UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
|X| Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended December 31, 2000
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ______ to _______.
Commission File Number 000-30331
STRUTHERS, Inc.
(Exact name of registrant as specified in its charter)
NEVADA 57-1075246
(State of other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
1866-B RAOUL WALLENBERG BLVD, CHARLESTON, SOUTH CAROLINA 29407
(Address and zip code of principal executive offices)
(843)-763-1755 or (888)-400-8810
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $0.001 Par Value
Indicate by a 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), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendment to
this Form 10-K |X|.
While it is difficult to determine the number of shares owned by non-affiliates,
the Registrant estimates that the aggregate market value of the Common Stock
held by non-affiliates was approximately $41,844,458 on March 28, 2001 (based
upon the closing price shown on the Nasdaq OTC Bulletin Board of $.12 on March
28, 2001). For this
computation, the Registrant has excluded the market value of all shares of its
Common Stock reported as beneficially owned by officers, directors and certain
significant stockholders of the Registrant. Such exclusion shall not be deemed
to constitute an admission that any such stockholder is an affiliate of the
Registrant.
The number of shares of Common Stock, par value $0.001, of the Registrant
outstanding as of March 28, 2001 was 379,661,630 shares.
SUMMARY TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussions and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties, as well as assumptions that, if they never
materialize or prove correct, could cause the results of Struthers and its
consolidated subsidiaries to differ materially from those expressed or implied
by such forward-looking statements. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements,
including projections of earnings, revenues or other financial items; any
statements of the plans, strategies, and objectives of management for future
operations; any statements concerning proposed new products, services, or
developments; any statements regarding future economic conditions or
performance; statements of belief and any statement or assumptions underlying
any of the foregoing. The risks, uncertainties and assumptions referred to above
include the ability of Struthers to retain and motivate key employees; the
timely development, production and acceptance of products and services; the flow
of products into third party distribution channels; the difficulty of keeping
expense growth at modest levels while increasing revenues; and other risks that
are described in reports filed with the Securities and Exchange Commission,
including but not limited to the items discussed in "Factors That Could Affect
Future Results" set forth in Management's Discussion and Analysis of Operations
and Financial Condition" in Item 7 below in this report. Struthers assumes no
responsibility to update these forward-looking statements.
PART I
ITEM 1. BUSINESS
Description of Business
In August 1997, Ronald Struthers licensed his porcine embryo transfer
technology to a company of which he was a controlling stockholder, Struthers
International Research Corporation (SIRC). By June 1998 SIRC was dormant, with
no operating capital, its only asset being the porcine embryo transfer
technology. Thus, on June 12, 1998 Ronald Struthers and SIRC in contemplation of
transferring the technology to Orbis Development, Inc. ("Orbis") agreed to
terminate the license. On June 18, 1998, in simultaneous and related
transactions, with the anticipation that having stock in a new enterprise (the
"Registrant") would offer the stockholders of SIRC the opportunity to realize
some value from their investments, Ronald Struthers, in consideration of a
controlling stock position (51%), assigned the porcine embryo transfer
technology to Orbis Development Inc. (a public company incorporated in Nevada in
1995 under the name Latitude Network Inc.) (Orbis); amended its Certificate of
Incorporation to change its name to Struthers, Inc. (the "Registrant") and
agreed to distribute ten shares of common stock of the Registrant to each of the
shareholders of SIRC of record as of September 1, 1998 for each share of SIRC
held by them.
Failing in his attempts to fund operation of the Company on November 1,
1998, he appointed a new board of directors, turned over voting control and
resigned as an officer and director. As a SIRC shareholder of record on
September 1, 1998 he received 24,246,250 shares of the Registrant as part of the
10 for 1 share distribution made to all SIRC shareholders. He received no other
consideration for his 51% equity position in the Company. New management opened
an office in Charleston, South Carolina and proceeded with the business of
building the Registrant into the Company, as it exists today.
Effective August 25, 1998 the Registrant's outstanding shares were
reverse split 1000 for 1 and effective September 1,1998 forward split its shares
on a 10 for 1 basis. On September 2, 1999 the Registrant's Certificate of
Incorporation was further amended to authorize it to issue 900,000,000 shares of
common stock par value $.001. In February 2000 the Registrant amended its
Articles of Incorporation to increase the number of shares it is authorized to
issue to 906,520,000 shares of which 900 million shares are common stock and
6,520,000 are preferred stock.
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The Company's business is the sale and marketing of products and
services designed to increase reproductive efficiency, animal production and
quality in the swine industry utilizing the technology and products it has
developed. Principal sources of revenue are through the sale of gilts (young
females that have not given birth to pigs), mature boars, barrows (castrated
male hogs), semen, artificial insemination supplies, embryo transfer services,
including embryo transfer equipment and training. Commencing in September 1998,
the Company began developing a semen delivery system for use in artificial
insemination which is now commercially available and a non-surgical porcine
embryo transfer system which to date is not commercially available. Embryo
transfer is the ability to remove an embryo from a genetically superior animal
and introduce it into a surrogate host (mature recipient female). This has been
done successfully, commercially in other large farm animals but has never been
successfully commercialized in swine due to the intricate nature of the swine
reproductive system.
The advantages of embryo transfer are: (i) bloodlines are changed after
only one generation, when compared to traditional means of introducing a new
line of genetics through natural breeding or semen; (ii) no quarantine
requirements compared with live animals; (iii) low incidence of disease
transference, as embryos are "washed" in a proprietary solution to virtually
remove any disease which may be present on the membrane of the embryos, when
compared to natural or artificial insemination where disease may be transferred;
(iv) reduced transportation costs, when compared to live animal transfer because
embryos are transferred in a special heated briefcase; (v) high fertilization
rate, when compared to traditional artificial insemination techniques; and (vi)
uses existing livestock - embryos are implanted in the farmers' existing sows,
rather than risking the chance of disease transference through the introduction
of new animals to the herd.
Struthers was the first company to successfully achieve commercial
viability of surgical embryo transfer in swine when, in 1998, the Company
successfully transferred and implanted embryos into sows in Czechoslovakia, a
procedure which had previously only been employed in a laboratory setting. Since
then, the Company further developed its embryo transfer system, designing its
own Mobile Operating Theatre - a specially designed self-contained trailer,
towed behind a truck to the embryo transfer sites. This Mobile Operating Theatre
has been used with our own herds to improve our surgical procedures and to prove
the safety and cost effectiveness of the technology. To date, there have been no
known instances of disease transference or deaths resulting from the surgical
embryo transfer procedures. Further, based on the experience gained from these
transfers, the cost of the procedure is very favorable when compared to the
alternative of purchasing a herd of genetically superior gilts.
The Company has continued its product development to encompass the
technologies of non-surgical embryo transfer and an advanced semen delivery
system. In April 2000, the Company began experimenting with the Gourley Scope, a
device originally designed for artificial insemination in sheep, modifying it
for reproductive use with swine. The first trials involving non-surgical
transfer of embryos utilizing the Gourley Scope were conducted on May 13, 2000.
Subsequently, based upon the initial results, the Company acquired the rights to
the device on June 1, 2000. Research has continued with the use of the Gourley
Scope in non-surgical transfers and also in other applications such as
artificial insemination using both fresh and frozen semen. To date, more than
3,500 procedures have been performed on swine using the Gourley Scope without
adverse health consequences or a single death among the animals resulting from
the procedure. With the recent birth of the first litter of swine resulting from
non-surgically implanted embryos, announced on September 5, 2000, the Company's
prospects for successful commercialization of the embryo transfer process in the
swine industry has been advanced considerably. While product development
continues, the Company believes the new technology will be well received by the
swine industry, due to the added benefits of potential cost reductions and
convenience offered by this new non-surgical embryo and semen implantation
device. It is currently estimated that the first commercial applications of the
non-surgical swine embryo implantation technology may generate revenues in the
first quarter of 2001. It is premature to estimate the probable revenues or
costs of such applications, since the scope of such activities is yet to be
defined.
The Company believes that swine industry demands for accelerated
genetic advancement and selection will be met by the safe and cost effective
Struthers embryo transfer system and the use of the Company's superior genetic
line (breeding stock,
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semen). The Company believes that embryo transfer and genetic implantation will
become the principal commercial vehicle of genetic sales and exchange in the
swine industry as seen in other animal husbandry industries (i.e., cattle) and
will lead to new and innovative breeding strategies for the direct selection of
lean high quality pork. The Company believes by utilizing the combined benefits
of Struthers superior genetic line and embryo transfer technology, profitability
is increased while the risk of disease transmission is reduced.
On November 2, 1999 the Company entered into an agreement with Legred
Genetics, Inc., Legred Genetics and Brent Legred ("Legred") pursuant to which
the Company purchased physical assets, including livestock, operating equipment
and Legred's rights under an agreement with Norsvin International AS
("Norsvin"), an international developer and distributor of porcine genetic
materials and technology ("Legred Assets"). The purchase price was determined
based on management's knowledge of the industry and other studies conducted by
management. The aggregate amount of the purchase price was $5,000,000, of which
$1,000,000 was paid in cash, 2,220,000 shares of common stock at closing valued
at $250,000 and 6,660,000 shares of common stock valued at $750,000 due on
January 1, 2000 (based on the fair value of the common stock as of the date of
the agreement). The balance of $3,000,000 payable in the Company's common stock,
the final number of which shares will be determined based on the market value of
the Company's common shares at the dates payable as follows: $1,000,000 due May
2, 2000; $1,000,000 due November 2, 2000 and $1,000,000 due May 2, 2001. The
fair market value of the common shares the Registrant is required to issue to
Legred is $4 million. Pursuant to the Agreement with Legred, to date (February
28, 2001), the Company has issued 12,924,304 shares valued at $3,000,000 (based
on the average trading price on the due dates issued). Additional shares valued
at $1 million are to be issued on or about May 2, 2001. The cash portion of the
consideration paid to Legred was satisfied by means of a cash payment of
$100,000 on November 5, 1999 and a note payable in the amount of $900,000; which
was subsequently paid in full on February 15, 2000.
The Company was obligated under the purchase agreement with Legred to
build and subsequently did build and equip a boar stud unit and operating
laboratory, the cost of which was approximately $1,200,000. In anticipation of
the execution of the said agreement, the Company formed a wholly owned
subsidiary incorporated in the State of Nevada on October 21, 1999 and called
Legred Struthers Genetics, Inc. ("LSG"). All of the Legred Assets were
transferred into LSG.
One of the assets acquired from Legred Genetics, Inc. was Legred's
rights under an agreement with Norsvin International AS (an unrelated third
party). Under this agreement LSG has, among other things, the exclusive right to
sell semen and animals produced from Norsvin swine genetics throughout the
United States. Legred is obligated to pay a royalty equal to 4% of revenues
derived from sale of progeny or semen produced from animals previously purchased
from Norsvin. Royalties are payable to Norsvin on a semi-annual basis of which
$1,683 and $12,628 was paid to Norsvin for the period from the date of the
Legred acquisition through December 31, 1999 and for the year ended December 31,
2000, respectively. As of December 31, 2000 there are no material long- term or
short-term purchase contracts or sales agreements pertaining to the sale or
purchase of Norsvin genetics.
LSG is currently able to supply seven superior lines of swine genetics
developed from genetic lines over the past 20 years and the addition of Norsvin
breeding stock. All swine genetic sales (semen, live animal sales, and embryos)
occur through LSG. The Company has entered into written agreements with 11
independent Swineherd Farmers to provide breeding gilts and barrows to the
Company for sale to the Company's customers. As of December 31, 2000 the herds
consist of approximately 28,500 swine. Under the agreements, the Company has a
first right of refusal to purchase any and all animals produced which the
Company then resells to its customers at a profit. The agreements with these
farmers are known as "Gilt Multiplier" agreements. Only quality offspring
(principally gilts) are selected and purchased from the Swineherd Farmer for
sale to the Company's customers, hence a "genetic premium" ranging from $20 to
$52 is paid to the Swineherd Farmer. Because these contracts enable the
Registrant to produce many more animals for sale to its customers than it could
otherwise from its own herds alone, these agreements are termed "Multiplier
Herd" agreements, since the Company has, in effect, "multiplied" its genetic
capabilities. None of these swine are fed animal protein in their growth diet
and great care is taken against the introduction of any harmful chemicals and
unnecessary antibiotic products.
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On June 1, 2000, the Company purchased the assets of Elite Visions
L.L.C. of Waukon, Iowa. The total purchase price was based upon management
studies was $2,154,445. The consideration paid was $22,000 in cash plus
$1,888,860 in common stock (2,303,488 shares issued on August 4, 2000 and valued
at $.82 per share at the date of the agreement) and the assumption of certain
liabilities in the amount of $243,585. The purchased assets include the physical
assets (i.e., land and building, furniture and fixtures, and office equipment
and office equipment) and the assignment of all rights to a patented item called
the "Gourley Scope(Tm)" (Trademark applied for), an instrument used for
non-surgical semen delivery in animal husbandry including swine. The scope
employs the imaging technology of a 1 mm camera, transmitter, and light source,
which allows the technician to view the reproductive system and deliver the
semen or embryo to the appropriate area of the reproductive tract for maximum
conception. In anticipation of the execution of the said agreement, the Company
formed a wholly owned subsidiary that was incorporated in the State of Nevada on
May 26, 2000 and called Elite Visions, Inc. ("Elite"). Elite constructed a meat
distribution facility for the Registrant's Tender Prime(TM) line of meat
products in Waukon, Iowa, which was completed at a cost of approximately $50,000
in October 2000.
On May 15, 2000, the Company purchased the assets of Muller A.I.,
L.L.C. of Sioux Falls, South Dakota, a company in the business of retail and
wholesale of various goods and supplies utilized in the artificial insemination
of farm animals. The total purchase price which was based upon studies by
management was $252,857. The consideration paid was $131,290 in cash plus
$100,000 of common stock (195,168 shares issued on August 4, 2000 and valued at
$.51238 per share at the date of the agreement) and the assumption of $21,267 in
liabilities. The assets included all furniture, fixtures and equipment as well
as all supplies, materials and merchandise relating to and used in connection
with such business, including its list of customers and other items of goodwill.
The Company did not assume any of the liabilities of Muller A.I., L.L.C. except
for a customer deposit in the amount of $21,267. The Company formed a wholly
owned subsidiary that was incorporated in the State of Nevada on May 26, 2000
and called Muller A.I., Inc. ("Muller").
Competition
At present, the Company must compete with both national and
international swine genetic companies that are vastly larger in scope and
resources. The Company must also price many of its products and services at
rates that are competitive to these larger competitors, even though the
Registrant believes its products may be superior in quality. The Company uses
its best efforts to differentiate itself from the competition principally
through education of its customers as to the quality of its product and through
better service to its customers. In addition, the Company provides a warranty,
as described below. To date, to our knowledge, no one company alone supplies all
of the services that the Company can and does supply, i.e., semen, gilts, boars,
artificial insemination supplies, the reproductive technology of the semen
delivery and embryo transfer systems, animal husbandry and facility design,
consultation and training. The Company warrants its product line to the extent
that the customers may return unused defective products. The breeding animals
also carry a guaranty from the Company that guarantees a percentage of the
animals will breed. If a percentage of the animals do not conceive (fertilized),
they are replaced at market price with no genetic premium paid by the client up
to 10% of the animals purchased. For these reasons, the Company believes it can
compete successfully in the market place for genetic products and swine.
There is no guarantee that Embryo Transfer Technology will become the
"standard" for the swine industry nor that Struthers, Inc. will ultimately
become the "market leader" either in revenues or technology. The Company
therefore strives to continue to improve both its products and its visibility in
the industry against competitors. In addition, Struthers, Inc. has attempted to
protect itself through its patents and proprietary processes and techniques. It
is similarly difficult to estimate the value to the industry or its customers
upon the deployment of the Company's technology or of the costs which may be
incurred in further product development, manufacture and marketing activities,
due to the fact the Company's technology is unique and there is no previous
product "track record" to compare to.
