<PAGE>
U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 02-23729
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HYDROMAID INTERNATIONAL, INC.
-----------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 87-0575839
------ ----------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
12222 South 1000 East, Suite 1
Draper, Utah 84020
------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number: (801) 553-8790
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Company was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's
classes of common equity, as of the latest practicable date:
September 30, 1999: Common Stock - 23,990,559 shares
DOCUMENTS INCORPORATED BY REFERENCE
A description of any "Documents Incorporated by Reference" is contained
in Item 6 of this Report.
Transitional Small Business Issuer Format Yes No X
--- ---
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HYDROMAID INTERNATIONAL, INC.
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TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements: 3
Balance Sheets as of September 30, 1999 and 4
December 31, 1998
Statements of Operations for the Three Months and Nine Months ended September 5
30, 1999 and September 30, 1998, and from Inception through September 30, 1999
Statements of Cash Flows for the Three Months and Nine Months ended September 6
30, 1999 and September 30, 1998, and from Inception through September 30, 1999
Notes to Financial Statements for the Three Months and Nine Months ended 7
September 30, 1999 and September 30, 1998, and from Inception through September
30, 1999
Item 2. Management's Discussion and 10
Analysis of Financial Condition and Results of Operations
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
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2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Consolidated Financial Statements of the Company required to be
filed with this 10-QSB Quarterly Report were prepared by management and
commence on the following page, together with related Notes. In the opinion
of management, these Consolidated Financial Statements fairly present the
financial condition of the Company, but should be read in conjunction with
the Financial Statements of the Company for the year ended December 31, 1998
previously filed with the Securities and Exchange Commission.
3
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HYDROMAID INTERNATIONAL, INC.
(Formerly Cherokee Minerals and Oil, Inc.)
(A Development Stage Company)
BALANCE SHEETS
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
UNAUDITED AUDITED
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 44,384 $ 20,342
Accounts receivable 61,961 5,130
Inventory, net of valuation allowance of $234,000 491,066 479,580
Prepaid expenses 45,228 25,210
----------- -----------
Total Current Assets 642,639 530,262
Property and equipment, net 747,609 500,259
Patents, net of accumulated amortization of: 162,544 143,874
09/30/1999 $ 136,361
12/31/1998 $ 123,379
Deposits on tooling and production 236,000 80,000
Deferred tax asset, net of valuation allowance - -
----------- -----------
TOTAL ASSETS $1,788,792 $ 1,254,395
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 389,988 $ 390,049
Notes payable, current portion 6,944 6,599
Advances from related parties 795,824 51,467
----------- -----------
Total Current Liabilities 1,192,756 448,115
Notes Payable 25,259 29,964
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Total Liabilities 1,218,015 478,079
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Stockholders' Equity
Common stock, par value $.001/ share, 30,000,000 shares authorized 24,572 24,000
09/30/99: 24,572,000 issued and outstanding
12/31/98: 24,000,000 issued and outstanding
Additional paid-in capital 8,094,619 6,072,566
Accumulated deficit, including $6,800,616 (9/30/99) /
$4,598,529 (12/31/98) during the development stage (7,320,501) (5,118,413)
Deferred compensation - stock options (227,913) (201,837)
----------- -----------
Total stockholders' equity 570,777 776,316
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,788,792 $ 1,254,395
=========== ===========
</TABLE>
4
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HYDROMAID INTERNATIONAL, INC.
(Formerly Cherokee Minerals and Oil, Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Three-month and Nine-month Periods Ended September 30,
1999 and September 30, 1998 and For the Period June 24, 1992
(Inception) through September 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
(Inception)
Three Months Three Months Nine Months Nine Months through
Ended September Ended September Ended September Ended September September 30,
30, 1999 30, 1998 30, 1999 30, 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $ 72,684 $ 38,964 $ 139,693 $ 38,844 $ 194,521
Cost of sales 39,658 15,623 93,186 15,732 146,230
----------- ----------- ----------- ----------- -----------
Gross profit 33,026 23,341 46,507 23,112 48,291
Operating expenses 652,949 449,969 2,091,760 1,108,220 5,956,127
Research and development 23,743 58,775 156,833 223,584 892,780
----------- ----------- ----------- ----------- -----------
Loss before income tax benefit (643,666) (485,403) (2,202,086) (1,308,692) (6,800,616)
Income tax benefit
Current - - - - -
Deferred 238,000 180,000 815,000 485,000 2,525,000
Less valuation allowance (238,000) (180,000) (815,000) (485,000) (2,525,000)
----------- ----------- ----------- ----------- -----------
Net (loss) $ (643,666) $ (485,403) $(2,202,086) $(1,308,692) $(6,800,616)
=========== =========== =========== =========== ===========
Basic and diluted loss per share $ (0.03) $ (0.02) $ (0.09) $ (0.06) $ (0.30)
=========== =========== =========== =========== ===========
</TABLE>
5
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HYDROMAID INTERNATIONAL, INC.
