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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to_________________.
Commission file number: 000-22899
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 Outstanding as of September 30, 1997.
$.001 9,910,303
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Registrant's unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and foot notes necessary for a complete presentation of
the financial position, results of operations, cash flows, and stockholder's
equity in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Registrant as of September 30, 1997,
and the related audited balance sheet of the Registrant as of December 31, 1996,
the unaudited related statements of operations and cash flows for the three
month and nine month periods ended September 30, 1997 and 1996 and from
inception (September 7, 1989) through September 30, 1997, are attached hereto
and incorporated herein by this reference.
Operating results for the quarter and nine months ended September 30,
1997 are not necessarily indicative of the results that can be expected for the
year ending December 31, 1997.
<PAGE>
WASATCH PHARMACEUTICAL, INC.
( A Development Stage Company)
Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
(Unaudited)
CURRENT ASSETS
Cash $ 200 $ 11,991
Accounts receivable - trade 7,090 2,925
Accounts receivable - stockholder 17,667 6,600
Inventory 6,884 8,586
Prepaid expenses 4,848 -
-------------- ----------------
Total Current Assets 36,689 30,102
-------------- ----------------
PROPERTY AND EQUIPMENT
Oil and gas properties,
successful efforts method 3,790,478 3,719,536
Furniture and office equipment 41,490 39,749
-------------- ---------------
3,831,967 3,759,285
Less accumulated depreciation (24,143) (15,668)
-------------- ---------------
Net Property and Equipment 3,807,824 3,743,617
-------------- ---------------
OTHER ASSETS
Deferred offering costs 60,124 -
Miscellaneous 875 1,350
Total Other Assets 60,999 1,350
--------------- ----------------
TOTAL ASSETS $ 3,905,512 $ 3,775,069
=============== ================
The accompanying footnotes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
( A Development Stage Company)
Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable - trade $ 19,510 $ 168,159
Accrued interest 223,270 161,226
Other accrued expenses 81,360 44,109
Notes and advances currently due
Short-term shareholder loans 49,988 -
Debentures payable 50,000 -
Vendors 112,333 117,333
Stockholders 854,388 794,387
--------------- --------------
Total Current Liabilities 1,563,848 1,285,214
LONG TERM LIABILITIES
Notes payable (less current portion) - 5,000
---------------- --------------
TOTAL LIABILITIES 1,563,848 1,290,214
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 1,000,000
shares authorized 49,258 issued & outstanding 49 49
Common stock, $0.001 par value, 50,000,000
shares authorized, 9,901,010 shares and
6,635,956 shares issued and outstanding. 9,910 6,636
Additional paid-in capital 5,453,715 4,362,549
Accumulated development stage deficit (2,037,011) (1,584,379)
---------------- --------------
3,426,665 2,784,855
Less notes receivable shares issued (1,085,000) (300,000)
---------------- --------------
Total Stockholder's Equity (Deficit) 2,341,665 2,484,855
---------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 3,905,512 $ 3,775,069
================ ==============
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
PREFERRED ADDITIONAL ACCUMULATED TOTAL
STOCK COMMON STOCK PAID-IN DEVELOPMENT STOCKHOLDERS
AMOUNT SHARES AMOUNT CAPITAL STAGE DEFICIT EQUITY
------ ------ ------ ------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1996 $ 2,463 6,635,956 $ 6,636 $ 4,360,135 $(1,584,379) $ 2,784,855
Retroactive adjustment to the merged
Preferred Stock Amount (2,414) - - 2,414 - -
------ ---------- ------- ----------- ----------- -----------
Stockholders equity-per committed contracts 49 6,635,956 6,636 4,362,549 (1,584,379) 2,784,855
Stock subscription notes outstanding - (300,000) (300) (299,700) - (300,000)
------- -------- ---- -------- ---------- --------
