Securities Exchange Act File No. 0-27853
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
FORM 10-SB
(Filed on November 30, 1999)
General Form for Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
HYATON ORGANICS INC.
(Exact name of Small Business Issuer in its charter)
Nevada 86-0913555
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
755 Burrard Street
Suite 440
Vancouver, British Columbia, Canada V6Z IX6
(Address of principal executive offices)
Issuer's telephone number: (604) 602-1981
--------------------------
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common Stock
<PAGE>2
With the exception of historical facts stated herein, the following
discussion may contain forward-looking statements regarding events and financial
trends which may affect the Company's future operating results and financial
position. Such statements are subject to risks and uncertainties that could
cause the Company's actual results and financial position to differ materially
from those anticipated in such forward-looking statements. Factors that could
cause actual results to differ materially include, in addition to other factors
identified in this report, the Company's operating losses, its need for
additional capital, its ability to commercially develop its proposed products,
and dependence on key personnel, all of which factors are set forth in more
detail in the sections entitled "Certain Considerations" and "Management's
Discussion and Analysis or Plan of Operation" herein. Readers of this report are
cautioned not to put undue reliance on "forward looking" statements which are,
by their nature, uncertain as reliable indicators of future performance. The
Company disclaims any intent or obligation to publicly update these "forward
looking" statements, whether as a result of new information, future events, or
otherwise.
In this statement, all dollar amounts are expressed in United States
dollars unless otherwise stated.
PART I.
Item 1. Description of Business
BUSINESS DEVELOPMENT
Historical Information
Hyaton Organics Inc. ("Hyaton" or the "Company") was incorporated in
Nevada on August 20, 1996, under the name Hayoton Company Incorporated as a
management company for resorts and hotel properties. In September 24, 1996, the
Company changed its name from Hayoton Company Incorporated to Hyaton Company
Incorporated and then to Hyaton Organics Inc. on October 21, 1999. The Company
was dormant until June 1997, when the Board reevaluated its business plan and
decided to focus the Company's business on commodity production and/or purchase
and resale of same through strategic alliances with leading environmental
corporations.
As part of the Company's new business plan, on November 2, 1998, the
Company entered into a Plan and Agreement of Reorganization ("Reorganization
Agreement") with Kafus Industries Ltd. ("Kafus"), a British Columbia
corporation. Under the Reorganization Agreement, the Company issued to Kafus
20,000,000 shares of its Common Stock in exchange for all of the Common Shares
of Camden Agro-Systems Inc. ("Camden"), an Ontario corporation, owned by Kafus.
Prior to the reorganization, Kafus owned 9,000 common shares of Camden,
constituting 90% of Camden's outstanding common shares. As a result of the
reorganization, Kafus owns approximately 72.6% of the Company's outstanding
shares of Common Stock and the Company's primary business interest is Camden.
Unless otherwise indicated, reference to "Hyaton" or the "Company" shall mean
Hyaton Organics Inc. and its wholly-owned subsidiary, Camden Agro-Systems Inc.
Further, as part of the Reorganization Agreement, the Company is
required to issue one additional common share to Kafus for each $.20 of
aggregate earnings before interest, taxes, depreciation and amortization of
Camden accumulated during the period beginning on the closing date of the
<PAGE>3
reorganization and ending upon the earlier of: (a) two years from November 2,
1998, or (b) eighteen months from the commencement of commercial operations by a
Camden plant.
Camden Agro-Systems Inc.
The Company's primary asset is its interest in Camden, and all of the
Company's operations are conducted by Camden. Camden is a development stage
company that intends to develop turnkey facilities capable of producing
organic-based fertilizers from animal residues such as hog and poultry manure.
Prior to January 1999, Camden also was planning the development of facilities
for the production of animal feed from food waste.
Camden Agro-Systems Inc. was incorporated under the Ontario Business
Corporation Act (1982) on November 24, 1994, for the purpose of business
management, consulting and product development. For at least the past three
years, Camden has primarily focused its business on the development of
converting organic waste into animal feed and animal residues into organic
fertilizer. Camden believes that there are environmental pollution concerns from
animal residues. Many governmental authorities are invoking stringent
environmental laws and regulations regarding pollution, contamination and the
accumulation and disposal of waste products such as animal residues. Camden
believes that it is developing a waste management process by reducing pollution
in ground and surface waters and by providing a valuable source of nutrients and
organic material for plant production.
Since February 1998, Camden had been operating a pilot program for an
organic waste processing facility at Bartow, Florida (the "Bartow Plant"). At
the Bartow Plant, Camden processed organic waste supplied by dairy, bakery and
ice cream makers into animal feed supplements. During the pilot program, Camden
entered into an exclusive marketing distribution agreement with Miracle Feeds of
Canada, Ltd., whereby Miracle Feeds of Canada agreed, subject to certain
conditions, to purchase all of Camden's animal feed supplement produced by
Camden at its Bartow Plant. In light of the agreement with Miracle Feeds of
Canada, Camden began to upgrade its Bartow Plant to full commercial production.
At full production, the Bartow Plant would have been capable of producing
approximately 22,000 short tons of animal feed per year. In addition, Camden was
negotiating a product buy-out agreement with an animal feed supplier, and was in
the planning stages for an animal feed plant in Lakeland, Florida.
In January 1999, Camden decided to discontinued its animal feed from
food waste program to concentrate its energy and resources on its organic
fertilizer products. in light of its limited capital and resources, Camden
believed that the organic fertilizer market, which is larger than the animal
feed market, provided it a better and faster opportunity to earn revenues.
Further, because Camden's proposed animal feed processing may be subject to
duplication by competitors, this could have the effect of increasing Camden's
competitors. As a result of this decision, Camden allowed its lease at the
Bartow Plant to expire, and ceased all animal feed research and development
including its operations at the Bartow Plant and proposed construction project
in Lakeland, Florida. Notwithstanding its current direction, the Company may, in
the future, resume the development of animal feed from organic waste.
Organic Fertilizer Products
Since its redirection in January 1999, Camden has focused on developing
organic fertilizer products from animal residues. Camden believes that the
organic fertilizer market provides great potential for the sale of Camden's
organic fertilizers, and justified the continued research and development of
proprietary organic fertilizers. Since 1996, Camden has been collaborating with
<PAGE>4
experts in crop science, animal sciences, agronomy, fertilizers, and equipment
manufacturers to research and test its organic fertilizer process and proposed
products in Canada, the United States and abroad.
In 1998, Camden narrowed its organic fertilizer research by selecting
organic waste materials, such as animal residues that have been aerobically
processed under specific, optimally controlled conditions. The resulting
materials have then been used to manufacture three new products. These products
were initially marketed under the brand VERDANT ORGANIC. However in 1999, Camden
applied for TRULY ORGANIC(TM) as its trademark in the United States. This
application is currently pending. These proposed products are as follows:
* Pure Organic Fertilizer Blends, to be marketed as TRULY
ORGANIC(TM) MTO series, are a basic product from which all other
Camden fertilizer formulas will be based upon. They are designed
to supply nitrogen (N), phosphorus (P), and potash (K) to plants
as required on a bio-modulated release basis. The composition of
the Pure Organic Fertilizer Blends is designed to restore and
maintain soil organic matter quality and quantity, to improve
soil aggregation and porosity to increase water infiltration and
retention, to enhance gas and cation exchange, to improve root
growth, and to reduce water and wind erosion;
* Enhanced Organic Fertilizer Blends, to be marketed as TRULY
ORGANIC(TM) MTE series, are organic in origin, then enhanced with
chemical nutrients. The chemical nutrients are added to the
organic blend to meet individual crop requirements such as
radishes, lettuce, and tomatoes; and
* Growing Media, to be marketed as TRULY ORGANIC(TM) GROWING MEDIA,
is a new proposed product line that can be used as a substrate
for the cultivation of greenhouse plants, a potting soil or a
soil supplement to home gardens. This product line is
manufactured from organic raw materials which contain sufficient
naturally-occurring quantities of nitrogen, phosphorus, potash
and other essential elements for commercial plant growth.
Camden plans to market Camden's organic fertilizer products by engaging
compatible corporate partners to market and distribute its organic fertilizer
products as well as large volume end users and home and garden
distributors/retailers. For example, Camden is seeking a company for an
exclusive buy-out of all Camden's organic fertilizer products.
As part of its business redirection, Camden is proposing to develop a 52
acre organic fertilizer facility located in North Carolina. Camden proposes to
convert organic fertilizer from animal residues acquired from local farmers.
Camden intends to use its process originally developed at the Bartow Plant as a
template for creating similar organic fertilizer facilities utilizing their
modular design and manufacturing process. Camden has filed a patent application
in the United States for this process. See "Camden Agro-Systems Inc. - Patents
and Trademarks."
The Camden Agro-System Process
The Camden process is a procedure in which animal residues such as
poultry and hog manure is treated and recycled into organic fertilizers. The
principal steps are (a) receipt and mixing of the organic waste materials,
<PAGE>5
(b) aerobic processing (which is similar to composting), (c) mixing the
composting material with plant nutrients, and (d) post aerobic processing and
packaging.
Camden intends to exploit its process by establishing organic fertilizer
manufacturing facilities internationally. In order to meet this objective,
Camden believes that it must:
* Enter into long-term, supply agreements from organic waste
generators such as farmers in the case of animal waste;
* Use its proprietary manufacturing process; and
* Enter into long-term marketing and product buy-out agreements
from reputable companies.
