<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] 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: 2-35700
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 Outstanding as of September 30, 1996
----- ------------------------------------
Common Stock, $.001 3,229,706*
*Gives effect to a 4:1 reserve split of the issuer's issued and outstanding
shares of common stock effective August 16, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying 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 footnotes 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 Company as of September 30, 1996, and
the related audited balance sheet of the Company as of December 31, 1995, the
unaudited related statements of operations and cash flows for the three and
nine month periods ended September 30, 1996 and 1995, and from inception
(September 7, 1989) through September 30, 1996, are attached hereto and
incorporated herein by this reference.
Operating results for the quarter ended September 30, 1996, and for the
nine months ended September 30, 1996 are not necessarily indicative of the
results that can be expected for the year ending December 31, 1996.
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> SEPTEMBER 30,
1996 DECEMBER 31,
(Unaudited) 1995
------------ ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash....................................... $ 453 $ 777
Accounts receivable, trade................. 3,551 2,081
Accounts receivable - stockholder ......... 500 500
Inventory (Note 1)......................... 10,140 9,374
Prepaid Expenses .......................... 600 600
---------- ----------
Total current assets.................. 15,243 13,332
---------- ----------
Property and Equipment (Note 1)
Furniture and office equipment............. 39,749 45,205
Less accumulated depreciation.............. (13,211) (10,749)
---------- ----------
Net property and equipment................. 26,529 34,456
---------- ----------
Other Assets
Deposits................................... 131 266
---------- ----------
Total Assets.......................... $ 41,903 $ 48,054
========== ==========
</TABLE>
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> SEPTEMBER 30,
1996 DECEMBER 31,
(Unaudited) 1995
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Cash overdraft............................. $ - $ 26,963
Account payable - trade.................... 153,083 112,628
Accounts payable related party (Note 2).... 11,500 12,500
Royalties payable.......................... 3,276 7,773
Accrued interest........................... 143,219 90,306
Accrued taxes.............................. 45,937 29,911
Current portion of notes payable (Note 4).. 766,741 649,640
---------- ----------
Total current liabilities............. 1,123,756 929,721
---------- ----------
Long Term Liabilities
Notes payable (less current portion)(Note 4) - -
---------- ----------
Total Liabilities..................... 1,123,756 1,071,038
---------- ----------
Stockholders' Equity:
Preferred stock, $0.001 par value, 1,000,000
shares authorized, 49,258 issued and out-
standing.................................. 2,463 2,463
Common stock, $0.001 par value, 50,000,000
shares authorized, 3,229,706 and
12,089,256 shares issued and
outstanding, respectively................. 3,230 12,089
Additional paid-in capital (Note 5)........ 341,643 184,051
Deficit accumulated during the
development stage......................... (1,429,188) (1,080,270)
---------- ----------
Total Stockholders' Equity (Deficit)... (1,081,852) (881,667)
---------- ----------
Total Liabilities and
Stockholders' Equity (Deficit)........ $ 41,903 $ 48,054
========== ==========
</TABLE>
<PAGE>
WASATCH PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FROM
INCEPTION
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED (Sept. 7,
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, 1989) THRU
1996 1995 1996 1995 SEPT. 30, 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Professional fee income..... $ 6,785 $ 16,243 $ 23,389 $ 58,229 $ 137,726
Product sales .............. 65,387 128,791 18,981 36,588 288,750
Miscellaneous income........ 193 210 609 330 609
---------- ---------- ---------- ---------- ----------
Total Revenues.............. 25,959 53,041 89,386 187,305 427,085
---------- ---------- ---------- ---------- ----------
Cost of Goods Sold............... 1,879 2,805 5,519 12,433 35,741
---------- ---------- ---------- ---------- ----------
Gross Profit on Sales............ 24,080 50,236 83,867 174,916 391,344
---------- ---------- ---------- ---------- ----------
Operating Expenses:
Salaries.................... 22,085 43,599 78,300 43,599 162,263
Payroll taxes............... 1,935 4,752 8,343 4,752 17,043
Advertising................. 4,713 (426) 11,015 83,632 196,083
Professional services....... 8,915 20,100 42,755 60,900 151,023
Legal & accounting.......... 9,079 - 33,158 - 162,381
Rent........................ 8,773 8,751 32,852 26,273 90,367
Depreciation................ 1,592 1,445 5,169 4,333 15,558
Employee leasing............ - 4,722 - 113,347 218,745
Consulting fees 19,451 11,923 106,581 78,698 380,156
General & Administrative.... 20,472 14,541 56,174 50,074 223,913
---------- ---------- --------- ---------- ----------
Total Operating Expenses......... 97,025 109,407 374,346 465,608 1,617,532
---------- ---------- --------- ---------- ----------
Income (Loss) Before Other Income
(Expenses) and Provision for
Income Taxes.................... (72,945) (59,171) (290,479) (290,692) (1,226,188)
Other income (expenses):
Royalty income.............. - - - - 2,322
Interest income............. - - - - 63
Royalty expense............. (1,319) (110) (3,276) (6,498) (16,677)
Interest expense............ (19,041) (12,634) (55,162) (32,710) (149,294)
Loss on disposition of assets - - - - (39,414)
---------- ---------- --------- ---------- ---------
Total other income (expense)..... (20,360) (12,744) (58,439) (39,208) (203,000)
---------- ---------- --------- ---------- ---------
Net Income (Loss) Before
Provision for Income Taxes...... (93,304) (71,915) (348,917) (329,900) (1,429,187)
Provision for income taxes....... - - - - -
---------- ---------- --------- ---------- ---------
Net Income (Loss)................ $ (93,304) $ (71,915) $ (348,917) $ (329,900) $(1,429,187)
========== ========== ========= ========== ===========
Net Income (Loss) Per Share
of Common Stock................. $ (0.03) $ (0.02) $ (0.11) $ (0.10) $ (0.22)
========== ========== ========= ========== ===========
</TABLE>
<PAGE>
WASATCH PHARMACEUTICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE FROM
NINE MONTHS ENDED THREE MONTHS ENDED INCEPTION
SEPTEMBER 30, SEPTEMBER 30, (Sept. 7,
--------------------- --------------------- 1989) Thru
1996 1995 1996 1995 Sept. 30, 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ (348,918) $ (329,900) $ (93,304) $ (71,916) $ (1,429,188)
Adjustments to reconcile net income (loss)
to net cash provided (Used) by
operating activities:
Depreciation........................ 5,169 4,481 1,593 1,592 15,918
Expenses paid with common stock..... 25 - 25 - 5,734
Expenses paid by shareholder........ 756 - - - 46,738
(Increase) decrease in receivables.. (1,470) (1,009) (714) (1,084) (3,551)
(Increase) decrease in receivables
related ........................... (1,000) - 3,850 182 (1,000)
(Increase) decrease in inventory.... (766) 3,696 1,878 (1,317) (10,140)
(Increase) decrease in prepaids..... - (175) - 1,229 (600)
(Increase) decrease in deposits..... 135 725 135 - (131)
Increase (decrease) in cash
overdraft.......................... (26,963) 1,268 (23,171) (8,293) -
Increase (decrease) in accounts
payable............................ 43,969 54,724 17,626 19,472 160,362
Increase (decrease) in unearned
income............................. - - - 5,466 -
Increase (decrease) in accrued
payables........................... 11,529 11,785 8,525 10,114 49,213
Increase (decrease) in accrued
interest........................... 53,996 32,587 19,020 12,634 143,768
---------- ------------ ----------- ----------- -----------
Net cash provided (Used) by
operating activities............ (264,294) (221,818) (64,672) (31,921) (1,022,877)
---------- ------------ ----------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets............. (755) (6,700) - (79) (25,960)
---------- ------------ ----------- ----------- -----------
Net cash provided (used) by
investing activities............ (755) (6,700) - (79) (25,960)
---------- ------------ ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from loans............. 127,100 197,000 45,000 32,000 783,221
Contribution of capital by
shareholder.................... 137,625 - 20,125 - 292,425
Repayment of loans.............. - (3,000) - - (5,947)
Redemption of common stock...... - - - - (20,409)
---------- ----------- ----------- ----------- -----------
Net cash provided (used) by
financing activities............ 264,725 194,000 65,125 32,000 1,049,290
---------- ------------ ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents................. (324) (34,518) 453 - 453
Cash and cash equivalents at
beginning of period................. 777 34,968 - 450 -
---------- ------------ ----------- ----------- -----------
Cash and cash equivalents at
end of period....................... $ 453 $ 450 $ 453 $ 450 $ 453
========== ============ ========== =========== ===========
</TABLE>
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
NOTE 1 - ORGANIZATION AND HISTORY
a. Organization
The consolidated financial statements presented are those of Wasatch
Pharmaceutical, Inc.(formerly Ceron Resources Corporation) (a development stage
company) (the Company), and its wholly owned subsidiaries, Medisys Research
Group, Inc. and American Institute of Skin Care, Inc. The Company was
incorporated under the laws of the state of Utah on March 25, 1980. The Company
was initially engaged in oil and gas exploration and development. In February
1981, the Company merged with Folio One Productions, LTD. (a Delaware
Corporation) (Folio). The transaction was recorded as a purchase of Folio by
the Company. The Company ceased operations in 1986 and was inactive until the
merger with Medisys on December 29, 1995.
