SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
September 30, 2001
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 000-30331
STRUTHERS, INC.
---------------
(Exact name of registrant as specified in its charter)
NEVADA 57-1075246
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
of incorporation or organization)
605 ROSSVILLE ROAD, WAUKON, IOWA 52172
--------------------------------------
(Address of principal executive offices)
(563) 568-4950
--------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark 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. X Yes _ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of September 30, 2001, there were 433,678,669 shares of common stock
outstanding. As of November 13, 2001 there were 630,367,392 shares of common
stock outstanding. In addition, there are 190,105,338 shares held in trust for
Alpha Venture Capital. Pursuant to the Equity Finance Agreement.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STRUTHERS, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
WAUKON, IOWA
TABLE OF CONTENTS
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Independent Accountants' Report F-1
Consolidated Balance Sheets at September 30, 2001 (Unaudited)
and December 31, 2000 F-2
Consolidated Statements of Changes in Stockholders' Equity
for the Three and Nine Months Ended September 30, 2001
and 2000 (Unaudited) F-3
Consolidated Statements of Operations for the Three months
Ended September 30, 2001 and 2000 (Unaudited) and for the
Nine Months September 30, 2001 and 2000 (Unaudited) F-4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2001 and 2000 (Unaudited) F-5
Notes to the Consolidated Financial Statements (Unaudited) F-6 to F-7
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
and Stockholders
Struthers, Inc. and Subsidiaries
(A Nevada Corporation)
WAUKON, IOWA
We have reviewed the accompanying consolidated balance sheets of
Struthers, Inc. and Subsidiaries as of September 30, 2001, the related
consolidated statements of changes in stockholders equity, consolidated
statements of operations for the three months and nine months ended September
30, 2001 and 2000, and the consolidated statements of cash flows for the nine
months ended September 30, 2001 and 2000 in accordance with standards
established by the American Institute of Certified Public Accountants. All
information included in these consolidated financial statements is the
responsibility of the Company's management.
A review of interim financial information consists principally of
inquiries of Company personnel and analytical procedures applied to the
financial data. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements in
order for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the consolidated balance sheets of
Struthers, Inc. and Subsidiary as of December 31, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for years then ended, and in our report dated February 23, 2001, we
expressed an unqualified opinion on those consolidated financial statements.
/s/ Rotenberg & Company, LLP
- ----------------------------
Rotenberg & Company, LLP
Rochester, New York
November 12, 2001
F - 1
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
WAUKON, IOWA
CONSOLIDATED BALANCE SHEETS AT September 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
September 30, December 31,
2001 2000
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ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 30,611 $ 1,446,436
Accounts Receivable 337,790 529,855
Inventory 544,355 575,687
Prepaid Expenses and Deposits 234,120 190,259
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TOTAL CURRENT ASSETS 1,146,876 2,742,237
PROPERTY AND EQUIPMENT - Net of Accumulated Depreciation 2,680,281 3,762,427
INTANGIBLE ASSETS - Net of Accumulated Amortization 2,362,913 3,884,778
Note Receivable - Officer 150,000 150,000
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TOTAL ASSETS $ 6,340,070 $ 10,539,442
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Other Current Liabilities $ 210,418 $ 362,696
Notes and Mortgages Payable - Due Within One Year 47,939 24,853
Stock Payable - Due Within One Year -- 1,000,000
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TOTAL CURRENT LIABILITIES 258,357 1,387,549
Notes and Mortgages Payable - Due After One Year 639,150 120,363
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TOTAL LIABILITIES 897,507 1,507,912
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STOCKHOLDERS' EQUITY
Common Stock - $.001 Par; 900,000,000 Shares Authorized;
433,678,669 and 378,377,256 Shares Issued and Outstanding 433,679 378,377
Convertible Preferred Stock- $.001 Par; 6,500,000 Shares Authorized;
3,420,010 and 6,158,754 Shares Issued and Outstanding 3,420 6,159
Preferred Stock - $.001 Par; 20,000 Shares Authorized;
20,000 Shares Issued and Outstanding 20 20
Additional Paid-in Capital 13,690,409 13,023,008
