SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 6, 1999
-----------------------------
Cell Tech International Incorporated
------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-21015 22-3345046
-------- ------- ----------
(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
537 Northern Heights, Klamath Falls, Oregon 97601
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (541) 882-5406
HumaScan Inc.
509 County Line Road, Radnor, Pennsylvania 19807
(Former Name or Former Address, if Changed Since Last Report)
1
<PAGE>
Item 1. Change in Control of Registrant
See discussion under Item 2 below and the information set forth in the
Information Statement, dated July 27, 1999 and filed with the Securities and
Exchange Commission on July 27, 1999, pursuant to Section 14(F) of the
Securities Act of 1934 and SEC Rule 14F-1, which is incorporated herein by
reference thereto.
Item 2. Acquisition or Disposition of Assets
General
On August 6, 1999, HumaScan Inc. ("HumaScan") consummated the transactions
contemplated by the Agreement and Plan of Reorganization, dated July 16, 1999
(the "Reorganization Agreement") with Daryl J. Kollman and Marta C. Kollman
(together, the "Kollmans"). The Reorganization Agreement provided for the
exchange ("Exchange") of all of the outstanding shares of The New Earth Company,
Inc. ("Earth Company") and The New Algae Company, Inc. ("Algae Company" and,
together with Earth Company, the "Companies") for shares of HumaScan common
stock and HumaScan preferred stock that together represent approximately 92.049%
of the outstanding HumaScan common stock (including the HumaScan common stock
issuable upon conversion of the HumaScan preferred stock) after the closing of
the Exchange.
Exchange Consideration
Under the terms of the Reorganization Agreement, the Kollmans transferred
to HumaScan (the "Effective Time") (i) an aggregate of 100 shares of voting
common stock and 900 shares of non-voting common stock of Earth Company and (ii)
an aggregate of 100 shares of voting common stock and 900 shares of non-voting
common stock of Algae Company, and HumaScan transferred to the Kollmans (i) an
aggregate of 13,000,000 shares of common stock of HumaScan and (ii) an aggregate
of 748,507 shares of Series B Preferred Stock ("Preferred Stock") of HumaScan.
Each share of Preferred Stock will convert automatically into 108.520993
shares of HumaScan common stock (an aggregate of 81,228,723 shares) upon the
effectiveness of either (i) a reverse stock split of the HumaScan common stock
that would provide a sufficient number of authorized but unissued shares of
HumaScan common stock to allow for the conversion of all of the Preferred Stock
or (ii) an amendment of HumaScan's certificate of incorporation to provide for a
sufficient number of authorized but unissued shares of HumaScan common stock to
allow for the conversion of all of the Preferred Stock. At the Effective Time,
HumaScan's certificate of incorporation authorized HumaScan to issue 25,000,000
shares of HumaScan common stock. As of August 6, 1999, HumaScan had outstanding
8,139,070 shares of HumaScan common stock and had reserved 2,589,107 shares of
HumaScan common stock for issuance upon the exercise of outstanding options and
warrants or pursuant to HumaScan's 1996 Stock Incentive Plan.
On August 10, 1999, the majority shareholders of HumaScan voted to effect a
1:10.8520933 reverse stock split and amend its certificate of incorporation to
increase its authorized shares of common stock to 50,000,000 from 25,000,000 to
provide a sufficient number of shares of HumaScan common stock to permit the
conversion of all of the Preferred Stock. The holders of the Preferred Stock
have voting, dividend and liquidation rights equal to the number of shares of
HumaScan common stock into which each share of Preferred Stock is then
convertible. Assuming the conversion of all of the shares of Preferred Stock,
the Preferred Stock and the HumaScan common stock that has been issued to the
Kollmans together would represent approximately 86% of the HumaScan common stock
outstanding after the Effective Time, calculated on a fully diluted basis
assuming the exercise of all of the Company's outstanding options and warrants.
Item 3. Bankruptcy or Receivership
None.
Item 4. Changes in Registrant's Certifying Account
None.
Item 5. Other Events
2
<PAGE>
Internal Revenue Service
On June 18, 1999, the Internal Revenue Service (hereinafter, the "IRS")
accepted a Payment Proposal from Daryl Kollman and Marta Kollman that provides
for sales of their shares in the Company for payment of various federal income
tax debts. The IRS' acceptance was set forth in a Notice of Determination dated
June 18, 1999 that reiterated, verbatim, the terms of the Kollmans' Payment
Proposal. Pursuant to the Payment Proposal, Daryl Kollman and Marta Kollman
granted the IRS security interests in all of their common and preferred shares
in the Company, and deposited the shares into a trust administered by West Coast
Trust Co., Inc. (hereinafter, "WCT"). The trust terms are set forth in a Pledge
and Escrow Agreement between Daryl and Marta Kollman, the IRS, and WCT dated
June 24, 1999. Together, the Payment Proposal and Pledge and Escrow Agreement
provide for the following:
a. WCT shall retain physical possession of all of the Kollmans' shares
until the Kollmans' income tax liabilities for various specified years have been
paid. Upon full payment of the tax liabilities, the IRS will release the federal
tax liens that presently encumber the shares, and WCT will return the shares it
then holds back to the Kollmans.