Camden believes that its proposed organic fertilizer manufacturing
facilities can be developed worldwide. In determining an area that may be
conducive to one of Camden's facilities, Camden considers the following:
* Identification of those areas that have documented organic waste
management problems, and can generate sufficient volumes of
animal residues to sustain an organic fertilizer operation;
* Active industry associations that are willing to work with Camden
in identifying solutions for organic waste such as animal
residues; and
* Active local and state governments that are willing to work with
Camden in identifying solutions for organic waste such as animal
residues.
In applying the above criteria, Camden has selected North Carolina as
its first proposed organic fertilizer processing plant. During the evaluation
process, Camden noted that the state of North Carolina had a large number of
both poultry and hog producers, had active state and national associations for
poultry and hog producers, provides incentives to poultry producers to remove
animal residues through a secondary process or where land application is
avoided, and had a mild climate that allowed year-round plant operations and
allowed animal residue transportation without damage due to weather, such as
freezing.
On May 19, 1999, Camden entered into a letter of intent to acquire
approximately 52 acres in Merry Hill, North Carolina. The property is currently
permitted as a composting facility and Camden intends to retrofit it to convert
animal residues into organic fertilizer products. The proposed purchase price is
approximately $750,000 to be paid in part by cash and the assumption of certain
debt. The letter of intent expired on October 15, 1999. However, Camden and the
owner are still in discussion regarding the acquisition. The acquisition of the
property is subject to Camden, through the Company, raising sufficient funds to
pay for the property and no assurance can be given that Camden will be able to
complete the acquisition.
<PAGE>6
Research and Development
Camden has conducted its research and development in conjunction with
universities and governmental agencies. In 1996, Camden conducted two livestock
feeding and fertilizer trials at Kansas State University, Kansas. During the
process, several short tons of organic waste were processed into two livestock
feed supplements and one organic-based fertilizer. The livestock feeding trial
conducted by Kansas State University involved 70 heads of cattle, and the
fertilizer trial consisted of comparing grain sorghum yields in a series of
replicated field plots. The trials indicated that animal residues can be used as
a supplement to livestock feed and that animal residues used in organic-based
fertilizers could exceed commercial fertilizers in yield/acre.
More recently, between September 1998 and February 1999, Camden, in
cooperation with the Eastern Cereal & Oilseed Research Centre, a Division of
Agriculture and Agri-food Canada, Ottawa, Ontario, conducted a joint research
project assessing the physical, chemical and agronomic characteristics of
Camden's organic fertilizer blends and growing media, TRULY ORGANIC(TM) MTO,
TRULY ORGANIC(TM) MTE, and TRULY ORGANIC(TM) GROWING MEDIA. The research project
compared Camden's organic fertilizer blends and growing media with traditional
growing media and chemical fertilizers. Tests were conducted on three major
types of crops: a leafy crop (lettuce); a root crop (radish); and a fruit crop
(tomato). Results of the trials indicated that the performance of Camden's
organic fertilizer blends met or exceeded that of other chemical fertilizers.
Agriculture and Agri-food Canada is a Canadian governmental agency that
promotes the development, adaptation and competitiveness of the agriculture and
agri-food sector through policies and programs that are most appropriately
provided by the Canadian federal government. The overall goal is to help the
sector maximize its contribution to Canada's economic and environmental
objectives and achieve a safe, high quality food supply while maintaining a
foundation for agriculture. Since 1997, Camden has expended approximately
$193,000 for research and development of its organic products, and Camden has
committed an additional Cdn $60,000 for comparative testing and further
development of its organic fertilizer blends at Agriculture and Agri-food
Canada.
The development of Camden's organic fertilizers blends and growing media
is in its initial stages. No assurance can be given that Camden will be able to
produce the same test results under commercial production conditions.
Sources and Availability of Raw Materials
Camden's main source of raw materials for its organic fertilizer
products will be animal residues initially consisting of poultry manure and hog
manure. Camden believes that there is a great supply of these ingredients.
Camden intends to enter into by-products supply agreements with initially
poultry and hog farmers located in North Carolina. Under the by-products supply
agreement, the farmers will supply Camden with animal residues meeting certain
specifications. Camden will pay the farmer for the animal residues with the
right to receive any state incentives for the disposal of the animal residues.
Due to the increase in organic waste material, some states such as North
Carolina provide incentives and/or subsidies to companies that recycle organic
waste.
Customers
At this time, because Camden is in the development stage it has no
customers.
<PAGE>7
Competition
Camden is directly and indirectly in competition with other fertilizer
businesses, including other organic recycling facilities. Further, many of
Camden's competitors have greater production capacity and greater financial
resources and, therefore, may be better able to compete in the domestic and
international markets. Competing technology may also be developed by the other
companies in the industry. Further, many of Camden's competitors may take action
such as price reductions to keep their markets and hinder Camden's ability to
sell its products. There can be no assurance that Camden will be able to develop
a competitive position in the fertilizer industry.
Patents and Trademarks
In the course of Camden's ongoing organic fertilizer research, it has
developed various technological innovations in the areas of manufacturing
process as well as products. At June 24, 1999, the Minister of Agriculture and
Agri-food Canada on behalf of Camden applied for patents in the United States
for its three product lines: Pure Organic Fertilizer Blends, Enhanced Organic
Fertilizer Blends, and Growing Media. Collectively, the applications include
composition claims for its organic fertilizers and manufacturing processes. In
conjunction with the evaluation of Camden's organic products, the patents were
transferred to Camden. These patent applications are currently pending.
No assurance can be given that Camden's manufacturing process will be
granted a patent, or if granted, that it will afford protection against
competitors. Further, any patent issued to Camden could be challenged,
invalidated or circumvented by others. Further, since patent applications in the
United States are maintained in secrecy until the patent is issued, Camden
cannot be certain that others have not filed patent applications directed toward
inventions covered by its pending patent applications or that it was the first
to file patent applications on such inventions. There can also be no assurance
that any application of Camden's technologies will not infringe patents or
proprietary rights of others or that licenses that might be required for
Camden's processes or products would be available on reasonable terms. The
extent to which Camden may be required to obtain licenses from others, the cost
and the availability of such licenses are unknown.
Camden also makes use of its trade secrets or "know-how" developed in
the course of its research and development in the area of manufacturing process.
To the extent that Camden relies upon trade secrets, unpatented know-how and the
development of improvements in establishing and maintaining a competitive
advantage in the market for Camden's products, there can be no assurances that
such proprietary technology will remain a trade secret or that others will not
develop substantially equivalent or superior technology to compete with Camden's
products.
Camden has filed a trademark for "TRULY ORGANIC" in the United States.
The trademark is currently pending.
If Camden becomes involved in litigation regarding its intellectual
property, it could consume a substantial portion of Camden's resources. Camden
may lack the financial resources to defend its intellectual property claims or
to prosecute infringements by others.
<PAGE>8
Environmental Regulations
The location, construction, and operation of organic fertilizer
facilities are regulated by state and federal environmental laws. Obtaining
local approvals and state air, water and operating permits is a detailed and
complex process. This may especially be true where the proposed facility is to
be located in or near urban areas. Requisite approvals to be obtained in most
jurisdictions include Local Planning Board, Zoning Boards, Solid Waste and Water
Disposal Boards, Composting Operation Permits, Air Permits and Building Permits.
Employees. As of September 30, 1999, the Company, and its subsidiary, had a
total of eight employees.
CERTAIN CONSIDERATIONS
In addition to the other information presented herein, the following
should be considered carefully in evaluating the Company and its business. This
information contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below and
elsewhere herein.
Lack of Profits and Going Concern Opinion. For the years ended September
30, 1997 and 1998, and for the period from October 31, 1998 to December 31,
1998, the Company incurred net losses of $22,059, $268,548, and $126,131,
respectively. For the nine months ended September 30, 1999, the Company incurred
a loss of $294,304. As a result of these losses and negative cash flows from
operations, the Company's auditors' report on the Company's consolidated
financial statements include an additional paragraph which refers to
uncertainties as to the Company's ability to continue to operate as a going
concern.
Development Stage Company. Hyaton is in its development stage,
researching and developing organic-based fertilizers. The Company has no
commercial products. Although under test conditions, the Company's proposed
organic fertilizers performed as well, if not better, than traditional chemical
fertilizers, no assurance can be given that the Company will be able to achieve
the same results under commercial conditions. Further, Hyaton will face the same
challenges experienced by other development stage companies, including, but not
limited to, developing market acceptance for its proposed products.
Need for Additional Capital. The Company believes that it will need
additional working capital to finance and develop organic fertilizer facilities
and for its operations in 1999 and 2000. No assurance can be given that the
Company will be successful in raising capital for its projects or, if raised,
that it will be on terms favorable to the Company. In the event the Company is
required to raise additional capital through private placement of its equity
securities, such placement of equity securities will have the effect of diluting
existing shareholders' ownership interest in the Company. If the Company is
unable to raise sufficient funds to finance these projects, the Company may not
be able to complete its projects which will have an adverse effect on the
Company's business objectives.
Dependence on Key Personnel. The Company is dependent on Mr. Robert
Novitsky, President, for his expertise. The loss of Mr. Novitsky could have a
material adverse effect upon the Company.
<PAGE>9
Concentration of Stock Ownership. As of September 30, 1999, Kafus owned
20,000,000 shares of Common Stock of the Company constituting approximately
72.6% of the outstanding shares. As a result of its ownership, Kafus will have
substantial control over corporate matters without seeking other shareholder
approval, including the election of directors and approval of significant
corporate transactions. Further, such concentration of ownership may also have
the effect of delaying or preventing a change in control of the Company.
