Registration of Securities of a Small-Business Issuer ˇ Form 10-SB
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10SB12B Form 10sb 65 274K
2: EX-2 Agreement of Purchase of Nutricology, Inc. 6 29K
3: EX-3.(I) Articles of Incorporation 8 24K
4: EX-3.(II) Bylaws 9 38K
5: EX-9 Voting Trust Agreement 10 43K
6: EX-23 Consent of Independent Auditor 1 7K
7: EX-27 Financial Data Schedule 1 9K
8: EX-99 Management Agreement 4 24K
9: EX-99 Placement Memorandum Dated May 1, 1997 21 114K
10: EX-99 Placement Memorandum Dated October 28, 1997 20 83K
11: EX-99 Placement Memorandum Dated April 15, 1998 22 87K
12: EX-99 Placement Memorandum Dated July 1, 1998 19 84K
13: EX-99 Placement Memorandum Dated July 24, 1998 22 85K
14: EX-99 Placement Memorandum Dated September 15, 1998 21 84K
15: EX-99 Memorandum Dated 10/13/98 for 75,000 Shares 21 85K
16: EX-99 Memorandum Dated 10/13/98 for 15,000 Shares 21 83K
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS
ISSUERS PURSUANT TO
SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCOTTSDALE SCIENTIFIC, INC.
---------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 13-3940486
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30806 Santana Street, Hayward, CA 94544
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (800) 545-9960
--------------
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
to be so registered which each class is to
be registered
Common Stock, Par Value $0.001 None
Preferred Stock, Par Value $0.25 None
1
TABLE OF CONTENTS
Page
COVER PAGE ................................................................ 1
TABLE OF CONTENTS ......................................................... 2
PART I .............................................................. 3
DESCRIPTION OF BUSINESS ........................................... 3
DESCRIPTION OF PROPERTY ........................................... 13
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES ......... 14
REMUNERATION OF DIRECTORS AND OFFICERS ............................ 16
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITYHOLDERS ............................................... 16
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN
TRANSACTIONS ................................................. 17
SECURITIES BEING OFFERED ........................................... 17
PART II ................................................................... 18
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER STOCKHOLDER MATTERS .................. 18
LEGAL PROCEEDINGS ................................................ 19
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS .................. 19
RECENT SALES OF UNREGISTERED SECURITIES ............................ 19
INDEMNIFICATION OF DIRECTORS AND OFFICERS ....................... 20
PART F/S ................................................................... 20
FINANCIAL STATEMENTS ........................................... 20
PART III ................................................................... 20
INDEX TO EXHIBITS ................................................ 20
SIGNATURES .............................................................. 21
2
PART I
The issuer has elected to follow Form 10-SB, Disclosure Alternative 2.
Item 6. Description of Business
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Scottsdale Scientific, Inc. ("Scottsdale Scientific", "the Company")
was incorporated under the laws of the State of Florida on April 8, 1997 with an
authorized capital of 100,000,000 shares of common stock par value $0.001 per
share. As of March 31, 1999, the Company had issued 15,017,855 shares of its
stock. The Company currently trades on the NASDAQ OTC Bulletin Board under the
symbol STDS.
Scottsdale Scientific is a corporation involved in the wholesale
distribution of nutritional health supplements. These health supplements are
distributed to physicians, nutritionists, storefront businesses and direct to
consumers. In 1995, the Dietary Supplement Health Education act was passed,
providing nutritional supplement companies the ability to develop and market a
wider number of nutrients that have proven their effectiveness in non-western
cultures. As a result of this legislation, and an ever-increasing awareness
amongst consumers, sales of health-related products grew by fifteen percent
(15%) last year alone.
The Company's initial business strategy was to establish itself as a
national and global vendor of nutritional supplements to professionals
(physicians, nutritionists and chiropractors), wholesale (sales to storefront
businesses, including health food stores and drugstores), and direct-to-
consumers (direct mail, 800 numbers and the Internet). The Company's initial
product line includes vitamin C products, multiple vitamins and minerals,
essential fatty acids, superfood concentrates, live cell therapy and targeted
supplements for immunological and autoimmune disorders.
On May 1, 1997, the Company commenced an offering of 400,000 shares of
its common stock pursuant to Regulation D, Rule 504 at a price of $0.25 per
share for a total offering of $100,000. This offering was completed on July 10,
1997 with all shares sold. The proceeds from the offering were used for working
capital and to explore business opportunities in the health-related products
business.
On May 1, 1997, Harmel S .Rayat, Narinder Thouli and Wes Janzen were
elected to the board of directors by resolution of the board. On this same date,
the previous board members, Dave Gamache and Ken Finkelstein, resigned from the
board of directors.
On October 28, 1997, the Company began an offering in reliance upon
Regulation D, Rule 504. This offering was for 4,300,000 shares of the Company's
common stock at a price of $0.10 per share for a total offering of $430,000. The
offering was completed on December 9, 1997 with all shares sold. The proceeds
from the offering were used for working capital, public relations and research
and development of the European market.
3
The board of directors approved the acquisition of NutriCology, Inc., a
California corporation, on December 8, 1997. Under the terms of this
transaction, the Company received all of the issued and outstanding shares of
NutriCology, Inc. in exchange for 6,800,000 shares of the Company's common stock
to be issued to Stephen Levine as sole shareholder of NutriCology, Inc.
Additionally, 61,500 shares of the Company's common stock were paid as a fee to
Lorraine Peller for the facilitation of the introduction between NutriCology and
the Company. This acquisition was approved by the shareholders of the Company on
December 8, 1997 and was completed on February 3, 1998.
On December 11, 1997, Stephen Levine, Susan Levine, Marianne Sum and
Arnold Takemoto were elected as directors of the board at a meeting of the board
of directors. Narinder Thouli and Wes Janzen resigned from the board at this
time. Upon the election of the new directors, new officers of the corporation
were elected. Stephen Levine was named Chairman and Chief Executive Officer,
Susan Levine was elected Secretary and Treasurer and Marianne Sum replaced
Harmel Rayat as President and Chief Operating Officer. At this same meeting, the
board resolved to hold its 1998 Annual Meeting on April 15, 1998 at the
Company's offices in order to elect directors for the ensuing year, authorize
the amendment of the Articles of Incorporation in order to create a class of
preferred stock consisting of 1,000,000 shares with a par value of $0.25 per
share, authorize a 1997 Stock Option Plan for 1,000,000 shares and ratify the
appointment of Blume Law Firm, P.C. as Counsel to the Company and of Clancy &
Company, P.L.L.C., as independent public accountants for the firm.
In March 1998, the Company formed an alliance with Protein Research, a
contract manufacturer supplying nutritional supplements globally. Protein
Research manages the new automated packaging line installed in Hayward,
California and will also act as a back-up warehouse.
Scottsdale Scientific also signed distribution agreements with Aplacom,
Assessoria, Plancjamento e Comercia Ltda of Sao Paolo, Brazil, and with
Nutri-Link Ltd. in the United Kingdom in September 1998. Aplacom has a long
history of working with the health and sanitary governmental authorities of
Brazil, which provides them with a privileged position from which to address the
Mercosul countries of Brazil, Argentina, Chile and Uruguay, and has 7,000
distributors in 50 cities throughout South America. Nutri-Link is a
scientifically-researched nutritional supplement and functional medical
laboratory testing company. Nutri-Link is also involved in DNA testing and
protocols implementing the use of Scottsdale Scientific products, which is
generating media exposure in Britain.
On April 1, 1998, Harmel Rayat resigned from the board of directors for
personal reasons. Mr. Rayat did not have any disagreements with the Company. At
this time, the annual meeting date was postponed to June 19, 1998 due to delays
in preparing the Company's consolidated financial statements. At this same
meeting, the Company approved a 504 Placement Offering of 96,000 shares at
$1.625 per share with a warrant exercisable at $1.75 per share until April 15,
2000. The proceeds from this offering were to be used for further develop the
Company's awareness to investors. The placement was completed on April 30, 1998
with all shares sold.
4
A meeting of the Board of Directors was held on July 1, 1998 to discuss
the need for additional capital. A 504 offering was approved authorizing the
sale of 46,855 shares of common stock of the Company at $3.18 per share. The
proceeds from this offering were used as additional capital to develop the
business of the Company's subsidiary, NutriCology, Inc. and was completed on
April 30, 1998 with all shares sold.
The Company's annual meeting of shareholders was held on July 10, 1998.
Of the 14,596,000 shares outstanding, 9,803,050 voted in person or via proxy.
The shareholders ratified the appointment of the officers and directors of the
Company for the coming year, approved the establishment of a class of Preferred
Stock consisting of 1,000,000 shares with a par value of $0.25 per share,
adopted the 1998 Stock Option Plan and the reservation of 1,000,000 shares of
common stock for issuance under that plan at a price of $2.00 per share, and the
appointment of the Company's corporate counsel and independent auditor for the
coming year.
The Board of Directors held a meeting on July 24, 1998. At this
meeting, the Board agreed to purchase the rights and trademark to "ProGreens"
for $175,000, to be completed on July 31, 1998 in exchange for 50,000 shares of
the Company's common stock in lieu of cash. The Board also agreed to offer
20,000 shares of the Company's common stock via a 504 Placement Memorandum at
$2.50 per share with a warrant exercisable at $2.00 per share until July 31,
2000. The proceeds from this offering, which was completed on July 31, 1998 with
all shares sold, were used to enhance the investor relations awareness of the
Company.
On September 11, 1998, the Company's Board of Directors met and
approved a 504 offering of 50,000 shares of common stock at $2.00 per share in
order to develop the Company's awareness to investors. This offering was
completed on September 30, 1998 with all shares sold. The Board also approved
the cancellation of the acquisition of the rights to "ProGreens" and the
cancellation of 50,000 shares paid to Jim Cassidy for these rights.
The Board of Directors met on October 9, 1998. At this meeting, the
directors approved a 504 offering of 15,000 shares of the Company's common stock
at $1.00 per share and an additional 75,000 shares of common stock at $1.00 per
share with a warrant exercisable at $1.00 per share until October 13, 2000.
These funds will be used to meet the expenses of increasing investor relations
awareness for the next three months. The offering was completed on October 30,
1998 with all shares sold.
A meeting of the Board of Directors was held at the Company's offices
on January 26, 1999. At this meeting, Arnold Takemoto and Susan Levine resigned
from the Board of Directors. Both Mr. Takemoto and Mrs. Levine resigned for
personal reasons and did not have any disagreements with the Company. Mrs.
Levine remains an employee of the Company. Both resigning directors relinquished
their interest in the 100,000 options awarded to directors, but Mrs. Levine was
granted 150,000 options from the 1998 Employee Stock Option plan at $2.00 per
share, fully vested immediately. Dr. Ricki Pollycove was appointed to the Board
at this time and was granted 100,000 share options at $4.00 each as a director.
Additionally, Stephen Levine relinquished his position as
5
Chief Executive Officer of the Company and the Board voted that Marianne Sum
would assume the role of Chief Executive Officer. Mr. Levine remains the
Chairman of the Company's Board of Directors and the Director of Research.
In conjunction with Mr. Levine and Ms. Sum's new roles in the Company,
a Management Agreement was executed by both of them on January 29, 1999
effective for two years commencing February 1, 1999. Under the terms of this
Agreement, Ms. Sum is appointed as President of the Company and manages the
Company under the direction of the Board of Directors and Mr. Levine is
appointed as the Director of Research and is responsible for product development
subject to the supervision of Ms. Sum.
On February 9, 1999, a Voting Trust Agreement was signed between
Stephen A. Levine as Beneficiary and Marianne Sum as Trustee, whereby Mr. Levine
transferred his voting rights in the 9.8 million shares of the Company's common
stock held by him to Ms. Sum. This Agreement is effective as of February 1, 1999
and ending January 31, 2000, with an option to extend the Agreement to January
31, 2001 if both parties agree. The Trustee's powers include the right to vote
the stock, the right to participate in, consent to or ratify any corporate or
Stockholders' action, the right to receive all dividends and distributions in
cash, kind or any other property and the right to become financially interested
in any matter or transaction to which the Company or its subsidiaries and
affiliates may be a party. All dividends and other stock distributions will be
distributed by the Trustee to the Beneficiary. The Trustee may not sell stock so
that Mr. Levine's interest in the Company is less than 51%.
On March 29, 1999 the Company issued 180,000 shares of its common stock
at $1.667 each as payment of a debt of $300,000.
The issuance of 100,000 options for the Company's Common Stock to each
member of the Board of Directors at a price of $2.00 per share in exchange for
services rendered was approved by the Board on March 25, 1999. These options
became exercisable immediately and expire on December 31, 2003.
NutriCology, Inc.
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NutriCology, Inc. was incorporated in the state of California on March
13, 1980. On January 19, 1982, NutriCology amended its Articles to increase the
authorized number of directors from two to three. NutriCology has a line of over
350 products under the product line NutriCology/Allergy Research Group and has
set the standard for hypoallergenic nutritional supplements since 1980.
NutriCology was the first company in the United States to introduce numerous
specialty products, including melatonin, a neurohormone, germenium sesquioxide,
AntiOx, a broad spectrum antioxidant and Buffered Vitamin C, used as a
nutritional supplement for its value associated with medical treatment for
opiate and stimulate abusers.
