As filed with the U. S. Securities and Exchange Commission on December 17, 1999
File No. _______________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or (g) of the Securities and Exchange Act of 1934
Humatech, Inc.
(Exact name of small business issuer as specified in its charter)
Illinois 36-3559839
(State of incorporation) (IRS Employer ID Number)
1718 Fry Road, Suite 450, Houston TX 77084
(Address of principal executive offices)
(281) 828-2500
(Issuer's telephone number)
David G. Williams, President
1718 Fry Road, Suite 450; Houston TX 77084
(281) 828-2500 (voice) (281) 828-2530 (fax)
(Name, address, and phone number for agent for service)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: Common Stock,
no par value
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PART I
Item 1 - Description of Business
General
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Humatech, Inc. (Company) is filing this Form 10-SB on a voluntary basis in order
to make the Company's financial information equally available to all interested
parties, including potential investors, and to meet certain listing requirements
for publicly traded securities.
Caution Regarding Forward-Looking Information
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This Form 10-SB may contain certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company or
management as well as assumptions made by and information currently available to
the Company or management. When used in this document, the words "anticipate,"
"believe," "estimate," "expect" and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company regarding future events and are subject to certain risks, uncertainties
and assumptions, including the risks and uncertainties noted. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated, expected or intended. In each instance,
forward-looking information should be considered in light of the accompanying
meaningful cautionary statements herein.
History of the Company
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The Company was incorporated in the State of Illinois on February 2, 1988 under
the name of Midwest Enterprise Consultants, Inc. as a consulting and marketing
service company (Midwest).
The original number of authorized shares of stock at the time of incorporation
was 10,000 shares of Common Stock at no par value. At a Special Meeting of the
Shareholders of Midwest, held on September 19, 1989, it was approved, by
shareholder vote, to amend the Articles of Incorporation to increase the
authorized common stock of the Company from 10,000 shares at no par value to
25,000,000 shares at no par value.
At a Special Meeting of the Shareholders on November 13, 1989, it was voted to
seek to raise additional capital of not less than $20,000 and not to exceed
$50,000 through the sale of the Company's Common Stock in a private offering
utilizing a Private Placement Memorandum. Midwest closed its Private Placement
pursuant to Regulation D, Rule 504 on December 3, 1990. The capital raised in
this Offering was $21,000.
On April 6, 1997, the Company entered into an Agreement for the Sale of Assets
whereby it acquired all of the assets and certain liabilities of International
Humate Fertilizer Co. (a Nevada corporation) (IHFC), whose offices were, at that
time, located in Mesa, Arizona.
On April 16, 1997, the Company issued 5,884,614 shares of common stock to
International Humate Fertilizer Co. (IHFC), a Nevada corporation, to acquire
100.0% of the assets of IHFC. IHFC then distributed the 5,884,614 shares of the
Company's stock to its stockholders. For accounting purposes, IHFC is the
surviving entity and all assets and liabilities were acquired by the Company at
the historical founder's cost of IHFC.
On May 5, 1997, Midwest filed a change of name with the State of Illinois to
Humatech, Inc. (Humatech) to reflect its continuance of the business operations
of IHFC.
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International Humate Fertilizer Co. (IHFC) is a Nevada corporation incorporated
on February 21, 1996 under the laws of the State of Nevada. IHFC was capitalized
with the transfer of certain assets and assumption of all outstanding
liabilities of a Texas sole proprietorship of the same name, effective July 1,
1996. With the acquisition of IHFC, the Company became engaged in the
development, manufacture and sale of carbon-based humate products for use in the
commercial agriculture, animal feed and home horticulture markets.
On July 23, 1997, Humatech filed a request for clearance of quotations on the
OTC Bulletin Board under SEC Rule 15c2-11, Subsection (a)(5) with NASD
Regulation Inc. A Clearance Letter was issued to Humatech on January 15, 1998
and the Company was issued its trading symbol "HUMT".
In November 1998, the Company entered into a letter of intent for the purpose of
establishing a joint venture to promote and sell the Company's products into the
European Union of Countries. On November 12, 1998, the Company and its United
Kingdom distributor formed a new entity, Humatech, Ltd., of which the Company
owns a 45.0% interest in this entity. The Company conducts business with
Humatech, Ltd. under equal terms and conditions to those of domestic sales to
unrelated third parties.
Industry and Business overview
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In 1980, the United States Department of Agriculture released a report that
cited the concerns expressed by farmers, environmental groups, and the general
public about the adverse effects the petroleum based U. S. Agriculture
production system has had on the productive capacity of U.S. soils. They were
especially concerned about the intensive use of the monoculture of cash crops
and the extensive use of agricultural chemicals, both fertilizers and
pesticides. Among the major concerns were:
1. Increased cost of, and dependence on, external inputs of chemicals and
energy.
2. Continued decline in soil productivity from excessive soil erosion and
nutrient runoff losses.
3. Contamination of surface and groundwater from fertilizers and
pesticides.
4. Hazards to human and animal health and to food quality and safety from
agricultural chemicals.
5. Demise of the family farm and localized marketing system.
As a result of these concerns and others, the philosophical view of agriculture
has gone through a process of evaluation and change. The need to develop a more
environmentally compatible agricultural system, one that has a long-term
dimension, makes more efficient use of energy, does not destroy the ecological
balance of the environment, is non-polluting and is favorable for the survival
of humans and all other species has become obvious to a majority of the U.S.
population. The new system has been termed "sustainable agriculture" by those
who promote its merits.
The "scientific agriculturists", backed by special interests, have too long
taken a mechanistic view of nature. These views emphasize the development of
"crop" technologies (e.g. hybrids and genetically engineered plants) and
"chemical" technologies (e.g. highly soluble
Nitrogen-Phosphorus-Potassium-Sulfur (N-P-K-S) fertilizers and pesticides) as a
means of producing high yields, at the expense of nutritional quality, and
protecting the crops from pests by artificial pesticides. These industrially
centered technologies have failed by causing a reduction in soil fertility, and
plant vitality, which causes reductions in crop yields and the costs of
production to rise. This generates a tremendous economic loss in the
agricultural market. It also creates plant nutrient shortages and stresses that
reduce natural plant pest and disease resistance, which results in the
production of a food supply that is lacking; both in nutrients essential for
good shelf life and taste, as well as, in providing for excellent animal and
human health. These losses extract a tremendous price from our society in money
and lost productivity.
These scientific agriculturists have also helped destroy fertile soils by
emphasizing the application of industrially produced poisons and the massive
off-farm marketing of feeds and foods at great distances from their point of
production. This continued removal, and export of products from the farm to the
city and overseas, has resulted in a mining of the soil, removing humus and
mineral elements from the soil. All plant, animal and human waste (a source of
organic matter) should theoretically be returned to the soil where it can aid
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future plant growth. By politically NOT encouraging the establishment of
distribution systems that could have been designed to return plant, animal, and
human waste to the farms, these public policies have indirectly destroyed the
previously existing soil humus on farms. Unless financially viable alternatives
are developed to reverse these policies, the ability of farmers to produce food
is limited.
In the early 1900's a concept of Alternative Agriculture evolved to emphasize a
holistic approach to agriculture production as opposed to the reductionism
approach of the scientific agriculturists. The alternative agriculturists have
of necessity moved away from the industrial agriculturists by selectively
employing production practices that are more environmentally compatible. These
more holistic approaches emphasize the need to give greater consideration to the
natural biological processes of plant growth. Proponents of the biological
approach to agriculture production systems provided sound arguments that the use
of concentrated synthetic soluble fertilizers and pesticides have an adverse
effect on the biological health of the soil, plants, animals, and humans.
The evolving concepts of biodynamic, organic, biological, and ecological
agriculture production systems have paved the way to the development of a
production system that has been called "sustainable agriculture". These
philosophies, many developed by the growers themselves, have given new theories
to the scientific community as a basis for new innovative research projects.
Results from these researchers have provided insights for a better understanding
of humus-orientated soil fertility, a practice recently termed "Humus Farming".
A series of scientific discoveries have revealed that the humic component of
soils greatly influences the soil's productive capacity. For example the humic
components aid soil in holding water, they improve soil structure, they improve
nutrient uptake by plants, aid in improving air and water infiltration, and a
host of other desirable features. These features reduce certain farm expenses
and really increase production and farm profits.
These series of events have led to the concepts that are currently a part of the
sustainable agriculture movement. A major component of the movement is based on
the recently discovered fact that plant growth is influenced by nutrient flow
into and out of the soil organic matter fraction. The older concept that plant
nutrients come from a soil nutrient solution has been proven to be a minor
mechanism by which plants obtain their nutrients. Plants grow and reproduce more
efficiently when their mineral nutrients are available in a colloidal and/or
chelated form (minerals associated with organic compounds) just as do animals,
and humans.
The Company's high technology organic solutions have been proven to be capable
of playing a major role in the implementation of many of the "Sustainable
Agriculture" production philosophies. Some economically viable roles the
Company's high technology organic solutions play are:
Our organic based growth solutions help supply the soil with humus in
the form of very large complex humic compounds. These compounds have
the capability of holding nutrients for future plant use. Some of these
large molecules have been termed humic and fulvic acids. The smaller
humic molecules efficiently help plants obtain needed trace minerals.
Secondly, the Company's high technology organic solutions supply the
soil with various trace minerals that have been mined from most
cultivated soils. A lack of available trace minerals within the soil
and plant has resulted in an inability of the plant to maintain its
defenses against insects and disease causing agents. Also, the consumer
of harvested plant products suffers when he consumes these mineral and
vitamin deficient foodstuffs. The formation of the vitamin and mineral
industry has come about because of these deficiencies in our food
supply.
Thirdly, the application of our high technology organic
solutions/products can help correct the many weaknesses of the
production practices recommended by the scientific agriculturists.
Applying our high technology organic solutions can reduce the supposed
requirements for high application rates of highly soluble N-P-K-S
fertilizers. Applying a more balanced fertilizer can reduce production
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costs, help reduce water contamination, and can indirectly aid in
reducing soil erosion. By maintaining the plant's natural defense
mechanisms, the need for pesticides is reduced; thus, maintaining the
plant's natural defense mechanisms reduces the problems of pesticide
contamination of soils, water, and plant products. Also food grown on
fertile soils transports better and has a longer shelf life.
Scientific trials conducted previously, and current trials to be concluded with
results to be published will show healthy soils that help grow nutritious feeds
and foods result in the growth of healthier animals and people. Slowly and
surely, agriculture and health will be joined at the farm, consumer, and public
policy levels. We all need to become a part of the newly emerging sustainable
agriculture production system. Supporting and encouraging the marketing of
environmentally safe high technology organic solution products is one step in
this humanitarian effort to overcome the damaging agricultural and environmental
occurrences we face each day.
The Company recognizes this and has been established on the need to use quality
high technology organic solution products, to improve crop yields through
reduced plant stress, increased soil fertility, and a more viable substrate of
soil bacteria.
