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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 March 31, 1999
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[ ] 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.
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(Name of Small Business Issuer in its Charter)
NEVADA 87-0575933
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
12222 South 1000 East, Suite 1
Draper, Utah 84020
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(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
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(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:
March 31, 1999: Common Stock -- 24,400,000 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.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements:
Balance Sheets as of March 31, 1999 and 2
December 31, 1998
Statements of Operations for the Three Months ended 3
March 31, 1999 and March 31, 1998 and from Inception
Statements of Cash Flows for the Three Months ended 4
March 31, 1999 and March 31, 1998 and from Inception
Notes to Financial Statements for the Three Months ended 5
March 31, 1999 and March 31, 1998 and from Inception
Item 2. Management's Discussion and 7
Analysis of Financial Condition and Results of Operations
PART II. OTHER INFORMATION 9
Item 1. Legal Proceedings
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES
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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.
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HYDROMAID INTERNATIONAL, INC
(A Development Stage Company)
BALANCE SHEETS
March 31, 1999 and December 31, 1998
UNAUDITED
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<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 135,732 $ 20,342
Accounts receivable 9,950 5,130
Inventory, net of valuation allowance of $234,000 411,206 479,580
Prepaid expenses 15,577 25,210
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TOTAL CURRENT ASSETS 572,465 530,262
Property and equipment, net 577,170 500,259
Patents, net of accumulated amortization of $127,695 150,819 143,874
Deposit on tooling 80,000 80,000
Deferred tax asset, net of valuation allowance - -
-----------------------------------
TOTAL ASSETS $ 1,380,454 $ 1,254,395
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-----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 119,538 $ 390,049
Notes payable, current portion 6,599 6,599
Advances from related parties (24,834) 51,467
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TOTAL CURRENT LIABILITIES 101,303 448,115
Notes payable 28,863 29,964
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TOTAL LIABILITIES 130,166 478,079
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STOCKHOLDERS' EQUITY
Common stock, par value $.001 per share, 30,000,000 shares authorized,
24,400,000 (3/31/99) / 24,000,000 (12/31/98) shares issued and outstanding 24,400 24,000
Additional paid-in capital 7,389,541 6,072,566
Accumulated deficit, including $5,365,208 (3/31/99) / $4,598,529 (12/31/98)
during the development stage (5,885,092) (5,118,413)
Deferred compensation -- stock options (278,561) (201,837)
-----------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,250,288 776,316
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,380,454 $ 1,254,395
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
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HYDROMAID INTERNATIONAL, INC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 1998 AND
FOR THE PERIOD JUNE 24, 1992 (INCEPTION) THROUGH MARCH 31, 1999
UNAUDITED
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JUNE 24, 1992
THREE MONTHS ENDED THREE MONTHS ENDED (INCEPTION) THROUGH
MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1999
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Sales $ 31,108 - $ 85,936
Cost of sales 20,278 - 73,323
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Gross profit 10,830 - 12,613
Operating expenses 666,907 258,030 4,531,272
Research and development 110,601 293,665 846,548
-------------------- -------------------- ---------------------
Loss before income tax benefit (766,678) (551,695) (5,365,207)
Income tax benefit
Current - - -
Deferred 284,000 205,000 1,994,000
Less valuation allowance (284,000) (205,000) (1,994,000)
-------------------- -------------------- ---------------------
Net (loss) $ (766,678) $ (551,695) $ (5,365,207)
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Basic and diluted loss per share $ (0.03) $ (0.03) $ (0.24)
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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HYDROMAID INTERNATIONAL, INC
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 1998 AND
FOR THE PERIOD JUNE 24, 1992 (INCEPTION) THROUGH MARCH 31, 1999
UNAUDITED
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<CAPTION>
JUNE 24, 1992
THREE MONTHS ENDED THREE MONTHS ENDED (INCEPTION) THROUGH
MARCH 31, 1999 MARCH 31, 1998 MARCH 31, 1999
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<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (766,678) $ (551,695) $ (5,365,207)
Adjustment to reconcile net (loss) to net cash used
by operating activities:
Depreciation and amortization 34,793 7,453 211,901
Stock options 40,650 - 73,838
Expenses paid by related parties - 439,527 605,802
Changes in current assets and liabilities:
Accounts receivable (4,819) - (9,949)
Prepaid expenses 9,633 - (15,577)
Inventory 68,375 (91) (411,206)
Accounts payable and accrued expenses (270,511) 111,674 119,537