(Formerly Cherokee Minerals and Oil, Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Three-month and Nine-month Periods Ended September 30,
1999 and September 30, 1998 and For the Period June 24, 1992
(Inception) through September 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months June 24, 1992
Ended September Ended September Ended September Ended September (Inception) through
30, 1999 30, 1998 30, 1999 30, 1998 September 30, 1999
----------- --------------- --------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (643,666) $ (485,403) $(2,202,086) $(1,308,692) $(6,800,616)
Adjustments to reconcile net (loss) to net
cash used by operating activities:
Depreciation and amortization 51,244 22,925 123,174 45,802 300,282
Stock options 36,199 (110,542) 91,299 (155,459) 124,486
Expenses paid by related parties - - - 439,527 605,802
Changes in current assets and
liabilities:
Accounts receivable (46,339) (261) (56,831) (261) (61,960)
Prepaid expenses (35,707) (13,275) 59,982 (13,275) (45,228)
Inventory (87,437) (127,181) (11,486) (397,193) (491,067)
Accounts payable and accrued
expenses 273,501 142,653 (61) 258,442 389,988
----------- ----------- ----------- ----------- -----------
Net cash (used) by operating
activities (452,206) (571,084) (1,996,009) (1,131,109) (5,978,314)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (203,265) (75,797) (357,544) (203,846) (758,283)
Acquisition of patents (16,727) (30,532) (31,652) (35,532) (88,120)
Deposits on tooling and production 94,000 (80,000) (236,000) (80,000) (236,000)
----------- ----------- ----------- ----------- -----------
Net cash (used) by investing
activities (125,992) (186,328) (625,196) (319,378) (1,082,403)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable (1,689) 202,725 (4,360) 270,725 (5,775)
Advances from related party 572,190 226,264 744,357 851,985 795,824
Advances against Note Payable (300,000) - - - -
Proceeds from issuance of common stock 310,250 286,500 1,905,250 334,625 4,545,250
Proceeds from contribution of
paid-in capital - - - - 1,769,802
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities 580,751 715,489 2,645,246 1,457,335 7,105,101
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 2,553 (41,924) 24,042 6,848 44,384
CASH AT BEGINNING OF PERIOD 41,831 50,296 20,342 1,524 -
----------- ----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 44,384 $ 8,372 $ 44,384 $ 8,372 $ 44,384
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Non-cash transactions:
Acquisition of property, equipment
and patents $ - $ - $ - $ - $ 259,006
=========== =========== =========== =========== ===========
Issuance of common stock for patents
and services $ - $ - $ - $ - $ 360,446
=========== =========== =========== =========== ===========
Disbursements by related party $ - $ - $ - $ - $ 731,758
=========== =========== =========== =========== ===========
</TABLE>
6
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
HYDROMAID INTERNATIONAL, INC.
Notes to the Financial Statements
For the Three Months and Nine Months Ended September 30, 1999
and September 30, 1998, and for the Period June 24, 1992 (inception)
through September 30, 1999.
1. BASIS OF PRESENTATION
In the opinion of management, the unaudited financial statements
reflect all normally recurring adjustments necessary to fairly present the
Company's financial position and results of operations for the periods
indicated.
The accompanying interim financial statements should be read in
conjunction with the financial statements and related notes included in the
Company's 10-KSB for the period ended December 31, 1998, which has been filed
with the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the Company's annual financial statements
have been omitted from the quarterly financial statements based upon
Securities and Exchange Commissions rules and regulations.
Because the Company completed a plan of reorganization during
December 1998 and the company acquired through the reorganization was
exclusively involved in research and development during the two quarters of
1998, the value of comparing the quarterly results is minimal in the opinion
of management.
Net loss per common and common equivalent share was computed based
on the net loss divided by the weighted average number of common and common
equivalent shares outstanding, unless antidilutive, during the year presented.