b. The Kollmans will sell shares of their stock in the Company as needed
and allowed by federal and state securities laws to make quarterly payments to
the IRS. The IRS will facilitate the sales by issuing certificates of discharge
from the IRS' tax liens for the shares to be sold. The Kollmans have unfettered
discretion regarding the method, timing, and number of shares to be sold.
c. WCT will administer sales of the shares as directed by the Kollmans
under stock powers delivered to them by the Kollmans. Portions of the sale
proceeds will be distributed by WCT to the Kollmans for the making of estimated
tax payments for the capital gains arising from sale. The balance of the
proceeds, less costs of sale, will be distributed to the IRS as payments against
their tax liabilities. Dividends accruing on the Kollmans' shares will be
received by WCT and distributed to the IRS as tax payments.
d. The Kollmans retain all voting rights incident to their shares while WCT
holds them.
e. The IRS may seize the Kollmans' shares from WCT if the Kollmans fail to
timely cure a default upon their commitments to the IRS under the Payment
Proposal. The IRS would thereafter proceed to sell or judicially foreclose some
or all of the shares for payment of the Kollmans' tax liabilities as allowed by
applicable law, and return any unsold shares or excess proceeds to the Kollmans.
The principal commitments made by the Kollmans are payment of their tax
liabilities through quarterly installments, and the timely filing of all tax
returns and timely payment of all taxes during the installment period.
f. The terms of the Payment Proposal, including WCT's possession and
administration of the Kollmans' shares, may be renegotiated and modified at any
time.
Coast Business Credit
In June 1999, The New Algae Company ("New Algae") and The New Earth Company
("New Earth"), wholly owned subsidiaries of Cell Tech International
Incorporated, entered into a Loan and Security Agreement (the "Coast Loan") with
Coast Business Credit, a division of Southern Pacific Bank ("Coast"), in which
Coast agreed to lend New Algae and New Earth up to $15,000,000, subject to the
occurrence of the closing. The total loan amount consists of a loan against the
Company's receivables, an advance against New Algae's monthly net collections,
an inventory loan of up to $3,000,000, a term loan of up to $2,400,000 and an
equipment acquisition loan of up to $2,000,000. The interest rate on the
receivable loans, advances and the inventory loan is at a rate equal to the
prime rate plus 2.5% per annum. The interest rate on the term loans and the
equipment acquisition loans will be a rate equal to the Prime Rate plus 2.75%
per annum. The Coast Loan is
3
<PAGE>
secured by substantially all of the assets of New Algae and New Earth, the
personal guarantees of Daryl Kollman and Marta Kollman and the guarantee of Cell
Tech International Incorporated. On August 6, 1999, the Company guaranteed the
Coast Loan. New Algae and New Earth borrowed $10,015,740 from Coast on August 6,
1999. The net proceeds of the loan were used to pay a previously declared
dividend of $7,600,000 to the Kollmans and for working capital.
Item 6. Resignation of Registrant's Directors
None.
Item 7. Financial Statements and Exhibits
(a) Financial Statements
The New Algae Company and The New Earth Company Combined Financial
Statements for the year ended December 31, 1998, 1997 and 1996.
Report of Independent Certified Public Accountant
Combined Balance Sheets
Combined Statements of Income
Combined Statements of Shareholders' Equity
Combined Statements of Cash Flows
Notes to Combined Financial Statements
(b) Cell Tech International Incorporated--Unaudited Pro Forma Condensed
Consolidated Financial Statements
Attached is the following unaudited pro forma condensed consolidated
financial statements which give effect to the acquisitions by the Company of
100% of the outstanding common stock of The New Algae Company, Inc. and The New
Earth Company, Inc.:
Explanatory Head Note
Unaudited pro forma condensed consolidated balance sheet as of September
30, 1999.
Unaudited pro forma condensed consolidated statements of income for the
year ended December 31, 1999.
Unaudited pro forma condensed consolidated statements of income for the
nine months ended September 30, 1999.
Notes to unaudited pro forma condensed consolidated financial statements.
(c) Exhibits
None.
Item 8. Change in Fiscal Year
None.