Deficit (8,684,965) (4,376,034)
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TOTAL STOCKHOLDERS' EQUITY 5,442,563 9,031,530
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,340,070 $ 10,539,442
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The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 2
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
WAUKON, IOWA
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) for the
Three and Nine Months Ended September 30, 2000 and 2001
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Convertible
Common Stock Preferred Stock Additional Total
------------------ ------------------
Paid-In Stockholders'
Shares Par Value Shares Par Value Capital Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
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
Issuance of Common Stock in Connection
With Legred Acquisition at $.6300 per Share 1,587,302 1,587 -- -- 998,413 -- 1,000,000
Shares Issued to Employees
- Previously Granted Shares 5,000,000 5,000 -- -- 45,000 -- 50,000
Issuance of 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
Net Loss for the Six months Ended (Unaudited) -- -- -- -- -- (876,955) (876,955)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 2000 369,969,922 $ 369,970 6,520,000 $6,520 $ 9,682,174 $(2,043,145) $8,015,519
- --------------------------------------------------------------------------------------------------------------------------------
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 Consultants for Services
Rendered at $.48 Per Share 60,000 60 -- -- 28,740 -- 28,800
Conversion of Class B Preferred Stock
Into Common Stock 818,752 819 (109,167) (109) (710) -- --
Net Loss for the Three Months ended
September 30, 2000(Unaudited) -- -- -- -- -- (538,844) (538,844)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE - SEPTEMBER 30, 2000 373,357,670 $ 373,357 6,410,833 $6,411 $11,701,586 $(2,581,989) $9,499,365
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- --------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2000 378,377,256 $ 378,377 6,178,754 $6,179 $13,023,008 $(4,376,034) $9,031,530
Conversion of Class B Preferred Stock
Into Common Shares 26,949,850 26,950 (2,719,579) (2,720) (24,230) -- --
Net Loss for the Six months Ended
June 20, 2001(Unaudited) -- -- -- -- -- (1,865,208) (1,865,208)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 2001 405,327,106 $405,327 3,459,175 $3,459 $12,998,778 $(6,241,242) $7,166,322
- --------------------------------------------------------------------------------------------------------------------------------
Conversion of Class B Preferred Stock
Into Common Shares 453,901 454 (19,165) (19) (435) -- --
Shares Issued Under Equity Financing 27,897,662 27,898 -- -- 692,066 -- 719,964
Net Loss for the Three Months Ended
September 30, 2001(Unaudited -- -- -- -- -- (2,443,723) (2,443,723)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE - SEPTEMBER 30, 2001 433,678,669 $433,679 3,440,010 $3,440 $13,690,409 $(8,684,965) $5,442,563
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The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 3
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
WAUKON, IOWA
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
Three months Nine Months
Ended September 30, Ended September 30,
- -----------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------
REVENUES $ 658,207 $ 887,526 $ 2,634,481 $ 1,783,059
Cost of Sales 691,632 563,551 2,477,643 1,179,147
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GROSS PROFIT (33,425) 323,975 156,838 603,912
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EXPENSES
Research and Development 169,605 73,474 313,594 82,106
Marketing and Advertising 30,077 23,006 63,576 50,351
General and Administrative 621,424 547,293 1,788,613 800,404
Amortization and Depreciation 924,178 248,854 1,642,635 494,408
Loss on Impairment of Assets 671,824 -- 671,824 --
- -----------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,417,108 892,627 4,480,242 1,427,269
- -----------------------------------------------------------------------------------------------------------
LOSS BEFORE OTHER INCOME AND (EXPENSES) (2,450,353) (568,652) (4,323,404) (823,357)
OTHER INCOME AND (EXPENSES)
Interest 6,810 36,342 14,473 38,403
- -----------------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,443,723) (532,310) (4,308,931) (784,954)
Provision for Income Taxes -- -- -- --
- -----------------------------------------------------------------------------------------------------------
NET LOSS $ (2,443,723) $ (532,310) $ (4,308,931) $ (784,954)
- -----------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 415,572,723 346,677,550 391,176,697 346,677,550
- -----------------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE- BASIC AND DILUTED $ (.01) $ -- $ (.02) $ --
- -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 4
