UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):January 20, 2000
Wasatch Interactive Learning Corporation
------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 000-23180 911253514
---------- --------- ---------
(State or Other Jurisdiction (Commission File Number) (IRS Employer Ident. No.)
of Incorporation)
5250 South Commerce Drive Suite 101 Salt Lake City, Utah 84107
---------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(801) 261-1001
--------------
Registrant's telephone number, including area code
AG Holdings, Inc.
-------------------
Former Name, if Changed Since Last Report
83-888 Ave. 51 (Box 1130), Thermal, California 92774
----------------------------------------------------
Former Address, if Changed Since Last Report
<PAGE>
Explanatory Note
This Amendment No. 1 on Form 8-K/A to the Current Report on Form 8-K
("Form 8-K") for January 20, 2000 of Wasatch Interactive Learning
Corporation (the "Company") is submitted in order to provide the
required Financial Statements of the Company and AG Holdings, Inc.
under Item 7 of Form 8-K. Therefore, the Company hereby amends its Form
8-K in accordance with rule 12b-15 under the Securities Exchange Act of
1934.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(a) Financial Statements of Business Acquired
The audited balance sheets of Wasatch Interactive Learning
Corporation as of September 30, 1999, February 28, 1999 and February
28, 1998 and the related statements of operations, stockholders'
deficit and cash flows for the periods then ended.
(b) Pro Forma Financial Information
Combined pro forma balance sheet as of January 31, 2000 and statement
of operations for the period ended January 31, 2000 of A. G. Holdings,
Inc. and Wasatch Interactive Learning Corporation complete with
accompanying pro-forma footnotes as required under Item 7(b) of Form
8-K.
SIGNATURE
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 INTERACTIVE
LEARNING CORPORATION
(Registrant)
Date: April 4, 2000 By: __/s/_____________________
Barbara Morris, President
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Financial Statements
September 30, 1999 and February 28, 1999 and 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
of Wasatch Interactive Learning Corporation
We have audited the balance sheet of Wasatch Interactive Learning Corporation as
of September 30, 1999 and February 28, 1999 and 1998, and the related statements
of operations, stockholders' deficit, and cash flows for the periods then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wasatch Interactive Learning
Corporation as of September 30, 1999 and February 28, 1999 and 1998, and the
results of its operations and its cash flows for the periods then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2, the Company
has a working capital deficit and has sustained operating losses since
inception, which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
TANNER+CO.
Salt Lake City, Utah
October 29, 1999 except
for note 7, which is
dated December 9, 1999
<PAGE>
<TABLE>
<CAPTION>
WASATCH INTERACTIVE LEARNING CORPORATION
Balance Sheet
- ----------------------------------------------------------------------------------------------------------
February 28,
September 30, -----------------------------
Assets 1999 1999 1998
------ --------------------------------------------------
<S> <C> <C> <C>
Current assets:
Cash $ 1,939 $ - $ 953,018
Receivables, net 234,628 174,185 80,458
Inventory - - 22,506
Other 9,986 9,986 28,639
--------------------------------------------------
Total current assets 246,553 184,171 1,084,621
Property and equipment, net 84,045 95,495 153,617
License agreement, net 725,000 900,000 1,200,000
--------------------------------------------------
$ 1,055,598 $ 1,179,666 $ 2,438,238
--------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Note payable $ 375,658 $ 416,894 $ 509,445
Cash overdraft - 15,556 -
Accounts payable 58,325 84,023 117,841
Accrued expenses 1,585,538 1,316,091 901,670
Deferred revenue 111,835 128,228 113,600
Current portion of long-term debt 467,347 499,552 347,675
--------------------------------------------------
Total current liabilities 2,598,703 2,460,344 1,990,231
Long-term debt 62,154 80,123 146,713
--------------------------------------------------
Total liabilities 2,660,857 2,540,467 2,136,944
--------------------------------------------------
Commitments - - -
Stockholders' deficit:
Common stock, no par value, 20,000,000
shares authorized; 15,000,000 shares
issued and outstanding 1,500,000 1,500,000 1,500,000
Accumulated deficit (3,105,259) (2,860,801) (1,198,706)
--------------------------------------------------
Total stockholders' deficit (1,605,259) (1,360,801) 301,294
--------------------------------------------------
$ 1,055,598 $ 1,179,666 $ 2,438,238
--------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASATCH INTERACTIVE LEARNING CORPORATION
Statement of Operations
- ----------------------------------------------------------------------------------------------------------
