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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-A
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Struthers, Inc.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 57-1075246
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Carriage Lane, Bldg. D, Suite G-E, Charleston, SC 29407
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 843-763-1755
------------------------------
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
--------------------------------------------------------------------------------
(Title of class)
--------------------------------------------------------------------------------
(Title of class)
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. BUSINESS
Furnish the information required by Item 101 of Regulation S-K
(ss229.101 of this chapter).
ITEM 2. FINANCIAL INFORMATION
Furnish the information required by Items 301, 303 and 305 of Regulation
S-K (ss ss229.301,229,303, and 229.305 of this chapter).
ITEM 3. PROPERTIES
Furnish the information required by Item 102 of Regulation S-K
(ss229.102 of this chapter).
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Furnish the information required by Item 403 of Regulation S-K
(ss229.403 of this chapter).
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Furnish the information required by Item 401 of Regulation S-K
(ss229.401 of this chapter).
ITEM 6. EXECUTIVE COMPENSATION
Furnish the information required by Item 402 of Regulation S-K
(ss229.402 of this chapter).
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Furnish the information required by Item 404 of Regulation S-K
(ss229.404 of this chapter).
ITEM 8. LEGAL PROCEEDINGS
Furnish the information required by Item 103 of Regulation S-K
(ss229.103 of this chapter).
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Furnish the information required by Item 201 of Regulation S-K
(ss229.201 of this chapter).
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Furnish the information required by Item 701 of Regulation S-K
(ss229.701 of this chapter).
<PAGE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Furnish the information required by Item 202 of Regulation S-K
(ss229.202 of this chapter). If the class of securities to be registered
will trade in the form of American Depositary Receipts, furnish Item
202(f) disclosure for such American Depositary Receipts as well.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Furnish the information required by Item 702 of Regulation S-K
(ss229.702 of this chapter).
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Furnish all financial statements required by Regulation S-X and the
supplementary financial information required by Item 302 of Regulation
S-K (ss229.302 of this chapter).
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Furnish the information required by Item 304 of Regulation S-K
(ss229.304 of this chapter).
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) List separately all financial statements filed as part of the
registration statement.
(b) Furnish the exhibits required by Item 601 of Regulation S-K
(ss229.601 of this chapter).
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
STRUTHERS, INC.
---------------
(Registrant)
Date: August 25, 2000 By:/s/ RICHARD S. LANE
--------------- -------------------
(Signature)*
Richard S. Lane, Acting Secretary
*Print name and title of the signing officer under his signature.
<PAGE>
The financial statements and supplementary data for the Registrant are
set forth in Item 15 hereof beginning on page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Registrant has no disagreements with any accountants on accounting
and financial disclosures to report under this item, nor has it ever had any
disagreements.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements and Supplementary Data
The following financial statements are presented for the Registrant for
the fiscal years ended December 31, 1998 and 1999:
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets of December 31, 1999 and 1998 F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1999 and 1998 F-4 to F-5
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 F-7 to F-8
Notes to the Consolidated Financial Statements F-9 to F-21
Pro Forma Consolidated Financials Statements F-19 to F-21
Unaudited Interim Financial Statements
as of June 30, 2000 and 1999 F-22 to F-29
Combined Financial Statements of Legred Genetics, Inc.
and Brent Legred F-30 to F-38
(b) Exhibits
<PAGE>
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). Subsequently, Ronald Struthers and
SIRC agreed to terminate the license. On June 18, 1998, Ronald Struthers
acquired a controlling stock position (51%) in Orbis Development Inc. (a public
company incorporated in Nevada in 1995 under the name Latitude Network Inc.)
(Orbis) and changed its name to Struthers, Inc. (the "Registrant"). The
consideration paid for his controlling stock position in Orbis was the
assignment to it of this porcine embryo technology. Accordingly, Struthers, Inc.
distributed ten shares of its common stock 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, he appointed
a new board of directors, turned over voting control and resigned as an officer
and director. 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.
The Registrant'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 Registrant 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; (ii) no quarantine requirements compared with live animals;
(iii) low incidence of disease transference; (iv) reduced transportation costs;
(v) high fertilization rate; and (vi) uses existing livestock.
The Registrant 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 Registrant's superior
genetic line (breeding stock, semen). The Registrant 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 Registrant
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 Registrant entered into an agreement with
Legred Genetics, Inc., Legred Genetics and Brent Legred ("Legred") pursuant to
which the Registrant 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 an independent appraisal 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 and the balance payable in the Registrant'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 May2, 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 (August 15, 2000), the Registrant
has issued 10,467,302 shares valued at $2 million (based on the average trading
price on the due dates issued). Additional shares valued at $1 million each are
to be issued on or about November 2, 2000 and May 2, 2001.
The Registrant was obligated under the purchase agreement with Legred
to build and subsequently 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 Registrant formed a wholly owned subsidiary which was
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.
LSG is currently able to supply seven superior lines of swine genetics
developed from a genetic line over the previous 20 years by the Legred family
and the addition of Norsvin breeding stock. All genetic sales (semen, live
animal sales, and embryos) will occur through LSG.
The Registrant has entered into written agreements with 11 separate
swineherd operators (gilt multipliers) consisting of approximately 28,500 swine
to provide breeding gilts and barrows which will be used to increase the sales
of semen, embryos and gilts, as well as the sale of farm fresh pork products.
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.
1
<PAGE>
On June 1, 2000, the Registrant purchased the assets of Elite Visions
L.L.C. of Waukon, Iowa. The total purchase price which was based upon appraisals
and mangement studies was $2,154,445. The consideration paid was $22,000 in cash
plus $1,888,860 in common stock (2,303,488 shares 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 computers) and
the assignment of all rights to a patented and trademarked item called the
"Gourley Scope(TM)" , 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. Currently, Elite Visions,
Inc., a wholly owned subsidiary of Registrant, is constructing a meat
distribution facility for the Registrant's Tender Prime(TM) line of meat
products in Waukon, Iowa, which, when completed, will cost approximately
$50,000. In anticipation of the execution of the said agreement, the Registrant
formed a wholly owned subsidiary that was incorporated in the State of Nevada on
May 26, 2000 and called Elite Visions, Inc. ("Elite").
On May 15, 2000, the Registrant 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
appraisals and studies by management was $252,857. The consideration paid was
$131,290 in cash plus $100,000 of common stock (195,168 shares 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 Registrant 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 the said agreement, the Registrant 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 Registrant must compete with both national and
international swine genetic companies that are vastly larger in scope and
resources. However, to date, these companies can only provide genetics via live
animals and semen sales to producers. However, to date, not one company alone
supplies all of the services that the Registrant 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 Registrant warrants its
product line to the extent that the customers may return unused defective
products. The breeding animals also carry a guaranty from the Registrant 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 Registrant believes it can compete successfully in the market place
for genetic products and swine.
2
<PAGE>
Distribution of Products, Services and Marketing by Subsidiaries
Legred Struthers Genetics, Inc. (LSG)
Products
Semen - collected and processed at the boar site
facilities. Semen is sold on a yearly contract basis.
Price of semen is dependent upon volume ordered
-average $6.50/dose.
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 gilt
multipliers, and as demand increases for breeding
stock the Registrant will enter into additional
agreements.
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 Registrant 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.
3
<PAGE>
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
Registrant is a member of the National Pork Producers
Council (NPPC) and the International Embryo Transfer
Society (IETS) and utilizes resources made available
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 Registrant's
consolidated revenues and the loss of such customer
would not have a material adverse effect on the
Registrant or its subsidiaries.
4
<PAGE>
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 have been made. The Registrant
is continuing on the development of the Semen
Delivery System and the Embryo Transfer System,
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 Registrant began
to test market a line of high quality, value added
pork products. The Registrant has completed the label
design and trademarks of the Tender Prime(TM) name
and logo. To date, Tender Prime(TM) is in the product
development and testing phase, and thus, no pro forma
projection of revenues have been made.
Trademarks
Currently pending with the U.S. Patent and Trademark Office
are special intent to use applications for the following :
TENDERPRIME and TENDURPRIME: 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 Registrant 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.
5
<PAGE>
Employees
The Registrant and its subsidiaries employ a total of 31 people. Six
full-time employees are located in the Registrant's administrative offices in
Charleston, South Carolina. There is one full-time employee and one part-time
employee in the Registrant's research facility in Spencer, Iowa. In the
Registrant's boar stud operations in Wells and Bricelyn, Minnesota there are
eleven full-time employees and one part-time employee and one student employee.
Elite Visions, Inc. has six full-time employees and two part-time employees in
Waukon, Iowa. Muller, A.I., Inc. has two full-time employees in Sioux Falls,
South Dakota. None of the employees are unionized.
ITEM 2. FINANCIAL INFORMATION
Some of the statements contained in this Registration Statement deal
with projections of revenues, net income (loss) and earnings (loss). These
projections may prove to be inaccurate as they are statements of plans,
objectives and expectations that are not statements of historical facts. You may
identify such statements by the following words: "projected", "could generate
revenues", "projected gross revenues", "projected to generate revenues" and
similar expressions. Although we believe that expectations reflected in these
forward-looking statements are reasonable, Registrant cannot guarantee future
results, levels of activities, performance or achievements. You are cautioned
not to place undue reliance on these or any other forward-looking statements.
Overview
In 1999 the swine industry realized the lowest price for slaughter
animals ($.08 lb.) in 40 years as per National Pork Product Council (NPPC)
historical data. As a result of the reversal in prices, many producers either
went out of business, quit the production of hogs or retained their breeding
stock past the optimum breeding age. Accordingly, marketing and advertising for
the sale of breeding stock was reduced. In anticipation of an increase of hog
slaughter prices and an increase in the need for replacement breeding sows,
Registrant proceeded to increase its breeding stock to meet this demand.
The Company's current stud boar unit located in Bricelyn, Minnesota,
with 206 Great Grand Parent boars that produce semen for sale, will be augmented
by the addition of a new state-of-the-art stud boar facility also located in
Bricelyn that will house 400 additional boars. Each boar produces 1,200 doses of
semen per year with a retail price per dose of $7.00. This equates to a maximum
of $8,400 in gross semen available for sale per boar per year. At full capacity,
it is estimated that the facility could generate $4,788,000 in gross semen
available for sale per year. To date, the new facility is not operational due to
construction delays, but the Registrant believes that it will be operational
during the fourth quarter of 2000. Semen sales for the two months from the date
of acquisition of Legred through Decmber 31, 1999 were $31,074. Semen sales for
the first and second quarter of 2000 were $53,374 and $63,552, respectively.
6
<PAGE>
Gilt sales (prepubescent breeding sows) will be supplied through the
Registrant's gilt multiplier system. The Registrant currently generates an
average of 450 gilt sales per month with an average sales price of $195 per gilt
gross. The Registrant currently has contracts with eleven gilt multiplier farms
for the production of our superior genetic lines of gilts and barrows that will
be available for sale through our subsidiary. The Registrant expects these
contracts will generate approximately $1.25 million in gross revenues during
2000. Gilt sales for the two months from the date of acquisition of Legred
through December 31, 1999 were $201,736. Gilt sales for the first and second
quarter of 2000 were $259,360 and $221,225, respectively.
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
two months from the date of acquisition of Legred through December 31, 1999 were
$59,758. Boar and borrow sales for the first and second quarter of 2000 were
$95,090 and $101,830, respectively.
The Registrant currently has the following two agreements for the sale
of gilts and semen for the production of TenderPrime(TM) line of meat products.