Medisys Research Group, Inc. (Medisys), current a wholly-owned subsidiary of the
Company was incorporated for the purpose of developing treatment programs for
various skin disorders. Medisys was organized on September 7, 1989, as a Utah
Corporation.
American Institute of Skin Care, Inc. (AISC), currently a wholly-owned
subsidiary of the Company, was incorporated to administer the skin treatment
programs developed by Medisys. AISC was organized January 21, 1994, as a Utah
corporation.
On December 29, 1995, Ceron Resources Corporation (now Wasatch Pharmaceutical,
Inc.)and Medisys Research Group, Inc. (Medisys) completed an Agreement and Plan
of Reorganization whereby Wasatch issued 10,312,216 (on a 1 share for 1 share
basis) shares of its common stock in exchange for all of the issued and
outstanding common stock of Medisys. Pursuant to the reorganization, the name
of the Company was changed to Wasatch Pharmaceutical, Inc.
The acquisition was accounted for as a purchase by Medisys of Wasatch, because
the shareholders of Medisys control the company after the acquisition.
Therefore, Medisys is treated as the acquiring entity. There was no adjustment
to the carrying value of the assets or liabilities of Wasatch in the exchange as
the market value approximated the net carrying value. Wasatch is the acquiring
entity for legal purposes and Medisys is the surviving entity for accounting
purposes.
b. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31, year end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
NOTE 1 - ORGANIZATION AND HISTORY (Continued)
d. Loss Per Share
The computations of loss per share of common stock are based on the weighted
average number of shares outstanding at the date of the financial statements.
e. Provision for Taxes
At September 30, 1996, the Company had net operating loss carry forwards of
approximately $1,429,188 that may be offset against future taxable income
through 2010. No tax benefit has been reported in the financial statements,
because the Company believes there is a 50% or greater chance the carry forward
will expire unused. Accordingly, the potential tax benefits of the loss carry
forward are offset by a valuation allowance of the same amount.
f. Inventory
Inventory is recorded at the lower of cost or market, on a first-in, first-out
basis.
g. Property and Equipment consisted of the following:
Sept. 30, Dec. 31,
1996 1995
--------- ---------
Furniture and fixtures $ 39,749 $ 45,205
Less accumulated depreciation (13,221) (10,749)
--------- ---------
Net property and equipment $ 26,529 $ 34,456
========= =========
Furniture and office equipment are depreciated using the straight-line method
over their estimated useful lives of five to seven years. Depreciation expense
was $1,592 and $1,445 for the three months ended September 30, 1996 and 1995,
respectively.
h. Principles of Consolidation
The consolidated financial statements include the accounts of the Company's
wholly owned subsidiaries, Medisys Research Group, Inc. and American Institute
of Skin Care, Inc. All material intercompany transactions and balances have
been eliminated.
NOTE 2 - RELATED PARTY TRANSACTIONS
On October 11, 1994, the Company entered into an agreement with a shareholder to
redeem 600,000 shares of its issued and outstanding common stock for $25,000.
The Company paid the shareholder $12,500 upon execution of the agreement, and an
additional $5,000 during 1994 and $1,000 during 1996. The remaining balance of
$6,500 is non-interest bearing and is due on demand.
During 1995, a director of the Company advanced $5,000 to the Company. The
advance is non-interest bearing and is due upon demand.
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
During 1994, the Company loaned $500 to one of its officers who is also a
shareholder. The amount bears interest at a rate of 7% per annum and is due
upon demand.
On April 1, 1996, the Company agreed to sell a total of 150,000 shares of
unregistered common stock to two former directors of the Company in a private
placement transaction at approximately $0.78 per share. The sale of these
shares was completed in August 1996.
On August 12, 1996, the board of directors approved stock options granted to
Gary Heesch, President, and David Giles, Vice President, in the amount of
125,000 shares each (after giving effect to a 4:1 reverse split of the issued
and outstanding shares effective August 16, 1996), at an exercise price of
$0.001 per share.
On September 30, 1996, David Giles exercised his option to purchase 125,000
shares of common stock.
NOTE 3 - ROYALTIES PAYABLE
A subsidiary of the Company (Medisys) acquired the marketing rights to certain
skin care products during 1991. As part of the agreement, Medisys is required
to pay royalties equal to 5% of gross product sales of Medisys. Once royalties
totaling $10,000,000 have been paid, Medisys will own the technology associated
with the skin care products. Annual royalty payments are due April 1 of the
following year.
NOTE 4 - NOTES PAYABLE
Sept. 30, December 31,
1996 1995
---------- ------------
The following is a description of the notes payable:
Note payable, dated October 1, 1991, payable to
an attorney, due June 30, 1994, accruing interest
at 10%, unsecured $ 42,000 $ 42,000
Note payable, dated October 1, 1991, payable to
a CPA firm, due June 30, 1994, accruing interest
at 10%, unsecured. 34,000 34,000
Note payable, dated October 1, 1991, payable to
an attorney, due June 30, 1994, accruing interest
at 10%, unsecured 3,500 3,500
Note payable, dated May 9, 1994, payable to an
individual, due November 9, 1996, accruing
interest at 10%, unsecured 100,000 100,000
---------- -----------
Balance forward $ 179,500 $ 179,500
<PAGE>
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
Sept. 30, December 31,
1996 1995
---------- ------------
Balance forward $ 179,500 $ 179,500
Note payable, dated July 20, 1994, payable to an
individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 50,000 50,000
Note payable, dated July 20, 1994, payable to an
individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 50,000 50,000
Note payable, dated July 20, 1994, payable to a
corporation, no stated due date, accruing
interest at 6%, unsecured 32,852 32,852
Note payable, dated October 7, 1994, payable to an
individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 50,000 50,000
Note payable, dated November 14, 1994, payable to an
individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 50,000 50,000
Note payable, dated December 14, 1994, payable to an
to an individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 50,000 50,000
Note payable, dated April 25, 1995, payable to an
individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 115,000 115,000
Note payable, dated June 14, 1995, payable to an
individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 5,000 5,000
--------- ----------
Balance forward $ 582,352 $ 582,352
<PAGE>
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
Balance forward $ 582,352 $ 582,352
--------- ----------
Note payable, dated August 23, 1995, payable to
an individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 10,000 10,000
Note payable, dated September 2, 1995, payable to
an individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 15,000 15,000
Note payable, dated November 28, 1995, payable to
an individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 20,000 20,000
Various notes payable, dated October through
December, 1995 payable to individuals, to be
paid from the proceeds of major funding,
accruing interest at 10%, unsecured 22,288 22,288
Note payable, dated January 10, 1996, payable to
an individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 50,000 -
Note payable, dated January 29, 1995, payable to
an individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 10,000 -
Note payable, dated February 28, 1995, payable to
an individual, to be paid from the proceeds of
major funding, accruing interest at
10%, unsecured 20,000 -
--------- ----------
Balance forward $ 729,640 $ 649,640
<PAGE>
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
Balance forward $ 729,352 $ 649,640
--------- ----------
Note payables, dated June 20, 1996, payable to
four individuals, to be paid from the proceeds
of major funding, accruing interest at 15%,
unsecured 2,100 -
Note payable, dated July 9, 1996, payable to a
related party, to be paid in six months, accruing
interest at 10%, unsecured 40,000 -
Note payable, dated August 9, 1996, payable to an
individual, to be paid from proceeds of major
funding, accruing interest at 10%, unsecured 5,000 -
--------- ----------
Total $ 776,740 $ 649,640
========= ==========
NOTE 5 - PREFERRED STOCK
The Company's preferred stock (Series A) entitles the holder to per-share annual
dividends equal to 20% of the Company's net income divided by 300,000, times the
number of shares of preferred stock outstanding (3.28% of net income based on
preferred stock outstanding at December 31, 1995 and 1994). Dividends are
required to the extent that there is net income and that the are funds legally
available. To the extent funds are not legally available in net income years,
the payment of the dividends calculated shall be deferred until such time as
there shall be funds legally available. The shares are redeemable at the option
of the Company at $2.00 per share plus accrued and unpaid dividends. The shares
have a liquidating value of $1.00 per share plus accrued and unpaid dividends.
