Item 1. Description of Business. Animal Cloning Sciences, Inc. was incorporated on August 16, 1984 in the state of Washington under the name Gold Valley, Inc. On October 4, 1993 the company's shareholders authorized the issuance of preferred stock, adopted a Stock Option Plan and ratified a reverse stock split.
In June 1993 the Company commenced its business of providing financial services. The Company's European operations were managed by Riccardo Mortara, president and chairman of the Company. Mr. Mortara has over 20 years experience in the Swiss banking industry and he is the owner and operator of Societe Financiere du Seujet, a Swiss trust & portfolio management company.
On November 14, 2000, the Company changed its name to Animal Cloning Sciences, Inc. to reflect the direction of the firms efforts. The Company will be conducting research on cloning horses and DNA banking of animal cells. The Company is focusing its research on extracting eggs from the 30 mares in the research program. The first step is the enucleation of the egg, followed by the insertion of the DNA of the animal to be cloned. The egg is then incubated and hopefully grown to an embryo, which will be frozen. The embryo will be thawed and tested to determine whether it is alive and ready for transplant into a surrogate mare. The Company's goal is to prefect the nuclear transfer of DNA cells, development to mature embryos, and frozen. The ability to clone and freeze an embryo will allow customers to send the Company a blood sample and for he Company to send back to the customer a cloned frozen embryo for transplant. The company expects that its research in cloning and freezing horse embryos will have an application in freezing cat and dog embryos.
The Company purchased the assets of U.S. Medical Access, Inc. for $425,000. The assets include a medical database, search protocols, software systems, information control systems, a medical library, medical research results, and analysis to identifying leading physicians, researchers, and medical and research facilities in the United States.
New scientific advances allow scientists to clone animals from a sample of the donor's blood rather than a tissue sample. The advantage of preserving DNA from a blood sample is that the sample can be collected easily and safely. A Veterinarian does not have to anesthetize the animal as he would to take a tissue sample. Because the blood sample is taken with a needle, risk of contamination of the sample is much less. The animal is left with no wound to heal.
Animal Cloning Sciences, Inc. has established a DNA cell bank in San Marcos, California that will preserve animal DNA cells for future cloning. Animal Cloning Sciences charges a DNA processing fee and a yearly storage fee. Cell samples are cryo-preserved in liquid nitrogen at a temperature of 320 degrees below zero Fahrenheit (-196 degrees Celsius).
Animal Cloning Sciences, Inc.'s intends to provide cloning services of dogs, cats and horses. Animal Cloning Sciences intends to focus its research on cloning horses. Texas A & M University has announced that they are about six months away from cloning a dog. Louisiana State University (LSU) is doing research on cat cloning. So far scientists have cloned sheep, cattle, goats, monkeys, pigs, and mice.
Competition. Cryopreservation of animal DNA is offered by a half dozen companies at rates equal to or higher than rates charged by Animal Cloning Sciences. No company dominates the field and market share is impossible to determine. Animal cloning research is being conducted by hundreds of companies throughout the world. Most research efforts are directed towards farm animals. More than a doze companies are researching dog, cat, and horse cloning.
Employees. The Company has 4 employees, including its officers plus consulting scientists and advisors. The officers of the Company do not work exclusively for the Company.
Item 2.
Item 2. Description of Property
The Company's headquarters is in Coachella, CA. The Company leases a ranch where horse cloning research is conducted. The Company has a cyropreservation laboratory in San Marcos California.
Item 3.
Item 3. Legal Proceedings
None
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information. The common stock of Animal Cloning Sciences is quoted on the NASD's Electronic Bulletin Board. The following represents the high and low prices of the stock since September of 1999;
Quarter Ended High Low
September 30, 1999 .35 .65 December 31, 1999 .125 .25 March 31, 2000 .75 1.00 June 30, 2000 .375 .375 September 30 2000 .26 .26 December 31, 2000 .50 .125 March 31, 2001 .25 .25
These prices reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions. The Company does not believe that trading of its common stock currently is necessarily reflective of an established trading market.
Holders. As of December 31, 2000, there were approximately 161 record holders of Company common stock. There are no preferred shareholders.
Dividends. The Company has not paid any cash dividends on its common stock. The Company currently intends to retain any earnings for use in its business and therefore does not anticipate paying cash dividends in the foreseeable future.
Item 6.
Item 6. Management's Discussions and Analysis or Plan of Operations
The following discussion regarding the financial statements of the Company should be read in conjunction with the financial statements and notes thereto included in this Report. The following Summary Financial Information is derived from the financial statements of the Company.