Item 9. Sales of Equity Securities Pursuant to Regulation S
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: April 27, 2000 CELL TECH INTERNATIONAL INCORPORATED
(Registrant)
4
<PAGE>
/s/ Marta C. Kollman
----------------------------------------
Marta C. Kollman
Chief Executive Officer and President
5
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
COMBINED FINANCIAL STATEMENTS
Combined balance sheets F-4
Combined statements of income F-5
Combined statements of shareholders' equity F-6
Combined statements of cash flows F-7
NOTES TO COMBINED FINANCIAL STATEMENTS F-8
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of
The New Algae Company and
The New Earth Company
Klamath Falls, Oregon
We have audited the accompanying combined balance sheets of The New Algae
Company and The New Earth Company as of December 31, 1998 and 1997, and the
related combined statements of income, shareholders' equity and cash flows for
each of the years ended December 31, 1998, 1997 and 1996. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of The New Algae
Company and The New Earth Company as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years ended
December 31, 1998, 1997 and 1996, in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Los Angeles, California
December 10, 1999
F-3
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
------------ -------------
<S> <C> <C>
ASSETS (Note 6)
CURRENT ASSETS
Cash and cash equivalents $ 1,502,110 $ --
Receivables (Note 2) 412,366 292,727
Inventories (Note 3) 16,568,241 18,747,766
Prepaid expenses (Note 5) 940,952 920,165
----------- -----------
Total current assets 19,423,669 $19,960,658
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation (Note 4) 19,666,350 22,365,267
OTHER ASSETS (Notes 5 and 9) 2,009,347 3,897,688
----------- -----------
Total assets 41,099,366 46,223,613
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft -- 492,809
Accounts payable 2,012,070 1,196,613
Commissions payable 4,169,804 5,967,911
Sales taxes payable 277,691 2,769,522
Accrued payroll and related liabilities 352,050 339,140
Other accrued expenses 1,074,988 1,022,436
Current portion of long-term debt (Note 6) 690,093 737,114
----------- -----------
Total current liabilities 8,576,696 12,525,545
----------- -----------
LONG-TERM LIABILITIES
Long-term debt, net of current portion (Note 6) 799,608 1,481,291
----------- -----------
Total liabilities 9,376,304 14,006,836
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 8, 9, 10 and 11)
SHAREHOLDERS' EQUITY
Common stock (Notes 6, 7 and 8) 1,100 1,100
Additional paid-in capital 277,943 277,943
Retained earnings 31,444,019 31,937,734
----------- -----------
Total shareholders' equity 31,723,062 32,216,777
----------- -----------
Total liabilities and shareholders' equity $41,099,366 $46,223,613
=========== ===========
See accompanying notes to combined financial statements.
</TABLE>
F-4
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE $70,015,297 $118,258,360 $203,252,149
COST OF SALES 19,219,922 22,196,792 38,704,067
----------- ------------ ------------
GROSS PROFIT 50,795,375 96,061,568 164,548,082
COMMISSIONS 33,825,537 60,277,004 104,117,215
----------- ------------ ------------
SELLING PROFIT 16,969,838 35,784,564 60,430,867
COMMERCIAL EXPENSES 717,546 1,096,556 5,842,305
SELLING EXPENSES 9,234,333 13,033,762 17,809,947
RESEARCH AND DEVELOPMENT 1,023,909 593,012 708,909
GENERAL AND ADMINISTRATIVE 4,323,765 5,156,706 4,868,333
----------- ------------ ------------
OPERATING INCOME 1,670,285 15,904,528 31,201,373
OTHER INCOME 882,985 1,914,784 4,269,910
OTHER EXPENSE (256,985) (566,054) (1,371,141)
----------- ------------ ------------
NET INCOME $ 2,296,285 $ 17,253,258 $ 34,100,142
=========== ============ ============
See accompanying notes to combined financial statements.
</TABLE>
F-5
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
-------- ------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995 2,000 $1,100 $277,943 $ 159,334 $ 438,377
Distributions to shareholders -- -- -- (12,290,000) (12,290,000)
Net income -- -- -- 34,100,142 34,100,142
----- ------ -------- ------------ ------------
BALANCES, December 31, 1996 2,000 1,100 277,943 21,969,476 22,248,519
Distributions to shareholders -- -- -- (7,285,000) (7,285,000
Net income -- -- -- 17,253,258 17,253,258
------ ------ -------- ------------ ------------
BALANCES, December 31, 1997 2,000 1,100 277,943 31,937,734 32,216,777
Distributions to shareholders -- -- -- (2,790,000) (2,790,000)
Net income -- -- -- 2,296,285 2,296,285
----- ------ -------- ------------ ------------
BALANCES, December 31, 1998 2,000 $1,100 $277,943 $ 31,444,019 $ 31,723,062
===== ====== ======== ============ ============
See accompanying notes to combined financial statements.
</TABLE>
F-6
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,296,285 $17,253,258 $ 34,100,142
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,898,649 3,090,365 2,403,193
Loss on sale of fixed assets 309,705 179,538 2,298,632
Reserve against realizable value of fixed assets 861,865 -- --
Changes in assets and liabilities:
Receivables (119,639) 250,707 (493,035)
Inventories 2,179,525 (5,133,164) (4,341,917)
Prepaid expenses (20,787) (216,897) (280,457)
Other assets 1,569,395 (425,034) (2,395,994)
Accounts payable 815,457 (466,780) (2,838,274)
Commissions payable (1,798,107) (4,414,202) 1,562,280
Sales tax payable (2,491,831) (6,545,939) 3,163,303
Accrued payroll and payroll related liabilities 12,910 (321,787) 156,701
Other accrued expenses 52,552 354,998 (1,019,731)
------------ ----------- ------------
Net cash provided by operating activities 6,565,979 3,605,063 32,314,843
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,332,622) (1,483,946) (19,677,520)
Proceeds from sale of equipment 280,266 268,579 20,555
------------ ----------- ------------
Net cash used for investing activities (1,052,356) (1,215,367) (19,656,965)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (728,704) (768,587) (586,899)
Proceeds from long-term debt -- -- 450,000
Bank overdraft (492,809) 492,809 -
Collections on amounts due from shareholders -- -- 685,637
Distributions to shareholders (2,790,000) (7,285,000) (12,290,000)
------------ ----------- ------------
Net cash used for financing activities (4,011,513) (7,560,778) (11,741,262)
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,502,110 (5,171,082) 916,616
CASH AND CASH EQUIVALENTS, beginning of year -- 5,171,082 4,254,466
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, end of year $ 1,502,110 $ -- $ 5,171,082
============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 989,859 $ 768,591 $ 561,715
============ =========== ============
See accompanying notes to combined financial statements.
