UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(D) of
The Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2004
Commission file number: 000-30734
HUMANA TRANS SERVICES HOLDING CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 11-3255617
(State or other jurisdiction of (IRS Employee Identification No.)
incorporation or organization)
7466 New Ridge Road, Suite 7, Hanover, Maryland 21076
(Address of principal executive offices)
(410) 855-8758
(Issuer's telephone number)
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 and 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.0001 par value 10,751,189
(Class) (Outstanding as of July 31, 2004)
HUMANA TRANS SERVICES HOLDING CORP.
FORM 10-QSB
JUNE 30, 2004
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet.................................1
Condensed Consolidated Statements of Operations......................2
Condensed Consolidated Statements of Cash Flows......................3
Notes to the Condensed Consolidated Financial Statements
(Unaudited)..........................................................4
Item 2 Management's Discussion and Analysis or Plan of Operation............4
Item 3 Controls and Procedures............................................ 11
Part II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................12
Item 2. Changes In Securities................................................12
Item 3. Defaults Upon Senior Securities......................................12
Item 4. Submission Of Matters To A Vote Of Security Holders..................12
Item 5. Other Information...................................................12
Item 6. Exhibits and Reports on Form 8-K....................................13
Signatures...................................................................14
Certifications...............................................................15
2
PART I: FINANCIAL INFORMATION.
HUMANA TRANS SERVICES HOLDING CORP.
AND SUBSIDIARIES
JUNE 30, 2004
TABLE OF CONTENTS Page
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of June 30, 2004 1
Condensed Consolidated Statements of Operations for the
nine and three months ended June 30, 2004 and
June 30, 2003 2
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 2004 and June 30, 2003 3
Notes to the Condensed Consolidated Financial Statements (Unaudited) 4
3
HUMANA TRANS SERVICES HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
Assets
Current assets
Cash and cash equivalents $ 280,367
Accounts receivable 369,667
Prepaid expenses and other current assets 19,993
-----------
Total current assets 670,027
-----------
Other assets
Client list 348,670
-----------
Total assets $ 1,018,697
===========
Liabilities and Stockholders' Deficiency
Current liabilities
Accounts payable $ 90,125
Accrued expenses 458,268
Loans payable - related parties 174,667
Payroll taxes payable 1,411,769
-----------
Total current liabilities 2,134,829
-----------
Commitments and contingencies
Stockholders' deficiency
Common stock, $.0001 par value, 50,000,000 authorized,
10,751,189 shares outstanding 1,075
Additional paid in capital 4,798,400
Deficiency (5,915,607)
-----------
Total stockholders' deficiency (1,116,132)
-----------
Total liabilities and stockholders' deficiency $ 1,018,697
===========
See notes to the condensed consolidated financial statements.
1
HUMANA TRANS SERVICES HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Three Months Ended
June 30, June 30,
-------- --------
2 0 0 4 2 0 0 3 2 0 0 4 2 0 0 3
------- ------- ------- -------
Revenues $ 5,005,777 $ -- $ 2,016,303 $ --
Cost of revenues 4,205,231 -- 1,669,300 --
------------ ------------ ------------ ------------
Gross profit 800,546 -- 347,003 --
------------ ------------ ------------ ------------
Expenses
General and administrative
expenses 1,743,184 96,885 791,839 7,500
Impairment of intangible assets 402,319 -- 295,219 --
Stock compensation expense 3,692,500 -- 402,500 --
------------ ------------ ------------ ------------
Total expense 5,838,003 96,885 1,489,558 7,500
------------ ------------ ------------ ------------
Operating loss (5,037,457) (96,885) (1,142,555) (7,500)
------------ ------------ ------------ ------------
Other expense
Loss on debt conversion to
stock 76,861 -- 76,861 --
Interest expense 12,139 -- 4,193 --
Miscellaneous expense 113,999 -- --
------------ ------------ ------------ ------------
109,913
202,999 -- 190,967 --
------------ ------------ ------------ ------------
Loss before extraordinary
item $ (5,240,456) $ (96,885) $ (1,333,522) $ (7,500)
============ ============ ============ ============
Extraordinary item
Other income - gain on
forgiveness of debt 204,400 -- 204,400 --
------------ ------------ ------------ ------------
Net loss $ (5,036,056) $ -- $ (1,129,122) $ --
============ ============ ============ ============
Net loss per share of common stock
(basic and diluted) $ (.57) $ (.13) $ (.11) $ (.01)
============ ============ ============ ============
Weighted average number of common
stock shares used in per share
calculation (basic and diluted) 8,781,612 770,229 10,398,991 819,375
============ ============ ============ ============
See notes to the condensed consolidated financial statements.
2
HUMANA TRANS SERVICES HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months
Ended
June 30,
--------
2 0 0 4 2 0 0 3
------- -------
Cash flows from operating activities
Net cash provided by (used in)
operating activities $ 514,661 $ (63,017)
--------- ---------
Cash flows from financing activities
Payment of related party loans (250,378) 63,064
--------- ---------
Net cash provided by financing activities (250,378) 63,064
--------- ---------
Net increase in cash 264,283 47
Cash and cash equivalents - beginning of period 16,084 --
--------- ---------
Cash and cash equivalents - end of period $ 280,367 $ 47
========= =========
Information about noncash activities:
Common stock issued to satisfy stockholders'
loans $ 265,000 $ --
========= =========
Common stock issued for client list $ 428,400 $ --
========= =========
See notes to the condensed consolidated financial statements.