Trends and Uncertainties. A major portion of the Company's activities is research and development in the cloning field, which may not be successful.
At December 31, 1999, the Company had two Swiss Franc ("SFr") lines of credit available at Societe Financiere Privee SA, in the amounts of SFr 1,120,000 and SFr 350,000, approximately US$817,488 and US$255,465 respectively. As of December 31, 1999, there were no amounts outstanding under either line of credit. The SFr 1,120,000 line expired November 27, 1999 and was extended and the SFr 350000 line expired December 31, 1998, and it was extended, both for an indefinate period of time.
The Company main investments are deposite at Societe Financiere Privee SA ("SFP"). Further SFP reserves the right to offset any uncollected amounts by any positive balances of all accounts. Further SFP has a lien over all securities under its custody and a right of offset against such securities for any unpaid claims. The margin account bears interest at 7.5% and the maximum credit limit is SFr 2,500,000, which is approximately $517,537 at December 31, 2000. Available credit at December 31, 1999 on the margin account is $1,982,663.
In March of 1999, the company signed a contract with the Semeraro Group. In April of 2000, the transaction was rescinded. Animal Cloning Sciences returned the $510,000 that it had received under the original contract as part of the rescission in March of 2000.
Capital and Source of Liquidity
The Company currently leases it facilities from a director of the Company. The Company did not have any financing activities for the years ended December 31, 2000 and 1999.
Results of Operations
The Company's had no revenues in 2000 and had a net loss of $(384.316). General and administrative expenses were $328,870 compared to $424,980 in fiscal 2000.
Item 7.
Item 7. Financial Statements and Supplementary Financial Data.
Financial Statements
The response to this item is being submitted as a separate section of this report beginning on page 12.
Item 8.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There have been changes in accountants and are properly disclosed in an 8-K dated 3/29/2000.
PART III
Item 9.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
The members of the Board of Directors of the Company serve until the next annual meeting of stockholders, or until their successors have been elected. No annual meeting has been set.
Identification of Directors and Executive Officers of the Company. The names, addresses and positions of the present directors and officers of the Company are set forth below:
Name and Address Age Position
Dempsey K. Mork 59 Chief Executive Officer and Director,
Riccardo Mortara 51 President and Director
Randall A. Baker 57 Secretary and Director
Resumes:
Riccardo Mortara has been President and a Director of the Company since June 1993. Mr. Mortara is the managing director of Societe Financiere du Seujet, Geneva, Switzerland, a company which provides portfolio management and financial services to banks, corporations, and high net- worth individuals primarily in Europe. Between the years of 1984 and 1991, Mr. Mortara was a director of a Geneva private portfolio management company in which he still is a co-owner. Mr. Mortara currently serves on the boards of five financial services companies.
Dempsey K. Mork has been the Chief Financial Officer and a Director of the Company since December 1992 and was President from December 1992 to June 1993. Mr. Mork is also president and a director of Apex Capital Group, Inc.. Asian Financial Inc., Nicole Industries, Inc., Silver Bow Antique Aviation, Knickerbocker Capital Corp. and Magellan Capital Corporation. Mr. Mork's background includes corporate development, merger & acquisitions and financial services.
Randall A. Baker is currently Secretary/Director of the Company. He attended the University of Minnesota. After a tour in the United States Navy and a navigation teaching stint in San Francisco, he began his investment career with the Pacific Coast Stock Exchange followed by employment with a number of major brokerage houses. He then was employed for twenty years as Executive Vice President with Wm. Mason & Company, an Investment counseling firm in Los Angeles. Mr. Baker designed and implemented all data systems, was responsible for trading, personnel and was the client/broker liaison. Mr. Baker is currently employed as the Vice President for Magellan Capital Corporation, a merger and acquisition firm.
Item 10.
Item 10. Executive Compensation. At December 31, 2000,
At December 31, 2000, an aggregate of 233,334 shares of common stock were reserved for issuance upon exercise of non-qualified stock options outstanding to purchase an aggregate of 233,334 shares of common stock (of which 194,834 were to the Company offers) at $2.50 per share. The options expire in April 2004. The exercise price is $2.50. Mr. Mortara and Mr. Mork each hold 97,417. These options were not issued under the Company's 1993 stock option plan.