Product Introduction and Background Information
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The Company is the manufacturer and distributor of its high technology organic
based products for plants and animals. The Company sells its products under
various product trade names developed for each of the identified market venues:
(A) growers of agricultural crops, (B) golf courses and commercial landscapers,
(C) mass merchandisers and independent nurseries in the lawn and garden market,
and (D) animal feed supplements to the animal feeding industry. The Company has
determined that its markets are both domestic and foreign. The Company has been
selling its products since 1978 through various efforts and different entities.
Though small in size, the years of research and development, field trials and
customer sales have earned a good reputation for the Company's products and
served to refine its production processes. The Company has developed unique
process to produce organic based nutrients for plant and animal growth and
health at an extremely low cost. The Company and two major Universities have
undertaken efforts to acquire and develop datum on the most appropriate uses for
humates and have undertaken several extensive controlled research and
development projects resulting in the conduct and completion of field trials and
tests using humate-based trace element products throughout the world, which
provided excellent biochemical science datum. The Company's current products
have been tested in the Far East, Europe, the United States and Mexico. The
Company has developed the industry's most diverse product line of humate-based
products including dry, liquid and foliar spray formulations.
A brief discussion of several important terms will clarify the significance of
humic substances, what the Company does and proposes the do in the future, and
what products and services will be marketed.
ORGANIC MATTER: Organic matter is a grouping of carbon containing
compounds which have originated from living beings and deposited on or
within the earth's structural components. Soil organic matter includes
the remains of all plant and animal bodies which have fallen on the
earth's surface or purposely applied by man in the form of organically
synthesized pesticides. When organic matter is burned, there remains a
residual ash. The residual ash is composed of the minerals, trace
elements required by plants and animals during their normal growth
processes. Thus organic matter contains mineral elements required by
plants and animals.
HUMUS: Humus is a brown to black variable complex of carbon containing
compounds not recognized under a light microscope as possessing
cellular organization in the form of plant and animal bodies. Humus is
separated from the non-humic substances such as carbohydrates (a major
fraction of soil carbon), fats, waxes, alkanes, peptides, amino acids,
proteins, lipids, and organic acids by the fact that distinct chemical
formulae can be written for these non-humic substances. Microorganisms
within the soil rapidly degrade most small molecules of non-humic
substances. In contrast soil humus is slow to decompose (degrade) under
natural soil conditions. When in combination with soil minerals, soil
humus can persist in the soil for several hundred years. Humus is the
major soil matter component, making up 65% to 75% of the total. Humus
assumes an important role as a fertility component of all soils, far in
excess of the percentage contribution it makes to the total soil mass.
HUMIC SUBSTANCES: Humic substances are the components of humus and as
such are high molecular weight compounds that together form the brown
and black hydrophilic, molecularly flexible, polyelectrolytes called
humus. They function to give the soil structure, porosity, water
holding capacity, cation and anion exchange, and are involved in the
chelation of mineral elements. Humic substances can be subdivided into
three major fractions (1) humin, (2) humic acids, and (3) fulvic acids.
HUMATES: Humates are metal (mineral) salts of humic or fulvic acids.
Within any humic substance, there are a large number of complex humate
molecules, and the humate composition of any one humic substance is
specific for the substance. Thus there exists a large variability in
the molecular composition of different humic substances.
The most biochemically active and plant responsive components of fertile soil
are humic and fulvic acids. The decisions to replace and maintain adequate
levels of humic/fulvic acids in the soil creates a positive economic and
ecological impact in the markets the Company is selling its products.
As stated, humic acids are the end result of the decomposition of plant and
animal matter, which exist in the final phase of the humification process of
soils. Humification is the process wherein crop residues, leaves, stalks, cover
crops, manure's, etc., are first broken down by soil micro-organisms. Various
enzymes, fungi and bacteria then break down the cellulose. Further activity and
breakdown by very specific fungi and bacteria finally result in the
mineralization of humic acids from the material that is commonly referred to as
"humus". Simply put, humic acids are derived from various organic materials that
are commonly turned under by farmers throughout the world to derive well-known
benefits.
Humic substances play a vital role in soil fertility, plant and, animal
nutrition. Plants grown on soils which contain adequate humin, humic acids, and
fulvic acids are less subject to stress, are healthier, produce higher yields:
and the nutritional quality of harvested foods and feeds are superior. The value
of humic substances in soil fertility and plant nutrition relates to the many
functions these complex organic compounds perform as a part of the life cycle on
earth. The life-death cycle involves a recycling of the carbon containing
structural components of plants and animals - through the soil and air - and
back into the living plant, and animal.
Current agricultural practices have become distracted from the importance of
organic compound cycling when it was discovered that soluble acidic based
Nitrogen-Phosphorus-Potassium (N-P-K) "fertilizers" could stimulate plant
growth. Large industrial concerns took advantage of the N-P-K discovery to
market industrially processed "fertilizers" from mineral deposits. Continued use
of these acidic fertilizers in the absence of adequate humic substances (in the
soil) has been attributed to various sociological and ecological problems.
The urgency to emphasize the importance of humic substances and their values as
fertilizer ingredients has never been more important than it is today. All those
concerned about the ability of soils to support plant growth need to assist in
educating the public. Most soil scientists and agronomists recognize humic
substances as the most important component of a healthy fertile soil.
Humates are commercially obtained from large layers of oxidized leonardite
deposits in the earth formed by decomposition of organic material. In their
natural state, humic acids are acidic in nature, and completely insoluble. Only
through an exact and scientific process, which has been developed over the past
20 years by the Company, can these humic acids be extracted in a manner that
will produce a viable, efficacious product that consistently exhibits the
attributes expected by all concerned.
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Market overview and competition
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The potential in the high technology humate trace element market is very large.
According to the research firms, industry reports, trade journals, and our own
marketing information, the overall market potential for high tech organic based
growth products industry worldwide is projected to exceed $10 billion annually.
The area of largest growth and potential in the high tech organic based growth
products market is the animal feed ingredients, and the garden, nursery, and
home improvement market segments. Currently, these market segments do not have
any major competition and are ready for someone to become a market leader with a
wide variety of market driven products.
Environmental matters
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The Company is and will continue to be subject to extensive and frequently
changing federal, state and local laws and substantial regulation under these
laws by governmental agencies, including the United States Environmental
Protection Agency (EPA), the Occupational Safety and Health Administration
(OSHA), various state agencies and county and local authorities. Among other
things, these regulatory bodies impose requirements to control air, soil, and
water pollution, to protect against occupational exposure to chemicals,
including health and safety risks, and to require notification or reporting of
the storage, use and release of certain hazardous chemicals and substances.
There can be no assurance that the Company will not be subject to claims of
employees relating to future exposure to hazardous chemicals and substances,
which could have a material adverse effect on the Company. Failure by the
Company to comply with applicable laws and regulations could subject the Company
to civil remedies, including fines and injunctions as well as potential criminal
sanctions, which could have a material adverse effect on the Company.
Federal and state authorities do not regulate the manufacture and sale of the
Company's specific products. The Company has obtained all required general state
permits and licenses to operate its facilities. There can be no assurance that
the Company's operation and profitability will not be subject to more
restrictive regulation or that operations and profitability will not be subject
to more restrictive regulation or increased taxation by federal, state, or local
agencies.
Inflation
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Inflation has not historically been a material factor in the Company's
operations and is not expected to have a material impact on the Company or it's
operations in the future.
Trade names and products
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The following is a brief description of the Company's current product line
developed and distributed into identified market segments:
Agriculture Market:
AGRIoHUME(TM). (Chipped or Powder). A highly oxidized, salt free,
carbon-rich leonardite specifically blended to provide the highest
quality and richest concentration of humic and fulvic acids available.
It contains over 40 naturally occurring elements.
MAXIMIZE(TM). A multi-functional humic and fulvic acid liquid extract.
MAXIMIZE(TM) increases nutrient uptake, accelerates root growth,
reduces fruit shed, provides even maturity , and acts as a food source
for beneficial micro-organisms. MAXIMIZE(TM) is also effective as an
extender for herbicides and fungicides.
SLINGSHOT(TM). A concentrated liquid fulvic acid extract. Due to its
unique carbon based molecular structure, SLINGSHOT(TM) a very effective
chelating compound and may be piggybacked with insecticide
applications.
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NITRO-PLUS(TM). (18-0-0). This product has a liquid humic and fulvic
acid base, the same as in the product MAXIMIZE(TM), and is fortified
with 18% nitrogen, which enhances the delivery of nitrogen to the plant
in the most compatible salt free form available. This product may also
be piggybacked with insecticide application.
MACROoPLUS(TM) (8-16-4). This product has a liquid humic and fulvic
acid base, the same as in the product MAXIMIZE(TM), and is fortified
with N-P-K and selected trace elements. Designed for use as a major
nutrient foliar fertilizer to promote bloom and fruit set, reduce
shedding, and act as a natural plant growth regulator. This product may
also be piggybacked with insecticide application.
IRON-PLUS(TM) (12-0-0). This product has a liquid humic and fulvic acid
base, the same as in the product MAXIMIZE(TM), and is fortified with
12% nitrogen, plus 4% Iron, 6% sulfur, 1% zinc, 1% calcium, .5%
manganese and selected trace elements. A product for foliar
applications on citrus and turf where iron uptake is limited by
excessive soil-based salts. This product may also be piggybacked with
insecticide applications.
ZINC-PLUS(TM) (12-0-0). This product has a liquid humic and fulvic acid
base, the same as in the product MAXIMIZE(TM), and is fortified with
12% nitrogen, plus 4% zinc, 6% sulfur, 1% iron, 1% calcium, .5%
manganese and selected trace elements. A product designed to help
retard plant shutdown and decrease shedding which is best utilized for
late season foliar application on cotton and other row crops. This
product may also be piggybacked with insecticide applications.
CALCIUMoPLUS(TM) (13-0-0). This product contains 12.5% calcium in a
fulvic acid base. This truly soluble calcium and nitrogen provides fast
plant growth and reduced shed of blooms and fruit. Boron can be added
to this combination and will eliminate blossom end rot in most
flowering plants.
Animal Feed Market:
BOVI-PRO(TM) An organic, non-toxic feed ingredient that has been field
tested to provide the following results: 1) increases the viability of
rumin in stomachs of ruminant animals; 2) reduces feedlot animal
waste; 3) increases average daily weight gain; 4) reduces (improves)
feed conversion ratio; 5) reduces stress from shipping fever; 6)
increases calcium intake. All the data on the benefits of BOVI-PRO(TM)
have been gathered from scientific research from extensive research
trials at a major University.
PROMAX(TM). An organic, non-toxic feed ingredient used for
non-ruminant animals that accomplishes the following: 1) reduces
feedlot animal waste order; 2) increases average daily weight gain; 3)
reduces (improves) feed conversion ratio; 4) reduces stress from
shipping fever. All the data on the benefits of PROMAX(TM) have been
gathered from scientific research from extensive research trials at a
major University.
Home, Lawn And Garden Market:
PERK-UP(TM). A pre-diluted product ready to use foliar spray for house
plants which enhances plant growth and bloom setting, increases plant
health, and greens house plants.
