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