Period
February 14,
1997
(Commen-
Seven Months cement of
Ended Year Ended Operations) to
September 30, February 28, February 28,
1999 1999 1998
------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,076,967 $ 1,947,461 $ 2,889,101
------------------------------------------------------
Costs and expenses:
Costs of sales 326,489 1,138,685 1,105,394
Research and development 367,128 820,197 801,943
Selling general and administrative 567,717 1,553,766 2,067,215
------------------------------------------------------
1,261,334 3,512,648 3,974,552
------------------------------------------------------
Loss from operations (184,367) (1,565,187) (1,085,451)
Interest expense (60,091) (96,908) (113,255)
------------------------------------------------------
Loss before benefit for
income taxes (244,458) (1,662,095) (1,198,706)
------------------------------------------------------
Benefit for income taxes - - -
------------------------------------------------------
Net loss $ (244,458) $ (1,662,095) $ (1,198,706)
------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASATCH INTERACTIVE LEARNING CORPORATION
Statement of Stockholders' Deficit
Seven Months Ended September 30, 1999 and
Year Ended February 28, 1999 and Period February 14, 1997
(commencement of operations) to February 28, 1998
- ----------------------------------------------------------------------------------------------------------
Common Stock
----------------------------- Accumulated
Shares Amount Deficit Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at February 14, 1997
(commencement of operations) - $ - $ - $ -
Issuance of common stock for cash 15,000,000 1,500,000 - 1,500,000
Net loss - - (1,198,706) (1,198,706)
-----------------------------------------------------------------
Balance at February 28, 1998 15,000,000 1,500,000 (1,198,706) 301,294
Net loss - - (1,662,095) (1,662,095)
-----------------------------------------------------------------
Balance at February 28, 1999 15,000,000 1,500,000 (2,860,801) (1,360,801)
Net loss - - (244,458) (244,458)
-----------------------------------------------------------------
Balance at September 30, 1999 15,000,000 $ 1,500,000 $ (3,105,259) $ (1,605,259)
-----------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASATCH INTERACTIVE LEARNING CORPORATION
Statement of Cash Flows
- ----------------------------------------------------------------------------------------------------------
Period
Seven Months February 14,
Ended Year Ended 1997 to
September 30, February 28, February 28,
1999 1999 1998
--------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (244,458) $ (1,662,095) $ (1,198,706)
Adjustments to reconcile net loss to net
cash provided by (used in)
operating activities:
Depreciation and amortization 221,195 374,668 363,852
Provision for losses on receivables (5,000) (10,000) 15,000
(Increase) decrease in:
Receivables (55,443) (83,727) (95,458)
Inventory - 22,506 (22,506)
Other assets - 18,653 (28,639)
Increase (decrease) in:
Cash overdraft (15,556) 15,556 -
Accounts payable (25,698) (33,818) 117,841
Accrued expenses 269,447 414,421 757,340
Deferred revenue (16,393) 14,628 113,600
--------------------------------------------------
Net cash provided by (used in)
operating activities 128,094 (929,208) 22,324
--------------------------------------------------
Cash flows from investing activities- - - -
--------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of stock - - 1,500,000
Payments on notes payable (41,236) (92,551) (990,555)
Proceeds from long-term debt - 184,453 496,000
Payments on long-term debt (84,919) (115,712) (74,751)
--------------------------------------------------
Net cash (used in) provided by
financing activities (126,155) (23,810) 930,694
--------------------------------------------------
Net increase (decrease) in cash 1,939 (953,018) 953,018
Cash, beginning of period - 953,018 -
--------------------------------------------------
Cash, end of period $ 1,939 $ - $ 953,018
--------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 4
</TABLE>
<PAGE>
Notes to Financial Statements
September 30, 1999 and February 28, 1999 and 1998
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
Organization
Wasatch Interactive Learning Corporation (the Company) was organized in July
1996, but did not commence operations until February 14, 1997. The Company's
primary business is the development and sales of computer software and related
services for use by educational institutions.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management's expectations.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Use of Estimates in the Preparation of Financial Statements The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions, primarily related to
software revenue recognition, that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
For purposes of the statement of cash flows, cash includes all cash and
investments with original maturities to the Company of three months or less.