Andy Bakken Farms d/b/a A-B Duroc has been a customer of Legred Genetics, Inc.
(see ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS), now Legred
Struthers Genetics, Inc. (LSG) for four years and on February 2, 2000 Fairmont
Finishers became a customer of LSG. 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 Registrant has agreements (referenced in the swine industry as
"Alliances") both with A-B Duroc and Fairmont Finishers to supply animals for
the Tender Prime (TM) line of products. The Registrant agreed to purchase A-B
Duroc and Fairmont Finishers animals based on the price of the Iowa-Southern
Minnesota Price Index (a pricing index commonly used at hog processing plants on
live animals based on per 100 lb. weight live - example: 250 lb. live animal X
$50 per 100 lb. weight = $125 for the animal) on the day of purchase plus a
genetic bonus of $13 per animal for A-B Duroc animals and $10 per animal for
Fairmont Finishers animals. Only animals that after visual inspection meet
desired requirements of weight (240-250 lbs.), muscle definition (dependent upon
experience of buyer), and good visual and documented general health status (no
coughing, runny noses, physical injuries or defects, veterinarian records, etc.)
are selected. The Alliance with A-B Duroc is pursuant to written agreement and
the Alliance with Fairmont Finishers is oral. Both agreements are non-exclusive
and are renewable upon negotiated terms.
7
<PAGE>
The Registrant currently has alliances with five swine producers for
the rearing of our superior genetic line of hogs for market under Registrant's
specific developed programs in order to fulfill the needs of identified meat
packers. The Registrant will collect a percentage of the premiums paid by meat
packers for hogs from our genetic line from both the Registrant'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 Registrant has identified several meat packers with needs for certain
types of animals under the Registrant's developed protocols and programs. The
Registrant continues to seek additional alliance herds to fulfill those
identified needs and expects to significantly expand its herd size in future
quarters. Market sales of hogs for the two months from the date of acquisition
of Legred through December 31, 1999 were $19,895. Market sales of hogs for the
first and second quarter of 2000 were $464,626 and $431,143, respectively.
Included in those sales were sales of market hogs to a meat processor of
$379,340 and $344,493 in the first and second quarter, respectively. The balance
of the increase in sales of market hogs in the first and second quarter was
attributed to sales of isoweaners(baby pigs recently weaned from their mothers).
The Registrant has perfected the surgical Embryo Transfer System and is
currently improving the procedure to include the non-surgical implantation of
embryos. The Registrant anticipates including this technology into its overall
marketing plans during the fourth quarter of 2000.
8
<PAGE>
The following are selected supplementary data and analysis of the
results of operations for the three month and six month periods ended June 30,
2000 and 1999 and for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
(1)
Three Months Six Months Year Ended
Ended June 30, Ended June 30, December 31,
-------------- -------------- ------------
2000 1999 2000 1999 1999 1998
---- ---- ---- ---- ---- ----
Operating Revenues:
<S> <C> <C> <C> <C> <C> <C>
Semen $ 63,552 $ --- $ 116,926 $ --- $ 31,074 $ ---
Gilts 221,225 --- 480,585 --- 201,736 ---
Boars and Barrows 101,830 --- 196,920 --- 59,758 ---
Market Swine 431,143 --- 895,769 --- 19,895 ---
Breeding Aides
(AI Supplies) 65,015 --- 70,837 --- 14,896 ---
Other Supplies 4,761 --- 22,022 --- 5,692 ---
Total Operating Revenues $ 887,526 $ --- $1,783,059 $ --- $333,051 $ ---
<FN>
(1) Reflects operating results of the farm operations for the two months from
the date of the Legred acquisition through December 31, 1999.
</FN>
</TABLE>
9
<PAGE>
Results of Operations
Three and Six Months Ended June 30, 2000 and 1999 and for the Years
Ended December 31, 1999 and 1998.
The following table sets forth, for the periods indicated, the
percentages of total revenues represented by certain items reflected in the
Registrant's consolidated statements of operations.
<TABLE>
<CAPTION>
(1)
Three Months Six Months Year Ended
Ended June 30, Ended June 30, December 31,
-------------- -------------- ------------
2000 1999 2000 1999 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Semen 7.2% ---% 6.6% ---% 9.3% ---%
Gilts 24.9% ---% 27.0% ---% 60.6% ---%
Boars and Barrows 11.5% ---% 11.0% ---% 17.9% ---%
Market Swine 48.6% ---% 50.2% ---% 6.0% ---%
Breeding Aides
(AI Supplies) 7.3% ---% 4.0% ---% 4.5% ---%
Other Supplies .5% ---% 1.2% ---% 1.7% ---%
Total Operating Revenues 100.0% ---% 100.0% ---% 100.0% ---%
Cost of Sales
- Farm Operations 64.6% ---% 67.2% ---% 50.9% ---%
Gross Profit 35.4% ---% 32.8% ---% 49.1% ---%
Expenses:
Research and Development 7.7% ---% 4.6% ---% 3.0% ---%
Marketing and Advertising 2.6% ---% 2.8% ---% 6.1% ---%
General and Administrative 61.7% ---% 44.9% ---% 159.1% ---%
Amortization
and Depreciation 27.5% ---% 26.6% ---% 55.2% ---%
Total Expenses 99.5% ---% 78.9% ---% 223.4% ---%
Operating Loss (64.1%) ---% (46.1%) ---% (174.3%) ---%
Other Income (Loss) 4.1% ---% 2.1% ---% ( 4.9%) ---%
Loss Before Income Taxes (60.0%) ---% (44.0%) ---% (179.2%) ---%
Income Taxes (Benefit) ---% ---% ---% ---% .3% ---%
Net Loss (60.0%) ---% (44.0%) ---% (179.5%) ---%
<FN>
(1) Reflects operating results of the farm operations for the two months from
the date of the Legred acquisition through December 31, 1999.
</FN>
</TABLE>
10
<PAGE>
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.
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 R & D in connection with the acquisition of the embryo transfer
technology from Stuthers International Research Corporation.
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 $183,746 for the year ended
December 31, 1999 and was attributed to the Legred acquisition. The Company had
no depreciation and amortization enpenses 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 an investment in
Struthers Pedigree Herd Corporation. The Company had no investment activity in
1998.
Provision for 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 carryforwards and
will not until such time as it is more likely than not that the related tax
benefits will be realized.
11
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1999
REVENUES
Revenues for the six months ended June 30, 2000 were $1,783,059. The
Company had no revenues during the six months ended June 30, 1999 since the
Company first began to generate revenues after the Legred acquisition in
November 1999.
COST OF SALES - FARM OPERATIONS
The cost of sales - farm operations for the six months ended June 30,
2000 was $1,199,025 and represented 67.2% of total revenues. The Company had no
cost of sales during the six months ended June 30, 1999.
RESEARCH AND DEVELOPMENT COSTS
The Company incurred $82,106 in research and development costs,
representing 4.6% of total revenues for the six months ended June 30, 2000. The
Company did not incur any research and development costs during the six months
ended June 30, 1999.
MARKETING AND ADVERTISING COSTS
Marketing and advertising costs for the six months ended June 30,
2000 were $50,351 and represented 2.8% of total revenues. The Company had no
marketing and advertising costs during the six months ended June 30, 1999.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs increased by $789,610 from $10,794
for the six months ended June 30, 1999 to $800,404 for the six months ended June
30, 2000. The increase in general and administrative costs was attributable to
the Registrant's efforts in raising capital, restructuring its business
activities, and registering its common stock. The Company was in the early
stages of development during the first half of 1999 and had incurred minimal
administrative costs.
AMORTIZATION AND DEPRECIATION
Amortization and depreciation was $474,530 for the six months ended
June 30, 2000. The Company had no depreciation and amortization for the six
months ended June 30, 1999.
OTHER INCOME
Other income for the six months ended June 30, 2000 was $38,403 and
represented interest income on invested cash. The Company had no investment
activity during the six months ended June 30, 1999.
PROVISION FOR 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 carryforwards and
will not until such time as it is more likely than not that the related tax
benefits will be realized.
12
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 AS COMPARED WITH THE THREE MONTHS ENDED MARCH
31, 2000 AND THE THREE MONTHS ENDED JUNE 30, 1999
REVENUES
Revenues for the three months ended June 30, 2000 were $887,526 as
compared with $895,533 for the three months ended March 31, 2000. The Company
had no revenues during the three months ended June 30, 1999 since the Company
first began to generate revenues after the Legred acquisition in November 1999.
COST OF SALES - FARM OPERATIONS
The cost of sales - farm operations for the three months ended June 30,
2000 was $573,489 and represented 64.6% of total revenues as compared with
$625,536 representing 70.5% of total revenues for the three months ended March
31, 2000. The decrease in the percentage of cost of sales in the second quarter
was primarily due to a favorable mix in sales volume attributable to the lower
cost of sales of gilts and isoweaners. The Company had no cost of sales during
the three months ended June 30, 1999.
RESEARCH AND DEVELOPMENT COSTS
The Company expended $68,505 in research and development costs
representing 7.7% of total revenues for the three months ended June 30, 2000 as
compared with $13,601 representing 1.5% of total revenues for the three months
ended March 31, 2000. The increase in the second quarter was primarily
attributable to the development of the Gourley scope. The Company did not incur
any research and development costs during the three months ended June 30, 1999.
MARKETING AND ADVERTISING COSTS
Marketing and advertising costs for the three months ended June 30,
2000 were $23,006 and represented 2.6% of total revenues as compared with
$27,345 representing 3.1% of total revenues for the three months ended March 31,
2000. The Company had no marketing and advertising costs during the three months
ended June 30, 1999.
GENERAL AND ADMINISTRATIVE COSTS
General and administrative costs were $547,293 representing 61.7% of
total revenues for the three months ended June 30, 2000 as compared with
$253,111 representing 28.5% of total revenues for the three months ended March
31, 2000. General and administrative costs increased by $294,182 (116.2%)in the
second quarter. The increase in general and administrative costs was
attributable to employee bonuses of $195,000 and employee relocation costs paid
of $25,000. General and Administrative costs for the three months ended June 30,
1999 were $10,794. The increase in the quarter ended June 30, 2000 as compared
with the quarter ended June 30, 1999 was primarily attributable to the
Registrant's efforts in raising capital, restructuring its business activities,
and registering its common stock.
AMORTIZATION AND DEPRECIATION
Amortization and depreciation was $243,885 for the three months ended
June 30, 2000 as compared with $230,645 for the three months ended March 31,
2000. The Company had no depreciation and amortization for the three months
ended June 30, 1999.
OTHER INCOME
Other income for the three months ended June 30, 2000 was $36,342 as
compared with $2,061 for the three months ended March 31, 2000 and represented
interest income earned on invested cash. The increase in the second quarter was
attributed to the cash proceeds received on the sale of preferred stock and
invested in interest bearing accounts at June 30, 2000. The Company had no
investment activity during the three months ended June 30, 1999.
PROVISION FOR 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 carryforwards and
will not until such time as it is more likely than not that the related tax
benefits will be realized.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Registrant has financed its operations and met its
capital requirements including the acquisition of Legred through the sales of
equity securities during 1999. Legred has historically financed its farm
operations and met its capital requirements primarily through cash flows from
operations and short-term bank financing. Cash flows from operations was a
negative $390,466 for the first year of operations in 1999. Cash flows from
operations was a negative $867,799 for the six months ended June 30, 2000.
