**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, 2004**





|o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------




For the transition period from _______________ to _______________.








**Commission file number O-28557**








**Humatech, Inc.**


(Exact name of registrant as specified in its charter)




**Illinois**
(State or other jurisdiction of
incorporation or organization)
**36-3559839**
(I.R.S. Employer
Identification No.)****
**1959 South Val Vista Drive**
**Suite 130**
**Mesa, Arizona**
(Address of principal executive offices)
****
****
**85204**
(Zip Code)




**Registrant's telephone number, including area code (480) 813-8484**




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 o .





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. x





State issuer's revenues for its most recent fiscal year.  $275,918 for the year ended April 30, 2004.





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.) $3,623,479, based on the closing price of $0.22 for the common stock on September 3, 2004.





Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of September 3, 2004, there were 30,214,273 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 o  No x .





**HUMATECH, INC.**




**TABLE OF CONTENTS**


**PART I**ITEM 1 -
DESCRIPTION OF BUSINESS
2ITEM 2 -
DESCRIPTION OF PROPERTY
9ITEM 3 -
LEGAL PROCEEDINGS
9ITEM 4 -
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
10**PART II**ITEM 5 -
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
11ITEM 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
13ITEM 7 -
FINANCIAL STATEMENTS
17ITEM 8 -
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
19PART IIIITEM 9 -
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
20ITEM 10 -
EXECUTIVE COMPENSATION
21ITEM 11 -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
23ITEM 12 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
23ITEM 13 -
EXHIBITS AND REPORTS ON FORM 8-K
26ITEM 14 -
CONTROLS AND PROCEDURES
27







**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 "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**





Humatech, Inc. was originally incorporated in the State of Illinois on February 2, 1988 under the name of Midwest Enterprise Consultants, Inc. as a consulting and marketing services company. From our inception until April 1997, we were engaged primarily in the business of providing consulting services.





On April 6, 1997, we acquired all of the assets and certain liabilities from International Humate Fertilizer Co., a Nevada corporation located in Mesa, Arizona and wholly-owned by our Chairman, David G. Williams. On May 5, 1997, we changed our name to Humatech, Inc. to more accurately reflect our new business of the development, manufacture, and sale of carbon-based animal feed supplements and fertilizer products.





**Business Overview**





Industry Overview





In 1980, the United States Department of Agriculture released a report entitled Report and Recommendations on Organic Farming 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 extensive use of cash crops and agricultural chemicals, both fertilizers and pesticides. Among the major concerns were:




| | · | Increased cost of, and dependence on, external inputs of chemicals and energy;
| | - | ------------------------------------------------------------------------------




| | · | Continued decline in soil productivity from excessive soil erosion and nutrient runoff losses;
| | - | ----------------------------------------------------------------------------------------------




| | · | Contamination of surface and groundwater from fertilizers and pesticides;
| | - | -------------------------------------------------------------------------

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| | · | Hazards to human and animal health and to food quality and safety from agricultural chemicals;
| | - | ----------------------------------------------------------------------------------------------




| | · | 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," 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.





A brief discussion of several important terms will clarify the significance of humic substances, what we do and propose to 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 that have fallen on the earth's surface or purposely applied by man in the form of organically synthesized pesticides. When organic matter is burned, there remains a residual ash. The residual ash is composed of the minerals, trace elements required by plants and animals during their normal growth processes. Thus organic matter contains mineral elements required by plants and animals.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | HUMUS: Humus is a brown to black variable complex of carbon containing compounds not recognized under a light microscope as possessing cellular organization in the form of plant and animal bodies. Humus is separated from the non-humic substances such as carbohydrates (a major fraction of soil carbon), fats, waxes, alkanes, peptides, amino acids, proteins, lipids, and organic acids by the fact that distinct chemical formulae can be written for these non-humic substances. Microorganisms within the soil rapidly degrade most small molecules of non-humic substances. In contrast soil humus is slow to decompose (degrade) under natural soil conditions. When in combination with soil minerals, soil humus can persist in the soil for several hundred years. Humus is the major soil matter component, making up 65% to 75% of the total. Humus assumes an important role as a fertility component of all soils, far in excess of the percentage contribution it makes to the total soil mass.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | HUMIC SUBSTANCES: Humic substances are the components of humus and as such are high molecular weight compounds that together form the brown and black hydrophilic, molecularly flexible, polyelectrolytes called humus. They function to give the soil structure, porosity, water holding capacity, cation and anion exchange, and are involved in the chelation of mineral elements. Humic substances can be subdivided into three major fractions (1) humin, (2) humic acids, and (3) fulvic acids.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | HUMATES: Humates are metal (mineral) salts of humic or fulvic acids. Within any humic substance, there are a large number of complex humate molecules, and the humate composition of any one humic substance is specific for the substance. Thus there exists a large variability in the molecular composition of different humic substances.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|
|
|
|

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|

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. 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 that 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. Humatech has developed a process whereby humic acids are extracted in a manner that will produce a viable, efficacious product that consistently exhibits the attributes expected by all concerned.





Our Fertilizer Products





We manufacture and distribute organic based fertilizer products to two primary groups: (A) commercial growers of agricultural crops, and (B) mass merchandisers and independent nurseries in the retail lawn and garden market. Our fertilizer products accounted for approximately 74% of our sales last year, with 38% coming from sales to commercial growers and 36% coming from sales to merchandisers and nurseries in the retail lawn and garden market.





In the commercial agriculture market, we offer the following fertilizer products:





| | · | AGRI-HUME (Chipped or Powder). A highly oxidized, salt free, carbon-rich leonardite specifically blended to provide the highest quality and richest concentration of humic and fulvic acids available. It contains over 40 naturally occurring elements.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | MAXIMIZE. A multi-functional humic and fulvic acid liquid blend. MAXIMIZE increases nutrient uptake, accelerates root growth, reduces fruit shed, provides even maturity, and acts as a food source for beneficial micro-organisms. MAXIMIZE is also effective as an extender for herbicides and fungicides.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | SLINGSHOT. A concentrated liquid fulvic acid extract. Due to its unique carbon based molecular structure, SLINGSHOT a very effective chelating compound and may be piggybacked with insecticide applications.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




4







| | · | NITRO-PLUS (18-0-0). This product has a liquid humic and fulvic acid base, the same as in the product MAXIMIZE, 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | MACRO-PLUS (8-16-4). This product has a liquid humic and fulvic acid base, the same as in the product MAXIMIZE, 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 (12-0-0). This product has a liquid humic and fulvic acid base, the same as in the product MAXIMIZE, 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 (12-0-0). This product has a liquid humic and fulvic acid base, the same as in the product MAXIMIZE, 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | CALCIUM-PLUS (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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







In the home, lawn and garden market, we offer the following fertilizer products:





| | · | ORGANIC ADVANTAGE HOUSE PLANT SOLUTION READY TO USE. A pre-diluted product ready to use foliar spray for houseplants that enhances plant growth and bloom setting, increases plant health, and greens house plants.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | ORGANIC ADVANTAGE SOIL BUILDER. 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 is also effective as a transplant solution that eliminates the shock of transplanting potted plants, trees, and shrubs.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | ORGANIC ADVANTAGE LAWN FOOD. This product, 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. 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
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------




5








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.





| | · | ORGANIC ADVANTAGE BLOOM SET LEAF SPRAY. This product, designed for indoor use, stimulates the bloom set, builds strong roots, and provides plant nutrition through the leaves.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | · | ORGANIC ADVANTAGE INDOOR PLANT AND BLOOM. This product, designed for indoor use, builds strong roots, stimulates the bloom set, improves soil structure and aeration, and improves a plant's water holding capacity.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Our Animal Feed Supplements Products





We also manufacture and distribute organic based animal feed supplements to the animal feeding industry. Sales of our animal feed supplements accounted for approximately 26% of our sales last year.





Our animal feed supplement products consist of:





| | · | PROMAX. An organic, non-toxic feed ingredient used for non-ruminant animals that provides an all-natural source of nutritional iron. All the data on the benefits of PROMAX have been gathered from scientific research from extensive research trials at Texas A&M University and Texas Tech University.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Our Bio-Remediation Products





We manufacture a limited line of products that assist in the removal of contaminants from the soil. Our bio-remediation products did not account for any of our sales last year, and are not expected to account for any material portion of our sales in the fiscal year ended April 30, 2005.





Our bio-remediation products are:





| | · | SALT AWAY and BIOLIMINATE. This two-product-line system is designed to bio-remediate soils on site for removal of salt and oil contamination. SALT AWAY 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 markedly accelerates the biodegradation of organic hazardous waste in the soil. BIOLIMINATE 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Distribution of Our Products





In general, we will utilize three formal channels of distribution. The first is a network of agriculture dealers/distributors who will continue to represent and expand the sales volume of our products in the agricultural row crop segment in almost every state. The second is direct sales representatives who will market and distribute products through large established buyer groups, and distributors into selected markets such as the lawn and garden and home improvement markets, geographical areas not represented by an established dealer/distributor network and key


6




accounts. The third channel is the use of executive sales on strategic key accounts, with the international segment managed by our management on a selective basis. As the accounts and segments become active clients, the involvement of our executives and advisory board members will decrease as direct sales representatives are assigned specific responsibility to the clients.





The small firms that do exist in the humate industry do not have established, specific, and formal channels of distribution. The competition uses direct sales by executives and owners in regional areas where the product is produced. Market penetration is very difficult beyond their sphere of influence.





Several channels are necessary due to the type, nature, and number of customer profiles, geography, seasonal variations, and efficient use of funds. The current sales and marketing strategy is to maximize market coverage and efficiency with a minimum amount of cost to optimize sales revenues. As we grow in revenues and geographical size, it is anticipated that the distribution channels and the sales and marketing organization will change to meet market demands. Our distribution channels outlined by market segment are summarized as follows:







|Market Segments              | Executive
Sales | Direct Sales | Distributors/Dealers
|---------------------------- | --------------- | ------------ | --------------------
|Agriculture-Row Crop         |                 | XX           | XX                  
|Animal Feed Ingredient       | XX              | XX           | XX                  
|Lawn/Garden/Home
Improvement |                 | XX           | XX                  
|Bioremediation               |                 | XX           | XX                  
|International                | XX              |              | XX                  



Raw Materials and Manufacturing Our Products





We purchase a significant amount of chemicals and raw materials from the open market. The majority of our humates are purchased from a single supplier, RAMMSCO, Inc., an entity controlled by our Chairman David G. Williams, because the product is made to specific formulation not known to other suppliers and at a significantly lower price than other suppliers. In the year ended April 30, 2004, the Company purchased approximately $13,500 worth of humate from RAMMSCO, Inc., which was the majority of our humate purchased in that year. The Company did not make material purchases from this entity in the year ended April 30, 2003.