3
HUMANA TRANS SERVICES HOLDING CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB of Regulation S-B.
They do not include all information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. The interim unaudited consolidated financial
statements should be read in conjunction with the financial statements for
the year ended September 30, 2003, which is included in the Company's
Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission on January 20, 2004. In the opinion of management, all
adjustments considered necessary for a fair presentation, consisting
solely of normal recurring adjustments, have been made. Operating results
for the nine months ended June 30, 2004 are not necessarily indicative of
the results that may be expected for the year ending September 30, 2004.
On August 16, 2002, Steam Cleaning USA Inc., (the "Company") a Delaware
corporation, was organized (formerly known as TTI Holdings of America
Corp. ("TTI")), and issued 90,000,000 shares of common stock in exchange
for 100% of the common stock of Steam Cleaning USA, Inc., (the "Operating
Subsidiary"), a Wisconsin corporation organized in August 2002. The
stockholdings of the original stockholders of the Operating Subsidiary
represented approximately 90% of the stock outstanding of the Company on a
post exchange basis. Simultaneously with the exchange, the Operating
Subsidiary merged into the Company, with the Company changing its name to
Steam Cleaning USA, Inc. (a Delaware corporation). As a legal effect of
the merger, the Company acquired all of the assets and assumed all the
liabilities of the Operating Subsidiary. For reporting purposes, however,
the foregoing stock-exchange transaction has been accounted for as a
reverse acquisition in which the Operating Subsidiary acquired all the
assets and liabilities of the Company and recorded them at their fair
value and as if the Company remained the reporting entity. Because the
Company is the surviving entity for legal purposes, all equity
transactions have been restated in terms of the Company's capital
structure.
On July 1, 2003 the Company acquired Humana Trans Services Holding Corp.
and its wholly-owned subsidiaries, Humana Trans Services Group Ltd., Bio
Solutions, LLC, Skilled Tradesman, Inc., Waste Remediation, Inc., and
Professional Employee Organization. Humana Trans Services Group Ltd. was
incorporated in Delaware on April 25, 2003 issuing 1,000 shares of common
stock. On August 4, 2003 the Company filed a Certificate of Amendment to
its Certificate of Incorporation changing its name to Humana Trans
Services Holding Corp. ("Humana"). The Company's Certificate of
Incorporation authorized it to issue 20,000,000 shares of common stock
with a par value of $.0001 per share and 5,000,000 shares of preferred
stock, par value $.0001. Prior to the Company's acquisition of Humana and
Bio Solutions LLC (see below) it had no operations.
4
HUMANA TRANS SERVICES HOLDING CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND GOING CONCERN
(Continued)
Humana is located in Maryland and was founded as a payroll staffing
company and provider of outsourced business solutions focusing on human
resource services to a variety of industries in 15 states. Humana's
wholly-owned subsidiaries include Humana Trans Services Group Ltd., Bio
Solutions, LLC, Skilled Tradesman, Inc., Waste Remediation, Inc., and
Professional Employee Organization. Humana's financial statements include
revenues resulting from activities presently derived from a revenue
sharing arrangement with Precision Management System, LLC.
Humana provides a variety of employment related services:
(1) Professional Employee Organization offers payroll management and
benefits processing services to its clientele, for which it earns an
administrative fee, but the related payroll burden is absorbed by
the Company's clientele.
(2) Humana Trans Services Group Ltd. offers temporary staffing placement
solutions, primarily to the trucking industry. Other subsidiaries
provide short or long term employee leasing or permanent placement
to a variety of industries including.
GOING CONCERN
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
shown in these financial statements, the accumulated deficit at June 30,
2004 amounted to $5,915,607 and the Company experienced net losses of
$5,036,056 for the nine months ended June 30, 2004, and $1,129,122 for the
three months ended June 30, 2004. At June 30, 2004, current liabilities
exceed current assets by $1,464,802. Financing for the Company's
operations was done through stockholder advances, factoring of accounts
receivable and equity capital. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustment that might result from the
outcome of this uncertainty.
It is the intention of the Company's management to improve profitability
by significantly reducing operating expenses and to increase revenues
significantly through growth and acquisitions. The Company anticipates
that in order to fulfill its plan of operation, including payment of
certain past liabilities of the Company, it will need to seek financing
from outside sources. The Company is currently pursuing a private and
public placement of equity and also is actively pursuing discussion with
one or more potential acquisition or merger candidates. There is no
assurance that the Company will be successful in raising the necessary
funds nor is there a guarantee that the Company can successfully execute
any acquisition or merger transaction with any company or individual or if
such transaction is effected, that the Company will be able to operate
such company profitably or successfully. The ultimate success of these
measures is not reasonably determinable at this time. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustment that might
result from the outcome of this uncertainty.
5
HUMANA TRANS SERVICES HOLDING CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTROL BY PRINCIPAL STOCKHOLDERS
The directors, executive officers and their affiliates or related parties,
own beneficially and in the aggregate, the majority of the voting power of
the outstanding shares of the common stock of the Company. Accordingly,
the directors, executive officers and their affiliates, if they voted
their shares uniformly, would have the ability to control the approval of
most corporate actions, including increasing the authorized capital stock
of the Company and the dissolution, merger or sale of the Company's assets
or business.