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
WAUKON, IOWA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------------
For the Nine months Ended September 30, 2001 2000
- ------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(4,308,931) $(1,415,799)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Amortization and Depreciation 1,642,635 967,092
Common Shares Issued to Consultants for
Services Rendered -- 28,800
Loss on Impairment of Assets 671,824 --
CHANGES IN ASSETS AND LIABILITIES:
Accounts Receivable 192,065 (370,783)
Other Receivables -- (37,857)
Inventory 31,332 (211,794)
Prepaid Expenses and Deposits (43,861) (45,645)
Accounts Payable and Other Current Liabilities (152,278) 25,449
- ------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (1,967,214) (1,060,537)
- ------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (410,178) (1,487,541)
Acquistion of Elite Visions -- (22,000)
Acquisition of Muller A. I -- (131,290)
Deposit on Investment in Struthers Pedigree Herd Corp. -- 80,000
Note Receivable - Officer -- (150,000)
- ------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (410,178) (1,710,831)
- ------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Common Stock 719,694 --
Proceeds from Issuance of Convertible
Preferred Stock -- 6,500,000
Proceeds from Issuance of Preferred Stock -- 20,000
Proceeds from Debt 308,796 --
Repayment of Mortgage and Note Payable (66,923) (1,097,454)
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NET CASH FLOWS FROM FINANCING ACTIVITIES 961,567 5,422,546
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Net Increase in Cash and Cash Equivalents (1,415,825) 2,651,178
Cash and Cash Equivalents - Beginning of Period 1,446,436 201,160
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Cash and Cash Equivalents - End Of Period $ 30,611 $ 2,852,338
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The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 5
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
WAUKON, IOWA
STATEMENTS OF CASH FLOWS (UNAUDITED)
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
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For the Nine Months Ended September 30, 2001
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Acquisition of Building via Debt $ 300,000
Write-down of Impaired Assets - Legred Acquisition 1,671,824
Less: Stock Payable - Legred Acquisition (1,000,000)
- -----------------------------------------------------------------------------------
Loss on Impairment of Assets 671,824
===================================================================================
For the Nine Months Ended September 30, 2000
- -----------------------------------------------------------------------------------
Issuance of Stock in Connection with Acquisition of Legred Subsidiary $ 1,000,000
- -----------------------------------------------------------------------------------
Issuance of Stock to Employees - Previously Granted Shares 50,000
- -----------------------------------------------------------------------------------
Acquisition of Subsidiaries - Elite Visions, Inc.
Assets Purchased 1,910,860
Liabilities Assumed 243,585
- -----------------------------------------------------------------------------------
2,154,445
Less: Liabilities Assumed (243,585)
Less: Purchase Price Financed via Future Stock Issuance (1,888,860)
- -----------------------------------------------------------------------------------
Cash Paid 22,000
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Acquisition of Subsidiaries - Muller A.I., Inc.
Assets Purchased 231,290
Liabilities Assumed 21,567
- -----------------------------------------------------------------------------------
252,857
Less: Liabilities Assumed (21,567)
Less: Purchase Price Financed via Future Stock Issuance (100,000)
- -----------------------------------------------------------------------------------
Cash Paid 131,290
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Acquisition of Property and Equipment via Mortgage 40,000
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The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 6
STRUTHERS, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
WAUKON, IOWA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements of Struthers,
Inc. and Subsidiaries (Struthers) included herein have been
prepared by Struthers, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the
"SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in conjunction with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although
Struthers believes that the disclosures are adequate so that
the information presented is not misleading. These condensed
financial statements should be read in conjunction with the
annual audited financial statements and the notes thereto
included in Struthers annual report on Form 10-K, and other
reports filed with the SEC.