Inventories
Inventories are valued at the lower of cost or market, cost being determined on
the first-in, first-out method.
- --------------------------------------------------------------------------------
5
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies Continued
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and
amortization. Depreciation and amortization on capital leases and property and
equipment is determined using the straight-line method over the estimated useful
lives of the assets or terms of the lease. Expenditures for maintenance and
repairs are expensed when incurred and betterments are capitalized. Gains and
losses on sale of property and equipment are reflected in net income.
License Agreement
The license agreement reflects the payment of cash in exchange for certain
rights to market and sell software to the education market. The license
agreement is being amortized on a straight-line basis over five years.
Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting, principally related
to depreciation, amortization and accrued liabilities.
Revenue Recognition and Deferred Revenue
Revenue from software sales is generally recognized when the software has been
shipped, collectibility is probable, and there are no significant obligations
remaining.
Revenue attributable to software support and enhancements is recognized ratably
over the contracts life, generally within twelve months.
2. Going Concern
The accompanying financial statements of Wasatch Interactive Learning
Corporation have been prepared on a going-concern basis, which contemplates
profitable operations and the satisfaction of liabilities in the normal course
of business. There are uncertainties that raise substantial doubt about the
ability of the Company to continue as a going concern. As shown in the financial
statements, the Company has a working capital deficit, has reported net losses
since inception and has a stockholders' deficit.
- --------------------------------------------------------------------------------
6
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
2. Going Concern Continued
The Company's continuation as a going concern is dependent upon its ability to
satisfactorily meet its debt obligations, secure adequate new financing and
generate sufficient cash flows from operations to meet its obligations. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
Management has entered into a plan where it is pursuing other financing and
searching for additional business opportunities. It is not known if the Company
will be successful.
3. Receivables
Receivables are comprised of the following:
February 28,
September 30, ---------------------------------
1999 1999 1998
-----------------------------------------------------
Trade receivables $ 234,628 $ 179,185 $ 95,458
Allowance for
doubtful accounts - (5,000) (15,000)
-----------------------------------------------------
$ 234,628 $ 174,185 $ 80,458
-----------------------------------------------------
4. Property and Equipment
Property and equipment consists of the following:
February 28,
September 30, ---------------------------------
1999 1999 1998
-----------------------------------------------------
Computers and
equipment $ 249,317 $ 214,572 $ 198,026
Office furniture and
fixtures 19,443 19,443 19,443
-----------------------------------------------------
268,760 234,015 217,469
Less accumulated
depreciation
and amortization (184,715) (138,520) (63,852)
-----------------------------------------------------
$ 84,045 $ 95,495 $ 153,617
-----------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
5. License Agreement
The license agreement consists of the following:
February 28,
September 30, ---------------------------------
1999 1999 1998
-----------------------------------------------------
Software License
Agreement $ 1,500,000 $ 1,500,000 $ 1,500,000
Less accumulated
amortization (775,000) (600,000) (300,000)
-----------------------------------------------------
$ 725,000 $ 900,000 $ 1,200,000
-----------------------------------------------------
6. Accrued Expenses
Accrued expenses consist of the following:
February 28,
September 30, ----------------------------
1999 1999 1998
-----------------------------------------------
Officers' compensation
(two officers) $ 618,749 $ 443,749 $ 193,749
Royalties 584,795 551,050 503,721
Commissions 177,572 148,359 87,202
Reimbursable
expenses 140,251 109,677 57,663
Payroll and benefits 36,125 41,918 58,855
Other 28,046 21,338 480
-----------------------------------------------
$ 1,585,538 $ 1,316,091 $ 901,670
-----------------------------------------------
7. Note Payable
The Company has a bank line-of-credit agreement which allows the Company to
borrow a maximum of $500,000 at an interest rate equal to the bank's prime rate
plus 2.50%. The line-of-credit matured on November 1, 1999, is secured by the
assets of the Company and had outstanding balances of $375,658 and $416,894 at
September 30, 1999 and February 28, 1999, respectively. As of December 9, 1999,
the bank has modified the terms of the agreement. The modification extends the
due date until March 31, 2000, waives certain loan covenants and reduces the
maximum loan amount by $100,000 per month beginning December 31, 1999.