GREENSKEEPERS SOIL BUILDER(TM). A multi-functional humic and fulvic
acid liquid extract that will accelerate the release humic material
that improves soil structure, fertility, optimizes plant health,
maximizes garden crop yield and acts as a food source for beneficial
microorganisms, and enhances the effectiveness of fertilizers. When
diluted, GREENSKEEPERS SOIL BUILDER(TM) is also effective as a
transplant solution that eliminates the shock of transplanting potted
plants, trees, and shrubs.
GREENSKEEPERS LAWN FOOD(TM). GREENSKEEPERS SOIL BUILDER(TM) fortified
with 18% nitrogen helps carry nitrogen delivery to the plant in the
most compatible salt free form available, thus maximizing plant
response to the uptake of nitrogen without burning lawns. This product
may also be piggybacked with insecticide application
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GREENSKEEPERS PLANT FOOD(TM). The product is fortified with N-P-K
(8-16-4) and selected trace elements which is designed for use as a
major nutrient foliar fertilizer to promote bloom and fruit set, reduce
shedding, and improve garden production. Its unique salt free
composition will not burn foliage. This product may be piggybacked with
insecticide applications.
ORGANI-GRO COMPLETE(TM). A fortified chipped or powder based 8-12-4
truly complete humate based plant food and soil conditioner that
greatly enhances the plant vigor and color, and improves overall soil
health. This product is a highly oxidized, salt free, carbon-rich
leonardite specifically blended to provide the highest quality and
richest concentration of humic and fulvic acids available and over 40
naturally occurring elements.
Environment/Bio-Remediation market:
SALT AWAY(TM) and BIOLIMINATE(TM) -- This two product line system is
designed to bioremediate soils on site for removal of salt and oil
contamination. SALT AWAY(TM) is a multi-component aqueous solution
which, when properly applied, reduces excess salt in the soil to a
level that allows plant growth to begin again. BIOLIMINATE(TM) markedly
accelerates the biodegradation of organic hazardous waste in the soil.
BIOLIMINATE(TM) addresses two factors which limit the biodegradation
process: 1) The lack of homogeneous exposure of the contaminant to
indigenous or applied bacteria, and 2) the viability of the bacteria
available to metabolize the contaminant.
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
(1) Caution Regarding Forward-Looking Information
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current view of
the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks and uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.
(2) General comments
Humatech, Inc. (formerly Midwest Enterprise Consultants, Inc.) (Company) was
incorporated on February 2, 1988 under the laws of the State of Illinois. The
Company was initially formed for the purposes of assisting local organizations
of labor and corporations with their membership or employee relations by
providing bundled membership or employee benefits for a low per member fee or
per employee cost to the corporation or labor organization. The Company intended
to achieve its goal of placing bundled groups of benefits with labor
organizations or corporations on the beneficial value that such services will
hold for the respective members or employees thereby enhancing satisfaction with
the labor union or corporate management.
From inception through April 16, 1997, the Company was engaged solely in the
process of developing a methodology to achieve its goals and was unsuccessful in
its efforts. The Company became dormant in December 1991.
On April 16, 1997, the Company issued 5,884,614 shares of common stock to
International Humate Fertilizer Co. (IHFC), a Nevada corporation, to acquire
100.0% of the assets of IHFC. IHFC then distributed the 5,884,614 shares of the
Company's stock to its stockholders. For accounting purposes, IHFC is the
surviving entity and all assets and liabilities were acquired by the Company at
the historical founder's cost of IHFC.
Due to the April 16, 1997 acquisition of a significant business operation, the
Company changed its operating year-end to April 30 and changed its corporate
name to Humatech, Inc..
International Humate Fertilizer Co. (IHFC) is a Nevada corporation incorporated
on February 21, 1996 under the laws of the State of Nevada. IHFC was capitalized
with the transfer of certain assets and assumption of all outstanding
liabilities of a Texas sole proprietorship of the same name, effective July 1,
1996. With the acquisition of IHFC, the Company became engaged in the
development, manufacture and sale of carbon-based humate products for use in the
commercial agriculture, animal feed and home horticulture markets.
For segment reporting purposes, the Company operated in only one industry
segment during the periods represented in the accompanying financial statements
and makes all operating decisions and allocates resources based on the best
benefit to the Company as a whole.
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(3) Results of Operations, Liquidity and Capital Resources
Fiscal year ended April 30, 1999 compared to the fiscal year ended April 30,
1998
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During the fiscal year ended April 30, 1999, the Company realized net revenues
of approximately $158,000 as compared to net revenues realized during the fiscal
year ended April 30, 1998 of approximately $447,000. These revenues were derived
principally from the commercial agriculture market. The Company experienced this
approximate $(289,000) decline in net revenues because of the Company's capital
position and inability to effectively market its product. Additionally, the
Company, and management, spent considerable time, effort and capital in the
development of an overall marketing plan for penetration of animal feed and
home, lawn and garden markets. Due to the limited staffing of the Company, this
diversion of attention from maintenance of the existing customer base was
unavoidable based on management's best estimation of the highest and best use of
management time for the overall benefit to the Company for future periods.
The Company's cost of sales increased from approximately 42.59% of net revenues
for the fiscal year ended April 30, 1998 to approximately 54.75% of net revenues
f or the fiscal year ended April 30, 1999. The principal cost increase
contributing to this change was caused by increases in direct material costs.
These costs are impacted by customer demand, the availability of capital for
volume purchasing and the material handling costs of the primary
humus/leonardite component from the mine site to the Company's processing
facilities.
During fiscal 1999, management made every effort to control operating expenses.
As a result of these efforts, the Company reduced its operating expenses from
approximately $624,000 to approximately $480,000 between fiscal 1998 and fiscal
1999, despite increases in research and development costs and scheduled
increases in officer compensation pursuant to employment contracts. Selling and
marketing expenses were positively impacted by reduced commissions that were
directly related to the Company's net sales.
For the fiscal year ended April 30, 1999, the Company experienced a net loss of
approximately $(408,000), or $(0.05) per share, as compared to approximately
$(368,000), or $(0.04) per share, for the fiscal year ended April 30, 1998.
During the fiscal year ended April 30, 1999, liquidity was provided principally
from loans to the Company made by individuals and entities affiliated with the
Company's Chief Financial Officer, as discussed further in Item 7 - Certain
Relationships and Related Party Transactions, elsewhere in this filing. During
fiscal 1999, the Company used cash in operating activities of approximately
$(133,000) as compared to having cash provided by operating activities in fiscal
1998 of approximately $35,000.
The Company was irregular in making scheduled payments on notes payable to banks
and other financing entities. Accordingly, the lender(s) could, at their sole
discretion, could declare the then outstanding indebtedness to be immediately
due and payable. The lender could then foreclose on a significant portion of the
Company's assets, which could have a material adverse effect on the Company's
financial condition and operations. Due to these conditions, most debt of the
Company is classified as current in the Company's financial statements.
Management is of the opinion that its current plant and equipment holdings are
adequate to provide the production and delivery needs for the Company's products
in the foreseeable future. Accordingly, the Company has identified no
significant capital requirements for the next 18-24 months. Liquidity
requirements for future periods are anticipated to be met from the Company's
continuing operations as driven by the Company's development of the animal feed
and home, lawn and garden markets.
11
<PAGE>
Six months ended October 31, 1999 compared to the six months ended October 31,
1998
- --------------------------------------------------------------------------------
During the six months ended October 31, 1999, the Company experienced net
revenues of approximately $141,000 as compared to the six months ended October
31, 1998 net revenues of approximately $123,000. This increase of approximately
$18,000 relates to the refocus of management time to generate sales in the
commercial agriculture market. During the second quarter of fiscal 2000, the
Company spent time and resources to develop its relationship with a new United
Kingdom distributor and prepare for shipments of product into the animal feed
market in the European Union countries. The Company anticipates quality sales
growth for this market during the last 1/2 of fiscal 2000 as the Company's
products have proven to be a successful replacement for comparable products
which have historically been used in this environment and have been banned for
use in these countries by the respective Governmental and other Regulatory
Agencies.
The Company's cost of sales increased from approximately 44.65% of net revenues
for the six months ended October 31, 1998 to approximately 48.27% of net
revenues f or the six months ended October 31, 1999. The principal cost increase
contributing to this change was caused by increased usage of direct materials
and related costs associated with other minerals and components of the Company's
products. These costs are impacted by customer demand, the availability of
capital for volume purchasing and the material handling costs of the primary
humus/leonardite component from the mine site to the Company's processing
facilities.
During the first six months of fiscal 2000, management continues to make every
effort to control operating expenses. Operating expenses increased from
approximately $170,000 to approximately $323,000 between fist six months of
fiscal 1998 and the first six months of fiscal 1999, respectively. A principal
component of this increase relates to expenditures necessary to develop the
animal feed market through its United Kingdom distributor, which efforts are
expected to have a positive impact on the Company's operations during the last
1/2 of fiscal 2000.
For the six months ended October 31, 1999, the Company experienced a net loss of
approximately $(253,000), or $(0.03) per share, as compared to approximately
$(101,000), or $(0.01) per share, for the first six months ended October 31,
1998.
During the six months ended October 31, 1999, liquidity continued to he provided
principally from loans to the Company made by individuals and entities
affiliated with the Company's Chief Financial Officer, as discussed further in
Item 7 - Certain Relationships and Related Party Transactions, elsewhere in this
filing. During the fist six months of fiscal 2000, the Company used cash in
operating activities of approximately $(248,000) as compared to using cash in
operating activities during the first six months of fiscal 1999 of approximately
$(39,000).
Management continues to be of the opinion that its current plant and equipment
holdings are adequate to provide the production and delivery needs for the
Company's products in the foreseeable future. Accordingly, the Company has
identified no significant capital requirements for the next 18-24 months.
Liquidity requirements for future periods are anticipated to be met from the
Company's continuing operations as driven by the Company's development of the
animal feed and home, lawn and garden markets.
(4) Year 2000 Considerations
The Year 2000 (Y2K) date change is believed to affect virtually all computers
and organizations. The Company has undertaken a comprehensive review of its
information systems, including personal computers, software and peripheral
devices, and its general communications systems. The Company has no direct
electronic links with any customer or supplier. In addition, the Company has
held discussions with certain of its software suppliers with respect to the Y2K
date change. The Company has completed its detailed review, as a preliminary
assessment and the Company believes, as of the date of this filing, that it will
not be required to modify or replace significant portions of its computer
hardware or software and any such modifications or replacements are, or will be,
readily available. The Company has no known direct Y2K exposures and anticipates
that any costs associated with the Y2K date change compliance to have a material
effect on its financial position or its results of operations. There can be no
assurance until January 1, 2000, however, that all of the Company's systems, and
12
<PAGE>
the systems of its suppliers, shippers, customers or other external business
partners will function adequately.
Item 3 - Description of Property
The Company's executive and administrative offices are located at 1718 Fry Road,
Suite 450; Houston, Texas; 77084. These offices are subject to a long-term
operating lease covering a period of three (3) years with monthly rental
payments of approximately $1,418. The lease contains an option to renew for an
additional three (3) years at the then current market rental rates.