Net equity December 31, 1996 - Restated $ 49 6,335,956 $ 6,336 $ 4,062,849 $(1,584,379) $ 2,484,855
=== ==== ========== ========= ======= =========== =========== ===========
Stockholders equity-per committed contracts
Balance December 31, 1996 $ 49 $6,635,956 $ 6,636 $ 4,362,549 $(1,584,379) $ 2,784,855
Proceeds from the exercise
of stock options
Cash - 125,000 125 124,875 - 125,000
Notes 500,000 500 319,500 - 320,000
Stock issued in connection with:
Past services of officers and directors - 2,200,000 2,200 547,800 - 550,000
Acquisition of West Virginia oil &
gas properties - 151,000 151 37,599 - 37,750
Services rendered in connection with
raising development stage funds - 180,000 180 44,820 - 45,000
Note extensions 16,666 17 4,150 4,167
Services rendered for operations 30,000 30 7,470 7,500
Shares returned with cancelled contract (50,000) (50) (50)
Proceeds from sale of shares 121,681 122 42,467 42,588
Cost of funds raised (37,514) (37,514)
Net loss for the Nine months ended
September 30, 1997 (452,631) (452,631)
------ -------- ------- --------- -------- --------
Stockholders equity per committed contracts 49 9,910,303 9,910 5,453,715 (2,037,010) 3,426,664
Stock subscription notes outstanding - (2,915,000) (2,915) (1,082,085) - (1,085,000)
----- ---------- ------ ---------- ---------- ----------
Balance September 30, 1997 $ 49 6,995,303 $6,995 $ 4,371,630 $(2,037,010) $ 2,341,664
====== ========= ====== =========== =========== ===========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
FOR THE FOR THE INCEPTION
NINE MONTHS ENDED THREE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996 1997
---- ---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C> <C>
Professional fee income $ 27,498 $ 23,389 $ 10,760 $ 6,785 $ 173,364
Product sales 47,351 65,387 16,104 18,981 353,429
Oil and gas sales 5,168 - 1,712 - 8,189
----- ------ ----- ------ -----
TOTAL REVENUES 80,016 88,776 28,576 25,766 534,981
------ ------ ------ ------ -------
OPERATING EXPENSES
Cost of products sold 4,625 5,519 1,958 1,879 41,919
Salaries 103,283 78,300 44,143 22,085 286,362
Employee leasing - - - - 218,745
Payroll taxes 10,156 8,343 4,121 1,935 30,093
Physicians fees 29,800 42,755 8,800 8,915 184,268
Rent 26,803 33,158 10,539 8,773 128,101
Advertising 6,072 11,015 4,129 4,713 212,374
Depreciation 3,943 3,576 558 1,592 21,143
Other 1,474 - (666) - 1,474
----- ------ ---- ------ -----
Total Operating expenses 186,157 182,666 73,581 49,892 1,124,480
GENERAL& ADMINSTRATIVE EXPENSE 261,227 197,199 77,679 49,012 1,121,858
OIL AND GAS EXPENSES 17,326 - 5,364 - 29,163
------ ------- ----- ------ ------
TOTAL EXPENSES 464,710 379,865 156,624 98,904 2,275,501
------- ------- ------- ------ ---------
INCOME (LOSS) BEFORE OTHER
INCOME (EXPENSE) AND THE
PROVISION FOR INCOME TAXES (384,694) (291,089) (128,047) (73,138) (1,740,520)
-------- -------- -------- ------- ----------
OTHER INCOME (EXPENSES)
Interest expense (74,023) (55,162) (27,019) (19,041) (252,049)
Other - Net 6,085 (2,667) (68) (1,126) (44,441)
----- ------ --- ------ -------
Total Other Expenses (67,937) (57,829) (27,087) (20,167) (296,489)
------- ------- ------- ------- --------
NET INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (452,631) (348,918) (155,134) (93,305) (2,037,009)
Provision for Income Taxes - - - - 0
-------- -------- -------- ------- ----------
NET INCOME (LOSS) $(452,631) $(348,918) $(155,134) $(93,305) $(2,037,009)
========= ========= ========= ======== ===========
NET INCOME (LOSS) PER SHARE
OF COMMON STOCK $ (0.069) $ (0.110) $ (0.023) $ (0.030) $ (0.649)
========= ========= ========= ======== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 6,595,952 3,171,982 6,828,901 3,110,167 3,140,516
========= ========= ========= ========= =========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
FROM
FOR THE FOR THE INCEPTION
NINE MONTHS ENDED THREE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPT. 30,
1997 1996 1997 1996 1997
---- ---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $ (452,631) $ (348,918) $ (155,134) $ (93,305) $(2,037,009)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used)
