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 June 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- 18,033,515 shares outstanding as of June
30, 2000 (This amount excludes 431,927shares held in trust for potential private
placements.)
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 June 30, 2000, and
the related audited balance sheet of the Registrant as of December 31, 1999, the
unaudited related statements of operations, the unaudited statements of changes
in common stock and shareholders equity for the three month and six month
periods ended June 30, 2000 and the twelve month periods ended December 31, 1999
and 1998 and the cash flows for the three month and six month periods ended June
30, 2000 and 1999 and from inception (September 7, 1989) through June 30, 1999,
are attached hereto and incorporated herein by this reference.
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 quarter and six months ended June 30, 1999
are not necessarily indicative of the results that can be expected for the year
ending December 31, 1999.
The following financial statements are included in this report:
Consolidated Balance Sheet as of June 30, 2000 and December
31, 1999........................................................F-1
Consolidated Statements of Operations for the Six Months and
Quarter ended June 30, 2000 and 1999 and from inception
(September 7, 1989) through June 30, 2000.......................F-2
Consolidated Statement of Changes in Common Stock for the Six
Months and Quarter ended June 30, 2000..........................F-3
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the Six Months ended June 30, 2000 and the
year ended December 31, 1999 inception (September 7, 1989)
through December 31, 1999.......................................F-4
Consolidated Statements of Cash Flows for the Six Months and
Quarter ended June 30, 2000 and 1999 and from inception
(September 7, 1989) through June 30, 2000.......................F-6
Notes to Consolidated Financial Statements........................F-7
2
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 AND DECEMBER 31, 1999
-----------------------------------
ASSETS
2000 1999
----------- -----------
CURRENT ASSETS
Cash $ 6,811 $ 10,038
Accounts receivable - trade 3,566 2,616
Inventory 8,078 3,673
Prepaid expenses 600 8,305
----------- -----------
Total Current Assets 19,055 24,632
----------- -----------
PROPERTY AND EQUIPMENT
Clinic and office equipment 62,231 44,819
Less accumulated depreciation (39,703) (35,122)
----------- -----------
Net Property and Equipment 22,528 9,697
----------- -----------
OTHER ASSETS 53,552 10,200
----------- -----------
TOTAL ASSETS $ 95,134 $ 44,529
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 306,417 $ 239,812
Accrued interest 562,157 463,375
Accrued salaries 589,432 568,452
Other accrued expenses 141,235 149,711
Notes and advances currently due:
Short-term shareholder advances 50,295 45,171
Vendors 112,333 112,333
Stockholders and others 1,966,426 1,808,708
----------- -----------
Total Liabilities 3,728,295 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, 42,500,831 shares issued and outstanding 16,034 11,581
Additional paid-in capital 2,572,578 2,039,844
Accumulated development stage deficit (6,221,446) (5,393,382)
----------- -----------
(3,632,786) (3,341,908)
Less shares issued for future transactions (375) (1,125)
----------- -----------
Total Stockholders' Deficit (3,633,161) (3,343,033)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 95,134 $ 44,529
=========== ===========
The accompanying footnotes are an integral part of these financial statements.