</TABLE>
F-7
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The New Algae Company ("NAC") and The New Earth Company ("NEC"), collectively
the "Company," are engaged in the production and marketing of food supplement
products made with blue-green algae harvested from Klamath Lake, Oregon. The
Company uses a multi-level distributor network throughout the United States and
Canada to distribute its products. The Company is doing business under the trade
name of "Cell Tech" and commenced operations in August 1990.
The shareholders of the Company are also shareholders of other entities with
which the Company has business transactions, relating primarily to the renting
of facilities and purchasing of promotional publications. See Note 12.
PRINCIPLES OF COMBINATION
Although organized as separate corporations, NAC and NEC operate under common
control and management. Both corporations are owned by the same shareholders,
yet neither corporation has an ownership interest in the other. As a result of
these circumstances, the financial statements of NAC and NEC have been combined
to present a more meaningful combined statement of financial position and
operations of the Company. All material transactions between NAC and NEC have
been eliminated upon combination.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all liquid investments with an original maturity of three
months or less to be cash equivalents.
INVENTORIES
Work in progress, finished goods and sales aids inventories are stated at the
lower of cost or market. The Company uses a weighted average method to determine
cost for work in progress and finished goods based upon normal harvesting
volumes. See Note 3. Cost of work in progress and finished goods includes direct
labor and an allocation of overhead costs. Sales aids consist of video tapes,
audio tapes, brochures and other promotional items sold by the Company to its
distributors.
F-8
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of 40 years for buildings
and 3 to 10 years for machinery and equipment as well as furniture and fixtures.
Depreciation expense for 1998, 1997 and 1996 aggregated $2,579,703, $2,506,668
and $1,950,192, respectively. Additions, renewals and improvements are
capitalized. Expenditures for maintenance, repairs and minor renewals and
improvements are charged to expense. Upon sale or retirement of property and
equipment, the cost and related accumulated depreciation are removed from the
accounts, and the resulting gain or loss is recorded in operations.
INTANGIBLE ASSETS
Intangible assets included in other assets consist principally of lease rights
and the excess of purchase price over the fair value of the tangible assets of
Cell Tech, Inc., acquired in 1990 (see Note 9). These excess costs include a
licensing agreement to harvest algae on a certain canal, a noncompetition
agreement, product trade names and goodwill. Such intangibles are being
amortized using the straight-line method over 10 to 12 years.
The Company analyzes its intangible assets for impairment at the end of each
quarter or more frequently when events or changes in circumstances indicate that
the carrying amount of intangibles may not be recoverable. In performing this
review, the Company estimates the sum of expected future undiscounted net cash
flows from operating activities. If the estimated net cash flows are less than
the carrying amount of intangibles, the Company recognizes an impairment loss in
an amount necessary to write down intangibles to fair value as determined from
expected discounted future cash flows. As of December 31, 1998 and 1997, no
impairment loss has been recognized.
FINANCIAL INSTRUMENTS
The Company estimates the fair value of its monetary assets and liabilities
based upon the existing interest rates related to such assets and liabilities
compared to the current market rates of interest for instruments of a similar
nature and degree of risk. Cash and cash equivalents approximate fair value as
reported in the combined balance sheet. The fair value of debt is estimated
using discounted cash flow analyses, based on the Company's incremental
borrowing rates for similar types of borrowing arrangements. The fair value of
the Company's debt at December 31, 1998 and 1997 approximates the carrying
value. The Company records all other financial instruments, including accounts
receivable and accounts payable, at cost which approximates market value.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of products at the time the
products are shipped, net of provisions for estimated sales returns and
allowances.
F-9
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Effective October 11, 1990 and October 1, 1995, NAC and NEC elected S
Corporation status, respectively. Under the provisions of the Internal Revenue
Code for S Corporations, the Company is not liable for payment of federal or
state income taxes. Rather, the taxable income of the Company is attributed
directly to its shareholders. Because NEC had previously operated as a taxable
entity, it may be subject to potential "built-in gains" tax upon the sale of its
operating assets or its entire business.
The Company generally makes tax distributions to its shareholders for estimated
income taxes. However, such distributions have not been adequate to fully
satisfy the income tax liabilities of the shareholders in recent years. See Note
8.
NON-CASH TRANSACTIONS
During 1996, the Company obtained certain lease rights in exchange for a
promissory note in the amount of $579,622. As this was a non-cash transaction,
it has been excluded from the combined statement of cash flows.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the carrying values of its long-lived and identifiable
assets for possible impairment whenever events or changes in circumstances
indicate the carrying amount of the assets may not be recoverable. Any
long-lived assets held for disposal are reported at the lower of their carrying
value or fair value less costs to sell. The financial statements for the year
ended December 31, 1998 include an adjustment due to the impairment of
long-lived assets of $861,865.
