<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 March 31, 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
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HYDROMAID INTERNATIONAL, INC.
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(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
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:
March 31, 2000: Common Stock - 26,843,206 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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<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements: 3
Balance Sheets as of March 31, 2000 and
December 31, 1999 4
Statements of Operations for the Three Months ended
March 31, 2000 and March 31, 1999 5
Statements of Cash Flows for the Three Months ended
March 31, 2000 and March 31, 1999 6
Notes to Financial Statements for the Three Months
ended March 31, 2000 and March 31, 1999 7
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
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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2
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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.
3
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HYDROMAID INTERNATIONAL, INC.
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
UNAUDITED AUDITED
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<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH $ 4,885,276 $ 2,901,758
ACCOUNTS RECEIVABLE 36,287 71,261
INVENTORY, NET 951,344 905,924
PREPAID EXPENSES AND OTHER ASSETS 382,735 184,874
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TOTAL CURRENT ASSETS 6,255,642 4,063,817
PROPERTY AND EQUIPMENT, NET 870,680 744,117
PATENTS, NET OF ACCUMULATED AMORTIZATION OF: 101,567 93,861
03/31/2000 $144,950
12/31/1999 $141,068
ADVANCES TO RELATED PARTIES 219,381 167,495
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TOTAL ASSETS $ 7,447,270 $ 5,069,290
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 281,640 $ 507,758
STOCKHOLDERS' EQUITY
COMMON STOCK, par value $.001/ share, 30,000,000 shares authorized 26,843 26,807
03/31/2000: 26,843,206 outstanding
12/31/1999: 26,807,000 outstanding
ADDITIONAL PAID-IN CAPITAL 18,060,878 18,041,093
SUBSCRIPTIONS, STOCK OPTIONS AND DEFERRED COMPENSATION (913,267) (4,567,408)
ACCUMULATED DEFICIT (10,008,824) (8,938,960)
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TOTAL STOCKHOLDERS' EQUITY 7,165,630 4,561,532
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,447,270 $ 5,069,290
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
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HYDROMAID INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2000 AND MARCH 31, 1999
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
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<S> <C> <C>
REVENUES
SALES $ 94,505 $ 32,878
LESS RETURNS AND ALLOWANCES (10,025) -
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84,480 32,878
COST OF SALES 26,804 20,278
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GROSS PROFIT 57,676 12,600
OPERATING EXPENSES
SELLING AND DISTRIBUTION EXPENSES 323,623 176,340
GENERAL AND ADMINISTRATIVE EXPENSES 822,708 461,621
RESEARCH AND DEVELOPMENT 43,624 141,317
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1,189,955 779,278
LOSS BEFORE INCOME TAX BENEFIT (1,132,279) (766,678)
INTEREST INCOME 62,415 -
INCOME TAX BENEFIT (EXPENSE)
CURRENT - -
DEFERRED (90,000) (40,000)
LESS CHANGE IN VALUATION ALLOWANCE 90,000 40,000
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NET (LOSS) $ (1,069,864) $ (766,678)
============= =============
BASIC AND DILUTED LOSS PER SHARE $ (0.04) $ (0.03)
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
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HYDROMAID INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2000 AND MARCH 31, 1999
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (1,069,864) $ (766,678)
Adjustments to reconcile net (loss) to net cash used by operating
activities:
Depreciation and amortization 49,124 34,793
Stock option and grant expense 316,640 40,651
Changes in operating assets and liabilities:
Accounts receivable 34,973 (4,819)
Inventory (45,421) 68,375
Prepaid expenses (197,861) 9,633
Accounts payable and accrued expenses (226,116) (270,511)
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NET CASH (USED) BY OPERATING ACTIVITIES (1,138,525) (888,557)
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (171,804) (107,389)
Acquisition of patents (11,588) (11,261)
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NET CASH (USED) BY INVESTING ACTIVITIES (183,392) (118,650)
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable - (1,101)
Advances from related party (51,886) (76,302)
Proceeds from issuance of common stock 3,357,322 1,200,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 3,305,435 1,122,597
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NET INCREASE (DECREASE) IN CASH 1,983,518 115,390
CASH AT BEGINNING OF PERIOD 2,901,758 20,342
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CASH AT END OF PERIOD $ 4,885,276 $ 135,732
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Deferred compensation -- beginning of period $ 1,211,907 $ 201,837
Add: Stock options granted, net of forfeitures - 117,375
Deduct: Stock option and grant expense (316,640) (40,651)
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Deferred compensation -- end of period $ 895,267 $ 278,561
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
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HYDROMAID INTERNATIONAL, INC.
Notes to the Financial Statements
For the Three Months Ended March 31, 2000 and March 31, 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. 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 an 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 quarters ended
March 31, 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 March 31, 2000 and for the quarters ended March 31, 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 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.