F-1
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended For the Quarter Ended From Inception
June 30, June 30, To June 30,
------------------------- ------------------------- ---------------
2000 1999 2000 1999 2000
--------- --------- --------- --------- -----------
REVENUES
Professional fee income $ 2,700 $ 7,942 $ 1,320 $ 3,661 $ 231,101
Product sales 11,290 17,722 4,987 7,766 462,771
--------- --------- --------- --------- -----------
Total Revenues 13,990 25,664 6,307 11,427 693,872
--------- --------- --------- --------- -----------
OPERATING EXPENSES
Cost of products sold 2,291 1,610 1,024 1,319 53,783
Salaries 93,088 76,755 45,059 40,490 743,843
Employee leasing - - - - 218,745
Payroll taxes 9,784 6,600 5,258 3,361 94,767
Physicians fees 17,182 15,416 12,832 7,800 285,050
Rent 18,142 19,438 9,096 9,379 225,084
Advertising 3,337 1,785 3,337 299 217,934
Depreciation 2,525 2,700 1,258 1,385 37,035
Other 11,269 10,085 5,854 4,727 93,910
--------- --------- --------- --------- -----------
Total Operating Expenses 157,619 134,391 83,717 68,760 1,970,152
GENERAL AND ADMINISTRATIVE EXPENSE 542,691 224,704 354,545 140,597 3,485,751
INTEREST 141,744 181,366 70,873 89,366 1,049,698
--------- --------- --------- --------- -----------
Total Expenses 842,054 540,461 509,134 298,722 6,505,601
--------- --------- --------- --------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS AND
THE PROVISION FOR INCOME TAXES (828,064) (514,797) (502,827) (287,296) (5,811,729)
LOSS FROM DISCONTINUED OPERATIONS - - - - (409,719)
--------- --------- --------- --------- -----------
NET LOSS BEFORE INCOME TAXES (828,064) (514,797) (502,827) (287,296) (6,221,448)
PROVISION FOR INCOME TAXES - - - - -
--------- --------- --------- --------- -----------
NET LOSS $(828,064) $(514,797) $(502,827) $(287,296) $ (6,221,448)
========= ========= ========= ========= ============
Loss per share before discounted operations $ (0.071) $ (0.026) $ (0.042) $ (0.013) $ (0.582)
Loss per share from discounted operation - - - - (0.041)
--------- --------- --------- --------- -----------
BASIC LOSS PER COMMON SHARE $ (0.071) $ (0.026) $ (0.042) $ (0.013) $ (0.623)
========= ========= ========= ========= ============
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 11,587,629 20,037,585 11,958,301 21,584,296 9,982,234
========== ========== ========== ========== ============
The accompanying footnotes are an integral part of these financial statements.
F-2
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK
(Unaudited)
Common Stock
---------------------------------------------------------------- Additional Paid - In
Shares Amount Capital
------------------------------- ------------------------------- --------------------------------
31-Mar-00 30-Jun-00 Six Months 31-Mar-00 30-Jun-00 Six Months 31-Mar-00 30-Jun-00 Six Months
--------- --------- ---------- --------- --------- ---------- --------- --------- ----------
Net recorded common stock -
December 31, 1999 11,581,196 - 11,581,196 $ 11,581 $ - $ 11,581 $ 2,040,648 $ - $ 2,040,648
Shares issued in
connection with:
Loan extensions 11,000 11,000 11 - 11 11 11
Securities sold for cash 356,915 3,350,582 3,707,496 357 3,351 3,707 167,798 163,883 331,681
Services rendered 596,668 306,056 902,724 597 306 903 597 76 673
Shares issued Officer as
special compensation 110,000 110,000 110 110 110 110
Shares issued in stock
exchange arrangement
Replacement shares to
be issued 288,489 288,489 288 288 130,978 130,978
Shares issued in
satisfaction of debt 62,500 25,000 87,500 63 25 88 16,928 52,353 69,281
Shares issued to Joint
Venture Partner 100,000 100,000 100 100 - -
Shares issued as collateral
Contingent shares returned (750,000)(2,000,000) (2,750,000) (750) (2,000) (2,750) -
Contingent shares issued 2,000,000 2,000,000 2,000 2,000 -
Shares issued adjustment
for cancellations and
effect of stock exchange (5,022) 132 (4,890) (5) (5) -
Net loss for the period end - - - - - - - - -
---------- --------- ---------- -------- ------- -------- ----------- --------- -----------
Balance June 30, 2000 for
stockholders' common
per committed contracts 12,141,745 3,891,770 16,033,515 12,142 3,892 16,034 2,356,960 216,422 2,573,382
Common shares issued
without consideration (375,000) - (375,000) (375) - (375) - - -
---------- --------- ---------- -------- ------- -------- ----------- --------- -----------
Net recorded common
stock - June 30, 2000 11,766,745 3,891,770 15,658,515 $ 11,767 $ 3,892 $ 15,659 $ 2,356,960 $ 216,422 $ 2,573,382
========== ========= ========== ======== ======= ======== =========== ========= ===========
The accompanying footnotes are an integral part of these financial statements.
