SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended April 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________.
Commission file number 0-28557
Humatech, Inc.
(Exact name of registrant as specified in its charter)
Illinois 36-3559839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1718 Fry Road, Suite 450
Houston, Texas 77084
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 828-2500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
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Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $522,133
State the aggregate market value of voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of a specified date within the past 60 days. (See definition of affiliate in
rule 12b-2 of the Exchange Act.) $6,791,738, based on the closing price of $1.69
for the common stock on August 7, 2000.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of August 7,
2000, there were 8,499,114 shares of common stock, no par value, issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The listed documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990). None.
Transitional Small Business Disclosure
Format (check one):
Yes No X
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HUMATECH, INC.
TABLE OF CONTENTS
-----------------
PART I
Item 1 Description of Business.
Item 2 Description of Property
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders.
PART II
Item 5 Market for Common Equity and Related Stockholder Matters.
Item 6 Management's Discussion and Analysis or Plan or Operations.
Item 7 Financial Statements.
Item 8 Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners and Management.
Item 12 Certain Relationships and Related Transactions.
Item 13 Exhibits and Reports on Form 8-K.
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PART I
This Annual Report includes forward-looking statements within the meaning of the
Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based
on management's beliefs and assumptions, and on information currently available
to management. Forward-looking statements include the information concerning
possible or assumed future results of operations of the Company set forth under
the heading "Financial Information-Management's Discussion and Analysis of
Financial Condition or Plan of Operation." Forward-looking statements also
include statements in which words such as "expect," "anticipate," "intend,"
"plan," "believe," "estimate," "consider" or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions. The Company's future results and
shareholder values may differ materially from those expressed in these
forward-looking statements. Readers are cautioned not to put undue reliance on
any forward-looking statements.
ITEM 1 - DESCRIPTION OF BUSINESS
History of the Company
----------------------
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).
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.
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.
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Industry and Business overview
------------------------------
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, a new philosophical view of
agriculture, termed "sustainable agriculture" by those who promote its terms,
has developed. A sustainable agriculture system centers around 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.
The "scientific agriculturists", backed by special interests, have historically
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 caused 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 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. All plant, animal and human waste (a source of organic matter)
should theoretically be returned to the soil where it can aid 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 may be limited.
In the early 1900's a concept of "Alternative Agriculture" evolved which
emphasizes 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.
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The evolving concepts of biodynamic, organic, biological, and ecological
agriculture production systems have paved the way to the development of
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".
It is believed that the humic component of soils greatly influences the soil's
productive capacity. For example the humic components aid soil in holding water,
improve soil structure, 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 increase production and farm profits.
A major component of the sustainable agriculture movement is the belief 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 is believed 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 are expected to play 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:
(1) 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.
(2) 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.
(3) 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 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.
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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
-----------------------------------------------
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 Company believes that its years of
research and development, field trials and customer sales have earned it a good
reputation for it's products and served to refine its production processes. The
Company has developed a 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 data 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 data. 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.
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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 and 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 as a result 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.
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.
Market overview and competition
-------------------------------
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.
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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
---------------------
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
---------
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
------------------------
The following is a brief description of the Company's current product line
developed and distributed into identified market segments:
Agriculture Market:
Dry Products
------------
AGRIo HUME(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.
Liquid Products
---------------
MAXIMIZE(TM). A multi-functional humic and fulvic acid liquid blend.
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.
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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.
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.
MACROo PLUS(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.
CALCIUMo PLUS(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) provides an all-natural
source of nutritional iron; 2) increases the viability of rumin in
stomachs of ruminant animals; 3) reduces feedlot animal waste; 4)
increases average daily weight gain; 5) reduces (improves) feed
conversion ratio; 6) reduces stress from shipping fever; and 7)
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.
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ORGANIC ADVANTAGE 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, ORGANIC ADVANTAGE SOIL BUILDER(TM) is also effective as a
transplant solution that eliminates the shock of transplanting potted
plants, trees, and shrubs.
ORGANIC ADVANTAGE LAWN FOOD(TM). ORGANIC ADVANTAGE 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
ORGANIC ADVANTAGE 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.
ITEM 2 - 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.
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ITEM 3 - 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders for a vote during the period
covered by this report.
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PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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:
High Low
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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 - January 31, 2000) $4.06 $1.63
Fourth quarter 2000 (February 1, 2000 - April 30, 2000) $3.13 $1.00
First quarter 2001 (May 1, 2000 - July 31, 2000) $3.00 $1.50
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.