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EFFECT OF GOVERNMENT REGULATIONS ON THE REGISTRANT'S BUSINESS
Currently, the Company must follow regulations and guidelines set by
numerous departments of the United States Department of Agriculture (USDA) for
policies and procedures pertaining to the raising of animals and the processing
and distribution of meat products. The Company also is subject to regulations
set forth by the Animal and Plant Health Inspection Service (APHIS) and the USDA
in areas of agricultural biotechnology permitting, notification, animal
quarantine issues and in Deregulation Biotechnology Permits. The Company must
also report to APHIS, which is responsible for enforcing regulations governing
the import and export of plants and animals within and outside the United
States. The Company must comply with all regulations as they may apply
concerning product labeling, animal health issues, product contamination, and
the importation and exportation of animals, semen and embryos. To date the
Company has complied with all of the above regulations and guidelines and is not
aware of any violations of the items listed above. The Company is also aware
that they may be subject to fines if any violations occur. With respect to
slaughter practices, the Company utilizes only USDA inspected slaughter and
packaging facilities to process and package their meat products.
The Company must also comply with regulations set forth by the
Environmental Protection Agency (EPA) with respect to the containment and
spreading of animal waste material and also chemical emissions and groundwater
contamination issues. The Registrant has obtained the necessary permits for the
proper disposal or spreading of animal waste products. To date, the Company is
unaware of any violations with respect to the above matters.
The Company is a member of the International Embryo Transfer Society
(IETS) (a self-regulating industry body). As such, the Company complies with
protocols set forth by the IETS for the safe handling of animals, transportation
of genetic material, surgical removal of embryos and the surgical and
non-surgical implantation of embryos.
Distribution of Products, Services and Marketing by Subsidiaries
Legred Struthers Genetics, Inc. (LSG)
Products
Semen - collected and processed at the boar stud
facilities. Semen is sold on a yearly contract basis.
The sales price of semen is dependent upon volume
ordered.
Gilts (female prepubescent animal) - are sold from.
gilt multiplier farms (a producer hog farm contracted
independently to raise our genetic lines of sows which
produce offspring as breeding stock for sale by LSG).
LSG at present has contracts with 11 independent
Swineherd Farmers who raise gilts and barrows for
purchase and resale to its customers. The contracts
are written on a "first right of refusal" basis such
that the Company is generally not obligated to
purchase any specified numbers of animals. Due to this
arrangement, the Company has the flexibility to
service any reasonably anticipated demand without the
Capital outlay required to maintain the herd sizes,
and, to ensure profit
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margins on the animals it sells to its customers. To
date, the agreements are terminable and renegotiable
on an annual basis.
Boars - Boars are sold on an individual basis from LSG
breeding stock at prices ranging from $500.00 to
$5,400.00 depending upon lineage and quality.
Customer Base
Gilt Multiplier Herds: The eleven gilt multiplier
herds that have been contracted to produce and raise
gilts for sale constitute a major source of supply of
genetic material. The loss of two or more of these
clients would result in a temporary reduction of
breeding stock until additional agreements are entered
into.
LSG is not dependent upon any one customer for sale of
its swine, nor does any one customer account for ten
percent or more of the Registrant's consolidated
revenues and the loss of such customer would not have
a material adverse effect on the Company and its
subsidiaries taken as a whole.
Principal Markets
Gilts, boars and semen are primarily sold to hog
producers for raising market hogs for slaughter;
repopulating of herds lost to disease; completely
changing genetic lines; or the population of new swine
production facilities.
Marketing and Advertising
Brochures with genetic lines and price lists; reprints
of articles from trade papers that feature LSG; and
carcass data (detail analysis of meat quality provided
by slaughter centers) are distributed via sales force
at trade shows, industry events, and via mailings.
Professional Associations
The Company is a member of the National Pork Producers
Council (NPPC) and the International Embryo Transfer
Society (IETS) and utilizes resources made available
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by these organizations (i.e., training, education, and
research papers).
Muller, A.I., Inc.
Products and Services
Wholesale and retail marketing of artificial
insemination (AI) supplies, and equipment. Provides
boar stud and breeding facility consulting services
consisting of facility design, feeding and health
maintenance, and AI training programs.
Principal Markets
Hog production facilities that use artificial
insemination techniques.
Veterinarians, wholesale and retail outlets that use
and sell animal husbandry products.
Marketing and Advertising
Direct visits and phone calls to present and potential
customers.
Brochures and price lists distributed to potential
customers and client base.
Attendance and displays at trade shows; print
advertising in trade papers and magazines.
Customer Base
Muller A.I., Inc. is not dependent upon any one
customer, nor does one customer constitute an amount
equal to ten percent or more of the Company's
consolidated revenues and the loss of such customer
would not have a material adverse effect on the
Company or its subsidiaries.
Elite Visions, Inc.
Product Development
Gourley Scope(TM)
To date, the Gourley Scope(TM) is in the product
development and testing phase, and thus, no pro forma
projection of revenues has been made. The Company is
continuing on the development of the Semen Delivery
System and the Embryo Transfer System,
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incorporating the Gourley Scope (TM) in order to make
implantation of swine embryos non- surgical.
Tender Prime(TM)
In the fourth quarter of 1999, the Company began to
test market a line of high quality, value added pork
products. The Company has completed the label design
and trademark was applied for of the Tender Prime(TM)
name and logo. The Company began selling its Tender
Prime(TM) pork products during the third quarter of
2000 and is currently shipping approximately 50,000
lbs per week.
Trademarks
Currently pending with the U.S. Patent and Trademark
Office are special intent to use applications for the
following:
TENDER PRIME and TENDUR PRIME: These trademarks will
be used in connection with genetically bred swine,
namely pigs and hogs, and meat products derived
therefrom; and
GOURLEY SCOPE: This Trademark will be used in
connection with the non-surgical embryo and semen
transfer device. Patent issued in the United States,
Australia and New Zealand. (Exhibits)
An "actual use" application has been filed with the U.S.
Patent and Trademark Office for Tender Prime(TM) logo. The Tender
Prime(TM) logo design comprises a shield with the name "Struthers
Certified" across the top, a picture of a pig in the middle and a
banner across bottom of the shield.
As the Company believes its embryo transfer system to be
proprietary technology, it has not as of this date filed for
trademark, word mark or U.S. Patent.
EMPLOYEES
The Company and its subsidiaries employ a total of 34 people. Seven
full-time employees are located in the Company's administrative offices in
Charleston, South Carolina. There is one full-time employee and two part-time
employees in the Company's research facility in Spencer, Iowa. In the Company's
boar stud operations in Wells and Bricelyn, Minnesota there are nine full-time
employees and one part-time employee and one student employee. Elite Visions,
Inc. has eight full-time employees and two part- time employees in Waukon, Iowa.
Muller, A.I., Inc. has three full-time employees in Sioux Falls, South Dakota.
None of the employees are unionized.
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ITEM 2. PROPERTIES
Description of Properties
The Company maintains its executive offices in approximately 2,200 sq.
ft. of space in Charleston, South Carolina pursuant to a 5 year operating lease
at $2,984 per month commencing November 1, 2000. The lease contains an annual
escalator clause of 4% of the prior years base rent.
The Company has a field office containing approximately 1,500 sq. ft.
located in Bricelyn, Minnesota in a building owned by Legred Struthers Genetics,
Inc. The property was purchased on January 21, 2000 for $50,000 and is subject
to a $40,000 first mortgage. The Company has an approximately 22,000 sq. ft.
facility with housing for 400 boars, semen processing and embryo transfer
operating rooms and administrative offices. It is located on 40 acres of leased
land at $1 per year for 99 years located in Bricelyn, Minnesota. Also in
Bricelyn, Minnesota is a 175-boar stud unit facility containing approximately
5,000 sq. ft. under a month-to-month lease at a rental of $750 per month. In
addition, the Company's Great Grand Parent sow herds are located at 10
additional facilities rented under various arrangements, none of which extend
over a one-year period.
The Company's Muller AI subsidiary operates from a leased facility of
approximately 5,000 sq. ft. located in Sioux Falls, South Dakota under a
one-year lease at $1000 a month.
The Company's Elite Visions subsidiary operates its administrative,
assembly, warehouse and retail operation from its 6,800 sq. ft. building which
it owns in Waukon, Iowa. In addition, the Company leases two properties
containing training, laboratories and a farm operation at a monthly rental of
$6,000 per month.
The Company has leased two gestation barns, one 1,800 sq. ft. and the
other 2,400 sq. ft. in Spencer, Iowa consisting of approximately 4 acres that is
used as a research facility under a month to month lease at a monthly rental of
$500.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending lawsuits, nor have
any been threatened and to the best of its knowledge, none are contemplated. No
such proceedings are known by the Company to be contemplated by any governmental
authority.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(1) The Company's Annual Meeting of Stockholders wa held on October
28, 2000.
(2) Messrs. Douglas W. Beatty and Rhett C. Seabrook were nominated
for re- election as directors to hold office until the next
Annual Meeting of Stockholders and until their respective
successors shall have been duly elected and qualified. Both
Messrs. Beatty and Seabrook were re-elected. The vote was as
follows:
Abstentions/
Name For Against
---- --- -------
Douglas W. Beatty 243,960,096 19,300
Rhett C. Seabrook 243,940,769 19,300
(3) (i) Vote was taken to ratify and approve the appointment of
Rotenberg & Company, LLP, as independent auditors for the year
ending December 31, 2000 and to authorize the directors to fix
auditors' remuneration. The vote was as follows:
Abstentions/
For Against
243,889,376 70,720
-9-
(ii) Vote was taken to ratify, approve and confirm all prior
actions of the directors and officers of the Company and all
filed amendments to the Company's Articles of Incorporation. The
vote was as follows:
Abstentions/
For Against
242,829,626 1,130,470
(4)Not applicable
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock commenced trading on the OTC Bulletin Board on June
16, 1998 under the symbol "STRU". The following table sets forth, for the fiscal
periods indicated, the high and low bid prices of a share of Common Stock as
reported by the OTC Bulletin Board for periods on and subsequent to June 16,
1998. Such quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
High Low
---- ---
Fiscal Year 1998
3rd quarter 6.37 .09
4th quarter .06 .01
Fiscal Year 1999
1st quarter .03 .01
2nd quarter .60 .01
3rd quarter .28 .09
4th quarter .52 .07
Fiscal Year 2000
1st quarter 1.66 .27
2nd quarter 1.09 .44
3rd quarter .56 .33
4th quarter .60 .18
Fiscal Year 2001
1st quarter .35 .09
There are no restrictions that currently materially limit the
Company's ability to pay dividends or that the Company believes are likely to
limit materially the future payments of dividends. The Company has not paid any
dividends to date. For the foreseeable future it is anticipated that any
earnings, which may be generated from operations, will be used to finance
growth. Therefore, it is not expected that cash dividends will be paid to
stockholders any time in the foreseeable future.
As of March 28,2001 there were approximately 1573 holders of record of the
Common Stock.
-10-
ITEM 6. SELECTED FINANCIAL DATA
STRUTHERS, INC. AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,
Operating Revenues: 2000 1999 (1) 1998 (2)
- ---------------------------------- ------------------------- ------------------------ -------------------------
Semen $ 241,355 $ 31,074 $ ---
- ---------------------------------- ------------------------- ------------------------ -------------------------
GILTS 844,791 201,736 ---
- ---------------------------------- ------------------------- ------------------------ -------------------------
BOARS AND BARROWS 346,663 59,758 ---
- ---------------------------------- ------------------------- ------------------------ -------------------------
MARKET SWINE 1,437,963 19,895 ---
- ---------------------------------- ------------------------- ------------------------ -------------------------
ARTIFICIAL INSEMINATION
SUPPLIES 424,116 14,896 ---
- ---------------------------------- ------------------------- ------------------------ -------------------------
GENETIC AND RELATED
196,305 5,692 ---
SERVICES
- ---------------------------------- ------------------------- ------------------------ -------------------------
TOTAL OPERATING REVENUES $ 3,491,193 $ 333,051 $ ---
- ---------------------------------- ------------------------- ------------------------ -------------------------
- ---------------------------------- ------------------------- ------------------------ -------------------------
NET LOSS $ (3,209,844) $ (617,061) $ (524,129)
- ---------------------------------- ------------------------- ------------------------ -------------------------
NET LOSS PER SHARE
- BASIC AND DILUTED $ (0.01) $ (0.00) $ (0.00)
- ---------------------------------- ------------------------- ------------------------ -------------------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 370,233,232 342,207,620 316,354,380
- ---------------------------------- ------------------------- ------------------------ -------------------------
AS OF DECEMBER 31,
Balance Sheet Data: 2000 1999 1998
- ---------------------------------- ------------------------- ------------------------ --------------------------
CASH AND CASH
EQUIVALENTS $ 1,446,436 $ 201,160 $ ---
- ---------------------------------- ------------------------- ------------------------ --------------------------
WORKING CAPITAL (3) 2,504,688 (345,632) 2,278
- ---------------------------------- ------------------------- ------------------------ --------------------------
TOTAL ASSETS 10,539,442 5,329,291 2,278
- ---------------------------------- ------------------------- ------------------------ --------------------------
LONG TERM DEBT (3) 120,363 --- ---
- ---------------------------------- ------------------------- ------------------------ --------------------------
STOCKHOLDERS EQUITY 9,031,530 572,474 (85,365)
- ---------------------------------- ------------------------- ------------------------ --------------------------
<FN>
(1) REFLECTS OPERATING RESULTS OF THE FARM OPERATIONS FOR THE TWO MONTHS FROM
THE DATE OF THE LEGRED ACQUISITION THROUGH DECEMBER 31, 1999.
(2) THERE WAS NO FINANCIAL ACTIVITY IN 1997 OR 1996.
(3) EXCLUSIVE OF OBLIGATIONS PAYABLE IN COMMON STOCK.
</FN>
-11-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes that appear elsewhere in
this document.
OVERVIEW
The Company completed its first full year of operations and ended the
year 2000 with a net loss $3,209,844 on total operating revenues of $3,491,193
as compared with a net loss of $617,061 on total operating revenues of $333,051
for 1999. The Company first began operations with the Legred acquisition in
November 1999.
The Company's current stud boar units located in Bricelyn and Wells,
Minnesota, house 206 Great Grand Parent boars that produce semen for sale. The
new state-of-the- art stud boar facility also located in Bricelyn will house 400
additional boars was completed during September 2000. Each boar produces 1,200
doses of semen per year with a retail price per dose of $7.00. At capacity, the
facility can produce 480,000 doses of semen per year. Semen sales for the year
2000 were $241,355 as compared with $31,074 for the two months from the date of
acquisition of Legred through December 31, 1999.
Gilt sales (prepubescent breeding sows) are supplied through the
Company's gilt multiplier system. The Company generates an average of 450 gilt
sales per month with an average sales price of $195 per gilt. The Company
currently has contracts with eleven gilt multiplier farms for the production of
our superior genetic lines of gilts and barrows. Gilt sales for the year 2000
were $844,791 as compared with $201,726 for the two months from the date of
acquisition of Legred through December 31, 1999. Gilt sales decreased from
$480,585 for the first six months of 2000 to $364,206 for the second six months
of 2000 because the Company was expanding its own breeding herds and also
reflects the seasonality of live animal sales.
Boar and barrow (prepubescent boars) sales are also made through the
multiplier system or from the core genetic herd. Boar and barrow sales for the
year 2000 were $346,663 as compared with $59,758 for the two months from the
date of acquisition of Legred through December 31, 1999.
The Company currently has the following two agreements for the
production of Tender Prime(TM) line of meat products: Andy Bakken Farms d/b/a
A-B Duroc and Bowden & Pech formally Fairmont Finishers. Both customers purchase
gilts and semen from the LSG Duroc line of animals. The LSG line of Duroc was
chosen as the animal to be processed for the Tender Prime(TM) line of high end,
value added meat products.
The Company currently has alliances with other swine producers for the
rearing of our superior genetic line of hogs for market under Company's specific
developed programs in order to fulfill the needs of identified meat packers. The
Company collects a percentage of the premiums paid by meat packers for hogs from
our genetic line from both the Company's own herds and alliance herds. Current
premiums paid by meat packers for our top quality hogs range from $9.00 to
$22.00 per hog. Percentages paid to alliance hog producers vary on a per
contract basis, but generally range between $4.00 and $5.00 per hog. The Company
has identified several meat packers with needs for certain types of animals
under the Company's developed protocols and programs. The Company continues to
seek additional alliance herds to fulfill those identified needs and expects to
significantly expand its herd size in 2001. Market sales of hogs for the year
2000 were $1,437,963 as compared with $19,895 for the two months from the date
of acquisition of Legred through December 31, 1999. Included in sales for 2000
were sales of market hogs to a meat processor of $723,833 during the first six
months of the year. The balance of the increase in sales of market hogs during
the year was attributable to sales of isoweaners (baby pigs recently weaned from
their mothers) and Tender Prime meat products. Sales of market hogs decreased
significantly in the second half of the year because the Company instituted a
change in its meat distribution channel from wholesale sales to meat packers to
upstream direct retail sales to customers. Initial shipments of the Company's
Tender Prime meat products to retail customers began late in the fourth quarter.