Competition





We are not aware of any significant competitors, with respect to size, financial strength, and market distribution, that manufacture humate-based trace element products and animal feed ingredients. The financial and market strengths of competitive firms do not present any major competitive factors. Although some of our competitors have been in business a long time, they are regional in scope and their experience limits their sales to the local client and type of crops grown. Most of the companies are small, independent, and geographically restricted which manufacture and market a very limited type of dry product or liquid humic acid into the agricultural crops arena. We try to assist our distributors that are established in that same area, through technical support, local advertising, and customer service.





We intend to establish ourselves in the market by providing a high quality product at a reasonable cost to the customer, and by providing exceptional personal service through our


7




distribution channels. We believe that, given the choice, most consumers of our products would choose to use environmentally friendly products over chemical-based products.





Patents and Trademarks





We have applied for and received trademark protection for most of our product names. We have applied for two patents, one is still pending and the other has been granted. The pending application is for an "animal feed additive containing humates and a method of using this additive", applied for in 1999. The granted patent is for a "Positive Displacement Pump", applied for in 2001.





We rely on intellectual property laws and confidentiality and license agreements with key employees, customers and others to protect our intellectual property rights. Because of the complexity and growing importance of intellectual property rights, there can be no assurance that we will be able to protect our proprietary rights on a global basis. Moreover, the expense of enforcing our rights may limit or prohibit us from effective protection. To the extent we engage in any activity that is found to be the proprietary right of another, we may have to cease or obtain a license.





Research and Development





During the last two fiscal years, we have spent approximately 5% of our personnel resources, and approximately 5% of our financial resources, on research and development activities. These costs are borne primarily by us, and are not directly passed on to our customers except in the appropriate pricing of our products. Over the course of the last year we have begun relying on third party distributors to conduct the research and development at their own cost.





Environmental Matters





We currently are, 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 we 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 our results of operations. If we fail to comply with applicable laws and regulations, we could be subject to civil remedies, including fines and injunctions as well as potential criminal sanctions, which could have a material adverse effect on our results of operations.





Federal and state authorities regulate the manufacture and sale of some of our specific products. Compliance with regulatory authorities is not a material expense, nor does it currently have a material impact on our potential profitability. We have obtained required general state permits and licenses to operate our facilities. There can be no assurance that our operations and profitability will not be subject to more restrictive regulation or increased taxation by federal, state, or local agencies.


8




Inflation





Inflation has not historically been a material factor in our operations and is not expected to have a material impact on our operations in the future.





Foreign Operations





In November 1998, we entered into a letter of intent for the purpose of establishing a joint venture to promote and sell our products into the European Union of Countries. On November 12, 1998, we formed a new entity named Humatech, Ltd., of which we currently own a 36% interest, with the remaining interest owned by European-based investors. We sell product to Humatech, Ltd. under equal terms and conditions to those of domestic sales to unrelated third parties. However, we do not recognize revenue or cost of sales from those sales until Humatech, Ltd. sells the product to third party customers. We sold product to Humatech, Ltd. in the amount of approximately $45,000 and $35,800 for the years ended April 30, 2004 and 2003 respectively.





Employees





As of September 3, 2004, we employed a total of six (6) full-time employees, two (2) of which were officers, three (3) of which were engaged in manufacturing activities, and one (1) engaged in administrative activities.





**ITEM 2 - DESCRIPTION OF PROPERTY**





Our main office is located in Mesa, Arizona under the terms of a three (3) year lease terminating on July 14, 2006 at a rate of $1,512.83 per month.





We lease approximately four (4) acres of land in the Albuquerque, New Mexico area from RAMMSCO, INC., an entity controlled by our officers and directors. The lease is for a period of five (5) years, terminating on April 30, 2007, at a rate of $1,100 per month.





**ITEM 3 - LEGAL PROCEEDINGS**





In January 2003, we were contacted by the Securities and Exchange Commission about our accounting treatment of certain sales to Humatech, Ltd. After extensive discussions and negotiations with the Commission, and following the engagement of a new independent auditor, we discovered that the professional advice we received from our prior auditor was incorrect, and as a result we have had to restate our financials. The Commission inquiry and subsequent restatements have consumed the majority of our management's time and our cash, resulting in decreased revenues for all periods thus far this year. As a result of the restatements, we became delinquent in our filings with the Commission, and our common stock was de-listed from the Over the Counter Bulletin Board and traded on the Pink Sheets for a period of time. However, with the filing of our Quarterly Report for the quarter ended October 31, 2003, we completed the restatements and on February 9, 2004, we were re-listed on the Over the Counter Bulletin Board.





In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.





9


**ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No matters were submitted to a vote of the security holders during the fourth quarter of the last fiscal year.





10




**PART II**





**ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





**Market Information**





Our common stock is currently quoted on the Pink Sheets under the symbol "HUMT." Historically, our stock has been quoted on the OTC Bulletin Board of the National Association of Securities Dealers, Inc. ("OTCBB"), under the same symbol. On September 25, 2003, the OTCBB de-listed our common stock because of our failure to stay current with our reporting obligations under the Securities Exchange Act of 1934 (the "'34 Act"), and on that same day our common stock was quoted on the Pink Sheets. On February 9, 2004, the OTCBB re-listed our stock under the symbol "HUMT." Our common stock is only traded on a limited or sporadic basis and should not be deemed to constitute an established public trading market. There is no assurance that there will be liquidity in the common stock.





Below is a table indicating the range of high and low transaction price for the common stock for each quarterly period within the most recent two fiscal years. The information reflects prices between dealers, and does not include retail markup, markdown, or commission, and may not represent actual transactions.




**Fiscal Year**
**Ended**
**April 30,**
**Period**
**Prices****High**
**Low**2003
First Quarter
$1.15
$0.55Second Quarter
$0.89
$0.42Third Quarter
$1.58
$0.40Fourth Quarter
$0.97
$0.612004
First Quarter
$0.79
$0.51Second Quarter
$0.62
$0.20Third Quarter
$0.35
$0.18Fourth Quarter
$0.44
$0.052005
First Quarter
$0.32
$0.09Close on September1, 2004
$0.20
$0.17


The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. The Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions that we do not meet. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.


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**Holders**





As of April 30, 2004 and September 3, 2004 there were 26,814,273 and 30,214,273 shares, respectively, of our common stock issued and outstanding and held by approximately 170 holders of record, and over 5,000 beneficial owners.





**Dividend Policy**





We have not paid any dividends on our common stock and do not expect to do so in the foreseeable future. We intend to apply our earnings, if any, in expanding our operations and related activities. The payment of cash dividends in the future will be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements, our financial condition and other factors deemed relevant by the Board of Directors.





**Recent Sales of Unregistered Securities**





In March 2004, in conjunction with a $100,000 loan to the Company and in accordance with the terms of a Note and Warrant Purchase Agreement, we issued a warrant to purchase up to 500,000 shares of our common stock at exercise prices between $0.50 and $0.15 per share. The issuance were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholder was an accredited investor.





In March 2004, we issued warrants to purchase up to 300,000 shares of common stock to two accredited investors at an exercise price of $0.30. The shares underlying the warrants were "restricted" securities as defined under Rule 144 of the Securities Act of 1933. The issuances were exempt from registration pursuant to Section 4(2) of the Act.





In March 2004, we issued 100,000 shares of common stock to an accredited investor in exchange for $20,000. The shares were "restricted" securities as defined under Rule 144 of the Securities Act of 1933. The issuances were exempt from registration pursuant to Section 4(2) of the Act.


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****


**ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**






Except for historical information, the materials contained in this Management's Discussion and Analysis are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and involve a number of risks and uncertainties. These include international, national and local general economic and market conditions; demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.





Although forward-looking statements in this Annual Report reflect the good faith judgment of management, such statements can only be based on facts and factors currently known by the Company. Consequently, forward-looking statements are inherently subject to risks and uncertainties, actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by the Company in this Annual Report, as an attempt to advise interested parties of the risks and factors that may affect the Company's business, financial condition, and results of operations and prospects.





**Summary Overview**





We currently are divided into two main business units: fertilizer and animal feed products. First, is our fertilizer division, which manufactures and distributes organic based fertilizer products to two primary groups: (A) commercial growers of agricultural crops, and (B) retail mass merchandisers and independent nurseries in the lawn and garden market. Our fertilizer products accounted for approximately 74% of our sales last year, with 38% coming from sales to commercial growers of agricultural crops and 36% from sales to retail mass merchandisers and independent nurseries in the lawn and garden market. Second, is our animal feed division, which manufactures and distributes organic based animal feed supplements to the animal feeding industry. Sales of our animal feed supplements accounted for approximately 26% of our sales last year.





**Qualified Report of Independent Certified Public Accountants**





Our independent accountant has qualified his report, stating that the audited financial statements of Humatech, Inc. for the period ending April 30, 2004 have been prepared assuming the company will continue as a going concern. They note that 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.





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**Results of Operations**








Introduction





Our operations for 2004 were essentially the same as for 2003, except that we reduced our reliance on outside consultants and sales representatives by focusing on sales by our management and looking for third party distributors to conduct the sales of our products. Sustaining significant operating costs, we continue to operate at a loss. 2004 operating expenses were less than in 2003 due to our shift away from paying outside sales staff and consultants and, instead, focusing on third party distributors.





**Year ended April 30, 2004 compared to year ended April 30, 2003**





Revenues, Expenses and Loss from Operations





Our revenues, cost of goods sold, general and administrative expenses, and loss from operations for the years ended April 30, 2004 and 2003, respectively, are as follows:




|                                  |  | Year Ended
April 30, 2004 |            | Year Ended
April 30, 2003 |   | Percentage
Change |  
|--------------------------------- |  | ------------------------- | ---------- | ------------------------- | - | ----------------- | -
|                                  |  |                           |            |                           |   |                   |  
|Revenue                           |  | $                         | 275,918    |                           | $ | 241,292           |  
|Cost of Goods Sold                |  |                           | 314,992    |                           |   | 248,540           |  
|General & Administrative Expenses |  |                           | 1,416,073  |                           |   | 1,436,495         |  
|Loss from Operations              |  | $                         | (1,879,589 | )                         | $ | (2,198,240        | )



Revenues





Revenues for the year ended April 30, 2004 were $275,918 compared to $241,292 for the same period in 2003 . Our revenues increased in 2004 primarily due to an increase in sales of PROMAX, our animal feed supplement.





Cost of Goods Sold





Cost of goods sold for the year ended April 30, 2004 were $314,992, compared to $248,540 for the same period in 2003. Our cost of goods sold was higher primarily as a result of an increase in the cost of manufacturing and labor, as well as increased transportation expenses.