The Company's warehouse, manufacturing and distribution facility is located
27711 Katy Freeway; Katy, Texas, 77494. The Company executed an operating lease
for this facility on September 1, 1999. The term of the lease is for one (1)
year and requires monthly payments of approximately $850. Additionally, the
Company must provide insurance coverage in an amount acceptable to the lessor,
as defined in the lease agreement.
(Remainder of this page left blank intentionally)
13
<PAGE>
Item 4 - Security Ownership of Certain Beneficial Owners and Management
The following information table sets forth certain information regarding the
Company's common stock ownership on December 15, 1999 by (1) any person
(including any "group") who is known by the Company to own beneficially more
than 5.0% of its outstanding common stock, (2) each director and executive
officer, and (3) all executive officers and directors as a group:
Name and Address Shares owned Percentage owned
David G. Williams 4,473,334 52.91%
1718 Fry Road, Suite 450
Houston TX 77084
John D. Rottweiler (1) 7,000 Less than 1.0%
1718 Fry Road, Suite 450
Houston TX 77084
Cede & Company (2) 2,247,490 26.58%
P. O. Box 20, Bowling Green Station
New York NY 10274
First Trust 578,100 6,84%
131 South 42nd Place
Phoenix AZ 85034
Panzer Trust (3) 75,600 Less than 1.0%
1245 West 1st Street, Suite 112
Tempe AZ 85281
U. S. Finance, Inc. (3) 2,860 Less than 1.0%
P. O. Box 30711
Mesa AZ 85275
All officers and directors as a group,
including affiliates 4,558,794 53.92%
(1) Represents beneficial ownership via shares owned by John Duke Rottweiler,
son of John D. Rottweiler and Bonita Rottweiler, wife of John D.
Rottweiler.
(2) Represents the aggregate sum of all shares held in street name by various
shareholders.
(3) Panzer Trust and U. S. Finance, Inc. are entities affiliated with John D.
Rottweiler either directly or through control by related family members.
14
<PAGE>
Item 5 - Directors, Executive Officers, Promoters and Control Persons
Name Age Position
David G. Williams 50 President and Director
John D. "J. D." Rottweiler 54 Chief Financial Officer
David G. Williams has served as President and Director of the Company since the
acquisition of the assets of IHFC in April 1997. Mr. Williams was previously the
President of IHFC and the sole proprietor of the operations that were
incorporated as IHFC.
John D. Rottweiler has served as Executive Vice President and Chief Financial
Officer of the Company since April 1997. Mr. Rottweiler from 1989 through the
present serves as the Executive Trustee of The Phoenix Trust, a Phoenix, Arizona
based management consulting firm providing planning, organizational and business
operation services to various businesses throughout the United States. From 1989
to 1992, Mr. Rottweiler was the Director of Finance and Operations for Santa
Cruz Operations, Inc. with responsibility for sales administration and planning,
budgeting and operational analysis, customer service and telemarketing
operations.
The Company also utilizes a Management Advisory Group which consults with the
Company's Board of Directors for product development, technical and business
operation issues on an "as-needed" basis. The members of this group are as
follows:
Dr. Norbert K. Chirase, Age 39 - Research Leader for the Beef Cattle Program at
the Texas A&M University Research Center in Amarillo, Texas, Graduate Faculty
Member and Associate Research Scientist for the Agriculture Experiment Station.
Dr. Robert E. Pettit, Age 66 - Emeritus Associate Professor at Texas A&M
University and international agriculture consultant. Formerly Associate
Professor of Plant Pathology, Department of Plant Pathology and Microbiology at
Texas A&M University.
Esper R. Chandler, Age 49 - Self-employed agriculture consultant and shareholder
in Texas Plant and Soil Lab, Inc., an agriculture testing and consulting service
located in the Rio Grande Valley region of Texas.
Danny R. Riggs, Age 52 - Self-employed farmer based in Arizona growing cotton,
alfalfa, corn and wheat.
Jack A. Moreman, Age 61 - Vice President of BIO AG Technology, a company
specializing in the management of oil field and agriculture bio-remediation
projects, principally in the Texas Panhandle region.
T. Bryan Fujimoto, Age 49 - Director of Finance and Administration of Sun
Microsystems, Inc., Sunconnect Division.
Bruce R. Williams, Age 40 - Support Specialist/Support Manager/Software
Developer for Computer Guidance Corporation based in Phoenix, Arizona. Mr.
Williams is the brother of David G. Williams.
(Remainder of this page left blank intentionally)
15
<PAGE>
Item 6 - Executive Compensation
The following Summary Compensation Table sets forth, for the years indicated,
all cash compensation paid, distributed or accrued for services, including
salary and bonus amounts, rendered in all capacities for the Company to its
President and Chief Executive Officer and any other executive officer of the
Company which received remuneration in excess of $100,000 during the referenced
periods. All other compensation related tables required to be reported have been
omitted as there has been no applicable compensation awarded to, earned by or
paid to any of the Company's executive officers in any fiscal year to be covered
by such tables.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term
------------------- ---------
Compensation
------------
Awards Payouts
------ --------
Other Restricted Securities All
Salary/ Annual Stock Underlying LTIP Other
Name/Title Year Bonus Compensation Awards Options/SARs Payouts Compensation
- ---------- ---- --------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
David G. Williams, President 1999 $170,833 NA NA NA NA $1,568 (1)
1998 $146,333 NA NA NA NA $4,938
1997 $106,667 NA NA NA NA $2,178
John D. Rottweiler, 1999 $120,833 NA NA NA NA $ -0- (2)
Chief Financial Officer 1998 $96,667 NA NA NA NA $ -0-
1997 $66,667 NA NA NA NA $ -0-
</TABLE>
(1) Represents payments received pursuant to a royalty agreement. Mr Williams
also receives certain payments pursuant to contractual agreements for
various equipment leases.
(2) Mr. Rottweiler is also a creditor to the Company through an approximate
$7,270 note payable to The JDR Trust.
Director Compensation
The Company does not currently pay a director fee for attending scheduled and
special meetings of the Board of Directors. The Company does not pay the
expenses of all of its directors in attending board meetings. Further, none of
the Management Advisory Board members receive any compensation for their
service.
Item 7 - Certain Relationships and Related Party Transactions
The Company has a long-term capital lease payable to David G. Williams, the
Company's President and controlling shareholder for the use of a vehicle. The
lease has an effective interest rate of 12.74% and is payable in monthly
installments of approximately $800, including accrued interest. The lease term
is from August 24, 1997 to July 28, 1999. As of April 30, 1999 and 1998, the
lease has an outstanding balance of approximately $29,480 and $29,480,
respectively.
The Company has a long-term capital lease payable to David G. Williams, the
Company's President and controlling shareholder for the use of manufacturing
equipment. The lease has an effective interest rate of 12.5% and is payable in
monthly installments of approximately $303, including accrued interest. The
lease term is from May 1, 1998 to April 30, 2001. As of April 30, 1999 and 1998,
the lease has an outstanding balance of approximately $9,646 and $-0-,
respectively.
The Company has a long-term capital lease payable to David G. Williams, the
Company's President and controlling shareholder for the use of production
equipment. The lease has an effective interest rate of 12.5% and is payable in
monthly installments of approximately $346, including accrued interest. The
lease term is from August 1, 1998 to July 30, 2001. As of April 30, 1999 and
1998, the lease has an outstanding balance of approximately $10,350 and $-0-,
respectively.
16
<PAGE>
The Company has executed a $7,270 note payable to the JDR Trust, a trust
controlled by John D. Rottweiler, the Company's Executive Vice President and
Chief Financial Officer. The note bears interest at 10.5% and all principal and
accrued interest were due at maturity in August 1999. The note was paid in full
at maturity and was unsecured. At April 30, 1999 and 1998, the note had an
outstanding balance of approximately $7,270 and $7,270, respectively.
The Company has a $217,877 term note payable to a corporation controlled by
family members affiliated with John D. Rottweiler, the Company's Executive Vice
President and Chief Financial Officer. The note bears interest at 9.0% and all
principal and accrued interest due at maturity in July 2002. The note is
unsecured. At April 30, 1999 and 1998, the note had an outstanding balance of
approximately $173,077 and $138,088, respectively.
On June 30, 1999, the Company executed a term note payable with two individuals,
who are family members affiliated with John D. Rottweiler, the Company's
Executive Vice President and Chief Financial Officer, in the gross amount of
approximately $153,650. The loan bears interest at 9.0%. The principal balance
and accrued interest is due on or before July 1, 2004. The note is unsecured.
The Company has an Agreement of Product Development and Funding between the
Company and The Everett Stewart and Beulah Stewart Family Trust, a Trust
controlled by a shareholder of the Company. The Agreement pertains to the
funding necessary for the research and development of a prototype turbine
driven, positive displacement pump to apply and distribute the Company's
products in an agricultural setting in liquid form. The Agreement requires a
minimum funding of $100,000 and the Trust reserves the exclusive right to
provide additional funding for this equipment . As of April 30, 1999, the Trust
had funded an aggregate of $150,000 under the terms and conditions of this
Agreement. Repayment of the funds advanced are required at a rate of 6.0% of
gross sales of equipment to be developed and are due and payable in the month
following collection of funds related to the sale or utilization of this
equipment. The Agreement requires a total agreed repayment of $450,000. As of
April 30, 1999 and subsequent thereto, the Company has not completed the
development of the equipment prototype and, accordingly, has no gross sales of
the underlying equipment.
The Company had a operating lease payable to David G. Williams, the Company's
President and controlling shareholder for the use of an airplane. The lease
required monthly payments of $2,560 and the Company was required to provide all
necessary insurance coverage and maintenance. The lease term was from July 1,
1996 through June 30, 1999. The lease was terminated by mutual consent of all
parties on July 31, 1998.
The Company has a license agreement with David G. Williams, the Company's
President and controlling shareholder for the use of all copyrights, trademarks,
patents, trade secrets, product formulas, customer lists and other proprietary
information owned by IHFC by virtue of the incorporation of the predecessor sole
proprietorship. The agreement requires a payment of 1.0% of the total gross
sales of the Company to David G. Williams.
The Company entered into an employment agreement with David G. Williams, to
serve as the Company's President and Chief Executive Officer. The agreement
covers the term from July 1, 1996 through June30, 2001 and automatically renews
for successive two (2) year terms unless either the President or the Company
gives sixty (60) days written notice to the other. The agreement requires annual
compensation payments of $128,000 for the first year of the agreement term;
$150,000 for the second year of the agreement term and $175,000 for all
successive years of the agreement term.
The Company entered into an employment agreement with John D. Rottweiler to
serve as the Company's Executive Vice President and Chief Financial Officer. The
agreement covers the term from July 1, 1996 through June30, 2001 and
automatically renews for successive two (2) year terms unless either the
Executive Vice President or the Company gives sixty (60) days written notice to
the other. The agreement requires annual compensation payments of $80,000 for
the first year of the agreement term; $100,000 for the second year of the
agreement term and $125,000 for all successive years of the agreement term.