-12-
Sales of artificial insemination supplies were $424,116 for the year 2000
as compared with $14,896 for the two months from the date of acquisition of
Legred through December 31, 1999. The increase in sales of artificial
insemination supplies was primarily attributable to the acquisitions of Elite
Visions and Muller A.I. during the year.
Sales of genetic and related services were $196,305 for the year 2000
as compared with $5,692 for the two months from the date of acquisition of
Legred through December 31, 1999. The increase in sales was primarily
attributable to the The Company has perfected the surgical Embryo Transfer
System and is currently improving the procedure to include the non-surgical
implantation of embryos. The Company anticipates including this technology into
its overall marketing plans during the first quarter of 2001.
The Company acquired the rights to the Gourley Scope, an instrument used
for non-surgical semen delivery and embryo transfer in animal husbandry
including swine, through the acquisition of Elite Visions during the year. The
Gourley Scope was utilized in Artificial Insemination during the fourth quarter
2000 in Beta Herd test markets under the direct supervision of Dr. Carlson, the
Company's consulting veterinarian. The current breeding herds under Dr.
Carlson's supervision are between 35,000 and 45,000 animals. The Company
anticipates significant increases in revenues from the lease of Gourley Scopes
and sales of sheaths and semen during 2001.
-13-
RESULTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31, 2000.
The following table sets forth, for the years indicated, the
percentages of total revenues represented by certain items reflected in the
consolidated statements of operations.
Operating Revenues: For the Year Ended December 31,
2000 1999 (1) 1998 (2)
- --------------------------------------- --------------- --------------- ---------
Semen 6.9% 9.3% ---%
- --------------------------------------- --------------- --------------- -------
Gilts 24.2% 60.6% ---%
- --------------------------------------- --------------- --------------- -------
Boars and Barrows 9.9% 17.9% ---%
- --------------------------------------- --------------- --------------- -------
Market Swine 41.2% 6.0% ---%
- --------------------------------------- --------------- --------------- -------
Artificial Insemination
Supplies 12.2% 4.5% ---%
- --------------------------------------- --------------- --------------- -------
Genetic and Related Services 5.6% 1.7% ---%
- --------------------------------------- --------------- --------------- -------
- --------------------------------------- --------------- --------------- -------
Total Operating Revenues 100.0% 100.0% ---%
- --------------------------------------- --------------- --------------- -------
- --------------------------------------- --------------- --------------- -------
Cost of Sales 83.5% 50.9% ---%
- --------------------------------------- --------------- --------------- -------
- --------------------------------------- --------------- --------------- -------
Gross Profit 16.5% 49.1% ---%
- --------------------------------------- --------------- --------------- -------
- --------------------------------------- --------------- --------------- -------
Expenses:
- --------------------------------------- --------------- --------------- -------
Research and Development 7.5% 3.0% ---%
- --------------------------------------- --------------- --------------- -------
Marketing and Advertising 5.1% 6.1% ---%
- --------------------------------------- --------------- --------------- -------
General and Administrative 65.4% 159.1% ---%
- --------------------------------------- --------------- --------------- -------
Amortization and
Depreciation 34.0% 60.9% ---%
- --------------------------------------- --------------- --------------- -------
Total Expenses 112.0% 229.1% ---%
- --------------------------------------- --------------- --------------- -------
Operating Loss (95.5%) (180.0%) ---%
- --------------------------------------- --------------- --------------- -------
- --------------------------------------- --------------- --------------- -------
Other Income (Loss) 3.5% (4.9%) ---%
- --------------------------------------- --------------- --------------- -------
- --------------------------------------- --------------- ---------------- ------
Loss Before Income Taxes (92.0%) (184.9%) ---%
- --------------------------------------- --------------- ---------------- ------
- --------------------------------------- --------------- ---------------- ------
Income Taxes --- .3 ---%
- --------------------------------------- --------------- ---------------- ------
- --------------------------------------- --------------- ---------------- ------
Net Loss (92.0%) (185.2) ---%
- --------------------------------------- --------------- ---------------- ------
<FN>
(1) Reflects operating results of the farm operations for the two months from
the date of the Legred acquisition through December 31, 1999.
(2) There were no operating revenues in 1998 and there was no financial activity
in 1997 or 1996.
</FN>
-14-
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1999
REVENUES
Revenues for the year ended December 31, 2000 were $3,491,193 as
compared with $333,051 for the year ended December 31, 1999. Included therein
are gross revenues of $42,079 and $315,694 for the years 1999 and 2000,
respectively, from the sale of offspring and semen directly attributable to
Norsvin acquired boars representing approximately 12.6% and 9.0% of total
consolidated revenues. Of those sales the Company was obligated to pay a royalty
to Norsvin of 4% or approximately $1,683 and $12,628 for the year 1999 and 2000,
respectively. While the Company expects the sales under this arrangement to
increase in dollar volume, the Company expects the percentage contribution to
total consolidated revenues to continue to diminish in the future due to the
development of its other product lines. The Company first began to generate
revenues after the Legred acquisition in November 1999.
COST OF SALES
The cost of sales for the year ended December 31, 2000 was $2,914,217
and represented 83.5% of total revenues as compared with $169,609 representing
50.9% of total revenues for the year ended December 31, 1999. The increase in
cost of sales as a percentage of total revenues was caused by the changes in the
mix of products and services sold during the year and the additional costs to
operate the new state-of-the- art boar stud facility in the fourth quarter of
2000. There were no revenues generated from the new stud boar facility in the
fourth quarter of 2000. The primary components of cost of sales are the costs to
purchase and raise live animals, and the farm operations including feed,
veterinary costs, wages, and artificial insemination supplies.
RESEARCH AND DEVELOPMENT COSTS
The Company spent $260,850 on research and development activities for
the year 2000, representing 7.5% of total revenues as compared with $10,000
representing 3.0% of total revenues for the year ended December 31, 1999. The
increase was due primarily to the continued development of the semen and embryo
transfer technology and the addition of the Gourley Scope.
MARKETING AND ADVERTISING COSTS
Marketing and advertising costs for the year ended December 31, 2000
were $177,165 and represented 5.1% of total revenues as compared $20,242
representing 6.1% of total revenues for the year ended December 31, 1999.
-15-
GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs increased by $1,754,583 (331%) from
$529,838 for the year ended December 31, 1999 to $2,284,421 for the year ended
December 31, 2000. The increase in general and administrative costs was
primarily attributable to the Company's efforts in raising capital,
restructuring its business activities, acquisition completions, registration of
the Company's trademarks and patents, other legal and accounting fees,
employment related costs, registering its common stock with the Securities and
Exchange Commission and the Company's first annual shareholders meeting
including the costs of printing and distributing the annual shareholders
reports, and building its infrastructure to support anticipated growth during
2001. The primary components of general and administrative costs for the years
ended December 31, 2000 and 1999 were as follows:
2000 1999
Moving Costs - Office $ 33,097 $ ---
- ------------------------------------------------- --------------- -----------
Professional and Consulting Fees 595,863 178,743
- ------------------------------------------------- --------------- -----------
Printing and Reproduction 127,689 18,388
- ------------------------------------------------- --------------- -----------
Officers Salaries and Bonuses 424,308 80,000
- ------------------------------------------------- --------------- -----------
Other Wages and Benefits 200,190 65,713
- ------------------------------------------------- --------------- -----------
Stock Issued as Compensation to
Employees and Consultants 313,010 10,000
- ------------------------------------------------- --------------- -----------
Stock Issued - Charitable Contribution 42,000 40,000
- ------------------------------------------------- --------------- -----------
Leases and Rentals 94,624 25,550
- ------------------------------------------------- --------------- -----------
Telephone 75,481 26,877
- ------------------------------------------------- --------------- -----------
Travel Costs 99,293 20,482
- ------------------------------------------------- --------------- -----------
Meetings and Conventions 98,563 ---
- ------------------------------------------------- --------------- -----------
Bad Debts 38,000 ---
- ------------------------------------------------- --------------- -----------
Other Administrative and Office Costs 142,303 64,085
- ------------------------------------------------- --------------- -----------
- ------------------------------------------------- --------------- -----------
Total General and Administrative Costs $2,284,421 $ 529,838
- ------------------------------------------------- --------------- -----------
AMORTIZATION AND DEPRECIATION
Amortization and depreciation was $1,186,634 for the year ended
December 31, 2000 as compared with $202,946 for the year ended December 31,
1999. The increase in amortization and depreciation was attributable to the
acquisitions of Elite Visions, Inc. and Muller A. I., Inc. during the year 2000
and a full year of amortization and depreciation of the Legred acquisition.
OTHER INCOME (LOSS)
Other income for the year ended December 31, 2000 was $122,497 as
compared with a loss of $16,344 for the year ended December 31, 1999. The
increase reflects interest income earned on invested cash received on the sales
of common and preferred stock. The loss for 1999 includes a loss on a deposit to
purchase a 20% equity interest in an unrelated party called Struthers Pedigree
Herd Corporation. The parties could not reach an agreement on the final terms
and the Company rescinded the transaction. $80,000 of the initial $105,000
deposit was returned in June 2000.
PROVISION FOR TAXES
The provision for taxes represents minimum state franchise taxes. The
Company has not had any taxable income since its inception and therefore has not
incurred any income taxes. The Company has not recognized any deferred tax
benefits in connection with net operating loss carry-forwards and will not until
such time as it is more likely than not that the related tax benefits will be
realized.
-16-
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998
REVENUES
The Company generated revenues for the first time during the year 1999
as a result of the Legred acquisition. Total revenues for the year ended
December 31, 1999 were $333,051. The Company had no revenues in 1998.
COST OF SALES - FARM OPERATIONS
The cost of sales - farm operations for the year ended December 31,
1999 was $169,609 and represented 50.9% of total revenues. The Company had no
cost of sales in 1998. Cost of sales consists of the cost of farm animals sold,
freight, feed, supplies, veterinary fees and labor costs.
RESEARCH AND DEVELOPMENT COSTS
The Company incurred $10,000 in research and development costs in 1999
as compared with $180,074 in 1998. The 1999 research and development costs were
comprised primarily of lab expenses incurred since the Legred acquisition in
November 1999. The research and development costs in 1998 represented purchased
in-process Research and Development in connection with the acquisition of the
embryo transfer technology from Struthers International Research Corporation
(SIRC).
MARKETING AND ADVERTISING COSTS
Marketing and advertising costs for the year ended December 31, 1999
were $20,242 and represented 6.1% of total revenues. The Company had no
marketing and advertising costs in 1998.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs increased by $185,783 (54.0%) from
$344,055 in 1998 to $529,838 in 1999. The increase in general and administrative
costs was attributable to the Registrant's efforts in raising capital,
restructuring its business activities, and seeking a merger candidate. The
majority of the increase represents officers' wages of the parent corporation in
the amount of $80,000 and outside consulting, legal and accounting costs in the
amount of $93,683.
AMORTIZATION AND DEPRECIATION
Amortization and depreciation was $202,946 for the year ended
December 31, 1999 and was attributed primarily to the inclusion of the Legred
Struthers Genetics, Inc. Subsidiary. The Company had no depreciation and
amortization expense in 1998.
OTHER INCOME (LOSS)
Other income (loss) for 1999 of ($16,344) represented the net
investment loss for the year and included a $25,000 loss on a deposit to
purchase a 20% equity interest in an unrelated party called Struthers Pedigree
Herd Corporation. The parties could not reach an agreement on the final terms
and the Company rescinded the transaction.
-17-
$80,000 of the initial $105,000 deposit was returned in June 2000. The Company
had no investment activity in 1998.
PROVISION FOR TAXES
The provision for taxes represents minimum state franchise taxes. The
Company has not had any taxable income since its inception and therefore has not
incurred any income taxes. The Company has not recognized any deferred tax
benefits in connection with net operating loss carry-forwards and will not until
such time as it is more likely than not that the related tax benefits will be
realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and met its capital
requirements including the acquisition of Legred, Elite Visions and Muller A. I.
through the sales of equity securities. Cash flows from operations were a
negative $2,299,636 for the year ended December 31, 2000 as compared with a
negative $390,466 for the first year of operations in 1999.
Cash used in investing activities was $1,976,719 for the year ended
December 31, 2000 as compared with $243,052 for the year ended December 31,
1999. The Company used $1,906,719 of cash to purchase property and equipment
(including cash used in the acquisition of Elite Visions, Inc. and Muller A. I.)
and in construction of the new boar stud facility, $150,000 was advanced to an
officer of the Company in the form of a loan, and $80,000 was received on the
return of a deposit on an investment in the Struthers Pedigree Herd Corp.
Cash provided by financing activities was $5,521,631 for the year ended
December 31, 2000 as compared with $832,400 for the year ended December 31,
1999. The Company received net proceeds on preferred stock offerings of
$6,520,000 and paid $900,000 on the note payable to Brent Legred and $98,369 on
other notes payable assumed in the acquisition of Elite Visions during the year
ended December 31, 2000.
At December 31, 2000, the Company had working capital of $2,504,688
exclusive of $1,000,000 of short-term stock obligations payable in common stock
in connection with the Legred acquisition. The Company's primary source of
liquidity at December 31, 2000 was $1,446,436 in cash and cash equivalents,
$529,855 in accounts receivable, and $575,687 in inventories.
The Company may in the future pursue additional acquisitions of
businesses, products and technologies, or enter into joint venture arrangements,
that could complement or expand the Company's business. Any material acquisition
or joint venture could result in a decrease to the Company's working capital,
depending on the amount, timing and nature of the consideration to be paid. The
Company has not completed any negotiations for any significant acquisitions,
joint ventures or mergers at the present time that has not been disclosed.
In order to provide a possible source of funding for Struthers current
activities and for the continued development of its current and planned
products, and markets for its products, on March 23, 2001, we entered into a
Common Stock Purchase Agreement and Registration Rights Agreement, commonly
referred to as an equity line of credit agreement, with Alpha Venture Capital,
Inc. (as further described in Footnote O to the financial statements).
The Company does not have any material commitments for capital
expenditures during the next 12 months other than those disclosed herein. The
Company intends to use its existing cash and cash equivalent balances as of
December 31, 2000 to fund its operation and research development activities. In
addition the Company may avail itself of the proceeds from the sale of its
common stock under the equity line of credit agreement with Alpha Venture
Capital, Inc. for up to $10,000,000. Management believes that this will satisfy
the Company's operating working capital needs and capital expenditure
requirements for at least the next 12 months. The Company may consider various
alternatives for obtaining additional equity or debt financing should the need
occur. Any material acquisitions of complementary businesses, products, services
or technologies could require the Company to obtain such financing. There can be
no guarantee that such financing will be available on acceptable terms, if at
all.
-18-
EFFECTS OF INFLATION
Inflation has not had a material effect on the Company's revenues and
expenses since its inception and inflation is not expected to have a material
effect in the future.
FACTORS THAT COULD AFFECT FUTURE RESULTS
Competition
Struthers must compete with both national and international swine
genetic companies that are vastly larger in scope and resources. The Company
must price many of its products and services at rates that are competitive to
these larger competitors, even though the Company believes its products may be
superior in quality. The Company uses its best efforts to differentiate itself
from the competition principally through education of its customers as to the
quality of its product and through better service to its customers. In addition,
the Company provides a warranty, as described below. To date, to our knowledge,
no one company alone supplies all of the services that Struthers can and does
supply (i.e., semen, gilts, boars, artificial insemination supplies, the
reproductive technology of the semen delivery and embryo transfer systems,
animal husbandry and facility design consultation and training). The Company
warrants its product line to the extent that the customers may return unused
defective products. The breeding animals also carry a guaranty from the Company
that guarantees a percentage of the animals will breed. If a percentage of the
animals do not conceive (fertilized), they are replaced at market price with no
genetic premium paid by the client up to 10% of the animals purchased. For these
reasons, the Company believes it can compete successfully in the market place
for genetic products and swine. However, there can be no assurance that
Struthers will be able to maintain a competitive advantage, compete successfully
at a gross profit margin or achieve a volume of revenues necessary to become
profitable.