2. FINANCING
In December 1998, the Company acquired all of the shares of
Environmental Systems and Solutions, Inc. ("ESSI") in a stock-for-stock
transaction. The Reorganization provided the Company with ongoing operations
and working capital.
ESSI had operated from inception with approximately $6,000,000 in
invested capital. The Company from its incorporation in 1919 through the
Reorganization raised $527,632 in investment proceeds to fund operations.
ESSI from its inception in 1992 through the Reorganization raised $5,568,934
to fund the acquisition of the HydroMaid patents, perform research and
development, and conduct business operations.
During January 1999, the Company raised $1,200,000 through the sale
of 400,000 shares of common stock to a private investor.
Beginning in June 1999, the Company began raising up to $4,800,000
through the private sale of up to 1,200,000 shares of its common stock to
accredited investors. The shares of common stock being offered through the
private placement have not been registered under any federal or state
securities laws; rather, the shares are being offered pursuant to available
exemptions from registration. Through September 1999, the Company had sold
222,000 shares of its common stock being offered through the private
offering. Subsequent to the end of the third quarter, the Company sold an
additional 850,000 shares
7
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through the private offering. Culley W. Davis, the Company's Chief Executive
Officer, purchased 745,000 shares of the offering for $3,200,000. The
proceeds from the private offering are being used to fund operations.
During 1998, the Company, through ESSI before the Reorganization,
raised approximately $4,408,000 through private offerings of its stock. The
capital raised was used to fund operations. The Company anticipates needing
additional capital to fund operations during the upcoming year. The Company
intends to raise capital through a combination of offering its securities,
establishing operating lines of credit, and through the sale of product.
During 1998, the Company established an infrastructure to move from
a development stage company to a production and marketing stage company. The
Company anticipates continuing its aggressive marketing and production
efforts during 1999. With the business foundation established in 1998, the
Company does not anticipate any major plant or equipment purchases or
significant changes in the number of employees.
3. RELATED PARTY TRANSACTIONS
Transactions During 1999.
- ------------------------
On October 20, 1999, J. Steven Young was appointed as a Director of
the Company. For his service as a Director for a two-year period, Mr. Young
will receive a total of 300,000 shares of the Company's Common Stock, 200,000
shares for the first year of service and 100,000 shares for the second year
of service. In consideration for the issuance of the shares, Mr. Young was
agreed to make appearances at trade shows for the Company and attend key
meetings in addition to attending to regular director duties.
The Board of Directors is recommending the Stockholders ratify the
1999 Stock Option and Incentive Plan at the Annual Stockholder Meeting to be
held November 20, 1999, which was adopted by the Board on September 20, 1999
(the "1999 Plan") which provides for 1,200,000 shares of the Company's Common
Stock to be set aside for grant in accordance with the directions of the
Compensation Committee as approved by the Board of Directors. The options to
be granted pursuant to the 1999 Plan are intended primarily for grant to
officers, directors, and key employees of and key service providers to the
Company.
If the 1999 Plan is ratified by the Stockholders at the Meeting,
Ronald L. LaFord, Mark S. Brewer, John W. Nagel, Bruce H. Haglund, and
Bradley E. Zarbock, directors of the Company, will each receive an option to
purchase 50,000 shares of the Company's Common Stock at a price of $5.00 per
share, the fair market value upon the date of grant. One quarter of the
options granted to each named director shall become subject to exercise upon
the successful completion of each calendar quarter of service as a director.
If a named director is unable to complete his term as a director, he will
forfeit any options not exercisable at the time of his resignation or
dismissal as a director.
8
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Culley W. Davis will receive an option to purchase 300,000 shares of
the Company's Common Stock at $5.00 per shares if the 1999 Plan is ratified
for his services as an officer and director of the Company.
Transactions During 1998.
- ------------------------
In 1998, Culley W. Davis made unsecured advances to the Company
totaling $1,478,467, which included $1,427,000 of proceeds from sales of his
ESSI stock to investors at $8.00 per share. The stock sold by Mr. Davis was
personally owned by him or Pinnacle Enterprises, Inc., which he owns, and the
proceeds were advanced to the Company according to an agreement between the
parties. During December 1998, the Company issued 178,375 shares of Common
Stock to Culley W. Davis valued at $8.00 per share as reimbursement stock for
his personal shares sold. The stock sale proceeds received by the Company
have been reported as an original stock issuance in the accompanying
financial statements. The remaining balance as of December 31, 1998 of
$51,467 owed to Mr. Davis is reported as a current liability of the Company.