USE OF ESTIMATES
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Humana accounts for its revenues in accordance with EITF 99-19, "Reporting
Revenues Gross as a Principal Versus Net as an Agent." Humana recognizes
all amounts billed to its temporary staffing customers as gross revenue,
because among other things, Humana is the primary obligor in the temporary
staffing arrangement. Humana has pricing latitude, selects temporary
employees for a given assignment from a broad pool of candidates. Humana
is at risk for the payment of its direct costs, whether or not Humana's
customers pay on a timely basis or at all. Humana assumes a significant
amount of other risks and liabilities as an employer of its temporary
staff, and therefore, is deemed to be a principal in regard to these
services. Other services are recorded as net where the Company earns an
administrative fee for its services, but does not incur any costs or risk
in providing the related services. Humana also recognizes as gross revenue
and as unbilled receivables, on an accrual basis, any such amounts that
relate to services performed by temporary employees which have not been
billed to the customer at the end of the accounting period. The employee
leasing revenue is recognized as the service is rendered.
SIGNIFICANT ESTIMATES
Several areas require management's estimates relating to uncertainties for
which it is reasonably possible that there will be a material change in
the near term. The more significant areas requiring the use of management
estimates related to valuation of Humana's liabilities, valuation of
contingent liabilities, valuation of employee stock options and the
valuation of long-lived assets.
6
HUMANA TRANS SERVICES HOLDING CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
IMPAIRMENT OF LONG-LIVED INTANGIBLE ASSETS
Pursuant to Statements of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"), the Company reviews the recoverability of long-lived assets based
upon its estimate of the future undiscounted cash flows to be generated by
the long-lived assets and reserves for impairment whenever such estimated
future cash flows indicate that the carrying amount of the assets may not
be fully recoverable.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2003 financial statements,
to conform to the current year's presentation.
3. LOANS PAYABLE - RELATED PARTIES
Loans payable to related parties includes advances made by stockholders,
directors and other related parties for the purpose of providing working
capital to the Company. The $174,667 total outstanding loans payable at
June 30, 2004 consisted of the following:
Miami Holdings $ 88,000
Note payable - Keystone Nittany 20,000
Note payable - Alpha Advisors 36,667
Loan payable - Alpha Advisors 10,000
Note payable - president 20,000
----------
Total $ 174,667
==========
Miami Holdings - represents an undocumented advance from a corporation
wholly-owned by a shareholder of the Company. The advance is non-interest
bearing and does not call for any terms of repayments.
Note Payable - Keystone Nittany - represents an advance by a corporation
wholly-owned by a majority stockholder of the Company. The advance is on a
demand basis and is non- interest bearing.
Note Payable - Alpha Advisors, LLC - represents a thirty day note due to a
limited liability company comprised of stockholders/officers of the
Company. Presently the note is in default.
Note Payable - Officer - represents a non-interest bearing demand note.
7
HUMANA TRANS SERVICES HOLDING CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. PAYROLL TAXES PAYABLE
In conjunction with the acquisition of Humana Trans Service Group (refer
to Note 1) the Company assumed liabilities of the past due state and
federal payroll taxes.. Several states have filed liens on the Company.
The balance of these liabilities as shown in the balance sheet as of June
30, 2004 was $1,411,769. The Company has accrued estimated interest and
penalties on the unpaid payroll taxes amounting to approximately $300,000,
which is included in payroll taxes payable. The company is currently
paying all payroll taxes and intends to pay and settle with state and
federal jurisdictions.
5. STOCK TRANSACTIONS
On January 2, 2004, the Company issued 2,350,000 shares for $3,290,000 of
compensation to certain officers, directors and consultants. Additionally,
on the same date the Company issued 306,000 shares at $1.40 per share for
the acquisition of a customer list, purchased from CPA, for a total
consideration of $428,400.
Also on January 2, 2004, the Company issued 700,000 shares for conversion
of a $35,000 note payable at the request of the holder of the note.
On April 21, 2004, the Company issued 550,000 shares at $1.15 per share,
based on the fair value of common stock, for $632,500 as compensation to
certain consultants.
On May 11, 2004, the Company issued 500,000 shares of common stock at $.65
per share, or $325,000, to an officer of the Company in consideration for
the conversion of a note payable for $230,000, plus $18,139 of accrued
interest.
The closing quoted market price of the Company's stock on the effective
dates were used in determining the fair value of the above transactions.
STOCK OPTIONS
The Company adopted the fair value method of accounting for employee stock
compensation cost pursuant to Statement of Financial Accounting Standards
No. 123, "Accounting for stock-based compensation" (SFAS 123").
The Company has authorized the granting of stock options to certain
employees and others for up to 2,000,000 shares of common stock. The Board
of Directors has agreed to leave the determination as to whether or not to
make the options part of Qualified Stock Option Plan to a later date. The
shares to be issued are to have registration rights. The fair value of
each option grant is estimated on the grant date using an option-pricing
model, with the following assumptions used for grants in 2004, dividend
yield of 0%, risk-free interest rate of 1.8%, volatility of 90%, and an
expected life of 1 year for the options.
8
HUMANA TRANS SERVICES HOLDING CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. STOCK TRANSACTIONS (Continued)
A summary of the status of the Company's stock options as of June 30,
2004, and the changes during the nine months ending June 30, 2004 is
presented below:
Weighted-
Average
Exercise
Shares Price
Fixed options:
October 1, 2003 -- --
Granted 500,000 $ .50
Exercised -- --
Forfeited -- --
---------- ----------
June 30, 2004 500,000 $ .50
========== ==========
Exercisable at June 30, 2004 500,000
Weighted-average fair value
of options granted during
the year $ .25
==========
Total compensation expense, for the above stock options, for the nine
months and three months ended June 30, 2004 was $125,000.
