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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to_________________
Commission file number: 0-22899
Wasatch Pharmaceutical, Inc.
(Exact name of registrant as specified in charter)
Utah 84-0854009
---------- -----------------
State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
714 East 7200 South, Midvale, Utah 84047
(Address of principal executive offices) (Zip Code)
(801) 566-9688
Issuer's telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports). Yes [X ] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Class A Common Stock, $.001- 9,922,387 Issued and outstanding as of
September 30, 1998 (This amount includes 10,044 shares paid for but unissued
awaiting appropriate issue documentation and excludes 25,700,000 shares issued
as collateral to secure the Registrant's obligations and 2,700,000 shares
subscribed to but not paid for.)
<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, 1998,
and the related audited balance sheet of the Registrant as of December 31, 1997,
the unaudited related statements of operations and cash flows for the three
month and nine month periods ended September 30, 1998 and 1997 and from
inception (September 7, 1989) through September 30, 1998, are attached hereto
and incorporated herein by this reference.
Operating results for the quarter and nine months ended September 30,
1998 are not necessarily indicative of the results that can be expected for the
year ending December 31, 1998.
The following financial statements are included in this report:
Consolidated Balance Sheet as of September, 1998 and
December 31, 1997............................................. F-1
Consolidated Statements of Operations for the Nine Months and
Quarter ended September 30, 1998, 1997, and from inception
(September 7, 1989) through September 30, 1998................ F-2
Consolidated Statements of Changes in Common Stockholders'
(Deficit) for the Nine Months and Quarter ended
September, 1998.............................................. F-4
Consolidated Statements of Cash Flows for the Nine Months and
Quarter ended September 30, 1998, 1997, and from inception
(September 7, 1989) through September 30, 1998................ F-5
Notes to the Consolidated Financial Statements.................. F-7
2
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
OVERVIEW
The Company has proprietary technology for the treatment of various
common skin disorders, including acne, eczema, and psoriasis. After completing
successful clinical studies, prototype clinics were established with the goal of
duplicating the success rates achieved in the clinical environment and to
establish medical, business and administrative procedures that could be
duplicated in an Internet network of patients and doctors and through Company
clinics across the country. Two prototype treatment clinics are currently in
operation in Utah. Although the Company has confirmed the technology through the
successful treatment of hundreds of patients over the last 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 places into question the Company's ability to
continue without substantial increases in revenues or additional long-term
financing.
The Company is seeking funding to establish an Internet presence and
open additional clinics in major metropolitan areas as well as launch a major
advertising and marketing campaign to support each of its business strategies.
Based on successful historical models, management concludes that through direct
patient treatment on the Internet, working with health insurance companies and
HMOs and supplemented by a physician referral program, revenues could be
increased substantially with the infrastructure in place that is operating at
10% to 15% of clinic capacity.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had current assets of $102,718 and
current liabilities of $2,638,565 generating a working capital deficit of
$2,535,847, which is a 50.9% increase from December 31, 1997. The increase in
the working capital deficit is due to the Company's (i) nine month operating
loss of $556,844 and (ii) the $500,000 in funds advanced as part of an
arrangement to obtain $20 million in long-term capital. Financing activities for
the first nine months of 1998 reflect a net contribution to cash flow of
$989,913. Those funds were used to fund the deficit ($419,235) and make the
prepayment for fees on the joint venture to raise long-term capital.
During the third quarter of 1998, the Company entered into a joint
venture arrangement with Beehive International, of Salt Lake City, in an attempt
to raise long-term capital from a foreign lender. The foreign lender was
committed to advance $20 million each to Wasatch and Beehive. Beehive received
750,000 shares of common stock as a fee for finding the loan source and other
services. Under the terms of the proposed loan, the lender required a $10
million good faith deposit for a period of 24 months.
Through its sources, Wasatch made arrangements with Berkshire Halifax
Corporation of Palm Beach, Florida to provide the good faith deposit. Berkshire
was to receive a $700,000 loan fee for providing the funds and the bank interest
earned on the funds deposited. The loan fee was to be provided by Wasatch
($500,000) and Beehive ($200,000).
Wasatch obtained the funds for its share of the fee through the sale of
common stock ($100,000), a loan from Beehive ($100,000) and a loan from a third
party ($300,000) Collier Management & Development Company, Inc of Bountiful
Utah. Collier required a majority of the common stock as collateral on the loan
and, on August 31, 1998; 25,500,000 shares of restricted common stock were
issued.