Operating, General and Administrative Expenses





Total operating expenses were $1,594,376 for the year ended April 30, 2004 as compared to $2,182,696 for the year ended April 30, 2003, a decrease of 27%. These expenses decreased as a result of us switching from outside consultants and salespeople to third party distributors in order to generate sales.





Net Loss





We experienced a net loss of ($1,879,589) for the year ended April 30, 2004 as compared to a net loss of ($2,198,240) for the year ended April 30, 2003, a decrease of 14%.


14




This decrease is attributable to our switch from outside salespeople and consultants to more executive level sales and locating third party distributors to sell our products. Additionally, these third party distributors are conducting some of the research and development previously conducted by the company.





**Three months ended April 30, 2004 compared to three months ended April 30, 2003**





Revenues, Expenses and Loss from Operations





Our revenues, cost of goods sold, total operating expenses, and loss from operations for the quarter ended April 30, 2004 as compared to the quarter ended April 30, 2003 are as follows:




|                         |  | Quarter Ended
April 30, 2004 |            | Quarter Ended
April 30, 2003 |   | Percentage
Change |  
|------------------------ |  | ---------------------------- | ---------- | ---------------------------- | - | ----------------- | -
|                         |  |                              |            |                              |   |                   |  
|Revenue                  |  | $                            | 76,239     |                              | $ | 149,770           |  
|Cost of Goods Sold       |  |                              | 144,548    |                              |   | 175,295           |  
|Total Operating Expenses |  |                              | 811,375    |                              |   | 876,754           |  
|Loss from Operations     |  | $                            | (1,073,912 | )                            | $ | (853,991          | )



Revenues





Revenues for the quarter ended April 30, 2004 were $76,239 compared to $149,770 for the quarter ended April 30, 2003.





Cost of Goods Sold





Cost of goods sold was $144,548 for the quarter ended April 30, 2004 compared to $175,295 for the quarter ended April 30, 2003. Our cost of goods sold was higher in the year ended April 30, 2003, due to the fact we donated some initial product and wrote off some inventory in 2003.





Total Operating Expenses





Our total operating expenses were $811,375 for the quarter ended April 30, 2004 as compared to $876,754 for the quarter ended April 30, 2003, a difference of 8%.





Net Loss





We experienced a net loss of $1,073,912 for the quarter ended April 30, 2004 as compared to a net loss of $853,991 for the quarter ended April 30, 2003. This increase in net loss is attributable primarily to higher manufacturing and labor costs, as well as an increase in expenses related to transportation.


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**Liquidity and Capital Resources**





Introduction





During fiscal year 2004, we did not generate positive operating cash flows. Cash totaled $1,235 and $206,710 at April 30, 2004 and 2003, respectively.





Our cash, current assets, total assets, current liabilities, and total liabilities as of April 30, 2004 and 2003, respectively, are as follows:




|                          |  | April 30, 2004 |         | April 30, 2003 |   | Percentage
Change | 
|------------------------- |  | -------------- | ------- | -------------- | - | ----------------- | 
|                          |  |                |         |                |   |                   | 
|Cash                      |  | $              | 1,235   |                | $ | 206,710           | 
|Total Current Assets      |  |                | 60,254  |                |   | 302,480           | 
|Total Assets              |  |                | 206,315 |                |   | 417,450           | 
|Total Current Liabilities |  |                | 514,936 |                |   | 1,698,572         | 
|Total Liabilities         |  | $              | 987,171 |                | $ | 1,878,800         | 



Cash Requirements





For the year ended April 30, 2004 our net cash used in operating activities was ($604,379), as compared to ($910,853) for the year ended April 30, 2003. Negative operating cash flows during 2004 were primarily created by a net loss from operations of $1,879,589, partially offset by stock issued for services of $578,650, an amount due to officers of $292,092, amortization of beneficial conversion feature of debt and related warrants of $232,039, and accounts payable of $90,049.





Negative operating cash flows in 2003 were primarily created by a net loss from operations of $2,198,240, partially offset by an increase of $714,735 in stock issued for services and interest, value of common stock warrants granted to consultants of $444,507, and an increase in inventory of $46,932.





Sources and Uses of Cash





*Operations*





Net cash used by operations was ($604,379) for the year ended April 30, 2004, as compared to ($910,853) for the year ended April 30, 2003. Negative operating cash flows during 2004 were primarily created by the fact that revenues were limited to $275,918.





*Financing*





Net cash provided by financing activities was $394,404 and $1,080,367, respectively, for the years ended April 30, 2004 and 2003. In 2004, financing activities consisted mainly of proceeds from the issuance of debt of $356,763 and proceeds from the sale of common stock of $70,000. Whereas in 2003, financing activities consisted mainly of proceeds from the sale of common stock of $461,565, proceeds from the exercise of common stock options and warrants of $409,645, and proceeds from the issuance of debt of $221,149.


16




**Debt Instruments, Guarantees, and Related Covenants**





We have total notes payable of $581,630 as of April 30, 2004. Of this amount, $43,831 is the current portion, with the remaining $537,799 considered long-term. We are not in default on any of these notes, and none of our debt instruments contain restrictive financial covenants.





We are a party to three agreements discussed in Note 6 to our financial statements, Notes Payable. Under a Product Development and Funding Agreement with one of our shareholders, we are committed to repay advances and additional amounts up to a total amount not to exceed $450,000, at a rate of 6% of the gross revenue from the product which is the subject of the agreement. As of April 30, 2004, there have not been any revenues from that product.





We are also a party to a research agreement with Texas Tech University, under which we have funded certain research. The University is entitled to up to a 2% royalty on revenue from products that are patentable as a result of the research done pursuant to the agreement. As of April 30, 2004, there have been no such revenues. We are not currently conducting any research at Texas Tech University.





Finally, we have a license agreement with our President to use copyrights, trademarks, patents, and other proprietary information. Under the agreement, we are required to pay him a royal of 1% of gross sales generated from the covered properties. Under this agreement we paid or accrued $2,389 and $2,246, in the years ended April 30, 2004 and April 30, 2003, respectively.





**Off Balance Sheet Contracts**





At April 30, 2004 and 2003, there were no "off balance sheet" contracts or items to record.





**Critical Accounting Issues**





The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make certain 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. As such, in accordance with the use of accounting principles generally accepted in the United States of America, our actual realized results may differ from management's initial estimates as reported. A summary of our significant accounting policies are detailed in the notes to the financial statements which are an integral component of this filing.





One critical accounting policy is the recording of sales, and related revenue recognition, on transactions with Humatech, Ltd., a foreign entity that is a related party of which we currently own 36%. We account for our investment in Humatech, Ltd. under the equity method. Sales, and the associated cost of sales, to Humatech, Ltd. are not recognized until the product has been sold by Humatech, Ltd. to third-party customers.







A second is that we issue common stock to employees and consultants as consideration for services rendered. We use the trading price of the Company's common stock as the value to apply to those transactions.





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The third is that management evaluates the probability of the utilization of the deferred income tax asset related to the net operating loss carry forwards. We have estimated a $3,293,000 deferred income tax asset related to net operating loss carry forwards at April 30, 2004. Management determined that because we have yet to generate taxable income and that the generation of taxable income in the short term is uncertain, it was appropriate to provide a valuation allowance for the total deferred income tax asset.





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**ITEM 7 - FINANCIAL STATEMENTS**





Index to Consolidated Financial Statements








**Humatech, Inc.**





Report of Epstein, Weber & Conover, PLC
A-2Balance Sheet as of April 30, 2004
A-3Statements of Operations for the years ended April 30, 2004 and 2003
A-4Statement of Stockholders' Deficit for years ended April 30, 2004 and 2003
A-5Statements of Cash Flows for the years ended April 30, 2004 and 2003
A-6Notes to Consolidated Financial Statements
A-8 to A-23


**ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**





There have been no events required to be reported by this Item 8. On May 12, 2003, we filed a current report on Form 8-K regarding the resignation of our previous auditor, S.W. Hatfield, CPA, and on July 18, 2003, we filed an amended current report on Form 8-K/A regarding the engagement of our new auditor, Epstein, Weber & Conover, PLC .


19




**PART III**





**ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT**





**Directors and Executive Officers**





The following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions held by each person, and the date such person became a director or executive officer. Our executive officers are elected annually by the Board of Directors. The directors serve one-year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. Unless described below, there are no family relationships among any of the directors and officers.




Name

Age

Position(s)David G. Williams

55

President, CEO, and DirectorJohn D. "J.D." Rottweiler

60

Secretary, CFO, and Director


**David G. Williams** has been with us since our inception in 1996. He 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. 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** has been with us since our inception in 1996. He has over 25 years of experience providing extensive management and operational consulting in the planning, organizing, and directing of businesses in several industries. Served as officer and director of both private and public companies in the finance, insurance, real estate, and manufacturing industries. Owner and founder of 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.





**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.


20




To the Company's knowledge, none of the required parties are delinquent in their 16(a) filings.





**Board Meetings and Committees**





During the fiscal year ended April 30, 2004, the Board of Directors met on a weekly basis and took written action on numerous other occasions. All the members of the Board attended the meetings. The written actions were by unanimous consent.





We presently have no executive committee, nominating committee or audit committee of the Board of Directors.





**ITEM 10 - EXECUTIVE COMPENSATION**





**Executive Officers and Directors**





Effective July 1, 1996, we entered into an employment agreement with David G. Williams to serve as our President and CEO. The agreement originally covered the term from July 1, 1996 through June 30, 2001, but has automatically renewed for a two (2) year term pursuant to its renewal terms. At the end of any renewal term, and upon sixty (60) days' written notice, either party may terminate the agreement without penalty. The agreement provided for annual compensation of $128,000 during its first year, $150,000 during its second year, and $175,000 for all successive years, including the renewal term.





Effective July 1, 1996, we entered into an employment agreement with John D. Rottweiler to serve as our Executive Vice President and CFO. The agreement originally covered the term from July 1, 1996 through June 30, 2001, but has automatically renewed for a two (2) year term pursuant to its renewal terms. At the end of any renewal term, and upon sixty (60) days' written notice, either party may terminate the agreement without penalty. The agreement provided for annual compensation of $80,000 during its first year, $100,000 during its second year, and $125,000 for all successive years, including the renewal term.