6. IMPAIRMENT OF INTANGIBLE ASSETS AND EXTRAORDINARY ITEM
During the quarter ended March 31, 2004, the Company acquired a customer
list from Corporate Program Administrators ("CPA"), whereby the Company
had the rights to solicit and recontract the customers of the CPA. The
Company has determined the customer list to be impaired, based on
management's estimate of fair value. The Company has recognized an
impairment loss on the list in the amount of $107,100 for the nine months
ended June 30, 2004.
In connection with the Company's purchase of Humana Trans Services Group,
Ltd in 2003, the Company recognized goodwill in the amount of $295,219.
The Company has determined this goodwill to be impaired based on
management's estimate of fair value. The Company has recorded impairment
expense of $295,219 in the three months ended June 30, 2004.
9
HUMANA TRANS SERVICES HOLDING CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. IMPAIRMENT OF INTANGIBLE ASSETS AND EXTRAORDINARY ITEM (Continued)
EXTRAORDINARY ITEM
Based on the purchase agreement, the Company had the right to equally
reduce loans payable incurred in connection with the acquisition of Humana
Trans Services Group, Ltd., for any impairment of goodwill. Included on
the statements of operations, during the three and nine months ended June
30, 2004, the Company recorded goodwill impairment expense, and equal
forgiveness of debt income, in the amount of $204,400.
7. RECENT DEVELOPMENTS
CORPORATE PROGRAM ADMINISTRATORS, INC.
On November 10, 2003, the Company entered into a purchase agreement to
purchase certain assets of CPA for the issuance of 306,000 shares of the
Company's common stock. The effective date of close of the transaction was
January 1, 2004. The fair value of this stock transaction was recorded
using the closing market value of the Company's stock on January 2, 2004
and amounted to $428,400.
PERSONNEL MANAGEMENT SOLUTIONS LLP
The Company and PMS had entered into a "memorandum of understanding on
December 10, 2003 to pursue a "definitive purchase agreement" by the
Company of PMS (the seller). Completion of any purchase was contingent
upon performance of adequate due diligence.
Prior to the execution of the proposed purchase agreement, the Company
managed all operations and accounts of PMS effective January 1, 2004. All
operations continue to be processed by PMS in the name of the Company. PMS
will retain ownership of all accounts and responsibility for all
liabilities. The Company will receive a fee of 0.05% of total gross
payroll processed during this period.
The sellers terminated progressing toward a final purchase agreement
during May, 2004.
8. COMMITMENTS AND CONTINGENCIES
CONSULTING CONTRACTS
On January 2, 2004 the Company entered into a consulting agreement with
the Chairman of the Board of Directors as follows:
a) $12,000 cash compensation per month
b) 550,000 shares of common stock and an option to purchase an
additional 500,000 shares at an exercise price of $0.50/share
c) Participation in any special incentive compensation plan
d) Reimburse the expense of medical benefits such as insurance
available to other executive.
10
HUMANA TRANS SERVICES HOLDING CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES (Continued)
CONSULTING CONTRACTS (Continued)
The Agreement is through the last day of December, 2004. The Agreement is
automatically renewed unless the Board of Directors determines not to
renew it.
The 550,000 share issue of common stock at a total of $632,500 was
computed at $1.15 per share, using the closing fair market value at April
21, 2004 and is included in professional fees of $200,000, and $432,500 in
stock compensation expense.
The Company has entered into an agreement with a company owned by the
Chief Financial Officer (also stockholder and director), effective March
1, 2004. The arrangement calls for the compensation to provide certain
services to be compensated at the rate of $8,500/month. The Company is
currently only paying approximately $2,300 under the arrangement, and
accruing the difference. The agreement continues until terminated by
either party.
On April 5, 2004, the Company entered into an agreement with a
Director/Stockholder to provide certain services. The compensation for
this arrangement is as follows:
a) Issuance of 250,000 shares of common stock which have "piggy
back" registration rights.
b) Participation in any special incentive compensation plan
c) Any benefits for other executives
The agreement remains in force until March 2005 and will be automatically
renewed until the Board of Directors terminates it.
9. SUBSEQUENT EVENTS
The Company has recently undergone an audit by the IWIF Worker's
Compensation Insurance for the insurance coverage of its Maryland
operations. As a result of the audit, IWIF claims it is due a total of
$149,368 for unpaid additional premiums. As of August 14, 2004, the
Company has reached a resolution with IWIF for the payment of a
compromised amount of $95,000.
On May 7, 2004, the Company entered into a "Letter of Intent" ("LOI") to
acquire Encore Professional Employees, Inc., a company in the employee
leasing business similar to Humana. The LOI calls for the Company to issue
common stock for 100% of Encore's outstanding common stock so that the
current Encore shareholders will own 60% of Humana after acquisition. As a
condition to closing, a commitment must be in place to raise $5,000,000 of
capital for 11% of the outstanding shares of the Company. This will leave
Humana shareholders with 29% of the outstanding shares. This agreement was
terminated on August 4, 2004.