6
NutriCology's products are designed with the allergenic individual in
mind and are of the purest and highest quality obtainable. They are generally
made without yeast, corn, wheat, soy, dairy products, flavorings, color, salt,
sugar, starch, common preservatives, binders and excipients. NutriCology
considers itself to be a leader in the field of nutritional biochemistry and its
formulations to represent some of the most sophisticated concepts in nutritional
science. NutriCology's product line includes OcuDyne(TM), For Women Only
Calcium, ParaMicrocidin(TM), Esterol(TM), Laktoferrin, ProGreen(R) and
Cytolog(TM), as well as its Basic Program products (Buffered Vitamin C,
Multi-Vi-Min(TM), Flax Seed Oil and Free Aminos(TM)).
On January 6, 1998, prior to its acquisition by the Company,
NutriCology finalized an exclusive one-year contract with The Right Solution
("TRS"), a multi-level distributorship with over 35,000 distributors worldwide.
TRS's revenues for 1998 were estimated at approximately $2 million. This
contract has since expired and will not be renewed.
Regulatory Consideration
------------------------
There are currently no FDA or other regulations governing the sale of
nutritional supplements and other products of the type sold by the Company.
Competition
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Strong interest in nutritional supplements has resulted in a large
number of competitors in the marketplace. The market has many growth companies
with strong marketing and sales abilities, quality products and sound
management. According to the trade magazine Whole Foods, health food store sales
throughout the nation grew in revenues from $9 billion to $17 billion last year.
Nutritional supplements represent at least 25% of those revenues. A few of the
competitors of the Company are listed below:
Metagenics, Inc. This company markets primarily to the chiropractic market.
Twin Labs. Twin Labs has $170 million in 1996 sales and is very successful in
General Nutrition Centers and other health food stores. This company has low
operating profits due to the low margin health food store market.
Nature's Way. This is a strong private label company that is well-managed.
KAL. This entity markets a full line of herbal and vitamin supplements.
Solgar. Solgar markets high quality products, is well-managed and has made
strong in-roads into the international marketplace.
The companies listed above, and many other corporations in the health and
nutritional supplement business, are better funded and possess superior
managerial, marketing and technical talent. The
7
Company plans to compete primarily on the basis of superior service and
differentiate itself by marketing only quality products. Management is of the
opinion that a public listing on the OTC Bulletin Board will allow the Company
to raise additional investment capital and to attract and retain quality
personnel by being able to offer such incentives as stock options and the
ability to invest in the Company itself (through open market purchases or
private placements). The Company also feels that the acquisition of NutriCology,
Inc., a well-managed, highly respected and very successful company in the
physician market, will also be of help competitively.
8
Plan of Operations
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Pro Forma for 1999
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January February March April
Operating Income
Sales 1,200,000.00 1,200,000.00 1,200,000.00 1,200,000.00
Returns and Allowances (45,000.00) (45,000.00) (45,000.00) (45,000.00)
Discounts Allowed-Trade (40,000.00) (40,000.00) (40,000.00) (40,000.00)
Freight & Service Charges Income 35,000.00 35,000.00 35,000.00 35,000.00
Gross Operating Income 1,150,000.00 1,150,000.00 1,150,000.00 1,150,000.00
Cost of Goods Sold 612,375.00 612,375.00 612,375.00 612,375.00
Gross Profit 537,625.00 612,375.00 612,375.00 612,375.00
Operating Expenses
Officer Salaries 35,000.00 35,000.00 35,000.00 35,000.00
Office Salaries 125,000.00 125,000.00 125,000.00 125,000.00
Payroll Taxes-- Employer FICA 12,240.00 20,000.00 20,000.00 20,000.00
Payroll Taxes-- FUTA 1,280.00 1,500.00 1,500.00 1,500.00
Payroll Taxes-- SUI 5,600.00 7,000.00 7,000.00 7,000.00
Workman Compensation Insurance 2,807.68 2,807.68 2,807.68 2,807.68
Profit-Sharing/Bonuses 6,075.00 6,075.00 6,075.00 6,075.00
Total Salary-Related Expenses 188,002.68 197,382.68 197,382.68 197,382.68
Advertising-- General 4,000.00 4,000.00 4,000.00 4,000.00
Advertising-- Distributor 2,500.00 2,500.00 2,500.00 2,500.00
Public Relations 1,250.00 1,250.00 1,250.00 1,250.00
Legal Fees 2,500.00 2,500.00 2,500.00 2,500.00
Accounting Fees 4,000.00 4,000.00 4,000.00 4,000.00
Professional Services-- Technical 7,500.00 7,500.00 7,500.00 7,500.00
Automotive Expenses 4,000.00 4,000.00 4,000.00 4,000.00
Bad Debts 2,500.00 2,500.00 2,500.00 2,500.00
Bankcard Merchant Charges 7,500.00 7,500.00 7,500.00 7,500.00
Janitorial/Cleaning Supplies 1,500.00 1,500.00 1,500.00 1,500.00
Commissions-- Sales Brokers 1,500.00 1,500.00 1,500.00 1,500.00
Commissions 10,000.00 10,000.00 10,000.00 10,000.00
Contributions 2,000.00 2,000.00 2,000.00 2,000.00
Collections Expense 500.00 500.00 500.00 500.00
Directors Fees 2,500.00 2,500.00 2,500.00 2,500.00
Dues & Subscriptions 1,500.00 1,500.00 1,500.00 1,500.00
Depreciation 6,500.00 6,500.00 6,500.00 6,500.00
Amortization/Leasehold Improvement 10,000.00 0.00 0.00 0.00
Employee Functions/Benefits 2,500.00 2,500.00 2,500.00 2,500.00
Travel & Entertainment 15,000.00 15,000.00 15,000.00 15,000.00
Equipment Rental and Lease 10,000.00 10,000.00 10,000.00 10,000.00
Lease-- Building 31,060.00 31,060.00 31,060.00 31,060.00
Temporary Help-- Outside 1,000.00 1,000.00 1,000.00 1,000.00
Telephone 10,000.00 10,000.00 10,000.00 10,000.00
Telephone Maintenance 500.00 500.00 500.00 500.00
Training 5,000.00 5,000.00 5,000.00 5,000.00
9
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January February March April
Utility 4,000.00 4,000.00 4,000.00 4,000.00
Insurance-- General/Product Liability 4,000.00 4,000.00 4,000.00 4,000.00
Insurance-- Group Medical 12,500.00 12,500.00 12,500.00 12,500.00
Insurance-- Life 2,500.00 2,500.00 2,500.00 2,500.00
Licenses 1,500.00 1,500.00 1,500.00 1,500.00
Repair & Maintenance-- Building 500.00 500.00 500.00 500.00
Repair & Maintenance-- Equipment 2,000.00 2,000.00 2,000.00 2,000.00
Office Supplies 4,500.00 4,500.00 4,500.00 4,500.00
Outside Services 4,000.00 4,000.00 4,000.00 4,000.00
Payroll Service 300.00 300.00 300.00 300.00
Outside Service-- Laboratory 2,500.00 2,500.00 2,500.00 2,500.00
Promotions 5,000.00 5,000.00 5,000.00 5,000.00
Printing 7,500.00 7,500.00 7,500.00 7,500.00
Conventions 10,000.00 10,000.00 10,000.00 10,000.00
Product Catalogs 15,000.00 15,000.00 15,000.00 15,000.00
Warehouse Supplies 3,500.00 3,500.00 3,500.00 3,500.00
Freight 35,000.00 35,000.00 35,000.00 35,000.00
Postage 7,500.00 7,500.00 7,500.00 7,500.00
Total Operating Expenses 456,612.68 455.992.68 455,992.68 455,992.68
Income (Loss) From Operations 81,012.32 81,632.32 81,632.32 81,632.32
Other Income & Expenses
Miscellaneous Income 0.00 0.00 0.00 0.00
Interest Income 208.33 312.50 416.67 520.83
Interest Expense (2,062.50) (1,375.00) (687.50) 0.00
Research & Development (35,000.00) (35,000.00) (35,000.00) (35,000.00)
Total Other Income/Expenses (36,854.17) (36,062.50) (35,270.83) (34,479.17)
Income Before Taxes 44,158.15 45,569.82 46,361.49 47,153.15
Income Taxes (38%) (16,780.10) (17,316.53) (17,617.36) (17,918.20)
Net Income 27,378.06 28,253.29 28,744.12 29,234.96
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May June July August
Operating Income
Sales 1,300,000.00 1,300,000.00 1,300,000.00 1,300,000.00
Returns and Allowances (48,000.00) (48,000.00) (48,000.00) (48,000.00)
Discounts Allowed-Trade (42,000.00) (42,000.00) (42,000.00) (42,000.00)
Freight & Service Charges Income 36,000.00 36,000.00 36,000.00 36,000.00
Gross Operating Income 1,246,000.00 1,246,000.00 1,246,000.00 1,246,000.00
Cost of Goods Sold 663,495.00 663,495.00 663,495.00 663,495.00
Gross Profit 582,505.00 582,505.00 582,505.00 582,505.00
Operating Expenses
Officer Salaries 35,000.00 35,000.00 40,000.00 40,000.00
Office Salaries 125,000.00 125,000.00 125,000.00 125,000.00
Payroll Taxes-- Employer FICA 12,240.00 20,000.00 20,000.00 20,000.00
Payroll Taxes-- FUTA 1,280.00 1,500.00 1,500.00 1,500.00
10
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May June July August
Payroll Taxes-- SUI 5,600.00 7,000.00 7,000.00 7,000.00
Workman Compensation Insurance 2,807.68 2,807.68 2,895.42 2,895.42
Profit-Sharing/Bonuses 6,075.00 6,075.00 6,075.00 6,075.00
Total Salary-Related Expenses 188,002.68 197,382.68 202,470.42 202,470.42
Advertising-- General 4,000.00 4,000.00 4,000.00 4,000.00
Advertising-- Distributor 2,500.00 2,500.00 2,500.00 2,500.00
Public Relations 1,250.00 1,250.00 1,250.00 1,250.00
Legal Fees 2,500.00 2,500.00 2,500.00 2,500.00
Accounting Fees 4,000.00 4,000.00 4,000.00 4,000.00
Professional Services-- Technical 7,500.00 7,500.00 7,500.00 7,500.00
Automotive Expenses 4,000.00 4,000.00 4,000.00 4,000.00
Bad Debts 2,500.00 2,500.00 2,500.00 2,500.00
Bankcard Merchant Charges 7,500.00 7,500.00 7,500.00 7,500.00
Janitorial/Cleaning Supplies 1,500.00 1,500.00 1,500.00 1,500.00
Commissions-- Sales Brokers 1,500.00 1,500.00 1,500.00 1,500.00
Commissions 10,000.00 10,000.00 10,000.00 10,000.00
Contributions 2,000.00 2,000.00 2,000.00 2,000.00
Collections Expense 500.00 500.00 500.00 500.00
Directors Fees 2,500.00 2,500.00 2,500.00 2,500.00
Dues & Subscriptions 1,500.00 1,500.00 1,500.00 1,500.00
Depreciation 6,500.00 6,500.00 6,500.00 6,500.00
Amortization/Leasehold Improvement 10,000.00 0.00 0.00 0.00
Employee Functions/Benefits 2,500.00 10,000.00 2,500.00 2,500.00
Travel & Entertainment 15,000.00 15,000.00 15,000.00 15,000.00
Equipment Rental and Lease 10,000.00 10,000.00 10,000.00 10,000.00
Lease-- Building 31,060.00 31,060.00 31,060.00 31,060.00
Temporary Help-- Outside 1,000.00 1,000.00 1,000.00 1,000.00
Telephone 10,000.00 10,000.00 10,000.00 10,000.00
Telephone Maintenance 500.00 500.00 500.00 500.00
Training 5,000.00 5,000.00 5,000.00 5,000.00
Utility 4,000.00 4,000.00 4,000.00 4,000.00
Insurance-- General/Product Liability 4,000.00 4,000.00 4,000.00 4,000.00
Insurance-- Group Medical 12,500.00 12,500.00 12,500.00 12,500.00
Insurance-- Life 2,500.00 2,500.00 2,500.00 2,500.00
Licenses 1,500.00 1,500.00 1,500.00 1,500.00
Repair & Maintenance-- Building 500.00 500.00 500.00 500.00
Repair & Maintenance-- Equipment 2,000.00 2,000.00 2,000.00 2,000.00
Office Supplies 4,500.00 4,500.00 4,500.00 4,500.00
Outside Services 4,000.00 4,000.00 4,000.00 4,000.00
Payroll Service 300.00 300.00 300.00 300.00
Outside Service-- Laboratory 2,500.00 2,500.00 2,500.00 2,500.00
Promotions 5,000.00 5,000.00 5,000.00 5,000.00
Printing 7,500.00 7,500.00 7,500.00 7,500.00
Conventions 10,000.00 10,000.00 10,000.00 10,000.00
Product Catalogs 15,000.00 15,000.00 15,000.00 15,000.00
Warehouse Supplies 3,500.00 3,500.00 3,500.00 3,500.00
Freight 35,000.00 35,000.00 35,000.00 35,000.00
Postage 7,500.00 7,500.00 7,500.00 7,500.00
Total Operating Expenses 465,992.68 463.492.68 461,080.42 461,080.42
Income (Loss) From Operations 116,512.32 119,012.32 121,424.58 121,424.58
11
ˇ Enlarge/Download Table
May June July August
Other Income & Expenses
Miscellaneous Income 0.00 0.00 0.00 0.00
Interest Income 625.00 729.17 833.33 833.33
Interest Expense 0.00 0.00 0.00 0.00
Research & Development (35,000.00) (35,000.00) (35,000.00) (35,000.00)
Total Other Income/Expenses (34,375.00) (34,270.83) (34,166.67) (34,166.67)