Cash used in investing activities was $243,052 in 1999. The Registrant
purchased $138,052 in Property and Equipment and $105,000 was invested in
Struthers Pedigree Herd Corp. Cash used in investing activities was $1,103,903
for the six months ended June 30, 2000. $1,093,903 of cash was used to purchase
equipment (including cash used in the acquisition of Elite Visions, Inc. and
Muller A. I.) and in construction of the new boar stud facility and $80,000 was
received on the return of the investment in the Struthers Pedigree Herd Corp.
Cash provided by financing activities was $832,400 including $932,400
in net proceeds from common stock offerings during 1999. $100,000 was repaid on
the note payable to Brent Legred in connection with the acquisition. The net
cash provided by financing activities for the six months ended June 30, 2000 was
$5,599,787. The Company received net proceeds on preferred stock offerings of
$6,500,000 and repaid $900,000 on the notes payable to Brent Legred during the
six months ended June 30, 2000.
At December 31, 1999, the Registrant had a deficiency in working
capital of $345,632 including a short-term note payable of $900,000 and
excluding short-term stock obligations payable in common stock in connection
with the Legred acquisition of $2,750,000. The Registrant's primary source of
liquidity at December 31, 1999 was $201,160 in cash, $112,649 in accounts
receivable, and $260,000 in inventories of animals available for sale. At
December 31, 1999, the Registrant was committed under the Legred agreement to
the construction of a stud boar facility in the amount of $450,000.
As of June 30, 2000, the Registrant had net working capital of
$4,761,782 exclusive of stock obligations payable in common stock of $3,988,890
in connection with the Legred, Elite Visions and Muller A. I. acquisitions. The
Company's primary source of liquidity at June 30, 2000 was $3,909,245 in cash,
$305,715 in accounts receivable and $610,066 in inventories of animals available
for sale.
In February, 2000, the Registrant offered 1,500,000 shares of its Class
A Convertible Preferred Stock at $1.00 per share. The Registrant received
$1,500,000 in net proceeds from the sale of these equity securities. The
proceeds were used to repay the $900,000 note payable to Brent Legred in
connection with the acquisition. The note provided for 3 equal installments of
$300,000 each due in 6 month intervals from the date of acquisition, unless a
successful public stock offering was completed, in which case the note would be
paid in full to the extent of 50% of the proceeds of the offering. The note was
secured by the assets purchased and was non-interest bearing. The $900,000 was
paid in full in February 2000. The balance of the proceeds were used as follows:
$200,000 towards construction of the stud boar facility, and the balance for
working capital.
15
<PAGE>
In March, 2000, the Registrant offered 5,000,000 shares of its Class
B Convertible Preferred Stock at $1.00 per share. The Registrant received
$5,000,000 in net net proceeds from the sale of these equity securities. The
proceeds are to be used primarily for the construction of additional breeding
facilities and working capital needs.
The Registrant may in the future pursue additional acquisitions of
businesses, products and technologies, or enter into joint venture arrangements,
that could complement or expand the Registrant's business. Any material
acquisition or joint venture could result in a decrease to the Registrant's
working capital, depending on the amount, timing and nature of the consideration
to be paid.
The Registrant believes that existing cash and cash equivalent
balances as of June 30, 2000 and the potential cash flow from operations will
satisfy the Registrant's working capital and capital expenditure requirements
for at least the next 12 months. The Registrant may consider various
alternatives for obtaining additional equity or debt financing should the need
ocur. Any material acquisitions of complementary businesses, products, services
or technologies could require the Registrant to obtain such financing. There can
be no guarantee that such financing will be available on acceptable terms, if at
all.
16
<PAGE>
ITEM 3. PROPERTIES
Description of Properties
The Registrant maintains its executive offices in approximately 2,200
sq. ft. of space in Charleston, South Carolina pursuant to a lease which expired
May 31, 2000 and which was renewed for three year at a monthly rental of
$1,456.38 for the first year, $1,485.50 for the second year and $1,515.50 for
the third year. The lease may be cancelled by either party on 6 months notice.
The Registrant has a field office containing approximately 1,500 sq.
ft. located in Wells, 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 Registrant has an approximately 22,000
sq. ft. facility housing boar stud semen collection and embryo transfer
operating rooms and an administrative office. 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 $1,000 per month.
The Registrant has 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.
17
<PAGE>
ITEM 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Registrant's stock by each Director, by all
Directors and Officers as a group and by each person known to the Registrant to
be the beneficial owner of more than 5% of the outstanding shares of the
Registrant's stock as of August 1, 2000. Unless other wise indicated, each of
the following persons has sole voting and dispositive power with respect to the
shares which he beneficially owns.
AMOUNT & NATURE
AMOUNT & NATURE OF PERCENTAGE
NAME AND ADDRESS OF OF BENEFICIAL PERCENTAGE OF OF BENEFICIAL OWNER
BENEFICIAL OWNER COMMON CLASS B PREFERRED
---------------- --------------------------- -----------------------
Douglas W. Beatty
President and Director
1 Carriage Lane
Bldg. D, Suite G-E 6,883,000
Charleston, SC 29407 Common 1.86%
Rhett C. Seabrook
Secretary and Director
1 Carriage Lane
Bldg. D, Suite G-E 6,983,000
Charleston, SC 29407 Common 1.86%
Bertram K. Remley
Chief Financial Officer
1 Carriage Lane
Bldg. D, Suite G-E 154,000
Charleston, SC 29407 Class B Preferred 3.08%
Brent Legred
President of Operations of
Legred Struthers Genetics, Inc.
3500 490 Avenue 9,467,302
Bricelyn, Minnesota 56014 Common 2.56%
All Directors and Officers as
a group (4 persons) 23,333,302
Common 6.31%
18
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Registrant are as follows:
NAME AGE POSITION
---- --- --------
Douglas W. Beatty 41 President and Director
Rhett C. Seabrook 38 Secretary and Director
Bertram K. Remley 55 Chief Financial Officer
Brent Legred 37 President of Operations
of Legred Struthers
Genetics, Inc.
The following information summarizes the business experience during at
least the past five years of each officer:
Douglas W. Beatty, President, November, 1998 to date, overseeing the
day by day operations of the Registrant, including the development of product
commercialization and reproductive technology. In 1991 to November, 1998, 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.
19
<PAGE>
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 Pete 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.
20
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. EXECUTIVE COMPENSATION
RESTRICTED
NAME AND FISCAL STOCK
PRINCIPAL POSITION YEAR SALARY AWARD(S)
------------------ ---- ------ --------
<S> <C> <C> <C>
Douglas W. Beatty 1999 $48,000
President and Director(1) 1998 --- 7,123,000 (4)
Rhett C. Seabrook 1999 $48,000
Secretary and Director(1) 1998 --- 7,123,000 (4)
Bertram K. Remley (2) 1999 -0- -0-
Brent Legred 1999 $75,000 (3) -0-
President of Operations 1998 75,000 (3)
of Legred Struthers
Genetics, Inc. (5)
<FN>
(1) As of March 1, 2000 Mr. Beatty's and Mr. Seabrook's annual salary is
$75,000.
(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 granted with a fair value on the date of grant of
$.01 per share and the Company recognized compensation expense of
$76,230. 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 shares in accordance
with the terms of a November 22, 1999 agreement with Registrant (see
ITEM 1. BUSINESS) as follows: on November 2, 2000, shares valued at $1
million and on May 2, 2001, shares valued at $1 million based on the
then market value.
</FN>
</TABLE>
All of the officers and directors are reimbursed for out-of-pocket
expenses incurred in connection with the Registrant's business. So long as the
expenses incurred in connection with the Registrant'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 which may be incurred.
The Registrant has written employment contracts with Douglas W. Beatty,
Rhett W. Seabrook, Bertram K. Remley and Brent Legred. No other officer of the
Registrant has a written employment contract with the Registrant. At the present
time the Registrant 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 Registrant except that Brent Legred is entitled to certain shares
pursuant to a written agreement with the Registrant (Item 7 below).
21
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 2, 1999 the Registrant entered into an agreement with
Legred Genetics, Inc., Legred Genetics and Brent Legred ("Legred") pursuant to
which the Registrant purchased physical assets, including livestock, operating
equipment and Legred's rights under agreements with third parties (including one
with Norsvin International AS ("Norsvin"), an international developer and
distributor of porcine genetic materials and technology) ("Legred Assets").
There was no prior affiliation between Registrant and Legred. Pursuant to the
agreement the Registrant paid Legred the sum of $1 million and shares of the
Registrant'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
Registrant 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 Registrant 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.
With the exception of the foregoing, there are no transactions with
management nor business relationships or transactions with promoters which are
required to be reported under this item. There is no indebtedness owed by
management to the Registrant.
ITEM 8. LEGAL PROCEEDINGS
The Registrant 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 Registrant to be contemplated
by any governmental authority.
22
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDERS 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 .062 .01
Fiscal Year 1999
1st quarter .03 .01
2nd quarter .60 .01
3rd quarter .28 .09
4th quarter .52 .072
Fiscal Year 2000
1st quarter 1.656 .27
2nd quarter 1.090 .44
There is no restrictions that currently mutually limit the
Registrant's ability to pay dividends or that the Registrant believes are likely
to limit materially the future payments of dividends. The Registrant has not
paid any dividends to date. For the foreseeable future it is anticipated that
earnings which may be generated from operations of the Registrant will be used
to finance the growth of the Registrant. Therefore, it is not expected that cash
dividends will be paid to stockholders.
As of August 15, 2000 there were approximately 1,503 holders of record of the
Common Stock.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in June, 1998, Registrant has made the following
sales of unregistered securities, all of which sales were exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act")
pursuant to Section 3(b) thereof or as otherwise indicated herein.
In August 1998, the Registrant issued 13,500,000 shares of common stock
to outside consultants as compensation for services rendered ($135,000 fair
value of servies rendered).
In September 1998, the Registrant issued 180,073,570 shares of common
stock at par of $.001 per share in connection with the acquisition of the embryo
transfer technology from Struthers International Research Corporation. The fair
value of the in-process research and development was $180,074.
In December 1998, the Registrant issued 12,369,000 shares of common
stock in connection with a grant of shares as compensation for past services to
employees of the Company. The total number of shares granted was 20,369,000 and
the fair value at the date of grant was $.01 per share.
23
<PAGE>
In November 1998, the Registrant 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
oversubscriptions for 1,310,000 shares and the board of directors approved the
oversubscription. In 1999, the Company sold and issued 23,310,000 shares of
common stock 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 embryo transfer technology and working
capital. The shares were sold to a total of 147 non-accredited investors, none
of whom were affiliated with the Registrant.
The Registrant believes that such issue and sale was exempt from
registration pursuant to Section 3(b) of the Act and/or Rule 504 under
Regulation D promulgated thereunder.
In May 1999, the Registrant issued 3,000,000 shares of common stock to
employees in connection with a previous stock grant in December 1998.
In November 1999, the Registrant issued 2,220,000 shares of common
stock pursuant to an agreement in connection with the Legred acquisition.
Also in 1999, the Registrant issued 100,000 shares of common stock to a
consultant for services rendered and 400,000 shares of common stock to a
charitable organization. The fair value of those shares at the date of issue was
$.01 per share.
In January 2000, the Registrant issued 6,660,000 shares of common stock
pursuant to an agreement in connection with the Legred acquisition.
