,903)
Adjustments to reconcile change in loss from operations to
net cash provided (used) by operating activities:
Depreciation 4,917
Amortization 202,439
Trade-out for services 299,228
(Increase) decrease in operating assets
Accounts receivable (69,283)
Employee advances (1,171)
Inventory 11,607
Deposits --
Prepaid expenses --
Increase (decrease) in operating liabilities
Accounts payable 4,022
Deferred revenue --
Interest payable 11,309
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Net Cash Provided (Used) by Operating Activities $(313,835)
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Non Cash Transactions
Purchase of stock $ 299,230
5
Desert Health Products, Inc.
Statement of Stockholder's Equity
Quarter Ended September 30, 2001
Additional Paid in
Common Stock Preferred Stock Capital
--------------------------- -------------------------- ------------------
Shares Par Value Shares Par Value
.001 sh .001 sh
Balance June 30, 2001 8,280,321 $ 8,280 1,354,000 $ 1,354 3,802,014
Common Share issued
in the second quarter 2001 67,000 670 349,130
Preferred shares exchanged
for common stock 10,000 10 (10,000) (10)
Preferred shares adjustment (5,500) (6)
Preferred shares issued
in the second quarter 2001 -- -- --
Subscriptions receivable
Net Loss for third
quarter 2001
Prior period adjustment
----------- ----------- ----------- ----------- -----------
Balances September 30, 2001 8,357,321 $ 8,960 1,338,500 $ 1,339 $ 4,151,144
=========== =========== =========== =========== ===========
Stock Subscription Accumulated
Receivable Deficit Total
------------------ --------------------------------
Balance June 30, 2001 101,000 (2,990,145) 922,503
Common Share issued
in the second quarter 2001 349,800
Preferred shares exchanged
for common stock --
Preferred shares adjustment (6)
Preferred shares issued
in the second quarter 2001 --
Subscriptions receivable 125,000 125,000
Net Loss for third
quarter 2001 (776,904) (776,904)
Prior period adjustment -- --
----------- ----------- -----------
Balances September 30, 2001 $ 226,000 $(3,767,049) $ 620,394
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Item 2. Management' s Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with our
Financial Statements and the notes thereto appearing elsewhere in this document.
RISK FACTORS AND CAUTIONARY STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results and events could differ materially from
those projected, anticipated, or implicit, in the forward-looking statements as
a result of the risk factors below and elsewhere in this report.
With the exception of historical matters, the matters of discussion herein
are forward-looking statements that involve risks and uncertainties. Forward
looking statements include, but are not limited to, statements concerning
anticipated trends in revenues and net income, the date of introduction or
completion of our products, projections concerning operations and available cash
flow. Our actual results could differ materially from the results discussed in
such forward-looking statement. The following discussion of our financial
condition and results of operations should be read in conjunction with our
financial statements and their related notes thereto appearing elsewhere herein,
Overview
Desert Health Products, Inc. an Arizona corporation ("the Company") was formed
in 1991. Desert Health is engaged in the manufacturing, packaging and sale of
distribution of branded and store brand (private label) vitamins and nutritional
supplements. The Company is focusing its development efforts on certain plant
extracts that are widely used throughout the United States and Europe to assist
in the treatment of a variety of diseases and physical conditions.
Results of Operations
Three months ended September 30, 2001.
Revenues. Revenues for the three months ended September 30, 2001 were
$161,714, an increase of $133,881 or 481% from $27,833 for the three months
ended June 30, 2001. The increase was principally attributable to our largest
customer increasing their purchases in the third quarter of 2001. The Company
will continue its efforts in 2001 in establishing distribution outlets in Europe
and Asia.
Operating Expenses. Operating expenses for the three months ended September
30, 2001 were $844,657 which was an increase of $257,113 or 43% over the
$587,554 for the three months ended June 30, 2001. This increase was primarily
the result of increased amortization of certain intangible assets.
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Net loss for the Company was $776,904 for the three months ended September
30, 2001 as compared to a net loss of $373,100 for the three months ended June
30, 2001.
Liquidity and Capital Resources.