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NET CASH (USED) BY OPERATING ACTIVITIES (888,557) 6,868 (4,790,861)
-------------------- ------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (107,389) (8,392) (508,129)
Acquisition of patents (11,261) - (67,729)
Deposit on tooling - - (80,000)
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NET CASH (USED) BY INVESTING ACTIVITIES (118,650) (8,392) (655,858)
-------------------- ------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable (1,101) - (2,516)
Repayments to related party (76,302) - (24,835)
Proceeds from issuance of common stock 1,200,000 - 3,840,000
Proceeds from contribution of paid-in capital - - 1,769,802
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,122,597 - 5,582,451
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NET INCREASE (DECREASE) IN CASH 115,390 (1,524) 135,732
CASH AT BEGINNING OF PERIOD 20,342 1,524 -
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CASH AT END OF PERIOD $ 135,732 $ - $ 135,732
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash transactions:
Acquisition of property, equipment and patents $ - $ - $ 259,006
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-------------------- ------------------- ----------------
Issuance of common stock for patents and services $ - $ - $ 360,446
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Disbursements by related party $ - $ - $ 731,758
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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HYDROMAID INTERNATIONAL, INC.
Notes to the Financial Statements
For the Three Months Ended March 31, 1999, March 31, 1998, and for the Period
June 24, 1992 (inception) through March 31, 1998.
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 first quarter 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 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 January 1999, the Company raised $1,200,000 through the sale of
400,000 shares of common stock to a private investor.
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
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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
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 of $51,467 owed to Mr. Davis is
reported as a current liability of the Company. This cash advance is
non-interest bearing.
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.
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
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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 identified all significant applications that will require
modification to address the Year 2000 issue. Internal and external resources
are being used to make the required modifications and test Company systems
for the year 2000. The modifications process of all significant
applications is substantially complete, and the Company intends to complete
modifications this summer and continue to conduct testing through the end of
1999.
The Company is also communicating with third party vendors to determine
their compliance with the Year 2000 issue. The Company can provide no
assurance that the systems of third parties will be in compliance by the turn
of the century. The inability of the Company to complete modifications and
the failure of third party vendors to complete compliance with the Year 2000
issue, or both, could have a material adverse effect on the Company's ability
to perform essential business tasks which could have a material adverse
effect on the Company's business.
Item 2. Management's Discussion and Analysis or Plan of Operation.
PLAN OF OPERATION.
The Company has not generated any significatant revenues from operations
during the last two calendar years. The Company's plan of operation for the
next 12 months is to continue to actively manufacture, market and distribute
the HydroMaid-TM-.
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 the world's first and only, totally
water-powered garbage disposal.
The HydroMaid is able to process foods that conventional electric
disposals cannot. The HydroMaid is environmentally safe, quiet, and has
ninety percent fewer parts than electric disposals. The HydroMaid uses
common household water pressure to oscillate five stainless steel blades.
The HydroMaid uses normal household water pressure from the cold water
line underneath the sink. Its multi-patented servomechanism harnesses the
household water pressure to push five stainless steel cutting blades 340
degrees. 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 servomechanism is able to automatically shift into a harmless oscillating
motion if silverware is accidentally dropped into the unit which allows the
user to avoid damage to both silverware and the disposal.
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The HydroMaid is an environmentally friendly product for a variety of
reasons. First, the cutting action of the HydroMaid produces such fine cut
waste that it easily flushes through the drainage system, promoting faster
decomposition as an aid to the environment. Second, because it uses no
electricity, the HydroMaid reduces the consumption of energy.
The Company intends to focus this year on three distribution methods.
RETAIL. The Company believes that retail customers will represent the
largest percentage of sales initially. Retail stores or outlets represent
customers that buy at wholesale prices and sell at retail prices. Large
retail outlets will be 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 customers that purchase
product at below wholesale and resell the product at wholesale prices.