by Operating Activities
Depreciation 8,475 5,169 3,003 1,593 24,143
Depreciation of retired assets - - - - 2,698
Expenses paid by shareholder - 756 - - 46,737
Increase (decrease) in working capital 105,268 78,699 34,543 27,040 460,651
Loss on asset disposal - - - - 3,513
------- ------ ------ ------ -----
Net Cash Provided (Used) by
Operating Activities (338,887) (264,294) (117,589) (64,672) (1,499,266)
-------- -------- -------- ------- ----------
CASH FLOWS FROM INVESTING (88,501)
ACTIVITIES
Purchase of fixed assets (34,932) (755) 109 - (60,892)
(Increase) decrease in other assets (24,835) - (17,634) - (25,435)
------- ----- ------- ------ -------
Net Cash Provided (Used) by
Investing Activities (59,768) (755) (17,525) - (86,328)
------- ---- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 154,987 127,100 99,988 45,000 1,189,439
Repayment of loans (5,000) - - - (130,947)
Expenses paid with common shares 17,543 - 12,093 - 23,508
Proceeds from sale of common shares 42,589 - 42,589 - 180,089
Capital contributed by shareholder - 137,625 - 20,125 154,800
Collection of share subscriptions 85,000 - 5,000 - 85,000
Common shares exchanged for debt - - - - 12,318
Preferred shares exchanged for debt - - - - -
Exercised stock options 125,000 - 0 - 125,250
Redemption of common shares - - - - (20,409)
Costs of raising funds (33,253) - (32,498) - (33,253)
------- ------ ------- ------ -------
Net Cash Provided (Used) by
Investing Activities 386,865 264,725 127,171 65,125 1,585,794
------- ------- ------- ------ ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (11,790) (324) (3,169) 453 200
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 11,990) 777 3,368 - -
------ --- ----- ----- -----
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 200 $ 453 $ 200 $ 200 $ 200
======== ====== ======== ======= =========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows
Supplemental Cash Flow Information
(Unaudited)
NINE MONTHS ENDED THREE MONTHS ENDED INCEPTION
SEPTEMBER 30, SEPTEMBER 30, SEPT. 30,
1997 1996 1997 1996 1997
---- ---- ---- ---- ----
Changes in Working Capital
<S> <C> <C> <C> <C> <C>
(Increase) decrease in receivables $ (4,165) $ (1,470) $ (2,577) $ (714) $ (7,090)
(Increase) decrease in related party receivable (11,067) (1,000) 11,067 3,850 (17,667)
(Increase) decrease in inventory 1,702 (766) 5,684 1,878 (6,884)
(Increase) decrease in prepaid expenses (4,848) - (4,848) - (4,848)
(Increase) decrease in deposits - 135 - 135 -
Increase (decrease) in accounts payable 24,351 17,006 32 (8,545) 192,510
Increase (decrease) in accrued interest 62,044 53,996 25,185 19,020 223,270
Increase (decrease) in other accruals 37,251 10,798 - 11,416 81,360
------ ------ ------ ------ ------
Increase (Decrease) in Working Capital $ 105,268 $ 78,699 $ 34,543 $ 27,040 $ 460,651
========== ========== ========== ========= =========
Supplemental disclosure of cash flow
Cash paid for interest $ 10,144 $ - $ - $ - $ 21,748
========== ========== ========== ========= =========
Cash paid for taxes $ - $ - $ - $ - $ -
========== ========== ========== ========= =========
Supplemental schedule for non-cash
investing and financial activities
Common shares issued for assets
Clinical equipment $ - $ - $ - $ - $ 13,790
Oil and gas properties 37,750 - - - 3,757,286
Deferred offering costs 39,125 - 18,500 - 39,125
Prepaid marketing costs 344 - - - 344
Preferred stock - - - - 750
Common share subscriptions and notes 870,000 - 20,000 - 1,170,000
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1997 and December 31, 1996
NOTE 1 - NATURE AND HISTORY OF THE BUSINESS
These consolidated financial statements are those of Wasatch
Pharmaceutical, Inc. (A Development Stage Company) (the Registrant or Company),
and its wholly owned subsidiaries, Medisys Research Group, Inc. and American
Institute of Skin Care, Inc. The Company's primary business segment, as
described below, is in the skin care industry. The merged Registrant was
initially engaged in oil and gas exploration and development and the Company
returned to that line of business with a non-operator investment in oil and gas
properties in 1996.
