UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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- 7,013,094 issued and outstanding as of
June 30, 1998 (This amount includes 56,477 shares paid for but unissued awaiting
appropriate documentation and excludes 2,505,343 shares subscribed to but not
paid for and 200,000 shares held in trust as collateral on a loan made to the
Company.)
<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 June 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 six month periods ended June 30, 1998 and 1997 and from inception (September
7, 1989) through June 30, 1998, are attached hereto and incorporated herein by
this reference.
Operating results for the quarter and six months ended June 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 June 30, 1998 and
December 31, 1997............................................... F-1
Consolidated Statements of Operations for the Six Months and
Quarter ended June 30, 1998, 1997, and from inception
(September 7, 1989) through June 30, 1998....................... F-2
Consolidated Statements of Changes in Common Stockholders'
(Deficit) for the Six Months and Quarter ended June 30, 1998.... F-4
Consolidated Statements of Cash Flows for the Six Months and
Quarter ended June 30, 1998, 1997, and from inception
(September 7, 1989) through June 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 June 30, 1998, the Company had current assets of $10,842 and current
liabilities of $1,950,814, generating a working capital deficit of $1,939,972,
which is a 15.4% increase from December 31, 1997. The increase in the deficit is
due to the Company's operating loss of $324,151 for the six-month period ended
June 30, 1998. The deficit was financed with new borrowings of $140,858
(including $98,724 in the first quarter), additional shareholder investment of
$61,453 (including $26,154 in the first quarter), and creditor forbearance of
$86,426 (including $35,409 in the first quarter).
RESULTS OF OPERATIONS
During the first six months ending June 30, 1998, the Company had
revenues of $40,651 compared to $47,985 during the same six months of 1997,a
decrease of $ 7,334 or 15.3%. The Company's operating expenses increased by
17.0% or $18,144 in the first six months of 1998, as compared to the same period
in 1997. This was primarily due to an increase in clinic salaries in the first
quarter of 1998).
General and administrative expenses decreased $8,054 from $183,548 in
the first six months of 1997 due to sharply curtailed professional services and
officers' compensation in the second quarter of 1998. The fees paid to obtain
financing ($35,011) substantially offset these decreases.
Interest expense the first six months of 1998 was $64,742 versus
$47,004 in 1997. The increase is attributable to increased indebtedness
($140,000 for the six month period)
For the first half of 1998 the Company had a net loss of $324,151 compared to a
net loss of $297,496 in the same period of 1997. The Company anticipates that
the losses will continue until funding is obtained which will it to launch its
business plan and strategies.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None.
ITEM 2. CHANGES IN SECURITIES
During the second quarter the following common share transactions
occurred:
a. Issued 165,000 restricted common shares to creditors for
extensions of due dates.
b. Issued 200,000 restricted common shares as interim loan
collateral to be returned at debt satisfaction.
c. Issued 761,000 restricted common shares for fees and
commissions in connection with fund raising efforts.
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
On May 29, 1998, The Company filed the following report on Form 8K
describing a change in management.
Summary
The board of directors, pursuant to its meeting on December 31, 1997,
appointed Leland Hale as President and Chief Operating Officer of Wasatch
Pharmaceutical, Inc.. Mr. Hale's background includes Vice President of US
Operations for Teesyn International Inc. and other top management experience.
Gary V. Heesch, former President will continue as Chairman of the Board
and Chief Executive Officer.
Announcement of the appointment was made in a press release May 19,
1998.
3
<PAGE>
On May 29, 1998, The Company filed the following report on Form 8K/A
amending its filing of March 9, 1998 describing the disposition of certain
assets.
Summary
February 23, 1998, Wasatch Pharmaceutical, Inc. entered into an
agreement with Mountaineer Gas Transmission, Inc., a Nevada corporation,
registered to do business in West Virginia ("Mountaineer"), wherein Wasatch
exchanged its 25% working interest in 50 gas wells located in Pleasants, Wood,
and Ritchie Counties, West Virginia for 1,800,000 shares of restricted common
stock of Wasatch, which was returned to the treasury and subsequently canceled.
The Company had purchased the 50 gas wells in November, 1996 in an
effort to enhance its cash flows. The cash flows did not come as expected and
the Company determined that an investment in the oil and gas business did not
fit in with its long-term strategy of setting up and operating a medical skin
care business.
Other Events - Amendment
Due to the sale of its oil and gas assets, Wasatch no longer has
sufficient net tangible assets to preclude it from being characterized as a
"penny stock". Therefore, pursuant to SEC Rule 3a51-1, the common stock of
Wasatch is now defined and considered a "penny stock".