17
<PAGE>
<TABLE>
<CAPTION>
As of April 30, 1999 and 1998, total cumulative amounts unpaid under these
agreements are as follows:
1999 1998
------------ ------------
<S> <C> <C>
Officer compensation $629,760 $416,333
Airplane lease payments - 6,636
Royalty fees - -
------------ ------------
$629,760 $422,969
============ ============
Future amounts due under the employment agreements are as follows:
Year ending
April 30, Amount
------------ ------------
2000 $300,000
2001 300,000
2002 50,000
--------
Totals $650,000
</TABLE>
Item 8 - Description of Securities
As of December 15, 1998, the Company had approximately 99 holders of record,
exclusive of ownership held in street name, of its Common Stock. Outstanding
shares of the Company's Common Stock totaled 8,455,144. The Company's transfer
agent is Illinois Stock Transfer Company; 209 West Jackson Boulevard, Chicago,
Illinois 60606; Phone (312) 427-2953.
The authorized capital stock of the Company consists of 25,000,000 of no par
value common stock and no preferred stock.
Per the Company's By-Laws, each outstanding share shall be entitled to one vote
in each matter submitted to vote at a meeting of shareholders, and in all
elections for directors, every shareholder shall have the right to vote the
number of shares owned by such shareholder for as many persons as there are
directors multiplied by the number of such shares or to distribute such
cumulative votes in any proportion among any number of candidates. Each
shareholder may vote either in person or by proxy, as provided in Section 8 of
the Company's By-Laws.
The Company has no preferred stock, debentures, warrants, options or other
instruments outstanding that could be converted into common stock of the
Company.
18
<PAGE>
PART II
Item 1 - Market Price and Dividends on the Company's Common Equity and Other
Related Shareholder Matters
As of the date of this filing, the Company's common stock is traded on the
NASDAQ Electronic Bulletin Board under the ticker symbol "HUMT". As of December
15, 1999, approximately 4,523,344 of the 8,455,144 shares issued and outstanding
are deemed to be "restricted securities", as defined in Rule 144 under The
Securities Act of 1933. Restricted shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rule
144 promulgated under The Securities Act of 1933.
In general, under Rule 144, any person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of 1.0% of the then outstanding shares of common stock, or the
average weekly trading volume during the four (4) calendar weeks preceding such
sales. Sales under Rule 144 are also subject to the requirements as to the
manner of sale, notice and availability of current public information about the
Company. In addition, restricted shares, which have been beneficially owned for
at least two years and which are held by non-affiliates may be sold free of any
restrictions under Rule 144.
On July 23, 1997, Humatech filed a request for clearance of quotations on the
OTC Bulletin Board under SEC Rule 15c2-11, Subsection (a)(5) with NASD
Regulation Inc. A Clearance Letter was issued to Humatech on January 15, 1998
and the Company was issued its trading symbol "HUMT". The Company's first posted
trade was conducted on February 5, 1998. The quoted market prices of the
Company's common stock on the NASDAQ Electronic Bulletin Board, per data listed
by National Quotation Bureau, Inc., are as follows:
<TABLE>
High Low
----- -----
<S> <C> <C>
Fourth quarter 1998 (February 5, 1998 - April 30, 1998) $1.44 $0.63
First quarter 1999 (May 1, 1998 - July 31, 1998) $0.63 $0.25
Second quarter 1999 (August 1, 1998 - October 31, 1998) $0.38 $0.20
Third quarter 1999 (November 1, 1998 - January 31, 1999) $0.45 $0.19
Fourth quarter 1999 (February 1, 1999 - April 30, 1999) $0.19 $0.13
First quarter 2000 (May 1, 1999 - July 31, 1999) $5.13 $0.30
Second quarter 2000 (August 1, 1999 - October 31, 1999) $4.69 $1.44
Third quarter 2000 (November 1, 1999 - December 15, 1999) $4.06 $1.63
</TABLE>
Dividend policy
The Company has never paid or declared a cash dividend on its common stock. The
Board of Directors does not intend to declare or pay cash dividends in the
foreseeable future. It is the current policy to retain all earnings, if any, to
support future growth and expansion.
Item 2 - Legal Proceedings
The Company is not involved in any legal proceedings as either plaintiff or
defendant, nor is it aware of any threatened legal proceedings, as of the date
of filing.
Item 3 - Changes in and Disagreements with Accountants
None
19
<PAGE>
Item 4 - Recent Sales of Unregistered Securities
In February 1998, the Company issued 50,000 shares of restricted, unregistered
common stock to Linzy Capital, Inc. of Las Vegas, Nevada for the performance of
various public relations, capital acquisition and other financial services. This
transaction was valued at approximately $71,000, which equaled the closing price
of the Company's common stock as quoted on the NASDAQ Electronic Bulletin Board
on the trade date closest to the transaction date and charged to operations at
the time of issuance.
Item 5 - Indemnification of Directors and Officers
None
<TABLE>
PART III
Item 1 - Index to Financial Statements and Exhibits
<S> <C>
Financial Statements
--------------------
The following financial statements are submitted as part of this report:
Report of Independent Certified Public Accountants F-2
Annual Financial Statements
Balance Sheets as of April 30, 1999 and 1998 F-3
Statements of Operations and Comprehensive Income
for the years ended April 30, 1999 and 1998 F-4
Statement of Changes in Stockholder's Equity
for the years ended April 30, 1999 and 1998 F-5
Statements of Cash Flows
for the years ended April 30, 1999 and 1998 F-6
Notes to Financial Statements F-7
Interim Financial Statements
Balance Sheets as of October 31, 1999 and 1998 F-16
Statements of Operations and Comprehensive Income
for the six and three months ended October 31, 1999 and 1998 F-17
Statements of Cash Flows
for the six months ended October 31, 1999 and 1998 F-18
Notes to Financial Statements F-19
</TABLE>
(Remainder of this page left blank intentionally)
20
<PAGE>
Item 1 - Index to Financial Statements and Exhibits - Continued
Exhibits
--------
3.1 Articles of Incorporation
3.2 Corporate By-Laws
10.1 Asset purchase agreement by and between International Humate
Fertilizer Co. and Midwest Enterprise Consultants, Inc.
10.2 Employment agreement by and between International Humate Fertilizer
Co. and David G. Williams
10.3 Employment agreement by and between International Humate Fertilizer
Co. and John D. Rottweiler
10.4 Royalty agreement by and between International Humate Fertilizer Co.
and David G. Williams
10.5 Joint venture agreement for Humatech, Ltd.
10.6 Marketing agreement by and between Humatech, Inc. and Club Marketing
Services
10.7 Agreement of Product Development and Funding between The Everett
Stewart and Beulah Stewart Family Trust (a Trust) and Humatech, Inc.
24.1 Power of Attorney (if necessary)
27.1 Financial Data Schedule (SWH to prepare at filing)
- --------------------------------------------------------------------------------
SIGNATURES
In accordance with Section 12 of The Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
HUMATECH, INC.
December 17 , 1999 /s/ David G. Williams
-------- ----------------------------------------
David G. Williams
President and Director
December 17 , 1999 /s/ John D. Rottweiler
-------- ----------------------------------------
John D. Rottweiler
Chief Financial Officer and Director
21
<PAGE>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
CONTENTS
Page
----
Report of Independent Certified Public Accountants F-2
Annual Financial Statements
Balance Sheets
as of April 30, 1999 and 1998 F-3
Statements of Operations and Comprehensive Income
for the years ended April 30, 1999 and 1998 F-4
Statement of Changes in Stockholder's Equity
for the years ended April 30, 1999 and 1998 F-5
Statements of Cash Flows
for the years ended April 30, 1999 and 1998 F-6
Notes to Financial Statements F-7
Interim Financial Statements
Balance Sheets
as of October 31, 1999 and 1998 F-16
Statements of Operations and Comprehensive Income
for the six and three months ended October 31, 1999 and 1998 F-17
Statements of Cash Flows
for the six months ended October 31, 1999 and 1998 F-18
Notes to Financial Statements F-19
F-1
<PAGE>
S. W. HATFIELD, CPA
certified public accountants
Member: American Institute of Certified Public Accountants
SEC Practice Section
Information Technology Section
Texas Society of Certified Public Accountants
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Stockholders
Humatech, Inc.
(formerly Midwest Enterprise Consultants, Inc.)