Wholesalers will be contacted by the Company through mass mailings containing
sales and promotional materials. These materials will contain information
about the product, the Company, and resources available to stores. An
in-house sales team will follow up on these mailers and address the concerns
of the customers. Additionally, an electronic data interchange system will
be set up both on computer and via telephone in the future. This system will
allow the customer to order directly from the Company.
The Company will also use independent sales representatives. These
representatives will be expected to sell to the plumbing houses and
independent stores the Company cannot reach directly.
DIRECT. The direct market consists of customers who buy directly from
the Company at retail prices. Direct response advertising and the internet
represent the two main direct channels the Company plans to enter. The
Company has performed limited direct response marketing and plans to further
test and refine its direct marketing approach.
The Web site www.hydromaid.com provides detailed information on the
internet to interested consumers and allows them the opportunity to order
directly from the Company. The web site is currently being used and is
updated often to keep customers up to date with the most current information.
LIQUIDITY
During the next 12 months, the Company will need significant working
capital to fund its marketing efforts and to manufacture product. The
Company intends to obtain working capital from the sale of product and
through private investments made by third parties. The Company believes it
will need to raise between $4 to $5 million to cover its working capital
needs through the end of the year.
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RESEARCH AND DEVELOPMENT.
The Company has substantially completed research and development and does
not anticipate spending any material amounts on research and development
through 1999.
EMPLOYEES.
The Company has also previously hired the personnel it believes is
necessary to move from being a research and development company into a
marketing and distribution company. Accordingly, the Company does not
anticipate any material changes in the number of its employees through 1999.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 2. Changes in Securities.
None; not applicable.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
During the first quarter of 1999, the Company held a Special Meeting of
Stockholders on Wednesday, January 20, 1999 at the Company's business office
in Draper, Utah. Stockholders were asked to vote on a change of the
Company's name from Cherokee Minerals and Oil, Inc. to HydroMaid
International, Inc. The stockholders approved the name change with
17,801,606 votes for the change, none against, and the balance not being
voted. (See the 8-K and the 8-K/A1 Current Reports dated February 1, 1999,
which have been previously filed with the Securities and Exchange Commission
and which are incorporated herein by reference.)
Item 5. Other Information.
None; not applicable.
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Item 6. Exhibits and Reports on Form 8-K.
Exhibit
(a) Exhibits.* Number
None.
(b) Reports on Form 8-K.
Changes in Control of Registrant filed on October 16, 1998 inclusive of
Amendments A1-A5.
Change of Auditors filed on February 1, 1999.
* A summary of any Exhibit is modified in its entirety by reference to
the actual Exhibit.
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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: 5/17/99 By: /s/ Culley W. Davis
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President and Director
Date: 5/17/99 By: /s/ John W. Nagel
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Chief Financial Officer and
Director
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET OF HYDROMAID INTERNATIONAL, INC. AS OF MARCH 28, 1999
AND DECEMBER 31, 1998 AND THE ASSOCIATED CONSOLIDATED STATEMENT OF OPERATIONS
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> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 135,732
<SECURITIES> 0
<RECEIVABLES> 9,950
<ALLOWANCES> 0
<INVENTORY> 411,206
<CURRENT-ASSETS> 572,465
<PP&E> 663,231<F1>
<DEPRECIATION> 86,061
<TOTAL-ASSETS> 1,380,454
<CURRENT-LIABILITIES> 101,303
<BONDS> 28,863<F2>
0
0
<COMMON> 24,400
<OTHER-SE> 1,225,888
<TOTAL-LIABILITY-AND-EQUITY> 1,380,454
<SALES> 31,108
<TOTAL-REVENUES> 31,108
<CGS> 20,278
<TOTAL-COSTS> 20,278
<OTHER-EXPENSES> 777,508<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (766,678)
<INCOME-TAX> 0
<INCOME-CONTINUING> (766,678)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (766,678)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)<F4>
<FN>
<F1>Gross Investment in PP&E; i.e. before depreciation deduction
<F2>Note Payable
<F3>Operating Expenses 666,907; R&D 110,601
<F4>Dilutive effect less than reportable level.
</FN>
</TABLE>