New Products and Services
Embryo Transfer Technology
There is no guarantee that our Embryo Transfer Technology will become
the "standard" for the swine industry or that Struthers, Inc. will ultimately
become the "market leader" either in revenues or technology. The Company
therefore strives to continue to improve both its products and its visibility in
the industry against competitors. Struthers has attempted to protect itself
through its patents and proprietary processes and techniques.. It is similarly
difficult to estimate the value to the industry or its customers upon the
deployment of the Company's technology or of the costs which may be incurred in
further product development, manufacture and marketing activities, due to the
fact the Company's technology is unique and there is no previous product "track
record" to compare to. We have only recently begun to generate revenues from the
use of our Embryo Transfer Technology. There can be no assurance that a market
will successfully develop for the Company's Embryo Transfer Technology or that
it will not become obsolete due to technological advances in the industry.
Gourley Scope
The Gourley Scope has been incorporated into the Company's Semen
Delivery System and Embryo Transfer System that we believe will redesign the way
producers of swine, sheep, deer, and other associated animal husbandry
industries breed worldwide. The Gourley Scope is still being tested in Beta
Herds under the supervision of the Company's veterinarian, Dr. Carlson. We have
only recently begun to realize revenues from the use of the Gourley Scope. We
are unable to predict whether or to the extent to which the Gourley Scope will
be accepted in the swine industry or the amount and timing of revenues we might
realize from them.
Other
The Company continues to develop, manufacture and market innovative
products and services that meet customer requirements for performance and
reliability although the Company may not gain market share and our future
revenue and earnings may suffer. The process of developing new high
biotechnology products and services is complex and uncertain. We must accurately
anticipate customers' needs and emerging technological
-19-
trends that are new to the industry. We consequently must make long-term
investment decisions and commit significant resources before knowing whether our
predictions will eventually result in products and services that the market will
accept.
Acquisitions, Strategic Alliances, Joint Ventures and Divestitures
In the normal course of business, we frequently engage in discussions
with third parties relating to possible acquisitions, strategic alliances, joint
ventures and divestitures. Although completion of any one transaction may not
have a material effect on our financial position, results of operations or cash
flows taken as a whole, it may contribute to our financial results differing
from the investment community's expectations in a given quarter. Divestiture of
a part of our business may result in the cancellation of orders and charges to
earnings. Acquisitions and strategic alliances may require us to integrate with
a different company culture, management team and business infrastructure.
Depending on the size and complexity of an acquisition, our successful
integration of the entity into Struthers depends on a variety of factors
including:
- The hiring and retention of key employees
- Management of facilities and employees in separate geographic
areas, and
- The integration or coordination of different research and
development and product and service facilities.
All of these efforts require varying levels of management resources,
which may divert our attention from other business operations.
Limited Operating History
We began operations in November 1999 with the acquisition of Legred
Genetics, Inc., Legred Genetics and Brent Legred ("Legred") and the subsequent
acquisitions of Muller A.I., LLC on May 15, 2000 and Elite Visions LLC on June
1, 2000. Because The Company has had operations for little over one year, it is
difficult to evaluate the viability of our business model and prospects. Our
swine genetics business, especially our Semen Delivery System and Embryo
Transfer Technology including the Gourley scope is unproven and has not yet
gained wide acceptance in the market. Most of our revenues to date have been
generated from the sales of our semen, live animals, Tender Prime line of pork
products, and artificial insemination supplies. We have only recently begun to
realize sales from our other services including, consulting, Embryo and semen
Transfer and the Gourley Scope. We are unable to predict whether or to the
extent to which our technologies will be accepted in the swine industry or the
amount and timing of revenues we might realize from them.
Our historical financial information is of limited value in projecting
our future operating results because of our limited operating history as a
combined organization and the emerging nature of our markets.
Gross Profit Margins
Our gross profit margins vary significantly among our products and
services, customer groups and geographic markets. Consequently, our overall
gross profit margins in any given period is partially dependent on the product,
services, customer, and geographic mix reflected in that period's net revenues.
History of Operating Losses
Struthers has a limited operating history of 14 months as such during
that period the Company has incurred significant losses from operations and
negative cash flows. Struthers to date has not earned a profit. As of December
31, 2000, the Company's accumulated deficit from operations was approximately
$4,400,000. We cannot be certain that we can achieve sufficient revenues in
relation to our expenses to become profitable or to become cash flow positive.
No assurance can be given that Struthers product development efforts will be
successfully marketed, the distribution channel for our Tender Prime pork
products will develop, the Embryo Transfer Technology will be accepted in the
swine industry, the Gourley Scope will be manufactured and marketed
successfully.
-20-
Our ability to fund our operating and liquidity needs and execute our
business plan for the next twelve months is dependent upon our ability to
achieve a combination of increasing operating revenues, improve cost
effectiveness and operating margins and the receipt of funds under the equity
line of credit agreement with Alpha Venture Capital, Inc., or the provision of
additional funding either in the form of equity of debt financing.
Additional Capital Requirements
If Struthers cannot obtain additional capital, the Company may have to
delay or postpone development and research expenditures that may influence our
ability to produce a timely and competitive product. Although the equity line of
credit agreement from Alpha Venture Capital, Inc. is a potential source of
funding, a decline in the trading volume or price of the Company's common stock
may reduce the amount Struthers may be able to obtain under the equity line of
credit. In addition, the equity line of credit agreement limits the Company's
ability to raise capital by selling securities to third parties at a discount to
the market price during the term of the equity line of credit agreement.
Struthers will need additional capital in order to develop markets for its
products, research and development activities and general and administrative
expenses. Struthers may be forced to delay or postpone marketing activities, and
development and research expenditures if the Company is unable to secure
adequate sources of funds. These delays would have an adverse effect on the
Company's ability to market and produce timely and competitive products. There
can be no assurance that Struthers will be able to obtain the funding it will
require.
Dilution of Stock Price
Struthers may sell shares of its common stock in the future, including
shares issued pursuant to the Alpha Venture Capital Agreement , and these sales
may dilute the interests of other security holders and depress the price of
Struthers common stock.
Stock Price
Struthers stock price like that of other new emerging businesses and
biotechnology companies, can be volatile. Some of the factors that can affect
our stock price are:
- Our or a competitor's announcement of new products, services or
technological innovations,
- Quarterly increases or decreases in ou revenues or losses, the
investment community, and
- Speculation in the investment community about our financial
condition or results of operations.
General market conditions and domestic or international factors
unrelated to our performance may also affect our stock price. For these
reasons, investors should not rely on recent trends to predict future
stock prices or financial results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and requires
recognition of all derivatives as assets or liabilities in the statement of
financial position and measurement of those instruments at fair value.
Derivatives that are not hedges must be adjusted to fair value through earnings.
If the derivative is a hedge, depending on the nature of the hedge, changes in
fair value will be either offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings, or recognized in
other comprehensive income until the hedged item is recognized in earnings.
Struthers adopted the standard as of December 31, 2000, and the adoption did not
materially impact the consolidated financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." This bulletin summarizes
certain of the SEC's views in applying accounting principles generally accepted
in the U.S. to revenue
-21-
recognition in financial statements. The Company implemented the provisions of
SAB 101 during the 4th quarter of 2000. The implementation had no impact on the
Company's revenue recognition policies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates
The Company invests its cash and cash equivalents in short-term
variable money market accounts and demand deposits. The Company's only
borrowings are fixed rate mortgages and notes payable. The Company's operations
are not materially affected by changes in interest rates.
-22-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 2000 and 1999 F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Three Years in the Period Ended
December 31, 2000 F-4
Consolidated Statements of Operations for the Three Years
in the Period Ended December 31, 2000 F-5
Consolidated Statements of Cash Flows for the Three Years
in the Period Ended December 31, 2000 F-6 to F-7
Notes to the Consolidated Financial Statements F-8 to F-24
Quarterly Summary (Unaudited) F-25
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of
Struthers, Inc. and Subsidiaries
Charleston, South Carolina
We have audited the accompanying consolidated balance sheets of
Struthers, Inc. and Subsidiaries as of December 31, 2000 and 1999 and the
related consolidated statements of changes in stockholders' equity, operations
and cash flows for each of the three years in the period ended December 31,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Struthers,
Inc. and Subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ Rotenberg & Company, LLP
Rotenberg & Company, LLP
Rochester, New York
February 23, 2001
(Except Note O - Dated March 28,2001)
F-2
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 1999
- -------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 1,446,436 $ 201,160
Accounts Receivable 529,855 112,649
Note Receivable - Officer 150,000 ---
Inventory 575,687 260,000
PREPAID EXPENSES AND DEPOSITS 190,259 87,376
- -----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,892,237 661,185
PROPERTY AND EQUIPMENT -
Net of Accumulated Depreciation 3,762,427 2,408,906
INTANGIBLE ASSETS -
NET OF ACCUMULATED AMORTIZATION 3,884,778 2,259,200
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $10,539,442 $ 5,329,291
- -----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Other Current Liabilities $ 362,696 $ 56,817
Compensation Payable - Stock Grants --- 50,000
Note Payable- Legred Acquisition --- 900,000
Notes and Mortgages Payable - Due Within One Year 24,853 ---
STOCK PAYABLE - LEGRED ACQUISITION 1,000,000 2,750,000
- -----------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,387,549 3,756,817
Notes and Mortgages Payable - Due After One Year 120,363 ---
STOCK PAYABLE - LEGRED ACQUISITION --- 1,000,000
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,507,912 4,756,817
- -----------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock - $.001 Par; 900,000,000 Shares
Authorized; 378,377,256 and 356,722,620
Shares Issued and Outstanding at
December 31, 2000 and 1999, Respectively 378,377 356,723
Convertible Preferred Stock - $.001 Par;
6,500,000 Shares Authorized; 6,158,754 and
0 Shares Issued and Outstanding at
December 31, 2000 and 1999, Respectively 6,159 ---
Preferred Stock - $.001 Par; 20,000 Authorized;
20,000 and 0 Shares Issued and Outstanding
at December 31, 2000 and 1999, Respectively 20 ---
Additional Paid-in Capital 13,023,008 1,381,941
DEFICIT (4,376,034) (1,166,190)
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 9,031,530 572,474
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,539,442 $ 5,329,291
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
F-3
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Stock Preferred Stock Paid-In Stockholders'
Shares(1) Par Value Shares Par Value Capital Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1997 250,050 $ 250 -- $-- $ 24,750 $ (25,000) $ --
Shares Issued to Consultants
for Services Rendered
at Par $.001 135,000,000 135,000 -- -- -- -- 135,000
Shares Issued in Connection
with Acquisition of Embryo
Transfer Technology at par $.001 180,073,570 180,074 -- -- -- -- 180,074
Shares Issued to Employees
for Compensation for Services at $.01 12,369,000 12,369 -- -- 111,321 -- 123,690
Net Loss - 1998 -- -- -- -- -- (524,129) (524,129)
-----------
BALANCE - DECEMBER 31, 1998 327,692,620 $327,693 -- $-- $ 136,071 $ (549,129) $ (85,365)
Issuance of Common Stock
for Cash at $.04 per Share 23,310,000 23,310 -- -- 909,090 -- 932,400
Issuance of Common Stock in
Connection with Legred Acquisition
At $.1126 per Share 2,220,000 2,220 -- -- 247,780 -- 250,000
Capital Contributed in Form of Services -- -- -- -- 12,500 -- 12,500
Shares Issued to Employees
- Previously Granted Shares at Par $.001 3,000,000 3,000 -- -- 27,000 -- 30,000
Shares Issued to Consultants
for Services Rendered 100,000 100 -- -- 9,900 -- 10,000
Shares Issued - Charitable Contribution 400,000 400 -- -- 39,600 -- 40,000
Net Loss - 1999 -- -- -- -- -- (617,061) (617,061)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1999 356,722,620 $356,723 -- $-- $ 1,381,941 $(1,166,190) $ 572,474
Issuance of Common Stock in Connection
with Legred Acquisition:
At $.1126 per Share 6,660,000 6,660 -- -- 743,340 -- 750,000
At $.6300 per Share 1,587,302 1,587 -- -- 998,413 -- 1,000,000
At $.4000 per Share 2,457,002 2,457 -- -- 997,543 -- 1,000,000
Shares Issued to Employees
- Previously Granted Share at Par $.001 5,000,000 5,000 -- -- 45,000 -- 50,000
Issuance of Convertible Preferred Stock
For Cash at $1.00 per Share -- -- 6,500,000 6,500 6,493,500 -- 6,500,000
Issuance of Preferred Stock
For Cash at $1.00 per Share -- -- 20,000 20 19,980 -- 20,000
Issuance of Common Stock in Connection
With the Acquisitions of:
Elite Visions at $.82 per Share 2,303,488 2,303 -- -- 1,886,587 -- 1,888,890
Muller A.I. at $.51238 per Share 195,168 195 -- -- 99,805 -- 100,000
AutoPacker at $.48356 per Share 10,340 10 -- -- 4,990 -- 5,000
Shares Issued to Employees for Services
Rendered at $.39 per Share 39,000 39 -- -- 15,171 -- 15.210
Shares Issued to Consultants for Services:
At $.48 per Share 60,000 60 -- -- 28,740 -- 28,800
At $1.20 per Share 50,000 50 -- -- 59,950 -- 60,000
At $.49 per Share 100,000 100 -- -- 48,900 -- 49,000
At $.42 per Share 200,000 200 -- -- 83,800 -- 84,000
At $.33 per Share 200,000 200 -- -- 65,800 -- 66,000
At $.20 per Share 50,000 50 -- -- 9,950 -- 10,000
Shares Issued as a Charitable Contribution 100,000 100 -- -- 41,900 -- 42,000
Conversion of Class B Preferred Stock
Into Common Shares 2,642,336 2,643 (341,246) (2,302) -- --
Net Loss - 2000 -- -- -- -- -- (3,209,844) (3,209,844)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2000 378,377,256 $378,377 6,178,754 $ 6,179 $13,023,008 $(4,376,034) $ 9,031,530
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The share and per share amounts have been restated to give retroactive
effect to a 1 for 1,000 share reverse stock split on August 25, 1998 and a 10
for 1 share forward stock split on September 1, 1998.