In December 1995, the Company (formerly Ceron Resources Corporation; a
dormant Delaware Corporation) merged with Medisys Research Group, Inc. and its
wholly owned subsidiary, American Institute of Skin Care, Inc. In January 1996,
the Company changed it corporate domicile to Utah.
On December 29, 1995 Wasatch Pharmaceutical, Inc. (Wasatch) and Medisys
Research Group, Inc. (Medisys) completed an Agreement and Plan of Reorganization
whereby Wasatch issued 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 and, therefore, Medisys is
treated as the acquiring entity. Wasatch is the acquiring entity for legal
purposes and Medisys is the surviving entity for accounting purposes.
Medisys Research Group, Inc. (Medisys), was incorporated on September
7, 1989 (the inception of the Company's development stage) as a Utah Corporation
for the purpose of developing treatment programs for various skin disorders.
American Institute of Skin Care, Inc. (AISC), was incorporated on January 21,
1994 as a Utah corporation to administer the skin treatment programs developed
by Medisys.
NOTE 2 - CHANGES IN PRESENTATION
Certain financial presentations for the third quarter and the first
nine months of 1996 have been reclassified to conform to the 1997 presentation.
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 1997 and December 31, 1996
NOTE 3 - GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the comparative calendar nine
and three month periods of 1997 and from inception through September 30, 1997
are as follows:
<TABLE>
<CAPTION>
Nine Months Three Months Inception to
1997 1996 1997 1996 Sept.,1997
-------------- -------------- ---------------- ------------ -----------------
-----------------
<S> <C> <C> <C> <C> <C>
Officer's Compensation $122,558 $106,580 $ 41,466 $ 49,450 $ 505,142
Legal and accounting 27,724 33,158 5,426 9,079 202,481
Travel 13,685 17,684 3,615 7,057 48,045
Telephone 10,968 11,298 3,308 6.900 44,302
Insurance 577 4,564 577 1,186 14,959
Postage 3,766 1,014 3,766 1,014 11,761
Payroll Tax 3,576 0 3,576 0 15,673
Other 78,373 22,903 15,944 (21,806) 279,495
============== ============== ================ ============ =================
$261,227 $ 197,199 $ 77,678 $ 52,878 $ 1,121,858
============== ============== ================ ============ =================
</TABLE>
NOTE 4 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern. Such principles
contemplate 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 as a
going concern. The Company is negotiating an agreement to raise short-term
funding and plans to seek long-term funding through a stock offering or private
placement. Management believes that sufficient funding will be raised to meet
the operating needs of the Company during the remainder of development stage.
NOTE 5 - COMMON STOCK
During the third quarter of 1997, the following common share and common
share option transactions occurred (See the 10Q's for the quarters ended March
31 and June 30, 1997 for transactions occurring during those periods):
a. Issued 104,000 restricted common shares were issued to consultants
for services rendered. b. Issued 16,666 restricted common shares to
creditors for extensions of due dates. c. Issued 121,681 restricted
common shares for cash consideration totaling $42,588 d. Options for
500,000 common shares were exercised and notes for the exercise price
totaling $320,000 were recorded.
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
OVERVIEW
Skin Care Business
The Company has proprietary technology for the treatment of various
common skin disorders, including acne, eczema, and psoriasis. After completing
successful clinical studies, prototype treatment 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 a network of 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 three 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 brings into question the Company's ability to continue
without substantial increases in revenues or additional long-term financing.
The Company is seeking funding to open two additional clinics in major
metropolitan areas and to launch a major advertising and marketing campaign to
support each of its clinics. Management feels that through advertising, working
with health insurance companies and HMOs and supplemented by a physician
referral program, treatment revenues could be increased substantially thereby
improving the 10% to 15% of clinic patient capacity currently being experienced.
During the nine months of 1997, skin care revenues for the prototype
clinics were down 10% and expenses increased 2% when compared to the prior year.
Part of the effect on the revenue decrease and expense increase was attributable
to the Pocatello, Idaho clinic that was closed in the first quarter of 1996.
Oil and Gas Operations
In the fourth quarter of 1996, the Company acquired a 25% "net profits"
interest in proven oil and gas reserves in West Virginia. In order to realize
the full potential for this asset, substantial resources will be required to
improve production and to recomplete previously drilled oil and gas wells. The
Company's joint interest operator is in the process of raising the funds to
commence the redevelopment process that is scheduled for the latter part of
1997. It is not management's intention to be involved in raising funds for or
the development of this mineral interest.