There were no accrued and unpaid dividends at September 30, 1996 and December
31, 1995.
NOTE 6 - GOING CONCERN
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 cover its operating costs which
would allow it to continue as a going concern. In an effort to create
additional cash flows to finance the Company's operations and the establishment
of additional clinics, the Company has entered into a series of transactions
with two other unrelated corporations to raise short-term funding. (Note 9).
The Company plans to eventually seek more conventional long-term funding through
the sale of additional equity securities. Management believes that sufficient
funding will be raised to meet the operating needs of the Company during the
development stage.
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1996 and December 31, 1995
NOTE 7 - BANK OVERDRAFT
At December 31, 1995, $20,605 of the bank overdraft resulted from an overdraft
with First Security Bank of Utah, N.A. which was the subject of a lawsuit and
resulted in a judgment against the Company. In July, 1996, this debt including
court costs and attorney's fees was paid off and a Satisfaction of Judgment was
registered with the courts.
NOTE 8 - REVERSE STOCK SPLIT
On August 12, 1996, the Company approved a 4:1 reverse split of its issued and
outstanding common stock, effective August 16, 1996. All references to shares
and per share amounts have been restated to reflect the 4:1 reverse split.
NOTE 9 - SUBSEQUENT EVENTS
On August 23, 1996, Lindbergh-Hammer Associates, Inc. rescinded their
contract with the Company (See Note 5) for non-performance and the 6,000,000
shares of common stock that had been issued in connection with the contract were
returned for cancellation. Thereafter, on November 1, 1996, the Company entered
into a private placement agreement with Lindbergh-Hammar Associates, Inc.
(Lindbergh), whereby Lindbergh purchased 6,000,000 shares of its common stock at
a purchase price of $5.00 per share in exchange for a promissory note for
$30,000,000, payable over a five year period in monthly amounts equal to ten
percent (10%) of the insurance premiums income generated as a result of the
Company's stock being assigned to the capital and surplus account of Lindbergh.
The voting rights of the 6,000,000 shares have been retained by the Company's
board of directors, however, Lindbergh is to be granted one seat on the
Company's board of directors. Beginning three years from the date of the shares
purchase agreement, the Company has the option for two years to repurchase up to
98% of the shares acquired by Lindbergh at a repurchase price of $7.50 per
share.
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
PLAN OF OPERATION
The Company owns the proprietary technology for the treatment of various
common skin disorders, including acne, eczema, and psoriasis and has begun to
introduce this technology through company-owned clinics. As a follow-up to
previous clinical studies, prototype clinics were established almost three years
ago in an effort to achieve similar success rates as the clinical studies had
achieved and to establish medical and administrative procedures that could be
duplicated in clinics across the country. Two prototype medical clinics are
currently in operation in Utah. Although the Company has confirmed the
technology through the successful treatment of hundreds of patients over the
past two and one-half years and has set up the administrative procedures, the
clinics have not reached a profitable level due to the lack of funds for
advertising and marketing the Company's products and services. The Company does
not at this time have substantial assets to support significant future
development and expansion of its clinic operation without additional working
capital. Due to lack of assets and 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 equity financing.
The Company is seeking sources of working capital so that it may add up to
four additional clinics in major metropolitan areas and to launch a major
advertising and marketing campaign to support each of the clinics. Management
feels that the advertising campaign along with working with health insurance
companies and HMOs to become a Preferred Provider and a physician referral
program would increase revenues above the break-even point and make each clinic
profitable.
In April, 1996, the Company entered into a contract to sell 6,000,000
shares of its restricted common stock (the "Wasatch Common")to Lindbergh-Hammar
Associates ("Lindbergh") of Dallas, Texas at a price of $1.225 per share in
exchange for 7,350 shares of Lindbergh preferred stock, par value $1,000 per
share (the "Lindbergh Preferred"). The Lindbergh Preferred has a non-cumulative
dividend rate of 5% per annum and all voting rights remain with the Company's
board of directors until such time as the Lindbergh Preferred are redeemed
pursuant to their terms. Lindbergh agreed to redeem the Lindbergh Preferred over
a two (2) year period of time. The Lindbergh Preferred was to be called and
redeemed at par value in monthly increments equal to 10% of the insurance
premium income generated by Lindbergh as a result of the Wasatch Common being
assigned to the Capital and Surplus Account of an insurance company affiliated
to Lindbergh. Lindbergh agreed to call and redeem a minimum of $100,000 face
value (par value) Lindbergh Preferred by the end of 90 days after receiving the
an Independent Certified Public Accountant's Certification letter confirming the
bid price, or value, of the trading shares of the Company. On August 23, 1996,
after discussion between the Company and Lindbergh relating to the timing for
completion of Lindbergh's audit and/or certification and the Company's progress
for establishing a bid and asked price for the Company's common stock, the
Company and Lindbergh mutually agreed to rescind the agreement between the
parties. The 6,000,000 shares of Wasatch Common were returned to the Company for
cancellation.
<PAGE>
Thereafter, on November 1, 1996, the Company entered into a private
placement agreement with Lindbergh-Hammar Associates, Inc. (Lindbergh), whereby
Lindbergh purchased 6,000,000 shares of its common stock at a purchase price of
$5.00 per share in exchange for a promissory note for $30,000,000, payable over
a five year period in monthly amounts equal to ten percent (10%) of the
insurance premiums income generated as a result of the Company's stock being
assigned to the capital and surplus account of Lindbergh. The voting rights of
the 6,000,000 shares have been retained by the Company's board of directors,
however, Lindbergh is to be granted one seat on the Company's board of
directors. Beginning three years from the date of the shares purchase
agreement, the Company has the option for two years to repurchase up to 98% of
the shares acquired by Lindbergh at a repurchase price of $7.50 per share.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had current assets of $15,243 and
current liabilities of $1,123,756, resulting in a working capital deficit of
$1,108,513. The increase in the working capital deficit is due primarily to the
Company's operating losses which were $93,304 and $348,917 for the three and
nine month periods ended September 30, 1996, respectively. The majority of
expenses are related to the operation of the Company's two existing prototype
clinics. The Company is trying to obtain sufficient working capital to establish
up to four more clinics and to launch a major advertising and public relations
campaign which management believes would bring in additional revenue.
Management feels this additional revenue would make the clinics profitable.
In April, 1996, the Company agreed to sell a total of 150,000 shares of
unregistered common stock to two former directors and officers of the Company in
a private placement transaction at approximately $.78 per share. The sale of
these shares was completed in August, 1996, resulting in gross proceeds to the
Company of $117,350.
In July 1996, the Company borrowed from Ann Heesch, the wife of Gary
Heesch, the Company's President, $40,000, bearing interest at 10% per annum,
payable in six months. As consideration for the loan, the Company issued
20,000 shares of Common Stock to Mrs. Heesch.
During the three month period ended September 30, 1996, the sold 20,000
shares to certain individuals for gross proceeds of $20,000. In addition, the
Company issued an aggregate of 24,500 shares of common stock to various
individuals as payment of fees for certain loans made to the Company. Further,
the Company issued 250 shares to a shareholder/creditor of the Company in
exchange for cancellation of $11,104 debt owed by the Company, and 101,250
shares to certain individuals for consulting services valued at approximately
$4,002. (See "SALE OF UNREGISTERED SECURITIES DURING THE REPORTING PERIOD"
below.)