- --------------------------------------------------------------------------------
8
<PAGE>
WASATCH IN TERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
7. Note Payable Continued
During the period ended February 28, 1998, the Company maintained a bank
line-of-credit which allowed the Company to borrow a maximum amount of
$1,500,000 at an interest rate equal to the bank's prime rate plus 2.50%. The
line of credit matured on March 1, 1998 and had an outstanding balance of
$509,445 at February 28, 1998. The line-of-credit has since been paid in full
and a new line-of-credit agreement, referred to above, was established with the
same bank.
8. Long-Term Debt
Long-term debt is comprised of the following:
February 28,
September 30, ----------------------------
1999 1999 1998
--------------------------------------------------
Note payable to the
Company's president,
due on demand, including
interest at 12%,
unsecured $ 246,000 $ 246,000 $ 246,000
Note payable to the
Company's president,
due on demand, with
interest of 6%, unsecured 73,953 73,953 -
Note payable to a financial
institution in monthly
installments of $8,207,
including interest at 11%,
secured by accounts
receivable, inventory and
property and equipment, due
March 31, 2000 55,399 107,369 189,091
- --------------------------------------------------------------------------------
9
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
8. Long-term Debt Continued
February 28,
September 30, ----------------------------
1999 1999 1998
--------------------------------------------------
Note payable to a
shareholder, due on
demand, including
interest of 6%, unsecure 50,000 50,000 -
Note payable to a
financial institution,
in monthly installments
of $790, including
interest at 9.5%,
secured by the retirement
assets of a shareholder,
due September 23, 2003 22,033 31,592 -
Note payable to a
financial institution,
in monthly installments
of $481, including interest
at 9.5%, secured by the
retirement assets of the
Company's president,
due September 23, 2003 13,419 19,241 -
Capital lease obligations
(see note 9) 68,697 51,520 59,297
--------------------------------------------------
529,501 579,675 494,388
Less current portion (467,347) (499,552) (347,675)
--------------------------------------------------
$ 62,154 $ 80,123 $ 146,713
--------------------------------------------------
- --------------------------------------------------------------------------------
10
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
8. Long-term Debt Continued
Future maturities of long-term debt are as follows:
Years Ending February 28: Amount
------------------
2000 $ 467,347
2001 26,686
2002 19,028
2003 8,198
2004 8,242
------------------
$ 529,501
------------------
9. Capital Lease Obligations
The Company leases certain office equipment and furniture, under noncancellable
capital leases. The terms of the leases include options to purchase the
equipment at the end of the lease, and have imputed interest rates ranging from
11.00% to 18%.
Future minimum lease payments as of September 30, 1999 are as follows:
Years Ending February 28: Amount
------------------
2000 $ 36,743
2001 16,591
2002 12,042
2003 9,566
2004 8,742
------------------
83,684
Less amount representing interest (14,987)
------------------
Present value of future minimum lease payments $ 68,697
------------------
- --------------------------------------------------------------------------------
11
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
9. Capital Lease Obligations Continued
Property and equipment under capital lease are as follows:
February 28,
September 30, ------------------------------
1999 1999 1998
-------------------------------------------------
Computers and
equipment $ 104,987 $ 70,241 $ 53,695
Office furniture and
fixtures 19,443 19,433 19,433
-------------------------------------------------
124,430 89,674 73,128
Less accumulated
amortization (60,431) (42,300) (15,742)
-------------------------------------------------
$ 63,999 $ 47,374 $ 57,386
-------------------------------------------------
Amortization expense for the periods ended September 30, 1999, February 28, 1999
and February 28, 1998 was $18,131, $26,558 and $15,742, respectively.
10. Income Taxes
The benefit for income taxes differs from the amount computed at federal
statutory rates as follows:
Period
Seven Months February 14,
Ended Year Ended 1997 to
September 30, February 28, February 14,
1999 1999 1998
-------------------------------------------------
Income tax benefit at
statutory rates $ 83,000 $ 565,000 $ 408,000
Other (3,000) (1,000) (3,000)
Change in valuation
allowance (80,000) (564,000) (405,000)
-------------------------------------------------
$ - $ - $ -
-------------------------------------------------
- --------------------------------------------------------------------------------
12
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Income Taxes Continued
Deferred tax assets consist of the following:
February 28,
September 30, ----------------------------
1999 1999 1998
-------------------------------------------------
Net operating loss
carryforward $ 856,000 $ 821,000 $ 323,000
Excess book
depreciation and
amortization over
tax 190,000 144,000 75,000
Other accrued
liabilities 3,000 2,000 2,000
Bad debt reserve - 2,000 5,000
-------------------------------------------------
1,049,000 969,000 405,000
Valuation allowance (1,049,000) (969,000) (405,000)
-------------------------------------------------
$ - $ - $ -
-------------------------------------------------
At September 30, 1999, the Company has net operating loss carryforwards for tax
purposes of approximately $2,518,000 which are available to offset future
taxable income. The net operating loss carryforwards begin to expire in 2017.