F-3
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Preferred Common Stock Additional Accumulated Total
Stock ---------------------- Paid - In Development Stockholders'
Amount Shares Amount Capital Stage Deficit Equity
------ ------ ------ ------- ------------- ------
Balance forward December 31, 1997 $ 49 4,612,882 $ 9,226 $ 1,792,100 $(2,765,949) $ (964,253)
Shares issued in connection with:
Note extensions - 676,184 1,352 - - 1,352
Securities sold for cash - 847,970 1,696 135,565 - 137,261
Exercise of stock options - 250,000 500 24,500 - 25,000
Services rendered - 424,375 849 - - 849
Shares issued as interim loan
collateral to be return at
debt satisfaction - 12,975,000 25,950 - - 25,950
Exchange of preferred shares
held for investment for
originally issued shares - (375,000) (750) - - (750)
Charge for per share price
reduction of shares held
under subscription notes - - - (630,390) - (630,390)
Adjustment for share reduction (19,412) 19,412
Net loss for the ended
December 31, 1998 - - - - (1,458,683) (1,458,683)
---- ---------- -------- ----------- ----------- -----------
Balance December 31, 1998 49 19,411,411 19,411 1,341,186 (4,224,632) (2,863,664)
Shares issued in connection with:
Note extensions - 124,905 250 2,990 - 3,240
Securities sold for cash - 399,629 799 214,098 - 214,897
Services rendered - 1,665,538 3,331 - - 3,331
Retirement of debt and interest - 211,152 422 185,843 - 186,265
Correction to sales price of shares
sold officer - - - (24,500) - (24,500)
Shares issued in stock exchange
arrangement
Replacement shares issued - 275,000 550 139,817 - 140,367
Replacement shares to be issued - 80,562 161 28,094 - 28,255
Share transactions with Collier
Development
Contingent shares returned (12,750,000) (25,500) - - (25,500)
Settlement shares issued - 1,150,000 2,300 160,976 - 163,276
Cost of funds 13,000 26 (26) -
Shares issued as collateral 1,000,000 2,000 2,000
Adjustment for share reduction 7,830 (8,634) (804)
Net loss for the ended
December 31, 1998 - - - - (1,168,750) (1,168,750)
---- ---------- -------- ----------- ----------- -----------
Balance December 31, 1999
of stockholders' equity-per
committed contracts 49 11,581,196 11,581 2,039,844 (5,393,382) (3,341,908)
Stock issued for future
transactions - (1,125,000) (1,125) - - (1,125)
---- ---------- -------- ----------- ----------- -----------
Net equity December 31, 1999 $ 49 10,456,196 $ 10,456 $ 2,039,844 $(5,393,382) $(3,343,033)
==== ========== ======== =========== =========== ===========
The accompanying footnotes are an integral part of these financial statements.
F-4
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Additional Accumulated Total
Preferred Common Paid - In Development Stockholders'
Stock Stock Capital Stage Deficit Equity
----- ----- ------- ------------- ------
Balance December 31, 1999
of stockholders' equity-per
committed contracts $ 49 $ 11,581 $ 2,039,844 $(5,393,382) $ (3,341,908)
Shares issued in connection with:
Loan extensions - 11 11 22
Securities sold for cash - 3,707 331,681 335,388
Services rendered - 903 673 1,576
Shares issued Officer as
special compensation - 110 110 220
Shares issued in stock
exchange arrangement
Replacement shares issued -
Replacement shares to be issued - 288 130,978 131,266
Shares issued in satisfaction of debt 88 69,281 69,369
Shares issued to Joint Venture Partner - 100 - 100
Shares issued as collateral -
Contingent shares returned - (2,750) - (2,750)
Contingent shares issued - 2,000 - 2,000
Shares issued adjustment for
cancellations and effect of
stock exchange - (5) - (5)
Net loss for the six months
ended June 30, 2000 - - - (828,064) (828,064)
---- -------- ----------- ----------- ------------
Balance June 30, 2000 of
stockholders' equity-per
committed contracts 49 16,034 2,572,578 (6,221,446) (3,632,786)
Common shares issued for
future transactions - (375) - - (375)
---- -------- ----------- ----------- ------------
Net equity end of period $ 49 $ 15,659 $ 2,572,578 $(6,221,446) $ (3,633,161)
==== ======== =========== =========== ============
The accompanying footnotes are an integral part of these financial statements.
