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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 September 30, 2000
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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
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)
1350 E. Draper Parkway
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): 12222 South 1000 East, Suite 1
Draper, Utah 84020
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, 2000: Common Stock - 26,886,538 shares
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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
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION 4
Item 1. Financial Statements: 4
Balance Sheets as of September 30, 2000 and December 31, 1999 5
Statements of Operations for the Three-month and Nine-month Periods Ended
September 30, 2000 and September 30, 1999. 6
Statements of Cash Flows for the Three-month and Nine-month Periods Ended
September 30, 2000 and September 30, 1999. 7
Notes to Financial Statements for the Three-month and Nine-month Periods
Ended September 30, 2000 and September 30, 1999. 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
</TABLE>
3
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The 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.
BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
UNAUDITED AUDITED
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 2,093,337 $ 2,901,758
Accounts receivable 194,263 71,261
Notes receivable 500,000 --
Inventory, net 999,532 905,924
Prepaid expenses and other assets 949,028 184,874
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Total Current Assets 4,736,160 4,063,817
Property and equipment, net 857,123 744,117
Patents, net of accumulated amortization of: 97,235 93,861
09/30/00 $153,717
12/31/99 $141,068
Advances to related parties 282,243 167,495
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TOTAL ASSETS $ 5,972,761 $ 5,069,290
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 133,720 $ 507,758
Stockholders' Equity
Common stock, par value $.001/ share, 30,000,000 shares authorized 26,887 26,807
09/30/2000: 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 (251,305) (4,567,408)
Accumulated deficit (12,008,208) (8,938,960)
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Total stockholders' equity 5,839,041 4,561,532
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,972,761 $ 5,069,290
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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HYDROMAID INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
UNAUDITED
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Sales $ 165,218 $ 74,732 $ 332,577 $ 145,449
Less returns and allowances (7,813) (1,204) (29,118) (1,842)
----------- ----------- ----------- -----------
157,405 73,528 303,459 143,607
Cost of sales 98,033 39,658 145,801 93,186
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Gross profit 59,372 33,870 157,658 50,421
Operating expenses
Selling and distribution expenses 221,517 237,931 829,129 715,689
General and administrative expenses 714,818 368,909 2,406,722 1,271,742
Research and development 56,984 70,697 157,646 265,077
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993,319 677,537 3,393,497 2,252,508
Loss before income tax benefit (933,947) (643,667) (3,235,839) (2,202,087)
Interest income 49,631 -- 166,591 --
Income tax benefit
Current -- -- -- --
Deferred 313,000 238,000 1,122,000 815,000
Less valuation allowance (313,000) (238,000) (1,122,000) (815,000)
----------- ----------- ----------- -----------
Net (loss) $ (884,316) $ (643,667) $(3,069,248) $(2,202,087)
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.03) $ (0.03) $ (0.11) $ (0.09)
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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HYDROMAID INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
UNAUDITED
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (884,316) $ (643,667) $(3,069,248) $(2,202,087)
Adjustments to reconcile net (loss) to net cash
used by operating activities:
Depreciation and amortization 62,612 51,245 170,775 123,175
Stock option and grant expense 330,981 36,199 978,602 91,299
Changes in operating assets and liabilities:
Accounts receivable (120,748) (46,339) (123,002) (56,831)
Inventory 39,750 (87,437) (93,608) (11,486)
Prepaid expenses and other assets (59,437) (35,707) (764,154) 59,982
Accounts payable and accrued expenses (153,407) 273,500 (374,038) (61)
----------- ----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (784,566) (452,206) (3,274,673) (1,996,009)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (30,646) (203,265) (271,131) (357,544)
Acquisition of patents -- (16,727) (16,023) (31,652)
Deposit on tooling and production -- 94,000 -- (236,000)
Issuance of note receivable (500,000) -- (500,000) --
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (530,646) (125,992) (787,154) (625,196)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable -- (1,689) -- (4,360)
Advances from related party (62,415) 572,190 (114,747) 744,357
Advances against notes payable (300,000) --
Proceeds from issuance of common stock 310,250 1,905,250
Proceeds from contribution of paid-in capital -- -- 3,368,155 --
----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (62,415) 580,751 3,253,408 2,645,247
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NET (DECREASE) INCREASE IN CASH (1,377,627) 2,553 (808,421) 24,042
CASH AT BEGINNING OF PERIOD 3,470,964 41,831 2,901,758 20,342
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 2,093,337 $ 44,384 $ 2,093,337 $ 44,384
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Deferred compensation -- beginning of period $ 564,286 $ 264,112 $ 1,211,907 $ 201,837
Add: Stock options granted, net of forfeitures -- -- -- 117,375
Deduct: Stock option and grant expense (330,981) (36,199) (978,602) (91,299)
----------- ----------- ----------- -----------
Deferred compensation -- end of period $ 233,305 $ 227,913 $ 233,305 $ 227,913
=========== =========== =========== ===========
</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-month and Nine-month Periods Ended September 30, 2000 and
September 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-Registered
Trademark- (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. In August 2000 the company relocated to a
new leased facility of approximately 5,000 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 an agreement with the Appliance
Division of General Electric Company ("GE") whereby GE will evaluate the
Product. On October 30, 2000, the Company agreed to extend the period for
evaluation of the product under the agreement with GE through December 31, 2000.
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
nine-month periods ended September 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 September 30, 2000 and for the three-month and
nine-month periods ended September 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
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thereto included in the Company's Form 10-KSB annual report for 1999 filed with
the Securities and Exchange Commission.