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.
In July 2000, the Company issued an aggregate of 44,000 shares of restricted,
unregistered common stock to four investors for the performance of services
rendered to the Company. The transactions were valued at an aggregate of
$44,000. The issuances were exempt from registration under Rule 4(2) of the
Securities Act of 1933.
In July 2000, the Company authorized the issuance of warrants to acquire an
aggregate of 285,000 shares of common stock of the Company. Of these warrants,
200,000 have an exercise price of $1.25 per share and are exercisable for a
period of three years, 75,000 have an exercise price of $3.00 per share and are
exercisable for a period of five years, and 10,000 have an exercise price of
$3.00 per share and are exercisable for a period of three years.
12
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains certain forward-looking statements that are
subject to business and economic risks and uncertainties, and our actual results
could differ materially from those forward-looking statements. The following
discussion regarding our financial statements should be read in conjunction with
the financial statements and notes thereto.
Results of Operations for the year ended April 30, 2000 as compared to the year
ended April 30, 1999
During the year ended April 30, 2000, the Company reported net revenues of
$522,133, as compared to $157,524 for the year ended April 30, 1999, an increase
of over 230%. Of the $522,133 in net revenues for the year ended April 30, 2000,
$207,414 (39.7%) were from domestic sources, while $314,719 (60.3%)were from
sales to Humatech, Ltd., a related party joint venture in the United Kingdom.
Although there are no formal agreements in place, and the Company has made no
capital contribution to Humatech, Ltd., Management of the Company expects to
eventually own a minority interest in this entity. As of April 30, 2000, and for
the year then ended, the Company conducts business with this foreign entity
under equal terms and conditions to those of domestic sales to unrelated third
parties.
For the year ended April 30, 2000, the Company had cost of sales equal to
$128,545, or 25% of net revenues, as compared to $86,245, or 55% of net
revenues, for the year ended April 30, 1999. This decrease in cost of sales as a
percentage of net revenues is due primarily to increased operating efficiencies
associated with a higher level of sales. Of the $128,545 in cost of sales for
the year ended April 30, 2000, $29,770 (23%) was materials cost, while $98,775
(77%) was other direct costs.
Gross profit was equal to $393,588, or 75% of net revenues, for the year ended
April 30, 2000, as compared to $71,279, or 45% of net revenues, for the year
ended April 30, 1999. As discussed above, this increase in gross profit as a
percentage of net revenues is due primarily to increased operating efficiencies
associated with a higher level of sales.
During the year ended April 30, 2000, the Company incurred operating expenses of
$723,239, resulting in an operating and net loss of $329,651, as compared with
operating expenses and operating and net loss of $479,533 and $408,254,
respectively, for the year ended April 30, 1999. This represents an increase in
operating expenses of over 50%, and a decrease in operating and net loss of 19%.
Of the $723,239 in operating expenses for the year ended April 30, 2000, the
Company recorded $256,266 in other operating expenses as compared to$44,490 for
the year ended April 30, 1999. This increase was due primarily to increased
expenses associated with the higher level of sales from the previous year.
Interest expense increased from $28,577 for the year ended April 30, 1999 to
$60,742 for the year ended April 30, 2000 as a result of an increase in notes
payable to banks and finance companies for equipment financing, and accrued
interest due on a long-term note payable to an affiliate. Commissions and other
sales and marketing expenses decreased from $73,319 for the year ended April 30,
1999 to $48,291 for the year ended April 30, 2000 as a result of an increased
amount of sales directly by the Company and through its United Kingdom joint
venture.
As a result of the above, the Company incurred a net loss for the year ended
April 30, 2000 of $329,651 as compared to $408,254 for the year ended April 30,
1999.
13
<PAGE>
Liquidity and Capital Resources
For the year ended April 30, 2000, cash used in operating activities was equal
to $446,113. Of the adjustments necessary to reconcile net loss to net cash
provided by operating activities, the Company reported (i) an increase in
depreciation of $43,490, reflecting additional equipment acquired during the
year; (ii) an increase in accounts receivable of $364,148 and an increase in
inventory of $58,032, both reflecting the increase in sales for the year; (iii)
an increase in accrued interest payable of $44,042, reflecting the increased
borrowing activity by the Company; and (iv) an increase in amounts due to
officers of $224,597, reflecting primarily unpaid salary due to officers.