In February 2000, Registrant sold 1,500,000 shares of Class A
Convertible Preferred Stock ("Class A Stock") to an accredited investor not
affiliated with the Registrant, at a price of $1 per share. Each share of Class
A Stock is convertible at the option of the holder into fully paid and
nonassessable shares of common Stock as follows: commencing on the first day of
the sixth month following the issuance of Class A Stock ("Conversion Period")
and on the first day of each sixth month period thereafter, for a total of six
Conversion Periods, one-sixth (1/6) of the shares of Class A Stock held may be
converted by each holder thereof. The amount of common shares into which the
Class A Stock shall be converted at each Conversion Period shall be as follows:
at each of the six Conversion Periods the amount of Class A Stock shares which
may be converted shall be divided by the average market value between the bid
and asked price of the Registrant's shares during the ten day trading period
immediately preceding the date of such Conversion Period, but not more than
$.40, and the resultant figure multiplied by three (i.e., each share of Class A
Stock is convertible into 7.5 shares of Common Stock). The proceeds of this
offering (no sales commissions were paid), less sales expenses of the offering,
were applied to the purchase of the Legred Assets (see Item 7), construction of
a boar stud facility and working capital.
The Registrant believes that such issue and sale was exempt from
registration pursuant to Section 3(b) and or 4(2) of the Act or under Regulation
D promulgated thereunder.
24
<PAGE>
In March 2000, Registrant offered and by April 30, 2000 sold 5,000,000
shares of Class B Convertible Preferred Stock ("Class B Stock") to 91 accredited
investors and one non-accredited investor, none of whom were affiliated with the
Registrant, at a price of $1 per share. Each share of Class B Stock is
convertible at the option of the holder into fully paid and non-assessable
shares of Common Stock as follows: commencing on the first day of the sixth
month following the issuance of Class B Stock ("Conversion Period") and on the
first day of each sixth month period thereafter, for a total of six Conversion
Periods, one-sixth (1/6) of the shares of Class B Stock held may be converted by
each holder thereof. The amount of common shares into which the Class B Stock
shall be converted at each Conversion Period shall be as follows: at each of the
six Conversion Periods the amount of Class B Stock shares which may be converted
shall be divided by the average market value between the bid and asked price of
the Registrant's shares during the ten day trading period immediately preceding
the date of such Conversion Period, but not more than $.40, and the resultant
figure multiplied by three ( i.e., each share of Class B Stock is convertible
into 7.5 shares of Common Stock). The proceeds of this offering (no sales
commissions were paid), less sales expenses of the offering, will be applied to
expansion of physical facilities, equipment, R and D, acquisitions and working
capital needs.
The Registrant believes that such issue and sale was exempt from
registration pursuant to Section 3(b) andor 4(2) of the Act or under Regulation
D promulgated thereunder.
In May 2000, the Registrant issued 1,587,302 shares of common stock
pursuant to an agreement in connection with the Legred acquisition.
In February and May 2000, the Registrant issued 3,000,000 and 2,000,000
shares of common stock to employees under a previous stock grant in December
1998.
The Registrant believes that all of the above sales or other issuances
of such securities were exempt from registration pursuant to Section 3(b) and/or
4(2) of the Act or under Regulation D and/or Regulation S and/or by rules 504,
701 and 904 promulgated by the Securities and Exchange Commission pursuant to
the Securities Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Registrant is authorized to issue 900,000,000 shares of Common
Stock, par value $.001, of which 369,969,921 shares are issued and outstanding
as of August 15, 2000. Each outstanding share is entitled to one vote in all
matters. Subject to the preferential rights of the Preferred stock (if any),
holders of Common Stock have equal ratable rights to dividends as and when they
may be declared by the Board of Directors, out of any funds of the Registrant
legally available for the payment of such dividends. Upon any liquidation,
dissolution or winding up of the Registrant, whether voluntary or involuntary,
the remaining net assets of the Registrant shall, after payment in full of the
liquidation preference of any Preferred Stock, be distributed pro rata to the
holders of the Common Stock and the Preferred Stock on an "as if converted"
basis. The Common Stock does not have any preemptive rights and is fully paid
and nonassessible when issued.
The Registrant is authorized to issue 6,520,000 shares of Preferred
Stock, par value $.001, of which 1,500,000 shares are designated as Class A
Convertible preferred Stock ("Class A Stock"), 5,000,000 shares of which are
designated as Class B Convertible Preferred Stock ("Class B Stock"), 10,000
shares of which are designated as Class C Preferred Stock ("Class C Stock") and
10,000 shares of which are designated as Class D Preferred Stock ("Class D
Stock"). All of the Preferred shares are issued and outstanding.
25
<PAGE>
Each share of the Class A Stock and Class B Stock carries a number of
votes equal to the number of shares of Common Stock then issuable upon its
conversion into Common Stock. The Class A Stock and Class B Stock will vote
together with the Common Stock and not as separate class, except as set forth in
the following five paragraphs.
In no instance shall Class A and Class B shareholders be entitled to
vote for directors of the Registrant or on any sale, stock issuance or the like
with a combined vote of more than 49%. In the event of a vote of shareholders
with respect to any of the instances set forth in the following two paragraphs,
the Class C Stock shall have a number of votes equivalent to 51% of all shares
having voting rights and entitled to vote on such matters.
The consent of the holders of a majority of each of the outstanding
Class A Stock, Class B Stock and the holders of all of all of the outstanding
Class C Stock and Class D Stock shall be required for (i) any amendment or
change of the rights, preferences, privileges or powers of, or the restrictions
provided for the benefit of the Class A Stock, Class B Stock, Class C Stock and
Class D Stock; (ii) any action that authorizes, creates or issues shares of any
class of stock having preferences superior to or on a parity with the Class A
Stock, Class B Stock, Class C Stock and Class D Stock; (iii) any action that
reclassifies any outstanding shares into shares having preferences or priority
as to dividends or assets senior to or on a parity with a preference of the
Class A Stock, Class B Stock, Class C Stock and Class D Stock; and (iv) any
amendment of the Registrant's Articles of Incorporation that adversely affects
the rights of the Class A Stock, Class B Stock, Class C Stock and Class D Stock.
The consent of the holders of all of the outstanding Class C Stock and
Class D Stock shall be required for (i) any merger or consolidation of the
Registrant with one or more other corporations and or entities in which the
shareholders of the Registrant immediately prior to such merger or consolidation
hold majority of the voting power of the Registrant and immediately after such
merger or consolidation would hold stock representing less than a majority of
the voting power of the outstanding stock of the surviving corporation; (ii) the
sale of all or substantially all the Registrant's assets; (iii) the liquidation
or dissolution of the Registrant; (iv) the declaration or payment of any
dividend on the Common Stock (other than a dividend payable solely in shares of
Common Stock); or (v) any action which the holders of the Class C Stock and
Class D Stock believe to be contrary to the best interests of the Registrant.
The shares of Class D Stock, as a unit, shall have the right, at the
option of the holders thereof, their designees, assignees, heirs and/or legal
representatives, to purchase on the first day of January and on the first day of
July of each year shares of Common Stock aggregating in number 2 1/2% annually
of the issued and outstanding stock of the Registrant. For this purpose, the
number of issued and outstanding shares shall be fixed at a maximum of 100
million shares or the then outstanding stock, whichever is less, and a minimum
of 50 million shares or the then outstanding shares, whichever is greater. The
purchase price shall be equal to 10% of the average of the bid and asked price
of the Registrant's shares during the ten day trading period immediately
preceding the first day of January and July of each year.
26
<PAGE>
In the event of any liquidation, dissolution or winding up of the
Registrant a merger or consolidation of the Registrant 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 Registrant'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 on all outstanding shares of the Class A Stock has been
paid, then thereafter the holders of the Class B Stock will be entitled to
receive an amount equal to the original purchase price per share for the Class B
Stock plus an amount equal to all declared but unpaid dividends thereon. After
the full liquidation preference on all outstanding shares of the Class B Stock
has been paid, any remaining funds and assets of the Registrant 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-if-converted"
basis. If the Registrant has insufficient assets to permit payment of the
Preference Amount in full to any class of Preferred Stock shareholders, then the
assets of the Registrant will distributed ratably to the holders of that class
of Preferred Stock in proportion to the Preference Amount each such holder would
otherwise be entitled to receive.
Registrant's Common Stock falls within the definition of a `penny
stock' under Securities and Exchange Commission rule (Rule 3a51-1) that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors,
generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouse. For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and transaction prior to the sale. Consequently, the rule may affect the ability
of broker-dealers to sell Registrant's securities and also may affect the
ability of purchasers of Registrant's stock to sell their shares in the
secondary market and may result in fewer broker-dealers willing to make a
market.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada law enables a corporation to indemnify any director and officer
who is made a party to any suit or proceeding, whether civil, criminal,
administrative or investigative brought against such person by having acted in
its capacity as such director or officer providing such director or officer had
acted in good faith and in a manner reasonably believed to be in the best
interest of the corporation and with respect to any criminal action, where such
director or officer had no reasonable cause to believe its conduct was unlawful.
The Registrant's By-Laws includes the following language:
"Each director and officer of this corporation shall be indemnified by the
corporation against all costs and expenses actually and necessarily incurred by
him or her in connection with the defense of any action, suit or proceeding in
which he or she may be involved or to which he or she may be made a party by
reason of his or her being or having been such director or officer, except in
relation to matters as to which he or she shall be finally adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty."
27
<PAGE>
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data for the Registrant are
set forth in Item 15 hereof beginning on page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Registrant has no disagreements with any accountants on accounting
and financial disclosures to report under this item, nor has it ever had any
disagreements.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
( ) Financial Statements and Supplementary Data.
The following financial statements are presented for the Registrant for
the fiscal years ended December 31, 1998 and 1999 and for the interim periods
ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets of December 31, 1999 and 1998 F-3
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1999 and 1998 F-4 to F-5
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 F-7 to F-8
Notes to the Consolidated Financial Statements F-9 to F-21
Pro Forma Consolidated Financial Statements F-19 to F-21
Unaudited Interim Financial Statements as of June 30, 2000
and 1999 F-22 to F-29
</TABLE>
Combined Financial Statements of Legred Genetics, Inc. and
Brent Legred F-30 to F-38
28
<PAGE>
( ) 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 By-Laws of Struthers, Inc.
3.6 Certificate of Correction of Amended Articles of Incorporation of
Struthers, Inc.
4 See Exhibit 3.4 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.
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 Article of Incorporation of Muller A. I., Inc.
29
<PAGE>
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
TABLE OF CONTENTS
-------------------------------------------------------------------------------
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 1999 and 1998 F-3
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1999 and 1998 F-4 to F-5
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 F-7 to F-8
Notes to the Consolidated Financial Statements F-9 to F-21
Pro Forma Consolidated Financial Statements F-19 to F-21
Unaudited Interim Financial Statements as of
June 30, 2000 and 1999 F-22 to F-29
Combined Financial Statements of Legred Genetics, Inc. and
Brent Legred F-30 to F-38
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders
Struthers, Inc. and Subsidiary
Charleston, South Carolina
We have audited the accompanying consolidated balance sheets of
Struthers, Inc. and Subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of changes in stockholders' equity, operations and cash
flows for the years ended December 31, 1999 and 1998. 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 Subsidiary as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in Note M, the financial statements have been restated to
give effect to adjustments made in recording certain equity transactions in 1998
and 1999 and to record a valuation allowance against deferred tax assets.