3
<PAGE>
Wasatch and Beehive forwarded $700,000 with the understanding that
Berkshire would be able to meet the requirements of the lender and close the
transaction within five days. The transaction proved to be unsuccessful. See
details in the Annual Report on Form 10KSB.
RESULTS OF OPERATIONS
During the first nine months ending September 30, 1998, the Company had
revenues of $59,037 compared to $74,849 during the same period of 1997,a
decrease of $ 15,812 or 21.1%. The Company's operating expenses increased by
6.0% or $10,822 in the first nine months of 1998, as compared to the same period
in 1997. This was due to an increase in clinic salaries in the first quarter.
Clinic operating costs remain within historic patterns by averaging $21,000 to
$22,000 monthly.
General and administrative expenses decreased $14,145 from $261,227 in
the first nine months of 1997 to $247,082 in the same period of 1998. Fund
raising activities drives G&A expense variations. The primary elements for
variation are increased finders fees ($47,000 for the YTD and $12,000 for the
quarter) offset by YTD decreased professional fees ($38,000),decreased officers
compensation ($10,000), decreased travel expenses ($6,000) and miscellaneous
small decreases.
Interest expense for the first nine months increased to $177,906 in
1998 versus $74,023 in 1997. The Company's funding resources have been limited
to high risk taking creditors and their accompanying rates of return.
The Company's average cost of funds has increased 33% within the last
nine months. The loan portfolio has several significant loans with substantial
discounts or fees and/or nominal interest rates of 20% or more. The result is
escalating loan-carrying costs. In the nine months ended September 30, 1998, the
accrued interest on outstanding loans was $94,500 as compared to $74,000 for the
same period of the prior year. The fees and discounts aggregated $80,000 for the
quarter and the nine-month period.
For the first three quarters of 1998 the Company had a net loss of
$556,844 compared to a net loss of $452,630 in the same period of 1997. The
Company anticipates that the losses will continue until funding is obtained
which will be used to launch its business plan and strategies.
4
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None.
ITEM 2. CHANGES IN SECURITIES -
During the third quarter the following common share transactions occurred:
a. Issued 87,750 restricted common shares were issued to
consultants for services rendered.
b. Issued 966,200 restricted common shares to creditors for
extensions of due dates.
c. Issued 1,550,000 restricted common shares for cash
consideration totaling $120,000.
d. Options for 500,000 common shares were exercised and notes for
the exercise price totaling $25,000 were given.
e. Issued 25,500,000 restricted common shares as interim loan
collateral to be returned when the debt is repaid.
f. Issued 12,307 common shares that were previously paid for but
unissued awaiting appropriate documentation.
The common shares were issued in reliance on the exemption from registration
provided by Section 4 (2) of the Securities Act of 1934 and the "Safe Harbor" of
Regulation D, Rule 504.
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.
Exhibit
Number: Exhibit
27 Financial Data Schedule (included only in the
electronic filing of this document).
(b) Reports on Form 8-K - None
5
<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.
Dated: April 14, 2000
By: /s/ David K. Giles
----------------------
David K. Giles
Principal Accounting Officer
6
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
Consolidated Balance Sheet
September 30, 1998 and December 31, 1997
September 30, December 31,
1998 1997
-------------------- -------------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 84,947 $ 14,259
Accounts receivable - trade 8,682 7,839
Inventory 3,220 3,642
Prepaid expenses 5,869 15,663
-------------------- -------------------
Total Current Assets 102,718 41,403
-------------------- -------------------
PROPERTY AND EQUIPMENT
Clinic and office equipment 41,554 41,554
Less accumulated depreciation (26,784) (21,662)
-------------------- -------------------
Net Property and Equipment 14,770 19,892
-------------------- -------------------
OTHER ASSETS
Investment In Beehive Project 500,000 -
Miscellaneous 864 875
-------------------- -------------------
Total Other Assets 500,864 875
-------------------- -------------------
TOTAL ASSETS $ 618,352 $ 62,170
==================== ===================
CURRENT LIABILITIES
Accounts payable - trade $ 225,942 $ 229,234
Accrued interest 327,105 229,484
Other accrued expenses 230,286 198,293
Notes and advances currently due
Short-term shareholder loans 12,711 31,581
Vendors 112,333 112,333
Stockholders 1,730,188 921,388
-------------------- -------------------
TOTAL LIABILITIES 2,638,565 1,722,313
-------------------- -------------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 1,000,000
shares authorized 49,258 issued & outstanding
Series A 49 49
Common stock, $0.001 par value, 50,000,000
shares authorized, 38,322,387 shares and
9,225,763 shares issued and outstanding. 38,322 9,226
Additional paid-in capital 1,424,909 1,792,421
Accumulated development stage deficit (3,322,793) (2,765,949)
-------------------- -------------------
(1,859,513) (964,253)
Less note receivable stockholder (160,700) (695,890)
-------------------- -------------------
Total Stockholder's Equity (2,020,213) (1,660,143)
-------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 618,352 $ 62,170
==================== ===================
</TABLE>
The accompanying footnotes are an integral part of these
financial statements.