*2002 Omnibus Securities Plan*





On April 19, 2002, our Board of Directors approved the Humatech, Inc. 2002 Omnibus Securities Plan. The Plan offers selected employees, directors, and consultants an opportunity to acquire our common stock, and serves to encourage such persons to remain employed by us and to attract new employees. The plan allows for the award of stock and options, up to 1,500,000 shares of our common stock. On May 1 of each year, the number of shares in the 2002 Securities Plan shall automatically be adjusted to an amount equal to ten percent (10%) of the outstanding stock of the Company on April 30 of the immediately preceding year. As of May 1, 2004, we can issue a total of 2,680,000 shares under the 2002 Securities Plan. As of September 3, 2004, a total of 1,511,817 shares of our common stock, or options to acquire shares of our common stock, had been issued under the 2002 Securities Plan.





*Board Compensation*





A director who is an employee does not receive any cash compensation as a director. There is no plan in place for compensation of persons who are directors who are not our employees.


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*Summary Compensation Table*





The Summary Compensation Table shows certain compensation information for services rendered in all capacities for the fiscal years ended April 30, 2004 and 2003. Other than as set forth herein, no executive officer's salary and bonus exceeded $100,000 in any of the applicable years. The following information includes the dollar value of base salaries, bonus awards, the number of stock options granted and certain other compensation, if any, whether paid or deferred.




**Annual****Compe****nsation**

**Long****Term****Compen****sation****Awa****rds**

**Pay****outs****Name and**
**Principal**
**Position**
**Year**
**Salary**
**($)**
**Bonus**
**($)**
**Other Annual**
**Compensation**
**($)**

**Restricted**
**Stock**
**Awards**
**($)**
**Securities**
**Underlying**
**Options**
**SARs**
**(#)**

**LTIP**
**Payouts**
**($)**
**All Other**
**Compensation**
**($)**David G.
Williams
2004
175,000(1)
-0-
-0-

170,000
-0-

-0-
2,927 (2)President and
CEO
2003
175,000(1)
-0-
-0-

-0-
-0-

-0-
2,413 (2)John D.
Rottweiler
2004
125,000(1)
-0-
-0-

170,000
-0-

-0-
-0-Secretary and
CFO
2003
125,000(1)
-0-
-0-

-0-
-0-

-0-
-0-


|(1) | Some amounts accrued but not paid during the fiscal year.
|--- | ---------------------------------------------------------

| | 
| | 

|(2) | Represents payments received pursuant to a royalty agreement. Mr. Williams also received certain payments pursuant to contractual agreement for various equipment leases.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------







|**OPTION/SAR GRANTS IN LAST FISCAL YEAR**
**(Individual Grants)**
|-----------------------------------------------------------------




|**Name**           | **Number of**
**Securities**
**Underlying**
**Options/SARs**
**Granted**
**(#)** | **Percent of Total**
**Options/SARs**
**Granted**
**to Employees In**
**Fiscal**
**Year** | **Exercise or**
**Base Price**
**($/Sh)** | **Expiration**
**Date**
|------------------ | -------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ----------------------------------------- | -----------------------
|                   |                                                                                  |                                                                                           |                                           |                        
|David G. Williams  | -0-                                                                              | N/A                                                                                       | N/A                                       | N/A                    
|John D. Rottweiler | -0-                                                                              | N/A                                                                                       | N/A                                       | N/A                    

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|**AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR**
**AND FY-END OPTION/SAR VALUES**
|-----------------------------------------------------------------------------------------




|**Name**           | **Shares**
**Acquired**
**On**
**Exercise**
**(#)** | **Value**
**Realized**
**($)** | **Number of Unexercised**
**Securities Underlying**
**Options/SARs at FY-End**
**(#)**
**Exercisable/Unexercisable** | **Value of Unexercised**
**In-The-Money**
**Option/SARs**
**at FY-End**
**($)**
**Exercisable/Unexercisable**
|------------------ | --------------------------------------------------- | ------------------------------ | -------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------
|                   |                                                     |                                |                                                                                                                      |                                                                                                              
|David G. Williams  | -0-                                                 | N/A                            | N/A                                                                                                                  | N/A                                                                                                          
|John D. Rottweiler | -0-                                                 | N/A                            | N/A                                                                                                                  | N/A                                                                                                          



**ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





The following table sets forth, as of August 5, 2004, certain information with respect to the Company's equity securities owned of record or beneficially by (i) each Officer and Director of the Company; (ii) each person who owns beneficially more than 5% of each class of the Company's outstanding equity securities; and (iii) all Directors and Executive Officers as a group.




|COMMON STOCK
|------------




|Title of Class |  | Name and Address of
Beneficial Owner (1)          |  | Amount and Nature of
Beneficial Ownership |  | Percent of
Class (2)
|-------------- |  | ------------------------------------------------- |  | ----------------------------------------- |  | --------------------
|               |  |                                                   |  |                                           |  |                     
|Common Stock   |  | David G. Williams                                 |  | 9,268,255 (3)                             |  | 30.7%               
|Common Stock   |  | John D. Rottweiler                                |  | 4,475,658                                 |  | 14.8%               
|Common Stock   |  | All officers and directors as a group
(2 persons) |  | 13,743,913 (3)                            |  | 45.5%               



|(1) | Unless otherwise noted, the address of each beneficial owner is c/o Humatech, Inc., 1959 South Val Vista Drive, Suite 130, Mesa, Arizona 85204.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------




|(2) | Based on 30,214,273 shares outstanding as of August 5, 2004.
|--- | ------------------------------------------------------------




|(3) | Includes 1,000,000 shared held directly by Mr. Williams. Also includes 8,268,255 shares held by Willow Capital, L.P., over which Mr. Williams does not have voting or disposition power, however, he does have a pecuniary interest in that he is the beneficiary of proceeds that may be received from the sale of the shares. Voting and disposition power over the shares held by Willow Capital, L.P. is held by the adult children of Mr. Williams.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




**ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





**Certain Relationships and Related Transactions**





License Agreement





In February 1996, we entered into a License Agreement with David G. Williams, our President and a director. Under the terms of the agreement, we obtained the right to use all copyrights, trademarks, patents, trade secrets, product formulas, customer lists, and other


23




proprietary information owned by Mr. Williams. The agreement requires that we pay to Mr. Williams a royalty payment equal to 1% of our total gross sales.





Employment Agreements





Effective July 1, 1996, we entered into an employment agreement with David G. Williams to serve as our President and CEO. The agreement originally covered the term from July 1, 1996 through June 30, 2001, but has automatically renewed for a two (2) year term pursuant to its renewal terms. At the end of any renewal term, and upon sixty (60) days written notice, either party may terminate the agreement without penalty. The agreement provided for annual compensation of $128,000 during its first year, $150,000 during its second year, and $175,000 for all successive years, including the renewal term.





Effective July 1, 1996, we entered into an employment agreement with John D. Rottweiler to serve as our Executive Vice President and CFO. The agreement originally covered the term from July 1, 1996 through June 30, 2001, but has automatically renewed for a two (2) year term pursuant to its renewal terms. At the end of any renewal term, and upon sixty (60) days written notice, either party may terminate the agreement without penalty. The agreement provided for annual compensation of $80,000 during its first year, $100,000 during its second year, and $125,000 for all successive years, including the renewal term.





As of April 30, 2004 and 2003, total cumulative amounts unpaid under these agreements are as follows:




|                     | 2004     |  | 2003      
|-------------------- | -------- |  | ----------
|Officer compensation | $122,948 |  | $1,098,898
|Royalty Fees         | -        |  | -         
|                     | $122,948 |  | $1,098,898



Future amounts due under the employment agreements are as follows:




| | Year ending |  |         
| | ----------- |  | --------
| | April 30,   |  | Amount  
| |             |  |         
| | 2005        |  | $300,000
| | Total       |  | $300,000



Mining Materials Purchase Agreement





On March 26, 2003, we entered into a Mining Materials Purchase Agreement with RAMMSCO, Inc., a Nevada corporation principally controlled by David G. Williams and John D. "J.D." Rottweiler, our officers and directors. RAMMSCO owns certain mining rights to acquire certain materials from a designated area. We use those materials in the development of our products. Under the terms of the agreement, RAMMSCO agreed to sell to us exclusively all of the materials from the defined area at a fixed price (subject to adjustment for inflation and actual increases in operating costs) deemed by our management to be advantageous when compared to the marketplace, for a period of twenty (20) years. We must pay the costs of extraction. In addition, we have an option to purchase, on terms and conditions to be agreed upon by the parties, any other materials which may be extracted from the area, as well as a right of first refusal for up to two (2) years after termination of the agreement. As consideration for the obligations of


24




RAMMSCO under the agreement, we agreed to issue to RAMMSCO 12,500,000 shares of our common stock, of which 6,380,267 shares were issued.





In contemplation of entering into the Materials Agreement, we sought the advice of a tax professional about the taxable impact of the transactions contemplated thereby. Based on the advice received, and specifically the fact that the transactions would not result in a large immediate taxable event, we executed the Materials Agreement. Subsequent to the date of the Materials Agreement, we have been advised that the tax advice we received was false, and as a result we entered into the Materials Agreement based upon a mistake of fact.





As a result, on July 23, 2003, we entered into a Mutual Rescission Agreement with RAMMSCO, terminating the Materials Agreement in its entirety effective as of the date of its execution, March 26, 2003. All the consideration paid to RAMMSCO was returned, including the 6,380,267 shares of our common stock, which was cancelled.





Humatech, Ltd.





We own an interest in an entity that primarily distributes our products in the United Kingdom. We formed this entity, Humatech, Ltd., as a joint venture with one of our United Kingdom distributors. We owned approximately 36% and 41% of this entity at April 30, 2004 and 2003, respectively. We have not made any monetary investment in Humatech, Ltd. However, we have made loans to Humatech, Ltd.





We sold product to Humatech, Ltd. in the amount of approximately $45,000 and $35,800 for the years ended April 30, 2004 and 2003 respectively.


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ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K





**(a)**  **Exhibits**




**Item No.**

**Description**2.1(1)

Asset purchase agreement by and between International Humate
Fertilizer Co. and Midwest Enterprise Consultants, Inc.3.1(1)

Articles of Incorporation of Midwest Enterprise Consultants, Inc.3.2(1)

Amendment to the Articles of Incorporation of Midwest Enterprise
Consultants, Inc.3.3(1)

Amendment to the Articles of Incorporation of Midwest Enterprise
Consultants, Inc.3.4(6)

Amendment to the Articles of Incorporation of Humatech, Inc.3.5(6)

Restated Articles of Incorporation of Humatech, Inc.3.4(1)

Bylaws of Humatech, Inc.4.1(2)

Humatech, Inc. 2002 Omnibus Securities Plan10.1(5)

Assignment of Promissory Note and Consent Thereto.10.2(1)

Employment agreement by and between International Humate
Fertilizer Co. and David G. Williams10.3(1)

Employment agreement by and between International Humate
Fertilizer Co. and John D. Rottweiler10.4(1)

Royalty agreement by and between International Humate Fertilizer
Co. and David G. Williams10.5(1)

Joint venture agreement for Humatech, Ltd.10.6(1)

Lease of Premises located in Houston, Texas.10.7(1)

Lease of Premises located in Katy, Texas.10.8(3)

Mining Minerals Purchase Agreement with RAMMSCO, Inc.10.9(4)

Mutual Rescission Agreement with RAMMSCO, Inc.10.10(6)

Lease of Premises located in Mesa, Arizona.10.11(6)

Lease of land in Albuquerue, New Mexico.