We have audited the accompanying balance sheets of Humatech, Inc. (an Illinois
corporation) (formerly Midwest Enterprise Consultants, Inc.) as of April 30,
1999 and 1998 and the related statements of operations and comprehensive income,
changes in stockholders' equity and cash flows for each of the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Humatech, Inc. (formerly
Midwest Enterprise Consultants, Inc.) as of April 30, 1999 and 1998, and the
results of its operations and its cash flows for each of the years then ended,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company has suffered recurring losses from operations
and has significant short-term debt that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
S. W. HATFIELD, CPA
Dallas, Texas
November 18, 1999
Use our past to assist your future sm
P. O. Box 820395 9002 Green Oaks Circle, 2nd Floor
Dallas, Texas 75382-0395 Dallas, Texas 75243-7212
214-342-9635 (voice) (fax) 214-342-9601
800-244-0639 F-2 [email protected]
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
BALANCE SHEETS
April 30, 1999 and 1998
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash on hand and in bank $ -- $ 4,838
Accounts receivable - trade,
net of allowance for doubtful accounts
of $-0- and $-0-, respectively 4,621 5,232
Inventories 89,319 99,659
----------- -----------
Total current assets 93,940 109,729
----------- -----------
Property and Equipment - at cost
Transportation equipment 141,996 193,854
Manufacturing and processing equipment 86,453 29,055
Office furniture and fixtures 10,955 7,904
----------- -----------
239,404 230,813
Accumulated depreciation (132,263) (159,340)
----------- -----------
Net property and equipment 107,141 71,473
----------- -----------
Other assets 360 360
----------- -----------
Total Assets $ 201,441 $ 181,562
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Cash overdraft $ 1,819 $ --
Notes payable to banks and finance companies 84,608 100,816
Notes and leases payable to affiliates 56,746 29,480
Customer deposits 10,500 --
Accounts payable - trade 84,951 78,820
Accrued interest payable 22,350 8,235
Due to officers 629,760 422,969
----------- -----------
Total current liabilities 890,734 640,320
----------- -----------
Long-term Liabilities
Notes and commitments payable to affiliates 323,077 145,358
----------- -----------
Total liabilities 1,213,811 785,678
----------- -----------
Commitments and Contingencies
Stockholders' Equity Common stock - no par value
25,000,000 shares authorized
8,455,114 issued and outstanding 123,157 123,157
Accumulated deficit (1,135,527) (727,273)
----------- -----------
Total stockholders' equity (1,012,370) (604,116)
----------- -----------
Total Liabilities and Stockholders' Equity $ 201,441 $ 181,562
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years ended April 30, 1999 and 1998
1999 1998
------------ ------------
<S> <C> <C>
Revenues
Sales, net of discounts, returns
and allowances of $2,291 and
$4,110, respectively $ 157,524 $ 447,440
----------- -----------
Cost of Sales
Materials 45,008 86,551
Other direct costs 41,237 104,027
----------- -----------
Total cost of sales 86,245 190,578
----------- -----------
Gross Profit 71,279 256,862
----------- -----------
Operating Expenses
Research and development expenses 15,000 151
Commissions and other sales and marketing expenses 73,319 170,199
Officer compensation 291,667 243,000
Other operating expenses 44,490 157,725
Interest expense 28,577 19,788
Depreciation expense 26,480 33,550
----------- -----------
Total operating expenses 479,533 624,413
----------- -----------
Loss from operations (408,254) (367,551)
Provision for income taxes -- --
----------- -----------
Net Loss (408,254) (367,551)
Other Comprehensive Income -- --
----------- -----------
Comprehensive Income $ (408,254) $ (367,551)
=========== ===========
Net loss per weighted-average
share of common stock
outstanding, calculated on
Net Loss - basic and fully diluted $ (0.05) $ (0.04)
=========== ===========
Weighted-average number of shares
of common stock outstanding 8,455,114 8,416,895
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended April 30, 1999 and 1998
Common Stock
------------ Accumulated
Shares Amount deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at May 1, 1997,
as previously reported 2,520,500 $ 21,000 $ (21,000) $ --
Issuance of stock for acquisition
of assets on April 16, 1997 5,884,614 30,282 (338,722) (308,440)
----------- ----------- ----------- -----------
Balances at May 1, 1997, restated 8,405,114 51,282 (359,722) (308,440)
Stock issued for
payment of consulting fees 50,000 71,875 -- 71,875
Net loss for the year -- -- (367,551) (367,551)
----------- ----------- ----------- -----------
Balances at April 30, 1998 8,455,114 123,157 (727,273) (604,116)
Net loss for the year -- -- (408,254) (408,254)
----------- ----------- ----------- -----------
Balances at April 30, 1999 8,455,114 $ 123,157 $(1,135,527) $(1,012,370)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
` F-5
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
STATEMENTS OF CASH FLOWS
Years ended April 30, 1999 and 1998
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss for the period $(408,254) $(367,551)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 26,480 33,550
Common stock issued for payment of consulting fees -- 71,875
(Increase) Decrease in
Accounts receivable - trade 611 67,644
Inventory 10,340 (18,090)
Increase (Decrease) in
Accounts payable - trade 6,131 19,390
Accrued interest payable 14,115 6,414
Due to officers 206,791 221,857
Customer deposits 10,500 --
--------- ---------
Cash flows provided by (used in) operating activities (133,286) 35,089
--------- ---------
Cash Flows from Investing Activities
Purchase of property and equipment (42,212) (32,230)
--------- ---------
Cash flows used in investing activities (42,212) (32,230)
--------- ---------
Cash Flows from Financing Activities
Increase (Decrease) in cash overdraft 1,819 (31,519)
Proceeds from loans payable to affiliates 184,989 145,358
Principal payments on loans payable (16,148) (115,157)
--------- ---------
Cash flows provided by (used in) financing activities 170,660 (1,318)
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents (4,838) 1,541
Cash and cash equivalents at beginning of year 4,838 3,297
--------- ---------
Cash and cash equivalents at end of year $ -- $ 4,838
========= =========
Supplemental Disclosure of
Interest and Income Taxes Paid
Interest paid for the period $ 14,462 $ 13,374
========= =========
Income taxes paid for the period $ -- $ --
========= =========
Supplemental Disclosure of
Non-Cash Investing and Financing Activities
Acquisition of property and equipment
with debt from banks and related parties $ 19,936 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
NOTES TO FINANCIAL STATEMENTS
NOTE A - Organization and Description of Business
Humatech, Inc. (formerly Midwest Enterprise Consultants, Inc.) (Company) was
incorporated on February 2, 1988 under the laws of the State of Illinois. The
Company was initially formed for the purposes of assisting local organizations
of labor and corporations with their membership or employee relations by
providing bundled membership or employee benefits for a low per member fee or
per employee cost to the corporation or labor organization. The Company intended
to achieve its goal of placing bundled groups of benefits with labor
organizations or corporations on the beneficial value that such services will
hold for the respective members or employees thereby enhancing satisfaction with
the labor union or corporate management.
From inception through April 16, 1997, the Company was engaged solely in the
process of developing a methodology to achieve its goals and was unsuccessful in
its efforts. The Company became dormant in December 1991.
On April 16, 1997, the Company issued 5,884,614 shares of common stock to
International Humate Fertilizer Co. (IHFC), a Nevada corporation, to acquire
100.0% of the assets of IHFC. IHFC then distributed the 5,884,614 shares of the
Company's stock to its stockholders. For accounting purposes, IHFC is the
surviving entity and all assets and liabilities were acquired by the Company at
the historical founder's cost of IHFC.
Due to the April 16, 1997 acquisition of a significant business operation, the
Company changed its operating year-end to April 30 and changed its corporate
name to Humatech, Inc..
International Humate Fertilizer Co. (IHFC) is a Nevada corporation incorporated
on February 21, 1996 under the laws of the State of Nevada. IHFC was capitalized
with the transfer of certain assets and assumption of all outstanding
liabilities of a Texas sole proprietorship of the same name, effective July 1,
1996. With the acquisition of IHFC, the Company became engaged in the
development, manufacture and sale of carbon-based humate products for use in the
commercial agriculture, animal feed and home horticulture markets.
For segment reporting purposes, the Company operated in only one industry
segment during the periods represented in the accompanying financial statements
and makes all operating decisions and allocates resources based on the best
benefit to the Company as a whole.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - Going Concern Uncertainty
The Company has incurred cumulative net operating losses of approximately
$(1,114,000) and has used cumulative cash in operating activities of
approximately $(98,000) during the years ended April 30, 1999 and 1998. Further,
the Company has been irregular in making scheduled payments on notes payable to
banks and other financing entities. Accordingly, the lender(s) could, at their
sole discretion, declare the then outstanding indebtedness to be immediately due
and payable. The lender could then foreclose on a significant portion of the
Company's assets, which could have a material adverse effect on the Company's
financial condition and operations.
F-7
<PAGE>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE B - Going Concern Uncertainty - Continued
Management is of the opinion that current sales trends and foreign demand for
the Company's products will provide sufficient cash to support the Company's
day-to-day liquidity requirements as well as retire outstanding debt and
delinquent trade payables.
The Company's continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis.
NOTE C - Summary of Significant Accounting Policies
1. Cash and cash equivalents
-------------------------
The Company considers all cash on hand and in banks, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
2. Accounts receivable and revenue recognition
-------------------------------------------
In the normal course of business, the Company periodically extends
unsecured credit to repetitive customers which are located principally in
Texas and Arizona. Because of the credit risk involved, management has
provided an allowance for doubtful accounts which reflects its opinion of
amounts which will eventually become uncollectible. In the event of
complete non-performance, the maximum exposure to the Company is the
recorded amount of trade accounts receivable shown on the balance sheet at
the date of non-performance.
Revenue is recognized at the time materials are shipped to the Company's
customers.
3. Inventory
---------
Inventory consists of finished goods, raw materials and related packaging
materials necessary to manufacture humate-based fertilizer products. These
items are carried at the lower of cost or market using the first-in,
first-out method.
4. Property, plant and equipment
-----------------------------
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets,
generally 4 to 10 years, using the straight-line method.
Gains and losses from disposition of property and equipment are recognized
as incurred and are included in operations.
F-8
<PAGE>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE C - Summary of Significant Accounting Policies - Continued
5. Research and development expenses
---------------------------------
Research and development expenses are charged to operations as incurred.
(6) Advertising expenses
--------------------
Advertising and marketing expenses are charged to operations as incurred.
7. Income taxes
------------
The Company utilizes the asset and liability method of accounting for
income taxes. At April 30, 1999 and 1998, respectively, the deferred tax
asset and deferred tax liability accounts, as recorded when material,
consist entirely the result of temporary differences. Temporary differences
represent differences in the recognition of assets and liabilities for tax
and financial reporting purposes, primarily allowance for doubtful accounts
and accumulated depreciation.
8. Loss per share
--------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of
the outstanding stock options and warrants, using the treasury stock
method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at
either the beginning of the respective period presented or the date of
issuance, whichever is later. As of April 30, 1999 and 1998, the Company
has no warrants and/or options issued and outstanding.
NOTE D - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
NOTE E - Fixed Assets
Included in the amounts reflected in the accompanying balance sheet are the
following fixed assets on long-term capital leases:
1999 1998
-------- --------
Vehicles
Related party $ 29,480 $ 29,480
Manufacturing and processing equipment
Unrelated 19,691 19,691
Related party 14,196 --
-------- --------
63,367 49,171
Accumulated depreciation (23,838) (13,316)
-------- --------
$ 39,529 $ 35,855
======== ========
F-9
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE F - Inventory
Inventory consists of the following at April 30, 1999 and 1998, respectively:
1999 1998
------- -------
<S> <C> <C>
Raw materials $88,195 $92,737
Finished goods 1,124 6,922
------- -------
Totals $89,319 $99,659
======= =======
NOTE G - Notes payable to banks and finance companies
1999 1998
------- -------
$26,849 installment note payable to an automotive finance
company. Interest at 12.99%. Payable in monthly
installments of approximately $611, including accrued
interest. Final payment due in October 2002.
Collateralized by transportation equipment. $21,536 $25,474
$9,577 installment note payable to an equipment leasing
company. Interest at 8.86%. Payable in monthly installments
of approximately $437, including accrued interest. Final
payment due in March 2001. Collateralized by
manufacturing equipment. This loan was refinanced
in March 1999 and is the residual of another
installment loan in the original face amount of
approximately $19,691. 9,212 10,591
$64,820 installment note payable to a bank. Interest
at the Wall Street Journal Prime Rate plus 2.5%
(10.75% at April 30, 1999). Payable in monthly
installments of approximately $2,123, including
accrued interest. Final payment due in July 2001.
Collateralized by all inventory, accounts receivable,
equipment and intangibles and the personal guaranty
of the Company's President and controlling
shareholder. 53,860 -
$52,120 installment note payable to a bank. Interest at
10.5%. Payable in monthly installments of approximately
$2,406, including accrued interest. Final payment
due in August 1998. Collateralized by equipment.
Refinanced into the $64,820 note payable detailed
above. - 14,159
</TABLE>
F-10
<PAGE>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE G - Notes payable to banks and finance companies - continued
1999 1998
-------- --------
$50,592 term note payable to a bank. Interest at the
Wall Street Journal Prime Rate plus 2.5% (9.75% at
April 30, 1999). Principal and accrued interest due
at maturity in March 1998. Collateralized by all
inventory, accounts receivable, equipment, intangibles
and the personal guaranty of the Company's President
and controlling shareholder. - 50,592
-------- --------
Total notes payable to banks and finance companies $ 84,608 $100,816
======== ========
The Company has been irregular in making scheduled payments on notes payable to
banks and other financing entities. Accordingly, the lender(s) could, at their
sole discretion, could declare the then outstanding indebtedness to be
immediately due and payable. The lender could then foreclose on a significant
portion of the Company's assets, which could have a material adverse effect on
the Company's financial condition and operations. Due to these conditions, all
installment notes are classified as current.
NOTE H - Notes and leases payable to affiliates
1999 1998
-------- --------
Capital lease payable to the Company's President and
controlling shareholder for the use of a vehicle.