Income Before Taxes 82,137.32 84,741.49 87,257.91 87,257.91
Income Taxes (38%) (31,212.18) (32,201.76) (33,158.01) (33,158.01)
Net Income 50.925.14 52,539.72 54,099.91 54,099.91
ˇ Enlarge/Download Table
September October November December
Operating Income
Sales 1,400,000.00 1,400,000.00 1,400,000.00 1,400,000.00
Returns and Allowances (50,000.00) (50,000.00) (50,000.00) (50,000.00)
Discounts Allowed-Trade (44,000.00) (44,000.00) (44,000.00) (44,000.00)
Freight & Service Charges Income 37,500.00 37,500.00 37,500.00 37,500.00
Gross Operating Income 1,343,500.00 1,343,500.00 1,343,500.00 1,343,500.00
Cost of Goods Sold 715,413.75 715,413.75 715,413.75 715,413.75
Gross Profit 628,086.25 628,086.25 628,086.25 628,086.25
Operating Expenses
Officer Salaries 40,000.00 40,000.00 40,000.00 40,000.00
Office Salaries 125,000.00 150,000.00 150,000.00 150,000.00
Payroll Taxes-- Employer FICA 12,240.00 20,000.00 20,000.00 20,000.00
Payroll Taxes-- FUTA 1,280.00 1,500.00 1,500.00 1,500.00
Payroll Taxes-- SUI 5,600.00 7,000.00 7,000.00 7,000.00
Workman Compensation Insurance 2,895.42 3,334.12 3,334.12 3,334.12
Profit-Sharing/Bonuses 6,075.00 6,075.00 6,075.00 6,075.00
Total Salary-Related Expenses 202,470.42 227,909.12 227,909.12 227,909.12
Advertising-- General 4,000.00 4,000.00 4,000.00 4,000.00
Advertising-- Distributor 2,500.00 2,500.00 2,500.00 2,500.00
Public Relations 1,250.00 1,250.00 1,250.00 1,250.00
Legal Fees 2,500.00 2,500.00 2,500.00 2,500.00
Accounting Fees 4,000.00 4,000.00 4,000.00 4,000.00
Professional Services-- Technical 7,500.00 7,500.00 7,500.00 7,500.00
Automotive Expenses 4,000.00 4,000.00 4,000.00 4,000.00
Bad Debts 2,500.00 2,500.00 2,500.00 2,500.00
Bankcard Merchant Charges 7,500.00 7,500.00 7,500.00 7,500.00
Janitorial/Cleaning Supplies 1,500.00 1,500.00 1,500.00 1,500.00
Commissions-- Sales Brokers 1,500.00 1,500.00 1,500.00 1,500.00
Commissions 10,000.00 10,000.00 10,000.00 10,000.00
Contributions 2,000.00 2,000.00 2,000.00 2,000.00
Collections Expense 500.00 500.00 500.00 500.00
Directors Fees 2,500.00 2,500.00 2,500.00 2,500.00
Dues & Subscriptions 1,500.00 1,500.00 1,500.00 1,500.00
Depreciation 6,500.00 6,500.00 6,500.00 6,500.00
Amortization/Leasehold Improvement 10,000.00 0.00 0.00 0.00
12
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September October November December
Employee Functions/Benefits 2,500.00 10,000.00 2,500.00 5,000.00
Travel & Entertainment 15,000.00 15,000.00 15,000.00 15,000.00
Equipment Rental and Lease 10,000.00 10,000.00 10,000.00 10,000.00
Lease-- Building 31,060.00 31,060.00 31,060.00 31,060.00
Temporary Help-- Outside 1,000.00 1,000.00 1,000.00 1,000.00
Telephone 10,000.00 10,000.00 10,000.00 10,000.00
Telephone Maintenance 500.00 500.00 500.00 500.00
Training 5,000.00 5,000.00 5,000.00 5,000.00
Utility 4,000.00 4,000.00 4,000.00 4,000.00
Insurance-- General/Product Liability 4,000.00 4,000.00 4,000.00 4,000.00
Insurance-- Group Medical 12,500.00 12,500.00 12,500.00 12,500.00
Insurance-- Life 2,500.00 2,500.00 2,500.00 2,500.00
Licenses 1,500.00 1,500.00 1,500.00 1,500.00
Repair & Maintenance-- Building 500.00 500.00 500.00 500.00
Repair & Maintenance-- Equipment 2,000.00 2,000.00 2,000.00 2,000.00
Office Supplies 4,500.00 4,500.00 4,500.00 4,500.00
Outside Services 4,000.00 4,000.00 4,000.00 4,000.00
Payroll Service 300.00 300.00 300.00 300.00
Outside Service-- Laboratory 2,500.00 2,500.00 2,500.00 2,500.00
Promotions 5,000.00 5,000.00 5,000.00 5,000.00
Printing 7,500.00 7,500.00 7,500.00 7,500.00
Conventions 10,000.00 10,000.00 10,000.00 10,000.00
Product Catalogs 15,000.00 15,000.00 15,000.00 15,000.00
Warehouse Supplies 3,500.00 3,500.00 3,500.00 3,500.00
Freight 35,000.00 35,000.00 35,000.00 35,000.00
Postage 7,500.00 7,500.00 7,500.00 7,500.00
Total Operating Expenses 471,080.42 486,519.12 486,519.12 489,019.12
Income (Loss) From Operations 157,005.83 141,567.13 141,567.13 139,067.13
Other Income & Expenses
Miscellaneous Income 0.00 0.00 0.00 0.00
Interest Income 833.33 833.33 833.33 833.33
Interest Expense 0.00 0.00 0.00 0.00
Research & Development (35,000.00) (35,000.00) (35,000.00) (35,000.00)
Total Other Income/Expenses (34,166.67) (34,166.67) (34,166.67) (34,166.67)
Income Before Taxes 122,839.16 107,400.46 107,400.46 104,900.46
Income Taxes (38%) (46,678.88) (40,812.18) (40,812.18) (39,862.18)
Net Income 76,160.28 66,558.29 66,588.29 65,038.29
13
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Total Year % of Sales
Operating Income
Sales 15,600,000.00 104.29%
Returns and Allowances (572,000.00) (3.82%)
Discounts Allowed-Trade (504,000.00) (3.37%)
Freight & Service Charges Income 434,000.00 2.90%
Gross Operating Income 14,958,000.00 100%
Cost of Goods Sold 7,965,135.00 53.25%
Gross Profit 6,992,865.00 46.75%
Operating Expenses
Officer Salaries 450,000.00
Office Salaries 1,575,000.00
Payroll Taxes-- Employer FICA 232,240.00
Payroll Taxes-- FUTA 17,780.00
Payroll Taxes-- SUI 82,600.00
Workman Compensation Insurance 35,534.70
Profit-Sharing/Bonuses 72,900.00
Total Salary-Related Expenses 2,466,054.70 16.49%
Advertising-- General 48,000.00 0.32%
Advertising-- Distributor 30,000.00 0.20%
Public Relations 15,000.00 0.10%
Legal Fees 30,000.00 0.20%
Accounting Fees 48,000.00 0.32%
Professional Services-- Technical 90,000.00 0.60%
Automotive Expenses 48,000.00 0.32%
Bad Debts 30,000.00 0.20%
Bankcard Merchant Charges 90,000.00 0.60%
Janitorial/Cleaning Supplies 18,000.00 0.12%
Commissions-- Sales Brokers 18,000.00 0.12%
Commissions 120,000.00 0.80%
Contributions 24,000.00 0.16%
Collections Expense 6,000.00 0.04%
Directors Fees 30,000.00 0.20%
Dues & Subscriptions 18,000.00 0.12%
Depreciation 78,000.00 0.52%
Amortization/Leasehold Improvement 30,000.00 0.20%
Employee Functions/Benefits 40,000.00 0.27%
Travel & Entertainment 180,000.00 1.20%
Equipment Rental and Lease 120,000.00 0.80%
Lease-- Building 372,720.00 2.49%
Temporary Help-- Outside 12,000.00 0.08%
Telephone 120,000.00 0.80%
Telephone Maintenance 6,000.00 0.04%
Training 60,000.00 0.40%
Utility 48,000.00 0.32%
Insurance-- General/Product Liability 48,000.00 0.32%
Insurance-- Group Medical 150,000.00 1.00%
Insurance-- Life 30,000.00 0.20%
Licenses 18,000.00 0.12%
Repair & Maintenance-- Building 6,000.00 0.04%
14
ˇ Download Table
Total Year %of Sales
Repair & Maintenance-- Equipment 24,000.00 0.16%
Office Supplies 54,000.00 0.36%
Outside Services 48,000.00 0.32%
Payroll Service 3,600.00 0.02%
Outside Service-- Laboratory 30,000.00 0.20%
Promotions 60,000.00 0.40%
Printing 90,000.00 0.60%
Conventions 120,000.00 0.80%
Product Catalogs 180,000.00 1.20%
Warehouse Supplies 42,000.00 0.28%
Freight 420,000.00 2.81%
Postage 90,000.00 0.60%
Total Operating Expenses 5,609,374.70 37.50%
Income (Loss) From Operations 800,000.00 9.25%
Other Income & Expenses
Miscellaneous Income 0.00 0.00%
Interest Income 7,912.50 0.05%
Interest Expense (4,125.00) (0.03%)
Research & Development (999,802.80) (2.81%)
Total Other Income/Expenses (996,015.30) (2.78%)
Income Before Taxes 383,687.50 6.47%
Income Taxes (38%) (145,801.25) (2.46%)
Net Income 237,886.25 4.01%
Discussion of Plan of Operations
--------------------------------
By the end of fiscal 1998, the Company plans to implement a
packaging line/in-house quality control laboratory. The Company will contract
with an R&D entity to provide a defined product introduction schedule and
expectations. In addition to establishing its packaging operations, the Company
plans to lease a new location providing 12,800 square feet of space. This
facility will also house an in-house quality control laboratory.
The Company plans to implement its packaging operations fully by the
first quarter of 1999. Once operating, it anticipates a savings of $50,000 to
$100,000 in cost of goods expense. In addition, by having an in-house
laboratory, the Company can work in concert with its independent testing
laboratory further to authenticate the quality and safety of its products. The
above pro forma calculations are based on certain assumptions and sales figures
as indicated.
Assumptions used in Preparing Twelve Month Plan
-----------------------------------------------
The assumptions relied upon in preparing the Twelve Month Plan are as
follows:
15
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Employer Tax Burden
Employer FICA Rate 7.65%
FUTA Rate 0.80%
SUI Rate 3.60%
ˇ Download Table
Workers' Compensation Rate (per $100) Modifier Extension
Stores/Warehouse 9.57 0.756561 7.2402888
Salesperson-Outside 1.22 0.756561 0.9230044
Clerical Office Employees 1.04 0.756561 0.7868234
Officers not covered
Fifteen percent (15%) of the Company's employees are warehouse workers.
The rate used is calculated as ((7.2402888 *15) + (0.7868234*85)/100 which
equals 1.7548. In calculating the Employer Tax Burden, the ceiling reached by
employees was not accounted for, therefore the maximum employer tax burden was
used.
The Cost of Goods was calculated using 53.25% as the cost of goods.
This figure is derived from past history and the assumption that this will apply
in the future.
In calculating the R&D figure, $25,000 of officers' salaries may be
reclassified into R&D expense.
Interest Expense and Income was calculated assuming $300,000, $200,000
and $100,000 balances respectively paying 8.25% APR and 5% interest income for
balances of $50,000, $75,000, $100,000, $125,000, $150,000, $175,000 and
$200,000 balances, respectively.
The Company's leases were calculated at the rate of $16,000 per month
for the Hayward property, $7,000 per month for the San Rafael property and $0.62
per foot times 13,000 feet for the Packaging Plant to be leased at the end of
fiscal 1998.
Profit-sharing and bonuses were calculated as three percent of
salaries.
Employees
---------
The Company currently consists of 61 employees, all of whom are
full-time.
Year 2000 Issues
----------------
All of the Company's computer systems, including hardware and software,
utilize the date format specified in the underlying operating system of Windows
95 and, as a result, are fully Year 2000 compliant. As a result, the Company
does not anticipate any Year 2000 issues to arise, nor will there be any
expenses required in order to resolve Year 2000 issues.
16
Item 7. Description of Property
------- -----------------------
The Company currently rents office space located at 7332 East Butherus
Drive, Suite 101, Scottsdale, Arizona, 85260. The Company's subsidiary,
NutriCology, Inc., leases two warehouse office spaces, a main administrative and
warehouse location and an R&D and Sales office. The main administrative and
warehouse location, located in Hayward, California, is leased at a rate of
$13,738 per month for five years commencing June 1, 1998. The property consists
of approximately 25,440 square feet of office and warehouse space, of which
approximately 5,500 square feet is office space and 19,940 square feet consists
of warehouse space. The R&D and Sales office is located in San Rafael,
California and is leased at a rate of $7,000 per month for two years commencing
December 1, 1997.
The Company has established a packaging operation at a new location at
the end of March1998. This new location provides 12,800 square feet and is also
used to house the Company's quality control/in-house laboratory. This property
costs approximately $0.62 per square foot.
Item 8. Directors, Executive Officers and Significant Employees
------- -------------------------------------------------------
The following information sets forth the names of the officers and
directors of the Company, their present positions with the Company and
biographical information.