Should a change of more than 50 percent in the Company's ownership occur, any
future benefits from such carryforwards may be substantially lost. A valuation
allowance has been established for the net deferred tax asset due to the
uncertainty of realization.
11. Supplemental Cash Flow Information
September 30, 1999
The Company purchased property and equipment in the amount of $34,745 with
long-term debt.
February 28, 1999
The Company purchased property and equipment in the amount of $16,546 with
long-term debt.
- --------------------------------------------------------------------------------
13
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Supplemental Cash Flow Information Continued
February 29, 1998
During the period ended February 28, 1998, the Company acquired assets and
assumed certain liabilities from a company in Utah with a note payable. The net
assets purchased with the note payable consist of the following:
Property and equipment $ 144,330
License agreement 1,500,000
Accrued liabilities (144,330)
-----------------
Net assets purchased with note payable $ 1,500,000
-----------------
The Company purchased property and equipment in the amount of $73,139 with
long-term debt.
Supplemental Disclosures of Cash Flow Information:
Operations reflect actual amounts paid for interest and income taxes as follows:
Period
Seven Months February 14,
Ended Year Ended 1997 to
September 30, February 28, February 28,
1999 1999 1998
-------------------------------------------------
Interest paid $ 42,223 $ 87,786 $ 113,255
-------------------------------------------------
Income taxes paid $ - $ - $ -
-------------------------------------------------
12. Commitments and Contingencies
Operating Lease
The Company's offices consist of approximately 6,600 square feet of rentable
office space in Salt Lake City, Utah. The Company leases the space pursuant to a
lease agreement which terminates on March 30, 2002 or sooner if the Company
provides the lessor with twelve months prior written notice. Under this lease,
the Company recognized rent expense of $59,535, $143,100, and $189,382 for the
periods ended September 30, 1999 and February 28, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
14
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
12. Commitments and Contingencies Continued
Future minimum payments under the operating lease are as follows:
Year Ending Amount
-----------------
2000 $ 101,229
2001 106,290
2002 54,441
-----------------
Future minimum lease payments $ 261,960
-----------------
Royalty Agreements
The Company has entered into an agreement with Wasatch Education Systems
Corporation for a perpetual, worldwide software license requiring the payment of
royalties for a period of five years based on a percentage of sales of software
licensed to the Company. The Company can purchase an exclusive right to sell to
the educational market by paying a minimum royalty of $500,000 per year for four
years. The Company has purchased exclusivity for two years. The third year
purchase of exclusivity is due April 15, 2000. At September 30, 1999, royalties
accrued plus royalties already paid exceeded the actual royalty due by
approximately $637,000. Under the agreement, if the Company decided to not
maintain exclusivity, the excess royalties paid could be applied to future
royalty payments. Total royalty expense was $32,045 for the periods ended
September 30, 1999 and $500,000 for each of the periods ended February 28, 1999
and 1998.
In addition, the Company has entered into an agreement with First Byte, a
California corporation, to license certain technology. A royalty is due for each
unit of software sold by the Company that incorporates the First Byte
technology. Royalty expense under this agreement for the periods ended September
30, 1999 and February 28, 1998 and 1999 totaled $1,700, $4,560, and $-0-,
respectively.
- --------------------------------------------------------------------------------
15
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
12. Commitments and Contingencies Continued
Stock Options
The Company has issued options to six of its key employees to purchase Company
shares. The option agreements allow each employee to purchase 14,000 shares of
the Company's stock at an exercise price of $1. The options can only be
exercised in connection with conditions related to a potential change in control
of the Company. The options expire on August 15, 2002.