Interest at 12.74%. Payable in monthly installments
of approximately $800, including accrued interest.
Lease term from August 24, 1997 to July 28, 1999. $ 29,480 $ 29,480
Capital lease payable to the Company's President and
controlling shareholder for the use of equipment.
Interest at 12.5%. Payable in monthly installments
of approximately $303, including accrued interest.
Lease term from May 1, 1998 to April 30, 2001. 9,646 -
Capital lease payable to the Company's President and
controlling shareholder for the use of equipment.
Interest at 12.5%. Payable in monthly installments
of approximately $346, including accrued interest.
Lease term from August 1, 1998 to July 30, 2001. 10,350 -
$7,270 note payable to a trust controlled by the Company's
Executive Vice President and Chief Financial Officer.
Interest at 10.5%. Principal and accrued interest due
at maturity in August 1999. Unsecured 7,270 -
-------- --------
Total notes and leases payable to affiliates $ 56,746 $ 29,480
======== ========
F-11
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE H - Notes and leases payable to affiliates - continued
The Company has been irregular in making scheduled payments on notes and leases
payable to affiliates. Accordingly, the affiliates could, at their sole
discretion, could declare the then outstanding indebtedness to be immediately
due and payable. These entities could then foreclose on a significant portion of
the Company's assets, which could have a material adverse effect on the
Company's financial condition and operations. Due to these conditions, all
installment notes are classified as current.
NOTE I - Long-term Notes and Commitments Payable to Affiliates
1999 1998
-------- --------
<S> <C> <C>
$217,877 term note payable to a corporation affiliated
with the Company's Executive Vice President and
Chief Financial Officer. Interest at 9.0%. Principal
and accrued interest due at maturity in July 2002.
Unsecured. $173,077 $138,088
$7,270 note payable to a trust controlled by the Company's
Executive Vice President and Chief Financial Officer.
Interest at 10.5%. Principal and accrued interest due
at maturity in August 1999. Unsecured - 7,270
Agreement of Product Development and Funding between
the Company and a shareholder. Repayment at a rate
of 6.0% of gross sales of equipment to be developed
with the funding received under this agreement. Total
agreed repayment will be $450,000. As of April 30, 1999
and subsequent thereto, the Company has not completed
the development of the equipment prototype and,
accordingly, has no gross sales of the underlying
product. 150,000 -
-------- --------
Total long-term notes and commitments payable to affiliates $323,077 $145,358
======== ========
</TABLE>
NOTE J - Due to Officers
The Company had a operating lease payable to the Company's President and
controlling shareholder for the use of an airplane. The lease requires monthly
payments of $2,560 and the Company was required to provide all necessary
insurance coverage and maintenance. The lease term was from July 1, 1996 through
June 30, 1999. The lease was terminated by mutual consent of all parties on July
31, 1998.
The Company has a license agreement with the Company's President and controlling
shareholder for the use of all copyrights, trademarks, patents, trade secrets,
product formulas, customer lists and other proprietary information owned by IHFC
by virtue of the incorporation of the predecessor sole proprietorship. The
agreement requires a payment of 1.0% of the total gross sales of the Company.
F-12
<PAGE>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE J - Due to Officers - continued
The Company entered into an employment agreement with an individual to serve as
the Company's President and Chief Executive Officer. The agreement covers the
term from July 1, 1996 through June30, 2001 and automatically renews for
successive two (2) year terms unless either the President or the Company gives
sixty (60) days written notice to the other. The agreement requires annual
compensation payments of $128,000 for the first year of the agreement term;
$150,000 for the second year of the agreement term and $175,000 for all
successive years of the agreement term.
The Company entered into an employment agreement with an individual to serve as
the Company's Executive Vice President and Chief Financial Officer. The
agreement covers the term from July 1, 1996 through June30, 2001 and
automatically renews for successive two (2) year terms unless either the
Executive Vice President or the Company gives sixty (60) days written notice to
the other. The agreement requires annual compensation payments of $80,000 for
the first year of the agreement term; $100,000 for the second year of the
agreement term and $125,000 for all successive years of the agreement term.
As of April 30, 1999 and 1998, total cumulative amounts unpaid under these
agreements are as follows:
1999 1998
-------- --------
Officer compensation $629,760 $416,333
Airplane lease payments - 6,636
Royalty fees - -
-------- --------
$629,760 $422,969
======== ========
Future amounts due under the employment agreements are as follows:
Year ending
April 30, Amount
-------- --------
2000 $300,000
2001 300,000
2002 50,000
--------
Totals $650,000
NOTE K - Common Stock Transactions
In February 1998, the Company issued 50,000 shares of restricted, unregistered
common stock to an entity performing various public relations, capital
acquisition and other financial services. The transaction was valued at
approximately $71,000, which equals the closing price of the Company's common
stock as quoted on the NASDAQ Electronic Bulletin Board on the trade date
closest to the transaction date.
F-13
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE L - Income Taxes
The components of income tax (benefit) expense for the years ended April 30,
1999 and 1998, respectively, are as follows:
1999 1998
--------- ---------
<S> <C> <C>
Federal:
Current $ - $ -
Deferred - -
--------- ---------
- -
--------- ---------
State:
Current - -
Deferred - -
--------- ---------
- -
--------- ---------
Total $ - $ -
========= =========
As of April 30, 1999, the Company has a net operating loss carryforward of
approximately $800,000 to offset future taxable income. Subject to current
regulations, this carryforward will begin to expire in 2012.
The Company's income tax expense for the years ended April 30, 1999 and 1998,
respectively, differed from the statutory federal rate of 34 percent as follows:
1999 1998
--------- ---------
Statutory rate applied to earnings (loss) before income taxes $(138,800) $(125,000)
Increase (decrease) in income taxes resulting from:
State income taxes - -
Other including reserve for deferred tax asset 138,800 125,000
--------- ---------
Income tax expense $ - $ -
========= =========
The deferred current tax asset on the April 30, 1999 and 1998, respectively,
balance sheet consists of the following:
1999 1998
--------- ---------
Current deferred tax asset $ 263,800 $ 125,000
Reserve (263,800) (125,000)
--------- ---------
Net current tax asset $ - $ -
========= =========
</TABLE>
The current deferred tax asset results from the availability of the Company's
net operating loss carryforward to offset future taxable income. The Company has
fully reserved its deferred tax asset related to its net operating loss
carryforward due to the uncertainty of future usage. During the year ended April
30, 1999 and 1998, the reserve for the deferred current tax asset increased by
approximately $125,000 and 138,800, respectively.
F-14
<PAGE>
HUMATECH, INC.
(formerly Midwest Enterprise Consultants, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE M - Commitments
In April 1998, the Company entered into a Marketing Services Agreement with an
unrelated entity to provide specialized marketing services that will generate
sales into specified mass merchandiser outlets. The agreement provides that the
Company will pay the marketing company a performance fee equal to 10.0% of all
invoiced sales to the respective mass merchandisers and covers virtually all of
the Company's products.
NOTE N - Subsequent Events
In November 1998, the Company entered into a letter of intent for the purpose of
establishing a joint venture to promote and sell the Company's products into the
United Kingdom. The letter of intent anticipates that the Company would have a
50.0% interest in the proposed joint venture. During the 2nd quarter of 1999,
the Company and its United Kingdom distributor formed a new entity, Humatech,
Ltd., of which the Company owns a 45.0% interest in this entity. The Company
conducts business with Humatech, Ltd. under equal terms and conditions to those
of domestic sales to unrelated third parties.
On June 30, 1999, the Company executed a term note payable with two individuals,
who are affiliated with the Company's Executive Vice President and Chief
Financial Officer, in the gross amount of approximately $153,650. The loan bears
interest at 9.0%. The principal balance and accrued interest is due on or before
July 1, 2004. The note is unsecured.
On September 1, 1999, the Company executed an operating lease for its
manufacturing facility. The term of the lease is for one (1) year and requires
monthly payments of approximately $850. Additionally, the Company must provide
insurance coverage in an amount acceptable to the lessor, as defined in the
lease agreement.
F-15
<PAGE>
Humatech, Inc.
(formerly Midwest Enterprise Consultants, Inc.)
Balance Sheets
October 31, 1999 and 1998
(Unaudited)
1999 1998
----------- -----------
ASSETS
------
Current Assets
Cash on hand and in bank $ 189,814 $ --
Accounts receivable - trade,
net of allowance for doubtful accounts
of $-0- and $-0-, respectively 67,768 --
Inventories 84,978 93,559
----------- -----------
Total current assets 342,560 93,559
----------- -----------
Property and Equipment - at cost
Transportation equipment 141,996 140,296
Manufacturing and processing equipment 110,155 42,755
Office furniture and fixtures 10,955 7,903
----------- -----------
263,106 190,954
Accumulated depreciation (146,700) (130,287)
----------- -----------
Net property and equipment 116,406 60,667
----------- -----------
Other assets -- 360
----------- -----------
Total Assets $ 458,966 $ 154,586
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Cash overdraft $ -- $ 5,082
Notes payable to banks and finance companies 89,623 95,021
Notes and leases payable to affiliates 49,476 36,750
Customer deposits 10,500 --
Accounts payable - trade 65,634 89,053
Accrued interest payable 22,350 8,235
Due to officers 697,873 538,348
----------- -----------
Total current liabilities 935,456 772,489
----------- -----------
Long-term Liabilities
Notes and commitments payable to affiliates 788,727 173,077
----------- -----------
Total liabilities 1,724,183 945,566
----------- -----------
Commitments and Contingencies
Stockholders' Equity
Common stock - no par value
25,000,000 shares authorized
8,455,114 issued and outstanding 123,157 123,157
Accumulated deficit (1,388,374) (914,137)
----------- -----------
Total stockholders' equity (1,265,217) (790,980)
----------- -----------
Total Liabilities and Stockholders' Equity $ 458,966 $ 154,586
=========== ===========
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
Humatech, Inc.
(formerly Midwest Enterprise Consultants, Inc.)
Statements of Operations and Comprehensive Income
Six and Three months ended October 31, 1999 and 1998
(Unaudited)
Six months Six months Three months Three months
ended ended ended ended
October 31, October 31, October 31, October 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Sales - net $ 140,256 $ 123,120 $ 66,241 $ 26,226
Cost of Sales
Materials and other direct costs 70,146 54,978 43,286 8,469
------------ ------------ ------------ ------------
Gross Profit 70,110 68,142 22,955 17,757
------------ ------------ ------------ ------------
Operating Expenses
Research and development expenses 2,740 -- -- --
Commissions and other sales
and marketing expenses 28,317 41,092 11,392 14,577
Officer compensation 150,000 145,833 75,000 72,917
Other operating expenses 119,476 50,861 62,983 19,354
Interest expense 7,986 6,284 4,202 1,321
Depreciation expense 14,438 10,937 7,431 5,748
------------ ------------ ------------ ------------
Total operating expenses 322,957 169,590 161,008 113,918
------------ ------------ ------------ ------------
Loss from operations (252,847) (101,448) (138,053) (96,161)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss (252,847) (101,448) (138,053) (96,161)
Other Comprehensive Income -- -- -- --
------------ ------------ ------------ ------------
Comprehensive Income $ (252,847) $ (101,448) $ (138,053) $ (96,161)
============ ============ ============ ============
Net loss per weighted-average
share of common stock
outstanding, calculated on
Net Loss - basic and fully diluted $ (0.03) $ (0.01) $ (0.02) $ (0.01)
============ ============ ============ ============
Weighted-average number of shares
of common stock outstanding 8,455,114 8,455,114 8,455,114 8,455,114
============ ============ ============ ============
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
Humatech, Inc.