Authorization of Preferred Stock; Possible Anti-Takeover Effects. The
Board of Directors is authorized to issue Preferred Stock and to determine the
dividend, liquidation, conversion, redemption and other rights, preferences, and
limitations of such shares without further vote or action of the stockholders.
Accordingly, the Board of Directors is empowered, without shareholder approval,
to issue Preference Stock with dividend, liquidation, conversion, or other
rights which could adversely affect the voting power or the rights of the
holders of the Common Stock. In the event of such issuance, the Preferred Stock
could be utilized, under certain circumstances, as a method of discouraging and
delaying or preventing a change in control of the Company.
No Dividends. The Company has not paid cash dividends on its Common
Stock since its inception and does not anticipate any cash dividends on the
Common Stock in the foreseeable future. For the foreseeable future, the Company
intends to reinvest the earnings of the Company, if any, in the development and
expansion of its business.
Item 2. Management's Discussion and Analysis or Plan of Operation
General
The following discusses the Company's financial condition and results of
operations based upon the Company's consolidated financial statements which have
been prepared in accordance with generally accepted accounting principles.
The Company was formed on August 20, 1996, to evaluate businesses for
possible acquisition. Effective November 2, 1998, the Company completed a
reorganization with Kafus whereby the Company issued 20,000,000 shares of its
Common Stock in exchange for Kafus' 9,000 common shares of Camden. Through
Camden, the Company is in the business of management consulting and product
development, and the Company's efforts have focused primarily on the development
of organic fertilizers from animal waste.
The following information discusses the Company's results of operations
for the years ended September 30, 1997 and 1998, three months ended December 31,
1998, and for the nine months ended September 30, 1999. Because the Company is
in the development stage, the following financial information may not be
indicative of the Company's operations in the future.
<PAGE>10
Results of Operations
For the nine months ended September 30, 1999, compared to the nine months ended
September 30, 1998
Revenues. For the nine months ended September 30, 1999, the Company's
cost of goods sold exceeded gross revenues by $15,100, as compared to revenues
of $2,681 for the nine months ended September 30, 1998.
Expenses. Total expenses for the nine months ended September 30, 1999,
were $279,204 compared to $221,977 for the nine months ended September 30, 1998.
Most of the expenses consisted of consulting and professional fees related to
the development of the Company's organic fertilizers, for the nine months ended
September 30, 1999. For the nine months ended September 30, 1998, most of the
expenses were attributed to product development and research costs related to
the development of animal feed from food waste. This program was suspended in
January 1999.
Net Loss. The Company incurred a net loss of $294,304 for the nine
months ended September 30, 1999, primarily related to the lack of revenues,
compared to a net loss of $219,296 for the nine months ended September 30, 1998.
For the three months ended December 31, 1998
Revenues. Revenues for the three months ended December 31, 1998, were
$36,465. Revenues were primarily derived from contract services regarding
environmental studies.
Expenses. Total expenses for the three months ended December 31, 1998,
were $162,596, consisting primarily of consulting and other professional fees,
product development and research costs and administrative and other expenses.
Consulting fees related to engineer and administrative services provided to the
Company. Product development and research costs relate primarily to the
development of organic animal feed from organic waste and organic fertilizers
from animal residues, patent applications for organic fertilizers and project
costs for consulting services rendered. As previously discussed, during the
beginning of 1999, the Company began to concentrate its efforts toward the
development of organic fertilizers from animal residues.
Net Loss. The Company had a net loss of $126,131 for the three months
ended December 31, 1998.
Year ended September 30, 1998 compared to Year ended September 30, 1997
Revenues. Revenues for the year ended September 30, 1998, were $2,805
compare to no revenues for the year ended September 30, 1997. Revenues were
primarily derived from contract services regarding environmental studies.
Expenses. Total expenses for the year ended September 30, 1998, were
$271,353 compared to total expenses of $22,059 for the year ended September 30,
1997. During the year ended September 30, 1998, expenses increased substantially
in consulting and other professional fees, product development and research
costs and administrative and other expenses. Consulting fees related to engineer
<PAGE>11
and administrative services provided to the Company. Product development and
research costs relate primarily to the development of organic animal feed and
fertilizers from animal residues.
Net Loss. For the year ended September 30, 1998, the Company had a loss
of $268,548 compared to a loss of $22,059 for the year ended September 30, 1997.
The substantial loss incurred during the year ended September 30, 1998, can be
attributed to the increase in total expenses related to the development of the
Company's proposed products.
Liquidity and Capital Resources
The Company is a development stage company that intends to develop and
market fertilizer derived from animal residues. At this time, the Company has no
substantial revenues, and does not anticipate any substantial revenues until it
is able to develop and sell its products. Previously, the Company has received
loans to fund its operations and provide working capital. It is anticipated that
the Company will continue to finance its operations through loans and equity and
debt financings. As of December 31, 1998 and September 30, 1999, the Company's
working capital deficit was $400,782 and $720,394.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's, or its suppliers' and customers' computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
Because the Company is in the development stage and has no significant
operations, the Company does not anticipate that its software or computer
systems will require any significant modification or replacement in response to
the Year 2000 Issue. In the Company's assessment, the Year 2000 Issue will not
materially affect the specific operations of the Company and its subsidiary.
The Company will ensure that any future proposed plant will comply with
Year 2000 standards.
Item 3. Description of Property
The Company, through Camden, leases 900 square feet of office space in
an office building located at 2285 St. Laurent Boulevard, Unit 16, Ottawa,
Ontario, Canada. The lease has no fixed terms and may be terminated within 30
days written notice. The Company pays a monthly rent of approximately CDN
$1,700.
<PAGE>12
Item 4. Security Ownership of Certain Beneficial Owners and Management.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of October 31, 1999, certain
information with respect to the beneficial ownership of the Company's Common
Stock by (a) each stockholder known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock, (b) each executive officer and
director of the Company, and (c) each director and executive officer of the
Company and its subsidiary as a group.
<TABLE>
<CAPTION>
Percentage
Number of Beneficially
Name and Address Shares(1) Owned
---------------- ---------- -------------
<S> <C> <C>
Kafus Industries Ltd. 20,000,000 72.6%
755 Burrard Street, Suite 440
Vancouver, British Columbia
Canada V6Z 1X6
Robert Novitsky 245,000(2) *
Manfred Schultz 100,000(3) *
Michael McCabe 25,000(3) *
Peter Schlesinger 25,000(3) *
Milton Datsopoulos 25,000(3) *
Gordon C. Robinson 25,000(3) *
Paul McClory 25,000(3) *
Lynda Murdock 10,000(3) *
Fiama Walker 5,000(3) *
All directors and executive officers as a 485,000(3) 1.7%
group (9 persons)
</TABLE>
* Represents less than 1%.
(1) Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed above, based on information furnished
by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable, or exercisable
within 60 days, are deemed outstanding for purposes of computing the
percentage ownership of the person holding such option or warrants, but
are not deemed outstanding for purposes of computing the percentage
ownership of any other person.
(2) As of October 31, 1999, Mr. Robert Novitsky holds an option to exchange
his ten percent (10%) interest in Camden (which represents 1,000 shares
of Camden's common shares) for 120,000 shares of the Company's Common
<PAGE>13
Stock. See "Item 7. Certain Relationship and Related Transactions."
Also includes options to purchase 125,000 shares of Common Stock.
(3) Represents options exercisable within 60 days to purchase shares of
Common Stock.
Item 5. Directors, Executive Officers, Promoters and Control Persons
MANAGEMENT
Executive Officers and Directors
The directors and executive officers of the Company as of September 30,
1999, are as follows:
<TABLE>
<CAPTION>
Name Age Office or Position Held Position Since
---- --- ------------------ -------------------
Executive Officers and Directors of the
Company:
<S> <C> <C> <C>
Robert Novitsky 52 President, Director 1999
Manfred Schultz 51 Vice President, Director 1999
Michael McCabe 42 Chief Financial Officer, Director 1998
Peter Schlesinger 65 Director 1999
Milton Datsopoulos 59 Director 1999
Gordon Robinson 59 Director 1999
Paul McClory 59 Director 1999
Lynda Murdock 38 Treasurer 1999
Fiama Walker 54 Secretary 1999
Executive Officers of Camden:
Robert Novitsky 52 President 1996
Manfred Schultz 51 Vice President of Business 1999
Development
</TABLE>
The following sets forth the principal occupations during the past five
years of the directors and certain executive officers of the Company and
executives of its subsidiary.
Robert L. Novitsky has been the President and Director of the Company since
March 1999 and has been with the Company since 1998. Mr. Novitsky has also been
the President of Camden since 1996. Mr. Novitsky was a Director of The CanFibre
Group Ltd. from August 1992 to December 1997. Since 1990, Mr. Novitsky has been
President and Director of Notra Environmental Services Inc. and Notra Marine.
From 1989 to 1990, he was Executive Vice-President in charge of management for
Amtek Engineering Service Incorporated, an engineering consulting company. From
<PAGE>14
1986 to 1990, he was President of SSI Monenco Limited and responsible for all
corporate activities associated with that professional engineering company. He
has a Bachelor degree in Chemical Engineering from Royal Military College in
Kingston, Ontario, an Ocean Engineer degree from MIT and a Master of Science in
Materials Engineering and Science from MIT.