F-1
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
For The
Nine Months Ended For The
September 30, Period From
---------------------------------- Inception To
1998 1997 Sept. 30, 1998
--------------- ---------------- ---------------
REVENUES
<S> <C> <C> <C>
Professional fee income $ 21,047 $ 27,498 $ 205,894
Product sales 37,990 47,351 406,929
--------------- ---------------- ---------------
TOTAL REVENUES 59,037 74,849 612,823
--------------- ---------------- ---------------
OPERATING EXPENSES
Cost of products sold 3,600 4,625 46,677
Salaries 114,755 103,283 439,476
Employee leasing - - 218,745
Payroll taxes 9,930 10,156 43,091
Physicians fees 30,600 29,800 228,268
Rent 25,482 26,803 160,626
Advertising (120) 6,072 212,432
Depreciation 3,943 3,943 27,942
Other 2,703 (4,611) 59,582
--------------- ---------------- ---------------
Total Operating expenses 190,893 180,071 1,436,839
GENERAL & ADMINSTRATIVE EXPENSE 247,082 261,227 1,614,891
INTEREST 177,906 74,023 474,168
--------------- ---------------- ---------------
TOTAL EXPENSES 615,881 515,321 3,525,898
--------------- ---------------- ---------------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS AND THE PROVISION
FOR INCOME TAXES (556,844) (440,472) (2,913,075)
LOSS FROM DISCONTINUED OPERATIONS - (12,158) (409,718)
--------------- ---------------- ---------------
NET INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (556,844) (452,630) (3,322,793)
Provision for Income Taxes - - -
--------------- ---------------- ---------------
NET INCOME (LOSS) $ (556,844) $ (452,630) $ (3,322,793)
=============== ================ ===============
NET INCOME (LOSS) PER SHARE
OF COMMON STOCK $ (0.058) $ (0.069) $ (0.548)
=============== ================ ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 9,629,382 6,595,952 6,066,014
=============== ================ ===============
</TABLE>
The accompanying footnotes are an integral part
of these financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statement of Operations
(Unaudited)
For The
Three Months Ended For The
September 30, Period From
----------------------------------- Inception To
1998 1997 Sept. 30, 1998
--------------- ----------------- ----------------
REVENUES
<S> <C> <C> <C>
Professional fee income 6,710 10,760 205,894
Product sales 11,676 16,104 406,929
--------------- ----------------- ----------------
TOTAL REVENUES 18,386 26,864 612,823
--------------- ----------------- ----------------
OPERATING EXPENSES
Cost of products sold 930 1,958 46,677
Salaries 40,047 44,143 439,476
Employee leasing - - 218,745
Payroll taxes 3,395 4,121 43,091
Physicians fees 11,400 8,800 228,268
Rent 8,317 10,539 160,626
Advertising 1,056 4,129 212,432
Depreciation 1,314 558 27,942
Other (132) (598) 59,582
--------------- ----------------- ----------------
Total Operating expenses 66,327 73,650 1,436,839
GENERAL & ADMINSTRATIVE EXPENSE 71,588 77,679 1,614,891
INTEREST 113,164 27,019 474,168
--------------- ----------------- ----------------
TOTAL EXPENSES 251,079 178,348 3,525,898
--------------- ----------------- ----------------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS AND THE PROVISION
FOR INCOME TAXES (232,693) (151,484) (2,913,075)
LOSS FROM DISCONTINUED OPERATIONS - (3,652) (409,718)
--------------- ----------------- ----------------
NET INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (232,693) (155,136) (3,322,793)
Provision for Income Taxes - - -
--------------- ----------------- ----------------
NET INCOME (LOSS) $ (232,693) $ (155,136) $ (3,322,793)
=============== ================= ================
NET INCOME (LOSS) PER SHARE
OF COMMON STOCK $ (0.012) $ (0.023) $ (0.548)
=============== ================= ================
WEIGHTED AVERAGE SHARES OUTSTANDING 19,347,819 6,828,901 6,066,014
=============== ================= ================
</TABLE>
The accompanying footnotes are an integral part
of these financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Conslidated Statement of Equity Changes
For Each Quarter of 1998
(Unaudited)
Preferred Common Stock Additional Accumulated Total
Stock ---------------------- Paid - In Development Stockholders'