Stock Option Plan. At December 31, 2000, an aggregate of 800,000 shares of common stock was reserved for issuance under the Company's 1993 stock option plan. Pursuant to the plan, the board of directors may grant options to employees, officers, directors, or others at their discretion. As of December 31, 2000, no options had been granted under the plan.
On November 14th 2000 an aggregate of 3,715,000 shares of common stock were reserved for management compensation and/or incentives, and incentive options to scientists . As of December 31, 2000, no options had been granted.
Any shares which are subject to an award but are not used because the terms and conditions of the award are not met, or any shares which are used by participants to pay all or part of the purchase price of any option may again be used for awards under the Plan. However, shares with respect to which a stock appreciation right has been exercised may not again be made subject to an award.
Stock options may be granted as non-qualified stock options or incentive stock options, but incentive stock options may not be granted at a price less than 100% of the fair market value of the stock as of the date of grant (110% as to any 10% shareholder at the time of grant); non- qualified stock options may not be granted at a price less than 85% of fair market value of the stock as of the date of grant. Restricted stock may not be granted under the Plan in connection with incentive stock options. Stock options may be exercised during a period of time fixed by the Company except that no stock option may be exercised more than ten years after the date of grant or three years after death or disability, whichever is later.
In the discretion of the Company, payment of the purchase price for the shares of stock acquired through the exercise of a stock option may be made in cash, shares of the Company's Common Stock or by delivery or recourse promissory notes or a combination of notes, cash and shares of the Company's common stock or a combination thereof. Incentive stock options may only be issued to directors, officers and employees of the Company. Stock options may be granted under the Plan may include the right to acquire an Accelerated Ownership Non-Qualified Stock Option ("AO"). All options granted to date have included the "AO" feature.
If an option grant contains the AO feature and if a participant pays all or part of the purchase price of the option with shares of the Company's common stock, then upon exercise of the option the participant is granted an AO to purchase, at the fair market value as of the date of the AO grant, the number of shares of common stock the Company equal to the sum of the number of whole shares used by the participant in payment of the purchase price and the number of whole shares, if any, withheld by the Company as payment for withholding taxes. An AO may be exercised between the date of grant and the date of expiration, which will be the same as the date of expiration of the option to which the AO is related. Stock appreciation rights and/or restricted stock may be granted in conjunction with, or may be unrelated to stock options.
A stock appreciation right entitles a participant to receive a payment, in cash or common stock or a combination thereof, in an amount equal to the excess of the fair market value of the stock at the time of exercise over the fair market value as of the date of grant. Stock appreciation rights may be exercised during a period of time fixed by the Committee not to exceed ten years after the date of grant or three years after death or disability, whichever is later. Restricted stock requires the recipient to continue in service as an officer, director, employee or consultant for a fixed period of time for ownership of the shares to vest. If restricted shares or stock appreciation rights are issued in tandem with options, the restricted stock or stock appreciation right is canceled upon exercise of the option and the option will likewise terminate upon vesting of the restricted shares. Directors currently receive no compensation for their duties as directors.
Compliance with Section 16
Not Applicable.
Item 11.
Item 11. Security Ownership of Certain Beneficial Owners and Management Principal Shareholders.
The following table sets forth information relating to the beneficial ownership of Company securities by executive officers, directors and those persons beneficially holding more than 5% of the Company capital stock, based on 1,254,287 common shares outstanding at December 31, 2000.
Name and Add Amount and Nature Of Beneficial Of Beneficial Percent Title of Class Ownership Ownership of Class
Common Stock
Dempsey K. Mork 136,293 10.86% 83888 Avenue 51 Coachella, CA 92236
Riccardo Mortara 116,182 9.26% 14 Quai Du Seujet CH-1201 Geneva Switzerland
Randall A. Baker 23,383 1.86% 83888 Avenue 51 Coachella, CA 92236
Item 12.
Item 12. Certain Relationships and Related Transactions
Certain conflicts of interest now exist and will continue to exist between the Company and its officers and directors due to the fact that each has other business interests to which he devotes his primary attention. Each officer and director may continue to do so notwithstanding the fact that management time should be devoted to the business of the Company. No procedures have been adopted to resolve such conflicts of interest.
PART IV
12 21. Subsidiaries. The Company's subsidiary, Societe Financiere de Distribution, Geneva, SA was desolved.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: April 23, 2001
By:/s/ Dempsey K. Mork Dempsey K. Mork Chief Executive Officer/Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on April 23, 2001.
By:/s/ Dempsey K. Mork Dempsey K. Mork Chief Executive Officer/Director
ANIMAL CLONING SCIENCES, INC.