In August, 1996, the Company borrowed $5,000 from an individual pursuant to
a note. The note is payable with the proceeds of any major funding and accrues
interest at 15% per annum.
<PAGE>
The Company will continue to seek both debt and equity funding to begin a
marketing program to bring in additional revenue and to meet its current
obligations, however, due to the Company's financial condition, it would be
difficult to obtain debt financing.
RESULTS OF OPERATION
During the nine months ending September 30, 1996, the Company had revenues
of $89,386 compared to $187,350 during first nine months of 1995, a decrease of
$97,964. During the three month period ending September 30, 1996, the Company
recorded revenue of $25,959, compared to revenues of $53,041 for the same prior
year period, a decrease of $27,0827. There are two reasons for this decrease in
revenue. During the first nine months of 1995, the Company had three prototype
clinics generating revenue from operations. The Company closed its clinic in
Pocatello, Idaho in February, 1996. Also, during the first six months of 1995,
the Company was doing some test advertising which management believes was
responsible for the higher revenue during 1995. Because the Company has very
limited working capital the Company has done very little advertising of its
products and services during the first nine months of 1996. The Company's
operating expenses decreased by 20% from the first nine months of 1995 to the
first nine months of 1996, and decreased 11% for the three months ending
September 30, 1996 as compared to the same three month period last year, due to
a substantial reduction in the amount of advertising, which was partially offset
by increased legal, accounting and administrative expenses that were associated
with the Company becoming a public entity.
The Company anticipates that the losses will continue until sufficient
revenues and/or working capital is generated to launch a comprehensive marketing
program.
<PAGE>
<PAGE>
SALE OF UNREGISTERED SECURITIES DURING THE REPORTING PERIOD
<TABLE>
<CAPTION>
NUMBER OF
DESCRIPTION NAME OF OPTIONS/SHARES EXERCISE/ EXPIRATION
DATE OF TRANSACTION PURCHASER/OPTIONEE PURCHASED/GRANTED PURCHASE PRICE DATE
- -------- -------------- ------------------ ----------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
7/10/96 Issue Common
Stock as Fee Ann Heesch 20,000 $0.001/share N/A
7/25/96 Grant of Option Ephraim Group 100,000 $1.00/share 7/25/99
7/25/96 Grant of Option Ephraim Group 100,000 $2.00/share 7/25/99
7/25/96 Grant of Option Ephraim Group 100,000 $2.50/share 7/25/99
8/9/96 Issue Common
Stock as Fee Brammer Family Trust 1,250 $1.25/share N/A
8/12/96 Grant of Option Gary V. Heesch 125,000 $0.001/share 12/31/96
8/12/96 Grant of Option David K. Giles 125,000 $0.001/share 12/31/96
8/16/96 Sale of
Common Stock Ron Hollberg 75,000 $0.567/share N/A
8/26/96 Purchase of
Common Stock Douglas and/or
Susan Larson 20,000 $1.00/share N/A
9/17/96 Issue Common
Stock for
Settlement of
Debt Darwin Deakins 250 $44.41/share N/A
9/17/96 Issue Common
Stock for
Services Sterling Hanson 1,250 $0.001/share N/A
9/17/96 Issue Common
Stock as Fee Jens C. Nielsen 1,750 $0.001/share N/A
9/17/96 Issue Common
Stock as Fee Julie Martin and/or
Marla Saccomano 500 $0.001/share N/A
9/17/96 Issue Common
Stock as Fee Diana Nicol and/or
David Nicol 250 $0.001/share N/A
9/17/96 Issue Common
Stock as Fee Ronald and/or Jeanette
Christensen 250 $0.001/share N/A
9/17/96 Issue Common
Stock as Fee Copper Coin Investments 500 $0.001/share N/A
9/30/96 Exercise of
Option David K. Giles 125,000 $0.001/share N/A
10/9/96 Issue Common
Stock for
Services Ray Bishop 50,000 $0.04/share N/A
10/9/96 Issue Common
Stock for
Services James Miller 50,000 $0.04/share N/A
</TABLE>
The securities issued in the foregoing transactions were issued in
reliance on the exemption from registration and the prospectus delivery
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), set forth in either section 3(b) and/or section 4(2) therefor and
the regulations promulgated thereunder.
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
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.
SEC
Exhibit Reference
No. No. Description Location
- ------- --------- ----------- --------
10.01 10 Consulting Agreement between the
Company and Ephraim Group
dated June 1,1996 This Filing
10.02 10 Agreement between the
Company and Lindbergh-Hammer
Associates, dated November 1,
1996 This Filing
27 27 Financial Data Schedule This Filing
(b) Reports on Form 8-K.
None.
<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.
[Registrant]
Dated: November 14, 1996 /S/David K. Giles
Principal Accounting Officer
<PAGE>
Exhibit 10.02
AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of November 1, 1996, is entered
into by and between Lindbergh-Hammar Associates, Inc., a Texas corporation,
whose address is, P.O. Box 1329, Weatherford, Texas 76086; and Wasatch
Pharmaceutical, Inc., a Utah corporation, whose address is 714 East 7200
South, Midvale, Utah 84047.
WITNESSETH
WHEREAS, Lindbergh-Hammar Associates, Inc., desires to purchase six
million (6,000,000) shares of the Common Stock of Wasatch Pharmaceutical, Inc.
NOW, THEREFORE, the parties hereby agree as follows:
1. Sale of Shares. At the Closing (as designed in Section 5 below),
Wasatch Pharmaceutical, Inc. shall issue, sell and deliver to Lindbergh-Hammar
Associates, Inc., and Lindbergh-Hammar Associates, Inc., agrees to purchase
from Wasatch Pharmaceutical, Inc. the six million (6,000,000) shares of common
stock in consideration for the issuance of a thirty million ($30,000,000)
dollar note. The voting rights to the said six million (6,000,000) shares of
Wasatch Pharmaceutical, Inc. will remain with the Board of Directors of
Wasatch Pharmaceutical, Inc. for five (5) years from the date of this
agreement provided however, that Lindbergh-Hammar Associates, Inc., is
herewith being granted to its designee, one seat on the Wasatch
Pharmaceutical, Inc. Board of Directors.
2. Representations and Warranties by Wasatch Pharmaceutical, Inc. To
induce Lindbergh-Hammar Associates, Inc., to purchase the six million
(6,000,000) shares of its stock, hereby represents and warrants to Lindbergh-
Hammar Associates, Inc., as follows:
2.1 Organization: Qualification. Wasatch Pharmaceutical, Inc. is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Utah. Wasatch Pharmaceutical, Inc. has full corporate
power and authority to own, lease and operate its assets and properties and to
carry on its business as now being conducted, as and in the places where its
assets and properties are now owned, leased or operated and where such
business is now being conducted.
2.2 Capitalization of Wasatch Pharmaceutical, Inc. The authorized
capital stock of Wasatch Pharmaceutical, Inc. consists of fifty million
(50,000,000) shares of common stock, $0.001 par value ("Common Stock"), of
which three million seventy nine thousand eight hundred fourteen (3,079,814)
shares of Common Stock were issued and outstanding as of August 16, 1996.
2.3 Status of the Shares of Wasatch Pharmaceutical, Inc. Six million
(6,000,000) common shares have been duly authorized and, when delivered at the
Closing, the Shares will be duly and validly issued, fully paid, non-
assessable and will not have been issued in violation of any preemptive or
other right of any other person. Said Six million (6,000,000) common shares
represent 66% of the common shares issued and outstanding as of this date and
time; and, Wasatch Pharmaceutical, Inc. agrees not to dilute the ownership
position of the said Six million (6,000,000) common shares by any forward
split or reverse split without advance written notice to .Lindbergh-Hammar
Associates, Inc.
<PAGE>
2.4 Authority Relative to this Agreement. Wasatch Pharmaceutical, Inc.
has full power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby and to perform any other
obligations required of it hereunder. This Agreement has been duly and validly
executed and delivered by Wasatch Pharmaceutical, Inc. and constitutes the
legal, valid and binding agreement and obligation of Wasatch Pharmaceutical,
Inc. enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting creditors rights generally or by general principles of
equity including principles governing the availability of equitable remedies.