F-5
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months Ended For the Quarter Ended
June 30, June 30, From
-------------------------- ------------------------ Inception To
2000 1999 2000 1999 2000
---------- ---------- ---------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (828,064) $ (514,797) $ (502,827) $ (287,296) $ (6,221,447)
Adjustments to reconcile net (Loss) to
net cash used by operating activities:
Depreciation and amortization 4,829 3,485 2,495 1,778 39,951
Depreciation and losses on fixed asset disposals
Clinic assets - - - - 15,234
Oil and gas assets - - - - 4,189
Loss on disposal of oil and gas properties - - - 382,933
Expenses paid with common shares 1,366 - - 1,366
Increase (decrease) in working capital -
(Increase) decrease in receivables (950) 3,683 (380) (350) (3,566)
(Increase) decrease in inventory (4,405) 1,433 1,025 1,169 (8,078)
(Increase) decrease in prepaid expenses 7,705 - 12,724 - (600)
Increase (decrease) in accounts payable 66,605 - 51,795 (5,024) 306,419
Increase (decrease) in accrued interest 98,782 41,228 62,110 20,976 562,157
Increase (decrease) in other accruals 12,504 213,914 20,866 76,354 730,667
---------- ---------- ---------- ---------- ------------
Net cash used by operating activities (641,627) (251,054) (352,190) (192,393) (4,190,774)
---------- ---------- ---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (17,412) (1,484) (2,338) (1,484) (48,441)
(Increase) decrease in other assets (43,600) - (13,800) 200,000 (53,800)
---------- ---------- ---------- ---------- ------------
Net cash provided (used) by investing activities (61,012) (1,484) (16,138) 198,516 (102,241)
---------- ---------- ---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 333,271 - 233,100 26,067 3,412,392
Expenses paid by shareholder - 90,659 - - 38,323
Repayment of loans (170,632) - (107,533) (184,526) (921,965)
Proceeds from sale of common shares 466,654 - 166,483 142,958 1,360,638
Capital contributed by shareholder - 150,071 - 154,800
Collection of share subscriptions - - - 141,726
Common shares exchanged for debt 69,369 9,464 69,369 9,394 81,687
Exercised stock options - - 125,250
Redemption of common shares - - - - (20,409)
Change in shares issued for future transactions 750 750
Cost of raising capital - (16) - (16) (73,366)
---------- ---------- ---------- ---------- ------------
Net cash provided used by financing activities 699,412 250,178 361,420 (6,123) 4,299,826
---------- ---------- ---------- ---------- ------------
NET INCREASE (DECREASE) IN CASH (3,227) (2,360) (6,908) - 6,811
Balance at beginning of period 10,038 2,590 13,719 230 -
---------- ---------- ---------- ---------- ------------
Balance at end of period $ 6,811 $ 230 $ 6,811 $ 230 $ 6,811
========== ========== ========== ========== ============
The accompanying footnotes are an integral part of these financial statements.
F-6
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 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 Company's predecessor, 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, an unrelated
publicly held company, 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.
In a January 1996 statutory reorganization, Ceron was merged with the Company
and the Company was reincorporated in Utah as Wasatch Pharmaceutical, Inc.