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had a working capital deficit of
$1.5 million which is up $148,000 from what it was at the end of the second
quarter and is a 21% increase from the prior year. The Company's operating loss
for the nine months ending September 30, 1997 was $452,600. The loss was funded
through an extension of credit terms by the Company's vendors and note-holders
($85,000), the sale of stock ($215,500), and additional net borrowing
($150,000).
For the three months ended September 30, 1997, the clinics' operating
loss increased $22,600 to $46,700 when compared to the same quarter last year.
From inception to date, the majority of the expenses have been associated with
the development of the treatment process for the clinics.
During the nine months of 1997, the Company incurred approximately
$117,200 in costs associated with completing the oil and gas acquisition and in
efforts to raise additional operating capital. Those costs included $40,400 in
cash expenditures and the issuance of shares of common stock valued at $76,800.
RESULTS OF OPERATIONS
Skin Care Business
During the nine months ending September 30, 1997, the Company
had revenues of $74,800 compared to $88,700 during the same nine months of 1996.
There are two reasons for this decrease in revenue. During the first three
months of 1996, the Company had three prototype clinics generating revenue from
operations. The clinic in Pocatello, Idaho was closed in February, 1996 and the
operating hours of the Provo clinic were severally curtailed. The clinic
operating expenses have remained approximately the same in comparable nine month
periods of 1997 and 1996. During the three months ended September 30, 1997, the
clinic operating expenses increased $24,000 because of increased personnel
training costs in anticipation of opening additional clinics. The Company
anticipates that the losses will continue until funding is obtained which will
be used to launch the advertising marketing and development program.
Oil and Gas Operations
During 1997, there has been no significant progress in the
redevelopment of the Company's West Virginia oil and gas properties. Revenues
and expenses from producing wells were minimal and the loss from operations
totaled approximately $12,100 for the nine months ended September 30, 1997.
Investment in the oil and gas property has increased $70,900 since the beginning
of the year because of the costs to close the transaction and comply with SEC
rules.
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
General and Administrative Expenses
Increases in General & Administrative Expenses during the third quarter
were up $64,000 when compared to the prior year and are attributable to the
reasons set forth in the following discussion. Increases in general and
administrative expenses during the nine months ended September 30, 1997, when
compared to the same period in the prior year, are attributable to increased
officer's compensation, approximately $16,000, that was inordinately low in the
prior year and the Company's other corporate expenses which increased
substantially ($55,000) due to increased administrative expenses that were
associated with raising capital and the cost of being a fully reporting public
entity.
<PAGE>
PART II - OTHER INFORMATION
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.
Attached is the financial data schedule required by paragraph
(b)(27) of this item. Attached is a Debenture dated September
24, 1997 which is Exhibit #6.4.
(b) Reports on Form 8-K
A Form 8-K was filed on October 1, 1997 for the purpose of
reporting under Item 9 the sale of convertible debentures
pursuant to Regulation S.
<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 15, 1997
/S/ David K. Giles
Principal Accounting Officer
THIS CONVERTIBLE DEBENTURE AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"). ANY RESALE THEREAFTER MUST BE PURSUANT TO REGISTRATION UNDER THE
ACT OR AN AVAILABLE EXEMPTION.
WASATCH PHARMACEUTICAL, INC.
A UTAH Corporation
Dated: September 24, 1997
NO. 1
WASATCH PHARMACEUTICAL, INC., a UTAH corporation (the "Corporation"),
is indebted and, for value received, promises to pay to the order of ORIENTAL
NEW INVESTMENTS, LTD., (the "Holder") on March 24, 1998 (the "Due Date"),
(unless this Debenture shall have been sooner called for redemption, extended by
the Holder or converted as provided herein) upon presentation of this Debenture,
Fifty thousand dollars, ($50,000)(the "Principal") and to pay interest on the
Principal as provided herein.
The Corporation convenants, promises and agrees as follows:
1. Interest. Interest on this convertible Debenture shall accrue form
September 24, 1997, (the date of payment of the Principal to the Corporation) at
the rate of ten percent (10%) per annum until paid or converted. Interest shall
be due and payable to the Holder quarterly, beginning November 30, 1997.
