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U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
[ ] 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
HYDROMAID INTERNATIONAL, INC.
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(Exact name of Small Business Issuer in its Charter)
NEVADA 87-0575839
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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
(Former name, former address and former fiscal year, if changed since last
report): None
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:
June 30, 2000: Common Stock - 26,886,538 shares
DOCUMENTS INCORPORATED BY REFERENCE
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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
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION 4
Item 1. Financial Statements: 4
Condensed Balance Sheets as of June 30, 2000 and
December 31, 1999 5
Condensed Statements of Operations for the Three-month and Six-month
Periods Ended June 30, 2000 and June 30, 1999. 6
Condensed Statements of Cash Flows for the Three-month and Six-month
Periods Ended June 30, 2000 and June 30, 1999. 7
Notes to Condensed Financial Statements for the Three-month and
Six-month Periods Ended June 30, 2000 and June 30, 1999. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 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 12
SIGNATURES 13
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed 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 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, 1999 previously
filed with the Securities and Exchange Commission.
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HYDROMAID INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
Unaudited Audited
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 3,470,964 $ 2,901,758
Accounts receivable 73,514 71,261
Inventory, net 1,039,282 905,924
Prepaid expenses and other assets 889,590 184,874
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Total Current Assets 5,473,350 4,063,817
Property and equipment, net 884,527 744,117
Patents, net of accumulated amortization 101,797 93,861
Advances to related parties 219,827 167,495
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TOTAL ASSETS $ 6,679,501 $ 5,069,290
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 287,125 $ 507,758
Stockholders' Equity
Common stock, par value $.001/ share, 30,000,000 shares authorized 26,887 26,807
06/30/2000: 26,886,538 outstanding
12/31/1999: 26,807,000 outstanding
Additional paid-in capital 18,071,667 18,041,093
Subscriptions, stock options and deferred compensation (582,286) (4,567,408)
Accumulated deficit (11,123,892) (8,938,960)
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Total stockholders' equity 6,392,376 4,561,532
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,679,501 $ 5,069,290
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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HYDROMAID INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
UNAUDITED
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues
Sales $ 72,855 $ 37,839 $ 167,359 $ 70,717
Less returns and allowances (11,280) (638) (21,305) (638)
----------- ----------- ----------- -----------
61,575 37,201 146,054 70,079
Cost of sales 20,963 33,250 47,767 53,528
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Gross profit 40,612 3,951 98,287 16,551
Operating expenses
Selling and distribution expenses 283,988 301,420 607,612 477,760
General and administrative expenses 869,197 441,211 1,691,904 902,832
Research and development 57,039 53,063 100,663 194,380
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1,210,224 795,694 2,400,179 1,574,972
Loss before income tax benefit (1,169,612) (791,743) (2,301,892) (1,558,421)
Interest income 54,544 -- 116,960 --
Income tax benefit
Current -- -- -- --
Deferred 412,000 293,000 808,000 577,000
Less valuation allowance (412,000) (293,000) (808,000) (577,000)
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Net (loss) $(1,115,068) $ (791,743) $(2,184,932) $(1,558,421)
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.04) $ (0.03) $ (0.08) $ (0.06)
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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HYDROMAID INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
UNAUDITED
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(1,115,068) $ (791,743) $(2,184,932) $(1,558,421)
Adjustments to reconcile net (loss) to
net cash used by operating activities:
Depreciation and amortization 59,039 37,137 108,163 71,930
Stock option and grant expense 330,981 14,449 647,621 55,100
Changes in operating assets and liabilities:
Accounts receivable (37,227) (5,672) (2,253) (10,491)
Inventory (87,938) 7,576 (133,359) 75,951
Prepaid expenses (506,855) 6,056 (704,717) 15,689
Accounts payable and accrued expenses 5,484 (3,049) (220,632) (273,560)
----------- ----------- ----------- -----------
Net cash (used) by operating activities (1,351,584) (735,246) (2,490,109) (1,623,802)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (68,681) (46,889) (240,486) (154,279)
Acquisition of patents (4,436) (3,665) (16,023) (14,925)
Deposit on tooling and production -- (250,000) -- (250,000)
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Net cash (used) by investing activities (73,117) (300,554) (256,509) (419,204)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable -- (1,570) -- (2,671)
Advances from related party (445) 248,469 (52,331) 172,167
Advances against notes payable 300,000 300,000
Proceeds from issuance of common stock 395,000 1,595,000
Proceeds from contribution of paid-in capital 10,833 -- 3,368,155 --
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Net cash provided by financing activities 10,388 941,899 3,315,823 2,064,495
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NET INCREASE (DECREASE) IN CASH (1,414,312) (93,901) 569,206 21,489
CASH AT BEGINNING OF PERIOD 4,885,276 135,732 2,901,758 20,342
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CASH AT END OF PERIOD $ 3,470,964 $ 41,831 $ 3,470,964 $ 41,831
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Deferred compensation -- beginning of period $ 895,267 $ 278,561 $ 1,211,907 $ 201,837
Add: Stock options granted, net of forfeitures -- -- -- 117,375
Deduct: Stock option and grant expense (330,981) (14,449) (647,621) (55,100)
----------- ----------- ----------- -----------
Deferred compensation -- end of period $ 564,286 $ 264,112 $ 564,286 $ 264,112
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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HYDROMAID INTERNATIONAL, INC.