The accompanying unaudited interim financial statements reflect
all adjustments of a normal and recurring nature that are, in
the opinion of management, necessary to present fairly the
financial position, results of operations and cash flows of
Struthers for the interim periods presented. The results of
operations for these periods are not necessarily comparable to,
or indicative of, results of any other interim period or for
the fiscal year as a whole. Factors that affect the
comparability of financial data from year to year and for
comparable interim periods include the acquisitions of
subsidiaries, and general and administrative costs incurred in
connection with raising capital and in registering Struthers
common shares with Securities and Exchange Commission. Certain
financial information that is not required for interim
financial reporting purposes has been omitted.
NOTE B - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its subsidiaries, Struthers Genetics, Inc.,
Struthers Biotechnologies, Inc., and Struthers A.I., Inc. All
significant intercompany balances and transactions have been
eliminated in consolidation.
NOTE C - Reclassification
Certain amounts in the prior year financial statements have
been reclassified to conform with the current year
presentation.
Note D - Loan Payable
During the nine months ended September 30, 2001 the company
borrowed $190,000 under a promissory note. The note bears
interest at 10% per annum. The loan is secured by a leasehold
mortgage on property leased by the company in Fairbault County,
Minnesota.
F - 6
STRUTHERS, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
WAUKON, IOWA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(UNAUDITED)
- --------------------------------------------------------------------------------
Note E - Equity Funding Agreement
On July 16, 2001 the company requested a drawdown of $250,000
under its Equity Financing Agreement with Alpha-Venture Capital,
Inc. by selling to Alpha Venture Capital, Inc. 6,926,047 common
shares. On August 14, 2001 the Company requested an additional
$250,000 by selling 6,764,070 shares of common stock to Alpha
Venture Capital, Inc. On September 24, 2001, Struthers requested
an additional $250,000 by selling 14,204,545 shares of common
stock to Alpha Venture Capital, Inc. The company received the
proceeds of $719,964 net of a 4% placement fee. Pursuant to the
Agreement the Company reserved 218,000,000 shares for potential
issuance to Alpha Venture Capital. As of September 30, 2001,
shares totaling 27,894,662 have been issued leaving a balance of
$190,105,338 shares. The agreement with Alpha Venture Capital
expires in April 2002.
Note F - Contingencies
The final installment due in stock under the purchase agreement
with Legred Genetics, Inc. and Brent Legred was due May 2, 2001.
The installment amount of $1,000,000 was payable in the number
of shares equivalents at the fair market value of the common
stock on the due date. The final installment was to be reduced
by the percentage by which net income from semen sales per 100
Boars for the previous 18 months was less than $600,000. The
amount of the net income is in dispute.
In October 2001, Brent Legred filed a lawsuit claiming a breach
of contract and took possession of certain assets and in
November 2001, auctioned off certain farm machinery, equipment,
vehicles, and breeding livestock for an undisclosed amount.
Struthers has recognized an impairment loss on the farm assets
associated with the Legred Acquisition as of September 2001 in
the amount of $671,824. Struthers has filed a countersuit, which
it is vigorously pursuing. The final outcome of the litigation
cannot be predetermined.
F-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN STATEMENTS OF A
FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF STRUTHERS. SUCH STATEMENTS ARE ONLY PREDICTIONS AND THE ACTUAL
EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AS WELL AS THOSE DISCUSSED IN OTHER
FILINGS MADE BY STRUTHERS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING
STRUTHERS ANNUAL AUDITED FINANCIAL STATEMENTS INCLUDED IN ITS ANNUAL REPORT ON
FORM 10-K.
Overview
Struthers 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 and
acquired. 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, and genetic and related
services including embryo transfer services, embryo transfer equipment and
training. Struthers has developed a semen delivery system for use in artificial
insemination including the use of the Gourley Scope(TM). Struthers is perfecting
the surgical Embryo Transfer System and is currently improving the procedure to
include the non-surgical implantation of embryos. 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. Struthers has included this technology into its overall marketing plans
for the year 2001.
Struthers new state of the art stud boar facility, located in Bricelyn,
Minnesota, houses approximately 200 boars that produce semen for sale. It can
house an additional 200 boars. 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 third quarter of 2001 were
$111,572 as compared with $92,586 for the third quarter of 2000.