At April 30, 2000, the Company reported total current assets of $542,930, as
compared to $93,940 for the year ended April 30, 1999, an increase of over five
times. At April 30, 2000, cash was equal to $26,810, as compared to zero at
April 30, 1999, accounts receivable - trade was equal to $368,769, as compared
to $4,621 at April 30, 1999, and inventories was equal to $147,351, as compared
to $89,319 at April 30, 1999. The increases in all categories was as a result of
the Company's increased sales during the year ended April 30, 2000.
At April 30, 2000, the Company had a relatively limited amount of cash, and a
relatively large accounts receivable - trade. Assuming that the Company is able
to collect its accounts receivable - trade in a timely fashion, management
believes that the Company's current assets are sufficient to sustain operations
for the foreseeable future. Although management does not anticipate any
difficulties in collecting its accounts receivable, in the event that unforseen
difficulties in collecting its accounts receivable do arise, or in the event of
a decrease in the volume of sales, the Company may not be able to sustain
operations. In such an event, the Company will have to either suspend operations
or seek additional funds from short and long term borrowing sources or through
the sale of common stock.
As a result of the increase in sales for the year ended April 30, 2000, the
Company's net property and equipment increased from $107,141 at April 30, 1999
to $265,074 at April 30, 2000. The equipment was obtained in order for the
Company to adequately fulfill the increased sales orders.
Total assets at April 30, 2000 were $808,399 as compared to $201,441, an
increase of over 300%.
Total current liabilities increased from $890,734 at April 30, 1999 to
$1,094,324 at April 30, 2000, an increase of 22%. This increase was due
primarily to an increase in amounts due to officers from $629,760 to $854,357
and an increase in accrued interest payable from $22,350 to $66,392, both
discussed more fully above. Notes and leases payable to affiliates were
decreased from $56,746 at April 30, 1999 to zero at April 30, 2000 as a result
of the retirement of certain debt obligations owed to affiliates of the Company.
Total liabilities increased from $1,213,811 at April 30, 1999 to $2,150,420 at
April 30, 2000, an increase of over 77%. In addition to the increase in current
liabilities discussed above, the Company also reported long term notes payable,
net of current maturities equal to $133,769 as compared to zero for the previous
year, and notes and commitments payable to affiliates of $922,327 as compared to
$323,077 for the previous year, reflecting primarily a $554,450 note payable to
two individuals related to the Company's Executive Vice President and Chief
Executive Officer.
As a result of the above, total stockholders equity went from a deficit of
$1,012,370 at April 30, 1999 to a deficit of $1,342,021 at April 30, 2000, an
increase of over 32%.
14
<PAGE>
The Company's independent certified public accountants' report on the April 30,
2000 financial statements contained an explanatory paragraph expressing
substantial doubt as to the Company's ability to continue as a going concern.
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.
ITEM 7 - FINANCIAL STATEMENTS
The financial statements called for under this item appear under the caption
Index to Financial Statements (Page F-1 hereof).
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Name Age Position
-------------------------- ----- ------------------------
David G. Williams 50 President and Director
John D. "J. D." Rottweiler 54 Chief Financial Officer
David G. Williams, Chief Executive Officer/President/Director: Mr. Williams has
served as a Director and President 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.
Mr. Williams's has more than two decades experience in the humate industry and
as an entrepreneur involved in the broad and extensive management of financial
responsibilities, staffing, manufacturing and production, and developing sales
worldwide. He has completed major product development projects through years of
research and development, field trials and tests that have produced the
Company's current and future product lines. He is currently responsible for the
developing and maintaining the vision of the company, overseeing sales and
marketing, product development, production, and customer service. Mr. Williams
continues to develop business opportunities and strategic alliances with other
companies and organizations.
John D. Rottweiler, Executive Vice President/Chief Financial
Officer/Secretary/Director: Mr. Rottweiler has served as Executive Vice
President and Chief Financial Officer of the Company since April 1997. Mr.
Rottweiler has served as the Executive Trustee of The Phoenix Trust, a Phoenix,
Arizona based management consulting firm, from 1989 to the present. 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.
Mr. Rottweiler has over 25 years of experience providing extensive management
and operational consulting in the planning, organizing, and directing of
businesses in several industries. He has served as officer and director of both
private and public companies in the finance, insurance, real estate, and
manufacturing industries. He was the owner and founder of an investment banking
business that provided capital financing, as principal and agent, for private
and public ventures. He is a graduate from the University of Utah with a
Bachelor of Science in Management, Bachelor of Science in Marketing, and Masters
of Business Administration.