Notes to the Unaudited Condensed Financial Statements
For the Three-month and Six-month Periods Ended June 30, 2000 and June 30, 1999.
1. NATURE OF BUSINESS, REORGANIZATION AND BASIS OF PRESENTATION
NATURE OF BUSINESS
HydroMaid International, Inc. (the "Company") was incorporated in 1992 in the
State of Nevada and engages in the development, manufacture, and sale of a
patented water-powered garbage disposal known as the HydroMaid(R) (the
"Product"). Technological improvements and field-testing were completed in 1997,
and the Product was introduced to the market in 1998. The Company intends to
market the Product worldwide; however, its primary market to date has been the
United States. The Company operates from a leased facility of approximately
8,000 square feet near Salt Lake City, Utah. The majority of the Company's
manufacturing is performed by one contractor in China.
Under accounting principles generally accepted in the United States ("GAAP"),
the Company was classified as a development stage enterprise through December
31, 1998.
AGREEMENT WITH GENERAL ELECTRIC
On May 1, 2000, the Company entered into a six-month agreement with the
Appliance Division of General Electric Company ("GE") whereby GE will evaluate
the Product for a period of six months.
REORGANIZATION
In December of 1998, the Company's predecessor entity completed a reverse
acquisition with a publicly traded company; such merger is hereinafter referred
to as the "Reorganization."
BASIS OF PRESENTATION
The Company has prepared its financial statements for the three-month and
six-month periods ended June 30, 2000 and 1999 without audit by the Company's
independent auditors. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations, and cash flows of
the Company as of June 30, 2000 and for the three-month and six-month periods
ended June 30, 2000 and 1999 have been made. Such adjustments consist only of
normal recurring adjustments.
Certain note disclosures normally included in the Company's annual financial
statements prepared in accordance with GAAP have been condensed or omitted.
The accompanying condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Form 10-KSB annual report for 1999 filed with the Securities and Exchange
Commission.
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The results of operations for the three-month and six-month periods ended
June 30, 2000 are not necessarily indicative of the results to be expected
for the full year.
Certain amounts in the 1999 financial statements have been reclassified to
conform to their 2000 presentation.
2. INVENTORY
Inventory consists of the following at June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Components $ 547,905 $ 486,984
Finished goods 844,375 774,264
Finished goods on consignment 64,676 64,676
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1,456,956 1,325,924
Less valuation allowance (417,674) (420,000)
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$ 1,039,282 $ 905,924
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</TABLE>
At June 30, 2000 and December 31, 1999, the inventory valuation allowance
included approximately $385,000 resulting from write-downs for estimated
obsolescence created by design changes during the Product's development.
3. STOCK OPTIONS
The Company has issued stock options to purchase shares of common stock to
key employees and consultants. A total of 556,668 options exercisable at $.25
per share, 500,000 options exercisable at $5.50 per share and 167,500 options
exercisable at $5.00 per share are outstanding at June 30, 2000. These
options are subject to periodic vesting. A total of 420,834 of the issued
options were vested and exercisable as of June 30, 2000, and an additional
62,500 became vested and exercisable on July 1, 2000. The weighted average
exercise price of the options exercisable at June 30, 2000 approximates $3.48
per share.
4. STOCK-BASED COMPENSATION AND OTHER EXPENSES
The Company has entered into an agreement with Steve Young to retain his
services as a Director for a two-year period. Until recently, Mr. Young was a
quarterback for the San Francisco 49ers, a professional football team. Based on
the market price of the Company's common stock when the issuance of the 200,000
shares was authorized, the Company recorded compensation expense of
approximately $240,000 for the year ended December 31, 1999, and $300,000 and
$587,000 for the three-month and six-month periods ended June 30, 2000.
Deferred compensation of approximately $387,000 at June 30, 2000 represents the
cost attributable to the services Mr. Young has agreed to provide for the period
July 1, 2000 to October 19, 2000. Such amount has been reported as a deduction
from stockholders' equity in the June 30, 2000 balance sheet.
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The Company previously entered into an agreement with a manufacturer to issue an
additional 50,000 shares of the Company's common stock under certain conditions
over a three year period.
5. INCOME TAXES
For the period June 24, 1992 (inception) through December 31, 1998, the
Company was considered a start-up entity for federal and state income tax
purposes. As a result, research and development and start-up expenses were
capitalized during such period for tax purposes, while such costs were
expensed as incurred for financial reporting purposes. This item is the only
significant temporary difference at June 30, 2000 and December 31, 1999. In
addition, the Company recorded compensation expense related to stock issued
for services in the amounts of $240,000 for 1999 and $587,000 for the
six-months ended June 30, 2000. Such expense is not deductible for income tax
reporting purposes.