Index to Consolidated Financial Statements
Page
Independent auditors' report Consolidated balance sheet, December 31, 2000.... for the years ended December 31, 2000 Consolidated statement of shareholders' equity, December 31, 1996 through December 31, 2000 Consolidated statements of cash flows, for the years ended December 31, 2000 and 1999 Notes to consolidated financial statements
To the Board of Directors Animal Cloning Sciences, Inc.
INDEPENDENT AUDITORS' REPORT
I have audited the consolidated balance sheet of Animal Cloning Sciences, Inc. and subsidiaries as of December 31, 2000 and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 2000 and 1999. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on my audits.
I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Animal Cloning Science, Inc. and subsidiaries, as of December 31, 2000 and the results of their operations and their cash flows for the year ended December 31, 2000 in conformity with generally accepted accounting principles.
David Winings C.P.A. Palm Desert April 23, 2001
ANIMAL CLONING SCIENCE, INC.
CONSOLIDATED BALANCE SHEET December 31, 2000 and December 31, 1999
ASSETS
CURRENT ASSETS
Cash........... 78,745 ( 193)
MISC OTHER RECVBL/OVVIO ITALY 126,024 126,024 --------- --------
TOTAL CURRENT ASSETS 204,769 125,831 --------- --------
INVESTMENTS (Note A) 2,190,000 4,133,960 --------- --------
NET PLANT PROPERTY EQUIP ACCUM DEPREC 2,742 5,142 12/31/00 (12,155) 12/31/99 (9,755) --------- --------
CAPITALIZED R & D MEDICAL DATA BASE 395,000 -0- --------- -------- GOODWILL - MEDICAL DATA BASE 30,000 -0- --------- --------
TOTAL ASSETS $2,822,511 4,264,933 ========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Investment margin account $ 517,537 503,344
Accounts payable 4,143 18,397
Other accrued liabilities 60,000 42,000
Notes Payable-Officers/Directors Fees 660,000 540,000
---------- ---------
TOTAL CURRENT LIABILITIES 1,241,680 1,103,741
MINORITY INTEREST 2,000 2,000
SHAREHOLDER'S EQUITY (Note F) Preferred stock, no par value; 1,000,000 shares authorized; -0- -0-
Common stock, no par value; 50,000,000 shares authorized; Issued and outstanding 1,289,687 and 1,458,187 at December 31 2000 and December 21 1999 respectively 11,972,751 12,480,251
Foreign currency translation (loss) -0- (216,036)
Retained deficit (10,393,920) (9,105,023) ---------- --------- TOTAL SHAREHOLDER'S EQUITY 1,578,831 3,159,192 ---------- ---------
TOTAL LIABILITIES & EQUITY 2,822,511 4,264,933 =========== ==========
See accompanying notes to the consolidated financial statements.
ANIMAL CLONING SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 2000 1999
GENERAL AND ADMINISTRATIVE EXPENSE $328,870 $424,980
LOSS FROM OPERATIONS (328,870) (424,980)
OTHER INCOME (EXPENSE)
Dividend and interest income 158,470 214,270
Interest expense (56,162) (24,718)
Foreign currency transaction (loss) (99,345) (3,000)
Gain (loss) on sale of marketable Securities/SFP Preferred Stock (Note C) (58,409) -0- ------- -------- TOTAL OTHER INCOME EXPENSE (55,446) 186,552 ------- -------- (LOSS) BEFORE INCOME TAXES (384,316) (238,428)
INCOME TAX BENEFIT (EXPENSE)
Current income tax benefit 17,183 10,658 Deferred income tax expense (17,183) (10,658) ------- ------- (Loss) from continuing operations (384,316) (238,428)
Discontinued operations income (loss) -0- -0- ------- -------
NET (LOSS) (384,316) (238,428)
=========== ===========
Basic loss per common share, continuing operations (Note A) $ (.28) (.21) =========== ===========
Basic loss per common share, discontinued operations $ - $ - =========== ===========
Basic weighted average common shares outstanding (Note A) 1,289,687 1,135,677 =========== ===========
Diluted loss per common share, continuing operations (Note A) $ (.17) (.21) =========== =========== Diluted loss per common share, discontinued operations $ - $ - =========== ===========
Diluted weighted average common shares outstanding (Note A) 2,270,468 1,135,677 =========== ===========
See accompanying notes to the consolidated financial statements.