</FN>
The accompanying notes are an integral part of this financial statement
F-4
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------
For the Years Ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------
SALES $ 3,491,193 $ 333,051 $ --
Cost of Sales 2,914,217 169,609 --
- ---------------------------------------------------------------------------------------------
GROSS PROFIT 576,976 163,442 --
- ---------------------------------------------------------------------------------------------
EXPENSES
Research and Development 260,850 10,000 180,074
Marketing and Advertising 177,165 20,242 --
General and Administrative 2,284,421 529,838 344,055
Amortization and Depreciation 1,186,634 202,946 --
- ---------------------------------------------------------------------------------------------
TOTAL EXPENSES 3,909,070 763,026 524,129
- ---------------------------------------------------------------------------------------------
LOSS BEFORE OTHER INCOME AND (EXPENSES) (3,332,094) (599,584) (524,129)
- ---------------------------------------------------------------------------------------------
OTHER INCOME AND (EXPENSES)
Interest 122,497 8,656 --
Loss on Investment -- (25,000) --
- ---------------------------------------------------------------------------------------------
Total Other Income and (Expenses) 122,497 (16,344) --
- ---------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (3,209,597) (615,928) (524,129)
Provision for Income Taxes 247 1,133 --
- ---------------------------------------------------------------------------------------------
NET LOSS $ (3,209,844) $ (617,061) $ (524,129)
- ---------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 370,233,232 342,207,620 316,354,380
- ---------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.01) $ (0.00) $ (0.00)
- ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement
F-5
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------
For the Years Ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(3,209,844) $(617,061) $(524,129)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Amortization and Depreciation 1,186,634 202,046 --
Employee Compensation-Grant of Common Shares -- -- 123,690
Common Shares Issued to Consultants and
Employees as Compensation for Services 313,010 10,000 135,000
Acquired In-Process Research & Development
Costs in Exchange for Common Shares -- -- 180,074
Charitable Contribution of Common Shares 42,000 40,000 --
Loss on Investment -- 25,000 --
Capital Contribution - Services Rendered -- 12,500 --
Changes in Assets and Liabilities:
Accounts Receivable (417,206) (110,649) --
Inventory (315,687) -- --
Prepaid Expenses and Deposits (182,883) (2,376) --
Accounts Payable and Other Current Liabilities 284,340 50,174 87,643
- -----------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (2,299,636) (390,366) 2,278
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (1,753,429) (138,052) --
Note Receivable - Advance to Officer (150,000) -- --
Acquisition of Elite Visions (22,000) -- --
Acquisition of Muller A.I (131,290) -- --
Deposit on Investment in Struthers
Pedigree Herd Corp 80,000 (105,000) --
- -----------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (1,976,719) (243,052) --
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds From Issuance of Convertible
Preferred Stock 6,500,000 --
Proceeds From Issuance of Preferred Stock 20,000 -- --
Proceeds from Issuance of Common Stock -- 932,400 --
Repayment of Note Payable - Legred (900,000) (100,000) --
Repayment of Notes and Mortgages Payable (98,369) -- --
- -----------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 5,521,631 832,400 --
- -----------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,245,276 198,882 2,278
Cash and Cash Equivalents - Beginning 201,160 2,278 --
- -----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - ENDING $ 1,446,436 $ 201,160 $ 2,278
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement
F-6
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
- ---------------------------------------------------------------------------------------
For the Year Ended December 31, 2000 1999
- ---------------------------------------------------------------------------------------
ACQUISITION OF LEGRED AND LEGRED GENETICS:
Fair Value of Assets Acquired:
Inventory 260,000
Breeding Animals 2,160,000
Capitalized Land Lease 1,200,000
Goodwill 800,000
Customer List 304,000
Real Estate 200,000
Property And Equipment 69,000
Contracts 5,000
Accounts Receivable 2,000
- ------------------------------------------------------------------------------------------
Total Assets Acquired 5,000,000
Common Stock Payable 2,750,000 (3,750,000)
Note Payable 900,000 (900,000)
Common Stock Issued (2,750,000) (250,000)
- -----------------------------------------------------------------------------------------
Cash Paid 900,000 100,000
- -----------------------------------------------------------------------------------------
ACQUISITION OF ELITE VISIONS:
Fair Value of Assets Acquired 2,154,445
Liabilities Assumed (243,585)
- -----------------------------------------------------------------------------------------
Net Assets Acquired 1,910,860
Common Stock Issued (1,888,860)
- -----------------------------------------------------------------------------------------
Cash Paid 22,000
- -----------------------------------------------------------------------------------------
ACQUISITION OF MULLER A.I.:
Fair Value of Assets Acquired 252,857
Liabilities Assumed (21,567)
- -----------------------------------------------------------------------------------------
Net Assets Acquired 231,290
Common Stock Issued 100,000
- -----------------------------------------------------------------------------------------
Cash Paid 131,290
- -----------------------------------------------------------------------------------------
OTHER PROPERTY AND EQUIPMENT ACQUIRED
VIA MORTGAGE 40,000
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement
F-7
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE A - THE COMPANIES
In August 1997, Ronald Struthers licensed his porcine embryo
transfer technology to a company of which he was a controlling
stockholder, Struthers International Research Corporation (SIRC).
By June 1998 SIRC was dormant, with no operating capital, its
only asset being the porcine embryo transfer technology. Thus, on
June 12, 1998 Ronald Struthers and SIRC in contemplation of
transferring the technology to Orbis Development, Inc. ("Orbis")
agreed to terminate the license. On June 18, 1998, in
simultaneous and related transactions, with the anticipation that
having stock in a new enterprise (the "Company" would offer the
stockholders of SIRC the opportunity to realize some value from
their investments, Ronald Struthers, in consideration of a
controlling stock position (51%), assigned the porcine embryo
transfer technology to Orbis Development Inc. (a public company
incorporated in Nevada in 1995 under the name Latitude Network
Inc.) (Orbis); amended its Certificate of Incorporation to change
its name to Struthers, Inc. (the "Registrant") and agreed to
distribute ten shares of common stock of the Registrant to each
of the shareholders of SIRC of record as of September 1, 1998 for
each share of SIRC held by them.
Effective August 25, 1998 the outstanding shares of Orbis were
reverse split 1000 for 1 and effective September 1 1998 forward
split on a 10 for 1 basis. The Company amended its Articles of
Incorporation to change its name to Struthers, Inc. and increase
the number of shares it was authorized to issue from 50 million
shares to 100 million shares. The Company further amended its
Articles of Incorporation on September 22, 1998 to authorize it
to issue 900 million shares of its common stock. In February
2000, the Company again amended its Articles of Incorporation to
increase the number of shares it was authorized to issue to
906,520,000 shares of which 900 million are Common Stock and
6,520,000 shares are Preferred Stock.
On November 2, 1999, the Company entered into an agreement with
Legred Genetics, Inc., Legred Genetics and Brent Legred
("Legred") pursuant to which the Company purchased all of the
tangible and intangible assets, including livestock, machinery
and equipment, and Legred's rights under agreements with third
parties (including one with Norsvin International AS, an
international developer and distributor of porcine genetic
materials and technology). Pursuant to the agreement, the Company
paid Legred the sum of $1 million in cash and $4 million worth of
common shares of the Company, the final number of shares, which
will be determined by the market value of the Company's shares on
the dates issued. The Company was obligated under this agreement
and began construction of a boar stud unit and operating
laboratory, the final cost of which was approximately $1,000,000.
The boar stud facility was completed in September 2000 and became
operational in October 2000. In anticipation of the execution of
the agreements in connection with this acquisition, the Company
formed a wholly owned subsidiary, which was incorporated in the
State of Nevada on October 21, 1999, called Legred Struthers
Genetics, Inc. All of the assets purchased pursuant to this
acquisition were transferred into the subsidiary.
The acquisition has been accounted for under the purchase method
of accounting. Under purchase accounting, the total purchase
price is allocated to the tangible and intangible assets and
liabilities of Legred Genetics, Inc., Legred Genetics and Brent
Legred ("Legred") based upon
-continued-
F-8
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE A - THE COMPANIES - CONTINUED
their respective fair values. The operating activity of the
subsidiary is reflected in the accompanying financial statements
from the date of acquisition (November 2, 1999 through December
31, 1999.)
On May 15, 2000, the Company purchased the assets of Muller A.I.,
L.L.C. of Sioux Falls, South Dakota, a company in the business of
retail and wholesale sale of various goods and supplies utilized
in the artificial insemination of farm animals. The total purchase
price, which was based upon studies by management, was $252,857.
The consideration paid was $131,290 in cash plus $100,000 of
common stock (195,168 shares issued on August 4, 2000 and valued
at $.51238 per share at the date of the agreement) and the
assumption of $21,267 in liabilities. The purchased assets
included all furniture, fixtures and equipment as well as all
supplies, materials and merchandise relating to and used in
connection with such business, including its list of customers and
other items of goodwill. The Company did not assume any of the
liabilities of Muller A.I., L.L.C. except for a customer deposit
in the amount of $21,267. In anticipation of the execution of said
agreement, the Company formed a wholly owned subsidiary that was
incorporated in the State of Nevada on May 26, 2000 and Muller
A.I., Inc. ("Muller").
On June 1, 2000, the Company purchased the assets of Elite
Visions, L.L.C. of Waukon, Iowa. The total purchase price, which
was based upon management studies, was $2,154,445. The
consideration paid was $22,000 in cash plus $1,888,860 in common
stock (2,303,488 shares issued on August 4, 2000 and valued at
$.82 per share at the date of the agreement) and the assumption of
certain liabilities in the amount of $243,585. The purchased
assets included the physical assets (i.e., land and building,
furniture and fixtures, and office equipment and computers) and
the assignment of all rights to a patented item called the
"Gourley Scope(TM)" (Trademark applied for), an instrument used
for non-surgical semen delivery in animal husbandry including
swine. The scope employs the imaging technology of a 1 mm camera,
transmitter, and light source, which allows the technician to view
the reproductive system and deliver the semen or embryo to the
appropriate area of the reproductive tract for maximum conception.
In anticipation of the execution of the said agreement, the
Company formed a wholly owned subsidiary that was incorporated in
the State of Nevada on May 26, 2000 called Elite Visions, Inc.
("Elite"). Elite constructed a meat distribution facility for the
Registrant's Tender Prime(TM) line of meat products in Waukon,
Iowa, which was completed in October 2000 at a cost of
approximately $50,000.
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING PRINCIPLES NATURE OF OPERATIONS
The Company is an agricultural producer principally involved in
the breeding and delivery of swine and swine genetics using
advanced reproductive techniques throughout the industry. The
Company sells primarily to producers in North America and
worldwide. The Company disseminates its genetics through the sale
of live animals in the form of gilts, barrows, and boars; semen
sales from boar studs; and embryo sales using our non-surgical
"Embryo Transfer System". The Company also sells market hogs to
meat packers and sells directly to retail customers under its
Tender Prime line of pork products.
-continued-
F-9
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING PRINCIPLES - CONTINUED
The Company maintains its corporate offices in Charleston, South
Carolina and operates its field office including its operating
laboratory and stud boar facility in Bricelyn, Minnesota. In
addition the Company operates a research facility in Spencer,
Iowa, a distribution facility for its Tender Prime line of pork
products in Waukon, Iowa, and an artificial insemination supply
and services facility in Sioux Falls, South Dakota.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Struthers, Inc. and its wholly owned subsidiaries, Legred
Struthers Genetics, Inc., Elite Visions, Inc. and Muller AI, Inc.
All significant inter-company balances and transactions have been
eliminated in the consolidation.
DEVELOPMENT STAGE ENTERPRISE
The Company was in the development stage from its inception
through the date of the Legred Acquisition. The year 1999 was the
first year during which the Company is considered an operating
company.
SEGMENT DATA, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
The Company does business primarily in North America. The Company
also has an agreement with Norsvin International, AS (a Norwegian
Company) to sell its product lines. The Company was assigned the
rights under the contract through its subsidiary, Legred Struthers
Genetics, Inc. via the acquisition of Legred Genetics, Inc. Under
this agreement, the Company purchases boars from Norsvin
International A.S. for breeding with the Company's sows. The
Company derives revenue from the sale of the genetic offspring and
from the sale of semen from the boars purchased from Norsvin. From
this revenue, the Company has agreed to pay a royalty to Norsvin
of 4%. The agreement is for an indefinite period with royalty
payments due semi annually. The gross revenue recorded by the
Company from the sale of offspring and semen directly attributable
to Norsvin acquired boars amounted to $42,079 for the period from
the date of the Legred acquisition through December 31, 1999 and
$315,694 for the year ended December 31, 2000. These sales
represented approximately 12.6% and 9.9% of the total consolidated
revenues for those periods, respectively. Of those sales the
Company was obligated to pay a royalty to Norsvin of 4% or
approximately $1,683 and $12,628, respectively. While the Company
expects the sales under this arrangement to increase in dollar
volume, the Company expects the percentage contribution to total
consolidated revenue to diminish in the future due to the
development of its other product lines.
CONCENTRATION OF CREDIT RISK Financial instruments that
potentially expose the Company to significant concentrations of
credit risk consist principally of bank deposits, temporary
investments and accounts receivable. Cash is placed primarily in
high quality short-term interest bearing financial instruments and
may periodically exceed federally insured amounts. The Company
performs ongoing credit evaluations of its customers' financial
condition. An allowance for uncollectible accounts receivable is
maintained based upon the expected collectibility of all accounts
receivable.
-continued-
F-10
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING PRINCIPLES - CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions 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 revenue and expense during the reporting
period. Actual results can differ from those estimates.
REVENUE RECOGNITION
The Company recognizes all genetic sales (semen, embryos, and live
animals) upon delivery. Sales of market hogs and other accessories
and supplies to other breeders are recognized upon the transfer of
title which corresponds to the date of shipment, net of any
applicable discounts and allowances.
ADVERTISING EXPENSES
Advertising expenses are charged against operations during the
period incurred, except for direct-response advertising costs,
which are capitalized and amortized over periods not exceeding one
year. Advertising expenses charged against operations were
$173,389, $20,242 and $-0- for the years ended December 31, 2000,
1999 and 1998, respectively. The Company did not incur any
direct-response advertising costs during the years 1998 through
2000.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged against operations as
incurred. Research and development costs were $260,850, $10,000
and $180,074 for the years ended December 31, 2000, 1999 and 1998,
respectively. The 1998 research and development costs represent
in-process R & D costs recorded in connection with the acquisition
of the embryo transfer technology from Struthers International
Research Corporation.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, establishes a standard for reporting and
displaying comprehensive income to reflect charges and credits to
equity that result from transactions and economic events from all
non-owner sources. Comprehensive income is composed of two subsets
- Net Income (Loss) and Other Comprehensive Income (Loss). The
Company has had no items of comprehensive income since its
inception.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits, certificates of
deposit, and all highly liquid debt instruments with original
maturities of three months or less.
INVENTORIES
Swine inventories are stated at the lower of cost (first-in,
first-out method) or market. Costs of raised swine include
proportionate costs of breeding, including depreciation of the
breeding herd, plus the costs of maintenance to maturity.
Purchased swine are carried at purchase cost plus cost of
maintenance to maturity. Supply inventories including meat
products and artificial insemination supplies are carried at the
lower of cost (first-in, first-out method) or market.
-continued-
F-11
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING PRINCIPLES - CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Breeding animals are
carried at purchase costs or inventory transfer amounts equal to
the lower of accumulated animals maintenance costs or market.
Renewals and improvements are capitalized. Costs of maintenance
and repairs that do not improve or extend asset lives are charged
to expense. Depreciation is provided on the straight-line basis
over the estimated productive useful lives of the assets as
follows:
Buildings and Improvements 10 Years
Machinery and Equipment 7 Years
Breeding Herds 3 Years
Vehicles 5 Years
Office Furniture and Fixtures 5 Years
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair
value of the net assets of acquired companies and is being
amortized on a straight- line basis over 5 years based on its
estimated useful life. Acquired intangibles also consist of
customer lists and are amortized over their 5 year estimated
useful life. Patents are amortized over a 15 year estimated useful
life.
CAPITALIZED LAND LEASE
Included in intangible assets is a land lease acquired in the
Legred Acquisition. The lease terms require payment of $1 per year
for a term of 99 years. A portion of the total purchase price of
$5,000,000 has been allocated to the land in the amount of
$1,200,000. The lease is being amortized over 99 years as a charge
to farm operations.
LONG-LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the
related carrying amount may not be recoverable. The Company
evaluates any possible -impairment of long-lived assets using
discounted future cash flows. When required, impairment losses on
assets to be held and used are recognized based on the fair value
of the asset. Long-lived assets to be disposed of are reported at
the lower of carrying amount or fair value less cost to sell.
INCOME TAXES
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on temporary
differences between the amount of taxable income and pretax
financial income and between the tax bases of assets and
liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as prescribed
in FASB Statement No. 109, "Accounting for Income Taxes". As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
-continued-
F-12
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING PRINCIPLES - CONTINUED
BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share of common stock are computed in accordance with
SFAS No, 128, "Earnings per Share". Basic earnings per share are
computed by dividing income or loss available to common
shareholders by the weighted- average number of common shares
outstanding for each period. Diluted earnings per share are
calculated by adjusting the weighted average number of shares
outstanding assuming conversion of all potentially dilutive stock
options, warrants and convertible securities. Diluted earnings per
common share is the same as basic earnings per common share for
all of the periods presented since the effect of the conversion of
the convertible preferred stock would have an anit-dilutive effect
on earnings per common share. All share and per share amounts have
been restated to give retroactive effect to a 1,000 for 1 reverse
stock split on August 25, 1998 and a 10 for 1 forward stock split
on September 1, 1998.
STOCK OPTIONS AND AWARDS
The Company has elected to follow the accounting provisions of
Accounting Principles Board Opinion (APBO) No. 25, "Accounting for
Stock Issued to Employees", for stock-based compensation and
awards made to employees. Pro- forma disclosures required under
SFAS No. 123, "Accounting for Stock-Based Compensation", have not
been furnished since there are no outstanding stock options or
awards.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which summarizes
the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring
that an entity recognize those assets and liabilities in the
statement of financial position and measure them at fair value.
SFAS No. 133 is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000.