11
HUMANA TRANS SERVICES HOLDING CORP.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. SUBSEQUENT EVENTS (Continued)
On July 3, 2004, the Company has entered an agreement to be acquired by
Provo International, Inc. ("Provo") (formerly Frontline Communications
Corp. AMEX: FNT) in conjunction with the substantial unwinding of the
Provo's recent Mexico transaction. Provo will acquire all of Humana's
operations in an all-stock transaction (2 Provo shares for 3 Humana
shares), with a majority ownership of the combined entity remaining with
the existing Provo shareholders. All Provo Mexico operations will be spun
off to its prior owners, who will return substantially all of the 22
million shares of common and preferred stock issued to them. Provo
international will retain the recently launched payroll card division,
with the Provo President assuming the ongoing operations. In addition,
effective immediately, the current Provo CEO will step down as Chairman
and CEO of Provo, and be replaced by the past Chairman and CEO. Upon the
closing of the Humana acquisition, Humana's CEO will be named Chairman,
President and COO of the combined entity.
Founded in 1995 as Frontline Communications Corporation and currently
traded on the American Stock Exchange under the symbol FNT. Provo
International Inc. is a provided of internet bandwith services and award
winning Ecommerce, programming and website development, design and hosting
services through its Planetmedia group, www.pnetmedia.com. In addition,
the company is currently launching its Provo Paycard and other payroll
disbursement products and services.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward-looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or our behalf. We disclaim any obligation to update
forward-looking statements.
OVERVIEW
Humana Trans Services Holding Corp., formerly Steam Cleaning USA, Inc., formerly
TTI Holdings of America Corp was incorporated in November 1994 under the laws of
the State of Delaware under the name Thermaltec International, Corp. On May 18,
2001, Thermaltec changed its name to TTI Holdings of America Corp. ("TTI" or the
"Company"). From its inception until July 2001, TTI was primarily engaged in the
thermal spray coating industry in the U.S. and Costa Rica. In July 2001, TTI
divested the operations of its thermal spraying business, formerly consolidated
in its wholly-owned subsidiary Panama Industries, Ltd, to its shareholders of
record as of June 22, 2001 in the form of a stock dividend on the basis of one
(1) share of Panama for every three (3) shares of TTI owned (the "Panama
Spin-off"). Accordingly, as of July 2, 2001, TTI was no longer in the thermal
spraying business and has been operating as a holding company focused on
developing new business opportunities.
On October 10, 2001, TTI entered into an agreement to merge its wholly owned
subsidiary Transventures into Cyberedge Enterprises, Inc, a Delaware corporation
company that had recently filed for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. TTI was to receive 20% of the total outstanding shares of
Cyberedge at the closing. The purpose of the transaction was to allow
Cyberedge's management, primarily its President, James W Zimbler, to develop the
transportation and logistics business utilizing their in-house network of
industry contacts. This transaction was never completed however.
Pursuant to a Stock Purchase Agreement, dated August 15, 2002, entered into by
the Registrant, the shareholders of the issued and outstanding shares of Steam
Cleaning USA, Inc., sold their shares to the Registrant to for a total of
90,000,000 shares of common stock. Steam Cleaning USA, Inc., a Wisconsin
corporation, was set up by a group of outside individuals for the purpose of
4
effectuating a transaction organized specifically to potentially acquire and
expand the operations of Steam Cleaning and Sterilization, Inc. Steam Cleaning
and Sterilization began its existence as an unincorporated proprietorship over
forty-five years ago when the present owners began providing steam cleaning and
cart maintenance services to local grocery stores in Wisconsin. The
proprietorship was incorporated in 1962 under its present name as a Wisconsin
corporation. The company continued to primarily service grocery stores, even
after the stores were acquired or merged into larger regional entities. The
shares were issued after the effectiveness of the five (5) for one (1) reverse
split, to be effective on September 3, 2002. At that time the shareholders will
received an aggregate total amount of 18,000,000 shares. The owners of Steam
Cleaning and Sterilization were slow to enter into serious meaningful
discussions about a business combination, and on December 27, 2002, the Stock
Purchase Agreement, dated August 15, 2002, was amended in that the 90,000,000
shares issued were returned to the treasury and in their place a total of
5,000,000 shares were issued. On August 19, 2002 the company changed its name to
Steam Cleaning USA, Inc.
As of July 1, 2003, we entered into a Stock Purchase Agreement to purchase 100%
of the stock of Humana Trans Services Holding Corp., a Delaware corporation
("Holding"). Holding is the owner of Humana Trans Services Group, Ltd., Skilled
Tradesman, Inc., Waste Remediation Systems, Inc., and Bio Solutions of Maryland,
LLC. Holding was previously wholly-owned by our former Director, James W.
Zimbler, and other shareholders, as was set forth on the filing of July 10,
2004. The purchase price for the 100% issued and outstanding shares of Holding
is the issuance of 6,000,000 shares of common stock of the Company, to be issued
after the effective date of the reverse 8 for 1 split of the common stock of the
Company.
Corporate Program Administrators, Inc.
On November 10, 2003, (as amended January 1, 2004) the company entered into an
asset purchase agreement to purchase certain assets of Corporate Program
Administrators, Inc. for the issuance of 306,000 shares of common stock. No
liabilities are being assumed and certain assets such as accounts receivable and
"prepaids" have been excluded from the purchase. The assets purchased are being
operated under the Humana National Program Administrators Corp. subsidiary
The transaction was effective within the second fiscal quarter ended March 31,
2004.
Personnel Management Solutions LLP
The company and Personnel Management Solutions, LLP ("PMS") had entered into a
"Memorandum of Understanding on December 10, 2003 to pursue a "Definitive
Purchase Agreement . Completion of the purchase is contingent upon performance
of adequate due diligence by the company. The proposed seller terminated the
transaction during May 2004. The Parties have no business relationship at this
point. The proposed transaction was terminated during May 2004.