ANIMAL CLONING SCIENCES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
From December 31, 1996 through December 31, 2000
Foreign Preferred Stock Common Stock Retained Currency Shares Amount Shares Amount (Deficit) Translation
------- ------ ------ ------ -------- --------- BALANCE DECEMBER 31, 1996 9,177,427 1,000 $1,000 3,341,940$12,131,685 $(3,110,258) $155,000
Prior period adjustment (Note E) - - - - (125,777) - ----- ----- --------- ---------- ---------- -------- BALANCE DECEMBER 31, 1996 9,051,650 (as restated) 1,000 1,000 3,341,940 12,131,685 (3,236,035) 155,000 Shares issued for services, at cost - - 30,000 30,000 - - Shares issued to officer in exchange for expenses paid on behalf of the Company (Note B) - - 22,728 90,912 - - Shares issued to related party for services, at cost 500 500 - - - - Comprehensive loss (Note E): Net loss 1997 - - - - (4,164,442) - Foreign currency translation - - - - - (348,082)
Comprehensive loss - - - - (4,512,524) - ------ ------ ------- ------- ---------- --------
BALANCE DECEMBER 31, 1997 4,660,538 1,500 1,500 3,394,668 12,252,597 (7,400,477) (193,082) Comprehensive loss (Note E): Net loss 1998 - - - - (1,466,118) - Foreign currency translation - - - - - 29,722
Comprehensive loss (1,436,396) ------- ------- ------- -------- ---------- ------- BALANCE DECEMBER 31, 1998 3,224,142 1,500 $ 1,500 3,394,668 $12,252,597$(8,866,595) $(163,360) ======= ======= ========= =========== =========== =========
3/22/99 Preferred Exchanged (1,500) (1,500) A 1,500,000 1,500
R Baker 75,000 -0- --------- 4,969,668
4/7/99 1 for 4 reverse split 1,242,417 -0-
5/26/99 Ovvio Italy purchase stock B 35,400 106,200
commiss on stk pur 1,770 -0-
6/26/99 SFP Purchase Stock 178,500 226,154+
12/31/99 Rescind Ovvio Merger B (35,400) (106,200)
Comprehensive Net Loss 1999 (238,428)
Foreign Currency translation (52,676)
Balance @ 12/31/1999 $3,159,192 -0- -0- 1,422,687 12,480,251 (9,105,023) (216,036) Adj prior yr recon 35,500 Ovvio Italy Contract Cancellation (178,000) (510,000) Shares Issued (services Rendered 10,000 -------
Writedown SFP (Loss) SFP Investment to FMV (904,581)
Comprehensive year 2000 (Loss) (384,316)
Balance @ 12/31/2000 $1,578,831 -0- -0- 1,289,687 11,972,751 (10,393,920) -0-
See accompanying notes to the consolidated financial statements.
ANIMAL CLONING SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, ------------------------ 2000 1999
OPERATING ACTIVITIES Net loss (384,316) $( 238,428)
Transactions not requiring cash: Depreciation 2,400 2,400
CASH PROVIDED (USED) ON CHANGES IN CURRENT ASSETS DECREASE/(INCREASE) AND IN CURRENT LIABILITIES INCREASE/(DECREASE)
Accounts Payable/(decrease) (14,254) ( 547) Other accrued liabilities increase 18,000 26,000 Officers/directors fees increase 120,000 120,000 Capitalized R&D MedData/(increase) (395,000) -0- Set up Goodwill MedData (increase) (30,000) -0- Settlement of Sangate Receivable/ decrease -0- 281,800 Receivable Ovvio Italy (increase) -0- (126,024) --------- --------
Net Cash Provuded (used) by Operating Activities (683,170) 65,201 --------- --------
Investing Activities
Reduction in SFP Investment 1,943,960 -0- Cancellation Ovvio/Italy (510,000) -0- Issuance of Common Stock 2,500 226,156 Writedown (Loss) SFP Common to FMV (904,581) -0- Net incr. SFP margin Investment A/C 14,193 247,210 --------- -------- Net cash provided (used) Investing Activities 546,072 (21,056)
Effect of exchange rate changes on cash (translation loss increas -0- (52,675 --------- -------
Net increase (decrease) on cash 78,938 ( 8,530)
Cash, beginning of period ( 193) 8,337
---------- ---------- CASH, END OF PERIOD 78,745 $ ( 193)
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest 56,162 $ 24,718
========== ========== Income taxes $ - $ -
========== ==========
See accompanying notes to the consolidated financial statements.