Rotenberg & Company, LLP
Rochester, New York
March 17, 2000
(except Note M, dated August 22, 2000)
F-2
<PAGE>
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
-----------------------------------------------------------------------------------------------------------------------
(RESTATED) (RESTATED)
December 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 201,160 $ 2,278
Accounts Receivable 112,649 --
Investment 80,000 --
Inventory 260,000 --
Prepaid Expenses 7,376 --
-----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 661,185 2,278
PROPERTY AND EQUIPMENT - NET OF ACCUMULATED DEPRECIATION 2,408,906 --
Intangible Assets - Net of Accumulated Amortization 2,278,400 --
-----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 5,348,491 $ 2,278
-----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 56,817 $ 7,643
Compensation Payable - Stock Grants 50,000 80,000
Note Payable- Legred Acquisition 900,000 --
Stock Payable- Legred Acquisition 2,750,000 --
-----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,756,817 87,643
Long-Term Portion of Stock Payable- Legred Acquisition 1,000,000 --
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,756,817 87,643
-----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock - $.001 Par; 900,000,000 Shares Authorized;
356,722,690 and 327,692,620 Shares Issued
and Outstanding at December 31, 1999 and
1998, Respectively 356,723 327,693
Preferred Stock- $.001 Par; 6,520,000 Shares Authorized -- --
Additional Paid-in Capital 1,381,941 136,071
Deficit (1,146,990) (549,129)
-----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 591,674 (85,365)
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,348,491 $ 2,278
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F- 3
<PAGE>
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Stock Preferred Stock Paid-In Stockholders'
Shares Par Value Shares Par Value Capital Deficit Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE - JANUARY 1, 1995 -- $ -- -- $ -- $ -- $ -- $ --
Initial Capitalization - Organization Expenses
Paid by Shareholders 25,000,000 25,000 -- -- -- -- 25,000
Net Loss - 1995 -- -- -- -- -- (25,000) (25,000)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1995 25,000,000 $ 25,000 -- $ -- $ -- $ (25,000) $ --
Net Loss - 1996 -- -- -- -- -- -- --
Net Loss - 1997 -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1997 25,000,000 $ 25,000 -- $ -- $ -- $ (25,000) $ --
1 for 1,000 Shares Reverse Split (24,975,000) (24,975) -- -- 24,975 -- --
Adjustment for Fractional Shares 5 -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Balance - Restated for Reverse Split 25,005 $ 25 -- $ -- $ 24,975 $ (25,000) $ --
Shares Issued to Consultants
for Services Rendered 13,500,000 13,500 -- -- 121,500 -- 135,000
10 for 1 Share Forward Split 121,725,045 121,725 -- -- (121,725) -- --
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE - RESTATED FOR SPLIT 135,250,050 $135,250 -- $ -- $ 24,750 $ (25,000) $ 315,074
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--Restated -- -- -- -- -- (524,129) (524,129)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1998--Restated 327,692,620 $327,693 -- $ -- $ 136,071 $ (549,129) $ (85,365)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F- 4
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Stock Preferred Stock Paid-In Stockholders' Stockholders'
Shares Par Value Shares Par Value Capital Deficit Equity
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 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 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--Restated -- -- -- -- -- (597,861) (597,861)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1999--Restated 356,722,620 $ 356,723 -- $ -- $1,381,941 $(1,146,990) $ 591,674
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
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
Net Loss - Six Months Ended
June 30, 2000 (Unaudited) -- -- -- -- -- (532,310) (532,310)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 2000 (UNAUDITED) 369,969,922 $ 369,970 6,500,000 $ 6,500 $9,662,194 $(1,931,944) $8,106,720
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F - 5
<PAGE>
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------
(Restated) (Restated)
For the Years Ended December 31, 1999 1998
------------------------------------------------------------------------------------------------
REVENUE
<S> <C> <C>
Sales $ 327,359 $ --
Other Income 5,692 --
------------------------------------------------------------------------------------------------
TOTAL REVENUE
333,051 --
COSTS AND EXPENSES
Farm Operations 169,609 --
------------------------------------------------------------------------------------------------
GROSS PROFIT 163,442 --
------------------------------------------------------------------------------------------------
EXPENSES
Research and Development 10,000 180,074
Marketing and Advertising 20,242 --
General and Administrative 529,838 344.055
Amortization and Depreciation 183,746 --
------------------------------------------------------------------------------------------------
TOTAL EXPENSES 743,826 524,129
------------------------------------------------------------------------------------------------
LOSS BEFORE OTHER INCOME AND (EXPENSES) (580,384) (524,129)
------------------------------------------------------------------------------------------------
OTHER INCOME AND (EXPENSES)
Interest 8,656 --
Loss on Investment (25,000) --
------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME AND (EXPENSES) (16,344) --
------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (596,728) (524,129)
Income Taxes (Benefit) 1,133 --
------------------------------------------------------------------------------------------------
NET LOSS $ (597,861) (524,129)
------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 342,207,620 316,354,380
------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.00) $ (0.00)
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement
F-6
<PAGE>
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------
(Restated) (Restated)
For the Years Ended December 31, 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $ (597,861) $ (524,129)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Amortization and Depreciation 183,746
--
Employee Compensation - Grant of Common Stock -- 123,690
Compensation of Consultants in Common Stock 10,000 135,000
Acquired In-Process Research & Development Costs for Common Stock -- 180,074
Charitable Contribution of Common Stock 40,000 --
Loss on Investment 25,000 --
Capital Contribution - Services Rendered 12,500 --
CHANGES IN ASSETS AND LIABILITIES:
Accounts Receivable
(110,649) --
Prepaid Expenses
(2,376) --
Accounts Payable 49,174 7,643
Compensation Payable - Stock Grants -- 80,000
------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (390,466) 2,278
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (138,052) --
Purchase of Investments (105,000) --
------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (243,052) --
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Common Stock 932,400 --
Repayment of Note Payable - Legred Acquisition (100,000) --
------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 832,400 --
------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 198,882 2,278
Cash and Cash Equivalents - Beginning of Year 2,278 --
------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 201,160 $ 2,278
------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement
F-7
<PAGE>
STRUTHERS INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
--------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1999
--------------------------------------------------------------------------------------------------
ACQUISITION OF SUBSIDIARY IN EXCHANGE FOR CASH AND STOCK
ASSETS ACQUIRED:
<S> <C>
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
--------------------------------------------------------------------------------------------------
5,000,000
LIABILITIES INCURRED:
Stock Payable (3,750,000)
Note Payable (900,000)
--------------------------------------------------------------------------------------------------
CASH PAID AND STOCK ISSUED $ 350,000
--------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement
F-8
<PAGE>
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). Subsequently,
Ronald Struthers and SIRC agreed to terminate the license. On June
18, 1998 Ronald Struthers acquired a controlling stock position (51%)
in Orbis Development Inc. (a public company incorporated in Nevada in
1995 originally under the name Latitude Network Inc. and changed its
name to Struthers, Inc. (the "Registrant"). The consideration paid
for his controlling stock position in Orbis was the assignment to it
of the porcine embryo technology. Accordingly, he then distributed
ten shares of Struthers Inc. stock to each of the shareholders of
SIRC of record as of September 1, 1998 for each share of SIRC held.
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 Certificate 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 Certificate 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
Certificate 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 is to pay Legred the sum of $1 million in
cash and $4 million worth of common shares of the Company, which the
final number of shares 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
$450,000. As of December 31, 1999, construction was in progess and
the Company had expended $88,390 in connection therewith. 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 their respective fair values based upon valuations and
other studies. Operating activity of the subsidiary is reflected in
the accompanying financial statements from the date of acquisition
(November 2, 1999 through December 31, 1999.)
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 its non-surgical "Embryo Transfer System".
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.
- continued -
F-9
<PAGE>
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 POLICIES
- CONTINUED
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Struthers, Inc. and its wholly owned subsidiary, Legred Struthers
Genetics, 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 is 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, 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. The agreement provides for
royalties of 4% to be paid to Norsvin, AS on all sales of its product
lines. The duration of the agreement is for an indefinite period but
can be terminated by either party upon a twelve month written notice.
Forty-one percent (41%) of the Company's revenues since the date of
the Legred acquisition (November 2, 1999) through December 31, 1999
were sales of the Norsvin, AS product lines.
CONCENTRATIONS 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.
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
supplies to other breeders are recognized upon 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 $20,242 and
$-0- for 1999 and 1998, respectively. The Company did not incur any
direct-response advertising costs during 1999 or 1998.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged against operations as
incurred. Research and development costs were $10,000 and $180,074 in
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 form Struthers
International Research Corporation.
- continued -
F-10
<PAGE>
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 POLICIES
- CONTINUED
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.
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 15 years based on its estimated useful
life. Acquired intangibles consist of customer lists and are also
amortized over their 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.
- continued -
F-11
<PAGE>
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 POLICIES
- CONTINUED
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.
BASIC EARNINGS PER SHARE
Basic earnings per share of common stock were computed by dividing
income available to common shareholders by the weighted-average
number of shares outstanding for the year. Diluted earnings per share
are not presented because the Company has not issued any potentially
dilutive convertible securities as of December 31, 1999.
STOCK OPTIONS AND AWARDS
As described in Note K, the corporation 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
has not been furnished dur to the short trading history of the
Company.
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 will comply with the requirements of the new standard
that becomes effective for the Company's 2001 financial reporting
cycle. Management does not believe that the new standard will have a
material effect on its financial statements since the Company does
not currently have any derivative financial instruments.
NOTE C - INVESTMENT
Investment consisted of the following:
---------------------------------------------------------------------
December 31, 1999 1998
---------------------------------------------------------------------
Investment in Struthers Pedigree Herd Corp. $ 105,000 $--
Less: Loss on Investment 25,000 --
---------------------------------------------------------------------
Investment $ 80,000 $--
---------------------------------------------------------------------
The investment in Struthers Pedigree Herd Corp. represents a down
payment made in June 1999 pursuant to a tentative stock purchase
agreement in which the Company would acquire an initial 20% interest
with an option to acquire up to 100% of the common stock. The final
purchase price was subject to an acceptable appraisal of the
underlying assets of the corporation. In March 2000, the parties
could not reach an agreement as to the final terms and decided not to
consummate the transaction and further agreed that $80,000 of the
initial deposit would be refunded. Accordingly, the Company
recognized a loss on the investment of $25,000 as of December 31,
1999.
F-12
<PAGE>
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
------------------------------------------------------------------------------
December 31, 1999 1998
------------------------------------------------------------------------------
<S> <C> <C>
Buildings and Improvements $ 200,000 $--
Machinery and Equipment 69,000 --
Breeding Herds 2,160,000 --
Vehicles 30,000 --
Office Furniture and Fixtures 14,437 --
------------------------------------------------------------------------------
$ 2,473,437 $--
Less: Accumulated Depreciation 158,146 --
------------------------------------------------------------------------------
$ 2,315,291 $--
Construction in Progress 93,615 --
------------------------------------------------------------------------------
Property and Equipment - Net $ 2,408,906 $--
------------------------------------------------------------------------------
</TABLE>
Included in construction in progress at December 31, 1999 are
deposits made to construct a new boar stud facility at the Bricelyn,
Minnesota location. The total estimated cost of construction is
approximately $450,000 (of which $88,390 was expended at December 31,
1999) and is expected to be operational during the 4th 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 expense has not been recorded on
these transactions since the property was not placed in service as of
December 31, 1999.
