UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
--------------------------------------------------------------------------------
(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
--------- EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
--------- OF 1934
For the transition period from ____________ to ___________
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Commission File Number: 0-28557
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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)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
November 28, 2000: 10,100,518
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
<PAGE>
Humatech, Inc.
Form 10-QSB for the Quarter ended October 31, 2000
Table of Contents
Page
----
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 14
Part II - Other Information
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults Upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 16
2
<PAGE>
Item 1 - Part 1 - Financial Statements
Humatech, Inc.
Balance Sheets
October 31, 2000 and 1999
(Unaudited)
October 31, October 31,
2000 1999
--------- ---------
ASSETS
------
Current Assets
Cash on hand and in bank $ 47,865 $ 189,814
Accounts receivable - trade,
net of allowance for doubtful accounts
of $-0- and $-0-, respectively 273,104 67,768
Inventories 185,215 84,978
--------- ---------
Total current assets 506,184 342,560
--------- ---------
Property and Equipment - at cost
Transportation equipment 252,758 141,996
Manufacturing and processing equipment 189,009 110,155
Office furniture and fixtures 19,012 10,955
--------- ---------
460,779 263,106
Accumulated depreciation (205,026) (146,700)
--------- ---------
Net property and equipment 255,753 116,406
--------- ---------
Other assets 695 --
--------- ---------
Total Assets $ 762,632 $ 458,966
========= =========
- Continued -
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.
3
<PAGE>
<TABLE>
<CAPTION>
Humatech, Inc.
Balance Sheets - Continued
October 31, 2000 and 1999
(Unaudited)
October 31, October 31,
2000 1999
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Notes payable to banks and finance companies $ 14,000 $ 89,623
Current maturities of long-term debt 84,500 --
Notes and leases payable to affiliates -- 49,476
Customer deposits 8,800 10,500
Accounts payable - trade 105,878 65,634
Accrued interest payable -- 22,350
Due to officers 925,030 697,873
----------- -----------
Total current liabilities 1,138,208 935,456
----------- -----------
Long-term Liabilities
Long-term notes payable, net of current maturities 82,123 --
Notes and commitments payable to affiliates 150,000 788,727
----------- -----------
Total liabilities 1,370,331 1,724,183
----------- -----------
Commitments and Contingencies
Stockholders' Equity
Common stock - no par value
25,000,000 shares authorized
10,100,518 and 8,455,114 shares
issued and outstanding 1,154,633 123,157
Accumulated deficit (1,762,332) (1,388,374)
----------- -----------
Total stockholders' equity (607,699) (1,265,217)
----------- -----------
Total Liabilities and Stockholders' Equity $ 762,632 $ 458,966
=========== ===========
</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.
4
<PAGE>
<TABLE>
<CAPTION>
Humatech, Inc.
Statements of Operations and Comprehensive Income
Six and Three months ended October 31, 2000 and 1999
(Unaudited)
Six months Six months Three months Three months
ended ended ended ended
October 31, October 31, October 31, October 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Sales - net
Domestic $ 150,468 $ 140,256 $ 62,608 $ 66,241
Related Party
Foreign, principally
United Kingdom 41,120 -- 41,120 --
----------- ----------- ----------- -----------
Net revenues 191,588 140,256 103,728 66,241
Cost of Sales 48,528 70,146 20,138 43,286
----------- ----------- ----------- -----------
Gross Profit 143,060 70,110 83,590 22,955
----------- ----------- ----------- -----------
Operating Expenses
Research and development expenses 8,050 2,740 5,550 --
Commissions and other sales
and marketing expenses 38,378 28,317 25,799 11,392
Officer compensation 142,707 150,000 67,707 75,000
Other operating expenses 183,535 119,476 113,053 62,983
Interest expense 37,333 7,986 17,262 4,202
Depreciation expense 30,211 14,438 15,551 7,431
----------- ----------- ----------- -----------
Total operating expenses 440,214 322,957 244,922 161,008
----------- ----------- ----------- -----------
Loss from operations (297,154) (252,847) (161,332) (138,053)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net Loss (297,154) (252,847) (161,332) (138,053)
Other Comprehensive Income -- -- -- --
----------- ----------- ----------- -----------
Comprehensive Income $ (297,154) $ (252,847) $ (161,332) $ (138,053)
=========== =========== =========== ===========
Net loss per weighted-average
share of common stock
outstanding, calculated on
Net Loss - basic and fully diluted $ (0.03) $ (0.03) $ (0.02) $ (0.02)
=========== =========== =========== ===========
Weighted-average number of shares
of common stock outstanding 8,792,881 8,455,114 9,115,853 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.