Stephen Levine. (Age 49). Chairman and Director of Research. Dr. Levine
graduated cum laude from the State University College in Buffalo, New York and
received his Ph.D. from the University of California, Berkeley. He was a Horace
and Edith King Davis Memorial Fellow and from 1972 to 1976 was an NIH Training
Grant, Predoctoral Fellow. In 1979, Dr. Levine founded Nutricology/Allergy
Research Group. Dr. Levine is internationally recognized as one of the foremost
and most innovative leaders and researchers in nutritional supplement
formulation. He is also recognized as an international lecturer with several
editorial positions in professionally sought- after publications. Dr. Levine is
the author of Antioxidant Adaption, Its Role in Free Radical Pathology, which is
considered to be the leading resource on the subject. Dr. Levine is the husband
of Susan Levine, who acts as Vice President of Convention Sales of the Company.
Marianne Sum. (Age 49). President, Chief Executive Officer and Director. Ms. Sum
graduated summa cum laude with a B.A. from Boston State College, received her
M.A. summa cum laude from Northeastern University and was a Ph.D. candidate in
History at Boston College. Ms. Sum has a twenty-five year history as a
successful businessperson, including the past seven years in the health and
wellness field. From 1992 to 1997 she was employed at Fun and Fitness, where she
was awarded Salesperson of the Year for 1992 and 1993 and was later promoted to
Vice President of Sales and Marketing.
Ricki Pollycove, M.D., M.H.S. (Age 47). Director, Secretary, Treasurer. Dr.
Pollycove obtained his B.A. in Zoology and Immunology in 1972 from the
University of California at Berkeley, her Master's in Health Sciences from the
University of California at Berkeley in 1975 and her M.D. from the University of
17
California, San Francisco in 1977. Dr. Pollycove completed an Internship in
Obstetrics and Gynecology at the University of California, Los Angeles and her
residency in Obstetrics and Gynecology at the University of California, San
Francisco, where she was Chief Resident at the UCSF Hospitals and Clinics in
1980-1981. Since 1981, Dr. Pollycove has been in private practice specializing
in Obstetrics and Gynecology, Breast Diseases and Integrative Medicine and is on
the active staff of California Pacific Medical Center. Dr. Pollycove was an
Assistant Professor at the University of Arizona College of Medicine from 1994
to the present, a Clinical Instructor at the University of California, San
Francisco, Department of Obstetrics and Gynecology and Reproductive Sciences
from 1981 to the present and a Gynecology clinical consultant at ASU Women's
Health Clinic in 1995. She is licensed by the California State Medical Board,
the Arizona State Medical Board and the American Board of Obstetrics and
Gynecology. Additionally, Dr. Pollycove was the Chief of the Division of
Gynecology, California Pacific Medical Center from 1992 to 1995 and an Associate
Director for Education, Breast Health Clinic, CPMC, from 1992 to 1997. Dr.
Pollycove has also held many consultant positions, including the American Cancer
Society Breast Cancer Task Force (1994 to present), the Arizona Women's Cancer
Network (1994 to 1997) and the Arizona Women's Cancer Control Project (1994 to
1997). She has also lectured extensively, participated in the Residency Teaching
Program at California Pacific Medical Center, and participated in public
education and other community education activities. Dr. Pollycove won a Fredi
award from the American Medical Association for her "Baby Safe" video in 1996
and has appeared on several nationally syndicated television programs.
Edward Lau (Age 38). General Manager. Mr. Lau holds a degree in Electrical
Engineering and Computer Science from the University of California at Berkeley.
He has been employed by NutriCology, Inc. for the past fifteen years. Mr. Lau is
the architect behind the design and creation of the sophisticated
state-of-the-art technology system now being implemented in the Company's new
25,000 square foot facility. He was promoted to General Manager of Scottsdale
Scientific, Inc. in July 1998.
Item 9. Remuneration of Directors and Officers
------- --------------------------------------
In fiscal 1997, Harmel S. Rayat, a former director of the Company,
received three million (3,000,000) shares of common stock of the Company in
exchange for services rendered. These shares were transferred to Dr. Stephen
Levine during the NutriCology acquisition. On November 1, 1998, each director
received 100,000 options for shares of common stock of the Company at $2.00
each, exercisable until December 31, 2003, in exchange for services rendered. No
other form of compensation, either in the form of cash or securities, has been
provided to directors. Compensation of $450,000.00 will be paid executive
officers for services in fiscal 1999.
Item 10. Security Ownership of Management and Certain Security Holders
-------- -------------------------------------------------------------
The following table sets forth, as of March 31, 1999, the beneficial
ownership of the Company's Common Stock by each person known by the Company to
beneficially own more than
18
5% of the Company's Common Stock outstanding as of such date and by the officers
and directors of the Company as a group. Except as otherwise indicated, all
shares are owned directly.
ˇ Download Table
(1) (2) (3) (4)
Name and address of Amount and Nature Percent
Title of Class beneficial owner of beneficial owner of class
-------------- ---------------- ------------------- --------
Common stock Stephen Levine* 9,800,000 shares 65%
30806 Santana Street 100,000 options
Hayward, California 94544
Common Stock Marianne Sum 100,000 options 0%
30806 Santana Street
Hayward, California 94544
Common Stock Dr. Ricki Pollycove 100,000 options 0%
30806 Santana Street
Hayward, California 94544
Common stock Directors and Officers 9,800,000 shares 65%
as a group (3 person) 300,000 options
* Dr. Levine's 9,800,000 shares are controlled by Marianne Sum pursuant to a
Voting Trust Agreement dated February 9, 1999.
Item 11. Interest of Management and Others in Certain Transactions
-------- ---------------------------------------------------------
No officer or director of the Company has had an interest in any
corporate transaction. Although Stephen Levine was the sole shareholder of
NutriCology, Inc., he was not named to the Board of Directors of Scottsdale
Scientific until after the acquisition.
19
Item 12. Securities Being Offered
-------- ------------------------
No securities are being offered in conjunction with this filing.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
------- -------------------------------------------------------------------
Other Stockholder Matters
-------------------------
The shares of the Company's stock are traded on the OTC Bulletin Board
under the symbol STDS. Because the Company did not begin trading until October
22, 1997, it has only a limited trading history. The following have been the
average High and Low prices for the times indicated:
ˇ Download Table
High Low
October-December 1997 2.2500 0.1250
December-March 1998 2.5625 1.8750
April-June 1998 4.0625 2.3125
July-Sept 1998 4.0000 2.0000
Oct-Dec 1998 2.4000 1.0500
Jan-Mar 1999 2.6000 1.0700
As of March 31, 1999 there were 104 registered shareholders in the
Company. There are no dividend restrictions in the Company. Market makers who
have posted bids or offers during the period October 22, 1997 through March 31,
1999 are as follows:
Public Securities, Inc.
300 North Argonne Road
Spokane, Washington 99212
William K. Frankel & Co.
30 Montgomery Street
Jersey City, NJ 07302
Paragon Capital Corp.
7 Hanover Square
New York, NY 10004
Item 2. Legal Proceedings
------- -----------------
In 1993, a lawsuit was filed in the Circuit Court of the 15th Judicial
Circuit in and for Palm Beach County, Florida by NutriSupplies, Inc., successor
in the interest to rights of Robert H. Harris and the Earth Harvest, Inc.
against Nutricology, Inc. (which has since become a wholly-owned subsidiary of
the Company), Stephen A. Levine (officer, director and beneficial shareholder of
the Company) and Nicholas Gonzales, M.D. This matter is a contract dispute
between Dr. Gonzales and NutriSupplies, Inc. Nutricology and Dr. Levine were
named in the suit only because Nutricology had been Dr. Gonzales' supplier. Dr.
Gonzales has fully indemnified Nutricology and Dr. Levine from any wrong-doing
in this matter and the Company does not expect that the outcome of the suit be
favorable to Nutricology and to Dr. Levine.
20
Item 3. Changes in and Disagreements with Accountants
------- ---------------------------------------------
The Company has had no changes in or disagreements with its
accountants. NutriCology, Inc., the Company's subsidiary, changed its accountant
from Deloitte & Touche to Clancy & Company, P.L.L.C., the independent auditor of
Scottsdale Scientific, Inc., after it was acquired by the Company.
Item 4. Recent Sales of Unregistered Securities
------- ---------------------------------------
On May 1, 1997, the Company commenced an offering of 400,000 shares of
its common stock pursuant to Regulation D, Rule 504 at a price of $0.25 per
share for a total offering of $100,000. This offering was completed on July 10,
1997 with all shares sold. The proceeds from the offering were used for working
capital and to develop the Company's wholesale distributing business. The
offering was sold to the following investors, who included both accredited and
unaccredited investors:
ˇ Download Table
Name and Address Shares Purchased
Olga Alagich 1,000
26 Lower Greycliffe Street
Queenscliff NSW, 2096 Sydney, Australia
Nicole Alagich 1,000
1936 Peters Road
West Vancouver, BC V7J 1Y9 Canada
Sam L. Arnold 2,000
9441 Beverly Street
Bell Hower, CA 90706
Neil Baker 1,000
949 Monashee Place
Kelowna, B.C. Canada
Terry Baker 1,000
949 Monashee Place
Kleowna, B.C. Canada
Eric L. Barclay 2,000
500-1111 West Georgia Street
Vancouver, BC V6E 4W3 Canada
Tracy Bartram 1,000
#51-12311 Mc Neeley Drive
Richmond, BC V6V 2S2 Canada
21
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Eli Basas 1,000
7790 Goodlad Street
Barnaby, BC V5E 2H6 Canada
Jody Bauer 1,000
206 Newby Court
Kelowna, BC V1X 4G6 Canada
Mickey Beal 1,000
3757 Shane Crescent
Prince George, B.C. V2N 4N2 Canada
Tanya Bell 1,000
1936 Peters Road
North Vancouver, BC V7J 1Y9 Canada
Gurgan Birdi 4,000
8604-158A Avenue
Edmonton, Alberta T5J 2J9 Canada
Kathie Bishop 1,000
9031 Shanks Road
Winfield, B.C. V4V 1M4 Canada
Susan Bozyk 1,000
109-980 Dillworth Drive
Kelowna, BC V1V 1S6 Canada
Cody Brandel 500
11580 Hartford Court
Riverside, CA 92503
Lisa Brandel 500
11580 Hartford Court
Riverside CA 92503
Steve Brown 1,000
5512 Okanagan Avenue
Vernon, B.C. V1T 6Y5 Canada
Scott Bruce 1,000
3019 West 13th Avenue
Vancouver, BC V6K 2V1 Canada
22
ˇ Download Table
James Carswell 1,000
5930 147th Street
Surrey, BC V3S 3A8 Canada
Chuan-Na Chang 4,000
208 West 41st Avenue
Vancouver, BC V5Y 2S4 Canada
Edwin Cheng 4,000
1135 West 48th Avenue
Vancouver, BC V6M 2N4 Canada
Jimmy Chi-Ming Tin 4,000
22191 Westminister Way
Richmond, BC V6V 1B5 Canada
Satinder P. Choan 3,000
165 West 61st Avenue
Vancouver, BC V6B 1F8 Canada
Tajinder Chohan 20,000
165 West 61st Avenue
Vancouver, BC V6B 1F8 Canada
Leni M. Coreins 1,000
2887 East 44th Avenue
Vancouver, BC V5R 3A7 Canada
John L. Costin 1,000
109-2990 Quebec Street
Vancouver, BC V5T 4P7 Canada
Sandra Craig 2,000
1369 Compston Crescent
Tsawwassen, BC V4L 1P8 Canada
Vern Craig 4,000
1369 Compston Crescent
Tsawwassen, BC V4L 1P8 Canada
Biro Dhaliwal 4,000
3556 Calder Avenue
North Vancouver, BC V7N 3R9 Canada
23
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Lambar Dhaliwal 4,000
3556 Calder Avenue
North Vancouver, BC V7N 3R9 Canada
Sonia Dhaliwal 5,000
4486 Triumph Street
Burnaby, BC V5C 1Z9 Canada
Paul Dhaliwal 5,000
4486 Triumph Street
Burnaby, BC V5C 1Z9 Canada
Jasvinder Dhesi 2,000
650 Madore Avenue
Coquitlam, BC V3K 2B3 Canada
J. Dutchyn 1,000
#13-750 Badke Road
Kelowna, BC V1X 6G9 Canada
Navruze Engineer 2,000
51 Foxwood Drive
Port Moody, BC V3H 4X2 Canada
Dorlyn Evancic 1,000
#203-1240 Quayside Drive
New Westminister, BC V3M 6H1 Canada
Deborah Faurot 2,000
2196 Bayswater Street
Vancouver, BC V6K 4P2 Canada
Ken H. Finkelstein 2,000
3295 West 8th Avenue
Vancouver, BC V6K 2C6 Canada
Barbara Forcier 1,000
9571-209 B Street
Langley, BC V1M 2A6 Canada
Joe A Gamache 2,000
1421 Barber Court
Banning, CA 92220
24
ˇ Download Table
David Gamache 2,000
6805 Sundance Trail
Riverside, CA 92506
Tony Gambato 1,000
1570 Elm Street
Prince George, BC V2L 1C8 Canada
Dean Gardiner 2,000
42 Belgrave Street
Manly NSW, Australia
Larry Gerber 1,000
1197 Hammond Avenue
Coquitlam, BC V3K 2P2 Canada
John Gilfillan 1,000
3511 Rosamond Avenue
Richmond, BC V7C 2C9 Canada
Russell Bryce Gilfillan 1,000
11311 4th Avenue
Richmond, BC V7E 3G7 Canada
Robin Gilfillan 1,000
11311 4th Avenue
Richmond, BC V7E 3G7 Canada
Bryce Gilfillan 2,000
11311 4th Avenue
Richmond, BC V7E 3G7 Canada
Steven Giles 1,000
309-727 Houghton Road
Kelowna, BC V1X 7J7 Canada
Deborah Goble 1,000
23616 132nd Avenue
Maple Ridge, BC V4R 2S5 Canada
Dustin Gowilt 1,000
11416 78 Avenue
Delta, BC V4C 1N9 Canada
25
ˇ Download Table
Charles Grahn 1,000
203-1386 West 73rd Avenue
Vancouver, BC V3C 3G2 Canada
Barry Hagan 2,000
3440 Trumond
Richmond, BC V7E 1B2 Canada
Tyson Hartman 1,000
#3-22875 125b Avenue
Maple Ridge, BC V2X 0W8 Canada
Blake Hardy 1,000
2620 Rubicon Road
West Bank, BC V3T 1H7 Canada
Sharon L. Hebgin 2,000
202-2471 Bellevue Avenue
West Vancouver, BC V74 1E1 Canada
Hsin-Chien Hsu 2,000
603-10899 West Whalley Ring Road
Surrey, BC V3T 5V2 Canada
Anne Janusonis 1,000
101-7255 Southridge
Prince George, BC V2N 4Z3 Canada
Peter Jensen 4,000
6311 Chatsworth Road
Richmond, BC V7C 3S4 Canada
Niele Jiwan 2,000
250-7501 Cumberland Street
Burnaby, BC V3N 4Y6 Canada
Alnoor Jiwan 2,000
1216 Pretty Court
New Westminister, BC Canada
Heather Jiwan 2,000
1216 Pretty Court
New Westminister, BC Canada
26
ˇ Download Table
Terry Johnston 6,000
1408-4300 Mayberry Street
Burnaby, BC V5H 4A4 Canada
Michael Johnston 2,000
153 Harris Street
Rockwood, Ontario N0B 2K0 Canada
Jageero S. Johl 4,000
122 West Braemar Road
North Vancouver, BC V7W 2S8 Canada
Anita Johnson 1,000
Box 1286
Port Nelson, BC V0C 1R0 Canada
Kevin W. Jones 2,000
1810 Dunn Court
Westland, MI 48186
Larry Killeen 1,000
3938 Enemark Crescent
Prince George, BC V2N 2X5 Canada
Garry Kimpinski 1,000
General Delivery
Watson Lake, Yukon Territories, V0C 1C0
Canada
Emil Kit 1,000
5365 Bogetti Place
Kamloops, BC V2C 6B2 Canada
Lawrence Kit 1,000
Box 32
Vergreville, Alberta T9C 1R1 Canada
Rob Kozak 2,000
1103-9595 Erickson Drive
Burnaby, BC V3J 7N9 Canada
Lary Kozak 4,000
1003-9595 Erickson Drive
Burnaby, BC V3J 7N9 Canada
27
ˇ Download Table
Jake Kroeker 2,000
#104-11240 Mellis Drive
Richmond, BC
Wes Kroeker 8,000
#312-7531 Minoru Boulevard
Richmond, BC V6Y 1Z3 Canada
Sinh Le 2,000
#1408-4300 Mayberry Street
Burnaby, BC V5H 4A4 Canada
Nicole LePage 2,000
8740 Ash Street
Richmond, BC V6Y 2S3 Canada
Hawthorne Levine 2,000
Montgomery Research, Inc.