The results of operations for the three-month and nine-month periods ended
September 30, 2000 and 1999 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. NOTE RECEIVABLE
The Company issued a $500,000 note receivable for a period not to exceed 12
months, bearing an annual interest rate of 12%; interest is payable monthly. The
Company retains the option right to convert any portion of the note to common
stock of the borrowing company until the note matures.
3. INVENTORY
Inventory consists of the following at September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Components $ 547,905 $ 486,984
Finished goods 804,625 774,264
Finished goods on consignment 64,676 64,676
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1,417,206 1,325,924
Less valuation allowance (417,674) (420,000)
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$ 999,532 $ 905,924
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</TABLE>
At September 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.
4. 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 September 30, 2000. These
options are subject to periodic vesting. A total of 483,331 of the issued
options were vested and exercisable as of September 30, 2000, and an additional
62,500 became vested and exercisable on October 1, 2000. The weighted average
exercise price of the options exercisable at September 30, 2000 approximates
$3.74 per share.
5. STOCK-BASED COMPENSATION AND OTHER EXPENSES
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The Company entered into an agreement with Steve Young to retain his services
for a two-year period. 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 $887,000 for the three-month and nine-month periods ended
September 30, 2000, respectively.
Deferred compensation of approximately $86,000 at September 30, 2000 represents
the cost attributable to the services Mr. Young has agreed to provide for the
period October 1, 2000 to October 19, 2000. Such amount has been reported as a
deduction from stockholders' equity in the September 30, 2000 balance sheet.
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.
6. 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 September 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 $887,000 for the nine-months ended September
30, 2000. Such expense is not deductible for income tax reporting purposes.
The income tax benefit for the nine-months ended September 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%.
7. COMMITMENTS AND CONTINGENCIES
At September 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 indemnified the vendor in the amount of
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.
8. LIQUIDITY CONSIDERATIONS
As discussed in Note 1, the Company manufactures and markets the HydroMaid
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
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deficit for the nine-months ended September 30, 2000 was approximately
$3,300,000 on sales of approximately 1,800 units. However, management believes
that the Company will have sufficient cash to meet its obligations for the
next 12 months based upon its cash balance at September 30, 2000 of
approximately $2,100,000.
9. 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."
The weighted average number of common shares outstanding for the quarters ended
September 30, 2000 and 1999 were 26,886,538 and 24,536,239, respectively, and
for the nine-month periods ended September 30, 2000 and 1999, 26,853,345 and
24,416,974, 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.
10. CONCENTRATION OF CREDIT RISK
At September 30, 2000, one international customer accounted for approximately
74% of accounts receivable. The customer maintains a good payment history with
the Company and was within current credit terms.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Net sales for the three months ended September 30, 2000 were $157,405 compared
to $73,528 for the comparable period in 1999. Cost of sales increased to $98,033
compared to $39,658 for the comparable period in 1999. Net sales for the nine
months ended September 30, 2000 were $303,459 compared to $143,607 for the
comparable period in 1999. Cost of sales increased to $145,801 compared to
$93,186 for the comparable period in 1999.
The gross profit margin decreased from 46% for the three months ended September
30, 1999 to 38% for the comparable period in 2000. This decrease is due to a
charge of $45,200 to Cost of Goods sold for replacement of components with newer
designs. The Gross Profit Margin increased from 35% for the nine months ended
September 30, 1999 to 52% for the comparable period in 2000. This increase in
gross margin resulted from improved sourcing of materials and manufacturing of
the
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product. 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 $993,319 for the three months ended September 30, 2000
compared to $677,537 for the comparable period in 1999. They were $3,393,497 for
the nine months ended September 30, 2000 compared to $2,252,508 for the
comparable period in 1999. These cost increases are attributable to the Company
obtaining the services of Mr. Young as noted in Item 1 above and expanded
manufacturing, warehousing and selling/promotional activities to meet
anticipated demand.
The Company experienced a net loss before income tax benefit and corresponding
net loss per share of $884,316 and $0.03, respectively, for the three months
ended September 30, 2000, compared to a net loss before income tax benefit and
net loss per share of $643,667 and $0.03, respectively, for the comparable
period in 1999. The Company experienced a net loss before income tax benefit and
corresponding net loss per share of $3,069,248 and $0.11, respectively, for the
nine months ended September 30, 2000, compared to a net loss before income tax
benefit and net loss per share of $2,202,087 and $0.09, respectively, for the
comparable period in 1999.
LIQUIDITY
The Company presently has working capital to fund operations through the next 12
months. Cash on hand at September 30, 2000 totaled $2,093,337 compared to
$2,901,758 at December 31, 1999. Total assets increased to $5,972,761 at
September 30,2000 from $5,069,290 at December 31, 1999; while total liabilities
decreased to $133,720 at September 30, 2000 from $507,758 at December 31, 1999.
SUBSEQUENT EVENTS
The design of an atmospheric anti-syphon control valve that will meet both U.S.
and international backflow prevention requirements has been finalized. HydroMaid
along with the engineering expertise of a Boston based worldwide leader in
backflow prevention will have a working prototype on or before November 30,
2000.
The company continues to expand into international markets by announcing the
signing of distributorship agreements with companies representing the United
Kingdom and South Africa. Initial orders of 1,100 units have been placed by both
of these distributors. The Asian distributor based out of Japan continues to
aggressively market and sell the product. Another order in excess of 1,200 units
is expected prior to December 1, 2000.
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings.
None.
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.*
None.
(b) Reports on Form 8-K.
None.
* 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: 11/14/00 By: /s/ CULLEY W. DAVIS
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President and Director
Date: 11/14/00 By: /s/ JOHN W. NAGEL
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Chief Financial Officer and
Director
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