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31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1

Chief Executive Officer Certification Pursuant to 18 USC, Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.32.2

Chief Financial Officer Certification Pursuant to 18 USC, Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.





(1)

Incorporated by reference to our Current Report on Form 8-K filed with the Commission
on June 12, 2002.(2)

Incorporated by reference to our Registration Statement on Form S-8 filed with the
Commission on June 3, 2002.(3)

Incorporated by reference from our Current Report on Form 8-K dated and filed with the
Commission on April 3, 2003(4)

Incorporated by reference from our Current Report on Form 8-K dated July 24, 2003 and
filed with the Commission on July 28, 2003.(5)

Incorporated by reference from our Current Report on Form 8-K dated October 13, 2003
and filed with the Commission on October 28, 2003.(6)

Incorporation by reference from our Annual Report on Form 10-KSB dated December 8, 2003
filed with the Commission on December 12, 2003.




**(b)**  **Reports on Form 8-K**





On April 16, 2004, we filed a Current Report on Form 8-K enclosing the Consent of Epstein, Weber & Conover, P.L.C. to the incorporation by reference into our registration statement on Form S-8 (SEC File No. 333-89682) filed on June 3, 2002, of their report dated October 20, 2003 with respect to their audit of our financial statements as of April 30, 2003 and for the year then ended. The Consent had been omitted from our registration statement on Form S-8.





**ITEM 14 - CONTROLS AND PROCEDURES**





The Company's Chief Executive Officer and Chief Financial Officer (or those persons performing similar functions), after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this quarterly report (the "Evaluation Date"), have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in the Company's internal controls or


27




in other factors that could significantly affect the internal controls subsequent to the Evaluation Date.





**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.





Dated: September 8, 2004
Humatech, Inc./s/ David G. WilliamsBy:
David G. WilliamsIts:
Chairman, President, CEO, and Director

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Dated: September 8, 2004

/s/ David G. WilliamsBy:
David G. WilliamsIts:
Chairman, President, CEO, and Director


Dated: September 8, 2004

/s/ John D. RottweilerBy:
John D. RottweilerIts:
Secretary, Chief Financial Officer, and Director





|
|
|
|

|
|

**HUMATECH, INC.**








**Financial Statements as of**


**April 30, 2004**


**And** **Report of Independent Registered**


**Public Accounting Firm**










|
|
|
|

|
|

**HUMATECH, INC.**





**TABLE OF CONTENTS****Page**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
A-2FINANCIAL STATEMENTS:Balance Sheet at April 30, 2004
A-3Statements of Operations for the years ended April 30, 2004 and April 30, 2003
A-4Statements of Stockholders' Deficit for the years ended April 30, 2004 and April 30, 2003
A-5Statements of Cash Flows for theyears endedApril 30, 2004 and April 30, 2003
A-6NOTES TO FINANCIAL STATEMENTS
A-8


|
|
|
|

|
|

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To the Stockholders and Board of


Directors of Humatech, Inc.:





We have audited the accompanying balance sheet of Humatech, Inc. as of April 30, 2004 and the related statements of operations, stockholders' deficit and cash flows for each of the two years in the period ended April 30, 2004. 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 audit in accordance with the standards of the Public Company Accounting Standards Board (United States). 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 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, 2004 and the results of its operations and cash flows for the period ended April 30, 2004, in conformity with accounting principles generally accepted in the United States of America.





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company continued to incur operating losses and incurred a net loss of $1,879,589 for the year ended April 30, 2004. The Company has a working capital deficit of $454,682 at April 30, 2004. In addition, the Company has not yet generated significant revenue needed to achieve management's plans and support its operations and there is no assurance that the Company will be able to generate such volume or raise financing sufficient to cover cash flow deficiencies. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans with regard to these matters are discussed in Note 1. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.








/s/EPSTEIN WEBER & CONOVER, P.L.C.


Scottsdale, Arizona


August 20, 2004


A - 2




**HUMATECH, INC.**








**BALANCE SHEET**


**APRIL 30, 200**         ****





ASSETS:CURRENT ASSETSCash

$
1,235

$
206,710Accounts receivable, net of allowance of $20,167


16,937


43,524Inventories


41,474


51,746Prepaid expenses and other assets


608


1,195Total current assets


60,254


303,175PROPERTY AND EQUIPMENT, net


146,061


114,275TOTAL ASSETS

$
206,315

$
417,450LIABILITIES AND STOCKHOLDERS' EQUITY:CURRENT LIABILITIES:Accounts payable

$
213,153

$
123,104Accrued liabilities


70,656


9,454Deferred revenue


8,094


-Due to affiliates


43,885


63,259Capital lease obligation - current portion


12,369


11,024Notes payable - current portion


43,831


341,253Due to officers


122,948


1,098,898Total current liabilities


514,936


1,646,992NOTES PAYABLE - long term portion (net of discount of $67,352)


470,447


169,371CAPITAL LEASE OBLIGATION - long term portion


1,788


10,857Total liabilities


987,171


1,827,220STOCKHOLDERS' DEFICIT:Common stock, no par value, 50,000,000 shares authorized, 29,689,273 and 18,294,733 shares issued and outstanding


7,710,018


5,457,326Paid in capital


1,390,998


1,083,607Accumulated deficit


(9,881,872
)

(8,002,283
)Total stockholders' deficit


(780,856
)

(1,461,350
)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$
206,315

$
365,870






The accompanying notes are an integral part of these financial statements.


A - 3




**HUMATECH, INC.**





**STATEMENTS OF OPERATIONS**


**FOR THE YEARS ENDED APRIL 30, 2004 AND APRIL 30, 2003**





2004

2003NET REVENUES

$
275,918

$
241,292COST OF GOODS SOLD


314,992


248,540Gross profit/(loss)


(39,074
)

(7,248
)OPERATING EXPENSES:General and administrative expenses


1,416,073


1,436,495Sales and marketing expenses


162,721


671,415Research and development


12,447


53,593Depreciation and amortization


3,135


21,193Total operating expenses


1,594,376


2,182,696OPERATING LOSS


(1,633,450
)

(2,189,944
)OTHER (INCOME) AND EXPENSESInterest expense and other financing costs


253,139


18,282Interest income


-


(9,986
)Gain on sale of asset


(7,000
)

-Total other expense


246,139


8,296LOSS BEFORE INCOME TAXES


(1,879,589
)

(2,198,240
)INCOME TAX PROVISION (BENEFIT)


-


-NET LOSS

$
(1,879,589
)
$
(2,198,240
)NET LOSS PER SHARE:Basic

$
(0.08
)
$
(0.13
)Diluted

$
(0.08
)
$
(0.13
)WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic


23,015,785


16,519,089Diluted


23,015,785


16,519,089


The accompanying notes are an integral part of these financial statements.


A - 4




**HUMATECH, INC.**





**STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE**


**YEARS ENDED APRIL 30, 2004 AND APRIL 30, 2003**





**Commo****n Stock**

**Paid-in**

**Accumulated****Shares**

**Amount**

**Capital**

**Deficit**

**Total**RESTATED -BALANCE APRIL 30, 2002


14,840,334

$
3,650,233

$
639,100

$
(5,804,043
)
$
(1,514,710
)Common stock issued for consulting services


963,021


714,734








714,734Common stock issued for exercised options


599,000


409,645








409,645Common stock issued for conversion of obligations


858,578


221,149








221,149Common stock issue for cash


1,033,800


461,565








461,565Imputed value of common stock warrants granted








444,507





444,507Net loss











(2,198,240
)

(2,198,240
)BALANCE APRIL 30, 2003


18,294,733


5,457,326


1,083,607


(8,002,283
)

(1,461,350
)Common stock issued for consulting and employee services


3,415,000


578,650








578,650Common stock issued for accrued officers' salary


7,698,658


1,604,042








1,604,042Common stock issue for cash


280,882


70,000








70,000Imputed value of beneficial conversion feature of debt








227,244





227,244Imputed value of common stock warrants granted








80,147





80,147Net loss











(1,879,589
)

(1,879,589
)BALANCE APRIL 30, 2004


29,689,273

$
7,710,018

$
1,390,998

$
(9,881,872
)
$
(780,856
)


The ac companying notes are an integral part of these financial statements


A - 4




**HUMATECH, INC.**





**STATEMENTS OF CASH FLOWS FOR THE**


*YEARS ENDED APRIL 30, 2004 AND APRIL 30, 2003*




2004

2003CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(1,879,590
)
$
(2,198,240
)Adjustments to reconcile net income to net cash provided by (used in) operating activities:Gain on sale of asset


(7,000
)

-Depreciation and amortization


45,592


36,152Issuance of common stock as compensation for services


578,650


714,735Amortization of beneficial conversion feature of debt and related warrants


232,039Value of common stock warrants granted to consultants


8,000


444,507Changes in assets and liabilities:Trade and other accounts receivable


26,587


(12,039
)Inventories


10,272


46,932Prepaid and other current assets


587


(500
)Due to/from affiliates


(19,374
)

39,796Accounts payable


90,049


19,442Accrued liabilities


61,203


(5,401
)Due to officers


292,092


-Customer deposits


(51,580
)

3,763Deferred revenue


8,094


-Net cash used in operating activities


(604,379
)

(910,853
)CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds on sale of equipment


7,000


-Purchases of equipment


(2,500
)

(6,616
)Net cash provided by (used in) investing activities


4,500


(6,616
)CASH FLOWS FROM FINANCING ACTIVITIES:Principal repayments on notes payable and capital leases


(32,359
)

(11,992
)Proceeds from issuances of debt


356,763


221,149Proceeds from the exercise of common stock options and warrants


-


409,645Proceeds from sale of common stock


70,000


461,565Net cash provided by financing activities


394,404


1,080,367(DECREASE) INCREASE IN CASH


(205,475
)

162,898CASH, BEGINNING OF YEAR


206,710


43,812CASH, END OF YEAR

$
1,235

$
206,710







The ac companying notes are an integral part of these financial statements.