Manfred W. Schultz has been the Vice President of Business Development of
the Company since September 1, 1999, and Director of the Company since August
1999. Mr. Schultz has also worked with Camden on a consultative basis since June
1999. From 1995 to 1999, Mr. Schultz worked as a business consultant for various
businesses and held senior executive and Director positions at Integrated
Resources Corp. and Northern Ostrich Corp. From 1987 to 1995, he founded and was
President and Chief Executive Officer of Koala Beverages Ltd. where he was
responsible for development and overall management. He has a Bachelor of Arts
degree in Economics from the University of Western Ontario.
Michael McCabe has been Chief Financial Officer and a Director of the
Company since 1998. Since 1997, Mr. McCabe has served as President and a
Director of Kafus Industries Ltd. From 1996 until May 1997, Mr. McCabe was
Managing Director of Project Finance for Key Global Finance Ltd. in Boston,
Massachusetts. From 1991 to 1996, he was Senior Vice President of BTM Capital
Corporation. He has a BS in Chemistry and Physics from Bridgewater State
College, an MS in Chemical Engineering from Purdue University, and an MBA in
Finance from Pace University.
Peter Schlesinger has been a Director of the Company since August 1999.
Since December 1993 Mr. Schlesinger has been a Director of, and since March
1998, Chairman of the Board and Chief Financial Officer of, MGPX Ventures Inc.
Now self-employed, Mr. Schlesinger was a partner of a Canadian stockbrokerage
firm, Annett Partners, for ten years and manager of a Bermuda investment
company, Tatra Ltd., since 1974. He was president of Halton Insurance, a Bermuda
insurance company, listed on The Toronto Stock Exchange, from 1988 to 1994. For
ten years he has also served as president of the Canadian Parkinson Disease
Foundation. Mr. Schlesinger has a BS in Psychology and Economics, and a MBA in
Finance from Columbia University.
Milton Datsopoulos became a Director of the Company on October 15, 1999.
Mr. Datsopoulos has also been a director of Kafus since March 25, 1998. Since
1974, Mr. Datsopoulos has been a partner of Datsopoulos, MacDonald & Lind, P.C.,
attorneys at law.
Gordon Robinson became a Director of the Company on October 15, 1999. Mr.
Robinson has also been a director of Kafus since March 25, 1998. Since 1992, Mr.
Robinson owns and operates a home improvement business.
Peter McClory was appointed to the Board of Directors on October 15, 1999.
He was also director of Kafus from June 11, 1996, until 1998. For over the past
five years, Mr. McClory, through his wholly-owned company Willow Holdings, Inc.,
has been a consultant to several public and private companies including Kafus
and North American Tire Recycling Ltd.
Lynda Murdock was appointed Treasurer to the Company on October 15, 1999.
Since July 1999, Ms. Murdock has been Senior Vice President of Taxation, Audit
and Accounting for Kafus. Prior to her time with Kafus, Ms. Murdock has spent
the last 15 years in public accounting practice, most recently as a Tax Partner
with KPMG LLP of Canada. Ms. Murdock is a Chartered Accountant.
<PAGE>15
Fiama Walker has been Secretary of the Company since September 16, 1999.
Ms. Walker has been Assistant Corporate Secretary and Manager of Compliance of
Kafus since July 7, 1998. For the last 25 years, Ms. Walker worked as a
paralegal and legal assistant for various law firms in British Columbia,
specializing in corporate and commercial law. She has completed diploma courses
in business administration, accounting and law from various colleges and
universities in British Columbia.
Item 6. Executive Compensation
Executive Compensation.
None of the Company's directors, officers, or employees or officers and
employees of its subsidiaries earned in excess of $100,000 for the three months
ended December 31, 1998.
The following table sets forth, for each of the compensation of the
Company's president during the last three complete fiscal periods. No other
officers received annual compensation in excess of $100,000 during the last
three complete fiscal periods.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
------------------------------------------------------
Annual Compensation Awards Payout
---------------------------------------------- ------------------------------ -------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Compensation Award(s) Options Payout Compensa-
Position Period Salary Bonus ($) ($) ($) (#) ($) tion ($)
----------------------------------------------------------------------------- ---------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. Novitsky 1998 $10,149(1) - - - - - -
President
Daniel Hodges(2) 1998 $60,000 - - - - - -
President
</TABLE>
(1) Mr. Novitsky has been receiving a salary in the form of consulting fees
of Cdn $3,383 per month for serving as the president of Camden. The
figure $10,149 represents three months' salary. He currently does not
receive any salary for serving as the President of the Company.
(2) Mr. Hodges resigned as president on November 10, 1998. During 1998, Mr.
Hodges was paid consulting fees of $60,000.
At this time, the Company does not pay its directors compensation as
serving as such and for their attendance at board meetings. Further, at this
time, the Company does not provide pension, retirement or similar benefits to
its officers and directors.
Outstanding Options Granted to Directors and Executive Officers.
The following table provides information relating to share options
granted to executive officers of the Company, and directors and certain
executive officers of the Company and its subsidiary, Camden, as a group, and
<PAGE>16
outstanding as of October 31, 1999. No options were granted to either officers
or directors of the Company as of December 31, 1998.
<TABLE>
<CAPTION>
Name Number of Options Exercise Price Expiration Date
---- ----------------- -------------- ---------------
<S> <C> <C> <C>
Robert Novitsky 125,000 $1.50 October 13, 2004
Michael A. McCabe 25,000 $1.50 October 13, 2004
Peter Schlesinger 25,000 $1.50 October 13, 2004
Manfred W. Schultz 100,000 $1.50 October 13, 2004
Milton Datsopoulos 25,000 $1.50 October 13, 2004
Gordon Robinson 25,000 $1.50 October 13, 2004
Paul McClory 25,000 $1.50 October 13, 2004
Lynda Murdock 10,000 $1.50 October 13, 2004
Fiama Walker 5,000 $1.50 October 13, 2004
Officers and Directors as 365,000
a group (9 persons)
</TABLE>
In addition to the foregoing, the Company has granted to its employees
five-year options to purchase, in the aggregate, 55,000 shares of Common Stock
of the Company at $1.50 per share. The Company has also granted an option to
purchase 500,000 shares of Common Stock to The Samarac Corporation Ltd.
("Samarac") for consulting purposes. See "Certain Relationships and Related
Transactions."
Item 7. Certain Relationships and Related Transactions
In connection with the Reorganization, Mr. Novitsky and the Company
entered into an agreement pursuant to which Mr. Novitsky has the option to
exchange his 1,000 shares in Camden, representing 10% of the outstanding Camden
common shares, for 120,000 shares of Common Stock of the Company.
On October 14, 1999, the Company granted a five year option to purchase
500,000 shares of Common Stock of the Company at an exercise price of $1.50 per
share to Samarac. Samarac intends to provide international development contracts
for Hyaton's products. Samarac is an approximate 38.82% shareholder of Kafus,
and is controlled by Mr. Kenneth F. Swaisland, Chief Executive Officer of Kafus.
The Company pays rent for office space to Notra Environmental Services
Incorporation of which Mr. Robert L. Novitsky is also the President and a
Director. Mr. Novitsky is also the President and director of the Company, the
President of Camden, and a minority shareholder of Camden, owning ten percent
(10%) of Camden. For the three months ended December 31, 1998, and the years
ended September 30, 1998, and 1997, the Company paid rent of Cdn $5,100, Cdn
$20,400, and Cdn $20,400, respectively.
<PAGE>17
As at September 30, 1999 and December 31, 1998, the Company had loans
outstanding in the aggregate amount of $811,537 and $373,605 due to Kafus and
its affiliate. The loans are non-interest bearing with no specific terms of
repayment.
Item 8. Description of Securities
The Company is authorized to issue 100,000,000 shares of Common Stock,
par value $.01, of which 27,559,000 were outstanding as of October 31, 1999, and
25,000,000 shares of Preferred Stock, par value $.01. As of October 31, 1999, no
Preferred Stock was outstanding.
Common Stock
Each holder of record of shares of Common Stock is entitled to one vote
for each share so held on all matters requiring a vote of shareholders,
including the election of directors. There are no preferences, conversion
rights, preemptive rights, subscription rights, or restrictions or transfers
attached to the Common Stock. In the event of liquidation, dissolution, or
winding up of the Company, the holders of Common Stock are entitled to
participate in the assets of the Company available for distribution after
satisfaction of Preferred Stock and the claims of creditors.
Preferred Stock
The Board of Directors has not established any series of Preferred
Stock.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company's Common Stock began trading on the OTC Bulletin Board under
the symbol "HYTN" on September 30, 1998. The Company has a limited market for
its Common Stock with no real trading volume. The following quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The high and low prices of the Company's Common
Stock on a quarterly basis since September 30, 1998, are as follows:
Quarter Ended High Low
------------- ---- ---
September 30, 1999 $3.25(1) $3.00(1)
June 30, 1999 $2.25(2) $1.75(2)
March 31, 1999 $3.00 $1.50
December 31, 1998 $2.00 $0.19
(1) Represents date of last known trade of October 29, 1999.
(2) Represents date of last know trade of May 28, 1999.
<PAGE>18
Item 2. Legal Proceedings.
Neither the Company nor Camden is involved in any legal proceeding.