However, in the event of default, interest shall accrue at the rate of twenty
percent (20%) per annum from the date of default.
All accrued and unpaid interest shall be payable on the Due Date. All
payments of principal and interest or principal or interest shall be made the
Holder at offices of the Holder, c\o SAGEM, Rue Des Baines 35, 1205 Genevea,
Switzerland, or at such other place and may be designated in writing by the
Holder.
2. Redemption.
2.1 This Debenture may be redeemed at the option of the
Corporation in whole or in part to the Due Date at any time and from time to
time without penalty or premium. The Corporation may exercise its right to
redeem prior to maturity by giving notice (the "Redemption Date"). The
Redemption Date shall be at least 30 days and not more than 60 days after the
date of the Redemption Notice.
2.2 On the Redemption Date, the Corporation shall pay all
accrued and unpaid interest on the Debenture up to and including the Redemption
Date and shall pay to the holder hereof a dollar amount equal to the Redemption
Amount.
2.3 The forgoing Notice of Redemption notwithstanding, the
Holder may convert this Debenture and accrued interest into common stock of the
Corporation pursuant to the Holder's Rights of Conversion as set forth below.
3. Conversion. At any time after the date the Principal of the Debenture
was paid to the Corporation, the Holder may elect to convert the Principal and
accrued interest (to the date prior to the date Notice of Conversion is given to
the Corporation), in whole or in part, or solely the accrued interest in whole
<PAGE>
or in part into as many shares of the common stock of the Corporation as equals
the dollar amount to be converted divided by fifty percent (50%) of the average
closing bid price for common stock of the Corporation as reported by the NASD
Electronic Bulletin Board for the ten (10) days prior to the date the Holder's
Notice of Conversion is received by the Corporation.
3.1 Conversion Notice. The Holder may exercise the above
conversion rights by giving written notice (the Conversion Notice) to the
Corporation of the exercise of such right. The Conversion Notice must be
received by the Corporation at least one business day prior to the Conversion
Date and will state the ten day average closing bid price, the amount of
principal and/or interest being converted and the delivery instructions for
certificates registered in the name of the Holder.
3.2 Prohibition on Stop Transfer Instructions. The Corporation shall not issue
stop transfer instruction to its transfer agent with respect to certificates to
the issued upon conversion. In addition, the Corporation shall not place a
restrictive legend on the certificates to be issued upon conversion after
expiration of the Regulation S Restricted Period for any reason other than the
Corporation's reasonable good faith belief that the representations and
warranties made by the Lender or contained in the Holder's Notice of Conversion
are untrue.
3.2 Registration Rights. If within ten business days of receipt
of a Notice of Conversion, the Corporation fails to issue certificates for the
Shares required by such Notice or issues certificates with a restrictive legend
after the expiration of the Regulation S Restricted Period, for any reason other
than the Corporation's reasonable good faith belief that the representations and
warranties made by the Lender or contained in the Holder's Notice of Conversion
are untrue, then the Corporation shall be required at its expense and at the
request of the Holder to effect the registration of the Shares under the Act and
relevant Blue Sky laws as promptly as is practicable and in no event later than
90 days from the date of the Holder's demand therefor. The Corporation and the
Holder shall cooperate in good faith in connection with the furnishing of
information required for such registration and the taking of such other actions
as may be legally or commercially necessary in order to effect such
registration. The Corporation shall file a registration statement within 30 days
of Holder's Notice of Conversion and shall use its best efforts to cause such
registration statement to become effective as soon as practicable thereafter.
Such best efforts shall include, but not be limited, promptly responding to all
comments received from the staff of the Securities and Exchange Commission,
providing Holder's counsel with a contemporaneous copy of all written
communications from and to the staff of the Securities and Exchange Commission
with respect to such registration statement and promptly preparing and filing
amendments to such registration statement which are responsive to the comments
received from the staff of the Securities and Exchange Commission. Once declared
effective by the Securities and Exchange commission, the Corporation shall cause
such registration statement to remain effective until the earlier of (i) the
sale by the Lender of all Shares registered of (ii) 120 days after the effective
date of such registration statement.
3.3 Registration in the Event of Amendments to Regulation S. In
the event that Regulation S is amended in such a manner as to increase the
Restricted Period for more that its present time period or to otherwise
substantially diminish the liquidity of the Holder's investment as determined in
its sole discretion, the Holder shall have the option to require the Corporation
to register the Shares in the manner as set forth in (m) above.