The acquisition of Medisys by Ceron was accounted for as a purchase by
Medisys because the shareholders of Medisys control the surviving company. There
was no adjustment to the carrying value of the assets or liabilities of Ceron in
as much as its market value approximated the carrying value of net assets. In
summary, Ceron is the acquiring entity for legal purposes but Medisys is the
surviving entity for accounting purposes.
For the purpose of this financial presentation "Inception" shall mean
September 7, 1989, which was the commencement of Medisys operations.
NOTE 2 - CHANGES IN PRESENTATION
Certain financial presentations for the second quarter of 1999 have
been reclassified to conform to the 2000 presentation.
NOTE 3 - 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 has sought short-term funding and planned to obtain long-term
funding through a broad based public stock offering. Management believes that
sufficient funding to commence profitable operations will be provided by planned
funding programs.
On April 19, 2000, the Company entered into an agreement with a private
investment group to provide long-term capital funding. Following the original
closing funding of $200,000, management concluded that the investor group would
not be compatible with the Wasatch's long-term goals and the arrangement was
suspended.
F-7
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
(Unaudited)
NOTE 4 - GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the comparative six and three
month periods ended in 2000 and 1999 and from inception through June 30, 2000
are:
Six Months Ended Quarter ended Inception To
June 30, June 30, June 30
------------------------ ------------------------ ----------------
2000 1999 2000 1999 2000
---- ---- ---- ---- ----
Officers' salaries $111,720 $114,518 $55,470 $74,479 $1,398,846
Professional services 258,282 96,807 166,046 61,065 648,659
Fund raising loss 0 0 0 0 500,000
Sales and marketing 28,468 0 28,468 0 108,076
Fund raising expense 0 0 0 0 26,737
Financing fees 44,340 197 0 52 85,726
Investor relations 16,216 0 3,975 0 33,391
Travel 7,022 1,252 1,149 683 86,492
Telephone 5,431 3,168 3,559 1,928 73,741
Insurance 2,647 0 0 0 18,559
Postage 863 0 845 0 16,685
Payroll tax penalties 0 0 0 0 36,569
Rent 0 0 0 0 36,658
Other 67,702 4,461 95,033 2,370 415,613
-------- -------- -------- -------- ----------
Total $542,691 $224,704 $354,545 $140,597 $3,485,752
======== ======== ======== ======== ==========
NOTE 5 - EARNINGS PER SHARE
Earnings Per Share are based on shares issued and outstanding reduced
by shares that have been contingently issued (in as much as ownership has not
transferred to the holders benefit) and increased by shares paid for but
unissued. At June 30, 2000, the issued and outstanding shares were 18,465,442.
The excluded shares were the contingently issued for an incomplete common stock
private placement program were 431,927 and the shares that were held as
potential collateral 2,750,000. In addition, 2,000,000 of the collateral shares
were excluded because they were subsequently withdrawn and a cancellation letter
was issued in July, 2000 because, at June 30, 2000, the holders had not met
their contractual commitments of providing the funding for which the shares were
issued.
NOTE 6 - 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-8
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 five 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 operation. 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 is seeking funding to establish an Internet presence and
open additional clinics in major metropolitan areas as well as 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 June 30, 2000, the Company had current assets of $19,056 and current
liabilities of $3,728,295 generating a working capital deficit of $3,709,240,
which is a 10% increase from December 31, 1999. The increase in the deficit is
due to the Company's operating loss of $828,064 for the six-month period ended
June 30, 2000. The deficit was financed with net new quarterly borrowings of
$128,137 (included in $162,841 for the six months) and additional shareholder
investment of $166,483 (included in $466,654 for the six months).
Interest expense the first six months of 2000 was $141,744 versus
$181,366 in 1999. The decrease is attributable to a temporary reduction in
indebtedness of approximately $281,000 which was offset by the increasing
indebtedness late in the 2nd quarter of 2000.
For the first half of 2000 the Company had a net loss of $ 828,064
compared to a net loss of $514,797 in the same period of 1997. The increased
loss was the direct result of a $189,944 increase in the cost of professional
services and a $25,000 increase in the development cost for Internet services.