The Company's only financial instruments which currently meet the
definition of a derivative instrument are certain obligations in
connection with acquisitions of businesses which are payable in
shares of the Company's common stock at various future dates. The
final number of common shares ultimately to be distributed will
depend upon the market price of the Company's common stock at such
future dates. The Company elected to adopt the provisions of SFAS
No. 133 as of December 31, 2000, and the adoption did not
materially impact the consolidated financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition in Financial Statements." This
bulletin summarizes certain of the SEC's views in applying
accounting principles generally accepted in the U.S. to revenue
recognition in financial statements. The Company implemented the
provisions of SAB 101 during the 4th quarter of 2000. The
implementation had no impact on the Company's revenue recognition
policies.
F-13
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE C - INVENTORIES
Inventories consisted of the following:
----------------------------------------------------------------------
December 31, 2000 1999 1998
----------------------------------------------------------------------
Market Animals and Livestock $322,634 $260,000 $ ---
Gourley Scopes and Sheaths 52,273 --- ---
Artificial Insemination Supplies 175,352 --- ---
Meat Products 25,428 --- ---
----------------------------------------------------------------------
Total $575,687 $260,000 $ ---
----------------------------------------------------------------------
NOTE D - NOTE RECEIVABLE - OFFICER
The Company has a note receivable due from an officer of the Company
in the amount of $150,000. The note is for a one-year term and bears
interest at 10.5% with interest payable monthly and the principal
balance due in full in September 2001.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
------------------------------------------------------------------
December 31, 2000 1999 1998
------------------------------------------------------------------
Land $ 15,000 $ --- $ ---
Buildings and Improvements 1,887,856 200,000 ---
Machinery and Equipment 188,892 69,000 ---
Breeding Herds 2,380,800 2,160,000 ---
Vehicles 98,175 30,000 ---
Office Furniture and Fixtures 193,051 14,437 ---
--------------------------------------------------------------
4,763,774 2,473,437
Less: Accumulated Depreciation 1,001,347 158,146 ---
--------------------------------------------------------------
3,762,427 2,315,291 ---
Construction in Progress --- 93,615 ---
--------------------------------------------------------------
Property and Equipment - Net $3,762,42 $2,408,906 $ ---
--------------------------------------------------------------
Included in construction in progress at December 31, 1999 were
deposits made to construct a new boar stud facility at the
Bricelyn, Minnesota location. The total cost of construction was
approximately $1,000,000 (of which $88,390 was expended at
December 31, 1999) and was completed during the 3rd quarter of
2000. Also included is a deposit to acquire an existing structure
at the Minnesota location from an independent third party. The
total purchase price was $50,000 (of which $5,225 was expended as
of December 31, 1999) and the acquisition was completed in January
2000 and financed by securing a first mortgage on the property in
the amount of $40,000.
Depreciation charged against operations was $843,201, $158,146 and
$0 for the years ended December 31, 2000, 1999 and 1998,
respectively.
F-14
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE F - INTANGIBLE ASSETS
Intangible assets consist of the following:
-------------------------------------------------------------------
December 31, 2000 1999 1998
-------------------------------------------------------------------
Patents $1,814,011 $ --- $ ---
Capitalized Land Lease 1,200,000 1,200,000 ---
Goodwill 940,000 800,000 ---
Customer Lists 304,000 304,000 ---
Contract Rights 15,000 --- ---
-------------------------------------------------------------------
$4,273,011 $2,304,000 $ ---
Less: Accumulated Amortization 388,233 44,800 ---
-------------------------------------------------------------------
Intangible Assets - Net $3,884,778 $2,259,200 $ ---
--------------------------------------------------------------------
Amortization charged against operations for the years ended
December 31, 2000, 1999 and 1998 was $343,433, $44,800 and $0,
respectively.
NOTE G - NOTE AND STOCK PAYABLE - LEGRED ACQUISITION
In connection with the Legred acquisition, the Company is
obligated to Brent Legred for the balance of the purchase price as
follows:
--------------------------------------------------------------------
Years Ended December 31, 2000 1999 1998
-----------------------------------------------------------------------------------------------------------
Note Payable in cash without interest due in 3 equal installments
of $300,000 each on May 2, 2000, November 2, 2000 and May 2, 2001
unless a successful stock offering is completed in which case the
note is to be repaid to the extent of 50% of the offering
proceeds. This note was paid in full in February 2000 upon
completion of a preferred
stock offering. $ --- $ 900,000 $ ---
Stock payable to Brent Legred, without interest, due January 1,
2000 payable in 6,660,000 shares of the Company's common stock
based upon the $.1126 per share fair value as of the
date of acquisition of November 2, 1999. --- 750,000 ---
Stock payable to Brent Legred without interest in the number of
shares equivalent (based on the fair value of the common stock on
such dates) to the specified dollars on the following dates:
$1,000,000 due on May 2, 2000; $1,000,000 due on November 2, 2000;
and $1,000,000 due on May 2, 2001. The Company would have had to
issue approximately 5,000,0000 shares of common stock based on the
trading price of $.20 per share as of
December 31, 2000 in order to settle the obligation. 1,000,000 3,000,000 ---
--------------------------------------------------------------------------------------------------------
Total $ 1,000,000 $4,650,000 $ ---
Less: Current Portion 1,000,000 3,650,000 ---
--------------------------------------------------------------------------------------------------------
Long-Term Portion $ -- $1,000,000 $ ---
--------------------------------------------------------------------------------------------------------
<FN>
(1) The final stock installment payable of $1,000,000 due May 2,
2001 will be reduced by the percentage by which net income from
semen sales per 100 boars for the previous 18 months is less than
$600,000.
</FN>
The above obligations are collateralized by a first security
interest in the assets purchased from Legred.
-continued-
F-15
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------
NOTE G - NOTES AND MORTGAGES PAYABLE - OTHER Notes and mortgages payable
consisted of the following:
-----------------------------------------------------------------------------------------------------------
Years Ended December 31, 2000 1999 1998
-----------------------------------------------------------------------------------------------------------
Note payable to Firstar requiring monthly principal
and interest payments of $211.23. The note is for a
5 year term and bears interest at 9.6% per annum. This
note is secured by a vehicle and is due in full in May, 2005 $ 9,083 $ --- $ ---
Note payable to Farmer and Merchants Savings Bank requiring
monthly principal and interest payments of $710.67. The note is
for a 5 year term and bears interest at 9.9% per annum. The note
is secured by a vehicle and
is due in full in December, 2005 33,392 --- ---
Note payable to the State of Iowa (VAAPFAP) requiring
quarterly payments of $3,713.82. The note is for a
5 year term and bears interest at 8.5% per annum. The
note is secured by inventory, equipment and fixtures. 47,002 --- ---
Note payable to the State Bank of Easton requiring monthly
principal and interest payments of $582.56. The note is for a 5
year term and bears interest at 11.5% per annum. The note is
secured by a vehicle and is due in full in
October, 2003 16,836 --- ---
Mortgage Payable to the State Bank of Easton requiring monthly
principal and interest payments of $406. The mortgage is for a 3
year term and bears interest at 9% per annum. The mortgage is
secured by the property and a balloon payment is due January,
2003. The mortgage is guarantied by the parent company. 38,903 --- ---
--------------------------------------------------------------------------------------------------------
Total $145,216 $ --- $ ---
Less: Amount Due Within One Year 24,853 --- ---
--------------------------------------------------------------------------------------------------------
Amount Due After One Year $120,363 $ --- $ ---
--------------------------------------------------------------------------------------------------------
Annual maturities of debt for the five years succeeding December
31, 2000 are as follows:
2001 2002 2003 2004 2005 TOTAL
--------------------------------------------------------------
$24,853 $27,747 $63,274 $20,318 $9,024 $145,216
--------------------------------------------------------------
NOTE H - PROVISION FOR INCOME TAXES
The provision for income taxes is attributable to:
------------------------------------------------------------------------------------
Years Ended December 31, 2000 1999 1998
------------------------------------------------------------------------------------
Income (Loss) Before Provision for Income Taxes $(3,209,597) $(615,928) $(524,129)
------------------------------------------------------------------------------------
State Income Tax $ 247 $ 1,133 $ ---
------------------------------------------------------------------------------------
Deferred Tax Benefits - Net of Allowance $ --- $ --- $ ---
------------------------------------------------------------------------------------
-continued-
F-16
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE H - PROVISION FOR INCOME TAXES - CONTINUED
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before
provision for taxes. The sources and tax effects of the differences
are as follows:
------------------------------------------------------------------------------------
Years Ended December 31, 2000 1999 1998
------------------------------------------------------------------------------------
Income Tax at the Federal Statutory Rate of 35% $(1,123,359) $(215,575) $(183,445)
Effect of Graduated Tax Rates 7,250 16,888 16,888
State Income Tax, Net of Federal Benefit (126,989) (36,400) (31,972)
------------------------------------------------------------------------------------
Total Benefit from Income Taxes (1,243,098) (235,087) (198,529)
Less: Allowance 1,243,345 236,220 198,529
------------------------------------------------------------------------------------
Income Taxes (Benefit) $ 247 $ 1,133 $ ---
------------------------------------------------------------------------------------
The Company's income tax provision was computed based on the
federal statutory rate, reduced by the effect of graduated tax
rates and the average state statutory rates, net of related federal
benefit. As of December 31, 2000 the Company has net operating loss
carry-forwards of approximately $3.5 million for tax purposes that
will be available to offset future taxable income. The net
operating loss carry-forwards begin to expire in 2019. Deferred tax
assets of approximately $1,693,000, $434,000 and $198,000 at
December 31, 2000, 1999 and 1998, respectively, have been
recognized for the net operating loss carry-forwards. However, they
have been reduced by a valuation allowance of approximately
$1,693,000, $434,000 and $198,000 at December 31, 2000, 1999 and
1998, respectively, which will remain until it is more likely than
not that the related tax benefits will be realized.
NOTE I - COMMON STOCK
On October 10, 1995, the Company was initially capitalized by the
issuance of 25,000,000 shares (250,050 shares after giving
retroactive effect to the August 25, 1998 reverse split and the
September 1, 1998 forward split) to stockholders in exchange for
organization expenses paid personally by the shareholders. The
Company recorded the organization costs as an expense during 1995,
with a corresponding increase to stockholders' equity for $25,000
(25,000,000 shares at $.001 par value).
On August 25, 1998, the Board of Directors approved a 1 for 1,000
reverse stock split in which the shareholders received 1 share for
every 1,000 shares previously held. The Company recorded the
transaction as a reduction of the par value of the common stock
outstanding and a corresponding increase to additional paid-in
capital. The effects of the reverse split have been given
retroactive treatment in the financial statements.
On August 31, 1998, the Company issued 13,500,000 shares
(135,000,000 shares after giving retroactive effect to the
September 1, 1998 forward split) to outside consultants as
compensation for services rendered to the Company. The services
rendered consisted of legal and investment advisory services. The
shares were valued at $.01 per share equivalent to the fair value
of the services rendered of $135,000 and were recorded by the
Company as an expense with a corresponding increase to
stockholders' equity.
-continued-
F-17
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE I - COMMON STOCK - CONTINUED
On August 31, 1998, the Company issued 18,007,357 shares
(180,073,570 shares after giving retroactive effect to the
September 1, 1998 forward split) to Struthers International
Research Inc., (SIRC), in connection with the acquisition of the
Embryo Transfer Technology. The shares were valued at $.01 per
share equivalent to the fair value of the in-process research and
development of $180,074 and were recorded by the Company as
research and development expense with a corresponding increase to
stockholders' equity.
On September 1, 1998, the Board of Directors approved a 10 for 1
forward stock split in which the shareholders received 10 shares
for every 1 share previously held. The Company recorded the
transaction as an increase to the par value of the common stock
outstanding and a corresponding decrease to additional paid-in
capital. The effects of the forward split have been given
retroactive treatment in the financial statements.
In November 1998, the Company offered for sale 22 million shares of
common stock in 176,000 units at $5 per unit (each unit consisting
of 125 shares for a total of 22 million shares at $.04 per share).
The Company received over- subscriptions for 1,310,000 shares and
the Board of Directors approved the over-subscription. In 1999, the
offering was completed and 23,310,000 shares of common stock were
issued for a total of $932,400. The proceeds of this offering (no
sales commissions were paid) less sales expenses of the offering
were applied to market development, commercialization of the embryo
transfer technology and working capital.
On December 1, 1998 the Board of Directors awarded 20,369,000
shares of common stock to employees as compensation for services
previously rendered during 1998 to the Company. On December 31,
1998, the Company issued 12,369,000 of those shares to the
employees with the balance of the 8,000,000 shares to be issued as
follows: 3,000,000 shares by July 1, 1999 and 5,000,000 shares by
July 1, 2000. This was done in order to ease the tax burden on the
employees. The shares awarded were valued at the market value of
$.01 per share on the date of grant and were recorded by the
Company as compensation expense in the amount of $203,690 with a
corresponding increase to stockholders' equity of $123,690 and
compensation payable of $80,000 at December 31, 1998.
On May 25, 1999, the Company issued 3,000,000 shares to employees
in connection with the December 1, 1998 stock award. The shares
were valued at the market value of $.01 per share at the date of
grant and were recorded by the Company as a reduction of $30,000 to
compensation payable with a corresponding increase to stockholders'
equity.
On May 25, 1999, the Company issued 100,000 shares to an outside
consultant as compensation for services rendered to the Company
during 1999. The services rendered consisted of website design and
computer network consultation. The shares were valued at the market
value of $.10 per share and were recorded by the Company as an
expense in the amount of $10,000 with a corresponding increase to
stockholders' equity.
On May 25, 1999, the Company issued 400,000 shares to an unrelated
entity as a charitable contribution. The shares were valued at the
market value of $.10 per share and were recorded by the Company as
an expense in the amount of $40,000 with a corresponding increase
to stockholders equity.
-continued-
F-18
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE I - COMMON STOCK - CONTINUED
On November 9, 1999, the Company issued 2,220,000 shares to Brent
Legred in connection with the acquisition of Legred Genetics, Inc.
and Brent Legred, a sole proprietorship for the farming operation.
The shares were valued at $.1126 per share and were recorded by the
Company as a reduction to the stock obligations payable with a
corresponding increase to stockholders' equity in the amount of
$250,000.
On January 27, 2000, the Company issued 6,660,000 shares to Brent
Legred in connection with the acquisition of Legred Genetics, Inc.
and Brent Legred, a sole proprietorship for the farming operations.
The shares were valued at $.1126 per share and were recorded by the
Company as a reduction to the stock obligations payable with a
corresponding increase to stockholders' equity in the amount of
$750,000.
On May 17, 2000, the Company issued 1,587,302 shares to Brent
Legred in connection with the acquisition of Legred Genetics, Inc.
and Brent Legred, a sole proprietorship for the farming operations.
The shares were valued at the market value of $.63 per share and
were recorded by the Company as a reduction to the stock
obligations payable with a corresponding increase to stockholders'
equity in the amount of $1,000,000.
On June 30, 2000, the Company issued 5,000,000 shares to employees
in connection with the December 1, 1998 stock award. The shares
were valued at the market value at the date of grant and were
recorded by the Company as a reduction to compensation payable in
the amount of $50,000 with a corresponding increase to
stockholders' equity.
On August 30, 2000, the Company issued 100,000 shares to an
unrelated entity as a charitable contribution. The shares were
valued at the market value of $.42 per share and were recorded by
the Company as an expense in the amount of $42,000 with a
corresponding increase to stockholders' equity.
On September 30, 2000, the Company issued 2,303,488 shares to
shareholders of Elite Visions, LLC in connection with the
acquisition of the assets of Elite Visions, LLC. The shares were
valued at the market value at the date of the acquisition of $.82
per share and were recorded by the Company as an investment in
affiliate in the amount of $1,888,890 with a corresponding increase
to stockholders' equity.
On September 30, 2000, the Company issued 195,168 shares to
shareholders of Muller A.I., LLC in connection with the acquisition
of the assets of Muller A.I., LLC. The shares were valued at the
market value at the date of the acquisition of $.51 per share and
were recorded by the Company as an investment in affiliate in the
amount of $100,000 with a corresponding increase to stockholders'
equity.
On September 30, 2000, the Company issued 10,340 shares to an
unrelated entity in connection with the acquisition of the assets
known as the "Autopacker". The shares were valued at the market
value at the date of the acquisition of $.48 per share and were
recorded by the Company as an investment in Property and Equipment
in the amount of $5,000 with a corresponding increase to
stockholders' equity.
-continued-
F-19
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE I - COMMON STOCK - CONTINUED
On November 14, 2000, the Company issued 2,457,002 shares to Brent
Legred in connection with the acquisition of Legred Genetics, Inc.
and Brent Legred, a sole proprietorship for the farming operation.