600-353 Sacramento Street
San Francisco, CA 94111
Amber Lindley 1,000
10203-106 Street
Fort St. John, BC V1J 4E7 Canada
Lion Explorations, Ltd. 20,000
P.O. Box 120
Front Street
Grand Turk, Turks & Caicos Isl.
Janette Lovgren 1,000
5674 Kilmore Crescent West
Surrey, BC V3S 6L1 Canada
Grant Mackney 7,000
109-980 Dilworth Drive
Kelowna, BC V1V 1S6 Canada
Doris Mackney 1,000
Box 44031
Oyama, BC V4V 1Z5 Canada
Bob Mackney 1,000
Box 44021
Oyattia, BC V4V 1Z5 Canada
28
ˇ Download Table
Nadine F. MacNeil 1,000
P.O. Box 3536
Fort Nelson, BC V0C 1R0 Canada
Bunso Mann 2,000
6228 Tiffany Boulevard
Richmond, BC V7C 4Z2 Canada
Balraj Mann 2,000
6228 Tiffany Boulevard
Richmond, BC V7C 4Z2 Canada
Nirmal S. Mann 2,000
1182 East 33rd Avenue
Vancouver, BC V5V 3B3 Canada
Mahmood Mangalji 3,000
8214 Lakeland Drive
Burnaby, BC V5A 2B5 Canada
Tazmina Mangalji 3,000
8214 Lakeland Drive
Burnaby, BC V5A 2B5 Canada
Khallil Mangalji 2,000
8214 Lakeland Drive
Burnaby, BC V5A 2B5 Canada
Azzra Mangalji 2,000
8214 Lakeland Drive
Burnaby, BC V5A 2B5 Canada
Sameer Mapara 10,000
2932 Blackbear Court
Coquitlam, BC V3E 2V9 Canada
Zaher Mapara 4,000
1576 Lodgepole Place
Coquitlam, BC V3E 2V9 Canada
Riaz Mapara 4,000
1576 Lodgepole Place
Coquitlam, BC V3E 2V9 Canada
29
ˇ Download Table
Fairous Mapara 4,000
1576 Lodgepole Place
Coquitlam, BC V3E 2V9 Canada
Anisha Mapara 4,000
2932 Blackbear Court
Coquitlam, BC V3E 3A2 Canada
Bhupinder S. Mann 4,000
1182 East 33rd Avenue
Vancouver, BC V5V 3B3 Canada
Stephanie Martin 2,000
1704 Smithson Drive
Kelowna, BC Canada
Guy Martin 2,000
1704 Smithson Drive
Kelowna, BC Canada
Shawn McCluskey 1,000
#301-5500 Lynas Lane
Richmond, BC V7C 5R5 Canada
Wayne McCluskey 1,000
#51-12311 McNeely Drive
Richmond, BC V6V 2S2 Canada
Ryan McCluskey 1,000
#51-12311 McNeely Drive
Richmond, BC V6V 2S2 Canada
Arif Merali 1,000
8214 Lakeland Drive
Burnaby, BC V5A 2B5 Canada
Sair Merali 1,000
8214 Lakeland Drive
Burnaby, BC V5A 2B5 Canada
Millenium Management Corp. 4,000
P.O. Box N-10850
Nassau, Bahamas
30
ˇ Download Table
Charles Miller 1,000
SS2-S12-C33
Fort St. John, BC V1J 4M7 Canada
Sarat Mishra 1,000
4340 Corner Brook Crescent
Richmond, BC V7E 2H2 Canada
Noel Moss 1,000
Box 27
Parson, BC V0A 1L0 Canada
Valerie Mrakuzic 1,000
706-1500 Ostler Court
North Vancouver, BC V7G 2S2 Canada
Darko Mrakuzic 1,000
706-1500 Ostler Court
North Vancouver, BC V7G 2S2 Canada
George Mueller 2,000
#6-3511 Granville Avenue
Richmond, BC V7C 1C8 Canada
Frank Mueller 2,000
8740 Ash Street
Richmond, BC V6Y 2S3 Canada
Noah Natovitch 2,000
121-3280 East 58th Avenue
Vancouver, BC VS8 3T2 Canada
Alice Niemela 2,000
305-5565 Inman Avenue
Barnaby, BC V5H 2M2 Canada
Jeff J. Parker 1,000
110-2300 Carrington Road
Westbank, BC V4T 2N6 Canada
Tim Pepin 1,000
P.O. Box 1825
Grand Forks, BC V0H 1H0 Canada
31
ˇ Download Table
Brian Pinter 1,000
23616 132nd Avenue
Maple Ridge, BC V2X 7E7 Canada
Cathy Pinter 1,000
9517-209B Street
Langley, BC V1M 2A6 Canada
Mark Pinter 1,000
9517 209B Street
Langley, BC V1M 2A6 Canada
David R. Plut 1,000
P.O. Box 303
Rosemead, CA 91770
Elizabeth Ponderec 1,000
P.O. Box 3298
Fort Nelson, BC V0C 1R0
Frank Primus 1,000
#47-1874 Parkview Court
Kelowna, BC V1X 7Q6 Canada
Todd Patz 2,000
8080 Reigate Road
Burnaby, BC V5E 4G2 Canada
Wade Rayner 1,000
1936 Peters Road
North Vancouver, BC V7J 1Y9 Canada
Elaine Rayner 500
329 Pawson Cove
Edmonton, Alberta T5T 5Y9 Canada
Kundan S. Rayat 20,000
5131 Highgate Street
Vancouver, BC V6G 3K3 Canada
Herdev S. Rayat 20,000
1025 Augusta Avenue
Burnaby, BC V3A 1K3 Canada
32
ˇ Download Table
Jasvir S. Rayat 21,000
214-1628 West First Avenue
Vancouver, BC V6J 1G1 Canada
Craig C. Russell 1,000
1304 Diefenbaker Avenue
Prince George, BC V2L 4H7 Canada
Mohinder Sall 2,000
10011 117th Street
Surrey, BC V3V 7H5 Canada
Minpaul Sall 1,000
10011 117th Street
Surrey, BC V3V 7H5 Canada
Eleanor E. Sampert 4,000
4705-53 A Street
Delta, BC V4K 3VK Canada
Navin Sami 1,000
855 Blue Mountain Road
Coquitlam, BC V3J 4S9 Canada
Linda C. Sandler 2,000
272 Wolverine Lake Drive
Wolverine Lake, MI 48390
Larry J. Sandler 2,000
272 Wolverine Lake Drive
Wolverine Lake, MI 48390
Donald Sawatsky 1,000
7344 Southridge Avenue
Prince George, BC V2N 4Y5 Canada
Raymond B. Schooley 2,000
P.O. Box 463010
Escondido, CA 92046-3010
Michael A.F. Schubert 1,000
716-248th Street
Aidergrove, BC V4W 2H2 Canada
33
ˇ Download Table
Ramona L. Sexton 2,000
6805 Sundance Trail
Riverside, CA 92506
Sopinder Singh 2,000
305-5565 Inman Avenue
Barnaby, BC V5H 2M2 Canada
Pritam K. Singh 2,000
2109 Fell Avenue
North Vancouver, BC V7P 2K8 Canada
Kashmir Singh 8,000
1025 Augusta Avenue
Burnaby, BC V5A 1K3 Canada
Jeff Spencer 1,000
250 Fremont Street
Redlands, CA 92373
Bob Stobbe 1,000
9240-98A Avenue
Fort St. John, BC V1S 1R4 Canada
Cameron Stolz 1,000
1091 Limestone Crescent
Prince George, BC V2M 4Z5 Canada
Al Tonn 1,000
Box 2347
Station R
Kelowna, BC V1X 6A5 Canada
Michael Travers 1,000
1709 Carnegie Crescent
Victoria BC V8N 1P2 Canada
Vince Truant 1,000
Box 202
MacKenzie, BC V8N 1P2 Canada
Karen Vold-Oakley 1,000
RR#1
Site 16, Camp 71
Prince George, BC V2N 2H8 Canada
34
ˇ Download Table
Todd M. Weaver 2,000
2000 South Ocean Lane
Suite 11
Ft. Lauderdale, FL 33316
Diane L. Welch 1,000
7830 St. Thomas Place
Prince George, BC V2N 4K2 Canada
Gerard Wenckowski 500
429 Pawson Cove
Edmonton, AB T5T 5Y9 Canada
Robert Witt 1,000
RR#1
Site #8, Camp #47
Prince George, BC V2N 2H8 Canada
Mohammed Yasin 2,000
2237 London Street
New Westminister, BC V3M 3G2 Canada
Robert Ziesman 1,000
Box 9
RR#2
Rock Creek, BC V0H L70 Canada
On October 28, 1997, the Company began an offering in reliance upon
Regulation D, Rule 504. This offering was for 4,300,000 shares of the Company's
common stock at a price of $0.10 per share for a total offering of $430,000. The
offering was completed on December 9, 1997 with all shares sold. The proceeds
from the offering were used for working capital, public relations and research
and development of the European market. This offering was sold to the following
investors, all of whom were unaccredited:
ˇ Download Table
Name and Address Shares Purchased
George Mahfouz, Jr. 425,000
10033 East Redfield Drive
Scottsdale, Arizona 85260
Paula Mahfouz 425,000
10033 East Redfield Drive
Scottsdale, Arizona 85260
35
ˇ Download Table
Name and Address Shares Purchased
Helen Austin 425,000
739 West Flint Street
Chandler, Arizona 85224
Charles Austin 190,000
739 West Flint Street
Chandler, Arizona 85224
Paramount Holdings Ltd. 10,000
P.O. Box Z5005
St. Georges Terrace
W. Australia 6831
Marvin Knight 10,000
1648 North Oleander Street
Tempe, Arizona 85281
Colleen Takemoto 230,000
8356 East San Ramon Drive
Scottsdale, Arizona 85258
Nicole Alagich 25,000
1936 Peters Road
North Vancouver, B.C. V7J 1V9 Canada
Terry Johnston 25,000
1408-4300 Mayberry Street
Burnaby, B.C. V5H 4A4 Canada
Bhupinder Mann 25,000
1182 East 33rd Avenue
Vancouver, B.C. V5V 3B3 Canada
Ranjit Bhogal 25,000
9042 135th Street
Surrey, B.C. V7K 1PU Canada
Wes Janzen 5,000
5148 Galway Drive
Delta, B.C. V2C 6Y5 Canada
Sarbjeet Thouli 10,000
#9-- 1525 Bear Creek Road
Kelowna, B.C. V7Y 1A5 Canada
36
ˇ Download Table
Name and Address Shares Purchased
Raymond Levine 200,000
Century Village East
Tillford West, #486
Deerfield Beach, Florida 33442
Rachel Levine 200,000
Century Village East
Tillford West, #486
Deerfield Beach, Florida 33442
Jasvir Rayat 525,000
5131 Highgate Street
Vancouver, B.C. V6C 1A1 Canada
Kundan S. Rayat 410,000
5131 Highgate Street
Vancouver, B.C. V6C 1A1 Canada
Herdev S. Rayat 425,000
1025 Augusta Avenue
Burnaby, B.C. V5A 3G2 Canada
Northwest Management & Consulting 200,000
Services, Inc.