ANIMAL CLONING SCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000
Note A: Nature of organization and summary of significant accounting Policies
Nature of organization ANIMAL CLONING SCIENCES, INC. (the "Company") was organized in the state of Washington. The company is a holding company now involved in the cloning of companion animals, dogs, cats or horses.
Basis of consolidation The consolidated financial statements include the accounts of Ovvio Better Life, Inc. and its majority-owned subsidiary SFD. All significant inter-company transactions have been eliminated in the consolidation. Minority shareholders in SFD include the President of the Company and the minority interest in the financial statements reflects the original minority equity capital investment of $2,000. The losses of SFD have exceeded the minority equity capital investment and have been accordingly charged against the majority interest. If the losses should reverse in future periods, the majority interests will be credited for any amounts previously absorbed before credit is made to the minority interests. Cumulative minority interest losses at December 31, 2000 approximated $00,000.
Use of estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash equivalents For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Marketable securities Marketable securities consist of various equity and debt securities and are stated at current market value. All equity securities are considered "trading" securities and all debt securities are considered "available for sale" under the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Accordingly, unrealized gains and losses on equity securities are reflected in operations, and unrealized gains and losses on debt securities are charged to cumulative translation adjustment? on the accompanying consolidated balance sheet. Market value is determined by quoted market prices as of the balance sheet date. Net realized gains or losses are determined on the specific identification cost method.
ANIMAL CLONING SCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 Note A: Nature of organization and summary of significant accounting policies continued
Investments Investments at the end of 2000 consist of common stock in a company publicly traded on the Swiss Stock Exchange. The investment of 6,205 shares were purchased during the years 1996-1997 and had been recorded on the company's books at their original average cost per share of $647.86 through fiscal year 1999. During the last quarter of 2000, the company made its first sale of 1,825 shares at a net realized value of $479.75 per share. Management has made the decision to write down the value on its books from cost to the market value as of December 31, 2000. Since this was a prior period adjustment, the write-down of $904,581 was booked to retained earnings. The closing share prices converted to U.S. Dollars at 12/31/2000 was $500.00 and $506.00 at 3/31/2001
Property and equipment Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated five to seven year useful lives of the assets. Expenditures for additions and improvements are capitalized, repairs and maintenance costs are expensed as incurred.
Income taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and tax basis of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes.
Concentrations of Credit risk The Company maintains cash in bank deposit accounts which, at times, may exceed federally insured limits or are in foreign banks.
Stock-based compensation The Company accounts for its stock-based compensation plans under the principles prescribed by the Accounting Principles board's Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Accordingly, stock option awards are considered to be "non-compensatory" and do not result in the recognition of compensation expense (see Note H).
Fair value of financial instruments SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires certain disclosures regarding the fair value of financial instruments. The Company has determined, based on available market information and appropriate valuation methodologies, the fair value of its financial instruments approximates carrying value. The carrying amounts of cash, accounts payable, and other accrued liabilities approximate fair value due to the short-term maturity of the instruments.
ANIMAL CLONING SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
Note A: Nature of organization and summary of significant accounting policies continued
Earnings per common share SFAS 128 "Earnings per Share" requires a dual presentation of earnings per share-basic and diluted. Basic earnings per share, which excludes the impact of common stock equivalents, replaces primary earnings per share. Diluted earnings per share, which utilizes the average market price per share as opposed the greater of the average market price per share or ending market price per share when applying the treasury stock method in determining common stock equivalents, replaces fully diluted earnings per share. Basic earnings per common share has been computed based on the weighted average number of common shares outstanding.
Foreign currency translation Assets and liabilities of non-U.S. subsidiaries are translated to U.S. Dollars at end-of-period exchange rates. The effects of this translation for non-U.S. subsidiaries are reported in other comprehensive income (loss). Re-measurement of assets and liabilities of non-U.S. subsidiaries that use a currency other than the U.S. dollar as their functional currency are included in income as transaction gains and losses. Income statement elements of all non-U.S. subsidiaries are translated to U.S. Dollars at average-period exchange rates and are recognized as part of revenues, costs and expenses. Also included in income are gains and losses arising from transactions denominated in a currency other than the functional currency of the subsidiary involved. See Note F.
Recently issued accounting pronouncements The Company has adopted the following new accounting pronouncements for the year ended December 31, 1998. SFAS No. 130, "Reporting Comprehensive Income," requires the reporting and display of total comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," is based on the "management" approach for reporting segments. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS No. 131 also requires disclosure about the Company's products, the geographic areas in which it earns revenue and holds long-lived assets, and its major customers. SFAS No. 132, "Employers" Disclosures about Pensions and Other Post-retirement Benefits, which requires additional disclosures about pension and other post-retirement benefit plans, but does not change the measurement or recognition of those plans.