The results of operations for the quarters ended March 31, 2000 and 1999 are
not necessarily indicative of the results to be expected for the full year.
RECLASSIFICATIONS
Certain amounts in the 1999 financial statements have been reclassified to
conform to their 2000 presentation.
7
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2. INVENTORY
Inventory consists of the following at March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Components $ 513,705 $ 486,984
Finished goods 790,637 774,264
Finished goods on consignment 64,676 64,676
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1,369,018 1,325,924
Less valuation allowance (417,674) (420,000)
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$ 951,344 $ 905,924
================ ================
</TABLE>
At March 31, 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 600,000 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 currently issued. These options are
subject to periodic vesting. A total of 401,667 of the issued options were
vested and exercisable as of March 31, 2000, and an additional 62,500 became
vested and exercisable on April 1, 2000. The weighted average exercise price
of the options exercisable at March 31, 2000, approximates $2.82 per share.
4. STOCK-BASED COMPENSATION AND OTHER EXPENSES
The Company has entered into an agreement with Steve Young ("Young") to
retain his services as a Director for a two-year period. Young is 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 to Young was authorized, the Company recorded compensation
expense of approximately $240,000 for the year ended December 31, 1999 and
$286,000 for the quarter ended March 31, 2000.
Deferred compensation of approximately $687,000 at March 31, 2000 represents
the cost attributable to the services Young has agreed to provide for the
period April 1, 2000 to October 19, 2000. Such amount has been reported as a
deduction from stockholders' equity in the March 31, 2000 balance sheet.
The Company entered into an agreement with a manufacturer to issue an
additional 50,000 shares of the Company's common stock (at no cost to the
recipient) 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 March 31, 2000 and December 31, 1999. In
addition, in 1999 the Company recorded
8
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compensation expense of approximately $240,000 related to stock issued for
services. Such expense is not deductible for income tax reporting purposes.
The income tax expense for the quarter ended March 31, 2000 principally
represents the tax effect of the estimated temporary difference (see
preceding paragraph) which reversed during such period. The previously
reported income tax benefit of $284,000 for the quarter ended March 31, 1999
has been restated to reflect income tax expense of $40,000, based on a change
in estimated start-up expenses deferred at December 31, 1998 for income tax
reporting purposes. Because of the 100% valuation allowance on the related
deferred tax asset, such restatement did not affect the net loss reported for
the quarter ended March 31, 1999.
6. COMMITMENTS AND CONTINGENCIES
At March 31, 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 $240,000 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-Registered Trademark- 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 year ending December 31, 2000 based upon its cash balance at March
31, 2000 of approximately $4,900,000.
8. COMMON STOCK ISSUED WITH WARRANTS
In December 1999, the Company agreed to accept an equity investment from a
group of investment funds associated with Bain Capital ("Bain") to purchase
certain restricted stock of the Company in a private offering. Pursuant to
the related agreement, 750,000 common shares were issued to Bain. Because the
Company received payment for such shares in the quarter ended March 31, 2000,
the 750,000 shares were reported as subscribed stock at December 31, 1999 and
as issued common stock at March 31, 2000.
In January 2000, the Company received payment for the 750,000 subscribed
common shares at a price of $4.44 per share and simultaneously issued
1,000,000 detached stock-purchase warrants at a price of $0.01 per warrant.
Each warrant entitles the owner, on or before January 21, 2005, to (a)
purchase one share of Company stock at a price of $7.50 per share or (b)
convert the warrant directly to common shares, using a formula based on the
then current market price of the Company's stock.
The warrants discussed above (and any stock issued upon their exercise or
conversion) have not been registered under the Securities Act. Thus, such
warrants and any stock issued as a result thereof are restricted securities
under Federal securities laws.
9
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Based on the Black-Scholes stock option pricing model, the warrant conversion
price per unit, the market price of the Company's stock, and certain
assumptions, management has estimated that the issue-date fair value of such
warrants approximates $2,000,000. Such amount has been reported as subscribed
warrants at December 31, 1999 and as issued warrants at March 31, 2000.
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 March 31, 2000 and 1999 approximated 26,820,000 and 24,302,000,
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
BUSINESS.
The Company's plan of operation for the next 12 months is to continue to
actively manufacture, market, and distribute the HydroMaid-TM- water-powered
garbage disposal. Additionally, 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 for a period of six months.
During 1999, HydroMaid worked to solidify its manufacturing capabilities in
the U.S. and overseas. To meet anticipated demand and to lower production
costs, the Company established a manufacturing facility in China to
supplement its domestic manufacturing. The operation in China is capable of
producing and shipping up to 30,000 disposal units per month.