214-1628 West 1st Avenue
Vancouver, B.C. V6J 1G1 Canada
Tanjinder Chohan 510,000
161 West 61st Avenue
Vancouver, B.C. V5T 2B1 Canada
On April 1, 1998, the Company approved a 504 Placement Offering of
96,000 shares at $1.625 per share with a warrant exercisable at $1.75 per share
until April 15, 2000. The proceeds from this offering were to be used to further
develop the Company's awareness to investors. The placement was completed on
April 30, 1998 with all shares sold. The following accredited investors
purchased this offering:
37
ˇ Download Table
Name and Address Shares Purchased
George Mahfouz, Jr. 48,000 Shares and 48,000 warrants
10033 East Redfield Drive
Scottsdale, Arizona 85260
Herdev S. Rayat 24,000 Shares and 24,000 warrants
1025 Augusta Avenue
Burnaby, B.C. V5A 1K3 Canada
Jasvir S. Rayat 24,000 Shares and 24,000 warrants
5131 Highgate Street
Vancouver, B.C. V6C 1A1 Canada
The Company began offering 46,855 shares of its common stock pursuant
to a 504 offering on July 1, 1998. These shares were offered at $3.18 each and
the proceeds used as additional capital to develop the business of the Company's
subsidiary, NutriCology, Inc. The offering was completed on July 31, 1998 with
all shares sold to Joseph Breslin, 707-11th Avenue, Las Vegas, Nevada, 87501.
On July 24, 1998, the Board of Directors approved the offering of
20,000 shares of the Company's common stock via a 504 Placement at $2.50 per
share with a warrant exercisable at $2.00 per share until July 31, 2000. The
proceeds from this offering, which was completed on July 31, 1998, with all
shares sold, were used to enhance the investor relations awareness of the
Company. The following investors, all of whom were accredited, purchased this
offering:
ˇ Download Table
Name and Address Shares Purchased
George Mahfouz, Jr. 10,000 Shares and 10,000 warrants
10033 East Redfield Drive
Scottsdale, Arizona 85260
Herdev S. Rayat 5,000 Shares and 5,000 warrants
1025 Augusta Avenue
Burnaby, B.C. V5A 1K3 Canada
Jasvir S. Rayat 5,000 Shares and 5,000 warrants
5131 Highgate Street
Vancouver, B.C. V6C 1A1 Canada
On September 11, 1998, the Company's Board of Directors met and
approved a 504 offering of 50,000 shares of common stock at $2.00 per share in
order to develop the Company's awareness to investors. This offering was
completed on September 30, 1998 with all shares sold. The entire offering was
sold to Kirkland Capital S.A., Cockburn House, Cockburn Town, Grand Turk, Turks
& Caicos Isl, an accredited investor.
The Board of Directors approved a 504 offering of the Company's common
stock on October 9, 1998. This offering consisted of 15,000 shares to be sold at
$1.00 per share plus and additional
38
75,000 shares of common stock to be sold at $1.00 per share with a warrant
exercisable at $1.00 per share until October 13, 2000. The funds from this
offering will be used to meet the expenses of increasing investor relations
awareness for the next six months. The offering was completed on October 30,
1998 with all shares sold. The following investors, consisting of both
accredited and unaccredited investors, purchased the warrantless portion of the
offering consisting of 15,000 shares:
ˇ Download Table
Name and Address Shares Purchased
Wah Shung Lau 10,000
1881 West Street
Hayward, California 94545
Paramount Holdings Ltd. 2,000
P.O. Box Z5005
St. Georges Terrace
W. Australia 6831
Michael Quel 1,000
10045 East Redfield Drive
Scottsdale, Arizona 85260
Kashmir Rayat 2,000
1025 Augusta Avenue
Burnaby, B.C. V5A 1K3 Canada
The portion of the offering consisting of 75,000 shares with 75,000 warrants was
sold to the following accredited investors:
ˇ Download Table
Name and Address Shares Purchased
George Mahfouz, Jr. 37,500 Shares and 37,500 warrants
10033 East Redfield Drive
Scottsdale, Arizona 85260
Herdev S. Rayat 18,750 Shares and 18,750 warrants
1025 Augusta Avenue
Burnaby, B.C. V5A 1K3 Canada
Jasvir S. Rayat 18,750 Shares and 18,750 warrants
5131 Highgate Street
Vancouver, B.C. V6C 1A1 Canada
39
Item 5. Indemnification of Directors and Officers
------- -----------------------------------------
The officers and directors of the Company are indemnified as provided under
F.S.A. ss.607.0850. No additional indemnification has been authorized.
PART F/S
FINANCIAL STATEMENTS
C O N T E N T S
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheet at December 31, 1998 and 1997 . . . . . . . 2-3
Consolidated Statement of Operations For the Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Stockholders' Equity From Inception
(April 8, 1997) Through December 31, 1998 . . . . . . . . . . . . 5-6
Consolidated Statement of Cash Flows For the Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . 7-8
Notes to the Consolidated Financial Statements . . . . . . . . . . . . 9-15
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Scottsdale Scientific, Inc.
Scottsdale, Arizona 85258
We have audited the consolidated balance sheet of Scottsdale Scientific, Inc.,
(the Company), as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1998 and 1997, and the consolidated results of their operations and
their consolidated cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
March 5, 1999
F-1
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
1998 1997
ASSETS
Current Assets
Cash and Cash Equivalents $ 225,006 $ 112,518
Accounts Receivable, Net of Allowances for Doubtful
Accounts and Returns, $256,000 at December 31, 1998
1,049,079 0
Inventories (Note 3) 3,538,611 0
Refundable Income Tax Deposits 220,995 0
Prepaid Expenses and Other Current Assets 132,769 0
Deferred Tax Assets 310,760 0
------- -
Total Current Assets 5,477,220 112,518
Property and Equipment, Net (Note 4) 942,558 0
Other Assets
Deposits 38,630 250
Due From Stockholder (Note 5) 123,602 0
Cash Surrender Value of Life Insurance (Note 6) 33,953 0
Organization Costs, Net of Amortization of $635 and $476
at December 31, 1998 and 1997
2,540 3,175
----- -----
Total Other Assets 198,725 3,425
------- -----
Total Assets $ 6,618,503 $ 115,943
============ ============
F-2
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Liabilities $ 3,053,072 None
Line of Credit (Note 7) 533,005 0
Notes Payable, Current Portion (Note 8) 82,539 0
Income Taxes Payable (Note 9) 800 0
--- -
Total Current Liabilities 3,669,416 0
Long-Term Liabilities
Notes Payable, Noncurrent Portion (Note 8) 208,822 0
------- -
Total Liabilities 3,878,238 0
Commitments and Contingencies (Note 10)
Stockholders' Equity
Common Stock, $0.001 Par Value, Authorized 100,000,000
Shares, Issued and Outstanding, 15,017,855 and
7,700,000 at December 31, 1998 and 1997 15,018 7,700
Additional Paid In Capital 4,126,154 525,300
Retained Earnings (A Deficit) (1,400,907) (417,057)
---------- --------
Total Stockholders' Equity 2,740,265 115,943
--------- -------
Total Liabilities and Stockholders' Equity $ 6,618,503 $ 115,943
============ ==========
The accompanying notes are an integral part of these financial statements.
F-3
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
ˇ Download Table
Year Ended Year Ended
December 31, December 31,
1998 1997
Revenues $ 13,450,758 $ 0
Cost of Sales 8,044,907 0
--------- -
Gross Profit 5,405,851 0
Operating Expenses
Selling, General and Administrative 5,681,056 418,001
Research and Development 930,592 0
------- -
Total Operating Expenses 6,611,648 418,001
--------- -------
Operating Loss (1,205,797) (418,001)
Other Income (Expense)
Interest Income 2,119 944
Interest Expense (47,901) 0
Loss on Disposal of Fixed Assets (9,432) 0
------ -
Total Other Expense (55,214) 944
------- ---
Net Loss Before Benefit For Income Taxes (1,261,011) (417,057)
Benefit For Income Taxes (Note 9) (309,960) 0
-------- -
Net Loss Available to Common Stockholders $ (951,051) $ (417,057)
=============== =============
Net Loss Per Weighted Share of Common Stock $ (0.07) $ (0.15)
================ =============
Weighted Shares Outstanding 13,617,386 2,875,000
========== =========
The accompanying notes are an integral part of these financial statements.
F-4
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FROM INCEPTION (APRIL 8, 1997) THROUGH DECEMBER 31, 1998
ˇ Enlarge/Download Table
Additional Retained
Common Stock Paid In Earnings
Shares Amount Capital (A Deficit) Total
------ ------ ------- ----------- -----
Issuance of Common Stock For
Services Rendered at $.001 per
Share as of April 8, 1997 3,000,000 $ 3,000 $ 3,000
Issuance of Common Stock Under
504D Offering Dated May 1, 1997
For Cash at $.25 per Share 400,000 400 99,600 100,000
Issuance of Common Stock Under
Private Placement Memorandum
Dated October 28, 1997 for Cash
at $.10 per Share 1,097,588 1,098 108,661 109,759
Issuance of Common Stock Under
Private Placement Memorandum
Dated October 28, 1997 for
Services Rendered at $.10 per
Share 3,202,412 3,202 317,039 320,241
Loss From Inception (April 8, 1997)
Through December 31, 1997 (417,057) (417,057)
--------- ----- ------- -------- --------
Balance, December 31, 1997 7,700,000 7,700 525,300 (417,057) 115,943
Issuance of Common Stock in
Exchange for Acquisition of
Nutricology, Inc., February 1998 6,800,000 6,800 2,810,873 2,817,673
Issuance of Common Stock Under
Private Placement Memorandum
Dated April 15, 1998 for Cash at
$1.625 Per Share 96,000 96 155,904 156,000
Exercise of Warrants Under Private
Placement Memorandum Dated
April 15, 1998 for Cash at $1.75
Per Share 96,000 96 167,904 168,000
Issuance of Common Stock Under
Private Placement Memorandum
Dated July 1, 1998 for Cash at
$3.18 Per Share 46,855 46 148,953 148,999
Issuance of Common Stock Under
Private Placement Memorandum
Dated July 24, 1998 for Cash at
$2.50 Per Share 20,000 20 49,980 50,000
The accompanying notes are an integral part of these financial statements.
F-5
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FROM INCEPTION (APRIL 8, 1997) THROUGH DECEMBER 31, 1998
ˇ Enlarge/Download Table
Additional Retained
Common Stock Paid In Earnings
Shares Amount Capital (A Deficit) Total
------ ------ ------- ----------- -----
Exercise of Warrants Under Private
Placement Memorandum Dated
July 24, 1998 for Cash at $2.00
Per Share 20,000 $ 20 $ 39,980 $ 40,000
Issuance of Common Stock for
Services Rendered at $2.00 Per
Share, July 31, 1998 61,500 62 122,938 123,000
Less Issuance Costs (123,000) (123,000)
Issuance of Common Stock Under
Private Placement Memorandum
Dated September 15, 1998 for
Cash at $2.00 Per Share 50,000 50 99,950 100,000
Issuance of Common Stock Under
Private Placement Memorandum
Dated October 13, 1998 for Cash
at $1.00 Per Share 15,000 15 14,985 15,000
Issuance of Common Stock Under
Private Placement Memorandum
Dated October 13, 1998 for Cash
at $1.00 Per Share 75,000 75 74,925 75,000
Exercise of Warrants Under Private
Placement Memorandum Dated
October 13, 1998 for Cash at
$1.00 Per Share 37,500 38 37,462 37,500
Prior Period Adjustment-Settlement
of Prior Years Income Taxes
(32,799) (32,799)
Loss, Year Ended December 31, 1998 (951,051) (951,051)
------ ------ ------- -------- --------
Balance, December 31, 1998 15,017,855 $ 15,018 $4,126,154 $ (1,400,907) $ 2,740,265
========== ======== ========== ============ ===========
The accompanying notes are an integral part of these financial statements.