Amount Shares Amount Capital Stage Deficit Equity
--------- ---------- --------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
First Quarter
Stockholders equity-per committed contracts
Balance December 31, 1997 $ 49 9,225,763 $ 9,226 $ 1,792,421 $(2,765,949) $ (964,253)
Shares issued for note extensions 43,334 43 43
Shares sold for cash 73,340 73 9,928 10,001
Exchange of preferred shares held for
investment for originally issued shares (750,000) (750) (750)
Charge for per share price reduction of
shares held under subscription notes (520,390) (520,390)
Net loss for the three months ended
March 31, 1998 (160,287) (160,287)
---- --------- ------- ----------- ----------- ------------
Stockholders Equity March 31, 1998 including
commitments for future transactions 49 8,592,437 8,592 1,281,959 (2,926,236) (1,635,636)
Shares issued for loan extensions 165,000 165 165
Shares issued as interim loan collateral to
be return at debt satistaction 200,000 200 200
Shares issued as transaction commissions 761,000 761 761
Net loss for the three months ended
June 30, 1998 (163,864) (163,864)
---- --------- ------- ----------- ----------- ------------
Stockholders Equity June 30, 1998 including
commitments for future transactions 49 9,718,437 9,718 1,281,959 (3,090,100) (1,798,374)
Shares sold for cash 1,550,000 1,550 118,450 120,000
Exercise of stock options 500,000 500 24,500 25,000
Shares issued as interim loan collateral to
be return at debt satistaction 25,500,000 25,500 25,500
Shares issued for loan extensions 966,200 966 966
Shares issued for services 87,750 88 88
Net loss for the three months ended
September 30, 1998 (232,693) (232,693)
---- --------- ------- ----------- ----------- ------------
Stockholders Equity September 30, 1998
including commitments for future transactions $49 38,322,387 $ 38,322 $ 1,424,909 $(3,322,793) $(1,859,513)
Shares issued for future transactions (28,400,000) (28,400) (132,300) (160,700)
---- --------- ------- ----------- ----------- ------------
Stockholders Equity September 30, 1998 $ 49 9,922,387 $ 9,922 $ 1,292,609 $(3,322,793) $(2,020,213)
==== ========= ======= =========== =========== ===========
</TABLE>
The accompanying footnotes are
an integral part of this financial presentation.
F-4
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
For The
Nine Months Ended For The
September 30, Period From
--------------------------------- Inception To
1998 1997 Sept. 30, 1998
--------------- --------------- -------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C>
Net Income (Loss) $ (556,844) $ (452,630) $ (3,322,793)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used)
by Operating Activities
Depreciation 5,122 8,475 29,123
(Gain) loss on asset disposal (5,413) - 394,605
Expenses paid with common shares 2,204 - 2,204
Increase (decrease) in working capital - - -
(Increase) decrease in receivables (842) (4,165) (8,682)
(Increase) decrease in related party receivable - (11,067) -
(Increase) decrease in inventory 422 1,702 (3,220)
(Increase) decrease in prepaid expenses 9,794 (4,848) (5,869)
Increase (decrease) in accounts payable (3,293) 24,351 225,942
Increase (decrease) in accrued interest 97,621 62,044 327,105
Increase (decrease) in other accruals 31,994 37,251 230,286
--------------- --------------- ----------------
Net Cash Provided (Used) by
Operating Activities (419,235) (338,887) (2,131,298)
--------------- --------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets
Clinics - (34,932) (27,764)
Investment in Beehive Project (500,000) - (500,000)
(Increase) decrease in other assets 11 (24,835) (864)
--------------- --------------- ----------------
Net Cash Provided (Used) by
Investing Activities (499,989) (59,767) (528,628)
--------------- --------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 1,059,860 154,987 2,252,893
Expenses paid by shareholder - 17,543 38,323
Repayment of loans (276,402) (5,000) (399,155)
Proceeds from sale of common shares 155,000 42,589 503,205
Capital contributed by shareholder - 154,800
Collection of share subscriptions 51,454 85,000 151,014
Common shares exchanged for debt - - 12,318