A - 5







**HUMATECH, INC.**





**STATEMENTS OF CASH FLOWS, (continued)**


**FOR THE YEARS ENDED APRIL 30, 2004 and 2003**







SUPPLEMENTAL CASH FLOW INFORMATION:




|                  |  | **2004** |        | **2003** |  
|----------------- |  | -------- | ------ | -------- | -
|                  |  |          |        |          |  
|Interest Paid     |  | $        | 10,544 |          | $
|                  |  |          |        |          |  
|Income taxes paid |  | $        | -0-    |          | $










SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:




|                                                                         |  | **2004** |           | **2003** |  
|------------------------------------------------------------------------ |  | -------- | --------- | -------- | -
|                                                                         |  |          |           |          |  
|Common stock issued in exchange for debt                                 |  | $        | -0-       |          | $
|                                                                         |  |          |           |          |  
|Common stock issued in exchange for accrued compensation                 |  | $        | 1,604,042 |          | $
|                                                                         |  |          |           |          |  
|Imputed value of common stock warrants issued with debt                  |  | $        | 72,237    |          | $
|                                                                         |  |          |           |          |  
|Capital equipment and vehicle acquired with debt                         |  | $        | 75,209    |          | $
|                                                                         |  |          |           |          |  
|Company debt assumed by officer and offset by amounts
due to the officer |  | $        | 336,000   |          | $
|                                                                         |  |          |           |          |  



The accompanying notes are an integral part of these financial statements.


A - 6




**HUMATECH, INC.**





**NOTES TO FINANCIAL STATEMENTS**


**FOR THE YEARS ENDED APRIL 30, 2004 AND 2003**





1.  ORGANIZATION AND BASIS OF PRESENTATION





Humatech, Inc. (the "Company"), produces and distributes humate-based trace element fertilizers and animal feed products. The Company's products are sold to agriculture products' dealers/distributors, retail customers as well as livestock feedlot operators, ranchers and other agricultural customers throughout the United States and the United Kingdom.





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company faces many operating and industry challenges. The Company has not yet generated adequate volume in the sale of its products to meet operating cash flow requirements and has incurred significant operating losses. Future operating losses for the Company are anticipated and the proposed plan of operations, even if successful, may not result in cash flow sufficient to finance the continued expansion of its business. These factors raise substantial doubt about the Company's ability to continue as a going concern. Realization of assets is dependent upon continued operations of the Company, which in turn is dependent upon management's plans to meet its financing requirements, as discussed below, and the success of its future operations. The financial statements do not include any adjustments that might result from this uncertainty.





The Company is attempting to raise capital to allow it to expand its marketing and distribution capabilities. Management believes that, in addition to being successful in raising sufficient capital for operations, the sales volumes have been increasing and will continue to do so at a level that will, in the short term, be sufficient to continue as a going concern.








2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Cashincludes all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. At times cash deposits may exceed government insured limits. At April 30, 2004, cash deposits did not exceeded those insured limits.  Property and equipmentis stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets ranging from 5 to 10 years. Depreciation expense was $45,594 and $36,152 for the years ended April 30, 2004 and 2003 respectively.
 
 Revenue recognition: The Company recognizes revenue when product is shipped FOB and collection is reasonably assured. Sales, and the associated cost of sales, to the Company's equity investee in the United Kingdom are not recognized until the product has been sold and shipped to third party customers.
 
 A - 7




| | Advertising: The Company expenses advertising costs as incurred. Advertising expense was $9,932 and $61,930 for the years ended April 30, 2004 and 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------




| | Inventories: Inventories consist of raw materials such as mined humate material, finished goods and packaging materials. Inventories are accounted for at the lower of cost or market in a first-in first-out basis.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | Income Taxes: The Company provides for income taxes based on the provisions of Statement of Financial Accounting Standards No. 109,*Accounting for Income Taxes,*which, among other things, requires that recognition of deferred income taxes be measured by the provisions of enacted tax laws in effect at the date of financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | Financial Instruments: Financial instruments consist primarily of cash, accounts receivable, and obligations under accounts payable, accrued expenses, capital lease obligations and notes payable. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of those instruments. The capital lease obligation approximates fair value because the principal amount the obligation was determined based on the fair value of the underlying assets and the Company estimated incremental borrowing rate. The bank notes payable relate to vehicle loans and are considered to approximate fair value. The notes payable to individuals approximate fair value after discounting the notes as required for the convertible instruments involved. The fair value of the note payable to affiliate cannot be determined because of the related party nature of that instrument. The Company has applied certain assumptions in estimating these fair values. The use of different assumptions or methodologies may have a material effect on the estimates of fair values.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | Net Loss Per Shareis calculated using the weighted average number of shares of common stock outstanding during the year. The Company has adopted the provisions of SFAS No. 128*Earnings Per Share*.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | Stock-Based Compensation: Statements of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation, ("SFAS 123") established accounting anddisclosure requirements using a fair-value based method of accounting for stock-based employee compensation. In accordance with SFAS 123, the Company has elected to continue accounting for stock based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The proforma effect of the fair value method is discussed in Note 14.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|
|
|
|

|
|



| | Recently Issued Accounting Pronouncements: In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transaction and Disclosure, which provides alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation as prescribed in SFAS 123, Accounting for Stock-Based Compensation. Additionally, SFAS No. 148 requires more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The provisions of this statement are effective for fiscal years ending after December 15, 2002, with early application permitted in certain circumstances. The Company presently does not intend to adopt the fair value based method of accounting for its stock based compensation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | In June 2003 the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" SFAS No. 150 requires certain instruments, including mandatorily redeemable shares, to be classified as liabilities, not as part of shareholders' equity or redeemable equity. For instruments that are entered into or modified after May 31, 2003, SFAS No. 150 is effective immediately upon entering the transaction or modifying the terms. For other instruments covered by Statement 150 that were entered into before June 1, 2003, Statement 150 is effective for the first interim period beginning after June 15, 2003. The Company has evaluated the provisions of SFAS No. 150 and implementation of such was not material.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others. FIN 45 requires a company, at the time it issues a guarantee, to recognize an initial liability for the fair value of obligations assumed under the guarantees and elaborates on existing disclosure requirements related to guarantees and warranties. The initial recognition requirements are effective for the Company during the third quarter ending March 31, 2003. The adoption of FIN 45 did not have an impact on the Company's financial position or results of operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN 46 did not have an impact on the Company's financial position or results of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | Impairment of long-lived assetsis assessed by the Company for impairment whenever there is an indication that the carrying amount of the asset may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted cash flows generated by those assets to the assets' net carrying value. The amount of impairment loss, if any, is measured as the difference between the net book value of the assets and the estimated fair value of the related assets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






3.  INVENTORIES


Inventories at April 30, 2004, consisted of the following: A - 15


Finished goods

$
13,891

$
20,641Packaging materials


18,181


16,744Raw materials


9,402


14,361Total

$
41,474

$
51,746




Finished goods inventory is primarily packaged product for sale to retailers. The Company acquires substantially all of its raw materials from an affiliated entity.




|4. | EQUITY INVESTEE
|-- | ---------------




| | The Company owns an interest in an entity that primarily distributes the Company's products in the United Kingdom. The Company formed this entity, Humatech, Ltd., as a joint venture with its United Kingdom distributor. The Company owned approximately 36% and 41% of this entity at April 30, 2004 and 2003, respectively. The Company accounts for its investment in Humatech, Ltd. under the equity method. The Company has made no monetary investment in Humatech, Ltd. However, the Company has made loans to the affiliate. Therefore, there is no investment balance reflected in the accompanying balance sheet. Humatech, Ltd. reported an unaudited net deficit of approximately $230,000 at April 30, 2004. Humatech Ltd. reported revenues of approximately $90,000 and a net loss of approximately $23,000, on an unaudited basis, for the year ended April 30, 2004. The Company's portion of the net losses of Humatech, Ltd. are not reflected in the accompany statements of operations because, under the equity method of accounting, the investment balance is not reduced below zero.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | The Company sold product to Humatech Ltd. in the amount of approximately $45,000 and $35,800 for the years ended April 30, 2004 and 2003 respectively. The Company recognizes revenue and related cost of sales on product to Humatech Ltd. when such product is sold and shipped to a third party customer. The Company recognized revenue of $34,300 and $-0- during the years ended April 30, 2004 and 2003 respectively on product shipped to Humatech Ltd.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







|5. | PROPERTY AND EQUIPMENT
|-- | ----------------------




Property and equipment consisted of the following at April 30, 2004:




Manufacturing Equipment

$
210,468

$
182,707Furnitiure and fixtures


27,095


24,574Vehicles


92,613


71,306Total


330,176


278,587Less: accumulated depreciaton


(184,115
)

(164,312
)Total, net

$
146,061

$
114,275




|6. | NOTES PAYABLE
|-- | -------------




| | Notes payable at April 30, 2004, are comprised of the following:
| | ----------------------------------------------------------------

A-15




|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |          | 2003   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | -------
|Vehicle loan payable to an institution. Original principal balance of $30,000. Monthly installments of principal and interest of $706 through 2007. Interest at 15% per annum. Collateralized by vehicle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $ 19,701 |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |          |        
|Vehicle loan payable to an institution. Original principal balance of $44,597. Monthly installments of principal and interest of $1,098 through 2007. Interest at 9% per annum. Collateralized by vehicle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 33,795   | $ -    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |          |        
|Equipment loan payable to a company. Original principal balance of $27,761. Monthly installments of principal and interest of $843 through 2007. Interest at 6.25% per annum. Collateralized by equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 21,371   | -      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |          |        
|Note payable under Product Development and Funding Agreement with stockholder. The creditor originally provided funding of $150,000. The obligation has no set repayment terms other than it is to be repaid at a rate of 6% of gross revenue earned on sales of the product underlying the Product Development Agreement. In addition to the repayment of the principal amount funded the Company is required to pay the creditor an additional $300,000 as a royalty, also to be repaid at a rate of 6% of gross revenue earned on sales of the product underlying the Product Development Agreement. At April 30, 2004, there had not yet been any sales of this product. | 150,000  | 150,000
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |          |        
|Convertible note payable to individual. The note bears interest at 8% perannum and is due on December 31, 2008. At the option of the debtor the note may be converted into stock at $0.17 any time during the loan period. The note is unsecured. The note was discounted by $4,000 for a beneficial conversion feature and warrantsresulting in an effective interest rate of 17.66%                                                                                                                                                                                                                                                                                        | 10,000   |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |          |        
|Convertible note payable to individual. The note bears interest at 8% per annum and is due on January 31, 2009. At the option of the debtor the note may be converted into stock at $0.17 any time during the loan period. The note is unsecured. The note was discounted by $2,400 for a beneficial conversion feature and warrants resulting in an effective interest rate of 10.95%                                                                                                                                                                                                                                                                                       | 12,750   |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |          |        
|Convertible note payable to an affiliate. The note bears interest of 7% per per annum and is due on August 30, 2005. At the option of the debtor the note may be converted into stock any time during the loan period. The note is unsecured. The note was discounted for the value of the imputed benefical conversion feature. The value of the beneficial conversion feature was greater than the principal amount of the note.                                                                                                                                                                                                                                           | 154,313  |        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |          |        
|Convertible note payable to individual. The note bears interest at 10% per annum and is due on January 31, 2005. At the option of the holder the note may be converted into stock any time during the loan period. The note is unsecured. The note was discounted for the value of the imputed benefical conversion feature. The value of the beneficial conversion feature was greater than the principal amount of the note.                                                                                                                                                                                                                                               | 10,000   |        