This cash advance is non-interest bearing.
Subsequent to the end of 1998, there have been further working
capital advances from Mr. Davis, such that the September 30, 1999 balance of
this liability is $795,824. This may be settled with a cash payment to Mr.
Davis out of private placement proceeds or it may be settled by an issuance
of common stock shares at the same price that is realized in the private
placement authorized by the Board of Directors in June 1999.
The Company is indebted to Culley W. Davis, who financed the
purchase of a 1999 Ford truck used by the Company for product demonstrations
at remote locations. The note is payable in monthly installments of $770,
including principal and interest, is secured by the truck, and bears interest
at a fixed rate of 7.9%.
4. DESCRIPTION OF SECURITIES
The Company has one class of securities authorized, consisting of
30,000,000 shares of $0.001 par value common voting stock. The holders of the
Company's Common Stock are entitled to one vote per share on each matter
submitted to a vote at a meeting of stockholders. The shares of Common Stock
carry cumulative voting rights in the election of directors.
Stockholders of the Company have no pre-emptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is
not subject to redemption rights and carries no subscription or conversion
rights. In the event of liquidation of the Company, the shares of Common
Stock are entitled to share equally in corporate assets after satisfaction of
all liabilities. All shares of the Common Stock now outstanding are fully
paid and non-assessable.
There are outstanding options to purchase a total of 700,000 shares
of Common Stock at the price of $.25 per share. The options are subject the
Company's 1997 Stock Option and Incentive Plan and vest in one third
increments on January 1, 2000, 2001, and 2002. There is also an Agreement to
award 50,000 shares over a three year period to a manufacturing consultant.
9
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Along with the adoption of the 1999 Plan, the Board of Directors
adopted the grant of options to purchase a total of 750,000 shares of Common
Stock, 450,000 at the price of $5.00, and 300,000 at $5.50 per share. The
options vest in one third increments on January 1, 2000, 2001, and 2002. The
1999 Plan and grant of options under the 1999 Plan are subject to
ratification by the Stockholders at the Annual Stockholders Meeting on
November 20, 1999.
There is no provision in the Company's Articles of Incorporation, as
amended, or Bylaws, as amended, that would delay, defer, or prevent a change
in control of the Company.
5. YEAR 2000 MATTERS
The inability of computers, software, and other equipment utilizing
microprocessors to recognize and properly process date fields containing a
two digit year reference such as "00" for the year 2000 is commonly referred
to as the Year 2000 issue. Any of the Company's computer programs that
utilize two digit years may recognize "00" as the year 1900 rather than the
year 2000. Such recognition problems could cause disruptions of operations,
including the inability to process transactions, send invoices, or engage in
similar essential business activities.
The Company has no custom developed computer systems subject to
these potential problems. It has communicated with third party vendors of
packaged software and hardware to determine their compliance with the Year
2000 issue and has been advised that none of the systems in use is likely to
experience Year 200 problems. However, the Company cannot provide absolute
assurance that the systems of third parties will be in full compliance by the
turn of the century. The failure of third party vendors to complete
compliance with the Year 2000 issue in an appropriate timeframe could have a
material adverse effect on the Company's ability to perform essential
business tasks, which could then have a material adverse effect on the
Company's business.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation.
- -----------------
Before 1999, the Company had not generated any significant revenues from
operations. The Company's plan of operation for the next 12 months is to
continue to actively manufacture, market, and distribute the potential
HydroMaid-TM- water-powered garbage disposal.
During 1999, HydroMaid has been working to solidify its
manufacturing capabilities in the U.S. and overseas. The Company has
established a relationship with Metric Tools and Dye, Inc. ("Metric"),
located in Sandwich, Illinois, which produces HydroMaid domestically. Metric
has been producing the Company's early product and can manufacture up to
5,000 disposal units each month. To meet anticipated demand and to lower
production costs, the Company has also established a manufacturing facility
in China. The operation in China is capable of producing and shipping up to
30,000 disposal units per month.
While HydroMaid has been ensuring that it has manufacturing capable
of keeping pace with anticipated demand, it also began establishing a
domestic distribution network. Since April 1999, the
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Company has signed distribution agreements with 14 appliance distribution
firms which cover approximately 75% of the geographic U.S. and account for
over $500 million in annual sales revenues in the appliance market.