COMPREHENSIVE INCOME
In June of 1997, the Financial Accounting Standards Board (FASB) issued SFAS 130
"Reporting on Comprehensive Income," in response to concerns of users of
financial statements about the increasing number of comprehensive income items
that bypass the income statement. This statement is effective for all periods
beginning after December 15, 1997. Since the Company's only component of
comprehensive income is net income, the pronouncement imposes no additional
reporting requirements on the Company.
SEGMENT REPORTING
The FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information," in June 1997. This Statement is in effect for financial
statements for periods beginning after December 15, 1997. Since the Company
currently only reports one business segment in its financial statements, the
pronouncement imposes no additional reporting disclosures on the Company.
F-10
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 2--RECEIVABLES
As revenues are generally paid with credit cards and thereby collected prior to
shipment, the Company does not record trade accounts receivable. Receivables
consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
------------ --------------
<S> <C> <C>
Due from shareholders $ 43,263 21,084
Miscellaneous receivables 369,103 271,643
----------- -----------
$ 412,366 $ 292,727
=========== ===========
</TABLE>
NOTE 3--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Work in progress $15,087,107 $16,385,557
Finished goods 1,894,473 2,305,847
Sales aids 86,661 556,362
------------ -----------
17,068,241 19,247,766
Less reserve for potentially unsaleable
inventories (Note 8) (500,000) (500,000)
----------- -----------
$16,568,241 $18,747,766
=========== ===========
</TABLE>
During 1998, the Company curtailed the volume of algae harvested. Accordingly,
the Company experienced excess processing capacity which was not fully utilized.
As a result, the Company incurred costs aggregating $4.7 million, representing
negative volume variances. Such costs are included in cost of sales for 1998.
F-11
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Land and improvements $ 361,620 $ 361,620
Buildings and improvements 6,734,518 6,834,072
Furniture and fixtures 821,967 776,649
Machinery and equipment 18,092,329 18,970,469
Non-commercial assets 1,120,016 1,016,574
----------- ------------
27,130,450 27,959,384
Less accumulated depreciation (7,464,100) (5,594,117)
----------- -----------
$19,666,350 $22,365,267
=========== ===========
</TABLE>
Non-commercial assets include machinery and equipment held for sale with a cost
of $1,230,671 and $1,223,444, and accumulated depreciation of $253,917 and
$709,818 at December 31, 1998 and 1997, respectively.
NOTE 5--OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Intangibles (Note 9):
Lease rights, net of accumulated amortization of $377,384
and $224,589 $1,150,543 $1,303,338
Excess of purchase price over fair value of tangible assets
acquired, net of accumulated amortization of $1,418,455 and
$1,252,304 428,518 594,669
Deposits 453,338 1,980,528
Other 71,780 113,985
---------- ----------
2,104,179 3,992,520
Less current portion of lease rights included in prepaid expenses (94,832) (94,832)
---------- ----------
$2,009,347 $3,897,688
========== ==========
</TABLE>
F-12
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 6--DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Note payable to former owner of Cell Tech, Inc., secured by all of the
assets and all of the issued and outstanding stock of NAC, with
monthly payments of $65,942 including interest at 19%, maturing July
1, 2000 (see Note 9) $1,074,717 $1,605,611
Note payable to a nonprofit organization, secured by rights of property
and leasehold improvements, with annual payments of $75,000
including interest at 6.25%, maturing July 19, 2005 414,984 461,161
Note payable to a financing company, secured by rights of property and
leasehold improvements, with monthly payments of $19,527 including
interest at 8%, repaid in 1998 -- 151,633
---------- ----------
1,489,701 2,218,405
Less current portion (690,093) (737,114)
---------- ----------
$ 799,608 $1,481,291
========== ==========
</TABLE>
At December 31, 1998, scheduled maturities of debt are summarized as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
-----------
<S> <C>
1999 $ 690,093
2000 485,818
2001 55,388
2002 58,850
2003 62,528
Thereafter 137,024
----------
$1,489,701
==========
</TABLE>
NOTE 7-- COMMON STOCK
NEC has authorized 1,000,000 shares of no par voting common stock and 1,000,000
shares of no par nonvoting common stock, with 100 shares of voting common stock
and 900 shares of nonvoting common stock issued and outstanding at December 31,
1998 and 1997. NAC has authorized 1,000,000 shares of no par voting common stock
and 1,000,000 shares of no par nonvoting common stock, with 100 shares of voting
common stock and 900 shares of nonvoting common stock issued and outstanding at
December 31, 1998 and 1997.
F-13
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 8--COMMITMENTS AND CONTINGENCIES
MICROCYSTIS
As a result of certain conditions, a toxic strain of algae called Microcystis
occasionally blooms in Klamath Lake and contaminates a portion of the Company's
harvest of blue-green algae. In 1991, the Company began to test the algae
harvested at its facility for possible contamination. The existence of
Microcystis has been regularly measured at various levels. In the absence of
established regulatory criteria for determining an acceptable level of
Microcystin (the actual toxin), the Company sponsored an assessment of risk and
set its own standards for determining whether a particular batch of algae is
acceptable for human consumption. Algae which does not meet the Company's
standards and cannot be used in alternative nonhuman consumable products is
isolated and not used in production.