RECENT TRANSACTIONS:
On May 7, 2004, the Registrant entered into a Letter of Intent with Emcore
Professional Employers, Inc. ("Emcore"), of Greenville, North Carolina, whereby
Registrant will acquire 100% of the issued and outstanding shares of common
stock of Emcore, for approximately 60% of the then issued and outstanding shares
of Registrant.
5
The Letter of Intent is contingent upon certain conditions, one of which is the
obtaining of $5,000,000 of equity financing, along with the proposed "spin-out"
of the recruiting and staffing business of the Registrant.
On August 4, 2004, the Parties mutually agreed to terminate and cancel the
Letter of Intent, with no further obligation to either party.
On or about May 25, 2004, the registrant entered into a Memorandum of
Understanding to acquire Lorimar Home Care & Staffing Services, Inc. of Old
Forge, Pennsylvania. Humana and Lorimar have entered into a Memorandum of
Understanding to purchase the common stock as soon as practicable. The purchase
price is to be values at $225,000 worth of common stock of Humana. Lorimar is a
staffing company in the Health care field. It is currently a client of Humana.
The operations of Lorimar are similar to Humana's Maryland Operations, which
have higher gross profit than standard PEO service companies. Lorimar operates
in the Northeast Pennsylvania area, which they believe is the second fastest
growing retirement area, only to Florida. Accordingly, the need for health care
staffing should remain strong in the future. The Memorandum calls for a closing
to be completed by August 30, 2004, and may only be extended mutually, in
writing for 30 days.
Subsequently, Lorimar decided to terminate the Memorandum and cease any joint
operations.
SUBSEQUENT TRANSACTIONS
The Registrant signed a letter of intent, dated July 27, 2004 with Provo
International, Inc. (formerly Frontline Communications Corp., AMEX: "FNT")
whereby Provo will acquire all of Humana's operations in an all-stock
transaction, with a majority ownership of the combined entity remaining with the
existing Provo shareholders. Pursuant to the terms of the transaction, Provo
will pay two (2) shares of its common stock for each three (3) shares of Humana
owned by the shareholder on the record date. Based on the current issued and
outstanding shares of common stock of Humana, Provo will issue approximately
7,200,000 shares of common stock to the Humana shareholders. The closing is to
take place, pursuant to the Letter of Intent on or before September 15, 2004.
After the closing of the Provo transaction, Ronald Shapss, currently Chairman of
Humana will be named Chairman, President and COO of Provo.
Results of Operations
Until July 1, 2003, the last quarter of the Registrant's fiscal year, ending
September 30, 2003, the Registrant did not have an operating unit. Therefore a
comparison of to the previous year is not an accurate representation of the
increase or decrease of the revenues and costs of sales of the Registrant.
For the nine months and three months ended June 30, 2004, the Registrant had
revenues of $5,005,777, and $2,016,303 respectively. During the current six
months as a result of acquiring customers in CPA, the company entered the
business of employee leasing in addition to the business to of providing
temporary service for the transportation industry. Temporary services recognizes
the gross amount of the billed services as revenues and the corresponding cost
6
of sales on the statement of operations due to fact that the company assumes the
risk of profit based upon the direct costs it incurs. Employee Leasing only
recognizes a fee charged by the company to process the payroll, pay payroll
taxes, employee benefits and workers compensation insurance expense. All the
above costs are passed on to the customer and the company is not at risk for
these items. Two items that have depressed the average gross profit and average
administration fee charged for employee leasing was the inability of the company
to pass on as either increased billing rates or the charged administration for
increases in workers compensation insurance premiums and changes in employer's
unemployment tax rates. Examples of the types of temporary services that Humana
provides to its clients, include; Driver recruitment, including the placement of
ads, interviewing, all testing and background checks, Driver leasing and Leased
labor. Currently Humana operates in approximately 5 states. Some of Humana's
clients are Cardinal Healthcare, Giant Foods and Royal Ahold. Examples of the
employee leasing business include transportation and warehouse employees.
Administrative expenses including impairment losses and stock compensation
expenses was $5,838,003 and $1,489,558 resulting in losses from operations of
$5,037,457 and $1,142,555 for the nine months and three months ended June 30,
2004, respectively. Included in these amounts are expenses for stock
compensation expense of $3,692,500 and $402,500 for the nine and three month
periods ended June 30, 2004, respectively. Impairment expense for the nine and
three month periods ended June 30, 2004 were $402,319 and $295,219 respectively,
both of which do not utilize cash resources. The increases in the remainder of
Administrative expensed are due to the start up of the operations due to
increases in personnel, professional, professional fees, and a generally higher
level of fixed administrative expenses. It is anticipated by the Registrant that
General and Administrative costs will remain relatively the same, while Revenues
and Gross profit will increase as a result of the business derived from CPA.
PROVISION FOR INCOME TAXES
The company has determined that it will more likely than not use any tax net
operating loss carry forward in the current tax year and has taken and therefore
has a valuation amount equal to 100% of any asset.