Gilt sales (prepubescent breeding sows) are supplied through the
Struthers gilt multiplier system. Struthers generates an average of 550 gilt
sales per month with an average sales price of $225 per gilt. The Company
currently has several contracts with eleven gilt multiplier farms for the
production of our superior genetic lines of gilts and barrows. Gilt sales for
the third quarter of 2001 were $181,643 as compared with $127,090 for the third
quarter of 2000.
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
third quarter 2001 were $51,435 as compared with $87,148 for the third quarter
of 2000.
11
Sales of artificial insemination supplies were $183,458 for the third
quarter of 2001 as compared with $255,893 for the third quarter of 2000. The
decrease in sales of artificial insemination supplies was primarily attributable
to the reduction in retail sales prices of its products due to increased market
competition.
Sales of genetic and related services were $55,992 for the third
quarter of 2001 as compared with $12,873 for the third quarter of 2000. The
increase in sales was primarily attributable to the acquisitions of Elite
Visions and Muller A.I. during the second quarter of 2000.
Struthers acquired the rights to the Gourley Scope, an instrument
used for non-surgical semen delivery in animal husbandry including swine,
through the acquisition of Elite Visions during the year 2000. Struthers
anticipates increases in revenues from the lease of Gourley Scopes and updates,
and sales of sheaths and semen during the balance of 2001.
12
The following are selected supplementary data and analysis of the results of
operations for the three and nine months ended September 30, 2001 and 2000:
Three Months Nine Months
Ended Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Operating Revenues:
Semen $ 111,572 $ 92,586 $ 261,491 $ 209,512
Gilts 181,643 127,090 804,056 607,675
Boars and Barrows 51,435 87,148 183,858 284,068
Market Swine 74,107 394,370 681,194 1,290,139
Artificial Insemination Supplies 183,458 255,893 499,469 326,730
Genetic and Related Services 55,992 12,873 204,413 34,895
- ---------------------------------------------------------------------------------------------------
Net Operating Revenues $ 658,207 $ 969,960 $ 2,634,481 $ 2,753,019
- ---------------------------------------------------------------------------------------------------
Cost of Sales 691,632 504,079 2,477,643 1,683,226
- ---------------------------------------------------------------------------------------------------
General and Administrative 621,424 548,445 1,788,613 1,368,849
- ---------------------------------------------------------------------------------------------------
EBDITA (1) (1,526,175) (138,161) (2,680,769) (289,798)
- ---------------------------------------------------------------------------------------------------
Net Loss (2,443,723) (538,844) (4,308,931) (1,415,799)
- ---------------------------------------------------------------------------------------------------
Net Loss per Share -
Basic and Diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
- ---------------------------------------------------------------------------------------------------
Weighted Average Common
Shares Outstanding 415,572,723 370,042,304 391,176,697 368,348,892
----------------------------------------------------------------
<FN>
(1) - Earnings (Loss) before depreciation, interest, taxes and amortization
expenses.
</FN>
13
Results of Operations
Three and Nine Months Ended September 30, 2001 and 2000.
The following table sets forth, for the periods indicated, the
percentages of total revenues represented by certain items reflected in
Struthers consolidated statements of operations.
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------------------------------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Operating Revenues:
Semen 17.0% 9.6% 9.9% 7.6%
Gilts 27.6% 13.1% 30.4% 22.1%
Boars and Barrows 7.8% 9.0% 7.0% 10.3%
Market Swine 11.3% 40.6% 25.9% 46.8%
Artificial Insemination Supplies 27.8% 26.4% 19.0% 11.9%
Genetic and Related Services 8.5% 1.3% 7.8% 1.3%
- ------------------------------------------------------------------------------
Total Operating Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Sales 105.1% 52.0% 94.0% 61.2%
Gross Profit (5.1%) 48.0% 6.0% 38.9%
- ------------------------------------------------------------------------------
Expenses:
Research and Development 25.8% 8.8% 11.9% 6.1%
Marketing and Advertising 4.6% 2.1% 2.4% 2.6%
General and Administrative 94.4% 56.5% 67.9% 49.7%
Amortization and Depreciation 140.4% 41.3% 62.4% 35.1%
Loss on Impairment of Assets 102.1% ---% 25.5% ---%
- ------------------------------------------------------------------------------
Total Expenses 367.2% 108.7% 170.1% 93.5%
- ------------------------------------------------------------------------------
Operating Loss (372.3%) (60.7%) (164.1%) (54.6%)
Other Income 1.0% 5.1% 0.5% 3.2%
- ------------------------------------------------------------------------------
Loss Before Income Taxes (371.3%) (55.6%) (163.6%) (51.4%)
Provision for Taxes ---% ---% ---% ---%
- ------------------------------------------------------------------------------
Net Loss (371.3%) (55.6%) (163.6%) (51.4%)
- ------------------------------------------------------------------------------
14
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
REVENUES
Revenues for the nine months ended September 30, 2001 were $2,634,481
as compared with $2,753,019 for the nine months ended September 30, 2000.