On October 23, 1997, the Oregon Department of Agriculture issued an
Administrative Rule on the sale of blue-green algae which stated that "the
agency has decided to adopt the 1 microgram per gram (1 ppm) level of
Microcystin in blue-green algae." This ruling may have an impact on the
Company's ability to process and distribute the raw algae harvested and finished
goods produced. Such ruling may also decrease the amount of salable inventory on
hand at December 31, 1998 and may therefore have an adverse impact on the
Company's ability to realize the carrying value of its inventories. To date,
Company management and its legal counsel have attempted, but have been unable,
to clarify the impact of the Administrative Rule and the ability of any entity
to measure the Microcystin amount at the Rule's stated level with precision or
accuracy. Since the impact of the Rule has not been clarified, it is difficult
at this time to determine its overall effect on the Company. However, management
has recognized that an impairment of its inventory may exist and therefore has
recorded its best estimate of the effect by establishing a reserve in the amount
of $500,000 at December 31, 1998 and 1997, respectively, for the possible
effects of inventories which may become unsaleable under this Rule. The Oregon
Department of Agriculture has raised no questions about the Company's products
under this Rule to date.
LITIGATION
In 1996, the Company entered into an agreement with one of its vendors. Under
the terms of the agreement, the Company is required to deliver 1 million wet
pounds of algae per month for processing for a five-year period. In 1997, the
Company and the vendor made certain allegations regarding compliance with the
terms of the agreement and are currently involved in legal proceedings. While
the ultimate disposition of such proceedings is not presently determinable,
management believes that the outcome will not have a significant adverse impact
on the Company's financial position or results of operations.
The Company is involved in various legal matters arising in the normal course of
business. In the opinion of management, the Company's liability, if any, arising
from legal proceedings related to these matters is not expected to have a
material adverse impact on the Company's financial position.
F-14
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
LIEN ON COMPANY STOCK
The Company's stock is the subject of a tax lien filed by the Internal Revenue
Service for income taxes due from its shareholders arising from taxable income
attributed from the Company. The Company is currently seeking debt and/or equity
arrangements to provide funds to satisfy the shareholders' tax liabilities.
Accordingly, it is expected that the Company will make additional distributions
to its shareholders for income taxes due from its shareholders.
NOTE 9--ACQUISITION OF THE ASSETS OF CELL TECH, INC.
On August 3, 1990, NAC acquired all of the assets of Cell Tech, Inc. in exchange
for cash and notes payable in the amount of $3,789,470. Cell Tech, Inc. was
engaged in the production and marketing of food supplement products made with
blue-green algae. In addition, the purchase agreement calls for contingent
considerations to be paid in installments ranging from zero to $54,261 per
month, based on a percentage of monthly sales, payable through August 10, 2000.
As the term of the contingent payments matches the estimated life of the related
intangibles, such payments are charged to operating expense when determinable.
Contingent payments made totaled $651,132 for each of 1998, 1997 and 1996.
The Company accounted for the business combination as a purchase. The
acquisition resulted in excess of purchase price over fair value of tangible
assets of $1,846,973 which consists of a licensing agreement to harvest algae on
a certain canal, a noncompetition agreement, product trade names, and goodwill.
Such intangibles are being amortized using the straight-line method over 10 to
12 years.
NOTE 10--EMPLOYEE BENEFIT PLAN
Effective June 1, 1994, the Company established a 401(k) Employee Savings Plan
which allows eligible employees to contribute up to 15% of their compensation
annually. The plan allows for Company matching at the discretion of management.
Each employee receives a pro rata allocation of the discretionary matching based
on the employee's compensation in relation to the compensation of all
participants entitled to profit sharing contributions. The Company matching
aggregated $126,158, $141,655 and $116,222 in 1998, 1997 and 1996, respectively.
F-15
<PAGE>
THE NEW ALGAE COMPANY AND
THE NEW EARTH COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 11--LEASES
The Company has noncancelable operating leases, primarily for facilities space,
vehicles and phone systems, which expire over the next five years and
thereafter. Future minimum lease payments under operating leases are summarized
as follows:
Year ending December 31, Amount
------------
1999 $ 746,701
2000 467,427
2001 148,680
2002 98,998
2003 85,600
Thereafter 384,642
------------
$ 1,932,048
============
Rent expense for 1998, 1997 and 1996 aggregated $1,591,240, $2,589,773 and
$2,569,299, respectively.
NOTE 12--RELATED PARTY TRANSACTIONS
The lease agreements described and summarized in Note 11 include certain
building and equipment leases in which the lessors are shareholders of the
Company. Rental payments to the shareholders for 1998, 1997 and 1996 aggregated
$726,770, $1,665,227 and $1,567,798, respectively.
The Company also purchases promotional publications from an entity with common
ownership. Payments for promotional publications to the shareholders for 1998,
1997, and 1996 aggregated $48,640, $115,577 and $818,160, respectively.