The shares were valued at the market value of $.41 per share and
were recorded by the Company as a reduction to the stock
obligations payable in the amount of $1,000,000 with a
corresponding increase to stockholders' equity.
On December 7, 2000 the Company issued 39,000 shares to employees
as compensation for services rendered to the Company during 2000.
The shares were valued at the market value of $.39 per share and
were recorded by the Company as compensation expense in the amount
of $15,210 with a corresponding increase in stockholders' equity.
During the year 2000, the Company issued shares to outside
consultants as compensation for services rendered to the Company
during the year. The services rendered consisted of website design
and computer network consultation, marketing consultation, and
research and development consultation. The shares were valued at
market value and were recorded by the Company as an expense with a
corresponding increase to stockholders' equity as follows:
May 25, 2000 50,000 shares $1.20 $ 60,000
August 2, 2000 100,000 shares $0.49 49,000
August 30, 2000 200,000 shares $0.42 84,000
September 30, 2000 60,000 shares $0.48 28,800
November 2, 2000 100,000 shares $0.33 33,000
November 8, 2000 100,000 shares $0.33 33,000
December 31, 2000 50,000 shares $0.20 10,000
Total 660,000 shares $ 297,800
During the year 2000, holders of 341,246 shares of Class B
Convertible Preferred Stock elected to convert their shares int0
2,642,336 shares of common stock. The conversion had no impact on
total stockholders' equity.
NOTE J - PREFERRED STOCK
The Company has 6,520,000 shares of preferred stock authorized of
which all 6,520,000 shares were issued during the year 2000. The
Company has designated 1,500,000 shares as Class A Convertible
Stock ("Class A Stock") and 5,000,000 shares as Class B Convertible
Stock ("Class B Stock").
In February 2000, the Company offered for sale and issued 1,500,000
shares of the Class A Convertible Preferred Stock at $1.00 per
share. The Company received net proceeds from the sale of
$1,500,000 which was used to repay a $900,000 short-term note
payable to Brent Legred in connection with the Legred acquisition,
$200,000 towards the construction of the new stud boar facility,
and the balance of $400,000 for working capital.
In March 2000, the Company offered for sale 5,000,000 and issued
shares of Class B Convertible Preferred Stock at $1.00 per share.
The net proceeds of $5,000,000 from the offering were used
primarily for the construction of additional breeding facilities
and working capital.
During the year 2000, holders of 341,246 shares of Class B
Convertible Preferred Stock elected to convert their shares into
common stock. As of December 31, 2000, 6,178,754 shares of
Preferred Stock remain outstanding.
Each share of Convertible Stock carries a number of votes equal to
the number of shares of Common Stock then issuable upon its
conversion into Common Stock. Each share is convertible at the
option of the holder into fully paid and non-assessable shares of
common stock as follows: on the first day of the sixth month
following the issuance of the Convertible Stock ("Conversion
Period") and on the first day of each sixth month period
thereafter, for a total of six Conversion Periods, one-sixth of the
shares of the Convertible Stock may be converted by each
shareholder thereof.
-continued-
F-20
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE J - PREFERRED STOCK - CONTINUED
The amount of common shares issuable upon conversion shall be
determined by the average market value between the bid and ask
price of the Company's common shares during the ten day trading
period immediately preceding the date of each such Conversion
Period, but not more than $.40. The resultant shares at each
Conversion Period shall be multiplied by three.
In the event of any liquidation, dissolution or winding up of the
Company, a merger or consolidation of the Company in which its
shareholders do not retain a majority of the voting power in the
surviving corporation, or a sale of all or substantially all of the
Company's assets, the holders of the Class A Stock will be entitled
to receive an amount equal to the original purchase price per share
for the Class A Stock plus an amount equal to all declared but
unpaid dividends thereon (the "Preference Amount"). After the full
liquidation preference has been paid on all outstanding shares of
the Class A Stock, the holders of the Class B Stock will be
entitled to receive an amount computed in the same manner. After
the full liquidation preference on all outstanding shares of the
Class B Stock has been paid, any remaining funds and assets of the
Company legally available for distribution to shareholders will be
distributed pro rata among the holders of the Preferred Stock and
the Common Stock on an "as converted" basis.
NOTE K - STOCK COMPENSATION AND AWARDS
On December 1, 1998, the Board of Directors awarded 20,369,000
shares of common stock to employees as compensation for services
rendered during 1998. 12,369,000 shares were issued on the date of
grant with the balance of the shares payable over 18 months as
follows: 3,000,000 shares by July 1, 1999 and 5,000,000 shares by
July 1, 2000. The 8,000,000 shares payable at December 31, 1998
were fully vested and without forfeiture provisions. The Company
recognized a charge to operations for the fair market value of the
stock awarded as compensation expense at the date of grant of $.01
per share for a total of $203,690.
On December 7, 2000 the Company issued 39,000 shares to employees
as compensation for services rendered to the Company during 2000.
The shares were valued at the market value of $.39 per share and
were recorded by the Company as compensation expense in the amount
of $15,210.
NOTE L - OPERATING LEASES
The Company leases its administrative offices from an unrelated
party at a monthly rental of $2,984 per month. The lease also
contains escalation clauses for tax increases and annual adjustment
based upon the consumer price index.
Lease payments for the five years succeeding December 31, 2000 are
as follows:
2001 2002 2003 2004 2005
---------------------------------------------------------------
$35,805 $35,805 $35,805 $35,805 $29,838
Office rent expense amounted to $29,212, $11,175 and $0 for the
years ended December 31, 2000, 1999 and 1998, respectively.
F-21
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE M - COMPOSITION OF SUBSIDIARIES
The consolidated financial statements include the
Accounts of the Company's
Wholly owned subsidiaries. Selected financial information on the
Subsidiaries (before consolidation) as of December 31, 2000 and
For the year then ended is as follows:
-------------------------------------------------------------------
TOTAL TOTAL NET INCOME
ASSETS REVENUES (LOSS)
-------------------------------------------------------------------
Legred Struthers Genetics, Inc. $5,675,200 $2,604,500 $(1,050,000)
Elite Visions, Inc. 2,332,300 167,000 (74,700)
Muller A.I., Inc. 341,600 381,900 27,000
------------------------------------------------------------------
NOTE N - PRO FORMA INFORMATION - (UNAUDITED)
The Company's unaudited Pro Forma Consolidated Results of
Operations for the year ended December 31, 2000 and 1999, shown
below are presented assuming the Legred Genetics, Elite Visions
and Muller A.I. acquisitions has been consummated on January 1,
1999:
Years Ended December 31, 2000 1999
--------------------------------------------------------------------
Pro Form Revenues $ 3,208,015 $1,417,721
Pro Forma Net Loss $(2,985,991 $ (892,255)
Net Loss per Share $ (0.00) $ (0.00)
--------------------------------------------------------------------
NOTE O - SUBSEQUENT EVENTS
In order to provide a possible source of funding for Struthers
current activities and for the continued development of its current
and planned products, and markets for its products, on March 23,
2001, we entered into a Common Stock Purchase Agreement and
Registration Rights Agreement, commonly referred to as an equity line
of credit agreement, with Alpha Venture Capital, Inc.
Under the equity line of credit agreement, Alpha Venture Capital,
Inc. has agreed to provide Struthers with up to $10,000,000 of
funding during the twelve- month period following the effective date
of the registration statement to be filed on Form S-1 within 45 days.
The commitment period will be extended automatically for an
additional twelve months if at least twenty percent (20%)(i.e.
$2,000,000) of the commitment amount is purchased during the first
eight months from the effective date. During this commitment period,
Struthers may request a draw down under the equity line of credit
agreement by selling shares of its common stock to Alpha Venture
Capital, Inc., and Alpha Venture Capital, Inc. will be obligated to
purchase the shares. The minimum amount Struthers can draw down at
any one time is $150,000, and the maximum amount Struthers can draw
down at any one time will be determined at the time of the draw down
request using a formula contained in the equity line of credit
agreement up to $3,000,000. Both the minimum and maximum draw downs
are subject always to a limit of 300% of the average daily trading
volume over the twenty (20) trading days preceding the Put Date.
Struthers may request a draw down once every 15 trading days,
although Struthers is under no obligation to request any draw down
under the equity line of credit.
-continued-
F-22
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE O - SUBSEQUENT EVENTS - CONTINUED
The purchase price shall be based on 88% of the average of the five (5)
lowest reported daily weighted average market prices during the 10
trading days preceding the Put Date. The number of Put Shares to be
purchased by the investor shall be determined on the Put Date by
dividing the draw down request by the purchase price determined during
the valuation period, but not less than the minimum amount or more than
300% of the average daily trading volume as defined above. Struthers
will receive the purchase price less a commitment fee payable in cash
to Alpha Venture Capital, Inc. equal to four percent (4%) of the
aggregate purchase price.
Using the formula contained in the equity line of credit agreement, if
Struthers had requested a draw down on January 1, 2001, the maximum
amount Struthers could have drawn down would have been $939,600. Based
upon the daily weighted average volume of Struthers common stock during
the preceding 10 trading days, Struthers would have sold 5,220,000
shares of its common stock to Alpha Venture Capital, Inc. and would
have received proceeds from the sale of these securities equal to
$902,016, which is net of the 4% commitment fee to Alpha Venture
Capital, Inc.
Additionally, we will issue "A" Warrants to Alpha Venture Capital, Inc.
to purchase shares of our common stock and are required to issue "B"
Warrants on a pro rata basis equal to ten percent 10% of each draw
down. The common stock underlying these warrants will be registered in
the registration statement referenced above.
Struthers is registering on a Form S-1, the shares of common stock
issuable to Alpha Venture Capital, Inc. under the equity line of credit
agreement, the shares underlying the "A" Warrants granted to Alpha
Venture Capital, Inc. as a placement fee, and the additional shares
underlying the "B" Warrants to be issued on a pro-rata basis with
respect to each put to purchase shares (up to 10% of the commitment
amount) as a commitment fee. These shares may be offered for sale from
time to time by means of this prospectus by or for Alpha Venture
Capital, Inc. Struthers's will prepare and file amendments and
supplements to a prospectus as may be necessary in order to keep such
prospectus effective as long as Alpha Venture Capital, Inc. holds
shares of Struthers common stock or until these shares can be sold
under an appropriate exemption from registration. Struthers has agreed
to bear the expenses of registering the shares, including Alpha Venture
Capital's reasonable legal fees in an amount not less than $1,500, but
not the expenses associated with selling the shares, such as broker
discounts and commissions.
The "A" Warrants granted to Alpha Venture Capital, Inc. are exercisable
at any time commencing March 23, 2001 until March 23, 2005 at an
initial price per share equal to $ (the lesser of (a) ninety percent
90% of the average of the five (5) closing bid prices following January
3, 2001 or (b) ninety percent of the average or the five (5) closing
bid prices following the effective date of the Registration Statement,
subject to further adjustment for anti-dilution provisions. The "B"
Warrants granted to Alpha Venture Capital, Inc. are exercisable at any
time commencing March 23, 2001 until March 23, 2005 at an initial price
per share equal to (the lesser of
-continued-
F-23
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE O - SUBSEQUENT EVENTS - CONTINUED
(a) one-hundred percent (100%) of the average of the closing bid
prices for the five (5) trading days immediately preceding the
date of issuance of this Warrant or (b) one hundred percent (100%)
of the average of the closing bid prices of the five (5) trading
days immediately preceding the date the Holder may exercise such
portion of the Warrant, subject to further adjustment for
anti-dilution provisions.
F-24
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
QUARTERLY SUMMARY
- ----------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED March 31 June 30 September 30 December 31
- -------------------------------- ------------------- ------------------- ------------------- --------------------
2000
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Operating Revenues:
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Semen $ 53,374 $ 63,552 $ 92,586 $ 31,843
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Gilts 259,360 221,225 127,090 237,116
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Boars and Barrows 95,090 101,830 87,148 62,595
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Market Swine 464,626 431,143 394,370 147,824
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Artificial Insemination
Supplies 5,822 65,015 156,354 196,925
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Genetic and Related Services 17,261 4,761 112,412 61,871
- -------------------------------- ------------------- ------------------- ------------------- --------------------
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Net Operating Revenues (3) $ 895,533 $ 887,526 $ 969,960 $ 738,174
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Cost of Sales (4) 615,596 563,551 504,079 1,230,991
- -------------------------------- ------------------- ------------------- ------------------- --------------------
General and
Administrative (5) 253,111 567,293 548,445 915,572
- -------------------------------- ------------------- ------------------- ------------------- --------------------
EBDITA (1) (289,798) (303,456) (138,161) (1,291,548)
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Net Loss (288,645) (588,310) (538,844) (1,794,045)
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Net Loss per Share
- Basic and Diluted (2) $(0.00) $(0.00) $(0.00) $(0.00)
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Range of Closing Stock
Prices - OTCBB $.27 - $1.66 $.44 - $1.09 $.33 - $.56 $.18 - $.60
- -------------------------------- ------------------- ------------------- ------------------- --------------------
1999
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Operating Revenues:
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Semen $ --- $ --- $ --- $ 31,074
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Gilts --- --- --- 201,736
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Boars and Barrows --- --- --- 59,758
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Market Swine --- --- --- 19,895
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Artificial Insemination
Supplies --- --- --- 14,896
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Genetic and Related Services --- --- --- 5,692
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Net Operating Revenues $ --- $ --- $ --- $ 333,051
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Cost of Sales --- --- --- 169,609
- -------------------------------- ------------------- ------------------- ------------------- --------------------
General and Administrative 50,000 10,794 259,087 209,957
- ------------------------------- ------------------- ------------------- ------------------- --------------------
EBDITA (1) (50,000) (10,794) (269,004) (83,194)
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Net Loss (50,000) (10,794) (269,004) (287,263)
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Net Loss per Share
- Basic and Diluted (2) $(0.00) $(0.00) $(0.00) $(0.01)
- -------------------------------- ------------------- ------------------- ------------------- --------------------
Range of Closing Stock
Prices - OTCBB $.01 - $.03 $.01 - $.60 $.33 - $.56 .18 - $.60
- -------------------------------- ------------------- ------------------- ------------------- --------------------
<FN>
(1) - Earnings (Loss) before depreciation, interest, taxes and amortization
expenses.
(2) - Net loss per share for each quarter is computed using the weighted
average number of shares outstanding during that quarter while net loss
per share for the full year is computed using the weighted average number
of shares outstanding during the year. Thus, the sum of the four quarters
net loss per share may not equal the full year net loss per share. Also,
because of the large number of shares outstanding each quarter, the net
loss per share is less than $.01 per share per quarter.
(3) - The decrease in revenues in the fourth quarter of 2000 was caused
primarily by the seasonality of sales of live animals and the change in
the Company's distribution channel for market hogs from that of wholesale
sales to meat packers to upstream retail sales directly to customers.
Initial shipments of our Tender Prime line of meat products began late in
the fourth quarter.
(4) - The increase in the cost of sales in the fourth quarter reflects the
increased farm operating costs due the the addition of the new
state-of-the-art boar stud facility.
(5) - The increased general and administrative expenses in the fourth quarter
of 2000 are comprised primarily of costs associated with the annual
stockholders meeting, printing and distribution of the annual financial
statements and stock issued to employees and consultants as compensation
for services rendered.
</FN>
F-25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding our
executive officers, key employees, and directors as of February 28, 2001.
NAME AGE POSITION HELD
---- --- -------------
Richard S. Lane 60 Chairman of the Board (2)
and a Director (1)
Mariano Raigo 48 President (2)
Douglas W, Beatty 42 A Director
and Past President/CEO (3)
Dr. Dennis Gourley 46 Secretary/Treasurer (2)and a Director (1)
and Director of Operations
of Elite Visions, Inc.
Rhett C. Seabrook 39 Vice President (2) and a Director
and Past Secretary/COO (3)
Bertram K. Remley 56 Chief Financial Officer
Brent Legred 38 President of Operations
of Legred Struthers Genetics, Inc.
Dr. Allan Carlson 39 A Director (1)
(1) The appointments were effective as of January 1 2001 in order to
fill three vacancies on the Board of Directors.
(2) The appointments as officers were approved by the Board of
Directors on March 19, 2001.