Exercised stock options - 125,000 125,250
Redemption of common shares - - (20,409)
Costs of raising funds - (33,255) (73,366)
--------------- --------------- ----------------
Net Cash Provided (Used) by
Financing Activities 989,913 386,864 2,744,873
--------------- --------------- ----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 70,688 (11,790) 84,948
CASH AND CASH EQUIVALENTS
At Beginning of Period 14,259 11,990 -
--------------- --------------- ----------------
At End of Period $ 84,947 $ 200 $ 84,948
=============== =============== ================
</TABLE>
The accompanying footnotes are an integral part of these financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
For The
Three Months Ended For The
September 30, Period From
--------------------------------- Inception To
1998 1997 Sept. 30, 1998
--------------- --------------- ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C>
Net Income (Loss) $ (232,693) $ (155,136) $ (3,322,793)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used)
by Operating Activities
Depreciation 1,707 3,004 29,123
(Gain) loss on asset disposal - - 394,605
Expenses paid with common shares 1,054 (5,448) 2,204
Increase (decrease) in working capital - - -
(Increase) decrease in receivables (7,778) (2,577) (8,682)
(Increase) decrease in related party receivable - 11,066 -
(Increase) decrease in inventory (12) 5,684 (3,220)
(Increase) decrease in prepaid expenses (5,269) (4,848) (5,869)
Increase (decrease) in accounts payable (4,087) 32 225,942
Increase (decrease) in accrued interest 33,254 25,185 327,105
Increase (decrease) in other accruals 10,729 4,774 230,286
--------------- --------------- ----------------
Net Cash Provided (Used) by
Operating Activities (203,095) (118,264) (2,131,298)
--------------- --------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets
Clinics - 109 (27,764)
Investment in Beehive Project (500,000) - (500,000)
(Increase) decrease in other assets 211 (17,633) (864)
--------------- --------------- ----------------
Net Cash Provided (Used) by
Investing Activities (499,789) (17,524) (528,628)
--------------- --------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 843,216 99,987 2,252,893
Expenses paid by shareholder - 17,543 38,323
Repayment of loans (200,615) - (399,155)
Proceeds from sale of common shares 145,000 42,589 503,205
Capital contributed by shareholder - - 154,800
Collection of share subscriptions - 5,000 151,014
Common shares exchanged for debt - - 12,318
Exercised stock options - - 125,250
Redemption of common shares - - (20,409)
Costs of raising funds - (32,500) (73,366)
--------------- --------------- ----------------
Net Cash Provided (Used) by
Financing Activities 787,601 132,619 2,744,873
--------------- --------------- ----------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 84,717 (3,169) 84,948
CASH AND CASH EQUIVALENTS
At Beginning of Period 200 3,369 -
--------------- --------------- ----------------
At End of Period $ 84,917 $ 200 $ 84,948
=============== =============== ================
</TABLE>
The accompanying footnotes are an integral part of these financial statements
F-6
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 - NATURE AND HISTORY OF THE BUSINESS
The consolidated financial statements include Wasatch Pharmaceutical,
Inc. (a development stage company) (Wasatch or the Company), and its wholly
owned subsidiaries, Medisys Research Group, Inc. and American Institute of Skin
Care, Inc.
Medisys Research Group, Inc., a Utah corporation, (Medisys) was
incorporated on September 7, 1989 for the purpose of developing treatment
programs for various skin disorders. On January 21, 1994, American Institute of
Skin Care, Inc. (AISC) was incorporated as a wholly owned Utah subsidiary of
Medisys to administer the skin treatment programs developed by Medisys.
On December 29, 1995, Ceron Resources Corporation and Medisys completed
an Agreement and Plan of Reorganization whereby Ceron issued 85% of its
outstanding shares of common stock in exchange for all of the issued and
outstanding common stock of Medisys and the name was changed to Wasatch
Pharmaceutical, Inc.