2
3.4 Penalty for Failure to Convert or File Periodic Reports. If
within ten business days of receipt of a Notice of Conversion, the Corporation
fails to issue certificates for the Shares required by such Notice or issues
certificates with a restrictive legend after the expiration of the Restricted
Period, for any reason other than the Corporation's reasonable good faith belief
that the representations and warranties made by the Lender or contained in the
Holder's Notice of Conversion are untrue, or fails to file all periodic reports
with the Securities and Exchange Commission required of it or fails to file the
Form 8-K required by this sale of this Debenture, then the Corporation shall pay
to the Holder by wire transfer, as liquidated damages for such failure and not
as a penalty, and amount in cash equal to the lesser of $12,500 or twenty-five
percent (25%) of the outstanding Principal and accrued interest. Such liquidated
damages shall be added to the Principal and accrued interest of the Convertible
Debenture and subject to the Default Provisions thereof. However, accrual or
payment of such liquidated damages shall not relieve the Corporation from its
obligations to register the Shares pursuant to paragraph 3.2 above.
4. Default. Upon the occurrence of any one or more of the Events of
Default set forth below and subject solely to the Corporation's actual cure of
the default, the Holder at its option and in its sole discretion, may declare
the unpaid Principal and accrued interest immediately due and payable as
completely as if said aggregate sum was originally agreed to be paid at such
time. The declaration of a default shall be without demand for payment, which is
hereby expressly waived by the Corporation. In addition, upon the occurrence of
any one or more of such Events of Default, the Holder may proceed to enforce
payment of the Principal and accrued interest, as accelerated as above provided,
and any and all other duties, obligations and liabilities contained in the
Convertible Debenture Agreement and the convertible Debenture. The Events of
Default are as follows:
4.1 The entire unpaid balance of the Principal and all unpaid,
accrued interest shall, at the election of the Holder, be and become immediately
due and payable upon the occurrence of any of the following events (a "Default
Event"):
(a) Any default by the Corporation in the punctual payment of the
principal and accrued interest of the outstanding Convertible
Debenture when and as the same shall become due and payable;
(b) Any default by the Corporation under or breach by the Corporation
in the performance of any covenant, agreement, warranty,
representation or condition contained i this Agreement or the
Convertible Debenture;
(c) If the Corporation shall:
(i) apply for, or consent to, the appointment of a receiver,
trustee, or liquidator of the Corporation for all or
substantially all assets of the Corporation; (ii) file or be
served with any petition for relief under the Bankruptcy Code
or any similar federal or state law or admit in writing its
inability to pay its debts as they become due; (iii) make a
general assignment to creditors;
(d) If any pleading shall be filed in any court or other forum seeking
the adjudication of the Corporation as a bankrupt or insolvent, the
appointment of a receiver, trustee, or liquidator of the Corporation
of all or substantially all of their assets which pleading shall not
be dismissed within thirty (30) days; or
3
<PAGE>
(e) The filing of any tax lien respecting any of the assets of the
Corporation;
(f) The failure to file all periodic reports of the Borrower required
over the next 12 months with the U.S. Securities and Exchange
Commission as and when due, specifically and 8-K report on the sale of
this debenture;
4.2 Right to Cure Default. The forgoing notwithstanding, the
Corporation shall have thirty (30) days from the date of such default to cure
said default. Upon such cure the terms of a Convertible Debenture shall continue
in effect.
4.3 Rights and Remedies. Each right, power or remedy of the Holder
upon the occurrence of any Default Event as provided for in this Debenture, or
now or hereafter existing at law or inequity, or by statute shall be cumulative
and concurrent and shall be in addition to every other right, power or remedy
provided for in this Debenture or now or hereafter existing at law or equity or
by statue, and the exercise or beginning of the exercise by the holder or
transferee hereof of any one or more of such rights, powers or remedies shall
not preclude the simultaneous or later exercise by the Holder of any or all such
other rights, powers or remedies.
5. Failure to Act and Waiver. No failure or delay by the Holder to insist
upon the strict performance of any term of this Debenture or to exercise any
such term or of any such breach, or preclude the Holder from exercising any such
right, power or remedy consequent upon a Default Event hereunder shall
constitute a waiver of any such term or of any such breach, or preclude the
Holder from exercising any such right, power or remedy at any later time or
times. By accepting payment after the due date of any amount payable under this
Debenture, the holder hereof shall not be deemed to waive the right either to
require payment when due of all other amounts payable under this Debenture, or
to declare a Default Event for failure to effect such payment of any such other
amount.