The income tax benefit for the six-months ended June 30, 2000 differs from the
amount that would result from applying the federal statutory rate to the pre-tax
loss because of state income tax at a rate of approximately 5%.
6. COMMITMENTS AND CONTINGENCIES
At June 30, 2000, the Company had outstanding commitments of approximately
$2,070,000 to purchase finished goods from a vendor in China. Because of the
agreement with GE discussed in Note 1, the vendor has agreed to suspend
production of certain units representing approximately $1,650,000 of such
commitment. The Company has advanced to the vendor approximately $840,000
for any loss that may result from vendor-owned components if such inventory
becomes obsolete due to a change in the Product's design.
7. LIQUIDITY CONSIDERATIONS
As discussed in Note 1, the Company manufactures and markets the HydroMaid(R)
water-powered garbage disposal. Since the introduction of the HydroMaid to
the marketplace in 1998, sales have not been sufficient to provide positive
operating cash flow. The Company's operating cash flow deficit for the year
ended December 31, 1999 was approximately $4,000,000 on sales of
approximately 2,000 units. However, management believes that the Company will
have sufficient cash to meet its obligations for the next twelve months based
upon its cash balance at June 30, 2000 of approximately $3,500,000.
8. LOSS PER COMMON SHARE
Loss per common and common equivalent share is based on the weighted average
number of shares of common stock and potential common stock (as retroactively
adjusted for the effect of the Reorganization) outstanding during the period in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
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The weighted average numbers of common shares outstanding for the quarters ended
June 30, 2000 and 1999 were 26,853,462 and 24,409,890, respectively, and for the
six-month periods ended June 30, 2000 and 1999, 26,836,566 and 24,356,354,
respectively.
As more fully described in the notes to the financial statements in the
Company's annual report on Form 10-KSB for 1999, securities that could
potentially dilute basic loss per share in the future were not included in the
diluted-loss-per-share computation because their effect is antidilutive.
9. SUBSEQUENT EVENTS
In July 2000, the Company announced completion of the design of a new
atmospheric anti-siphon device that will enable the HydroMaid disposal to
meet the back flow prevention requirements for plumbing codes in all 50
states. That same month the Company announced that its CEO, Culley W. Davis,
had traveled to Europe to meet with several potential distributors of its
product. The Company also announced that its Japanese distributor recently
placed its largest order to date for 650 HydroMaid units. While the volume of
international sales to date has been modest, the Company views these initial
contacts in Europe and sales in Japan as positive developments.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Net revenues for the three months ended June 30, 2000 were $61,575 compared
to $37,201 for the comparable period in 1999. Cost of sales decreased to
$20,963 for the three months ended June 30, 2000 compared to $33,250 for the
comparable period in 1999. Net revenues for the six months ended June 30,
2000 were $146,054 compared to $70,079 for the comparable period in 1999.
Cost of sales decreased to $47,767 for the six months ended June 30, 2000
compared to $53,528 for the comparable period in 1999.
The gross profit margin increased from 11% for the three months ended June
30, 1999 to 66% for the comparable period in 2000, and from 24% for the six
months ended June 30, 1999 to 67% for the comparable period in 2000. This
increase in gross margins resulted from improved sourcing of materials and
manufacturing of the Product in China. The Company anticipates its gross
margin will remain at the higher level as the product design further
stabilizes and volume sales begin to be realized.
Operating expenses were $1,210,224 for the three months ended June 30, 2000
compared to $795,694 for the comparable period in 1999. Such expenses were
$2,400,179 for the six months ended June 30, 2000 compared to $1,574,972 for
the comparable period in 1999. These cost increases are attributable to the
Company obtaining the services of Mr. Young as a Director as noted in Item 1
above and expanded manufacturing,
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warehousing and selling/promotional activities to meet anticipated demand.
The Company experienced a net loss and corresponding loss per share of
$1,115,068 and $0.04, respectively, for the three months ended June 30, 2000,
compared to a net loss and loss per share of $791,743 and $0.03,
respectively, for the comparable period in 1999. The Company experienced a
net loss and corresponding loss per share of $2,184,932 and $0.08,
respectively, for the six months ended June 30, 2000, compared to a net loss
and loss per share of $1,558,421 and $0.06, respectively, for the comparable
period in 1999.
LIQUIDITY
The Company presently has sufficient working capital to fund operations
through the next twelve months. Cash on hand at June 30, 2000 totaled
$3,470,964 compared to $2,901,758 at December 31, 1999. Total assets
increased to $6,679,501 at June 30,2000 from $5,069,290 at December 31, 1999;
while total liabilities decreased to $287,125 at June 30, 2000 from $507,758
at December 31, 1999.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
See previous reports.
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.*
None.
(b) Reports on Form 8-K.
None.
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* 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: 8/18/00 By: /s/ CULLEY W. DAVIS
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Chief Executive Officer and Director
Date: 8/18/00 By: /s/ JOHN W. NAGEL
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Chief Financial Officer and
Director
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