5
<PAGE>
<TABLE>
<CAPTION>
Humatech, Inc.
Statements of Cash Flows
Six months ended October 31, 2000 and 1999
(Unaudited)
Six months Six months
ended ended
October 31, October 31,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss for the period $(297,154) $(252,847)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 30,211 14,438
Accrued interest converted to common stock 29,145 --
Fees and services paid with common stock 44,000 --
(Increase) Decrease in
Accounts receivable - trade 95,665 (63,147)
Inventory (37,864) 4,341
Other assets (300) 360
Increase (Decrease) in
Accounts payable and other accrued liabilities 25,215 (19,317)
Due to officers 70,673 68,113
--------- ---------
Cash flows (used in) operating activities (40,409) (248,059)
--------- ---------
Cash Flows from Investing Activities
Purchase of property and equipment (20,890) (23,703)
--------- ---------
Cash flows used in investing activities (20,890) (23,703)
--------- ---------
Cash Flows from Financing Activities
Increase (Decrease) in cash overdraft -- (1,819)
Proceeds from sale of common stock 120,000 --
Proceeds from loans payable to affiliates -- 465,650
Proceeds from notes payable to banks and finance companies -- 21,823
Principal payments on loans payable (37,646) (24,078)
--------- ---------
Cash flows provided by financing activities 82,354 461,576
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 21,055 189,814
Cash and cash equivalents at beginning of year 26,810 --
--------- ---------
Cash and cash equivalents at end of period $ 47,865 $ 189,814
========= =========
Supplemental Disclosure of
Interest and Income Taxes Paid
Interest paid for the period $ 8,576 $ 3,784
========= =========
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.
6
<PAGE>
Humatech, Inc.
Notes to Financial Statements
NOTE A - Organization and Description of Business
Humatech, Inc. (Company) was incorporated on February 2, 1988 under the laws of
the State of Illinois. 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.
On April 16, 1997, the Company acquired the assets and certain liabilities of
International Humate Fertilizer Co. (IHFC), a Nevada corporation incorporated on
February 21, 1996 under the laws of the State of Nevada. IHFC was initially
capitalized with the transfer of certain assets and assumption of all
outstanding liabilities of a Texas sole proprietorship of the same name,
effective October 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 Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the U. S. Securities and Exchange Commission.
The information presented herein may 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 Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 on Form 10-KSB 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, 2001.
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
$(1,465,000) and has used cumulative cash in operating activities of
approximately $(544,000) during the period from May 1, 1997 through April 30,
2000. Further, in prior periods, the Company was irregular in making scheduled
payments on notes payable to banks and other financing entities. Accordingly,
the lender(s) could have, at their sole discretion, declare the then outstanding
indebtedness to be immediately due and payable. The lender could have 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.
7
<PAGE>
Humatech, 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 unrelated customers, principally located in Texas and
Arizona, and to a related party account domiciled in the United Kingdom.
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.
5. Research and development expenses
---------------------------------
Research and development expenses are charged to operations as incurred.
8
<PAGE>
Humatech, Inc.
Notes to Financial Statements - Continued
NOTE C - Summary of Significant Accounting Policies - Continued
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, 2000 and 1999, 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, 2000 and 1999, the
Company's outstanding warrants and/or options are antidilutive due to the
Company's net operating losses.
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 - Due to Officers
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.
For the periods ended October 31, 2000 and 1999, respectively, the Company paid
or accrued approximately $1,919 and $1,403 for royalties under this agreement.