4
<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
5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
( A Development Stage Company)
Consolidated Balance Sheets
June 30, December 31,
1998 1997
------------------- ------------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ 230 $ 14,259
Accounts receivable - trade 6,847 7,839
Inventory 3,165 3,642
Prepaid expenses 600 15,663
------------------- ------------------
Total Current Assets 10,842 41,403
------------------- ------------------
PROPERTY AND EQUIPMENT
Furniture and office equipment 41,554 41,554
Less accumulated depreciation (25,077) (21,662)
------------------- ------------------
Net Property and Equipment 16,477 19,892
------------------- ------------------
OTHER ASSETS 1,075 875
------------------- ------------------
TOTAL ASSETS $ 28,395 $ 62,170
=================== ==================
CURRENT LIABILITIES
Accounts payable - trade $ 230,028 $ 229,234
Accrued interest 293,851 229,484
Other accrued expenses 219,557 198,293
Notes and advances currently due
Short-term shareholder loans 15,657 31,581
Vendors 112,333 112,333
Stockholders 1,079,388 921,388
------------------- ------------------
TOTAL LIABILITIES 1,950,814 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, 9,718,437 shares and
9,225,763 shares issued and outstanding. 9,718 9,226
Additional paid-in capital 1,281,960 1,792,421
Accumulated development stage deficit (3,090,100) (2,765,949)
------------------- ------------------
(1,798,374) (964,253)
Less note receivable stockholder (124,045) (695,890)
------------------- ------------------
Total Stockholder's Equity (1,922,419) (1,660,143)
------------------- ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 28,395 $ $ 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)
Conslidated Statement of Operations
(Unaudited)
For The
Six Months Ended For The
June 30, Period From
----------------------------------- Inception To
1998 1997 June 30, 1998
---------------- ---------------- -------------------
REVENUES
<S> <C> <C> <C>
Professional fee income $ 14,337 $ 16,738 $ 199,185
Product sales 26,314 31,247 395,253
---------------- ---------------- -------------------
TOTAL REVENUES 40,651 47,985 594,438
---------------- ---------------- -------------------
OPERATING EXPENSES
Cost of products sold 2,670 2,667 45,748
Salaries 74,708 59,140 399,429
Employee leasing - - 218,745
Payroll taxes 6,535 6,035 39,694
Physicians fees 19,200 21,000 216,868
Rent 17,165 16,264 152,308
Advertising (1,176) 1,944 211,376
Depreciation 2,629 3,385 26,628
Other 2,835 (4,013) 59,716
---------------- ---------------- -------------------
Total Operating expenses 124,566 106,422 1,370,512
GENERAL & ADMINSTRATIVE EXPENSE 175,494 183,548 1,543,303
INTEREST 64,742 47,004 361,004
---------------- ---------------- -------------------
TOTAL EXPENSES 364,802 336,974 3,274,819
---------------- ---------------- -------------------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS AND THE PROVISION
FOR INCOME TAXES (324,151) (288,989) (2,680,381)
LOSS FROM DISCONTINUED OPERATIONS - (8,507) (409,718)
---------------- ---------------- -------------------
NET INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (324,151) (297,496) (3,090,099)
Provision for Income Taxes - - -
---------------- ---------------- -------------------
NET INCOME (LOSS) $(324,151) $(297,496) $(3,090,099)
================ ================ ===================
NET (LOSS) PER COMMON SHARE $ (0.034) $ (0.046) $ (0.518)
================ ================ ===================
WEIGHTED AVERAGE SHARES OUTSTANDING 9,464,303 6,496,829 5,965,841
================ ================ ===================
</TABLE>
The accompanying footnotes are an integral part of these
financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Conslidated Statement of Operations
(Unaudited)
For The
Three Months Ended For The
June 30, Period From
------------------------------------- Inception To
1998 1997 June 30, 1998
----------------- ----------------- ----------------
REVENUES
<S> <C> <C> <C>