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. Robert E. Pettit, Member Technical Advisory Board: Emeritus Associate
Professor, Texas A&M University, Associate Professor of Plant Pathology,
Department of Plant Pathology & Microbiology, and International Agriculture
Consultant. Dr. Pettit has held the position of Director of Research and Product
Development, International Humates, Co. Professional experience includes
numerous years of developing and teaching graduate and undergraduate courses in
the areas of "Diseases of Field Crops", "Bacterial Plant Diseases", "Diseases of
Fruits, Vegetables, and Ornamental" and "Plant Pathogenic Fungi". In the
academic area Dr. Petitt was responsible for numerous research and development,
and grant projects concerning the "Diseases of Peanut", "Mycotoxins and
Microflora Damage in Pecans", and Mycotoxins of Corn and Other Feed Grains". As
an educator and consultant, his profession has taken him to over 20 different
foreign countries, and allowed him to publish in excess of 100 articles and
abstracts in references journals, and several books throughout the world.
16
<PAGE>
Esper K. Chandler, Member Technical Advisory Board: Independent Agricultural
Consultant & Farmer. Mr. Chandler has over 30 years experience as owner of Texas
Plant and Soil Lab., Inc., an agriculture testing and consulting service, owner
and operator of family cattle and row crop farm operations, and held executive
position in Pennzoil-United, American Plant Food Corporation, Occidental
Petroleum Corporation and National Plant Food Institute.
Jack A. Moreman, Member Technical Advisor Board: Executive Vice President, BIO
AG Technology with responsibilities involving the management of oil field and
agriculture Bio-Remediation projects for the company. Previous experience
include Professor at Clarendon College for 20 years, General Manager of JA Land
Co., which included managing 400,000 acres of farm and grazing business, and
Assistant Director of Ranch Programs at Texas Christian University.
Russell K. Harris, Member Technical Advisory Board: Independent mining
consultant with over 20 years experience in the mining/extraction industry. Over
fourteen (14) years of business, management, and engineering, experience at
Shell Mining Company. Specific responsibilities in the areas of process
enhancement team management, facilities design and construction, executive
office support, market and profitability analysis, and information systems.
Coordinated productivity and cost enhancement task force at a large mining
complex. Provided staff support for the senior management teams related to
strategy development and shareholder relations. Mr. Harris has developed
forecasts of specific supply and demand conditions, and operational
competitiveness for proposed expansion projects and existing facilities. Also,
updated hardware, streamlines systems applications, developed a responsible
team, and rolled computing responsibility to department managers, which included
all computer needs for operations, preventative maintenance, payroll,
warehousing, purchasing, accounting, and engineering. Performed initial mine
systems design along with cost reduction projects, short and long term mine
planning and mine life capital forecasting. Participated in initial construction
of major mine including overseeing the general contractor in the areas of
design, construction, cost control, site layout and all earthwork, track, piping
and minor building.
Consultants
-----------
Dr. Norbert K. Chirase: Research Scientist for the Beef Cattle Program at the
Texas A&M University Research Center in Amarillo, Texas. Jointly appointed as
Professor of Animal Science at West Texas A&M University. Graduate Faculty
Member, Department of Animal Science Texas A&M University and Division of
Agriculture, at West Texas A&M University.
Dr. John D. McGlone, Ph.D.: Dr. McGlone is a Professor and Director, Pork
Industry Institute, Department of Animal Science and Food Technology with a
joint appointment in the Department of Cell Biology & Anatomy at Texas Tech
University and Health Sciences Center. He received his Bachelor of Science and
Masters degrees from Washington State University. Dr. McGlone attended and
received his Ph.D. from the University of Illinois. He is the author of numerous
scientific and technical articles and publications in prestigious journals and
contributed to many books.
17
<PAGE>
Dr. Helen R. Stebbens, Ph.D. Nutritionist: Dr. Stebbens studied at the
University of Aberdeen in the field of Animal Science. After completing
curriculum with honors, Dr. Stebbens attended the world-renowned University of
Edinburgh and was awarded her PhD. As a consultant for the animal feed industry
she has gained over 10 years of experience throughout the United Kingdom. Before
founding HRS Animal Nutrition Consultancy in 1998, Dr Stebbens developed her
career in the U.K. with industry professionals such as Trident Feeds, Crina UK
Limited and Dalgety Agriculture. Her accomplishments have granted acclimates in
the private and public sector.