Note B: Related party transactions
During 1996 the Company made advances totaling $303,097 to an entity owned and controlled by the President. During 1997 $7,235 was repaid to the Company. During 1998 the President incurred $14,062 of expenses on behalf of the Company. In lieu of reimbursement, the Company applied the $14,062 to the amount due from the President, leaving a remaining balance at December 31, 1998 of $281,800, which was fully paid off in 1999.
On November 13, 2000, the board of directors approved the acquisition of a medical data base from U.S. Medical Access, a related entity controlled by Dempsey K. Mork, Chief Financial Officer and Director of Animal Cloning Sciences, Inc. for $425,000 to be amortized over a five year period. This transaction was recorded as capitalized R&D for $395,000 based on actual cost of U. S. Medical Access. The $30,000 difference is Goodwill.
Note B: Related party transactions, continued
During 1999 an entity owned and controlled by the Vice President paid certain expenses on behalf of the Company, including providing office space starting with the fourth quarter of 1998. These costs have been accrued and reflected on the company's books.
During the year ended December 31, 1997, the Company issued 30,000 shares of common stock to officers in exchange for services rendered on behalf of the Company. The services were valued at a cost of $30,000. Further, the Company issued 22,728 common shares, at market value on the date of issuance, to an officer of the Company as payment for expenses totaling $90,912, which the officer paid on behalf of the Company. The Company also issued 500 shares of preferred stock to an affiliate for services rendered on behalf of the Company that were valued at a cost of $500.
Note C: Investments
Investments consisted of 6,205 common shares of Societe Financiere Privee based on actual acquisition $ 4,019,960, The 1,140 preferred shares of Societe Financiere Privee of $ 114,000 were liquidated/sold during the year 2000 for $55,591 resulting in a loss of $58,409.
ANIMAL CLONING SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
Note D: Property and equipment
Property and equipment consisted of the following at December 31, 2000:
Furniture $ 4,365 Equipment 10,532 -------- 14,897
Less accumulated depreciation (12,155) ------- Property and equipment, net $ 2,742 ========
Note E: Shareholders' Equity
Preferred stock The Company has authorized an aggregate of 1,000,000 shares of no par preferred stock as follows: As of the close of the fiscal year, December 31, 2000, there were no preferred stock shares issued and outstanding.
Class A Preferred Stock The Company has designated 1,500 shares of no par value Class A preferred stock. Class A shareholders are not entitled to receive dividends, however holders of the Class A preferred stock are entitled to elect two thirds of the directors of the Company.
Class B Convertible Preferred Stock The Company has designated 110,000 shares of no par value convertible Class B preferred stock. Class B shareholders are entitled to receive dividends in a manner similar to common shareholders when declared by the board of directors. Each Class B share is convertible into one share of common stock, at the option of the shareholder, provided that the market price for the Company's common stock is at or above $4,50 per share. At December 31, 2000 and 1999 there were no shares issued and outstanding.
ANIMAL CLONING SCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000
Note F: Foreign currency transaction gain (loss)
Foreign currency transaction gains and losses result from a change in exchange rates between the functional currency of the Company and the currency in which a foreign transaction is denominated. These gains or losses are comprised of actual currency gains or losses realized upon settlement of foreign currency transactions and expected (unrealized) currency gains or losses on unsettled foreign currency transactions.
The foreign currency transaction gain (loss) for the years ended December 31, 2000 and 1999 was $(99,345) and $(3,000) respectively.
Note G: Income taxes
A reconciliation of the U.S. statutory federal income tax rate to the effective tax rate follows for the years ended December 31, 2000 and 1999:
2000 1999 U.S. statutory federal rate 28.98% 28.98% State income tax rate 6.60% 6.60% Temporary differences: Write-down of investments (25.04%) (25.04%) Write-down of receivables (6.06%) (6.06%) Net operating loss for which no tax benefit is currently available (4.48%) (4.48%) ------- ------ -% -% ====== ===== At December 31, 2000 and 1999 deferred taxes consisted of the following:
2000 1999 Deferred tax assets, Net operating loss carry-forward $590,515 $573,298 Less valuation allowance (590,515) (573,298) --------- --------- Net deferred taxes $ - $ - ======== =========
The valuation allowance offsets the net deferred tax asset for which there is no assurance of recovery. The change in the valuation allowance for the years ended December 31,2000 and 1999 totaled $17,217 and $10,6820, respectively. The net operating loss carry-forward expires through the year 2018.