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 October 1, 1996 through June 30, 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.
9
<PAGE>
Humatech, Inc.
Notes to Financial Statements - Continued
NOTE E - Due to Officers - Continued
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 October 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, 2000 and 1999, total cumulative amounts unpaid under these
agreements are as follows:
2000 1999
--------- ---------
Officer compensation $ 925,030 $ 697,873
Royalty fees -- --
--------- ---------
$ 925,030 $ 697,873
========= =========
Future amounts due under the employment agreements are as follows:
Year ending
April 30, Amount
--------- ---------
2001 $ 300,000
2002 50,000
---------
Totals $ 350,000
=========
NOTE F - Income Taxes
The components of income tax (benefit) expense for the periods ended October 31,
2000 and 1999, respectively, are as follows:
2000 1999
--------- ---------
Federal:
Current $ -- $ --
Deferred -- --
--------- ---------
-- --
--------- ---------
State:
Current -- --
Deferred -- --
--------- ---------
-- --
--------- ---------
Total $ -- $ --
========= =========
As of April 30, 2000, the Company has a net operating loss carryforward of
approximately $1,130,000 to offset future taxable income. Subject to current
regulations, this carryforward will begin to expire in 2012.
10
<PAGE>
<TABLE>
<CAPTION>
Humatech, Inc.
Notes to Financial Statements - Continued
NOTE F - Income Taxes - Continued
The Company's income tax expense for the years ended October 31, 2000 and 1999,
respectively, differed from the statutory federal rate of 34 percent as follows:
2000 1999
--------- ---------
<S> <C> <C>
Statutory rate applied to earnings (loss) before income taxes $(101,032) $ (85,968)
Increase (decrease) in income taxes resulting from:
State income taxes -- --
Other including reserve for deferred tax asset 101,032 85,968
--------- ---------
Income tax expense $ -- $ --
========= =========
The deferred current tax asset on October 31, 2000 and 1999, respectively,
balance sheet consists of the following:
2000 1999
--------- ---------
Current deferred tax asset $ 439,000 $ 296,500
Reserve (439,000) (296,500)
--------- ---------
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.
NOTE G - Common Stock Transactions
On June 19, 2000, the Company entered into a Stock Purchase Agreement for the
purchase of 77,778 shares of restricted, unregistered common stock at a price of
$0.90 per share. As of October 31, 2000, the Company had received approximately
$70,000 under this Agreement. The sales price of the common stock is equal to
approximately 50.0% of the closing price of the Company's common stock on the
respective date of the Agreement.
On August 8, 2000, the Company issued 16,000 shares of restricted, unregistered
common stock to an existing shareholder in exchange for various advertising
internet web site design services. This transaction was valued at approximately
$16,000, which approximates the "fair value" of the services provided. The per
share price used in this transaction was approximately $1.00 or approximately
59.17% of the quoted closing price of the Company's common stock on the
transaction date.
On August 8, 2000, the Company issued 3,000 shares of restricted, unregistered
common stock to an unrelated individual in payment of various research and
development design costs. This transaction was valued at approximately $3,000,
which approximates the "fair value" of the services provided. The per share
price used in this transaction was approximately $1.00 or approximately 59.17%
of the quoted closing price of the Company's common stock on the transaction
date.
11
<PAGE>
Humatech, Inc.
Notes to Financial Statements - Continued
NOTE G - Common Stock Transactions - continued
On August 8, 2000, the Company issued 25,000 shares of restricted, unregistered
common stock to an unrelated entity for various public relations and financial
consulting services. This transaction was valued at approximately $25,000, which
approximates the "fair value" of the services provided. The per share price used
in this transaction was approximately $1.00 or approximately 59.17% of the
quoted closing price of the Company's common stock on the transaction date.
On September 7, 2000, the Company sold 77,500 shares of restricted, unregistered
common stock to an unrelated individual for gross proceeds of approximately
$50,000, which approximates the "fair value" of the shares issued in this
transaction. The per share price used in this transaction was approximately
$0.65 or approximately 60.86% of the quoted closing price of the Company's
common stock on the transaction date.