During the first quarter of 2000, the Company attended two of the largest
annual kitchen industry tradeshows and plans to continue to actively market
the HydroMaid throughout 2000. The Company raised additional capital during
the first quarter of 2000 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 through the next year.
PRINCIPAL PRODUCT.
The Company is engaged in the development, manufacturing, marketing, sale,
and distribution of a patented product called the HydroMaid. The
10
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HydroMaid is a water-powered garbage disposal which uses household water
pressure to push five stainless steel cutting blades. These blades oscillate
and cut through waste that normally damages or creates problems for
traditional electric disposals such as chicken bones, potato peels, avocado
pits, walnut shells, and fibrous foods like celery.
RESULTS OF OPERATIONS.
Net sales for the three months ended March 31, 2000 were $84,480 compared to
$32,878 for the comparable period in 1999. Cost of sales increased to $26,804
compared to $20,278 for the comparable period in 1999.
The gross profit margin increased from 38% for the three months ended March
31, 1999 to 68% for the comparable period in 2000. This increase in gross
margins resulted from improved sourcing of materials and manufacturing of the
product. The Company anticipates its gross margin will continue to increase
as the product design further stabilizes and volume sales begin to be
realized.
Operating expenses were $1,189,955 for the three months ended March 31, 2000
compared to $779,278 for the comparable period in 1999. 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 $1,069,864 and $0.04, respectively, for
the three months ended March 31, 2000, compared to a net loss before income
tax benefit and net loss per share of $766,678 and $0.03, respectively, for
the comparable period in 1999.
LIQUIDITY.
The Company presently has working capital to fund operations through the next
twelve months. Cash on hand at March 31, 2000 totaled $4,885,276 compared to
$2,901,758 at December 31, 1999. Total assets increased to $7,447,270 at
March 31,2000 from $5,069,290 at December 31, 1999; while total liabilities
decreased to $281,640 at March 31, 2000 from $507,758 at December 31, 1999.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
During January 2000, a group of investment funds associated with Bain Capital
purchased a total of 750,000 shares of restricted Common Stock and warrants
to purchase 1 million additional shares of Common Stock at the price of $7.50
per share, for the aggregate purchase price of $3,337,500. The warrants
expire on January 21, 2005.
11
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Between June and November 1999, the Company raised $4,800,000 through the
private sale of 1,200,000 shares of its common stock to accredited investors.
The shares of common stock offered through the private placement were not
registered under any federal or state securities laws; rather, the shares
were offered pursuant to available exemptions from registration.
The shares of common stock offered through the private offerings during 1999
and 2000 were not registered under the Securities Act of 1933 ("the Act")
based upon an exemption available under Section 4(2), including Rule 506
under Regulation D. The facts the Company relied upon to make the exemption
available include: the Company placed the Offering itself; only accredited
investors were permitted to invest in the Offering; the Company's current
business and financial information was made available to all investors; no
form of general solicitation or general advertising was used; and each
investor was asked to represent that he or she was purchasing the shares for
himself or herself with no view to resell the shares, he or she was aware the
securities have not been registered under the Act, and he or she was aware
that a legend regarding the restriction on transfer of the shares would
appear on each certificate issued pursuant to the 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 were used to
fund operations.
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.
(a) Exhibits.*
None.
(b) Reports on Form 8-K.
* A summary of any Exhibit is modified in its entirety by reference to the
actual Exhibit.
12
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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: 5/10/00 BY: /s/ CULLEY W. DAVIS
------------------------------------
President and Director
Date: 5/10/00 BY: /s/ JOHN W. NAGEL
------------------------------------
Chief Financial Officer and
Director
13
<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. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,885,276
<SECURITIES> 0
<RECEIVABLES> 36,287
<ALLOWANCES> 0
<INVENTORY> 951,344
<CURRENT-ASSETS> 6,225,642
<PP&E> 1,118,725<F1>
<DEPRECIATION> 248,045
<TOTAL-ASSETS> 7,447,270
<CURRENT-LIABILITIES> 281,640
<BONDS> 0
0
0
<COMMON> 26,843
<OTHER-SE> 7,138,787
<TOTAL-LIABILITY-AND-EQUITY> 7,447,270
<SALES> 84,480
<TOTAL-REVENUES> 84,480
<CGS> 26,804
<TOTAL-COSTS> 26,804
<OTHER-EXPENSES> 1,189,955<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (62,415)
<INCOME-PRETAX> (1,069,864)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,069,864)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,069,864)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)<F3>
<FN>
<F1>GROSS INVESTMENT IN PP&E, I.E., BEFORE DEPRECIATION DEDUCTION
<F2>SELLING & DIST 323,623; G&A 822,708; R&D 43,624
<F3>DILUTIVE EFFECT LESS THAN REPORTABLE LEVEL
</FN>
</TABLE>