13. Profit Sharing Plan
The Company has a 401(k) retirement savings plan (the Plan). All full-time
employees who are at least 18 years of age and have a minimum of eight months of
service are eligible to participate. The Plan allows for matching contributions
by the Company which are limited to two percent of the employee's gross wages up
to certain limits. The Company made no contributions to the Plan for the periods
ended September 30, 1999, February 28, 1999 and February 28, 1998.
14. Related Party Transactions
The Company has notes payable to the Company's two officers and a shareholder.
The Company also has notes payable to a financial institution that are secured
by the retirement assets of the Company's two officers and a shareholder, as
described in note 8.
The Company has accrued salaries payable to the Company's president and an
officer of the Company totaling $618,749, $443,749, and $193,749 at September
30, 1999, and February 28, 1999 and 1998, respectively.
The Company has accrued reimbursable expenses payable to the Company's president
and an officer of the Company in the amount of $140,251, $109,677, and $57,663
at September 30, 1999 and February 28, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
16
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
15. Major Customers
Sales of computer software and related services to major customers are as
follows for the periods ended:
February 28,
September 30, ------------------------------------
Major Customers 1999 1999 1998
- -------------------------------------------------------------------------------
School A $ 170,000 $ - $ -
School B $ 93,800 $ - $ -
School C $ - $ 256,840 $ -
School D $ - $ 218,490 $ -
School E $ - $ - $ 142,000
School F $ - $ - $ 118,780
Company A $ - $ - $ 800,000
16. Fair Value of Financial Instruments
None of the Company's financial instruments (primarily receivables, accounts
payable and long-term debt) are held for trading purposes. The Company estimates
that the fair value of all financial instruments at September 30, 1999, does not
differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying balance sheet. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. Considerable judgement is necessarily
required in interpreting market data to develop the estimates of fair value,
and, accordingly, the estimates are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
- --------------------------------------------------------------------------------
17
<PAGE>
<PAGE>
AG Holdings, Inc./Wasatch Interactive Learning Corporation
Combined Proforma Balance Sheet
<TABLE>
<CAPTION>
Wasatch Wasatch
AG Holdings Interactive Combination Entries Interactive
Assets 01/31/2000 01/31/2000 Debit Credit Combined
------------------------------ ------------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash $ - $ 108,584 $ 150,000 1 $ - $ 258,584
Trade Receivables - 291,755 - - 291,755
Note Receivable - - 150,000 2 - 150,000
Prepaids - 9,986 - - 9,986
------------------------------------------------------------------------
Total Current Assets - 410,325 300,000 - 710,325
Property & Equipment - 87,297 - - 87,297
License Agreement - 625,000 - - 625,000
------------------------------------------------------------------------
Total Other Assets - 712,297 - - 712,297
========================================================================
Total Assets $ - $ 1,122,622 $ 300,000 $ - $ 1,422,622
========================================================================
Liabilities & Stockholders Equity
Current Liabilities
Accounts Payable $ 5,353 $ 48,718 $ - $ - $ 54,071
Deferred Revenue - 82,913 - - 82,913
Accrued Expenses 22,813 2,242,862 10,629 3 -
1,051,445 4 - 1,203,601
------------------------------------------------------------------------
Total Current Liabilities 28,166 2,374,493 1,062,074 - 1,340,585
Long-Term Debt - 69,579 - - 69,579
------------------------------------------------------------------------
Total Liabilities 28,166 2,444,072 1,062,074 - 1,410,164
Stockholders Equity
Common Stock 313 1,720,000 3,071,084 5 150,000 1
- 150,000 2
- 76 3
- 1,051,445 4 750
Additional Paid-in-Capital 517,542 - 546,021 5 3,081,637 5 3,053,158
Retained Earnings/(Deficit) (546,021) (3,041,450) - 546,021 5 (3,041,450)
------------------------------------------------------------------------
Total Stockholders Deficit (28,166) (1,321,450) 3,617,105 4,829,179 12,458