As indicated in the Company' s financial statements attached, the Company'
s gross revenue was not sufficient to meet its operating expenses for the three
months ended September 30, 2001. In addition, as of September 30, 2001, the
Company' s current liabilities exceeded its current assets by $1,046,499. Those
factors create an uncertainty regarding the Company' s ability to continue as a
going concern. Management believes agreements entered into subsequent to year
end December 31, 2000 such as the Par Trust agreement, will provide the Company
with additional cash and liquidity to sustain operations.
The receipt of funds to the Company from Private Placement Offerings and
loans as obtained through private sources are anticipated to offset the near
term cash requirements of the Company.
Since inception, the Company has financed its cash flow requirements
through debt financing issuance of common stock for cash and services, and
minimal cash balances. As the Company continues its marketing activities in
Europe and China it may continue to experience net negative cash flows front
operations pending receipt of sales revenues, and will be required to obtain
additional financing to fund operations through common stock offerings and bank
borrowings to the extent necessary to provide its working capital.
Over the next twelve months the Company intends to increase its revenues by
releasing new products under development to its target markets. However, the
Company will continue to increase the number of its employees and expand its
facilities where necessary to meet product development and completion deadlines.
The Company believes that existing capital and anticipated funds from operations
will be not be sufficient to sustain operations and planned expansion in the
next twelve months. Consequently, the Company will be required to seek
additional capital in the future lo fund growth and expansion through additional
equity or debt financing or credit facilities. Considering the state of Market
conditions, no assurance can be made that such financing would be available, and
if available ray take either the form or debt of equity. The down turn in the
capital market will substantially impact the Company' s ability to sell
securities in planned amounts and in turn its ability to meet its capital
requirement. In either case, the financing could have a negative impact on the
financial condition of the Company and its shareholders.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2 Changes in Securities
None
Item 3 Defaults by the Company upon its Senior Securities.
None
Item 4. Submission of Matter to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports of Form 8-K.
See exhibit table on Page E-1
9
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.
DESERT HEALTH PRODUCTS, INC.
(Registrant)
By:
--------------------------------
Johnny Shannon
President
By:
--------------------------------
Johnny Shannon
Chief Financial Officer
Date: November 14, 2001
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EXHIBIT TABLE
Exhibit Description
Number -----------
- -------
(1) N/A
(2)(1) Acquisition Agreement and Plan of Merger with Intercontinental
Capital Fund, Inc. (Incorporated Reference)
(3)(i)(2) Articles of Incorporation
(a) Articles of Incorporation for Desert Health Products, Inc.
(b) Amended Articles of Incorporation for Desert Health Products,
Inc.
(3)(ii)(2) Bylaws
(a) Bylaws of Desert Health Products, Inc.
(4)(2) Instruments defining the rights of security holders:
(4)(i) (a) Articles of Incorporation for Desert Health Products, Inc.
(b) Amended Articles of Incorporation for Desert Health Products,
Inc.
(c) Bylaws of Desert Health Products, Inc.
(5) N/A
(8) N/A
(9) N/A
(10) Material Contracts
(a)(3) Separation and Distribution Agreement between Desert
Health Products, Inc. and Royal Phoenix. (Incorporated by
reference)
(b)(2) Product Marketing and Distribution Agreement between
Desert Health Products, Inc. and GH Associates, Inc.
(c)(2) Agreement regarding Dr. Harris's Original Diabetic Feet
Formula
(d)(2) Exclusive Distribution Agreement between Desert Health
Products, Inc. and Silmarc Pharma s.r.l. in Italy
(e)(2) Product Marketing and Distribution Agreement between
Desert Health Products, Inc. and Snore Formula Inc.
(f)(2) Modification of Contract between Desert Health Products,
Inc. and Snore Formula Inc.
(11) N/A
(13) N/A
(15) N/A
(16) N/A
(17) N/A
(18) N/A
(19) N/A
(20) N/A
(21) N/A
(22) N/A
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(1) Filed in an 8-K on March 15, 2000
(2) Filed in an 10-SKB on April 3, 2001
(3) Filed in an 8-K on October 31, 2000
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(23)(2) Consent of Desert Health's Auditor
(24) N/A
(25) N/A
(26) N/A
(99)(2) Cautionary Statement Regarding Forward-Looking Statements
12