On September 30, 2000, the Company and two (2) entities related to the Company's
Vice President and Chief Financial Officer exchanged an aggregate 1,446,126
shares of restricted, unregistered common stock in payment of two notes payable
aggregating approximately $772,327 and accrued interest of approximately
$95,149. The per share price used in this debt conversion was approximately
$0.60 or approximately 95.24% of the quoted closing price of the Company's
common stock on the transaction date.
NOTE H - Stock Options
On May 1, 2000, the Company entered into a Consulting Agreement with an
individual to assist in the general development of the Company's business plan.
This Agreement requires the issuance of 200,000 options to purchase an
equivalent number of shares of the Company's common stock at an exercise price
of $1.25 per share. This Agreement has an initial term of 3 years and may be
terminated by either party after 90 days with 30 days notice in writing. These
options were fully vested upon issuance and may be exercised at any time prior
to April 30, 2003. The underlying shares are subject to being included in the
first Registration Statement undertaken by the Company subsequent to the
issuance of the options.
On July 20, 2000, the Company entered into a Consulting Agreement with an
unrelated entity for a three (3) year term for various product development and
marketing services for the animal feed industry. The Company issued options to
purchase up to 10,000 shares of the Company's common stock at a price of $3.00
per share. These options were fully vested upon issuance and may be exercised at
any time prior to July 20, 2003. The underlying shares are subject to being
included in the first Registration Statement undertaken by the Company
subsequent to the issuance of the options.
The fair value of each option grant is estimated on the date of grant using the
present value of the exercise price with the following weighted-average
assumptions used for grants in 2000-2001: risk-free interest rates of 7.5
percent; expected lives of 5 to 10 years, no dividends and price volatility of
30%. The weighted average remaining life of the options outstanding is
approximately 3 years as of October 31, 2000. A reconciliation of the Company's
stock option activity, and related information for the six months ended October
31, 2000 and the year ended April 30, 2000 is as follows:
12
<PAGE>
Humatech, Inc.
Notes to Financial Statements - Continued
NOTE H - Stock Options - Continued
Six months ended Year ended
October 31, 2000 April 30, 2000
-------------------- --------------------
Weighted Weighted
average average
Number exercise Number exercise
of options price of options price
---------- -------- ---------- --------
Outstanding at beginning of period -- -- -- --
Granted 210,000 $1.33 -- --
Exercised -- -- -- --
Expired/Forfeited -- -- -- --
---------- ---------- --------
Outstanding at end of year 210,000 $1.33 -- --
========== ==========
The following table summarizes information about the stock options at October
31, 2000:
October 31, 2000
------------------------
Exercise Number Number
Expiration Date Price Outstanding Exercisable
--------------- -------- ----------- -----------
April 2003 $1.25 200,000 200,000
July 2003 $3.00 10,000 10,000
-------- --------
210,000 210,000
======== ========
(The remainder of this page left blank intentionally)
13
<PAGE>
Part I - 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) Results of Operations
During the first six months of Fiscal 2001 (period ended October 31, 2000) as
compared to the first six months of Fiscal 2000, the Company experienced net
revenues of approximately $192,000 and $140,000, respectively. These revenues
were principally derived from domestic sources with approximately $41,000 being
derived from customers in the United Kingdom during the second quarter of Fiscal
2001. The first quarter of the Company's fiscal year experiences traditionally
slower sales as this period is subsequent to the Spring planting seasons and
Fall harvesting seasons for the commercial agricultural market. The Company
remains diligent in developing both the consumer agricultural market segment and
animal feed segment to assist in reducing the seasonality of the Company's
business operations.
Costs of sales for the six months ended October 31, 2000 and 1999 were
approximately $49,000 (25.33%) and approximately $70,000 (50.01%). The
improvement in the respective gross profit margins was due primarily to a shift
in products sold in the first six months of Fiscal 2001 compared to the products
sold in the first six months of Fiscal 2000, which required higher component
costs.