The acquisition of Medisys by Ceron was accounted for as a purchase by
Medisys because the shareholders of Medisys control the surviving company. There
was no adjustment to the carrying value of the assets or liabilities of Ceron in
as much as its market value approximated the carrying value of net assets. In
summary, Ceron is the acquiring entity for legal purposes and Medisys is the
surviving entity for accounting purposes.
For the purpose of this financial presentation "Inception" shall mean
September 7, 1989, which was the commencement of Medisys operations.
Disposition of Oil and Gas Business - On November 20, 1996, Wasatch
exchanged 2,000,000 of its common shares for a 25% interest in fifty oil and gas
wells located in western West Virginia. Under the terms of the agreement,
Wasatch's was entitled to 25% of the revenues and incurred 25% of the operating
expenses from the wells.
At the time they were acquired, the properties were not economically
productive. The transaction was based on the property developer raising the
funds to increase productivity in each of the wells in 1997. The Company would
not bear any of the enhanced production costs. There were no costs incurred for
reworking wells in 1997.
In accordance with generally accepted accounting principles for
non-monetary transactions, the acquired properties were recorded at a fair
market value that was derived from the cash price for comparable recoverable
reserves but is not in excess of risk discounted future net revenues.
In third quarter of 1997, Wasatch called upon the oil and gas property
developer to demonstrate its ability to meet commitments under the acquisition
agreement. The developer acknowledged that they were unable to meet the
contractual commitments..
In November 1997, the Wasatch Board of Directors authorized management
to exchange the Company's West Virginia oil and gas properties for the common
shares issued by Wasatch. Negotiations commenced and an acceptable solution was
reached in February 1998. Under the agreed upon exchange arrangement, Wasatch
would return title to the fifty oil and gas wells acquired in exchange for
1,800,000 of the original shares issued and a release from all obligations
associated with the oil and gas operations. In addition, Wasatch agreed to
forgive a $520,390 debt owed it for the purchase of common stock by an affiliate
of the developer.
F-7
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Registrant)
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 - NATURE AND HISTORY OF THE BUSINESS (Continued)
The exchange transaction results in a loss on disposal of a segment of
business. Consequently, the loss from the exchange and the loss from operations
are retroactively included in the loss from discontinued operations at December
31, 1997.
NOTE 2 - CHANGES IN PRESENTATION
Certain financial presentations for the third quarter and the first
nine months of 1997 have been reclassified to conform to the 1998 presentation.
NOTE 3 - GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the comparative calendar nine
and three-month periods of 1998 and 1997 and from inception through September
30, 1998 are as follows:
<TABLE>
<CAPTION>
Nine Months Three Months Inception to
1998 1997 1998 1997 Sept., 1998
-------------- -------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Officer's compensation $112,807 $122,558 $ 42,030 $ 41,466 $721,077
Professional services 29,009 66,990 3,400 5,426 243,787
Finders fees 47,080 0 12,069 0 47,080
Travel 7,666 13,685 1,394 3,615 71,640
Telephone 10,164 10,968 3,699 3.308 58,032
Insurance 773 577 57 577 15,830
Postage 1,851 3,766 39 3,766 15,434
Payroll Tax (25) 3,576 (25) 3,576 16,408
Other 37,759 39,107 8,925 15,945 425,605
-------------- -------------- ---------------- ------------ -----------------
Total $247,082 $ 261,227 $ 71,588 $ 77,679 $1,614,891
============== ============== ================ ============ =================
</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
without additional capital investment. The Company is seeking an agreement to
raise short-term funds 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.
F-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 84,947
<SECURITIES> 0
<RECEIVABLES> 8,682
<ALLOWANCES> 0
<INVENTORY> 3,220
<CURRENT-ASSETS> 102,718
<PP&E> 41,554
<DEPRECIATION> 26,784
<TOTAL-ASSETS> 618,352
<CURRENT-LIABILITIES> 2,638,565
<BONDS> 0
0
49
<COMMON> 38,322
<OTHER-SE> 1,424,909
<TOTAL-LIABILITY-AND-EQUITY> 618,352
<SALES> 37,990
<TOTAL-REVENUES> 59,037
<CGS> 3,600
<TOTAL-COSTS> 190,893
<OTHER-EXPENSES> 247,082
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177,906
<INCOME-PRETAX> (556,844)
<INCOME-TAX> 0
<INCOME-CONTINUING> (556,844)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (556,844)
<EPS-BASIC> (.058)
<EPS-DILUTED> (.058)
</TABLE>