F-6
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER
31, 1998 31, 1997
-------- --------
Cash Flows From Operating Activities
Net Loss $ (951,051) $ (417,057)
Adjustments to Reconcile Net Loss to Net Cash Used In Operating
Activities
Common Stock Issued For Services 0 323,241
Investment in Subsidiary 2,801,173
Settlement of Prior Years Income Taxes (32,799) 0
Depreciation and Amortization 131,997 0
Loss on Disposal of Fixed Assets 9,433 0
Cash Surrender Value Life Insurance (33,953) 0
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (1,049,079) 0
(Increase) Decrease in Inventories (3,538,611) 0
(Increase) Decrease in Income Tax Deposits (220,995) 0
(Increase) Decrease in Prepaid Expenses and Other Current Assets (132,769) 0
(Increase) Decrease in Deferred Tax Assets (310,760) 0
(Increase) Decrease in Deposits (38,380) (250)
(Increase) Decrease in Organization Costs 0 (3,175)
Increase (Decrease) in Accounts Payable and Accrued Liabilities 3,053,072 0
Increase (Decrease) in Income Taxes Payable 800 0
--- -
Total Adjustments 639,129 319,816
------- -------
Net Cash Used In Operating Activities (311,922) (97,241)
Cash Flows From Investing Activities
Acquisition of Property and Equipment (1,083,353) 0
Acquisitions, Net of Cash Acquired 16,500 0
------ -
Net Cash Flows Used In Investing Activities (1,066,853) 0
Cash Flows From Financing Activities
Proceeds From the Sale of Common Stock 790,499 209,759
Advances To Stockholder (123,602) 0
Net Proceeds From Line of Credit 533,005 0
The accompanying notes are an integral part of these financial statements.
F-7
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER
31, 1998 31, 1997
-------- --------
Proceeds on Long-term Debt 291,361 0
------- -
Net Cash Provided By Financing Activities 1,491,263 209,759
Increase in Cash and Cash Equivalents 112,488 112,518
Cash and Cash Equivalents, Beginning of Period 112,518 0
------- -
Cash and Cash Equivalents, End of Period $ 225,006 $ 112,518
============= ============
Supplemental Information
------------------------
Cash Paid For:
Interest $ 47,901 $ 0
============= ============
Income taxes $ 115,000 $ 0
============= ============
Noncash Investing Activities:
On April 8, 1997, the Company Issued 3,000,000 Shares of
Common Stock for Services $ 0 $ 3,000
============= ============
Issuance of Common Stock Under Private Placement
Memorandum Dated October 28, 1997, for Services
Rendered at $0.10 Per Share $ 0 $ 320,241
============= ============
Issuance of 6,800,000 Shares of Common Stock In Exchange for
100% of Business
Details of Acquisition:
Fair Value of Assets $ 5,378,831
Liabilities (2,561,158)
----------
Book Value of Company 2,817,673
Less Cash Acquired (16,500)
-------
Total Acquisition, Net of Cash Received $ 2,801,173
=============
The accompanying notes are an integral part of these financial statements.
F-8
SCOTTSDALE SCIENTIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
NOTE 1 - ORGANIZATION
Scottsdale Scientific, Inc. (the Company) was incorporated under the laws
of the State of Florida on April 8, 1997, with an authorized capital of
100,000,000 shares of common stock with a par value of one mil ($0.001) per
share. The Company is engaged in the wholesale distribution of health and
nutritional supplements.
On February 3, 1998, the Company entered into an agreement to acquire
Nutricology, Inc., a company engaged in the distribution of hypoallergenic
nutritional supplements, in exchange for 9,800,000 shares of Scottsdale
Scientific, Inc.'s common stock. Nutricology, Inc., a California corporation,
was incorporated on March 11, 1980.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. Method of Accounting
-----------------------
The Company's financial statements are prepared using the accrual method of
accounting.
B. Cash and Cash Equivalents
----------------------------
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash and cash equivalents.
C. Concentration of Credit Risk
-------------------------------
The Company maintains cash balances in excess of $100,000. The accounts are
insured by the Federal Deposit Insurance Corporation up to $100,000.
D. Principles of Consolidation
------------------------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Nutricology, Inc. All material
intercompany transactions have been eliminated in consolidation.
E. Purchase Method
------------------
Investments in companies have been included in the financial report using
the equity method of accounting. The Company's wholly owned subsidiary,
Nutricology, Inc. is engaged in the business of developing and marketing
natural nutritional supplements. The subsidiary's sales are primarily to
distributors and health care professionals throughout the United States.
F-9
SCOTTSDALE SCIENTIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. Inventories
--------------
Inventories consist of raw materials, work in process, and finished goods.
Raw materials consist of bulk product that has not been mixed or
encapsulated. Work in Process consists of products in the
mixing/encapsulating stage. Finished goods consist of product that has been
encapsulated or made into tablet form and that has been packaged for sale.
Inventories are stated at the lower of cost or net realizable value, using
the first-in, first-out method.
G. Property and Equipment
-------------------------
Property and equipment, stated at cost, is depreciated under the
straight-line method over their estimated useful lives as follows ranging
from three to ten years.
H. Revenue Recognition
----------------------
Revenues are recognized upon shipment to the customer. Sales are presented
net of returns and allowances of $980,323 and $972,621, for the years ended
December 31, 1998 and 1997, respectively.
I. Allowance for Doubtful Accounts and Return Allowances
--------------------------------------------------------
Accounts Receivable are shown net of allowances for doubtful accounts and
returns which are estimated as a percent of accounts receivable and sales,
respectively, based on prior years experience.
J. Cost Recognition
-------------------
Cost of sales includes all direct material and labor costs and those
indirect costs of bringing raw materials to sale condition. Selling,
general and administrative costs are charged to operating expenses as
incurred.
K. Use of Estimates
-------------------
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were assumed in preparing the financial statements.
F-10
SCOTTSDALE SCIENTIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L. Income Taxes
---------------
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes."
Under SFAS 109, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. See Note 9.
M. Earnings/Loss Per Share of Common Stock
------------------------------------------
Basic earnings or loss per share has been computed based on the weighted
average number of common shares and common share equivalents outstanding.
All earnings or loss per share amounts in these financial statements are
basic earnings or loss per share as defined by SFAS No. 128, "Earnings Per
Share." Diluted earnings or loss per share does not differ materially from
basic earnings or loss per share for all periods presented. The number of
shares used in computing earnings (loss) per common share at December 31,
1998 and 1997 was 13,617,386 and 2,875,000, respectively.
N. Business Segment Information
-------------------------------
The Company implemented SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," on January 1, 1998. The Company
operates in one industry segment, that being developing and marketing
natural nutritional supplements.
O. Presentation
---------------
Certain accounts from prior years have been reclassified to conform with
the current year's presentation.
P. Pending Accounting Pronouncements
------------------------------------
It is anticipated that current pending accounting pronouncements will not
have an adverse impact on the financial statements of the Company.
NOTE 3 - INVENTORIES
Inventories consist of the following at December 31, 1998:
ˇ Download Table
Raw Materials $ 708,548
Work In Process 197,194
Finished Goods 2,751,504
Reserve for Obsolescence (118,635)
Total $ 3,538,611
F-11
SCOTTSDALE SCIENTIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
ˇ Download Table
Machinery and Equipment $ 586,054
Office Equipment 221,084
Transportation Equipment 43,161
Furniture and Fixtures 181,119
Computer Equipment 142,589
Computer Software 34,050
Leasehold Improvements 97,904
Total 1,305,961
Less Accumulated Depreciation (363,403)
Net Book Value $ 942,558
Depreciation expense charged to operations during the year ended 1998 was
$131,730.
NOTE 5 - DUE FROM STOCKHOLDER
From time to time, the Company makes personal loans or receives advances
from/to its majority stockholder. The balance Due From Stockholder at
December 31, 1998, of $123,602 bears no interest and is payable on demand.
NOTE 6 - CASH SURRENDER VALUE LIFE INSURANCE
The Company has purchased insurance in the face amount of $750,000 on the
lives of certain key employees, who are the beneficiaries. The policies
have been assigned to The Money Store. The cash surrender value at December
31, 1998 is $33,953, with no policy loans outstanding.
NOTE 7 - LINE OF CREDIT
In March 1998, the Company entered into a credit agreement which provides a
line of credit of up to $1,000,000, to be used to finance the Company's
accounts receivable and inventory, and has a perfected first lien security
interest in the Company's accounts receivable, inventory, and equipment.
The Company's majority stockholder has also personally guaranteed the loan.
The credit agreement requires interest to be due and payable monthly at the
bank's floating Prime rate plus one quarter of one percent (currently
7.75%), principal due and payable at maturity, which is May 31, 1999. The
credit agreement also requires the Company to maintain a zero principal
balance for at least thirty consecutive days prior to May 31, 1999. The
balance at December 31, 1998, is $533,005.
The credit agreement contains customary covenants and events of default.
Under the terms of the agreement, the bank may call the loan if the Company
is in violation of any
F-12
SCOTTSDALE SCIENTIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
NOTE 7 - LINE OF CREDIT (CONTINUED)
restrictive covenants. At December 31, 1998, the Company was in breach of
certain restrictive covenants. As of March 5, 1999, the bank has/not waived
the requirements of the agreement for the period ended December 31, 1998.
At December 31, 1998, the Company had available borrowings of $467,995
under the agreement, subject to borrowing base limitations as defined by
the agreement.
NOTE 8 - NOTES PAYABLE
Notes Payable at December 31, 1998, is as follows:
Note Payable to bank, principal and interest payments of $6,273
payable monthly at 9.25%. All unpaid principal and interest due
February 1999, collateralized by all significant assets. $ 6,225
Notes Payable, Pitney Bowes Credit Corporation, dated December 14,
1998, in the original amount of $38,067, without interest.
Principal payments of $7,033 plus sales tax of $580, totaling $7,613
are due in five equal payments, the first being due as of the date
of this agreement and each subsequent payment due in quarterly
installments, until paid in full. Secured by the equipment
itself. 30,453
Notes Payable to bank, dated November 25, 1998, in the original
amount of $259,426. Principal and interest payments of $5,002
payable in sixty monthly installments due on the first of the
month. A security interest has been filed under the Uniform
Commercial Code for the equipment. 254,683
-------
ˇ Download Table
Total 291,361
Notes Payable, Current Portion 82,539
------
Notes Payable, Noncurrent Portion $ 208,822
==========
Principal maturities of long-term debt are as follows at December 31, 1998:
ˇ Download Table
1999 $ 82,539
2000 $ 48,715
2001 $ 51,748
2002 $ 54,969
2003 $ 53,390
F-13
SCOTTSDALE SCIENTIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
NOTE 9 - INCOME TAXES
The benefit for income taxes reflected in the financial statements for the
years ended December 31, 1998 and 1997 consisted of the following:
ˇ Download Table
1998 1997
Current
Federal $ 0 $ 0
State 800 0
Deferred
Federal (290,360) 0
State (20,400) 0
Income Tax Benefit $ (309,960) $ 0
The deferred tax consequences of temporary differences in reporting items
for financial statement and income tax purposes are recognized, as
appropriate. Realization of the future tax benefits related to the deferred
tax assets is dependent on many factors, including the Company's ability to
generate taxable income within the net operating loss carryforward period.
Management has considered these factors in reaching its conclusion as to
the valuation allowance for financial reporting purposes. The income tax
effect of temporary differences comprising the deferred tax assets and
deferred tax liabilities on the accompanying consolidated balance sheet is
a result of the following:
ˇ Download Table
Deferred Taxes 1998 1997
-------------- ---- ----
NOL Benefit $ 506,138 $ 0
Deferred State Income Tax 18,088 0
Startup Expenses 116,776 145,970
Other, Net 2,994 0
Total 643,996 145,970
Increase in Valuation Allowance (333,236) (145,970)
Net Deferred Tax Assets $ 310,760 $ 0
A reconciliation between the statutory federal income tax rate (35%) and
the effective rate of income tax expense for each of the years during the
period ended December 31 follows:
ˇ Download Table
Statutory Federal Income Tax Rate (35.0%) (35.0%)
State Income Tax Rate 0.01% 0.0%
Startup Expenses 8.10% 35.0%
Other, Net 0.01% 0.0%
Increase in the Valuation Allowance 6.38% 0.0%
Effective Income Tax Rate 20.5% 0.0%
The Company has available net operating loss carryforwards of approximately
$1,400,000 for tax purposes to offset future taxable income, which expire
principally in the year 2013.
F-14
SCOTTSDALE SCIENTIFIC, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under various noncancelable
operating leases which are generally for one to five year periods. Rent
expense charged to operations for the year ended December 31, 1998, was
approximately $282,000, including $96,000 paid to the majority stockholder.
The Company also leases office space on a monthly basis for approximately
$2,000 per month.
Future minimum rental commitments under noncancelable leases are as
follows:
ˇ Download Table
1999 $ 384,985
2000 $ 280,296
2001 $ 295,176
2002 $ 306,948
2003 $ 155,436
NOTE 11 - PROFIT SHARING PLAN
The Company has a defined contribution plan which covers substantially all
employees. The Company's contributions to the plan are made at the sole
discretion of the Company's board of directors. Contributions to the plan
were $35,026 for the year ended December 31, 1998.
NOTE 12 - STOCK WARRANTS
In October 1998, the Company offered 75,000 shares of common stock at $1.00
per share under a Rule 504 Registration, with an additional 75,000 shares
of purchase warrants at $1.00 each, good until October 13, 2000. In October
1998, one-half (or 37,500) of the warrants were exercised at $1.00 per
share, or $37,500.
As of the date of these financial statements, one-half (or 37,500) of the
warrants remain outstanding.
NOTE 13 - SUBSEQUENT EVENTS
As of the date of these financial statements, the Company has entered into
various noncancelable agreements with for terms of one to six years, for a
total commitment of approximately $156,000.
F-15
AUDITORS' REPORT
ON SUPPLEMENTAL INFORMATION
Board of Directors
Scottsdale Scientific, Inc.