The increased professional services expenditures were the result of updating the
Company's SEC filings and legal cost of financings and registrations. The
Company anticipates that the losses will continue until a funding is obtained
which will enable it to launch its business plan and strategies.
3
PART II - OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
On November 1 and 15, 1996 the Company entered into certain contractual
arrangements with Lindbergh-Hammar, Inc. ("Lindbergh") which resulted in the
Company issuing 12 million shares of restricted Common Stock in exchange for a
note issued by Lindbergh with a face value of $60 million. The Company retained
voting rights on the Common Stock issued. Upon 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
contract was terminated, Lindbergh transferred the 12 million shares of the
Common Stock issued in the transaction to a newly formed offshore corporation,
Crestport Insurance, which the Company believed had been organized by the owner
and CEO of Lindbergh.
On October 15, 1997, Crestport filed a lawsuit against the Company and
its stock transfer agent seeking damage arising out of the cancellation the 12
million shares. Crestport claimed that it was an innocent third party and a
holder in due course who had paid Lindbergh for the shares. As of December 31,
1997, the lawsuit was in the discovery stage. Crestport has asserted a claim for
$5,000,000 in damages arising out of cancellation of the share certificate. On
July 20, 1999, the Company moved for summary judgment in the proceeding 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,
which is now set for August 28, 2000.
The Company believes that the claim by Crestport is without merit and
intends to vigorously defend the proceedings. An adverse determination in these
proceedings would have a material adverse effect on the Company.
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 depicts the second quarter common share
transactions that occurred:
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - None.
ITEM 5. OTHER INFORMATION - None.
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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 second quarter stock
transactions
(b) Reports on Form 8-K
Other Events
Summary of Form 8-K filed on April 10, 2000
On August 31, 1998, Wasatch signed a Security Agreement along with a
Promissory Note for $300,000 in connection with a loan from Collier Management &
Development. As part of the Security Agreement, Wasatch provided 25,500,000
shares of restricted common stock as Collateral on the loan. These shares
represented 50.5% of the authorized common stock shares. Interest on the note
was 18% per annum and was due March 1, 1999. On March 8, 1999, an Extension
Agreement was signed which extended the note to May 1, 1999. On May 10, 1999,
the Company received a notice of default on the loan. Principal and interests
payments of $120,000 were made on the loan in September 1999 and $50,000 was
paid in January 2000. March 31, 2000, the Company entered into a Settlement
Agreement with Collier Management whereby Collier retained 2.3 million shares of
common stock in settlement of the Wasatch debt. Collier returned 23.2 million
shares to Wasatch and these shares were cancelled.
Summary of Form 8-K filed on May 3, 2000
On April 19, 2000 Wasatch signed a Securities Purchase Agreement with
Aspen Capital Resources, L.L.C. in connection with a $10,000,000 program to fund
the growth and development of the Company. Under the program, the Company will
issue 8% Convertible Debentures over a three year period. The initial issue was
for $200,000 with a subsequent issue of $800,000 within ninety days and $500,000
bi-monthly until the entire program is funded. The entire issue is due April 19,
2003.
The debentures are convertible 90 days after the initial issue, except
that no more than 33% of the issue can be redeemed in the first 90 days of the
conversion period, 67% in the 150 days of the conversion period and all the
Debentures there after. The issue is convertible at 80% of market value on the
date of conversion. In addition, the Company issued detached warrants that
allows Aspen to purchase a common share for each common share it receives from
the conversion of the 8% Debentures. The purchase price is equal to 105% of the
average of the three lowest closing bid price for the preceding fifteen days
prior to the date of the agreement.
The Company plans to use the funds to initiate its Internet e commerce
development, to commence the commercial development of its Midvale and Provo
prototype clinics, to bring to a conclusion the FDA product application and
introduce the associated products in the marketplace, to develop relationships
with major HMO's, PPO groups and insurance companies and to meet other working
needs.
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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: August 14, 2000
By: /s/ David K. Giles
-----------------------------
David K. Giles
Principal Accounting Officer
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