LIQUIDITY AND FINANCIAL RESOURCES
During the nine months ended June 30, 2004, net cash provided by operating
activities was $514,661. The Company incurred net losses of $5,036,056 and
$1,129,122 for each of the nine and three months ended June 30, 2004; the
company still has a net operating loss even if the stock compensation expense of
$3,692,500 and Impairment expense of $402,319 for the nine months ended June 30,
2004 did not occur. Additionally at June 30, 2004, current liabilities exceed
current assets by approximately $1,464,802, these factors raise substantial
doubt about the Company's ability to continue as a going concern. The Company
anticipates that in order to fulfill its plan of operation including payment of
certain past liabilities of the company, it will need to seek financing from
outside sources. The company is currently pursuing private debt and equity
sources. It is the intention of the Company's management to also improve
profitability by significantly reducing
7
operating expenses and to increase revenues significantly, through growth and
acquisitions. The Company is actively in discussion with one or more potential
acquisition or merger candidates. There is no assurance that the company will be
successful in raising the necessary funds nor there a guarantee that the Company
can successfully execute any acquisition or merger transaction with any company
or individual or if such transaction is effected, that the Company will be able
to operate such company profitably or successfully.
RISK FACTORS AND UNCERTIANTIES
Much of the information included in this statement includes or is based upon
estimates, projections or other "forward looking statements". Such forward
looking statements include any projections or estimates made by us and our
management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions or other future performance
suggested herein.
Such estimates, projections or other "forward looking statements" involve
various risks and uncertainties as outlined below. We caution the reader that
important factors in some cases have affected and, in the future, could
materially affect actual results and cause actual results to differ materially
from the results expressed in any such estimates, projections or other "forward
looking statements".
Key Personnel
All of our present officers or directors are key to our continuing operations,
we rely upon the continued service and performance of these officers and
directors, and our future success depends on the retention of these people,
whose knowledge of our business and whose technical expertise would be difficult
to replace. At this time, some of our officers or directors are bound by
employment agreements, and as a result, any of them could leave with little or
no prior notice.
If we are unable to hire and retain sales and marketing and operational
personnel, any business we acquire could be materially adversely affected.
Competition for qualified individuals is likely to be intense, and we may not be
able to attract, assimilate, or retain additional highly qualified personnel in
the future. The failure to attract, integrate, motivate and retain these
employees could harm our business.
Uncertain Ability to Manage Growth
Our ability to achieve any planned growth upon the acquisition of a suitable
business opportunity or business combination will be dependent upon a number of
factors including, but not limited to, our ability to hire, train and assimilate
management and other employees and the adequacy of our financial resources. In
addition, there can be no assurance that we will be able to manage successfully
any business opportunity or business combination. Failure to manage anticipated
growth effectively and efficiently could have a materially adverse effect on our
business.
"Penny Stock" Rules May Restrict the Market for the Company's Shares
Our common shares are subject to rules promulgated by the Securities and
Exchange Commission relating to "penny stocks," which apply to companies whose
shares are not traded on a national stock exchange or on the NASDAQ system,
trade at less than $5.00 per share, or who do not meet certain other financial
requirements specified by the Securities and Exchange Commission. These rules
require brokers who sell "penny stocks" to persons other than established
customers and "accredited investors" to complete certain documentation, make
8
suitability inquiries of investors, and provide investors with certain
information concerning the risks of trading in such penny stocks. These rules
may discourage or restrict the ability of brokers to sell our common shares and
may affect the secondary market for our common shares. These rules could also
hamper our ability to raise funds in the primary market for our common shares.
Possible Volatility of Share Prices
Our common shares are currently publicly traded on the Over-the-Counter Bulletin
Board service of the National Association of Securities Dealers, Inc. The
trading price of our common shares has been subject to wide fluctuations.
Trading prices of our common shares may fluctuate in response to a number of
factors, many of which will be beyond our control. The stock market has
generally experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of companies with no
current business operation. There can be no assurance that trading prices and
price earnings ratios previously experienced by our common shares will be
matched or maintained. These broad market and industry factors may adversely
affect the market price of our common shares, regardless of our operating
performance.
In the past, following periods of volatility in the market price of a company's
securities, securities class-action litigation has often been instituted. Such
litigation, if instituted, could result in substantial costs for us and a
diversion of management's attention and resources.
Indemnification of Directors, Officers and Others
Our Certificate of Incorporation and By-laws contain provisions with respect to
the indemnification of our officers and directors against all expenses
(including, without limitation, attorneys' fees, judgments, fines, settlements,
and other amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact that the person is one of our officers
or directors) incurred by an officer or director in defending any such
proceeding to the maximum extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of our company under Delaware law or otherwise, we have been advised
that the opinion of the Securities and Exchange Commission is that such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable.
Anti-Takeover Provisions
We do not currently have a shareholder rights plan or any anti-takeover
provisions in our By-laws. Without any anti-takeover provisions, there is no
deterrent for a take-over of our company, which may result in a change in our
management and directors.
Reports to Security Holders
Under the securities laws of Delaware, we are not required to deliver an annual
report to our shareholders but we intend to send an annual report to our
shareholders.
Limited Cash Resources
We have limited cash as a result of continuing loss operations with no firm
commitment for additional financing, no guarantee of increase in revenues or
decrease in expenses.
9
Customer Contracts
All customer contracts are short and we can not guarantee that all business
obtained through CPA will be stay will us or be signed on.
Costs of Temporary Services
We have fixed contracts in place for services to be provided but cost of labor,
workman's compensation insurance premiums, and employer payroll taxes could
increase.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
We account for our revenues in accordance with EITF 99-19, "Reporting Revenues
Gross as a Principal Versus Net as an Agent". We recognize all amounts billed to
temporary staffing customers as gross revenue, because among other things,
Humana is the primary obligor in the temporary staffing arrangement. Humana has
pricing latitude, selects temporary employees for a given assignment from a
broad pool of candidates. Humana is at risk for the payment of its direct costs,
whether or not Humana's customers pay on a timely basis or at all. Human assumes
a significant amount of other risks and liabilities as an employer of its
temporary staff, and therefore, is deemed to be a principal in regards to these
services. Other services are recorded as net where the Humana earns an
administrative fee for its services, but does not recur any costs or risk in
providing the related services. Humana also recognizes as gross revenue and as
unbilled receivables on an accrual basis, any such amounts that relate to
services performed by temporary employees who have not been billed to the
customer at the end of the accounting period, the employee leasing revenue is
recognized as the service is rendered.