Scottsdale, Arizona 85258
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental
consolidated balance sheet of Scottsdale Scientific, Inc. at December 31, 1998
and December 31, 1997, the related supplemental consolidated statements of
income, stockholders equity and cash flows for the years then ended, are
presented to give retroactive effect to the merger with Nutricology, Inc. on
February 22, 1998. We audited the financial statements of Nutricology, Inc. for
the year ended December 31, 1997. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Clancy and Co., P.L.LC.
Phoenix, Arizona
March 5, 1998
F-16
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEET
GIVING RETROACTIVE EFFECT TO THE MERGER
WITH NUTRICOLOGY, INC.
DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
ASSETS
1998 1997
---- ----
Current Assets
Cash and Cash Equivalents $ 225,006 $ 129,018
Accounts Receivable, Net of Allowances for Doubtful
Accounts and Returns, $256,000 at December 31, 1998 1,049,079 901,507
Inventories (Note 3) 3,538,611 3,915,400
Refundable Income Tax Deposits 220,995 5,121
Prepaid Expenses and Other Current Assets 132,769 75,000
Deferred Tax Assets (Note 9) 135,000 48,572
- ------- ------
Total Current Assets 5,301,460 5,074,618
Property and Equipment, Net (Note 4) 942,558 325,355
Other Assets
Deposits 38,630 7,350
Due From Stockholder (Note 5) 123,602 41,724
Cash Surrender Value of Life Insurance (Note 6) 33,953 30,369
Other Receivables 0 12,183
Organization Costs, Net of Amortization of $635 and $476
at December 31, 1998 and 1997 2,540 3,175
----- -----
Total Other Assets 198,725 94,801
------- ------
Total Assets $ 6,442,743 $ 5,494,774
============= =============
The accompanying notes are an integral part of these financial statements.
F-17
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEET
GIVING RETROACTIVE EFFECT TO THE MERGER
WITH NUTRICOLOGY, INC.
DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
---- ----
Current Liabilities
Accounts Payable and Accrued Liabilities $ 3,053,072 2,472,239
Line of Credit (Note 7) 533,005 0
Notes Payable, Current Portion (Note 8) 82,539 71,704
Income Taxes Payable (Note 9) 850 10,942
--- ------
Total Current Liabilities 3,669,466 2,554,885
Long-Term Liabilities
Notes Payable, Noncurrent Portion (Note 8) 208,822 6,273
------- -----
Total Liabilities 3,878,288 2,561,158
Commitments and Contingencies (Note 10)
Stockholders' Equity
Preferred Stock, $0.25 Par Value, Authorized 1,000,000
Shares, Issued and Outstanding, None 0 0
Common Stock, $0.001 Par Value, Authorized 100,000,000
Shares, Issued and Outstanding, 15,017,855 and
7,700,000 at December 31, 1998 and 1997
15,018 14,500
Additional Paid In Capital 4,126,154 2,416,842
Retained Earnings (A Deficit) (1,576,717) 502,274
---------- -------
Total Stockholders' Equity 2,564,455 2,933,616
--------- ---------
Total Liabilities and Stockholders' Equity $ 6,442,743 $ 5,494,774
============= ============
The accompanying notes are an integral part of these financial statements.
F-18
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
GIVING RETROACTIVE EFFECT TO THE MERGER
WITH NUTRICOLOGY, INC.
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
ˇ Download Table
Year Ended Year Ended
December 31, 1998 December 31, 1997
Revenues $ 13,450,758 $ 12,367,629
Cost of Sales 8,044,907 7,087,734
--------- ---------
Gross Profit 5,405,851 5,279,895
Operating Expenses
Selling, General and Administrative 5,681,056 4,665,348
Research and Development 930,592 34,017
------- ------
Total Operating Expenses 6,611,648 4,699,365
--------- ---------
Operating Loss (1,205,797) 580,530
Other Income (Expense)
Interest Income 2,119 1,864
Interest Expense (47,901) (40,249)
Loss on Disposal of Fixed Assets (9,432) 0
Other, Net 0 5,101
- -----
Total Other Income (Expense) (55,214) (33,284)
------- -------
Net Loss Before Benefit For Income Taxes (1,261,011) 547,246
Benefit For Income Taxes (Note 9) 134,150 44,972
------- ------
Net Loss Available to Common Stockholders $ (1,126,861) $ 502,274
============== ==============
Net Loss Per Weighted Share of Common Stock $ (0.08) $ 0.17
============== ==============
Weighted Shares Outstanding 13,617,386 2,875,000
========== =========
The accompanying notes are an integral part of these financial statements.
F-19
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
GIVING RETROACTIVE EFFECT TO THE MERGER WITH NUTRICOLOGY, INC.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
Additional Retained
Preferred Stock Common Stock Paid In Earnings
Shares Amount Shares Amount Capital (A Deficit) Total
Issuance of Common Stock For Services
Rendered at $.001 Per Share as of April 8, 1997 0 $ 0 3,000,000 $ 3,000 $ 3,000
Issuance of Common Stock Under 504D Offering
Dated May 1, 1997 For Cash at $.25 Per Share 400,000 400 99,600 100,000
Issuance of Common Stock Under Private
Placement Memorandum Dated October 28,
1997 For Cash at $.10 Per Share 1,097,588 1,098 108,661 109,759
Issuance of Common Stock Under Private
Placement Memorandum Dated October 28,
1997 For Services Rendered at $.10 Per Share 3,202,412 3,202 317,039 320,241
Loss From Inception (April 8, 1997) Through
December 31, 1997 2,400,616 2,419,616
--------- ----- ------- --------- ---------
Balance, December 31, 1997 7,700,000 7,700 525,300 2,400,616 2,933,616
Issuance of Common Stock in Exchange For
Acquisition of Nutricology, Inc., February 1998 6,800,000 6,800 2,810,873 (2,817,673) 0
Issuance of Common Stock Under Private
Placement Memorandum Dated April 15, 1998
For Cash at $1.625 Per Share 96,000 96 155,904 156,000
Exercise of Warrants Under Private Placement
Memorandum Dated April 15, 1998 For Cash at
$1.75 Per Share 96,000 96 167,904 168,000
The accompanying notes are an integral part of these financial statements.
F-20
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
GIVING RETROACTIVE EFFECT TO THE MERGER WITH NUTRICOLOGY, INC.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
Additional Retained
Preferred Stock Common Stock Paid In Earnings
Shares Amount Shares Amount Capital (A Deficit) Total
Issuance of Common Stock Under Private
Placement Memorandum Dated July 1, 1998
For Cash at $3.18 Per Share 46,855 46 148,953 148,999
Issuance of Common Stock Under Private
Placement Memorandum Dated July 24, 1998
For Cash at $2.50 Per Share 20,000 20 49,980 50,000
Exercise of Warrants Under Private Placement
Memorandum Dated July 24, 1998 For Cash at
$2.00 Per Share 20,000 20 39,980 40,000
Issuance of Common Stock For Services
Rendered at $2.00 Per Share, July 31, 1998 61,500 62 122,938 123,000
Less Issuance Costs (123,000) (123,000)
Issuance of Common Stock Under Private
Placement Memorandum Dated September 15,
1998 For Cash at $2.00 Per Share 50,000 50 99,950 100,000
Issuance of Common Stock Under Private
Placement Memorandum Dated October 13,
1998 For Cash at $1.00 Per Share 15,000 15 14,985 15,000
Issuance of Common Stock Under Private
Placement Memorandum Dated October 13,
1998 For Cash at $1.00 Per Share 75,000 75 74,925 75,000
The accompanying notes are an integral part of these financial statements.
F-21
ˇ Enlarge/Download Table
Additional Retained
Preferred Stock Common Stock Paid In Earnings
Shares Amount Shares Amount Capital (A Deficit) Total
Exercise of Warrants Under Private Placement
Memorandum Dated October 13, 1998 For
Cash at $1.00 Per Share 37,500 38 37,462 37,500
Prior Period Adjustment-Settlement of Prior
Years Income Taxes (32,799) (32,799)
Loss, Year Ended December 31, 1998 (1,126,861) (1,126,861)
----- ----- ---------- -------- ------------ ---------- ----------
Balance, December 31, 1998 0 $ 0 15,017,855 $ 15,018 $ 4,126,154 $(1,576,717) $ 2,564,455
= === ========== ======== ============ =========== ===========
The accompanying notes are an integral part of these financial statements.
F-22
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
GIVING RETROACTIVE EFFECT TO THE MERGER
WITH NUTRICOLOGY, INC.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER
31, 1998 31, 1997
-------- --------
Cash Flows From Operating Activities
Net Loss $ (1,126,861) $ 502,274
Adjustments to Reconcile Net Loss to Net Cash Used In Operating
Activities
Common Stock Issued For Services 0 323,241
Investment in Subsidiary 0 1,881,842
Settlement of Prior Years Income Taxes (32,799) 0
Depreciation and Amortization 131,997 44,195
Loss on Disposal of Fixed Assets 9,433 0
Cash Surrender Value Life Insurance (3,584) (30,369)
Changes in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (147,572) (901,507)
(Increase) Decrease in Inventories 376,789 (3,915,400)
(Increase) Decrease in Notes Receivable 5,121 (5,121)
(Increase) Decrease in Income Tax Deposits (145,995) (75,000)
(Increase) Decrease in Prepaid Expenses and Other Current Assets (84,197) (48,572)
(Increase) Decrease in Deferred Tax Assets (135,000) 0
(Increase) Decrease in Deposits (31,280) (7,350)
(Increase) Decrease in Organization Costs 0 (3,175)
(Increase) Decrease in Other Receivables 12,183 (12,183)
Increase (Decrease) in Accounts Payable and Accrued Liabilities 580,833 2,472,239
Increase (Decrease) in Income Taxes Payable (10,092) 10,942
------- ------
Total Adjustments 525,837 (266,218)
------- --------
Net Cash Used In Operating Activities (601,024) 236,056
Cash Flows From Investing Activities
Acquisition of Property and Equipment (757,998) (369,550)
Acquisitions, Net of Cash Acquired 0 16,500
- ------
Net Cash Flows Used In Investing Activities (757,998) (353,050)
The accompanying notes are an integral part of these financial statements.
F-23
SCOTTSDALE SCIENTIFIC, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
GIVING RETROACTIVE EFFECT TO THE MERGER
WITH NUTRICOLOGY, INC.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ˇ Enlarge/Download Table
YEAR ENDED YEAR ENDED
DECEMBER DECEMBER
31, 1998 31, 1997
-------- --------
Cash Flows From Financing Activities
Proceeds From the Sale of Common Stock 790,499 209,759
Advances To Stockholder (81,878) (41,724)
Net Proceeds From Line of Credit 533,005 0
Proceeds on Long-term Debt 213,384 77,977
------- ------
Net Cash Provided By Financing Activities 1,455,010 246,012
--------- -------
Increase in Cash and Cash Equivalents 95,988 129,018
Cash and Cash Equivalents, Beginning of Period 129,018 0
------- -
Cash and Cash Equivalents, End of Period $ 225,006 $ 112,518
=========== ==============
Supplemental Information
Cash Paid For:
Interest $ 47,901 $ 0
=========== ==============
Income taxes $ 115,000 $ 0
=========== ==============
Noncash Investing Activities:
On April 8, 1997, the Company Issued 3,000,000 Shares of Common
Stock for Services $ 0 $ 3,000
=========== ==============
Issuance of Common Stock Under Private Placement Memorandum
Dated October 28, 1997, for Services Rendered at $0.10 Per Share $ 0 $ 320,241
=========== ==============
Issuance of 6,800,000 Shares of Common Stock In Exchange for
100% of Business
Details of Acquisition:
Fair Value of Assets $ 5,378,831
Liabilities (2,561,158)
----------
Book Value of Company 2,817,673
Less Cash Acquired (16,500)
-------
Total Acquisition, Net of Cash Received $ 2,801,173
===========
The accompanying notes are an integral part of these financial statements.
F-24
PART III
INDEX TO EXHIBITS
ˇ Enlarge/Download Table
Page
Exhibit 2 Agreement of Purchase and Sale of Shares with NutriCology, Inc. E-1
Exhibit 3
3a Articles of Incorporation and Amendments E-7
3b Bylaws E-15
Exhibit 9 Voting Trust Agreement E-24
Exhibit 23 Consent of Independent Auditor E-34
Exhibit 27 Financial Data Schedule
Exhibit 99
99a Management Agreement E-35
99b 504 Private Placement Memorandum dated May 1, 1997 E-39
99c 504 Private Placement Memorandum dated October 28, 1997 E-60
99d 504 Private Placement Memorandum dated April 15, 1998 E-80
99e 504 Private Placement Memorandum dated July 1, 1998 E-102
99f 504 Private Placement Memorandum dated July 24, 1998 E-121
99g 504 Private Placement Memorandum dated September 15, 1998 E-143
99h 504 Private Placement Memorandum dated October 13, 1998 E-164
(75,000 shares and 75,000 warrants)
99i 504 Private Placement Memorandum dated October 13, 1998 E-185
(15,000 shares of Common Stock)
SIGNATURES
The issuer has duly caused this offering statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Hayward,
State of California, on April 23, 1999.
40
SCOTTSDALE SCIENTIFIC, INC.
By /s/ Marianne Sum
-------------------
Marianne Sum, President
This offering statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Stephen Levine 4/22/99
------------------ -------
Stephen Levine, Chairman Date
/s/ Marianne Sum 4/22/99
---------------- -------
Marianne Sum, President, CEO and Director Date
/s/ Ricki Pollycove 4/22/99
------------------- -------
Ricki Pollycove, Director Date
41
Dates Referenced Herein and Documents Incorporated By Reference
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