Mike Baker: Management Consultant at Porcine Services in Suffolk, England. Mr.
Baker studied at Harper Adams Agricultural College and developed his career in
commercial management before moving to the prestigious Stotfold Development
Unit, a research facility owned by the Meat & Livestock Commission. As the
manager of Stotfold Mr. Baker was responsible for the operation of numerous
commercial and in- house research and development projects. He also developed
new management strategies for feeding sows, piglets and deprived piglets. Mr.
Baker is a regular contributor to the press and a frequent speaker at
conferences and seminars. Mr. Baker owns and operates the only privately-owned
independent trails unit in the United Kingdom where he has conducted contract
trails for clients such as SCA, Tucks Foods, Quality Equipment, Park Tonks, LTD,
Vistavet, HumaTech and two European companies.
Matt Sutton-Vermeulen: Mr. Vermeulen is a President of Vector Marketing a
consulting firm to major firms in the animal feed industry. He brings over
fifteen years of consulting experience in corporate strategic and tactical
planning in product development, market evaluation, price analysis, distribution
management and competitive market analysis. Graduated from the University of
Nebraska with Bachelor of Science in Animal Science.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than ten
percent shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, David G. Williams, the Company's President and Sole
Director, has not filed a Form 3 - Initial Statement of Beneficial Ownership of
Securities, as required by Section 16(a). If filed, Mr. Williams' Form 3 would
have reflected 4,473,334 shares currently held by him.
To the Company's knowledge, John D. Rottweiler, the Company's Chief Financial
Officer, has not filed a Form 3 - Initial Statement of Beneficial Ownership of
Securities, as required by Section 16(a). If filed, Mr. Rottweiler's Form 3
would have reflected 7,000 shares currently held by him.
To the Company's knowledge all other Section 16(a) filing requirements
applicable to the Company's officers, directors and greater than ten percent
shareholders were complied with.
ITEM 10 - 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.
18
<PAGE>
<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, 2000 $175,000 NA NA NA NA $5,221 (1)
President 1999 $170,833 NA NA NA NA $1,568
1998 $146,333 NA NA NA NA $4,938
1997 $106,667 NA NA NA NA $2,178
John D. Rottweiler, 2000 $125,000 NA NA NA NA $ -0- (2)
Chief Financial Officer 1999 $120,833 NA NA NA NA $ -0-
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
$7,270 note payable to The JDR Trust. The note was paid in full in fiscal
year 2000.
Director Compensation
The Company does not currently pay a director fee for attending scheduled and
special meetings of the Board of Directors. The Company does not pay the
expenses of all of its directors in attending board meetings. Further, none of
the Management Advisory Board members receive any compensation for their
service.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number of Securities Percent of Total
Underlying Options/SAR's Granted
Options/SAR's Granted to Employees In Fiscal Exercise of Base Price
Name (#) Year ($/Sh) Expiration Date
------------------ ------------------------ ----------------------- ------------------------- ------------------------
<S> <C> <C> <C> <C>
David G. Williams -0- -- -- --
John D. Rottweiler -0- -- -- --
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Unexercised Value of Unexercised In-The-
Securities Underlying Money Option/SARs
Shares Acquired On Options/SARs At FY-End (#) At FY-End ($)
Name Exercise (#) Value Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------------------ --------------------- ------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
David G. Williams -0- -0- - 0 - --
John D. Rottweiler -0- -0- - 0 - --
</TABLE>
20
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information table sets forth certain information regarding the
Company's common stock ownership on July 14, 2000 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 52.63%
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
First Trust 578,100 6.80%
131 South 42nd Place
Phoenix AZ 85034
All officers and directors as a group,
including affiliates 4,480,334 52.72%
(1) Represents beneficial ownership via shares owned by John Duke Rottweiler,
son of John D. Rottweiler and Bonita Rottweiler, wife of John D.
Rottweiler.
21
<PAGE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED 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.
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.
22
<PAGE>
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.
As of April 30, 1999 and 1998, total cumulative amounts unpaid under these
agreements are as follows:
2000 1999
-------- --------
Officer compensation $854,357 $629,760
Airplane lease payments - -
Royalty fees - -
-------- --------
$854,357 $629,760
======== ========
Future amounts due under the employment agreements are as follows:
Year ending
April 30, Amount
-------- --------
2001 300,000
2002 50,000
--------
Totals $350,000
========
23
<PAGE>
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
Exhibits
3.1 Articles of Incorporation of Midwest Enterprise Consultants, Inc.
3.2 Amendment to the Articles of Incorporation of Midwest Enterprise
Consultants, Inc.