A - 15




|Convertible note payable to individual. The note bears interest at 10% per annum and is due on January 31, 2005. At the option of the holder the note may be converted into stock at $0.20 per share any time during the loan period. The note is unsecured.                                                                                                                                                                                                                       | 8,000      |          
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ---------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Convertible note payable to individual. The note bears interest at 8% per annum and is due on February 26, 2009. At the option of the holder the note may be converted into stock at $0.20 per share any time during the loan period. The note is unsecured.                                                                                                                                                                                                                       | 10,000     |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Convertible note payable to individual. The note bears interest at 10% per annum and is due on March 23, 2007. At the option of the holder the note may be converted into stock at $0.17 any time during the loan period. The note is unsecured. The note was discounted by $5,968 for a beneficial conversion feature and warrants resulting in an effective interest rate of 19.81%                                                                                              | 26,700     | -        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Convertible note payable to individual. The note bears interest at 10% per annum and is due on April 15, 2007. At the option of the holder the note may be converted into stock at $0.10 any time during the loan period. The note is unsecured. The note was discounted by $14,250 for a beneficial conversion feature and warrants resulting in an effective interest rate of 40%                                                                                                | 25,000     | -        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Note payable to individual. The note bears interest at 24% per annum and is due on December 31, 2005. In the event the company defaults on the loan, creditor will be issued premium warrants to purchase up to 100,000 shares of common stock at a purchase price of $0.25. The note is unsecured. The note was discounted by $36,000 for a beneficial conversion feature and warrants resulting in an effective interest rate of 68%. The note is converible at $0.20 per share. | 100,000    | -        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Totals                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 581,630    | 510,624  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Less discount on convertible debt                                                                                                                                                                                                                                                                                                                                                                                                                                                  | (67,352)   |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Less current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                               | (43,831)   | (341,253)
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Long-term portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $537,799   | $169,371 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Principal payments due as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                 |            |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|Years ended April 30:                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 2005       | 43,831   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 2006       | 282,657  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 2007       | 72,392   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 2008       | -        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 2009       | 32,750   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Thereafter | 150,000  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |            | $ 581,630






|A - 15
|------
|      
|      

|
|

During the year ended April 30, 2004, the Company issued convertible debt that contained beneficial conversion features and detachable warrants. The fair value of the beneficial features was determined to be $226,931. Because the notes are all convertible at any time after issuance, at the option of the holder, the total value of the beneficial conversion features was amortized immediately and charged to interest expense in the year ended April 30, 2004. Two such notes contain beneficial conversion features, the value of such, exceeding the face amount of the notes. The discounts on those notes were recorded at the face value of the notes. The total value of warrants granted with the convertible debt was approximately $72,000 which is being amortized over the terms of the notes.








|7. | PROVISION FOR INCOME TAXES
|-- | --------------------------

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 
 The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, if appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss period. The Company has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.
 
 At April 30, 2004 the Company has unused federal net operating losses of $8,546,000 expiring from 2012 through 2023. The Company may utilize the unavailable net operating loss carryforwards upon generating taxable income.


Income taxes for years ended April 30, is summarized as follows:




|                                   |  | 2004 |          | 2003 |  
|---------------------------------- |  | ---- | -------- | ---- | -
|                                   |  |      |          |      |  
|Current Provision (Benefit)        |  | $    | (751,836 | )    | $
|Deferred Provision                 |  |      | 751,836  |      |  
|                                   |  |      |          |      |  
|Net income tax (benefit) provision |  | $    | - 0 -    |      | $



A reconciliation for the differences between the effective and statutory income tax rates for years ended April 30, is as follows:


2004

2003Federal statutory rates


(639,060
)

(34
)%
$
(747,402
)

(34
)%State income taxes


(112,775
)

(6
)%

(131,894
)

(6
)%Valuation allowance


72,000


4
%

877,184


40
%Other (permanent differences)


679,835


36
%

2,112


-Effective rate

$
- 0 -


0
%
$
- 0 -


0
%


The permanent differences in the year ended April 30, 2004, relate primarily to differences in accounting for the value of stock compensation for income tax purposes.





A - 15








Deferred tax assets totaling $3,293,000 are comprised of $10,000 for differences in book and tax bases of accounts receivable and deferred income and approximately $3,283,000 relates to net operating loss carryforwards. The deferred income tax asset is offset by a valuation allowance of $3,286,000 resulting in a net deferred income tax asset of $7,000. The valuation allowance was provided due to the uncertainty of future realization of federal and state net operating loss carryforwards because of uncertainties on the utilization of such carryforwards. The valuation allowance increased $72,000 and $877,000 in the years ended April 30, 2004, and 2003 respectively.





| | At April 30, 2004, there was a deferred tax liability of $7,000 related to the differences in book and taxes bases of property and equipment.
| | ---------------------------------------------------------------------------------------------------------------------------------------------




|8. | LEASES
|-- | ------




| | Operating Leases
| | ----------------




| | The Company leases its new office space under a long-term operating lease in Mesa, Arizona beginning June 2003 and expiring in July 2006. Rent expense under this lease was $20,405 for the year ended April 30, 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | The lease on the Company's facilities in Houston, Texas expired in July 2003. Rent expense under this lease was $5,700 and $21,621 for the years ended April 30, 2004 and 2003 respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | The Company leases real property located in Albuquerque, New Mexico from an entity owned by its President and Chief Financial Officer under a long-term operating lease. The lease began May 2003 and expires April 2006. Rent expense under this lease was $13,896 for the year ended April 30, 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Future minimum annual lease payments under the operating lease agreements are as follows for years ended April 30:




2005

$
31,3542006


31,3542007


4,539$
67,247




Capital Leases





| | The Company leases certain equipment under capital leases that expire through 2008. Minimum required lease payments under the lease agreements for the years ending April 30, are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|Year ending April 30,                  |  |   |        
|-------------------------------------- |  | - | -------
|                                       |  |   |        
|2005                                   |  | $ | 13,562 
|2006                                   |  |   | 1,022  
|2007                                   |  |   | 1,022  
|2008                                   |  |   | 325    
|Total                                  |  |   | 15,931 
|Less: Amount representing interest     |  |   | (1,806 
|Total payments, net of interest        |  |   | 14,125 
|Less: Current portion                  |  |   | (12,369
|Total long term minimum lease payments |  | $ | 1,756  

A - 15




Equipment under capital leases is included in machinery and equipment as follows:


April 30,
2004Machinery and equipment

$
43,950Less: Accumulated amortization


(28,401
)$
15,549


|9. | STOCKHOLDERS' DEFICIT
|-- | ---------------------



Common Stock Issued for Services





The Company has historically granted shares of its common stock to employees and consultants as payment for services rendered. The value of those shares was determined based on the trading value of the stock at the dates on which the agreements were entered into for the services. The Company issued 3,415,000 and 963,021 shares of common stock to employees consultants valued at $578,650 and $714,734 respectively during the years ended April 30, 2004 and 2003, respectively.





Common Stock Issued as Payment for Obligations





In the year ended April 30, 2004, the Company granted 7,698,658 shares of its common stock to two of the Company's officers as payment of accrued compensation. The value of the shares of approximately $0.21 was based on the trading value of the stock at the dates on which the agreements were entered into to grant the shares as payment for $1,604,042 in accrued compensation.





During the year ended April 30, 2003, the Company received advances from related parties aggregating to $221,149. The Company and the related party creditors agreed to settle the obligations through the issuances of 858,578 shares of the Company's common stock.





Other





The Company has granted options to purchase its common stock to employees and consultants. During the year ended April 30, 2003 the holders of those options exercised 599,000 resulting in cash received by the Company of $409,645.





The Company also raised capital by offering shares of its common stock to investors. The Company issued 280,882 and 1,033,800 shares of its common stock for $70,000 and $461,565 respectively in the years ended April 30, 2004 and 2003 respectively.





The Company also grants options to parties other than employees as consideration for services. The Company estimates the value of those securities using the Black-Scholes option pricing model. The estimated value of those securities is expensed when granted. The Company expensed $4,650 and $639,100 in the years ended April 30, 2004 and 2003 associated with the granting of these options.





A - 16





|10. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------




As discussed in Note 6, the Company entered into a Product Development and Funding Agreement with a stockholder. Under the agreement, the Company is committed to repay advances and additional amounts up to $450,000. The rate at which repayment occurs is based on 6% of the gross revenue of the product specified in the agreement. The Company had not generated any revenue from this product through April 30, 2004.





The United States Securities and Exchange Commission ("SEC") has made inquiries of the Company and certain officers during the years ended April 30, 2004 and 2003. The SEC requested documentation supporting reported revenue and results of operations, specifically revenue recognized on shipments and products which had not yet been shipped to the UK affiliate during the year ended April 30, 2002. Subsequently, the SEC requested additional documentation concerning the above-referenced sales, as well as documentation concerning agreements with, and compensation paid to, certain of our consultants retained for business development purposes. The staff of the SEC has stated that they may recommend further action against the Company and its officers and directors. The action by the SEC could result in fines and orders for disgorgement  of monies raised by the Company. The Company is disputing certain of the allegations and has not accrued any amounts for which it could be contingently liable as of April 30, 2004, should there be a ruling on this matter adverse to the Company. The Company has amended and restated its financial statements for the periods in question.





The Company has a research agreement with Texas Tech University to investigate a natural, organic trace mineral supplement using the Company's Promax animal feed supplement for pigs. The Company has funded $34,000 of its $70,000 commitment to the University. The University also has a $70,000 funding commitment to the project but had not yet fully funded that amount as of April 30, 2004. The University is entitled to a royalty of 2% of revenue generated from any patentable applications that arise as a result of this research. As of June 30, 2004, there have been no such revenues.