========================================================================
Total Liabilities & Stockholders Equity $ - $ 1,122,622 $ 4,679,179 $ 4,829,179 $ 1,422,622
========================================================================
</TABLE>
<PAGE>
AG Holdings, Inc./Wasatch Interactive Learning Corporation
Combined Proforma Statement of Operations
<TABLE>
<CAPTION>
Wasatch
AG Holdings Interactive Wasatch
9 months 11 months Combination Entries Interactive
ended 1/31/2000 ended 1/31/2000 Debit Credit Combined
------------------------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ 1,747,435 $ - $ - $ 1,747,435
Costs of Goods Sold - 495,973 - - 495,973
-----------------------------------------------------------------------
Gross Profit - 1,251,462 - - 1,251,462
Other Costs & Expenses
Research & Development - 505,086 - - 505,086
Sales & Marketing - 392,924 - - 392,924
Selling, General & Administrative 47,354 466,178 - - 513,532
-----------------------------------------------------------------------
47,354 1,364,188 - - 1,411,542
-----------------------------------------------------------------------
Income/(Loss) From Operations (47,354) (112,726) - - (160,080)
Interest Expense - 68,895 - - 68,895
Gain/(Loss) - Asset Dispositions 972 - - 972
-----------------------------------------------------------------------
Income/(Loss) Before Provision for Income Taxes (47,354) (180,649) - - (228,003)
Provision for Income Taxes - - - - -
=======================================================================
Net Income/(Loss) $ (47,354) $ (180,649) $ - $ - $ (228,003)
=======================================================================
</TABLE>
<PAGE>
AG Holdings, Inc./Wasatch Interactive Learning Corporation
1/31/00 Combined Proforma Footnotes
The Agreement and Plan of Reorganization was entered into on January 20, 2000.
The effective date of the merger was February 10, 2000.
The merger was a reverse acquisition.
In consideration of the merger, AG Holdings issued 3,605,205 shares of AG
Holdings common stock to the shareholders of Wasatch Interactive Learning
Corporation, representing 48% of the shares outstanding after such original
issue.
The authorized capital stock of the combined entity, Wasatch Interactive
Learning Corporation consists of 100,000,000 shares of common stock, with a par
value of $.0001, of which 7,500,000 shares are issued and outstanding as of the
date of the merger.
Combination entry #1 records the issuance of 150,000 shares of Wasatch
Interactive Learning Corporation stock on 1/17/00 in exchange for $150,000 cash.
Combination entry #2 records the issuance of 150,000 shares of Wasatch
Interactive Learning Corporation stock on 1/17/00 in exchange for a $150,000
promissory note.
Combination entry #3 records the issuance of 764,717 shares of AG Holdings, Inc.
stock on 1/17/00 in exchange for debt forgiveness totaling $10,629.
Combination entry #4 records the issuance of 400,816 shares of Wasatch
Interactive Learning Corporation stock on 1/17/00 in exchange for forgiveness of
debt of $393,946 and forgiveness of accrued wages since inception of $657,499.
Combination entry #5 adjusts stated capital and retained earnings deficit to
that of Wasatch Interactive Learning Corporation which will be the ongoing
operating entity.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WASATCH
INTERACTIVE LEARNING CORPORATION SEPTEMBER 31, 1999 AND FEBRUARY 28, 1999
FINANCIAL STATEMENTS AND IS RESERVED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 7-MOS YEAR
<FISCAL-YEAR-END> FEB-29-2000 FEB-28-1999
<PERIOD-END> SEP-30-1999 FEB-28-1999
<CASH> 1,939 0
<SECURITIES> 0 0
<RECEIVABLES> 234,628 179,185
<ALLOWANCES> 0 5,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 246,553 184,171
<PP&E> 268,760 234,015
<DEPRECIATION> 184,715 138,520
<TOTAL-ASSETS> 1,055,598 1,179,666
<CURRENT-LIABILITIES> 2,598,703 2,460,344
<BONDS> 62,154 80,123
0 0
0 0
<COMMON> 1,500,000 1,500,000
<OTHER-SE> (3,105,259) (2,860,801)
<TOTAL-LIABILITY-AND-EQUITY> 1,055,598 1,179,666
<SALES> 1,076,967 1,947,461
<TOTAL-REVENUES> 1,076,967 1,076,967
<CGS> 326,489 1,138,685
<TOTAL-COSTS> 1,261,334 3,512,648
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 60,091 96,908
<INCOME-PRETAX> (244,458) (1,662,095)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (244,458) (1,662,095)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (244,458) (1,662,095)
<EPS-BASIC> (0.16) (1.11)
<EPS-DILUTED> (0.16) (1.11)
</TABLE>