2.5 Consents and Approvals: No Violation. The execution and delivery
of this Agreement by Wasatch Pharmaceutical, Inc. and the consummation of the
transactions contemplated hereby, will not: (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation of Bylaws of
Wasatch Pharmaceutical, Inc. (ii) require any consent, approval, authorization
or permit of, or filing with or notification to, any United States or Foreign
governmental or regulatory authority or other third party; (iii) result in a
breach of the terms, conditions or provisions of, constitute a default under
or cause, permit or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any material
contract; or (iv) conflict with or result in a violation of any provision of
(A) any applicable statute, rule, regulation or ordinance or (B) any material
order, write, injunction judgment, award, decree, grant, concession, grant,
franchise or license applicable to Wasatch Pharmaceutical, Inc. or any
material portion of its properties or assets.
2.6 Financial Statement Matters: Undisclosed Liabilities. Wasatch
Pharmaceutical, Inc. heretofore has delivered to Lindbergh-Hammar Associates,
Inc., via FED-EX, a copy of its June 30, 1996 financials.
2.7 Disclosure. No representation or warranty by Wasatch
Pharmaceutical, Inc. contained in this Agreement nor any oral or written
statement or certificate to be furnished by Wasatch Pharmaceutical, Inc. to
Lindbergh-Hammar Associates, Inc., or its representatives, in connection
herewith or pursuant hereto contains or will contain any untrue statement of a
material fact or omit to state any material fact required to make the
statements herein or herein contained not misleading.
3. Representations and Warranties by Lindbergh-Hammar Associates,
Inc. In order to induce Wasatch Pharmaceutical, Inc. to accept its Preferred
Stock, Lindbergh-Hammar Associates, Inc., hereby represents and warrants to
Wasatch Pharmaceutical, Inc. as follows:
3.1 Organization: Qualification. Lindbergh-Hammar Associates, Inc. is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas. Lindbergh-Hammar Associates, Inc. has full
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as now being conducted, as and in the
places where its assets and properties are now owned, leased or operated and
where such business is now being conducted.
3.2 Capitalization of Lindbergh-Hammar Associates, Inc. The aggregate
number of shares which Lindbergh-Hammar Associates, Inc. has the authority to
issue is one million (1,000,000) shares, classified as follows:
<PAGE>
A) Five hundred thousand (500,000) shares of common stock, no par value,
of which fifty thousand (50,000) shares of Common Stock is issued and
outstanding; and
B) Five hundred thousand (500,000) shares of preferred stock, par value
one thousand Dollars ($1,000.00) per share, bearing a non-cumulative dividend
rate of five (5%) percent per annum, of which fifteen thousand three hundred
fifty (15,350) shares of Preferred Stock is issued and outstanding.
3.3 Status of the Preferred Stock. N/A
3.4 Authority Relative to this Agreement. Lindbergh-Hammar Associates,
Inc. has the full power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby and to perform any
other obligations required of it hereunder. This Agreement has been duly and
validly executed and delivered by Lindbergh-Hammar Associates, Inc. and
constitutes the legal, valid and binding agreement and obligation of
Lindbergh-Hammar Associates, Inc. enforceable against it in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally or by
general principle of equity including principles governing the availability of
equitable remedies.
3.5 Consents and Approvals: No Violation. The execution and delivery
of this Agreement by Lindbergh-Hammar Associates, Inc., and the consummation
of the transactions contemplated hereby, will not: (i) conflict with or result
in any breach of any provision of the Articles of Incorporation or the By-laws
of the Corporate Charter; (ii) require any consent approval, authorization or
permit of, or filing with or notification to, any United States or Foreign
governmental or regulatory authority or other third party; (iii) result in a
breach of the terms, conditions or provisions of, constitute a default under
or cause, permit or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any material
contract; or (iv) conflict with or result in a violation of any provision of
(A) any applicable Statue, ruler, regulation or ordinance; or (B) any material
order, writ, injunction, judgment, award, decree, permit, concession, grant,
franchise or license applicable to Lindbergh-Hammar Associates, Inc., or any
material portion of its properties or assets.
3.6 Financial Statement Matters: Undisclosed Liabilities. Lindbergh-
Hammar Associates, Inc. has heretofore delivered to Wasatch Pharmaceutical,
Inc. the un-audited balance sheet of Lindbergh-Hammar Associates, Inc., dated
April 22, 1996
3.7 Securities Representations. Lindbergh-Hammar Associates, Inc.
hereby makes each and every warranty and covenant contained in the
Subscription Agreement attached as Exhibit "A" hereto.
3.8 Disclosure. No representation or warranty by Lindbergh-Hammar
Associates, Inc. contained in this Agreement nor any oral or written statement
or certificate furnished or to be furnished by Lindbergh-Hammar Associates,
Inc. to Wasatch Pharmaceutical, Inc. or its representatives, in connection
herewith or pursuant hereto contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact required to
make the statements herein or therein contained not misleading and Lindbergh-
Hammar Associates, Inc. has disclosed to Wasatch Pharmaceutical, Inc. all
information which is material to Wasatch Pharmaceutical, Inc. concerning its
purchase of the Stock.
<PAGE>
3.9 Escrow and Safekeeping. Lindbergh-Hammar Associates, Inc. warrants
to Wasatch Pharmaceutical, Inc. that the Wasatch Pharmaceutical, Inc. Shares
will only be held on deposit in an Escrow or Safekeeping Account with an
institution, i.e., Stock Transfer Company, Bank, Brokerage Firm, Attorneys
Trust, Certified Accounting Firm, etc., in the United States of America. The
securities will not be delivered or held in Escrow or Safekeeping by any of
the aforementioned institutions or firms outside the United States of America.
4. Covenants
4.1 Lindbergh-Hammar Associates, Inc. agrees that any insurance company
or companies owned, controlled or managed by it will obtain and maintain in
effect at all relevant times a level of reinsurance coverage which is
equivalent to the level of reinsurance coverage customary in the insurance
industry for businesses similar to that of Lindbergh-Hammar Associates, Inc.
5. Closing
5.1 On or before October 13,1996, N/A
5.2 At the Closing, Wasatch Pharmaceutical, Inc. will deliver a duly
authorized and valid Certificate, or Certificates, evidencing the shares to
Lindbergh-Hammar Associates, Inc.
6. Survival of Representations and Warranties. All representations
and warranties of Lindbergh Hammar Associates, Inc. on the one hand, and
Wasatch Pharmaceutical, Inc. on the other, in this Agreement or in any
document or other papers delivered pursuant to or in connection with this
Agreement shall survive the Closing.
7. Indemnification: Obligations.
7.1 Lindbergh-Hammar Associates, Inc. agrees to indemnify, defend and
hold harmless Wasatch Pharmaceutical, Inc. (and its directors, officers,
employees, agents, subsidiaries and affiliates, and their respective
successors and assigns) from and against all losses, liabilities, damages,
deficiencies, costs or expenses (including reasonable attorneys fees and
disbursements) ("Losses") which any of them shall incur or suffer based upon,
arising out of or, otherwise involving any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Lindbergh-Hammar
Associates, Inc. contained in the Agreement or in any document or other paper
delivered by Lindbergh-Hammar Associates, Inc. in connection with the
transactions contemplated by this agreement which was not waived Wasatch
Pharmaceutical, Inc. prior to Closing.
7.2 Wasatch Pharmaceutical, Inc. agrees to indemnify, defend and hold
harmless Lindbergh-Hammar Associates, Inc., (and its directors, officers,
employees, agents, subsidiaries and affiliates, and their respective
successors and assigns) from and against all losses, liabilities, damages,
deficiencies, costs or expenses (including reasonable attorneys fees and
disbursements) ("Losses") which any of them shall incur or suffer based upon,
arising out of, or otherwise involving any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Wasatch Pharmaceutical,
Inc. contained in the Agreement or in any document or other paper delivered by
Wasatch Pharmaceutical, Inc. in connection with the transactions contemplated
by this agreement which was not waived Lindbergh-Hammar Associates, Inc. prior
to Closing.