Depreciation charged against operations was $158,146 and $0 for the
years ended December 31, 1999 and 1998, respectively.
NOTE E - INTANGIBLE ASSETS
Intangible assets recorded on the Legred acquisition consisted of the
following:
-------------------------------------------------------------------
December 31, 1999 1998
-------------------------------------------------------------------
Capitalized Land Lease $ 1,200,000 $--
Goodwill 800,000 --
Customer Lists 304,000 --
-------------------------------------------------------------------
$ 2,304,000 $--
Less: Accumulated Amortization (25,600) --
-------------------------------------------------------------------
Intangible Assets - Net $ 2,278,400 $--
-------------------------------------------------------------------
Amortization charged against operations for the years ended December
31, 1999 and 1998 was $25,600 and $0, respectively.
F-13
<PAGE>
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE F - 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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------- -----------------------------------
<S> <C> <C>
Years Ended December 31, 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 March 2000 upon completion of a preferred stock
offering. $ 900,000 $ --
Stock payable to Brent Legred without interest in the number of
shares equivalent (based on the fair value of the common stock) to
the specified dollars on the following dates: $750,000 due on January
1, 2000; $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 3,750,000 --
-------------------------------------------------------------------- -----------------------------------
Total $ 4,650,000 $ --
Less: Current Portion 3,650,000 --
-------------------------------------------------------------------- -----------------------------------
Long Term Portion $ 1,000,000 $ --
-------------------------------------------------------------------- -----------------------------------
</TABLE>
The final stock payable installment 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.
The above obligations are collateralized by a first security interest
in the assets purchased from Legred.
F-14
<PAGE>
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTE G - PROVISION FOR INCOME TAXES
The provision for income taxes is attributable to:
<S> <C> <C>
-------------------------------------------------------------------- ---------------------------
Years Ended December 31, 1999 1998
-------------------------------------------------------------------- ---------------------------
Income (Loss) Before Provision for Income Taxes $(596,728) $(524,129)
-------------------------------------------------------------------- ---------------------------
State Income Tax $ 1,133 $ --
-------------------------------------------------------------------- ---------------------------
Deferred Tax Benefits - Net of Allowance $ -- $ --
-------------------------------------------------------------------- ---------------------------
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, 1999 1998
-------------------------------------------------------------------- ------------- -------------------
Income Tax at the Federal Statutory Rate of 35% $(208,855) $(183,445)
Effect of Graduated Tax Rates 16,888 16,888
State Income Tax, Net of Federal Benefit (36,400) (31,972)
-------------------------------------------------------------------- ------------- -------------------
Total Benefit from Income Taxes (228,367) (198,529)
Less: Allowance 229,500 198,529
-------------------------------------------------------------------- ------------- -------------------
Income Taxes (Benefit) $ 1,133 $--
-------------------------------------------------------------------- ------------- -------------------
</TABLE>
The Company's income tax provision was computed based on the federal
statutory rate, reduced by the effect of graduated tax rate and the
average state statutory rates, net of related federal benefit.
As of December 31, 1999 the company has net operating loss
carryforwards of approximately $1.1 million for tax purposes which
will be available to offset future taxable income. The net operating
loss carryforwards begin to expire in 2019. Deferred tax assets of
approximately $428,000 and $198,000 at December 31, 1999 and 1998,
respectively, have been recognized for the net operating loss
carryforwards. However, they have been reduced by a valuation
allowance of approximately $428,000 and $198,000 at December 31, 1999
and 1998, respectively, which will remain until it is more likely
than not that the related tax benefits will be realized.
NOTE H - COMMON STOCK
The Company's securities are not registered under the Securities Act
of 1933 and, therefore, the stockholders may not sell, transfer,
pledge or otherwise dispose of the common shares of the company in
the absence of either an effective registration statement covering
said shares under the 1933 Act and relevant state securities laws, or
an opinion of counsel that registration is not required under the Act
or under the securities laws of any such state.
The Company raised capital during 1999 through an offering exempt
from registration pursuant to Regulation D and Sections 3(b) and or
4(2) of the Securities Act of 1933. The Company sold 22,310,000
shares of its common stock at $.04 per share for a total of $932,400
in cash during 1999.
F-15
<PAGE>
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE I - PREFERRED STOCK
The Company has 6,520,000 shares of preferred stock authorized of
which no shares were issued as of December 31, 1999. 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"). Each share of Class A Stock and Class B 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 of Class A Stock and Class B Stock 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 Class A 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 Class A
Stock may be converted by each shareholder thereof. The amount of
common shares into which the Class A Stock may be converted at each
Conversion Period shall be as follows: at each of the six Conversion
Periods the amount of the Class A Stock shares which may be converted
shall be divided by the average market value between the bid and
asked price of the Company's common shares during the ten day trading
period immediately preceding the date of such Conversion Period, but
not more than $.40, and the resultant figure 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 J - STOCK COMPENSATION AND AWARDS
On December 1, 1998, the Board of Directors granted 20,369,000 shares
of common stock to employees as compensation for past services.
During 1998 and 1999 12,369,000 and 3,100,000 shares, respectively,
were issued to employees in connection with this grant. 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.
NOTE K - SUBSEQUENT EVENTS
In February 2000, the Company offered for sale and issued 1,500,000
shares of the Class A 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 (see Note F), $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 shares of the
Class B Preferred Stock at $1.00 per share. As of April 30, 2000, the
Company had received subscriptions for all 5,000,000 shares. The net
proceeds of $5,000,000 from the offering are to be used primarily for
the construction of additional breeding facilities and working
capital, as outlined in the subscription agreement.
F-16
<PAGE>
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE L - PRO FORMA FINANCIAL INFORMATION
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 is to pay Legred the sum of $1 million in
cash and $4 million worth of common shares of the Company. The
Company issued 2,220,000 shares of common stock at closing valued at
$250,000 ($.1126 per share based on the average trading price on the
date of the agreement). The final number of shares still to be issued
will be determined based on the market value of the Company's shares
on the dates payable as follows: $750,000 due on January 1, 2000;
$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 was obligated under this
agreement to build and subsequently did build a boar stud unit and
operating laboratory, the cost of which was approximately $450,000.
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. and Bren t Legred ("Legred") based upon their
respective fair values as of the closing date based upon valuations
and other studies.
The accompanying Unaudited Pro Forma Consolidated Financial
Statements of Operations and Cash Flows for the year ended December
31, 1999 assume that the acquisition of Legred took place on January
1, 1999, the beginning of the Company's fiscal year. The Pro Forma
Consolidated Statements of Operations do not include the effect of
any non-recurring write-offs directly attributable to the
acquisition. The Pro Forma Financial Statements do not reflect any
anticipated cost savings from the Legred acquisition, or any
synergies that are anticipated to result from the transaction, and
there can be no assurances that any such cost savings or synergies
will occur. The Pro Forma Financial Statements do not purport to be
indicative of the results of operations of the Company that would
have actually been obtained had such transaction been completed as of
the assumed date and for the periods presented, or which may be
obtained in the future. The Pro Forma financial statements should be
read in conjunction with the separate historical financial statements
of Struthers and Legred and the notes thereto and "Management's
Discussions and Analysis of Financial Condition and Results of
Operations".
F-17
<PAGE>
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
NOTE L - PRO FORMA FINANCIAL INFORMATION - CONTINUED
The purchase price and allocation of the purchase price in excess of
the net assets acquired as a result of the acquisition is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Purchase Price:
<S> <C> <C>
Cash Paid on Signing of Agreement $ 100,000
Cash Balance Payable Over 18 Months - Paid in Full
in February 2000 (see Note F) 900,000
Fair Value of Stock Issued at Closing:
Unrestricted Shares - 1,000,000 Shares @ Approximately $.1126 112,000
Restricted Shares - 1,220,000 Shares @ Approximately $.1126 138,000
Balance of Purchase Price Payable in Common Shares Over
18 Months 3,750,000
------------------------------------------------------------------------------------------------------
Total Purchase Price $ 5,000,000
------------------------------------------------------------------------------------------------------
Allocation of Purchase Price to Fair Value of net Assets Acquired
Working Capital $ 7,000
Building, Improvements and Land Lease 200,000
Machinery and Equipment 69,000
Breeding Herd:
100 Boars 540,000
300 Sows 1,620,000
------------------------------------------------------------------------------------------------------
Total Breeding Herd 2,160,000
Inventory - 2,600 Growing Pigs 260,000
Capitalized Land Lease 1,200,000
Customer List 304,000
Goodwill 800,000
------------------------------------------------------------------------------------------------------
Total $ 5,000,000
Less: Net Book Value of Assets Acquired 207,096
------------------------------------------------------------------------------------------------------
Increase to Fair Value $ 4,792,904
------------------------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
STRUTHERS, INC. AND SUBSIDIARY
LEGRED GENETICS, INC.
BRENT LEGRED
NOTE L - PRO FORMA FINANCIAL INFORMATION - CONTINUED
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
For The Year December 31, 1999
Historical
----------------------------------------
Combined
Legred Genetics (Unaudited)
----------------------------
Struthers, Inc. Inc. and Pro Forma Pro Forma
& Subsidiary Brent Legred Combined Adjustments Consolidated
---------------------------------------------------------------------------------------------------------------------------------
REVENUE
<S> <C> <C> <C> <C> <C>
Sales $ 327,359 $ 936,001 $1,263,360 $ -- $ 1,263,360
Other Income 5,692 9,660 15,352 15,352
---------------------------------------------------------------------------------------------------------------------------------
333,051 945,661 1,278,712 -- 1,278,712
Cost of Goods Sold 169,609 728,851 898,460 -- 898,460
---------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 163,442 216,810 380,252 -- 380,252
---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Marketing and Advertising 20,242 31,367 51,609 -- 51,609
General and Administrative 539,838 253,306 793,144 -- 793,144
Amortization and (1) 105,400
Depreciation 183,746 55,381 239,127 (2) 600,000 944,527
Interest -- 29,765 29,76 (3) (29,765) -
---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 743,826 369,819 1,113,645 675,635 1,789,280
---------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE OTHER INCOME(EXPENSE) (580,384) (153,009) (733,393) (675,635) (1,409,028)
---------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest Income
8,656 -- 8,656 -- 8,656
Loss on Investment (25,000) -- (25,000) -- (25,000)
---------------------------------------------------------------------------------------------------------------------------------
-
TOTAL OTHER INCOME(EXPENSE) (16,344) -- (16,344) -- (16,344)
---------------------------------------------------------------------------------------------------------------------------------
Loss Before Income Taxes (596,728) (153,009) (749,737) (675,635) (1,425,372)
Income Taxes (Benefit) 1,133 6,320 7,453 -- 7,453
---------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (597,861) $ (159,329) $(757,190) $(675,635) $(1,432,825)
---------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares
Outstanding 342,207,620 342,207,620
---------------------------------------------------------------------------------------------------------------------------------
Net Loss per Common Share Basic and Diluted
$ (0.00) $(0.00)
---------------------------------------------------------------------------------------------------------------------------------
<FN>
Notes and Assumptions:
(1) Amortization expense has been calculated on
intangible assets to reflect the retroactive
effect of the Legred transaction occurring on
January 1, 1999.
F-19
<PAGE>
(2) Depreciation expense has been calculated on the
increase in Property and Equipment assets to
reflect the retroactive effect of the Legred
transaction occurring on January 1, 1999.