6. Transfer/Negotiability. This debenture shall be transferred on the
books of the Corporation only by the registered Holder or by his/her attorney
duly authorized in writing. Transfer shall be effected by delivery to the
Corporation of a duly executed Assignment, substantially in the form attached
hereto as Exhibit A. The foregoing notwithstanding the Corporation shall not
transfer this Debenture nor any of the shares of common stock to be issue upon
conversion in the United States or to a U.S. Person, (as defined in Regulation S
promulgated under the Act) or for the account and benefit of U.S. Person, except
as provided in said Regulation S until forty-one days from the date of issuance
of this Debenture, The Corporation shall be entitled to treat any Holder of
record of the Debenture as the Holder in fact thereof and shall not be bound to
recognized any equitable or other claim to or interest in this Debenture in the
name of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by the Laws of COLORADO. Subject to receipt
of a duly executed Assignment, the Debenture shall be assigned by the Holder for
value, to a Holder in Due Course as defined by the Uniform Commercial Code. The
Corporation hereby makes an unconditional promise to repay the Principal and
accrued interest of this Debenture on or before the date due to any such Holder
in Due Course and acknowledges that repayment to a Holder in due Course is not
subject to any claims or defenses the Corporation may have against the original
Holder.
7. Notices. All notices and communications under this Debenture shall
be in writing and shall be either delivered in person or accompanied by a signed
receipt therefor or mailed first-class United States certified mail, return
receipt requested, postage prepaid, and addressed as follows: if to the
Corporation, to:
Gary V. Heesch, President
WASATCH PHARMACEUTICAL, INC.
714 East 7200 South
Midvale, Utah 84047
4
<PAGE>
and, if to the Holder, to the address of such Holder as it appears in the books
of the Corporation. Any notice of communication shall be deemed given and
received as of the date of such delivery or three days after deposit with an
overnight courier service or five(5) days after deposit with U.S. Postal Service
as first class air mail.
8. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the United States and the State of Colorado without
regard to conflicts of law. In the event that any dispute should arise
pertaining to this Agreement, the Parties agree that jurisdiction shall vest
only in the state or federal courts located in Denver, Colorado in order to
resolve such dispute. Nevertheless, the Lender may elect to file an arbitration
in Denver, Colorado before the American Arbitration Association (the "AAA") to
resolve any dispute regarding this Agreement, and the Borrower hereby agrees to
arbitrate such dispute before the AAA in Denver, Colorado, if the Lender makes
such election.
9. Incorporation by Reference. The terms, Representations and Warranties
set forth in the Convertible Debenture Agreement between the Corporation and
ORIENTAL NEW INVESTMENT, LTD., dated September 24, 1997, are incorporated herein
by this reference, and any transferee or subsequent Holder of this Debenture (or
the shares of common stock issued upon conversion thereof during the Restricted
Period as defined by Regulation S) shall be subject to and bound by the
provision of such agreement.
IN WITNESS WHEREOF, the Corporation has caused this Debenture to be
duly executed.
ATTEST: WASATCH PHARMACEUTICAL, INC.
/s/ David K. Giles Gary V. Heesch
- -------------------------- --------------------------
Secretary Gary V. Heesch, President
5
<PAGE>
Exhibit A
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby assigns to:
____________________ The 10% Convertible Debenture of WASATCH PHARMACEUTICAL,
INC., No. ____ and hereby irrevocably appoints ______________________, Attorney,
to transfer said debenture on the books of the within named corporation, with
full power of substitution in the premised.
WITNESS my hand and seal this ____ day of _____________________, 199_.
_______(SEAL)
_____ (SEAL)
WITNESS:
- --------------------
6
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 200
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<PP&E> 3,831,967
<DEPRECIATION> (24,143)
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0
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<OTHER-SE> 2,331,706
<TOTAL-LIABILITY-AND-EQUITY> 3,905,512
<SALES> 80,016
<TOTAL-REVENUES> 80,016
<CGS> 4,625
<TOTAL-COSTS> 464,710
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<INCOME-PRETAX> (452,631)
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