Item 3. Changes in and Disagreements with Accountants
None
Item 4. Recent Sales of Unregistered Securities
On April 20, 1998, the Company sold 6,059,000 shares of Common Stock to
approximately 30 purchasers for $60,590. This transaction was exempt from
registration pursuant to Regulation D, Rule 504. No commissions were paid in the
transaction.
On November 2, 1998, the Company issued 20,000,000 shares of Common
Stock to Kafus Industries Ltd. in exchange for all of the common shares of
Camden Agro-Systems Inc. owned by Kafus Industries Ltd. This transaction was
exempt from registration upon reliance of Section 4(2) and Regulation D of the
Securities Act. In connection with the exchange, an unaffiliated party received
500,000 shares of Common Stock of the Company as a finder's fee.
Item 5. Indemnification of Directors and Officers
The Company has adopted Section 78.751 of the Domestic and Foreign
Corporation Laws of the State of Nevada in its bylaws. Section 78.751 states:
1. A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the right of
the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
him in connection with the action, suit or proceeding if he acted in
good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal
action or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
2. A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
<PAGE>19
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him
in connection with the defense or settlement of the action or suit if
he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to
which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the
action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances of
the case, the person is fairly and reasonably entitled to indemnity
for such expenses as the court deems proper.
PART F/S
The Company's financial statements for the years ended September 30,
1997 and 1998, the three months ended December 31, 1998, and for the nine months
ended September 30, 1999 (unaudited), are attached to this Registration
Statement.
PART III
Item 1. Index to Exhibits
Part III - Item 2.
Item 2. Description of Exhibits
2.1 Plan and Agreement of Reorganization, dated November 2, 1998,
between the Company and Kafus Environmental Industries Ltd.(1)
3.1 Amended and Restated Articles of Incorporation of Hyaton Company
Incorporated (1)
3.2 Amended Articles of Incorporation of Hyaton Company Incorporated
changing its name to Hyaton Organics Inc.(1)
3.3 Amended and Restated Bylaws of the Company (1)
10.1 Form of Option Agreement between Robert Novitsky and Hyaton
Company Incorporated
(1) Previously filed with the Company's Form 10-SB on October 28, 1999.
<PAGE>20
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this pre-effective amendment no. 1 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
HYATON ORGANICS INC.
Dated: November 28, 1999 /s/ Robert Novitsky
--------------------------
By: Robert Novitsky, President
<PAGE>F-1
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Consolidated Balance Sheets
(Unaudited - Prepared Internally by Management)
<TABLE>
<S> <C> <C>
Sept 30, Sept 30,
1999 1998
------------------ --------------
Assets
Current assets:
Cash $ 114,632 $ 729
Accounts receivable and other 3,300 4,097
---------------- --------------
117,932 4,826
Computer equipment, net of accumulated depreciation of $415 1,527 1,578
---------------- --------------
$ 119,459 $ 6,404
================ ==============
Liabilities and Shareholders' Deficiency
Current liabilities:
Accounts payable and accrued liabilities $ 26,789 $ 18,202
Loans from related parties 811,537 268,906
----------------- -------------
838,326 287,108
Shareholders' deficiency:
Capital stock:
Authorized:
100,000,000 common shares with a par value of $0.01
25,000,000 preference shares with a par value of $0.01
Issued:
27,559,000 common shares 276,247 657
Deficit accumulated during the development stage (986,074) (291,914)
Other comprehensive income:
Cumulative translation adjustment (9,040) 10,553
----------------- -------------
(718,867) (280,704)
----------------- -------------
$ 119,459 $ 6,404
================= =============
</TABLE>
Effective October 21, 1999 name changed to Hyaton Organics Inc.
<PAGE>F-2
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Consolidated Statements of Operations and Deficit
(Unaudited - Prepared Internally by Management)
<TABLE>
<S> <C> <C>
Nine Month Nine Month
Period Ended Period Ended
---------------- --------------
Sept 30, Sept 30,
1999 1998
---------------- --------------
Revenue $ (15,100) $ 2,681
Expenses:
Consulting and other professional fees 218,938 79,163
Product development and research costs 19,289 121,767
Administrative and other expenses 40,977 21,047
----------------- --------------
279,204 221,977
----------------- --------------
Net loss 294,304 219,296
Deficit accumulated during the
development stage, beginning of period 691,770 72,618
----------------- --------------
Deficit accumulated during the
development stage, end of period $ 986,074 $ 291,914
================= ==============
Basic loss per share $ 0.01 $ 0.01
Weighted average number of shares
outstanding 27,559,000 20,000,000
================= ==============
</TABLE>
Effective October 21, 1999 name changed to Hyaton Organics Inc.
<PAGE>F-3
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Consolidated Statements of Cash Flows
(Unaudited - Prepared Internally by Management)
<TABLE>
<S> <C> <C>
Nine Month Nine Month
Period Ended Period Ended
---------------- --------------
Sept 30, Sept 30,
1999 1998
---------------- --------------
Cash flows from (used in) operating activities:
Net loss $ (294,304) $ (219,296)
Item not involving the use of cash:
Depreciation 19 280
Changes in non-cash operating working capital:
Accounts receivable and other 37,805 (3,387)
Accounts payable and accrued liabilities (11,569) 16,336
---------------- --------------
(268,049) (206,067)
Cash flows used in investing activities:
Acquisition of computer equipment - (1,858)
---------------- --------------
Cash flows from financing activities: Loans from related parties:
Kafus Industries Ltd. 342,507 17,955
Cameron Strategic Planning Ltd. 54,200 109,185
Mr. Robert L. Novitsky 2,019 39,500
Notra Environmental Services Ltd. - 6,008
---------------- --------------
398,726 172,648
Effect of exchange rate changes on foreign
currency cash balances (25,255) 8,965
---------------- --------------
Increase (decrease) in cash 105,422 (26,312)
Cash, beginning of period 9,210 27,041
---------------- --------------
Cash, end of period $ 114,632 $ 729
================ ==============
Supplementary information:
Interest paid $ - $ -
Income taxes paid 1,354 -
================ ==============
</TABLE>
Effective October 21, 1999 name changed to Hyaton Organics Inc.
<PAGE>F-4
Auditors' Report
To the Board of Directors
Hyaton Company Incorporated
We have audited the consolidated balance sheet of Hyaton Company Incorporated (a
development stage enterprise) as at December 31, 1998 and the consolidated
statements of operations and deficit and cash flows for the three months ended
December 31, 1998, the years ended September 30, 1998 and 1997, and the period
from November 24, 1994 (incorporation) through December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and the results of its operations and its cash flows for the three months ended
December 31, 1998, the years ended September 30, 1998 and 1997, and the period
from November 24, 1994 (incorporation) through December 31, 1998 in accordance
with generally accepted accounting principles in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1, the
Company is dependent on raising financing to fund the construction of a
manufacturing facility for its patented fertilizer products and the attainment
of profitable operations, which although consistent with management's plans and
intentions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustment that might
result from the outcome of this uncertainty.
(Signed) KPMG LLP
Chartered Accountants
Vancouver, Canada
September 14, 1999
<PAGE>F-5
HYATON COMPANY INCORPORATED
(a development stage enterprise)
<TABLE>
<S> <C>
Consolidated Balance Sheet
(expressed in U.S. dollars)
December 31, 1998
Assets
Current assets:
Cash $ 9,210
Accounts receivable and other (note 3) 41,108
--------------
50,318
Computer equipment, net of accumulated depreciation
of $394 (September 30, 1998 - $280) 1,474
--------------
$ 51,792
==============
Liabilities and Shareholders' Deficiency
Current liabilities:
Accounts payable and accrued liabilities (note 3) $ 38,289
Loans from related parties (note 3) 412,811
--------------
451,100
Shareholders' deficiency:
Capital stock (note 4):
Authorized:
100,000,000 common shares with a par value of $0.01
25,000,000 preference shares with a par value of $0.01
Issued:
27,559,000 common shares 276,247
Deficit accumulated during the development stage (691,770)
Other comprehensive income (note 5):
Cumulative translation adjustment 16,215
-------------
(399,308)
Contingencies (note 6)
$ 51,792
==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>F-6
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Consolidated Statements of Operations and Deficit
(expressed in U.S. dollars)
<TABLE>
<S> <C> <C> <C> <C>
For the period
Three months November 24,
ended Year ended Year ended 1994 to
December 31, September 30, September 30, December 31,
1998 1998 1997 1998
---------------- ---------------- --------------- ----------------
Revenue $ 36,465 $ 2,805 $ - $ 48,413
Expenses (note 3):
Consulting and other
professional fees 69,692 97,504 6,676 185,312
Product development and
research costs 64,092 126,770 2,243 193,400
Travel 1,389 22,083 6,022 29,492
Administrative and other expenses 27,423 24,996 7,118 61,389
---------------- ---------------- --------------- ----------------
162,596 271,353 22,059 469,593
---------------- ---------------- --------------- ----------------
Net loss 126,131 268,548 22,059 421,180
Deficit accumulated during the
development stage, beginning
of period 295,049 26,501 4,442 -
Charge to deficit (note 1) 270,590 - - 270,590
---------------- ---------------- --------------- ----------------
Deficit accumulated during the
development stage, end of period $ 691,770 $ 295,049 $ 26,501 $ 691,770
================ ================ =============== ================
Basic loss per share $ 0.01 $ 0.01 $ - $ 0.02
Weighted average number of shares
outstanding 24,847,620 20,000,000 20,000,000 20,297,916
================ ================ =============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>F-7
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
<TABLE>
<S> <C> <C> <C> <C>
For the period
Three months November 24,
ended Year ended Year ended 1994 to
December 31, September 30, September 30, December 31,
1998 1998 1997 1998
---------------- ---------------- --------------- ----------------
Cash flows from (used in) operating
activities:
Net loss $ (126,131) $ (268,548) $ (22,059) $ (421,180)
Items not involving the use of
cash:
Depreciation 114 280 - 394
Shares issued as a financing fee 5,000 - - 5,000
Changes in non-cash operating
working capital:
Accounts receivable (37,549) 2,403 4,007 (33,663)
Accounts payable 20,550 10,730 9,326 31,355
Deposit on building - 10,158 (10,158) -
---------------- ---------------- --------------- ----------------
(138,016) (244,977) (18,884) (418,094)
---------------- ---------------- --------------- ----------------
Cash flows used in investing activities:
Capital expenditures - (1,868) - (1,868)
---------------- ---------------- --------------- ----------------
Cash flows from financing activities:
Issuance of common shares - - - 657
Loans from related parties:
Kafus Industries Ltd. 132,149 19,900 - 152,049
Cameron Strategic Planning Ltd. 14,470 174,060 32,849 238,390
Mr. Robert L. Novitsky - 39,744 - 39,744
---------------- ---------------- --------------- ----------------
146,619 233,704 32,849 430,840
---------------- ---------------- --------------- ----------------
Effect of exchange rate changes on
foreign currency cash balances (127) (74) (205) (1,668)
---------------- ---------------- --------------- ----------------
Increase (decrease) in cash 8,476 (13,215) 13,760 9,210
Cash, beginning of period 734 13,949 189 -
---------------- ---------------- --------------- ----------------
Cash, end of period $ 9,210 $ 734 $ 13,949 $ 9,210
---------------- ---------------- --------------- ----------------
Supplementary information:
Interest paid $ - $ - $ - $ -
Income taxes paid - - - -
Non-cash transactions:
Issuance of common shares:
For investment in CASI 270,590 - - 270,590
As a financing fee 5,000 - - 5,000
---------------- ---------------- --------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>F-8
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
1. Nature and continuance of operations:
Hyaton Company Incorporated ("Hyaton") was incorporated pursuant to the
laws of the State of Nevada on August 20, 1996. Effective November 2, 1998,
Hyaton holds a 90% investment in Camden Agro-System Inc. ("CASI"), a
Canadian company, as its sole asset. Prior to that date Hyaton was
inactive.