Professional fee income $ 6,765 $ 9,490 $ 199,185
Product sales 12,810 16,248 395,253
----------------- ----------------- ----------------
TOTAL REVENUES 19,575 25,738 594,438
----------------- ----------------- ----------------
OPERATING EXPENSES
Cost of products sold 1,248 1,648 45,748
Salaries 37,899 40,637 399,429
Employee leasing - - 218,745
Payroll taxes 3,100 3,660 39,694
Physicians fees 9,000 10,800 216,868
Rent 5,447 8,229 152,308
Advertising (543) - 211,376
Depreciation 1,314 1,698 26,628
Other 471 30 59,716
----------------- ----------------- ----------------
Total Operating expenses 57,936 66,702 1,370,512
GENERAL& ADMINSTRATIVE EXPENSE 95,981 100,991 1,543,303
INTEREST 29,522 25,183 361,004
----------------- ----------------- ----------------
TOTAL EXPENSES 183,439 192,876 3,274,819
----------------- ----------------- ----------------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS AND THE PROVISION
FOR INCOME TAXES (163,864) (167,138) (2,680,381)
LOSS FROM DISCONTINUED OPERATIONS - (3,857) (409,718)
----------------- ----------------- ----------------
NET INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (163,864) (170,995) (3,090,099)
Provision for Income Taxes - - -
----------------- ----------------- ----------------
NET INCOME (LOSS) $ (163,864) $ (170,995)$ $(3,090,099)
================= ================= ================
NET (LOSS) PER COMMON SHARE $ (0.018) $ (0.026) $ (0.518)
================= ================= ================
WEIGHTED AVERAGE SHARES OUTSTANDING 8,863,734 6,655,934 5,965,841
================= ================= ================
</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 Cash Flows
(Unaudited)
For The
Six Months Ended For The
June 30, Period From
------------------------------ Inception, To
1998 1997 June 30, 1998
-------------- -------------- -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C>
Net Income (Loss) $ (324,151) $ (297,496) $ (3,090,100)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used)
by Operating Activities
Depreciation 3,415 5,472 27,414
Gain (loss) on asset disposal - -
Clinic assets (5,413) - 394,605
Oil and gas assets - - -
Expenses paid with common shares 1,150 5,448 1,150
Increase (decrease) in working capital - -
(Increase) decrease in receivables 6,936 # (1,588) (903)
(Increase) decrease in related party receivable - (22,133) -
(Increase) decrease in inventory 434 # (3,982) (3,208)
(Increase) decrease in prepaid expenses 15,063 - (600)
Increase (decrease) in accounts payable 794 # 24,319 230,029
Increase (decrease) in accrued interest 64,367 # 36,859 293,851
Increase (decrease) in other accruals 21,265 # 32,477 219,557
-------------- -------------- ---------------
Net Cash Provided (Used) by
Operating Activities (216,140) (220,624) 1,928,205
-------------- -------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets
Clinics - (35,041) (27,764)
(Increase) decrease in other assets (200) (7,202) (1,075)
-------------- -------------- ---------------
Net Cash Provided (Used) by
Investing Activities (200) (42,243) (28,839)
-------------- -------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 216,644 55,000 1,409,678
Expenses paid by shareholder - - 38,323
Repayment of loans (75,786) (5,000) (198,539)
Proceeds from sale of common shares 10,000 - 358,205
Capital contributed by shareholder - - 154,800
Collection of share subscriptions 51,453 80,000 151,014
Common shares exchanged for debt - - 12,318
Exercised stock options - 125,000 125,250
Redemption of common shares - (755) (20,409)
Costs of raising funds - - (73,366)
-------------- -------------- ---------------
Net Cash Provided (Used) by
Financing Activities 202,311 254,245 1,957,274
-------------- -------------- ---------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (14,029) (8,622) 230
CASH AND CASH EQUIVALENTS
At Beginning of Period 14,259 11,990 -
-------------- -------------- ---------------
At End of Period $ 230 $ 3,368 $ 230
============== ============== ===============
</TABLE>
The accompanying footnotes are an integral part of this
financial information.