CRITICAL ESTIMATES
Intangible Asset-Customer Lists
The length of amortization (life) of the customer list and if any diminutions of
value has occurred are critical estimates for the company.
ITEM 3. CONTROLS AND PROCEDURES.
The Registrant's principal executive officers and principal financial officer,
based on their evaluation of the registrant's disclosure controls and procedures
(as defined in Rules 13a-14 (c) of the Securities Exchange Act of 1934) as of
June 30, 2004, have concluded that the Registrants' disclosure controls and
procedures are adequate and effective to ensure that material information
relating to the registrants and their consolidated subsidiaries is recorded,
processed, summarized and reported within the time periods specified by the
SEC's rules and forms, particularly during the period in which this quarterly
report has been prepared.
The Registrants' principal executive officers and principal financial officer
have concluded that there was a significant change in the registrants' internal
controls or in other factors that could significantly affect these controls
subsequent to June 30, 2004, the date of their most recent evaluation of such
controls, and that there was a significant deficiency or material weakness in
the registrant's internal controls.
10
Livingston Wachtell & Co., LLP, while conducting the review of the June 30,
2004, financial statements, has found some reportable conditions that are
believed to be a "material weakness" (as defined under standards established by
the American Institute of Certified Public Accountants). The reportable
conditions included conditions surrounding internal controls regarding: lack of
discipline around the financial reporting; and policies and procedures used to
develop accruals.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Other than described below, there are no past, pending or, to our knowledge,
threatened litigation or administrative action which has or is expected by our
management to have a material effect upon our business, financial condition or
operations, including any litigation or action involving our officer, director
or other key personnel. There have been no changes in the company's accountants
or disagreements with its accountants since its inception.
In May and June 2001, TTI entered into several letter agreements to acquire up
to eleven separately owned comprehensive outpatient rehabilitation facilities
("CORF's") that were managed by a Florida based company named Total Health Care
Consulting, Inc ("Total"). The Company was essentially acquiring the licenses to
operate these CORF's with Total providing the back-office management functions.
The acquisition of these CORF's was to have been executed by the distribution of
shares of TTI to the CORF owners based upon certain financial criteria. On
August 24, 2001 the Company terminated the agreements with the CORF owners and
did not consummate the acquisitions upon being informed that certain
representations regarding the financial condition of the CORFs and Total and
other material matters were found to be not true. Although approximately
3,500,000 shares of TTI had been issued to the owners of the CORFs, the Shares
have been cancelled on the books of the Company and are not recognized as issued
and outstanding. Other than the legal, accounting and due diligence expenses
incurred in the pursuit of this acquisition, no other costs were incurred. The
Company does not anticipate any legal actions from either side as a result of
these cancelled transactions.
On February 13, 2004, we received a letter from the Counsel for Willow Cove
Investment Group, Inc. ("Willow"), regarding the termination of an agreement
between Willow and the Registrant for investment banking services, dated
November 12, 2003. On November 20, 2003, the Registrant notified Willow that it
was canceling the Agreement due to significant material misrepresentations and
information that was not provided to the Registrant about the principals of
Willow. The Letter from the Counsel for Willow is seeking the continuation of
the services to be provided for in the Agreement and the payment of all fees, or
they will commence Arbitration as set forth in the Agreement. At this point the
Registrant is unable to make an accurate assessment about the claim, but feels
that the misrepresentations and failure to provide the information is
significant and makes the agreement void. The claim would not be material in any
case.
The Registrant has recently undergone an audit by the IWIF Worker's Compensation
Insurance for the insurance coverage of its Maryland operations. As a result of
11
the audit, IWIF claims it is due a total of $149,368 for unpaid additional
premiums. As of August 14, 2004, the Company has reached a resolution with IWIF
for the payment of a compromised amount of $95,000.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Articles of Incorporation of the Registrant*
3.2 By-laws of the Registrant*
31.1 Section 302 Certification of President and Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 906 Certification of President and Chief Executive Officer
32.2 Section 906 Certification of Chief Financial Officer
------------
* Previously filed as an exhibit to the Company's Form 10-SB filed on November
10, 2001, and as amended thereafter
(b) Reports on Form 8-K filed during the three months ended June 30, 2004.
A Current Report on Form 8-K, under Item 1. Change of Control of Registrant;
Item 4. Change of Registrant's Certifying Accountant; and Item 7. Financial
12
Statements and Exhibits, was filed on April 5, 2004, regarding changes to the
Board of Directors, change of its Independent Certifying Accountant and Exhibits
thereto.
A Current Report on Form 8-K, under Item 5. Other Events and Regulation FD
Disclosure, was filed on May 11, 2004, regarding the Letter of Intent with
Emcore Professional Employers, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 20, 2004
Humana Trans Services Holding Corp.
/s/ John P. Daly
---------------------------------------------
John P. Daly, President
/s/ George L. Riggs, III
---------------------------------------------
George L. Riggs, III, Chief Financial Officer
13