CASI was incorporated under the Ontario Business Corporations Act (1982) on
November 24, 1994 to carry on the business of management consulting and
product development. CASI's efforts have focused primarily on the
development of organic fertilizers and animal feed from animal waste. In
early 1999, CASI's management discontinued its efforts towards the
development of organic animal feed.
Pursuant to the Plan and Agreement of Reorganization dated November 2,
1998, Hyaton issued 20,000,000 common shares from treasury for 9,000 issued
and outstanding common shares of CASI representing a 90% holding in CASI.
In addition, the agreement provides for the issuance of additional shares
of Hyaton to the vendor of the 9,000 common shares of CASI at a rate of one
common share for every $0.20 of earnings before interest, tax, amortization
and depreciation for the period from November 2, 1998 to the earlier of
November 2, 2000 or 18 months from the commencement of commercial
operations. Furthermore, the agreement provides for additional share
issuances at a rate of one share for every $0.05 of losses incurred by the
vendor under the indemnification granted to the vendor against any legal
claims and other contingencies. Related to the agreement, 500,000 common
shares of Hyaton were issued to Securities Trading Services Inc., an
unrelated party as a financing fee.
The agreement resulted in control of Hyaton passing to the former
shareholders of CASI. Under the accounting for the transaction in
accordance with reverse take-over accounting principles, CASI is identified
as the acquirer and Hyaton as the acquired party. The financial statements
reflect the operations of CASI with the activities of Hyaton consolidated
from November 2, 1998, the date of the acquisition. The comparative figures
presented are those of CASI.
At the date of the reorganization, the net assets of Hyaton were nominal.
The par value of Hyaton shares issued of $275,590 has been included in
capital stock with an offset of $270,590 to the deficit and $5,000 to
consulting fee expense. In accordance with practices adopted in the United
States, the excess of $13,879 of the costs incurred over the cash on hand
in Hyaton at the date of acquisition has been charged to expense. The
contingent shares issuable by Hyaton will be accounted for as an additional
part of the cost of purchase, if and when issued.
Consideration:
Par value of common shares issued $ 275,590
Costs 13,879
--------------
$ 289,469
==============
<PAGE>F-9
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
1. Nature and continuance of operations (continued):
Consideration applied to:
Net assets $ -
Less:
Consulting expense 5,000
Cash costs incurred in excess of cash on hand 13,879
Charge to retained earnings 270,590
--------------
$ 289,469
==============
(a) Future operations:
These consolidated financial statements have been prepared on the basis
of a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The
Company has suffered recurring losses and has not generated profitable
operations since inception. The continuance of the Company as a going
concern is dependent on obtaining financing for continued operations
and the construction of a manufacturing facility for its fertilizers,
the attainment of profitable operations, which are consistent with
management's plans and intentions, and the avoidance of any cash costs
from early redemption of loans from related parties. If the Company is
unable to achieve these objectives, it may be obligated to liquidate
certain assets in settlement of liabilities and the value achieved on
settlement may be less than the assets' carrying values.
(b) Development stage enterprise:
For U.S. accounting purposes the Company is considered to be a
development stage enterprise from the inception of CASI on November 24,
1994 to December 31, 1998 as its efforts are primarily directed towards
the development of a new product. The identification of an entity as a
development stage enterprise does not impact the measurement and
recognition principles applied in these consolidated financial
statements but does require the disclosure of specified cumulation from
inception and other information.
2. Significant accounting policies:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States.
(a) Principles of presentation:
These consolidated financial statements include the accounts of Hyaton
and its 90% owned subsidiary, CASI.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of 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 these estimates.
<PAGE>F-10
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
2. Significant accounting policies (continued):
(b) Foreign currency translation:
These consolidated financial statements are presented in U.S. dollars.
Hyaton's functional currency is the U.S. dollar. The functional
currency of CASI is the Canadian dollar as the majority of its
operations occur in Canada and are conducted in Canadian dollars. The
Canadian dollar accounts have been translated into U.S. dollars using
the exchange rate in effect at the balance sheet date for asset and
liability amounts and at the average exchange rate for the period for
amounts included in the determination of income. Any gains or losses
from this translation are included in a separate cumulative translation
adjustment account in shareholders' equity in the consolidated balance
sheet.
Transactions denominated in other than the operation's functional
currency are measured at exchange rates in effect at the date of the
transactions with exchange gains and losses included in the
determination of income.
(c) Computer equipment:
Computer equipment is recorded at cost. Depreciation will be calculated
on the declining-balance basis from the date of acquisition.
(d) Loss per share:
Loss per share is calculated using the weighted average number of
shares outstanding during the fiscal period. This average includes as
outstanding common shares, shares issued in a reporting period from the
date of their issuance. Fully diluted per share amounts are not
presented as the effect of outstanding convertible securities and
warrants is anti-dilutive.
(e) Income taxes:
The Company follows the asset and liability method of accounting for
income taxes. Under the asset and liability method of accounting for
income taxes, deferred tax assets and liabilities are recognized based
on the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. To the extent that the realizability of the benefit of
deferred tax assets is not more likely than not, a valuation allowance
is provided.
(f) Impairment of long-lived assets:
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
<PAGE>F-11
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
2. Significant accounting policies (continued):
(g) Concentration of risk:
The Company was formed to develop, operate, finance, and construct a
manufacturing facility which will produce high quality fertilizer
products from animal waste. Because a project of this scope and
technology has not yet been completed, there is concentration of risk
inherent in the Company's business, including, but not limited to,
technology, construction, financing, and operations risk.
(h) Revenue recognition:
Revenue relating to consulting services are recognized when the
professional services have been rendered.
(i) Research and development costs:
Research and developments costs are expensed as incurred.
3. Related party transactions and balances:
Kafus Industries Ltd., a public company is a majority shareholder of the
Company. Cameron Strategic Planning Ltd., a private Canadian company is a
subsidiary of Kafus Industries Ltd.
Mr. Robert L. Novitsky is an officer of the Company and a shareholder and
officer of CASI.
The Company has entered into the following material related party
transactions:
(a) Loans from related parties:
Loans from related parties consist of the following:
Kafus Industries Ltd. $ 149,457
Cameron Strategic Planning Ltd. 224,148
Mr. Robert L. Novitsky 39,206
------------
$ 412,811
============
The loans from related parties are non-interest bearing with no
specific terms of repayment. The loan from Mr. Robert L. Novitsky is
convertible into common shares of the Company, prior to financing of
the first manufacturing plant, on a mutually acceptable basis.
(b) Accounts payable:
Included in accounts payable is an amount of $5,052 payable to a
private company controlled by an officer of the Company.
(c) The Company has been charged administrative, management and consulting
fees aggregating $34,777 (September 30, 1998 - $70,365; 1997 - $5,481)
by certain officers, directors and private companies controlled by
them.