(formerly Midwest Enterprise Consultants, Inc.)
Statements of Cash Flows
Six months ended October 31, 1999 and 1998
(Unaudited)
Six months Six months
ended ended
October 31, October 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss for the period $ (252,847) $ (186,864)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 14,438 10,937
(Increase) Decrease in
Accounts receivable - trade (63,147) 5,232
Inventory 4,341 6,100
Other assets 360 --
Increase (Decrease) in
Accounts payable and other accrued liabilities (19,317) 10,233
Due to officers 68,113 115,379
----------- -----------
Cash flows provided by (used in) operating activities (248,059) (38,983)
----------- -----------
Cash Flows from Investing Activities
Purchase of property and equipment (23,703) (131)
----------- -----------
Cash flows used in investing activities (23,793) (131)
----------- -----------
Cash Flows from Financing Activities
Increase (Decrease) in cash overdraft (1,819) 5,082
Proceeds from loans payable to affiliates 465,650 34,989
Proceeds from notes payable to banks and finance companies 21,823 --
Principal payments on loans payable (24,078) (5,795)
----------- -----------
Cash flows provided by (used in) financing activities 461,576 34,276
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 189,814 (4,838)
Cash and cash equivalents at beginning of period -- 4,838
----------- -----------
Cash and cash equivalents at end of period $ 189,814 $ --
=========== ===========
Supplemental Disclosure of
Interest and Income Taxes Paid
Interest paid for the period $ 7,986 $ 6,284
=========== ===========
Income taxes paid for the period $ -- $ --
=========== ===========
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants.
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
Humatech, Inc.
(formerly Midwest Enterprise Consultants, Inc.)
Notes to Financial Statements
NOTE A - Organization and Description of Business
Humatech, Inc. (formerly Midwest Enterprise Consultants, Inc.) (Company) was
incorporated on February 2, 1988 under the laws of the State of Illinois. The
Company was initially formed for the purposes of assisting local organizations
of labor and corporations with their membership or employee relations by
providing bundled membership or employee benefits for a low per member fee or
per employee cost to the corporation or labor organization. The Company intended
to achieve its goal of placing bundled groups of benefits with labor
organizations or corporations on the beneficial value that such services will
hold for the respective members or employees thereby enhancing satisfaction with
the labor union or corporate management.
From inception through April 16, 1997, the Company was engaged solely in the
process of developing a methodology to achieve its goals and was unsuccessful in
its efforts. The Company became dormant in December 1991.
On April 16, 1997, the Company issued 5,884,614 shares of common stock to
International Humate Fertilizer Co. (IHFC), a Nevada corporation, to acquire
100.0% of the assets of IHFC. IHFC then distributed the 5,884,614 shares of the
Company's stock to its stockholders. For accounting purposes, IHFC is the
surviving entity and all assets and liabilities were acquired by the Company at
the historical founder's cost of IHFC.
Due to the April 16, 1997 acquisition of a significant business operation, the
Company changed its operating year-end to April 30 and changed its corporate
name to Humatech, Inc..
International Humate Fertilizer Co. (IHFC) is a Nevada corporation incorporated
on February 21, 1996 under the laws of the State of Nevada. IHFC was capitalized
with the transfer of certain assets and assumption of all outstanding
liabilities of a Texas sole proprietorship of the same name, effective July 1,
1996. With the acquisition of IHFC, the Company became engaged in the
development, manufacture and sale of carbon-based humate products for use in the
commercial agriculture, animal feed and home horticulture markets.
For segment reporting purposes, the Company operated in only one industry
segment during the periods represented in the accompanying financial statements
and makes all operating decisions and allocates resources based on the best
benefit to the Company as a whole.
During interim periods, the Company follows the accounting policies set forth in
its annual audited financial statements contained elsewhere in this document.
The information presented herein does not include all disclosures required by
generally accepted accounting principles and the users of financial information
provided for interim periods should refer to the annual financial information
and footnotes contained in its annual audited financial statements contained
elsewhere in this document when reviewing the interim financial results
presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending April 30, 2000.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-19
<PAGE>
Humatech, Inc.
(formerly Midwest Enterprise Consultants, Inc.)
Notes to Financial Statements - Continued
NOTE B - Going Concern Uncertainty
The Company has incurred cumulative net operating losses of approximately
$(1,300,000) and has used cumulative cash in operating activities of
approximately $(346,000) during the period from May 1, 1997 through October 31,
1999. Further, the Company has been irregular in making scheduled payments on
notes payable to banks and other financing entities. Accordingly, the lender(s)
could, at their sole discretion, declare the then outstanding indebtedness to be
immediately due and payable. The lender could then foreclose on a significant
portion of the Company's assets, which could have a material adverse effect on
the Company's financial condition and operations.
Management is of the opinion that current sales trends and foreign demand for
the Company's products will provide sufficient cash to support the Company's
day-to-day liquidity requirements as well as retire outstanding debt and
delinquent trade payables.
The Company's continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis.
NOTE C - Summary of Significant Accounting Policies
1. Cash and cash equivalents
-------------------------
The Company considers all cash on hand and in banks, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
2. Accounts receivable and revenue recognition
-------------------------------------------
In the normal course of business, the Company periodically extends
unsecured credit to repetitive customers which are located principally in
Texas and Arizona. Because of the credit risk involved, management has
provided an allowance for doubtful accounts which reflects its opinion of
amounts which will eventually become uncollectible. In the event of
complete non-performance, the maximum exposure to the Company is the
recorded amount of trade accounts receivable shown on the balance sheet at
the date of non-performance.
Revenue is recognized at the time materials are shipped to the Company's
customers.
3. Inventory
---------
Inventory consists of finished goods, raw materials and related packaging
materials necessary to manufacture humate-based fertilizer products. These
items are carried at the lower of cost or market using the first-in,
first-out method.
4. Property, plant and equipment
-----------------------------
Property and equipment are recorded at historical cost. These costs are
depreciated over the estimated useful lives of the individual assets,
generally 4 to 10 years, using the straight-line method.
Gains and losses from disposition of property and equipment are recognized
as incurred and are included in operations.
F-20
<PAGE>
Humatech, Inc.
(formerly Midwest Enterprise Consultants, Inc.)
Notes to Financial Statements - Continued
NOTE C - Summary of Significant Accounting Policies - Continued
5. Research and development expenses
---------------------------------
Research and development expenses are charged to operations as incurred.
(6) Advertising expenses
--------------------
Advertising and marketing expenses are charged to operations as incurred.
7. Income taxes
------------
The Company utilizes the asset and liability method of accounting for
income taxes. At October 31, 1999 and 1998, respectively, the deferred tax
asset and deferred tax liability accounts, as recorded when material,
consist entirely the result of temporary differences. Temporary differences
represent differences in the recognition of assets and liabilities for tax
and financial reporting purposes, primarily allowance for doubtful accounts
and accumulated depreciation.
8. Loss per share
--------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of
the outstanding stock options and warrants, using the treasury stock
method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at
either the beginning of the respective period presented or the date of
issuance, whichever is later. As of October 31, 1999 and 1998, the Company
has no warrants and/or options issued and outstanding.
NOTE D - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
NOTE E - Inventory
Inventory consists of the following at October 31, 1999 and 1998, respectively:
October 31, October 31,
1999 1998
----------- -----------
Raw materials $ 84,978 $ 93,559
Finished goods - -
----------- -----------
Totals $ 84,978 $ 93,559
=========== ===========
F-21
<PAGE>
Humatech, Inc.
(formerly Midwest Enterprise Consultants, Inc.)
Notes to Financial Statements - Continued
NOTE F - Due to Officers
The Company had a operating lease payable to the Company's President and
controlling shareholder for the use of an airplane. The lease requires monthly
payments of $2,560 and the Company was required to provide all necessary
insurance coverage and maintenance. The lease term was from July 1, 1996 through
June 30, 1999. The lease was terminated by mutual consent of all parties on July
31, 1998.
The Company has a license agreement with the Company's President and controlling
shareholder for the use of all copyrights, trademarks, patents, trade secrets,
product formulas, customer lists and other proprietary information owned by IHFC
by virtue of the incorporation of the predecessor sole proprietorship. The
agreement requires a payment of 1.0% of the total gross sales of the Company.
The Company entered into an employment agreement with an individual to serve as
the Company's President and Chief Executive Officer. The agreement covers the
term from July 1, 1996 through June30, 2001 and automatically renews for
successive two (2) year terms unless either the President or the Company gives
sixty (60) days written notice to the other. The agreement requires annual
compensation payments of $128,000 for the first year of the agreement term;
$150,000 for the second year of the agreement term and $175,000 for all
successive years of the agreement term.
The Company entered into an employment agreement with an individual to serve as
the Company's Executive Vice President and Chief Financial Officer. The
agreement covers the term from July 1, 1996 through June30, 2001 and
automatically renews for successive two (2) year terms unless either the
Executive Vice President or the Company gives sixty (60) days written notice to
the other. The agreement requires annual compensation payments of $80,000 for
the first year of the agreement term; $100,000 for the second year of the
agreement term and $125,000 for all successive years of the agreement term.
As of October 31, 1999 and 1998, total cumulative amounts unpaid under these
agreements are as follows:
October 31, October 31,
1999 1998
----------- -----------
Officer compensation $ 697,873 $ 538,348
Airplane lease payments - -
Royalty fees - -
----------- -----------
$ 697,873 $ 538,348
=========== ===========
Future amounts due under the employment agreements are as follows:
Year ending
April 30, Amount
----------- -----------
2000 $ 300,000
2001 300,000
2002 50,000
-----------
Totals $ 650,000
NOTE K - Commitments
In April 1998, the Company entered into a Marketing Services Agreement with an
unrelated entity to provide specialized marketing services that will generate
sales into specified mass merchandiser outlets. The agreement provides that the
Company will pay the marketing company a performance fee equal to 10.0% of all
invoiced sales to the respective mass merchandisers and covers virtually all of
the Company's products.
F-22
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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<CIK> 0001100976
<NAME> Humatech, Inc.
<MULTIPLIER> 1
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-31-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<CASH> 189814
<SECURITIES> 0
<RECEIVABLES> 67768
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<INVENTORY> 84978
<CURRENT-ASSETS> 342560
<PP&E> 263106
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<TOTAL-ASSETS> 458966
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<BONDS> 0
0
0
<COMMON> 123157
<OTHER-SE> (1388374)
<TOTAL-LIABILITY-AND-EQUITY> 458966
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<CGS> 70146
<TOTAL-COSTS> 322957
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (252847)
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</TABLE>