3.3 Amendment to the Articles of Incorporation of Midwest Enterprise
Consultants, Inc.
3.4 Bylaws of Humatech, Inc.
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.
10.8 Lease of Premises located in Houston, Texas.
10.9 Lease of Premises located in Katy, Texas.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period of this report.
24
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HUMATECH, INC.
August 9, 2000 /s/ David G. Williams
------------------------------------
David G. Williams
President and Director
August 9, 2000 /s/ John D. Rottweiler
------------------------------------
John D. Rottweiler
Chief Financial Officer and Director
25
<PAGE>
HUMATECH, INC.
Financial Statements
and
Auditor's Report
April 30, 2000 and 1999
S. W. HATFIELD, CPA
certified public accountants
Use our past to assist your future sm
<PAGE>
HUMATECH, INC.
CONTENTS
Page
----
Report of Independent Certified Public Accountants F-3
Financial Statements
Balance Sheets
as of April 30, 2000 and 1999 F-4
Statements of Operations and Comprehensive Income
for the years ended April 30, 2000 and 1999 F-5
Statement of Changes in Stockholders' Equity
for the years ended April 30, 2000 and 1999 F-6
Statements of Cash Flows
for the years ended April 30, 2000 and 1999 F-7
Notes to Financial Statements F-8
F-2
<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.
We have audited the accompanying balance sheets of Humatech, Inc. (an Illinois
corporation) as of April 30, 2000 and 1999 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. as of April 30,
2000 and 1999, 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
June 2, 2000
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 [email protected]
F-3
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
BALANCE SHEETS
April 30, 2000 and 1999
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
------
Current Assets
Cash on hand and in bank $ 26,810 $ --
Accounts receivable - trade,
net of allowance for doubtful accounts
of $-0- and $-0-, respectively 368,769 4,621
Inventories 147,351 89,319
----------- -----------
Total current assets 542,930 93,940
----------- -----------
Property and Equipment - at cost
Transportation equipment 252,758 141,996
Manufacturing and processing equipment 168,119 86,453
Office furniture and fixtures 19,012 10,955
----------- -----------
439,889 239,404
Accumulated depreciation (174,815) (132,263)
----------- -----------
Net property and equipment 265,074 107,141
----------- -----------
Other assets 395 360
----------- -----------
Total Assets $ 808,399 $ 201,441
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Cash overdraft $ -- $ 1,819
Notes payable to banks and finance companies 84,500 84,608
Notes and leases payable to affiliates -- 56,746
Customer deposits 8,800 10,500
Accounts payable - trade 80,275 84,951
Accrued interest payable 66,392 22,350
Due to officers 854,357 629,760
----------- -----------
Total current liabilities 1,094,324 890,734
----------- -----------
Long-term Liabilities
Long-term notes payable, net of current maturities 133,769 --
Notes and commitments payable to affiliates 922,327 323,077
----------- -----------
Total liabilities 2,150,420 1,213,811
----------- -----------
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 (1,465,178) (1,135,527)
----------- -----------
Total stockholders' equity (1,342,021) (1,012,370)
----------- -----------
Total Liabilities and Stockholders' Equity $ 808,399 $ 201,441
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years ended April 30, 2000 and 1999
2000 1999
----------- -----------
<S> <C> <C>
Revenues
Sales, net of discounts, returns and allowances
of $-0- and $2,291, respectively
Domestic $ 207,414 $ 157,524
Related Party
Foreign, principally United Kingdom 314,719 --
----------- -----------
Net revenues 522,133 157,524
----------- -----------
Cost of Sales
Materials 29,770 45,008
Other direct costs 98,775 41,237
----------- -----------
Total cost of sales 128,545 86,245
----------- -----------
Gross Profit 393,588 71,279
----------- -----------
Operating Expenses
Research and development expenses 14,450 15,000
Commissions and other sales and marketing expenses 48,291 73,319
Officer compensation 300,000 291,667
Other operating expenses 256,266 44,490
Interest expense 60,742 28,577
Depreciation expense 43,490 26,480
----------- -----------
Total operating expenses 723,239 479,533
----------- -----------
Loss from operations (329,651) (408,254)
Provision for income taxes -- --
----------- -----------
Net Loss (329,651) (408,254)
Other Comprehensive Income -- --
----------- -----------
Comprehensive Income $ (329,651) $ (408,254)
=========== ===========
Net loss per weighted-average
share of common stock
outstanding, calculated on
Net Loss - basic and fully diluted $ (0.04) $ (0.05)
=========== ===========
Weighted-average number of shares
of common stock outstanding 8,455,114 8,455,114