(3) Effective March 19, 2001, Douglas W. Beatty ceased acting as
CEO/President and Rhett Seabrook, who was appointed Vice President,
ceased acting as Secretary/COO. Both Messrs. Beatty and Seabrook
retain their positions as Directors.
The following information summarizes the business experience during at
least the past five years of each officer:
Richard S. Lane, was appointed as a Director effective January 1, 2001
and was appointed as Chairman of the Board effective March 19, 2001. From 1998
to the present, Mr. Lane has been acting as general counsel to the Company. Mr.
Lane is a member of the Bar of the State of New York and has been actively
practicing for more than 30 years, concentrating in Corporate and Securities
law.
Mariano M. Raigo, President, effective March 19, 2001 to present, a
native of Argentina, studied Engineering and Business Management at North
Carolina State and Notre Dame. For the past 20 years he owned and operated
several businesses in the Asheville area of North Carolina. During this period,
Mr. Raigo was recognized as one of the top 3 retailers in the nation and
received the Bellcow award for Innovative Marketing and Sales from the National
Association of Retail Dealers and the Whirlpool Corp. Mr. Raigo handled accounts
both domestically and internationally for companies such as Nestle and GE
Spacenet. For the past 9 months, Mr. Raigo has worked with Struthers on a
consulting basis, designing and building its information and accounting system,
and is familiar with all operations. Mr. Raigo is fluent in several languages
and holds offices in several civic organizations in Asheville, including the
Minority Development Enterprise Board, Association for Latin American
Development.
-23-
Douglas W. Beatty, Past President, November, 1998 to March 19, 2001,
was responsible for overseeing the day-by-day operations of the Registrant,
including the development of product commercialization and reproductive
technology. In 1991 to November, 1998, he was President of Winners's Circle,
Inc., a Charleston, South Carolina, based seminar and training production
company. Hired and trained sales staff to promote celebrity speakers and perform
training programs in corporations throughout the country. In addition, developed
marketing plans for corporations launching new innovative products. Running
day-to-day operations of company programs and business. His educational
background includes B.S. in biology, vertebrate physiology from Trent University
and B.S. (Hon.) in chemotherapy/laboratory biology from University of Toronto,
certified surgical embryo transfer techniques, University of Missouri.
Rhett W. Seabrook, Secretary, November, 1998 to date, responsible for
sales and marketing of Registrant's porcine reproductive biotechnology and
genetics. September, 1997 to November, 1998, Senior Vice President and
co-founder of Future Financial, a debt consolidation service, located in
Charleston, South Carolina, handling sales, marketing, advertising and product
development. 1996 to 1997 Associate Manager/co-Owner of Fric's-N-Frac's retail
store in Charlotte, North Carolina, establishing marketing, development and
promotional events. 1995 to 1996 Assistant Sales Manager Rhodes Furniture,
Charlotte, North Carolina, directed sales and service and provided sales staff
training and motivation. 1991 to 1995 Beverage Director at The Club of Seabrook
Island, Seabrook Island, South Carolina. Managed lounges and banquet operations,
including facility event planning. Mr. Seabrook attended the College of
Charleston, South Carolina.
Dr. Dennis Gourley, D.V.M., Director of Operations, Elite Visions,
Inc., June 1, 2000 to present, and was appointed as a Director effective January
1, 2001. Prior to joining the Company, Dr. Gourley was a primary independent
consultant in the animal reproductive research activities of Struthers. From
1984 to 1991, Dr. Gourley founded Elite Genetics, LLC developing the first
commercially viable sheep artificial insemination procedure in the U.S. and
export. During 1991 to 1994 he was Chief Operating Officer for Elite Genetics,
LLC. He also directed staff work involvement with the USDA-APHIS Veterinary
Services, USDA-FAS, International Chamber of Agriculture, Iowa International
Development Foundation, The Center of Agriculture and Rural Development, Midwest
Agribusiness Trade Research and Information Center, National Suffolk Sheep
Association, U.S. Livestock Genetics Export and American Sheep Industry
Association. Dr. Gourley received his Doctor of Veterinary Medicine degree in
1979 from Iowa State University, Ames, Iowa and developed specialty areas in
Large and Small Ruminant Reproduction and Physiology.
Bertram K. Remley, Chief Financial Officer, May, 2000 to date,
responsible for financial operations, human resources and general
administration. From 1980 to May, 2000 operated his own accounting firm
representing businesses in a broad spectrum of enterprises, including, among
other things, a vertically integrated meat processor (from feedlot to meat
wholesaler), nationally recognized wholesale meat distributors and hotel and
restaurant chains. From 1976 to 1979 was employed by Main Hurdman, a national
accounting firm (subsequently merged into Peat Marwick), and from 1974 to 1976
was employed by the firm of Pannell Kerr Forster, a national accounting firm,
for which two companies he conducted or supervised audits of both public and
non-public entities. His educational background includes a BA Degree in Business
Administration - Accounting from California State University at Fullerton and in
1979 received his CPA certificate from the State of California.
Brent Legred, President of Operations, Legred Struthers Genetics, Inc.,
February 15, 2000 to present, responsible for sales and marketing of the seven
superior genetic lines of swine, continual genetic development, and all
day-to-day operations associated with Legred Struthers Genetics, Inc., January
1, 1995 to February 14, 2000, President/Founder of Legred Swine Genetics, and
President/CEO of Legred Swine Genetics/Norsvin Inc. responsible for the sales
and marketing of swine genetics including the Norsvin genetic line of superior
swine and all day-to-day operations of both companies. Received a B.S. degree in
Business and Finance from the University of Minnesota in 1984.
Dr. Alan Carlson was appointed as a Director effective January 1,
2001.
-24-
ITEM 11. EXECUTIVE COMPENSATION
RESTRICTED
NAME AND FISCAL SALARY STOCK
PRINCIPAL POSITION YEAR & BONUSES AWARDS(8)
- ------------------ ---- ------ --------
Douglas W. Beatty 2000 $189,538
President and Director(1) 1999 48,000
1998 --- 7,123,000(4)
Rhett C. Seabrook 2000 $189,538
Secretary and Director(1) 1999 48,000
1998 --- 7,123,000(4)
Bertram K. Remley (2)(6) 2000 $ 35,000 ---
1999 --- ---
Brent Legred 2000 $ 75,000(3) ---
President of Operations 1999 75,000(3) ---
of Legred Struthers 1998 75,000(3) ---
Genetics, Inc. (5)(7)
Dr. Dennis Gourley, D.V.M. 2000 $ 23,017
1999 ---
1988 ---
(1) Douglas Beatty and Rhett Seabrook have identical employment
agreements. Each is for a term of 42 months commencing July 1, 2000
with a salary of $75,000 through June 30, 2000 and increasing every
six month period thereafter by $25,000 with the last period being July
1, 2003 through December 31, 2003 at a salary rate of $250,000.
Douglas Beatty and Rhett Seabrook each received a bonus of $95,000
during the year 2000. Mr. Beatty's contract was cancelled effective
March 19, 2001 when he was replaced as CEO/President of the Company.
(2) As of May 2000 Mr. Remley's annual salary is $60,000.
(3) Mr. Legred did not receive any compensation during the fiscal year
ended December 31, 1999. An annual salary of $75,000 was imputed and
reflected in the statement of operations and a contribution to
capital. As of February 15, 2000 his annual salary is $75,000 pursuant
to a written contract.
(4) These shares were granted by the board of directors as compensation
for past services on December 1, 1998. A total of 7,623,000 shares of
common stock were awarded to each of these officers with a fair value
on the date of grant of $.01 per share and the Company recognized
compensation expense of $76,230 for each of the officers in 1998.
4,123,000 shares were issued in 1998, 1,000,000 shares were issued in
1999 and the remaining 2,500,000 shares were issued in 2000.
(5) Mr. Legred is entitled to receive additional share in accordance with
the terms of a November 22, 1999 agreement with Registrant (see ITEM
1. BUSINESS) as follows: on May 2, 2001, shares valued at $1 million
based on the then market value.
(6) Mr. Remley's employment agreement is for a term of 36 months
commencing May 1, 2000 at an annual salary of $60,000. Brent Legred's
-25-
employment agreement is for a term of 36 months commencing
February 15, 2000 at an annual salary of $75,000.
(7) An additional 5,123,000 shares were awarded in 1998 to a former
officer of the Company in connection with the December 1, 1998 stock
award for compensation for services rendered in 1998.
All of the officers and directors are reimbursed for out-of-pocket
expenses incurred in connection with the Company's business. So long as the
expenses incurred in connection with the Company 's business are reasonable in
amount and accounted for to the satisfaction of the Board of Directors, there is
no set limitation on the amount of expenses that may be incurred.
The Company has written employment contracts with Douglas W. Beatty,
Rhett W. Seabrook, Bertram K. Remley and Brent Legred. No other officer of the
Company has a written employment contract with the Company. At the present time
the Company has no retirement, pension, profit sharing, stock option plan or
other similar programs for the benefit of its employees. There are currently no
outstanding options, warrants or rights granted to any director or officer of
the Company except that Brent Legred is entitled to certain shares pursuant to a
written agreement with the Company.
-26-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The
following table sets forth certain information concerning the
beneficial ownership of the Company's stock by each Director, by all
Directors and Officers as a group and by each person known to the
Company to be the beneficial owner of more than 5% of the outstanding
shares of the Company's stock as of March 28, 2001. Unless otherwise
indicated, each of the following persons has sole voting and
dispositive power with respect to the shares beneficially owned.
AMOUNT OF SHARES PERCENTAGE AMOUNT OF SHARES PERCENTAGE
OF COMMON STOCK OF COMMON OF CLASS B PREFERRED STOCK OF CLASS B
BENEFICIALLY OWNED STOCK BENEFICIALLY OWNED PREFERRED
------------------ ----- ------------------ ---------
NAME AND ADDRESS OF
BENEFICIAL OWNER
Richard S. Lane
Chairman of the Board
and a Director
One Old Country Road Suite 120
Carle Place, NY 11514 11,145,000 2.88%
Mariano Raigo
1866-B Raoul Wallenberg Blvd
Charleston, SC 29407 2,700 0.01%
Douglas W. Beatty
Past President and Director
1866-B Raoul Wallenberg Blvd
Charleston, SC 29407 6,763,000 1.75%
Rhett C. Seabrook
Secretary and Director
1866-B Raoul Wallenberg Blvd
Charleston, SC 29407 6,853,000 1.77%
Bertram K. Remley
Chief Financial Officer
1866-B Raoul Wallenberg Blvd
Charleston, SC 29407 635,712 0.16% 136,500 2.37%
Dr. Dennis Gourley
Secretary/Treasurer
and a Director
605 Rossville Rd.
Waukon, IA 52172 1,245,101 0.32%
Dr. Alan Carlson
A Director
-0-
Brent Legred
President of Operations of
Legred Struthers Genetics, Inc.
3500 490 Avenue 11,624,304(1) 3.00%
Bricelyn, Minnesota 56014
All Directors and Officers as
a group (7 persons) 26,641,813 6.88% 136,500 2.37%
<FN>
(1) Mr. Legred is entitled to receive additional shares in accordance with the
terms of a November 22, 1999 agreement with Registrant (see ITEM 1. BUSINESS) as
follows: on May 2, 2001, shares valued at $1 million based on the then market
value.
</FN>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 2, 1999 the Company entered into an agreement with Legred
Genetics, Inc., Legred Genetics and Brent Legred ("Legred") pursuant to which
the Company purchased physical assets, including livestock, operating equipment
and Legred's rights under agreements with third parties (including one with
Norsvin
-27-
International AS ("Norsvin"), an international developer and distributor of
porcine genetic materials and technology) ("Legred Assets").
There was no prior affiliation between Company and Legred. Pursuant
to the agreement the Company paid Legred the sum of $1 million and shares of the
Company 's Common Stock, the final number of which shares will be determined
based on the market value of the Company's common shares at the dates payable as
follows: $250,000 due at closing; $750,000 due January 1, 2000; $1,000,000 due
May 2, 2000; $1,000,000 due November 2, 2000 and $1,000,000 due May 2, 2001. The
Company was obligated under this agreement to and did build a boar stud unit and
operating laboratory, the cost of which was approximately $450,000. In
anticipation of the execution of the said agreement, the Company formed a wholly
owned subsidiary which was incorporated in the State of Nevada on October 21,
1999 and called Legred Struthers Genetics, Inc. All of the Legred Assets were
transferred into the subsidiary. Further and pursuant to the agreement Legred
became President of Operations of Legred Struthers Genetics, Inc. at an annual
salary of $75,000.
The Company advanced $150,000 to Douglas W. Beatty, President of the
Company in the form of a loan bearing interest at 10.5% with interest payable
monthly and the principal due in twelve months.
With the exception of the foregoing, there are no transactions with
management or other business relationships or transactions with promoters that
are required to be reported. There is no other indebtedness owed by management
to the Company.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of
this report:
1. All Financial Statements:
The following financial statements are filed as part of this
report under Item 8 - "Financial Statements and Supplementary
Data."
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 2000 and 1999 F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Three Years in the Period Ended December 31, 2000 F-4
Consolidated Statements of Operations for the Three Years
in the Period Ended December 31, 2000 F-5
Consolidated Statements of Cash Flows for the Three Years
in the Period Ended December 31, 2000 F-6 to F-7
Notes to the Consolidated Financial Statements F-8 to F-25
Quarterly Summary (Unaudited) F-26
2. Financial Statements Schedules:
All other schedules are omitted as the required information is
inapplicable or the information is presented in the
Consolidated Financial Statements and notes thereto in Item 8
above.
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3. Exhibits:
The following exhibits are filed herewith or are incorporated
by reference to exhibits previously filed with the Securities
and Exchange Commission.
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 *Articles of Incorporation of Latitude Network Inc.
3.2 *Amended Articles of Incorporation of Latitude
Network, Inc.
3.3 *Amended Articles of Incorporation of Orbis
Development, Inc.
3.4 *Amended Articles of Incorporation of Struthers, Inc.
3.5 *Certificate of Correction of Amended Articles of
Incorporation of Struthers, Inc.
3.6 *Amended Articles of Incorporation of Struthers, Inc.
3.7 *By-Laws of Struthers, Inc.
4 See Exhibit 3.4, 3.5, 3.6 filed herewith for rights of
security holders.
9 *Voting Trust Agreement
10.1 *Agreement dated November 2, 1999 among Struthers, Inc.,
Legred Genetics, Inc., Legred Genetics, and Brent
Legred (with exhibits).
10.2 *Assignment and Assumption of Lease between
Struthers, Inc. and Legred Struthers Genetics, Inc.
10.3 *Employment Agreement with Douglas W. Beatty.
10.4 *Employment Agreement with Rhett Seabrook.
10.5 *Employment Agreement with Bertram K. Remley.
10.6 *Employment Agreement with Brent Legred.
21.1 *Articles of Incorporation of Legred Struthers
Genetics, Inc., a subsidiary of Registrant.
21.2 *Amended Articles of Incorporation of Legred
Struthers Genetics, Inc.
21.3 *Articles of Incorporation of Elite Visions, Inc.
21.4 *Articles of Incorporation of Muller A. I., Inc.
* Incorporated by reference to the same exhibit filed with the
Company's registration statement on Form 10, as filed on
October 25, 2000
(B) Reports on Form 8-K
On March 26, 2001, Struthers filed a report on Form 8-K, which
reported under Item 5 the following actions:
- The Board of Directors approved the appointment of Dr.
Allan Carlson, Dr. Dennis D. Gourley and Richard S. Lane,
Esq. as Directors of the Company to fill three vacancies
effective January 1, 2001.
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- At a meeting on March 19, 2001, the following persons were
appointed as officers:
Mariano Raigo - President
Dr. Dennis D. Gourley - Secreatary/Treasurer
Richard S. Lane, Esq. - Chairman of the Board
Rhett Seabrook - Vice President
- Accordingly, effective as of March 19, 2001 Douglas W.
Beatty ceased acting as CEO/President and Chairman of the
Board and Rhett Seabrook, who was appointed Vice President,
ceased acting as Secretary/COO. Both Messrs. Beatty and
Seabrook reatain their positions as Directors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report of Form
10-K be signed on its behalf by the undersigned, thereunto duly authorized.
STRUTHERS, INC.
---------------
Date: By:/s/ RICHARD S. LANE
----------------- -------------------
(Signature)*
Richard S. Lane, Chairman of the Board
And General Counsel
*Print name and title of the signing officer under his signature.
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