Revenues by product line are displayed on the preceding two pages.
COST OF SALES
The cost of sales for the nine months ended September 30, 2001 was
$2,477,643 and represented 94.0% of total revenues as compared with $1,683,226
representing 61.1% of total revenues for the nine months ended September 30,
2000. The increase in cost of sales as a percentage of total revenues increased
as a result of the increased costs to operate the new state-of-the-art stud boar
facility. The primary components of cost of sales are the costs to purchase and
raise live animals, including feed, veterinary costs, wages, and artificial
insemination supplies.
RESEARCH AND DEVELOPMENT COSTS
Struthers incurred $313,594 in research and development costs,
representing 11.9% of total revenues for the nine months ended September 30,
2001 as compared with $167,106 representing 6.1% of total revenues for the nine
months ended September 30, 2000.
MARKETING AND ADVERTISING COSTS
Marketing and advertising costs for the nine months ended September
30, 2001 were $63,576 and represented 2.4% of total revenues as compared with
$70,630 representing 2.6% of total revenues for the nine months ended September
30, 2000.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs increased by $419,764 from
$1,368,849 for the nine months ended September 30, 2000 to $1,788,613 for the
nine months ended September 30, 2001. The increase in general and administrative
costs was attributable primarily to the Struthers efforts in raising capital,
restructuring its business activities, acquisition completions, registration of
trademarks and patents, other legal and accounting fees, employment related
costs, and building its infrastructure to support anticipated growth during
2001. The primary components of general and administrative costs for the nine
months ended September 30, 2001 and 2000 are as follows:
15
Nine Months
Ended September 30,
2001 2000
- ----------------------------------------- -------------- ---------------
Professional and Consulting Fees $ 428,146 $ 305,429
- ----------------------------------------- -------------- ---------------
Salaries and Benefits 581,831 548,210
- ----------------------------------------- -------------- ---------------
Leases and Rentals 136,709 52,343
- ----------------------------------------- -------------- ---------------
Telephone 51,062 48,899
- ----------------------------------------- -------------- ---------------
Travel Costs 121,314 47,910
- ----------------------------------------- -------------- ---------------
Insurance 156,351 46,054
------------------------------------------------------------------------
Other Administrative and Office Costs 313,200 320,004
- ----------------------------------------- -------------- ---------------
- ----------------------------------------- -------------- ---------------
Total General and Administrative Costs $ 1,788,613 $ 1,368,849
- ----------------------------------------- -------------- ---------------
AMORTIZATION AND DEPRECIATION
Amortization and depreciation was $1,642,635 and $967,092 for the
nine months ended September 30, 2001 and 2000, respectively. The increase was
attributed primarily to the inclusion of Elite Visions, Inc. and Muller A. I.,
Inc. in the second quarter of 2000.
OTHER INCOME
Other income for the nine months ended September 30, 2001 was $14,473
as compared with $88,085 for the nine months ended September 30, 2000 and
represented interest income on invested cash.
PROVISION FOR TAXES
Struthers has not had any taxable income since its inception and
therefore has not incurred any income taxes. Struthers has not recognized any
deferred tax benefits in connection with net operating loss carryforwards and
will not until such time as it is more likely than not that the related tax
benefits will be realized.