F-4
<PAGE>
<TABLE>
<CAPTION>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Company)
Conslidated Statement of Cash Flows
(Unaudited)
For The
Three Months Ended For The
June 30, Period From
----------------------------- Inception To
1998 1997 June 30, 1998
------------- ------------- ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C>
Net Income (Loss) $(163,864) $(170,995) $ (3,090,100)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided (Used)
by Operating Activities
Depreciation 1,709 2,880 27,414
Gain (loss) on asset disposal - -
Clinic assets (5,413) - 394,605
Oil and gas assets - - -
Expenses paid with common shares 1,107 5,450 1,150
Increase (decrease) in working capital - -
(Increase) decrease in receivables 6,632 (2,517) (903)
(Increase) decrease in related party receivable - (22,133) -
(Increase) decrease in inventory 1,204 1,555 (3,208)
(Increase) decrease in prepaid expenses - - (600)
Increase (decrease) in accounts payable 6,326 3,052 230,029
Increase (decrease) in accrued interest 31,719 15,182 293,851
Increase (decrease) in other accruals 12,215 - 219,557
------------- ------------- ---------------
Net Cash Provided (Used) by
Operating Activities (108,365) (167,526) 1,928,205
------------- ------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets
Clinics - (9,945) (27,764)
(Increase) decrease in other assets (200) 245 (1,075)
------------- ------------- ---------------
Net Cash Provided (Used) by
Investing Activities (200) (9,700) (28,839)
------------- ------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 75,348 1,630 1,409,678
Expenses paid by shareholder - - 38,323
Repayment of loans (33,215) - (198,539)
Proceeds from sale of common shares - - 358,205
Capital contributed by shareholder - - 154,800
Collection of share subscriptions 35,300 50,000 151,014
Common shares exchanged for debt - - 12,318
Exercised stock options - 125,000 125,250
Redemption of common shares - 2,762 (20,409)
Costs of raising funds - - (73,366)
------------- ------------- ---------------
Net Cash Provided (Used) by
Financing Activities 77,433 179,392 1,957,274
------------- ------------- ---------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (31,132) 2,166 230
CASH AND CASH EQUIVALENTS
At Beginning of Period 31,362 1,202 -
------------- ------------- ---------------
At End of Period $ 230 $ 3,368 $ 230
============= ============= ===============
</TABLE>
The accompanying footnotes are an integral part of these
financial statements.
F-5
<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 issued for future transactions (2,705,343) (2,705) (121,340) (124,045)
---- --------- ------- ----------- ----------- ------------
Stockholders Equity June 30, 1998 $ 49 7,013,094 $ 7,013 $ 1,160,619 $(3,090,100) $ (1,922,419)
==== ========= ======= =========== =========== ============
</TABLE>
The Accompanying footnotes
are an integral part if this financial information.
F-6
<PAGE>
WASATCH PHARMACEUTICAL, INC.
(A Development Stage Registrant)
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. The property operator holds a vendor's lien that
entitles it to offset future revenues against accumulated operating deficits not
covered by revenues.
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 or 1996.
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 second quarter and first six
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 six
month and three month periods ended and from inception through June 30, 1998
are:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED INCEPTION
JUNE 30, JUNE 30, TO JUNE 30,
1998 1997 1998 1997 1998
------------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Officer's compensation $ 70,777 $ 81,092 $ 36,535 $ 48,267 $679,047
Legal and accounting 25,609 43,267 12,321 27,491 240,387
Finders fee 15,011 0 7,761 0 15,011
Travel 6,271 10,070 1,625 5,075 70,245
Telephone 6,465 7,660 2,826 3,399 54,333
Insurance 716 357 261 195 15,773
Postage 1,812 0 937 0 15,395
Payroll tax penalties 0 0 0 0 16,433
Other 28,834 41,102 6,465 16,564 416,679
------------- ----------- ------------- ------------ ------------
$ 155,498 $ 183,548 $ 75,981 $ 100,991 $1,523,303
============= =========== ============= ============ ============
</TABLE>
NOTE 5 - GOING CONCERN
The Registrant'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 Registrant is in the development stage and has not
established a source of revenues sufficient to allow it to continue as a going
concern. The Registrant is seeking an agreement to raise short-term funding and
plans to seek long-term funding through a stock offering. Management believes
that sufficient funding will be raised to meet the operating needs of the
Registrant during the remainder of development stage.
F-8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 230
<SECURITIES> 0
<RECEIVABLES> 6,847
<ALLOWANCES> 0
<INVENTORY> 3,165
<CURRENT-ASSETS> 10,842
<PP&E> 41,554
<DEPRECIATION> 25,077
<TOTAL-ASSETS> 28,395
<CURRENT-LIABILITIES> 1,950,814
<BONDS> 0
0
49
<COMMON> 9,718
<OTHER-SE> 1,281,960
<TOTAL-LIABILITY-AND-EQUITY> 28,395
<SALES> 26,314
<TOTAL-REVENUES> 40,651
<CGS> 2,670
<TOTAL-COSTS> 124,566
<OTHER-EXPENSES> 175,494
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,742
<INCOME-PRETAX> (324,151)
<INCOME-TAX> 0
<INCOME-CONTINUING> (324,151)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (324,151)
<EPS-BASIC> (.034)
<EPS-DILUTED> (.034)
</TABLE>