With design, manufacturing, and initial distribution channel issues
in hand, HydroMaid anticipates focusing on sales and marketing heading into
2000. The Company has raised additional capital to assist in its sales and
marketing efforts during the upcoming year. With revenues generated from
sales and its cash from the sale of common stock, HydroMaid believes it has
sufficient capital resources to fund operations well into the future.
Principal Product. The Company is engaged in the development,
manufacturing, marketing, sale, and distribution of a patented product called
the HydroMaid-TM-. The HydroMaid is a water-powered garbage disposal.
The HydroMaid uses household water pressure to push five stainless
steel cutting blades. These blades oscillate and cut through waste which
normally damages or creates problems for traditional electric disposals such
as chicken bones, potato peels, avocado pits, walnut shells, and fibrous
foods like celery.
The Company intends to focus on three distribution methods for the
HydroMaid this year.
RETAIL. The Company believes that retail customers will represent a
measurable percentage of sales initially. Retail stores or outlets represent
customers that buy at wholesale prices and sell at retail prices. Large
retail outlets are being targeted by the Company to carry the HydroMaid.
PLUMBING WHOLESALE HOUSES. The Company anticipates that plumbing
wholesale houses ("Wholesalers") will constitute a large part of the
Company's total distribution. Wholesalers are being contacted directly by the
Company to carry the HydroMaid. The Company is also signing up independent
sales representatives to sell the HydroMaid. These representatives are
contacting plumbing houses and independent stores the Company cannot reach
directly.
DIRECT. Direct response advertising and the internet represent the
two main direct channels the Company has begun using. The Company has
performed limited direct response marketing and plans to further test and
refine its direct marketing approach. The Company also operates a Web site at
www.hydromaid.com, providing detailed information on the internet to
interested consumers and allowing them the opportunity to order directly from
the Company.
Results of Operations.
- ---------------------
The Company first reported revenues during the third quarter of
1998, permitting a relevant year-to-year comparison of operating results for
the first time following the third quarter of 1999. Net sales for the nine
months ended September 30, 1999 were $139,693 compared to $38,844 for the
comparable period in 1998. Net sales for the three months ended September 30,
1999 were $72,684 compared to $38,964 for the comparable period in 1998. As a
result of increased
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sales, cost of sales increased from $15,732 for the nine months ended
September 30, 1998 to $93,186 for the comparable period in 1999. Cost of
sales increased from $15,623 for the three months ended September 30, 1998 to
$39,658 for the comparable period in 1999.
The gross profit margin decreased from 59% for the nine months ended
September 30, 1998 to 33% for the comparable period in 1999. The gross profit
margin decreased from 60% for the three months ended September 30, 1998 to
45% for the comparable period in 1999. This decrease in gross margins
resulted from high production costs associated with refining the design of
the product. The Company anticipates its gross margin will increase as the
product design stabilizes and volume sales begin to be realized.
Operating expenses were $2,091,760 for the nine months ended
September 30, 1999 compared to $1,108,220 for the comparable period in 1998.
Operating expenses were $652,949 for the three months ended September 30,
1999 compared to $449,696 for the comparable period in 1998. These cost
increases are attributable to the Company securing manufacturing capabilities
to meet anticipated demand and active promotional efforts of the HydroMaid.
The Company experienced a net loss before income tax benefit and
corresponding net loss per share of $2,202,086 and $0.09 respectively for the
nine months ended September 30, 1999 compared to a net loss before income tax
benefit and net loss per share of $1,308,692 and $0.06 respectively for the
comparable period in 1998. The Company experienced a net loss before income
tax benefit and corresponding net loss per share of $643,666 and $0.03
respectively for the three months ended September 30, 1999 compared to a net
loss before income tax benefit and net loss per share of $485,403 and $0.02
respectively for the comparable period in 1998.
Liquidity.
- ---------
The Company presently has working capital to fund operations through
the next twelve months.
Research and Development.
- ------------------------
The Company is experiencing diminishing research and development
efforts as it makes the transition from product development to marketing. It
anticipates spending approximately $250,000 on research and development
through 1999. The Company has engaged independent research entities to test
the product to determine what, if any, improvements can be made to the
HydroMaid and to provide the Company with research data for marketing
purposes.
Employees.
- ---------
The Company has previously hired the personnel it believes are
necessary to complete its transition from being a research and development
company to a marketing and distribution company. Accordingly, the Company
does not anticipate any material changes in the number of its employees
through 1999.
12
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Committees of the Board.