16
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
REVENUES
Revenues for the three months ended September 30, 2001 were $658,207 as
compared with $969,960 for the three months ended September 30, 2000. Revenues
by product line have been presented on page 13 and page 14.
COST OF SALES
The cost of sales for the three months ended September 30, 2001 was
$691,632 and represented 105.1% of total revenues as compared with $504,079
representing 52.0% of total revenues for the three months ended September 30,
2000. The increase in cost of sales as a percentage of total revenues increased
as a result of the increased costs to operate the new state-of-the-art stud boar
facility. 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
Struthers incurred $169,605 in research and development costs,
representing 25.8% of total revenues for the three months ended September 30,
2001 as compared with $85,000 representing 8.8% of total revenues for the three
months ended September 30, 2000.
MARKETING AND ADVERTISING COSTS
Marketing and advertising costs for the three months ended September
30, 2001 were $30,077 and represented 4.6% of total revenues as compared with
$20,279 representing 2.1% of total revenues for the three months ended September
30, 2000.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs increased by $72,979 from $548,445
for the three months ended September 30, 2000 to $621,424 for the three months
ended September 30, 2001. The increase in general and administrative costs was
attributable primarily to the Struthers efforts in raising capital,
restructuring its business activities, acquisition completions, registration of
trademarks and patents, other legal and accounting fees, employment related
costs, and building its infrastructure to support anticipated growth during
2001. The primary components of general and administrative costs for the three
months ended September 30, 2001, and 2000 are as follows:
Three Months
Ended September 30,
2001 2000
- ------------------------------------------- ----------------- -----------------
Professional and Consulting Fees $108,999 $166,214
- ------------------------------------------- ----------------- -----------------
Salaries and Benefits 267,448 186,627
- ------------------------------------------- ----------------- -----------------
Leases and Rentals 29,311 18,614
- ------------------------------------------- ----------------- -----------------
Telephone 10,102 11,158
- ------------------------------------------- ----------------- -----------------
Travel Costs 18,519 14,181
- ------------------------------------------- ----------------- -----------------
Insurance 66,543 29,269
- ------------------------------------------- ----------------- -----------------
Other Administrative and Office Costs 120,502 122,382
- ------------------------------------------- ----------------- -----------------
- ------------------------------------------- ----------------- -----------------
Total General and Administrative Costs $621,424 $548,445
- ------------------------------------------- ----------------- -----------------
AMORTIZATION AND DEPRECIATION
Amortization and depreciation was $924,178 and $400,683 for the three
months ended September 30, 2001 and 2000, respectively. The increase was
attributed primarily to the inclusion of Elite Visions, Inc. and Muller A. I.,
Inc. in the second quarter of 2000.
OTHER INCOME
Other income for the three months ended September 30, 2001 was $6,810
as compared with $49,682 for the three months ended September 30, 2000 and
represented interest income on invested cash.
PROVISION FOR TAXES
Struthers has not had any taxable income since its inception and
therefore has not incurred any income taxes. Struthers has not recognized any
deferred tax benefits in connection with net operating loss carryforwards and
will not until such time as it is more likely than not that the related tax
benefits will be realized.
EFFECTS OF INFLATION
Inflation has not had a material effect on the Struthers revenues and
expenses since its inception and inflation is not expected to have a material
effect in the future.
LIQUIDITY AND CAPITAL RESOURCES
Struthers 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 was a negative $1,967,214
for the nine months of operations ended September 30, 2001 as compared with a
negative $1,060,937 cash flows from operations for the nine months ended
September 30, 2000. The increase in the negative cash flows during the third
quarter of 2001 was due primarily to the net loss of $3,637,107 as well as an
increase in prepaid expenses of approximately $43,861 and a reduction in
accounts payable of approximately $152,278.
18
Cash used in investing activities for acquisitions of property and
equipment was $410,178 and $1,710,831 for the nine months ended September 30,
2001 and 2000, respectively.