(3) Interest expense would not have been incurred
had the acquisition occurred as of January 1,
1999 since the loans were repaid with the sale
proceeds.
</FN>
</TABLE>
F-20
<PAGE>
STRUTHERS, INC. AND SUBSIDIARY
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------
NOTE L - PRO FORMA FINANCIAL INFORMATION FOR 1998
<TABLE>
<CAPTION>
CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------------------------------------------
FOR THE YEAR DECEMBER 31, 1998
Historical
----------------------------------------
Combined
Legred Genetics (Unaudited)
-------------------------------
Struthers Inc. and Pro Forma Pro Forma
Inc. & Subsidiary Brent Legred Combined Adjustments Consolidated
-----------------------------------------------------------------------------------------------------------------------
(1) (2) (3)
---------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $ -- $ 1,447,284 $1,447,284 $ -- $ 1,447,284
-----------------------------------------------------------------------------------------------------------------------
NET LOSS $ (524,129) $ (111,353) (635,482) (868,500) (1,503,982)
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.01) $ (0.01)
-----------------------------------------------------------------------------------------------------------------------
NET LOSS $ (24,942) $ (111,353) $(136,295) $(495,719) $(632,014)
-----------------------------------------------------------------------------------------------------------------------
<FN>
Notes and Assumptions:
(1) Amortization expense has been calculated on
intangible assets to reflect the retroactive
effect of the Legred acquisition occurring on
January 1, 1998.
(2) Depreciation expense has been calculated on the increase in Property and Equipment
assets to reflect the retroactive effect of the Legred transaction occurring on
January 1, 1998.
(3) Interest expense would not have been incurred
had the Legred acquisition occurred as of
January 1, 1998 since the loans were repaid
with the sale proceeds.
</FN>
</TABLE>
NOTE M - RESTATEMENT
The financial statements for the years ended December 31, 1999 and
1998 have been restated to record the effects of stock splits, shares
issued in exchange for services, other equity transactions and to
record a valuation allowance against deferred tax assets.
A summary of the effect of the retroactive restatements on net income
for the years 1999 and 1998 and stockholders' equity at December 31,
1999 are as follows:
---------------------------------------------------------------------
NET INCOME STOCKHOLDERS' EQUITY
1999 1998 DECEMBER 31, 1999
---------------------------------------------------------------------
As originally reported $(338,861) $ (24,942) 850,674
Effect of Restatement:
Stock Grants to Employees -- (203,690) (50,000)
Stock Issued to Acquire
In-Process R&D -- (180,074) --
Stock Issued to Consultants (10,000) (135,000) --
Stock Issued as Charitible
Contribution (40,000) -- --
Valuation Allowance Against
Deferred Tax Assets (207,867) -- (207,867)
Other (1,133) 19,557 (1,133)
--------- --------- ---------
As Restated $(597,861) $(524,149) $591,674
========= ========= =========
F-21
<PAGE>
STRUTHERS, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-------------------------------------------------------------------------------------------------------------------
<S> <C>
Independent Accountants' Report F-22
Consolidated Balance Sheets at June 30, 2000 (Unaudited)
and December, 1999 F-23
Consolidated Statement of Changes in Stockholders' Equity for the Three Months
Ended March 31, 1999 and the Six Months Ended June 30, 1999 (Unaudited),
December 31, 1999 and The Three Months Ended March 31, 2000 (Unaudited)
and June 30, 2000 (Unaudited) F-24 - F-25
Consolidated Statements of Operations for the Three Months Ended
June 30, 2000 and 1999 (Unaudited) and for the Six Months Ended
June 30, 2000 and 1999 (Unaudited) F-26
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (Unaudited) F-27 - F-28
Notes to the Consolidated Financial Statements (Unaudited) F-29
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
and Stockholders
Struthers, Inc. and Subsidiaries
(A Nevada Corporation)
Charleston, South Carolina
We have reviewed the accompanying consolidated balance sheets of
Struthers, Inc. and Subsidiaries as of June 30, 2000, the related consolidated
statements of changes in stockholders equity, consolidated statements of
operations for the three months and six months ended June 30, 2000 and 1999, and
the consolidated statements of cash flows for the six months ended June 30, 2000
and 1999 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 generally accepted auditing standards, 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 generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets of Struthers, Inc. and
Subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
years then ended, and in our report dated March 17, 2000, we expressed an
unqualified opinion on those consolidated financial statements.
Rochester, New York
August 22, 2000
F - 22
<PAGE>
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------------
(Restated)
JUNE 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 3,909,245 $ 201,160
Accounts Receivable 305,715 112,649
Other Receivables
34,122 --
Investment
19,567 80,000
Inventory 610,066 260,000
Prepaid Expenses and Deposits
39,102 7,376
------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,917,817 661,185
PROPERTY AND EQUIPMENT - NET OF ACCUMULATED DEPRECIATION 3,323,239 2,408,906
OTHER ASSETS
Intangible Assets - Net of Accumulated Amortization 4,042,419 2,278,400
------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $12,283,475 $ 5,348,491
------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Other Current Liabilities $ 148,078 $ 56,817
Compensation Payable - Stock Grants
-- 50,000
Mortgage Payable - Due Within One Year
7,957 --
Note Payable - Legrad Acquisition - Due Within One Year 900,000
--
Stock Payable - Due Within One Year 3,988,890 2,750,000
------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,144,925 3,756,817
OTHER LIABILITIES
Mortgage Payable - Due After One Year
31,830 --
Stock Payable - Legred Acquisition - Due After One Year 1,000,000
--
------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,176,755 4,756,817
------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock - $.001 Par; 900,000,000 Shares Authorized;
369,969,922 Shares Issued and Outstanding 369,970 356,723
Preferred Stock- $.001 Par; 6,520,000 Shares Authorized
6,500,000 Shares Issued and Outstanding
6,500 --
Additional Paid-in Capital 9,662,194 1,381,941
Deficit (1,931,944) (1,146,990)
------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 8,106,720 591,674
------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,283,475 $ 5,348,491
------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 23
<PAGE>
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock Additional Total
-------------------------- ------------------
Paid-In Stockholders'
Shares Par Value Shares Par Value Capital Deficit Equity
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1998--Restated 327,692,620 $ 327,693 -- $ -- $ 136,071 $ (549,129) $ (85,365)
Issuance of Common Stock
for Cash at $.0400 per Share 23,310,000 23,310 -- -- 909,090 -- 932,400
Shares Issued to Employees
- Previously Granted Shares 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 for the Three Months Ended (Unaudited) -- -- -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 1999 354,502,620 $ 354,503 -- $ -- $ 1,121,661 $ (549,129) $ 927,035
Net Loss for the Three Months Ended (Unaudited) -- -- -- -- -- (10,794) (10,794)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 1999 354,502,620 $ 354,503 == $ -- $ 1,121,661 $ (559,923) $ 916,241
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
Net Loss for the Six Months Ended -- -- -- -- -- (587,067) (587,067)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1999--Restated 356,722,620 $ 356,723 == $ -- $ 1,381,941 $(1,146,990) $ 591,674
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 24
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock
--------------------------------- ----------------------------
Shares Par Value Shares Par Value
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1999--Restated 356,722,620 356,723 -- --
Issuance of Common Stock in Connection
with Legred Acquisition at $.1126 per Share 6,660,000 6,660 -- --
Net Loss for the Three Months Ended (Unaudited)
-- -- -- --
------------------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 2000 363,382,620 363,383 -- --
Issuance of Common Stock in Connection
with Legred Acquisition at $.6300 per Share 1,587,302 1,587 -- --
Shares Issued to Employees
- Previously Granted Shares 5,000,000 5,000 -- --
Issuance of Preferred Stock
for Cash at $1.00 per Share -- -- 6,500,000 6,500
Net Loss for the Three Months Ended (Unaudited) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 2000 369,969,922 $ 369,970 6,500,000 $ 6,500
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Additional Total
Paid-In Stockholders'
Capital Deficit Equity
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE - DECEMBER 31, 1999 1,381,941 (1,146,990) 591,674
Issuance of Common Stock in Connection
with Legred Acquisition at $.1126 per Share 743,340 -- 750,000
Net Loss for the Three Months Ended (Unaudited)
-- (252,644) (252,644)
-------------------------------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 2000 2,125,281 (1,399,634) 1,089,030
Issuance of Common Stock in Connection
with Legred Acquisition at $.6300 per Share 998,413 -- 1,000,000
Shares Issued to Employees
- Previously Granted Shares 45,000 -- 50,000
Issuance of Preferred Stock
for Cash at $1.00 per Share 6,493,500 -- 6,500,000
Net Loss for the Three Months Ended (Unaudited) -- (532,310) (532,310)
---------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 2000 $ 9,662,194 $ (1,931,944) $8,106,720
---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 25
<PAGE>
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $ 887,526 $ -- $ 1,783,059 $ --
Cost of Sales - Farm Operations 563,551 -- 1,179,147 --
--------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 323,975 -- 603,912 --
--------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Research and Development
73,474 -- 82,106 --
Marketing and Advertising
23,006 -- 50,351 --
General and Administrative 547,293 10,794 800,404 10,794
Amortization And Depreciation 248,854 -- 494,408 --
--------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 892,627 10,794 1,427,269 10,794
--------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE OTHER INCOME AND (EXPENSES) (568,652) (10,794) (823,357) (10,794)
OTHER INCOME AND (EXPENSES)
Interest 36,342 -- 38,403 --
--------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (532,310) (10,794) (784,954) (10,794)
Provision for Income Taxes
-- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (532,310) $ (10,794) $ (784,954) $ (10,794)
--------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 363,382,620 354,502,620 366,676,270 354,502,620
LOSS PER COMMON SHARE- BASIC AND DILUTED $ (0.00) $ (0.00) $ (0.00) $ (0.00)
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 26
<PAGE>
<TABLE>
<CAPTION>
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 1999
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Loss $ (784,954) $ (10,794)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Amortization And Depreciation 484,469
--
CHANGES IN ASSETS AND LIABILITIES:
Accounts Receivable (193,066)
--
Other Receivables
(34,122) --
Inventory (350,066)
--
Prepaid Expenses and Deposits (31,726) --
Accounts Payable and Other Current Liabilities 41,261 8,516
Other 405 --
-----------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (867,799)
(2,278)
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (1,093,903)
--
Investments
(10,000) --
-----------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (1,103,903)
--
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Issuance of Common Stock 6,500,000
--
Repayment of Mortgage
(213) --
Repayment of Note Payable (900,000)
--
-----------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 5,599,787
--
-----------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 3,628,085
(2,278)
Cash and Cash Equivalents - Beginning of Period 201,160 (2,278)
-----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 3,829,245 $ --
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 27
<PAGE>
STRUTHERS, INC. & SUBSIDIARIES
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
----------------------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000
----------------------------------------------------------------------------------------------
<S> <C>
Issuance of Stock in Connection with Acquisition of Legred Susidiary $ 1,000,000
----------------------------------------------------------------------------------------------
Issuance of Stock to Employees- Previously Granted Shares 50,000
----------------------------------------------------------------------------------------------
Acquisition of Assets- Elite Visions, LLC
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
----------------------------------------------------------------------------------------------
Acquisition of Assets- Muller A.I., LLC
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
----------------------------------------------------------------------------------------------
Acquisition of Property and Equipment via Mortgage 40,000
----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F - 28
<PAGE>
STRUTHERS, INC. AND SUBSIDIARIES
(A NEVADA CORPORATION)
CHARLESTON, SOUTH CAROLINA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements of Struthers, Inc.
and Subsidiaries (the "Company") included herein have been prepared
by the Company, 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 the Company 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
the Company's Form 10 Registration Statement, and other reports filed
with the SEC.