NOTE 13--SUBSEQUENT EVENTS
REVERSE ACQUISITION
On July 16, 1999, the Company entered into an agreement with a public company,
HumaScan, Inc. a Delaware Corporation. The agreement provides for the transfer
of all of the outstanding shares of NAC and NEC, in exchange for HumaScan common
stock and HumaScan preferred stock that, together, will represent approximately
92.094% of the outstanding HumaScan common stock (including the HumaScan common
stock to be issued upon conversion of the HumaScan preferred stock) after the
close of the exchange. The new company will be known as Cell Tech International,
Inc.
CHANGE IN TAX STATUS
Subsequent to December 31, 1998, the Company elected to be taxed as a C
Corporation. The Company was previously taxed as an S Corporation.
F-16
<PAGE>
Cell Tech International Incorporated. and Subsidiaries
Index to Pro Forma Financial Information
<TABLE>
<CAPTION>
<S> <C>
Explanatory Head Note P-1
Unaudited pro forma condensed consolidated balance sheets at September 30, 1999 P-2
Unaudited pro forma condensed consolidated statements of income for the year
ended December 31, 1998 P-3
Unaudited pro forma condensed consolidated statements of income for the nine
months ended September 30, 1999 P-4
Notes to the unaudited pro forma condensed consolidated financial statements P-5
</TABLE>
6
<PAGE>
CELL TECH INTERNATIONAL INCORPORATED
(FORMERLY HUMASCAN INC. AND SUBSIDIARIES)
----------------------------
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
-----------------------------
<PAGE>
CELL TECH INTERNATIONAL INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On July 16, 1999, HumaScan, Inc. ("HumaScan") entered into an Agreement and
Plan of Reorganization (the "Reorganization Agreement") with Daryl J. Kollman
and Marta C. Kollman (together, the "Kollmans"). The Reorganization Agreement
provided for the exchange ("Exchange") of all of the outstanding shares of The
New Earth Company, Inc. ("Earth Company") and The New Algae Company, Inc.
("Algae Company" and, together with Earth Company, the "Companies") for shares
of HumaScan common stock and HumaScan preferred stock that together represented
approximately 92.049% of the outstanding HumaScan Common Stock (including the
HumaScan Common Stock issuable upon conversion of the HumaScan preferred stock)
after the closing of the Exchange.
Under the terms of the Reorganization Agreement, upon consummation of the
Exchange, the Kollmans transferred to HumaScan (i) an aggregate of 100 shares of
voting common stock and 900 shares of non-voting common stock of Earth Company
and (ii) an aggregate of 100 shares of voting common stock and 900 shares of
non-voting common stock of Algae Company, and HumaScan transferred to the
Kollmans (iii) an aggregate of 13,000,000 shares of common stock of HumaScan and
(iv) an aggregate of 748,507 shares of Series B Preferred Stock ("Preferred
Stock") of HumaScan. Each share of Preferred Stock has converted automatically
into 108.520993 shares of HumaScan common stock (an aggregate of 81,228,723
shares). As of July 16, 1999, HumaScan had outstanding 8,139,070 shares of
HumaScan common stock and had reserved 2,589,107 shares of HumaScan common stock
for issuance upon the exercise of outstanding options and warrants or pursuant
to HumaScan's 1996 Stock Incentive Plan. On August 10, 1999, the majority
shareholders of HumaScan voted to effect a 1:10.8520933 reverse stock split and
amend its certificate of incorporation to increase its authorized shares of
common stock to 50,000,000 form 25,000,000 to provide a sufficient number of
shares of HumaScan common stock to permit the conversion of all of the Preferred
Stock. Holders of shares of Preferred Stock have voting, dividend and
liquidation rights with respect to such shares equivalent to the voting,
dividend and liquidation rights that a holder of the number of shares of
HumaScan common stock into which their Preferred Stock is convertible would
have.
For accounting purposes, the acquisition has been treated as a
recapitalization of the Companies with the Companies as the acquirer
(reverse
acquisition).
On August 19, 1999, HumaScan changed its name to Cell Tech International
Incorporated.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisition ("Pro Forma") on the HumaScan's financial position and
results of operations. The condensed consolidated balance sheet as of September
30, 1999 is based on the historical balance sheets of HumaScan and the Companies
as of that date and assumes the acquisition took place on that date. The
condensed consolidated statements of income for the year ended December 31, 1998
and the nine months ended September 30, 1999 are based on the historical
statements of income of the HumaScan and the Companies for those periods. The
pro forma condensed consolidated statements of income assume the acquisition
took place on January 1, 1998.
The pro forma condensed consolidated financial statements may not be
indicative of the actual results of the acquisition.
The accompanying condensed consolidated pro forma financial statements
should be read in connection with the historical financial statements of
HumaScan and the Companies.