The net cash provided by financing activities of $961,567 for the nine
months ended September 30, 2001 was from the proceeds of debt and from the
issuance of common stock for $308,796 and $719,694, respectively. A reduction in
financing activities was for repayment of mortgage and notes payable of $66,923.
Cash provided by financing activities for the nine months ended September 30,
2000 was $5,422,546 and represented approximately $6,500,000 in proceeds from
the issuance of preferred stock less a $900,213 cash payment on a note to Brent
Legred in connection with the Legred acquisition.
As of September 30, 2001, Struthers had net working capital of
$1,038,519. Struthers primary source of liquidity at September 30, 2001 was
$30,611 in cash and cash equivalents, $337,790 in trade accounts receivable and
$544,355 in inventories.
Struthers 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 have 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, Struthers 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.
Struthers does not have any material commitments for capital
expenditures during the next 12 months other than those disclosed herein.
Struthers intends to use its existing cash and cash equivalent balances as of
September 30, 2001 to fund its operations and research and development
activities. In addition, Struthers 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 Struthers operating working capital needs and capital expenditure
requirements for at least the next 12 months. Struthers 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 Struthers to obtain such financing. There can be
no guarantee that such financing will be available on acceptable terms, if at
all.
19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In October 2001, Brent Legred filed a lawsuit claiming a breach of contract and
took possession of certain assets and in November 2001, auctioned off certain
farm machinery, equipment, vehicles, and breeding livestock for an undisclosed
amount.
Struthers has recognized an impairment loss on the farm assets associated with
the Legred Acquisition as of September 2001 in the amount of $671,824. Struthers
has filed a countersuit, which it is vigorously pursuing. The final outcome of
the litigation cannot be predetermined.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
ITEM 16. EXHIBITS
(a) Exhibits
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.
4.1 **REGISTRATION RIGHTS AGREEMENT BETWEEN STRUTHERS, INC. AND ALPHA VENTURE
CAPITAL, INC. DATED MARCH , 2001
4.2 **Warrant Agreement ("A" Warrants) between Struthers, Inc. and Alpha
Venture Capital, Inc. dated March , 2001
4.3 **Warrant Agreement ("B" Warrants) between Struthers, Inc. and Alpha
Venture Capital, Inc. dated March , 2001
5 **Opinion of Richard S. Lane, Esq.
9 *Voting Trust Agreement
20
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.
10.7 **Common Stock Purchase Agreement between Struthers, Inc. and Alpha Venture
Capital, Inc. dated March 23, 2001
10.8 **Registration Rights Agreement between Struthers, Inc. and Alpha Venture
Capital, Inc. dated March 23, 2001
10.9 **Escrow Agreement between Struthers, Inc. and Dundee Securities
Corporation as Escrow Agent for Alpha Venture Capital, Inc. dated March
23, 2001
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.
21.5 Amended Articles of Incorporation of Legred Struthers, Inc.
21.6 Amended Articles of Incorporation of Elite Visions, Inc.
21.7 Amended Articles of Incorporation of Muller A.I., Inc.
23.1 **Consent of Richard S. Lane, Esq.
23.2 **Consent of Rotenberg & Company, LLP
* Incorporated by reference to the same exhibit filed with Struthers
registration statement on Form 10 as filed on October 25, 2000
** Incorporated by reference to the same exhibit filed with Struthers
registration statement on Form 1 as filed on _______, 2001
(b) Reports on Form 8-K
On April 12, 2001, Struthers filed a report on Form 8-K,
which reported under Item 5 the following actions:
Following a meeting of the Board of Directors held on March 30, 2001 Douglas W.
Beatty thereupon ceased acting as a member of the Board of Directors and Rhett
Seabrook thereupon ceased acting both as a member of the Board of Directors and
as Vice President.
On March 26, 2001, Struthers filed a report on Form 8-K,
which reported under Item 5 the following actions:
o 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.
o 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
o 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.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 9, 2001 STRUTHERS, INC.
BY /S/ RICHARD S. LANE
- ----------------------
Richard S. Lane, Chairman of the Board
BY /S/ MARIANO M. RAIGO
- -----------------------
Mariano M. Raigo, President
22