- -----------------------
During the third quarter of 1999, the Board of Directors established
a number of committees, including a Finance Committee, an Audit Committee,
and a Compensation Committee, each of which is briefly described below.
The Finance Committee was established to oversee Company
expenditures and approve contracts entered into by the Company requiring the
payment of $50,000 or more. The Committee consists of Culley W. Davis, Ronald
L. LaFord, and Mark S. Brewer.
The Audit Committee was established to meet with management to
consider the adequacy of the internal controls and the objectivity of
financial reporting; the committee meets with the independent auditors and
with appropriate Company financial personnel about these matters. The
committee recommends to the Board of Directors the appointment of the
independent auditors, subject to ratification by the Stockholders at the
Annual Meeting. Both the internal auditors and the independent auditors
periodically meet alone with the committee and always have unrestricted
access to the committee. The committee consists of John W. Nagel, Mark S.
Brewer, and Bruce H. Haglund.
The Compensation Committee negotiates employment contracts,
recommends to the Board of Directors compensation for officers, Directors,
and employees, and administers management incentive compensation plans,
including stock option plans. The committee consists of Culley W. Davis,
Ronald L. LaFord, and Bruce H. Haglund.
Upon the election of Directors at the Annual Stockholders Meeting,
the Committees will be reconstituted.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 2. Changes in Securities.
During the second quarter of 1999, the Company's Board of
Directors approved the sale of up to 1,200,000 shares of the Company's common
stock to raise up to $4,800,000 through its 1999 Private Stock Offering
("Offering"). The Offering was originally set to open on June 1, 1999, and to
expired on November 30, 1999, but was later changed to open as of August 10,
1999.
The shares of common stock offered through the private offering are
not registered under the Securities Act of 1933 ("Act") based upon an
exemption available under Section 4(2), including Rule 506 under Regulation
D. The facts the Company is relying upon to make the exemption available
include; the Company is raising only up to $4,800,000; the Company is placing
the Offering itself; only accredited investors are permitted to invest in the
Offering; the Company's current business and financial information is being
made available to all investors; no form of general solicitation or general
advertising is being used; and each investor is being asked to represent that
he or she is purchasing the shares for himself or herself with no view to
13
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resell the shares, he or she is aware the securities have not been registered
under the Act, and he or she is aware that a legend regarding the restriction
on transfer of the shares appears on each certificate issued pursuant to the
Offering.
As of the date of this filing, the Company had sold 1,072,000
shares under the Offering for an aggregate purchase price of approximately
$4,288,000. All proceeds have gone to working capital to help fund the
Company's marketing efforts and product production.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None; not applicable.
Item 5. Other Information.
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit
(a) Exhibits.* Number
None.
(b) Reports on Form 8-K.
* A summary of any Exhibit is modified in its entirety by reference to
the actual Exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYDROMAID INTERNATIONAL, INC.
Date: 11/12/99 By:/s/ CULLEY W. DAVIS
----------------------------------------
President and Director
Date: 11/12/99 By:/s/ JOHN W. NAGEL
----------------------------------------
Chief Financial Officer and Director
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS FOR HYDROMAID INTERNATIONAL, INC., A
DEVELOPMENT STAGE COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 44,384
<SECURITIES> 0
<RECEIVABLES> 61,961
<ALLOWANCES> 0
<INVENTORY> 491,066
<CURRENT-ASSETS> 642,639
<PP&E> 913,385<F1>
<DEPRECIATION> (165,776)
<TOTAL-ASSETS> 1,788,792
<CURRENT-LIABILITIES> 1,192,756
<BONDS> 25,259<F2>
0
0
<COMMON> 24,572
<OTHER-SE> 546,205
<TOTAL-LIABILITY-AND-EQUITY> 1,788,792
<SALES> 72,684
<TOTAL-REVENUES> 72,684
<CGS> 39,658
<TOTAL-COSTS> 39,658
<OTHER-EXPENSES> 676,071<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 621
<INCOME-PRETAX> (643,666)
<INCOME-TAX> 0
<INCOME-CONTINUING> (643,666)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (643,666)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)<F4>
<FN>
<F1>GROSS INVESTMENT IN PP&E, I.E., BEFORE DEPRECIATION DEDUCTION
<F2>NOTE PAYABLE
<F3>OPERATING EXPENSE 652,328; R&D 23,743
<F4>DILUTIVE EFFECT LESS THAN REPORTABLE LEVEL
</FN>
</TABLE>