<PAGE>
8. Terms for payment of referenced note
8.1 Lindbergh-Hammar Associates, Inc. agrees pay off the above
referenced thirty million ($30,000,000) dollar note on the following basis:
(A) to make payments over a five (5) year period of time except in the
case where the 30 day moving average bid price of the Wasatch Pharmaceutical,
Inc. Common Stock Shares decline in value by 15% or more below the value of $6
per share. In such instance Wasatch Pharmaceutical, Inc. will have the option
to contribute additional shares of Common Stock or extend the five (5) year
period of time to correspond with the decline in the value of the Common
Stock.
(B) to make payments in monthly increments equal to ten (10%) percent of
the Insurance Premium Income generated as a result of the Wasatch
Pharmaceutical, Inc. stock being assigned to the Capital and Surplus Account
of the Insurance Company (i.e., should the Wasatch Pharmaceutical, Inc. shares
receive a certification value of $10,000,000 at the beginning of the month,
and should there be an additional $10,000,000 block of capital in the
Insurance Company Capital and Surplus Account, causing the Insurance Company
to have cumulative Capital and Surplus of $20,000,000, Wasatch Pharmaceutical,
Inc. would be entitled to 10/20 or 50% of the 10% of that month's premium
income).
(C) to pay a minimum payment of $50,000 on the note in the first ninety
days after the date of this agreement, to pay a minimum of $75,000 on the note
in the second ninety days after the date of this agreement and to pay a
minimum of $100,000 on the note in the third ninety days after the date of
this agreement; except in the case should Wasatch Pharmaceutical, Inc. Common
Stock price (based on the 30 day moving average of the closing bid price)
decline by 10 % or more below the $6 per share price. In that case the minimum
payments will be reduced by a like percentage decline as the stock trades
below the $6 price per share.
(D) To provide Wasatch Pharmaceutical, Inc. with Quarterly reports
confirming the Insurance Premium Income related to the Wasatch Pharmaceutical,
Inc. common stock held in the Capital and Surplus Account of the Insurance
company;
(E) To allow (with proper notice) Wasatch Pharmaceutical, Inc.
representatives to inspect the books of the Insurance Company for the express
limited purpose of verifying the Insurance Premium Income related to the
subject stock.
8.2 This Agreement and any additional written agreements called for
herein together contain the entire agreement between Lindbergh-Hammar
Associates, Inc. and Wasatch Pharmaceutical, Inc. with respect to the sale of
six million (6,000,000) shares of Wasatch Pharmaceutical, Inc. common stock to
Lindbergh-Hammar Associates, Inc.; and the issuance of a thirty million
($30,000,000) dollar note by Lindbergh-Hammar Associates, Inc. to Wasatch
Pharmaceutical, Inc. This agreement supersedes all prior arrangements or
understandings with respect thereto, and there have been no oral
representations or warranties and neither party has relied on any
representation not contained herein.
<PAGE>
8.3 This Agreement may be executed in one or more counterparts, all of
which then together shall be deemed one original. If any provision of this
Agreement is declared unenforceable by a court of competent jurisdiction, such
provision shall be enforced to the extent permitted by law, and such
declaration shall not affect the validity of any other provision of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
LINDBERGH-HAMMAR ASSOCIATES, INC., WASATCH PHARMACEUTICAL, INC.
A TEXAS CORPORATION A UTAH CORPORATION
BY /S/ W.A. GARY, PRESIDENT BY /S/ GARY V. HEESCH, PRES.
<PAGE>
PROMISSORY NOTE
$30,000,000 November 1, 1996
FOR VALUE RECEIVED. Lindbergh-Hammar Associates, Inc. ("Maker"), promises to
pay to Wasatch Pharmaceutical, Inc. (the "Holder"), the principal amount of
Thirty Million Dollars.
1. Payment and Term. Payment of the principal amount is due and payable over a
three year term; except in the event should Wasatch Pharmaceutical, Inc.
shares be suspended from trading by the NASD or the SEC. In an event where the
trading of the Wasatch Pharmaceutical, Inc. shares are suspended for any
reason, for fifteen (15) days or more and without a definite reinstatement
date, Lindbergh-Hammar Associates, Inc. will return the Wasatch
Pharmaceutical, Inc. shares and receive a full $5.00 per share credit against
any unpaid balance remaining on this note. Otherwise, payments are to be made
monthly in amounts equal to 10% of the premium income generated as a result of
the stock of Wasatch Pharmaceutical, Inc. being used in the capital and
surplus account of the insurance company (i.e., should the Wasatch
Pharmaceutical, Inc. shares receive a certification value of $30,000,000 at
the beginning of the month, and should there be an additional $30,000,000
block of capital in the Insurance Company Capital and Surplus Account causing
the Insurance Company to have cumulative Capital and Surplus $60.000,000,
Wasatch Pharmaceutical, Inc. would be entitled to 30/60 or 50% of the 10% of
that month's premium income). This Promissory Note is interest free for the
first three years. However, if the full amount of the $30,000,000 is not paid
by the end of the three year period, then for an additional two (2) years
interest at the annual rate of 10% of the deficit will begin to accrue.
Monthly payments received will first be applied to any accrued interest before
applying to the note. At the end of five years the note must be paid in full;
and at the end of the five year period Lindbergh-Hammar Associates, Inc. will
have the option to pay off any remaining balance with cash, or, return Wasatch
Pharmaceutical, Inc. shares to Wasatch Pharmaceutical, Inc. and receive credit
for same on the note at the same value per share that the shares were acquired
from Wasatch Pharmaceutical, Inc. Payment shall be made in lawful money of the
United States to the Holder at 714 East 7200 South, Midvale, Utah 84047; or
such other address or direct wire to a bank as the Holder of this Note may
from time to time designate.
<PAGE>
2. Prepayment. Prepayment in whole or in part at any time and from time to
time of the obligations under this Note may be made without penalty.
3. Events of Default. Upon the occurrence or during the continuance of any one
of more of the events hereinafter enumerated. Holder may forthwith or at any
time thereafter during the continuance of any such event, by notice in writing
to Maker, declare the unpaid balance of the principal to be immediately due
and payable, and the principal shall become immediately due and payable
without presentation, demand, Protest, notice of protest, or other notice of
dishonor, all of which are hereby expressly waived by Maker, such events being
as follows:
(a)Default in the payment of the principal and interest of the Note or
any portion thereof when the same shall become due and payable, unless cured
within ten (10) days after notice thereof by Holder or the holder of such Note
to Maker;
(b) Maker shall file a voluntary petition in bankruptcy or a voluntary
petition seeking reorganization, or shall file an answer admitting the
jurisdiction of the court and any material allegations of an involuntary
Petition filed pursuant to any act of Congress relating to bankruptcy or to
any act purporting to be amendatory thereof, or shall be adjudicated bankrupt,
or shall make an assignment for the benefit of creditors, or shall apply for
or consent to the appointment of any receiver or trustee for Maker, or of all
or any substantial portion of its property, or Maker shall make an assignment
to an agent authorized to liquidate any substantial part of its assets: or
(c) An order shall be entered pursuant to any act of Congress relating
to bankruptcy or to any act purporting to be amendatory thereof approving an
involuntary petition seeking reorganization of Maker, or an order of any court
shall be entered appointing any receiver or trustee of or for Maker, or any
receiver or trustee of all or any substantial portion of the property of
Maker. or a writ or warrant of attachment or any similar process shall be
issued by any court against all or any substantial portion of the property of
Maker, and such order approving a petition seeking reorganization or
appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment, or similar process is not released or bonded within 60
days after its entry or levy.
4.Waivers and Assent to Extension, Indulgence, or Release. Maker hereby waives
presentment, demand, notice, protest, notice of protest, or enforcement of
this Note, assents to any extensions or postponements of the time of payment
or any other indulgence and to the addition or release of any other party or
person primarily or secondarily liable. None of the rights and remedies of the
Holder hereunder are to be waived or affected by failure or delay to exercise
them. All remedies conferred on Holder under this Note shall be cumulative and
none is exclusive, Such remedies may be exercised currently or consecutively
at Holder's option.