The Company has a license agreement with its President and largest single shareholder for the use of all copyrights, trademarks, patents, trade secrets, product formulas, customer lists and other proprietary information. The agreement requires the payment of 1% of gross domestic sales generated by the Company as a result of this intellectual property. Amounts paid or accrued were $2,389 and $2,246 in the years ended April 30, 2004 and 2003 respectively.





| | An action was filed by several parties during the year ended April 30, 2004 in the Circuit Court of St. Louis County, State of Missouri seeking damages against the Company, in connection with advertising goods or services via facsimile which had not been specifically requested. On March 23, 2004, the Circuit Court of St. Louis County entered a default judgment against the company for $100,500. The Company later appealed but the parties settled without further ruling from the court in the amount of $33,125. This amount has been accrued in the accompanying balance sheet at April 30, 2004 and payments are schedule to be made up and thru December 9, 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




A - 17








|11. | NET LOSS PER SHARE
|--- | ------------------




Net loss per share is calculated using the weighted average number of shares of common stock outstanding during the year. Warrants and options to purchase 3,749,501 and 3,257,220 shares of common stock were excluded from the calculation for the year ended April 30, 2004 and 2003 respectively. The inclusion of such options and warrants would be anti-dilutive.





The following presents the computation of basic and diluted loss per share from continuing operations:







|                                     |              | 2004       |           |                 | 2003       |          
|------------------------------------ | ------------ | ---------- | --------- | --------------- | ---------- | ---------
|                                     | Income       | Shares     | Per
Share | ****
**Income** | Shares     | Per
share
|                                     |              |            |           |                 |            |          
|Net Income (Loss)                    | $(1,879,589) |            |           | $(2,198,240)    |            |          
|Preferred stock dividends            |              |            |           |                 |            |          
|Loss from continuingoperations       | (1,879,589)  |            |           | (2,198,240)     |            |          
|                                     |              |            |           |                 |            |          
|**Basic Loss Per Share**:            |              |            |           |                 |            |          
|                                     |              |            |           |                 |            |          
|Loss available to commonstockholders | $(1,879,589) | 23,015,785 | $(0.08)   | $(2,198,240)    | 16,519,089 | $(0.13)  
|                                     |              |            |           |                 |            |          
|Effect of dilutive securities        | N/A          |            |           | N/A             |            |          
|                                     |              |            |           |                 |            |          
|**Diluted Loss Per Share**           | $(1,879,589) | 23,015,785 | $(0.08)   | $(2,198,240)    | 16,519,089 | $(0.13)  







|12. | RELATED PARTY TRANSACTIONS
|--- | --------------------------




As discussed in Note 10, the Company has a license agreement with its President and largest single shareholder. The agreement requires the payment of 1% of gross domestic sales generated by the Company as a result of this intellectual property. Amounts paid or accrued were $2,389 and $2,246 in the years ended April 30, 2004 and 2003 respectively.





The Company has accrued salaries to its President and Chief Financial Officer. At April 30, 2004, the total amount accrued and unpaid compensation due to these officers was $122,056. During the year ended April 30, 2004, the Company granted 7,698,658 shares of common stock as payment for $1,604,042 in accrued compensation.





The Company borrowed $221,149 from an entity owned by a family member of the Company's President during the year ended April 30, 2003. At April 30, 2003, the Company had settled this obligation through the issuance of 858,578 shares of its common stock.





The Company received an advance of $39,500 from an entity owned by its President and Chief Financial Officer in the year ended April 30, 2002. The Company also purchases certain of its raw materials from this entity. The $39,500 advance remains outstanding at April 30, 2004. The Company made purchases of $13,429 and $1,000 from this entity in the years ended April 30, 2004 and 2003 respectively.





A - 18








The Company borrowed $154,313 from an entity owned by a family member of the Company's President on August 1, 2003. The loan grants the related entity the option to convert any unpaid principal and interest into shares of the Company's common stock at $.10 per share any time during the loan period ending August 30, 2005. Accrued interest on the note was $2,490 and no payments have been made for the period ending April 30, 2004.





| | The Company sells products to its affiliate in the United Kingdom. Because of the nature of the relationship, sales, and the associated cost of sales, to the Company's equity investee in the United Kingdom are not recognized until the product has been sold to third party customers. The Company sold product to Humatech ltd. in the amount of approximately $45,000 and $35,800 for the years ended April 30, 2004 and 2003 respectively. The Company recognizes revenue and related cost of sales on product to Humatech Ltd. when such product is sold and shipped to a third party customer. The Company recognized revenue of $34,300 $-0- during the years ended April 30, 2004 on product shipped to Humatech Ltd.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | During the year ended December 31, 2004, the Company's CEO assumed the Company's $336,000 obligation to third party. The officer becomes obligated to the third party for that amount and the third party has no further recourse against the Company should the officer default on the obligation. The officer had received cash advances from the Company that had accumulated to over $336,000 over a several year period. The obligation that was previously due to the third party and transferred to the officer was then offset against advances due from the officer.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|13. | CONCENTRATIONS
|--- | --------------




| | The Company maintains cash balances at banks in Texas. Accounts are insured by the Federal Deposit Insurance Corporation up to $100,000. At April 30, 2004, the Company had uninsured bank balances of $0.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | Approximately 31% of the Company's sales in the year ended April 30, 2004 were to two customers. None of the accounts receivable balance at April 30, 2004 was comprised of balances due from these two customers.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|14. | STOCK BASED COMPENSATION
|--- | ------------------------




| | Fromtime to time, the Company issues stock options to executives, key employees and members of the Board of Directors. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and continues to account for stock based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, no compensation cost has been recognized for the stock options granted to employees. However, there is compensation expense recognized on options and warrants granted to non-employees. There were no options granted to employees in either of the years ended April 30, 2004 and 2003. Therefore, the pro-forma information required under SFAS No. 123 is not presented.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | TheHumatech, Inc. 2002 Omnibus Securities Plan (the "Plan") was established to provide selected employees, directors and consultants awards in the form of Restricted Shares and Options (which may constitute Incentive Stock Options or Nonstatutory Stock Options) as well as the direct award or sale of shares of the Company'scommon stock.Under the Plan, the total number of shares of common stock that may be granted is 1,500,000. The plan provides that shares granted come from the corporation's authorized but unissued common stock. The price of the options granted pursuant to this plan shall not be less than 100 percent of the fair market value of the shares on the date of grant.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




A - 20





The options expire from five to ten years from date of grant. At April 30, 2003, the Company had granted 963,021 shares of common stock and 339,000 options under this plan. The options are vested upon grant.





In addition to the Plan, the Company will occasionally grant options and warrants to consultants and others under specific stock option agreements. There were 100,000 and 761,220 such options granted in the years ended April 30, 2004 and 2003 respectively.





Subsequent to April 30, 2004, the Company's board of directors approved the 2004 Stock Grant and Option Plan. The 2004 provides for up to 6,000,000 shares of common stock to be provided for direct grant or under options.





The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for years ended April 30:




2004

2003Dividend yield
None

NoneVolatility
60.58%

142%Risk free interest rate
4.15%

3.98%Expected asset life
5 years

5 years




| | The summary of activity for the Company's stock options is presented below:
| | ---------------------------------------------------------------------------

2004



2003

Weighted
Average
Exercise
PriceOptions outstanding at beginning of year


1,882,220

$
1.06


1,720,000

$
1.28Granted


100,000

$
0.31


761,220

$
0.46Exercised


(130,000
)
$
(0.51
)

(599,000
)
$
0.92Terminated/Expired


-0-





-0-Options outstanding at end of year


1,982,220

$
1.02


1,882,220

$
1.06Options exercisable at end of year


1,982,220

$
1.02


1,882,220

$
1.06Options available for grant at end of year


511,500





381,500Price per share of options outstanding

$
0.31-$1.50




$
0.43-$1.50Weighted average remaining contractual lives


2.15 years





2.88 yearsWeighted Average fair value of options granted during the year

$
0.05




$
0.59


|15. | COMMON STOCK WARRANTS
|--- | ---------------------




| | The Company has issued warrants in connection with certain debt and equity transactions. Warrants outstanding are summarized as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------

A - 20




|                                         |  |  |           | 2004                            |   |      |  | 2003                            |          
|---------------------------------------- |  |  | --------- | ------------------------------- | - | ---- |  | ------------------------------- | ---------
|                                         |  |  |           | Weighted
Average
Exercise
Price |   |      |  | Weighted
Average
Exercise
Price |          
|                                         |  |  |           |                                 |   |      |  |                                 |          
|Warrants outstanding at beginning ofyear |  |  | 1,375,000 |                                 | $ | 3.50 |  |                                 | 1,375,000
|Granted                                  |  |  | 755,031   |                                 |   | 0.19 |  |                                 | -0-      
|Expired                                  |  |  | (343,750  | )                               |   | 2.00 |  |                                 | -0-      
|Exercised                                |  |  | -0-       |                                 |   |      |  |                                 | -0-      
|Outstanding at April 30,                 |  |  | 1,786,281 |                                 | $ | 2.39 |  |                                 | 1,375,000



| | The warrants granted in the year ended April 30, 2002 were issued in connection with a private placement of the Company's common stock. The exercise prices of the warrants range from $2.00 to $5.00. There are four series of 343,750 warrants each titled - Series A through D. Series A is exercisable at $2.00 per share and originally expired in August 2003. Each series progresses with an increase of $1.00 per share, expiring one year later than the previous series.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | The warrants granted in the year ended April 30, 2004 were issued in connection with the issuance of debt. The exercise prices of the warrants range from $0 .13 to $0.21. The warrants all expire in the fiscal year ended April 30, 2009.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Warrants

Exercise
Price58,462

$ 0.1313,333

$ 0.15133,824

$ 0.19518,000

$ 0.2031,412

$ 0.21




|16. | BUSINESS SEGMENTS
|--- | -----------------




The Company operates in only one reportable segment, trace element fertilizers and animal feed products and holds all of its assets in the United States. The following table outlines the breakdown of sales to unaffiliated customers domestically and internationally:





Gross Revenues







|               |  | 2004 |         | 2003 |  
|-------------- |  | ---- | ------- | ---- | -
|               |  |      |         |      |  
|Animal Feed    |  |      |         |      |  
|               |  |      |         |      |  
|United States  |  | $    | 59,960  |      | $
|United Kingdom |  |      | 38,058  |      |  
|Asia           |  |      | -       |      |  
|Total          |  |      | 98,018  |      |  
|               |  |      |         |      |  
|Fertilizer     |  |      |         |      |  
|               |  |      |         |      |  
|United States  |  | $    | 177,900 |      | $
|United Kingdom |  |      | -       |      |  
|Asia           |  |      | -       |      |  
|Total          |  |      | 177,900 |      |  
|               |  |      |         |      |  
|Total Revenue  |  | $    | 275,918 |      | $



*** * * * * ***


|
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|
|

|
|