<PAGE>F-12
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
4. Capital stock:
Issued:
Share capital is comprised of:
<TABLE>
<S> <C> <C>
December 31,
1998
-------------
Common shares 276,247
Preference shares -
-------------
276,247
=============
Number Assigned
of shares value
------------ -------------
Issued for cash at inception, November 24, 1994 1,000 $ 657
------------ -------------
Issued and outstanding at September 30, 1997 and
September 30, 1998 1,000 657
Issued during period ended December 31, 1998:
For investment in CASI 27,058,000 270,590
For financing fee 500,000 5,000
------------ -------------
Issued and outstanding at December 31, 1998 27,559,000 $ 276,247
============ =============
</TABLE>
The Company has no stock options outstanding.
5. Comprehensive income:
The Company is required to disclose changes in other comprehensive income,
which include gains and losses that affect shareholders' equity but are
excluded from net income. The components of comprehensive income to the
Company are net loss and changes in the foreign currency cumulative
translation adjustment account.
<TABLE>
<S> <C> <C> <C> <C>
For the period
Three months November 24,
ended Year ended Year ended 1994 to
December 31, September 30, September 30, December 31,
1998 1998 1997 1998
---------------- ---------------- --------------- ----------------
Comprehensive income:
Net loss $ (126,131) $ (268,548) $ (22,059) $ (421,180)
Currency translation adjustment 4,261 15,216 (3,339) 16,215
---------------- ---------------- --------------- ----------------
$ (121,870) $ (253,332) $ (25,398) $ (404,965)
================ ================ =============== ================
</TABLE>
<PAGE>F-13
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
6. Contingencies:
(a) Litigation:
In the normal course of business, the Company may be subject to various
claims and contingencies related to lawsuits, taxes and other matters.
Management believes the ultimate liability, if any, arising from such
claims or contingencies is not likely to have a material adverse effect
on the Company's results of operations or financial condition.
(b) Uncertainty due to the Year 2000:
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 issue may be experienced before, on, or after January 1, 2000, and
if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure which could
affect the Company's ability to conduct normal business operations. It
is not possible to be certain that all aspects of the Year 2000 issue
affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
7. Income taxes:
The Company has approximately $360,000 of non-capital losses carried
forward available to reduce taxable income otherwise calculated in Canada.
These losses expire up to 2002.
<TABLE>
<S> <C>
Future tax asset:
Non-capital loss carry forwards $ 360,000
Less valuation allowance (360,000)
--------------
Net future tax assets $ -
==============
Future tax liabilities $ -
==============
</TABLE>
8. Financial instruments:
(a) Fair value:
The fair values of financial instruments included in current assets and
liabilities (excluding loans from related parties) are equal to their
carrying values due to their ability for prompt liquidation or the
short-term to their settlement.
The fair value of loans from related parties cannot be reasonably
estimated due to the nature of the amounts due and their relationship
between the liable party and the Company and the lack of a ready
independent market for such amounts payable.
<PAGE>F-14
HYATON COMPANY INCORPORATED
(a development stage enterprise)
Notes to Consolidated Financial Statements
(expressed in U.S. dollars)
8. Financial instruments:
(b) Currency fluctuation risk:
The Company has not entered into any material foreign exchange
contracts to minimize or mitigate the effects of foreign exchange
fluctuations on the Company's operations or these financial statements.
However, as the majority of assets and liabilities are located in
Canada and originally denominated in Canadian dollars, management does
not believe it faces any significant foreign currency fluctuation risk.
9. Segmented information:
At December 31, 1998, the Company's operations were primarily situated in
Canada or related to operations that are situated in Canada. Through CASI,
the Company's primary focus is on the manufacturing of organic fertilizer
from animal waste. Accordingly, the Company is considered to operate in a
single operating and geographic segment.
Form Of
OPTION AGREEMENT
This OPTION AGREEMENT (the "Agreement") is effective as of the 3rd day
of November, 1998, by and between Robert Novitsky, an individual residing in
Ontario, Canada ("Novitsky"), and Hyaton Organics Inc., a Nevada corporation
("Hyaton").
RECITALS
A. WHEREAS, Novitsky owns one thousand (1,000) common shares, par value
$0.01 per share (the "Common Shares") of Camden Agro-Systems, Inc., an Ontario
corporation ("Camden Agro"), representing ten percent (10%) of the total
outstanding Common Shares of Camden Agro; and
B. WHEREAS, Kafus Industries, Ltd., a British Columbia corporation
("Kafus"), formerly owned nine thousand (9,000) Common Shares of Camden Agro,
representing the remaining ninety percent (90%) equity interest in Camden Agro;
and
C. WHEREAS, Hyaton and Kafus have entered into a "Plan And Agreement Of
Reorganization" pursuant to which, among other things, Kafus transferred and
delivered to Hyaton all of its Camden Agro Common Shares in exchange for twenty
million (20,000,000) shares of Hyaton voting common stock, par value $0.01 per
share (the "Hyaton Common Stock" or the "Hyaton Shares"); and
D. WHEREAS, pursuant to the terms of this Agreement, Hyaton has agreed
to grant to Novitsky an option, and Novitsky has agreed to grant to Hyaton an
option, to exchange his 1,000 Camden Agro Common Shares to Hyaton in exchange
for 120,000 shares of Hyaton Common Stock; and
E. WHEREAS, for the purposes of this Agreement, the parties have agreed
to value Novitsky's interest in the 1,000 Camden Agro Common Shares at $120,000,
and to value the Hyaton Shares to be exchanged for such Common Shares at $1.00
per Hyaton Share;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties, and covenants contained herein, Novitsky and Hyaton
hereby agree as follows:
1. GRANT AND EXERCISE OF OPTION
1.1 Grant of Option. Subject to the terms and conditions of this
Agreement, Hyaton hereby grants to Novitsky an option to exchange (the "Call
Option"), and Novitsky hereby grants to the Hyaton an option to require that
Novitsky exchange (the "Put Option"), Novitsky's 9,000 Common Shares in Camden
for 120,000 shares of Hyaton Common Stock as set forth in Section 1.3.
<PAGE>
The Call Option or Put Option (collectively "Option") may be exercisable, in
whole but not in part, at any time on or before November 3, 2003 (the
"Expiration Date").
1.2 Exercise of Option. Novitsky shall have the right to exercise the
Call Option, and the Company shall have the right to exercise the Put Option,
from time to time by written notice to either Hyaton or Novitsky, as applicable
(the "Exercise Notice"), delivered any time on or prior to the Expiration Date.
1.3 Delivery of Shares. Within seven (7) business days after the
delivery of the Exercise Notice (the "Option Exercise Date"):
a. By Novitsky. Novitsky shall deliver to Hyaton (i) a
certificate or certificates representing all 1,000 of the Camden Agro Shares
held by Novitsky, and (ii) stock powers executed in favor of Hyaton sufficient
to validly transfer title to the Camden Agro Common Shares, and ownership
thereof, to Hyaton; and
b. By Hyaton. Hyaton shall deliver to Novitsky (i) a
certificate or certificates representing one hundred twenty thousand (120,000)
shares of Hyaton Common Stock (the "Option Shares"), and (ii) stock powers
executed in favor of Novitsky sufficient to validly transfer title to the Option
Shares, and ownership thereof, to Novitsky. The number of Option Shares shall be
subject to appropriate adjustment for any recapitalization, reclassification,
stock split, reverse stock split, combination of shares, stock dividend, or
other similar event, subsequent to the date first stated above, with respect to
the Hyaton Common Stock.
2. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Hyaton. Hyaton represents and
warrants to Novitsky as follows:
a. Organization and Good Standing. Hyaton is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Nevada.
b. No Lien or Encumbrances. The Option Shares to be issued and
delivered to Novitsky shall be validly issued, fully paid, and nonassessable,
and shall be free and clear of all liens, mortgages, pledges, encumbrances, or
charges.
c. Authority to Execute Agreement. The Board of Directors of
Hyaton, pursuant to the power and authority legally vested in it, has duly
authorized the execution and delivery by Hyaton of this Agreement, and has duly
agreed to the transaction hereby contemplated. Hyaton has the power and
authority to execute and deliver this Agreement, to approve the transaction
hereby contemplated, and to take all other actions required to be taken by it
pursuant to the provisions hereof. Hyaton has taken all actions required by law,
its Articles of Incorporation, as amended, or otherwise, to authorize the
execution and delivery of this Agreement. This Agreement is valid and
<PAGE>
binding upon Hyaton. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will constitute a
violation or breach of the Articles of Incorporation, as amended, or the Bylaws,
as amended, of Hyaton, or any agreement applicable to Hyaton.
2.2 Representations and Warranties of Novitsky. Novitsky represents and
warrants to Hyaton as follows:
a. Title. He is the sole and lawful owner of the 1,000 Camden
Agro Common Shares, and he has good and marketable title to the Camden Agro
Shares.
b. No Lien or Encumbrances on Camden Agro Shares. The Camden
Agro Shares owned by Novitsky and to be delivered to Hyaton shall be free and
clear of all liens, mortgages, pledges, encumbrances, or charges, defects, or
other restrictions or equities of any kind whatsoever.
c. Authority. He has full right and authority to convey and
transfer the Camden Agro Shares to Hyaton pursuant to the terms of this
Agreement.
d. Tax Consequences. Hyaton has made no representations
whatsoever with respect to the tax consequences to Novitsky in connection with
the transactions contemplated by this Agreement. Novitsky has had an opportunity
to discuss with a professional tax expert the potential tax consequences
resulting from the transactions contemplated by this Agreement and recognizes
and understands the risk of tax liability to himself resulting from the transfer
of the Camden Agro Shares.