5.Attorney's Fee. If this Note is placed with an attorney for collection, or
if suit be instituted for collection, or if any other remedy permitted by law
is pursued by Holder, because of any default in the terms and conditions
herein, then in such event, the undersigned agrees to pay reasonable
attorneys' fees, cost, and other expenses incurred by Holder in so doing.
6. Construction and Governing Law. This Note shall be governed by and
construed in accordance with the laws of the state of Utah.
<PAGE>
LINDBERGH-HAMMAR ASSOCIATES, INC.
BY:/S/ W.A. GARY, President
<PAGE>
WASATCH PHARMACEUTICAL, INC.
714 EAST 7200 SOUTH
MIDVALE, UTAH 84047
NOVEMBER 3, 1996
LINDBERGH-HAMMAR ASSOCIATES, INC
P.O. BOX 1329
WEATHERFORD, TEXAS 76086
TO: THE BOARD OF DIRECTORS
Dear Sirs;
This letter is to confirm that Wasatch Pharmaceutical, Inc. is aware that
Lindbergh-Hammar Associates, Inc. is assigning six million (6,000,000) shares
of Wasatch Pharmaceutical, Inc. common stock to Crestport Insurance Company,
Ltd. for the express purpose of creating financial reserves to write insurance
against. Said shares will be reflected as capital and surplus in the balance
sheet of the Insurance Company.
This assignment of the shares to the Insurance Company is being made without
restriction and with no incumbrance of any kind except in the event that
should the Insurance Company cease operating. Should the Insurance Company
cease operating for any reason, all shares not set aside, sequestered, pledged
or hypothecated otherwise at that time will be conveyed back to Lindbergh
Hammar Associates, Inc. Further, this assignment is being made with the
express written consent and approval of Wasatch Pharmaceutical, Inc.
Also, Wasatch Pharmaceutical, Inc. agrees that this assignment does not
violate any agreement between Wasatch Pharmaceutical, Inc. and Lindbergh-
Hammar Associates, Inc.
/S/ GARY V. HEESCH, PRESIDENT
Acknowledged and Accepted
LINDBERGH-HAMMAR ASSOCIATES, INC.
/S/ W.A. GARY, PRESIDENT
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT, ("Agreement"), dated November 3, 1996, is entered
into by and between Lindbergh-Hammar Associates, Inc. ("Lindbergh"), a Texas
corporation, whose address is P.O. Box 1329, Weatherford, Texas 76086 and
Wasatch Pharmaceutical, Inc. ("Wasatch"), a Utah corporation, whose address is
714 East 7200 South, Midvale, Utah 84047.
Lindbergh is the owner of six million (6,000,000) shares of common stock of
Wasatch purchased November 15, 1996. Lindbergh agrees to extend an option to
Wasatch to repurchase up to one hundred percent (100%) of the six million
(6,000,000) shares of stock in Wasatch that has been purchased by Lindbergh.
The repurchase price of these shares is $5.00 per share. che term of this
option begins three (3) years from the date of this agreement and expires five
years from the date of this agreement; further,
if there is a balance remaining on the $30,000,000 note issued by Lindbergh to
Wasatch when this option is exercised, Wasatch may use and assign that
remaining balance on said note back to Lindbergh as purchase consideration to
repurchase shares at $5.00 per share; the same cost basis as the stock was
acquired from Wasatch with said note, further,
Lindbergh agrees that the stock purchased from Wasatch will be used only in
connection with the insurance business and will not be used as collateral on a
loan or sold to a third party or used for any other purpose during the term
of this option period without the written permission of Wasatch, further,
in the event that the common stock of Wasatch is suspended from trading by the
SEC or NASD because of this agreement or the original stock purchase agreement
for Lindbergh to purchase the stock from Wasatch; or if there is any action
taken against Wasatch or its officers by the SEC, NASD or its shareholders as
a result of this agreement or the original stock purchase agreement, then
Lindbergh agrees to send back the stock certificates representing the six
million (6,000,000) shares and Wasatch agrees to reimburse Lindbergh for any
shares paid for at $5 per share, further
if within one year of the date of this agreement, the average bid price stays
above $11 per share for a six month period and the volume appears strong
enough to support the stock at $11 per share, Lindbergh agrees to return six
million shares of stock back to Wasatch in settlement of debt (applied against
$30,000,000 note) at $5.00 per share.
LINDBERGH-HAMMAR ASSOCIATES, INC., WASATCH PHARMACEUTICAL, INC.,
A TEXAS CORPORATION A UTAH CORPORATION
/S/ W.A. GARY, PRESIDENT /S/ GARY V. HEESCH, PRESIDENT
<PAGE>
EXHIBIT 10.02
BUSINESS CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, made as of this 1st day of June, 1996, by and
between Ephraim Group, 6044 Glendale Dr., Boca Raton, Florida 33433 ,
(hereinafter referred to as "Consultant"), and Wasatch Pharmaceutical Inc.,
("WAPM"), 714 East 7200 South, Midvale, UT, 84047, a Utah corporation,
(hereinafter referred to as "Company"),
WITNESSETH
RECITALS
WHEREAS, the Company desires to obtain consulting services in the field
of health care, public markets and investor public relations and;
WHEREAS, the Company desires to obtain the benefit of the services
Consultant as a financial and business advisor and consultant and in
connection with its business operations, development of products and markets,
joint ventures, mergers, acquisitions or other business and finance
transaction of a similar nature; and
WHEREAS, the is engaged in the development of Skin Fresh methodology for
the treatment of cystic acne, eczema, psoriasis, contact dermatitis, and other
less serious skin disorders, and;
WHEREAS, the Company is seeking to become a public company, and;
WHEREAS, Consultant desires to render such services to the Company;
WHEREAS, Consultant is experienced in the field of health care, any
investor public relations and is well acquainted with security and investment
analysts who concentrate on small emerging growth companies;
NOW THEREFORE, in consideration of the premises the mutual promises and
covenants as herein contained, the parties, (WAPM and Ephraim), have agreed as
follows:
CONDITIONS
1. SERVICES
The services to be rendered by Consultant shall consist of financial and
business advice to the Company which shall include, but not be limited to the
following:
(a) Assisting in securing market makers and listing on recognized
securities markets in the United States including the NASD Bulletin Board,
NASDAQ and other national securities exchanges.
(b) Promoting the interests of the Company and its products and
assisting in widening the shareholder base of the Company.
(c) Assisting in securing treasury funding including private and
public offerings for the Company in order to finance its business plans.
<PAGE>
(d) Locating opportunities for mergers, acquisitions, joint ventures,
and other similar business ventures involving the Company.
(e) Locating potential business opportunities and expansion of the
Company's markets in the United States.
Consultant shall have the sole discretion as to the, manner, and place
in which said advice shall be given, and shall at no time be under any
obligation whatsoever to render a written opinion or report in connection with
any advice it may give to the Company. Consultant shall devote to the Company
such time as Consultant may deem necessary, and that amount of time reasonably
requested by the Company, and shall not by this agreement be prevented or
barred from rendering services of the same or similar nature, as herein
described, or services of any nature whatsoever for or on behalf of persons,
firms, or corporations other than the Company, except persons, firms, or
corporations that compete with the Company, unless the Consultant receives
prior written approval by the Company.
2. TERM
This Agreement shall remain in full force and effect for an initial
period of twenty-four(24) months from the date hereof with an option to extend
the terms and conditions hereof for an additional six (6) months upon written
notice by WAPM to EPHRAIM at least ten (10) business days prior to the end of
the initial twenty-four (24) months at the address first written hereinabove.
This agreement will not be exclusive to or from either party.
3. COMPENSATION
(a) In consideration of the services to be performed by EPHRAIM for
WAPM, and by way of full compensation to EPHRAIM, WAPM agrees to issue in the
name of EPHRAIM options to purchase WAPM common shares in the amount and
prices listed below:
200,000 WAPM shares at $0.75 per share
200,000 WAPM shares at $1.50 per share
WAPM further agrees to register with the Securities and Company Exchange
Commission all stocks, options and their underlying common stocks, as soon as
WAPM is cleared for trading by the NASD. WAPM form will file with the SEC the
appropriate registration statement to cover shares to be purchased in stages
or as a group at EPHRAIM's sole option. These options will remain execrable
for a period of three (3) years.