P-1
<PAGE>
CELL TECH INTERNATIONAL INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Algae Company
and
HumaScan Earth Company Adjustments Pro Forma
------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 27,194 $ 1,024,032 $ $ 1,051,226
Receivables -- 964,714 (68,725)(1) 895,989
Inventories -- 14,704,102 14,704,102
Prepaid expenses 199,231 482,710 681,941
Deferred income tax asset -- 2,290,207 2,290,207
------------ ------------ ------------
Total current assets 226,425 19,465,765 19,623,465
------------ ------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation -- 17,301,238 17,301,238
OTHER ASSETS 7,531 2,136,462 2,143,993
------------ ------------ ------------
Total assets $ 233,956 $ 38,903,465 $ 39,068,696
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 97,033 $ 3,128,838 (68,725)(1) $ 3,157,146
Commissions payable -- 5,114,403 5,114,403
Sales taxes payable -- 388,951 388,951
Accrued payroll and related liabilities -- 515,319 515,319
Other accrued expenses 118,100 515,631 633,731
Current portion of long-term debt -- 6,021,601 6,021,601
------------ ------------ ------------
Total current liabilities 215,133 15,684,743 15,831,151
------------ ------------ ------------
LONG-TERM LIABILITIES
Long-term debt, net of current portion -- 2,167,881 2,167,881
Deferred income tax liability -- 1,263,833 1,263,833
------------ ------------ ------------
Total liabilities 215,133 19,116,457 19,262,865
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common stock 81,391 1,100 942,287 (2) 1,023,678
(1,100)(3)
Additional paid-in capital 16,902,146 277,943 (942,287)(2) --
1,100 (3)
(16,238,902)(4)
Retained earnings (deficit) (16,964,714 19,507,965 16,238,902 (4) 18,782,153
------------ ------------ ------------
Total shareholders' equity 18,823 19,787,008 19,805,831
------------ ------------ ------------
Total liabilities and shareholders' equity $ 233,956 38,903,465 $ 39,068,696
============ ============ ============
See notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited).
</TABLE>
P-2
<PAGE>
CELL TECH INTERNATIONAL INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Algae Company
and
HumaScan Earth Company Adjustments Pro Forma
----------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE $ -- $ 70,015,297 $ $ 70,015,297
COST OF SALES -- 19,219,922 19,219,922
---------- ------------ ------------
GROSS PROFIT -- 50,795,375 50,795,375
COMMISSIONS -- 33,825,537 33,825,537
---------- ------------ ------------
SELLING PROFIT -- 16,969,838 16,969,838
COMMERCIAL EXPENSES -- 717,546 717,546
SELLING EXPENSES -- 9,234,333 9,234,333
RESEARCH AND DEVELOPMENT -- 1,023,909 1,023,909
GENERAL AND ADMINISTRATIVE 243,552 4,323,765 4,567,317
---------- ------------ ------------
OPERATING INCOME (LOSS) (243,552) 1,670,285 1,426,733
OTHER INCOME -- 882,985 882,985
OTHER EXPENSE -- (256,985 (256,985
---------- ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAX (243,552) 2,296,285 2,052,733
---------- ------------ ------------
DEFERRED INCOME TAX BENEFIT -- -- --
---------- ------------ ------------
NET INCOME (LOSS) $ (243,552 2,296,285 $ 2,052,733
========== ============ ============
EARNINGS (LOSS) PER SHARE $ (.03) $ .22
========== ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (Note 5) 9,399,899 9,399,899
========== ============
</TABLE>
See notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited).
P-3
<PAGE>
CELL TECH INTERNATIONAL INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Algae Company
and
HumaScan Earth Company Adjustments Pro Forma
----------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUE $ -- $ 39,706,353 $ $ 39,706,353
COST OF SALES -- 10,600,863 10,600,863
----------- ------------ --------------
GROSS PROFIT -- 29,105,490 29,105,490
COMMISSIONS -- 18,904,084 18,904,084
----------- ------------ --------------
SELLING PROFIT -- 10,201,406 10,201,406
COMMERCIAL EXPENSES -- 825,374 825,374
SELLING EXPENSES -- 6,210,879 6,210,879
RESEARCH AND DEVELOPMENT -- 1,257,098 1,257,098
GENERAL AND ADMINISTRATIVE 214,428 4,437,903 4,652,331
----------- ------------ --------------
OPERATING LOSS (214,428) (2,529,848) (2,744,276
OTHER INCOME -- 1,109,886 1,109,886
OTHER EXPENSE -- (381,659) (381,659)
------------ ------------ --------------
NET LOSS BEFORE INCOME TAX (214,428) (1,801,621) (2,016,049)
------------ ------------ --------------
DEFERRED INCOME TAX BENEFIT -- 1,026,374 1,026,374
------------ ------------ --------------
NET LOSS $ (214,428) (775,247) $ (989,675)
=========== ============ ==============
LOSS PER SHARE $ (.02 $ (.11)
=========== ==============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING(Note 5) 9,424,848 9,424,848
=========== ==============
</TABLE>
See notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited).
P-4
<PAGE>
CELL TECH INTERNATIONAL INCORPORATED
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma adjustments to the condensed consolidated balance sheets are as
follows:
(1) To eliminate intercompany balances.
(2) Issuance of 94,228,726 shares of $0.01 par value HumaScan, Inc. common
stock in exchange for:
(i) an aggregate of 100 shares of voting common stock and 900 shares of
non-voting common stock of The New Earth Company
(ii) an aggregate of 100 shares of voting common stock and 900 shares of
non-voting common stock of The New Algae Company
(3) To eliminate The New Algae Company and The New Earth Company voting and
non-voting common stock.
(4) To eliminate HumaScan, Inc. accumulated deficit.
(5) The weighted average number of shares outstanding has been adjusted for the
1:10.8520933 reverse stock split.
P-5