3. ADDITIONAL COVENANTS OF THE PARTIES
3.1 Exempt Transaction. In connection with the issuance of the Option
Shares, Hyaton covenants and agrees to execute all documentation reasonably
necessary to establish such issuance as exempt from the registration
requirements of the United States Securities Act of 1933, as amended, and
applicable blue sky securities laws.
3.2 No Cash Dividend. Subject to Section 1.3 hereof, Novitsky shall not
be entitled to any cash dividend or other entitlement the record date for which
is prior to the date of issuance of the Option Shares.
3.3 Legended Shares. All Option Shares shall bear a legend in
substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
OR ANY APPLICABLE STATE LAW, AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT IN
<PAGE>
ACCORDANCE WITH THE ACT AND THE RULES AND REGULATIONS OF THE SECURITIES
AND EXCHANGE COMMISSION THEREUNDER AND WITH APPLICABLE STATE LAWS AND
REGULATIONS.
3.4 Filings; Cooperation. Hyaton and Kafus shall, on request and
without further consideration, cooperate with one another by furnishing or using
their best efforts to cause others to furnish any additional information and/or
executing and delivering or using their best efforts to cause others to execute
and deliver any additional documents and/or instruments, and doing or using
their best efforts to cause others to do any and all such other things as may be
reasonably required by the parties or their counsel to consummate or otherwise
implement the transaction contemplated by this Agreement.
3.5 No Disposition of Option Shares. Novitsky undertakes that he shall
not for a period of one (1) year following the date of issue of any Option
Shares dispose of or agree to dispose of any of those Option Shares other than
through Hyaton's stockbrokers.
3.6 No Disposition of Camden Agro Shares. Novitsky covenants and agrees
that he shall not, prior to the Expiration Date, transfer, sell, exchange, sign,
transfer, whether by will, by the laws of intestacy, or otherwise, pledge,
hypothecate, or otherwise encumber or permit to be encumbered, give or otherwise
dispose of, whether any such disposition shall be voluntary or involuntary, or
come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree, order, rule, or regulation of any governmental body,
any of the Camden Agro Shares, without the prior written consent of Hyaton,
which may be withheld in its sole discretion.
3.7 Expenses. Each of the parties hereto shall pay all of its
respective costs and expenses (including attorneys' and accountants' fees,
finder's and consultant's fees, costs and expenses) incurred in connection with
this Agreement and the consummation of the transactions contemplated herein.
3.8 Confidentiality. While each party is obligated to provide access to
and furnish information in accordance with this Agreement, it is understood and
agreed that such disclosure and information obtained as a result of such
disclosures are proprietary and confidential in nature. Each party agrees to
hold such information in confidence and not to reveal any such information to
any person who is not a party to this Agreement, or an officer, director, or key
employee thereof, and not to use the information obtained for any purpose other
than assisting in its due diligence inquiry. This Section 3.8 shall survive the
consummation of the transaction called for by this Agreement, and shall be
limited to the time period of two (2) years.
<PAGE>
4. CONDITIONS
4.1 Conditions of the Obligations of Hyaton. The obligations of Hyaton
to consummate the exercise of the Option shall be subject to the satisfaction of
each of the conditions set forth in this Section 4.1, unless waived by Hyaton:
a. Accuracy of Representations and Warranties of Novitsky;
Performance of Obligations. The representations and warranties of Novitsky set
forth in Section 2.2 shall be true and correct as of the Option Exercise Date as
though made on and as of such date, Novitsky shall have performed all
obligations and complied with all covenants required to be performed or to be
complied with by him under this Agreement on or prior to the Option Exercise
Date, and Hyaton shall have received on the Option Exercise Date from Novitsky a
certificate or certificates, dated on or before the Option Exercise Date, to
such effect, which certificate or certificates shall be signed by Novitsky.
b. No Pending or Threatened Legal Action. No order,
injunction, decree, or other action or legal, administrative, arbitration, or
other proceeding or investigation by any governmental entity shall be pending or
threatened, challenging or imposing a material limitation on the performance of
this Agreement, the consummation of any of the transactions contemplated hereby,
or the operation by Hyaton of its business as now conducted or as presently
proposed to be conducted.
c. Proceedings and Documents. All proceedings taken in
connection with the transactions contemplated hereby and all documents incident
to such transactions shall be reasonably satisfactory in form and substance to
Hyaton and its counsel.
5. TERMINATION
5.1 Mutual Termination. Hyaton and Novitsky may mutually agree to
terminate this Agreement at any time prior to the Option Exercise Date without
any liability to each other.
5.2 Termination for Breach or Misrepresentation. If either party
breaches any of its obligations hereunder, or if either party's representations
are discovered to be materially false prior to the Option Exercise Date, the
non-breaching party may, at its sole option, terminate the proposed transactions
proposed to be effected under this Agreement.
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
6.1 As to Hyaton. The representations and warranties of Hyaton
contained herein shall survive the execution and delivery of this Agreement, the
Option Exercise Date, and the consummation of the transaction called for by this
Agreement for a period of 2 years from the date of this Agreement, unless a
lesser time period is specified.
<PAGE>
6.2 As to Novitsky. The representations and warranties of Novitsky
contained herein shall survive the execution and delivery of this Agreement, the
Option Exercise Date, and the consummation of the transaction called for by this
Agreement for a period of 2 years from the date of this Agreement unless a
lesser time period is specified.
7. MISCELLANEOUS
7.1 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
hereby, and supersedes all negotiations, representations, warranties,
commitments, offers, contracts, and writings prior to the date hereof. No waiver
and no modification or amendment of any provision of this Agreement shall be
effective unless specifically made in writing and duly signed by the parties to
this Agreement.
7.2 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective assigns and successors
in interest; provided, that neither this Agreement nor any right hereunder shall
be assignable by Novitsky or Hyaton without the prior written consent of the
other parties.
7.3 Indemnification. Novitsky covenants and agrees to defend,
indemnify, and hold harmless each of the officers, directors, employees, agents,
and advisors of Hyaton, as such persons existed prior to the Option Exercise
Date (collectively, the "Hyaton Indemnitees") from and against any loss,
liability, damage, or expense (including reasonable attorney's fees and costs)
which the Hyaton Indemnitees may suffer, sustain or become subject to, as a
result of a breach of any representation, warranty, or covenant by Novitsky
contained in this Agreement.
Hyaton covenants and agrees to defend, indemnify, and hold harmless
Novitsky from and against any loss, liability, damage, or expense (including
reasonable attorney's fees and costs) which the Novitsky may suffer, sustain or
become subject to, as a result of a breach of any representation, warranty, or
covenant by Hyaton contained in this Agreement.
7.4 Brokers and Finders. Neither Novitsky nor Hyaton not any Person
acting on behalf of any of them, has employed any broker, agent, or finder, or
incurred any liability for any brokerage fees, agents' commissions, finders'
fees, or advisory fees in connection with the transactions contemplated hereby;
and Novitsky agrees that he shall indemnify and hold Hyaton harmless in respect
to any damages arising out of any agreements or arrangements or understandings
claimed to have been made by him, or any person acting on his behalf, with any
third party; and Hyaton shall indemnify and hold Novitsky harmless in respect to
any damages arising out of any agreements or arrangements or understandings
claimed to have been made by Hyaton, or any person acting on its behalf, with
any third party.
7.5 Attorney's Fees. In the event of any controversy, claim, or dispute
among the parties to this Agreement arising out of or relating to this Agreement
or breach thereof, each party hereto shall pay its own legal expenses,
attorney's fees, and costs.
<PAGE>
7.6 Severability. If any provision hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and shall
not affect the validity or effect on any other provisions hereof.
7.7 Governing Law. In any action or proceeding arising out of or
related to this Agreement, the laws of British Columbia shall be followed,
without regard to the application of conflicts of laws provisions.
7.8 Notices. All notices or other communications required hereunder
shall be in writing and shall be sufficient in all respects and shall be deemed
delivered after five (5) days if sent via mail, postage prepaid; the next day if
sent by overnight courier service; or upon completion of transmission if sent by
facsimile to the following:
If to Hyaton:
755 Burrard Street, Suite 440
Vancouver, British Columbia
Canada V6Z 1X6
Attn: Secretary
If to Novitsky:
Notra Holdings Inc.
c/o 2158 Johnston Road
Ottawa, Ontario
Canada K1G 5K1
7.9 Counterparts; Signatures. This Agreement may be executed in one or
more counterparts, each of which may be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may be
executed by a party and sent to the other parties via facsimile transmission and
the facsimile transmitted copy shall have the same integrity, force and effect
as an original document.
[remainder of page intentionally left blank -- signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
ROBERT NOVITSKY
----------------------------------------------
HYATON ORGANICS INC.
By:____________________________________________
Its:___________________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PRE-EFFECTIVE AMENDMENT NO. 1 TO THE FORM 10-SB FILED BY HYATON ORGANICS INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 114,632
<SECURITIES> 0
<RECEIVABLES> 3,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 117,932
<PP&E> 1,942
<DEPRECIATION> 415
<TOTAL-ASSETS> 119,459
<CURRENT-LIABILITIES> 838,326
<BONDS> 0
0
0
<COMMON> 276,247
<OTHER-SE> (995,114)
<TOTAL-LIABILITY-AND-EQUITY> 119,459
<SALES> (15,100)
<TOTAL-REVENUES> (15,100)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 279,204
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (294,304)
<INCOME-TAX> 0
<INCOME-CONTINUING> (294,304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (294,304)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