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended April 30, 2000 and 1999
Common Stock
------------ Accumulated
Shares Amount deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at May 1, 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)
Net loss for the year -- -- (329,651) (329,651)
----------- ----------- ----------- -----------
Balances at April 30, 2000 8,455,114 $ 123,157 $(1,465,178) $(1,342,021)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
STATEMENTS OF CASH FLOWS
Years ended April 30, 2000 and 1999
2000 1999
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss for the period $(329,651) $(408,254)
Adjustments to reconcile net loss to
net cash provided by operating activities
Depreciation 43,490 26,480
Common stock issued for payment of consulting fees -- --
(Increase) Decrease in
Accounts receivable - trade (364,148) 611
Inventory (58,032) 10,340
Deposits and other (35)
Increase (Decrease) in
Accounts payable - trade (4,676) 6,131
Accrued interest payable 44,042 14,115
Due to officers 224,597 206,791
Customer deposits (1,700) 10,500
--------- ---------
Cash flows provided by (used in) operating activities (446,113) (133,286)
--------- ---------
Cash Flows from Investing Activities
Purchase of property and equipment (42,488) (42,212)
--------- ---------
Cash flows used in investing activities (42,488) (42,212)
--------- ---------
Cash Flows from Financing Activities
Increase (Decrease) in cash overdraft (1,819) 1,819
Proceeds from loans payable to affiliates 599,250 184,989
Principal payments on loans payable (82,020) (16,148)
--------- ---------
Cash flows provided by (used in) financing activities 515,411 170,660
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 26,810 (4,838)
Cash and cash equivalents at beginning of year -- 4,838
--------- ---------
Cash and cash equivalents at end of year $ 26,810 $ --
========= =========
Supplemental Disclosure of
Interest and Income Taxes Paid
Interest paid for the period $ 16,700 $ 14,462
========= =========
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 $ 158,935 $ 19,936
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<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 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
$(1,465,000) 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.
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.
F-8
<PAGE>
HUMATECH, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE C - Summary of Significant Accounting Policies - Continued
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.
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, 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.
F-9
<PAGE>
HUMATECH, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE C - Summary of Significant Accounting Policies - Continued
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, 2000 and 1999, 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
During Fiscal 2000, all equipment being financed under related party leases were
refinanced directly in the Company's name. Included in the amounts reflected in
the accompanying balance sheet are the following fixed assets on long-term
capital leases:
2000 1999
-------- --------
Vehicles
Related party $ 29,480 $ 29,480
Manufacturing and processing equipment
Unrelated 19,691 19,691
Related party -- 14,196
-------- --------
49,171 63,367
Accumulated depreciation (31,994) (23,838)
-------- --------
$ 17,177 $ 39,529
======== ========
F-10
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE F - Inventory
Inventory consists of the following at April 30, 2000 and 1999, respectively:
2000 1999
--------- ---------
<S> <C> <C>
Raw materials $ 126,762 $ 88,195
Work-in-process 14,673 --
Finished goods 5,916 1,124
--------- ---------
Totals $ 147,351 $ 89,319
========= =========
NOTE G - Notes payable to banks and finance companies
2000 1999
--------- ---------
$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. $ 30,760 $ 53,860
$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. 17,766 21,536
$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. 4,808 9,212
$8,000 installment note payable to an equipment leasing
company. Interest at 10.86%. Payable in monthly
installments of approximately $373, including accrued
interest. Final payment due in October 2001.
Collateralized by manufacturing equipment/ 6,711 --
$37,768 installment note payable to a bank. Interest
at 9.75%. Payable in monthly installments of
approximately $625, including accrued interest.
Final payment due in September 2006. Collateralized
by transportation equipment. 35,649 --
F-11
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE G - Notes payable to banks and finance companies - Continued
2000 1999
--------- ---------
<S> <C> <C>
$29,480 installment note payable to a bank. Interest at 12.74%.
Payable in monthly installments of approximately $800,
including accrued interest. Final payment due in May 2002.