The valuation allowance will be evaluated at the end of each year, considering positive and negative evidence about whether the deferred tax asset will be realized. At that time, the allowance will either be increased or reduced; reduction could result in the complete elimination of the allowance if positive evidence indicates that the value of the deferred tax assets is no longer impaired and the allowance is no longer required.
ANIMAL CLONING SCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000
Note H: Commitments and contingencies Bank line of credit At December 31, 2000, the Company had two Swiss Franc ("SFr") lines of credit available at Societe Financiere Privee SA, in the amounts of SFr 1,120,000 and SFr 350,000, approximately US$817,488 and US$255,465 respectively. As of December 31, 2000, there were no amounts outstanding under either line of credit. Th SFr 1,120,000 line was renewed in November of 1999 and the SFr 350,000 line was renewed on December 31, 1998.
Investment margin account The Company's subsidiaries maintain investments with a Swiss trustee, which has deposited the investments in accounts held at Societe Financiere Privee SA ("SFP"). The trustee is an affiliate entity owned by the president and director of the Company. From time to time, funds are transferred from the subsidiaries to the parent, creating an excess of available funds. Available funds consist of fiduciary deposits as required by SFP. Further, SFP reserves the right to offset any uncollected amounts by any positive balances of all accounts. Further SFP has a lien over all securities under its custody and a right of offset against such securities for any unpaid claims. The margin account bears interest at 7.50% and the maximum credit limit is SFr 2,500,000, which is approximately $1,524,350 at December 31, 2000. The Investment Margin Account at December 31, 2000 and December 31, 1999 was $517,537 and $503,344, respectively
Stock option plan At December 31, 2000, an aggregate of 800,000 shares of common stock was reserved for issuance under the Company's 1993 stock option plan. Pursuant to the plan, the board of directors may grant options to employees, officers, directors, or others at their discretion. As of December 31, 2000, no options had been granted under the plan.
Other stock options. At December 31, 2000, an aggregate of 233,334 shares of common stock were reserved for issuance upon exercise of non-qualified stock options outstanding to purchase an aggregate of 233,334 shares of common stock (of which 194,834 were to Company officers) at $2.50 per share. The options expire in April 2004. These options were not issued under the Company's 1993 stock option plan.
On November 14th 2000 an aggregate of 3,715,000 shares of common stock were reserved for management compensation and/or incentives. As of December 31, 2000, no options had been granted.
Officers' salaries The board approved payment to two officers for salaries in 1995, 1996, 1997, 1998, 1999, and 2000 totaling $660,000, payable in common stock of the Company based on the market value at time of issuance. At December 31, 2000 no amounts have been paid nor has any common stock been issued in satisfaction of this commitment. These costs have been classified as Notes Payable for the years 1995 through 2000.
ANIMAL CLONING SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
Note H: Commitments and contingencies continued
Other receivable In March 2000, the merger with Ovvio/Italy was rescinded. All transactions were reversed out except the $126,024 accounts receivable due the company from Ovvio/Italy. This entire amount was paid off in full in the first quarter 2001.
Lease commitments On December 15, 2000 entered into a one year lease with Canine Cryo-bank, Inc. for a cryo-bank laboratory in San Marcos, California with equipment for its use in preserving DNA samples of cats and dogs for future use in cloning procedure's of our clients pets. The total lease amount for the 12 month period is $12,996, payable monthly at $1,083.00.
Note I: Industry and geographical segment reporting
As of and for the years ended December 31, 2000 and 1999 the Company operated and had assets in the United States and Europe as follows:
2000 1999 LOSS FROM OPERATIONS United States $(271,185) $(227,446) Europe (113,131) ( 10,682) ----------- --------- TOTAL LOSS FROM OPERATIONS $ (384,316) $( 238,428) =========== ========= IDENTIFIABLE ASSETS United States $ 506,487 15,879 Europe 2,455,210 3,756,641 ----------- ---------- TOTAL IDENTIABLE ASSETS $ 2,961,697 3,772,520 =========== ==========
Note J: Discontinued operations
There were no costs associated with discontinued operations in 2000 and 1999.
ANIMAL CLONING SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
Note K: Events subsequent to the date of the Auditor's Report (unaudited) none