The accompanying unaudited interim financial statements
reflect all adjustments of a normal and recurring nature which are,
in the opinion of management, necessary to present fairly the
financial position, results of operations and cash flows of the
Company 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
acquisition of additional subsidiaries, and general and
administrative costs required to meet SEC reporting obligations.
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, Legred Struthers Genetics, Inc., Elite
Visions, Inc., and Muller A.I., Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
F-29
<PAGE>
<TABLE>
<CAPTION>
LEGRED GENETICS, INC.
(A MINNESOTA CORPORATION)
AND BRENT LEGRED
(A SOLE PROPRIETOR)
BRICELYN, MINNESOTA
TABLE OF CONTENTS
---------------------------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report F-31
Combined Balance Sheets at November 1, 1999 and December 31, 1998 F-32
Combined Statements of Changes in Stockholder's /Owner's Equity for the Ten
Months Ended November 1, 1999 and the Year Ended
December 31, 1998 F-33
Combined Statements of Operations for the Ten Months Ended
November 1, 1999 and the Year Ended December 31,1998 F-34
Combined Statements of Cash Flows for the Ten Months Ended
December 31, 1999 and the Year Ended December 31,1998 F-35
Notes to the Combined Financial Statements F-36 to F-38
</TABLE>
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder's of
Legred Genetics,Inc. and
The Proprietor, Brent Legred
Bricelyn, Minnesota
We have audited the accompanying combined balance sheets of Legred
Genetics, Inc. (A Minnesota Corporation) and Brent Legred (A Sole Proprietor) as
of November 1, 1999 and December 31, 1998 and the related combined statements of
changes in stockholder's/owner's equity, operations and cash flows for the ten
months ended November 1, 1999 and the year ended December 31, 1998. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Legred Genetics, Inc. and Brent Legred as of November 1, 1999 and December 31,
1998 and the combined results of their operations and their cash flows for the
ten months ended November 1, 1999 and the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
Rotenberg & Company, LLP
Rochester, New York
March 17, 2000
F-31
<PAGE>
<TABLE>
<CAPTION>
LEGRED GENETICS, INC.
(A MINNESOTA CORPORATION)
AND BRENT LEGRED
(A SOLE PROPRIETOR)
BRICELYN, MINNESOTA
COMBINED BALANCE SHEETS
---------------------------------------------------------------------------------------------------
NOVEMBER 1, DECEMBER 31,
1999 1998
---------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ - $ 19,497
Accounts Receivable - 19,253
Due From Stockholder 4,334 4,363
---------------------------------------------------------------------------------------------------
-
TOTAL CURRENT ASSETS 4,334 43,113
PROPERTY AND EQUIPMENT - NET OF DEPRECIATION 202,762 258,143
---------------------------------------------------------------------------------------------------
TOTAL ASSETS 207,096 301,256
---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S/OWNER'S EQUITY
CURRENT LIABILITIES
Accounts Payable 20,475 12,156
Note Payable 52,650 275,000
Accrued Expenses -- 11,500
---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 73,125 298,656
STOCKHOLDER'S/OWNER'S EQUITY
Common Stock - No Par; 1,000 Shares Authorized;
1000 Shares Issued and Outstanding 1,000 1,000
Additional Paid-in Capital 422,901 132,201
Retained Earnings (Deficit) (289,930) (130,601)
---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S/OWNER'S EQUITY 133,971 2,600
---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S/OWNER'S EQUITY $ 207,096 $ 301,256
---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral pat of this financial statement.
F-32
<PAGE>
LEGRED GENETICS, INC.
(A MINNESOTA CORPORATION)
AND BRENT LEGRED
(A SOLE PROPRIETOR)
BRICELYN, MINNESOTA
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S/OWNER'S EQUITY (DEFICIT)
------------------------------------------------------------------------------------------------------------------
For The Year December 31, 1998 And
The Ten Months Ended November 1, 1999 Total
Additional Stockholder's
Common Retained Paid-in /Owner's
Stock Earnings Capital Equity (Deficit)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1997 $ 1,000 $ (19,248) $ - $ (18,248)
Capital Contributions - - 132,201 132,201
Net Loss - (111,353) - (111,353)
------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1998 1,000 (130,601) 132,201 2,600
Capital Contributions - - 290,700 290,700
Net Loss - (159,329) - (159,329)
------------------------------------------------------------------------------------------------------------------
BALANCE - NOVEMBER 1, 1999 $ 1,000 $(289,930) $422,901 $133,971
------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral pat of this financial statement.
F-33
<PAGE>
<TABLE>
<CAPTION>
LEGRED GENETICS, INC.
(A MINNESOTA CORPORATION)
AND BRENT LEGRED
(A SOLE PROPRIETOR)
BRICELYN, MINNESOTA
COMBINED STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------------------------------
TEN MONTHS YEAR
ENDED ENDED
NOVEMBER, 1 DECEMBER, 31
1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
SALES $936,001 $1,432,029
Other Income 9,660 15,255
--------------------------------------------------------------------------------------------------------
TOTAL REVENUE 945,661 1,447,284
Cost of Goods Sold 728,851 1,051,973
--------------------------------------------------------------------------------------------------------
Gross Profit 216,810 395,311
--------------------------------------------------------------------------------------------------------
EXPENSES
Marketing And Advertising 31,367 60,328
General and Administrative 253,306 384,003
Depreciation 55,381 50,129
Interest 29,765 11,500
--------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 369,819 505,960
--------------------------------------------------------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (153,009) (110,649)
Provision for Income Taxes 6,320 704
--------------------------------------------------------------------------------------------------------
NET LOSS $ (159,329) $ (111,353)
--------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral pat of this financial statement.
F-34
<PAGE>
<TABLE>
<CAPTION>
LEGRED GENETICS, INC.
(A MINNESOTA CORPORATION)
AND BRENT LEGRED
(A SOLE PROPRIETOR)
BRICELYN, MINNESOTA
COMBINED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------------
TEN MONTHS YEAR
ENDED ENDED
NOVEMBER, 1 DECEMBER,31
1999 1998
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Loss $ (159,329) $ (111,353)
Adjustments to Reconcile Net Loss to
Net Cash Flows From Operating Activities:
Depreciation 55,381 50,129
Changes in Assets and Liabilities:
Accounts Receivable 19,253 (19,253)
Accounts Payable
8,319 (6,092)
Accrued Expenses (11,500) 11,500
----------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (87,876) (75,069)
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment -- (308,272)
----------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES -- (308,272)
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital Contributions 290,700 132,201
Repayment of Debt (222,350) --
Proceeds from Notes Payable -- 275,000
Due from Stockholder 29 (4,363)
----------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES
68,379 402,838
----------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents
(19,497) 19,497
Cash and Cash Equivalents - Beginning
19,497 --
----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - ENDING $ -- $ 19,397
----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral pat of this financial statement.
F-35
<PAGE>
LEGRED GENETICS, INC.
(A MINNESOTA CORPORATION)
AND BRENT LEGRED
(A SOLE PROPRIETOR)
BRICELYN, MINNESOTA
NOTES TO THE COMBINED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE A - THE COMPANIES
Legred Genetics, Inc. was incorporated in the state
of Minnesota in 1996 and is primarily engaged in the business of
raising livestock for sale and genetically implanting embryos into
livestock for procreation. Brent Legred is primarily engaged in
raising livestock for production and for sale in the market place.
Mr. Legred is a sole proprietor and has been in operation since 1991.
On November 2, 1999, the Companies entered into an agreement with
Struthers, Inc. and Legred Struthers Genetics, Inc., pursuant to
which the Companies sold all of their 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
Struthers is to pay Legred the sum of $1 million in cash and $4
million worth of common shares of Struthers, which the final number
of shares will be determined by the market value of the Company's
shares from time to time. Struthers was obligated and subsequently
did build a boar stud unit and operating laboratory, the cost of
which was approximately $450,000. 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 sold pursuant to this acquisition were transferred
into the subsidiary.
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. 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 maintains its corporate offices in Bricelyn, Minnesota
and operates its Boar stud facility in Bricelyn, Minnesota.
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Legred
Genetics, Inc. and Brent Legred, a sole proprietor. The entities have
been combined due to their common ownership. All significant
inter-company balances and transactions have been eliminated in the
combination.
SEGMENT DATA, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMER
The Company, through Legred Genetics, Inc., does business primarily
in North America. The Company also has an agreement with Norsvin, AS
(A Norwegian Company) to sell its product line. The agreement
provides for royalties of 4% to be paid to Norsvin on all sales of
its product line. The duration of the agreement is for an indefinite
period, but can be terminated by either party upon twelve months
written notice. Sales under this agreement represented 29% and 15% of
total sales for the ten months ended November 1, 1999 and the year
ended December 31, 1998, respectively.
- continued -
F-36
<PAGE>
LEGRED GENETICS, INC.
(A MINNESOTA CORPORATION)
AND BRENT LEGRED
(A SOLE PROPRIETOR)
BRICELYN, MINNESOTA
NOTES TO THE COMBINED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- CONTINUED
CONCENTRATIONS 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.
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.
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.
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
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.
INVENTORY
The Company expenses the cost of growing pigs as a charge to
operations when incurred.
- continued -
F-37
<PAGE>
LEGRED GENETICS, INC.
(A MINNESOTA CORPORATION)
AND BRENT LEGRED
(A SOLE PROPRIETOR)
BRICELYN, MINNESOTA
NOTES TO THE COMBINED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE B - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- CONTINUED
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. No income taxes for the sole
proprietorship have been recorded in the financial statements as they
are the sole responsibility of the owner.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at November 1, 1999
and December 31, 1998:
-------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------
Buildings and Improvements $ 185,144 $ 185,144
Machinery and Equipment 156,594 156,594
Breeding Herds 2,074,892 1,933,769
Vehicles 24,426 24,426
-------------------------------------------------------------------
$2,441,056 $2,299,933
Less: Accumulated Depreciation 2,238,294 2,041,790
-------------------------------------------------------------------
Net Property and Equipment $ 202,762 $ 258,143
-------------------------------------------------------------------
Depreciation expense charged against operations for the ten months
ended November 1, 1999 and the year ended December 31, amounted to
$56,381 and $50,129, respectively.
NOTE D - NOTE PAYABLE
The companies have available two lines of credit with a maximum
borrowing base of $2,000,000. The lines bear interest at the rates of
9.5% and 10% per annum and are secured by the general assets of the
company.
NOTE E - PROVISION FOR TAXES
The provision for income taxes is attributable to for the ten months
ended November 1, 1999 and the year ended December 31, 1998:
------------------------------------------------------------------
1999 1998
------------------------------------------------------------------
Loss Before Provision for Income Taxes $(209,009) $(110,649)
------------------------------------------------------------------
State Income Tax $ 1,898 $ 704
------------------------------------------------------------------
Federal Income Taxes $ 4,422 $ --
------------------------------------------------------------------
F-38
<PAGE>
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 Exhibits 3.4, 3.5 and 3.6 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.
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 Muller A.I., Inc. a
subsidiary of Registrant.
21.4 Articles of Incorporation of Elite Visions, Inc., a
subsidiary of Registrant.
_________________
*Previously filed.