The Company incurred general and administrative expenses totaling approximately
$440,000 and $323,000, respectively, for the six months ended October 31, 2000
and 1999. The largest items in this category are officers compensation, which is
subject to long-term employment agreements, sales and marketing expenses,
payroll and various travel related expenses related to product development,
general administration and product marketing.
Overall, the Company incurred a net operating loss of approximately $(297,000)
and $(253,000) during the first six months ended October 31, 2000 and 1999,
respectively, for a net loss per share of approximately $(0.03) and $0.03) per
share, respectively.
(3) Liquidity and Capital Resources
Due to the Company's net operating loss position, liquidity has been provided
through principal advances on loans from related parties and/or the sale of
restricted securities. The Company has had and continues to have a negative
working capital position and may be subject to the suspension of credit by
various vendors and suppliers. Any disruption in the availability of credit for
the acquisition of necessary goods and services could have an adverse effect on
the financial and operating condition of the Company.
No significant capital requirements have been identified for the near term.
Future requirements are dependent upon business activity levels, the
availability of internally generated resources and/or the continued availability
of credit from related and unrelated parties.
14
<PAGE>
(4) Year 2000 Considerations
The Year 2000 (Y2K) date change was believed to affect virtually all computers
and organizations. The Company undertook a comprehensive review of its
information systems, including personal computers, software and peripheral
devices, and its general communications systems during 1999. The Company has no
direct electronic links with any customer or supplier.
The costs associated with the Y2K date change compliance did not have a material
effect on the Company's financial position or its results of operations.
However, as the Year 2000 progresses, there can be no assurance that all of the
Company's systems, and the systems of its suppliers, shippers, customers or
other external business partners will continue to function adequately.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
On June 19, 2000, the Company entered into a Stock Purchase Agreement with White
Mountain Capital Group, LLC, a Utah corporation, for the purchase of 77,778
shares of restricted, unregistered common stock at a price of $0.90 per share.
As of October 31, 2000, the Company had received approximately $70,000 under
this Agreement. The sales price of the common stock is equal to approximately
50.0% of the closing price of the Company's common stock on the respective date
of the Agreement.
On August 8, 2000, the Company issued an aggregate total of 44,000 shares of
stock and a warrant to purchase up to 10,000 shares of common stock at a price
of $3.00 per share, as follows:
Mark Kuehn 3,000 shares for product design and development.
Eric Hooper 15,000 shares for administrative services
Gerry Hooper 1,000 shares for administrative services
deJong & Associates 25,000 shares and
75,000 warrants for financial consulting services (1)
Phillip Cate 200,000 warrants for general business consulting
Vector Marketing 10,000 warrants for product consulting services
(1) - The underlying contract for these shares and warrants was canceled by
mutual consent in September 2000 canceling the 75,000 warrants.
These shares and warrant were issued to various individuals and/or entities for
various administrative services, financial consulting services and product
design and engineering services.
On September 7, 2000, the Company sold 77.500 shares of restricted, unregistered
common stock to Ron Isaacson, an unrelated individual, for total proceeds of
approximately $50,000 under a Stock Purchase Agreement.
On September 30, 2000, the Company and two (2) entities related to the Company's
Vice President and Chief Financial Officer exchanged an aggregate 1,446,126
shares of restricted, unregistered common stock in payment of two notes payable
aggregating approximately $772,327 and accrued interest of approximately
$95,149, as follows:
U. S. Finance, Inc. 439,096 shares $217,877 - principal
$ 45,581 - accrued interest
PDR Finance 1,007,030 shares $554,450 - principal
$ 49,568 - accrued interest
15
<PAGE>
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
None
--------------------------------------------------------------------------------
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Humatech, Inc.
November 28 , 2000 /s/ David G. Williams
-------- ----------------------------------------
David G. Williams
President and Director
November 28 , 2000 /s/ John D. Rottweiler
-------- ----------------------------------------
John D. Rottweiler
Chief Financial Officer and Director
16