(b) The Company, as compensation to Consultant for Services shall pay
to the Consultant a monthly retainer of $3,000.00 per month and communication
expenses not to exceed $1,000.00 per month unless the Consultant receives
prior written permission from the Company. The Company shall not be required
to otherwise reimburse consultant for any out-of-pocket disbursements and
expenses that it may reasonably incur in connection with Services rendered.
(c) 400,000 144 shares in WAPM stock at a cost base of $.01 per share.
To be issued prior to WAPM stock trading on an exchange.
<PAGE>
4. RELATIONSHIP OF PARTIES
(a) EPHRAIM , which shall include all of its employees, is an
independent contractor and not an employee of WAPM, and as such no
employer/employee directly relationship has been created by this agreement,
and all documents or items to be released by EPHRAIM shall first be approved
by WAPM and WAPM legal counsel. EPHRAIM assumes no liability for the
statements contained in any press releases which had been previously approved
by WAPM. EPHRAIM will report the shares received hereunder as compensation
due under this Agreement and will advise WAPM as to the value of those shares
and shall pay any applicable taxes thereon.
(b) WAPM agrees to indemnify and hold harmless EPHRAIM for
misstatements in all literature released or distributed by EPHRAIM provided
WAPM previously approved same prior to their release.
5. CONFIDENTIALITY.
EPHRAIM agrees not to disclose any WAPM Confidential Information and to
take all reasonable precautions to prevent unauthorized dissemination of any
Confidential Information gained during and after this Agreement. EPHRAIM
agrees not to use any WAPM Confidential Information for its own benefit of for
the benefit of anyone other than WAPM. WAPM Confidential Information means
information relating to the research, development, products, methods of
manufacture, trade secrets, business plans, customers, finances, and personnel
data related to the business affairs of WAPM. Confidential Information does
not include any information: (a) which EPHRAIM knew before WAPM disclosed it;
(b) which has become publicly known through no wrongful act of EPHRAIM; or
which EPHRAIM developed independently as evidenced independently as evidenced
by appropriate documentation.
6. NON-COMPETITION
To induce the Company to enter into this Agreement, Consultant hereby
covenants and agrees to the terms and conditions of the restrictive covenants
set forth herein which are included to prevent the appropriation by Consultant
of the value inherent in the Company's business.
(a) Consultant covenants and agrees that during the term of this
Agreement Consultant shall not or indirectly for his own account or either, as
agent, servant, or employee, or as a shareholder of any corporation or member
of any firm, own, manage, operate, join, control, be employed by, or
participate in the ownership, management, operation, or control of any
individual, entity, or business that conducts a business that is now directly
or indirectly in competition with the Company.
7. NON-SALE PROVISION.
The parties hereto, (WAPM and EPHRAIM), hereby represent to the other
that the services contracted for and to be rendered hereunder do not involve,
or are not in any way, connected to the offer or sale of securities in any
capital raising transaction.
8. GOVERNING LAWS.
This Agreement shall be interpreted and governed by the laws of the
state of Florida.
<PAGE>
9. NOTICES.
All notices to be delivered hereunder shall be deemed given if addressed
to the parties at the addresses first set forth above.
10. TERMINATION.
(a) Termination shall occur at the conclusion of the time specified
above, or in the event this Agreement or performance hereunder shall
contravene public policy, or constitute a material violation of any law or
regulation of any federal or state government agency, or either party becomes
insolvent, or is adjucated bankrupted, or seeks the protection of any
provision of the National Bankruptcy Act, or either party is enjoined, or
consents to, any order relating to any violation of any state or federal
securities law, then this Agreement shall be terminated, and be deemed null
and void upon such termination; neither party shall be obligated hereunder and
neither party shall have any further liability to the other.
(b) Either party may terminate this Agreement upon breach by the
other party of any material provisions of this Agreement.
11. ARBITRATION
Any controversy or claim arising out of or related to this Agreement
shall be settled by arbitration in accordance with the rules and under the
auspices of the American Arbitration Association: and any arbitration shall be
conducted in the Palm Beach County, Florida. Any findings of the arbitration
will be final and enforceable in state and or federal court.
12. RESIDENCY
EPHRAIM GROUP anticipates incorporation in the state of Florida.
13. ENTIRE AGREEMENT; MODIFICATION.
(a) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior negotiations, understandings, agreements, arrangements, and
understandings, both oral and written, among the parties hereto with respect
to such subject matter.
(b) AMENDMENT
This Agreement may not be amended or modified in any respect, except by
the mutual written agreement of the parties hereto.
(c) WAIVERS AND REMEDIES
The waiver by any of the parties hereto of any other party's prompt and
complete performance, or breach or violation, of any provision of this
Agreement shall not operate nor be construed as a waiver of any subsequent
breach or violation, and the waiver by any of the parties hereto to exercise
any right or remedy which it may possess hereunder shall not operate nor be
construed as a bar to the exercise of such right or remedy by such party upon
the occurrence of any subsequent breach or violation.
<PAGE>
(d) SEVERABILITY
The invalidity of any one or more of the words, phrases, sentences,
clauses, sections, or subsections contained in the Agreement shall not effect
the enforceability of the remaining portions of this Agreement or any part
hereof, all of which are inserted conditionally on their being valid in law,
and, in the event that any one or more of the words, phrases, sentences,
clauses, sections, or subsections contained in this Agreement shall be
declared invalid by a court of competent jurisdiction, this Agreement shall be
construed as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, section or sections, or subsection or
subsections had not been inserted.
14. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, all of which
together shall constitute only one Agreement.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
signed and their respective seals to be hereunto affixed the day and year
above written.
AGREED AND ACCEPTED THIS 1st DAY OF JUNE, 1996.
WASATCH PHARMACEUTICAL, INC.
/S/ Gary Heesch
President, Chief Executive & Director
EPHRAIM GROUP
/S/ Ray M. Bishop
President, Chief Executive & Director
<PAGE>
<PAGE>
ADDENDUM TO AGREEMENT BETWEEN
EPHRAIM GROUP AND WASATCH PHARMACEUTICAL, INC.
DATED JULY 1, 1996
It is agreed between the parties that monthly payments for consulting
fees as outlined in the agreement shall be considered an advance against
future earnings from the sale of Wasatch Pharmaceutical stock to be paid back
to Wasatch no later than three years from the date of this agreement. If the
business of Wasatch is not successful and this lack of performance keep the
market value of the stock below $5 per share for at least one year of the
three years, or if Wasatch files for bankruptcy, then Ephraim Group has no
obligation to repay the consulting fees. Payments for consulting and expenses
will be paid to Ephraim Group monthly if funds are available. If funds are
not available, then the obligation will accrue and will be paid current as
soon as funds are available.
It is agreed and understood by both parties, that the 144 stock issued
to Ray Bishop and Jim Miller for services rendered shall be held for a period
of two years, and that this holding period shall, in no way, be circumvented
by any means available within the laws of the SEC unless written permission is
granted by authorized officers of Wasatch Pharmaceutical, Inc.
By receiving shares from Wasatch Pharmaceutical, Inc., Ephraim Group and
its principles James Miller and Ray Bishop agree to provide sufficient market
makers to qualify for trading on NASDAQ; and further agree to protect the
integrity of Wasatch securities,, and its reputation within the securities
industry, to operate within the SEC rules and regulations, to not misrepresent
the company, and to honor all other responsibilities as already outlined in
the full agreement. Failure to perform these functions, to the best of their
ability, shall cause all stocks issued in their name to be returned to Wasatch
Pharmaceutical, Inc. Both parties agree that such action shall be determined
by a nationally recognized arbitration mediator selected by Wasatch
Pharmaceutical, Inc., with which there has been no prior business contacts
made.
Under the COMPENSATION section on page 3 of the contract, the options
are changed as follows:
400,000 WAPM shares at $.25 per share
400,000 WAPM shares at $.50 per share
400,000 WAPM shares at $.625 per share
This ADDENDUM is agreed and accepted by the parties signing below.
WASATCH PHARMACEUTICAL, INC. EPHRAIM GROUP
/S/ Gary V. Heesch, President /S/ Ray M. Bishop, President
<TABLE> <S> <C>
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<NAME> WASATCH PHARMACEUTICAL, INC.
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