Collateralized by transportation equipment 15,989 --
$32,521 installment note payable to a bank. Interest at 9.25%
Payable in monthly installments of approximately $682,
including accrued interest. Final payment due in November
2004. Collateralized by transportation equipment 30,867 --
$66450 installment note payable to a bank. Interest at 10.50%
Payable in monthly installments of approximately $1,707,
including accrued interest. Final payment due in January 2004
Collateralized by transportation equipment and manufacturing
equipment 64,798 --
$14,195 installment note payable to a bank. Interest at 12.50%
Payable in monthly installments of approximately $669, including
accrued interest. Final payment due in September 2001
Collateralized by manufacturing equipment 10,921 --
--------- ---------
Total notes payable to banks and finance companies 218,269 84,608
Less current maturities (84,500) (84,608)
--------- ---------
Long-term portion $ 133,769 $ --
========= =========
Future maturities of long-term debt are as follows:
Year ending
April 30 Amount
--------- ---------
2001 $ 84,500
2002 52,092
2003 33,259
2004 27,701
2005 10,824
2006 6,829
2007 3,064
---------
Totals $ 218,269
=========
</TABLE>
The Company is periodically irregular in making scheduled payments on notes
payable to banks and other financing entities. Accordingly, the lender(s) may,
at their sole discretion, declare the then outstanding indebtedness to be
immediately due and payable and begin foreclosure on the respective underlying
assets, which could possibly have a material adverse effect on the Company's
financial condition and operations. Due to these conditions, all installment
notes were classified as current in the Fiscal 1999 financial statements. During
Fiscal 2000, the Company was been more diligent in making scheduled payments as
required.
F-12
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE H - Notes and leases payable to affiliates
2000 1999
--------- ---------
<S> <C> <C>
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.
Lease canceled and equipment refinanced in the
Company's name during Fiscal 2000. $ -- $ 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.
Lease canceled and equipment refinanced in the
Company's name during Fiscal 2000 -- 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.
Lease canceled and equipment refinanced in the
Company's name during Fiscal 2000. -- 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
========= =========
NOTE I - Long-term Notes and Commitments Payable to Affiliates
2000 1999
--------- ---------
$554,450 term note payable to two individuals related
to the Company's Executive Vice President and
Chief Financial Officer. Interest at 9.0%. Principal
and accrued interest due at maturity in July 2002. $ 554,450 $ --
$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 2004.
Unsecured. 217,877 173,077
</TABLE>
F-13
<PAGE>
HUMATECH, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE I - Long-term Notes and Commitments Payable to Affiliates - Continued
2000 1999
------- -------
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, 2000
and subsequent thereto, the Company has not completed
the development of the equipment prototype and,
accordingly, has no gross sales of the underlying
product. 150,000 150,000
------- -------
Total long-term notes and commitments payable to affiliates $922,327 $323,077
======= =======
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.
For the years ended April 30, 2000 and 1999, respectively, the Company paid or
accrued approximately $5,221 and $1,568 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 July 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.
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, 2000 and 1999, total cumulative amounts unpaid under these
agreements are as follows:
2000 1999
-------- --------
Officer compensation $854,357 $629,760
Airplane lease payments - -
Royalty fees - -
-------- --------
$854,357 $629,760
======== ========
F-14
<PAGE>
<TABLE>
<CAPTION>
HUMATECH, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE J - Due to Officers
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 L - Income Taxes
The components of income tax (benefit) expense for the years ended April 30,
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.
The Company's income tax expense for the years ended April 30, 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 $(112,000) $(138,800)
Increase (decrease) in income taxes resulting from:
State income taxes - -
Other including reserve for deferred tax asset 112,000 138,800
--------- ---------
Income tax expense $ - $ -
========= =========
</TABLE>
The deferred current tax asset on the April 30, 2000 and 1999, respectively,
balance sheet consists of the following:
2000 1999
--------- ---------
Current deferred tax asset $ 384,200 $ 263,800
Reserve (384,200) (263,800)
--------- ---------
Net current tax asset $ - $ -
========= =========
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-15
<PAGE>
HUMATECH, 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.
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. During the 2nd calendar quarter of 1999, the Company's United
Kingdom distributor formed a new entity, Humatech, Ltd. It is anticipated that
the Company will eventually own a 45.0% interest in this entity. As of April 30,
2000 and for the year then ended, the Company has made no capital contribution
to Humatech, Ltd. and conducts business with this foreign entity under equal
terms and conditions to those of domestic sales to unrelated third parties.
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-16
